<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
<TABLE>
<S> <C>
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-12
AAR CORP.
-----------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
-----------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the
Registrant)
</TABLE>
Payment of Filing Fee (Check the appropriate box):
<TABLE>
<S> <C> <C>
/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:
----------------------------------------------------------
</TABLE>
<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 11, 2000
To the Stockholders of AAR CORP.:
The Annual Meeting of Stockholders of AAR CORP. for the year 2000 will be held
at AAR CORP.'s headquarters, One AAR Place, 1100 N. Wood Dale Road, Wood Dale,
Illinois, on Wednesday, October 11, 2000, at 3:00 P.M. (Chicago time). At the
meeting, stockholders will act on the following matters:
1. Election of two Class I directors to serve until the 2003 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 28, 2000
YOUR VOTE IS IMPORTANT
PLEASE DATE AND SIGN THE ENCLOSED FORM OF PROXY AND RETURN IT IN THE ENCLOSED
STAMPED, ADDRESSED ENVELOPE, OR SUBMIT YOUR PROXY ELECTRONICALLY BY TELEPHONE OR
VIA THE INTERNET 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 11, 2000
SOLICITATION
This Proxy Statement and the enclosed proxy card were mailed to shareholders on
or about August 28, 2000, in connection with the solicitation of proxies by the
Board of Directors of the Company to be used at the 2000 Annual Meeting ("Annual
Meeting").
If you are a stockholder of record (i.e., you hold your shares in your own name
other than through a broker, bank or other nominee), you are encouraged to
submit your proxy vote electronically either by telephone or via the internet.
This will eliminate the need to sign, date and return your proxy card. To submit
your proxy by telephone or over the internet you will be required to enter the
control number assigned to you and imprinted on your proxy card accompanying
this Proxy Statement. The vote by telephone and vote by internet systems can be
accessed 24 hours a day, seven days a week until the day prior to the meeting.
- TO SUBMIT YOUR PROXY VOTE BY TELEPHONE:
- USING A TOUCH-TONE PHONE, CALL 1-877-PRX-VOTE (1-877-779-8683)
TOLL-FREE AND FOLLOW THE VOICE PROMPTS
- FROM OUTSIDE THE UNITED STATES, CALL 1-201-536-8073 DIRECT AND FOLLOW
THE VOICE PROMPTS
- TO SUBMIT YOUR PROXY VOTE BY INTERNET:
- LOG ONTO INTERNET WEBSITE AT HTTP://WWW.EPROXYVOTE.COM/AAR AND ENTER
YOUR VOTER CONTROL NUMBER ON YOUR PROXY CARD AND MARK THE APPROPRIATE
BOXES TO ENTER VOTING INSTRUCTIONS
If you are a street-name stockholder (i.e., you hold your shares through a
broker, bank or other nominee), you will receive instructions from your broker,
bank or other nominee describing how you may vote your shares.
You may change your vote at any time before your proxy is exercised, but only by
voting in person at the Annual Meeting, or by submitting another proxy by
telephone, over the internet, 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 holders will vote FOR the election
of the two 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.
1
<PAGE>
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.
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 16, 2000, may vote at the 2000
Annual Meeting. On that date, 26,856,636 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 outstanding 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.
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 eight. The eight members of the Board are divided into three classes:
Class I (2 directors), Class II (3 directors) and Class III (3 directors). One
class is elected each year for a three-year term.
During the fiscal year ended May 31, 2000 ("Fiscal 2000"), the Board held six
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.
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 Joel D. Spungin (Chairman), A. Robert Abboud, Erwin E. Schulze, and Howard
B. Bernick. This committee acts pursuant to its charter adopted by the Board of
Directors (a copy of which is attached to this proxy statement as Exhibit 1).
Among other things, the Audit 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 2000.
2
<PAGE>
COMPENSATION COMMITTEE
The Compensation Committee is comprised entirely of independent directors. Its
members are Erwin E. Schulze (Chairman), A. Robert Abboud, Edgar D. Jannotta,
and Lee B. Stern. This committee reviews and approves compensation policies and
practices for all elected corporate officers, fixes the compensation of 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 2000.
EXECUTIVE COMMITTEE
The Executive Committee is comprised of Ira A. Eichner (Chairman), David P.
Storch, Edgar D. Jannotta, and Erwin E. Schulze. 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 did not hold any meetings during Fiscal 2000.
NOMINATING COMMITTEE
The Nominating Committee is comprised of David P. Storch (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 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
2001 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 April 13, 2001, 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 2000.
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 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 upon becoming a director 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, 2000, two former directors were 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.
3
<PAGE>
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. During Fiscal Year 2000, William Blair received
no compensation from the Company for services. The Company may engage William
Blair for additional services in the future.
Mr. Eichner, a director of the Company and Chairman of the Board, provides
consulting services to the Company pursuant to a four year consulting agreement
ending June 1, 2003 under which he receives a quarterly consulting fee in the
amount of $25,000; in fiscal 2000 he received $100,000 in consulting fees.
BIOGRAPHICAL INFORMATION
<TABLE>
<CAPTION>
Director
Since
--------
<S> <C>
NOMINEES:
CLASS I DIRECTORS WHOSE TERMS EXPIRE AT THE 2000 ANNUAL
MEETING:
JOEL D. SPUNGIN, 62: Since 1995, Managing Partner, DMS 1992
Enterprises, 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 directorships: Home Products International, Inc.;
and Vita Foods, Inc.
DAVID P. STORCH, 47: Since 1996, President and Chief 1989
Executive 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: MarchFirst, Inc.
CONTINUING DIRECTORS:
CLASS II DIRECTORS WHOSE TERMS EXPIRE AT THE 2001 ANNUAL
MEETING:
EDGAR D. JANNOTTA, 69: Since 1996, Senior Director of 1964
William Blair, an investment banking firm. From 1995 to
1996, Senior Partner of William Blair. From 1977 to 1995,
Managing Partner of William Blair.
Other directorships: Aon Corporation; Bandag,
Incorporated; Inforte Corp.; Molex Incorporated; and
Unicom Corporation.
LEE B. STERN, 73: Since 1992, President of LBS Co., the 1982
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.
RICHARD D. TABERY, 71: Since 1993, Aviation Business 1989
Consultant. 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.
CLASS III DIRECTORS WHOSE TERMS EXPIRE AT THE 2002 ANNUAL
MEETING:
A. ROBERT ABBOUD, 71: Since 1984, President of A. Robert 1987
Abboud & Co., a private investment business.
Other directorships: Hartmarx Corporation; and
Alberto-Culver Company.
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
Director
Since
--------
<S> <C>
HOWARD B. BERNICK, 48: Since 1994, President and Chief 1994
Executive 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, 69: Since 1973, Chairman of the Board of 1955
AAR. Mr. 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.
</TABLE>
5
<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 nominated two directors to be elected in Class I,
each to serve a three-year term expiring at the Annual Meeting in the year 2003
or until the individual is succeeded by another qualified director who has been
duly elected.
The nominees for Director in Class I this year are JOEL D. SPUNGIN AND DAVID P.
STORCH.
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 two 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 BOTH NOMINEES
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.
6
<PAGE>
SECURITY OWNERSHIP OF MANAGEMENT AND OTHERS
TABLES
The following tables show the shares of Common Stock beneficially owned, as of
July 31, 2000, 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............................ 39,366
Howard B. Bernick........................... 27,500
Ira A. Eichner.............................. 843,780(2) 3.1
Edgar D. Jannotta........................... 37,500
Howard A. Pulsifer.......................... 68,633
Timothy J. Romenesko........................ 79,961
Erwin E. Schulze............................ 13,518
Michael J. Sharp............................ 6,850
Philip C. Slapke............................ 159,168
Joel D. Spungin............................. 20,250
Lee B. Stern................................ 143,173(3)
David P. Storch............................. 1,389,789(4) 5.2
Richard D. Tabery........................... 62,212
All directors and executive officers as a
group..................................... 2,891,700(1,2,3,4) 10.8
</TABLE>
------------
(1) Includes the following shares of the identified person that may be
acquired within sixty days of July 31, 2000 through the exercise of stock
options: Mr. Bernick, 15,000 shares; Mr. Eichner, 205,529 shares;
Mr. Jannotta, 15,000 shares; Mr. Pulsifer, 26,668 shares; Mr. Romenesko,
32,065 shares; Mr. Sharp, 5,350 shares; Mr. Slapke, 80,810 shares;
Mr. Spungin, 15,000 shares; Mr. Stern, 4,273 shares; Mr. Storch, 1,090,894
shares; and Mr. Tabery, 34,500 shares; and all directors and executive
officers as a group (13 persons), 1,525,089 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 28,857 shares beneficially owned by Mr. Storch's wife (18,810
shares) and minor children (10,047 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......................... 2,584,595(1) 9.51%
605 Third Avenue
New York, NY 10158-3698
Westport Asset Management, Inc.................. 2,269,100(2) 9.28%
253 Riverside Avenue
Westport, CT 06880-4816
</TABLE>
------------
(1) As of 12/31/99, Neuberger Berman, LLC ("Neuberger"), a registered
investment advisor, stated that in its capacity as investment advisor,
Neuberger may have discretionary authority to dispose of or to vote shares
that are under its management. As a result, Neuberger may be deemed to
have beneficial ownership of such 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: 961,645
(ii) shared voting power: 1,613,450
(iii) sole dispositive power: 0
(iv) shared dispositive 2,584,595
power:
</TABLE>
(2) As of 2/16/2000, Westport Asset Management, Inc., a registered investment
advisor, stated that it is deemed to be a beneficial owner for purposes of
Rule 13(d) since it has shared power to make decisions whether to retain
or dispose of the securities of many unrelated clients. Westport further
stated that it does not, however, have an economic interest in the
securities of those clients and that its clients are the actual owners of
the securities and have the sole right to receive and the power to direct
the receipt of dividends from or proceeds from the sale of such
securities. Westport disclaimed beneficial ownership with respect to these
shares:
<TABLE>
<S> <C> <C> <C>
(i) sole voting power: 271,250
(ii) shared voting power: 1,704,950
(iii) sole dispositive power: 271,250
(iv) shared dispositive 2,269,100
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 the
most recent fiscal year, except that one Form 3 Initial Statement was
inadvertently filed late by Michael J. Sharp (appointed Vice President/ Chief
Accounting Officer on 4/13/99) in October, 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 four 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
8
<PAGE>
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.
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 2000 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 certain executive officers 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 be eligible
9
<PAGE>
to earn up to 100% of such participant's salary 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, bonus opportunity and actual
performance versus the pre-established goals.
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. In addition, certain officers and key employees are also eligible to
receive stock options in shares of Aerospan.com, a joint venture company,
currently 50% owned by the Company.
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.
Stock options in Aerospan.com will vest (i) in 25% increments upon 10%
incremental increases in returns on AAR CORP. common stock, or (ii) seven years
from date of grant, or (iii) immediately upon a change in control of
Aerospan.com or AAR CORP. 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's Employment Agreement originally provided him the opportunity
to earn restricted stock performance shares under a long-term restricted stock
incentive program based 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 agreed
to amend his Employment Agreement effective May 31, 2000 to delete the
opportunity to earn restricted stock performance shares. The Committee is
working with an executive compensation consultant to develop an appropriate
long-term incentive program for Mr. Storch commencing June 1, 2000. When
finalized, the Company intends to submit such performance share program for
shareholder approval to qualify the program as "performance compensation" within
the meaning of 162(m) of the Internal Revenue Code of 1986, as amended
("Internal Revenue Code").
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
10
<PAGE>
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
In Fiscal 2000, Mr. Storch's annual base salary was increased to $650,000. The
high level of performance achieved by Mr. Storch throughout the year met the
goals approved by the Board of Directors for an annual incentive bonus award
equal to 50% of base salary. However, because the Company's share price
performance was disappointing at year end, Mr. Storch requested that his annual
incentive bonus for Fiscal 2000 be reduced to 15 percent (15%) of base salary.
The Compensation Committee honored that request. Twenty percent of Mr. Storch's
annual incentive bonus was paid in restricted stock.
The tables which follow this report and accompanying footnotes and narrative
reflect the decision covered by the above discussion.
FEDERAL INCOME TAX CONSIDERATIONS
Section 162(m) of the Internal Revenue 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 2000 was subject
to the deduction limit.
COMPENSATION COMMITTEE
Erwin E. Schulze, Chairman
A. Robert Abboud
Edgar D. Jannotta
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., and Willis Lease Finance
Corp.
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
FY95 $100.00 $100.00 $100.00
FY96 $148.82 $128.44 $142.38
FY97 $212.54 $166.22 $186.00
FY98 $275.38 $217.22 $266.31
FY99 $209.00 $262.89 $217.54
FY00 $162.54 $296.52 $124.34
</TABLE>
----------
(1) Wyman Gordon Co., included in the Company's Peer Group in prior years, was
acquired during 2000 and delisted; therefore it has been deleted.
(2) Assumes $100 invested on June 1, 1995, and reinvestment of dividends in
the Company's Common Stock, S&P Composite-500 Stock Index and Companies
comprising the Peer Group.
12
<PAGE>
COMPENSATION TABLE
The following table summarizes the total compensation earned by or paid for
fiscal years 1998 through 2000 to the President and Chief Executive Officer and
the four other most highly paid executive officers in Fiscal 2000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term Compensation
---------------------------------
Awards
---------------------------------
Annual Compensation Other Annual Securities All Other
---------------------------------- Compensation Restricted Stock Underlying Compensation
Name and Principal Position Year Salary ($) Bonus ($) ($) Award(s) ($)(1) Options (#) ($)(2)
--------------------------- -------- ---------- ---------- -------------- ---------------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C> <C>
DAVID P. STORCH ............ 2000 650,000 78,000 89,400 523,125 0 115,200
PRESIDENT AND CHIEF 1999 610,000 800,000 -- 655,313 195,000 97,600
EXECUTIVE OFFICER 1998 550,000 750,000 -- 511,875 345,000 99,800
PHILIP C. SLAPKE ........... 2000 410,000 0 -- 226,250 40,000 33,400
EXECUTIVE VICE PRESIDENT 1999 350,000 491,900 -- 155,756 42,500 34,600
1998 241,500 476,180 -- 225,030 26,250 32,900
TIMOTHY J. ROMENESKO ....... 2000 265,000 39,250 -- 113,125 25,000 28,500
VICE PRESIDENT AND CHIEF 1999 220,000 143,500 -- 83,870 26,750 21,000
FINANCIAL OFFICER 1998 195,000 125,000 -- 121,170 15,000 21,300
HOWARD A. PULSIFER ......... 2000 241,800 36,270 -- 45,250 13,000 40,500
VICE PRESIDENT, GENERAL 1999 215,000 125,000 -- 47,925 16,350 34,200
COUNSEL, AND SECRETARY 1998 195,000 105,000 -- 69,240 12,000 31,400
MICHAEL J. SHARP ........... 2000 145,000 21,750 -- 0 7,000 4,200
VICE PRESIDENT, CONTROLLER 1999 132,500 50,000 -- 13,313 4,750 3,300
AND CHIEF ACCOUNTING 1998 126,000 40,000 -- 17,310 3,000 3,100
OFFICER
</TABLE>
------------
(1) On May 31, 2000, the following shares of restricted stock were held by
each named executive: Mr. Storch, 55,015; Mr. Slapke, 51,411;
Mr. Pulsifer, 21,134; Mr. Romenesko, 28,312; Mr. Sharp, 1,500. The
May 31, 2000 market value of each named executive's restricted stock is as
follows: Mr. Storch, $763,333; Mr. Slapke, $713,328; Mr. Pulsifer,
$293,234; Mr. Romenesko, $392,829; Mr. Sharp, $20,813. Vesting of
long-term restricted stock awards for executive officers varies from 3
years for Mr. Storch to 7 years in Fiscal 1999 and 2000 and 10 years in
Fiscal 1998 for other executive officers. Dividends are paid on all shares
of restricted stock.
(2) "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
Company match of 2000 pre-tax elective deferred employee contributions
(Mr. Storch, $5,200; Mr. Slapke, $4,600; Mr. Pulsifer, $5,600;
Mr. Romenesko, $5,900; Mr. Sharp, $3,900. (ii) the premium paid on group
term life insurance for Mr. Slapke, $900; Mr. Pulsifer, $3,800;
Mr. Romenesko, $900; Mr. Sharp, $300; 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, $110,000;
Mr. Slapke, $27,900; Mr. Pulsifer, $31,100, Mr. Romenesko, $21,700.
STOCK OPTIONS
Options generally become exercisable 20% each year over a five-year period.
Unexercised options expire ten years after the date of grant. The stock option
exercise price is equal to the fair market value (NYSE closing price) of a share
of stock on the date of grant. The options have no value unless the stock price
appreciates and the holder satisfies the applicable vesting requirements.
The following table shows certain information with respect to stock options
granted in Fiscal 2000 to the named executive officers. It also shows how much
the named executive officers potentially may realize under two hypothetical
situations: if the stock gains 5% or 10% in value per year compounded over the
ten-year life of the options. These are assumed hypothetical rates of
appreciation required to be shown by Securities Exchange Commission regulations
as an example
13
<PAGE>
and are not a forecast of future stock price appreciation. Also included in this
table by way of example is the hypothetical increase in value to all
stockholders and to all employee optionees under such circumstances.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Individual Grants
---------------------------------------------------------- Potential Realizable Value at
Number of % of Total Assumed Annual Rates of
Securities Options Stock Price Appreciation for
Underlying Granted to Option Term of 10 Years
Options Employees in Exercise Expiration ------------------------------
Name Granted (#) Fiscal Year Price ($/Sh) Date 5% ($) 10% ($)
---- -------------- ------------- ------------ ---------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
David P. Storch............ 0 0 0 0 0
Philip C. Slapke........... 40,000(1) 7.70% $22.625 7/13/09 $569,150 $1,442,337
Timothy J. Romenesko....... 25,000(1) 4.81% $22.625 7/13/09 $355,719 $901,461
Howard A. Pulsifer......... 13,000(1) 2.50% $22.625 7/13/09 $184,974 $468,760
Michael J. Sharp........... 7,000(1) 1.35% $22.625 7/13/09 $99,601 $252,409
All Stockholders........... NA NA NA NA 382,248,125 968,691,797
All Employee Optionees..... 465,350(1) 93.18% $22.625 7/13/09 6,621,345 16,779,787
34,075(2) 6.82% $23.34 Various 270,482 613,631
Total Optionee Gain as % of
all Stockholder Gain...... N/A N/A N/A N/A 2% 2%
</TABLE>
------------
(1) Ten year options subject to reload and rights provisions; 20% of option
shares become exercisable on the 1st, 2nd, 3rd, 4th and 5th grant
anniversary.
(2) These are reload options resulting from exercises of original option
grants. Under the original grants, reload options result upon surrender of
shares then owned by the option holder in payment of the exercise price of
the initial option. The reload option is for the number of shares
surrendered and expires concurrent with the original option. The reload
option exercise price is equal to the fair market value of the underlying
stock on the date the original option is exercised. Reload options are
included in the percentage total options grant to employees shown on the
chart. Values shown in the Potential Realizable Value columns are
duplicative of the portion of the value disclosed in such columns in the
year of the original option grant and do not represent new value above
that of the original grant.
The following table shows that no stock options were exercised by named
executive officers during Fiscal 2000. This table also shows the number of
shares of common stock covered by both exercisable and non-exercisable stock
options as of May 31, 2000, and the value of "in-the-money" unexercised options.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION
VALUES
<TABLE>
<CAPTION>
Number of
Securities Underlying Value of Unexercised
Unexercised Options at In-the-Money Options
Shares Fiscal Year-End (#) at Fiscal Year-End ($)(1)
Acquired on Value ----------------------------- -----------------------------
Name Exercise (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
---- ------------ ------------ ------------ -------------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
David P. Storch.................. 0 0 475,894 637,500 785,235 90,488
Philip C. Slapke................. 0 0 72,810 100,250 90,928 6,615
Timothy J. Romenesko............. 0 0 27,065 61,700 28,364 3,969
Howard A. Pulsifer............... 0 0 24,068 39,580 29,526 3,969
Michael J. Sharp................. 0 0 3,950 13,800 0 0
</TABLE>
------------
(1) Value of unexercised in-the-money options equals the fair market value of
the Common Stock at May 31, 2000, less the exercise price, times the
number of option shares outstanding. The closing price of the Common Stock
on the NYSE at May 31, 2000, was $13.875.
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 (cash balance type plan) and 401(k)/profit sharing. The defined
benefits are determined pursuant to a formula which takes into consideration the
participant's age, years of credited service, and a percentage of the
participant's compensation for the year. 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 $170,000
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.
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 Company match of up to 2 percentage points of the first 5 percentage
points voluntarily contributed under the Plan, and a profit sharing contribution
by the Company based on the individual employee's voluntary contributions and
the economic performance of the individual employee's operating unit. The
Company's profit sharing contribution can be up to 3% of cash compensation.
NON-QUALIFIED PLAN BENEFITS
The Company provides supplemental retirement benefits to certain executives and
key employees under the SKERP. Four of the named executive officers are
participants in the SKERP. 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. The SKERP also provides for aggregate
retirement benefits (including qualified plan benefits) at 60% and 50% of final
average compensation (as defined in Plan documents), respectively, for the
President and CEO and for certain other executive officers designated by the
Board, including four of the named executive officers, 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 or under certain circumstances
in the event of a Change in Control as defined in the Plan document.
TABLE OF PENSION BENEFITS
The following table shows the estimated aggregate annual benefits payable upon
retirement at normal retirement age (65) for each of the named executive
officers under the AAR CORP. Retirement Plan and Supplemental Key Employee
Retirement Plan ("SKERP").
PENSION BENEFIT TABLE(1)
<TABLE>
<CAPTION>
Name Projected Benefit
---- -----------------
<S> <C>
David P. Storch............................................. $925,400
Philip C. Slapke............................................ $496,300
Timothy J. Romenesko........................................ $225,000
Howard A. Pulsifer.......................................... $205,700
Michael J. Sharp............................................ $ 63,400
</TABLE>
------------
(1) The projected benefit is calculated based on 120% of current covered
compensation.
15
<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); certain
long-term incentive stock compensation commitments which have been previously
satisfied in prior years pursuant to terms of the agreement, a supplemental cash
payment to the extent necessary to preserve the level of benefits provided for
in the employment agreement in the event of imposition of excise taxes in
respect of "excess parachute payments" under the Code and, in the event of a
change in control of the Company, accelerated vesting of awards outstanding
under the Company's Stock Benefit Plan.
OTHER AGREEMENTS
The Company has also entered into split dollar life insurance agreements with
certain key employees, including four of 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.
The Company has entered into severance agreements with certain key employees,
including three of the named executive officers other than Mr. Storch. 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 agreements)
prior to a change in control of the Company. Under certain circumstances, upon
termination of employment following a change in control (as defined in the
severance agreements), the employee will receive severance equal to three times
total compensation (base salary plus annual cash bonus) for the most recently
ended fiscal year or the preceding fiscal year, whichever is greater,
accelerated vesting of awards outstanding under the Company's Stock Benefit
Plan, special supplemental retirement benefits determined as if the employee had
three additional years of service under the Company's retirement plans,
continuation of certain other benefits for a period of three years, and a
supplemental cash payment to the extent necessary to preserve the level of
benefits provided for in the severance agreement in the event of imposition on
such employee of excise taxes payable in respect of "excess parachute payments"
under the Code.
16
<PAGE>
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, 2001. 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.
STOCKHOLDER PROPOSALS FOR THE YEAR 2001 ANNUAL MEETING
Any stockholder who wishes to present a proposal for consideration at the Annual
Meeting of Stockholders to be held in 2001 must submit such proposal in
accordance with the rules promulgated by the Securities and Exchange Commission.
Under the Company's by-laws, in order for a proposal to be eligible for action
by the shareholders at and inclusion in the Company's Proxy Statement and form
of proxy relating to the 2001 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 April 13, 2001.
A stockholder proposal submitted outside the Rule 14a-8 process for presentation
at the 2001 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 April 13, 2001.
By Order of the Board of Directors
Howard A. Pulsifer
SECRETARY
August 28, 2000
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, 2000. 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.
17
<PAGE>
EXHIBIT 1
AAR CORP.
BOARD OF DIRECTORS
AUDIT COMMITTEE CHARTER
PURPOSE
The Audit Committee is appointed by the Board to assist the Board in fulfilling
its oversight responsibilities relating to (i) corporate accounting, disclosure
and reporting practices and legal compliance of the Company, (ii) the quality
and integrity of the Company's financial reports and (iii) the independence and
performance of the Company's internal and independent auditors.
ORGANIZATION
The Audit Committee shall be comprised of not less than three directors of the
Company who shall meet the independence and experience requirements of the New
York Stock Exchange. The members of the Audit Committee shall be appointed by
the Board on the recommendation of the Nominating Committee.
POLICY AND PROCEDURE
The Audit Committee will maintain flexible policies and procedures and meeting
schedules to enable the Audit Committee to best react to changing circumstances
and provide that the Company's accounting, disclosure and reporting practices
are in accordance with applicable legal and regulatory requirements. The
Chairman of the Audit Committee may call meetings during the year as necessary.
The Committee will provide for free and open communication between the Committee
and the Company's directors, independent auditors, internal auditors and
management.
Both the Company's internal auditors and independent auditor are ultimately
accountable to the Board of Directors and the Audit Committee as representatives
of the Company's shareholders.
The Audit Committee has authority to retain special legal, accounting or other
consultants to advise the Audit Committee. The Audit Committee may request any
officer or employee of the Company or the Company's legal counsel or independent
auditor to attend committee meetings or to meet with any members of, or
consultants to, the Audit Committee.
The Audit Committee shall make regular reports to the Board.
RESPONSIBILITIES
1. Review and assess the adequacy of the Audit Committee charter annually and
submit it to the Board for approval with any recommended changes.
2. Recommend to the Board the appointment of the independent auditors to audit
the financial statements of the Company and its divisions and subsidiaries.
3. Review written statements from the independent auditors delineating all
non-audit relationships between the independent auditors and the Company,
review with the independent auditors the effect of any disclosed
relationships or services on objectivity and independence of the independent
auditors, and recommend to the Board appropriate action to ensure the
independent auditors' independence.
4. Discuss with the independent auditors the matters required to be discussed
by Statement on Auditing Standards No. 61 relating to the conduct of the
audit. The Committee Chairman may represent the full committee for purposes
of this review.
E-1
<PAGE>
5. Meet with the independent auditors and financial management of the Company
to review the scope of the proposed audit for the upcoming year and the
audit procedures to be used, and at the conclusion of the year review such
audit, including any comments or recommendations of the independent
auditors.
6. Review with the Company's independent auditors, internal auditors, and
financial and accounting personnel, the adequacy and effectiveness of the
internal controls of the Company, and elicit any recommendations for the
improvement of such internal control procedures or particular areas where
new or more detailed controls or procedures are desirable.
7. Review the internal audit function of the Company, including its
organizational structure, independence of reporting obligations,
qualification of personnel and the proposed audit plans for the coming year,
and the coordination of such plans with the outside auditors.
8. Receive a summary of significant findings from completed internal audits,
together with management's response, and periodic progress reports, with
explanation for any deviations from the original plan.
9. Review the audited financial statements prior to their filing or
distribution to shareholders with management and the independent auditors
regarding (i) accounting principles, practices and judgments, (ii) whether
the independent auditors are satisfied with the disclosure and content of
the financial statements to be presented to the shareholders, and (iii) any
changes in accounting principles.
10. Provide sufficient opportunity for the internal auditor and independent
auditors to meet with the members of the Committee without members of
management present, such meetings to occur at least twice a year. Among the
items to be considered for discussion in these meetings are the auditors'
evaluation of the Company's financial, accounting, and auditing personnel,
the auditors' judgments about the Company's accounting principles as applied
to its financial reporting; and the level of management cooperation that the
outside auditors received during the course of the audit.
11. Review the human resources and succession planning of the accounting and
financial operations within the Company.
12. Report on significant matters discussed at each Committee meeting to the
Board.
13. Investigate any matter brought to its attention within the scope of its
duties, with the power to retain outside counsel or a second independent
accountant, at the expense of the Company, for this purpose if, in its
judgment, that is appropriate.
14. Prepare a report to shareholders to be included in the Company's annual
proxy statement as required by the Securities and Exchange Commission.
15. Perform any other activities consistent with this Charter, the Company's
by-laws, and governing law, as the Committee or Board deems necessary or
appropriate.
While the Audit Committee has the responsibilities and powers set forth in this
Charter, it is not the duty of the Audit Committee to plan or conduct audits or
to determine that the Company's financial statements are complete and accurate
and are in accordance with generally accepted accounting principles. This is the
responsibility of management and the independent auditor. Nor is it the duty of
the Audit Committee to conduct investigations, to resolve disagreements, if any,
between management and the independent auditor or to assure compliance with laws
and regulations and the Company's Code of Conduct.
E-2
<PAGE>
AAR CORP. PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR THE
p OCTOBER 11, 2000 ANNUAL MEETING OF STOCKHOLDERS TO BE HELD AT AAR
CORP.'S HEADQUARTERS, ONE AAR PLACE, 1100 N. WOOD DALE ROAD, WOOD DALE,
ILLINOIS, ON WEDNESDAY, OCTOBER 11, 2000, 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 2000 Annual Meeting of Stockholders of AAR CORP. to be held on
October 11, 2000, 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 two Class I directors; nominees: 01 Joel D. Spungin and
02 David P. Storch (see reverse side);
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.
(Continued and to be dated and signed on reverse side.)
-------------------------------------------------------------------------------
FOLD AND DETACH HERE IF YOU ARE RETURNING YOUR VOTED PROXY BY MAIL
[AAR LOGO]
Dear Stockholder:
We encourage you to submit your proxy for the voting of your shares
electronically this year either by telephone or via the Internet. This will
eliminate the need to return your proxy card. You will need your proxy card
and Social Security Number (where applicable) when voting your shares
electronically. The Voter Control Number that appears above, just
below the perforation, must be used in order to submit your proxy vote by
telephone or via the Internet.
The EquiServe Vote by Telephone and Vote by Internet systems can be accessed
24 hours a day, seven days a week up until the day prior to the meeting.
TO SUBMIT YOUR PROXY BY TELEPHONE:
Using a touch-tone phone call toll-free: 1-877-PRX-VOTE (1-877-779-8683)
TO SUBMIT YOUR PROXY VOTE BY INTERNET:
Log onto the Internet and go to the website: http://www.eproxyvote.com/air
NOTE: IF YOU SUBMIT YOUR PROXY OVER THE INTERNET, YOU MAY INCUR COSTS
SUCH AS TELECOMMUNICATION AND INTERNET ACCESS CHARGES FOR WHICH YOU WILL
BE RESPONSIBLE.
THANK YOU FOR VOTING YOUR SHARES
YOUR VOTE IS IMPORTANT!
DO NOT RETURN THIS PROXY CARD IF YOU ARE SUBMITTING YOUR PROXY
BY TELEPHONE OR THE INTERNET
<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
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The Board of Directors recommends a vote "FOR" item 1
described in the proxy statement:
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<TABLE>
<CAPTION>
<S> <C> <C> <C>
1. Election of two Class I directors FOR WITHHOLD AUTHORITY TO NOMINEES:
ALL NOMINEES* VOTE FOR ALL NOMINEES 01. Joel D. Spungin
/ / / / 02. David P. Storch
</TABLE>
*(Instructions: to withhold authority to vote for any individual nominee,
write that nominee's name(s) in the space below)
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(Please sign as name appears hereon. 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.)
____________________________________________
____________________________________________
SIGNATURE(S) DATE
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FOLD AND DETACH HERE
[AAR LOGO]
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<S> <C> <C>
- Amsterdam, Netherlands - Hannover, Germany - Petropolis, Brazil
- Atlanta, Georgia - Harrisburg, Pennsylvania - Port Jervis, New York
- Brussels, Belgium - Livonia, Michigan - Prestwick, Scotland
- Cadillac, Michigan - London, England - Ra'anana, Israel
- Clearwater, Florida - Los Angeles, CA - Roswell, NM
- Columbus, Ohio - Madrid, Spain - Singapore
- Costa Mesa, CA - McClellan, CA - South Glamorgan, Wales
- Dallas, Texas - Miami, Florida - Tampa, Florida
- Elk Grove Village, Illinois - Mitcham, England - Teterboro, New Jersey
- Frankfort, New York - Montreal, Canada - Windsor, Connecticut
- Garden City, New York - Oklahoma City, Oklahoma - Winston-Salem, NC
- Hamburg, Germany - Paris, France - Wood Dale, Illinois
</TABLE>
