Document:

Exhibit
10.18

 

CONSULTING
AGREEMENT

 

This Consulting Agreement
is entered into this 1st day of June, 1999, by and between AAR CORP.
(“Company”), a Delaware corporation, and Ira A. Eichner, having his principal
place of business at 301 Polmer Park, Palm Beach, Florida 33480 (“Consultant”).

 

WHEREAS, Consultant
recently retired from active employment as a senior executive officer of the
Company, pursuant to the terms of Consultant’s Employment Agreement having
founded the Company and served as its Chairman and Chief Executive Officer for
over 40 years, and is presently continuing to serve the Company as a
non-executive, elected director and Chairman of the Board; and

 

WHEREAS, Consultant and
the Company mutually desire Consultant to provide consulting services to senior
management of the Company on operational and strategic planning issues and
other projects, in addition to and beyond Consultant’s duties as Chairman of
the Board.

 

NOW, THEREFORE, the
parties agree as follows:

 

1.                                       Company
hereby retains Consultant to provide consulting services to Company in
connection with operational and strategic issues and other projects relating to
AAR’s business activities as may be requested from time to time, at times
convenient to Consultant, by Company’s Chief Executive Officer, or his
designee, subject to the terms and conditions below.

 

2.                                       This
Agreement will commence as of June 1, 1999 and continue thereafter for
four years and shall be governed by the laws of the State of Illinois.

 

3.a.                              AAR
will pay Consultant a retainer in the amount of Four Hundred Thousand dollars
($400,000).  The retainer will be
payable in 16 quarterly payments of $25,000 each, irrespective of whether any
services are requested and provided.

 

   b.                             The
foregoing retainer will be the only remuneration paid to Consultant for any
services provided hereunder and no other compensation or benefits will be paid
or payable; provided, however, Company will reimburse Consultant for business
expenses reasonably incurred by Consultant in connection with the performance
of services hereunder; and provided further Company will indemnify and hold
Consultant harmless from all liabilities (including attorneys’ fees,
judgements, fines, and amounts paid in settlement) in connection with any
threatened, pending or completed action, suit, or proceeding whether civil,
criminal, administrative, or investigative as a result of consulting services
provided to Company hereunder to the same extent and on the same terms and
conditions as Consultant is indemnified by Company pursuant to that certain
Indemnification Agreement between the parties dated the 7th day of
January, 1988.

 

 

4.                                       Consultant
will provide the services contemplated hereunder as an independent contractor
and not as an employee of Company.  As
such, Consultant is responsible for filing all required tax returns and reports
and payment of all applicable taxes in connection with Consultant’s business,
including with respect to all mounts paid Consultant hereunder.  Company will furnish Consultant with an IRS
Form 1099 in accordance with applicable law.

 

5.                                       Consultant
may have access to reports, records, data, information, or other material
which, in Company’s opinion, will have a bearing on Consultant’s services
performed under this Agreement. 
Consultant expressly agrees that all such reports, records, data,
information, or other material disclosed to him by Company and all information
developed by Consultant in connection herewith, including but not limited to
any of Consultant’s reports or notes, will be and remain the property of
Company and will be preserved by Consultant as confidential and will not be
published, released or otherwise communicated in any manner to any third party
without the prior written consent of Company.

 

6.                                       In
the event of a change in control of the Company (as defined in Addendum 1),
either party may terminate this Agreement upon written notice to the other, in
which case the Company shall immediately pay to Consultant any retainer that
would have been payable for the remaining term of this Consulting Agreement.

 

7.                                       Consultant
agrees that during the term hereof or May 31, 2003, whichever is later, he will
not provide consulting services of any nature to any other company, entity or
person engaged in business activities of the kind or type engaged in by the
Company or any of its subsidiaries or affiliated companies, without the prior
written consent of the Company.

 

IN WITNESS WHEREOF, each
party has executed this Agreement as of the day and year first above written.

 

	
  AAR CORP.

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
    /s/ HOWARD
  A. PULSIFER

  	
   

  	
   

  
	
   

  	
   

  
	
  Title:

  	
  Vice President

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
    /s/ IRA A.
  EICHNER

  	
   

  	
   

  
	
  Ira A. Eichner,
  Consultant

  	
   

  
						

 

 

ADDENDUM 1

 

“Change in Control” means
the earliest of:

 

(a)                                  any
person (as such term is used in Section 13(d) of the Securities Exchange
Act of 1934, as amended (“Exchange Act”)), has acquired (other than directly
from the Company) beneficial ownership (as that term is defined in Rule 13d-3
under the Exchange Act), of more than 20% of the outstanding capital stock of
the Company entitled to vote for the election of directors;

 

(b)                                 the
effective time of (i) a merger or consolidation or other business combination
of the Company with one or more other corporations as a result of which the
holders of the outstanding voting stock of the Company immediately prior to
such business combination hold less than 60% of the voting stock of the
surviving or resulting corporation, or (ii) a transfer of substantially all of
the assets of the Company other than to an entity of which the Company owns at
least 80% of the voting stock; or

 

(c)                                  the
election, over any period of time, to the Board of Directors of the Company
without the recommendation or approval of the incumbent Board of Directors of
the Company, of the lesser of (i) three directors, or (ii) directors
constituting a majority of the number of directors of the Company then in
office.

 

 

Amendment to Consulting
Agreement

 

This Amendment to Consulting Agreement is entered into
as of the 1st day of June, 2003, by and between AAR CORP.
(“Company”), a Delaware corporation, and Ira A. Eichner, having his principal
place of business at 301 Polmer Park, Palm Beach, Florida 33480 (“Consultant”).

 

WHEREAS, the Company and Consultant entered
into a Consulting Agreement dated June 1, 1999, which expired by its terms on
May 31, 2003 (AAR Contract No. 04426) (“Agreement”); and

 

WHEREAS, Company and Consultant desire to
renew and extend the term of said Agreement for the period June 1, 2003 through
May 31, 2006; and

 

WHEREAS, the Board of Directors of the
Company has determined that it is in the best interest of the Company to extend
the Consulting Agreement to provide consulting services in connection with
operational and strategic issues and other projects relating to AAR’s business
activities as may be requested from time to time, by Company’s Chief Executive
Officer, or his designee, in addition to and beyond Consultant’s duties as a
director and Chairman of the Board of the Company, and has duly approved such
extension.

 

NOW, THEREFORE, the parties agree as follows:

 

1.                                       Section
2 of the Agreement is hereby amended to extend the term of the Agreement from
and after June 1, 2003 through May 31, 2006.

 

2.                                       Section
3.a. of the Agreement is amended to provide for payment of a quarterly retainer
in the amount of $25,000 through the term of the Agreement.

 

3.                                       Except
as provided for in this amendment, all other terms of the Agreement shall
continue in effect.

 

IN WITNESS WHEREOF, each party has executed
this Agreement as of the day and year first above written.

 

 

	
  AAR CORP.

  
	
   

  
	
   

  
	
  By

  	
  /s/ HOWARD A.
  PULSIFER

  	
   

  
	
   

  	
   

  
	
  Title

  	
  Vice
  President

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  /s/ IRA A. EICHNER

  	
   

  
	
  Ira A. Eichner, Consultant

  	
   

  
				

 

2Exhibit
10.19

 

SEVERANCE AND CHANGE IN CONTROL AGREEMENT

 

This Severance and Change in Control Agreement (“Agreement”) made and
entered into as of the 1st day of April, 2003, by and between AAR
Manufacturing, Inc., an Illinois corporation 
(“Company”), a wholly-owned subsidiary of AAR CORP., a Delaware
corporation, and Mark McDonald (“Employee”).

 

WHEREAS,
the Company currently employs Employee as an employee at will in the capacity
of Vice President; and

 

WHEREAS,
Employee desires the Company to pay Employee certain severance payments upon a
Change in Control of AAR CORP. and upon termination of employment prior to a
Change in Control; and

 

WHEREAS,
the Company is willing to pay Employee severance payments under certain
circumstances if Employee agrees to confidentiality, non-compete and certain
other covenants.

 

NOW,
THEREFORE, in consideration of the mutual agreements herein set forth and other
good and valuable consideration, the parties hereto agree as follows:

 

1.                                       Employment.  Employee will continue employment with the
Company as an at will employee subject to the terms and conditions hereinafter
set forth.

 

2.                                       Duties.  During the continuation of Employee’s
employment, Employee shall:

 

(a)                                  well and faithfully serve the Company and do and
perform assigned duties and responsibilities in the ordinary course of
Employee’s employment and the business of the Company (within such limits as
the Company may from time to time prescribe), professionally, faithfully and
diligently.

 

(b)                                 devote Employee’s full time, energy and skill to
the business of the Company and Employee’s assigned duties and
responsibilities, and to the promotion of the best interests of the Company;
provided that Employee shall not (to the extent not inconsistent with Section 5
below) be prevented from (a) serving as a director of any corporation consented
to in advance in writing by the Company, (b) engaging in charitable, religious,
civic or other non-profit community activities, or (c) investing his personal
assets in such form or manner as will not require any substantial services on
Employee’s part in the operation or affairs of the business in which such
investments are made or which would detract from or interfere or cause a
conflict of interest with performance of Employee’s duties hereunder.

 

 

(c)                                  observe all policies and procedures of the
Company in effect from time to time applicable to employees of the Company
including, without limitation, policies with respect to employee loyalty and
prohibited conflicts of interest.

 

3.                                       Benefits.  Employee
shall be entitled to participate, according to the eligibility provisions of
each, in such welfare plans (including but not limited to medical, dental,
life, accident and disability insurance programs), vacation, retirement plans
and other fringe benefits as may be in effect from time to time and available
to other officers of the Company during Employee’s employment term.  Employee shall also be entitled to
participate in such additional executive fringe benefits as may be authorized
from time to time by the President and Chief Executive Officer of the Company.

 

4.                                       Confidential Information, Assignment of
Inventions.

 

(a)                                  Employee acknowledges that the trade secrets,
confidential information, secret processes and know-how developed and
acquired by AAR CORP. and its affiliates or subsidiaries (together the
“Affiliated Companies”) are among their most valuable assets and that the value
of such information may be destroyed by unauthorized disclosure.  All such trade secrets, confidential
information, secret processes and know-how imparted to or learned by
Employee in the course of his employment with respect to the business of the
Affiliated Companies (whether acquired before or after the date hereof) will be
deemed to be confidential and will not be used or disclosed by Employee, except
to the extent necessary to perform Employee’s duties and, in no event,
disclosed to anyone outside the employ of the Affiliated Companies and their
authorized consultants and advisors, unless (i) such information is or has been
made generally available to the public, (ii) disclosure of such information is
required by law in the opinion of Employee’s counsel (provided that written
notice thereof is given to Company as soon as possible but not less than 24
hours prior to such disclosure), or (iii) express written authorization to use
or disclose such information has been given by the Company.  If Employee ceases to be employed by the
Company for any reason, Employee shall not take any electronically stored data,
documents or other papers containing or reflecting trade secrets, confidential
information, secret processes, know-how, or computer software programs
from Company.  Employee acknowledges
that Employee’s employment hereunder will place Employee in a position of
utmost confidence and that Employee will have access to confidential
information concerning the operation of the business of the Affiliated
Companies, including, but not limited to, manufacturing methods, developments,
secret processes, know-how, computer software programs, costs, prices and
pricing methods, sources of supply and customer names and relations.  All such information is in the nature of a
trade secret and is the sole and exclusive property of the Affiliated Companies
and shall be deemed confidential information for the purposes of this
paragraph.

 

2

 

(b)                                 Employee hereby assigns to the Company all rights
that Employee may have as author, designer, inventor or otherwise as creator of
any written or graphic material, design, invention, improvement, or any other
idea or thing whatever that Employee may write, draw, design, conceive,
perfect, or reduce to practice during employment with the Company or within 120
days after termination of such employment, whether done during or outside of
normal work hours, and whether done alone or in conjunction with others
(“Intellectual Property”), provided, however, that Employee reserves all rights
in anything done or developed entirely by Employee on Employee’s own personal
time and without the use of any Company equipment, supplies, facilities or
information, or the participation of any other Company employee, unless it
relates to the Company’s business or reasonably anticipated business, or grows
out of any work performed by Employee for the Company.  Employee will promptly disclose all such
Intellectual Property developed by Employee to the Company, and fully cooperate
at the Company’s request and expense in any efforts by the Company or its
assignees to secure protection for such Intellectual Property by way of
domestic or foreign patent, copyright, trademark or service mark registration
or otherwise, including executing specific assignments or such other documents
or taking such further action as may be considered necessary to vest title in
Company or its assignees and obtain patents or copyrights in any and all
countries.

 

5.                                       Non-Compete; Severance.

 

(a)                                  Employee agrees that during Employee’s
continuation of employment with the Company and for one (1) year thereafter so
long as the Company makes severance payments to Employee pursuant to
subsections 5(b) or 5(c) below, Employee shall not, without the express written
consent of the Company, either alone or as a consultant to, or partner,
employee, officer, director, or stockholder of any organization, entity or
business, (i) take or convert for Employee’s personal gain or benefit or
for the benefit of any third party, any business opportunities which may be of
interest to the Company or any Affiliated Company which Employee becomes aware
of during the term of his employment; (ii) engage in direct or indirect
competition with the Company or any Affiliated Company within 100 miles of any
location within the United States of America or any other country where the
Company or any Affiliated Company does business from time to time during the
term hereof; (iii) solicit in connection with any activity which is
competitive with any of the businesses of the Company or any Affiliated
Company, any customers of the Company or any Affiliated Company; (iv) solicit
for employment any sales, marketing or management employee of Company or any
Affiliated Company or induce or attempt to induce any customer or supplier of
the Company or any Affiliated Company to terminate or materially change such
relationship.  Company and Employee
acknowledge the reasonableness of the foregoing covenants not to 

 

3

 

compete and non-solicitation, including but not limited to the
geographic area and duration of time which are a part hereof, and further, that
the restrictions stated in this Section 5 are reasonably necessary for the
protection of Employer’s legitimate proprietary interests.  This covenant not to compete may be enforced
with respect to any geographic area in which the Company or any Affiliated
Company does business during the term hereof. 
Nothing herein shall prohibit Employee from being the legal or equitable
holder, solely for investment purposes, of less than 5% of the capital stock of
any publicly held corporation which may be in direct or indirect competition
with the Company or any Affiliated Company.

 

(b)                                 The Company will pay Employee, upon termination
of Employee’s employment by the Company prior to a Change in Control (as
defined in 7(c)(i) below) for any reason other than Cause (as defined in
7(c)(iv) below), severance each month for 12 months, in an amount (subject to
applicable withholding) equal to 1/12 of Employee’s base salary; and, further,
if the Company pays discretionary bonuses to its officers for the fiscal year
in which Employee’s employment is terminated, Employee will be paid a bonus in
a lump sum at the time any such bonuses are paid to other officers or at such
time as the Severance Period is complete, whichever is later (with interest at
prime rate plus one percentage point from the earlier of such dates), (1) for
the completed fiscal year preceding termination if such bonus has not been paid
prior to termination, and (2) for the fiscal year in which employment is
terminated, prorata for the period prior to termination of employment based on
Employee’s performance during such period; provided, however, that (i) all such
monthly payment obligations shall terminate immediately upon Employee obtaining
full time employment in a comparable position in terms of salary level, and
(ii) all such payment obligations shall terminate or lapse immediately upon any
breach by Employee of Section 4 or 5(a) of this Agreement or if Employee shall
commence any action or proceeding in any court or before any regulatory agency
arising out of or in connection with termination of Employee’s employment.

 

(c)                                  If Employee terminates Employee’s employment or
Employee’s employment is terminated by the Company for Cause (as defined
below), the Company may elect (but is not required to), by written notice
thereof to Employee, within five (5) days of any such termination of Employee’s
employment with the Company prior to a Change in Control (as defined below), to
pay Employee severance as provided in and subject to the provisions of
subsection 5(b) above.

 

(d)                                 Employee may terminate this Severance and Change
in Control Agreement effective immediately upon notice thereof in writing to
Company at any time while still employed within a sixty (60) calendar day period
immediately following the effective date of 

 

4

 

any reduction by Company in (i) Employee’s level of responsibility or
position from that held by Employee as Vice President on the effective date of
this Agreement, or (ii) Employee’s level of compensation, including retirement
benefits in effect immediately prior to any such change.

 

(e)                                  If at any time, any clause or portion of this
Section 5 shall be deemed invalid or unenforceable by the laws of the jurisdiction
in which it is to be enforced by reason of being vague or unreasonable as to
duration, geographic scope, nature of activities restricted, or for any other
reason, this provision shall be considered divisible as to such portions and
the foregoing restrictions set forth in 5(a) shall become and be immediately
amended to include only such duration, scope or restriction and such event as
shall be deemed reasonable and enforceable by the court or other body having
jurisdiction to enforce this Agreement; and the parties hereto agree that the
restrictions, as so amended, shall be valid and binding as though the invalid
or unenforceable portion had not been involved herein.

 

(f)                                    The Employee acknowledges and agrees that the
Company would be irreparably harmed by violations of Section 4 or Section 5(a)
above, and in recognition thereof, the Company shall be entitled to an
injunction or other decree of specific performance with respect to any
violation thereof (without any bond or other security being required) in
addition to other available legal and equitable remedies.

 

6.                                       Termination of Employment.

 

(a)                                  Upon and after termination of employment
howsoever arising, Employee shall, upon request by Company:

 

(1)                                  immediately return to the Company all
correspondence, documents, business calendars/diaries, or other property
belonging to the Company which is in Employee’s possession,

 

(2)                                  immediately resign from any office Employee holds
with the Company or any Affiliated Company; and

 

(3)                                  cooperate fully and in good faith with the
Company in the resolution of all matters Employee worked on or was involved in
during Employee’s employment with the Company. 
Employee’s cooperation will include reasonable consultation by
telephone.  Further, in connection
therewith, Employee will, at Company’s request upon reasonable advance notice
and subject to Employee’s availability, make Employee available to Company in
person at Company’s premises, for testimony in court, or elsewhere; provided,
however, that in such event, Company shall reimburse all Employee’s reasonable
expenses and pay Employee a reasonable per diem or hourly stipend.

 

5

 

7.                                       Change in Control.

 

(a)                                  In the event (i) a Change in Control of AAR CORP.
occurs and (ii) (A) at any time during the 18 month period commencing on the
date of the Change in Control the Company terminates Employee’s employment for
other than Cause or Disability, or Employee terminates Employee’s employment
for Good Reason, in either case by written notice to the other party (including
the particulars thereof), and having given the other party the opportunity to
be heard with respect thereto, or (B) Employee’s employment with the Company
terminates for any reason other than Disability or death during the 30 day
period commencing on the expiration of the aforementioned 18 month period,
then:

 

(1)                                  The Company shall promptly pay to Employee, in a
lump sum, a cash payment in an amount equal to the sum of (A) all base salary
earned through the date of termination, (B) any annual cash bonus earned by
Employee for the fiscal year of the Company most recently ended prior to the
date of termination to the extend unpaid on the date of termination, (C) a
prorata portion of the annual cash bonus, including the value of any restricted
stock grant in lieu of annual cash bonus, Employee would have earned had
Employee been employed by the Company on the last day of the fiscal year in
which the date of termination occurs (as if all performance targets have been
met or, in the event the bonus is of the “discretionary” type, the bonus shall
be based on a percentage of base salary which is not less than percentage of
base salary received as bonus for the preceding fiscal year) that is applicable
to the period commencing on the first day of such fiscal year and ending on the
date of termination, and (D) any and all other benefits and amounts earned by
Employee prior to the date of termination to the extent unpaid, all subject to
applicable withholding.

 

(2)                                  The Company shall promptly pay to Employee in a
lump sum, a cash payment in an amount equal to three times Employee’s total
compensation (base salary plus annual cash bonus) for either the fiscal year of
the Company most recently ended prior to the date of termination, or the
preceding fiscal year, whichever is the highest total compensation, subject to
applicable withholding.  Employee may
elect to take payment of any amounts on a schedule of Employee’s own choosing;
provided that such schedule shall be completed no later than three years from
the date of Employee’s termination of employment.

 

(3)                                  Employee and Employee’s dependents shall continue
to be covered by, and receive employee welfare and executive fringe benefits
(including but not limited to medical, dental, life, accident and disability
insurance available to officers of the Company and additional executive
retirement and other fringe 

 

6

 

benefits approved by the President and CEO of the Company) in
accordance with the terms of the Company’s benefit plans and executive fringe
benefit programs, for three years following the date of termination, and at no
less than the levels Employee and Employee’s dependents were receiving
immediately prior to the Change in Control.  Employee’s dependents shall be entitled to continued benefits
coverage pursuant to the preceding sentence for the balance of such three year
period in the event of Employee’s death during such period.  The period during which Employee and
Employee’s dependents are entitled to continuation of group health plan
coverage pursuant to Section 4980B of the Internal Revenue Code of 1986, as
amended, and Part 6 of Title I of the Employee Retirement Income Security Act
of 1974, as amended, shall commence on the date next following the expiration
of the aforementioned three year period.

 

(4)                                  Employee
shall receive an additional retirement benefit, over and above that which
Employee would normally be entitled
to under the Company’s retirement plans or programs applicable to Employee,
equal to the actuarial equivalent of the additional amount that Employee would
have earned under such retirement plans or programs had Employee accumulated
three additional continuous years of service. 
Such amount shall be paid to Employee in a cash lump sum payment on the
earlier to occur of Employee’s termination of employment following a Change in
Control or Employee’s Retirement Date, together with a gross-up bonus in an
amount equal to any federal, state and local income taxes and excise taxes
(including FICA and any similar taxes) payable by Employee on such lump sum
payment and such gross-up bonus.

 

(5)                                  The Company, at its expense, shall provide
Employee with outplacement services of a nationally recognized outplacement
firm of the Employee’s choosing until the earlier of (a) the Employee’s
attainment of employment, or (b) the date eighteen (18) months from the date of
Employee’s termination of employment; provided, however, that the cost of such
outplacement services shall not exceed 3.5% of the cash payment due to Employee
pursuant to subsection 7(a)(2) above.

 

(6)                                  The
amounts paid to Employee under this Change in Control provision applicable to
Employee shall be considered severance pay in consideration of past service
Employee has rendered to the Company and in consideration of Employee’s
continued service from the date hereof to entitlement of those payments.

 

(b)                                 In the event that a Change in Control occurs,
whether or not such Change in Control has the prior written approval of a
majority of the Continuing Directors (as defined 

 

7

 

in the AAR CORP. Stock Benefit Plan), and notwithstanding any
conditions or restrictions related to any Award granted to Employee under the
Plan, all Options or Limited Rights, or both, granted to Employee under the
Plan will become immediately exercisable and remain exercisable for the full
remaining life of the option whether or not Employee’s employment continues,
and all restrictions on Restricted Stock granted to Employee under the Plan
will immediately lapse.

 

(c)                                  For purposes of this Agreement

 

(i)            “Change in Control” means the earliest of:

 

(1)                                  any person (as such term is used in Section 13(d)
of the Securities Exchange Act of 1934, as amended (“Exchange Act”), has
acquired (other than directly from the Company) beneficial ownership (as that
term is defined in Rule 13d-3 under the Exchange Act), of more than 20% of the
outstanding capital stock of the Company entitled to vote for the election of directors;
or

 

(2)                                  the effective time of (i) a merger or
consolidation or other business combination of the Company with one or more
other corporations as a result of which the holders of the outstanding voting
stock of the Company immediately prior to such business combination hold less
than 60% of the voting stock of the surviving or resulting corporation, or (ii)
a transfer of substantially all of the assets of the Company other than to an
entity of which the Company owns at least 80% of the voting stock; or

 

(3)                                  the election over any period of time to the Board
of Directors of the Company without the recommendation or approval of the
incumbent Board of Directors of the Company, of the lesser of (i) three
directors, or (ii) directors constituting a majority of the number of directors
of the Company then in office.

 

(ii)           “Good Reason” means:

 

(1)                                  a material reduction in the nature or scope of
Employee’s duties, responsibilities, authority, power or functions from those
enjoyed by Employee immediately prior to the Change in Control, or a material
reduction in Employee’s compensation (including benefits), occurring at any
time during the two-year period immediately after the Change in Control; or

 

8

 

(2)                                  if the incumbent in the position of President and
CEO of the Company on August 8, 1997 is not the President and CEO of the
Company at the time of termination, a good faith determination by Employee that
as the result of a Change in Control and a material change in employment
circumstances at any time during the immediate two year period after the Change
in Control, Employee is unable to carry out Employee’s assigned duties and
responsibilities in a manner consistent with the practices, standards, values
or philosophy of the Company immediately prior to the Change in Control; or

 

(3)                                  a relocation of the primary place of employment
of at least 100 miles.

 

(iii)          “Disability” means:

 

(1)                                  a physical or mental condition which has
prevented Employee from substantially performing Employee’s assigned duties for
a period of 180 consecutive days and which is expected to continue to render
Employee unable to substantially perform Employee’s duties on a full-time basis
and otherwise meets the benefit eligibility requirements of the Company’s Long
Term Disability Welfare Benefit Plan or any executive program in which Employee
was a participant at the time of a Change in Control.  The Company will make reasonable accommodation for any handicap of
Employee as may be required by applicable law.

 

In the event of termination by the Company for Disability after a
Change in  Control, a good faith
determination of the existence of a Disability shall be made by resolution of
the Compensation Committee of the Board of Directors of the Company, in its
sole discretion, setting forth the particulars of the Disability which shall be
final and binding upon the Employee. 
The Company may require the submission of such medical evidence as to
the condition of the Employee as it may deem necessary in order to arrive at
its determination of the occurrence of a Disability, and Employee will
cooperate in providing any such information. 
Employee will be provided with reasonable opportunity to present
additional medical evidence as to the medical condition of Employee for
consideration prior to the Board making its determination of the occurrence of
a Disability.

 

Upon termination of Employment by Company for Disability after a Change
in Control, Employee will receive Disability payments pursuant to the Company’s
short and long term Disability welfare benefit plans then 

 

9

 

in effect according to the terms of such plans and  continue to be eligible to participate in
the Company’s medical, dental and life insurance programs then in effect and
available to officers of the Company in accordance with their terms for a
period of 3 years from the date of such termination of this Agreement.

 

(iv)          “Cause” means:

 

(1)                                  Employee engages, during the performance of
Employee’s duties hereunder, in acts or omissions constituting dishonesty,
intentional breach of fiduciary obligation or intentional wrongdoing or
malfeasance;

 

(2)                                  Employee intentionally disobeys or disregards a
lawful and proper direction of the Board or the Company; or

 

(3)                                  Employee materially breaches the Agreement and
such breach by its nature, is incapable of being cured, or such breach remains
uncured for more than 10 days following receipt by Employee of written notice
from the Company specifying the nature of the breach and demanding the cure
thereof.  For purposes of this clause
(3), a material breach of the Agreement that involves inattention by Employee
to Employee’s duties under the Agreement shall be deemed a breach capable of
cure.

 

Without limiting the generality of the foregoing, the following shall
not constitute Cause for the termination of employment of Employee or the
modification or diminution of any of Employee’s authority hereunder:

 

(1)                                  any personal or policy disagreement between
Employee and the Company or any member of the Board; or

 

(2)                                  any action taken by Employee in connection with
Employee’s duties hereunder, or any failure to act, if Employee acted or failed
to act in good faith and in a manner Employee reasonably believed to be in and
not opposed to the best interest of the Company and Employee had no reasonable
cause to believe Employee’s conduct was unlawful; or

 

(3)                                  termination of Employee’s employment for overall
unsatisfactory performance (including, but not limited to, failure to meet
financial goals).

 

10

 

Termination for Cause shall be limited to a good faith finding by
resolution of the Compensation Committee of the Board,. setting forth the
particulars thereof.  Any such action
shall be taken at a regular or specially called meeting of the Compensation
Committee of the Board, after a minimum 10 days notice thereof to Employee,
with termination of Employee’s employment with the Company for Cause listed as
an agenda item.  Employee will be given
a reasonable opportunity to be heard at such meeting with counsel present if
Employee desires.  Any such resolution
shall be final and binding.

 

Upon termination of employment by Company for Cause, no further
compensation or benefits shall accrue or be payable to Employee by the Company,
except for any compensation, bonus or other benefits which have accrued to
Employee prior to the date of any such termination.

 

Nothing herein shall be construed to prevent the Company from
terminating Employee’s employment at any time for any reason or for no reason.

 

(d)                                 The Company will pay reasonable legal/attorney’s
fees (including court costs and other costs of litigation) incurred by Employee
in connection with enforcement of any right or benefit under this Agreement.

 

(e)                                  The Company
shall promptly pay Employee a gross-up bonus in an amount equal to (i) all
excise taxes payable under Section 280G of the Internal Revenue Code on any
amounts constituting “golden parachute” payments, plus (ii) any federal, state,
and local income taxes and excise taxes (including FICA) payable by Employee on
such gross-up bonus in order to put Employee in the same position Employee
would have been in if the excise tax provision (Section 280G) did not apply.

 

(f)                                    The Company
will continue to provide SKERP retirement benefits to Employee and Employee’s
spouse at no less than the level they are receiving or entitled to receive
under the SKERP as it was in effect immediately prior to the Change in Control.

 

8.                                       Changes in Business.  The Company, acting through
its Board of Directors, will at all times have complete control over the
Company’s business and retirement and other employee health and welfare benefit
plans (“Plans”).  Without limiting the
generality of the foregoing, the Company may at any time or times change or
discontinue any or all of its present or future operations or Plans (subject to
their terms), may close or move any one or more of its divisions or offices,
may undertake any new servicing or sales operation, may sell any one or more of
its divisions or offices to any company not controlled, directly or indirectly,
by the Company or may take any and all other steps which its Board of 

 

11

 

Directors, in its exclusive judgment, shall deem desirable, and
Employee shall have no claim or recourse against the Company, the Affiliated
Companies or its officers, directors or employees by reason of such action
except for enforcement of the provisions of Sections 5 and 7 of this Agreement.

 

9.                                       Severance Payment as Sole Obligation.  Except
as expressly provided in Sections 5 and 7 above, no further compensation,
payments, liabilities or benefits shall accrue or be payable to Employee upon
or as a result of termination of Employee’s employment for any reason
whatsoever except for any compensation, bonus or other benefits which accrued
to Employee prior to the date of employment termination.

 

The amounts paid to the Employee under Section 5 and 7 of this
Agreement shall be considered severance pay in consideration of past services
Employee has rendered to the Company and in consideration of Employee’s
continued service from the date hereof to entitlement to those payments.

 

10.                                 Notices.  Any notice or other instrument or thing
required or permitted to be given, served or delivered to any of the parties
hereto shall be delivered personally or deposited in the United States
mail, with proper postage prepaid, telegram, teletype, cable or facsimile
transmission to the addresses listed below:

 

(a)           If to the Company,
to:

 

AAR CORP.

1100 N. Wood Dale Road

Wood Dale, Illinois   60191

Attention:  Chairman

 

With a copy to:

 

AAR CORP.

1100 N. Wood Dale Road

Wood Dale, Illinois   60191

Attention:  General Counsel

 

(b)           If to Employee, to:

 

Mark McDonald

505 White Pine Drive

Cadillac, MI   49601

 

12

 

or to such other address as either party may from time to time
designate by notice to the other.  Each
notice shall be effective when such notice and any required copy are delivered
to the applicable address.

 

11.                                 Non-Assignment.

 

(a)                                  The Company shall not assign this Agreement or
any rights or obligations hereunder without the prior written consent of
Employee, and any attempted unpermitted assignment shall be null and void and
without further effect; provided, however, that, upon the sale or transfer of
all or substantially all of the assets of the Company, or upon the merger by
the Company into or the combination with another corporation or other business
entity, or upon the liquidation or dissolution of the Company, this Agreement
will inure to the benefit of and be binding upon the person, firm or
corporation purchasing such assets, or the corporation surviving such merger or
consolidation, or the shareholder effecting such liquidation or dissolution, as
the case may be.  After any such
transaction, the term Company in this Agreement shall refer to the entity which
conducts the business now conducted by the Company.  The provisions of this Agreement shall be binding upon and inure
to the benefit of the estate and beneficiaries of Employee and upon and to the
benefit of the permitted successors and assigns of the parties hereto.

 

(b)                                 The Employee agrees on behalf of Employee,
Employee’s heirs, executors and administrators, and any other person or person
claiming any benefit under Employee by virtue of this Agreement, that this
Agreement and all rights, interests and benefits hereunder shall not be
assigned, transferred, pledged or hypothecated in any way by the Employee or by
any beneficiary, heir, executor, administrator or other person claiming under
the Employee by virtue of this Agreement and shall not be subject to execution,
attachment or similar process.  Any attempted
assigned, transfer, pledge or hypothecation or any other disposition of this
Agreement or of such rights, interests and benefits contrary to the foregoing
provisions or the levy or any execution, attachment or similar process thereon
shall be null and void and without further effect.

 

12.                                 Severability.
If any term, clause or provision contained herein is declared or held invalid
by any court of competent jurisdiction, such declaration or holding shall not
affect the validity of any other term, clause or provision herein contained.

 

13.                                 Construction.
Careful scrutiny has been given to this Agreement by the Company, Employee, and
their respective legal counsel. 
Accordingly, the rule of construction that the ambiguities of the
contract shall be resolved against the party which caused the contract to be
drafted shall have no application in the construction or interpretation of this
Agreement or any clause or provision hereof.

 

13

 

14.                                 Entire Agreement. This Agreement as amended and restated herein and the other
agreements referred to herein set forth the entire understanding of the parties
and supersede all prior agreements, arrangements and communications, whether
oral or written, pertaining to the subject matter hereof.

 

15.                                 Waiver.  No provision of this Agreement may be
amended, modified, waived or discharged unless such amendment, modification,
waiver or discharge is agreed to in writing signed by Employee and an
authorized officer of the Company.  No
waiver by either party hereto at any time of any breach by the other party
hereto of, or compliance with, any condition or provision of this Agreement to
be performed by such other party shall be deemed a waiver of similar or
dissimilar provisions or conditions at the same or at any prior or subsequent
time.

 

16.                                 Governing Law.
The validity, interpretation, construction and performance of this Agreement
shall be governed by and construed in accordance with the laws of the State of
Illinois without regard to its conflicts of law principles.

 

17.                                 Execution.  This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original and which shall
constitute but one and the same Agreement.

 

WITNESS
the due execution of this Agreement by the parties hereto as of the day and
year first above written.

 

	
  Employer:

  	
   

  
	
   

  	
   

  
	
  AAR
  Manufacturing, Inc.

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
  /s/
  DAVID P. STORCH

  	
   

  
	
   

  	
   

  
	
  Title:  President

  	
   

  
	
   

  	
   

  
	
  Employee:

  	
   

  
	
   

  	
   

  
	
    /s/
  MARK MCDONALD

  	
   

  
	
  Mark
  McDonald

  	
   

  
			

 

14

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