<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
----------------
For Quarterly Period Ended NOVEMBER 30, 1997 Commission file number 1-6263
--------------------- ----------
AAR CORP.
----------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 36-2334820
- --------------------------------------- ---------------------------------------
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
ONE AAR PLACE, 1100 N. WOOD DALE ROAD, WOOD DALE, ILLINOIS 60191
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (630) 227-2000
------------------------------
Former name, former address and former fiscal year,
if changed since last report.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No .
----- -----
(APPLICABLE ONLY TO CORPORATE ISSUERS)
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
$1.00 par value, 18,361,130 shares outstanding as of NOVEMBER 30, 1997 .
- ---------- --------------- --------------------
<PAGE>
AAR CORP. and Subsidiaries
Quarterly Report on Form 10-Q
November 30, 1997
Table of Contents
Page
----
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets 3
Condensed Consolidated Statements of Income 4
Condensed Consolidated Statements of Cash Flows 5
Notes to Condensed Consolidated Financial Statements 6-8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9-12
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 6. Exhibits and Reports on Form 8-K
Exhibits 14
Reports on Form 8-K 14
Signature Page 15
<PAGE>
PART I, ITEM 1 - FINANCIAL STATEMENTS
AAR CORP. and Subsidiaries
Condensed Consolidated Balance Sheets
As of November 30, 1997 and May 31, 1997
(000s omitted)
<TABLE>
<CAPTION>
November 30, May 31,
1997 1997
------------ ---------------
(Unaudited) (Derived from
audited financial
statements)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 6,990 $ 51,705
Accounts receivable, less allowances of $2,400 and $1,965 respectively 141,843 122,944
Inventories 207,887 176,921
Equipment on or available for short-term lease 50,668 40,318
Deferred tax assets, deposits and other 29,193 22,212
------- --------
Total current assets 436,581 414,100
------- --------
Property, plant and equipment, net 75,539 71,108
------- --------
Other assets:
Investments in leveraged leases 36,329 27,606
Cost in excess of underlying net assets of acquired companies 24,727 5,653
Retirement benefits, notes receivable and other 13,960 11,117
------- --------
75,016 44,376
------- --------
$587,136 $529,584
------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank loans $ 21,693 $ -
Current maturities of long-term debt 1,689 1,474
Accounts and notes payable 94,797 77,567
Accrued liabilities 18,530 17,647
Accrued taxes on income 1,617 3,293
------- --------
Total current liabilities 138,326 99,981
------- --------
Long-term debt, less current maturities 118,508 116,818
Deferred tax liabilities 35,117 32,560
Other liabilities 6,471 6,294
Retirement benefit obligation and deferred credits 5,384 4,672
------- --------
165,480 160,344
------- --------
Stockholders' equity:
Preferred stock, $1.00 par value, authorized 250 shares, none issued - -
Common stock, $1.00 par value, authorized 80,000
shares; issued 19,053 and 18,932 shares, respectively 19,053 18,932
Capital surplus 145,551 141,016
Retained earnings 137,010 125,694
Treasury stock, 692 and 728 shares at cost, respectively (13,732) (13,365)
Cumulative translation adjustments (4,552) (3,018)
------- --------
283,330 269,259
------- --------
$587,136 $529,584
------- --------
</TABLE>
The accompanying Notes to Condensed Consolidated Financial
Statements are an integral part of these statements
3
<PAGE>
AAR CORP. and Subsidiaries
Condensed Consolidated Statements of Income
For the Three and Six Months Ended November 30, 1997 and 1996
(Unaudited)
(000s omitted except per share data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
November 30, November 30,
------------------------ ------------------------
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net sales $180,156 $135,675 $351,062 $271,712
------- ------- ------- -------
Costs and operating expenses:
Cost of sales 146,101 110,851 285,079 222,300
Selling, general and administrative 19,139 15,031 38,173 30,406
------- ------- ------- -------
165,240 125,882 323,252 252,706
Operating income 14,916 9,793 27,810 19,006
Interest expense (3,057) (2,569) (5,816) (5,194)
Interest income 157 199 476 509
------- ------- ------- -------
Income before provision for income taxes 12,016 7,423 22,470 14,321
Provision for income taxes 3,605 2,279 6,749 4,329
------- ------- ------- -------
Net income $ 8,411 $ 5,144 $ 15,721 $ 9,992
------- ------- ------- -------
------- ------- ------- -------
Net income per share of common stock $ .46 $ .32 $ .86 $ .62
Average common shares outstanding 18,353 16,078 18,339 16,027
Dividends paid and declared per share
of common stock $ .12 $ .12 $ .24 $ .24
</TABLE>
The accompanying Notes to Condensed Consolidated Financial
Statements are an integral part of these statements.
4
<PAGE>
AAR CORP. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
For the Six Months Ended November 30, 1997 and 1996
(Unaudited)
(000s omitted)
<TABLE>
<CAPTION>
Six Months Ended
November 30,
-------------------------
1997 1996
----------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 15,721 $ 9,992
Adjustments to reconcile net income to net cash
provided from (used in) operating activities:
Depreciation and amortization 7,251 5,634
Change in certain assets and liabilities:
Accounts receivable (8,964) (12,878)
Inventories (24,185) (24,150)
Equipment on or available for
short-term lease (10,478) 7,943
Retirement benefit obligation, deferred taxes,
deposits and other (1,865) (526)
Accounts and notes payable and other liabilities 9,598 26,331
Accrued liabilities and taxes on income (4,980) (1,233)
------- -------
Net cash (used in) provided from operating activities (17,902) 11,113
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property, plant and equipment expenditures, net (6,326) (18,993)
Acquisition, less cash acquired (18,973) -
Investment in leveraged leases (8,723) 1,410
Notes receivable and other (4,023) (3,105)
------- -------
Net cash used in investing activities (38,045) (20,688)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Change in borrowings 14,032 (753)
Cash dividends (4,405) (3,854)
Purchase of treasury stock - (1,165)
Proceeds from exercise of stock options and other 1,573 1,233
------- -------
Net cash provided from (used in) financing activities 11,200 (4,539)
------- -------
Effect of exchange rate changes on cash 32 82
------- -------
Decrease in cash and cash equivalents (44,715) (14,032)
Cash and cash equivalents, beginning of period 51,705 33,606
------- -------
Cash and cash equivalents, end of period $ 6,990 $19,574
------- -------
</TABLE>
The accompanying Notes to Condensed Consolidated Financial
Statements are an integral part of these statements.
5
<PAGE>
AAR CORP. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
November 30, 1997
(000s omitted)
NOTE A - BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements include the
accounts of AAR CORP. ("the Company") and its subsidiaries after elimination of
intercompany accounts and transactions. These statements have been prepared by
the Company without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission ("SEC"). The condensed consolidated balance
sheet as of May 31, 1997 has been derived from audited financial statements. To
prepare the financial statements in conformity with generally accepted
accounting principles, management has made a number of estimates and assumptions
relating to the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities. Actual results could differ from those
estimates. Certain information and footnote disclosures, normally included in
financial statements prepared in accordance with generally accepted accounting
principles, have been condensed or omitted pursuant to such rules and
regulations of the SEC. These condensed consolidated financial statements should
be read in conjunction with the consolidated financial statements and notes
thereto included in the Company's latest annual report on Form 10-K.
In the opinion of management of the Company, the condensed consolidated
financial statements reflect all adjustments (which consist only of normal
recurring adjustments) necessary to present fairly the condensed consolidated
financial position of AAR CORP. and its subsidiaries as of November 30, 1997 and
the condensed consolidated results of operations for the three and six months
ended November 30, 1997 and 1996, and the condensed consolidated cash flows for
the six months ended November 30, 1997 and 1996. The results of operations for
such interim periods are not necessarily indicative of the results for the full
year. Certain prior period amounts have been reclassified to conform to the
November 30, 1997 presentation.
NOTE B - INVENTORY
The summary of inventories is as follows:
November 30, May 31,
1997 1997
------------ ---------
Raw materials and parts $ 42,056 $ 36,067
Work-in-process 15,229 15,477
Purchased aircraft, parts, engines and
components held for sale 149,127 124,212
Finished goods 1,475 1,165
--------- ---------
$207,887 $176,921
--------- ---------
--------- ---------
6
<PAGE>
AAR CORP. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
November 30, 1997 (Continued)
(000s omitted)
NOTE C - SUPPLEMENTAL CASH FLOWS INFORMATION
Supplemental information on cash flows:
Six Months Ended
November 30,
-----------------------
1997 1996
-------- --------
Interest paid $5,703 $5,150
Income taxes paid 2,850 2,525
Income tax refunds received 215 125
On October 24, 1997, the Company purchased the stock of ATR International,
Inc. (ATR), a company which engineers and manufactures composite parts and
structures for the aerospace/aviation industry. The Company acquired ATR for
approximately $19 million cash and the transaction was recorded under the
purchase method of accounting.
On June 2, 1997, the Company acquired substantially all of the assets and
assumed certain liabilities of Cooper Aviation Industries, Inc. (Cooper), a
distributor of factory-new aviation parts and accessories to the commercial,
regional/commuter and general aviation markets. The purchase price was paid
by issuing approximately 93 thousand common shares and the transaction was
recorded under the purchase method of accounting.
NOTE D - CUMULATIVE TRANSLATION ADJUSTMENTS
The cumulative translation adjustments account changed due to a net translation
loss of $1,534 for the six-month period ended November 30, 1997. The change
resulted from a decrease in the value of the Company's net investment in foreign
operations primarily resulting from an increase in the value of the U.S. dollar
against most European currencies. The noncash adjustment did not affect the
Company's results of operations.
NOTE E - COMMON STOCK AND NET INCOME PER SHARE OF COMMON STOCK
Net income per share is computed by dividing net income by the weighted average
number of shares of common stock outstanding during the period. Common stock
equivalents consisting of employee stock options have not been included in the
per share calculations as their dilutive effect is not material.
NOTE F - NEW ACCOUNTING STANDARDS
The Financial Accounting Standards Board issued SFAS No. 128 "Earnings Per
Share" in February, 1997. SFAS No. 128 was issued to simplify the computation
of earnings per share (EPS) calculations and to make U.S. standards more
compatible with the EPS standards of other countries and that of the
International Accounting Standards Committee. The standard replaces the
presentation of primary EPS with a presentation of basic EPS, and fully diluted
EPS with diluted EPS. The Company is required to adopt the provisions of SFAS
No. 128 in its third quarter of fiscal 1998.
7
<PAGE>
AAR CORP. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
November 30, 1997 (Continued)
(000s omitted)
NOTE F - NEW ACCOUNTING STANDARDS (CONTINUED)
SFAS No. 130, "Reporting Comprehensive Income" is effective for fiscal years
beginning after December 15, 1997. SFAS No. 130 establishes standards for the
reporting and display of comprehensive income and its components (revenues,
expenses, gains and losses) in a full set of general-purpose financial
statements. The Statement requires that all items that are required to be
recognized under accounting standards as components of comprehensive income be
reported in a financial statement that is displayed with the same prominence as
other financial statements. The Company is evaluating the Statement's
provisions to determine how it will present comprehensive income in its
financial statements. The Company will adopt SFAS No. 130 in fiscal 1999.
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information" is effective for financial statements for periods beginning after
December 15, 1997. SFAS No. 131 establishes standards for the way public
companies report financial and descriptive information about reportable
operating segments in annual financial statements and interim financial reports
issued to stockholders. SFAS No. 131 supersedes SFAS No. 14, "Financial
Reporting for Segments of a Business Enterprise", but retains the requirement to
report information about major customers. The Company is evaluating the new
Statement's provisions to determine the additional disclosures required in its
financial statements, if any, and will adopt SFAS No. 131 in its fourth quarter
of fiscal 1998.
NOTE G - SUBSEQUENT EVENTS
On December 15, 1997, the Company sold $60 million of 6.875% notes due December
15, 2007. The notes were priced at 99.80 to yield 6.903%.
On December 31, 1997, the Company acquired substantially all of the assets and
assumed certain liabilities of AVSCO Aviation Service Corporation (AVSCO), a
distributor of factory new parts and accessories to the commercial,
regional/commuter and general aviation markets. The purchase price of
approximately $18.4 million was paid for with a combination of cash and a note
and the transaction was recorded under the purchase method of accounting.
8
<PAGE>
PART I, ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
AAR CORP. AND SUBSIDIARIES
RESULTS OF OPERATIONS
(000s omitted except percent data)
THREE AND SIX-MONTH PERIOD ENDED NOVEMBER 30, 1997
- --------------------------------------------------
(as compared with the same period of the prior year)
The Company reports its activities in one business segment: Aviation Services.
The table below sets forth consolidated net sales for the Company's classes of
similar products and services within this segment for the three and six months
ended November 30, 1997 and 1996. Prior period amounts have been reclassified
to conform to the current year presentation.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
November 30, November 30,
------------------------ ------------------------
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net Sales:
Aircraft and Engines $ 76,943 $ 56,372 $156,724 $115,892
Airframe and Accessories 74,535 55,562 144,601 103,770
Manufacturing 28,678 23,741 49,737 52,050
------- ------- ------- -------
$180,156 $135,675 $351,062 $271,712
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
THREE-MONTH PERIOD ENDED NOVEMBER 30, 1997
- ------------------------------------------
(as compared with the same period of the prior year)
Consolidated net sales for the second quarter of the Company's fiscal year
ending May 31, 1998 (fiscal 1998) increased $44,481 or 32.8% over the same
period in the prior year. The Company experienced increased sales in all
three business groups as it continues to benefit from the successful
implementation of its long-term strategies and a favorable industry
environment. Aircraft and Engines sales increased $20,571 or 36.5% over the
prior year period reflecting strong growth in its engine and engine parts
businesses. Airframe and Accessories sales increased $18,973 or 34.1%
reflecting the inclusion of results of Cooper Aviation and increased demand
for certain aircraft maintenance and aircraft component repair services.
Manufacturing sales increased $4,937 or 20.8% over the prior year period
reflecting higher demand for its products supporting the United States
Government's rapid deployment program and its cargo loading and handling
systems, as well as the inclusion of approximately one month's sales of ATR.
Consolidated gross profit increased $9,231 or 37.2% over the prior year period
due to increased consolidated net sales and an increase in the consolidated
gross profit margin to 18.9 % from 18.3%. The increase in the consolidated gross
profit margin was primarily attributable to the favorable mix of inventories
sold in certain Aircraft and Engine businesses and improved margins in the
Company's principal Manufacturing business. Consolidated operating income
increased $5,123 or 52.3% and the Company's operating income margin increased to
8.3% compared to the prior year period's margin of 7.2% as a result of increased
net sales and gross profit, partially offset by higher selling, general and
administrative expenses. Selling, general and administrative expenses were
lower as a percentage of consolidated net sales, however, total expenses
increased principally due to the inclusion of Cooper and ATR and higher
marketing support and personnel costs.
Consolidated net income increased $3,267 or 63.5% over the prior year period due
primarily to the factors discussed above.
9
<PAGE>
PART I, ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
AAR CORP. AND SUBSIDIARIES
RESULTS OF OPERATIONS
(000s omitted except ratios)
SIX-MONTH PERIOD ENDED NOVEMBER 30, 1997
- --------------------------------------------------
(as compared with the same period of the prior year)
Consolidated net sales for the first half of fiscal 1998 increased $79,350 or
29.2% over the prior year period reflecting increased demand for the
Company's products and services. Aircraft and Engines sales increased
$40,832 or 35.2% over the prior year period due to higher sales in its engine
and engine parts businesses. The sales increase in the engine and engine
parts business continues to be driven by the success of the Company's
long-term inventory management programs. Airframe and Accessories sales
increased $40,831 or 39.3% reflecting sales from the acquisition of Cooper as
well as higher airframe parts trading sales and higher sales resulting from
increased aircraft maintenance and component repair services. Manufacturing
sales were $2,313 or 4.4% below the prior year period, reflecting lower sales
of its products supporting the United States Government's rapid deployment
program in the first quarter of fiscal 1998.
Consolidated gross profit increased $16,571 or 33.5% over the prior year period
due to increased consolidated net sales as well as an increase in the
consolidated gross profit margin to 18.8% from 18.2% in the prior year period.
The improvement in consolidated gross profit margin was due primarily to the mix
of inventories sold in certain Aircraft and Engines businesses. Consolidated
operating income increased $8,804 or 46.3% over the same six-month period in the
prior year, and the Company's operating income margin increased to 7.9% compared
to the prior year period's margin of 7.0% as a result of increased net sales,
partially offset by higher selling, general and administrative expenses.
Selling, general and administrative expenses were lower as a percentage of
consolidated net sales, however, total expenses increased principally due to the
inclusion of Cooper and ATR and higher marketing support and personnel costs.
Consolidated net income increased $5,729 or 57.3% primarily as a result of the
factors discussed above.
10
<PAGE>
PART I, ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
AAR CORP. AND SUBSIDIARIES
FINANCIAL CONDITION
(000s omitted except ratios)
AT NOVEMBER 30, 1997
At November 30, 1997, the Company's liquidity and capital resources included
cash of $6,990 and working capital of $298,255. At November 30, 1997, the
Company's ratio of long-term debt to capitalization was 29.5%, down from 30.3%
at May 31, 1997.
During the six month period ended November 30, 1997, the Company's operations
used $17,902 of cash compared to $11,113 provided by operations in the six
month period ended November 30, 1996. The reduction in cash generated from
operations was due principally to inventory and related equipment investments
made as a result of the increases in demand for certain products and services.
During the six month period ended November 30,1997, the Company's investing
activities used $38,045 of cash, compared to $20,688 in the six month period
ended November 30, 1996. This increase is attributable to the purchase of ATR
for approximately $19,000 and an investment in a new leveraged lease for $8,320
partially offset by a reduction in capital expenditures during the six month
period. Cash provided from financing activities during the six month period
ended November 30, 1997 was $11,200, compared to $4,539 used in financing
activities for the six month period ended November 30, 1996. The increase in
cash provided from financing activities was primarily the result of an increase
to short-term borrowings under the Company's credit facilities, partially offset
by the repayment of $6,942 of debt assumed in the Cooper acquisition.
On December 15, 1997, the Company sold $60 million of 6.875% notes due December
15, 2007. The notes were priced at 99.80 to yield 6.903%. Proceeds from the
offering will be used to pay down short-term interest-rate-sensitive-bank lines
and to continue to build the business through acquisitions, internal development
and advantageous inventory purchases.
The Company believes that its cash and cash equivalents and available sources
of financing will continue to provide the Company with the ability to meet
its ongoing working capital requirements, make anticipated capital
expenditures, meet contractual commitments, and pay dividends. A summary of
key financial conditions, ratios, and lines of credit follows:
November 30, May 31,
Description 1997 1997
----------------- ------------ ----------
Working capital $298,255 $314,119
Current ratio 3.2:1 4.1:1
Bank credit lines:
Borrowings outstanding $ 21,693 $ --
Available but unused lines 129,330 136,283
------------ -----------
Total credit lines $151,023 $136,283
------------ -----------
------------ -----------
Long-term debt, less current maturities $118,508 $116,818
Ratio of long-term debt to capitalization 29.5% 30.3%
11
<PAGE>
PART I, ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
AAR CORP. AND SUBSIDIARIES
FINANCIAL CONDITION (CONTINUED)
(000s omitted except ratios)
AT NOVEMBER 30, 1997 (CONTINUED)
Currently, all of the Company's major financial systems and the significant
business applications in the Company's engine and airframe parts trading
operations are Year 2000 compliant. Recently, the Company has undertaken a
systems enhancement program for other business applications which will
substantially enhance the capabilities of the Company's information technology
systems, including a substantial upgrade to the information systems in the
Company's recently acquired new parts distribution businesses. All of the
Company's business applications will be Year 2000 compliant after the
aforementioned enhancements have been made. The capital outlay associated with
the upgrade of the Company's information systems is not expected to have a
material impact on the Company's financial position or results of operations.
12
<PAGE>
PART II - OTHER INFORMATION
AAR CORP. and Subsidiaries
November 30, 1997
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Stockholders of the Company was held on
October 8, 1997. The following four items were acted upon at the
meeting:
1) Election of three Class I directors to serve until the 2000 Annual
Meeting of Stockholders.
There were no abstentions and no broker non-votes for any of the
nominees for director. The number of votes cast for, or withheld, for
each nominee for director were as follows:
For Withheld
----------- --------
Erwin E. Schulze 16,208,157 -
Joel D. Spungin 16,210,520 -
David P. Storch 16,210,274 -
2) Amendment to the Company's Stock Benefit Plan to limit to 300,000 the
number of shares of Common Stock that may be granted under the Plan to
any grantee during any 12-month period.
The results of the vote were as follows:
For 16,081,350
Against 117,717
Abstain 38,802
3) Approval of performance goals established by the Compensation
Committee of the Board of Directors of the Company under the
performance restricted stock incentive program for David P. Storch,
the Company's Chief Executive Officer, as described in the
Company's proxy statement dated August 28, 1997.
The results of the vote were as follows:
For 15,970,278
Against 223,464
Abstain 44,127
4) Approval of the AAR Corp. Section 162 (m) performance-based annual
cash bonus program adopted by the Compensation Committee of the Board
of Directors of the Company to executive officers of the Company,
as described in the Company's proxy statement dated August 28, 1997.
The results of the vote were as follows:
For 16,053,527
Against 140,746
Abstain 43,596
No other matters were presented to the Company's stockholders for action at
the Annual Meeting of Stockholders.
13
<PAGE>
PART II - OTHER INFORMATION
AAR CORP. and Subsidiaries
November 30, 1997
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
10. Material Contracts 10.1 Third amendment dated May 6, 1997 to AAR
CORP. Stock Benefit Plan.
10.3 Fourth and Fifth amendments to
Employment agreement dated August 1, 1985
between the Registrant and Ira A. Eichner
dated October 9, 1996 and October 31,
1997, respectively.
10.7 Second and Third amendments to Employment
agreement dated June 1, 1994 between the
Registrant and David P. Storch dated May
29, 1997 and July 14, 1997, respectively.
10.8 Amended and Restated Severance and Change
in Control agreement dated April 8, 1997
between the Registrant and Philip C.
Slapke.
10.9 Amended and Restated Severance and Change
in Control agreement dated April 8, 1997
between the Registrant and Howard A.
Pulsifer.
10.10 Amended and Restated Severance and Change
in Control agreement dated April 8, 1997
between the Registrant and Timothy J.
Romenesko.
27. Financial 27.1 Financial Data Schedule for the
Data Schedule Registrant's six-month interim period
ended November 30, 1997.
(b) REPORTS ON FORM 8-K FOR QUARTER ENDED NOVEMBER 30, 1997:
The Company filed no reports on Form 8-K during the three months ended
November 30, 1997.
14
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AAR CORP.
------------------------------
(Registrant)
Date: January 13, 1998 /s/ Timothy J. Romenesko
------------------ --------------------------------------
Timothy J. Romenesko
Vice President and Chief Financial Officer
(Principal accounting officer and officer
duly authorized to sign on behalf of
registrant)
15
<PAGE>
THIRD AMENDMENT TO
AAR CORP. STOCK BENEFIT PLAN
WHEREAS, AAR CORP. (the "Company") adopted the AAR CORP. Stock Benefit
Plan (the "Plan"), amended the Plan by a First Amendment dated July 29, 1996,
and a Second Amendment dated January 2, 1997, and reserved the right to further
amend the Plan; and
WHEREAS, the Company deems it to be in its best interest to further amend
the Plan as described below;
NOW, THEREFORE, the Plan is hereby amended as follows, effective as of
April 8, 1997:
1. Section 2.4 is amended to read as follows:
2.4 "Change in Control" means the earliest of:
(a) any person (as such term is used in Section 13(d) of
the Securities Exchange Act of 1934, as amended
("Exchange Act")), has acquired (other than directly
from the Company) beneficial ownership (as that term
is defined in Rule 13d-3 under the Exchange Act), of
more than 20% of the outstanding capital stock of the
Company entitled to vote for the election of directors;
(b) the commencement by an entity, person, or group (other
than the Company or a subsidiary of the Company) of a
tender offer or an exchange offer for more than 20% of
the outstanding voting stock of the Company;
(c) the effective time of (i) a merger or consolidation or
other business combination of the Company with one or
more other corporations as a result of which the
holders of the outstanding voting stock of the Company
immediately prior to such business combination hold
less than 60% of the voting stock of the surviving or
resulting corporation, or (ii) a transfer of
substantially all of the assets of the Company other
than to an
<PAGE>
entity of which the Company owns at least 80% of the
voting stock; or
(d) the election, over any period of time, to the Board of
Directors of the Company without the recommendation or
approval of the incumbent Board of Directors of the
Company, of the lesser of (i) three directors, or (ii)
directors constituting a majority of the number of
directors of the Company then in office; or
(e) the occurrence of any arrangement or understanding
relating to the Company which would give rise to a
filing requirement with the Securities and Exchange
Commission pursuant to Rule 14F-1 of the Exchange Act
Rules under the Securities Exchange Act of 1934.
2. Section 4.3 is added to read as follows:
4.3 The total number of Shares with respect to which Options or
Limited Rights, or any combination thereof, may be granted
under the Plan to any Grantee during any 12 month period
shall not exceed 300,000 Shares.
3. The following paragraph is added at the end of Section 11:
Notwithstanding the provisions of the preceding paragraph, a
Grantee, at any time prior to his death, may assign all or any
portion of an Award granted to him (other than an ISO) to (i) his
spouse or lineal descendant, (ii) the trustee of a trust for the
primary benefit of his spouse or lineal descendant, (iii) a
partnership of which his spouse and lineal descendants are the
only partners, or (iv) a tax exempt organization as described in
Section 501(c)(3) of the Code. In such event, the spouse, lineal
descendant, trustee, partnership or tax exempt organization will
be entitled to all of the rights of the Grantee with respect to
the assigned portion of such Award, and such portion of the Award
will continue to be subject to all of the terms, conditions and
restrictions applicable to the Award, as set forth herein, and in
the related Option Agreement, Restricted Stock Agreement or
Limited Right Agreement, immediately prior to the effective date
of the assignment. Any such assignment will be permitted only if
(i) the Grantee does not receive any consideration therefor, and
(ii) the assignment is expressly approved by the Company. Any
such assignment shall be evidenced by an appropriate written
document executed by the Grantee, and a copy thereof shall be
delivered to the Company on or prior to the effective date of the
assignment. This paragraph shall apply to all Awards granted
under the Plan at any time.
2
<PAGE>
This Third Amendment has been executed by the Company, by its duly
authorized officer, on this 6th day of May, 1997 and attested by its
Secretary.
AAR CORP.
By /s/ David P. Storch
--------------------------------------
David P. Storch, President and
Chief Executive Officer
ATTEST:
/s/ Howard A. Pulsifer
- -----------------------------------
Howard A. Pulsifer, Secretary
SEAL
3
<PAGE>
Exhibit 10.3
AMENDMENT NO. 4 TO
FURTHER RESTATED AND AMENDED
EMPLOYMENT AGREEMENT DATED AUGUST 1, 1985
BY AND BETWEEN AAR CORP. AND IRA A. EICHNER
This AMENDMENT NO. 4 made this 9th day of October, 1996 by and between
AAR CORP., a Delaware corporation (the "Company") and Ira A. Eichner
("Employee").
WHEREAS, the Company and Employee entered into the Further Restated and
Amended Employment Agreement dated August 1, 1985 (the "Employment
Agreement"); and
WHEREAS, the Company and Employee further amended the Employment
Agreement by amendments dated August 12, 1988, May 25, 1990 and July 13,
1994; and
WHEREAS, the Company and Employee desire to further amend the Employment
Agreement as hereinafter set forth to reflect certain mutually agreed upon
changes to the terms and conditions thereof;
NOW THEREFORE, in consideration of the premises and mutual covenants
herein contained, the Company and Employee do hereby covenant and agree as
follows:
1. Subparagraph (d) of paragraph 11 of the Employment Agreement is
deleted and the following is inserted in lieu thereof.
(d) In addition to the Trust referred to in subparagraph (a) above,
the Company shall also enter into a trust agreement with a bank or trust
company (with a combined capital and surplus in excess of $100 million
dollars) located in
<PAGE>
the continental United States as trustee, whereby the Company shall agree
to establish and contribute to, a trust ("Trust No. 2") for the purpose of
accumulating additional assets to assist it in fulfilling its obligations
to Employee hereunder. The Company shall make an aggregate contribution
to Trust No. 2 in calendar year 1996 in the amount of $1,652,000, plus an
estimated amount for trust expenses, which shall be used by the trustee
of Trust No. 2 to provide the Retirement Benefit payable to Employee
hereunder and trust expenses. From time to time, the Company shall make
additional contributions to Trust No. 2 as shall be necessary to provide
for the Retirement Benefit payable to Employee hereunder and estimated
trust expenses. At the time set forth in Trust No. 2, the trustee
thereof shall transfer all of the assets of Trust No. 2 to the trustee
of the Trust referred to in subparagraph (a) and thereafter Trust No. 2
shall terminate.
(e) Each contribution to the Trust and to Trust No. 2 to be made by
the Company pursuant to this paragraph 11 shall be in an amount or
amounts determined by the independent actuary, or firm of independent
actuaries, regularly employed to provide actuarial services for the
Company.
2. The first sentence of subparagraph (h) of paragraph 14 of the
Employment Agreement is amended to read as follows:
"(h) `Retirement Benefit' shall mean an annual amount equal (subject
to adjustment as hereinafter provided) to 80% of Employee's Average
Annual Total Cash Compensation, reduced by (1) the Income Tax Offset,
and (2) the Defined Benefit Plan Offset."
2
<PAGE>
3. Clause (ii) of subparagraph (h) of paragraph 14 of the Employment
Agreement is amended to read as follows:
"(ii) `Income Tax Offset' with respect to any annual Retirement
Benefit payment made to Employee from the Trust shall mean an assumed
aggregate federal, state and local income tax rate of 31.87%.
IN WITNESS WHEREOF, the Company has caused this Amendment No. 4 to be
executed in its name by its duly authorized officer and Employee has hereunto
set his hand on this 31st day of October, 1996.
AAR CORP.
By: /s/ Howard A. Pulsifer
-----------------------------------
Howard A. Pulsifer, Vice President
/s/ Ira A. Eichner
-----------------------------------
Ira A. Eichner
3
<PAGE>
AMENDMENT NO. 5 TO
FURTHER RESTATED AND AMENDED
EMPLOYMENT AGREEMENT DATED AUGUST 1, 1985
BY AND BETWEEN AAR CORP. AND IRA A. EICHNER
This AMENDMENT NO. 5 made this 8th day of October, 1997 by and between
AAR CORP., a Delaware corporation (the "Company") and Ira A. Eichner
("Employee").
WHEREAS, the Company and Employee entered into the Further Restated and
Amended Employment Agreement dated August 1, 1985 (the "Employment
Agreement"); and
WHEREAS, the Company and Employee further amended the Employment
Agreement by amendments dated August 12, 1988, May 25, 1990, July 13, 1994,
and October 9, 1996; and
WHEREAS, the Company and Employee desire to further amend the Employment
Agreement as hereinafter set forth to reflect certain mutually agreed upon
changes to the terms and conditions thereof;
NOW THEREFORE, in consideration of the premises and mutual covenants
herein contained, the Company and Employee do hereby covenant and agree as
follows:
1. Paragraph 14(h)(i) of the Employment Agreement is hereby amended to
read as follows:
"(i) "Average Annual Total Cash Compensation" shall mean the
Employee's average annual total cash compensation, including salary (salary
being measured prior to any salary deferrals made pursuant to the Profit
Sharing Plan), bonuses and other similar items paid or accrued by the Company
for the three
<PAGE>
complete fiscal years of employment with the Company, whether or not
consecutive, during which such total cash compensation was highest."
IN WITNESS WHEREOF, the Company has caused this Amendment No. 5 to be
executed in its name by its duly authorized officer and Employee has hereunto
set his hand on this 31st day of October, 1997.
AAR CORP.
By: /s/ Howard A. Pulsifer
-----------------------------
Howard A. Pulsifer,
Vice President
/s/ Ira A. Eichner
-----------------------------
Ira A. Eichner
<PAGE>
Amendment No. 2
to Employment Agreement dated June 1, 1994
BY AND BETWEEN AAR CORP. AND DAVID P. STORCH
THIS AMENDMENT NO. 2 made this 29 day of May, 1997, by and between AAR
CORP., a Delaware corporation ("Company"), and David P. Storch ("Employee");
WHEREAS, the Company and Employee entered into an Employment Agreement
dated as of June 1, 1994, as amended on October 9, 1996 ("Agreement"), and
WHEREAS, the Company and Employee desire to further amend the Agreement as
set forth below;
NOW, THEREFORE, in consideration of the premises and mutual agreements
herein set forth, the parties agree to amend the Agreement as follows:
1. The second paragraph of subparagraph (a) of paragraph 9 is amended to
read as follows:
The term "Cause" means:
(A) Employee engages, during the performance of his duties hereunder, in
acts or omissions constituting dishonesty, intentional breach of fiduciary
obligation or intentional wrongdoing or malfeasance;
(B) Employee intentionally disobeys or disregards a lawful and proper
direction of the Board or the Company; or
<PAGE>
(C) Employee materially breaches the Agreement and such breach by its
nature, is incapable of being cured, or such breach remains uncured for more
than 10 days following receipt by Employee of written notice from the Company
specifying the nature of the breach and demanding the cure thereof. For
purposes of this clause (C), a material breach of the Agreement that involves
inattention by Employee to his duties under the Agreement shall be deemed a
breach capable of cure.
Without limiting the generality of the foregoing, the following shall not
constitute Cause for the termination of the employment of Employee or the
modification or diminution of any of his authority hereunder:
(1) any personal or policy disagreement between Employee and the Company
or any member of the Board, or
(2) any action taken by Employee in connection with his duties hereunder,
or any failure to act, if Employee acted or failed to act in good faith and in
a manner he reasonably believed to be in and not opposed to the best interest
of the Company and he had no reasonable cause to believe his conduct was
unlawful; or
(3) termination of employment of Employee for unsatisfactory performance
(including failure to meet financial goals).
Termination for Cause shall be limited to a good faith finding by
resolution of the Board, setting forth the particulars thereof. Any such
resolution shall be final and binding upon Employee.
2
<PAGE>
2. Subparagraph (a) of paragraph 12 is amended to read as follows:
(a) In the event:
(I) a Change in Control of the Company occurs, and
(ii) (A) at any time during the 24 month period
commencing on the date of the Change in Control the
Company terminates Employee's employment for other
than Cause or Disability, or Employee terminates his
employment for Good Reason, in either case by written
notice to the other party (including the particulars
thereof), and having given the other party the
opportunity to be heard with respect thereto, or (B)
Employee's employment with the Company terminates for
any reason other than Disability or death during the
30 day period commencing on the expiration of the
aforementioned 24 month period, then:
(1) The Company shall promptly pay to Employee in a
lump sum (A) all base salary earned through the
date of termination, (B) any cash bonus earned
by Employee for the fiscal year of the Company
most recently ended prior to the date of
termination to the extent unpaid on
3
<PAGE>
the date of termination, (C) a prorata portion
of the cash bonus Employee would have earned had
he been employed by the Company on the last day
of the fiscal year in which the date of
termination occurs (assuming all performance
targets have been met) that is applicable to the
period commencing on the first day of such
fiscal year and ending on the date of
termination, and (D) any and all other benefits
and amounts earned by Employee prior to the date
of termination to the extent unpaid, all subject
to applicable withholding.
(2) The Company shall promptly pay to Employee in a
lump sum, a cash payment in an amount equal to
three times Employee's total compensation (base
salary plus cash bonus) for either the fiscal
year of the Company most recently ended prior to
the date of termination, or the preceding fiscal
year, whichever is the highest total
compensation, or such lesser amount as Employee
may elect to take, subject to applicable
withholding. Employee
4
<PAGE>
may elect to take payment of any amounts on a
schedule of his own choosing; provided that such
schedule shall be completed no later than three
years from the date of Employee's termination of
employment.
(3) Employee and his dependents shall continue to be
covered by, and receive benefits in accordance
with the terms of, all of the Company's medical,
dental and life insurance plans for three years
following the date of termination, and at no
less than the levels he and his dependents were
receiving immediately prior to the Change in
Control. Employee's dependents shall be
entitled to continued coverage pursuant to the
preceding sentence for the balance of such three
year period in the event of Employee's death
during such period. The period during which
Employee and his dependents are entitled to
continuation of group health plan coverage
pursuant to Section 4980B of the Internal
Revenue Code of 1986, as amended, and Part
5
<PAGE>
6 of Title I of the Employee Retirement Income
Security Act of 1974, as amended, shall commence
on the date next following the expiration of the
aforementioned three year period.
(4) Employee shall receive an additional retirement
benefit, over and above that which Employee
would normally be entitled to under the
Company's retirement plans or programs
applicable to Employee, equal to the actuarial
equivalent of the additional amount that
Employee would have earned under such retirement
plans or programs had he accumulated three
additional continuous years of service. Such
amount shall be paid to Employee in a cash lump
sum payment at his normal retirement age, as
defined in the AAR CORP. Retirement Plan or any
successor plan. Alternatively, Employee may
elect to receive such payment at his early
retirement age, as defined in the AAR CORP.
Retirement Plan or any successor plan, with a
corresponding
6
<PAGE>
actuarial reduction in the amount of such
payment, based upon the earlier date of payment.
(5) The Company, at its expense, shall provide
Employee with outplacement services of a
nationally recognized outplacement firm until
the earlier of (a) the Employee's attainment of
employment, or (b) the date eighteen months from
the date of Employee's termination of
employment; provided, however, that the cost of
such outplacement services shall not exceed 3.5%
of the cash payment due to Employee pursuant to
subparagraph 12(a)(2) above.
3. Paragraphs (c) and (d) of Section 12 are redesignated as paragraphs
(d) and (e) respectively, and paragraph (c) is added to Section 12 as follows:
(c) In the event that a Change in Control has occurred, both for
purposes of this Agreement and for purposes of the AAR CORP.
Stock Benefit Plan, as amended ("Plan"), whether or not such
Change in Control has the prior written approval of a majority of
the Continuing Directors (as defined in the Plan), and
notwithstanding
7
<PAGE>
any conditions or restrictions contained in any agreement between
the Company and Employee related to any Award granted to Employee
under the Plan, all option grants and restricted stock awards
provided for hereunder which have not then become vested
(including released restrictions) or exercisable, shall
immediately become exercisable or vested, as the case may be, all
performance shares to be awarded hereunder shall be immediately
awarded assuming targeted 100% achievement, and all Options or
Limited Rights, or both, granted to Employee under the Plan will
become immediately exercisable, and all restrictions on
Restricted Stock granted to Employee under the Plan will
immediately lapse.
4. Subparagraph (d)(i) of paragraph 12 is amended to read as
follows:
(I) Change in Control means the earliest of:
(a) any person (as such term is used in Section 13(d) of the
Securities Exchange Act of 1934, as amended ("Exchange
Act")), has acquired (other than directly from the Company)
beneficial ownership (as that term is defined in Rule 13d-3
under the Exchange Act), of more than 20% of the outstanding
capital stock of the Company entitled to vote for the
election of directors;
(b) the commencement by an entity, person, or group (other than
the Company or a subsidiary of the Company) of a
8
<PAGE>
tender offer or an exchange offer for more than 20% of the
outstanding voting stock of the Company;
(c) the effective time of (I) a merger or consolidation or other
business combination of the Company with one or more other
corporations as a result of which the holders of the
outstanding voting stock of the Company immediately prior to
such business combination hold less than 60% of the voting
stock of the surviving or resulting corporation, or (ii) a
transfer of substantially all of the assets of the Company
other than to an entity of which the Company owns at least
80% of the voting stock;
(d) the election, over any period of time, to the Board of
Directors of the Company without the recommendation or
approval of the incumbent Board of Directors of the Company,
of the lesser of (i) three directors, or (ii) directors
constituting a majority of the number of directors of the
Company then in office; or
(e) the occurrence of any arrangement or understanding relating
to the Company which would give rise to a filing requirement
with the Securities and Exchange Commission pursuant to Rule
14F.1 of the Exchange Act Rules under the Securities
Exchange Act of 1934.
9
<PAGE>
5. Subparagraph (d)(ii)(1) of paragraph 12 is amended to read as
follows:
(1) a material reduction in the nature or scope of Employee's duties,
responsibilities, authority, power or functions from those enjoyed by
Employee immediately prior to the Change in Control, or a material
reduction in Employee's compensation (including benefits), occurring
at any time during the two-year period immediately after the Change in
Control; or
IN WITNESS WHEREOF, the Company has caused this Amendment No. 2 to be
executed in its name by its duly authorized officer, and Employee has hereunto
set his hand, on this 29 day of May, 1997.
AAR CORP.
By: /s/ Ira A. Eichner
------------------------------------
Ira A. Eichner, Chairman
/s/ David P. Storch
----------------------------------------
David P. Storch
10
<PAGE>
Amendment No. 3
to Employment Agreement dated June 1, 1994
BY AND BETWEEN AAR CORP. AND DAVID P. STORCH
THIS AMENDMENT NO. 3 made effective as of the 14th day of July, 1997, by
and between AAR CORP., a Delaware corporation ("Company"), and David P. Storch
("Employee");
WHEREAS, the Company and Employee entered into an Employment Agreement
dated as of June 1, 1994, as amended on October 9, 1996 and May 29, 1997
("Agreement"), and
WHEREAS, the stockholders of the Company approved the performance goals
for Employee established by the Compensation Committee of the Board of
Directors as set forth in this Amendment at the October 8, 1997 Annual Meeting
of Stockholders; and
WHEREAS, the Company and Employee desire to further amend the Agreement as
set forth below;
NOW, THEREFORE, in consideration of the premises and mutual agreements
herein set forth, the parties agree to amend the Agreement as follows:
That Appendix (i) to David P. Storch's Employment Agreement be amended to
read as follows:
<PAGE>
Appendix (i)
to Employment Agreement
dated June 1, 1994
AAR CORP.
CEO
LONG-TERM INCENTIVE COMPENSATION
RESPONSIBILITY AND AUTHORITY
The Compensation Committee of the Board of Directors will be responsible
for the administration of the CEO's long-term incentive compensation
arrangements. Any interpretation or adjustments will be by the Committee,
whose decision is final.
OVERALL STRUCTURE OF THE PLAN
Long-term incentive compensation for the CEO will consist of:
--> 200,000 options awarded at the beginning of the 4-year performance
period from date of appointment as CEO (July 9, 1996), vesting at 25%
of the award on each of the 4 anniversary dates of the award. This
grant will be made at fair market value as of the grant date.
--> Up to 15,000 restricted shares in each of the 4 years of the
performance period with the initial grant at the beginning of the
4-year performance period and subsequent grant on the next three
successive anniversary dates of the CEO's appointment as CEO. Award
will be made at fair market value on the date of the grant with
vesting of 33% of the award on each of the 3 anniversary dates
following the award. The actual number of shares granted is at the
discretion of the Committee.
--> Up to 360,000 performance units (payable in performance restricted
stock in the manner described below) to be determined at the end of
the four year performance period based on achievement of the following
specified performance goals in four categories over the 4-year
performance period:
A. The Company's cumulative percentage Total Return to Shareholders
as compared to that of the S&P 500 Composite Index Total Return
to Shareholders; and
B. The Company's cumulative percentage Total Return to Shareholders
as compared to that of its Peer Group Composite Index Total
Return to Shareholders; and
2
<PAGE>
C. The Company's average Return on Capital as compared to that of
the S&P 500 Composite Index Average Return on Capital; and
D. The Company's average Return on Capital as compared to that of
the Company's Peer Group Composite Index Average Return on
Capital.
- Restricted shares will be awarded out of treasury shares
according to the performance unit matrix below upon completion of
the four year performance period ending July 9, 2000.
- One share of restricted stock will be awarded for each
performance unit earned subject to a maximum dollar value of
$12,690,000 based on the NYSE closing price for the Company's
Common Stock on July 9, 2000; provided, however, in the event Mr.
Storch's Employment Agreement is terminated following a Change in
Control of the Company (as defined in Mr. Storch's Employment
Agreement) occurring prior to July 9, 2000 pursuant to the Change
in Control provisions of Mr. Storch's Employment Agreement, the
above stated dollar value limit will be removed and one share of
restricted stock will be awarded for each performance unit
earned.
- The performance restricted shares awarded at the end of the four
year performance period will be restricted for three years: 50%
of the shares will vest on the first anniversary of the award;
50% of the shares will vest on the third anniversary of the
award.
- No shares will be awarded in any category of award in which the
result for AAR is negative.
- Change of control (as elsewhere defined in this agreement) will
cause all options under this plan to become vested/exercisable,
all restricted stock to vest and performance shares to be awarded
assuming target (100%) achievement.
- At the direction of the Compensation Committee, transactions
which significantly alter the capital structure of AAR may be
excluded from the measurement period (in whole or in part) in a
manner determined by the Committee.
3
<PAGE>
PERFORMANCE UNIT AWARD MATRIX*
% of Target Achieved** Shares Award for Each of the Four Criteria
-------------------- ------------------------------------------
0-80 0
81 30,000
100 60,000
120 75,000
120+ 90,000
* Results between the amounts on the schedule will be calculated
by linear interpolation.
** With respect to Total Return to Shareholders goals, 100% achievement
will be the median of the S&P 500 and the 60th percentile of the Peer
Group; with respect to the Return on Capital goals, 100% achievement will
be 80% of the median of the S&P 500 and 60th percentile of the Peer Group.
- --> 360,000 options awarded in accordance with the following schedule:
Issue Date # of Option Shares
---------------- ------------------
July 14, 1997 100,000
January 1, 1998 130,000
January 1, 1999 130,000
- All such options will vest at the end of the performance period on
July 9, 2000; provided, however, in the event the dollar value limit
on the performance restricted stock award is removed due to a Change
in Control of the Company as described above, options not yet granted
under the above schedule shall not be awarded and any such options
already awarded shall lapse. The exercise price of all such options
will be $35.25, the NYSE closing price on July 14, 1997, the date of
Compensation Committee approval of this performance stock program.
DEFINITIONS:
- -----------
- - Total Return to Shareholders -- Cumulative price appreciation plus
dividends (reinvested).
- - Peer Group -- Selected companies used from time to time for performance
comparison in AAR proxy. Any deletions or additions to the peer group
during the performance period will cause measurement/calculation changes
4
<PAGE>
on a prospective basis from the date of the change in the peer group
(beginning of the fiscal year in which the proxy is issued).
- - Return on Capital -- Earnings before interest and taxes (EBIT) divided by
total capital (debt plus equity minus cash).
IN WITNESS WHEREOF, the Company has caused this Amendment No. 3 to be
executed in its name by its duly authorized officer, and Employee has hereunto
set his hand, on this 12th day of November, 1997.
AAR CORP.
By: /s/ Ira A. Eichner
-----------------------------
Ira A. Eichner, Chairman
/s/ David P. Storch
-----------------------------
David P. Storch
5
<PAGE>
AMENDED AND RESTATED
SEVERANCE AND CHANGE IN CONTROL AGREEMENT
This Amended and Restated Severance and Change in Control
Agreement ("Agreement") made and entered into as of the 8th
day of April, 1997, by and between AAR CORP., a Delaware
corporation ("Company"), and Philip C. Slapke ("Employee").
WHEREAS, the Company currently employs Employee as an employee at will in the
capacity of Vice President-Trading Group; and
WHEREAS, Employee desires the Company to pay Employee certain severance payments
upon a Change in Control of AAR CORP. and upon termination of employment prior
to a Change in Control; and
WHEREAS, the Company is willing to pay Employee severance payments under certain
circumstances if Employee agrees to confidentiality, non-compete and certain
other covenants.
NOW, THEREFORE, in consideration of the mutual agreements herein set forth and
other good and valuable consideration, the parties hereto agree as follows:
1. EMPLOYMENT. Employee will continue employment with the Company as an at
will employee subject to the terms and conditions hereinafter set forth.
2. DUTIES. During the continuation of his employment, Employee shall:
(a) well and faithfully serve the Company and do and perform assigned
duties and responsibilities in the ordinary course of his
employment and the business of the Company (within such limits as
the Company may from time to time prescribe), professionally,
faithfully and diligently.
(b) devote his full time, energy and skill to the business of the
Company and his assigned duties and responsibilities, and to the
promotion of the best interests of the Company; provided that
Employee shall not (to the extent not inconsistent with Section 4
below) be prevented from (a) serving as a director of any
corporation consented to in advance in writing by the Company, (b)
engaging in charitable, religious, civic or other non-profit
community activities, or (c) investing his personal assets in such
form or manner as will not require any substantial services on his
part in the operation or affairs of the business in which such
investments are made or which would detract from or interfere or
cause a conflict of interest with performance of his duties
hereunder.
(c) observe all policies and procedures of the Company in effect from
time to time applicable to employees of the Company including,
without limitation, policies with respect to employee loyalty and
prohibited conflicts of interest.
<PAGE>
3. CONFIDENTIAL INFORMATION, ASSIGNMENT OF INVENTIONS.
(a) Employee acknowledges that the trade secrets, confidential
information, secret processes and know-how developed and acquired
by AAR CORP. and its affiliates or subsidiaries (together the
"Affiliated Companies") are among their most valuable assets and
that the value of such information may be destroyed by
unauthorized disclosure. All such trade secrets, confidential
information, secret processes and know-how imparted to or learned
by Employee in the course of his employment with respect to the
business of the Affiliated Companies (whether acquired before or
after the date hereof) will be deemed to be confidential and will
not be used or disclosed by Employee, except to the extent
necessary to perform his duties and, in no event, disclosed to
anyone outside the employ of the Affiliated Companies and their
authorized consultants and advisors, unless (i) such information
is or has been made generally available to the public, (ii)
disclosure of such information is required by law in the opinion
of Employee's counsel (provided that written notice thereof is
given to Company as soon as possible but not less than 24 hours
prior to such disclosure), or (iii) express written authorization
to use or disclose such information has been given by the Company.
If Employee ceases to be employed by the Company for any reason,
he shall not take with him any electronically stored data,
documents or other papers containing or reflecting trade secrets,
confidential information, secret processes, know-how, or computer
software programs. Employee acknowledges that his employment
hereunder will place him in a position of utmost confidence and
that he will have access to confidential information concerning
the operation of the business of the Affiliated Companies,
including, but not limited to, manufacturing methods,
developments, secret processes, know-how, computer software
programs, costs, prices and pricing methods, sources of supply and
customer names and relations. All such information is in the
nature of a trade secret and is the sole and exclusive property of
the Affiliated Companies and shall be deemed confidential
information for the purposes of this paragraph.
(b) Employee hereby assigns to the Company all rights that Employee
may have as author, designer, inventor or otherwise as creator of
any written or graphic material, design, invention, improvement,
or any other idea or thing whatever that Employee may write, draw,
design, conceive, perfect, or reduce to practice during employment
with the Company or within 120 days after termination of such
employment, whether done during or outside of normal work hours,
and whether done alone or in conjunction with others
("Intellectual Property"), provided, however, that Employee
reserves all rights in anything done or developed entirely by
Employee on Employee's own personal time and without the use of
any Company equipment, supplies, facilities or information, or the
participation of any other Company employee, unless it relates to
the Company's business or reasonably anticipated business, or
grows out of any work performed by Employee for the Company.
Employee will promptly disclose all such Intellectual Property
developed by Employee to the Company, and fully cooperate at the
Company's request and expense in any efforts by the Company or its
assignees to secure protection for such Intellectual Property by
way of domestic or foreign patent, copyright, trademark or service
mark registration or otherwise, including executing specific
assignments or such other documents or taking such further action
as may be considered necessary
2
<PAGE>
to vest title in Company or its assignees and obtain patents or
copyrights in any and all countries.
4. NON-COMPETE; SEVERANCE.
(a) Employee agrees that during his continuation of employment with
the Company and for one (1) year thereafter so long as the Company
makes the severance payments to Employee pursuant to subsections
4(b) or 4(c) below, he shall not, without the express written
consent of the Company, either alone or as a consultant to, or
partner, employee, officer, director, or stockholder of any
organization, entity or business, (i) take or convert for
Employee's personal gain or benefit or for the benefit of any
third party, any business opportunities which may be of interest
to the Company or any Affiliated Company which Employee becomes
aware of during the term of his employment; (ii) engage in direct
or indirect competition with the Company or any Affiliated Company
within 100 miles of any location within the United States of
America or any other country where the Company or any Affiliated
Company does business from time to time during the term hereof;
(iii) solicit in connection with any activity which is competitive
with any of the businesses of the Company or any Affiliated
Company, any customers of the Company or any Affiliated Company;
(iv) solicit for employment any sales, marketing or management
employee of Company or any Affiliated Company or induce or attempt
to induce any customer or supplier of the Company or any
Affiliated Company to terminate or materially change such
relationship. Company and Employee acknowledge the reasonableness
of the foregoing covenants not to compete and non-solicitation,
including but not limited to the geographic area and duration of
time which are a part hereof, and further, that the restrictions
stated in this Section 4 are reasonably necessary for the
protection of Employer's legitimate proprietary interests. This
covenant not to compete may be enforced with respect to any
geographic area in which the Company or any Affiliated Company
does business during the term hereof. Nothing herein shall
prohibit Employee from being the legal or equitable holder, solely
for investment purposes, of less than 5% of the capital stock of
any publicly held corporation which may be in direct or indirect
competition with the Company or any Affiliated Company.
(b) Upon termination of Employee's employment by the Company prior to
a Change in Control (as defined in 6(c)(i) below) for any reason
other than Cause (as defined in 6(c)(iv) below), the Company will
pay Employee severance each month for 12 months ("Severance
Period"), in an amount (subject to applicable withholding) equal
to 1/12 of Employee's base salary; and, further, the Company will
pay Employee a PIP bonus award in accordance with and subject to
the terms and conditions of Employee's PIP in a lump sum at the
time any such PIP bonuses are payable under the PIP or at such
time as the Severance Period is complete, whichever is later (with
interest at prime rate plus one percentage point from the earlier
of such dates), for any PIP bonuses earned (1) in the completed
fiscal year preceeding termination but not due and payable prior
to termination, and (2) prorata for the period prior to
termination of emloyment in any partial PIP fiscal year based on
Employee's performance against Employee's PIP during such partial
period; provided, however, that (i) all such monthly payment
obligations shall terminate immediately upon Employee obtaining
full time employment in a
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comparable position in terms of salary level, and (ii) all such
payment obligations shall terminate or lapse immediately upon any
breach by Employee of Section 3 or 4(a) of this Agreement or if
Employee shall commence any action or proceeding in any court or
before any regulatory agency arising out of or in connection with
termination of his employment.
(c) If Employee terminates his employment or Employee's employment is
terminated by the Company for Cause (as defined below), the
Company may elect (but is not required to), by written notice
thereof to Employee, within five (5) days of any such termination
of Employee's employment with the Company prior to a Change in
Control (as defined below), to pay Employee severance as provided
in and subject to the provisions of subsection 4(b) above.
(d) Employee may terminate this Severance and Change in Control
Agreement effective immediately upon notice thereof in writing to
Company at any time while still employed within a sixty (60)
calendar day period immediately following the effective date of
any reduction by Company in (i) Employee's level of responsibility
or position from that held by Employee as Vice President-Trading
Group on the effective date of this Agreement, or (ii) Employee's
level of compensation, including retirement benefits in effect
immediately prior to any such change.
(e) If at any time, any clause or portion of this Section 4 shall be
deemed invalid or unenforceable by the laws of the jurisdiction in
which it is to be enforced by reason of being vague or
unreasonable as to duration, geographic scope, nature of
activities restricted, or for any other reason, this provision
shall be considered divisible as to such portions and the
foregoing restrictions set forth in 4(a) shall become and be
immediately amended to include only such duration, scope or
restriction and such event as shall be deemed reasonable and
enforceable by the court or other body having jurisdiction to
enforce this Agreement; and the parties hereto agree that the
restrictions, as so amended, shall be valid and binding as though
the invalid or unenforceable portion had not been involved herein.
(f) The Employee acknowledges and agrees that the Company would be
irreparably harmed by violations of Section 3 or Section 4(a)
above, and in recognition thereof, the Company shall be entitled
to an injunction or other decree of specific performance with
respect to any violation thereof (without any bond or other
security being required) in addition to other available legal and
equitable remedies.
5. TERMINATION OF EMPLOYMENT.
(a) Upon and after termination of employment howsoever arising,
Employee shall, upon request by Company:
(1) immediately return to the Company all correspondence,
documents, business calendars/diaries, or other property
belonging to the Company which is in his possession,
(2) immediately resign from any office Employee holds with the
Company or any Affiliated Company; and
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(3) cooperate fully and in good faith with the Company in the
resolution of all matters Employee worked on or was involved
in during Employee's employment with the Company.
Employee's cooperation will include reasonable consultation
by telephone. Further, in connection therewith, Employee
will, at Company's request upon reasonable advance notice
and subject to Employee's availability, make himself
available to Company in person at Company's premises, for
testimony in court, or elsewhere; provided, however, that in
such event, Company shall reimburse all Employee's
reasonable expenses and pay Employee a reasonable per diem
or hourly stipend.
6. CHANGE IN CONTROL.
(a) In the event (i) a Change in Control of AAR CORP. occurs, and (ii)
(A) at any time during the 24 month period commencing on the date
of the Change in Control the Company terminates Employee's
employment for other than Cause or Disability, or Employee
terminates his employment for Good Reason, in either case by
written notice to the other party (including the particulars
thereof), and having given the other party the opportunity to be
heard with respect thereto, or (B) Employee's employment with the
Company terminates for any reason other than Disability or death
during the 30 day period commencing on the expiration of the
aforementioned 24 month period, and (iii) neither incumbent in the
positions of Chief Executive Officer or Chief Operating Officer of
the Company on the effective date hereof 1 is Chief Executive
Officer of the Company at the time of such termination of
employment, then:
(1) the Company shall promptly pay to Employee in a lump sum (A)
all base salary earned through the date of termination, (B)
any cash bonus earned by Employee for the fiscal year of the
Company most recently ended prior to the date of termination
to the extent unpaid on the date of termination, (C) a
prorata portion of the cash bonus Employee would have earned
had he been employed by the Company on the last day of the
fiscal year in which the date of termination occurs
(assuming all performance targets have been met) that is
applicable to the period commencing on the first day of such
fiscal year and ending on the date of termination, and (D)
any and all other benefits and amounts earned by Employee
prior to the date of termination to the extent unpaid, all
subject to applicable withholding.
(2) The Company shall promptly pay to Employee in a lump sum, a
cash payment in an amount equal to three times Employee's
total compensation (base salary plus cash bonus) for either
the fiscal year of the Company most recently ended prior to
the date of termination, or the preceding fiscal year,
whichever is the highest total compensation, or such lesser
amount as Employee may elect to take, subject to applicable
withholding. Employee may elect to take payment of any
amounts on a schedule of his own choosing; provided that
such schedule shall be completed no later than three years
from the date of Employee's termination of employment.
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<PAGE>
(3) Employee and his dependents shall continue to be covered by,
and receive benefits in accordance with the terms of, all of
the Company's medical, dental and life insurance plans for
three years following the date of termination, and at no
less than the levels he and his dependents were receiving
immediately prior to the Change in Control. Employee's
dependents shall be entitled to continued coverage pursuant
to the preceding sentence for the balance of such three year
period in the event of Employee's death during such period.
The period during which Employee and his dependents are
entitled to continuation of group health plan coverage
pursuant to Section 4980B of the Internal Revenue Code of
1986, as amended, and Part 6 of Title I of the Employee
Retirement Income Security Act of 1974, as amended, shall
commence on the date next following the expiration of the
aforementioned three year period.
(4) Employee shall receive an additional retirement benefit,
over and above that which Employee would normally be
entitled to under the Company's retirement plans or programs
applicable to Employee, equal to the actuarial equivalent of
the additional amount that Employee would have earned under
such retirement plans or programs had he accumulated three
additional continuous years of service. Such amount shall
be paid to Employee in a cash lump sum payment at his normal
retirement age, as defined in the AAR CORP. Retirement Plan
or any successor plan. Alternatively, Employee may elect to
receive such payment at his early retirement age, as defined
in the AAR CORP. Retirement Plan or any successor plan, with
a corresponding actuarial reduction in the amount of such
payment, based upon the earlier date of such payment.
(5) The Company, at its expense, shall provide Employee with
outplacement services of a nationally recognized
outplacement firm until the earlier of (a) the Employee's
attainment of employment, or (b) the date eighteen (18)
months from the date of Employee's termination of
employment; provided, however, that the cost of such
outplacement services shall not exceed 10% of Employee's
annual base salary.
(b) In the event that a Change in Control has occurred, both for
purposes of this Agreement and for purposes of the AAR CORP. Stock
Benefit Plan, as amended ("Plan"), whether or not such Change in
Control has the prior written approval of a majority of the
Continuing Directors (as defined in the Plan), and notwithstanding
any conditions or restrictions contained in any agreement between
the Company and Employee related to any Award granted to Employee
under the Plan, all Options or Limited Rights, or both, granted to
Employee under the Plan will become immediately exercisable, and
all restrictions on Restricted Stock granted to Employee under the
Plan will immediately lapse.
(c) For purposes of this Agreement
(i) "Change in Control" means the earliest of:
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(1) any person (as such term is used in Section 13(d) of
the Securities Exchange Act of 1934, as amended
("Exchange Act")), has acquired (other than directly
from the Company) beneficial ownership (as that term is
defined in Rule 13d-3 under the Exchange Act), of more
than 20% of the outstanding capital stock of the
Company entitled to vote for the election of directors;
(2) the commencement by an entity, person, or group (other
than the Company or a subsidiary of the Company) of a
tender offer or an exchange offer for more than 20% of
the outstanding voting stock of the Company;
(3) the effective time of (i) a merger or consolidation or
other business combingation of the Company with one or
more other corporations as a result of which the
holders of the outstanding voting stock of the Company
immediately prior to such business combination hold
less than 60% of the voting stock of the surviving or
resulting corporation, or a transfer of substantially
all of the assets of the Company other than to an
entity of which the Company owns at least 80% of the
voting stock;
(4) the election over any period of time to the Board of
Directors of the Company without the recommendation or
approval of the incumbent Board of Directors of the
Company, of the lesser of (i) three directors, or (ii)
directors constituting a majority of the number of
directors of the Company then in office; or
(5) the occurrence of any arrangement or understanding
relating to the Company which would give rise to a
filing requirement with the Securities and Exchange
Commission pursuant to Rule 14f-1 of the Exchange Act
Rules under the Securities Exchange Act of 1934.
(ii) "Good Reason" means:
(1) a material reduction in the nature or scope of
Employee's duties, responsibilities, authority, power
or functions from those enjoyed by Employee immediately
prior to the Change in Control, or a material reduction
in Employee's compensation (including benefits),
occurring at any time during the two-year period
immediately after the Change in Control; or
(2) a good faith determination by Employee that as the
result of a Change in Control and a material change in
employment circumstances at any time during the
immediate two year period after the Change in Control,
he is unable to carry out his assigned duties and
responsibilities in a manner consistent with the
practices, standards, values or philosophy of the
Company immediately prior to the Change in Control; or
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<PAGE>
(3) a relocation of the primary place of employment of at
least 100 miles.
(iii) "Disability" means:
(1) a physical or mental condition which has prevented
Employee from substantially performing his assigned
duties for a period of 180 consecutive days and which
is expected to continue to render Employee unable to
substantially perform his duties on a full-time basis
and otherwise meets the benefit eligibility
requirements of the Company's Long Term Disability
Welfare Benefit Plan. The Company will make reasonable
accommodation for any handicap of Employee as may be
required by applicable law.
In the event of termination by the Company for Disability
after a Change in Control, a good faith determination of
the existence of a Disability shall be made by resolution of
the Compensation Committee of the Board of Directors of the
Company, in its sole discretion, setting forth the
particulars of the Disability which shall be final and
binding upon the Employee. The Company may require the
submission of such medical evidence as to the condition of
the Employee as it may deem necessary in order to arrive at
its determination of the occurrence of a Disability, and
Employee will cooperate in providing any such information.
Employee will be provided with reasonable opportunity to
present additional medical evidence as to the medical
condition of Employee for consideration prior to the Board
making its determination of the occurrence of a Disability.
Upon termination of Employment by Company for Disability
after a Change in Control, Employee will receive Disability
payments pursuant to the Company's short and long term
Disability welfare benefit plans then in effect according to
the terms of such plans and continue to be eligible to
participate in the Company's medical, dental and life
insurance programs then in effect and available to officers
of the Company in accordance with their terms for a period
of 3 years from the date of such termination of this
Agreement.
(iv) "Cause" means:
(1) Employee engages, during the performance of his duties
hereunder, in acts or omissions constituting
dishonesty, intentional breach of fiduciary obligation
or intentional wrongdoing or malfeasance;
(2) Employee intentionally disobeys or disregards a lawful
and proper direction of the Board or the Company; or
(2) Employee materially breaches the Agreement and such
breach by its nature, is incapable of being cured, or
such breach remains uncured for more than 10 days
following receipt by Employee of written notice from
the Company specifying the nature of the breach of the
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Agreement that involves inattention by Employee to his
duties under the Agreement shall be deemed a breach capable
of cure.
Without limiting the generality of the foregoing, the following
shall not constitute Cause for the termination of the employment
of Employee or the modification or diminution of any of his
authority hereunder:
(1) any personal or policy disagreement between Employee and the
Company or any member of the Board; or
(2) any action taken by Employee in connection with his duties
hereunder, or any failure to act, if Employee acted or
failed to act in good faith and in a manner he reasonably
believed to be in and not opposed to the best interest of
the Company and he had no reasonable cause to believe his
conduct was unlawful, or
(3) termination of Employee's employment for overall
unsatisfactory performance (including, but not limited to,
failure to meet financial goals).
Termination for Cause shall be limited to a good faith finding by
resolution of the Compensation Committee of the Board, setting
forth the particulars thereof. Any such action shall be taken at
a regular or specially called meeting of the Compensation
Committee of the Board, after a minimum 10 days notice thereof to
Employee, with termination of Employee's employment with the
Company for Cause listed as an agenda item. Employee will be
given a reasonable opportunity to be heard at such meeting with
counsel present if Employee desires. Any such resolution shall
be final and binding.
Upon termination of employment by the Company for Cause, no
further compensation or benefits shall accrue or be payable to
Employee by the Company, except for any compensation, bonus or
other benefits which have accrued to Employee prior to the date
of any such termination.
Nothing herein shall be construed to prevent the Company from
terminating Employee's employment at any time for any reason or
for no reason.
(d) The Company will pay reasonable legal/attorney's fees incurred by
Employee in connection with enforcement of any right or benefit under
this Section 6.
7. CHANGES IN BUSINESS. The Company, acting through its Board of Directors,
will at all times have complete control over the Company's business and
retirement and other employee health and welfare benefit plans ("Plans").
Without limiting the generality of the foregoing, the Company may at any
time or times change or discontinue any or all of its present or future
operations or Plans (subject to their terms), may close or move any one or
more of its divisions or offices, may undertake any new servicing or sales
operation, may sell any one or more of its divisions or offices to any
company not controlled, directly or indirectly, by
9
<PAGE>
the Company or may take any and all other steps which its Board of
Directors, in its exclusive judgment, shall deem desirable, and Employee
shall have no claim or recourse against the Company, its officers,
directors or employees, by reason of such action except for enforcement of
the provisions of Section 4 and 6 of this Agreement.
8. SEVERANCE PAYMENT AS SOLE OBLIGATION. Except as expressly provided in
Sections 4 and 6 above, no further compensation, payments, liabilities or
benefits shall accrue or be payable to Employee upon or as a result of
termination of Employee's employment for any reason whatsoever except for
any compensation, bonus or other benefits which accrued to Employee prior
to the date of employment termination.
The amounts paid to the Employee under Section 4 and 6 of this Agreement
shall be considered severance pay in consideration of past services
Employee has rendered to the Company and in consideration of Employee's
continued service from the date hereof to entitlement to those payments.
9. NOTICES. Any notice or other instrument or thing required or permitted to
be given, served or delivered to any of the parties hereto shall be
delivered personally or deposited in the United States mail, with proper
postage prepaid, telegram, teletype, cable or facsimile transmission to the
addresses listed below:
(a) If to the Company, to:
AAR CORP.
1100 N. Wood Dale Road
Wood Dale, Illinois 60191
Attention: Chairman
With a copy to:
AAR CORP.
1100 N. Wood Dale Road
Wood Dale, Illinois 60191
Attention: General Counsel
(b) If to Employee, to:
Philip C. Slapke
10 Walnut Lane
S. Barrington, IL 60010
or to such other address as either party may from time to time designate by
notice to the other. Each notice shall be effective when such notice and
any required copy are delivered to the applicable address.
10. NON-ASSIGNMENT.
(a) The Company shall not assign this Agreement or any rights or
obligations hereunder without the prior written consent of Employee,
and any attempted
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<PAGE>
unpermitted assignment shall be null and void and without further
effect; provided, however, that, upon the sale or transfer of all or
substantially all of the assets of the Company, or upon the merger by
the Company into or the combination with another corporation or other
business entity, or upon the liquidation or dissolution of the
Company, this Agreement will inure to the benefit of and be binding
upon the person, firm or corporation purchasing such assets, or the
corporation surviving such merger or consolidation, or the shareholder
effecting such liquidation or dissolution, as the case may be. After
any such transaction, the term Company in this Agreement shall refer
to the entity which conducts the business now conducted by the
Company. The provisions of this Agreement shall be binding upon and
inure to the benefit of the estate and beneficiaries of Employee and
upon and to the benefit of the permitted successors and assigns of the
parties hereto.
(b) The Employee agrees on behalf of himself, his heirs, executors and
administrators, and any other person or person claiming any benefit
under him by virtue of this Agreement, that this Agreement and all
rights, interests and benefits hereunder shall not be assigned,
transferred, pledged or hypothecated in any way by the Employee or by
any beneficiary, heir, executor, administrator or other person
claiming under the Employee by virtue of this Agreement and shall not
be subject to execution, attachment or similar process. Any attempted
assigned, transfer, pledge or hypothecation or any other disposition
of this Agreement or of such rights, interests and benefits contrary
to the foregoing provisions or the levy or any execution, attachment
or similar process thereon shall be null and void and without further
effect.
11. SEVERABILITY. If any term, clause or provision contained herein is declared
or held invalid by any court of competent jurisdiction, such declaration or
holding shall not affect the validity of any other term, clause or
provision herein contained.
12. CONSTRUCTION. Careful scrutiny has been given to this Agreement by the
Company, Employee, and their respective legal counsel. Accordingly, the
rule of construction that the ambiguities of the contract shall be resolved
against the party which caused the contract to be drafted shall have no
application in the construction or interpretation of this Agreement or any
clause or provision hereof.
13. ENTIRE AGREEMENT. This Agreement and the other agreements referred to
herein set forth the entire understanding of the parties and supersede all
prior agreements, arrangements and communications, whether oral or written,
pertaining to the subject matter hereof.
14. WAIVER. No provision of this Agreement may be amended, modified, waived or
discharged unless such amendment, modification, waiver or discharge is
agreed to in writing signed by Employee and an authorized officer of the
Company. No waiver by either party hereto at any time of any breach by the
other party hereto of, or compliance with, any condition or provision of
this Agreement to be performed by such other party shall be deemed a waiver
of similar or dissimilar provisions or conditions at the same or at any
prior or subsequent time.
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15. GOVERNING LAW. The validity, interpretation, construction and performance
of this Agreement shall be governed by and construed in accordance with the
laws of the State of Illinois without regard to its conflicts of law
principles.
16. EXECUTION. This Agreement may be executed in multiple counterparts, each
of which shall be deemed an original and which shall constitute but one and
the same Agreement.
WITNESS the due execution of this Agreement by the parties hereto as of the day
and year first above written.
Employer:
AAR CORP.
By:/s/ David P. Storch
----------------------
Title: President
Employee:
/s/ Philip C. Slapke
- -------------------------
Philip C. Slapke
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ATTACHMENT 2
OUTLINE OF TERMS OF
SEVERANCE AND CHANGE IN CONTROL AGREEMENT
EMPLOYMENT:
- - Continuation of at-will employment relationship.
DUTIES:
- - Obligation of loyalty and commitment to perform assigned duties
professionally, faithfully and diligently on a full time basis and observe
all Company policies.
CONFIDENTIAL INFORMATION:
- - Employee agrees to treat Company information (and that of Affiliated
Companies) in a confidential manner and not to disclose such to third
parties without authorization.
ASSIGNMENT OF INVENTIONS:
- - Employee agrees to disclose and assign intellectual property rights
(inventions and copyrightable material conceived, made or written during
the term of employment to Company.
NON-COMPETE COVENANT:
- - Employee agrees not to compete with Company (or Affiliated Companies) or
solicit employees during employment and for a period of 12 months
thereafter so long as the Company pays severance to Employee or is excused
from doing so due to Employee's breach of the confidentiality/non-compete
covenants of the Agreement or the commencement of any action by Employee
against Company for termination of employment.
TERMINATION OF EMPLOYMENT/SEVERANCE:
- - If Employee's employment is terminated by Company for any reason other than
Cause prior to a Change in Control of AAR CORP., Company will pay 12 months
severance to Employee; the covenant not to compete will not be enforceable
if Company is in default of its obligation to pay severance. Company may
elect to pay severance to Employee upon Employee's termination of
employment or if he is terminated by Company for Cause.
<PAGE>
- - No severance is payable in the event Employee breaches the non-compete
covenants or commences any legal proceeding against the Company for termination
of employment.
TERMINATION OF AGREEMENT:
- - Employee may terminate the Agreement upon notice in writing to Company
within sixty (60) days after any reduction in employee's level of
responsibility or position from that held on the effective date or level of
compensation, including retirement benefits.
CHANGE IN CONTROL:
- - In the event of (1) a Change in Control (as defined in the Agreement) and
(2) termination of employment within 2 years thereafter by Company for
other than Cause or Disability (as defined in the Agreement), or Employee
terminates employment for Good Reason (as defined in the Agreement), and
(3) neither the CEO nor COO in office on the effective date are CEO at the
time of such termination of employment, the Company will
- pay Employee three (3) years severance
- continue medical, dental and life insurance for three (3) years
- provide a supplemental retirement benefit which is based on three
additional years of credited service
CHANGES IN COMPANY'S BUSINESS OR RETIREMENT/HEALTH & WELFARE PLANS:
- - Company reserves right to manage/change/terminate its businesses and
retirement and employee health and welfare plans.
THIS IS AN OUTLINE OF TERMS ONLY. PLEASE REFER TO AGREEMENT FOR ACTUAL TERMS
AND CONDITIONS WHICH SHALL BE CONTROLLING
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AMENDED AND RESTATED
SEVERANCE AND CHANGE IN CONTROL AGREEMENT
This Amended and Restated Severance and Change in Control
Agreement ("Agreement") made and entered into as of the 8th
day of April, 1997, by and between AAR CORP., a Delaware
corporation ("Company"), and Howard A. Pulsifer
("Employee").
WHEREAS, the Company currently employs Employee as an employee at will in the
capacity of Vice President, General Counsel & Secretary; and
WHEREAS, Employee desires the Company to pay Employee certain severance payments
upon a Change in Control of AAR CORP. and upon termination of employment prior
to a Change in Control; and
WHEREAS, the Company is willing to pay Employee severance payments under certain
circumstances if Employee agrees to confidentiality, non-compete and certain
other covenants.
NOW, THEREFORE, in consideration of the mutual agreements herein set forth and
other good and valuable consideration, the parties hereto agree as follows:
1. EMPLOYMENT. Employee will continue employment with the Company as an at
will employee subject to the terms and conditions hereinafter set forth.
2. DUTIES. During the continuation of his employment, Employee shall:
(a) well and faithfully serve the Company and do and perform
assigned duties and responsibilities in the ordinary course of his
employment and the business of the Company (within such limits as the
Company may from time to time prescribe), professionally, faithfully
and diligently.
(b) devote his full time, energy and skill to the business of the
Company and his assigned duties and responsibilities, and to the
promotion of the best interests of the Company; provided that
Employee shall not (to the extent not inconsistent with Section 4
below) be prevented from (a) serving as a director of any corporation
consented to in advance in writing by the Company, (b) engaging in
charitable, religious, civic or other non-profit community
activities, or (c) investing his personal assets in such form or
manner as will not require any substantial services on his part in
the operation or affairs of the business in which such investments
are made or which would detract from or interfere or cause a conflict
of interest with performance of his duties hereunder.
(c) observe all policies and procedures of the Company in effect
from time to time applicable to employees of the Company including,
without limitation, policies with respect to employee loyalty and
prohibited conflicts of interest.
<PAGE>
3. CONFIDENTIAL INFORMATION, ASSIGNMENT OF INVENTIONS.
(a) Employee acknowledges that the trade secrets, confidential
information, secret processes and know-how developed and acquired by
AAR CORP. and its affiliates or subsidiaries (together the
"Affiliated Companies") are among their most valuable assets and that
the value of such information may be destroyed by unauthorized
disclosure. All such trade secrets, confidential information, secret
processes and know-how imparted to or learned by Employee in the
course of his employment with respect to the business of the
Affiliated Companies (whether acquired before or after the date
hereof) will be deemed to be confidential and will not be used or
disclosed by Employee, except to the extent necessary to perform his
duties and, in no event, disclosed to anyone outside the employ of
the Affiliated Companies and their authorized consultants and
advisors, unless (i) such information is or has been made generally
available to the public, (ii) disclosure of such information is
required by law in the opinion of Employee's counsel (provided that
written notice thereof is given to Company as soon as possible but
not less than 24 hours prior to such disclosure), or (iii) express
written authorization to use or disclose such information has been
given by the Company. If Employee ceases to be employed by the
Company for any reason, he shall not take with him any electronically
stored data, documents or other papers containing or reflecting trade
secrets, confidential information, secret processes, know-how, or
computer software programs. Employee acknowledges that his
employment hereunder will place him in a position of utmost
confidence and that he will have access to confidential information
concerning the operation of the business of the Affiliated Companies,
including, but not limited to, manufacturing methods, developments,
secret processes, know-how, computer software programs, costs, prices
and pricing methods, sources of supply and customer names and
relations. All such information is in the nature of a trade secret
and is the sole and exclusive property of the Affiliated Companies
and shall be deemed confidential information for the purposes of this
paragraph.
(b) Employee hereby assigns to the Company all rights that Employee
may have as author, designer, inventor or otherwise as creator of any
written or graphic material, design, invention, improvement, or any
other idea or thing whatever that Employee may write, draw, design,
conceive, perfect, or reduce to practice during employment with the
Company or within 120 days after termination of such employment,
whether done during or outside of normal work hours, and whether done
alone or in conjunction with others ("Intellectual Property"),
provided, however, that Employee reserves all rights in anything done
or developed entirely by Employee on Employee's own personal time and
without the use of any Company equipment, supplies, facilities or
information, or the participation of any other Company employee,
unless it relates to the Company's business or reasonably anticipated
business, or grows out of any work performed by Employee for the
Company. Employee will promptly disclose all such Intellectual
Property developed by Employee to the Company, and fully cooperate at
the Company's request and expense in any efforts by the Company or
its assignees to secure protection for such Intellectual Property by
way of domestic or foreign patent, copyright, trademark or service
mark registration or otherwise, including executing specific
assignments or such other documents or taking such further action as
may be considered necessary
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to vest title in Company or its assignees and obtain patents or
copyrights in any and all countries.
4. NON-COMPETE; SEVERANCE.
(a) Employee agrees that during his continuation of employment with
the Company and for one (1) year thereafter so long as the Company
makes the severance payments to Employee pursuant to subsections 4(b)
or 4(c) below, he shall not, without the express written consent of
the Company, either alone or as a consultant to, or partner,
employee, officer, director, or stockholder of any organization,
entity or business, (i) take or convert for Employee's personal gain
or benefit or for the benefit of any third party, any business
opportunities which may be of interest to the Company or any
Affiliated Company which Employee becomes aware of during the term of
his employment; (ii) engage in direct or indirect competition with
the Company or any Affiliated Company within 100 miles of any
location within the United States of America or any other country
where the Company or any Affiliated Company does business from time
to time during the term hereof; (iii) solicit in connection with any
activity which is competitive with any of the businesses of the
Company or any Affiliated Company, any customers of the Company or
any Affiliated Company; (iv) solicit for employment any sales,
marketing or management employee of Company or any Affiliated Company
or induce or attempt to induce any customer or supplier of the
Company or any Affiliated Company to terminate or materially change
such relationship. Company and Employee acknowledge the
reasonableness of the foregoing covenants not to compete and non-
solicitation, including but not limited to the geographic area and
duration of time which are a part hereof, and further, that the
restrictions stated in this Section 4 are reasonably necessary for
the protection of Employer's legitimate proprietary interests. This
covenant not to compete may be enforced with respect to any
geographic area in which the Company or any Affiliated Company does
business during the term hereof. Nothing herein shall prohibit
Employee from being the legal or equitable holder, solely for
investment purposes, of less than 5% of the capital stock of any
publicly held corporation which may be in direct or indirect
competition with the Company or any Affiliated Company.
(b) The Company will pay Employee, upon termination of Employee's
employment by the Company prior to a Change in Control (as defined
in 6(c)(i) below) for any reason other than Cause (as defined in
6(c)(iv) below), severance each month for 12 months, in an amount
(subject to applicable withholding) equal to 1/12 of Employee's
base salary; and, further, if the Company pays discretionary
bonuses to its officers for the fiscal year in which Employee's
employment is terminated, Employee will be paid a bonus in a lump
sum at the time any such bonuses are paid to other officers or at
such time as the Severance Period is complete, whichever is later
(with interest at prime rate plus one percentage point from the
earlier of such dates), (1) for the completed fiscal year preceding
termination if such bonus has not been paid prior to termination,
and (2) for the fiscal year in which employment is terminated,
prorata for the period prior to termination of employment based on
Employee's performance during such period; provided, however, that
(i) all such monthly payment obligations shall terminate
immediately upon Employee obtaining full time employment in a
comparable position in terms of salary level, and (ii) all
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such payment obligations shall terminate or lapse immediately upon
any breach by Employee of Section 3 or 4(a) of this Agreement or if
Employee shall commence any action or proceeding in any court or
before any regulatory agency arising out of or in connection with
termination of his employment.
(c) If Employee terminates his employment or Employee's employment
is terminated by the Company for Cause (as defined below), the
Company may elect (but is not required to), by written notice
thereof to Employee, within five (5) days of any such termination of
Employee's employment with the Company prior to a Change in Control
(as defined below), to pay Employee severance as provided in and
subject to the provisions of subsection 4(b) above.
(d) Employee may terminate this Severance and Change in Control
Agreement effective immediately upon notice thereof in writing to
Company at any time while still employed within a sixty (60) calendar
day period immediately following the effective date of any reduction
by Company in (i) Employee's level of responsibility or position from
that held by Employee as Vice President, General Counsel and
Secretary on the effective date of this Agreement, or (ii) Employee's
level of compensation, including retirement benefits in effect
immediately prior to any such change.
(e) If at any time, any clause or portion of this Section 4 shall be
deemed invalid or unenforceable by the laws of the jurisdiction in
which it is to be enforced by reason of being vague or unreasonable
as to duration, geographic scope, nature of activities restricted, or
for any other reason, this provision shall be considered divisible as
to such portions and the foregoing restrictions set forth in 4(a)
shall become and be immediately amended to include only such
duration, scope or restriction and such event as shall be deemed
reasonable and enforceable by the court or other body having
jurisdiction to enforce this Agreement; and the parties hereto agree
that the restrictions, as so amended, shall be valid and binding as
though the invalid or unenforceable portion had not been involved
herein.
(f) The Employee acknowledges and agrees that the Company would be
irreparably harmed by violations of Section 3 or Section 4(a) above,
and in recognition thereof, the Company shall be entitled to an
injunction or other decree of specific performance with respect to
any violation thereof (without any bond or other security being
required) in addition to other available legal and equitable
remedies.
5. TERMINATION OF EMPLOYMENT.
(a) Upon and after termination of employment howsoever arising,
Employee shall, upon request by Company:
(1) immediately return to the Company all correspondence,
documents, business calendars/diaries, or other property
belonging to the Company which is in his possession,
(2) immediately resign from any office Employee holds with
the Company or any Affiliated Company; and
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(3) cooperate fully and in good faith with the Company in
the resolution of all matters Employee worked on or was involved
in during Employee's employment with the Company. Employee's
cooperation will include reasonable consultation by telephone.
Further, in connection therewith, Employee will, at Company's
request upon reasonable advance notice and subject to Employee's
availability, make himself available to Company in person at
Company's premises, for testimony in court, or elsewhere;
provided, however, that in such event, Company shall reimburse
all Employee's reasonable expenses and pay Employee a reasonable
per diem or hourly stipend.
6. CHANGE IN CONTROL.
(a) In the event (i) a Change in Control of AAR CORP. occurs, and
(ii) (A) at any time during the 24 month period commencing on the
date of the Change in Control the Company terminates Employee's
employment for other than Cause or Disability, or Employee terminates
his employment for Good Reason, in either case by written notice to
the other party (including the particulars thereof), and having given
the other party the opportunity to be heard with respect thereto, or
(B) Employee's employment with the Company terminates for any reason
other than Disability or death during the 30 day period commencing on
the expiration of the aforementioned 24 month period, and (iii)
neither incumbent in the positions of Chief Executive Officer or
Chief Operating Officer of the Company on the effective date hereof
is Chief Executive Officer of the Company at the time of such
termination of employment, then:
(1) the Company shall promptly pay to Employee in a lump
sum (A) all base salary earned through the date of termination,
(B) any cash bonus earned by Employee for the fiscal year of the
Company most recently ended prior to the date of termination to
the extent unpaid on the date of termination, (C) a prorata
portion of the cash bonus Employee would have earned had he been
employed by the Company on the last day of the fiscal year in
which the date of termination occurs (assuming all performance
targets have been met) that is applicable to the period
commencing on the first day of such fiscal year and ending on
the date of termination, and (D) any and all other benefits and
amounts earned by Employee prior to the date of termination to
the extent unpaid, all subject to applicable withholding.
(2) The Company shall promptly pay to Employee in a lump
sum, a cash payment in an amount equal to three times Employee's
total compensation (base salary plus cash bonus) for either the
fiscal year of the Company most recently ended prior to the date
of termination, or the preceding fiscal year, whichever is the
highest total compensation, or such lesser amount as Employee
may elect to take, subject to applicable withholding. Employee
may elect to take payment of any amounts on a schedule of his
own choosing; provided that such schedule shall be completed no
later than three years from the date of Employee's termination
of employment.
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(3) Employee and his dependents shall continue to be covered by,
and receive benefits, in accordance with the terms of, all of
the Company's medical, dental and life insurance plans for
three years following the date of termination, and at no less
than the levels he and his dependents were receiving
immediately prior to the Change in Control. Employee's
dependents shall be entitled to continued coverage pursuant to
the preceding sentence for the balance of such three year
period in the event of Employee's death during such period.
The period during which Employee and his dependents are
entitled to continuation of group health plan coverage
pursuant to Section 4980B of the Internal Revenue Code of
1986, as amended, and Part 6 of Title I of the Employee
Retirement Income Security Act of 1974, as amended, shall
commence on the date next following the expiration of the
aforementioned three year period.
(4) Employee shall receive an additional retirement
benefit, over and above that which Employee would normally be
entitled to under the Company's retirement plans or programs
applicable to Employee, equal to the actuarial equivalent of the
additional amount that Employee would have earned under such
retirement plans or programs had he accumulated three additional
continuous years of service. Such amount shall be paid to
Employee in a cash lump sum payment at his normal retirement
age, as defined in the AAR CORP. Retirement Plan or any
successor plan. Alternatively, Employee may elect to receive
such payment at his early retirement age, as defined in the AAR
CORP. Retirement Plan or any successor plan, with a
corresponding actuarial reduction in the amount of such payment,
based upon the earlier date of such payment.
(5) The Company, at its expense, shall provide Employee
with outplacement services of a nationally recognized
outplacement firm until the earlier of (a) the Employee's
attainment of employment, or (b) the date eighteen (18) months
from the date of Employee's termination of employment; provided,
however, that the cost of such outplacement services shall not
exceed 10% of Employee's annual base salary.
(b) In the event that a Change in Control has occurred, both for
purposes of this Agreement and for purposes of the AAR CORP. Stock
Benefit Plan, as amended ("Plan"), whether or not such Change in
Control has the prior written approval of a majority of the
Continuing Directors (as defined in the Plan), and notwithstanding
any conditions or restrictions contained in any agreement between the
Company and Employee related to any Award granted to Employee under
the Plan, all Options or Limited Rights, or both, granted to Employee
under the Plan will become immediately exercisable, and all
restrictions on Restricted Stock granted to Employee under the Plan
will immediately lapse.
(c) For purposes of this Agreement
(i) "Change in Control" means the earliest of:
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(1) any person (as such term is used in Section 13(d) of the
Securities Exchange Act of 1934, as amended ("Exchange
Act")), has acquired (other than directly from the Company)
beneficial ownership (as that term is defined in Rule 13d-3
under the Exchange Act), of more than 20% of the outstanding
capital stock of the Company entitled to vote for the
election of directors;
(2) the commencement by an entity, person, or group (other than
the Company or a subsidiary of the Company) of a tender
offer or an exchange offer for more than 20% of the
outstanding voting stock of the Company;
(3) the effective time of (i) a merger or consolidation or other
business combination of the Company with one or more other
corporations as a result of which the holders of the
outstanding voting stock of the Company immediately prior to
such business combination hold less than 60% of the voting
stock of the surviving or resulting corporation, or (ii) a
transfer of substantially all of the assets of the Company
other than to an entity of which the Company owns at least
80% of the voting stock;
(4) the election over any period of time to the Board of
Directors of the Company without the recommendation or
approval of the incumbent Board of Directors of the Company,
of the lesser of (i) three directors, or (ii) directors
constituting a majority of the number of directors of the
Company then in office;
(5) the occurrence of any arrangement or understanding relating
to the Company which would give rise to a filing requirement
with the Securities and Exchange Commission pursuant to Rule
14f-1 of the Exchange Act Rules under the Securities
Exchange Act of 1934.
(ii) "Good Reason" means:
(1) a material reduction in the nature or scope of Employee's
duties, responsibilities, authority, power or functions from
those enjoyed by Employee immediately prior to the Change in
Control, or a material reduction in Employee's compensation
(including benefits), occurring at any time during the
two-year period immediately after the Change in Control; or
(2) a good faith determination by Employee that as the result of
a Change in Control and a material change in employment
circumstances at any time during the immediate two year
period after the Change in Control, he is unable to carry
out his assigned duties and responsibilities in a manner
consistent with the practices, standards, values or
philosophy of the Company immediately prior to the Change in
Control; or
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(3) a relocation of the primary place of employment of at least
100 miles.
(iii) "Disability" means:
(1) a physical or mental condition which has prevented Employee
from substantially performing his assigned duties for a
period of 180 consecutive days and which is expected to
continue to render Employee unable to substantially perform
his duties on a full-time basis and otherwise meets the
benefit eligibility requirements of the Company's Long Term
Disability Welfare Benefit Plan. The Company will make
reasonable accommodation for any handicap of Employee as may
be required by applicable law.
In the event of termination by the Company for Disability after a
Change in Control, a good faith determination of the existence
of a Disability shall be made by resolution of the Compensation
Committee of the Board of Directors of the Company, in its sole
discretion, setting forth the particulars of the Disability which
shall be final and binding upon the Employee. The Company may
require the submission of such medical evidence as to the
condition of the Employee as it may deem necessary in order to
arrive at its determination of the occurrence of a Disability,
and Employee will cooperate in providing any such information.
Employee will be provided with reasonable opportunity to present
additional medical evidence as to the medical condition of
Employee for consideration prior to the Board making its
determination of the occurrence of a Disability.
Upon termination of Employment by Company for Disability after a
Change in Control, Employee will receive Disability payments
pursuant to the Company's short and long term Disability welfare
benefit plans then in effect according to the terms of such plans
and continue to be eligible to participate in the Company's
medical, dental and life insurance programs then in effect and
available to officers of the Company in accordance with their
terms for a period of 3 years from the date of such termination
of this Agreement.
(iv) "Cause" means:
(1) Employee engages, during the performance of his duties
hereunder, in acts or omissions constituting dishonesty,
intentional breach of fiduciary obligation or intentional
wrongdoing or malfeasance;
(2) Employee intentionally disobeys or disregards a lawful and
proper direction of the Board or the Company; or
(3) Employee materially breaches the Agreement and such breach
by its nature, is incapable of being cured, or such breach
remains uncured for more than 10 days following receipt by
Employee of written notice from the Company specifying the
nature of the breach and
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demanding the cure thereof. For purposes of his clause (3),
a material breach of the Agreement that involves inattention
by Employee to his duties under the Agreement shall be
deemed a breach capable of cure.
Without limiting the generality of the foregoing, the
following shall not constitute Cause for the termination of
employment of Employee or the modification or diminution of any
of his authority hereunder:
(1) any personal or policy disagreement between Employee and the
Company or any member of the Board; or
(2) any action taken by Employee in connection with his duties
hereunder, or any failure to act, if Employee acted or
failed to act in good faith and in a manner he reasonably
believed to be in and not opposed to the best interest of
the Company and he had no reasonable cause to believe his
conduct was unlawful; or
(3) termination of Employee's employment for overall
unsatisfactory performance (including, but not limited to,
failure to meet financial goals).
Termination for Cause shall be limited to a good faith finding by
resolution of the Compensation Committee of the Board, setting
forth the particulars thereof. Any such action shall be taken at
a regular or specially called meeting of the Compensation
Committee of the Board, after a minimum 10 days notice thereof to
Employee, with termination of Employee's employment with the
Company for Cause listed as an agenda item. Employee will be
given a reasonable opportunity to be heard at such meeting with
counsel present if Employee desires. Any such resolution shall
be final and binding.
Upon termination of employment by Company for Cause, no
further compensation or benefits shall accrue or be payable to
Employee by the Company, except for any compensation, bonus or
other benefits which have accrued to Employee prior to the
date of any such termination.
Nothing herein shall be construed to prevent the Company from
terminating Employee's employment at any time for any reason or
for no reason.
(d) The Company will pay reasonable legal/attorney's fees incurred by
Employee in connection with enforcement of any right or benefit under
this Section 6.
7. CHANGES IN BUSINESS. The Company, acting through its Board of Directors,
will at all times have complete control over the Company's business and
retirement and other employee health and welfare benefit plans ("Plans").
Without limiting the generality of the foregoing, the Company may at any
time or times change or discontinue any or all of its present or future
operations or Plans (subject to their terms), may close or move any one or
more of its divisions or offices, may undertake any new servicing or sales
operation, may sell any one
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or more of its divisions or offices to any company not controlled, directly
or indirectly, by the Company or may take any and all other steps which its
Board of Directors, in its exclusive judgment, shall deem desirable, and
Employee shall have no claim or recourse against the Company, its officers,
directors or employees by reason of such action except for enforcement of
the provisions of Sections 4 and 6 of this Agreement.
8. SEVERANCE PAYMENT AS SOLE OBLIGATION. Except as expressly provided in
Sections 4 and 6 above, no further compensation, payments, liabilities or
benefits shall accrue or be payable to Employee upon or as a result of
termination of Employee's employment for any reason whatsoever except for
any compensation, bonus or other benefits which accrued to Employee prior
to the date of employment termination.
The amounts paid to the Employee under Section 4 and 6 of this Agreement
shall be considered severance pay in consideration of past services
Employee has rendered to the Company and in consideration of Employee's
continued service from the date hereof to entitlement to those payments.
9. NOTICES. Any notice or other instrument or thing required or permitted to
be given, served or delivered to any of the parties hereto shall be
delivered personally or deposited in the United States mail, with proper
postage prepaid, telegram, teletype, cable or facsimile transmission to
the addresses listed below:
(a) If to the Company, to:
AAR CORP.
1100 N. Wood Dale Road
Wood Dale, Illinois 60191
Attention: Chairman
With a copy to:
AAR CORP.
1100 N. Wood Dale Road
Wood Dale, Illinois 60191
Attention: General Counsel
(b) If to Employee, to:
Howard A. Pulsifer
630 Indian Way
Barrington, IL 60010
or to such other address as either party may from time to time designate
by notice to the other. Each notice shall be effective when such notice
and any required copy are delivered to the applicable address.
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10. NON-ASSIGNMENT.
(a) The Company shall not assign this Agreement or any rights or
obligations hereunder without the prior written consent of Employee,
and any attempted unpermitted assignment shall be null and void and
without further effect; provided, however, that, upon the sale or
transfer of all or substantially all of the assets of the Company, or
upon the merger by the Company into or the combination with another
corporation or other business entity, or upon the liquidation or
dissolution of the Company, this Agreement will inure to the benefit
of and be binding upon the person, firm or corporation purchasing
such assets, or the corporation surviving such merger or
consolidation, or the shareholder effecting such liquidation or
dissolution, as the case may be. After any such transaction, the
term Company in this Agreement shall refer to the entity which
conducts the business now conducted by the Company. The provisions
of this Agreement shall be binding upon and inure to the benefit of
the estate and beneficiaries of Employee and upon and to the benefit
of the permitted successors and assigns of the parties hereto.
(b) The Employee agrees on behalf of himself, his heirs, executors and
administrators, and any other person or person claiming any benefit
under him by virtue of this Agreement, that this Agreement and all
rights, interests and benefits hereunder shall not be assigned,
transferred, pledged or hypothecated in any way by the Employee or by
any beneficiary, heir, executor, administrator or other person
claiming under the Employee by virtue of this Agreement and shall not
be subject to execution, attachment or similar process. Any attempted
assigned, transfer, pledge or hypothecation or any other disposition
of this Agreement or of such rights, interests and benefits contrary
to the foregoing provisions or the levy or any execution, attachment
or similar process thereon shall be null and void and without further
effect.
11. SEVERABILITY. If any term, clause or provision contained herein is
declared or held invalid by any court of competent jurisdiction, such
declaration or holding shall not affect the validity of any other term,
clause or provision herein contained.
12. CONSTRUCTION. Careful scrutiny has been given to this Agreement by the
Company, Employee, and their respective legal counsel. Accordingly, the
rule of construction that the ambiguities of the contract shall be
resolved against the party which caused the contract to be drafted shall
have no application in the construction or interpretation of this
Agreement or any clause or provision hereof.
13. ENTIRE AGREEMENT. This Agreement and the other agreements referred to
herein set forth the entire understanding of the parties and supersede all
prior agreements, arrangements and communications, whether oral or
written, pertaining to the subject matter hereof.
14. WAIVER. No provision of this Agreement may be amended, modified, waived
or discharged unless such amendment, modification, waiver or discharge is
agreed to in writing signed by Employee and an authorized officer of the
Company. No waiver by either party hereto at any time of any breach by
the other party hereto of, or compliance with, any condition or provision
of this Agreement to be performed by such other party shall be deemed a
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waiver of similar or dissimilar provisions or conditions at the same or at
any prior or subsequent time.
15. GOVERNING LAW. The validity, interpretation, construction and performance
of this Agreement shall be governed by and construed in accordance with
the laws of the State of Illinois without regard to its conflicts of law
principles.
16. EXECUTION. This Agreement may be executed in multiple counterparts, each
of which shall be deemed an original and which shall constitute but one
and the same Agreement.
WITNESS the due execution of this Agreement by the parties hereto as of the day
and year first above written.
Employer:
AAR CORP.
By: /s/ David P. Storch
---------------------------
Title: President
Employee:
/s/ Howard A. Pulsifer
- ------------------------------
Howard A. Pulsifer
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ATTACHMENT 2
OUTLINE OF TERMS OF
SEVERANCE AND CHANGE IN CONTROL AGREEMENT
EMPLOYMENT:
- - Continuation of at-will employment relationship.
DUTIES:
- - Obligation of loyalty and commitment to perform assigned duties
professionally, faithfully and diligently on a full time basis and observe
all Company policies.
CONFIDENTIAL INFORMATION:
- - Employee agrees to treat Company information (and that of Affiliated
Companies) in a confidential manner and not to disclose such to third
parties without authorization.
ASSIGNMENT OF INVENTIONS:
- - Employee agrees to disclose and assign intellectual property rights
(inventions and copyrightable material conceived, made or written during
the term of employment to Company.
NON-COMPETE COVENANT:
- - Employee agrees not to compete with Company (or Affiliated Companies) or
solicit employees during employment and for a period of 12 months
thereafter so long as the Company is not in default of its obligation to
pay severance to Employee or is excused from doing so due to Employee's
breach of the confidentiality/non-compete covenants of the Agreement or
the commencement of any action by Employee against Company for
termination of employment.
TERMINATION OF EMPLOYMENT/SEVERANCE:
- - If Employee's employment is terminated by Company for any reason other
than Cause prior to a Change in Control of AAR CORP., Company will pay 12
months severance to Employee; the covenant not to compete will not be
enforceable if Company is in default of its obligation to pay severance.
- - No severance is payable in the event Employee breaches the non-compete
covenants or commences any legal proceeding against the Company for
termination of employment.
TERMINATION OF AGREEMENT:
- - Employee may terminate the Agreement upon notice in writing to Company
within sixty (60) days after any reduction in employee's level of
responsibility or position from that held
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on the effective date which adversely affects employee's level of
compensation, including retirement benefits.
CHANGE IN CONTROL:
- - In the event of (1) a Change in Control (as defined in the Agreement) and
(2) termination of employment within 2 years thereafter by Company for
other than Cause or Disability (as defined in the Agreement), or Employee
terminates employment for Good Reason (as defined in the Agreement), and
(3) neither the CEO nor COO in office on the effective date are CEO at the
time of such termination of employment, the Company will
- pay Employee three (3) years severance
- continue medical, dental and life insurance for three (3) years
- provide a supplemental retirement benefit which is based on
three additional years of credited service
CHANGES IN COMPANY'S BUSINESS OR RETIREMENT/HEALTH & WELFARE PLANS:
- - Company reserves right to manage/change/terminate its businesses and
retirement and employee health and welfare plans.
THIS IS AN OUTLINE OF TERMS ONLY. PLEASE REFER TO AGREEMENT FOR ACTUAL TERMS
AND CONDITIONS WHICH SHALL BE CONTROLLING
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AMENDED AND RESTATED
SEVERANCE AND CHANGE IN CONTROL AGREEMENT
This Amended and Restated Severance and Change in Control
Agreement ("Agreement") made and entered into as of the 8th
day of April, 1997, by and between AAR CORP., a Delaware
corporation ("Company"), and Timothy J. Romenesko
("Employee").
WHEREAS, the Company currently employs Employee as an employee at will in the
capacity of Vice President, Chief Financial Officer & Treasurer; and
WHEREAS, Employee desires the Company to pay Employee certain severance
payments upon a Change in Control of AAR CORP. and upon termination of
employment prior to a Change in Control; and
WHEREAS, the Company is willing to pay Employee severance payments under
certain circumstances if Employee agrees to confidentiality, non-compete and
certain other covenants.
NOW, THEREFORE, in consideration of the mutual agreements herein set forth and
other good and valuable consideration, the parties hereto agree as follows:
1. EMPLOYMENT. Employee will continue employment with the Company as an at
will employee subject to the terms and conditions hereinafter set forth.
2. DUTIES. During the continuation of his employment, Employee shall:
(a) well and faithfully serve the Company and do and perform
assigned duties and responsibilities in the ordinary course of his
employment and the business of the Company (within such limits as the
Company may from time to time prescribe), professionally, faithfully
and diligently.
(b) devote his full time, energy and skill to the business of the
Company and his assigned duties and responsibilities, and to the
promotion of the best interests of the Company; provided that
Employee shall not (to the extent not inconsistent with Section 4
below) be prevented from (a) serving as a director of any corporation
consented to in advance in writing by the Company, (b) engaging in
charitable, religious, civic or other non-profit community
activities, or (c) investing his personal assets in such form or
manner as will not require any substantial services on his part in
the operation or affairs of the business in which such investments
are made or which would detract from or interfere or cause a conflict
of interest with performance of his duties hereunder.
(c) observe all policies and procedures of the Company in effect
from time to time applicable to employees of the Company including,
without limitation, policies with respect to employee loyalty and
prohibited conflicts of interest.
<PAGE>
3. CONFIDENTIAL INFORMATION, ASSIGNMENT OF INVENTIONS.
(a) Employee acknowledges that the trade secrets, confidential
information, secret processes and know-how developed and acquired by
AAR CORP. and its affiliates or subsidiaries (together the
"Affiliated Companies") are among their most valuable assets and that
the value of such information may be destroyed by unauthorized
disclosure. All such trade secrets, confidential information, secret
processes and know-how imparted to or learned by Employee in the
course of his employment with respect to the business of the
Affiliated Companies (whether acquired before or after the date
hereof) will be deemed to be confidential and will not be used or
disclosed by Employee, except to the extent necessary to perform his
duties and, in no event, disclosed to anyone outside the employ of
the Affiliated Companies and their authorized consultants and
advisors, unless (i) such information is or has been made generally
available to the public, (ii) disclosure of such information is
required by law in the opinion of Employee's counsel (provided that
written notice thereof is given to Company as soon as possible but
not less than 24 hours prior to such disclosure), or (iii) express
written authorization to use or disclose such information has been
given by the Company. If Employee ceases to be employed by the
Company for any reason, he shall not take with him any electronically
stored data, documents or other papers containing or reflecting trade
secrets, confidential information, secret processes, know-how, or
computer software programs. Employee acknowledges that his
employment hereunder will place him in a position of utmost
confidence and that he will have access to confidential information
concerning the operation of the business of the Affiliated Companies,
including, but not limited to, manufacturing methods, developments,
secret processes, know-how, computer software programs, costs, prices
and pricing methods, sources of supply and customer names and
relations. All such information is in the nature of a trade secret
and is the sole and exclusive property of the Affiliated Companies
and shall be deemed confidential information for the purposes of this
paragraph.
(b) Employee hereby assigns to the Company all rights that Employee
may have as author, designer, inventor or otherwise as creator of any
written or graphic material, design, invention, improvement, or any
other idea or thing whatever that Employee may write, draw, design,
conceive, perfect, or reduce to practice during employment with the
Company or within 120 days after termination of such employment,
whether done during or outside of normal work hours, and whether done
alone or in conjunction with others ("Intellectual Property"),
provided, however, that Employee reserves all rights in anything done
or developed entirely by Employee on Employee's own personal time and
without the use of any Company equipment, supplies, facilities or
information, or the participation of any other Company employee,
unless it relates to the Company's business or reasonably anticipated
business, or grows out of any work performed by Employee for the
Company. Employee will promptly disclose all such Intellectual
Property developed by Employee to the Company, and fully cooperate at
the Company's request and expense in any efforts by the Company or
its assignees to secure protection for such Intellectual Property by
way of domestic or foreign patent, copyright, trademark or service
mark registration or otherwise, including executing specific
assignments or such other documents or taking such further action as
may be considered necessary
2
<PAGE>
to vest title in Company or its assignees and obtain patents or
copyrights in any and all countries.
4. NON-COMPETE; SEVERANCE.
(a) Employee agrees that during his continuation of employment with
the Company and for one (1) year thereafter so long as the Company
makes severance payments to Employee pursuant to subsections 4(b) or
4(c) below, he shall not, without the express written consent of the
Company, either alone or as a consultant to, or partner, employee,
officer, director, or stockholder of any organization, entity or
business, (i) take or convert for Employee's personal gain or benefit
or for the benefit of any third party, any business opportunities
which may be of interest to the Company or any Affiliated Company
which Employee becomes aware of during the term of his employment;
(ii) engage in direct or indirect competition with the Company or any
Affiliated Company within 100 miles of any location within the United
States of America or any other country where the Company or any
Affiliated Company does business from time to time during the term
hereof; (iii) solicit in connection with any activity which is
competitive with any of the businesses of the Company or any
Affiliated Company, any customers of the Company or any Affiliated
Company; (iv) solicit for employment any sales, marketing or
management employee of Company or any Affiliated Company or induce or
attempt to induce any customer or supplier of the Company or any
Affiliated Company to terminate or materially change such
relationship. Company and Employee acknowledge the reasonableness of
the foregoing covenants not to compete and non-solicitation,
including but not limited to the geographic area and duration of time
which are a part hereof, and further, that the restrictions stated in
this Section 4 are reasonably necessary for the protection of
Employer's legitimate proprietary interests. This covenant not to
compete may be enforced with respect to any geographic area in which
the Company or any Affiliated Company does business during the term
hereof. Nothing herein shall prohibit Employee from being the legal
or equitable holder, solely for investment purposes, of less than 5%
of the capital stock of any publicly held corporation which may be in
direct or indirect competition with the Company or any Affiliated
Company.
(b) The Company will pay Employee, upon termination of Employee's
employment by the Company prior to a Change in Control (as defined in
6(c)(i) below) for any reason other than Cause (as defined in
6(c)(iv) below), severance each month for 12 months, in an amount
(subject to applicable withholding) equal to 1/12 of Employee's base
salary; and, further, if the Company pays discretionary bonuses to
its officers for the fiscal year in which Employee's employment is
terminated, Employee will be paid a bonus in a lump sum at the time
any such bonuses are paid to other officers or at such time as the
Severance Period is complete, whichever is later (with interest at
prime rate plus one percentage point from the earlier of such dates),
(1) for the completed fiscal year preceding termination if such bonus
has not been paid prior to termination, and (2) for the fiscal year
in which employment is terminated, prorata for the period prior to
termination of employment based on Employee's performance during such
period; provided, however, that (i) all such monthly payment
obligations shall terminate immediately upon Employee obtaining full
time employment in a comparable position in terms of salary level,
and (ii) all
3
<PAGE>
such payment obligations shall terminate or lapse immediately upon any
breach by Employee of Section 3 or 4(a) of this Agreement or if
Employee shall commence any action or proceeding in any court or
before any regulatory agency arising out of or in connection with
termination of his employment.
(c) If Employee terminates his employment or Employee's employment
is terminated by the Company for Cause (as defined below), the
Company may elect (but is not required to), by written notice thereof
to Employee, within five (5) days of any such termination of
Employee's employment with the Company prior to a Change in Control
(as defined below), to pay Employee severance as provided in and
subject to the provisions of subsection 4(b) above.
(d) Employee may terminate this Severance and Change in Control
Agreement effective immediately upon notice thereof in writing to
Company at any time while still employed within a sixty (60) calendar
day period immediately following the effective date of any reduction
by Company in (i) Employee's level of responsibility or position from
that held by Employee as Vice President, Chief Financial Officer &
Treasurer on the effective date of this Agreement, or (ii) Employee's
level of compensation, including retirement benefits in effect
immediately prior to any such change.
(e) If at any time, any clause or portion of this Section 4 shall be
deemed invalid or unenforceable by the laws of the jurisdiction in
which it is to be enforced by reason of being vague or unreasonable
as to duration, geographic scope, nature of activities restricted, or
for any other reason, this provision shall be considered divisible as
to such portions and the foregoing restrictions set forth in 4(a)
shall become and be immediately amended to include only such
duration, scope or restriction and such event as shall be deemed
reasonable and enforceable by the court or other body having
jurisdiction to enforce this Agreement; and the parties hereto agree
that the restrictions, as so amended, shall be valid and binding as
though the invalid or unenforceable portion had not been involved
herein.
(f) The Employee acknowledges and agrees that the Company would be
irreparably harmed by violations of Section 3 or Section 4(a) above,
and in recognition thereof, the Company shall be entitled to an
injunction or other decree of specific performance with respect to
any violation thereof (without any bond or other security being
required) in addition to other available legal and equitable
remedies.
5. TERMINATION OF EMPLOYMENT.
(a) Upon and after termination of employment howsoever arising,
Employee shall, upon request by Company:
(1) immediately return to the Company all correspondence,
documents, business calendars/diaries, or other property
belonging to the Company which is in his possession,
(2) immediately resign from any office Employee holds with
the Company or any Affiliated Company; and
4
<PAGE>
(3) cooperate fully and in good faith with the Company in the
resolution of all matters Employee worked on or was involved
in during Employee's employment with the Company. Employee's
cooperation will include reasonable consultation by telephone.
Further, in connection therewith, Employee will, at Company's
request upon reasonable advance notice and subject to Employee's
availability, make himself available to Company in person at
Company's premises, for testimony in court, or elsewhere;
provided, however, that in such event, Company shall reimburse
all Employee's reasonable expenses and pay Employee a reasonable
per diem or hourly stipend.
6. CHANGE IN CONTROL.
(a) In the event (i) a Change in Control of AAR CORP. occurs and
(ii) (A) at any time during the 24 month period commencing on the
date of the Change in Control the Company terminates Employee's
employment for other than Cause or Disability, or Employee terminates
his employment for Good Reason, in either case by written notice to
the other party (including the particulars thereof), and having given
the other party the opportunity to be heard with respect thereto, or
(B) Employee's employment with the Company terminates for any reason
other than Disability or death during the 30 day period commencing on
the expiration of the aforementioned 24 month period, and (iii)
neither incumbent in the positions of Chief Executive Officer or
Chief Operating Officer of the Company on the effective date hereof
is Chief Executive Officer of the Company at the time of such
termination of employment, then:
(1) The Company shall promptly pay to Employee, in a lump sum (A) all
base salary earned through the date of termination, (B) any cash
bonus earned by Employee for the fiscal year of the Company most
recently ended prior to the date of termination to the extent
unpaid on the date of termination, (C) a prorata portion of the
cash bonus Employee would have earned had he been employed by the
Company on the last day of the fiscal year in which the date of
termination occurs (assuming all performance targets have been
met) that is applicable to the period commencing on the first day
of such fiscal year and ending on the date of termination, and
(D) any and all other benefits and amounts earned by Employee
prior to the date of termination to the extent unpaid, all
subject to applicable withholding.
(2) The Company shall promptly pay to Employee in a lump sum, a cash
payment in an amount equal to three times Employee's total
compensation (base salary plus cash bonus) for either the fiscal
year of the Company most recently ended prior to the date of
termination, or the preceding fiscal year, whichever is the
highest total compensation, or such lesser amount as Employee may
elect to take, subject to applicable withholding. Employee may
elect to take payment of any amounts on a schedule of his own
choosing; provided that such schedule shall be completed no later
than three years from the date of Employee's termination of
employment.
5
<PAGE>
(3) Employee and his dependents shall continue to be covered by, and
receive benefits, in accordance with the terms of, all of the
Company's medical, dental and life insurance plans for three
years following the date of termination, and at no less than the
levels he and his dependents were receiving immediately prior to
the Change in Control. Employee's dependents shall be entitled
to continued coverage pursuant to the preceding sentence for the
balance of such three year period in the event of Employee's
death during such period. The period during which Employee and
his dependents are entitled to continuation of group health plan
coverage pursuant to Section 4980B of the Internal Revenue Code
of 1986, as amended, and Part 6 of Title I of the Employee
Retirement Income Security Act of 1974, as amended, shall
commence on the date next following the expiration of the
aforementioned three year period.
(4) Employee shall receive an additional retirement benefit, over and
above that which Employee would normally be entitled to under the
Company's retirement plans or programs applicable to Employee,
equal to the actuarial equivalent of the additional amount that
Employee would have earned under such retirement plans or
programs had he accumulated three additional continuous years of
service. Such amount shall be paid to Employee in a cash lump
sum payment at his normal retirement age, as defined in the AAR
CORP. Retirement Plan or any successor plan. Alternatively,
Employee may elect to receive such payment at his early
retirement age, as defined in the AAR CORP. Retirement Plan or
any successor plan, with a corresponding actuarial reduction in
the amount of such payment, based upon the earlier date of
payment.
(5) The Company, at its expense, shall provide Employee with
outplacement services of a nationally recognized outplacement
firm until the earlier of (a) the Employee's attainment of
employment, or (b) the date eighteen (18) months from the date of
Employee's termination of employment; provided, however, that the
cost of such outplacement services shall not exceed 10% of
Employee's annual base salary.
(b) In the event that a Change in Control has occurred, both for
purposes of this Agreement and for purposes of the AAR CORP. Stock
Benefit Plan, as amended ("Plan"), whether or not such Change in
Control has the prior written approval of a majority of the
Continuing Directors (as defined in the Plan), and notwithstanding
any conditions or restrictions contained in any agreement between the
Company and Employee related to any Award granted to Employee under
the Plan, all Options or Limited Rights, or both, granted to Employee
under the Plan will become immediately exercisable, and all
restrictions on Restricted Stock granted to Employee under the Plan
will immediately lapse.
(c) For purposes of this Agreement
(i) "Change in Control" means the earliest of:
6
<PAGE>
(1) any person (as such term is used in Section 13(d) of the
Securities Exchange Act of 1934, as amended ("Exchange Act"), has
acquired (other than directly from the Company) beneficial
ownership (as that term is defined in Rule 13d-3 under the
Exchange Act), of more than 20% of the outstanding capital stock
of the Company entitled to vote for the election of directors;
(2) the commencement by an entity, person, or group (other than the
Company or a subsidiary of the Company) of a tender offer or an
exchange offer for more than 20% of the outstanding voting stock
of the Company;
(3) the effective time of (i) a merger or consolidation or other
business combination of the Company with one or more other
corporations as a result of which the holders of the outstanding
voting stock of the Company immediately prior to such business
combination hold less than 60% of the voting stock of the
surviving or resulting corporation, or (ii) a transfer of
substantially all of the assets of the Company other than to an
entity of which the Company owns at least 80% of the voting
stock;
(4) the election over any period of time to the Board of Directors of
the Company without the recommendation or approval of the
incumbent Board of Directors of the Company, of the lesser of (i)
three directors, or (ii) directors constituting a majority of the
number of directors of the Company then in office;
(5) the occurrence of any arrangement or understanding relating to
the Company which would give rise to a filing requirement with
the Securities and Exchange Commission pursuant to Rule 14f-1 of
the Exchange Act Rules under the Securities Exchange Act of 1934.
(ii) "Good Reason" means:
(1) a material reduction in the nature or scope of Employee's duties,
responsibilities, authority, power or functions from those
enjoyed by Employee immediately prior to the Change in Control,
or a material reduction in Employee's compensation (including
benefits), occurring at any time during the two-year period
immediately after the Change in Control; or
(2) a good faith determination by Employee that as the result of a
Change in Control and a material change in employment
circumstances at any time during the immediate two year period
after the Change in Control, he is unable to carry out his
assigned duties and responsibilities in a manner consistent with
the practices, standards, values or philosophy of the Company
immediately prior to the Change in Control; or
7
<PAGE>
(3) a relocation of the primary place of employment of at least 100
miles.
(iii) "Disability" means:
(1) a physical or mental condition which has prevented Employee from
substantially performing his assigned duties for a period of 180
consecutive days and which is expected to continue to render
Employee unable to substantially perform his duties on a
full-time basis and otherwise meets the benefit eligibility
requirements of the Company's Long Term Disability Welfare
Benefit Plan. The Company will make reasonable accommodation for
any handicap of Employee as may be required by applicable law.
In the event of termination by the Company for Disability after a
Change in Control, a good faith determination of the existence of a
Disability shall be made by resolution of the Compensation Committee
of the Board of Directors of the Company, in its sole discretion,
setting forth the particulars of the Disability which shall be final
and binding upon the Employee. The Company may require the submission
of such medical evidence as to the condition of the Employee as it may
deem necessary in order to arrive at its determination of the
occurrence of a Disability, and Employee will cooperate in providing
any such information. Employee will be provided with reasonable
opportunity to present additional medical evidence as to the medical
condition of Employee for consideration prior to the Board making its
determination of the occurrence of a Disability.
Upon termination of Employment by Company for Disability after a
Change in Control, Employee will receive Disability payments pursuant
to the Company's short and long term Disability welfare benefit plans
then in effect according to the terms of such plans and continue to
be eligible to participate in the Company's medical, dental and life
insurance programs then in effect and available to officers of the
Company in accordance with their terms for a period of 3 years from
the date of such termination of this Agreement.
(iv) "Cause" means:
(1) Employee engages, during the performance of his duties hereunder,
in acts or omissions constituting dishonesty, intentional breach
of fiduciary obligation or intentional wrongdoing or malfeasance;
(2) Employee intentionally disobeys or disregards a lawful and proper
direction of the Board or the Company; or
(3) Employee materially breaches the Agreement and such breach by its
nature, is incapable of being cured, or such breach remains
uncured for more than 10 days following receipt by Employee of
written notice from the Company specifying the nature of the
breach and
8
<PAGE>
demanding the cure thereof. For purposes of his clause (3), a
material breach of the Agreement that involves inattention by
Employee to his duties under the Agreement shall be deemed a
breach capable of cure.
Without limiting the generality of the foregoing, the following shall
not constitute Cause for the termination of employment of Employee or
the modification or diminution of any of his authority hereunder:
(1) any personal or policy disagreement between Employee and the
Company or any member of the Board; or
(2) any action taken by Employee in connection with his duties
hereunder, or any failure to act, if Employee acted or failed to
act in good faith and in a manner he reasonably believed to be in
and not opposed to the best interest of the Company and he had no
reasonable cause to believe his conduct was unlawful; or
(3) termination of Employee's employment for overall unsatisfactory
performance (including, but not limited to, failure to meet
financial goals).
Termination for Cause shall be limited to a good faith finding by
resolution of the Compensation Committee of the Board, setting forth
the particulars thereof. Any such action shall be taken at a regular
or specially called meeting of the Compensation Committee of the
Board, after a minimum 10 days notice thereof to Employee, with
termination of Employee's employment with the Company for Cause listed
as an agenda item. Employee will be given a reasonable opportunity to
be heard at such meeting with counsel present if Employee desires.
Any such resolution shall be final and binding.
Upon termination of employment by Company for Cause, no further
compensation or benefits shall accrue or be payable to Employee by the
Company, except for any compensation, bonus or other benefits which
have accrued to Employee prior to the date of any such termination.
Nothing herein shall be construed to prevent the Company from
terminating Employee's employment at any time for any reason or for no
reason.
(d) The Company will pay reasonable legal/attorney's fees incurred by
Employee in connection with enforcement of any right or benefit under
this Section 6.
7. CHANGES IN BUSINESS. The Company, acting through its Board of Directors,
will at all times have complete control over the Company's business and
retirement and other employee health and welfare benefit plans ("Plans").
Without limiting the generality of the foregoing, the Company may at any
time or times change or discontinue any or all of its present or future
operations or Plans (subject to their terms), may close or move any one
9
<PAGE>
or more of its divisions or offices, may undertake any new servicing or
sales operation, may sell any one or more of its divisions or offices to
any company not controlled, directly or indirectly, by the Company or may
take any and all other steps which its Board of Directors, in its exclusive
judgment, shall deem desirable, and Employee shall have no claim or
recourse against the Company, its officers, directors or employees by
reason of such action except for enforcement of the provisions of Sections
4 and 6 of this Agreement.
8. SEVERANCE PAYMENT AS SOLE OBLIGATION. Except as expressly provided in
Sections 4 and 6 above, no further compensation, payments, liabilities or
benefits shall accrue or be payable to Employee upon or as a result of
termination of Employee's employment for any reason whatsoever except for
any compensation, bonus or other benefits which accrued to Employee prior
to the date of employment termination.
The amounts paid to the Employee under Section 4 and 6 of this Agreement
shall be considered severance pay in consideration of past services
Employee has rendered to the Company and in consideration of Employee's
continued service from the date hereof to entitlement to those payments.
9. NOTICES. Any notice or other instrument or thing required or permitted to
be given, served or delivered to any of the parties hereto shall be
delivered personally or deposited in the United States mail, with proper
postage prepaid, telegram, teletype, cable or facsimile transmission to the
addresses listed below:
(a) If to the Company, to:
AAR CORP.
1100 N. Wood Dale Road
Wood Dale, Illinois 60191
Attention: Chairman
With a copy to:
AAR CORP.
1100 N. Wood Dale Road
Wood Dale, Illinois 60191
Attention: General Counsel
(b) If to Employee, to:
Timothy J. Romenesko
1485 S. Lake Shore Drive
Barrington, IL 60010
or to such other address as either party may from time to time designate
by notice to the other. Each notice shall be effective when such notice
and any required copy are delivered to the applicable address.
10
<PAGE>
10. NON-ASSIGNMENT.
(a) The Company shall not assign this Agreement or any rights or
obligations hereunder without the prior written consent of Employee,
and any attempted unpermitted assignment shall be null and void and
without further effect; provided, however, that, upon the sale or
transfer of all or substantially all of the assets of the Company, or
upon the merger by the Company into or the combination with another
corporation or other business entity, or upon the liquidation or
dissolution of the Company, this Agreement will inure to the benefit
of and be binding upon the person, firm or corporation purchasing
such assets, or the corporation surviving such merger or
consolidation, or the shareholder effecting such liquidation or
dissolution, as the case may be. After any such transaction, the
term Company in this Agreement shall refer to the entity which
conducts the business now conducted by the Company. The provisions
of this Agreement shall be binding upon and inure to the benefit of
the estate and beneficiaries of Employee and upon and to the benefit
of the permitted successors and assigns of the parties hereto.
(b) The Employee agrees on behalf of himself, his heirs, executors
and administrators, and any other person or person claiming any
benefit under him by virtue of this Agreement, that this Agreement
and all rights, interests and benefits hereunder shall not be
assigned, transferred, pledged or hypothecated in any way by the
Employee or by any beneficiary, heir, executor, administrator or
other person claiming under the Employee by virtue of this Agreement
and shall not be subject to execution, attachment or similar process.
Any attempted assigned, transfer, pledge or hypothecation or any
other disposition of this Agreement or of such rights, interests and
benefits contrary to the foregoing provisions or the levy or any
execution, attachment or similar process thereon shall be null and
void and without further effect.
11. SEVERABILITY. If any term, clause or provision contained herein is
declared or held invalid by any court of competent jurisdiction, such
declaration or holding shall not affect the validity of any other term,
clause or provision herein contained.
12. CONSTRUCTION. Careful scrutiny has been given to this Agreement by the
Company, Employee, and their respective legal counsel. Accordingly, the
rule of construction that the ambiguities of the contract shall be
resolved against the party which caused the contract to be drafted shall
have no application in the construction or interpretation of this
Agreement or any clause or provision hereof.
13. ENTIRE AGREEMENT. This Agreement and the other agreements referred to
herein set forth the entire understanding of the parties and supersede all
prior agreements, arrangements and communications, whether oral or
written, pertaining to the subject matter hereof.
14. WAIVER. No provision of this Agreement may be amended, modified, waived
or discharged unless such amendment, modification, waiver or discharge is
agreed to in writing signed by Employee and an authorized officer of the
Company. No waiver by either party hereto at any time of any breach by
the other party hereto of, or compliance with, any condition or provision
of this Agreement to be performed by such other party shall be deemed a
11
<PAGE>
waiver of similar or dissimilar provisions or conditions at the same or at
any prior or subsequent time.
15. GOVERNING LAW. The validity, interpretation, construction and performance
of this Agreement shall be governed by and construed in accordance with
the laws of the State of Illinois without regard to its conflicts of law
principles.
16. EXECUTION. This Agreement may be executed in multiple counterparts, each
of which shall be deemed an original and which shall constitute but one
and the same Agreement.
WITNESS the due execution of this Agreement by the parties hereto as of the day
and year first above written.
Employer:
AAR CORP.
By: /s/ David P. Storck
------------------------------
Title: President
Employee:
/s/ Timothy J. Romenesko
- ---------------------------------
Timothy J. Romenesko
12
<PAGE>
ATTACHMENT 2
OUTLINE OF TERMS OF
SEVERANCE AND CHANGE IN CONTROL AGREEMENT
EMPLOYMENT:
- - Continuation of at-will employment relationship.
DUTIES:
- - Obligation of loyalty and commitment to perform assigned duties
professionally, faithfully and diligently on a full time basis and observe
all Company policies.
CONFIDENTIAL INFORMATION:
- - Employee agrees to treat Company information (and that of Affiliated
Companies) in a confidential manner and not to disclose such to third
parties without authorization.
ASSIGNMENT OF INVENTIONS:
- - Employee agrees to disclose and assign intellectual property rights
(inventions and copyrightable material conceived, made or written during
the term of employment to Company.
NON-COMPETE COVENANT:
- - Employee agrees not to compete with Company (or Affiliated Companies) or
solicit employees during employment and for a period of 12 months
thereafter so long as the Company is not in default of its obligation to
pay severance to Employee or is excused from doing so due to Employee's
breach of the confidentiality/non-compete covenants of the Agreement or
the commencement of any action by Employee against Company for termination
of employment.
TERMINATION OF EMPLOYMENT/SEVERANCE:
- - If Employee's employment is terminated by Company for any reason other
than Cause prior to a Change in Control of AAR CORP., Company will pay 12
months severance to Employee; the covenant not to compete will not be
enforceable if Company is in default of its obligation to pay severance.
- - No severance is payable in the event Employee breaches the non-compete
covenants or commences any legal proceeding against the Company for
termination of employment.
TERMINATION OF AGREEMENT:
- - Employee may terminate the Agreement upon notice in writing to Company
within sixty (60) days after any reduction in employee's level of
responsibility or position from that held
13
<PAGE>
on the effective date which adversely affects employee's level of
compensation, including retirement benefits.
CHANGE IN CONTROL:
- - In the event of (1) a Change in Control (as defined in the Agreement) and
(2) termination of employment within 2 years thereafter by Company for
other than Cause or Disability (as defined in the Agreement), or Employee
terminates employment for Good Reason (as defined in the Agreement), and
(3) neither the CEO nor COO in office on the effective date are CEO at the
time of such termination of employment, the Company will
- pay Employee three (3) years severance
- continue medical, dental and life insurance for three (3) years
- provide a supplemental retirement benefit which is based on
three additional years of credited service
CHANGES IN COMPANY'S BUSINESS OR RETIREMENT/HEALTH & WELFARE PLANS:
- - Company reserves right to manage/change/terminate its businesses and
retirement and employee health and welfare plans.
THIS IS AN OUTLINE OF TERMS ONLY. PLEASE REFER TO AGREEMENT FOR ACTUAL TERMS
AND CONDITIONS WHICH SHALL BE CONTROLLING
14
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE REGISTRANT'S REPORT ON FORM 10-Q FOR THE SIX MONTH INTERIM PERIOD ENDED
NOVEMBER 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-START> JUN-01-1997
<PERIOD-END> NOV-30-1997
<EXCHANGE-RATE> 1
<CASH> 6,990
<SECURITIES> 0
<RECEIVABLES> 144,243
<ALLOWANCES> 2,400
<INVENTORY> 207,887
<CURRENT-ASSETS> 436,581
<PP&E> 144,183
<DEPRECIATION> 68,644
<TOTAL-ASSETS> 587,136
<CURRENT-LIABILITIES> 138,326
<BONDS> 118,508
0
0
<COMMON> 19,053
<OTHER-SE> 264,277
<TOTAL-LIABILITY-AND-EQUITY> 587,136
<SALES> 351,062
<TOTAL-REVENUES> 351,062
<CGS> 285,079
<TOTAL-COSTS> 323,252
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 538<F1>
<INTEREST-EXPENSE> 5,340<F2>
<INCOME-PRETAX> 22,470
<INCOME-TAX> 6,749
<INCOME-CONTINUING> 15,721
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,721
<EPS-PRIMARY> .24
<EPS-DILUTED> .24
<FN>
<F1>Provision for doubtful accounts is included in Total Costs and Expenses.
<F2>Interest expense is presented net of $476 of interest income.
</FN>
</TABLE>
