SCHEDULE 14A
(RULE 14a-101)
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:
<Table>
[ ] 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 Section 240.14a-12
</Table>
AVIALL, 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:
-----------------------------------------------------------------------
[AVIALL LOGO]
Aviall, Inc.
Notice of 2002 Annual Meeting
and Proxy Statement
[AVIALL LOGO]
April 22, 2002
Dear Aviall Stockholders:
You are cordially invited to attend our Annual Meeting of Stockholders to
be held at 1:00 p.m. (local time) on Friday, June 14, 2002, at the Four Seasons
Resort and Club, 4150 N. MacArthur Blvd., Irving, Texas 75038. All stockholders
of record as of April 19, 2002 are entitled to vote at the Annual Meeting.
The proposals to be acted upon at the meeting include the election of
directors, the approval of an amendment to the Aviall, Inc. 1998 Stock Incentive
Plan to increase the number of shares of common stock authorized to be issued
under the plan, the approval of an amendment to the Aviall, Inc. Amended and
Restated 1998 Directors Stock Plan to increase the number of shares of common
stock authorized to be issued under the plan, and the ratification of the
appointment of PricewaterhouseCoopers LLP as the Company's independent auditors
for 2002. I hope you will carefully read these proposals, which are described in
the accompanying Proxy Statement, and vote your shares for each proposal.
It is important that your shares be represented at the meeting.
Accordingly, even if you plan to attend the meeting in person, please complete,
sign, date and promptly return the enclosed proxy card in the postage-prepaid
envelope. If you do attend the meeting and wish to vote in person, you may
withdraw your proxy and vote in person. Your prompt consideration is greatly
appreciated.
Sincerely,
/s/ PAUL E. FULCHINO
Paul E. Fulchino
Chairman, President and Chief
Executive Officer
AVIALL, INC.
2750 Regent Boulevard
DFW Airport, Texas 75261
(972) 586-1000
NOTICE OF 2002 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 14, 2002
To the Stockholders of Aviall, Inc.:
The 2002 Annual Meeting of Stockholders (the "Annual Meeting") of Aviall,
Inc. (the "Company") will be held at 1:00 p.m. (local time) on Friday, June 14,
2002, at the Four Seasons Resort and Club, 4150 N. MacArthur Blvd., Irving,
Texas 75038, for the following purposes:
(i) To elect two directors to serve until the 2005 Annual Meeting of
Stockholders and until their successors are duly elected and qualified;
(ii) To approve an amendment to the Aviall, Inc. 1998 Stock Incentive
Plan to increase the number of shares of the Company's common stock
authorized for issuance under the plan by 1,050,000 shares;
(iii) To approve an amendment to the Aviall, Inc. Amended and Restated
1998 Directors Stock Plan to increase the number of shares of the Company's
common stock authorized for issuance under the plan by 100,000 shares;
(iv) To ratify the appointment by the Board of Directors of
PricewaterhouseCoopers LLP as the Company's independent auditors for the
fiscal year ending December 31, 2002; and
(v) To transact such other business as may properly come before the
Annual Meeting or any adjournment(s) or postponement(s) thereof.
The Board of Directors has fixed the close of business on April 19, 2002 as
the record date for the determination of stockholders entitled to notice of, and
to vote at, the Annual Meeting or any adjournment(s) or postponement(s) thereof.
Only stockholders of record on April 19, 2002 are entitled to notice of, and to
vote at, the Annual Meeting or any adjournment(s) or postponement(s) thereof. A
complete list of stockholders entitled to vote at the Annual Meeting will be
available for examination at the Company's principal offices located at 2750
Regent Boulevard, DFW Airport, Texas 75261, for a period of ten days prior to
the Annual Meeting. This list of stockholders will also be available for
inspection at the Annual Meeting and may be inspected by any stockholder for any
purpose germane to the Annual Meeting.
By Order of the Board of Directors,
/s/ JEFFREY J. MURPHY
Jeffrey J. Murphy
Senior Vice President, Law & Human
Resources,
Secretary and General Counsel
Dallas, Texas
April 22, 2002
YOUR VOTE IS IMPORTANT. EVEN IF YOU PLAN TO ATTEND THE ANNUAL MEETING IN PERSON,
WE REQUEST THAT YOU COMPLETE, SIGN, DATE AND PROMPTLY RETURN THE ENCLOSED PROXY
CARD AND THUS ENSURE THAT YOUR SHARES WILL BE REPRESENTED AT THE ANNUAL MEETING
IF YOU ARE UNABLE TO ATTEND. IF YOU DO ATTEND THE ANNUAL MEETING AND WISH TO
VOTE IN PERSON, YOU MAY WITHDRAW YOUR PROXY AND VOTE IN PERSON. YOUR PROMPT
COOPERATION IS GREATLY APPRECIATED.
PROXY STATEMENT
AVIALL, INC.
2750 Regent Boulevard
DFW Airport, Texas 75261
SOLICITATION AND VOTING OF PROXIES
This Proxy Statement is being provided to you in connection with the
solicitation of proxies to be voted at the 2002 Annual Meeting of Stockholders
(the "Annual Meeting") of Aviall, Inc. (the "Company") to be held at 1:00 p.m.
(local time) on Friday, June 14, 2002, at the Four Seasons Resort and Club, 4150
N. MacArthur Blvd., Irving, Texas 75038. Proxies are being solicited on behalf
of the Board of Directors of the Company. This Proxy Statement and the enclosed
proxy card are first being mailed on or about April 30, 2002 to holders of the
Company's capital stock entitled to vote at the Annual Meeting.
A Proxy Committee will vote the shares represented by each proxy card
returned to the Company. Jacqueline K. Collier, Jeffrey J. Murphy and Cornelius
Van Den Handel are the members of the Proxy Committee. Where a stockholder's
proxy specifies a choice with respect to a matter, the Proxy Committee will vote
such stockholder's shares in accordance with the instructions contained therein.
IF NO SPECIFICATION IS MADE, THE SHARES WILL BE VOTED FOR THE ELECTION OF THE
DIRECTOR NOMINEES IDENTIFIED HEREIN, FOR THE APPROVAL OF THE AMENDMENT TO THE
AVIALL, INC. 1998 STOCK INCENTIVE PLAN, FOR THE APPROVAL OF THE AMENDMENT TO THE
AVIALL, INC. AMENDED AND RESTATED 1998 DIRECTORS STOCK PLAN AND FOR THE
RATIFICATION OF THE APPOINTMENT OF PRICEWATERHOUSECOOPERS LLP AS THE COMPANY'S
INDEPENDENT AUDITORS FOR THE FISCAL YEAR ENDING DECEMBER 31, 2002.
Any stockholder who executes and returns a proxy may revoke such proxy at
any time before it is voted by (i) notifying the Secretary of the Company in
writing at 2750 Regent Boulevard, DFW Airport, Texas 75261, (ii) granting a
subsequent proxy or (iii) appearing in person and voting at the Annual Meeting.
Attendance at the Annual Meeting will not in and of itself constitute revocation
of a proxy.
Stockholders may vote on the matters to be considered at the Annual Meeting
by any one of the following means:
- Vote by Mail. To vote by mail, complete, sign, and date the enclosed
proxy card and return it in the enclosed envelope.
- Vote by Telephone. To vote by telephone, (i) call the following
telephone number toll-free on a touch-tone telephone: 1-877-779-8683,
(ii) when requested, enter your 14-digit Voter Control Number that is
located on your proxy card above your name and (iii) follow the
instructions given to you over the telephone.
- Vote over the Internet. To vote over the Internet, (i) visit
http://www.eproxyvote.com/avl, (ii) when requested, provide your 14-digit
Voter Control Number that is located on your proxy card above your name
and (iii) follow the instructions given to you over the Internet.
- Vote in Person. To vote in person, (i) attend the Annual Meeting in
person and (ii) follow the instructions given to you at the Annual
Meeting.
The Company has retained Morrow & Co., Inc. to aid in the solicitation of
proxies. It is estimated that the cost of these services will be approximately
$7,500 plus expenses. The Company will bear the entire cost of soliciting
proxies in the accompanying form. In addition to the solicitation of proxies by
mail, proxies may also be solicited by telephone, telegram or personal
communication by officers and regular employees of Morrow & Co., Inc. and the
Company.
PROCEDURES FOR THE ANNUAL MEETING
The presence, in person or by proxy, of the holders of a majority of the
votes entitled to vote at the Annual Meeting will constitute a quorum for the
transaction of business at the Annual Meeting. If a quorum is not present in
person or represented by proxies at the Annual Meeting, the stockholders
entitled to vote who are present in person or represented by proxies will have
the power to adjourn the Annual Meeting from time to time, without notice (other
than by announcement at the Annual Meeting) until a quorum is present in person
or represented by proxies. At any such adjourned meeting at which a quorum is
present in person or represented by proxies, any business may be transacted that
might have been transacted at the original meeting. If, and when, a quorum is
present in person or represented by proxies at the Annual Meeting or any
adjournment thereof, the stockholders present in person and represented by
proxies at the Annual Meeting may continue to transact business until
adjournment, notwithstanding the withdrawal of stockholders from the Annual
Meeting who were counted in determining the existence of a quorum.
Business at the Annual Meeting will be conducted in accordance with the
procedures determined by the Chairman of the Annual Meeting and will be limited
to matters properly brought before the Annual Meeting pursuant to the procedures
set forth in the Company's Amended and Restated By-Laws. Those procedures
include the requirement that any stockholder who desires either to bring a
stockholder proposal before the Annual Meeting or to nominate a person for
election as a director at the Annual Meeting give written notice to the Company
with respect to the proposal or nominee prior to the Annual Meeting. The
Chairman of the Annual Meeting may decline to acknowledge any stockholder
proposal or any nomination for director not made in accordance with these
procedures.
The Board of Directors does not anticipate that any matters other than
those described in this Proxy Statement will be brought before the Annual
Meeting. If, however, other matters are properly brought before the Annual
Meeting, proxies will be voted by the Proxy Committee in accordance with their
judgment.
RECORD DATE AND VOTING STOCK
April 19, 2002 has been set as the record date for the purpose of
determining the stockholders entitled to notice of, and to vote at, the Annual
Meeting. Only holders of the Company's common stock, par value $0.01 per share
("Common Stock"), and Series D Senior Convertible Participating Preferred Stock,
par value $0.01 per share ("Series D Preferred Stock"), at the close of business
on the record date are entitled to vote at the Annual Meeting or any adjournment
or postponement of the Annual Meeting.
As of the record date there were 18,608,210 shares of Common Stock
outstanding. Each outstanding share of Common Stock is entitled to one vote for
each director to be elected and upon each other matter to be brought before the
stockholders at the Annual Meeting. As of the record date there were 46,123
shares of Series D Preferred Stock outstanding. Each outstanding share of Series
D Preferred Stock is entitled to the number of votes equal to the number of
whole shares of Common Stock into which such share of Series D Preferred Stock
is convertible on the record date (an aggregate of 7,952,241 votes at the Annual
Meeting) with respect to the election of each director and any other matter
properly brought before the stockholders at the Annual Meeting.
A majority of the votes cast at the Annual Meeting is required to approve
each of the actions proposed to be taken at the Annual Meeting. Abstentions and
broker non-votes will be included in determining the number of shares of Common
Stock and Series D Preferred Stock present in person or represented by proxy at
the Annual Meeting for purposes of determining whether a quorum exists.
With regard to the election of directors, votes may be cast in favor or
withheld. Votes that are withheld will be excluded entirely from the vote and
will have no effect. With regard to Proposal 2 and Proposal 3, the total vote
cast must represent over 50.0% in interest of all securities of the Company
entitled to vote on each proposal. Abstentions and broker non-votes with respect
to Proposal 2, Proposal 3 and Proposal 4 will not be deemed to be cast.
2
PARTICIPANTS IN THE AVIALL EMPLOYEES' SAVINGS PLAN
If a stockholder is a participant in the Aviall, Inc. Employees' Savings
Plan and holds shares of Common Stock in the savings plan, the proxy card
represents the number of whole shares of Common Stock held for the benefit of
the participant in the savings plan as well as any shares of Common Stock
registered in the participant's name. Thus, a proxy card for such a participant
grants a proxy for shares of Common Stock registered in the participant's name
and serves as a voting instruction for the trustees of the savings plan or the
account in the participant's name. Information as to the voting instructions
given by individuals who are participants in the savings plan will not be
disclosed to the Company.
3
ELECTION OF DIRECTORS
(PROPOSAL NO. 1)
The Board of Directors currently consists of eight members, consisting of
three classes of two directors serving staggered three-year terms and two
directors who are appointed by the holders of the Series D Preferred Stock.
Richard J. Schnieders and Bruce N. Whitman are currently serving terms that
expire at the Annual Meeting. The Board of Directors has nominated Messrs.
Schnieders and Whitman to continue to serve as directors for a term expiring at
the Company's 2005 Annual Meeting of Stockholders.
The following table presents information concerning persons nominated for
election as directors of the Company and for those directors whose terms of
office continue after the Annual Meeting.
THE PERSONS NAMED IN THE PROXY WILL VOTE FOR THE NOMINEES LISTED BELOW
EXCEPT WHERE AUTHORITY HAS BEEN WITHHELD.
NOMINEES FOR DIRECTOR
FOR A TERM EXPIRING AT THE ANNUAL MEETING IN 2005
- --------------------------------------------------------------------------------
<Table>
RICHARD J. SCHNIEDERS Mr. Schnieders, age 54, has been a director of the Company
President and Chief Operating since 1997. He has served as President of SYSCO Corporation
Officer of SYSCO Corporation since July 2000 and as its Chief Operating Officer since
January 2000. He served as an Executive Vice President of
Chairman -- Audit Committee SYSCO from January 1999 to July 2000. Mr. Schnieders is a
Member -- Compensation and director of SYSCO, where he has been employed since 1982.
Nominating Committee
BRUCE N. WHITMAN Mr. Whitman, age 68, has been a director of the Company
Executive Vice President of since 1998. He has been Executive Vice President and a
FlightSafety International, Inc. director of FlightSafety International, Inc. since 1962. Mr.
Whitman is also a director of FlightSafety Boeing Training
Member -- Audit Committee International L.L.C., Megadata Corporation, the
Chairman -- Compensation and Congressional Medal of Honor Foundation and the Smithsonian
Nominating Committee National Air and Space Museum. He is a member of the Board
of Governors of the Civil Air Patrol.
- ----------------------------------------------------------------------------------------------
</Table>
4
DIRECTORS WHOSE TERMS EXPIRE AT THE ANNUAL MEETING IN 2003
- --------------------------------------------------------------------------------
<Table>
PAUL E. FULCHINO Mr. Fulchino, age 55, has been a director of the Company
Chairman, President and Chief since 2000. He has served as Chairman of the Board of
Executive Officer of Aviall Directors, President and Chief Executive Officer of the
Company since January 2000. From 1996 to 1999, Mr. Fulchino
was President and Chief Operating Officer of B/E Aerospace,
Inc., a leading supplier of aircraft cabin interior products
and services. From 1990 to 1996, Mr. Fulchino served in the
capacities of President and Vice Chairman of Mercer
Management Consulting, Inc., an international general
management consulting firm. Mr. Fulchino is a director of
The Sports Authority, Inc., a member of the President's
Advisory Board of Embry-Riddle Aeronautical University, and
a director of several privately held companies.
ARTHUR E. WEGNER Mr. Wegner, age 64, has been a director of the Company since
Retired Executive Vice President 2000. He served as Executive Vice President of Raytheon
of Raytheon Company Company and Chairman of Raytheon Aircraft Company, a
subsidiary of Raytheon Company, from January 2000 until his
Member -- Audit Committee retirement in August 2000. Prior to assuming that position,
Member -- Compensation and Mr. Wegner was an Executive Vice President of Raytheon
Nominating Committee Company and Chairman and Chief Executive Officer of Raytheon
Aircraft Company.
- ----------------------------------------------------------------------------------------------
</Table>
DIRECTORS WHOSE TERMS EXPIRE AT THE ANNUAL MEETING IN 2004
- --------------------------------------------------------------------------------
<Table>
DONALD R. MUZYKA Dr. Muzyka, age 63, has been a director of the Company since
Retired President and Chief 1994. He served as President and Chief Executive Officer of
Executive Officer of Special Special Metals Corporation from October 1996 until his
Metals Corporation retirement in August 2000. He served as President and Chief
Operating Officer of Special Metals Corporation from January
Member -- Audit Committee 1990 to October 1996.
Member -- Compensation and
Nominating Committee
JONATHAN M. SCHOFIELD Mr. Schofield, age 61, has been a director of the Company
Retired Chairman of Airbus since 2001. From December 1992 until his retirement in March
Industrie of North America 2001, Mr. Schofield served as Chairman of the Board of
Airbus Industrie of North America, Inc., a subsidiary of
Member -- Audit Committee Airbus Industrie, a manufacturer of large civil aircraft.
Member -- Compensation and From December 1992 until March 2000, he also served as Chief
Nominating Committee Executive Officer of Airbus Industrie of North America, Inc.
Mr. Schofield is a director of B/E Aerospace, Inc. and SS&C
Technologies, Inc.
- ----------------------------------------------------------------------------------------------
</Table>
5
DIRECTORS WHO SERVE AS DESIGNEES OF THE SERIES D PREFERRED STOCK
- --------------------------------------------------------------------------------
<Table>
PETER J. CLARE Mr. Clare, age 37, has been a director of the Company since
Managing Director of The Carlyle December 2001. He currently serves as a Managing Director of
Group The Carlyle Group. From 1997 to 1999, Mr. Clare served as a
Principal of The Carlyle Group, and from 1995 to 1997 as a
Member -- Compensation and Vice President of The Carlyle Group. Mr. Clare was
Nominating Committee previously with First City Capital, a private investment
group, and also worked at Prudential-Bache. Mr. Clare is a
director of KorAm Bank, United Defense Industries, Inc. and
several privately held companies.
ALLAN M. HOLT Mr. Holt, age 50, has been a director of the Company since
Managing Director of The Carlyle December 2001. He currently serves as a Managing Director of
Group The Carlyle Group. Mr. Holt joined The Carlyle Group in
1991. Mr. Holt was previously with Avenir Group, a private
Member -- Compensation and investment and advisory group. From 1984 to 1987, Mr. Holt
Nominating Committee was Director of Planning and Budgets at MCI Communications
Corporation. Mr. Holt is a director of United Defense
Industries, Inc. and several privately held companies.
- ----------------------------------------------------------------------------------------------
</Table>
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF EACH OF THE
NOMINEES FOR DIRECTOR NAMED ABOVE.
6
BOARD OF DIRECTORS AND COMMITTEES OF THE BOARD OF DIRECTORS
BOARD OF DIRECTORS. Pursuant to the terms of the sale of the Company's
Series D Preferred Stock, the number of directors comprising the Board of
Directors shall not exceed eight. The holders of Common Stock have the right to
elect six directors. The current members of the Board of Directors elected by
the holders of Common Stock are Messrs. Fulchino, Schnieders, Schofield, Wegner,
Whitman and Dr. Muzyka. Mr. Schofield was elected by the members of the Board of
Directors to fill a vacancy on the Board of Directors in January 2001.
For so long as at least 4,511 shares of the Series D Preferred Stock are
outstanding, the holders of Series D Preferred Stock have the exclusive right to
designate two directors, acting by written consent and without a meeting of the
holders of Common Stock. Messrs. Clare and Holt currently serve on the Board of
Directors as the designees of the Series D Preferred Stock. The Company
anticipates that the holders of Series D Preferred Stock will again designate
these two individuals to serve as directors by written consent contemporaneously
with the Annual Meeting.
Pursuant to the terms of Aviall Services, Inc.'s senior unsecured notes due
2007, a representative selected by J. H. Whitney Mezzanine Fund, L.P. and its
affiliates and a representative selected by Blackstone Mezzanine Partners L.P.
and its affiliates have the right to attend the meetings of the Board of
Directors as observers and all executive and committee meetings of the Board of
Directors as observers.
During 2001, the Board of Directors held eight meetings. During 2001, each
director attended at least 75% of the meetings held by the Board of Directors
and the respective committees of the Board of Directors of which such director
was a member during the period he was a member of the Board of Directors in
2001.
AUDIT COMMITTEE. The current members of the Audit Committee are Messrs.
Schnieders (Chairman), Schofield, Wegner, Whitman and Dr. Muzyka. The Audit
Committee met three times in 2001. The Board of Directors adopted a written
charter for the Audit Committee on May 15, 2000. The Audit Committee maintains
responsibility for reviewing the Company's financial reporting process on behalf
of the Board of Directors. Accordingly, the Audit Committee is responsible for
recommending an accounting firm to serve as the Company's independent auditors,
reviewing the annual audit of the Company, reviewing audit and any nonaudit fees
paid to the Company's independent auditors, reviewing the scope and results of
internal audit activities and reviewing compliance with the Company's conflict
of interest and business ethics policies as well as compliance with major
regulatory requirements. The Audit Committee reports its findings and
recommendations to the Board of Directors for appropriate action.
COMPENSATION AND NOMINATING COMMITTEE. The current members of the
Compensation and Nominating Committee are Messrs. Whitman (Chairman), Clare,
Holt, Schnieders, Schofield, Wegner and Dr. Muzyka. During 2001, the
Compensation and Nominating Committee met five times. The Compensation and
Nominating Committee supervises the Company's compensation policies, administers
incentive plans, reviews officers' salaries and bonuses, approves significant
changes in employee benefits and recommends to the Board of Directors such other
forms of compensation as it deems appropriate. The Compensation and Nominating
Committee also considers nominations for prospective members of the Board of
Directors.
The Compensation and Nominating Committee considers nominees recommended by
other directors, stockholders and management who provide the Board of Directors
with information with respect to a suggested candidate for membership on the
Board of Directors. Written nominations by stockholders for directors will be
considered, provided such written nominations are received by the Secretary of
the Company at the Company's principal offices pursuant to timely advance
written notice in accordance with the Company's Amended and Restated By-Laws
(not less than 70 days nor more than 90 days prior to the first anniversary of
the previous year's annual meeting, subject to certain exceptions) and contain
all information specified in the Company's Amended and Restated By-Laws,
including the identity and address of the nominating stockholder, the class and
number of shares of capital stock which are owned by such stockholder and all
information regarding the proposed nominee that would be required to be included
in a proxy statement soliciting proxies for the proposed nominee. The Company's
Amended and Restated By-Laws also provide that all members of the Compensation
and Nominating Committee shall be independent directors who are not otherwise
affiliated with the Company.
7
COMPENSATION OF DIRECTORS
Directors who are not employees of the Company are entitled to receive an
annual retainer of $24,375 (the "Annual Retainer"), plus $1,000 for each meeting
of the Board of Directors and/or a committee thereof that the respective
director attended. Directors who are employees of the Company or any of its
subsidiaries do not receive any fees for serving on the Board of Directors or
any committees thereof. Directors are also reimbursed for expenses incurred in
attending meetings of the Board of Directors or any committees thereof.
Directors who are not employees of the Company are eligible to participate
in the Aviall, Inc. Amended and Restated 1998 Directors Stock Plan (the
"Directors Stock Plan"). Under the Directors Stock Plan, each eligible director
may make an election to receive shares of restricted Common Stock in lieu of the
Annual Retainer. All eligible directors participated in the Directors Stock Plan
during 2001. The number of shares of Common Stock granted to a participant in
the Directors Stock Plan is the nearest number of whole shares of Common Stock
which can be purchased for $30,000 (the "Share Value"), based on the mean of the
highest and lowest sale price for the Common Stock on the grant date as reported
on the New York Stock Exchange. In the event that there is an increase or
decrease in the Annual Retainer, the Share Value adjusts automatically so that
the ratio between the Share Value and the Annual Retainer is maintained. Under
the Directors Stock Plan, shares of Common Stock are granted automatically on
the first New York Stock Exchange trading day in July of any calendar year to
each eligible director who has elected to participate in the Directors Stock
Plan at least six months prior to that date.
A director who receives a grant of shares of Common Stock pursuant to the
Directors Stock Plan is entitled to receive dividends on and to vote such
shares. A director's ownership rights in such shares do not vest until six
months after the date of grant and then only if the director has continuously
served on the Board of Directors during such six month period. However, a
participating director who has completed a full term of service prior to the end
of the six month period following the date of grant, or whose service during
such six month period was interrupted due to death or disability, will be vested
in a pro rata number of such shares.
Further, under the Directors Stock Plan, non-employee directors are
eligible to receive options to purchase up to 3,000 shares of Common Stock on
the first New York Stock Exchange trading day of July in each calendar year.
Each grant of options to purchase shares of Common Stock pursuant to the
Directors Stock Plan becomes exercisable in full on a date or dates not less
than six months nor more than five years from the date of grant, so long as the
director has served continuously on the Board of Directors during such period.
However, in the event of a Change in Control (as defined in the Directors Stock
Plan), all grants of options to purchase shares of Common Stock pursuant to the
Directors Stock Plan shall become immediately exercisable. On July 2, 2001, each
of Dr. Muzyka and Messrs. Schnieders, Schofield, Wegner and Whitman were granted
options to purchase 3,000 shares of Common Stock at an exercise price of $10.65.
The options have a 10-year term and vest on July 2, 2002.
8
SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table presents information known to the Company about the
beneficial ownership of the Common Stock as of March 16, 2002 by (i) each of the
named executive officers of the Company; (ii) each director and nominee for
director of the Company; and (iii) all of the directors and executive officers
as of March 16, 2002 as a group. For purposes of this Proxy Statement, Paul E.
Fulchino, Charles M. Kienzle, Dan P. Komnenovich, Bruce Langsen and Jeffrey J.
Murphy are referred to as the "named executive officers" of the Company.
The number and percentage of shares of the Common Stock beneficially owned
is determined under the rules of the Securities and Exchange Commission (the
"SEC") and is not necessarily indicative of beneficial ownership for any other
purpose. Under these rules, beneficial ownership includes any shares of Common
Stock for which a person has sole or shared voting power or investment power and
also any shares of Common Stock underlying options, warrants or convertible
securities that are exercisable or convertible by that person within 60 days of
March 16, 2002.
Unless otherwise indicated in the footnotes, each person listed in the
following table has sole voting power and investment power over the shares of
Common Stock listed as beneficially owned by that person. Percentage of
beneficial ownership is based on 26,385,794 shares of Common Stock outstanding
on March 16, 2002, assuming the conversion of all outstanding shares of Series D
Preferred Stock into 7,777,584 shares of Common Stock.
Unless otherwise indicated in the footnotes, the address for each listed
person or entity is c/o Aviall, Inc., 2750 Regent Boulevard, DFW Airport, Texas
75261.
<Table>
<Caption>
OPTION
OWNED SHARES SHARES OF TOTAL SHARES OF PERCENTAGE OF
OF COMMON COMMON COMMON STOCK COMMON STOCK
NAME STOCK(1) STOCK(2) BENEFICIALLY OWNED BENEFICIALLY OWNED
- ---- ------------ --------- ------------------ ------------------
Paul E. Fulchino(3).................. 101,666 374,583 476,249 1.8%
Peter J. Clare(4).................... -- -- -- *
Allan M. Holt(4)..................... -- -- -- *
Donald R. Muzyka..................... 18,569 3,000 21,569 *
Richard J. Schnieders................ 17,623 3,000 20,623 *
Jonathan M. Schofield................ -- -- -- *
Arthur E. Wegner..................... 2,816 3,000 5,816 *
Bruce N. Whitman..................... 62,563 3,000 65,563 *
Charles M. Kienzle(5)................ 40,193 203,996 244,189 *
Dan P. Komnenovich(6)................ 30,068 34,817 64,885 *
Bruce Langsen(7)..................... 36,808 194,390 231,198 *
Jeffrey J. Murphy(8)................. 43,851 205,830 249,681 *
All current directors and executive
officers as a group (16 persons)... 420,697 1,422,609 1,843,306 6.6%
</Table>
- ---------------
* Less than one percent
(1) Represents shares of Common Stock owned by such individuals, including
shares owned pursuant to the Aviall, Inc. Employees' Savings Plan and the
Directors Stock Plan.
(2) Represents shares that may be acquired within 60 days of March 16, 2002,
through the exercise of stock options.
(3) Includes 38,966 shares of restricted Common Stock for which Mr. Fulchino has
sole voting power and no investment power.
(4) The address of this person is c/o The Carlyle Group, 1001 Pennsylvania
Avenue, N.W., Suite 220 South, Washington D.C. 20004-2505.
9
(5) Includes 14,317 shares of restricted Common Stock for which Mr. Kienzle has
sole voting power and no investment power.
(6) Includes 20,008 shares of restricted Common Stock for which Mr. Komnenovich
has sole voting power and no investment power.
(7) Includes 19,803 shares of restricted Common Stock for which Mr. Langsen has
sole voting power and no investment power.
(8) Includes 18,115 shares of Common Stock held jointly by Mr. Murphy and his
spouse. Mr. Murphy has shared voting and investment power with respect to
these shares. Also includes 14,953 shares of restricted Common Stock for
which Mr. Murphy has sole voting power and no investment power.
10
The following table sets forth information regarding the number and
percentage of shares of Common Stock and Series D Preferred Stock held by all
persons and entities who are known by the Company to beneficially own five
percent or more of the Company's outstanding Common Stock or Series D Preferred
Stock. The information regarding beneficial ownership of Common Stock by the
entities identified below is included in reliance on reports filed with the SEC
by such entities, except that the percentage is based upon the Company's
calculations made in reliance upon the number of shares of Common Stock reported
to be beneficially owned by such entity in such report and the number of shares
of Common Stock and Series D Preferred Stock outstanding on March 16, 2002.
<Table>
<Caption>
AMOUNT AND NATURE OF AMOUNT AND NATURE OF
BENEFICIAL OWNERSHIP OF PERCENT BENEFICIAL OWNERSHIP OF PERCENT
BENEFICIAL OWNER COMMON STOCK OF CLASS SERIES D PREFERRED STOCK OF CLASS
---------------- ----------------------- -------- ------------------------ --------
TCG Holdings, L.L.C.(1), (2), (3) 8,040,084 30.2% 45,110 100%
Dimensional Fund Advisors, Inc.(4) 1,403,100 5.3% -- --
</Table>
- ---------------
(1) TCG Holdings, L.L.C. and certain affiliates beneficially own 8,040,084
shares of Common Stock by virtue of their beneficial ownership of shares of
Series D Preferred Stock and warrants exercisable for Common Stock. Based
upon (i) 38,596 shares of Series D Preferred Stock owned of record by
Carlyle Partners III, L.P., (ii) 3,257 shares of Series D Preferred Stock
owned of record by CP III Coinvestment, L.P., (iii) 2,255 shares of Series D
Preferred Stock owned of record by Carlyle High Yield Partners, L.P., (iv)
1,002 shares of Series D Preferred Stock owned of record by Carlyle-Aviall
Partners II, L.P. and (v) a warrant exercisable for 262,500 shares of Common
Stock held by Carlyle High Yield Partners, L.P.
(2) TC Group III, L.P. is the sole general partner of Carlyle Partners III,
L.P., CP III Coinvestment, L.P. and Carlyle-Aviall Partners II, L.P. TC
Group III, L.L.C. is the sole general partner of TC Group III, L.P. TCG High
Yield, L.L.C. is the sole general partner of Carlyle High Yield Partners,
L.P. TCG High Yield Holdings, L.L.C. is the sole managing member of TCG High
Yield, L.L.C. TC Group, L.L.C. is the sole managing member of TC Group III,
L.L.C. and TCG High Yield Holdings, L.L.C. TCG Holdings, L.L.C. is the sole
managing member of TC Group, L.L.C. Accordingly, (i) TC Group III, L.P. and
TC Group III, L.L.C. each may be deemed to be a beneficial owner of shares
of Common Stock and Series D Preferred Stock owned of record by each of
Carlyle Partners III, L.P., CP III Coinvestment, L.P. and Carlyle-Aviall
Partners II, L.P.; (ii) TCG High Yield, L.L.C. and TCG High Yield Holdings,
L.L.C. each may be deemed to be a beneficial owner of shares of Common Stock
and Series D Preferred Stock owned of record by Carlyle High Yield Partners,
L.P. and (iii) TC Group, L.L.C. and TCG Holdings, L.L.C. each may be deemed
to be a beneficial owner of the shares of Common Stock and Series D
Preferred Stock owned of record by each of Carlyle Partners III, L.P., CP
III Coinvestment, L.P., Carlyle-Aviall Partners II, L.P. and Carlyle High
Yield Partners, L.P. William E. Conway, Jr., Daniel A. D'Aniello and David
M. Ruberstein are managing members of TCG Holdings, L.L.C. and, in such
capacity, may be deemed to share beneficial ownership of shares of Common
Stock beneficially owned by TCG Holdings, L.L.C. Such individuals expressly
disclaim any such beneficial ownership. The principal address and principal
offices of TCG Holdings, L.L.C. and certain affiliates is c/o The Carlyle
Group, 1001 Pennsylvania Avenue, N.W., Suite 220 South, Washington, D.C.
20004-2505.
(3) TCG Holdings, L.L.C and certain affiliates beneficially own 45,110 shares of
Series D Preferred Stock. Reflects (i) 38,596 shares of Series D Preferred
Stock owned of record by Carlyle Partners III, L.P., (ii) 3,257 shares of
Series D Preferred Stock owned of record by CP III Coinvestment, L.P., (iii)
2,255 shares of Series D Preferred Stock owned of record by Carlyle High
Yield Partners, L.P. and (iv) 1,002 shares of Series D Preferred Stock owned
of record by Carlyle-Aviall Partners II, L.P.
(4) Dimensional Fund Advisors has sole voting and dispositive power with respect
to 1,403,100 shares of Common Stock. Dimensional Fund Advisors, an
investment advisor registered under Section 203 of the Investment Advisors
Act of 1940, furnishes investment advice to four investment companies
registered under the Investment Company Act of 1940, and serves as an
investment manager to certain other investment vehicles, including
commingled group trusts (the investment companies and investment vehicles
are collectively referred to as the "Portfolios"). The Portfolios own the
1,403,100 shares of Common Stock and Dimensional Fund Advisors disclaims
beneficial ownership of such securities. The business address of Dimensional
Fund Advisors Inc. is 1299 Ocean Avenue, 11th Floor, Santa Monica, CA 90401.
11
COMPENSATION AND NOMINATING COMMITTEE REPORT ON
EXECUTIVE COMPENSATION
INTRODUCTION
The Compensation and Nominating Committee (the "Compensation Committee")
has responsibility for the Company's executive compensation practices and
policies. The Compensation Committee is currently composed of seven outside
directors who are not officers or employees of the Company or its subsidiaries.
With the exception of the Directors Stock Plan, the members of the Compensation
Committee are not eligible to participate in the compensation plans or programs
administered by the Compensation Committee. Two members of the Compensation
Committee, Peter J. Clare and Allan M. Holt, joined the Board of Directors and
the Compensation Committee subsequent to the determination of the compensation
arrangements for the Company's executives for 2001 and, as a result, did not
participate in the Compensation Committee's deliberations regarding compensation
arrangements for 2001.
EXECUTIVE PAY POLICY
The Company's compensation programs are intended to attract, retain and
motivate the key people necessary to lead the Company to achieve its strategic
objective of increased stockholder value over the long term, reflecting the
Compensation Committee's belief that executive compensation should seek to align
the interests of the Company's executives with those of its stockholders. The
program utilizes three components: (a) base salary, (b) short-term incentives
and (c) long-term compensation in the form of both stock options and restricted
stock.
In establishing compensation, the Compensation Committee seeks to provide a
mix of base salary and short and long-term incentive compensation that provide
executives with a competitive total compensation package. The Compensation
Committee sets compensation in this manner to ensure that the Company's
compensation practices do not competitively disadvantage the Company in its
efforts to retain and attract key executives while maintaining its cost
structure. During 2001, the Compensation Committee reviewed the Company's
compensation structure, including the mix of base salary, short-term and
long-term incentive compensation.
BASE SALARY
Effective January 1, 2000, Paul E. Fulchino, was elected Chairman,
President and Chief Executive Officer of the Company. In connection with his
election to these positions, Mr. Fulchino entered into an employment agreement
with the Company. See "Compensation of Executive Officers -- Employment and
Severance Arrangements -- Employment Agreement." Pursuant to the terms of his
employment agreement, Mr. Fulchino's base salary for 2001 was $467,308. The base
salaries of each of the Company's executive officers for 2001 were increased
over their salaries for the prior year. However, for 2002 the Compensation
Committee decided to not increase Mr. Fulchino's base salary or any other
executive officer's base salary.
SHORT-TERM INCENTIVE PROGRAM
Under the 2001 short-term incentive program, Mr. Fulchino was eligible to
receive an aggregate bonus award of up to 100% of his base salary, subject to
the Company meeting specific objectives. Each of the Company's other executive
officers were eligible to earn a bonus award of up to either 120% or 150% of his
or her base salary. These bonus awards were payable two-thirds in cash and
one-third in shares of restricted Common Stock. In January 2002, Mr. Fulchino
was awarded a cash bonus of $248,413 and was granted 17,493 shares of restricted
Common Stock. The shares of restricted Common Stock vest on the third
anniversary of the grant date and are subject to the terms of the Aviall, Inc.
1998 Stock Incentive Plan. In connection with the Compensation Committee's
review of total compensation, the bonus opportunities for all executive officers
in 2002, including Mr. Fulchino, were set at 120% of base salary, and allocated
two-thirds in cash and one-third in shares of restricted Common Stock.
12
STOCK OPTIONS
The Aviall, Inc. 1998 Stock Incentive Plan is administered by the Board of
Directors and the Compensation Committee and is designed to provide incentive
compensation to the Company's executive officers and other key management
personnel. The grants are long-term incentives for further performance, which
are designed to align the interests of management with those of the Company's
stockholders.
Mr. Fulchino was granted options to purchase 125,000 shares of Common Stock
in January 2001. At the same time, the Compensation Committee also approved
stock option grants to the other executive officers and certain key employees.
The number of options granted to a specific individual was dependent upon such
individual's potential for promotion based upon the individual's current
performance and such individual's expected impact on the Company's future
performance. All options were granted at the fair market value at the time of
grant. One-third of these options vest each year commencing on the first
anniversary of the date of grant.
STOCK OWNERSHIP
At the Compensation Committee's recommendation in 1993, the Board of
Directors approved voluntary executive stock ownership guidelines for the
Company's chief executive officer, executive officers and certain other
executives. The guidelines are intended to encourage executives to become
substantial stockholders. Under the guidelines, the Company's chief executive
officer is expected to own shares of Common Stock with an aggregate value of
three times his or her then-current base salary within five years of appointment
to such position. Within such time period, all other executive officers are
expected to own shares of Common Stock with a value of 1.5 times their base
salary and the remaining executives are expected to own shares having a value of
one-half times their annual base salary. The Compensation Committee reviews the
progress of the Company's executives against these guidelines annually.
The Compensation Committee periodically reviews the potential impact of the
$1.0 million deduction limitation on executive compensation for the top five
executives which was implemented as part of the Omnibus Budget Reconciliation
Act of 1993. Due, in part, to the Company's existing net operating loss
carryforward, the Compensation Committee currently believes that no action is
necessary at this time. The Compensation Committee intends to continue to
evaluate the Company's potential exposure to the deduction limitation on an
annual basis.
Submitted by the members of the Compensation Committee of the Board of
Directors.
<Table>
Bruce N. Whitman Donald R. Muzyka Richard J. Schnieders
Chairman
</Table>
<Table>
Jonathan M. Schofield Arthur E. Wegner
</Table>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee of the Board of Directors are
Messrs. Whitman (Chairman), Clare, Holt, Schnieders, Schofield, Wegner and Dr.
Muzyka. None of the members of the Compensation Committee was at any time during
fiscal 2001, or at any other time, an officer or employee of the Company. No
member of the Compensation Committee serves as a member of the board of
directors or compensation committee of any entity that has one or more executive
officers serving as a member of the Company's Board of Directors or Compensation
Committee.
13
COMPENSATION OF EXECUTIVE OFFICERS
SUMMARY COMPENSATION TABLE
The following table sets forth the annual and long-term compensation paid
or accrued for the benefit of the named executive officers for services rendered
to the Company during its last three fiscal years.
<Table>
<Caption>
LONG-TERM
COMPENSATION AWARDS
ANNUAL COMPENSATION -----------------------
------------------------------------- RESTRICTED SECURITIES
OTHER ANNUAL STOCK UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(1) AWARDS(2) OPTIONS(3) COMPENSATION(4)
- --------------------------- ---- -------- -------- --------------- ---------- ---------- ---------------
Paul E. Fulchino(5) 2001 $467,308 $248,413 $ 797 $124,200 125,000 $ 3,083
Chairman, President and 2000 448,269 265,740 9,346 132,864 -- 11,878
Chief Executive Officer 1999 -- -- -- -- 500,000 --
of Aviall
Charles M. Kienzle 2001 177,692 110,931 -- 55,465 30,000 627
Senior Vice President, 2000 175,000 80,500 -- 40,250 25,000 400
Operations of Aviall 1999 175,000 -- -- -- 35,000 400
Services
Dan P. Komnenovich 2001 286,635 180,035 -- 90,014 55,000 805
Executive Vice President 2000 104,711 120,721 -- 45,354 50,000 400
of Aviall Services(6) 1999 -- -- -- -- -- --
Bruce Langsen 2001 181,731 127,092 -- 63,545 55,000 2,083
President of ILS 2000 175,000 134,313 -- 67,153 30,000 400
1999 175,000 208,442 -- -- 45,000 400
Jeffrey J. Murphy 2001 183,127 101,034 -- 50,517 25,000 1,242
Senior Vice President, 2000 177,000 96,996 -- 48,498 20,000 569
Law and Human 1999 177,000 -- -- -- 35,000 553
Resources of Aviall
</Table>
- ---------------
(1) Includes amounts reimbursed for the payment of income taxes (i) related to
insurance premiums paid by the Company in 2001 and taxable to Mr. Fulchino
and (ii) related to relocation expenses and insurance premiums paid by the
Company in 2000 and taxable to Mr. Fulchino.
(2) The grants of shares of restricted Common Stock in 2000 and 2001 were made
pursuant to the Company's annual incentive compensation program. That
program provides for incentive compensation to be paid two-thirds in cash
and one-third in shares of restricted Common Stock. The shares of
restricted Common Stock vest on the third anniversary of the grant date.
Recipients of shares of restricted Common Stock are entitled to receive
any dividends paid thereon. The dollar amounts shown for 2001 were based
upon a price of $7.10, the closing market price of the shares of Common
Stock on the New York Stock Exchange on January 29, 2002, the grant date.
The dollar amounts shown for 2000 were based upon a price of $6.1875, the
closing market price of the shares of Common Stock on the New York Stock
Exchange on January 19, 2001, the grant date. As of December 31, 2001, the
aggregate number of shares of restricted Common Stock and their value
(based upon a price of $7.55, the closing market price of Common Stock on
the New York Stock Exchange on December 31, 2001) held by each named
executive officer were as follows: Mr. Fulchino, 21,473 shares of
restricted Common Stock valued at $162,121; Mr. Kienzle, 7,379 shares of
restricted Common Stock valued at $55,711; Mr. Komnenovich, 7,330 shares
of restricted Common Stock valued at $55,342; Mr. Langsen, 16,239 shares
of restricted Common Stock valued at $122,604; and Mr. Murphy, 11,926
shares of restricted Common Stock valued at $90,041.
(3) Grants of stock options vest one-third each year commencing on the first
anniversary of the date of grant.
(4) For 2001 this column represents (i) premiums for group term life insurance
payments to each of the named executive officers in the following amounts:
Mr. Fulchino, $2,027; Mr. Kienzle, $227; Mr. Komnenovich, $405; Mr.
Murphy, $656; and Mr Langsen, $1,683, (ii) premiums for supplemental
long-term disability insurance payments in the amount of $1,056 for Mr.
Fulchino, (iii) contributions to
14
the Aviall, Inc. Employees' Savings Plan in the amount of $400 for each named
executive officer, other than Mr. Fulchino, who was not eligible to participate
in this plan in 2001 and (iv) premiums for compensatory split-dollar insurance
payments in the amount of $186 for Mr. Murphy. For 2000 this column
represents (i) moving expenses of $11,106 for Mr. Fulchino, (ii) premiums
for supplemental long-term disability insurance payments in the amount of
$772 for Mr. Fulchino, (iii) contributions to the Aviall, Inc. Employees'
Savings Plan in the amount of $400 for each named executive officer other
than Mr. Fulchino, who was not eligible to participate in this plan in 2000
and (iv) premiums for compensatory split-dollar insurance payments in the
amount of $169 for Mr. Murphy. For 1999 this column represents (i)
contributions to the Aviall, Inc. Employees' Saving Plan in the amount of
$400 for each named executive officer, other than Messrs. Fulchino and
Komnenovich, who were not eligible to participate in this plan in 1999 and
(ii) premiums for compensatory split-dollar insurance payments in the
amount of $153 for Mr. Murphy.
(5) Mr. Fulchino joined the Company in December 1999 and became Chairman,
President and Chief Executive Officer of the Company effective January 1,
2000. The stock option award granted to Mr. Fulchino in 1999 was made
pursuant to his employment agreement with the Company. See "Compensation
of Executive Officers -- Employment and Severance
Arrangements -- Employment Agreement."
(6) Mr. Komnenovich rejoined the Company in August 2000 as Executive Vice
President of Aviall Services, Inc.
EMPLOYMENT AND SEVERANCE ARRANGEMENTS
EMPLOYMENT AGREEMENT. The Company is a party to an employment agreement
(the "Employment Agreement") with Paul E. Fulchino pursuant to which Mr.
Fulchino serves as the Company's Chairman, President and Chief Executive
Officer. Under the Employment Agreement, Mr. Fulchino receives an annual base
salary of at least $450,000 and is eligible to receive incentive compensation of
not less than 100% of his base salary (although he is not guaranteed any
specific amount of incentive pay). Mr. Fulchino is also entitled to supplemental
term life insurance of $900,000, supplemental disability insurance with long
term disability benefits equal to 60% of his base salary, and other employee
benefits made available to the Company's senior executives. The Employment
Agreement has a three-year term, which expires on December 31, 2002. In the
event of an involuntary termination of his employment (other than for Cause (as
defined in the Employment Agreement) or his death or disability), Mr. Fulchino
would receive severance pay in an amount equal to the greater of two times his
then-current base salary or the base salary for the remainder of the term of the
Employment Agreement. Pursuant to the Employment Agreement, on December 21,
1999, Mr. Fulchino was granted options to purchase 500,000 shares of Common
Stock at an exercise price of $7.3125, the fair market value of the Common Stock
on the grant date. This option grant has a ten-year term and the options vest
one-third each year commencing on the first anniversary of the grant date. In
the event of a Change in Control (as defined in the Employment Agreement), all
unvested options would become fully vested.
SEVERANCE AGREEMENTS. The Company has entered into an Amended and Restated
Severance Agreement (a "Severance Agreement") with each of its executive
officers, including Mr. Fulchino. The Severance Agreements become operative only
upon a Change in Control (as defined in the Severance Agreements). The Severance
Agreements provide that if, within a two-year period following a Change in
Control (as defined in the Severance Agreements), the Company terminates the
employment of such executive officer for reasons other than death, disability or
Cause (as defined in the Severance Agreements), or the executive officer
terminates employment with the Company for Good Reason (as defined in the
Severance Agreements), the executive officer is entitled to receive a severance
payment in an amount equal to a multiple of two or three (depending upon the
terms of his individual Severance Agreement) times such executive officer's (a)
then-current base salary and (b) an amount equal to the greater of such
executive officer's (1) incentive compensation for the current fiscal year
(assuming the Company had reached target performance for that year) or (2)
incentive compensation paid or payable to the executive for the most recently
completed fiscal year. The executive officer is also entitled to continue to
receive health and life insurance benefits for a period of one year following
his or her termination upon a Change in Control (as defined in the Severance
Agreements). The Severance Agreements further provide that if any amount payable
thereunder or otherwise to the executive officer is determined to be an "excess
parachute payment" under the Internal Revenue Code,
15
such executive officer would be entitled to receive an additional payment (net
of income taxes) equal to the excise tax imposed under the Internal Revenue Code
on such payment.
SEVERANCE PAY PLAN. The Company maintains an Amended and Restated
Severance Pay Plan (the "Severance Pay Plan") for the benefit of all full-time
employees, including executive officers. The Severance Pay Plan provides that if
the Company terminates an eligible employee's employment for any reason other
than Cause (as defined in the Severance Pay Plan), the employee is entitled to
receive severance pay in an amount determined in accordance with the terms of
the Severance Pay Plan. For executive officers, the severance pay is an amount
equal to a multiple of one or two (as the case may be) times (a) the executive's
then-current base salary and (b) the greater of such executive officer's (1)
target incentive payment for the year in which his employment was terminated and
(2) incentive payment for the most recently completed fiscal year. Payments
under the Severance Pay Plan are made in installments (a one or two-year period
for executive officers) unless the employee's employment is terminated within
one year following a Change in Control (as defined in the Severance Pay Plan).
In that circumstance, the severance payment is made in a lump sum. The Severance
Pay Plan provides that in the event that an employee is terminated under
circumstances in which he is entitled to receive severance payment under any
other written agreement (including the Employment Agreement and the Severance
Agreements described in the preceding paragraphs), the employee is not entitled
to receive the benefits intended to be provided under the Severance Pay Plan.
16
OPTION GRANTS IN 2001
The following table provides information regarding the grant of stock
options to each of the named executive officers in 2001.
<Table>
<Caption>
INDIVIDUAL GRANTS
------------------------------------------------------ POTENTIAL REALIZABLE VALUE AT
NUMBER OF PERCENT OF ASSUMED ANNUAL RATES OF
SECURITIES TOTAL OPTIONS STOCK PRICE APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM(2)
OPTIONS EMPLOYEES IN PRICE PER EXPIRATION ------------------------------
NAME GRANTED(1) FISCAL 2001 SHARE DATE 5% 10%
- ---- ---------- ------------- --------- ---------- ------------ --------------
Paul E. Fulchino...... 125,000 18.91% $6.1875 01/19/11 $486,411 $1,232,660
Charles M. Kienzle.... 30,000 4.54% $6.1875 01/19/11 116,739 295,838
Dan P. Komnenovich.... 55,000 8.32% $6.1875 01/19/11 214,021 542,370
Bruce Langsen......... 55,000 8.32% $6.1875 01/19/11 214,021 542,370
Jeffrey J. Murphy..... 25,000 3.78% $6.1875 01/19/11 97,282 246,532
</Table>
- ---------------
(1) Each of the options shown in the table above vest one-third each year,
beginning on the first anniversary of the date of the grant. Of the options
granted in 2001 for (i) Mr. Fulchino, 48,483 were incentive stock options
and 76,517 were nonqualified stock options, (ii) Mr. Kienzle, 14,325 were
incentive stock options and 15,675 were nonqualified stock options, (iii)
Mr. Komnenovich, 20,538 were incentive stock options and 34,462 were
nonqualified stock options, (iv) Mr. Langsen, 17,878 were incentive stock
options and 37,122 were nonqualified stock options and (v) Mr. Murphy,
15,031 were incentive stock options and 9,969 were nonqualified stock
options.
(2) The potential realizable value set forth in the table above illustrates the
values that would be realized upon exercise of the option immediately prior
to the expiration of its term, assuming the specified compounded rates of
appreciation on the Common Stock over the term of the option. The use of the
assumed 5% and 10% annual rates of stock price appreciation is established
by the SEC and is not intended by the Company to forecast possible
appreciation of the price of the shares of Common Stock.
AGGREGATED OPTION EXERCISES IN 2001
AND DECEMBER 31, 2001 OPTION VALUES
The following table provides information regarding the exercise of options
by each of the named executive officers during 2001 and the number of
unexercised options held at December 31, 2001 by each of the named executive
officers.
<Table>
<Caption>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
DECEMBER 31, 2001 DECEMBER 31, 2001(1)
SHARES ACQUIRED VALUE --------------------------- ---------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- --------------- -------- ----------- ------------- ----------- -------------
Paul E. Fulchino........ -- -- 333,333 291,667 $79,167 $209,896
Charles M. Kienzle...... -- -- 174,096 58,333 -- 40,875
Dan P. Komnenovich...... -- -- 16,667 88,333 39,376 153,687
Bruce Langsen........... -- -- 151,240 90,000 -- 74,938
Jeffrey J. Murphy....... -- -- 179,247 50,000 -- 34,063
</Table>
- ---------------
(1) This value was based upon a per share price of $7.55, the closing price of
the Common Stock on December 31, 2001, multiplied by the number of shares of
Common Stock issuable upon exercise of these options.
17
RETIREMENT BENEFITS
The Company covers substantially all regular domestic full-time employees,
including executive officers, under the Aviall, Inc. Retirement Plan (the
"Retirement Plan"). Benefits payable under the Retirement Plan are based on an
employee's career earnings with the Company and its subsidiaries. At normal
retirement age of 65, a participant is entitled to a monthly pension benefit
payable for life. The annual pension benefit, when paid in the form of a life
annuity with no survivor's benefits, is generally equal to the sum of 1.45% of
the first $15,600 of compensation and bonus received, plus 1.85% of the portion
of the compensation and bonus in excess of $15,600 during each such year while a
participant in the Retirement Plan.
Benefits under the Retirement Plan vest at the earlier of the completion of
five years of credited service or upon reaching age 65. However, in the event of
a Change of Control (as defined in the Retirement Plan) all participants will be
fully vested and the term "accrued benefit" will include the value of early
retirement benefits for any participant age 45 or above or with 10 or more years
of service. These benefits are not subject to any reduction for Social Security
benefits or other offset amounts. An employee's pension benefits may be paid in
certain alternative forms having actuarially equivalent values.
The maximum annual benefit under a qualified pension plan is currently
$140,000 beginning at the Social Security retirement age, which is currently age
65. The maximum compensation and bonus that may be taken into account in
determining annual retirement accruals is currently $170,000. The Company
maintains a non-qualified, unfunded benefit plan, called the Aviall, Inc.
Benefit Restoration Plan (the "Benefit Restoration Plan"), which covers those
participants in the Retirement Plan, including those named below, whose benefits
are reduced under the Internal Revenue Code or other United States laws. A
participant in the Benefit Restoration Plan is entitled to a benefit equal to
the difference between (i) the amount of benefits that the participant would be
entitled to under the Retirement Plan if no statutory reductions applied to such
benefits and, if applicable, if Basic Compensation (as defined by the Retirement
Plan) included the value of any restricted stock rights awarded to the
participant under the Aviall, Inc. Bonus Plan; and (ii) the amount of benefits
the participant is entitled to under the Retirement Plan. Benefits under the
Benefit Restoration Plan are paid in the same manner, as of the same date and
subject to the same conditions as the benefits under the Retirement Plan.
However, in the event of a Change of Control (as defined in the Retirement
Plan), all participants will be fully vested for purposes of eligibility for
benefits under the Benefit Restoration Plan.
The following table sets forth estimated annual pension benefits under the
Retirement Plan and the Benefit Restoration Plan combined to each named
executive officer (in the form of a single life annuity) assuming such executive
officer remains continuously employed at current compensation levels until
retirement at the normal retirement date, which is the date on which such named
executive officer reaches age 65.
<Table>
<Caption>
NAME AMOUNT
- ---- -------
Paul E. Fulchino........................................... $98,830
Charles M. Kienzle......................................... 87,757
Dan P. Komnenovich......................................... 97,983
Bruce Langsen.............................................. 71,546
Jeffrey J. Murphy.......................................... 79,782
</Table>
18
STOCK PERFORMANCE GRAPH
The following graph compares the cumulative stockholder return on a share
of Common Stock versus the cumulative total return on the S&P 500 Stock Index
and the S&P SmallCap Aerospace/Defense Index. The comparison assumes $100 was
invested as of December 31, 1996 and all dividends were reinvested.
TOTAL SHAREHOLDER RETURNS
[PERFORMANCE GRAPH]
The chart above was plotted using the following data:
<Table>
<Caption>
COMPANY/INDEX 31-DEC-96 31-DEC-97 31-DEC-98 31-DEC-99 31-DEC-00 31-DEC-01
- ------------- --------- --------- --------- --------- --------- ---------
Aviall, Inc. $100 $161.48 $127.03 $ 88.51 $ 54.73 $ 81.62
S&P 500 $100 $133.36 $171.48 $207.56 $188.66 $166.24
S&P Smallcap Aerospace/Defense $100 $123.55 $149.85 $ 75.23 $ 77.17 $ 74.64
</Table>
19
APPROVAL OF AN AMENDMENT
TO THE AVIALL, INC. 1998 STOCK INCENTIVE PLAN
(PROPOSAL NO. 2)
On March 21, 2002, the Board of Directors adopted, subject to approval by
the Company's stockholders, an amendment to the Aviall, Inc. 1998 Stock
Incentive Plan, as amended (the "1998 Stock Incentive Plan"), to increase the
number of shares of Common Stock authorized for issuance under the 1998 Stock
Incentive Plan by 1,050,000 shares. As of March 31, 2002, 2,240,000 shares of
Common Stock were authorized for issuance pursuant to awards granted under the
1998 Stock Incentive Plan, of which an aggregate of 2,173,737 shares have been
issued or are issuable upon the exercise of outstanding awards, leaving 66,263
shares subject to issuance under the 1998 Stock Incentive Plan. If the proposed
amendment is approved by the Company's stockholders at the Annual Meeting, a
total of 3,290,000 shares of Common Stock would be authorized for issuance
pursuant to awards granted under the 1998 Stock Incentive Plan.
The Board of Directors believes that it is in the best interests of the
Company to attract and retain the services of experienced and knowledgeable
employees. The 1998 Stock Incentive Plan is designed to provide an incentive to
officers and other key employees of the Company and its subsidiaries and is
intended to align their interests with those of the Company's stockholders. In
order for the 1998 Stock Incentive Plan to continue to serve its purposes, the
Board of Directors has determined that an increase in the number of shares of
Common Stock authorized for issuance under the 1998 Stock Incentive Plan is
necessary and in the best interests of the Company's stockholders.
1998 STOCK INCENTIVE PLAN SUMMARY
GENERAL. The 1998 Stock Incentive Plan was approved by the Company's
stockholders at the Company's 1998 Annual Meeting of Stockholders. The 1998
Stock Incentive Plan affords the Board of Directors and the Compensation
Committee the ability to design management incentives that are responsive to the
Company's needs. The 1998 Stock Incentive Plan permits the grant of awards
consisting of incentive and/or non-qualified stock options exercisable for
shares of Common Stock ("Stock Options"), tandem and/or free-standing stock
appreciation rights exercisable for cash, shares of Common Stock or any
combination thereof ("Stock Appreciation Rights"), restricted shares of Common
Stock ("Restricted Shares"), deferred shares of Common Stock ("Deferred
Shares"), performance shares payable in cash, shares of Common Stock or any
combination thereof ("Performance Shares") and performance units payable in cash
or shares of Common Stock ("Performance Units").
SHARES OF COMMON STOCK AUTHORIZED FOR ISSUANCE. If the proposed amendment
is approved by the Company's stockholders, the number of shares of Common Stock
that may be issued or transferred (a) upon the exercise of Stock Options, (b)
upon the exercise of Stock Appreciation Rights, (c) as Restricted Shares, (d) as
Deferred Shares, (e) in payment of Performance Shares or Performance Units that
have been earned and (f) in payment of dividend equivalents paid with respect to
eligible awards made under the 1998 Stock Incentive Plan may not exceed
3,290,000 shares of Common Stock (subject to adjustment as provided in the 1998
Stock Incentive Plan) plus any shares of Common Stock relating to awards that
expire, are forfeited or are transferred as payment of the exercise price of
Stock Options (other than incentive stock options) or in satisfaction of any
withholding amounts payable upon exercise of Stock Options (other than incentive
stock options).
The aggregate number of shares of Common Stock actually issued or
transferred by the Company upon the exercise of incentive stock options may not
exceed 3,290,000 shares of Common Stock. Further, no participant may be granted
a number of Stock Options and Stock Appreciation Rights in any calendar year
which are, in the aggregate, exercisable for more than 300,000 shares of Common
Stock (subject to adjustment as provided in the 1998 Stock Option Plan). In no
event may a participant under the 1998 Stock Incentive Plan receive an award of
Performance Shares or Performance Units in any calendar year which have an
aggregate maximum value as of their respective dates of grant in excess of
$400,000 (subject to adjustment as provided in the 1998 Stock Incentive Plan).
20
ELIGIBILITY. Officers and key employees of the Company and its
subsidiaries, as well as any person who has agreed to serve in any such capacity
within 90 days of the date on which any award is granted, may be selected by the
Board of Directors to receive awards under the 1998 Stock Incentive Plan.
STOCK OPTIONS. Stock Options may be granted to a participant under the
1998 Stock Incentive Plan. Awards of Stock Options entitle a participant to
purchase shares of Common Stock at an exercise price which is not less than the
fair market value of such shares of Common Stock on the date such Stock Options
are granted. A participant may pay the exercise price of Stock Options (a) in
cash or by check acceptable to the Company on the date such options are
exercised; (b) by the actual or constructive transfer to the Company of shares
of Common Stock which are owned by the participant for a period of at least six
months prior to the date of exercise and which have a fair market value on the
date of exercise at least equal to the exercise price of such Stock Options; (c)
if permitted by the Board of Directors on or after the date such Stock Options
are granted, by the surrender of any other award (other than an award of
incentive Stock Options) under the 1998 Stock Incentive Plan which has a fair
market value on the date of exercise at least equal to the exercise price of
such Stock Options or (d) a combination of the foregoing. Any grant of Stock
Options may provide for deferred payment of the exercise price of such Stock
Options from the proceeds of sale through a bank or broker of some or all of the
shares of Common Stock to which the exercise relates.
The Board of Directors may, on or after the date of grant, provide for the
payment of dividend equivalents in respect of Stock Options (other than
incentive stock options) on a current, deferred or contingent basis or may
provide that such equivalents be credited against the exercise price of such
options.
No Stock Options shall be exercisable more than ten years after the date on
which they were granted. Each grant must specify the period of continuous
employment with the Company or any of its subsidiaries that is necessary before
Stock Options will become exercisable and may provide for the earlier exercise
of such Stock Options in the event of a Change in Control (as defined in the
1998 Stock Incentive Plan) or other similar transaction or event. Successive
grants of Stock Options may be awarded to a participant whether or not Stock
Options previously granted to such participant remain unexercised. The terms of
any grant of Stock Options may set forth certain Management Objectives (as
described in "Management Objectives" set forth below) which must be achieved as
a condition to the exercise of such options.
STOCK APPRECIATION RIGHTS. A tandem stock appreciation right is a right of
a participant, exercisable by surrendering the related Stock Option, to receive
from the Company an amount equal to 100%, or such lesser percentage as the Board
of Directors may determine, of the spread between the exercise price of the
related Stock Option and the trading price of shares of Common Stock at the
close of business on the date of exercise. Tandem stock appreciation rights may
be granted at any time prior to the exercise or termination of the related
non-qualified stock option, and must be granted, if at all, concurrently with
the grant of the related incentive stock option. A free-standing stock
appreciation right is a right of a participant to receive from the Company an
amount equal to 100%, or such lesser percentage as the Board of Directors may
determine, of the spread between the exercise price of the free-standing stock
appreciation right and the trading price of shares of Common Stock at the close
of business on the date of exercise.
Any grant of Stock Appreciation Rights may specify that any amount payable
upon exercise of such rights may be paid to the participant in cash, shares of
Common Stock or any combination of the foregoing, and such rights may either
grant to the holder thereof or retain in the Board of Directors the right to
elect among those alternatives. Any grant of Stock Appreciation Rights may also
specify that such rights may be exercised only upon a Change in Control (as
defined in the 1998 Stock Incentive Plan), or such grant may specify that such
rights may be exercised earlier upon a Change of Control (as defined in the 1998
Stock Incentive Plan). Grants of Stock Appreciation Rights may provide for the
payment of dividend equivalents in respect of such rights in cash, shares of
Common Stock or any combination thereof on a current, deferred or contingent
basis. Grants of Stock Appreciation Rights may also specify Management
Objectives (as described in "Management Objectives" set forth below) that must
be achieved as a condition to exercise such rights.
RESTRICTED SHARES. A grant of Restricted Shares involves the immediate
transfer by the Company to a participant of ownership of a specific number of
shares of Common Stock in consideration of such participant's performance of
services for the Company. Upon receipt of a grant of Restricted Shares, the
21
participant is immediately entitled to voting, dividend and other ownership
rights with respect to such shares, subject to the restrictions set forth in the
1998 Stock Incentive Plan. Transfers of Restricted Shares may be made without
additional consideration or in consideration of a participant's payment of an
amount that is less than the trading price of the Common Stock at the close of
business on the date of grant, as the Board of Directors may determine.
Restricted Shares awarded to a participant must be subject to a
"substantial risk of forfeiture" within the meaning of Section 83 of the
Internal Revenue Code for a period of not less than one year commencing with the
date of grant. For example, Restricted Shares would be subject to a substantial
risk of forfeiture if such shares must be forfeited if the participant ceases to
serve the Company as an officer or key employee during a specified period of
time. To enforce these forfeiture provisions, any transfer of Restricted Shares
will be prohibited or restricted in a manner and to the extent prescribed by the
Board of Directors for the period of time during which the forfeiture provisions
are in effect. The Board of Directors may provide for a shorter period of time
during which the forfeiture provisions shall be effective in the event of a
Change in Control (as defined in the 1998 Stock Incentive Plan).
Any grant of Restricted Shares may specify Management Objectives (as
described in "Management Objectives" set forth below) which, if achieved, will
result in the termination or early termination of the restrictions applicable to
such shares. If a grant of Restricted Shares specifies Management Objectives,
then such grant may also set forth a minimum acceptable level of achievement and
a formula for determining the number of Restricted Shares for which restrictions
will terminate if a participant's performance meets or exceeds such minimum
acceptable level, but nonetheless falls short of full achievement of the
specified Management Objectives.
DEFERRED SHARES. A grant of Deferred Shares constitutes an agreement by
the Company to deliver shares of Common Stock to a participant in the future in
consideration of the participant's performance of services for the Company,
subject to the participant's fulfillment during the period of deferral of
certain conditions which may be established by the Board of Directors. During
the period of deferral applicable to the grant of Deferred Shares, the
participant has no right to transfer any rights associated with such shares or
to vote such shares. However, the Board of Directors may, on or after the date
of grant of Deferred Shares, authorize the payment of dividend equivalents in
respect of such shares on either a current or deferred or contingent basis,
payable in either cash or additional shares of Common Stock. Awards of Deferred
Shares may be made without additional consideration or in consideration of a
participant's payment of an amount that is less than the trading price of the
Common Stock at the close of business on the date of grant.
Deferred Shares awarded to a participant must be subject to a period of
deferral of not less than one year, as determined by the Board of Directors on
the date of grant. The Board of Directors may provide for a shorter period of
deferral in the event of a Change in Control (as defined in the 1998 Stock
Incentive Stock Plan).
PERFORMANCE SHARES AND PERFORMANCE UNITS. A Performance Share is the
equivalent of one share of Common Stock and a Performance Unit is the equivalent
of $1.00. A participant may be granted any number of Performance Shares or
Performance Units, provided that in no event may any participant receive an
award of Performance Shares or Performance Units in any calendar year having an
aggregate maximum value as of their respective dates of grant in excess of
$400,000 (subject to adjustment as provided in the 1998 Stock Incentive Plan).
In connection with a grant of Performance Shares or Performance Units, a
participant will be given one or more Management Objectives (as described in
"Management Objectives" set forth below) to meet within a specified performance
period. The specified performance period shall not be less than one year, except
that the Board of Directors may provide otherwise in the event of a Change in
Control (as defined in the 1998 Stock Incentive Plan). Each grant of Performance
Shares or Performance Units may also specify a minimum level of acceptable
achievement and, if so, shall state a formula for determining the number of
Performance Shares or Performance Units that will be earned if performance meets
or exceeds such minimum acceptable level, but nonetheless falls short of full
achievement of the specified Management Objectives. To the extent earned by a
participant, Performance Shares or Performance Units will be paid to the
participant at the time and in the manner determined by the Board of Directors,
in cash or shares of Common Stock. A grant of Performance Shares or Performance
Units may provide for the payment of dividend equivalents in
22
respect of such shares or units in either cash or shares of Common Stock on a
current, defined or contingent basis.
MANAGEMENT OBJECTIVES. The 1998 Stock Incentive Plan requires the Board of
Directors to establish measurable performance objectives ("Management
Objectives") for participants who receive grants of Performance Shares or
Performance Units. If so determined by the Board of Directors, grants of Stock
Options, Stock Appreciation Rights, Restricted Shares, Deferred Shares, and
dividend credits may also specify Management Objectives. Management Objectives
may be established in terms of either Company-wide objectives or objectives that
are related to the performance of an individual participant or of the
subsidiary, division, department, region or function within the Company or
subsidiary in which the participant is employed. Management Objectives
applicable to any award to a participant who is, or is determined by the Board
of Directors likely to become, a "covered employee" under Section 162(m) of the
Internal Revenue Code, shall be limited to specified levels of or growth in (a)
cash flow/net assets ratio; (b) debt/capital ratio; (c) return on total capital;
(d) return on equity; (e) return on net assets; (f) earnings per share; (g)
revenue; (h) total return to stockholders; (i) earnings before interest and
taxes; or (j) earnings before interest, taxes, depreciation and amortization.
Except where a modification would result in an award no longer qualifying as
performance based compensation within the meaning of Section 162(m) of the
Internal Revenue Code, the Board of Directors may modify Management Objectives,
in whole or in part, as the Board of Directors deems appropriate and equitable.
ADMINISTRATION AND AMENDMENTS. The 1998 Stock Incentive Plan is to be
administered by the Board of Directors, except that the Board of Directors has
the authority under the 1998 Stock Incentive Plan to delegate any or all of its
powers under the 1998 Stock Incentive Plan to a committee (or subcommittee
thereof) consisting of not less than two directors.
The Board of Directors is authorized to interpret the 1998 Stock Incentive
Plan and related agreements and other documents. The Board of Directors may make
awards to other officers and key employees under any combination of the various
categories of awards that are authorized under the 1998 Stock Incentive Plan, or
in its discretion, make no awards. The Board of Directors may amend the 1998
Stock Incentive Plan from time to time without further approval by the
stockholders of the Company except where so required by the terms of the 1998
Stock Incentive Plan, applicable law or the rules and regulations of a national
securities exchange. The Company reserves authority to offer similar or
dissimilar benefits in plans that do not require stockholder approval.
The Board of Directors may provide for special terms for awards to
participants who are foreign nationals or who are employed by the Company or any
of its subsidiaries outside of the United States of America as the Board of
Directors may consider necessary or appropriate to accommodate differences in
local law, tax policy or custom.
TRANSFERABILITY. In general, no Stock Options, Stock Appreciation Rights
or other derivative security is transferable by a participant or his or her
transferee, except upon death or by will or the laws of descent and
distribution. However, awards (other than awards of incentive stock options) may
be transferred without consideration to members of the participant's immediate
family, or to trusts the only beneficiaries of which, or to partnerships the
only partners of which, are members of the participant's immediate family. Any
such transfer will require the participant to provide prior notice of the
transfer to the Company and to accept any conditions imposed thereon by the
Company or the Board of Directors. Except as otherwise determined by the Board
of Directors, Stock Options and Stock Appreciation Rights are exercisable by a
participant or his or her transferee, or either of their guardians or legal
representatives, during the lifetime of the participant or his or her
transferee.
The Board of Directors may specify on the date of grant of an award that
all or portion of the shares of Common Stock that (a) are to be issued or
transferred by the Company (i) upon exercise of Stock Options or Stock
Appreciation Rights, (ii) upon termination of the period of deferred applicable
to Deferred Shares or (iii) in payment for amounts earned under Performance
Shares or Performance Units or (b) are no longer subject to the substantial risk
of forfeiture or any other restrictions on the transfer thereof, shall be
subject to further restrictions on their sale or transfer.
23
ADJUSTMENTS. The maximum number of shares of Common Stock that may be
issued and delivered under the 1998 Stock Incentive Plan, the number of shares
of Common Stock covered by outstanding Stock Options and Stock Appreciation
Rights, and the prices per share applicable thereto, are subject to adjustment
in the event of a stock dividend, stock split, combination of shares,
recapitalization, merger, consolidation, spin-off, reorganization, liquidation,
issuance of rights or warrants and similar events. In the event of any such
transaction or event, the Board of Directors, in its discretion, may provide in
substitution for any or all outstanding awards under the 1998 Stock Incentive
Plan such alternative consideration as it, in good faith, may determine to be
equitable in the circumstances and may require the surrender of all awards so
replaced. The Board of Directors may also make or provide for such adjustments
in the numbers of shares of Common Stock specified in "Shares of Common Stock
Authorized For Issuance" set forth above, as the Board of Directors may
determine appropriate to reflect any transaction or event described above.
PLAN BENEFITS
The Company cannot currently determine the number of shares of Common Stock
subject to options that may be granted in the future to executive officers,
directors and employees under the 1998 Stock Incentive Plan. The following table
sets forth information with respect to the stock options granted to the named
executive officers, all current executive officers as a group and all employees
(including all current officers who are not executive officers) as a group under
the 1998 Stock Incentive Plan as of March 16, 2002.
<Table>
<Caption>
NUMBER OF SHARES SUBJECT TO
OPTIONS GRANTED UNDER THE
NAME 1998 STOCK INCENTIVE PLAN
- ---- ---------------------------
Paul E. Fulchino............................................ 250,000
Charles M. Kienzle.......................................... 115,000
Dan P. Komnenovich.......................................... 150,000
Bruce Langsen............................................... 175,000
Jeffrey J. Murphy........................................... 100,000
All current executive officers as a group................... 1,190,000
All employees (including all current officers who are not
executive officers)....................................... 756,994
</Table>
FEDERAL INCOME TAX CONSEQUENCES
The following is a brief summary of certain federal income tax consequences
relating to the transactions described under the 1998 Stock Incentive Plan as
set forth below. This summary does not purport to address all aspects of federal
income taxation and does not describe state, local, or foreign tax consequences.
This discussion is based upon provisions of the Internal Revenue Code of 1986,
as amended (the "Code"), the Treasury Regulations, and judicial and
administrative interpretations under the Code and Treasury Regulations, all as
in effect as of the date hereof, and all of which are subject to change
(possibly on a retroactive basis) or different interpretation.
TAX CONSEQUENCES TO PARTICIPANTS
NON-QUALIFIED STOCK OPTIONS. In general, (a) no income will be recognized
by an optionee at the time a non-qualified stock option is granted; and (b) at
the time of exercise of a non-qualified stock option, ordinary income will be
recognized by the optionee in an amount equal to the excess, if any, of the fair
market value of the Common Stock on the date of exercise over the exercise
price, if the Common Stock is unrestricted (see discussion below for the tax
treatment of this transaction if restricted Common Stock is received upon the
exercise of a non-qualified stock option). When the Common Stock acquired
pursuant to the exercise of a non-qualified stock option is later sold, any gain
or loss realized by the participant generally will be taxed as short-term or
long-term capital gain or loss depending on the holding period.
INCENTIVE STOCK OPTIONS. In general, no income will be recognized by an
optionee upon the grant or exercise of an incentive stock option. If Common
Stock is issued to the optionee pursuant to the exercise of an
24
incentive stock option, and if no disqualifying disposition of such Common Stock
is made by such optionee within two years after the date of grant or within one
year after the transfer of the Common Stock to the optionee, then upon sale of
the Common Stock, the optionee will recognize a long-term capital gain or loss
equal to the difference between the amount realized from the sale of the Common
Stock and the exercise price of the option related to the Common Stock.
If the Common Stock acquired upon the exercise of an incentive stock option
is disposed of prior to the expiration of either holding period described above,
the optionee generally will recognize ordinary income in the year of disposition
in an amount equal to the excess, if any, of the fair market value of such
Common Stock at the time of exercise over the exercise price. Any further gain
or loss realized by the participant upon the sale of the Common Stock generally
will be taxed as short-term or long-term capital gain or loss depending on the
holding period.
STOCK APPRECIATION RIGHTS. No income will be recognized by a participant
in connection with the grant of a tandem stock appreciation right or a
free-standing stock appreciation right. When a Stock Appreciation Right is
exercised, the participant normally will be required to recognize ordinary
income in the year of exercise an amount equal to the amount of cash received
and the fair market value of any unrestricted shares of Common Stock received on
the exercise.
RESTRICTED SHARES. The recipient of Restricted Shares generally will be
subject to tax at ordinary income rates on the excess, if any, of the fair
market value of the Restricted Shares at such time as the shares are no longer
subject to forfeiture or restrictions on transfer for purposes of Section 83 of
the Code ("Restrictions"), over the amount paid, if any, by the participant for
such Restricted Shares. However, a recipient may make an election under Section
83(b) of the Code within 30 days of the date of transfer of the Restricted
Shares to recognize ordinary income on the date of transfer of the Restricted
Shares equal to the excess of the fair market value of such Restricted Shares
(determined without regard to the Restrictions) over the purchase price, if any,
of such Restricted Shares. If an election under Section 83(b) of the Code has
not been made, any dividends received with respect to Restricted Shares
generally will be treated as compensation that is taxable as ordinary income to
the participant.
DEFERRED SHARES. No income generally will be recognized upon the award of
Deferred Shares. The recipient of a Deferred Share award generally will be
subject to tax at ordinary income rates on the excess, if any, of the fair
market value of unrestricted shares of Common Stock on the date that such Common
Stock is transferred to the participant under the award over the amount paid, if
any, by the participant for such Deferred Shares. Any further gain or loss
realized by the participant on the sale of the Common Stock generally will be
taxed as short-term or long-term capital gain or loss depending on the holding
period.
PERFORMANCE SHARES AND PERFORMANCE UNITS. No income generally will be
recognized upon the grant of Performance Shares or Performance Units. Upon
payment in respect of the earn-out of Performance Shares or Performance Units,
the recipient generally will recognize ordinary income in the year of receipt in
an amount equal to the amount of cash received and the fair market value of any
nonrestricted shares of Common Stock received. Any further gain or loss realized
by the participant on the sale of the Common Stock generally will be taxed as
short-term or long-term capital gain or loss depending on the holding period.
SPECIAL RULES APPLICABLE TO OFFICERS AND DIRECTORS. In limited
circumstances where the sale of Common Stock received as a result of a grant or
award could subject an officer or director to suit under Section 16(b) of the
Securities Exchange Act of 1934, as amended, the tax consequences to the officer
or director may differ from the tax consequences described above. In these
circumstances, unless a special election under Section 83(b) of the Code has
been made, the principal difference (in cases where the officer or director
would otherwise be currently taxed upon his receipt of the Common Stock) usually
will be to postpone valuation and taxation of the Common Stock received so long
as the sale of the Common Stock received could subject the officer or director
to suit under Section 16(b) of the Securities Exchange Act of 1934, but no
longer than six months.
25
TAX CONSEQUENCES TO THE COMPANY OR SUBSIDIARY
To the extent that a participant recognizes ordinary income in the
circumstances described above, the Company or subsidiary for which the
participant performs services will be entitled to a corresponding deduction
provided that, among other things, the income meets the test of reasonableness,
is an ordinary and necessary business expense, is not an "excess parachute
payment" within the meaning of Section 280G of the Code and is not disallowed by
the $1 million limitation on certain executive compensation under Section 162(m)
of the Code.
MARKET VALUE OF THE SECURITIES
The market value of the Common Stock is $8.50 per share, based on the
closing price of the Common Stock on the New York Stock Exchange on April 19,
2002.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE AMENDMENT TO
THE 1998 STOCK INCENTIVE PLAN.
26
APPROVAL OF AN AMENDMENT
TO THE AVIALL, INC. AMENDED AND RESTATED 1998 DIRECTORS STOCK PLAN
(PROPOSAL NO. 3)
On March 21, 2002, the Board of Directors adopted, subject to approval by
the Company's stockholders, an amendment to the Aviall, Inc. Amended and
Restated 1998 Directors Stock Plan, as amended (the "Directors Stock Plan"), to
increase the number of shares of Common Stock authorized for issuance under the
Directors Stock Plan by 100,000 shares. As of March 31, 2002, 147,500 shares of
Common Stock were authorized for issuance under the Directors Stock Plan, of
which an aggregate of 102,841 shares have been issued or are issuable upon the
exercise of outstanding options, leaving 44,659 shares reserved for issuance
under the Directors Stock Plan. If the proposed amendment is approved by the
Company's stockholders at the Annual Meeting, a total of 247,500 shares of
Common Stock would be issued or authorized for issuance under the Directors
Stock Plan.
The Board of Directors believes that it is in the best interests of the
Company to attract and retain experienced and knowledgeable directors. The
Directors Stock Plan is designed to provide an incentive to the Company's
directors and is intended to align their interests with those of the Company's
stockholders. In order for the Directors Stock Plan to continue to serve its
purposes, the Board of Directors has determined that an increase in the number
of shares of Common Stock authorized for issuance under the Directors Stock Plan
is necessary and in the best interests of the Company's stockholders.
DIRECTORS STOCK PLAN SUMMARY
GENERAL. The Directors Stock Plan was approved by the Company's
stockholders at the 1998 Annual Meeting of Stockholders. The Directors Stock
Plan affords the Company the ability to attract and retain persons of
outstanding competence to serve as members of the Board of Directors of the
Company and to provide a direct link between director compensation and
stockholder value. The Directors Stock Plan permits the Board of Directors, at
the eligible non-employee director's election, to grant shares of Common Stock
in lieu of payment of an annual retainer fee to the non-employee director and to
grant options exercisable for shares of Common Stock ("Option Rights") to a
non-employee director who is eligible to participate in the Directors Stock
Plan.
SHARES OF COMMON STOCK AUTHORIZED FOR ISSUANCE. If the proposed amendment
is approved by the Company's stockholders, the number of shares of Common Stock
that may be granted under the Directors Stock Plan, in the form of shares of
Common Stock or options exercisable for shares of Common Stock, may not exceed
247,500 shares of Common Stock (subject to adjustment as provided in the
Directors Stock Plan). Shares of Common Stock granted pursuant to the Directors
Stock Plan may be either authorized, but unissued, shares or reacquired shares,
or both.
ELIGIBILITY. Members of the Board of Directors who are not employees of
the Company or any of its subsidiaries at the time of a grant are eligible to
participate in the Directors Stock Plan. A director who is an employee and who
retires or resigns from employment with the Company or any of its subsidiaries,
but remains a director, is eligible to participate in the Directors Stock Plan
at the time of such termination of employment. A director who is eligible to
participate in the Directors Stock Plan may elect to participate in the plan and
receive grants of Common Stock of the Company, in lieu of his annual retainer
for service as a director of the Company, by delivering a written notice to such
effect to the Board of Directors or to any committee authorized by the Board of
Directors to administer the Directors Stock Plan. An election to participate in
the Directors Stock Plan must be made at least six months prior to the date of
any grant under the plan and shall remain in effect until revoked in writing by
the participating director.
STOCK GRANTS. Under the Directors Stock Plan, each eligible director that
has elected to participate in the plan shall receive an annual grant of shares
of Common Stock on the first New York Stock Exchange trading day in July equal
to the number of whole shares that can be purchased for $30,000 (referred to as
the "Share Value") based on the mean of the highest and the lowest sale price
for the Common Stock on the grant date as reported on the New York Stock
Exchange. The Share Value automatically adjusts to reflect
27
increases or decreases in the annual retainer paid to the directors so that the
ratio between the annual retainer and the Share Value is maintained.
A director who receives a grant of shares of Common Stock pursuant to the
Directors Stock Plan is entitled to receive dividends on and to vote such
shares. A director's ownership rights in such shares do not vest until six
months after the date of grant and then only if the director has continuously
served on the Board of Directors during such six month period. However, a
participating director who leaves the Board of Directors following the
completion of the term of service for which he was elected, but prior to the end
of such six month period, or whose service during such six month period was
interrupted due to death or disability, will be vested in a pro rata number of
such shares.
Any shares of Common Stock granted in lieu of receipt of the annual
retainer may not be assigned, transferred, pledged, hypothecated or otherwise
disposed of (i) before the shares have vested and (ii) until six months after
the termination of the director's service to the Board of Directors.
OPTION RIGHTS. The Board of Directors may, from time to time and upon such
terms and conditions as it may determine, grant Option Rights on the first New
York Stock Exchange trading day in July to any director who is eligible to
participate in the Directors Stock Plan. Each such grant must specify a purchase
price per share, payable upon exercise, that is not less than the mean of the
highest and the lowest sale price for the Common Stock on the grant date as
reported on the New York Stock Exchange. Any grant of Option Rights shall expire
not more than ten years from the date of grant. The Board of Directors cannot
grant any one eligible director more than 3,000 shares of Common Stock during
any fiscal year.
Any grant of Option Rights shall be exercisable in full on the date or
dates set forth in the agreement granting the Option Rights. Such exercise dates
shall not be less than six months nor more than five years from the date of
grant, so long as the director has served continuously as a director of the
Company during such period. All outstanding non-vested Option Rights shall
become exercisable in full immediately upon a Change in Control (as defined in
the Directors Stock Plan). In the event of the death or disability of the holder
of any Option Rights, each then outstanding Option Right shall become
exercisable in full and may be exercised at any time within one year after such
death or disability, but in no event after the Option Rights have expired. In
the event of the termination of service on the Board of Directors by a holder of
Option Rights other than by death or disability, the then outstanding Option
Rights of such holder may be exercised to the extent that they would be
exercisable on the date that is six months and one day after the date of such
termination and shall expire six months and one day after such termination, or
on their stated expiration date, whichever occurs first.
The exercise price of any Option Rights is payable (a) in cash or by check
acceptable to the Company; (b) by the actual or constructive transfer to the
Company of shares of Common Stock which are owned by the exercising director for
a period of at least six months and having a value at the time of exercise equal
to the total exercise price of such option; or (c) by a combination of the
foregoing payment methods. In addition, any grant of Option Rights may provide
for deferred payment of the exercise price of the option from the proceeds of
sale through a bank or broker of some or all of the shares to which such
exercise relates.
ADMINISTRATION AND AMENDMENTS. The Directors Stock Plan is to be
administered by the Board of Directors, except that the Board of Directors has
the authority under the Directors Stock Plan to delegate any or all of its
powers under the Directors Stock Plan to a duly authorized committee of the
Board of Directors.
The Board of Directors is authorized to interpret the Directors Stock Plan,
to prescribe, amend and rescind any rules and regulations relating to the
Directors Stock Plan, and to make all determinations necessary or advisable for
the administration of the Directors Stock Plan. The Board of Directors may, from
time to time, amend the Directors Stock Plan in any manner without further
approval of the stockholders except where so required by the terms of the
Directors Stock Plan, applicable law or the rules and regulations of a national
securities exchange.
ADJUSTMENTS. The maximum number of shares of Common Stock reserved for
grants under the Directors Stock Plan, the maximum number of shares of Common
Stock that the Board of Directors can grant to any one eligible director during
any fiscal year, the number of shares of Common Stock covered by
28
outstanding Option Rights, and the exercise price and the kind of shares
specified therein, are subject to adjustment by the Board of Directors to
reflect any stock split, stock dividend, recapitalization, merger,
consolidation, reorganization, combination or exchange of shares or similar
event.
PLAN BENEFITS
The Company cannot currently determine the number of shares of Common Stock
subject to options that may be granted in the future to its directors under the
Directors Stock Plan. The following table sets forth information with respect to
the stock options granted to the Company's directors (other than Mr. Fulchino)
under the Directors Stock Plan as of March 16, 2002.
<Table>
<Caption>
NUMBER OF SHARES SUBJECT TO
OPTIONS GRANTED UNDER THE
NAME DIRECTORS STOCK PLAN
- ---- ---------------------------
Peter J. Clare.............................................. --
Allan M. Holt............................................... --
Donald R. Muzyka............................................ 6,000
Richard J. Schnieders....................................... 6,000
Jonathan M. Schofield....................................... 3,000
Arthur E. Wegner............................................ 6,000
Bruce N. Whitman............................................ 6,000
</Table>
FEDERAL INCOME TAX CONSEQUENCES
The following is a brief summary of certain federal income tax consequences
relating to the transactions described under the Directors Stock Plan as set
forth below. This summary does not purport to address all aspects of federal
income taxation and does not describe state, local, or foreign tax consequences.
This discussion is based upon provisions of the Code, the Treasury Regulations,
and judicial and administrative interpretations under the Code and Treasury
Regulations, all as in effect as of the date hereof, and all of which are
subject to change (possibly on a retroactive basis) or different interpretation.
TAX CONSEQUENCES TO PARTICIPANTS
COMMON STOCK GRANTS. The recipient of a grant of shares of Common Stock
generally will be subject to tax at ordinary income rates on the excess, if any,
of the fair market value of the shares of Common Stock at such time as the
shares are no longer subject to forfeiture or Restrictions, over the amount
paid, if any, by the participant for such shares of Common Stock. However, a
recipient may make an election under Section 83(b) of the Code within 30 days of
the date of transfer of the shares of Common Stock to recognize ordinary income
on the date of transfer of the shares of Common Stock equal to the excess of the
fair market value of such shares (determined without regard to the Restrictions)
over the purchase price, if any, of such shares. If an election under Section
83(b) of the Code has not been made, any dividends received with respect to
shares of Common Stock generally will be treated as compensation that is taxable
as ordinary income to the participant. At the time of sale of such shares, any
gain or loss realized will be treated as either short-term or long-term capital
gain (or loss) depending on the holding period. For purposes of determining any
gain or loss realized, the recipient's tax basis will be the amount previously
taxable as ordinary income.
OPTION RIGHTS. In general, (a) no income will be recognized by an optionee
at the time an Option Right is granted; (b) at the time of exercise of an Option
Right, ordinary income will be recognized by the optionee in an amount equal to
the excess, if any, of the fair market value of the Common Stock on the date of
exercise over the exercise price, if the Common Stock is unrestricted; and (c)
at the time of sale of shares acquired pursuant to the exercise of an Option
Right, appreciation (or depreciation) in value of the shares after the date of
exercise will be treated as either short-term or long-term capital gain (or
loss) depending on the holding period. Such long-term capital gain may be
eligible for reduced rates if applicable holding period requirements are
satisfied.
29
SPECIAL RULES APPLICABLE TO DIRECTORS. In limited circumstances where the
sale of stock received as a result of a grant or award could subject a director
to suit under Section 16(b) of the Securities Exchange Act of 1934, as amended,
the tax consequences to the director may differ from the tax consequences
described above. In these circumstances, unless a special election under Section
83(b) has been made, the principal difference (in cases where the director would
otherwise be currently taxed upon his receipt of the stock) usually will be to
postpone valuation and taxation of the stock received so long as the sale of the
stock received could subject the director to suit under Section 16(b) of the
Securities Exchange Act of 1934, but no longer than six months.
TAX CONSEQUENCES TO THE COMPANY
To the extent that a participant recognizes ordinary income in the
circumstances described above, the Company will be entitled to a corresponding
deduction provided that, among other things, the income meets the test of
reasonableness, is an ordinary and necessary business expense, is not an "excess
parachute payment" within the meaning of Section 280G of the Code and is not
disallowed by the $1 million limitation on certain executive compensation under
Section 162(m) of the Code.
OTHER TAX MATTERS
If a director's rights under the Directors Stock Plan are accelerated as a
result of a Change of Control and the director is a "disqualified individual"
under Section 280G of the Code, the value of any such accelerated rights
received by such director may be included in determining whether or not such
director has received an "excess parachute payment" under Section 280G of the
Code, which could result in (i) the imposition of a 20% Federal excise tax (in
addition to Federal income tax) payable by the director on the value of such
accelerated rights, and (ii) the loss by the Company of a compensation
deduction.
MARKET VALUE OF THE SECURITIES
The market value of the Common Stock is $8.50 per share, based on the
closing price of the Common Stock on the New York Stock Exchange on April 19,
2002.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE AMENDMENT TO
THE DIRECTORS STOCK PLAN.
AUDIT COMMITTEE REPORT
In connection with the Annual Meeting, the Audit Committee has expanded its
report to include a more detailed and informative disclosure of the duties
performed by the Audit Committee during the Company's fiscal year ended December
31, 2001.
The Audit Committee reviews the Company's financial reporting processes on
behalf of the Board of Directors. The Audit Committee is currently composed of
five outside directors who are not officers or employees of the Company or its
subsidiaries. Each member of the Audit Committee meets the independence and
experience requirements established by the New York Stock Exchange.
During 2001, the Audit Committee has reviewed with the Company's senior
internal auditing executive the plans for, and the scope of, ongoing internal
audit activities, as well as any recommendations made by PricewaterhouseCoopers
LLP, the Company's independent auditors, relating to the internal audit
function. The Audit Committee has also reviewed with the Company's senior
internal auditing executive the adequacy of the Company's internal accounting
controls and the policies, procedures and internal auditing function. The Audit
Committee has discussed with the Company's senior financial management the
Company's audited consolidated financial statements, including a discussion of
the selection, application and disclosure of the Company's critical accounting
policies, as well as the reasonableness of significant judgments and the general
clarity of disclosures in the Company's audited consolidated financial
statements. The Audit Committee has received from the Company's senior financial
management representations that the Company's audited consolidated financial
statements have been prepared in conformity with generally accepted accounting
30
principles, that the Company has not utilized special purpose entities for the
purpose of facilitating off-balance sheet financing activities and that the
Company has not engaged in related party transactions that have not been
adequately disclosed.
The Audit Committee has reviewed with PricewaterhouseCoopers LLP its plans
for, and the scope of, its annual audit and other examinations. The Audit
Committee has also discussed with PricewaterhouseCoopers LLP the matters
required to be discussed by Statement on Auditing Standards No. 61, as amended
by Statement on Auditing Standards No. 90 (Communications with Audit
Committees). The Audit Committee has reviewed with PricewaterhouseCoopers LLP
the Company's audited consolidated financial statements, including a discussion
of the selection, application and disclosure of the Company's critical
accounting policies, as well as the reasonableness of significant judgments and
the general clarity of disclosures in the Company's audited consolidated
financial statements. The Audit Committee has confirmed with
PricewaterhouseCoopers LLP that the audit of the Company's consolidated
financial statements has been performed in accordance with generally accepted
auditing standards, that no material disagreements have occurred with the
Company's senior financial management, that, to its knowledge, the Company has
not utilized special purpose entities for the purpose of facilitating
off-balance sheet financing activities and that, to its knowledge, the Company
has not engaged in related party transactions that have not been adequately
disclosed.
The Audit Committee has also discussed with PricewaterhouseCoopers LLP
whether its provision of non-audit services has impaired its objectivity and
independence in auditing the Company's consolidated financial statements.
Further, the Audit Committee has discussed with PricewaterhouseCoopers LLP
whether it considers itself independent, and PricewaterhouseCoopers LLP has
provided the Audit Committee with the letter required by Independence Standards
Board No. 1 (Independence Discussions with Audit Committees). Based on these
discussions and this letter, the Audit Committee has satisfied itself of the
independence of PricewaterhouseCoopers LLP.
In reliance on the foregoing reviews and discussions, the representations
of the Company's senior financial management and the letter required by
Independence Standards Board No. 1 (Independence Discussions with Audit
Committees) provided by PricewaterhouseCoopers LLP, the Audit Committee has
recommended to the Board of Directors that PricewaterhouseCoopers LLP be
appointed as the Company's independent auditors for its fiscal year ending
December 31, 2002 and that the Company's audited consolidated financial
statements be included in the Company's Annual Report on Form 10-K for the year
ended December 31, 2001 for filing with the Securities and Exchange Commission.
Submitted by the members of the Audit Committee of the Board of Directors.
<Table>
Richard J. Schnieders Donald R. Muzyka Jonathan M. Schofield
Chairman
</Table>
<Table>
Arthur E. Wegner Bruce N. Whitman
</Table>
31
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
(PROPOSAL NO. 4)
On March 21, 2002, upon recommendation of the Audit Committee, the Board of
Directors unanimously selected, subject to ratification by the Company's
stockholders, PricewaterhouseCoopers LLP to continue to serve as independent
auditors for the Company and its subsidiaries for the fiscal year ending
December 31, 2002. PricewaterhouseCoopers LLP has served as the Company's
independent auditors since 1994.
Representatives of PricewaterhouseCoopers LLP are expected to be present at
the Annual Meeting and will have the opportunity to make a statement, if they so
desire, and respond to appropriate questions raised at the Annual Meeting.
FEES BILLED TO AVIALL BY PRICEWATERHOUSECOOPERS LLP
AUDIT FEES. Fees related to the audit of the Company's annual consolidated
financial statements for the fiscal year ended December 31, 2001 and review of
the financial statements included in the Company's quarterly reports on Form
10-Q totaled $376,000, of which $290,000 had been billed as of January 31, 2002.
FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES. The Company
did not engage PricewaterhouseCoopers LLP to provide advice to the Company
regarding financial information systems design and implementation during the
fiscal year ended December 31, 2001.
ALL OTHER FEES. Fees billed by PricewaterhouseCoopers LLP for all other
services rendered to the Company during the fiscal year ended December 31, 2001,
including tax related services, totaled $1,125,095. Included in this amount were
fees of $299,215 for audit related services such as audit of employee benefit
plans, registration and transaction related support, and accounting
consultations. The Audit Committee considered whether the provision of all other
services by PricewaterhouseCoopers LLP is compatible with maintaining
PricewaterhouseCoopers LLP's independence with respect to the Company.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE RATIFICATION OF THE
APPOINTMENT OF PRICEWATERHOUSECOOPERS LLP AS THE COMPANY'S INDEPENDENT AUDITORS
FOR THE FISCAL YEAR ENDING DECEMBER 31, 2002.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities and Exchange Act of 1934, as amended,
requires the Company's directors, executive officers and persons who are
beneficial owners of more than 10% of the Common Stock to file with the SEC
initial reports of ownership and reports of changes in ownership of shares of
Common Stock beneficially owned by them. Directors, executive officers and
beneficial owners of more than 10% of the Common Stock are also required to
furnish the Company with copies of all Section 16(a) reports that they file with
the SEC.
To the Company's knowledge, based solely upon a review of copies of such
reports furnished to the Company or written representations from certain
reporting persons, during the year ended December 31, 2001, all Section 16(a)
filing requirements applicable to the directors, executive officers and greater
than 10% stockholders were complied with by such persons.
32
ANNUAL REPORT
The Company's Annual Report to Stockholders for the year ended December 31,
2001 is being mailed to stockholders of record as of the close of business on
April 30, 2002, together with this Proxy Statement. Additional copies may be
obtained by written request to the address indicated below. The Annual Report is
not part of the proxy solicitation materials.
UPON THE WRITTEN REQUEST OF ANY STOCKHOLDER, THE COMPANY WILL FURNISH,
WITHOUT CHARGE, A COPY OF ITS ANNUAL REPORT ON FORM 10-K, AS FILED WITH THE SEC.
IF YOU WOULD LIKE A COPY OF THIS ANNUAL REPORT ON FORM 10-K, PLEASE SEND A
WRITTEN REQUEST TO THE COMPANY AT 2750 REGENT BOULEVARD, DFW AIRPORT, TEXAS
75261, ATTENTION: SHAREHOLDER SERVICES OR PLEASE CALL (972)-586-1000.
33
SUBMISSION OF STOCKHOLDER PROPOSALS FOR
THE COMPANY'S 2003 ANNUAL MEETING OF STOCKHOLDERS
Pursuant to regulations of the SEC, in order to be included in the
Company's Proxy Statement for its 2003 Annual Meeting of Stockholders,
stockholder proposals must be received at the Company's principal offices, 2750
Regent Boulevard, DFW Airport, Texas 75261, Attention: Secretary, no later than
December 31, 2002 and must comply with additional requirements established by
the SEC. In addition, the Company's Amended and Restated By-Laws provide that
any stockholder who desires either to bring a stockholder proposal before an
annual meeting of stockholders or to present a nomination for director at an
annual meeting of stockholders must give advance notice to the Secretary of the
Company with respect to such proposal or nominee. The Company's Amended and
Restated By-Laws generally require that written notice be delivered to the
Secretary of the Company at the Company's principal offices not less than 70
days nor more than 90 days prior to the anniversary of the preceding year's
annual meeting of stockholders and contain certain information regarding the
stockholder desiring to present a proposal or make a nomination and, in the case
of a nomination, information regarding the proposed director nominee. For the
2003 Annual Meeting of Stockholders, the Secretary of the Company must receive
written notice on or after March 16, 2003 and on or before April 5, 2003. A copy
of the Company's Amended and Restated By-Laws is available upon request from the
Secretary of the Company.
AVIALL, INC.
/s/ JEFFREY J. MURPHY
Jeffrey J. Murphy
Senior Vice President, Law and Human
Resources, Secretary and General
Counsel
Dallas, Texas
April 22, 2002
34
THIS IS YOUR PROXY.
YOUR VOTE IS IMPORTANT.
Regardless of whether you plan to attend the Annual Meeting of Stockholders, you
may be sure your shares are represented at the Annual Meeting by promptly
returning your proxy in the enclosed envelope, or voting by telephone or the
Internet by following the instructions on the reverse side.
DETACH HERE
PROXY
AVIALL, INC.
PLEASE DATE AND SIGN ON REVERSE SIDE AND
RETURN IN THE ENCLOSED POSTAGE-PAID ENVELOPE.
The undersigned acknowledge(s) receipt of the Proxy Statement of Aviall,
Inc. relating to the 2002 Annual Meeting of Stockholders (the "Annual Meeting")
to be held at 1:00 p.m. (local time) on Friday, June 14, 2002, at the Four
Seasons Resort and Club, Irving, Texas 75038, and hereby constitute(s) and
appoint(s) Jacqueline K. Collier, Jeffrey J. Murphy and Cornelius Van Den
Handel, attorneys and proxies of the undersigned, with full power of
substitution and resubstitution to each and with all the powers the undersigned
would possess if personally present, to vote for and in the name and place of
the undersigned all shares of Common Stock or Series D Preferred Stock of
Aviall, Inc. held or owned by the undersigned, or standing in the name of the
undersigned, at the Annual Meeting, or any adjournment or postponement thereof,
upon the matters referred to in the Proxy Statement for the Annual Meeting as
stated below and on the reverse side. The proxies are further authorized to
vote, in their discretion, upon such other business as may properly come before
the Annual Meeting or any adjournment or postponement thereof. A majority of
said attorneys and proxies present and acting at the Annual Meeting (or if only
one shall be present and act, then that one) shall have, and may exercise, all
the powers of all said attorneys and proxies hereunder.
THIS PROXY IS BEING SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
AVIALL, INC. UNLESS OTHERWISE SPECIFIED ON THE REVERSE SIDE, THIS PROXY WILL BE
VOTED FOR THE NOMINEES OF THE BOARD OF DIRECTORS LISTED ON THE REVERSE SIDE, FOR
THE APPROVAL OF AN AMENDMENT TO THE AVIALL, INC. 1998 STOCK INCENTIVE PLAN TO
INCREASE THE NUMBER OF SHARES OF COMMON STOCK AUTHORIZED TO BE ISSUED UNDER THE
PLAN, FOR THE APPROVAL OF AN AMENDMENT TO THE AVIALL, INC. AMENDED AND RESTATED
1998 DIRECTORS STOCK PLAN TO INCREASE THE NUMBER OF SHARES OF COMMON STOCK
AUTHORIZED TO BE ISSUED UNDER THE PLAN AND FOR THE RATIFICATION OF
PRICEWATERHOUSECOOPERS LLP AS AVIALL, INC.'S INDEPENDENT AUDITORS. DISCRETIONARY
AUTHORITY IS HEREBY CONFERRED AS TO ALL OTHER MATTERS THAT MAY COME BEFORE THE
ANNUAL MEETING.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS 1, 2, 3 AND 4.
- ----------- -----------
SEE REVERSE CONTINUED AND TO BE SIGNED ON REVERSE SIDE SEE REVERSE
SIDE SIDE
- ----------- -----------
AVIALL, INC.
c/o EquiService
P.O. Box 9398
Boston, MA 02205-9398
<Table>
- -------------------------------------- --------------------------------------
VOTE BY TELEPHONE VOTE BY INTERNET
- -------------------------------------- --------------------------------------
It's fast, convenient, and immediate! It's fast, convenient, and your vote
Call Toll-Free on a Touch-Tone Phone is immediately confirmed and posted.
1-877-PRX-VOTE (1-877-779-8683)
- -------------------------------------- --------------------------------------
Follow these four easy steps: Follow these four easy steps:
1. Read the accompanying Proxy 1. Read the accompanying Proxy
Statement and Proxy Card. Statement and Proxy Card.
2. Call the toll-free number 2. Go to the Website
1-877-PRX-VOTE (1-877-779-8683) http://www.eproxyvote.com/avl
3. Enter your Voter Control Number 3. Enter your Voter Control Number
located on your Proxy Card above located on your Proxy Card above
your name. your name.
4. Follow the recorded instructions. 4. Follow the instructions provided.
- -------------------------------------- --------------------------------------
YOUR VOTE IS IMPORTANT! YOUR VOTE IS IMPORTANT!
Call 1-877-PRX-VOTE anytime! Go to http://www.eproxyvote.com/avl
anytime!
</Table>
DO NOT RETURN YOUR PROXY CARD IF YOU ARE VOTING BY TELEPHONE OR INTERNET
DETACH HERE
[X] Please mark
votes as in
this example.
This Proxy when executed will be voted in the manner directed herein. If no
direction is made this Proxy will be voted FOR the election of the Director
nominees, FOR Proposal 2, FOR Proposal 3 and FOR Proposal 4.
1. Election of two Directors to serve until Aviall, Inc.'s 2005 Annual Meeting
of Stockholders.
NOMINEES: (01) Richard J. Schnieders and (02) Bruce N. Whitman
FOR BOTH NOMINEES [ ] [ ] WITHHELD FROM BOTH NOMINEES
[ ]
----------------------------------------
For both nominees except as noted above.
2
<Table>
<Caption>
FOR AGAINST ABSTAIN
2. Approval of an amendment
to the Aviall, Inc. 1998 Stock
Incentive Plan to increase the
number of shares of common
stock authorized to be issued
thereunder. [ ] [ ] [ ]
3. Approval of an amendment
to the Aviall, Inc. Amended
and Restated 1998 Directors
Stock Plan to increase the
number of shares of common
stock authorized to be issued
thereunder. [ ] [ ] [ ]
4. Ratification of
PricewaterhouseCoopers LLP as
independent auditors. [ ] [ ] [ ]
</Table>
MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT
IMPORTANT: Whether or not you expect to attend the meeting in person, please
date, sign and return this proxy. Please sign exactly as your name appears
hereon. Joint owners should each sign. When signing as attorney, executor,
administrator, trustee or guardian, please give full title as such.
Signature: Date:
-------------------------------------- ------------
3