Exhibit 10.1

 

AAR CORP. 2012 SHORT-TERM INCENTIVE PLAN

 

1.              PURPOSE

 

The purpose of the AAR CORP. 2012 Short-Term Incentive Plan (“STIP”) is to
provide an incentive for selected senior executives of AAR CORP. (the “Company”)
and its subsidiaries to achieve the Company’s short-term performance goals by
providing them with an annual cash incentive payment based on the financial and
operating success of the Company.

 

2.              DEFINITIONS

 

(a)         “Board” means the Board of Directors of the Company.

 

(b)         “Bonus” means the annual cash incentive paid to a Participant under
this STIP for a fiscal year of the Company.

 

(c)          “Cause” means the Participant’s unsatisfactory performance or
conduct detrimental to the Company and its subsidiaries, as solely determined by
the Committee.

 

(d)         “Code” means the Internal Revenue Code of 1986, as amended.

 

(e)          “Committee” means the Compensation Committee of the Board, or if
the Committee is not comprised of “outside directors” as defined in Section
162(m) of the Code, then by a subset of the Committee comprised of at least two
“outside directors” (the “Committee”).

 

(f)           “Company” means AAR CORP.

 

(g)          “Disability” means the inability of the Participant to engage in
any substantial gainful activity by reason of any medically determinable
physical or mental impairment which can be expected to result in death or which
has lasted or can be expected to last for a continuous period of not less than
12 months.

 

(h)         “Earnings Per Share” means diluted earnings per share as disclosed
by the Company in its periodic reports filed with the Securities and Exchange
Commission.

 

(i)             “Free Cash Flow” means cash flow from operations minus net
capital expenditures, excluding acquisitions.

 

(j)            “Participant” means any active executive of the Company or
subsidiary who has been selected by the Committee as eligible to earn a Bonus
under the STIP.

 

(k)         “Retirement” means the Participant’s voluntary termination of his
employment, or his termination of employment by the Company or a subsidiary
without Cause, when he has (i) attained age 65 or (ii) attained age 55 and his
age plus the number of his consecutive years of service with the Company and
subsidiaries is at least 75.

 

(l)             “Salary” means a Participant’s base annual salary earned during
a fiscal year of the Company while a Participant.

 

(m)     “STIP” means this AAR CORP. 2012 Short-Term Incentive Plan.

 

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3.              ADMINISTRATION

 

The STIP shall be administered by the Committee.  The Committee has full
authority to select the senior executives eligible to participate in the STIP
and determine when the senior executive’s participation in the STIP will begin
and end.  Subject to the express provisions of the STIP, the Committee shall be
authorized to interpret the STIP and to establish, amend and rescind any rules
and regulations relating to the STIP and to make all other determinations deemed
necessary or advisable for the proper administration of the STIP.  The
determinations of the Committee in the proper administration of the STIP shall
be conclusive and binding.

 

4.              ELIGIBILITY AND PARTICIPATION

 

Participation in the STIP is limited to those senior executives of the Company
or a subsidiary who the Committee designates as Participants.  When the
Committee selects an executive to become a Participant under the STIP, it shall
designate the date as of which the executive’s participation shall begin.

 

5.              ANNUAL BONUS AWARDS

 

(a)         Determination of Participants, Performance Goals and Target Bonus
Amounts. On or before the 90th day of each fiscal year of the Company, the
Committee shall (i) determine the Participants for such fiscal year, (ii)
establish threshold, target and maximum Earnings Per Share and Free Cash Flow
goals for such fiscal year, and (iii) approve the target Bonus payment for each
Participant expressed as a percentage of the Participant’s Salary.

 

(b)         Bonus Payment.  As soon as reasonably practicable after the end of
the applicable fiscal year, the Committee shall determine the extent to which
each of the Earnings Per Share and Free Cash Flow targets were attained for such
fiscal year.  The Bonus payable to each Participant will be equal to the sum of
(i) 75% of the Participant’s target Bonus multiplied by the applicable Earnings
Per Share Multiplier Percentage and (ii) 25% of the Participant’s target Bonus
multiplied by the Free Cash Flow Multiplier Percentage:

 

Earnings Per Share (75%)

 

 

 

Performance
Achievement Level

 

Multiplier
Percentage

 

 

 

 

 

Threshold

 

50%

 

 

 

 

 

Target

 

100%

 

 

 

 

 

Maximum

 

200%

 

 

 

 

 

 

 

 

 

 

 

 

 

Free Cash Flow (25%)

 

 

 

 

 

Performance
Achievement Level

 

Multiplier
Percentage

 

 

 

 

 

Threshold

 

50%

 

 

 

 

 

Target

 

100%

 

 

 

 

 

Maximum

 

200%

 

 

 

 

 

 

For achievement of Earnings Per Share and Free Cash Flow targets between
established performance achievement levels, the Multiplier Percentage will be
interpolated on a straight-line basis.

 

6.              STIP LIMITATIONS

 

Notwithstanding Section 5, no Bonus shall be paid under the STIP for a fiscal
year to a Participant whose employment with the Company and all subsidiaries
terminates during such fiscal year unless the termination is due to death,
Disability or Retirement, or as otherwise approved by the Committee.  If a
Participant terminates during the fiscal year due to death, Disability or
Retirement, the Participant shall be entitled to a pro rata portion of the Bonus
the Participant would have earned under the STIP

 

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had the Participant remained employed through the end of the fiscal year.  Such
Bonus will be paid at the same time Bonuses are paid to active Participants.

 

Notwithstanding Section 5, no Bonus shall be payable for a fiscal year if net
income (as determined in accordance with generally accepted accounting
principles) for such fiscal year is not positive.  No Bonus shall be earned
until the end of the fiscal year and only to the extent the performance goals
set forth are attained as determined by the Committee in Section 5(b).

 

7.              PAYMENT OF BONUSES

 

A Participant’s Bonus for a fiscal year shall be paid in cash to the
Participant, or to the Participant’s beneficiary (or beneficiaries) in the event
of the Participant’s death, within two and one-half months after the end of such
fiscal year, unless the Participant has previously elected to have all or a
portion of the Bonus deferred in accordance with the AAR CORP. Supplemental
Executive Retirement Plan.  The Company shall deduct all taxes required by law
to be withheld from all Bonus payments.

 

8.              NO ASSIGNMENT

 

Except in the event of a Participant’s death, the rights and interests of a
Participant under the STIP shall not be assigned, encumbered or transferred.

 

9.              TERMINATION OF PARTICIPATION

 

The Committee reserves the right to cancel a Participant’s participation in the
STIP at any time.

 

10.       EMPLOYMENT RIGHTS

 

Nothing contained in the STIP shall be construed as conferring a right upon any
employee to continue in the employment of the Company or any subsidiary.

 

11.       AMENDMENT/TERMINATION

 

The Board or the Committee may either amend or terminate the STIP at any time,
without the consent of the Participants and without the approval of the
stockholders of the Company; provided, that such modification or elimination
shall not affect the obligation of the Company to pay any Bonus after it has
been earned under the STIP.

 

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