Exhibit 10.1

 

AAR CORP.

 

NON-QUALIFIED STOCK OPTION AGREEMENT

(“Agreement”)

 

Subject to the provisions set forth herein and the terms and conditions of the
AAR CORP. Stock Benefit Plan (“Plan”), the terms of which are hereby
incorporated by reference, and in consideration of the agreements of the Grantee
herein provided, AAR CORP., a Delaware corporation (“Company”), hereby grants to
the Grantee an option entitling the Grantee to purchase from the Company common
stock of the Company, par value $1.00 per share (“Common Stock”), in the number
of shares at the purchase price per share, and on the schedule, set forth in the
Company’s notification of option grant letter to Grantee dated
                     and incorporated herein by reference (“Option”), subject to
the terms and conditions set forth herein:

 

1.                                       Acceptance by Grantee.  The exercise of
the Option is conditioned upon the acceptance by the Grantee of the terms and
conditions of the Option as set forth in this Agreement.  The Grantee must
confirm acceptance of the Agreement on Smith Barney’s web site
(www.benefitaccess.com). If the Grantee does not accept the Agreement within 30
days from the date of the notification of the Agreement, the Option grant
referenced herein shall expire unless the acceptance date is extended in writing
signed by the Company.

 

2.                                       Termination of Employment.

 

(a)                                  In General.  If the Grantee’s employment
with the Company and all subsidiaries of the Company is terminated for any
reason other than for Retirement, death, Disability or Cause, the unvested
portion of the Grantee’s Option shall expire on the date of such termination of
employment and the vested portion of the

 

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Grantee’s Option shall continue to be exercisable until the earlier of (i) three
months after such termination of employment or (ii) the date the Option expires
in accordance with its terms.

 

(b)                                 Retirement.  If the Grantee’s employment
with the Company and all subsidiaries of the Company is terminated by reason of
Retirement, the Option shall continue to vest and become exercisable in
accordance with its terms and may be exercised by the retired Grantee in the
same manner and to the same extent as if the Grantee had continued employment
during that period; provided, however, that (i) if the Grantee dies within three
months following Retirement but before the Option expires, paragraph
3(c)(ii) shall apply and (ii) if the Grantee dies later than three months
following Retirement but before the Option expires, the then unvested portion of
the Option shall expire on the date of such death and the vested portion of the
Option shall continue to be exercisable by the Grantee’s Successor until the
date that the Option expires by its terms.  For this purpose, “Retirement” means
the Grantee’s voluntary termination of 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.

 

(c)                                  Death.  If (i) the Grantee’s employment
with the Company and all subsidiaries of the Company is terminated by reason of
death or (ii) the Grantee dies within three months after the termination of
employment with the Company and all subsidiaries for reasons other than Cause,
the unvested portion of the Option shall expire on the date of such death and
the vested portion of the Option shall continue to

 

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be exercisable until the earlier of (i) one year after the Grantee’s death or
(ii) the date the Option expires in accordance with its terms.

 

(d)                                 Disability.  If the Grantee’s employment
with the Company and all subsidiaries is terminated by reason of Disability, the
Option shall continue to vest and become exercisable until the earlier of
(i) one year after such termination of employment or (ii) the date the Option
expires in accordance with its terms, and during such period the Option may be
exercised by the disabled Grantee; provided, however, that if the Grantee dies
after termination of employment but prior to the date the Option expires, the
unvested portion of the Option shall expire on the date of such death and the
vested portion of the Option shall continue to be exercisable until the Option
expires as described herein.  For this purpose, “Disability” means the inability
of the Grantee 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.

 

(e)                                  Cause.  If the Grantee’s employment is
terminated by the Company or any subsidiary of the Company for Cause, the Option
shall expire immediately upon such termination of employment and no portion of
the Option shall be exercisable thereafter.  For this purpose, “Cause” means
(i) the Grantee’s dishonesty, fraud or breach of trust, gross negligence or
substantial misconduct in the performance of, or substantial nonperformance of,
his assigned duties or willful violation of Company policy, (ii) any act or
omission by the Grantee that is a substantial cause for a regulatory body with
jurisdiction over the Company to request or recommend the suspension or removal
of the participant or to impose sanctions upon the Company or the Grantee, or

 

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(iii) a material breach by the Grantee of any applicable employment agreement
between him and the Company.  The Company shall have the sole discretion to
determine whether a Grantee’s termination of employment is for Cause.

 

(f)                                    Restrictive Covenant.  If at any time
prior to the expiration of the Option, the Grantee, without the Company’s
express written consent, directly or indirectly, alone or as a member of a
partnership, group or joint stock venture or as an employee, officer, director,
or greater than 1% stockholder of any corporation, or in any capacity engages in
any activity which is competitive with any of the businesses conducted by the
Company or its affiliated companies any time during the Grantee’s term of
employment, (i) the Option shall immediately expire and become unexercisable,
(ii) the Grantee shall forfeit and return all shares of Common Stock acquired
and then held by the Grantee pursuant to the exercise of any portion of this
Option, and (iii) the Grantee shall immediately pay to the Company an amount
equal to the appreciation realized on any shares of Common Stock acquired and
sold or otherwise disposed of in connection with the exercise of this Option, as
of the date sold.

 

3.                                       Change in Control.  In the event a
Change in Control occurs, whether or not such Change in Control has the prior
written approval of a majority of the Continuing Directors, and notwithstanding
any conditions or restrictions contained in this Agreement, the outstanding
Option shall become immediately exercisable on the date of such Change in
Control with respect to all shares of Common Stock covered thereby, whether
vested or not and shall remain exercisable until the Option expires.

 

4.                                       Change in Outstanding Shares.  Any
increase or decrease in the number of outstanding shares of Common Stock of the
Company occurring through

 

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stock splits, stock dividends, stock consolidations, spin-offs, other
distributions of assets to stockholders or assumption or conversion of
outstanding Options due to an acquisition after the Date of Grant of the Option
shall be reflected proportionately in the number of shares of Common Stock
subject to the Option, and a proportionate reduction or increase, as applicable,
shall be made in the Option Price Per Share hereunder. Any fractional shares
resulting from such adjustment shall be eliminated. If changes in capitalization
other than those considered above shall occur, the Board shall make such
adjustment in the number or class of shares purchasable upon exercise of the
Option and in the Option Price Per Share as the Board in its discretion may
consider appropriate, and all such adjustments shall be conclusive upon all
persons.

 

5.                                       Exercise of Option.  Notice of an
election to exercise any portion of the Option, specifying the portion thereof
being exercised and the exercise date, shall be given by the Grantee, or the
Grantee’s personal representative in the event of the Grantee’s death or
Disability necessitating a Court approved personal representative, by notifying
Smith Barney pursuant to the on-line exercise procedures set forth on the AAR
Stock Benefit Plan online exercise web site (www.benefitaccess.com).

 

6.                                       Payment of Exercise Price and
Withholding.  Upon any exercise of the Option, an amount necessary to pay the
exercise price and to satisfy applicable tax withholding requirements, including
those arising under federal, state and local income tax laws, will be due and
payable at the time of exercise prior to the issuance of any shares of Common
Stock pursuant to such exercise.

 

The Grantee may pay the exercise price and satisfy the minimum withholding
requirements by one or more of the following methods:  (i) in cash, (ii) in

 

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cash received from a broker-dealer to whom the Grantee has submitted an exercise
notice and irrevocable instructions to deliver the purchase price and amount of
tax withholding to the Company from the proceeds of the sale of shares of Common
Stock subject to the Option, (iii) by delivery to the Company of other Common
Stock owned by the Grantee that is acceptable to the Company, valued at its fair
market value on the date of exercise, (iv) by certifying to ownership by
attestation of such previously owned Common Stock, or (v) by having shares
withheld from the Common Stock otherwise distributable to the Grantee upon
exercise of the Option. A Grantee’s election pursuant to the preceding sentence
must be made at the time of exercise of such Option and must be irrevocable.

 

7.                                       Option Not Transferable.  The Option
may be exercised only by the Grantee during the Grantee’s lifetime and may not
be transferred other than by will, the applicable laws of descent or
distribution, or an assignment subject to and meeting the requirements of
Section 11 of the Plan and made in accordance with Company procedures in effect
from time to time for approval by the Company and consummation of the assignment
(copies of procedures and forms are available from the Corporate Secretary upon
request). The Option shall not otherwise be transferred, assigned, pledged or
hypothecated for any purpose whatsoever and is not subject, in whole or in part,
to execution, attachment, or similar process. Any attempted assignment,
transfer, pledge or hypothecation or other disposition of the Option, other than
in accordance with the terms set forth herein, shall be void and of no effect.

 

8.                                       No Rights as a Stockholder.  Neither
the Grantee nor any other person entitled to exercise the Option under the terms
hereof shall be, or have any of

 

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the rights or privileges of, a stockholder of the Company in respect of any of
the shares of Common Stock issuable on exercise of the Option, unless and until
such shares shall have been actually issued.

 

9.                                       Miscellaneous.

 

(a)                                  In the event the Option shall be exercised
in whole or in part, the number of Shares of Common Stock subject to the Option
shall be reduced accordingly.

 

(b)                                 When the Option expires, such expiration
shall occur at the Company’s close of business on the date of expiration.

 

(c)                                  Nothing in the Option shall confer on the
Grantee any right to be or to continue in the employ of the Company or any of
its subsidiaries or shall interfere in any way with the right of the Company or
any of its subsidiaries to terminate the employment of the Grantee at any time
for any reason or no reason.

 

(d)                                 The Option shall be exercised only in
accordance with such Company administrative procedures as may be in effect from
time to time.

 

(e)                                  The Option and this Agreement shall be
construed, administered and governed in all respects under and by the laws of
the State of Illinois.

 

(f)                                    This Agreement has been examined by the
parties hereto, and accordingly the rule of construction that ambiguities be
construed against a party which causes a document to be drafted shall have no
application in the construction or interpretation hereof. If any part of this
Agreement is held invalid for any reason, the remainder hereof shall
nevertheless remain in full force and effect.

 

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(g)                                 This Agreement constitutes the entire
agreement between the parties concerning the subject matter hereof and any prior
understanding or representation of any kind antedating this Agreement concerning
such subject matter shall not be binding upon either party except to the extent
incorporated herein. No consent, waiver, modification or amendment hereof, or
additional obligation assumed by either party in connection herewith, shall be
binding unless evidenced by a writing signed by both parties and referring
specifically hereto. No consent, waiver, modification or amendment with respect
hereto shall be construed as applicable to any past or future events other than
the one in respect of which it was specifically made.

 

(h)                                 This Agreement shall be construed consistent
with the provisions of the Plan and in the event of any conflict between the
terms of this Agreement and the terms of the Plan, the terms of the Plan shall
control and any terms of this Agreement which conflict with Plan terms shall be
void.

 

(i)                                     Capitalized terms used herein and not
defined herein will have the meaning set forth in the Plan or the notification
of grant letter.

 

Questions concerning the provisions of this Agreement should be directed to the
Company’s General Counsel: 630/227-2050; fax 630/227-2059.

 

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By accepting this Agreement, you irrevocably agree to be bound by the terms
hereof. To accept this Agreement, please follow the acceptance procedures set
forth below:

 

Step 1:

 

View your Grant Summary (confirm that the number of shares granted matches that
shown in the option grant letter you received from the Company).

 

 

 

Step 2:

 

Read and review the documentation.

 

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Step 3:

 

Confirm the review/acceptance of this Agreement.

 

 

 

Step 4:

 

Receive an online confirmation of your acceptance of this Agreement.

 

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