Document:

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.

 

 

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.

 

3Exhibit 10.2

 

AAR CORP.

POLICY FOR RECOUPMENT
 OF INCENTIVE COMPENSATION

July 17, 2012

 

1.              Definitions

 

The following terms shall have the meanings set forth below:

 

(a)         “Company” shall mean AAR CORP., a Delaware corporation.

 

(b)         “Covered Officers” shall mean the current or former executive officers of the Company designated by the Board as officers for purposes of Section 16 of the Securities Exchange Act of 1934, as amended.

 

(c)          “Incentive Compensation” shall mean bonuses or awards under the Company’s short and long-term incentive compensation plans, grants and awards under the Company’s equity plans, and contributions under the Company’s Retirement Savings Plan and Supplemental Key Employee Retirement Plan where the contributions are based on the achievement of financial results.

 

(d)         “Misconduct” shall mean willful commission of an act of fraud or dishonesty or recklessness in the performance of a person’s duties.

 

(e)          “Policy” shall mean this Policy for Recoupment of Incentive Compensation.

 

(f)           “Restatement” shall mean an accounting restatement of the Company’s financial statements.

 

2.              Purpose

 

The Board of Directors of the Company has determined that it is in the best interests of the Company to adopt a Policy providing for the Company’s recoupment of incentive compensation paid to Covered Officers of the Company under certain circumstances.  In the case of a Restatement where a Covered Officer’s Misconduct has contributed to the Restatement, the Board (a) shall determine to recoup incentive compensation that was paid or vested based upon the achievement of certain financial results (including gains from the sale of vested shares) to the extent that the amount of such compensation would have been lower if the financial results had been properly reported, and (b) shall seek to cancel equity awards where the financial results of the Company were considered in granting such awards.

 

3.              Effective Date

 

This Policy shall apply to all Incentive Compensation paid or awarded on or after the adoption of this Policy.

 

4.              Recoupment of Incentive Compensation

 

If the Company is required to prepare a Restatement for any fiscal quarter or fiscal year commencing after May 31, 2012 due to the material noncompliance of the Company with any financial reporting requirement, and the Board of Directors of the Company determines that the Misconduct of a Covered Officer contributed to the noncompliance resulting in the Restatement, the Board will review all Incentive Compensation that was paid (or, in the case of equity-based compensation, that vested) to Covered

 

 

Officers on the basis of having met or exceeded specific performance targets for performance periods during the Restatement period. To the extent permitted by applicable law, including the Dodd-Frank Wall Street Reform and Consumer Protection Act, the Board may seek to recoup Incentive Compensation that was paid (or in the case of equity-based compensation, that vested) to any Covered Officer on or after the Effective Date of this Policy, if and to the extent that:

 

(a)         The amount (or vesting) of Incentive Compensation was calculated based upon the achievement of certain financial results that were subsequently reduced due to the Restatement, and

 

(b)         The amount (or vesting) of Incentive Compensation that would have been paid (or, in the case of equity-based compensation, that would have vested) to the Covered Officer had the financial results been properly reported would have been lower than the amount actually paid (or, in the case of equity-based compensation, vested).

 

The amount of recoupment sought shall equal the excess of the Incentive Compensation that was paid (or vested) over the Incentive Compensation that would have been paid (or vested) had the financial results been properly reported.  In the case of equity awards that vested based on the achievement of financial results that were subsequently reduced, the Board also may seek to recover gains from the sale or disposition of vested shares, including shares purchased upon the exercise of options that vested based on the achievement of financial results.  In addition, the Board may, to the extent it deems appropriate, determine to cancel outstanding equity awards where the Board or the Compensation Committee took into account the financial performance of the Company in granting such awards and the financial results were subsequently reduced due to the Restatement.

 

5.              Delegation; Binding Effect

 

The Board may delegate to the Compensation Committee all determinations to be made and actions to be taken by the Board under this Policy.  Any determination made by the Board or the Compensation Committee under this Policy shall be final, binding and conclusive on all parties.

 

6.              Limitation on Period for Recoupment

 

The Board may only seek recoupment under Section 4 of this Policy with respect to Incentive Compensation paid (or vested) during the three-year period preceding the date of the Restatement.

 

7.              Sources of Recoupment

 

The Board may seek recoupment from the Covered Officers from any of the following sources: prior Incentive Compensation payments; future payments of Incentive Compensation; cancellation of outstanding equity awards or bonuses; future equity awards; and direct repayment.  To the extent recoupment relates to contributions under the Company’s Retirement Savings Plan or Supplemental Key Employee Retirement Plan, the Board may seek to recoup such amounts directly from the Covered Officer.

 

Severability

 

If any provision of this Policy or the application of any such provision to any Covered Officer shall be adjudicated to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provisions of this Policy, and the invalid, illegal or unenforceable provisions shall be deemed amended to the minimum extent necessary to render any such provision or application enforceable.

 

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8.              No Impairment of other Remedies

 

This Policy does not preclude the Company from taking any other action to enforce a Covered Officer’s obligations to the Company, including termination of employment or institution of civil or criminal proceedings.

 

9.              Miscellaneous

 

This Policy is in addition to the requirements of Section 304 of the Sarbanes-Oxley Act of 2002 that are applicable to the Company’s Chief Executive Officer and Chief Financial Officer.  Any decision by the Company not to seek recoupment in a specific instance shall not in any way limit its authority to do so in any other instance.

 

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