Document:

Exhibit 10.1

STOCK AWARD AGREEMENT

This Stock Award Agreement (this “Agreement”), dated as of October 1 2006
(the “Effective Date”), is
between SoftBrands, Inc., a Delaware corporation (the “Company”) and _______________, an
individual resident of _______________ (“Participant”).  This Stock Award is granted under the
SoftBrands, Inc. 2001 Stock Incentive Plan (the “Plan”) and is subject to the terms of that Plan.  Capitalized terms used in this Agreement and
not defined in this Agreement have the meanings assigned to them in the
Plan.  This Agreement represents the
Company’s unfunded and unsecured promise to issue Common Stock at a future
date, subject to the terms of this Agreement and the Plan.

1 Award.  The Company hereby grants Participant,
subject to the terms and conditions of this Agreement and the Plan, a stock
award (the “Stock  Award”) with respect to 100,000 shares of
the Common Stock, $.01 par value (the “Shares”),
of the Company .  The Stock Award
represents the right to receive the Shares only when, and with respect to the
number of Shares to which, the Stock Award has vested (the “Vested Shares”).  The Stock Award is subject to the terms and
conditions set forth in this Agreement and in the Plan.  A copy of the Plan will be furnished upon
request of Participant.

2. Vesting.  Subject to the terms and conditions of this
Agreement and the Plan, and to any employment or change of control agreement
with the Participant, the Stock Award shall vest and be converted into an
equivalent number of shares that will be distributed to the Participant on
September 30, 2009.

3. Termination
of Stock Award.  A Participant’s
rights under this Agreement with respect to the Stock Award shall terminate at
the earlier of (i) the time such Stock Awards are converted into Vested Shares,
or (ii) the termination of Participant’s employment with the Company for any
reason, whether voluntary or involuntary, with or without cause, including upon
death or disability.  Upon termination of
this Agreement in accordance with clause (ii) above, the Participant’s rights
to all of the Shares subject to the Stock Award not vested on the date that
Participant ceases to be an employee shall be immediately and irrevocably
forfeited and the Participant will retain no rights with respect to the
forfeited Shares.

4. Additional
Restrictions on Transfer of Stock Award. 
During the lifetime of Participant, this Stock Award cannot be sold,
assigned, transferred, gifted, pledged, hypothecated or in any manner
encumbered or disposed of at any time prior to delivery of the Vested Shares,
other than by will or the laws of descent and distribution.

5. Conversion
of Stock Award to Shares; Responsibility for Taxes.

(a)   Provided Participant has satisfied the
requirements of Section 5(b) below, after the vesting of the Stock Award with
respect to Vested Shares, the Vested Shares will be distributed to Participant
or, in the event of Participant’s death, to Participant’s legal representative,
as soon as practicable. The distribution to the Participant, or in the case of
the Participant’s death, to the Participant’s legal representative, of Vested
Shares shall be evidenced by a stock certificate, appropriate entry on the
books of the Company or of a duly authorized

 

transfer agent of the Company, or other appropriate
means as determined by the Company.  In
the event ownership or issuance of Vested Shares is not feasible due to
applicable exchange controls, securities regulations, tax laws or other
provisions of applicable law, as determined by the Company in its sole
discretion, Participant, or in the event of Participant’s death, the
Participant’s legal representative, shall receive cash proceeds in an amount
equal to the value of the Vested Shares otherwise distributable to Participant,
net of the satisfaction of the requirements of Section 5(b) below.

(b)   By signing this
Agreement, Participant agrees that the Company may withhold from the
Participant’s wages or other cash compensation, or at the sole election of the
Company from Vested Shares to be distributed to Participant in accordance with
Section 5(a), all income tax (including federal, state and local taxes), social
insurance, payroll tax or other tax-related withholding (“Tax Related Items”)
due from the Company or the subsidiary that is the Participant’s actual
employer. In this regard, Participant authorizes the Company or the Participant’s
actual employer to withhold all applicable Tax Related Items legally payable by
Participant from Participant’s wages or other cash compensation payable to
Participant by the Company or the Participant’s actual employer.  To the extent that the Company determines
that it is not feasible to withhold from wages, or not permissible under
applicable law to withhold in Shares, then prior to the issuance of Vested
Shares Participant shall pay, or make adequate arrangements satisfactory to the
Company or to the Participant’s actual employer (in their sole discretion) to
satisfy all withholding obligations of the Company and/or the Participant’s
actual employer. Participant shall pay to the Company or to the Participant’s
actual employer any amount of Tax Related Items that the Company or the
Participant’s actual employer may be required to withhold as a result of
Participant’s receipt of the Stock Award and the vesting of the Vested Shares
that cannot be satisfied by the means previously described. The Company may
refuse to deliver Vested Shares to Participant if Participant fails to comply
with Participant’s obligation in connection with the Tax Related Items as
described herein.

Regardless of any action
the Company or the subsidiary of the Company that is Participant’s actual
employer takes with respect to any or all Tax Related Items, Participant
acknowledges that the ultimate liability for all Tax Related Items legally due by
Participant is and remains Participant’s responsibility and that the Company
and/or the Participant’s actual employer (i) make no representations or
undertakings regarding the treatment of any Tax Related Items in connection
with any aspect of the Stock Award, including the grant of the Stock Award, the
vesting of Stock Award with respect to Shares, the conversion of the Stock
Award into Shares or the receipt of an equivalent cash payment, the subsequent
sale of any Shares acquired at vesting and the receipt of any dividends; and
(ii) do not commit to structure the terms of the grant or any aspect of the
Stock Award to reduce or eliminate the Participant’s liability for Tax Related
Items.

6. Miscellaneous.

(a)  Plan
Provisions Control.  In the event
that any provision of this Agreement conflicts with or is inconsistent in any
respect with the terms of the Plan, the terms of the Plan shall control.

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(b)  Rights of
Stockholders.  Prior to the vesting
of a Stock Award,  and prior to the
receipt of Vested Shares by Participant, Participant’s legal representative or
a permissible assignee of the Vested Shares pursuant to Section 5, neither
Participant, Participant’s legal representative nor a permissible assignee of
the Stock Award shall be or have any of the rights and privileges of a
stockholder of the Company with respect to the Shares issuable to Participant
pursuant to the terms of this Agreement. 
Participant shall not be entitled to receive dividend equivalents on the
Stock Award.

(c)  Distribution and Adjustment.  In accordance with Section 4(c) of the
Plan, the Stock Award is subject to adjustment in the event that any
distribution, recapitalization, reorganization, merger or other event covered
by Section 4(c) of the Plan shall occur.

(d)  No Right to Employment.  The grant of this Stock Award shall not be
construed as giving Participant the right to be retained in the employ of the
Company or any Affiliate, or as giving a director of the Company or an
Affiliate the right to continue as a director of the Company or an Affiliate
with, the Company or an Affiliate, nor will it affect in any way the right of
the Company or an Affiliate to terminate such employment or position at any
time, with or without cause.  The Company
or an Affiliate may at any time dismiss Participant from employment, or
terminate the term of a director of the Company or an Affiliate, whether for
cause or without cause and regardless of the period of time left until this
Stock Award would otherwise vest, free from any liability or any claim under
the Plan or this Agreement.  Nothing in
this Agreement shall confer on any person any legal or equitable right against
the Company or any Affiliate, directly or indirectly, or give rise to any cause
of action at law or in equity against the Company or an Affiliate.  This Stock Award shall not form any part of
the wages or salary of Participant for purposes of severance pay or termination
indemnities, irrespective of the reason for termination of employment.  Under no circumstances shall any person
ceasing to be an employee of the Company or any Affiliate be entitled to any
compensation for any loss of any right or benefit under this Agreement or the
Plan which such employee might otherwise have enjoyed but for termination of
employment, whether such compensation is claimed by way of damages for wrongful
or unfair dismissal, breach of contract or otherwise.  By participating in the Plan, Participant
shall be deemed to have accepted all the terms and conditions of the Plan and
this Agreement and the terms and conditions of any rules and regulations
adopted by the Committee and shall be fully bound thereby.

(e)  Governing Law.  The validity, construction and effect of the
Plan and this Agreement, and any rules and regulations relating to the Plan and
this Agreement, shall be determined in accordance with the internal laws, and
not the law of conflicts, of the State of Minnesota.

(f)  Severability.  If any provision of this Agreement is or
becomes or is deemed to be invalid, illegal or unenforceable in any
jurisdiction or would disqualify the Plan or any Award under any law deemed
applicable by the Committee, such provision shall be construed or deemed
amended to conform to applicable laws, or if it cannot be so construed or
deemed amended without, in the determination of the Committee, materially
altering the purpose or intent of the Plan or the Award, such provision shall
be stricken as to such jurisdiction or Award, and the remainder of this
Agreement shall remain in full force and effect.

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(g)  No Trust or Fund Created.  Neither the Plan nor this Agreement shall
create or be construed to create a trust or separate fund of any kind or a
fiduciary relationship between the Company or any Affiliate and Participant or
any other person.  To the extent that any
Person acquires a right to receive payments from the Company or any Affiliate
pursuant to a Stock Award, such right shall be no greater than the right of any
unsecured creditor of the Company or any Affiliate.

(h)  Other Benefits.  No compensation or benefit awarded to or
realized by Participant under the Plan or this Agreement shall be included for
the purpose of computing Participant’s compensation under any
compensation-based retirement, disability or similar plan of the Company unless
required by law or otherwise provided by such other plan.

(i)  Headings.  Headings are given to the Sections and
subsections of this Agreement solely as a convenience to facilitate
reference.  Such headings shall not be
deemed in any way material or relevant to the construction or interpretation of
this Agreement or any provision thereof.

(j)  Confidentiality.  Participant shall not disclose either the
contents or any of the terms and conditions of this Agreement to any other
person and agrees that such disclosure may result in both immediate termination
of the Stock Award without the right to exercise any part thereof and
termination of employment with the Company.

(k)  Notices.  All notices, claims, certificates, requests,
demands and other communications hereunder shall be in writing and shall be
deemed to have been duly given and delivered if personally delivered or if sent
by nationally recognized overnight courier, by facsimile or by registered or
certified mail, return receipt requested and postage prepaid, addressed as
follows:

(i)  If
to the Company, to it at:

	
   

  	
  SoftBrands, Inc.

  
	
   

  	
  Two Meridian
  Crossings, Suite 800

  
	
   

  	
  Minneapolis, MN
  55423

  
	
   

  	
  Attn: Vice
  President — Human Resources

  
	
   

  	
   

  

(ii)  If
to Participant, to such address as most recently supplied to the Company by
Participant and set forth in the Company’s records; or

(iii)  to
such other address as the party to whom notice is to be given may have
furnished to the other party in writing in accordance with this
Section 6(k).

Any such notice or communication
shall be deemed to have been received (i) in the case of personal
delivery, on the date of such delivery (or if such date is not a business day,
on the next business day), (ii) in the case of nationally-recognized
overnight courier, on the next business day after the date sent, (iii) in
the case of facsimile transmission, when received (or if not sent on a business
day, on the next business day after the date sent) and (iv) in the case of
mailing, on the third business day following the date on which the piece of
mail containing such communication is posted.

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(l)  Waiver of Breach. The
waiver by either party of a breach of any provision of this Agreement must be
in writing and shall not operate or be construed as a waiver of any other or
subsequent breach.

(m)  Undertaking.  Both parties hereby agree to take whatever
additional actions and execute whatever additional documents either party may
in their reasonable judgment deem necessary or advisable in order to carry out
or effect one or more of the obligations or restrictions imposed on the other
party under the provisions of this Agreement.

(n)  Counterparts.  This Agreement may be executed in one or more
counterparts, and each such counterpart shall be deemed to be an original, but
all such counterparts together shall constitute but one agreement.

(o)  Entire Agreement.  This Agreement (and the other writings
incorporated by reference herein, including the Plan) constitutes the entire
agreement between the parties with respect to the subject matter hereof and
supersedes all prior or contemporaneous written or oral negotiations,
commitments, representations and agreements with respect thereto.

IN
WITNESS WHEREOF, the Company and Participant have executed
this Agreement on the date set forth in the first paragraph.

	
   

  	
  SOFTBRANDS,
  INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  PARTICIPANT

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By: 

  	
   

  
	
   

  	
  Name:

  	
   

  

 

 5Exhibit 10.1

AAR CORP.

SUPPLEMENTAL KEY EMPLOYEE RETIREMENT PLAN

As Amended and Restated Effective January 1, 2005

AAR CORP.

SUPPLEMENTAL KEY EMPLOYEE RETIREMENT PLAN

As Amended and Restated Effective January 1, 2005

TABLE OF
CONTENTS

	
  

  	
   

  	
   

  	
   

  	
  Page

  
	
  ARTICLE I

  	
   

  	
  DEFINITIONS

  	
   

  	
  1

  
	
  ARTICLE II

  	
   

  	
  ELIGIBILITY

  	
   

  	
  6

  
	
  ARTICLE III

  	
   

  	
  SUPPLEMENTAL RETIREMENT
  BENEFIT AND SUPPLEMENTAL SURVIVING SPOUSE BENEFIT

  	
   

  	
  7

  
	
  ARTICLE IV

  	
   

  	
  SUPPLEMENTAL
  CONTRIBUTIONS

  	
   

  	
  11

  
	
  ARTICLE V

  	
   

  	
  FORFEITURES

  	
   

  	
  18

  
	
  ARTICLE VI

  	
   

  	
  ADMINISTRATION OF THE
  PLAN

  	
   

  	
  19

  
	
  ARTICLE VII

  	
   

  	
  AMENDMENT OR
  TERMINATION

  	
   

  	
  20

  
	
  ARTICLE VIII

  	
   

  	
  GENERAL PROVISIONS

  	
   

  	
  21

  

 

 i

AAR CORP. 

SUPPLEMENTAL KEY EMPLOYEE RETIREMENT PLAN

As Amended and Restated Effective
January 1, 2005

WHEREAS, the AAR CORP.
Supplemental Key Employee Retirement Plan (“SKERP”) was adopted effective
June 1, 1994, for the Executive Officers, and other designated officers
and key employees, of AAR CORP. and its Affiliated Companies who participate in
the qualified retirement plans from time to time established and maintained by
AAR CORP.  The purpose of the Plan is to ensure
that the retirement benefits provided to Executive Officers and certain other
officers and key employees enhance the overall effectiveness of the AAR CORP.
executive compensation program and attract, retain and motivate such
individuals;

WHEREAS, the Company amended the
Plan on June 1, 1995, January 1, 1996 and June 1, 1996, amended
and restated the Plan effective April 11, 2000, and further amended the
Plan effective July 1, 2003;

WHEREAS, the Company now desires
to further amend the Plan to comply with Code Section 409A and guidance
and regulations issued thereunder with respect to benefits earned and vested
under the Plan from and after January 1, 2005; and

WHEREAS, benefits under the Plan
earned and vested prior to January 1, 2005 shall be administered without
giving effect to Code Section 409A and guidance and regulations issued
thereunder.

NOW, THEREFORE, the AAR CORP.
Supplemental Key Employee Retirement Plan is hereby amended and restated,
effective January 1, 2005, as set forth below:

ARTICLE I

DEFINITIONS

Wherever
used herein the following terms shall have the meanings hereinafter set forth:

1.1           “Additional Supplemental Company
Account” means the account maintained by the Company for a Participant under
the Plan that is credited with Additional Supplemental Company Contributions.

1.2           “Additional Supplemental Company
Contribution” means the contribution made by the Company for the benefit of a
Participant pursuant to Section 4.5 of the Plan.

1.3           “Affiliated Company” means a business
entity, or predecessor of such entity, if any, which controls, or is under
common control with, the Company.

1.4           “Board” means the Board of Directors
of the Company.

1.5           “Change in Control” means:

(a)           With respect to a Pre-2005
Benefit the earliest of:

 

(i)            the time 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;

(ii)           the effective time of (1) 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
(2) 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

(iii)          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
(1) three directors, or (2) directors constituting a majority of the
number of directors of the Company then in office.

(b)           With respect to a Post-2004
Benefit, the earliest of:

(i)            the time any person (as such term is
used in Section 13(d) of the Exchange Act) has acquired (other than
directly from the Company) beneficial ownership (as that term is defined in
Rule 13(d)-3 under the Exchange Act) of more than 35% of the outstanding
capital stock of the Company entitled to vote for the election of directors;

(ii)           the effective time of (1) 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
(2) 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

(iii)          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 directors
constituting a majority of the number of directors of the Company then in
office.

1.6            “Code” means the Internal Revenue
Code of 1986, as amended from time to time, and any regulations relating
thereto.

1.7           “Committee” means the Retirement
Committee responsible for the administration of the Qualified Retirement Plan.

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1.8           “Company” means AAR CORP., a Delaware
corporation, or, to the extent provided in Section 8.11 below, any
successor corporation or other entity resulting from a merger or consolidation
into or with the Company or a transfer or sale of substantially all of the assets
of the Company.

1.9            “Executive Officer” means each of
(a) the President and Chief Executive Officer and (b) the Vice
President, General Counsel and Secretary of the Company holding office on
June 1, 1994.  The Compensation
Committee of the Board, upon recommendation of management, shall have the
discretion from time to time to designate individuals occupying other executive
positions with the Company or an Affiliated Company as Executive Officers for
purposes of the Plan.

1.10         “Key Employee” means each employee of
the Company who may from time to time be designated as such for purposes of the
Plan by and in the discretion of the Compensation Committee of the Board, upon
recommendation of management.

1.11         “Normal Retirement Date” means the
first day of the calendar month coincident with or next following the date a
Participant attains age 65.

1.12         “Participant” means any individual who
has been designated an Executive Officer or Key Employee of the Company or an
Affiliated Company for purposes of the Plan.

1.13         “Plan” means the AAR CORP. Supplemental
Key Employee Retirement Plan.

1.14         “Plan Year” means the calendar year or
any other 12 consecutive month period that constitutes the fiscal year of
the Qualified Profit Sharing Plan.

1.15         “Post-2004 Benefit” means the
portion of a Participant’s Supplemental Retirement Benefit and Supplemental
Accounts, as applicable, equal to the present value, determined as of a
Participant’s date of separation from service after December 31, 2004, of
the excess of (a) such Benefit or Account balances to which the
Participant would be entitled under the Plan if he separated from service after
December 31, 2004, over (b) his Pre-2005 Benefit, and received
a full payment of benefits from the Plan on the earliest possible date allowed
under the Plan following separation from service pursuant to Articles III
and IV, calculated from and after January 1, 2005 to the date of
separation from service.

1.16         “Pre-2005 Benefit” means the
portion of a Participant’s Supplemental Retirement Benefit and/or Supplemental
Profit Sharing Account, Supplemental Company Account and Supplemental Deferral
Account, as applicable, equal to the present value of the Benefit or Account
balances, determined as of December 31, 2004, to which the Participant would
be entitled under the Plan if he voluntarily separated from service without
cause on December 31, 2004 and received a full payment of benefits from
the Plan on the earliest possible date allowed under the Plan following
separation from service pursuant to Articles III and IV, calculated
as of December 31, 2004.

1.17         “Qualified Company Account” means the
account maintained for a Participant under the Qualified Profit Sharing Plan
that is credited with Qualified Company Contributions.

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1.18         “Qualified Company Contribution” means
the Company Contribution made by the Company or an Affiliated Company for the
benefit of a Participant under and in accordance with the terms of the
Qualified Profit Sharing Plan in any Plan Year.

1.19         “Qualified Profit Sharing Account”
means the account maintained for a Participant under the Qualified Profit
Sharing Plan that is credited with Qualified Profit Sharing Contributions.

1.20         “Qualified Profit Sharing Contribution”
means the Profit Sharing Contribution made by the Company or an Affiliated
Company for the benefit of a Participant under and in accordance with the terms
of the Qualified Profit Sharing Plan.

1.21         “Qualified Profit Sharing Plan” means
the AAR CORP. Employees’ Profit Sharing Plan, established effective
June 1, 1965, and as amended from time to time, and each successor or
replacement plan.

1.22         “Qualified Retirement Benefit” means
the benefit payable to a Participant pursuant to the Qualified Retirement Plan
(including any increased amounts payable with respect to any calendar year as
described in Appendix A of the Qualified Retirement Plan) by reason of his
separation from service with the Company and all Affiliated Companies for any
reason other than death; provided, however, that such benefit shall be determined
in accordance with Section 3.1 or Section 3.2 as applicable.

1.23         “Qualified Retirement Plan” means the
AAR CORP. Retirement Plan, established effective August 1, 1988, and as
amended from time to time, and each successor or replacement plan.

1.24         “Qualified Salary Deferral Account”
means the account maintained for a Participant under the Qualified Profit
Sharing Plan that is credited with Qualified Salary Deferral Contributions.

1.25         “Qualified Salary Deferral Contribution”
means the Salary Deferral Contribution made by the Company or an Affiliated
Company for the benefit of a Participant under and in accordance with the terms
of the Qualified Profit Sharing Plan in any Plan Year.

1.26         “Qualified Surviving Spouse Benefit”
means the aggregate benefit payable to the Surviving Spouse of a Participant
pursuant to the Qualified Retirement Plan, and all annuities provided with
respect to the Participant under the Qualified Retirement Plan, in the event of
the death of the Participant at any time prior to the commencement of payment
of his Qualified Retirement Benefit.

1.27         “Specified Employee” means a key
employee (as defined in Code Section 416(i) without regard to
paragraph (5) thereof), including, without limitation, a Key Employee or
an Executive Officer.  A Participant
shall be deemed to be a Specified Employee with respect to a calendar year if
he is a Specified Employee during the 12-month period ending on
September 30th of the preceding calendar year.

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1.28         “Supplemental Accounts” means,
collectively, the Supplemental Profit Sharing Account, the Supplemental Company
Account, the Supplemental Company Account #2, the Supplemental Deferral
Account and the Additional Supplemental Company Account maintained by the
Company for a Participant under the Plan.

1.29         “Supplemental Base Salary Deferral
Agreement” means a written agreement entered into by a Participant pursuant to
the provisions of Section 4.2.

1.30          “Supplemental Base Salary Deferral
Contribution” means the base salary contribution made by the Company for the
benefit of a Participant pursuant to Section 4.1 of the Plan in any Plan
Year.

1.31          “Supplemental Bonus Deferral Agreement”
means a written agreement entered into by a Participant pursuant to the
provisions of Section 4.3.

1.32         “Supplemental Bonus Deferral
Contribution” means the bonus contribution made by the Company for the benefit
of a Participant pursuant to Section 4.1 in any Plan Year.

1.33         “Supplemental Company Account” means
the account maintained by the Company for a Participant under the Plan that is
credited with Supplemental Company Contributions.

1.34         “Supplemental Company Account #2”
means, effective June 1, 2006, the account maintained by the Company for a
Participant under the Plan that is credited with Supplemental Company
Contributions #2.

1.35         “Supplemental Company Contribution”
means the contribution made by the Company for the benefit of a Participant
pursuant to Sections 4.4 and 4.5 of the Plan in any Plan Year.

1.36         “Supplemental Company
Contribution #2” means, effective June 1, 2006, the contribution made
by the Company for the benefit of a Participant pursuant to Section 4.7 of
the Plan.

1.37          “Supplemental Deferral Account” means
the account maintained by the Company for a Participant under the Plan that is
credited with Supplemental Base Salary and Bonus Deferral Contributions.

1.38          “Supplemental Profit Sharing Account”
means the account maintained by the Company for a Participant under the Plan
that is credited with Supplemental Profit Sharing Contributions.

1.39         “Supplemental Profit Sharing
Contribution” means the contribution made by the Company for the benefit of a
Participant pursuant to Section 4.6 of the Plan in any Plan Year.

1.40         “Supplemental Retirement Benefit” means
the benefit payable to a Participant pursuant to Section 3.1 or 3.2
of the Plan by reason of his separation from service with the

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Company and all Affiliated Companies for any reason
other than death, or in connection with the termination of the Plan or
termination of participation in the Plan.

1.41          “Supplemental Surviving Spouse Benefit”
means the benefit payable to a Surviving Spouse pursuant to Section 3.3 of
the Plan.

1.42         “Surviving Spouse” means a person who
is married to a Participant throughout the one-year period ending on the
date of his death.

1.43         “Unforeseeable Emergency” means a
severe financial hardship to the Participant resulting from an illness or
accident of the Participant, the Participant’s spouse, or a dependent (as
defined in Code Section 152(a)) of the Participant, loss of the Participant’s
property due to casualty, or other similar extraordinary and unforeseeable
circumstances arising as a result of events beyond the control of the
Participant.

1.44         Except as otherwise provided in this
Article I, all defined terms used in the Plan that are defined in the
Qualified Retirement Plan or in the Qualified Profit Sharing Plan, as
applicable, shall have the same meaning in the Plan as is set forth in the
definition in the Qualified Retirement Plan or the Qualified Profit Sharing
Plan.

1.45         Words in the masculine gender shall
include the feminine and the singular shall include the plural, and vice versa,
unless qualified by the context. Any headings used herein are included for ease
of reference only and are not to be construed so as to alter the terms hereof.

ARTICLE II

ELIGIBILITY

2.1           Executive Officers. Each
Executive Officer shall be a Participant in the Plan with respect to the
Supplemental Retirement Benefit and Supplemental Surviving Spouse Benefit set
forth in Sections 3.1 and 3.3, and the Supplemental Salary Deferral
Contributions, the Supplemental Bonus Deferral Contributions, the Supplemental
Company Contributions and the Supplemental Profit Sharing Contributions set
forth in Article IV.

2.2           Key Employees. Each Key
Employee shall be a Participant in the Plan with respect to the Supplemental
Retirement Benefit and the Supplemental Surviving Spouse Benefit set forth in
Sections 3.2 and 3.3, and the Supplemental Salary Deferral
Contributions, the Supplemental Bonus Deferral Contributions, the Supplemental
Company Contributions and the Supplemental Profit Sharing Contributions set
forth in Article IV.

2.3           Cessation of Participation.
Notwithstanding the foregoing provisions of Section 2.1 or
Section 2.2, effective as of October 1, 2001:

(a)           No Executive Officer or Key Employee
who was not already a Participant in the Plan as of October 1, 2001 shall
be eligible to participate in the Plan with respect to the Supplemental
Retirement Benefit or Supplemental Surviving Spouse Benefit set forth in
Section 3.1, 3.2 and 3.3 of the Plan; and

 6
 

 

(b)           No Participant who is a Key Employee
shall accrue any further Supplemental Retirement Benefit or Supplemental
Surviving Spouse Benefit on or after October 1, 2001.

ARTICLE III

SUPPLEMENTAL RETIREMENT BENEFIT AND

SUPPLEMENTAL SURVIVING SPOUSE BENEFIT

3.1           Executive Officers.  Effective June 1, 2006:

(a)           The
Supplemental Retirement Benefit of an Executive Officer who is a Participant as
described in Section 2.1 shall be a monthly amount equal to (i) below
minus the sum of (ii) and (iii) below:

(i)            The monthly amount equal to, in the
case of the President and Chief Executive Officer, 1/12th of 60% of Final
Average Earnings, without giving effect to the limitations imposed by Code
Section 401(a)(17) or any other Code section, or, in the case of all other
Executive Officers, the monthly amount equal to 1/12th of 50% of Final Average
Earnings (or as otherwise specified in a Compensation Committee resolution
designating an individual as an Executive Officer Participant) without giving
effect to the limitations imposed by Code Section 401(a)(17) or any other
Code section, payable at the Participant’s Normal Retirement Date, and, if
applicable, reduced for early commencement as provided in Section 3.6;

LESS

(ii)           The
monthly amount of the Qualified Retirement Benefit payable to the Participant
under the Qualified Retirement Plan at the Participant’s Benefit Commencement
Date;

LESS

(iii)          The
Supplemental Retirement Benefits of the Participant transferred pursuant to
Section 4.7.

(b)           For purposes of determining the
Supplemental Retirement Benefit described above:

(i)            The amount described in
(a)(i) above for any Participant who commences participation in the Plan
after January 1, 2001 shall be multiplied by a fraction, the numerator of
which shall be years of Credited Service not to exceed 20, and the
denominator of which shall be 20, determined as of the date of the
Participant’s separation from service with the Company and all Affiliated
Companies.

 7
 

 

(ii)           A Participant’s Final Average
Earnings described in (a)(i) above shall be determined as of
October 1, 2001, and shall be adjusted by an amount equal to 25% of the
percentage increase in the Participant’s base salary in effect on
September 30, 2001 compared to the Participant’s base salary in effect on
the date of the Participant’s separation from service for any reason, including
Retirement, Disability or death.

(iii)          In determining a Participant’s
Qualified Retirement Benefit, the Participant’s Cash Account Balance shall not
be credited with any Credits for any period of time on or after October 1,
2001, and the Participant shall be deemed to have received his Cash Account
Balance on October 1, 2001; and in the case of a Participant who is a
Grandfathered Participant, the Grandfathered Benefit shall be calculated
considering the Participant’s Final Average Earnings, Credited Service (not in
excess of 20 years) and Social Security offset as of October l, 2001.

(iv)          The amounts described in (i),
(ii) and (iii) shall be computed in the form of an annuity payable
over the Participant’s lifetime only.

3.2           Key Employees. Effective as of
October 1, 2001, no Participant who is a Key Employee of the Company as
described in Section 1.10 shall accrue any further Supplemental Retirement
Benefit.  The Supplemental Retirement
Benefit of a Participant who is such a Key Employee shall be a monthly amount
equal to the difference between (a) and (b) below:

(a)           The monthly amount of the Qualified
Retirement Benefit accrued as of October 1, 2001 to which the Participant
would have been entitled under the Qualified Retirement Plan without giving
effect to the limitations imposed by Code Section 401(a)(17) or any other
Code section;

LESS

(b)           The monthly amount of the Qualified
Retirement Benefit accrued as of October 1, 2001 and payable to the
Participant under the Qualified Retirement Plan at October 1, 2001.

For purposes of determining the Supplemental
Retirement Benefit described above:

(i)            For calculating the Qualified
Retirement Benefit under Section 3.2(a) only, any Key Employee Participant
who was over the age of 55 on January 1, 2000 shall be deemed a “Grandfathered
Participant” as defined under the Qualified Retirement Plan.

(ii)           A Participant’s Final Average
Earnings shall be determined as of October 1, 2001, and shall not be based
on or include Compensation earned by a Participant after such date.

 8
 

 

(iii)          In determining a Participant’s
Qualified Retirement Benefit, the Participant’s Cash Account Balance shall not
be credited with Pay Credits for any period of time on or after October 1,
2001, and in the case of a Participant who is a Grandfathered Participant, the
Grandfathered Benefit shall be calculated considering the Participant’s Final
Average Earnings, Credited Service (not in excess of 20 years) and Social
Security offset as of October 1, 2001.

(iv)          The amounts described in (a)
and (b) shall be computed in the form of an annuity payable over the
Participant’s lifetime only.

3.3           Supplemental Surviving Spouse
Benefit. If a Participant described in Section 2.1 or 2.2 dies prior to
commencement of payment of his Qualified Retirement Benefit under circumstances
in which a Qualified Surviving Spouse Benefit is payable to his Surviving
Spouse, then a Supplemental Surviving Spouse Benefit shall be payable under the
Plan.  The Supplemental Surviving Spouse
Benefit shall be paid in a lump sum that is the actuarial equivalent of the
amount that would have been payable to the Participant under Section 3.1
or 3.2 at the date of death. 
Actuarial equivalence shall be determined using the mortality and
interest rate assumptions for lump sums then in effect under the Qualified
Retirement Plan.  The Supplemental
Surviving Spouse Benefit shall be paid to the Surviving Spouse within 45 days
of the Participant’s death. 
Notwithstanding the foregoing provisions of this Section 3.3, no
Participant who is a Key Employee of the Company as described in
Section 2.2 shall accrue any further Supplemental Surviving Spouse Benefit
on or after October 1, 2001.

3.4           Form and Time of Commencement of
Supplemental Retirement Benefit.

(a)           The Supplemental Retirement Benefit
of a Participant who terminated employment with the Company and all Affiliated
Companies prior to January 1, 2005 shall be paid in the same form, and
commencing at the same time, as is applicable to the Qualified Retirement
Benefit payable to the Participant.  Such
Participant’s election under the Qualified Retirement Plan of any optional form
of payment, or time for commencement of payment, of his Qualified Retirement
Benefit (with the valid consent of his Surviving Spouse where required under
the Qualified Retirement Plan) shall also be applicable to the form and time of
commencement of payment of his Supplemental Retirement Benefit.  Notwithstanding the preceding sentence, an
election made by such Participant under the Qualified Retirement Plan with
respect to the form or time of commencement of payment of his benefit
thereunder following termination of employment, shall not be effective with
respect to the form or time of commencement of payment of the Supplemental
Retirement Benefit unless (i) such Participant has then attained
age 55 and his age plus years of Credited Service is at least equal
to 62, (ii) such election is expressly approved in writing by the
Company in its sole discretion acting through the AAR CORP. Retirement
Committee, and (iii) if such Supplemental Retirement Benefit is to be paid
to the Participant in a lump sum distribution, such Participant has agreed in
writing to reimburse the Company for such payment amount, plus interest thereon
at 8% per annum, immediately upon demand, in the event of forfeiture of
benefits under this Article III, pursuant to Article V below.  If

 9
 

 

any of the criteria
specified in the preceding sentence, applicable to the effectiveness of an
election made by such Participant under the Qualified Retirement Plan with
respect to the form or time of commencement of payment of his Supplemental
Retirement Benefit under this Article III is not satisfied, the form and
time of commencement of payment under this Article shall be selected by the
Company in its sole discretion acting through the AAR CORP. Retirement
Committee.

(b)           The Supplemental Retirement Benefit
of a Participant who terminates employment with the Company and all Affiliated
Companies on and after January 1, 2005 shall be paid or commence to be
paid to him on the date on which he attains the age of 65 years.  Notwithstanding the preceding sentence, such
a Participant who has then attained age 55 and whose age plus years of
Credited Service is at least equal to 62 shall, at the Participant’s election,
be paid or commence to be paid to him either (a) as of the date of his
separation from service with the Company and all Affiliated Companies, or
(b) as of the first day of a calendar month and year elected by the
Participant (which shall be no later than 15 years after the date of his
separation from service).

(c)           A distribution of a Supplemental
Retirement Benefit shall be paid to any Participant in either (i) a single
lump sum, or (ii) installments over a number of years (not to
exceed 15) payable in monthly, quarterly or annual installments, as
elected by the Participant.

(d)           Any Participant in the Plan on
December 31, 2004 shall make such time and form elections described in
paragraphs (b) and/or (c) of this Section on or before
December 31, 2005.  If a Participant
does not make timely elections with respect to the time, if applicable, and
form of payment pursuant to paragraphs (b) and/or (c), such payment
shall be made to him as of his separation from service in a lump sum.  Notwithstanding the preceding provisions of
this Section 3.4, a Supplemental Retirement Benefit will not be paid to a
Participant in a lump sum unless the Participant has agreed in writing, prior
to receipt of the distribution, to reimburse the Company for such payment
amount, plus interest thereon at 8% per annum, immediately upon demand, in the
event of a forfeiture of his Supplemental Retirement Benefit under this
Article III pursuant to Article V below.

(e)           Notwithstanding the preceding
sentences of this Section 3.4, the single sum value of the Supplemental
Retirement Benefit of each Key Employee, determined as of October 1, 2001,
under Section 3.2 shall be paid to him as soon as administratively practicable
after such date.

3.5           Change in Form or Time of Payment.  Notwithstanding any provision of the Plan to
the contrary, a Participant may elect distribution of all or any part of the
portion of his Pre-2005 Benefit applicable to his Supplemental Retirement
Benefit at any time if (a) he elects such distribution by written
instrument delivered to the Committee at least six months in advance of the
date such distribution is received, or (b) the distribution is subject to
a forfeiture penalty

 10
 

 

equal to 10% of the amount of the distribution.  Such distribution shall be made in a method
determined pursuant to Section 3.4.

Notwithstanding
any other provisions of the Plan, a Participant may modify his election as to
the form or time of distribution of his Post-2004 Benefit applicable to
his Supplemental Retirement Benefit if (i) such election does not take
effect until at least 12 months after the date on which the election is
made, (ii) the first payment with respect to which such election is made
is deferred for a period of not less than five years from the date on which
such payment would otherwise have been made, and (iii) any election
related to a payment to be made at a specified date is made at least
12 months prior to the date of the first scheduled payment.

Notwithstanding
any other provisions of this Section 3.5, a Participant may change an
election with respect to the time and form of payment of the portion of his
Post-2004 Benefit applicable to his Supplemental Retirement Benefit
without regard to the restrictions imposed under the preceding paragraph on or
before December 31, 2006, provided that such election (1) applies
only to amounts that would not otherwise be payable in calendar year 2006,
and (2) shall not cause any amount to be paid in calendar year 2006
that would not otherwise be payable in such year.

3.6           Equivalencies. A Supplemental
Retirement Benefit that is payable in any form other than an annuity over the
lifetime of the Participant only, or that commences at any time prior to the
Participant’s Normal Retirement Date, shall be the equivalent of the
Supplemental Retirement Benefit determined pursuant to Section 3.1
or 3.2 above, as applicable, based upon the same adjustments and
assumptions as those specified in the Qualified Retirement Plan with respect to
determination of the amount of the Qualified Retirement Benefit or the date for
commencement of payment thereunder.

ARTICLE IV

SUPPLEMENTAL CONTRIBUTIONS

4.1           Supplemental Base Salary and
Supplemental Bonus Deferral Contributions. The aggregate Supplemental Base
Salary Contribution and Supplemental Bonus Deferral Contribution to be made by
the Company for the benefit of a Participant for any Plan Year shall be an
amount equal to the difference between (a) and (b) below:

(a)           The Qualified Salary Deferral
Contribution that would have been withheld and deposited to the Qualified
Salary Deferral Account of the Participant for the Plan Year, as determined by
the Salary Deferral Agreement between the Participant and the Company or an
Affiliated Company in effect for such Year pursuant to the terms of the
Qualified Profit Sharing Plan, without giving effect to any limitations imposed
by the Code on the Qualified Profit Sharing Plan;

LESS

(b)           The amount of the Qualified Salary
Deferral Contribution actually allocated to the Qualified Salary Deferral
Account of the Participant for the Plan Year.

 11
 

 

The aggregate
Supplemental Base Salary and Supplemental Bonus Deferral Contributions made for
the benefit of a Participant for any Plan Year shall be credited to a
Supplemental Deferral Account maintained under the Plan in the name of such
Participant at the same time as Qualified Salary Deferral Contributions are
made for such Plan Year.

4.2           Supplemental Base Salary Deferral
Agreement.  As a condition to the
Company’s obligation to make a Supplemental Salary Deferral Contribution for
the benefit of a Participant pursuant to Section 4.1, the Participant must
execute a Supplemental Salary Deferral Agreement in the form attached hereto.  Any Participant in the Plan as of
December 31, 2004 who was an employee of the Company or an Affiliated
Company and a Participant in the Plan as of January 1, 2005 shall deliver
to the Committee a Supplemental Salary Deferral Agreement with respect to his
base salary earned from and after January 1, 2006 no later than
December 31, 2005.  An Executive
Officer or Key Employee who becomes a Participant on or after January 1,
2005 shall deliver the aforementioned Supplemental Salary Deferral Agreement to
the Committee within 30 days after the date the Participant first becomes
eligible to participate and such Agreement shall be effective with respect to
base salary related to services to be performed subsequent to the election;
provided that such Participant shall not be considered first eligible if, on
the date he becomes a Participant, he participates in any other nonqualified
account balance plan that is subject to Code Section 409A maintained by
the Company or an Affiliated Company.  If
the individual referred to in the preceding sentence does not deliver the
aforementioned written Supplemental Salary Deferral Agreement to the Committee
within such 30 day period, he shall be entitled to deliver to the
Committee a written Supplemental Salary Deferral Agreement with respect to his
base salary earned from and after the first day of the Plan Year next following
the Plan Year in which the Agreement is delivered.  Any election made pursuant to a written
Supplemental Salary Deferral Agreement delivered pursuant to the preceding
sentences shall continue in effect until revoked by a Participant by notice
delivered to the Committee no later than the last day of the Plan Year
immediately preceding the first day of the Plan Year in which such election is
to become effective, and as of each December 31 the election shall become
irrevocable with respect to base salary payable with respect to services
performed by the Participant in the immediately following calendar year.

4.3           Supplemental Bonus Deferral
Agreement.  As a condition to the
Company’s obligation to make a Supplemental Bonus Deferral Contribution for the
benefit of a Participant pursuant to Section 4.1, the Participant must
execute a Supplemental Bonus Deferral Agreement in the form or forms attached
hereto.  Except as set forth below with respect
to a performance based bonus (as defined in Code Section 409A and guidance
and regulations thereunder), a Supplemental Bonus Deferral Agreement related to
a bonus earned by a Participant during a fiscal year of the Company shall be
delivered to the Committee no later than the last day of the preceding fiscal
year of the Company.  A Supplemental
Bonus Deferral Agreement with respect to a performance based bonus shall be
delivered to the Company no later than the date six months after the first day
of the fiscal year of the Company in which such performance based bonus is
earned.  A Supplemental Bonus Deferral
Agreement shall only be effective with respect to the bonus specified in such
Agreement.

 12
 

 

4.4           Supplemental Company Contributions.
The Supplemental Company Contribution to be made by the Company for the benefit
of a Participant for any Plan Year shall be an amount equal to the difference
between (a) and (b) below:

(a)           The Qualified Company Contribution
that would have been allocated to the Qualified Company Account of the
Participant for the Plan Year without giving effect to any limitations imposed
by the Code on the Qualified Profit Sharing Plan;

LESS

(b)           The amount of the Qualified Company
Contribution actually allocated to the Qualified Company Account of the
Participant for the Plan Year.

A
Supplemental Company Contribution made for the benefit of a Participant for any
Plan Year shall be credited to a Supplemental Company Account maintained under
the Plan in the name of such Participant at the same time as Qualified Company
Contributions are made for such Plan Year.

4.5           Additional Supplemental Company
Contributions.  The Compensation
Committee of the Board may at any time, in its discretion, designate any
Participant to receive the benefit of an Additional Supplemental Company
Contribution from time to time in amounts specified by resolution of the
Compensation Committee.

Any Additional Supplemental Company Contributions to be made for the
benefit of a Participant shall be credited to an
Additional Supplemental Company Account maintained under the Plan under the
name of such Participant as and when specified in the Compensation Committee
resolution authorizing and directing the Additional Supplemental Company
Contributions. Such Additional Supplemental Company Contributions shall be
held, administered and invested hereunder in the same manner as regular
Supplemental Contributions.  The terms of
any such Additional Supplemental Company Contributions shall be reflected on an
appendix to the Plan.

4.6           Supplemental Profit Sharing
Contributions. The Supplemental Profit Sharing Contribution to be made by
the Company for the benefit of a Participant for any Plan Year shall be an
amount equal to the difference between (a) and (b) below:

(a)           The Qualified Profit Sharing
Contribution that would have been allocated to the Qualified Profit Sharing
Account of the Participant for the Plan Year without giving effect to any
limitations imposed by the Code on the Qualified Profit Sharing Plan;

LESS

(b)           The amount of the Qualified Profit
Sharing Contribution actually allocated to the Qualified Profit Sharing Account
of the Participant for the Plan Year.

 13
 

 

A
Supplemental Profit Sharing Contribution made for the benefit of a Participant
for any Plan Year shall be credited to a Supplemental Profit Sharing Account
maintained under the Plan in the name of such Participant at the same time as
Qualified Profit Sharing Contributions are made for such Plan Year.

4.7           Supplemental Company Contributions
#2.  During Fiscal Year 2006, 33-1/3%
of the Supplemental Retirement Benefit of each Executive Officer who is then an
active employee of the Company or an Affiliated Company and a Participant shall be converted to an equivalent single sum, based upon
the benefit accrued as of Fiscal Year 2006 and the lump sum settlement rate
assumptions applicable during the second calendar quarter of Fiscal Year 2006,
and otherwise based upon the same adjustments and assumptions as those then
specified in the Qualified Retirement Plan. 
This single sum shall be transferred on or after May 1, 2006 to a
Supplemental Company Account #2 established for the Participant that shall
be held, administered and invested under Article IV of the Plan, and be
subject to the remaining applicable provisions of the Plan, except as otherwise
required by Code Section 409A.

During Fiscal Year 2007, 50% of the Supplemental
Retirement Benefit of each Executive Officer who is then an active employee of
the Company or an Affiliated Company and a Participant shall
be converted to an equivalent single sum, based upon the benefit accrued as of
Fiscal Year 2006 and the lump sum settlement rate assumptions applicable during
the second calendar quarter of Fiscal Year 2006, and otherwise based upon the
same adjustments and assumptions as those then specified in the Qualified
Retirement Plan.  This single sum shall
be transferred on or after September 1, 2006 to a Supplemental Company
Account #2 established for the Participant that shall be held,
administered and invested under Article IV of the Plan, and be subject to
the remaining applicable provisions of the Plan, except as otherwise required
by Code Section 409A.

During Fiscal Year 2008, 100% of the Supplemental
Retirement Benefit of each Executive Officer who is then an active employee of
the Company or an Affiliated Company and a Participant shall
be converted to an equivalent single sum, based upon the benefit accrued as of
Fiscal Year 2006 and the lump sum settlement rate assumptions applicable during
the second calendar quarter of Fiscal Year 2006, and otherwise based upon the
same adjustments and assumptions as those then specified in the Qualified
Retirement Plan.  This single sum shall
be transferred on or after June 1, 2007 to a Supplemental Company
Account #2 established for the Participant that shall be held,
administered and invested under Article IV of the Plan, and be subject to
the remaining applicable provisions of the Plan, except as otherwise required
by Code Section 409A.

4.8           Investment of Supplemental
Contributions.

(a)           Investments. Amounts credited
hereunder to the Supplemental Accounts of a Participant shall be treated as if
they were actually invested in various investment funds that are made available
by the Committee from time to time and as are designated by each Participant
pursuant to investment directions given to the Committee.  Such Accounts shall be credited with
earnings, gains and losses of the applicable investment funds on the last day
of each calendar quarter or on such other date selected

 14
 

 

by the Committee.
Investment directions shall be made by a Participant in specified multiples of
10%.

(b)           Investment Changes. Each
Participant shall have the right to direct the Committee to modify his
investment directions made pursuant to paragraph (a) above with respect to
amounts credited to his Supplemental Accounts after the date such modification
direction becomes effective, in specified multiples of 10%.  Each Participant shall also have the right to
direct the Committee to change the investment directions made pursuant to
paragraph (a) above with respect to amounts credited to his Accounts on
the date such direction to change becomes effective, in specified multiples of
10%.

(c)           Effective Date of Investment
Direction. Any investment direction, or modification or change of an
investment direction, made pursuant to paragraph (a) or (b) above,
shall be effective as soon as practicable after (and in any event not later
than the first day of the month that occurs at least 30 days after) the
date the applicable direction is given to the Committee. A modification or
change of an investment direction made pursuant to paragraph (b) may, if
required by an administrative rule promulgated by the Committee, be made only
once in each calendar quarter.

In
the event that the sponsor of the investment funds permits more frequent fund
transfers than permitted above, or does not require written direction to
authorize fund transactions, the Committee may waive or modify the requirements
set forth in the preceding provisions of this Section as it deems appropriate.

(d)           Investment Funds. Any
investments made by the Company or by the Trustee of Trust Agreement No. 2
referred to in paragraph (f) below to conform to directions made by a
Participant pursuant to this Section shall be in investment funds maintained in
the name of the Company, or in the name of such Trustee, and no Participant
shall at any time have any interest in the assets of any such investment fund.

(e)           Statement of Accounts. A
statement of accounts for each Participant, showing contributions, earnings,
gains and losses and current balances of the Accounts provided for under this
Article IV shall be provided to each Participant on not less than a
quarterly basis.

(f)            Trust Agreement No. 2.
Notwithstanding the preceding provisions of this Section, during the existence
of Trust Agreement No. 2 referred to in Section 8.3, the Company
shall direct the Trustee of Trust Agreement No. 2 to invest and reinvest
amounts to conform to directions made by a Participant pursuant to the preceding
provisions of this Section 4.8. 
Directions shall be given by the Company to the Trustee of Trust
Agreement No. 2 as soon as practicable after such directions are given to
the Company by the Participant.

 15

 

4.9           Distributions.

(a)           Separation From Service Prior to
Death.  Following a Participant’s
separation from service with the Company and all Affiliated Companies for any
reason other than death, a Participant shall receive a distribution of all
amounts credited to his Supplemental Accounts, including gains and losses
credited in accordance with Section 4.8.

(b)           Distribution Due to Death. If
a Participant dies before distribution to him of the full amount of his
Supplemental Accounts, any remaining amount shall be distributed to his
beneficiary designated under the Qualified Profit Sharing Plan.  If a Participant has not designated a
beneficiary under the Qualified Profit Sharing Plan, or if no designated
beneficiary is living on the date of distribution hereunder, amounts
distributable pursuant to this paragraph shall be distributed to those persons
or entities entitled to receive distributions of the Participant’s accounts
under the Qualified Profit Sharing Plan.

(c)           Unforeseeable Emergency
Distribution. A Participant shall be entitled to request a distribution
from his Supplemental Deferral Account, prior to his separation from service
with the Company and all Affiliated Companies, in order to satisfy an
Unforeseeable Emergency.  Such a
distribution may also include amounts necessary to pay federal, state or local
income taxes or penalties reasonably anticipated to result from a distribution
applicable to the Participant’s Post-2004 Benefit.  Except with respect to eligibility for such a
distribution, the procedures for requesting and receiving such a distribution
shall satisfy the requirements set forth in the Qualified Profit Sharing Plan
with respect to a hardship distribution from his Qualified Salary Deferral
Account.  A request for a distribution
pursuant to this paragraph shall be made separate and apart from a request for
a distribution under the Qualified Profit Sharing Plan, and a request for a
hardship distribution under the Qualified Profit Sharing Plan shall not
automatically be deemed a request for a distribution hereunder.

(d)           Time and Form of Payment of
Supplemental Accounts.  Payment of
the balance of a Participant’s Supplemental Accounts shall be paid or commence
to be paid to him either (i) as of the date of his separation from service
with the Company and all Affiliated Companies, or (ii) as of the first day
of a calendar month and year elected by the Participant (which shall be no
later than 15 years after the date of his separation from service).  Such distribution shall be paid or commence
to be paid to the Participant in either (1) a single lump sum, or
(2) installments over a number of years (not to exceed 15) payable in
monthly, quarterly or annual installments, as elected by the Participant.  Any Participant in the Plan on
December 31, 2004 shall make such time and form elections on or before
December 31, 2005.  If a Participant
does not make timely elections with respect to the time or form of payment
pursuant to the preceding sentence, such payment shall be made to him as of his
separation from service in a lump sum. 
Notwithstanding the preceding sentence, in the case of an Executive
Officer or Key Employee who becomes a Participant on or after January 1,
2005, the aforementioned elections with respect to the time and form of payment
shall be made within 30 days after

 16
 

 

the individual first
becomes eligible to participate and such elections shall be effective with
respect to the portion of his Supplemental Accounts related to services to be
performed subsequent to the election; provided that any portion of such
Accounts related to services performed prior to the election shall be payable
to him in a single lump sum as of his date of separation from service; and
provided further that such an individual shall not be considered first eligible
if, on the date he becomes a Participant, he participates in any other
nonqualified account balance plan that is subject to Code Section 409A
maintained by the Company or any Affiliated Company.

(e)           Notwithstanding any provision in the
Plan to the contrary, a Participant may elect a distribution of all or any
portion of his Pre-2005 Benefit applicable to the amounts credited to his
Supplemental Deferral Account, his Supplemental Company Account, and his
Supplemental Profit Sharing Account, including gains and losses credited to the
date of distribution in accordance with Section 4.8, at any time if
(i) he elects such distribution by written instrument delivered to the
Committee at least six months in advance of the date such distribution is
received, or (ii) the distribution is subject to a forfeiture penalty
equal to 10% of the amount of the distribution. 
Such distribution shall be made in a method determined pursuant to
Section 4.9(d).

(f)            Notwithstanding any other provision
of this Section 4.9, a Participant may modify his election as to the form
or time of distribution of all or any portion of his Post-2004 Benefit
applicable to amounts credited to his Supplemental Accounts, and earnings
thereon, if (i) such election does not take effect until at least 12 months
after the date on which the election is made, (ii) the first payment with
respect to which such election is made is deferred for a period of not less
than five years from the date on which such payment would otherwise have been
made, and (iii) any election related to a payment to be made at a
specified date is made at least 12 months prior to the date of the first
scheduled payment.

Notwithstanding any other
provision of this Section 4.9, a Participant may change an election with
respect to the time and form of payment of such portion of his Post-2004
Benefit, without regard to the restrictions imposed under the preceding
paragraph on or before December 31, 2006; provided that such election
(1) applies only to amounts that would not otherwise be payable in
calendar year 2006, and (2) shall not cause an amount to be paid in
calendar year 2006 that would not otherwise be payable in such year.

(g)           Notwithstanding any provision in the
Plan to the contrary, in the event of a potential Change in Control of the
Company, as determined solely by the Board in its discretion, the portion of
the Pre-2005 Benefit applicable to all amounts credited to each
Participant’s Supplemental Salary Account, his Supplemental Company Account,
and his Supplemental Profit Sharing Account, including gains and losses
credited to the date of distribution in accordance with Section 4.8, shall
be distributed to him in a lump sum as soon as practicable following the date
of such determination by the Board.

 17
 

 

(h)           Notwithstanding any provision in the
Plan to the contrary, the following provisions shall apply, prior to
January 1, 2008, to the amounts credited to such Participant’s
Supplemental Accounts on or before March 21, 2006 following the first to
occur of: (i) a drop in the overall credit rating of the Company below
S&P BB or Moody’s Ba; (ii) a drop in the Company’s market
capitalization below $75 million for five consecutive trading days;
(iii) a drop in the aggregate of cash and existing available bank lines of
the Company below $35 million; and (iv) receipt of a notice of material
adverse change under any of the Company’s then existing debt agreements:

(i)            During the 30-day period
commencing on the date an event described in clause (i), (ii), (iii),
or (iv) occurs, the Company, in its sole discretion, may distribute all or
any part of such portion of a Participant’s Benefit credited  to his Supplemental Accounts on or before
March 21, 2006 , including gains and losses credited in accordance with
Section 4.8 to the date of distribution, to him in a lump sum as the
Company deems appropriate and in the best interest of the Company.

(ii)           No distribution due to the occurrence
of an event described in clause (i), (ii), (iii), or (iv) shall
be made from and after the 30th day following the date of such event.

(iii)          Following the expiration of the 30-day
period after the date of an event described in clause (i),
(ii), (iii), or (iv), a Participant shall continue to accrue benefits
pursuant to Article III if he is an Executive Officer, and make deferrals
and receive contributions pursuant to Article IV.

(iv)          The Company shall be entitled to make
separate decisions in accordance with clause (i) with respect to the
interests of each Participant hereunder.

(i)            In no event may a Participant borrow
amounts credited to the Accounts maintained for him pursuant to this
Article IV.

ARTICLE V

FORFEITURES

5.1           Forfeiture of Supplemental
Benefit, Supplemental Surviving Spouse Benefit and Supplemental Company
Account #2.  Notwithstanding any
other provisions of the Plan, (a) if the employment of a Participant with
the Company and all Affiliated Companies terminates due to Cause, or
(b) if a Participant during his employment with the Company and all
Affiliated Companies or at any time during the one-year period after the
termination of such employment, violates the covenant not to compete with the
Company and its Affiliated Companies set forth in Section 5.3, all rights
of the Participant and his Surviving Spouse to a Supplemental Retirement
Benefit or a Supplemental Surviving Spouse Benefit, and to a Supplemental
Company Account #2, shall be
forfeited and shall be retained by the Company free of any and all claims

 18
 

 

of the Participant, his Surviving Spouse or any other
person claiming with respect to the Participant or his Surviving Spouse.

5.2           Termination For Cause. For
purposes of this Section, a termination for Cause shall mean termination of a
Participant’s employment by the Company or any Affiliated Company because of
(a) the Participant’s conduct, involving theft, embezzlement or fraud, or
(b) the Participant’s willful misconduct in the performance of his duties
that materially injures the Company or any Affiliated Company, as determined by
the Board.

5.3           Covenant Not to Compete. A
Participant shall not, during the term of the Participant’s employment with the
Company and all Affiliated Companies, and for a period of one year thereafter,
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 stockholder of any corporation, or in any capacity
(a) engage in any activity which is competitive with any of the businesses
conducted by the Company or its Affiliated Companies from time to time or at
any time during the Participant’s term of employment, provided that the
foregoing provision shall not be deemed to prohibit the Participant from
purchasing for investment any securities or interest in any publicly-owned
organization which is competitive with the business of the Company and its
Affiliated Companies, so long as the Participant’s investment in such
organization does not exceed the lesser of one percent of its total outstanding
equity securities or Two Hundred Fifty Thousand Dollars ($250,000);
(b) solicit in connection with any activity which is competitive with any
of the businesses of the Company and its Affiliated Companies, any customers or
suppliers of the Company and its Affiliated Companies; (c) use the name “AAR”
or any variant thereof; or (d) actively solicit, directly or indirectly,
any employee or induce any customer or supplier of the Company or any of its
Affiliated Companies to terminate or materially change such relationship.

5.4           In the event of a Participant’s
separation from service with the Company under circumstances which trigger
Change in Control employment termination benefits under the change in control
provisions of an employment agreement or severance and change in control
agreement between the Participant and the Company, the provisions of
subsections 5.1, 5.2 and 5.3 above shall be deemed waived by the
Company and null and void.

ARTICLE VI

ADMINISTRATION OF THE PLAN

6.1           Administration by the Committee.
The Committee shall be responsible for the general operation and administration
of the Plan and for carrying out the provisions thereof.

6.2           General Powers of Administration.
All provisions set forth in the Qualified Retirement Plan with respect to the
administrative powers and duties of the Committee, expenses of administration,
and procedures for filing claims, shall also be applicable with respect to the
Plan.  The Committee shall be entitled to
rely conclusively upon all tables, valuations, certificates, opinions and
reports furnished by any actuary, accountant, controller, counsel or other
person employed or engaged by the Committee with respect to the Plan.

 19
 

 

ARTICLE VII

AMENDMENT OR TERMINATION

7.1           Amendment or Termination. The
Company intends the Plan to be permanent but reserves the right to amend or
terminate the Plan when, in the sole opinion of the Company, such amendment or
termination is advisable.  Any such
amendment or termination shall be made pursuant to a resolution of the Board
and shall be effective as of the date of such resolution or such later date as
the resolution may expressly state.

7.2           Effect of Amendment or Termination.
No amendment or termination of the Plan shall (a) directly or indirectly
deprive any current or former Participant or Surviving Spouse of all or any
portion of any Supplemental Retirement Benefit or Supplemental Surviving Spouse
Benefit, the right to which has accrued prior to the effective date of such
amendment or termination, or which would be payable if the Participant
terminated employment for any reason, including death, on such effective date,
or (b) directly or indirectly reduce the balance of any Supplemental
Deferral Account, Supplemental Company Account or Supplemental Profit Sharing
Account held hereunder as of the effective date of such amendment or
termination. Upon termination of the Plan, distribution of Supplemental
Retirement Benefits and Supplemental Surviving Spouse Benefits, and of amounts
in Supplemental Deferral Accounts, Supplemental Company Accounts and
Supplemental Profit Sharing Accounts shall be made to Participants, their
Surviving Spouses or beneficiaries as soon as administratively feasible
following the date of Plan termination, and within the timeframe permitted by
regulations issued under Code Section 409A, in the manner described in
Sections 3.4 and 4.9(d) of the Plan, except that payment of his Post-2004
Benefit shall be made only at the time set forth in Sections 3.4
and 4.9(d) unless otherwise permitted by regulations issued under Code
Section 409A.  No additional
Supplemental Retirement Benefits or Supplemental Surviving Spouse Benefits
shall be earned after termination of the Plan, and no additional credits of
Supplemental Salary Reduction Contributions, Supplemental Company Contributions
or Supplemental Profit Sharing Contributions shall be made to the accounts of
Participants after termination of the Plan, but the Company shall continue to
credit gains and losses to accounts pursuant to Section 4.8 until the
balances of such accounts have been fully distributed to Participants or their
beneficiaries.

7.3           Effect of a Change in Control.
Notwithstanding subsections 7.1 and 7.2 above, in the event of a
Change in Control, (i) the SKERP shall continue in effect as to any
Participant or Surviving Spouse who is a Participant or Surviving Spouse
immediately prior to a Change in Control, and (ii) no amendment to or
termination of the Plan shall be effective as to any such Participant or
Surviving Spouse to the extent the effect of such amendment or termination
would be to reduce such Participant’s or Surviving Spouse’s benefits or rights
under the Plan from those available to Participant under the Plan immediately
prior to any such amendment or termination.

7.4           Termination of Participation.
The Company, in its sole discretion, shall have the right to terminate the
participation in the Plan or any portion thereof of any Executive Officer or
Key Employee whose initial participation in the Plan was designated by the
Compensation Committee, upon recommendation of management.  Upon such termination of participation, distribution
of the Supplemental Retirement Benefit, Supplemental Surviving Spouse Benefit,

 20
 

 

and amounts in the Supplemental Accounts, as
applicable, to such Participant, determined as of the date of termination of
participation, shall be made to such Participant, his Surviving Spouse or
beneficiaries either (a) in the manner and at the time described in
Articles III and IV of the Plan, or (b) in the sole discretion
of the Company, only with respect to the part of the Pre-2004 Benefit
applicable to such Benefit and Accounts, in a lump sum payment as soon as
practicable following such termination of participation.  No additional Supplemental Retirement Benefit
or Surviving Spouse Benefit shall be earned by such Participant after
termination of his participation in the Plan with respect to such benefits, and
no additional credits of Supplemental Salary Deferral Contributions,
Supplemental Company Contributions or Supplemental Profit Sharing Contributions
shall be made to the Accounts of such Participant after termination of his
participation in the Plan with respect to such benefits, but the Company shall
continue to credit earnings, gains and losses to existing Accounts of such
Participant pursuant to Section 4.8 until the balances of such Accounts
have been fully distributed to the Participant or his beneficiaries.

ARTICLE VIII

GENERAL PROVISIONS

8.1           Specified Employee.  Notwithstanding any other provision of the
Plan, in no event will distribution of a Participant’s Post-2004 Benefit
begin earlier than six months following separation from service, unless
due to such Participant’s disability or death, if the Participant was a
Specified Employee of the Company or an Affiliated Company, at a time during
which the Company’s capital stock or capital stock of an Affiliated Company is
publicly traded on an established securities market, in the calendar year of
his separation from service.

If a Specified Employee will
receive payments hereunder in the form of installments, the first payment made
as of the date six months after the date of the Participant’s separation from
service with the Company and all Affiliated Companies shall be a lump sum, paid
as soon as practicable after the end of such six-month period, that
includes all payments that would otherwise have been made during such six-month
period.  From and after the end of such
six-month period, any such installment payments shall be made pursuant to
the terms of the applicable installment form of payment.

8.2           Participants’ Rights Unsecured.
Except as set forth in Section 8.3, the Plan at all times shall be
entirely unfunded and no provision shall at any time be made with respect to
segregating any assets of the Company or an Affiliated Company for payment of
any benefits hereunder.  The right of a
Participant or his Surviving Spouse or beneficiary to receive a benefit
hereunder shall be an unsecured claim against the general assets of the
Company, and neither the Participant nor a Surviving Spouse or beneficiary
shall have any rights in or against any specific assets of the Company or any
Affiliated Company.  All amounts credited
to Supplemental Salary Deferral Accounts, Supplemental Company Accounts and
Supplemental Profit Sharing Accounts of Participants shall constitute general
assets of the Company.

8.3           Trust Agreement.
Notwithstanding the provisions of Section 8.2, the Company, promptly after
the Plan effective date, shall enter into a trust agreement (“Trust Agreement”)
with a bank or trust company (with a combined capital and surplus in excess of
$100 million dollars), located in the Continental United States, as
trustee, whereby the Company shall agree to

 21
 

 

contribute to a trust (“Trust”) initially and annually
thereafter, for the purpose of accumulating assets actuarially sufficient to
satisfy accrued obligations to Participants and Surviving Spouses under
Article III hereof, in the event of a Change in Control of the
Company.  The Trust Agreement shall
obligate the Company to make contributions sufficient to satisfy the
obligations to Participants, and Surviving Spouses under Article III
hereof; provided, however, that such initial contribution shall be made within
ten days after the date the Board, in its discretion, deems a Change in Control
of the Company likely to occur.  The
discretion of the Board shall be binding and conclusive with respect to the
likelihood of a Change in Control of the Company to occur.  Such Trust Agreement shall be substantially
in the form of the model trust agreement set forth in Internal Revenue Service
Revenue Procedure 92-64, or any subsequent Internal Revenue Service
Revenue Procedure, and shall include provisions required in such model trust
agreement that all assets of the Trust shall be subject to the creditors of the
Company in the event of insolvency. 
Notwithstanding the provisions of Section 8.2, the Company, on or
as soon as practicable after January 1, 1996, shall enter into a Trust
Agreement (“Trust Agreement No. 2”) with a bank or trust company (with a
combined capital and surplus in excess of $100,000,000) located in the
continental United States as Trustee, whereby the Company shall agree to
contribute to a trust (“Trust No. 2”) initially and annually thereafter
for the purpose of accumulating assets sufficient to provide for Supplemental
Salary Deferral Contributions, Supplemental Company Contributions and
Supplemental Profit Sharing Contributions with respect to Participants under
Article IV hereof. Trust Agreement No. 2 shall be substantially in
the form of the model trust agreement set forth in Internal Revenue Service
Procedure 92-64, or any subsequent Internal Revenue Service Procedure, and
shall include provisions required in such model trust agreement that all assets
of Trust No. 2 shall be subject to the creditors of the Company in the
event of insolvency.  Trust Agreement
No. 2 shall include such provisions as are applicable with respect to the
investment and reinvestment of such Contributions pursuant to directions given
by Participants to the Company and transmitted by the Company to the Trustee of
Trust Agreement No. 2 pursuant to paragraph (f) of Section 4.8.

8.4           General Conditions. Except as
otherwise expressly provided herein, all terms and conditions of the Qualified
Retirement Plan applicable to a Qualified Retirement Benefit, or a Qualified
Surviving Spouse Benefit, shall also be applicable to a Supplemental Retirement
Benefit or a Supplemental Surviving Spouse Benefit payable hereunder, and all
terms and conditions of the Qualified Profit Sharing Plan applicable to a
Qualified Salary Deferral Contribution, a Qualified Company Contribution or a
Qualified Profit Sharing Contribution shall also be applicable to a
Supplemental Salary Deferral Contribution, Supplemental Company Contribution or
Supplemental Profit Sharing Contribution to be made hereunder.  Any Qualified Retirement Benefit or Qualified
Surviving Spouse Benefit or any other benefit payable under the Qualified
Retirement Plan shall be paid solely in accordance with the terms and
conditions of the Qualified Retirement Plan, any Qualified Salary Deferral
Contribution, Qualified Company Contribution or Qualified Profit Sharing
Contribution, or any other contribution to be made under the Qualified Profit
Sharing Plan shall be made solely in accordance with the terms and conditions
of the Qualified Profit Sharing Plan, and nothing in the Plan shall operate or
be construed in any way to modify, amend or affect the terms and provisions of
the Qualified Retirement Plan or the Qualified Profit Sharing Plan.

 22
 

 

8.5           No Guaranty of Benefits.
Nothing contained in the Plan shall constitute a guaranty by the Company, any
Affiliated Company, or any other person or entity that the assets of the
Company or any Affiliated Company will be sufficient to pay any benefit
hereunder.  No Participant, Surviving
Spouse or beneficiary shall have any right to receive a benefit or a
distribution of contributions under the Plan except in accordance with the
terms of the Plan.

8.6           No Enlargement of Employee Rights.
Establishment of the Plan shall not be construed to give any Participant the
right to be retained in the service of the Company or any Affiliated Company.

8.7           Spendthrift Provision. No
interest of any person or entity in, or right to receive a distribution under,
the Plan shall be subject in any manner to sale, transfer, assignment, pledge,
attachment, garnishment, or other alienation or encumbrance of any kind; nor
may such interest or right to receive a distribution be taken, either
voluntarily or involuntarily for the satisfaction of the debts of, or other
obligations or claims against, such person or entity, including claims for
alimony, support, separate maintenance and claims in bankruptcy proceedings.

8.8           Applicable Law. The Plan shall
be construed and administered under the laws of the State of Illinois except to
the extent preempted by federal law.

8.9           Small Benefits. If the
actuarial value of any Supplemental Retirement Benefit or Supplemental
Surviving Spouse Benefit is $5,000 or less, the Company may pay the actuarial
value of such Benefit to the Participant or Surviving Spouse in a single lump
sum in lieu of any further Benefit payments hereunder.  Notwithstanding the preceding sentence, in no
event may a distribution be made to a Participant pursuant to this section with
respect to the portion of a Participant’s Post-2004 Benefit applicable to
his Supplemental Retirement Benefit unless (a) payment accompanies the
termination of the Participant’s entire interest in his benefits under
Article III of the Plan and his interest under all other nonqualified
non-account balance plans subject to Code Section 409A maintained by the
Company or any Affiliated Company, and (b) the payment is made on or
before the later of December 31 of the calendar year in which occurs the
Participant’s separation from service with the Company and all Affiliated
Companies, or the 15th day of the third month following such separation
from service.

8.10         Incapacity of Recipient. If any
person entitled to a payment under the Plan is deemed by the Company to be
incapable of personally receiving and giving a valid receipt for such payment,
then, unless and until claim therefor shall have been made by a duly appointed
guardian or other legal representative of such person, the Company may provide
for such payment or any part thereof to be made to any other person or
institution then contributing toward or providing for the care and maintenance
of such person.  Any such payment shall
be a payment for the account of such person and a complete discharge of any
liability of the Company and the Plan therefor.

8.11         Corporate Successors. The Plan
shall be continued, following a transfer or sale of assets of the Company, or
following the merger or consolidation of the Company into or with any other
corporation or entity, by the transferee, purchaser or successor entity, unless
the Plan

 23
 

 

has been terminated by the Company pursuant to the
provisions of Article VII prior to the effective date of such transaction.

8.12         Unclaimed Benefit. Each
Participant, Surviving Spouse or beneficiary shall keep the Company informed of
his current address.  The Company shall
not be obligated to search for the whereabouts of any person.  If the location of a Participant is not made
known to the Company within three years after the date on which payment of the
Participant’s benefits under the Plan may first be made, payment may be made as
though the Participant had died at the end of the three-year period.  If, within one additional year after such
three-year period has elapsed, or within three years after the actual death of
a Participant, the Company is unable to locate any Surviving Spouse or
beneficiary of the Participant, then the Company shall have no further
obligation to pay any benefit hereunder to such Participant, Surviving Spouse
or beneficiary or any other person and such benefit shall be irrevocably
forfeited.

8.13         Limitations on Liability.
Notwithstanding any of the preceding provisions of the Plan, none of the
Company, any Affiliated Company, any member of the Committee, nor any
individual acting as an employee or agent of the Company, any Affiliated
Company or the Committee, shall be liable to any Participant, former
Participant, Surviving Spouse or any other beneficiary or other person for any
claim, loss, liability or expense incurred by such Participant, Surviving Spouse
or other beneficiary or other person in connection with the Plan.

8.14         Tax Savings.  Not withstanding anything to the contrary
contained in the Plan, (a) if the Internal Revenue Service prevails in a
claim by it that amounts credited to a Participant’s Accounts, and/or earnings
thereon, constitute taxable income to the Participant or his beneficiary for
any taxable year of his prior to the taxable year in which such credits and/or
earnings are distributed to him or (b) legal counsel satisfactory to the
Company and the applicable Participant or his beneficiary renders an opinion
that the Internal Revenue Service would likely prevail in such a claim, (i) the
balance of such Participant’s Accounts that are part of his Pre-2005
Benefit, to the extent constituting taxable income, and (ii) the balance
of such Participants Accounts that are part of his Post-2004 Benefit, to
the extent constituting taxable income pursuant to Code Section 409A and
guidance and regulations thereunder, shall be immediately distributed to the
Participant or his beneficiary.  For
purposes of this paragraph, the Internal Revenue Service shall be deemed to
have prevailed in a claim if such claim is upheld by. a
court of final jurisdiction, or  if the
Company, or a Participant or beneficiary, based upon an opinion of legal
counsel satisfactory to the Company and the Participant or his beneficiary,
fails to appeal a decision of the Internal Revenue Service, or a court of
applicable jurisdiction, with respect to such claim, to an appropriate Internal
Revenue Service appeals authority or to a court of higher jurisdiction, within
the appropriate time period.

 24
 

 

IN WITNESS WHEREOF, this
Plan has been executed this 9th day of June, 2006.

	
   

  	
  AAR CORP.

  
	
   

  	
   

  
	
   

  	
  By

  	
  /s/ Timothy O.
  Skelly

  
	
   

  	
   

  	
  Timothy O.
  Skelly, Vice President

  
	
   

  	
   

  
	
   

  	
   

  
	
  ATTEST:

  	
   

  
	
   

  	
   

  
	
  /s/ Howard A.
  Pulsifer

  	
   

  	
   

  
	
  Howard A.
  Pulsifer, Secretary

  	
   

  
				

 

 25
 

 

APPENDIX

Additional Supplemental Company Contributions

 

Effective
June 1, 2006, the Company shall provide for Additional Supplemental Company
Contributions under Section 4.5 of the following percentages of base
salary and bonus :

	
  Participant Type

  	
   

  	
  Contribution

  	
   

  
	
  Chief Executive Officer

  	
   

  	
  22

  	
  %

  
	
   

  	
   

  	
   

  	
   

  
	
  Other Executive Officers designated from time to time by the
  Compensation Committee

  	
   

  	
  10

  	
  %

  
	
   

  	
   

  	
   

  	
   

  
	
  Key Employees designated from time to time by the Compensation
  Committee

  	
   

  	
  5

  	
  %

  

 

Additional
Supplemental Company Contributions made pursuant to this Appendix shall be made
prior to the end of each applicable Plan Year based on base salary and bonus [payable/earned] during such Plan Year.  For Plan Year 2006, base salary and
bonus for the entire Plan Year shall be used notwithstanding the June 1,
2006 effective date of this Appendix.

Condition
to Allocation

Each
Participant eligible for an Additional Supplemental Company Contribution
hereunder shall receive an allocation of such Contribution to his Additional
Supplemental Company Account with respect to a Plan Year if, and only if such
Participant is a regular full-time Employee on the day immediately
preceding the date the Contribution is made [unless the
Participant terminated employment during the Plan Year due to disability or
death].

Vesting

An
applicable Participant shall fully vest in the balance of his Additional
Supplemental Company Account upon the earlier of the Participant attaining
(1) age 57 with 15 Years of Service and (2) age 65.

Forfeitures

Subject
to Section 5.4, any unvested Additional Supplemental Company Contributions
shall be forfeited upon the Participant’s termination of employment with the
Company and its Affiliated Companies. 
Notwithstanding any other provisions of the Plan, (1) if the
employment of the Participant with the Company and all Affiliated Companies
terminates due to Cause, or (2) if the Participant during his employment
with the Company and all Affiliated Companies or at any time during the one-year
period after the termination of such employment for any reason (except

 26
 

 

in
the case of termination of employment for any reason on or after attaining
age 60), violates the covenant not to compete with the Company and its
Affiliated Companies set forth in Section 5.3, all rights of the
Participant and his Surviving Spouse to vested and unvested portions of his
Additional Supplemental Company Account shall be forfeited.  Any amounts forfeited pursuant to this
paragraph shall be retained by the Company free of any and all claims of the
Participant, his Surviving Spouse or any other person claiming with respect to
the Participant or his Surviving Spouse.

 27

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