<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section240.14a-11(c) or
Section240.14a-12
AAR CORP.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction applies:
-----------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-----------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
-----------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-----------------------------------------------------------------------
(5) Total fee paid:
-----------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-----------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
-----------------------------------------------------------------------
(3) Filing Party:
-----------------------------------------------------------------------
(4) Date Filed:
-----------------------------------------------------------------------
<PAGE>
[LOGO]
One AAR Place
1100 N. Wood Dale Road
Wood Dale, Illinois 60191
- ------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON WEDNESDAY, OCTOBER 14, 1998
To the Stockholders of AAR CORP.:
The Annual Meeting of Stockholders of AAR CORP. for the year 1998 will be held
in the Shareholders' Room (21st Floor) of Bank of America Illinois, 231 S.
LaSalle Street, Chicago, Illinois, on Wednesday, October 14, 1998, at 3:00 P.M.
(Chicago time). At the meeting, stockholders will act on the following matters:
1. Election of three Class II directors to serve until the 2001 Annual Meeting
of Stockholders; and
2. Any other matter that may properly come before the meeting.
By Order of the Board of Directors
HOWARD A. PULSIFER,
SECRETARY
August 21, 1998
YOUR VOTE IS IMPORTANT
PLEASE DATE AND SIGN THE ENCLOSED FORM OF PROXY AND RETURN IT IN THE ENCLOSED
STAMPED, ADDRESSED ENVELOPE, SO THAT IF YOU ARE UNABLE TO ATTEND THE MEETING,
YOUR SHARES MAY NEVERTHELESS BE VOTED. NO POSTAGE IS REQUIRED FOR MAILING IN THE
UNITED STATES.
<PAGE>
[LOGO]
One AAR Place
1100 N. Wood Dale Road
Wood Dale, Illinois 60191
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
October 14, 1998
SOLICITATION
This Proxy Statement and the enclosed proxy card were mailed to shareholders on
or about August 21, 1998, in connection with the solicitation of proxies by the
Board of Directors of the Company to be used at the 1998 Annual Meeting.
The cost of the solicitation of proxies will be paid by the Company. The Company
has engaged D. F. King & Co., 77 Water Street, New York, New York, to aid in the
solicitation of proxies at a total estimated cost of $7,500, plus reasonable
out-of-pocket expenses. D. F. King & Co. may solicit proxies by mail, by
telephone, by facsimile, by e-mail, or in person. Certain officers, directors
and employees of the Company may also solicit proxies.
You may change your vote at any time before your proxy is exercised by voting in
person at the Annual Meeting or delivering a later dated, signed proxy to the
Secretary of the Company. Proxies will be voted in accordance with instructions
on the proxy. If no instructions are specified, the named proxy holder will vote
FOR Proposal 1, the election of the three nominees for director designated by
the Board, and upon any other matter that may properly come before the Annual
Meeting in their discretion and best judgment. The Board may nominate another
person if any nominee becomes unavailable for election for any reason prior to
the Annual Meeting vote. In that event, the named proxy holders will vote FOR
that other person.
RECORD DATE AND VOTING AT THE ANNUAL MEETING
Stockholders owning Common Stock of the Company ("Common Stock") outstanding at
the close of business on the record date, August 17, 1998, may vote at the 1998
Annual Meeting. On that date, 27,707,271 shares of Common Stock were
outstanding. Stockholders will have one vote on each matter to be voted on for
each share held on the record date. Shares cannot be voted unless the owner is
present at the Annual Meeting in person or by proxy. The holders of a majority
of the shares of Common Stock entitled to vote and present in person or
represented by proxy will constitute a quorum. Votes cast in person or by proxy
will be tabulated by the inspectors of election appointed for the Annual
Meeting. The inspectors of election will treat directions to withhold authority,
abstentions and broker non-votes as shares that are present and entitled to vote
for purposes of determining a quorum. Directions to withhold authority will have
no effect on the election of directors, because directors are elected by a
plurality of votes cast. Abstentions and broker non-votes will be disregarded
for purposes of determining whether a matter has been approved, because they are
not considered votes cast.
1
<PAGE>
BOARD OF DIRECTORS
The Restated Certificate of Incorporation and By-Laws of the Company provide
that the Board shall consist of between three and fifteen directors. The exact
number of directors is fixed from time to time by the Board and is presently set
at ten. The ten members of the Board are divided into three classes: Class I (3
directors), Class II (3 directors) and Class III (4 directors). One class is
elected each year for a three-year term.
The business, property, and affairs of the Company are managed under the
direction of the Board. Directors are kept informed of the Company's business
through discussions with the Chairman of the Board, the President and Chief
Executive Officer, and other officers of the Company, by reviewing materials
provided to them and by participating in meetings of the Board and its
committees.
During the fiscal year ended May 31, 1998 ("Fiscal 1998"), the Board held five
meetings. All of the incumbent directors attended 75% or more of the meetings of
the Board and of the Committees on which they served.
BOARD COMMITTEES
The Board has an Audit Committee, a Compensation Committee, an Executive
Committee, and a Nominating Committee.
AUDIT COMMITTEE
The Audit Committee is comprised entirely of independent directors. Its members
are Edgar D. Jannotta (Chairman), Robert D. Judson, Erwin E. Schulze, Joel D.
Spungin, and Howard B. Bernick. This committee recommends to the Board the
independent auditors who audit the Company's books and records, maintains
communication between the Board and its independent auditors,
monitors performance of the independent auditors, reviews financial reporting
issues and practices, reviews the adequacy of financial accounting controls and
the organization and performance of the Company's internal systems of audit,
reviews the scope and results of audits, and meets with the independent auditors
and internal auditors without members of management present. The Audit Committee
held three meetings during Fiscal 1998.
COMPENSATION COMMITTEE
The Compensation Committee is comprised entirely of independent directors. Its
members are Erwin E. Schulze (Chairman), A. Robert Abboud, Edgar D. Jannotta,
Robert D. Judson and Lee B. Stern. This committee reviews and approves
compensation policies and practices for all elected corporate officers, fixes
the compensation of the Chairman of the Board and the President and Chief
Executive Officer, and administers the Chief Executive Officer's long-term
incentive program, the annual incentive compensation programs for other
officers, and the AAR CORP. Stock Benefit Plan. The Compensation Committee held
six meetings during Fiscal 1998.
EXECUTIVE COMMITTEE
The Executive Committee is comprised of Ira A. Eichner (Chairman), Edgar D.
Jannotta, Erwin E. Schulze and David P. Storch. The Executive Committee is
authorized to meet between meetings of the Board of Directors and exercise the
powers of the Board, subject to limitations imposed by law and by the Board. The
Executive Committee held three meetings during Fiscal 1998.
NOMINATING COMMITTEE
The Nominating Committee is comprised of Robert D. Judson (Chairman), Ira A.
Eichner, Lee B. Stern, and Richard D. Tabery. This committee recommends to the
Board qualified candidates for election as directors and considers the
performance of incumbent directors to determine whether they should be
recommended to the Board for nomination for reelection. The Nominating Committee
will consider director candidates recommended by stockholders. Stockholders may
submit a recommendation to the Nominating Committee for consideration with
respect to the 1999
2
<PAGE>
Annual Meeting of Stockholders by writing to the Secretary, AAR CORP., One AAR
Place, 1100 N. Wood Dale Road, Wood Dale, Illinois 60191. To be considered,
recommendations must be received prior to May 1, 1999, must state the reasons
for the recommendation and contain the full name and address of each proposed
nominee, as well as a brief biographical history setting forth past and present
directorships, employment and occupations, and any other qualifications.
Recommendations must also include a statement indicating that the proposed
nominees have consented to being named in the proxy statement and to serve if
elected. The Nominating Committee held one meeting during Fiscal 1998.
DIRECTORS' COMPENSATION
Each director who is not an officer or employee of the Company or any subsidiary
("Eligible Director") receives an annual retainer of $28,000 payable only in
Common Stock of the Company, a fee of $1,750 for attendance at each meeting of
the Board or of any Board committee and reimbursement of expenses. The chairman
of each committee receives an additional $2,000 annual retainer. Each director
may elect to defer receipt of the annual retainer and meeting fees pursuant to
the Company's Nonemployee Directors' Deferred Compensation Plan.
In addition, each Eligible Director receives term life insurance coverage of
$200,000 and a one-time grant of stock options for 10,000 shares of Company
Common Stock under the AAR CORP. Stock Benefit Plan. These options vest in 25%
increments on each anniversary grant date and can be exercised at the closing
New York Stock Exchange price on the date of grant.
Each Eligible Director also will receive benefits under the AAR CORP. Directors'
Retirement Plan upon retirement from the Board on or after age 65 if such
director has completed at least five years of service as a director. Benefits
are paid quarterly in cash in an amount equal to 25% of the annual retainer
payable to an active eligible director and continues for a period equal to the
total number of years of service as a director to a maximum of ten years or
until death. The AAR CORP. Directors' Retirement Plan is unfunded. As of May 31,
1998, one former director was receiving retirement benefits under such Plan.
Directors who are officers or employees of the Company or any subsidiary receive
no additional compensation for service on the Board or any of its committees.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Mr. Jannotta, a director of the Company, is a Senior Director of William Blair &
Company, L.L.C., an investment banking firm ("William Blair"). William Blair,
from time to time, has rendered investment banking services to the Company and
received customary compensation for those services. During Fiscal 1998, William
Blair served as co-manager of a public debt offering on December 15, 1997. The
Company indemnified William Blair against certain liabilities and compensated
William Blair for its services under an underwriting agreement which management
believes was on terms as favorable to the Company as if made with a
non-affiliated party. The Company may engage William Blair for additional
services in the future.
BIOGRAPHICAL INFORMATION
<TABLE>
<CAPTION>
Director
Since
--------
<S> <C>
CLASS I DIRECTORS WHOSE TERMS EXPIRE AT THE 2000 ANNUAL MEETING:
ERWIN E. SCHULZE, 73: Chairman Emeritus, Chicago Stock Exchange
(formerly Midwest Stock Exchange). Since January, 1991, private
investor. From 1981 to 1991, Chairman of the Board, President and
Chief Executive Officer of Ceco Industries, Inc., a manufacturer
of building products and provider of concrete forming services for
the construction industry.
Other directorships: The Interlake Corporation 1977
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
Director
Since
--------
<S> <C>
JOEL D. SPUNGIN, 60: Since March, 1995, Managing Partner, DMS
Enterprises, L.P., a consulting and management advisory
partnership. Since 1994, Chairman Emeritus, and from 1988 to
March, 1995, Chairman and Chief Executive Officer of United
Stationers Inc.
Other directorships: United Stationers Inc. and Home Products 1992
International
DAVID P. STORCH, 45: Since 1996, President and Chief Executive 1989
Officer of AAR. From 1989 to 1996, President and Chief Operating
Officer of AAR. From 1988 to 1989, Vice President of AAR. Mr.
Storch is Mr. Eichner's son-in-law.
CLASS II--DIRECTORS WHOSE TERMS EXPIRE AT THE 1998 ANNUAL MEETING:
NOMINEES:
EDGAR D. JANNOTTA, 67--Since January, 1996, Senior Director of
William Blair. From 1995 to 1996, Senior Partner of William Blair.
From 1977 to 1995, Managing Partner of William Blair.
Other directorships: Aon Corporation, Bandag, Incorporated, 1964
Molex Incorporated, Oil-Dri Corporation of America, and Unicom
Corporation.
LEE B. STERN, 71--Since December, 1992, President of LBS Co., the
General Partner of LBS Limited Partnership, a member firm of the
Chicago Board of Trade and Futures Commission Merchant since 1992.
From 1967 to December, 1992, President and Chief Executive Officer
of Lee B. Stern & Company, Ltd., a Futures Commission Merchant.
Mr. Stern has been a member of the Chicago Board of Trade since
1949 and an owner-director of the Chicago White Sox since 1976.
Other directorship: Anicom, Inc. 1982
RICHARD D. TABERY, 69--Since December, 1993, Aviation Business 1989
Consultant. From 1995 to 1997, Chairman of HKS&A, Inc., an
aviation consulting company. From June, 1988, through November,
1993, Vice Chairman of AAR. From 1957 to 1988, Mr. Tabery held
various positions with United Airlines, Inc., most recently as
Senior Vice President-Maintenance Operations.
CLASS III--DIRECTORS WHOSE TERMS EXPIRE AT THE 1999 ANNUAL MEETING:
A. ROBERT ABBOUD, 69--Since 1984, President of A. Robert Abboud &
Co., a private investment business.
Other directorships: Inland Steel Company, Hartmarx Corporation, 1987
and Alberto-Culver Company.
HOWARD B. BERNICK, 46--Since November, 1994, President and Chief
Executive Officer of Alberto-Culver Company, a manufacturer,
marketer and distributor of personal care and household products.
From 1988 to November, 1994, President and Chief Operating Officer
of Alberto-Culver Company.
Other directorship: Alberto-Culver Company. 1994
IRA A. EICHNER, 67--Since 1973, Chairman of the Board of AAR. Mr. 1955
Eichner is the founder of the Company and was its Chief Executive
Officer since it was founded in 1955 until October, 1996. Mr.
Eichner is Mr. Storch's father-in-law.
ROBERT D. JUDSON, 73--Since 1984, Financial Consultant. Prior to 1979
1980, Senior Vice President, The First National Bank of Chicago.
</TABLE>
4
<PAGE>
PROPOSAL 1
ELECTION OF DIRECTORS
The Board of Directors is currently divided into three classes, each having
three-year terms that expire in successive years. At this year's Annual Meeting,
three directors will be elected in Class II, each to serve a three-year term
expiring at the Annual Meeting in the year 2001 or until the individual is
succeeded by another qualified director who has been duly elected.
The nominees for Director in Class II this year are EDGAR D. JANNOTTA, LEE B.
STERN, and RICHARD D. TABERY.
The Board expects all nominees to serve if elected as directors. If any of them
should become unavailable to serve as a director for any reason prior to the
Annual Meeting, the Board may substitute another person as nominee. Under
Delaware law, the three nominees for director who individually receive the
greatest number of votes shall be elected directors of the Company.
THE BOARD OF DIRECTORS RECOMMENDS THAT
STOCKHOLDERS VOTE FOR ALL THREE NOMINEES
OTHER MATTERS TO BE VOTED UPON
Management knows of no other matters which are to be brought before this Annual
Meeting for a stockholders vote. However, if any other matters properly come
before the Annual Meeting, the named proxy holders will vote all proxies in
their discretion and best judgment on such other matters.
5
<PAGE>
SECURITY OWNERSHIP OF MANAGEMENT AND OTHERS
The following tables show the shares of Common Stock beneficially owned, as of
July 31, 1998, by (i) each director and nominee for election to the Board, (ii)
each of the named executive officers, (iii) all directors and executive officers
of the Company as a group, and (iv) each beneficial owner of more than 5% of the
outstanding shares of Common Stock.
SECURITY OWNERSHIP OF MANAGEMENT
<TABLE>
<CAPTION>
Percent of Shares
Number of Outstanding if
Name Shares(1) greater than 1%
- ----------------------------------- ----------- ----------------------
<S> <C> <C>
A. Robert Abboud 31,094
Howard B. Bernick 22,500
Ira A. Eichner 765,929(2) 2.8
Edgar D. Jannotta 37,500
Robert D. Judson 21,037
Howard A. Pulsifer 37,551
Timothy J. Romenesko 38,270
Erwin E. Schulze 19,606
Philip C. Slapke 98,737
Joel D. Spungin 20,250
Lee B. Stern 144,650(3)
David P. Storch 530,880(4) 1.9
Richard D. Tabery 62,212
All directors and executive 1,830,216(1,2,3,4) 6.6
officers as a group
</TABLE>
- ------------
(1) Includes the following shares of the identified person that may be
acquired within sixty days of July 31, 1998 through the exercise of stock
options: Mr. Abboud, 4,500 shares; Mr. Bernick, 15,000 shares; Mr. Eichner,
119,969 shares; Mr. Jannotta, 15,000 shares; Mr. Judson, 15,000 shares; Mr.
Pulsifer, 3,098 shares; Mr. Romenesko, 3,115 shares; Mr. Schulze, 15,000
shares; Mr. Slapke, 32,060 shares; Mr. Spungin, 15,000 shares; Mr. Stern,
4,273 shares; Mr. Storch, 310,774 shares; and Mr. Tabery, 34,500 shares; and
all directors and executive officers as a group (13 persons), 587,289
shares.
(2) Does not include 75,000 shares which Mr. Eichner may be deemed to own a
beneficial interest in, but as to which Mr. Eichner disclaims beneficial
ownership.
(3) Does not include 49,500 shares which Mr. Stern may be deemed to own a
beneficial interest in, but as to which Mr. Stern disclaims beneficial
ownership.
(4) Includes 28,538 shares beneficially owned by Mr. Storch's wife (18,810
shares) and minor children (9,728 shares), as to which Mr. Storch disclaims
beneficial ownership.
6
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
<TABLE>
<CAPTION>
Name and Address Number of Percent of Shares
of Stockholder Shares Outstanding
- ----------------------------------------------------------------------------------- ----------- ---------------------
<S> <C> <C>
Neuberger & Berman, LLC(1) 2,879,275(1) 10.4%
605 Third Avenue
New York, NY 10158-3698
Westport Asset Management, Inc.(2) 1,981,050(2) 7.1%
253 Riverside Avenue
Westport, CT 06880-4816
</TABLE>
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Based solely upon a review of Securities and Exchange Commission Forms 3, 4 and
5 and upon related written representations furnished to the Company with respect
to its most recent fiscal year, no person who, at any time during the fiscal
year, was a director, officer or beneficial owner of more than ten percent of
any class of equity securities of the Company registered pursuant to Section 12
of the Securities Exchange Act of 1934 ("Exchange Act"), failed to file on a
timely basis, as disclosed in the above Forms, reports required by Section 16(a)
of the Exchange Act during Fiscal 1998.
EXECUTIVE COMPENSATION AND OTHER INFORMATION
COMPENSATION COMMITTEE'S REPORT ON EXECUTIVE COMPENSATION
GENERAL
The Company's executive compensation program is structured and administered by
the Compensation Committee of the Board of Directors. The Committee is comprised
of the five individuals listed at the end of this report, all of whom are
independent directors of the Company.
The executive compensation program is designed to enable the Company to attract,
motivate and retain talented executives capable of achieving strategic business
initiatives and to reward them for their achievement. It is designed to
complement the Company's short-term and long-term business objectives and to
focus executives' efforts on fulfilling these objectives. The program consists
of three elements: (i) base salaries which are generally set at approximately
the median salary level of comparable positions in similar companies, adjusted
up or down to reflect individual capabilities and responsibilities and
experience levels and other relevant factors; (ii) annual variable incentive
opportunities paid in cash and stock based on individual contribution and
performance; and (iii) long-term incentive opportunities, in the form of stock
option/restricted stock awards.
- ----------
(1) As of 5/31/98, Neuberger & Berman disclaimed beneficial ownership of these
shares and stated that it had the following powers with respect to these
shares:
<TABLE>
<S> <C> <C> <C>
(i) sole voting power: 1,149,425
(ii) shared voting power: 1,720,150
(iii) sole investment 0
power:
(iv) shared investment 2,879,275
power:
</TABLE>
(2) As of 6/30/98, Westport Asset Management, Inc. disclaimed beneficial
ownership of these shares and stated that it had the following powers with
respect to these shares:
<TABLE>
<S> <C> <C> <C>
(i) sole voting power: 0
(ii) shared voting power: 1,981,050
(iii) sole dispositive 0
power:
(iv) shared dispositive 1,981,050
power:
</TABLE>
7
<PAGE>
Total compensation opportunities for each executive are intended to be
competitive with those offered by other companies competing for talent in the
Company's employment market. In designing and administering the individual
elements of the executive compensation program for each executive, the Committee
strives to balance short- and long-term incentive objectives and employ prudent
judgment in establishing base salary levels and performance criteria, evaluating
performance and determining actual incentive payments. To ensure competitiveness
and reasonableness of the Committee's compensation decisions, independent
compensation consulting firms are retained periodically to advise the Committee
in connection with both the design and implementation of the various elements of
the program and the level of individual executive participation. Competitive
compensation analyses by independent consultants are used by the Committee to
ensure that the Chief Executive Officer's and Chairman's base salaries and total
compensation are at an appropriate competitive level relative to compensation
for such positions at other companies in the relevant employment market.
Generally, as an executive's level of responsibility increases, a greater
percentage of total compensation is based on performance, and the mix of total
compensation shifts toward stock, thereby aligning the long-term interest of
senior executives with those of stockholders. To encourage stock ownership in
the Company by senior executives, the Company has established guidelines for
ownership of Common Stock by senior management equal in value to 75% of salary,
to be voluntarily achieved over the next several years. An executive's progress
towards achieving these guidelines will be one factor considered by the
Committee in making incentive stock compensation decisions for the executive in
the future.
BASE SALARIES
Base salary levels of all elected corporate officers, including the Chief
Executive Officer, are reviewed annually by the Committee and may be adjusted
depending upon the executive's qualifications, responsibilities, assessed
performance contribution, tenure in the Company and in the position held, and
competitive salary considerations relative to similar positions at selected
companies in the employment market from which the Company draws its executives.
Adjustments in Fiscal 1998 to the base salaries of the executive officers named
in the Summary Compensation Table, including Mr. Storch, reflect the factors
referred to above.
ANNUAL INCENTIVE OPPORTUNITIES
Mr. Storch, President and Chief Executive Officer, has an annual
performance-based incentive bonus opportunity of up to 150% of his base salary.
Twenty percent of Mr. Storch's incentive bonus is payable in three-year
restricted stock. The percentage incentive bonus opportunity for other executive
positions varies depending on their responsibility level and 10% of any bonus
paid is payable in restricted stock.
The Compensation Committee establishes specific annual cash bonus performance
goals, intended to meet the requirements of Section 162(m) of the Internal
Revenue Code, each fiscal year for the President and Chief Executive Officer,
the Chairman of the Board, and certain other executive officers of the Company
(as appropriate in the Compensation Committee's discretion). These goals focus
on two categories: income and balance sheet management. The importance and
weighting of these two categories is established each year by the Compensation
Committee. Under the category of balance sheet management, the goals include one
or several of the following criteria: shareholder equity, long-term debt to
capital ratio, investment rating, debt coverage, cash flow or return on invested
capital. Under the category of income, the goals include one or several of the
following: pre-tax income, earnings per share, net income. A participant may
earn up to 100% of such participant's salary (not to exceed $4 million in any
year) for meeting target goals and up to an additional 50% of salary for
exceeding target goals. The amount actually earned depends on each participant's
position and actual performance versus the pre-established goals.
8
<PAGE>
LONG-TERM INCENTIVE OPPORTUNITIES
The long-term incentive program consists of stock option and/or restricted stock
awards granted under the AAR CORP. Stock Benefit Plan approved by stockholders
in 1992; Mr. Storch is also eligible for a performance restricted share award
based on performance over a four-year period pursuant to the terms of his
Employment Agreement.
Stock option awards typically expire 10 years from the date of grant or earlier
upon termination of employment, become exercisable in five equal increments on
successive grant anniversary dates at the NYSE closing stock price on the date
of grant, and are accompanied by reload features and, for certain individuals,
stock rights exercisable in the event of a change in control of the Company.
Restrictions imposed on restricted stock awards vary and are designed, among
other things, to encourage executives to stay with the Company and to maintain a
focus on long-term objectives of the Company. Typically, restricted stock grants
vest over five (5) years (20% each anniversary), over seven (7) years (25% on
fourth anniversary, 25% on sixth anniversary and 50% on seventh anniversary), or
over 10 years (30% on fourth anniversary, 30% on 7th anniversary and 40% on 10th
anniversary); restrictions on restricted stock used in lieu of cash to pay
earned bonuses are released over three (3) years (33 1/3% on each anniversary).
Typically, awards (other than awards in lieu of cash to pay earned bonuses) are
subject to forfeiture if employment terminates for any reason during the award
cycle. During the award cycle the participant receives dividends on the
restricted shares and also has the right to vote the awarded shares.
In determining stock option and restricted stock awards, the Committee considers
the recipient's position and responsibilities in the Company, performance and
contributions made during the preceding year, capabilities and potential for
future contribution to the Company, the number of options and awards previously
granted to the recipient and, for senior management, their progress toward
achieving the Company's guidelines for stock ownership by senior management.
The Board believes that the Chief Executive Officer should have the opportunity,
based on performance, to become a significant shareholder and that the
performance measures that govern Mr. Storch's opportunities should be both
economic and shareholder value related. Such measures should also be related to
the Company's industry and investor communities and reflect business objectives
of the Company over the coming years. Mr. Storch has the opportunity, under his
Employment Agreement, to earn up to 540,000 shares at the completion of four
years service as CEO (July 9, 2000) contingent upon the Company's performance
compared to the performance of (i) the Company's peer group index and (ii) the
S&P500 index for both return on total capital and total return to shareholders.
The Board may also make discretionary awards of restricted stock and options
each year based on annual performance. No discretionary long-term incentive
awards were made during Fiscal 1998.
Mr. Storch, and other named executive officers in the Summary Compensation Table
below received the long-term incentive stock options and restricted stock awards
reflected in the tables below. The number of shares covered by each grant
reflects individual contributions and performance, as well as competitive
industry practices, in the view of the Committee. The grant levels also continue
the Board's emphasis on executive share ownership and further the Company's
objectives of tying incentive compensation to performance and aligning
executive's interests with the interests of the Company's stockholders.
CHIEF EXECUTIVE OFFICER COMPENSATION
The Committee's action with respect to Mr. Storch's total Fiscal 1998
compensation reflects consideration of the factors discussed earlier, and the
leadership role played in the performance results of the Company overall, and in
maintaining the financial strength and liquidity of the Company, contributing to
a 29.5% or $166.7 million increase in shareholder value during the year.
9
<PAGE>
Mr. Storch's annual base salary was increased to $610,000 in 1998. Mr. Storch's
salary has steadily increased while serving as President and Chief Executive
Officer and previously as Chief Operating Officer, and in other capacities
during his previous 19 years with the Company.
Mr. Storch was awarded an annual incentive bonus in 1998 equal to 136% of his
base salary in effect as of May 31, 1998, reflecting achievement of (i) a net
income growth of 54.9%, (ii) a long-term debt to capital ratio of 37.1%, and
(iii) maintenance of an investment grade credit rating, as well as other
factors, including a substantial improvement over the prior year in consolidated
net sales (up 32.7%).
The tables which follow this report and accompanying footnotes and narrative
reflect the decisions covered by the above discussion.
FEDERAL INCOME TAX CONSIDERATIONS
Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code"),
generally prevents any public company from claiming a deduction for compensation
in excess of $1 million for any executive. This deduction limitation, however,
does not apply to performance-based compensation that satisfies certain
requirements under Section 162(m). The Committee has determined that it is in
the best interests of the Company and its shareholders to structure compensation
of executive officers so that compensation will not be subject to the deduction
limit to the extent that it can reasonably do so in a manner that provides
adequate incentives and allows the Company to attract and retain qualified
executives. However, the Committee has and may in the future structure
compensation arrangements that under certain circumstances may be subject to the
deduction limit.
COMPENSATION COMMITTEE
Erwin E. Schulze, Chairman
A. Robert Abboud
Edgar D. Jannotta
Robert D. Judson
Lee B. Stern
10
<PAGE>
STOCKHOLDER TOTAL RETURN PERFORMANCE GRAPH
The following graph compares the five-year cumulative total stockholder return
(including reinvestment of dividends) of the Company, the S&P (Standard &
Poor's) Composite--500 Stock Index, and a peer group index selected by the
Company.
The S&P Composite--500 Stock Index is composed of domestic industry leaders in
four major sectors: Industrials, Financials, Utilities and Transportation, and
serves as a broad indicator of the performance of the U.S. equity market. The
peer group index selected by the Company is comprised of companies engaged in
engine, airframe and/or manufacturing activities in support of the
aviation/aerospace aftermarket similar to those conducted by the Company. The
peer group selected by the Company is comprised of the following companies(1):
Aviall, Inc., Aviation Sales Company, Banner Aerospace, Inc., B.F. Goodrich
Company, Kellstrom Industries, Inc., Sequa Corp., SPS Technologies Inc., Willis
Lease Finance Corp., and Wyman Gordan Co.
These indices relate only to stock prices and dividends; they do not purport to
provide a direct comparison of the business or financial performance of the
companies comprising such indices with the Company or with each other.
COMPARISON OF FIVE-YEAR CUMULATIVE STOCKHOLDER TOTAL RETURN(2)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
RETURN TO SHAREHOLDER
<S> <C> <C> <C>
Index AAR CORP. S&P 500 PEER GROUP
FY93 $100.00 $100.00 $100.00
FY94 $110.00 $104.26 $105.91
FY95 $120.97 $125.31 $111.97
FY96 $180.03 $160.94 $177.87
FY97 $257.11 $208.28 $211.07
FY98 $333.11 $272.19 $265.17
</TABLE>
- ----------
(1) As a result of consolidation with other companies, or divestiture of major
aviation operations, UNC, Inc., Greenwich Air Services, Inc., and Hi-Shear
Industries, Inc., previously included in the Company's Peer Group, have been
deleted. These three companies have been replaced in the Peer Group by
Aviation Sales Company, B.F. Goodrich Company, Kellstrom Industries, Inc.,
and Willis Lease Finance Corp. Because data is not available for the deleted
companies, a Comparative Stockholder Total Return Performance Graph showing
the Company's performance against the previous peer group for Fiscal 1998 is
not provided.
(2) Assumes $100 invested on June 1, 1993, and reinvestment of dividends in
the Company's Common Stock, S&P Composite--500 Stock Index and Companies
comprising the Peer Group.
11
<PAGE>
COMPENSATION TABLE
The following table summarizes the total compensation earned by or paid for the
years 1996 through 1998 to the Chief Executive Officer and the four other most
highly paid executive officers in Fiscal 1998.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term Compensation
--------------------------------
Awards
--------------------------------
Annual Compensation Securities
------------------------------------- Restricted Stock Underlying All Other
Name and Principal Position Year Salary ($) Bonus ($)(1) Award(s) ($)(2) Options (#) Compensation ($)(3)
- ---------------------------------- --------- ----------- ------------- ----------------- ------------- ---------------------
<S> <C> <C> <C> <C> <C> <C>
DAVID P. STORCH................... 1998 550,000 750,000 511,875 345,000 26,900
PRESIDENT AND 1997 450,500 500,000 361,875 200,000 14,700
CHIEF EXECUTIVE OFFICER 1996 348,900 352,200 165,619 75,000 4,700
IRA A. EICHNER.................... 1998 440,000 600,000 415,440 36,000 16,900
CHAIRMAN AND FOUNDER 1997 440,500 400,000 361,875 30,000 10,600
1996 498,400 503,100 330,000 30,000 4,700
PHILIP C. SLAPKE.................. 1998 241,500 476,160 225,030 26,250 3,000
VICE PRESIDENT- 1997 230,000 373,530 150,781 12,500 2,000
AIRCRAFT & ENGINE GROUP 1996 223,000 277,300 110,000 10,000 3,300
HOWARD A. PULSIFER................ 1998 195,000 105,000 69,240 12,000 5,700
VICE PRESIDENT, 1997 177,800 100,000 90,469 7,500 3,600
GENERAL COUNSEL, AND 1996 172,200 86,900 66,000 6,000 4,000
SECRETARY
TIMOTHY J. ROMENESKO.............. 1998 195,000 125,000 121,170 15,000 5,000
VICE PRESIDENT AND 1997 158,000 100,000 90,469 7,500 3,600
CHIEF FINANCIAL OFFICER 1996 153,100 77,300 66,000 6,000 4,000
</TABLE>
- ------------
(1) Fiscal 1998 bonus compensation for Mr. Storch was paid 80% in cash and 20%
in restricted stock, for Mr. Eichner 100% in cash, and for all others 90% in
cash and 10% in restricted stock, based on NYSE May 31, 1998 closing price.
The restricted stock vests over a three year period (one-third each grant
anniversary date). Dividends are paid on all shares of restricted stock.
(2) On May 31, 1998, the following shares of restricted stock were held by
each named executive: Mr. Storch, 58,482; Mr. Eichner, 29,250; Mr. Slapke,
37,085; Mr. Pulsifer, 17,823; Mr. Romenesko, 20,907. The May 31, 1998 market
value of each named executive's restricted stock is as follows: Mr. Storch,
$1,546,118; Mr. Eichner, $773,297; Mr. Slapke, $980,435; Mr. Pulsifer,
$471,196; Mr. Romenesko, $552,729. Mr. Eichner received restricted stock
awards of 18,000 shares in 1998, 22,500 shares in 1997, and 22,500 in 1996,
all vesting in equal amounts on the 1st and 2nd grant anniversary. Dividends
are paid on all shares of restricted stock.
(3) "All Other Compensation" includes the following: (i) contributions to the
Company's defined contribution plans, on behalf of each of the named
executives as a 1% match of 1998 pre-tax elective deferred contributions
(Mr. Storch, $5,400, Mr. Eichner, $4,800, Mr. Slapke, $1,600, Mr. Pulsifer,
$2,900, Mr. Romenesko, $2,600); (ii) premium payments under the Company's
standard health plan (Mr. Pulsifer, $2,100, Mr. Romenesko, $2,100, and Mr.
Slapke, $1,400; (iii) the value of the benefit of the remainder of premiums
paid by the Company above the cash value of the policies pursuant to the
Company's "split dollar" insurance program in the following amounts: Mr.
Storch, $21,500, Mr. Eichner, $12,100, Mr. Pulsifer, $700, Mr. Romenesko,
$300.
STOCK OPTIONS
Options generally become exercisable 20% each year over a five-year period.
Unexercised options expire ten years after the date of grant. The stock option
exercise price is equal to the fair market value (NYSE closing price) of a share
of stock on the date of grant. The options have no value unless the stock price
appreciates and the holder satisfies the applicable vesting requirements.
The following table shows certain information with respect to stock options
granted in Fiscal 1998 to the named executive officers. It also shows how much
the named executive officers potentially may realize under two hypothetical
situations: if the stock gains 5% or 10% in value per year
12
<PAGE>
compounded over the ten year life of the options. These are assumed hypothetical
rates of appreciation required to be shown by Securities Exchange Commission
regulations as an example and are not a forecast of future stock price
appreciation. Also included in this table by way of example is the hypothetical
increase in value to all stockholders and to all employee optionees under such
circumstances.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Individual Grants
-------------------------------------------------------- Potential Realizable Value at
Number of Assumed Annual Rates of Stock
Securities % of Total Price Appreciation for Option
Underlying Options Granted Exercise Term of 10 Years
Options Granted to Employees in Price Expiration -----------------------------
Name (#)(1) Fiscal Year ($/Sh) Date 5% ($) 10% ($)
- -------------------------- --------------- ---------------- --------- ---------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
David P. Storch........... 150,000 16.84% 23.50 7/14/07 2,216,854 5,617,942
195,000 21.89% 23.50 1/1/08 3,480,142 8,255,910
Ira A. Eichner............ 36,000 4.04% $23.0834 10/8/07 $522,613 $1,324,404
Philip C. Slapke.......... 26,250 2.95% 23.0834 10/8/07 381,072 965,711
3,887(2) .44% 25.0834 10/10/00 15,368 32,272
5,432(2) .61% 25.0834 1/14/02 29,363 63,235
2,513(2) .28% 25.0834 1/12/03 17,415 38,483
2,691(2) .30% 25.0834 1/11/04 22,956 52,080
2,192(2) .25% 25.0834 1/17/05 22,384 52,163
1,395(2) .16% 25.0834 10/11/05 16,707 40,016
Howard A. Pulsifer........ 12,000 1.35% 23.0834 10/8/07 174,204 441,468
279(2) .03% 30.375 1/12/03 2,341 5,174
395(2) .04% 30.375 1/11/04 4,081 9,257
543(2) .06% 30.375 1/17/05 6,715 15,648
690(2) .08% 30.375 10/11/05 10,007 23,968
1,191(2) .13% 30.375 10/9/06 19,945 49,126
Timothy J. Romenesko...... 15,000 1.68% 23.0834 10/8/07 217,755 551,835
213(2) .02% 28.4584 1/12/03 1,675 3,701
315(2) .04% 28.4584 1/11/04 3,049 6,917
579(2) .06% 28.4584 1/17/05 6,708 15,632
737(2) .08% 28.4584 10/11/05 10,014 23,985
1,271(2) .14% 28.4584 10/9/06 19,942 49,118
All Stockholders.......... N/A N/A N/A N/A 405,272,431 1,027,039,909
All Employee Optionees.... 783,000 90.0% 23.25 10/8/97 11,448,869 29,013,683
87,342(2) 10.0% 26.375 Various 783,459 1,777,403
Total Optionee Gain as %
of all Stockholder
Gain..................... N/A N/A N/A N/A 3% 3%
</TABLE>
- ------------
(1) Ten year options subject to reload and rights provisions; 20% of option
shares become exercisable on the 1st, 2nd, 3rd, 4th and 5th grant
anniversary except for Mr. Storch's which become exercisable in equal
amounts on the 1st, 2nd, 3rd and 4th grant anniversary, and Mr. Eichner's
which become exercisable in equal amounts on the 1st and 2nd grant
anniversary.
(2) These are reload options resulting from exercise of an original option
grant. Under the original grant, reload options result upon surrender of
shares then owned by the option holder in payment of the exercise price of
the initial option. The reload option is for the number of shares
surrendered and expires concurrent with the original option. The reload
option exercise price is equal to the fair market value of the underlying
stock on the date the original option is exercised. Reload options are
included in the percentage of total options granted to employees shown on
the chart. Values shown in the Potential Realizable Value columns are
duplicative of the portion of the value disclosed in such columns in the
year of the original option grant and do not represent new value above that
of the original grant.
13
<PAGE>
The following table shows stock options exercised by named executive officers
during Fiscal 1998 and the aggregate gain in value on the date of exercise. This
table also shows the number of shares of common stock covered by both
exercisable and non-exercisable stock options as of May 31, 1998, and the number
and value of "in-the-money" unexercised options.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised In-the-
Options at Fiscal Year-End Money Options at Fiscal
(#) Year-End ($)(1)
Shares Acquired Value Realized ---------------------------- ----------------------------
Name on Exercise (#) ($)(2) Exercisable Unexercisable Exercisable Unexercisable
- ----------------------------- ----------------- --------------- ------------ -------------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
David P. Storch.............. 0 0 310,744 607,620 3,103,890.81 5,735,552.65
Ira A. Eichner............... 0 0 119,969 123,000 1,554,462.49 1,301,806.20
Philip C. Slapke............. 53,175 879,507.49 32,060 58,500 232,250.30 516,903.00
Howard A. Pulsifer........... 11,474 188,273.02 3,098 31,200 0 295,098.30
Timothy J. Romenesko......... 10,489 150,467.81 3,115 33,900 0 300,229.35
</TABLE>
- ------------
(1) Value of unexercised in-the-money options equals the fair market value of
the Common Stock at May 31, 1998, less the exercise price, times the number
of option shares outstanding. The closing price of the Common Stock on the
NYSE at May 31, 1998, was $26.4375.
(2) Value realized equals the fair market value on the date of exercise, less
the exercise price, times the number of shares acquired.
14
<PAGE>
PENSION BENEFITS
QUALIFIED PLAN BENEFITS
The Company provides benefits to all domestic employees including the named
executive officers under a qualified retirement program that includes defined
benefits and 401(k)/profit sharing. The defined benefits are determined pursuant
to a formula which takes into consideration years of credited service (to a
maximum of twenty), a percentage of the participant's final average compensation
(the five highest consecutive calendar years of compensation out of the
employee's last ten calendar years of employment) and adjustments for social
security "covered compensation" which is an "offset." Compensation includes cash
compensation shown as income on an employee's Form W-2, reduced by certain items
specified in the Plan, plus amounts contributed to the Profit Sharing Plan.
Compensation for purposes of the Plan cannot exceed an annual compensation
limitation of $160,000 as adjusted from time to time by the Commissioner of
Internal Revenue in accordance with applicable provisions of the Code.
The aggregate salary and bonus compensation shown for the named executive
officers in the Summary Compensation Table above is the compensation currently
included for purposes of determining benefits under qualified plans as well as
the Supplemental Key Employee Retirement Benefit Plan ("SKERP") described below.
The number of years of credited service under the qualified plans, is as
follows: Mr. Eichner, 20 years; Mr. Storch, 20 years; Mr. Pulsifer, 11 years;
Mr. Romenesko, 17 years; and Mr. Slapke, 14 years. Benefits under the Plan may
be limited by applicable laws or regulations. Profit sharing and 401(k) benefits
are based on voluntary contributions by employees with a 1% match and a
discretionary profit sharing contribution by the Company. The Company's
discretionary profit sharing contribution has typically been in the three to
four percent range.
NON-QUALIFIED PLAN BENEFITS
The Company provides supplemental retirement benefits to certain executives and
key employees under the SKERP. All of the named executive officers are
participants in the SKERP, except that Mr. Eichner's participation does not
include supplemental defined benefits. The SKERP is designed to restore the
approximate amount of employer-provided benefits under the Company's qualified
retirement plan lost as a result of Code limitations, including those limiting
compensation for purposes of benefit calculations. Lost benefits restored under
the SKERP are determined in the same manner, using the same compensation data
and years of credited service, as benefits are determined under the Company's
qualified retirement program, subject to maximum compensation limits established
by the Company from time to time (presently $360,000 for key employee
participants and $535,000 for executive officer participants designated by the
Board). The SKERP also provides for aggregate retirement benefits at fifty
percent (50%) of final average compensation (as defined in Plan documents) for
certain executive officers designated by the Board (including three of the named
executive officers), subject to maximum compensation limits established by the
Company from time to time and reduced by certain items specified in Plan
documents. SKERP benefits are unfunded and are forfeited if the participant
violates a covenant not to compete set forth in the Plan document or if
employment is terminated for cause.
Mr. Eichner is also covered by an individual Supplemental Executive Retirement
Plan ("SERP"). Annual benefits under the SERP are equal to 80% of the aggregate
average of annual salary, bonus and long-term incentive cash payments ("cash
compensation") paid for the three fiscal years in which cash compensation is
highest during any ten fiscal years preceding the date of termination of active
employment, subject to an offset for benefits received under the qualified
defined benefit plan and certain other reductions. Based on Mr. Eichner's cash
compensation history to date, it is estimated that he would receive an annual
after tax retirement benefit of $560,000 under the SERP upon retirement at age
68. The Company funds the benefits through an irrevocable trust arrangement with
a bank. The level of funding is based on actuarial computations determined by an
15
<PAGE>
independent actuary. The residual in the trust upon Mr. Eichner's death will be
paid to his estate or designated beneficiaries.
The following table shows a straight life annuity pension benefit (based on 30%
of an employee's final average compensation) payable annually under the AAR
CORP. Retirement Plan and Supplemental Key Employee Retirement Plan ("SKERP")
commencing at age 65 at various combinations of average compensation and years
of service.
PENSION BENEFIT TABLE
<TABLE>
<CAPTION>
Annual Benefit for
Years of Service
------------------
Final Average Compensation 15 20
---------------------------------------------------- -------- --------
<S> <C> <C>
$ 100,000........................................... $ 22,500 $ 30,000
125,000........................................... 28,125 37,500
150,000........................................... 33,750 45,000
175,000........................................... 39,375 52,500
200,000........................................... 45,000 60,000
225,000........................................... 50,625 67,500
250,000........................................... 56,250 75,000
275,000........................................... 61,875 82,500
300,000........................................... 67,500 90,000
350,000........................................... 78,750 105,000
400,000........................................... 90,000 120,000
450,000........................................... 101,250 135,000
500,000........................................... 112,500 150,000
600,000........................................... 135,000 180,000
700,000........................................... 157,500 210,000
800,000........................................... 180,000 240,000
900,000........................................... 202,500 270,000
1,000,000.......................................... 225,000 300,000
1,100,000.......................................... 247,500 330,000
1,200,000.......................................... 270,000 360,000
1,300,000.......................................... 292,500 390,000
1,400,000.......................................... 315,000 420,000
1,500,000.......................................... 337,500 450,000
</TABLE>
EMPLOYMENT AND OTHER AGREEMENTS
The Company has an employment agreement with Mr. Storch designed to assure his
continued services with the Company at a base compensation of $610,000 per year
or such increased amount as the Board may determine. Mr. Storch's term of
employment is continuously extended so as to have a remaining term of three
years, but shall expire upon death, disability, retirement or other termination
of employment.
Mr. Storch's agreement also includes: confidentiality and non-compete
provisions; participation in the Company's benefit plans; a severance payment
upon termination of employment by the Company for other than cause prior to a
change in control of the Company equal to two times base salary then in effect;
a severance payment equal to three (3) times his average cash compensation (base
salary plus cash bonus) for the last two fiscal years of employment upon
termination of employment under certain circumstances in the event of a change
in control of the Company; an incentive bonus opportunity of up to 150% of base
salary subject to annual financial targets approved by the Compensation
Committee (20% of any bonus is payable in three year restricted stock); and long
term incentive stock compensation consisting of an option grant of 200,000
shares; annual restricted stock awards of up to 15,000 shares each year for four
years in the discretion of the Compensation Committee; and 360,000 performance
shares to be granted at the completion of a four-year performance period
contingent upon the Company's performance compared to the Company's Peer Group
index and the S&P500 index for both return on capital and total return to
shareholders.
16
<PAGE>
The Company has an employment agreement with Mr. Eichner which provides for
employment in his present capacity at a base compensation of $488,000 per year
or such increased amount as the Board may determine. The term of employment is
continuously extended so as to have a remaining term of three years, and expires
upon death, disability, voluntary termination or attainment of age 68. The
agreement also provides for retirement benefits following termination of his
full-time employment with the Company under the Company's qualified retirement
plan, and SERP described under "Pension Plans" above.
The Company has entered into an irrevocable trust agreement with The Northern
Trust Company as trustee to fund at certain dates the Company's obligations to
Mr. Eichner and his widow or other beneficiary under his employment agreement.
The Company will pay bonuses to Mr. Eichner (or his widow or other beneficiary)
to provide for federal, state and local income taxes incurred as a result of
contributions to the trust and income earned by trust assets. Mr. Eichner's
estate or designated beneficiary(ies) will receive any residual amounts in the
trust after payment of all retirement and other obligations under the trust
agreement.
The Company has also entered into split dollar life insurance agreements with
certain key employees, including the named executive officers. Under the
agreements, the Company will fund the annual insurance premiums for the policies
subject to reimbursement from the cash value or death benefit proceeds of the
policies or by the individuals for any deficiency in the event of early
termination of the policies for any reason.
The Company has entered into severance agreements with certain key employees,
including all named executive officers other than Mr. Storch and Mr. Eichner.
The severance agreements are substantially identical, include confidentiality
and non-compete covenants, and provide for payment of compensation and certain
benefits in the event of termination of employment for other than cause,
including a change in control of the Company. Severance equal to base salary
plus any earned incentive cash bonus will be paid upon termination of employment
for other than cause (as defined in the severance agreement) prior to a change
in control of the Company; severance equal to three times average annual total
compensation (base salary plus cash bonus) for the last two fiscal years of
employment will be paid upon termination of employment under certain
circumstances following a change in control of the Company.
INDEPENDENT PUBLIC ACCOUNTANTS
The Company's Board of Directors, upon recommendation of its Audit Committee,
has selected KPMG Peat Marwick as its independent public accountants for the
fiscal year ending May 31, 1999. Representatives of that firm are expected to be
present at the Annual Meeting, with the opportunity to make a statement if they
so desire and to be available to respond to appropriate questions.
17
<PAGE>
STOCKHOLDER PROPOSALS FOR 1999 ANNUAL MEETING
Any stockholder who wishes to present a proposal for consideration at the Annual
Meeting of Stockholders to be held in 1999 must submit such proposal in
accordance with the rules promulgated by the Securities and Exchange Commission.
In order for a proposal to be eligible for inclusion in the Company's Proxy
Statement and form of proxy relating to the 1999 Annual Meeting, the stockholder
must submit such proposal to the Company, in writing, to be received by the
Secretary of the Company, AAR CORP., One AAR Place, 1100 N. Wood Dale Road, Wood
Dale, Illinois 60191, no later than May 1, 1999.
A stockholder proposal submitted outside the Rule 14a-8 process for
consideration at the 1999 Annual Meeting will be considered untimely for
purposes of Rules 14a-4 and 14a-5 if notice of the stockholder proposal is
received by the Company after July 14, 1999.
By Order of the Board of Directors
Howard A. Pulsifer
SECRETARY
August 21, 1998
UPON THE WRITTEN REQUEST OF ANY RECORD HOLDER OR BENEFICIAL OWNER OF COMMON
STOCK OF AAR CORP., THE COMPANY WILL PROVIDE, WITHOUT CHARGE, A COPY OF ITS
ANNUAL REPORT ON FORM 10-K FILED WITH THE SECURITIES AND EXCHANGE COMMISSION FOR
THE FISCAL YEAR ENDED MAY 31, 1998. REQUESTS SHOULD BE MADE TO MR. HOWARD A.
PULSIFER, SECRETARY, AAR CORP., ONE AAR PLACE, 1100 N. WOOD DALE ROAD, WOOD
DALE, ILLINOIS 60191, (630) 227-2000.
18
<PAGE>
AAR CORP. PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR THE
OCTOBER 14, 1998 ANNUAL MEETING OF STOCKHOLDERS TO BE HELD AT THE
P SHAREHOLDERS' ROOM (21ST FLOOR) OF BANK OF AMERICA ILLNOIS, 231 S. LASALLE
STREET, CHICAGO, ILLINOIS, ON WEDNESDAY, OCTOBER 14, 1998, AT 3:00 P.M.
(CST).
R
The undersigned hereby appoints IRA A. EICHNER and HOWARD A. PULSIFER,
or either of them, with full power of substitution, as Proxies, and
O hereby authorizes them to represent the undersigned at the 1998 Annual
Meeting of Stockholders of AAR CORP. to be held on October 14, 1998, or
any adjournment thereof, and to vote all shares of AAR CORP. Common
X Stock which the undersigned would be entitled to vote if personally
present.
Y 1. Election of three Class II directors, nominees: Edgar D. Jannotta,
Lee B. Stern, and Richard D. Tabery
(see reverse side);
AS TO ITEM 1 SET FORTH ON THE REVERSE HEREOF, THIS PROXY WILL BE VOTED
IN THE MANNER DIRECTED ON THE REVERSE SIDE AND, IF NO DIRECTION IS
GIVEN, WILL BE VOTED FOR ITEM 1.
(Continued and to be dated and signed on reverse side.)
- -------------------------------------------------------------------------------
FOLD AND DETACH HERE
[AAR LOGO]
... meeting the needs of the aviation/aerospace industry around the world
- - Aberdeen, North Carolina
- - Albany, New York
- - Amsterdam, Netherlands
- - Anchorage, Alaska
- - Atlanta, Georgia
- - Boulogne, France
- - Brussels, Belgium
- - Cadillac, Michigan
- - Clearwater, Florida
- - Columbus, Ohio
- - Dallas, Texas
- - Elk Grove Village, Illinois
- - Ft. Lauderdale, Florida
- - Frankfort, New York
- - Garden City, New York
- - Hamburg, Germany
- - Hannover, Germany
- - Harrisburg, Pennsylvania
- - Kansas City, Missouri
- - Livonia, Michigan
- - London, England
- - Long Beach, California
- - Madrid, Spain
- - Miami, Florida
- - Mitcham, England
- - Montreal, Canada
- - Oklahoma City, Oklahoma
- - Petropolis, Brazil
- - Port Jervis, New York
- - Prestwick, Scotland
- - Ra'anana, Israel
- - San Jose, California
- - Scottsdale, Arizona
- - Seattle, Washington
- - Singapore
- - South Glamorgan, Wales
- - Tampa, Florida
- - Teterboro, New Jersey
- - Windsor, Connecticut
- - Winston-Salem, NC
- - Wood Dale, Illinois
<PAGE>
PLEASE MARK YOUR
/X/ VOTES AS IN THIS 6019
EXAMPLE.
PLEASE MARK VOTE CLEARLY
As to any other business that may come before the Annual Meeting, or any
adjournment thereof, this Proxy will be voted in the discretion of the proxies.
-----------------------------------------------------------------------
The Board of Directors recommends a vote "FOR" item 1
described in the proxy statement:
-----------------------------------------------------------------------
1. Election of three Class II directors FOR WITHHOLD AUTHORITY TO
(nominees: Edgar D. Jannotta, ALL NOMINEES* VOTE FOR ALL NOMINEES
Lee B. Stern, and
Richard D. Tabery). / / / /
*(Instructions: to withhold authority to vote for any individual nominee,
write that nominee's name(s) in the space below)
-------------------------
(Please sign as name appears opposite.
Joint owners should all sign.
Executors, administrators, trustees,
etc. should so indicate when signing.
If signer is a corporation, sign full
corporate name by duly authorized
officer who adds his or her name and
title.)
-------------------------------------
PLEASE SIGN
---------------------- Dated _____1998
(please fill in date)
- -------------------------------------------------------------------------------
FOLD AND DETACH HERE
