Non-Qualified Stock Option Agreement - Aviall Inc. and Paul E. Fulchino
NON-QUALIFIED STOCK OPTION AGREEMENT
This AGREEMENT (the "Agreement") is made as of December 21, 1999 (the
"Date of Grant") by and between Aviall, Inc., a Delaware corporation (the
"Company"), and Paul E. Fulchino (the "Optionee").
1. CERTAIN DEFINED TERMS. As used in this Agreement, the terms listed
below have the respective meanings indicated.
(a) "BOARD" means the Board of Directors of the Company and to
the extent of any delegation by the Board to a committee (or
subcommittee thereof), such committee (or subcommittee).
(b) "CAUSE" means (a) the willful breach or habitual neglect of
assigned duties related to the Company, including compliance
with Company policies, and such breach or neglect is
materially detrimental to the Company; (b) conviction
(including any plea of nolo contendere) of the Optionee of
any felony or crime involving dishonesty or moral turpitude;
(c) any act of personal dishonesty knowingly taken by the
Optionee in connection with his responsibilities as an
employee and intended to result in personal enrichment of the
Optionee or any other person; (d) bad faith conduct that is
materially detrimental to the Company; (e) inability of the
Optionee to perform the Employee's duties due to alcohol or
illegal drug use; (f) the Optionee's failure to comply with
any material legal written directive of the Board; or (g) any
act or omission of the Optionee which is of substantial
detriment to the Company because of the Optionee's
intentional failure to comply with any statute, rule or
regulation, except any act or omission believed by the
Optionee in good faith to have been in or not opposed to the
best interest of the Company (without intent of the Optionee
to gain, directly or indirectly, a profit to which the
Optionee was not legally entitled) and except that Cause
shall not mean bad judgment or negligence other than habitual
neglect of duty.
(c) "CHANGE OF CONTROL" shall have the meaning provided in
Section 11 of this Agreement.
(d) "CODE" means the Internal Revenue Code of 1986, as amended
from time to time.
(e) "COMMON SHARES" means the shares of Common Stock, par value
$.01 per share of the Company or any security into which such
Common Shares may be changed by reason of any transaction or
event.
(f) "DIRECTOR" means a member of the Board of Directors of the
Company.
(g) "SUBSIDIARY" means a corporation, company or other entity (i)
more than 50 percent of whose outstanding shares or
securities (representing the right to vote generally in the
election of directors or other managing authority) are, or
(ii) which
<PAGE> 2
does not have outstanding shares or securities (as may be the
case in a partnership, joint venture or unincorporated
association), but more than 50 percent of whose ownership
interest representing the right generally to make decisions
for such other entity is, now or hereafter, owned or
controlled, directly or indirectly, by the Company.
(h) "VOTING POWER" means at any time, the total votes relating to
the then-outstanding securities entitled to vote generally in
the election of Directors.
2. GRANT OF STOCK OPTION. Subject to and upon the terms, conditions, and
restrictions set forth in this Agreement, the Company hereby grants to
the Optionee as of the Date of Grant a stock option (the "Option") to
purchase 500,000 Common Shares (the "Optioned Shares"). The price
which the Optioned Shares may be purchased pursuant to this Option
shall be $7.3125 per share subject to adjustment as hereinafter
provided (the "Option Price").
3. TERM OF OPTION. The term of the Option shall commence on the Date of
Grant and, unless earlier terminated in accordance with Section 6
hereof, shall expire ten (10) years from the Date of Grant.
4. RIGHT TO EXERCISE. Subject to the expiration or earlier termination of
the Option, on the first anniversary of the Date of Grant, 166,666 of
the Optioned Shares specified in this Agreement shall become
exercisable, on the second anniversary of the Date of Grant, 166,667
of the Optioned Shares shall become exercisable, and on the third
anniversary of the Date of Grant, 166,666 of the Optioned Shares
specified in this Agreement shall become exercisable, on a cumulative
basis until the Option is fully exercisable. To the extent the Option
is exercisable, it may be exercised in whole or in part, but may not
be exercised for less than one thousand (1,000) Optioned Shares unless
such lesser number of Optioned Shares represents all of the remaining
balance then exercisable. In no event shall the Optionee be entitled
to acquire a fraction of one Optioned Share pursuant to this Option.
The Optionee shall be entitled to the privileges of ownership with
respect to Optioned Shares purchased and delivered to the Optionee
upon the exercise of all or part of this Option.
5. TRANSFERABILITY. (a) Except as provided in Section 5(b), the Option
granted hereby shall be neither transferable nor assignable by the
Optionee other than by will or by the laws of descent and distribution
and may be exercised, during the lifetime of the Optionee, only by the
Optionee, or in the event of his legal incapacity, by his guardian or
legal representative acting on behalf of the Optionee in a fiduciary
capacity under state law and court supervision.
(b) Notwithstanding the provisions of Section 5(a), the Option shall
be transferable by the Optionee, without payment of consideration
therefor by the transferee, to any one or more members of the
Optionee's Immediate Family (or to one or more trusts established
solely for the benefit of one or more members of the Optionee's
Immediate Family or to one or more partnerships in which the only
partners are members of the Optionee's Immediate
2
<PAGE> 3
Family); provided, however, that (i) no such transfer shall be
effective unless reasonable prior notice thereof is delivered to the
Company and such transfer is thereafter effected in accordance with
any terms and conditions that shall have been made applicable thereto
by the Company or the Board and (ii) any such transferee shall be
subject to the same terms and conditions hereunder as the Optionee.
For this purpose, "Immediate Family" has the meaning ascribed thereto
in Rule 16a-1(e) under the Securities and Exchange Act of 1934, as
amended, as in effect from time to time (the "Exchange Act").
6. NOTICE OF EXERCISE; PAYMENT. To the extent then exercisable, the
Option may be exercised by written notice to the Company stating the
number of Optioned Shares for which the Option is being exercised and
the intended manner of payment. Payment equal to the aggregate Option
Price of the Optioned Shares for which the Option is being exercised
shall be tendered in full with the notice of exercise to the Company
in cash in the form of currency, certified check or other cash
equivalent acceptable to the Company. At the Company's option, the
Optionee may also tender the Option Price by (a) the actual or
constructive transfer to the Company of nonforfeitable, nonrestricted
Common Shares that have been owned by the Optionee for (i) more than
one year prior to the date of exercise and for more than two years
from the date on which the option was granted, if they were originally
acquired by the Optionee pursuant to the exercise of an incentive
stock option, within the meaning of Section 422 of the Code or (ii)
more than six months prior to the date of exercise, if they were
originally acquired by the Optionee other than pursuant to the
exercise of an incentive stock option, or (b) by any combination of
the foregoing methods of payment, including a partial tender in cash
and a partial tender in nonforfeitable, nonrestricted Common Shares.
Within ten days thereafter, the Company shall direct the due issuance
of the Optioned Shares so purchased. Nonforfeitable, nonrestricted
Common Shares that are transferred by the Optionee in payment of all
or any part of the Option Price shall be valued on the basis of their
fair market value per Common Share (as determined in good faith by the
Board). The requirement of payment in cash shall be deemed satisfied
if the Optionee makes arrangements that are satisfactory to the
Company with a bank or broker that is a member of the National
Association of Securities Dealers, Inc. to sell on the exercise date a
sufficient number of Optioned Shares that are being purchased pursuant
to the exercise, so that the net proceeds of the sale transaction will
at least equal the amount of the aggregate Option Price plus payment
of any applicable withholding taxes, and pursuant to which the bank or
broker undertakes to deliver to the Company the amount of the
aggregate Option Price plus payment of any applicable withholding
taxes, on a date satisfactory to the Company, but not later than the
date on which the sale transaction will settle in the ordinary course
of business. As a further condition precedent to the exercise of this
Option, the Optionee shall comply with all regulations and
requirements of any regulatory authority having control of, or
supervision over, the issuance of Common Shares and in connection
therewith shall execute any documents that the Board shall in its sole
discretion deem necessary or advisable. The date of such notice shall
be the exercise date.
7. TERMINATION OF AGREEMENT. This Agreement and the Option granted hereby
shall terminate automatically and without further notice on the
earliest of the following dates:
3
<PAGE> 4
(a) One year after the Optionee's death or permanent and total
disability, if the Optionee dies or becomes permanently and
totally disabled while in the employ of the Company or during
the ninety (90) day period specified in Section 7(c) hereof;
(b) One year after the Optionee's retirement under a retirement
plan of the Company or one of its Subsidiaries at or after
the earliest voluntary retirement age provided for in such
retirement plan or retirement at any earlier age with the
consent of the Board;
(c) Except as provided on a case-by-case basis, ninety (90)
calendar days after the Optionee ceases to be an employee of
the Company and its Subsidiaries for any reason other than as
described in Section 7(a) or 7(b) hereof; or
(d) Ten (10) years from the Date of Grant.
In the event that the Optionee's employment is terminated for Cause, the
Agreement shall terminate at the time of such termination notwithstanding any
other provision of this Agreement. This Agreement shall not be exercisable for
any number of Optioned Shares in excess of the number of Optioned Shares for
which this Agreement is then exercisable, pursuant to Sections 4 and 8 hereof,
on the date of termination of employment. For the purposes of this Agreement,
the continuous employment of the Optionee with the Company shall not be deemed
to have been interrupted, and the Optionee shall not be deemed to have ceased
to be an employee of the Company, by reason of the transfer of his employment
among the Company and its Subsidiaries or a leave of absence of not more than
ninety (90) days approved by the Board. For the purposes of this Agreement,
"permanent and total disability" shall be defined by Section 22(e)(3) of the
Code.
8. ACCELERATION OF OPTION. The Option granted hereby shall become
immediately exercisable in full in the event of (i) a Change of
Control, (ii) the Optionee's permanent and total disability if the
Optionee becomes permanently and totally disabled while an employee of
the Company or one of its Subsidiaries, or (iii) the death of the
Optionee if such death occurs while the Optionee is employed by the
Company or one of its Subsidiaries.
9. NO EMPLOYMENT CONTRACT. Nothing contained in this Agreement shall
confer upon the Optionee any right with respect to continuance of
employment by the Company, nor limit or affect in any manner the right
of the Company to terminate the employment or adjust the compensation
of the Optionee.
10. TAXES AND WITHHOLDING. To the extent that the Company shall be
required to withhold any federal, state, local or foreign taxes in
connection with the exercise of the Option, and the amounts available
to the Company for such withholdings are insufficient, it shall be a
condition to the exercise of the Option that the Optionee shall pay
such taxes or make provisions that are satisfactory to the Company for
the payment thereof. The Optionee may elect to satisfy all or any part
of any such withholding obligation by (a) surrendering to the Company
a portion of the Optioned Shares that are issued or transferred to the
Optionee upon the exercise of the Option, and the Optioned Shares so
surrendered by the
4
<PAGE> 5
Optionee shall be credited against any such withholding obligation at
the Fair Market Value per Common Share of such shares on the date of
such surrender or (b) utilizing the bank or broker assistance
arrangement provided in Section 6. The Company will pay any and all
issue and other taxes in the nature thereof which may be payable by
the Company in respect of any issue or delivery upon a purchase
pursuant to this Option.
11. FRACTIONAL SHARES. The Company shall not be required to issue any
fractional Common Shares pursuant to this Agreement. The Board may
provide for the elimination of fractions or for the settlement of
fractions in cash.
12. CHANGE IN CONTROL. For purposes of this Agreement, a "Change in
Control" shall mean if at any time any of the following events shall
have occurred:
(a) The Company is merged or consolidated or reorganized into or
with another corporation or other legal person, and as a
result of such merger, consolidation or reorganization less
than a majority of the combined voting power of the
then-outstanding securities of such corporation or person
immediately after such transaction are held in the aggregate
by the holders of securities entitled to vote generally in
the election of Directors immediately prior to such
transaction;
(b) The Company sells or otherwise transfers all or substantially
all of its assets to any other corporation or other legal
person, and less than a majority of the combined voting power
of the then-outstanding securities of such corporation or
person immediately after such sale or transfer is held in the
aggregate by the holders of Common Shares immediately prior
to such sale or transfer;
(c) There is a report filed on Schedule 13D or Schedule 14D-1 (or
any successor schedule, form or report), each as promulgated
pursuant to the Exchange Act, disclosing that any person (as
the term "person" is used in Section 13(d)(3) or Section
14(d)(2) of the Exchange Act) has become the beneficial owner
(as the term "beneficial owner" is defined under Rule 13d-3
or any successor rule or regulation promulgated under the
Exchange Act) of securities representing 20% or more of the
Voting Power;
(d) The Company files a report or proxy statement with the
Securities and Exchange Commission pursuant to the Exchange
Act disclosing in response to Form 8-K or Section 14A (or any
successor schedule, form or report or item therein) that a
change in control of the Company has or may have occurred or
will or may occur in the future pursuant to any then-existing
contract or transaction; or
(e) If during any period of two consecutive years, individuals
who at the beginning of any such period constitute the
Directors cease for any reason to constitute at least a
majority thereof, unless the election, or the nomination for
election by the Company's stockholders, of each Director
first elected during such period was approved by a vote of at
least two-thirds of the Directors then still in office who
were Directors at the beginning of any such period.
5
<PAGE> 6
Notwithstanding the foregoing provisions of Sections 11(c) and (d)
above, a "Change in Control" shall not be deemed to have occurred for
purposes of this Agreement (i) solely because (A) the Company; (B) a
Subsidiary; or (C) any Company-sponsored employee stock ownership plan
or other employee benefit plan of the Company either files or becomes
obligated to file a report or proxy statement under or in response to
Schedule 13D, Schedule 14D-1, Form 8-K or Schedule 14A (or any
successor schedule, form or report or item therein) under the Exchange
Act, disclosing beneficial ownership by it of shares, whether in
excess of 20% of the Voting Power or otherwise, or because the Company
reports that a change of control of the Company has or may have
occurred or will or may occur in the future by reason of such
beneficial ownership or (ii) solely because of a change in control of
any Subsidiary.
13. COMPLIANCE WITH LAW. The Company will file a registration statement on
Form S-8 with the Securities and Exchange Commission in order to
register the Common Shares issuable upon exercise of the Option and
shall use reasonable efforts to cause such registration statement to
be declared effective and to remain effective during any period in
which the Option is exercisable. The Company shall make reasonable
efforts to comply with all applicable federal and state securities
laws; provided, however, notwithstanding any other provision of this
Agreement, the Option shall not be exercisable if the exercise thereof
would result in a violation of any such law.
14. ADJUSTMENTS. The Board may make or provide for such adjustments in the
number of Optioned Shares covered by this Option, in the Option Price
applicable to such Option, and in the kind of shares covered thereby,
as the Board, in its sole discretion, exercised in good faith, may
determine is equitably required to prevent dilution or enlargement of
the Optionee's rights that otherwise would result from (a) any stock
dividend, stock split, combination of shares, recapitalization, or
other change in the capital structure of the Company, (b) any merger,
consolidation, spin-off, split-off, spin-out, split-up,
reorganization, partial or complete liquidation, or other distribution
of assets or issuance of rights or warrants to purchase securities, or
(c) any other corporate transaction or event having an effect similar
to any of the foregoing. In the event of any such transaction or
event, the Board, in its discretion, may provide in substitution for
this Option such alternative consideration as it may determine to be
equitable in the circumstances and may require in connection therewith
the surrender of this Option.
15. AVAILABILITY OF COMMON SHARES. The Company shall at all times until
the expiration of the Option reserve and keep available, either in its
treasury or out of its authorized but unissued Common Shares, the full
number of Optioned Shares deliverable upon the exercise of this
Option.
16. AMENDMENTS. The Board and the Optionee may at any time and from time
to time amend this Agreement in whole or in part; provided, however,
that any amendment which must be approved by the stockholders of the
Company in order to comply with applicable law or the rules of the New
York Stock Exchange or, if the Common Shares are not traded on the New
York Stock Exchange, the principal national securities exchange upon
which the
6
<PAGE> 7
Common Shares are traded or quoted, shall not be effective unless and
until such approval has been obtained.
17. SEVERABILITY. In the event that one or more of the provisions of this
Agreement shall be invalidated for any reason by a court of competent
jurisdiction, any provision so invalidated shall be deemed to be
separable from the other provisions hereof, and the remaining
provisions hereof shall continue to be valid and fully enforceable.
18. INTERPRETATION. The interpretation and construction by the Board of
any provision of this Agreement and any determination by the Board
pursuant to any provision of this Agreement shall be final and
conclusive. No member of the Board shall be liable for any such
determination made in good faith. The Board shall, except as expressly
provided otherwise herein, have the right to determine any questions
which arise in connection with this Option or its exercise. Any
reference herein to a provision of a statute, rule or regulation shall
also include any successor provision thereto.
19. SUCCESSORS AND ASSIGNS. Without limiting Section 5 hereof, the
provisions of this Agreement shall inure to the benefit of, and be
binding upon, the successors, administrators, heirs, legal
representatives and assigns of the Optionee, and the successors and
assigns of the Company.
20. GOVERNING LAW. The interpretation, performance, and enforcement of
this Agreement shall be governed by the laws of the State of Texas,
without giving effect to the principles of conflict of laws thereof.
21. NOTICES. Any notice to the Company provided for herein shall be in
writing to the Company, marked Attention: General Counsel, and any
notice to the Optionee shall be addressed to the Optionee at his
address on file with the Company. Except as otherwise provided herein,
any written notice shall be deemed to be duly given if and when
delivered personally or deposited in the United States mail, first
class certified or registered mail, postage and fees prepaid, return
receipt requested, and addressed as aforesaid. Any party may change
the address to which notices are to be given hereunder by written
notice to the other party as herein specified (provided that for this
purpose any mailed notice shall be deemed given of the third business
day following deposit of the same in the United States mail.
7
<PAGE> 8
IN WITNESS WHEREOF, The Company has caused this Agreement to be
executed on its behalf by its duly authorized officer and Optionee has also
executed this Agreement in duplicate, as of the day and year first above
written.
ATTEST AVIALL, INC.
/s/ JEFFREY J. MURPHY
-------------------------- --------------------------------------------
Jeffrey J. Murphy
Senior Vice President and General Counsel
OPTIONEE
/s/ PAUL E. FULCHINO
----------------------------------
Paul E. Fulchino
Social Security Number:
----------
8