<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:
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(4) Date Filed:
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<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 13, 1999
To the Stockholders of AAR CORP.:
The Annual Meeting of Stockholders of AAR CORP. for the year 1999 will be held
in the Shareholders' Room (21st Floor) of Bank of America Illinois, 231 S.
LaSalle Street, Chicago, Illinois, on Wednesday, October 13, 1999, at 3:00 P.M.
(Chicago time). At the meeting, stockholders will act on the following matters:
1. Election of three Class III directors to serve until the 2002 Annual Meeting
of Stockholders; and
2. Amendment of the Company's Restated Certificate of Incorporation to increase
the number of authorized shares of the Company's Common Stock, $1.00 par
value, from 80,000,000 to 100,000,000; and
3. Any other matter that may properly come before the meeting.
By Order of the Board of Directors
HOWARD A. PULSIFER
SECRETARY
August 23, 1999
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 13, 1999
SOLICITATION
This Proxy Statement and the enclosed proxy card were mailed to shareholders on
or about August 23, 1999, in connection with the solicitation of proxies by the
Board of Directors of the Company to be used at the 1999 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 $8,000, 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 FOR Proposal 2, the Amendment to the Restated Certificate of
Incorporation, 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, 1999, may vote at the 1999
Annual Meeting ("Annual Meeting"). On that date, 27,401,250 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 set 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, 1999 ("Fiscal 1999"), the Board held five
meetings. All of the incumbent directors attended 75% or more of the aggregate
meetings of the Board and of the Committees on which they served except for Mr.
Jannotta whose attendance was 73% in the aggregate, including a special
telephonic committee meeting called at a time when he was unavailable.
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 consolidated financial statements,
maintains communication between the Board and its independent auditors, monitors
performance of the independent auditors, has oversight of and reviews financial
reporting issues and practices, has oversight of and 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 1999.
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
two meetings during Fiscal 1999.
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 one meeting during Fiscal 1999.
NOMINATING COMMITTEE
The Nominating Committee is comprised of Robert D. Judson (Chairman), Ira A.
Eichner, Lee B. Stern, and Richard D. Tabery. This committee reviews and
recommends to the Board qualified candidates for election as directors and
considers the performance of incumbent directors to
2
<PAGE>
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 Annual Meeting of
Stockholders for the year 2000 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, 2000, 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 1999.
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, 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 the Board and
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 can be
exercised in 25% increments on each anniversary grant date 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 are paid 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,
1999, 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. ("William Blair"). William Blair, from time to time, has
rendered investment banking services to the Company and received customary
compensation for those services. The Company may engage William Blair for
additional services in the future.
BIOGRAPHICAL INFORMATION
<TABLE>
<CAPTION>
Director
Since
--------
<S> <C>
NOMINEES:
CLASS III DIRECTORS WHOSE TERMS EXPIRE AT THE 1999 ANNUAL MEETING:
A. ROBERT ABBOUD, 70: Since 1984, President of A. Robert Abboud & 1987
Co., a private investment business.
Other directorships: Hartmarx Corporation and Alberto-Culver
Company.
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
Director
Since
--------
<S> <C>
HOWARD B. BERNICK, 47: Since 1994, President and Chief Executive 1994
Officer of Alberto-Culver Company, a manufacturer, marketer and
distributor of personal care and household products. From 1988 to
1994, President and Chief Operating Officer of Alberto-Culver
Company.
Other directorship: Alberto-Culver Company.
IRA A. EICHNER, 68: Since 1973, Chairman of the Board of AAR. Mr. 1955
Eichner founded the Company in 1955 and was its Chief Executive
Officer until October, 1996. From 1996 until his retirement as an
active executive officer on May 31, 1999, he was executive
Chairman of the Board and Founder of the Company. Mr. Eichner is
Mr. Storch's father-in-law.
CONTINUING DIRECTORS:
CLASS I DIRECTORS WHOSE TERMS EXPIRE AT THE 2000 ANNUAL MEETING:
ERWIN E. SCHULZE, 74: Chairman Emeritus, Chicago Stock Exchange. 1977
Since 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.
JOEL D. SPUNGIN, 61: Since 1995, Managing Partner, DMS Enterprises, 1992
L.P., a consulting and management advisory partnership. From 1994
to 1999, Chairman Emeritus, and from 1988 to 1995, Chairman and
Chief Executive Officer of United Stationers Inc.
Other directorship: Home Products International
DAVID P. STORCH, 46: 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.
Other directorship: Whitman-Hart, Inc.
CLASS II DIRECTORS WHOSE TERMS EXPIRE AT THE 2001 ANNUAL MEETING:
EDGAR D. JANNOTTA, 68: Since 1996, Senior Director of William Blair 1964
& Company, L.L.C., an investment banking firm ("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,
Molex Incorporated, Oil-Dri Corporation of America, and Unicom
Corporation.
LEE B. STERN, 72: Since 1992, President of LBS Co., the General 1982
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.
RICHARD D. TABERY, 70: Since 1993, Aviation Business Consultant. 1989
From 1995 to 1997, Chairman of HKS&A, Inc., an aviation consulting
company. From 1988 to 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.
</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,
the Board of Directors has determined that three directors will be elected in
Class III, each to serve a three-year term expiring at the Annual Meeting in the
year 2002 or until the individual is succeeded by another qualified director who
has been duly elected.
The nominees for Director in Class III this year are A. ROBERT ABBOUD, HOWARD B.
BERNICK, and IRA A. EICHNER.
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 and the Company's By-Laws, 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
PROPOSAL 2
AMENDMENT TO RESTATED CERTIFICATE OF INCORPORATION
TO INCREASE THE AUTHORIZED NUMBER OF SHARES OF COMMON STOCK
The Board of Directors of the Company has unanimously approved an amendment to
the Company's Restated Certificate of Incorporation to increase the number of
shares of Common Stock which the Company is authorized to issue from 80,000,000
to 100,000,000.
Of the 80,000,000 shares of Common Stock authorized, as of August 17, 1999,
27,401,250 shares of Common Stock were outstanding. As of that date, a total of
4,779,114 shares of Common Stock were reserved for issuance upon the exercise of
outstanding grants of stock options and were available for grants under the
Company's stock option plans and under the Employee Stock Purchase Plan. In
addition, 22,385,672 shares have been reserved pursuant to the Share Purchase
Rights Plan. As a result, a total of 25,433,964 authorized shares of Common
Stock remain available for future issuance.
The additional shares of Common Stock for which authorization is sought would
have the same rights and privileges as the shares of Common Stock presently
outstanding. Holders of the Company's outstanding Common Stock have no
preemptive rights.
The Board believes that it is desirable to have the additional authorized shares
of Common Stock available for possible future financing and acquisition
transactions, stock dividends or splits, employee stock plans, shares to be
reserved and issued under the Share Purchase Rights Plan and other general
corporate purposes. The additional authorized shares of Common Stock would
provide the Company with increased flexibility to issue such stock to take
advantage of market conditions and foreseeable opportunities without the expense
and delay of a special stockholders' meeting, unless stockholder action is
otherwise required. The New York Stock Exchange, on which the Company's Common
Stock is listed, currently requires stockholder approval as a prerequisite to
listing shares in several instances, including transactions where the present or
potential issuance of shares could result in a change of control of a company or
in an increase of at least 20% of the (i) outstanding shares or (ii) voting
power outstanding (as defined by the New York Stock Exchange) of a company.
5
<PAGE>
There are no current plans for the issuance of additional Common Stock. Common
Stock may, however, be issued by the Company from time to time in connection
with its acquisition growth strategy as opportunities arise. In such event,
stockholder approval will be sought if required by the New York Stock Exchange
as a prerequisite to listing shares.
Although not a factor in the Board's decision to propose an increase in the
number of authorized shares of Common Stock, one of the effects of an increase
in authorized shares may be to make more difficult or prevent a change in
control of the Company. Such shares could be privately placed with purchasers
who might align themselves with the Board in opposing a hostile takeover bid.
The issuance of the additional shares of Common Stock could also have the effect
of diluting the stock ownership or voting rights of persons seeking to obtain
control of the Company. In this respect, the Company has a Share Purchase Rights
Plan which permits the Company's stockholders to purchase shares of Common Stock
at a very favorable price under certain circumstances and contains other terms
designed to protect against the adverse consequences to stockholders of
"front-end loaded two-step takeovers" and to encourage potential acquirors to
negotiate with the Company's Board.
Other provisions of the Company's Restated Certificate of Incorporation
previously approved by the Company's stockholders may also be deemed to have
anti-takeover effects. Article TENTH of the Restated Certificate of
Incorporation provides for the classification of directors into three classes
with staggered three-year terms and requires the approval by holders of 80% of
the Company's voting stock for the removal of a director and for the amendment
of the Company's By-Laws. Article ELEVENTH prohibits stockholder action by
written consent. Article TWELFTH requires supermajority stockholder approval of
certain business transactions between the Company and any beneficial owner of
10% or more of the Company's outstanding voting stock except under certain
circumstances where the Board has approved such transactions. Articles TENTH,
ELEVENTH and TWELFTH may not be amended without the approval by holders of at
least 80% of the Company's voting stock. The Company is also authorized to issue
up to 250,000 shares of Preferred Stock with such rights, preferences and
limitations as may be determined by the Board. Such preferred shares could be
issued in one or more transactions with terms which might deter or make more
difficult a change in control of the Company. Except for the shares of Common
Stock which have been reserved as described, the Company has no present plans,
understandings, agreements or commitments to issue or sell additional shares of
Common Stock.
The proposed amendment will be accomplished by deleting the first paragraph of
Article FOURTH of the Restated Certificate of Incorporation and substituting in
lieu thereof a new first paragraph of Article FOURTH to read as follows:
"FOURTH. The total number of shares which the Corporation shall have
authority to issue is One Hundred Million Two Hundred Fifty Thousand
(100,250,000), of which Two Hundred Fifty Thousand (250,000) shares, at a
par value of $1.00 per share, shall be Preferred Stock and One Hundred
Million (100,000,000) shares, at a par value of $1.00 per share shall, be
Common Stock. Any and all such shares issued, and for which the full
consideration has been paid or delivered, shall be deemed fully paid shares
and the holder of such shares shall not be liable for any further call or
assessment or any other payment thereon."
The affirmative vote of the holders of a majority of the outstanding Common
Stock of the Company entitled to vote at the meeting is required to adopt the
proposed amendment to the Restated Certificate of Incorporation.
THE BOARD RECOMMENDS THAT THE STOCKHOLDERS
VOTE FOR THE PROPOSAL INCREASING THE AUTHORIZED
NUMBER OF SHARES OF COMMON STOCK.
6
<PAGE>
OTHER MATTERS TO BE VOTED UPON
Management knows of no other matters which are to be brought before this Annual
Meeting. 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.
SECURITY OWNERSHIP OF MANAGEMENT AND OTHERS
TABLES
The following tables show the shares of Common Stock beneficially owned, as of
July 31, 1999, by (i) each director and nominee for election to the Board, (ii)
each of the executive officers named in the Summary Compensation Table, (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.
Except as noted, the nature of beneficial ownership for shares shown in the
Tables is sole voting and/or investment power.
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 37,832
Howard B. Bernick 27,500
Ira A. Eichner 791,333(2) 2.9
Edgar D. Jannotta 37,500
Robert D. Judson 21,037
Howard A. Pulsifer 53,486
Timothy J. Romenesko 58,965
Erwin E. Schulze 20,984
Philip C. Slapke 133,446
Joel D. Spungin 20,250
Lee B. Stern 154,173(3)
David P. Storch 740,778(4) 2.7
Richard D. Tabery 62,212
All directors and executive 2,159,496(1,2,3,4) 7.9
officers as a group
</TABLE>
- ------------
(1) Includes the following shares of the identified person that may be
acquired within sixty days of July 31, 1999, through the exercise of stock
options: Mr. Bernick, 15,000 shares; Mr. Eichner, 160,169 shares; Mr.
Jannotta, 15,000 shares; Mr. Judson, 15,000 shares; Mr. Pulsifer, 12,548
shares; Mr. Romenesko, 12,865 shares; Mr. Schulze, 15,000 shares; Mr.
Slapke, 49,310 shares; Mr. Spungin, 15,000 shares; Mr. Stern, 4,273 shares;
Mr. Storch, 435,394 shares; and Mr. Tabery, 34,500 shares; and all directors
and executive officers as a group (13 persons), 784,059 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 28,692 shares beneficially owned by Mr. Storch's wife (18,810
shares) and minor children (9,882 shares), as to which Mr. Storch disclaims
beneficial ownership.
7
<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 3,008,050(1) 10.92%
605 Third Avenue
New York, NY 10158-3698
Westport Asset Management, Inc. 2,188,700(2) 7.9%
253 Riverside Avenue
Westport, CT 06880-4816
</TABLE>
- ------------
(1) As of 12/31/98, Neuberger Berman, LLC ("Neuberger"), a registered
investment advisor, stated that it had the following powers with respect to
these shares, and that in its capacity as investment advisor, it may be
deemed to have beneficial ownership of these shares. Neuberger further
stated that it has no economic interest in these shares and that its clients
are the actual owners of the shares and have the sole right to receive and
the power to direct the receipt of dividends from or proceeds from the sale
of such shares:
<TABLE>
<S> <C> <C> <C>
(i) sole voting power: 1,187,800
(ii) shared voting power: 1,809,550
(iii) sole dispositive power: 0
(iv) shared dispositive 3,008,050
power:
</TABLE>
(2) As of 2/16/99, 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: 2,188,700
(iii) sole dispositive power: 0
(iv) shared dispositive 2,188,700
power:
</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 reports required by Section 16(a) of the Exchange Act during Fiscal
1999.
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 below, 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.
8
<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. The Company
uses competitive compensation analyses by independent consultants to ensure that
the President and Chief Executive Officer's and other executive officers' 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. An executive's progress towards achieving these
guidelines will be one factor considered by the Committee in awarding stock
compensation to the executive in the future.
BASE SALARIES
Base salary levels of all elected corporate officers, including the President
and 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 1999 to the base salaries of the President and
Chief Executive Officer and other executive officers named in the Summary
Compensation Table reflect the factors referred to above.
ANNUAL INCENTIVE OPPORTUNITIES
The President and Chief Executive Officer has an annual performance-based
incentive bonus opportunity of up to 150% of his base salary. Twenty percent of
his 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.
Each fiscal year the Compensation Committee establishes specific annual cash
bonus performance goals, within guidelines approved by stockholders in 1997 and
intended to meet the requirements of Section 162(m) of the Internal Revenue
Code, for the President and Chief Executive Officer and the Executive Vice
President of the Company. 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 and return on invested capital. Under the
category of income, the goals include one or several of the following: pre-tax
income, earnings per share and 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.
9
<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, President and Chief Executive Officer, 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 ( 1/3 on each anniversary).
Typically, awards are subject to forfeiture if the employee terminates
employment for any reason other than retirement or disability or the Company
terminates employment for cause, 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 Mr. Storch, as the President and Chief Executive
Officer, should have the opportunity, based on performance, to become a
significant shareholder and that the performance measures that govern his
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 performance shares at the completion of four years service as
President and Chief Executive Officer (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.
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 1999
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.
In Fiscal 1999, Mr. Storch's annual base salary was increased to $610,000 and he
was awarded an annual incentive bonus equal to 131% of his base salary in effect
as of May 31, 1999, reflecting achievement of (i) a net income growth of 16.9%,
(ii) a long-term debt to capital ratio of 35.7%, and
10
<PAGE>
(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 17.4%). Mr. Storch also received 22,500 restricted shares and
195,000 option shares pursuant to the terms of his Employment Agreement. Mr.
Storch's base salary has been increased to $650,000 effective June 1, 1999.
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 previously and may in the future
structure compensation arrangements that under certain circumstances may be
subject to the deduction limit. None of the compensation paid by the Company in
Fiscal 1999 was subject to the deduction limit.
COMPENSATION COMMITTEE
Erwin E. Schulze, Chairman
A. Robert Abboud
Edgar D. Jannotta
Robert D. Judson
Lee B. Stern
11
<PAGE>
STOCKHOLDER 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 comprised 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
aerospace/aviation 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, 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
FY94 $100.00 $100.00 $100.00
FY95 $109.97 $120.19 $106.31
FY96 $163.66 $154.37 $169.00
FY97 $233.74 $199.77 $200.86
FY98 $302.84 $261.07 $250.60
FY99 $229.85 $315.96 $209.89
</TABLE>
- ------------
(1) Banner Aerospace, Inc., included in the Company's Peer Group in prior
years, was acquired during 1999 and delisted; therefore it has been deleted.
(2) Assumes $100 invested on June 1, 1994, and reinvestment of dividends in
the Company's Common Stock, S&P Composite-500 Stock Index and Companies
comprising the Peer Group.
12
<PAGE>
COMPENSATION TABLE
The following table summarizes the total compensation earned by or paid for
fiscal years 1997 through 1999 to the President and Chief Executive Officer and
the four other most highly paid executive officers in Fiscal 1999.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term Compensation
--------------------------------
Awards
--------------------------------
Annual Compensation Securities
------------------------------------- Restricted Stock Underlying All Other
Name and Principal Position Year Salary ($) Bonus ($)(1) Award(s) ($)(2) Options (#) Compensation ($)(3)
- ---------------------------------- --------- ----------- ------------- ----------------- ------------- ---------------------
<S> <C> <C> <C> <C> <C> <C>
DAVID P. STORCH................... 1999 610,000 800,000 655,313 195,000 97,600
PRESIDENT AND CHIEF 1998 550,000 750,000 511,875 345,000 99,800
EXECUTIVE OFFICER 1997 450,500 500,000 361,799 200,000 98,000
IRA A. EICHNER(4)................. 1999 488,000 640,000 287,550 55,800 194,000
CHAIRMAN AND FOUNDER 1998 440,000 600,000 415,440 36,000 199,800
1997 440,500 400,000 361,800 30,000 202,600
PHILIP C. SLAPKE.................. 1999 350,000 491,900 155,756 42,500 34,600
EXECUTIVE VICE 1998 241,500 476,160 225,030 26,250 32,900
PRESIDENT 1997 230,000 373,530 150,734 12,500 2,900
HOWARD A. PULSIFER................ 1999 215,000 125,000 47,925 16,350 34,200
VICE PRESIDENT, 1998 195,000 105,000 69,240 12,000 31,400
GENERAL COUNSEL, 1997 177,800 100,000 90,434 7,500 3,600
AND SECRETARY
TIMOTHY J. ROMENESKO.............. 1999 220,000 143,500 83,870 26,750 21,000
VICE PRESIDENT AND 1998 195,000 125,000 121,170 15,000 21,300
CHIEF FINANCIAL OFFICER 1997 158,000 100,000 90,434 7,500 3,600
</TABLE>
- ------------
(1) Bonus compensation in Fiscal 1999 was paid to Mr. Storch, 80% in cash and
20% in restricted stock, to Mr. Eichner, 100% in cash, and to all others,
90% in cash and 10% in restricted stock, based on NYSE May 28, 1999, 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, 1999, the following shares of restricted stock were held by
each named executive: Mr. Storch, 88,917; Mr. Eichner, 25,200; Mr. Slapke,
55,319; Mr. Pulsifer, 22,259; Mr. Romenesko, 29,679. The May 31, 1999,
market value of each named executive's restricted stock is as follows: Mr.
Storch, $1,756,111; Mr. Eichner, $497,700; Mr. Slapke, $1,092,550; Mr.
Pulsifer, $439,615; Mr. Romenesko, $586,160. Vesting of long term restricted
stock awards for executive officers varies from 3 years for Mr. Storch to 7
years in Fiscal 1996 and 1997 and 10 years in Fiscal 1998 for other
executive officers (except for Mr. Eichner whose awards all vest 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 401(k) plan on behalf of each of the named executives as a 1%
match of 1999 pre-tax elective deferred contributions (Mr. Storch, $5,400;
Mr. Eichner, $5,400; Mr. Slapke, $3,800; Mr. Pulsifer, $3,100; Mr.
Romenesko, $3,300), (ii) the premium paid on group term life insurance for
Mr. Slapke, $1,600; Mr. Pulsifer, $6,300; and Mr. Romenesko, $1,400; and
(iii) the value of the benefit of the remainder of the premium paid under
the Company's split dollar life insurance program in the following amounts:
Mr. Storch, $92,200; Mr. Eichner, $188,600; Mr. Slapke, $29,200; Mr.
Pulsifer, $24,800; Mr. Romenesko, $16,300.
(4) Mr. Eichner retired as an active executive officer and employee of the
Company effective May 31, 1999; he will continue in his capacity as an
elected director and non-executive Chairman of the Board and Founder for his
elected term. Mr. Eichner is a nominee for reelection as a director at the
1999 Annual Stockholders Meeting.
STOCK OPTIONS
Options generally become exercisable 20% each year over a five-year period.
Unexercised options expire ten years after the date of grant. The stock option
exercise price is equal to the fair market value (NYSE closing price) of a share
of stock on the date of grant. The options have no value unless the stock price
appreciates and the holder satisfies the applicable vesting requirements.
13
<PAGE>
The following table shows certain information with respect to stock options
granted in Fiscal 1999 to the named executive officers. It also shows how much
the named executive officers potentially may realize under two hypothetical
situations: if the stock gains 5% or 10% in value per year compounded over the
ten year life of the options. These are assumed hypothetical rates of
appreciation required to be shown by Securities Exchange Commission regulations
as an example and are not a forecast of future stock price appreciation. Also
included in this table by way of example is the hypothetical increase in value
to all stockholders and to all employee optionees under such circumstances.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Individual Grants
-------------------------------------------------------- Potential Realizable Value at
Number of Assumed Annual Rates of Stock
Securities % of Total Price Appreciation for Option
Underlying Options Granted Exercise Term of 10 Years
Options Granted to Employees in Price Expiration -----------------------------
Name (#) Fiscal Year ($/Sh) Date 5% ($) 10% ($)
- -------------------------- --------------- ---------------- --------- ---------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
David P. Storch........... 195,000(1) 23.59% $23.50 1/1/2009 2,363,166 5,988,726
Ira A. Eichner............ 55,800(2) 6.75% 17.75 10/14/2008 676,229 1,713,697
Philip C. Slapke.......... 42,500(2) 5.14% 17.75 10/14/2008 515,049 1,305,235
Howard A. Pulsifer........ 16,350(2) 1.98% 17.75 10/14/2008 198,142 502,132
Timothy J. Romenesko...... 26,750(2) 3.24% 17.75 10/14/2008 324,178 821,530
All Stockholders.......... N/A N/A N/A N/A 331,812,802 840,878,787
All Employee Optionees.... 796,650(2) 96.36% 19.27 Various 9,654,442 24,466,251
30,103(3) 3.64% 22.96 Various 238,289 537,542
Total Optionee Gain as %
of all Stockholder
Gain..................... N/A N/A N/A N/A 3% 3%
</TABLE>
- ----------
(1) Mr. Storch's option grant is pursuant to his Employment Agreement
performance stock program which establishes the option exercise price at
$23.50, the NYSE closing price on July 14, 1997, the date of Board approval
of his performance stock program (adjusted for a 3-for-2 stock split issued
in February, 1998).
(2) Ten year options subject to reload and rights provisions; 20% of option
shares become exercisable on the 1st, 2nd, 3rd, 4th and 5th grant
anniversary except for Mr. Storch's which become exercisable on July 9,
2000, and Mr. Eichner's which become exercisable in equal amounts on the 1st
and 2nd grant anniversary.
(3) These are reload options resulting from exercise of an original option
grant. Under the original grant, reload options result upon surrender of
shares then owned by the option holder in payment of the exercise price of
the initial option. The reload option is for the number of shares
surrendered and expires concurrent with the original option. The reload
option exercise price is equal to the fair market value of the underlying
stock on the date the original option is exercised. Reload options are
included in the percentage total options granted to employees shown on the
chart. Values shown in the Potential Realizable Value columns are
duplicative of the portion of the value disclosed in such columns in the
year of the original option grant and do not represent new value above that
of the original grant.
The following table shows that no stock options were exercised by named
executive officers during Fiscal 1999. This table also shows the number of
shares of common stock covered by both exercisable and non-exercisable stock
options as of May 31, 1999, and the number and value of "in-the-money"
unexercised options.
14
<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION
VALUES
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised In-the-
Options at Fiscal Year-End Money Options at Fiscal
(#) Year-End ($)(1)
Shares Acquired Value Realized ---------------------------- ----------------------------
Name on Exercise (#) ($) Exercisable Unexercisable Exercisable Unexercisable
- ----------------------------- ----------------- --------------- ------------ -------------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
David P. Storch.............. 0 0 360,394 753,000 2,902,334.53 1,517,040.00
Ira A. Eichner............... 0 0 160,169 138,600 1,011,641.00 451,350.00
Philip C. Slapke............. 0 0 49,310 83,750 206,116.50 206,507.50
Howard A. Pulsifer........... 0 0 12,548 38,100 53,545.50 105,604.50
Timothy J. Romenesko......... 0 0 12,865 50,900 50,620.50 126,404.50
</TABLE>
- ------------
(1) Value of unexercised in-the-money options equals the fair market value of
the Common Stock at May 31, 1999, less the exercise price, times the number
of option shares outstanding. The most recent closing price of the Common
Stock on the NYSE at May 31, 1999, was $19.75.
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 20), 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. Storch, 20 years; Mr. Eichner, 20 years; Mr. Slapke, 15 years; Mr.
Pulsifer, 12 years; and Mr. Romenesko, 18 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 $330,000 for key employee
participants and $500,000 for executive officer participants designated by the
Board). The SKERP also provides
15
<PAGE>
for aggregate retirement benefits at 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. Mr. Eichner retired as an
active employee of the Company on May 31, 1999. Based on Mr. Eichner's cash
compensation history, he will receive an annual after tax retirement benefit of
$540,000 under the SERP. 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 independent actuary. The residual in the trust
upon Mr. Eichner's death will be paid to his estate or designated beneficiaries.
TABLE OF PENSION BENEFITS
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>
16
<PAGE>
EMPLOYMENT AND OTHER AGREEMENTS
DAVID P. STORCH
The Company has an employment agreement with Mr. Storch designed to assure his
continued services with the Company at a base compensation of $650,000 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 300,000
shares (adjusted for 1998 stock split); annual restricted stock awards of up to
22,500 shares each year for four years in the discretion of the Compensation
Committee; 540,000 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; and 360,000 option shares granted in
annual increments pursuant to a schedule, all of which vest at the end of the
performance period.
IRA A. EICHNER
The Company has an employment agreement with Mr. Eichner which provides for
employment as Chairman and Founder 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. Mr. Eichner has attained
the age of 68 and retired from active employment on May 31, 1999. Accordingly,
Mr. Eichner's term of employment under his Employment Agreement has expired.
The Board of Directors acknowledged the extraordinary contributions to AAR of
Ira A. Eichner as he relinquished his role as an executive officer. His vision,
foresight and leadership as a founder of the Company and in growing the Company
from a small sole proprietorship into a position of worldwide leadership as a
billion dollar NYSE public Company, recognized as the pre-eminent products and
services provider in the aviation industry, is remarkable. His energetic
dedication to the Company's success and to ensuring shareholder value has been
unparalleled for more than 48 years. He brought diversity to the Company's
capabilities and customer base through a series of strategic acquisitions,
creating balance and synergies between its trading, overhaul and manufacturing
businesses. He also set a standard of integrity, instilling it into the
Company's culture for all employees to emulate.
In addition to leading AAR through good times and more difficult periods,
achieving profitability every year since the Company's inception, Mr. Eichner
emphasized the importance to the Company's future of prudent fiscal management
and a strong balance sheet. He built an outstanding management team, paying
special attention to successful management planning in order to provide for the
Company's ongoing growth. The Board feels most fortunate that, as continuing
director and nonexecutive Chairman of the Board, Ira Eichner will give his
guidance and counsel to the Company's management, sharing his wealth of
experience.
17
<PAGE>
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 the retirement provisions
of 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.
OTHER AGREEMENTS
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, and by the individuals for any deficiency in the event of early
termination of the policies due to termination of employment by the Company for
cause.
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
by the Company 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 by the
Company 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 LLP as its independent public accountants for the fiscal year
ending May 31, 2000. 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.
18
<PAGE>
STOCKHOLDER PROPOSALS FOR THE YEAR 2000 ANNUAL MEETING
Any stockholder who wishes to present a proposal for consideration at the Annual
Meeting of Stockholders to be held in 2000 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 2000 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 60007, no later than May 1, 2000.
A stockholder proposal submitted outside the Rule 14a-8 process for presentation
at the 2000 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, 2000.
By Order of the Board of Directors
Howard A. Pulsifer
SECRETARY
August 23, 1999
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, 1999. 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.
19
<PAGE>
AAR CORP. PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR THE
OCTOBER 13, 1999 ANNUAL MEETING OF STOCKHOLDERS TO BE HELD AT THE
P SHAREHOLDERS' ROOM (21ST FLOOR) OF BANK OF AMERICA, 231 S. LASALLE
STREET, CHICAGO, ILLINOIS, ON WEDNESDAY, OCTOBER 13, 1999, AT 3:00
P.M. (CST).
R
The undersigned hereby appoints DAVID P. STORCH and HOWARD A.
PULSIFER, or either of them, with full power of substitution, as
O Proxies, and hereby authorizes them to represent the undersigned at
the 1999 Annual Meeting of Stockholders of AAR CORP. to be held on
October 13, 1999, or any adjournment thereof, and to vote all shares
X of AAR CORP. Common Stock which the undersigned would be entitled to
vote if personally present.
Y 1. Election of three Class III directors; nominees: A. Robert
Abboud, Howard B. Bernick, and Ira A. Eichner (see reverse side);
2. Amendment to Restated Certificate of Incorporation to increase the
authorized number of shares of Common Stock from 80,000,000 shares to
100,000,000 shares.
AS TO EACH ITEM 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 AND ITEM 2.
(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
- - Albany, New York
- - Amsterdam, Netherlands
- - Anchorage, Alaska
- - Atlanta, Georgia
- - Paris, 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
- - Madrid, Spain
- - Miami, Florida
- - Mitcham, England
- - Montreal, Canada
- - Oklahoma City, Oklahoma
- - Petropolis, Brazil
- - Port Jervis, New York
- - Prestwick, Scotland
- - Ra'anana, Israel
- - 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.
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.
PLEASE MARK VOTE CLEARLY
-----------------------------------------------------------------------
The Board of Directors recommends a vote "FOR" item 1 and 2
described in the proxy statement:
-----------------------------------------------------------------------
1. Election of three Class III directors FOR WITHHOLD AUTHORITY TO
(nominees: A. Robert Abboud, ALL NOMINEES* VOTE FOR ALL NOMINEES
Howard B. Bernick, and
Ira A. Eichner). / / / /
*(Instructions: to withhold authority to vote for any individual nominee,
write that nominee's name(s) in the space below)
-------------------------------------------------------------------
2. Amendment to Restated Certificate of Incorporation
/ / FOR / / AGAINST / / ABSTAIN
(Please sign as name appears above.
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
