UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
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AAR CORP. | ||||
(Name of Registrant as Specified In Its Charter) | ||||
(Name of Person(s) Filing Proxy Statement, if other than the Registrant) | ||||
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One AAR Place
1100 North Wood Dale Road
Wood Dale, Illinois 60191
Dear Fellow Stockholders,
On behalf of the Board of Directors and employees of AAR CORP., I cordially invite you to join us at our 2016 annual meeting of stockholders on Tuesday, October 11, 2016 at 9:00 a.m., Central Time, at the Company's headquarters located at 1100 North Wood Dale Road, Wood Dale, Illinois 60191.
Our fiscal year ended May 31, 2016 was a good year for the Company, one in which we further solidified our position as a global leader in providing aviation services to the commercial aviation and government and defense markets. Our Aviation Services business group delivered exceptional results across its supply chain and MRO activities, and our Expeditionary Services business group continued to make progress toward becoming an invaluable partner with the United States government on key government contracts.
This past fiscal year we also devoted significant time and attention to our culture and business mission, refreshing our core values under a "Doing It Right" campaign. We embraced core values that speak to who we are as a company and how we conduct our business. For example, our core values reflect ourcommitment to excellence ("Quality First — Safety Always");resourcefulness ("Find a Way — Every Day");integrity ("Be Honest — Inspire Trust"); andaccountability ("Own It"). We firmly believe that our pursuit of these and our other core values will benefit our stockholders, our customers and our employees, as well as the communities in which we do business.
We are committed on your behalf to achieving positive short-term financial results for the Company. We also understand the importance of maintaining a strong long-term focus on the strategic direction of the Company. We are proud of what we have accomplished together, and we remain very excited about our future.
We thank you for your continued investment in AAR. We look forward to seeing you at the annual meeting. Whether or not you plan to attend the annual meeting, please vote as promptly as possible. Every stockholder vote is important!
David P. Storch
Chairman, President and Chief Executive Officer
August 31, 2016
Notice of Annual Meeting of Stockholders to be Held on | ||
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August 29, 2014
To Our Stockholders:
We cordiallyare pleased to invite you to attend our 20142016 annual meeting of stockholders. Information aboutPlease read the annual meeting is set forthinformation below and in the accompanying proxy statement.statement to learn more about AAR CORP. and the matters to be voted on at the annual meeting.
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| Tuesday, October 11, 2016 | |||||
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Time | 9:00 a.m., Chicago time | |||||
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AAR CORP. One AAR Place 1100 North Wood Dale Road Wood Dale, Illinois 60191 | ||||||
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Elect four
Vote on an advisory resolution to approve our Fiscal
Ratify the appointment of KPMG LLP as our independent registered public accounting
Transact any other business that may properly come before the annual meeting or any adjournment or postponement of the annual meeting. | ||||||
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You may vote your shares at the annual meeting if you were a stockholder on August 16, 2016. | ||||||
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Your vote is important. We encourage you to vote your shares as soon as | ||||||
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By Order of the Board of Directors,
Robert J. Regan
Vice President, General Counsel and Secretary
August 31, 2016
PROXY STATEMENT FOR THE 2016 ANNUAL MEETING OF STOCKHOLDERS |
Proxy Statement for the 2014 Annual Meeting of Stockholders
Table of Contents
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| QUESTIONS AND ANSWERS ABOUT OUR ANNUAL MEETING | | | 1 | ||||
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| PROPOSAL 1 — ELECTION OF OUR DIRECTORS | | | |||||
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| Information about Our Director Nominees and Our Continuing Directors | | | |||||
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| PROPOSAL 2 — ADVISORY RESOLUTION TO APPROVE OUR FISCAL | | | |||||
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| PROPOSAL 3 — APPROVAL OF AMENDMENTS TO THE AAR CORP. 2013 STOCK PLAN | | | 10 | | |||
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| PROPOSAL 4 — RATIFICATION OF THE APPOINTMENT OF KPMG LLP AS OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR FISCAL 2017 | | ||||||
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| CORPORATE GOVERNANCE | | | |||||
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| General | | | 18 | | |||
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| Stockholder Engagement | | | 18 | | |||
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| Board Refreshment | | | 18 | | |||
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| Director Nominations and Qualifications | | | |||||
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| Director Independence | | | |||||
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| Board Leadership and Lead Director | | | |||||
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| Risk Management Oversight | | | |||||
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| Executive Sessions | | | |||||
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| Corporate Governance Guidelines | | | 21 | | |||
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| Ethics Hotline | | | 22 | | |||
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| Code of Business Ethics and Conduct | | | 22 | | |||
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| Related Person Transaction Policy | | | 22 | | |||
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| Director Orientation and Continuing Education | | | 23 | | |||
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| Board and Committee Evaluations | | | 23 | | |||
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| Communications with the Board of Directors | | | |||||
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| Board Committees | | | |||||
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| Audit Committee Fiscal 2016 Report | | | 24 | | |||
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| Board Meetings and Attendance | | | |||||
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| Director Compensation | | | |||||
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| Director Compensation Table | | | 28 | | |||
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| Compensation Committee Interlocks and Insider Participation | | | 29 | | |||
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| EXECUTIVE COMPENSATION | | | |||||
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| Compensation Discussion and Analysis | | | |||||
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| Compensation Committee Fiscal 2016 Report on Executive Compensation | | | |||||
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| Summary Compensation Table | | | |||||
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| Outstanding Equity Awards at Fiscal | | | |||||
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| Potential Payments Upon a Termination of Employment or a Change in Control of the Company | | | |||||
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| Tables of Potential Payments Upon a Termination of Employment or a Change in Control of the Company | | | |||||
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| SECURITY OWNERSHIP OF OUR MANAGEMENT AND OTHERS | | | |||||
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| Security Ownership of Management | | | |||||
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| Security Ownership of Certain Beneficial Owners | | | |||||
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| Section 16(a) Beneficial Ownership Reporting Compliance | | | |||||
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| EQUITY COMPENSATION PLAN INFORMATION | | | |||||
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| STOCKHOLDER PROPOSALS FOR OUR | | | |||||
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| OTHER BUSINESS | | | | ||||
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| EXHIBIT A: AAR CORP. 2013 STOCK PLAN, AS PROPOSED TO BE AMENDED | | | A-1 | | |||
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Important Notice Regarding the Availability of Our Proxy Materials
For Our Annual Meeting of Stockholders
to be Held on Wednesday,Tuesday, October 8, 2014:11, 2016:
Copies of this Notice and Proxy Statement, our 20142016 Annual Report to Stockholders and our Annual Report on Form 10-K for the fiscal year ended May 31, 20142016 are available free of charge atwww.proxyvote.com.
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2016 Proxy Statement Summary |
This summary highlights certain information addressed in more detail elsewherecontained in this proxy statement. Please read carefully the entire proxy statement carefully before voting your shares.
Annual Meeting Information
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Time and Date | |||||
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Place | AAR CORP. One AAR Place 1100 North Wood Dale Road Wood Dale, Illinois 60191 | ||||
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Record Date | Tuesday, August 16, 2016 | ||||
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| Stockholders of record as of the record date may vote | ||||
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Proposals To Be Voted On By Our Stockholders
Election of four Class III directors (Proposal 1 — pages 5-9):
Board Recommendation | ||||||||||||||
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Proposal 1 — Election of four directors (pages 4-7): | FOR | |||||||||||||
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| 73 | Non-Executive Chairman of The PrivateBank and Trust Company — Chicago (a financial services company) and Chief Executive Officer of Norman Bobins Consulting, LLC. | FOR | |||||||||||
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RONALD R. FOGLEMAN | 74 | Non-Executive Chairman of Orbital ATK, Inc. (an aerospace and defense technologies company); President and Chief Operating Officer of | ||||||||||||
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JAMES E. GOODWIN | 72 | Lead Director of Federal Signal Corporation (a safety and security products manufacturer); from 2009 to April 2016, Non-Executive Chairman of | FOR | |||||||||||
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MARC J. WALFISH | 64 | Founding Partner of Merit Capital Partners (a mezzanine investor company). | FOR | |||||||||||
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Proposal 2 — Advisory resolution to approve our Fiscal | FOR | |||||||||||||
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Proposal 3 — Approval of amendments to the AAR CORP. 2013 Stock Plan (pages 10-16) | FOR | |||||||||||||
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Proposal 4 — Ratification of the appointment of KPMG LLP as our independent registered public accounting firm | FOR | |||||||||||||
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Fiscal 20142016 Business Performance Highlights
AAR CORP. (the "Company") isFiscal 2016 marked our continuing transition to a leading providerpredominantly aviation services-oriented company following our Fiscal 2015 divestment of diversified products and services to the worldwide aviation and government and defense markets. We delivered solid financial results forsignificant manufacturing operations, including our fiscal year ended May 31, 2014 ("Telair Cargo Group. In Fiscal 2014"), despite reductions in demand from our government and defense customers owing principally to the drawdown of the U.S. military presence in Afghanistan.2016:
Our continued focus on our core businesses — aviation services and technology products — together with ongoing efforts to manage costs and strengthen our balance sheet, contributed to the following performance highlights in Fiscal 2014:
We continued to $1.38 per share in the fiscal year endedmaintain a strong balance sheet, with working capital of $544.1 million, net debt of $118.9 million and available liquidity of $413.3 million as of May 31, 2013 ("Fiscal 2013");2016;
We returned capital of $30.0 million to our stockholders through common stock repurchases and dividends; and
We secured important new contracts with our customers, including:
WeFiscal 2016 Executive Compensation Highlights
Our Compensation Committee made several important changes to our executive compensation program, based principally on market-based information provided by its independent compensation consultant, input from several proxy advisory firms and feedback received several industry awards in recognitionthrough our stockholder engagement efforts, each of which emphasized pay for performance.
Changes to Our Executive Compensation Program
Adjusted base salaries and reduced annual cash bonus targets to align them with our market peers
Shifted variable compensation to more stock and less cash as a percentage of total compensation to align with stockholders' interests and to encourage long-term value creation
Eliminated the use of the time-based restricted stock and moved to performance-based restricted stock and stock options as the preferred stock vehicles for executive officers
Updated our stock ownership policy to reflect a greater emphasis on stock compensation and retention
Emphasis on Pay for Performance
Pay-for-performance compensation (cash bonus plus the value of performance-based restricted stock and stock options) represented 81.4% of the total direct compensation of our Chief Executive Officer, David P. Storch, in Fiscal 2016, compared to fixed compensation (base salary) at 18.6% of his total direct compensation.
Pay-for-performance compensation (cash bonus plus the value of performance-based restricted stock and stock options) represented 64.8% of the total direct compensation of our non-CEO named executive officers in Fiscal
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2016, compared to fixed compensation (base salary) plus discretionary bonus at 35.2% of their total direct compensation.
Key Compensation Policies and Practices
The key features of the Company's executive compensation program are:
Annual advisory stockholder approval of executive compensation
No guaranteed performance-based annual cash bonuses
Significant emphasis on stock-based compensation
Challenging performance (targets under annual cash bonus and stock-based compensation
Multi-year vesting periods for stock-based awards
"Best Airframe MRO Provider
Stock award agreements under the AAR CORP. 2013 Stock Plan with "double trigger" change-in-control provisions (change-in-control and termination of employment)
No repricing of stock options without stockholder approval
No dividends on performance-based restricted stock until performance goals are met
Stock ownership guidelines for directors and executive officers
Insider trading policy prohibiting short sales, pledging and hedging transactions
No tax gross-ups in any agreement with an executive officer, except for one legacy agreement in the Americas," "Outstanding Component Repair Provider"year 2000
and"Boeing Gold Performance Excellence Award"), and we were again named as one
Clawback of Forbes magazine's "100 Most Trustworthy Companies"incentive compensation in 2014.
For more information about ourthe event of certain financial and operating performance in Fiscal 2014, please see "Business" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K filed with the SEC on July 17, 2014. For more information about our stock price performance, please see "Comparison of Cumulative Five Year Total Return" in our Form 10-K.restatements
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Executive Compensation Highlights
Stockholder Outreach Program
We conducted a formal stockholder outreach program in Fiscal 2014 following the say-on-pay vote at our 2013 annual meeting. The purpose of the program was to gain a better understanding of concerns related to our executive compensation program and other matters of stockholder interest. Under the program, which was supplemental to our regular ongoing communications with stockholders, we reached out to stockholders owning approximately 75% of our outstanding shares. Participants in the outreach effort included at various times our Chairman and Chief Executive Officer, President and Chief Operating Officer, Chief Financial Officer and General Counsel. We also received feedback from two proxy advisory firms, Institutional Stockholder Services ("ISS") and Glass Lewis & Co., Inc. ("Glass Lewis").
The following table identifies the concerns raised by our stock-holders, ISS and Glass Lewis, and the actions we took in Fiscal 2014:
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Chief Executive Officer Compensation
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Compensation Element | | Actual | | Target | | Per Formula | | Actual | | |||||||||
Base Salary | 877,838 | 906,449 | N/A | 906,449 | ||||||||||||||
Annual Cash Incentive | 1,350,685 | 1,133,061 | 1,216,498 | 851,548 | ||||||||||||||
Long Term Incentive Compensation | 1,314,720 | 2,964,720 | N/A | 2,964,720 |
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Fiscal 2015 Executive Compensation Actions
Our Compensation Committee made significant changes to the Company's executive compensation program in Fiscal 2015 based on its consideration of the following factors: the macro-environment in which the Company operates its businesses; the Company's performance in Fiscal 2014 and its expected performance in Fiscal 2015; the executive compensation assessment prepared by its independent compensation consultant in July 2014; the Company's commitment to meeting the burn rate parameters under the AAR CORP. 2013 Stock Plan; stockholder concerns identified in our stockholder outreach program; and other relevant items. In sum, the Compensation Committee took the following Fiscal 2015 executive compensation actions:
Key Compensation Policies and Practices
The following policies and practices are key elements of the Company's executive compensation program:
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Corporate Governance Highlights
Good corporate governance isremains an essential part of the Company's culture. The Board of Directors annually reviews the Company's key corporate governance documents, including the Corporate Governance Guidelines and the Board Committee charters,charters. We also seek feedback from our stockholders on our corporate governance practices through our stockholder engagement program. Our goal is to ensure that theyour corporate governance practices reflect best practices consistent with the Company's culture, strategy and strategy. The creation of a Lead Director position is one recent example of the Company's commitment to corporate governance best practices.business performance.
The following table identifies the Company's key corporate governance practices and related information:
Corporate Governance Information | As of August | ||||||||
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Annual | Yes | ||||||||
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Independent | Yes | ||||||||
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Independent | Yes | ||||||||
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Annual | Yes | ||||||||
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Disclosure committee for financial reporting | Yes | ||||||||
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Annual advisory stockholder approval of executive compensation | Yes | ||||||||
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Stockholder engagement program | Yes | ||||||||
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ixvii
One AAR Place
1100 North Wood Dale Road
Wood Dale, Illinois 60191
We will hold our 20142016 annual meeting of stockholders on Wednesday,Tuesday, October 8, 2014,11, 2016 at 9:00 a.m., Chicago time, at AAR CORP.'s corporate headquarters located at One AAR Place, 1100 North Wood Dale Road, Wood Dale, Illinois 60191. We cordially invite you to attend the annual meeting and ask that you vote on the proposals described in this proxy statement.
QUESTIONS AND ANSWERS ABOUT OUR ANNUAL MEETING
QUESTIONS AND ANSWERS ABOUT OUR ANNUAL MEETING |
Why am I receiving the proxy materials?
Our Board of Directors is providing these proxy materials to you, beginning on or about August 29, 2014,31, 2016, in connection with its solicitation of proxies for use at the Company's 20142016 annual meeting of stockholders.
What information is contained in the proxy materials?
The proxy materials contain information about the proposals to be voted on at the annual meeting, the compensation of our directors and our most highly paid executive officers, corporate governance and other information about the Company.Company required by the rules of the Securities and Exchange Commission ("SEC").
How do I access the proxy materials electronically?
Again this year weWe are pleased to be distributing our proxy materials via the Internet under the "notice and access" approach permitted by the rules of the Securities and Exchange Commission ("SEC").SEC rules. This approach reduces the cost and environmental impact of printing and distributing the proxy materials for our annual meeting.
We mailed a "Notice of Internet Availability of Proxy Materials" to all of our stockholders on or about August 29, 2014. The Notice gives you the choice to receive your proxy materials and vote your shares over the Internet or receive your proxy materials in printed form and vote by mailing back your proxy card.31, 2016. The Notice provides you with instructions on how to:
Access and review our proxy materials over the Internet;
Submit your vote over the Internet; and
Request and receive printed copies of our proxy materials.
This proxy statement, our annual report to stockholders for the fiscal year ended May 31, 2014 (referred to in this proxy statement as "Fiscal 2014"2016 ("Fiscal 2016") and our Fiscal 20142016 annual report on Form 10-K may be viewed online atwww.proxyvote.com.
What proposals are stockholdersam I voting on at the annual meeting?
StockholdersYou will vote on threefour proposals at the annual meeting:
Proposal 1 — The election of PatrickNorman R. Bobins, Ronald R. Fogleman, James E. Goodwin and Marc J. Kelly, Peter Pace, Timothy J. Romenesko and Ronald B. WoodardWalfish as Class III directors to serve until the 20172019 annual meeting of stockholders;
Proposal 2 — An advisory resolution to approve the Company's Fiscal 20142016 executive compensation; and
Proposal 3 — The approval of amendments to the AAR CORP. 2013 Stock Plan; and
Proposal 4 — The ratification of the appointment of KPMG LLP as the Company's independent registered public accounting firm for the fiscal year ending May 31, 2015 (referred to in this proxy statement as "Fiscal 2015"2017 ("Fiscal 2017").
You are entitled to vote your shares if you were an AAR CORP. stockholder at the close of business on August 19, 2014.16, 2016. This date is referred to in this proxy statement as the "record date."
Stockholder of Record. If you were a "stockholder of record" at the close of business on the record date, you may vote your shares at the annual meeting. You are a "stockholder of record" if your shares are registered in your name with Computershare, the Company's transfer agent. If you were a stockholder of record at the close of business on the record date, you may vote your shares by proxy by completing, signing, dating and returning the enclosed proxy card or voting by telephone or over the Internet, or in person by attending and voting at the annual meeting.
Beneficial Owner. You are a "beneficial owner" of shares if your shares are held in a brokerage account or by a bank or other nominee. If you were a "beneficial owner"beneficial owner of shares at the close of business on the record date, you may vote your shares by giving voting instructions to your broker, bank or other nominee who is the "stockholder of record" of your shares. You are a "beneficial owner" of shares if your shares are held in a stock brokerage account or by a bank or other nominee. The Company has directed brokers, banks and other nominees to obtain voting instructions from their beneficial owners. Proxies submitted by nominees on behalf of beneficial owners will count toward a quorum and will be voted as instructed by the beneficial owners. You will receive additional instructions from your broker, bank or other nominee explaining how you may vote your shares.
You may receive more than one set of proxy materials. This means you hold your shares held byin more than one account. Please vote all of your nominee.shares.
A list of stockholders of record entitled to vote will be available at the Company's corporate headquarters for 10 days prior to the meeting and at the meeting location during the meeting.
On the record date, 39,891,15834,299,774 shares of common stock of the Company were outstanding. Each share of common stock is entitled to one vote for each director nominee and one vote for each of the other proposals to be voted on at the annual meeting.
How do stockholders vote by proxy or in person?
Stockholders of record at the close of business on the record date may vote on the matters that are before the annual meeting by proxy by completing, signing, dating and returning the enclosed proxy card or by voting by telephone or over the Internet, or in person by attending and voting at the annual meeting.
How do stockholdersI vote by telephone or over the Internet?
Specific instructions for using the telephone and Internet voting methods are set forth on the proxy card. These instructions are designed to authenticate your identity, allow you to give your voting instructions and confirm that those instructions have been properly recorded. You may vote by telephone or over the Internet 24 hours a day, seven days a week, until 10:59 p.m.
(Chicago (Chicago time) on the day prior to the annual meeting. If you vote by telephone or over the Internet, please do not return your proxy card.
How do stockholdersI revoke a proxy?
You may revoke your proxy (e.g., to change your vote) at any time before it is exercised by:
Sending a written notice of revocation to the Secretary of the Company at the Company's address listed on the first page of this proxy statement;
Submitting anothera later-dated proxy by telephone, or over the Internet;Internet or by mail; or
Voting in person at the annual meeting.
How will the proxy holders vote the shares?
The persons designated on the proxy holderscard as the Company's "proxy holders" will vote all shares covered by your proxy card in accordance with your instructions on the proxy card. If no instructions are given, the proxy holders will vote the shares as follows:
FOR the election of all of the four Class III director nominees;
FOR the advisory resolution to approve our Fiscal 20142016 executive compensation;
FOR the approval of the amendments to the AAR CORP. 2013 Stock Plan; and
FOR the ratification of KPMG LLP as our independent registered public accounting firm for Fiscal 2015.2017.
If any other matter properly comes before the annual meeting, the proxy holders will use their judgment to vote in a manner consistent with the best interest of stockholders. If any director nominee becomes unavailable for election for any reason prior to the annual meeting vote, the Board may reduce the number of directors to be elected or substitute another person as nominee, in which case the proxy holders will vote for the substitute nominee.
What are the quorum and vote requirements?
A quorum of stockholders is necessary to hold a valid meeting. A quorum will exist if a majority of the outstanding shares of common stock entitled to vote at the meeting is present in person or by proxy at the annual meeting. Abstentions and broker non-votes, if any, will be counted as present for purposes of determining whether there is a quorum. A "broker non-vote" will occur when a broker, bank or other nominee holding shares for a beneficial owner does not vote on a particular proposal because the nominee does not have discretionary voting power with respect to that proposal and has not received instructions on how to vote from the beneficial owner.owner of the shares.
Please note that brokers, bank and other nominees will have discretionary authority to vote shares on the ratification of KPMG;KPMG LLP; however, brokersthey may not vote shares on the election of directors, or on the advisory resolution to approve executive compensation or the approval of the amendments to the AAR CORP. 2013 Stock Plan without specific instructions from their beneficial owners. Accordingly, please followprovide voting instructions to your broker's instructionsbroker, bank or other nominee so that your vote may be counted.
The following table indicates the vote required for approval of each matter to be presented to the stockholders at the annual meeting and the effect of "withhold" votes, abstentions, and broker non-votes.
Required Vote | Effect of "Withhold" Votes, Abstentions and Broker Non-Votes | |||||||
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Proposal 1 — | Affirmative vote of a plurality of the shares of common stock present and entitled to vote (the four nominees who receive the greatest number of votes will be elected directors of the Company). | "Withhold" votes and broker non-votes will have no effect on the voting for this matter. | ||||||
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Proposal 2 — | Affirmative vote of a majority of the shares of common stock present and entitled to vote. | Abstentions will have the effect of a vote "against" and broker non-votes will have no effect on the voting for this matter. | ||||||
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Proposal 3 — | Affirmative vote of a majority of the shares of common stock present and entitled to vote. | Abstentions will have the effect of a vote "against" and broker non-votes will have no effect on the voting for this matter. | ||||||
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Proposal 4 — | Affirmative vote of a majority of the shares of common stock present and entitled to vote. | Abstentions will have the effect of a vote "against"; there will be no broker non-votes for this matter. | ||||||
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How will the vote be tabulated?
Inspectors of election appointed for the annual meeting will tabulate all votes cast in person or by proxy at the annual meeting. In the event a quorum is not present at the annual meeting, we expect that the annual meeting will be adjourned or postponed to solicit additional proxies.
The following table indicates the vote required for approval of each matter to be presented to the stockholders at the annual meeting and the effect of "withhold" votes, abstentions, and broker non-votes.
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Who is the Company's proxy solicitor?
The Company has engaged D. F. King & Co., Inc., 48 Wall Street, New York, New York 10005, to assist the Company in soliciting proxies at a total estimated cost of $11,500,$12,000, plus reasonable out-of-pocket expenses. The cost of soliciting proxies will be paid by the Company. D. F. King & Co., Inc. may solicit proxies by mail, telephone, facsimile, e-mail, or in person. Certain officers, directors and employees of the Company may also solicit proxies for no additional compensation.
Where can I find the voting results for the proposals at the annual meeting?
We intend to announce preliminary voting results at the annual meeting. We will publish the final voting results on a Current Report on Form 8-K to be filed with the SEC within four business days of the annual meeting.
PROPOSAL 1 — ELECTION OF OUR DIRECTORS
PROPOSAL 1 — ELECTION OF OUR DIRECTORS |
The Company's Restated Certificate of Incorporation and By-Laws provide that the Board of Directors shall consist of between three and 15 directors, with the exact number of directors to be set from time to time by the Board. The number of directors is currently set at 11.12. The members of the Board are divided into three classes, each having a three-year term that expires in successive years:classes: Class I (three(four directors), Class II (four directors), and Class III (four directors). Each class has a three-year term.
The Board of Directors has nominated four individuals to be elected as Class IIIII directors at the annual meeting, each to serve a three-year term expiring at the 20172019 annual meeting or until the individual is succeeded by another qualified director who has been duly elected. The nominees for director in Class III at the annual meetingII are PatrickNorman R. Bobins, Ronald R. Fogleman, James E. Goodwin and Marc J. Kelly, Peter Pace, Timothy J. Romenesko and Ronald B. Woodard.Walfish.
Each nominee is currently serving as a director of the Company. Each nominee other than Mr. Romenesko, has been determined by the Board to be "independent" within the meaning of the rules of the New York Stock Exchange ("NYSE") and the SEC. As President and Chief Operating Officer of the Company, Mr. Romenesko does not qualify as an independent director under the NYSE and SEC rules.
OUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDSTHAT YOU VOTEFOR THE ELECTION OF ALL OF OUR DIRECTOR NOMINEES.
Information about Our Director Nominees and Our Continuing Directors
Information about theour director nominees and continuing directors whose terms expire in future years is set forth below:
OUR DIRECTOR NOMINEES
Director Since | ||||
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Class II Directors whose terms expire at the 2016 annual meeting | ||||
NORMAN R. BOBINS, 73: Since 2008, Non-Executive Chairman of The PrivateBank and Trust Company – Chicago (a financial services company) and Chief Executive Officer of Norman Bobins Consulting, LLC (a financial consulting company). From May 2007 until October 2007, Chairman of the Board of LaSalle Bank Corporation. From 2002 to 2007, President and Chief Executive Officer of LaSalle Bank Corporation. | 2007 | |||
Other current public company directorships: Omega Healthcare Investors, Inc. and PrivateBancorp, Inc. | ||||
Other public company directorships held in the past five years: AGL Resources Inc., Aviv REIT, Inc., Nicor Inc. and SIMS Metal Management Limited. | ||||
Director Qualifications: The Board of Directors concluded that Mr. Bobins should serve as a director of the Company based on his 45 years of banking experience, his financial and accounting knowledge, his service as a director of other public companies, and his civic involvement and business acumen as a director of numerous not-for-profit organizations. | ||||
RONALD R. FOGLEMAN, 74: Since 2009, Non-Executive Chairman of Orbital ATK, Inc. (an aerospace and defense technologies company). Since 1997, President and Chief Operating Officer of B Bar J Cattle & Consulting Company (a consulting company). From 1994 to 1997, General, Chief of Staff of the United States Air Force, Washington, D.C. | 2001 | |||
Other current public company directorships: Orbital ATK Inc. | ||||
Other public company directorships held in the past five years: Alliant Techsystems, Inc. | ||||
Director Qualifications: The Board of Directors concluded that General Fogleman should serve as a director of the Company based on his leadership ability and record of accomplishment during a 34-year career with the United States Air Force, his business experience and business relationships gained during and subsequent to his military service, his understanding of the government and defense markets, and his service as a director of other public companies. General Fogleman currently serves as the Company's Lead Director. |
Director Since | ||||
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JAMES E. GOODWIN, 72: Since April 2016, Lead Director of Federal Signal Corporation (a safety and security products manufacturer). From 2009 to April 2016, Chairman of Federal Signal Corporation. From 2007 to 2008, Interim President and Chief Executive Officer of Federal Signal Corporation. From 2001 to 2007, an independent business consultant. From 1999 to 2001, Chairman and Chief Executive Officer of UAL, Inc. and United Airlines, Inc., from which he retired after 34 years. | 2002 | |||
Other current public company directorships: Federal Signal Corporation and John Bean Technologies Corporation. | ||||
Other public company directorships held in the past five years: First Chicago Bancorp. | ||||
Director Qualifications: The Board of Directors concluded that Mr. Goodwin should serve as a director of the Company based on his significant airline industry experience and expertise, including his leadership positions at UAL, Inc. and United Airlines, Inc., his management experience and his financial expertise, as well as his global consulting experience, and his service as a director of other public companies. | ||||
MARC J. WALFISH, 64: Since 2003, Founding Partner of Merit Capital Partners (a mezzanine investor company). From 1991 to 2003, partner at William Blair Mezzanine Capital Partners. From 1978 to 1991, various positions at Prudential Capital Corporation, most recently as Senior Vice President. | 2003 | |||
Director Qualifications: The Board of Directors concluded that Mr. Walfish should serve as a director of the Company based on his experience and proven success in the finance industry, including as a founding partner of Merit Capital Partners, a mezzanine investor company, his knowledge of the capital markets and his expertise in corporate finance, strategic planning and risk management. |
OUR CONTINUING DIRECTORS
Class III Directors whose terms expire at the | ||||||||
PATRICK J. KELLY, | 2006 | |||||||
Director Qualifications: The Board of Directors concluded that Mr. Kelly should serve as a director of the Company based on his leadership and operational experience at various businesses, his background as a |
PETER PACE, | 2012 | |||
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Other public company directorships held in the past five years: Laserlock Technologies, Inc., Pike Electric Corp., Textura Corporation and Wi2Wi Corporation. | ||||
Director Qualifications: The Board of Directors concluded that General Pace should serve as a director of the Company based on his leadership and management skills and experience from over 40 years of service with the United States Marine Corps, culminating in his appointment as the 16th Chairman of the Joint Chiefs of Staff (the most senior position in the United States Armed Forces), where he served from 2005 to 2007 as the principal military adviser to the President, the Secretary of Defense, the National Security Council and the Homeland Security |
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TIMOTHY J. ROMENESKO, | 2007 | |||
Director Qualifications: The Board of Directors concluded that Mr. Romenesko should serve as a director of the Company based on his | ||||
RONALD B. WOODARD, | 2004 | |||
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Other public company directorships held in the past five years: | ||||
Director Qualifications: The Board of Directors concluded that Mr. Woodard should serve as a director of the Company based on his management expertise and manufacturing experience as a senior officer of The Boeing Company, his knowledge of the commercial aviation industry and his experience as a director of other public companies, including Continental Airlines, Inc. |
OUR CONTINUING DIRECTORS
Class I Directors whose terms expire at the | ||||||||
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ANTHONY K. ANDERSON, | 2012 | |||||||
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Other public company directorships held in the past five years: First American Financial Corporation. | ||||||||
Director Qualifications: The Board of Directors concluded that Mr. Anderson should serve as a director of the Company based on his 35 years working with a global accounting firm, his accounting and financial knowledge, his leadership in developing management talent programs, his service as a director of other public companies, and his professional, civic and charitable service, including as a director of numerous not-for-profit organizations. |
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MICHAEL R. BOYCE, | 2005 | |||
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Director Qualifications: The Board of Directors concluded that Mr. Boyce should serve as a director of the Company based on his experience as Chairman and Chief Executive Officer of two leading global organizations, his insight into global manufacturing, supply and distribution practices and his international business | ||||
DAVID P. STORCH, | 1989 | |||
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Director Qualifications: The Board of Directors concluded that Mr. Storch should serve as a director of the Company based on his current position as Chairman of the Board, President and Chief Executive Officer of the Company, his leadership and management skills, his understanding of the Company's businesses gained during his |
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Our Board of Directors unanimously recommends that you vote "FOR" each director nominee.
PROPOSAL 2 — ADVISORY RESOLUTION TOAPPROVE OUR FISCAL 2014 EXECUTIVE COMPENSATION
PROPOSAL 2 — ADVISORY RESOLUTION TO APPROVE OUR FISCAL 2016 EXECUTIVE COMPENSATION |
We are asking our stockholders to approve the following advisory resolution (commonly— commonly known as a say-on-pay proposal)proposal — on the compensation awarded to our named executive officers for Fiscal 20142016 as disclosed in this proxy statement:
"RESOLVED, that the stockholders of the Company approve, on an advisory basis, the compensation of the named executive officers for Fiscal 20142016 as reported in this proxy statement pursuant to Item 402 of Regulation S-K under the Securities Exchange Act of 1934, including the Compensation Discussion and Analysis, compensation tables and narrative discussion."
We encouragehold an annual vote on say-on-pay because we value the opinions of our stockholders on our executive compensation program. Our say-on-pay votes for the last two fiscal years — Fiscal 2015: 73% and Fiscal 2014: 96% – demonstrate that our stockholders have supported our Compensation Committee's decisions on executive compensation. Each year (but particularly in Fiscal 2016 after the lower say-on-pay vote in Fiscal 2015), our Compensation Committee takes a fresh look at the Company's executive compensation program, with an eye toward determining whether design or implementation modifications are warranted as a result of the say-on-pay vote, stockholder feedback, market practices, peer group changes, the financial performance of the Company and other relevant factors.
In Fiscal 2016, our Compensation Committee worked with senior management and Mercer (US) Inc. ("Mercer"), the Compensation Committee's independent compensation consultant, on the design of an executive compensation program that properly incentivizes the Company's executive officers in line with peer group companies and the best interests of the Company and its stockholders. The Compensation Committee's analysis embraced the following principles:
An appropriate mix of base salary, annual cash bonus opportunities and long-term stock-based compensation;
A greater use of performance-based compensation over fixed compensation;
A reliance on stock-based compensation as a significant portion of performance-based compensation;
The use of performance metrics that promote the achievement of short-term and long-term strategic and operational goals; and
Executive pay practices tied to readrobust risk and control features.
Please see the "Compensation Discussion and Analysis" on pages 27-50 and the "Summary Compensation Table" and other compensation tables and related narrative starting on page 52section of this proxy statement. These sections describe ourstatement on pages 30-46 for a detailed description of the Fiscal 2016 executive compensation policiesprogram approved by the Compensation Committee of the Board of Directors.
Fiscal 2016: Performance-Based Compensation Versus Fixed Compensation
The table below shows the breakdown of performance-based compensation and practices and provide detailed information about thefixed compensation of our named executive officers.
As described under "Stockholder Outreach Program" in the "2014 Proxy Statement Summary" and "Compensation Discussion and Analysis," the Company conducted a stockholder outreach program in Fiscal 2014paid to understand, consider and respond to stockholder concerns. With respect to executive compensation matters, the Company's key actions in Fiscal 2014 included the following:
who resigned as Vice President and Chief Financial Officer on September 28, 2015 and forfeited his performance-based compensation as a result):
NAMED EXECUTIVE OFFICER | PERFORMANCE-BASED COMPENSATION | FIXED COMPENSATION | ||||||||||||||
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Annual Performance-Based Cash Bonus | Performance-Based Restricted Stock | Stock Options | Base Salary | Discretionary Cash Bonus | ||||||||||||
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David P. Storch | $1,014,800 | $1,150,500 | $1,150,500 | $755,250 | — | |||||||||||
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Timothy J. Romenesko | — | $375,000 | $375,000 | $456,250 | $507,400 | |||||||||||
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John M. Holmes | $517,949 | $375,000 | $375,000 | $456,250 | $117,551 | |||||||||||
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Michael J. Sharp | $370,462 | $368,750 | $131,250 | $382,418 | — | |||||||||||
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Robert J. Regan | $361,200 | $312,000 | $312,000 | $390,396 | — | |||||||||||
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Based on the above, the percentage of performance-based compensation versus the percentage of fixed compensation for each named executive officer for Fiscal 2016 is set forth below:
NAMED EXECUTIVE OFFICER | TOTAL PERFORMANCE-BASED COMPENSATION | TOTAL FIXED COMPENSATION | ||||||
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David P. Storch | 81.4% | 18.6% | ||||||
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Timothy J. Romenesko | 43.8% | 56.2% | ||||||
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John M. Holmes | 68.8% | 31.2% | ||||||
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Michael J. Sharp | 69.5% | 30.5% | ||||||
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Robert J. Regan | 71.6% | 28.4% | ||||||
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Our Board of Directors recommends a vote"FOR" the Company's Fiscal 2014 say-on-pay proposal. The BoardCompensation Committee believes that the executive compensation paid to theour named executive officers in Fiscal 2016, in form and amount, was fair, appropriate and appropriate in Fiscal 2014 and thatthe best interests of the Company has responded appropriately to stockholder concerns in revisingand its executive compensation program.stockholders.
Our stockholders, upon the recommendation of our Board of Directors previously votedunanimously recommends that our say-on-pay proposal should be considered by stockholders at each annual meeting given the importance of the Company's executive compensation program. While the say-on-payyou vote is not binding on the Board of Directors, the Board reviews and considers the results of the say-on-pay vote (as it did in response to the Fiscal 2013 say-on-pay vote), the opinions of our stockholders and other relevant factors in making future decisions regarding the Company's executive compensation program. Our stockholders will vote next on the frequency of our say-on-pay proposal (i.e., whether to hold a say-on-pay vote annually, every two years or every three years) at our 2017 annual meeting of stockholders.
OUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE"FORTHE ADVISORY RESOLUTION TO APPROVE OUR FISCAL 2014 EXECUTIVECOMPENSATION." the advisory resolution to approve our Fiscal 2016 executive compensation.
PROPOSAL 3 — APPROVAL OF AMENDMENTS TO THE AAR CORP. 2013 STOCK PLAN |
The Company maintains the AAR CORP. 2013 Stock Plan (the "Plan"). The Plan is the Company's only active stock-based compensation plan, and it provides for discretionary grants of stock options, stock awards, stock unit awards and stock appreciation rights (SARs) to key employees and non-employee directors.
The purpose of the Plan is to encourage key employees and non-employee directors to increase their investment in the Company, to provide additional opportunities to share in the success of the Company and to align their interests with the interests of the Company's stockholders. These opportunities are intended to foster in key employees and non-employee directors a strong incentive to put forth maximum effort for the continued success and growth of the Company, to aid in retaining individuals who put forth such efforts and to assist in attracting the best available individuals in the future.
Requests for Approval
We are asking our stockholders to:
Approve an additional 2,850,000 shares of common stock for issuance under the Plan;
Re-approve the material terms of the Plan's performance goals to ensure continued deductibility under Section 162(m) of the Internal Revenue Code ("Section 162(m)"); and
Approve limitations on the awards granted, and the total compensation payable, to non-employee directors.
Each of these three requests (collectively referred to as "amendments" to the Plan) are described in detail below:
Share Increase. The Board of Directors of the Company has approved an amendment to the Plan to increase the number of shares available under the Plan by 2,850,000, from 2,500,000 shares to 5,350,000 shares. This increase is subject to approval by the Company's stockholders. Fiscal 2017 stock grants made in July 2016 used up all available shares under the Plan. Although these stock option grants exceeded the remaining number of available shares by 184,784 shares, the stock options are not currently exercisable, and the shares subject to the stock options will not be issued until exercise. Pending exercise, the available number of shares will be increased by any add-backs of cancelled shares and additional shares approved by stockholders.
The purpose of this amendment is to ensure that the Company has the continued ability to make stock-based awards under the Plan. The Company believes that its future success depends in large part on its ability to attract, retain and motivate high-quality employees and non-employee directors, and that its ability to provide equity-based and performance-based awards is critical to achieving this success. The Company believes that it would be at a severe competitive disadvantage if it could not use these types of awards to recruit and compensate its employees and non-employee directors.
The Company views its use of stock-based awards as an essential part of the Company's compensation program and as an important element in achieving the program's goals. These awards help align pay with performance and allow the Company to better link the financial interests of employees and non-employee directors with stockholders. The Company also believes that equity compensation motivates employees and non-employee directors to create stockholder value because the value they realize from equity compensation is based on the performance of the Company's common stock.
Plan Restrictions. The Plan contains certain restrictions that further the Plan's objectives and reflect sound corporate governance principles that protect the interests of stockholders:
Shares that are used to pay the stock option exercise price or required tax withholding on any award may not be used for future grants under the Plan.
Shares repurchased by the Company with proceeds received from a stock option exercise may not be used for future grants under the Plan.
Stock awards under the Plan must have a vesting period of at least one year; provided, however, that up to 5% of the shares available under the Plan may be granted without regard to such minimum vesting requirement.
Dividends on performance-based stock awards and dividend equivalents on performance-based stock unit awards are paid only to the extent the performance goals are met.
Stock options and SARs maynot be granted with an exercise price less than the fair market value of the underlying common stock on the date of grant, and the term is limited to ten years from the date of grant.
Repricing of stock options or SARs without stockholder approval is prohibited.
Awards do not automatically vest upon a change in control of the Company unless the Compensation Committee so provides in the award agreements (the award agreements under the Plan currently require a "double trigger" for vesting upon a change in control: the change in controland termination of employment).
The award agreements under the Plan provide that the Company has the ability to "claw back" stock compensation in the event of a restatement of the Company's financial statements.
The Company, through its Compensation Committee (the "Committee"), believes that it has prudently managed awards under the Plan, giving proper consideration to the dilutive impact of stock awards on stockholder equity. The Company expects its practice of repurchasing shares of its common stock will mitigate, at least in part, the impact of any dilution. In Fiscal 2016, the Company repurchased 814,078 shares at an average price of $22.91. The Company further expects share usage under the Plan to be generally consistent with share usage under the Plan to date, with the Plan shares likely to be awarded over the next two to three years at which time the Company once again would seek stockholder approval for the award of any additional shares under the Plan.
Historical Stock Option and Stock Award Information. Set forth below is certain historical information as of August 1, 2016 about stock options and stock awards granted under the Plan and its predecessor plan (the AAR CORP. Amended and Restated Stock Benefit Plan):
The number of granted but unexercised stock options: 2,749,488
The weighted average exercise price of the granted but unexercised stock options: $22.69
The weighted average remaining term of the granted but unexercised stock options: 6.7 years
The number of granted but unvested full share awards (stock awards and stock units payable in stock): 674,830
The number of shares available for future grants under the Plan and the predecessor plan: 0
Material Terms of the Plan's Performance Goals. Section 162(m) generally precludes a publicly traded company from taking a tax deduction for compensation in excess of $1 million paid to certain executives. These executives are the company's chief executive officer and the three other highest paid executives, other than the chief financial officer, who are the named executive officers listed in the Summary Compensation Table of a company's annual proxy statement. This restriction is subject to an exception for "performance-based" compensation that meets certain requirements, including a requirement that the "material terms of the performance goals" applicable to these named executive officers must be disclosed to and approved by stockholders before any compensation is paid to them. Stockholders approved the Plan, including the material terms of the performance goals, at the 2013 annual meeting. Section 162(m) requires that if the targets under the performance goals can be changed, the material terms of the performance goals must be re-approved by stockholders at least every five years in order to retain qualification under Section 162(m).
Re-approval of the material terms of the performance goals will provide the Compensation Committee with the continued ability to make awards that qualify as "performance-based compensation" under Section 162(m). The material terms of the performance goals for purposes of Section 162(m) are:
The individuals eligible to receive compensation;
A description of the business criteria on which the performance goals are based; and
The maximum amount of compensation that can be paid to an individual under the performance goals.
Each of these material terms is described below.
Individuals Eligible to Receive Compensation. The Committee administers the Plan. It has the authority to determine the key employees and non-employee directors to whom awards are to be granted under the Plan. All employees of the Company designated by the Committee and all non-employee directors of the Company are eligible to receive awards under the Plan.
Description of the Business Criteria on Which the Performance Goals Are Based. The Plan already contains a comprehensive list of business criteria that fit within the "performance-based compensation" exception under Section 162(m) from which the Compensation Committee may select a particular year's performance goals. The Board of Directors has approved an amendment to the Plan that specifically adds "working capital turns" to the listed business criteria.
The following is the list of business criteria, as may be selected and defined by the Committee: earnings per share or earnings per share growth; earnings before interest and taxes, or earnings before interest, taxes, depreciation and/or amortization; net income; share price; total stockholder return, return on assets; net asset turnover; inventory turnover; return on capital or return on invested capital; return on equity; cash flow; net or pre-tax income; profit margin; working capital turns; market share; expense management; revenue; revenue growth; stockholder equity; leverage ratio; investment rating; and debt coverage. Performance goals may be absolute in their terms or measured against or in relationship to the performance of other companies or indices selected by the Committee, and may be particular to one or more lines of business or subsidiaries or may be based on the performance of the Company and its subsidiaries as a whole. In addition, the Committee may adjust performance goals for any events that occur during a performance period, including significant acquisitions or dispositions of businesses or assets by the Company; litigation, judgments or settlements; changes in tax laws, accounting principles, or other laws or provisions affecting reported results; any reorganization and restructuring programs; extraordinary items; significant, non-recurring charges or credits; and fluctuations in foreign exchange rates.
Maximum Amount of Compensation. Subject to certain adjustments, (i) the maximum number of shares as to which a key employee may receive stock options and SARs in any calendar year is 800,000, and (ii) the maximum number of shares issuable as stock awards and stock unit awards intended to qualify as "performance-based" under Section 162(m) of the Internal Revenue Code to any single key employee in any calendar year is 300,000 (or in the event an award is settled in cash, an amount equal to the closing sales price of such shares (the "fair market value") on the date on which the award is settled).
Limitation on Awards Granted, and Total Compensation Payable, to Non-Employee Directors. The Board of Directors of the Company approved an amendment to the Plan that provides that the fair market value of shares subject to awards granted to any non-employee director in any calendar year, together with cash compensation paid to such non-employee director in such calendar year, shall not exceed $500,000. The purpose of this amendment is to protect against a conflict of interest, given that the Board of Directors is responsible for fixing its own compensation.
Description of the Plan
The following is a summary of the Plan. It is qualified by reference to the full text of the Plan, which is attached asExhibit A to this proxy statement (with the proposed amendments to the Plan highlighted). Stockholders are encouraged to review the Plan, as proposed to be amended, carefully.
Administration. The Plan is administered by the Committee, which is comprised of directors who satisfy the "non-employee director" definition under Rule 16b-3 of the Securities Exchange Act of 1934 and the "outside director" definition under Section 162(m) of the Internal Revenue Code. The Committee has full authority to select the individuals who will receive awards under the Plan, determine the form and amount of each of the awards to be granted and establish the terms and conditions of awards.
As permitted by the Plan, the Committee has delegated to the Chief Executive Officer (acting in his capacity as a director of the Company) authority to grant awards to key employees, other than himself, who are not officers subject to Section 16 of the Securities Exchange Act or who are or may become subject to Section 162(m) of the Internal Revenue Code. Such awards will be consistent with the terms and conditions set forth in the forms of award agreement approved by the Committee.
Number of Shares of Common Stock. The number of shares of the Company's common stock that may be issued under the Plan is 2,500,000 shares (5,350,000 if the amendment is approved). Stock options and SARs reduce the number of available shares by one share for each share subject to the option or SAR, and stock awards and stock units settled in shares reduce the
number of available shares by two shares for every one share delivered. Awards that can only be settled in cash do not reduce the number of shares available for issuance.
Shares issuable under the Plan may be authorized but unissued shares or treasury shares. If there is a lapse, forfeiture, expiration, termination or cancellation of any award for any reason, the shares subject to the award shall again be available for issuance under the Plan and added back in the same multiple as when they were awarded. By contrast, any shares subject to an award that are delivered to the Company by a participant, or withheld by the Company on behalf of a participant, as payment for an award or payment of withholding taxes due in connection with an award, or repurchased by the Company with proceeds received from a stock option exercise shallnot again be available for issuance, and all such shares shall count toward the number of shares issued under the Plan. The number of shares of common stock issuable under the Plan is subject to adjustment in the event of any reorganization, recapitalization, stock split, stock dividend or other distribution, merger, consolidation, split-up, spin-off, combination, subdivision, consolidation or exchange of shares, any change in the capital structure of the Company or any similar corporate transaction. In each case, the Committee has the discretion to make adjustments it deems necessary to preserve the intended benefits under the Plan.
Eligibility. All employees of the Company designated as key employees for purposes of the Plan and all non-employee directors of the Company are eligible to receive awards under the Plan. As of August 31, 2016, approximately 100 key employees and all non-employee directors were eligible to participate in the Plan.
Awards to Participants. The Plan provides for discretionary grants of stock options, stock awards, stock unit awards and SARs to participants. Each award made under the Plan will be evidenced by a written award agreement specifying the terms and conditions of the award as determined by the Committee in its sole discretion, consistent with the terms of the Plan.
Stock Options. The Committee may grant non-qualified stock options or incentive stock options to key employees and non-qualified stock options to non-employee directors. Each stock option represents the participant's right to purchase a share of common stock of the Company by paying the exercise price of the option. The Committee has the discretion to set the terms and conditions applicable to the options, including the number of shares subject to the option and the vesting schedule; provided that (i) the exercise price of each stock option will not be less than the closing sales price of the Company's common stock on the date on which the option is granted ("fair market value"), (ii) each option will expire ten years from the date of grant, and (iii) no option can be amended such that it would be considered a "repricing" without stockholder approval. It is intended that stock options qualify as "performance-based compensation" under Section 162(m) of the Internal Revenue Code and thus be fully deductible by the Company for federal income tax purposes, to the extent permitted by law.
In addition, an incentive stock option is subject to the following rules: (i) the aggregate fair market value (determined at the time the option is granted) of the shares of common stock with respect to which an incentive stock option is exercisable for the first time by a key employee during any calendar year (under all incentive stock option plans of the Company and its subsidiaries) cannot exceed $100,000, and if this limitation is exceeded, so much of the incentive stock option that does not exceed the $100,000 limit will be an incentive stock option and the remainder will be a non-qualified stock option; (ii) if an incentive stock option is granted to a key employee who owns stock possessing more than 10% of the total combined voting power of all classes of stock of the Company, the exercise price of the incentive stock option will be 110% of the closing price of the common stock on the date of grant and the incentive stock option will expire no later than five years from the date of grant; and (iii) no incentive stock option may be granted after 10 years from the date the Plan is adopted.
Stock Awards. The Committee may grant stock awards to participants. Stock awards consist of shares of common stock granted without any consideration from the participant. The number of shares awarded to each participant, and the restrictions, terms and conditions of the award, will be at the discretion of the Committee. Subject to the restrictions, a participant will be a stockholder with respect to the shares awarded to him or her and will have the rights of a stockholder with respect to the shares, including the right to vote the shares and receive dividends on the shares; provided that dividends otherwise payable on any performance-based stock award will be held by the Company and will be paid only when and to the extent the restrictions on such stock award lapse, and the Committee in its discretion can provide that the Company accumulate and hold the dividends on any other stock award until the restrictions on the shares lapse.
Stock Units. The Committee may grant stock unit awards to participants. Each stock unit entitles the participant to receive, on a specified date or event set forth in the award agreement, one share of common stock of the Company or cash equal to the fair market value of one share on such date or event, as provided in the award agreement. The number of stock units awarded
to each participant, and the terms and conditions of the award, will be at the discretion of the Committee. A participant will not be a stockholder with respect to the stock units awarded to him prior to the date they are settled in shares of common stock. The Committee may provide that the participant will be paid an amount equal to the dividends that would have been paid had the stock units been actual shares; provided that dividend equivalents payable on performance-based stock units will be held by the Company and paid only when and to the extent the restrictions lapse, and the Committee in its discretion can provide that the Company accumulate and hold such amounts payable on any other stock units until the restrictions on the stock units lapse.
Stock Appreciation Rights. SARs may be awarded to key employees under the Plan. Each SAR entitles the key employee to receive the difference between the fair market value of the common stock on the date of exercise of the right and the exercise price thereof, multiplied by the number of shares with respect to which the right is being exercised. Upon exercise, the SAR will be paid in cash or in shares of common stock (based upon the fair market value on the date of exercise) or a combination thereof, as set forth in the award agreement. The Committee has the discretion to set the terms and conditions applicable to SARs, provided that (i) the exercise price of each SAR will not be less than the fair market value of the shares on the date the SAR is granted, (ii) each SAR will expire ten years from the date of grant, and (iii) no SAR can be amended such that it would be considered a "repricing" without stockholder approval. It is intended that SARs qualify as "performance-based compensation" under Section 162(m) of the Internal Revenue Code and thus be fully deductible by the Company for federal income tax purposes, to the extent permitted by law.
Performance-Based Awards. The Committee has the discretion to establish restrictions on any stock awards and stock unit awards to qualify the awards as "performance-based compensation" under Section 162(m) of the Internal Revenue Code so that they are fully deductible by the Company for federal income tax purposes. In such case, the Committee may establish performance goals for certain performance periods and targets for achievement of the performance goals, and the restrictions on the award will lapse if the performance goals and targets are achieved for the designated performance period. The performance goals will be based on one or more of the following criteria as described above.
Provisions Relating to a Change in Control of the Company. The Plan gives the Committee the discretion to determine how Plan awards are treated upon a change in control. The current award agreements under the Plan, as approved by the Committee, contain a "double trigger" provision, which provides that upon a change in controland a subsequent termination of employment, outstanding awards become immediately vested and exercisable, all restrictions on awards lapse and any performance-based goals are deemed satisfied at the target level.
Amendment of Award Agreements; Amendment and Termination of the Plan; Term of the Plan. The Committee may amend any award agreement at any time, provided that no amendment may adversely affect the right of any participant under any agreement in a material way without the written consent of the participant, unless such amendment is required by applicable law, regulation or stock exchange rule.
The Board may terminate, suspend or amend the Plan, in whole or in part, from time to time, without the approval of the stockholders, unless such approval is required by applicable law, regulation or stock exchange rule, and provided that no amendment may adversely affect the right of any participant under any outstanding award in a material way without the written consent of the participant, unless such amendment is required by applicable law, regulation or stock exchange rule.
Notwithstanding the foregoing, neither the Plan nor any outstanding award agreement can be amended in a way that results in the repricing of a stock option or SAR without prior stockholder approval. Repricing is broadly defined to include reducing the exercise price of a stock option or SAR or cancelling a stock option or SAR in exchange for cash, other stock options or SARs with a lower exercise price or other stock awards. An equitable adjustment to the awards to reflect changes in the capital structure of the Company or similar events does not constitute repricing for purposes of this prohibition.
No awards may be granted under the Plan on or after October 9, 2023.
Awards Granted Under the Plan
It is not possible at this time to determine all of the specific awards that will be made in future years under the Plan.
As of August 1, 2016, a total of 1,166,767 stock options with exercise prices ranging from $24.00 to 26.62 have been granted under the Plan since it was first adopted. These grants were made to the named executive officers and other persons and groups as follows: David P. Storch: 378,810; Timothy J. Romenesko: 125,134; John M. Holmes: 125,134; Michael J. Sharp 17,547; Robert J. Regan: 101,711; John C. Fortson: 45,455; all current executive officers as a group: 793,791; all non-employee directors as a group: 0; each nominee for election as a director: 0; each associate of any executive officer, non-employee director or nominee: 0; each other person with 5% of such awarded shares: 0; and all non-executive officer employees as a group: 372,976. On August 23, 2016, the last reported sales price for the common stock on the New York Stock Exchange was $24.65 per share.
Summary of Federal Income Tax Consequences
The following is a summary of the federal income tax consequences of the Plan. It is based on the federal tax laws and regulations currently in effect and existing administrative rulings of the Internal Revenue Service. Participants may also be subject to state and local taxes in connection with the grant of awards under the Plan. Participants should consult with their individual tax advisers to determine the tax consequences associated with awards granted under the Plan. This information may not be applicable to employees of foreign subsidiaries or to employees who are not residents of the United States.
Non-Qualified Stock Options. A participant will not recognize any income at the time the participant is granted a non-qualified stock option. On the date the participant exercises the non-qualified stock option, the participant will recognize ordinary income in an amount equal to the excess of the fair market value of the shares on the date of exercise over the exercise price. The participant will be responsible for remitting to the Company the withholding tax obligation that arises at the time the option is exercised. The Company generally will receive a tax deduction for the same amount of ordinary income recognized by the participant. When the participant sells these shares, any gain or loss recognized by the participant is treated as either short-term or long-term capital gain or loss depending on whether the participant has held the shares more than one year.
Incentive Stock Options. A participant will not recognize any income at the time the participant is granted an incentive stock option. If the participant is issued shares pursuant to the exercise of an incentive stock option, and if the participant does not make a disqualifying disposition of the shares within one year after the date of exercise or within two years after the date of grant, the participant will not recognize any income, for federal income tax purposes, at the time of the exercise. When the participant sells the shares issued pursuant to the incentive stock option, the participant will be taxed, for federal income tax purposes, as a long-term capital gain on any amount recognized by the participant in excess of the exercise price, and any loss sustained by the participant will be a long-term capital loss. No deduction will be allowed to the Company for federal income tax purposes. If, however, the participant sells the shares before the expiration of the holding periods, the participant will recognize ordinary income on the difference between the exercise price and the fair market value at exercise, and the Company generally will receive a tax deduction in the same amount. Upon exercise of an incentive stock option, the excess of the fair market value over the exercise price is an item of tax preference to the participant for purposes of determining the alternative minimum tax.
In order to qualify as an incentive stock option, the option must be exercised within three months after the participant's termination of employment for any reason other than death or disability and within one year after termination of the participant's employment due to disability. If the option is not exercised within this time period, it will be treated as a non-qualified stock option and taxed accordingly.
Stock Awards and Stock Unit Awards. If the participant receives a stock award, the participant generally will recognize ordinary income upon becoming entitled to transfer the shares at the end of any restriction period without forfeiture. A participant generally will recognize ordinary income when he receives shares or cash pursuant to the settlement of stock units, provided that if the shares are subject to any further restrictions on transfer, the participant will recognize ordinary income upon becoming entitled to transfer the shares at the end of the restriction period without forfeiture. The amount of income the participant recognizes will be equal to the fair market value of the shares on the day the restrictions lapse, or the amount of cash received. This amount will also be the participant's tax basis for the shares. The participant will be responsible for remitting to the Company the withholding tax obligation that arises at the time the ordinary income is recognized. In addition, the holding period begins on the day the restrictions lapse, or the date the shares are received if not subject to any restrictions, for purposes of determining whether the participant has long-term or short-term capital gain or loss on a subsequent sale of
the shares. The Company generally will be entitled to a deduction with respect to the ordinary income recognized by the participant.
If a participant who receives a stock award subject to restrictions makes an election under Section 83(b) of the Internal Revenue Code within 30 days after the date of the grant, the participant will have ordinary income equal to the fair market value on the date of grant, and the participant will recognize no additional income until the participant subsequently sells the shares. The participant will be responsible for remitting to the Company the withholding tax obligation that arises at the time the ordinary income is recognized. When the participant sells the shares, the tax basis will be equal to the fair market value on the date of grant, and the holding period for capital gains purposes begins on the date of the grant. If the participant forfeits the shares subject to the Section 83(b) election, the participant will not be entitled to any deduction, refund, or loss for tax purposes (other than a capital loss with respect to the amount of ordinary income previously recognized by the participant), and the Company will have to include the amount that it previously deducted from its gross income in the taxable year of the forfeiture.
Stock Appreciation Rights. A participant will not recognize any income at the time of the grant of an SAR. Upon exercise of the SAR, the participant will recognize ordinary income equal to the amount received upon exercise. The participant will be responsible for remitting to the Company the withholding tax obligation that arises at the time the ordinary income is recognized. The Company generally will be entitled to a deduction with respect to the ordinary income recognized by the participant.
Vote Required for Approval
Approval of the amendments to the Plan requires the affirmative vote of the holders of a majority of the shares present in person or represented by proxy and entitled to vote at the annual meeting.
The Board of Directors unanimously recommends a vote "FOR" the above-described amendments to the Plan.
PROPOSAL 3 — RATIFICATION OF THE APPOINTMENT OF KPMG LLP AS OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
PROPOSAL 4 — RATIFICATION OF THE APPOINTMENT OF KPMG LLP AS OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR FISCAL 2017 |
The Company's independent registered public accounting firm reports to, and is engaged at the direction of, the Audit Committee of the Company's Board of Directors.
The Audit Committee appointed KPMG LLP ("KPMG") as the Company's independent registered public accounting firm for Fiscal 2015, after consideration2017. The Company's independent registered public accounting firm is responsible for auditing the Company's financial statements and determinationthe effectiveness of KPMG's independenceinternal controls over financial reporting and for expressing opinions thereon.
The Audit Committee believes that the appointment of KPMG is in lightthe best interests of all services rendered to the Company and its stockholders for the following primary reasons:
KPMG's independence from the Company;
The quality of KPMG's past performance as the Company's independent registered public accounting firm. firm;
KPMG's understanding of the Company's businesses, operations, accounting policies and practices and internal control over financial reporting;
KPMG's reputation in the industry and its experience in accounting matters for aerospace and defense companies;
The reasonableness of the fees paid by the Company to KPMG for its services; and
Market information on KPMG's audit quality and performance, including recent Public Company Accounting Oversight Board ("PCAOB") reports on KPMG.
The Board of Directors asks that stockholders ratify the appointment of KPMG as the Company's independent registered public accounting firm for Fiscal 2015.2017. Representatives of KPMG are expected to be present at the annual meeting, with the opportunity to make a statement if they so desire and to respond to appropriate questions offrom stockholders.
Independent Registered Public Accounting Firm Fees and Services
The following table sets forth the aggregate fees billed by KPMG to the Company for Fiscal 20132015 and Fiscal 20142016 for audit, audit-related and tax services provided by the Company's independent registered public accounting firm.
| ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Description of Fees | | Fiscal 2013 ($) | | Fiscal 2014 ($) | | ||||||||
| Audit Fees | 1,689,980 | 1,794,370 | |||||||||||
| Audit-Related Fees1 | 136,375 | 136,000 | |||||||||||
| Tax Fees2 | 373,317 | 387,109 |
Description of Fees | Fiscal 2015 | Fiscal 2016 | ||||
| | | | | | |
Audit Fees | $1,914,366 | $1,854,803 | ||||
| | | | | | |
Audit-Related Fees1 | $7,500 | $330,000 | ||||
| | | | | | |
Tax Fees2 | $332,341 | $448,566 | ||||
| | | | | | |
Audit Committee pre-approval is required for any audit, audit-related, tax or other services to be provided by the independent registered public accounting firm.
OUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTEOur Board of Directors unanimously recommends that you vote "FORTHE RATIFICATION OF THE APPOINTMENT OF KPMG AS OURINDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR FISCAL 2015.
Audit Committee Report for Fiscal 2014
The Audit Committee reviews" the Company's financial reporting process on behalfratification of the Boardappointment of Directors. The Company's management is primarily responsible for the Company's financial statements and the quality and integrity of the reporting process and systems of internal control. The Company'sKPMG LLP as our independent registered public accounting firm is responsible for auditing the Company's financial statements and the effectiveness of internal controls over financial reporting and for expressing opinions thereon.
In fulfilling its oversight responsibilities, the Audit Committee has reviewed and discussed the Company's audited financial statements for Fiscal 2014 with the Company's management and representatives of the Company's independent registered public accounting firm, including a discussion of the reasonableness of significant judgments and accounting estimates, and clarity of disclosures in the financial statements. The Audit Committee also reviewed with management and the independent registered public accounting firm the preparation of the financial statements and related disclosures contained in the Company's earnings announcements and quarterly reports. Management has represented to the Audit Committee that the Company's financial statements were prepared in accordance with United States generally accepted accounting principles ("GAAP"), and the independent registered public accounting firm has expressed an opinion based on their audit that the financial statements are in conformance with GAAP in all material respects. The Audit Committee is not responsible for planning or conducting audits, or the determination that the Company's financial statements are complete and accurate and in accordance with GAAP. That is the responsibility of management and the independent registered public accounting firm.
The Audit Committee reviewed and discussed with the independent registered public accounting firm and management the overall scope and plans for the audit, the quality, adequacy and assessment of the effectiveness of internal controls over financial reporting, and the Internal Audit Department's management, organization, responsibilities, budget and staffing. The Audit Committee also met with the independent registered public accounting firm representatives without management present and discussed the results of their audits, their evaluation of the Company's internal controls over financial reporting, disclosure controls and the overall quality (not just acceptability) of the Company's accounting policies and financial reporting.
The Audit Committee also discussed with the representatives of the independent registered public accounting firm (i) the matters required to be discussed byPublic Company Accounting Oversight Board Auditing Standard No. 16 ("Communications with Audit Committees"), and (ii) the independent registered public accounting firm's independence from the Company and its management, including the matters in the written disclosures and letter furnished to the Audit Committee by the independent registered public accounting firm and required by applicable requirements of the Public Company Accounting Oversight Board. The Audit Committee determined that the non-audit services provided to the Company by the independent registered public accounting firm are compatible with maintaining the independent registered public accounting firm's independence.2017.
In reliance on its review of the audited financial statements and the discussions referred to above and subject to the limitations on the role and responsibilities of the Audit Committee referred to above and in its charter, the Audit Committee recommended to the Board of Directors that the audited financial statements be included in the Company's Annual Report on Form 10-K for Fiscal 2014 for filing with the SEC.
The Audit Committee also reviewed and assessed the adequacy of the Audit Committee charter and conducted an Audit Committee self-assessment in which it concluded that the Committee operates effectively and successfully carried out all of its charter responsibilities.
Respectfully submitted,
Audit Committee
James E. Goodwin, ChairmanAnthony K. AndersonNorman R. BobinsPatrick J. KellyMarc J. WalfishRonald B. Woodard
CORPORATE GOVERNANCE |
The Company is committed to goodWe review our corporate governance. We regularly review ourgovernance policies and procedures giving due considerationon an annual basis. We strive to current developmentsemulate "best practices" and "best practices."tailor them, where appropriate, to fit our specific needs. We believe that we comply with all applicable SEC and NYSE rules and regulations, and weregulations. We also have adopted additional corporate governance practices that we believe are in the best interests of the Company and its stockholders.
Copies of the following corporate governance documents are available on the Company's website atwww.aarcorp.com under "Investor Relations/Corporate Governance":
Corporate Governance Guidelines, which include policies on:
Categorical Standards for Determining Director Independence
Code of Business Ethics and Conduct
Audit Committee Charter
Compensation Committee Charter
Nominating and Governance Committee Charter
Executive Committee Charter
Conflict Minerals Policy
These corporate governance documents are also available in print to any stockholder upon written request to the Secretary of the Company at the Company's address listed on the first page of this proxy statement.
We maintain a stockholder engagement program as a "best practice" under our corporate governance and executive compensation initiatives. The Company maintains an Ethics Hotline through an independent third-party providerpurposes of this program are to promote communication, increase transparency and, most importantly, better understand and address the perspectives of our stockholders. We believe that opportunities to receive confidential complaints, information, suggestions or recommendations concerning the Company, its officers, directors, employees, policies, procedures, employment and business practices, accounting or audit matters, financial reporting or complianceconsider stockholder feedback enhance our corporate governance and executive compensation practices.
In Fiscal 2016, our stockholder engagement program consisted of individual meetings and calls with other Company policies or applicable regulatory or legal requirements. The Ethics Hotline is toll-freestockholders and permits callers to identify themselves or remain anonymouspresentations at their election.various investor conferences. Through this program, we estimate that we communicated with stockholders owning approximately 75% of our outstanding shares.
We regularly consider the size, skills and diversity of our Board of Directors to assure that we maintain a proper balance between director stability and fresh perspectives in the boardroom. We recruit new directors who we believe will complement and diversify the experience, skills and perspectives of our existing directors. To that end, we were pleased to welcome Jennifer L. Vogel to our Board in January 2016. Ms. Vogel is an accomplished business executive with significant aviation experience. See "Proposal 1 — Election of Our Directors — Our Continuing Directors" for additional information about Ms. Vogel.
Director Nominations and Qualifications
The Board of Directors, acting through its Nominating and Governance Committee, is responsible for identifying, evaluating and recommending candidates for director. The Nominating and Governance Committee obtains recommendations from management, other directors, business and community leaders and stockholders, and may retain the services of a consultant to assist in identifying candidates. The Nominating and Governance Committee considers all director candidates in the same manner, including director candidates recommended by stockholders, regardless of the source of the recommendation. In its evaluation of director candidates, the Nominating and Governance Committee considers the factors specified in the Company's Corporate Governance Guidelines, including:
A high level of integrity and professional and personal ethics and values consistent with those of the Company;
Professional background and relevant business and industry experience;
Current employment, leadership experience and other board service;
Demonstrated business acumen or special technical skills or expertise (e.g., audit, financial, legal or aviation and government/government and defense), particularly in areas where the Board currently lacks specific skills;
A commitment to enhancing stockholder value and serving the interests of all stockholders;
Independence (including within the meaning of the applicable NYSE rules) and freedom from any conflicts of interest that would interfere with a director's ability to discharge his duties;
Willingness and ability to make the commitment of time and attention necessary for effective Board service;service
A balance of business, financial and other experience, expertise, capabilities and perspectives among sitting directors in the context of the current composition of the Board, operating requirements of the Company and long-term interests of stockholders; and
Other factors the Nominating and Governance Committee deems appropriate.
The Nominating and Governance Committee considers the racial, ethnic and gender diversity of the Board and director candidates, as well as the diversity of their knowledge, skills, experience, background and perspective, to assure that the Company maintains the benefit of a diverse, balanced and effective Board.
A full list of the qualifications of director candidates considered by the Committee is set forth in the Corporate Governance Guidelines on the Company's website atwww.aarcorp.com under "Investor Relations/Corporate Governance" and is available in print to any stockholder upon written request to the Secretary of the Company at the address listed on the first page of this proxy statement. The Nominating and Governance Committee regularly reviews these qualifications and the performance of individual directors and the Board as a whole.
Following its evaluation of director candidates, the Nominating and Governance Committee recommends its director nominees to the Board of Directors. Based on its review and consideration of the Committee's recommendation, the Board makes the final determination of director nominees to be elected by the Company's stockholders.
Stockholders may submit a proposed nomination to the Nominating and Governance Committee for consideration with respect to the 20152017 annual meeting of stockholders by writing to the Secretary, AAR CORP., One AAR Place, 1100 North Wood Dale Road, Wood Dale, Illinois 60191. To be considered, proposed nominations must be received by the Secretary of the Company no later than April 11, 2015,19, 2017, must state the reasons for the proposed nomination and contain the information required under the Company's By-Laws, including the full name and address of each proposed nominee, as well as a brief biographical history setting forth past and present directorships, employment and occupations, information as to stock ownership, other arrangements regarding the common stock, and any other qualifications. Proposed nominations must also include a statement indicating that the proposed nominees have consented to being named in the proxy statement and to serve if elected.
A majority of the members of the Board of Directors must be independent directors under the Company's Corporate Governance Guidelines and applicable SEC and NYSE rules. The Nominating and Governance Committee and the Board of Directors review each director annually and make a determination concerning independence after consideration of all known facts and circumstances. The Board has established categorical standards to assist it in determining director independence. The Company's "Categorical Standards for Determining Director Independence" include all of the elements of the applicable SEC and NYSE rules with respect to director independence, as well as those of the Company, and are available on the Company's website.
Based on these categorical standards, its review of all relevant facts and information available, and the recommendations of the Nominating and Governance Committee, the Board, at its meeting in July 2014,2016, affirmatively determined that no director has a material relationship with the Company that would impair the director's ability to exercise independent judgment and, accordingly, that each director is an independent director, except for David P. Storch due to his status as Chairman of the Board and Chief Executive Officer of the Company, and Timothy J. Romenesko due to his status as President and Chief Operating Officerwho are both employees of the Company. Under the NYSE rules, a director employed by the Company is not an independent director by definition.
Board Leadership and Lead Director
The Board of Directors determines the leadership structure for the Board and the Company in a manner that it believes best serves the interests of the Company's stockholders.
The Corporate Governance Guidelines providesprovide that the Board shall have a Lead Director elected annually by the independent directors. The Lead Director chairs all executive sessions of the independent directors and works closely with the Chief Executive Officer on Board agendas, schedules and meetings. Ronald R. Fogleman, Chair of the Nominating and Governance Committee, currently serves as the Board's Lead Director.Director, having been re-elected by the independent directors at the Board's January 2016 meeting.
The Board has no fixed policy with respect to combining or separating the offices of Chairman of the Board and Chief Executive Officer. Currently, the Company's President and Chief Executive Officer, David P. Storch, is also Chairman of the Board. The Board continues to believe that having Mr. Storch as Chairman and Chief Executive Officer is the most effective and appropriate leadership structure for the Board and the Company at this time forgiven his tenure with the following principal reasons:
markets; his shaping of the Company's culture; his understanding of the Company's businesses employees and customers; and his leadership role in the Company's transformation from a supplier of aircraft parts and aftermarket services for commercial airlines into a leading international provider of products and services to the commercial aviation and government and defense services markets.
The Board of Directors, directly and through its committees, is responsible for overseeingoversees management's process for assessing and managing the Company's exposure to risks. In that role, theThe Board regularly reviews and responds to management's business strategies and initiatives, the Company's quarterly and annual financial results, and information relating to the Company's competitive position, customer base, and capital and liquidity position. The Board holds an annual strategy session with senior management devoted entirely to a review and consideration of the Company's businesses, markets, customers, competitors, and strategic initiatives and direction. This meeting includes an assessment of the key challenges and risks of the Company's businesses, and the opportunities for addressing and responding to these challenges and risks.
At its July 2016 meeting, the Board decided to increase its risk management oversight of the Company at the Board level by designating that two Board meetings per year will include review and consideration of the Company's risk profile and its risk mitigation strategies. These risk sessions will be led by Director Peter Pace and will focus in particular on cybersecurity risk and the activities of the Company's enterprise risk management committee. The Board considered but deferred for now the formation of a Board Risk Committee, instead deciding to maintain a comprehensive risk assessment structure at the full Board level.
The following table outlines the risk oversight responsibilities of the Board committees, and the succeeding narrative elaborates on these responsibilities:
Committee | Risk Oversight Responsibilities | |||
| | | | |
Nominating and Governance Committee | • Corporate governance • Board and committee membership • Succession planning • Board and CEO effectiveness | |||
| | | | |
Compensation Committee | • Cash incentive program • Stock-based compensation • Compensation policies and practices • Impact of performance-based compensation on risk-taking by management | |||
| | | | |
Audit Committee | • Financial reporting and investor disclosure • Accounting and auditing • Quality and adequacy of processes and internal controls • Oversight of enterprise risk management program | |||
| | | | |
The Nominating and Governance Committee oversees and reports to the Board on corporate governance risks, including Board and committee membership, director independence and related party transactions. It is responsible for succession planning at the CEO and senior executive level and takes the lead on the evaluation of the performance of the Board and the Company's Chief Executive Officer.
The Compensation Committee oversees and reports to the Board on the Company's cash incentive programs and stock-based compensation to provide that they are appropriately structured to incentivize officers and key employees while avoiding unnecessary or excessive risk-taking.
The Audit Committee, on behalf of the Board, oversees the enterprise risk management committee, which is composed of Company employees and is responsible for identifying the principal risks to the Company, developing and implementing risk mitigation strategies, auditing the effectiveness of the risk mitigation strategies and reporting to the Audit Committee. The enterprise risk management committee meets regularly with the Audit Committee to review and discuss the Company's principal risks and outline its risk mitigation approach for addressing these risks. The Audit Committee reports to the Board onalso reviews and assesses management's processes for managing risks relating to accounting, financial reporting, investment, tax and legal compliance, risks identified by the Company's internal and external auditors, and matters raised through the Company's Ethics Hotline. The Compensation Committee oversees and reports to the Board on the Company's incentive compensation programs to provide that they are appropriately structured to incentivize officers and key employees while assuring appropriate risk. The Nominating and Governance Committee oversees and reports to the Board on corporate governance risks, including director independence and related party transactions.
The Board and its committees receive information from and have regular access to the individual members of management responsible for managing risk, including the Company's President and Chief Executive Officer, President,Vice Chairman, Chief Financial Officer, Group Vice Presidents,Chief Accounting Officer and Controller, General Counsel, Internal Auditor and Internal Auditor.business group leaders. The directors meet each quarter with a broader group of the Company's employees at regularly scheduled Board dinners as an informal way of learning
more about the Company's businesses and its employees. The Board also schedules at least one meeting per year at a Company facility other than the corporate headquarters to promote interaction with local management and employees and allow directors a first-hand opportunity to inspect the Company's business operations.
Independent directors of the Board meet in executive session without management as part of each regular Board meeting and otherwise when circumstances make it advisable or necessary. The Lead Director presides at the executive sessions of independent directors.
Communications with the Board of Directors
Stockholders and other interested parties may communicate with the Board, the Chairman of the Board, the Lead Director, independent directors as a group, or any individual director or Committee Chairman by mail addressed to:
AAR CORP.Attention: Independent Directors, Lead Director or the name of the individual directorc/o Corporate SecretaryOne AAR Place1100 North Wood Dale RoadWood Dale, Illinois 60191
The independent members of the Board of Directors have approved procedures for the processing, review and disposition of all communications sent by stockholders or other interested parties to the Board of Directors.
Corporate Governance Guidelines
The Board of Directors adopted Corporate Governance Guidelines to codify long-standing policies and procedures and to demonstrate its commitment to corporate governance best practices. These Guidelines, under the administration of the
Nominating and Governance Committee of the Board of Directors, address director qualification standards, director responsibilities, director access to management and independent advisors, director compensation, management evaluation and succession, and the annual performance evaluation of the Board of Directors. These Guidelines are reviewed and approved annually by the Nominating and Governance Committee and the Board of Directors, most recently in July 2014.2016.
The Company maintains an Ethics Hotline through an independent third-party provider to receive confidential complaints, information, suggestions or recommendations concerning the Company, its officers, directors, employees, policies, procedures, employment and business practices, accounting or audit matters, financial reporting or compliance with other Company policies or applicable regulatory or legal requirements. The Ethics Hotline is toll-free and permits callers to identify themselves or remain anonymous at their election.
Code of Business Ethics and Conduct
The Company's Code of Business Ethics and Conduct adopted by the Board of Directors applies to all directors, officers, and employees, including the ChairmanPresident and Chief Executive Officer, the President and Chief Operating Officer, theVice Chairman, Chief Financial Officer, and the Chief Accounting Officer and Controller.Controller, General Counsel, Internal Auditor and business group leaders. The purpose of the Code of Business Ethics and Conduct is to promote the highest ethical standards in the Company's business practices and procedures, including the ethical handling of actual or apparent conflicts of interest; full, fair and timely disclosure; and compliance with applicable laws and governmental rules and regulations. Employees are encouraged to report to the Company any conduct that they believe in good faith to be in violation of the Code of Business Ethics and Conduct. We will post any amendments to the Code of Business Ethics and Conduct and any waivers from the Code granted by the Board to directors or executive officers on the Company's website, as required under SEC rules.
Related Person Transaction Policy
The purpose of the Related Person Transaction Policy, as adopted by the Board of Directors, is to provide for the identification, review, and consideration of transactions between the Company or its subsidiaries and any related persons. "Related persons" means: the Company's directors; director nominees; executive officers; greater than five percent beneficial owners of the Company's voting securities; members of their immediate families; and any firm, corporation or other entity in which any of the foregoing persons is employed or is a partner, a principal, or in a similar position, or in which such person has a 10% or greater beneficial ownership interest.
Under the Policy, any related person transaction involving amounts in excess of $120,000 must be reviewed, considered, and approved by the Board of Directors directly or through the Nominating and Governance Committee. Review of a proposed related person transaction takes into consideration the purpose of, and the potential benefits to the Company from, the related person transaction, and the impact of the related person transaction on a director's independence in the event that the related person is a director or an immediate family member of a director. No member of the Board or the Nominating and Governance Committee may participate in any review, consideration, or approval of any related person transaction with respect to which such member or any of his or her immediate family members is the related person.
The Policy provides that the Company may undertake certain pre-approved related person transactions (e.g., transactions in which the related person's interest derives solely from his or her service as a director of another corporation or entity that is a party to the transaction) without further specific review, consideration and approval.
Norman R. Bobins is a director of the Company and the Non-Executive Chairman of the PrivateBank and Trust Company. The PrivateBank and Trust Company is a member of the lending group under our Credit Agreement. All loans under the Credit Agreement are made in the ordinary course of business, are made on substantially the same terms, including interest rates, as those prevailing at the time for comparable loans with persons not related to the lender, and do not involve more than the normal risk of collectability or present other unfavorable features.
Patrick J. Kelly is a director of the Company and the majority owner of Resource 1, a technology staffing company. In Fiscal 2016, the Company paid approximately $390,000 to Resource 1 for staffing services.
The Company has a Board-approved Founder's Agreement with Ira A. Eichner, the Founder and former Chairman of the Board of the Company. The Founder's Agreement recognizes Mr. Eichner's extraordinary contributions to the Company for over 56 years and the value to the Company of an ongoing relationship with Mr. Eichner.Company. Under the Founder's Agreement. Mr. Eichner receives a quarterly retainer of $25,000. Mr. Eichner also participates in the Company's Non-Employee Directors' Retirement Plan until December 1, 2015 (see "—Director Compensation"). Mr. Eichner is Mr. Storch's father-in-law.
Director Orientation and Continuing Education
We hold director orientation sessions with new directors to familiarize them with our businesses, business strategies and corporate policies and practices. Our goal is to assist our new directors in understanding the Company and developing the skills and knowledge that they need to serve the interests of our stockholders. We also make continuing education programs available to our directors to help them maintain and enhance their skills and knowledge in carrying out their ongoing responsibilities as directors.
Board and Committee Evaluations
Our Nominating and Governance Committee conducts an annual evaluation of the performance of the Board. Our Lead Director reports the evaluation results — which include an assessment of the Board's performance as well as the identification of specific areas for improvement — to the full Board. Each Board committee also conducts an annual evaluation of its performance and reports the results to the full Board.
Communications with the Board of Directors
Stockholders and other interested parties may communicate with the Board, the Chairman of the Board, the Lead Director, independent directors as a group, or any individual director or Committee Chairman by mail addressed to:
AAR CORP.
Attention: Independent Directors, Lead Director or the name of the individual director
c/o Corporate Secretary
One AAR Place
1100 North Wood Dale Road
Wood Dale, Illinois 60191
The independent members of the Board of Directors have approved procedures for the processing, review and disposition of all communications sent by stockholders or other interested parties to the Board of Directors.
BOARD MATTERS |
The Board has an Audit Committee, a Compensation Committee, a Nominating and Governance Committee, and an Executive Committee. The following table identifies the current members of each committee:
Director | Audit Committee | Compensation Committee | Nominating and Governance Committee | Executive Committee | |||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | |||||||||||||||||||
Anthony K. Anderson | X | ||||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | |||||||||||||||||||
Norman R. Bobins | X | X | |||||||||||||||||||||||||||||||||||||
| |
| | | | | | | | | | | | | | | | | | | |||||||||||||||||||
Michael R. Boyce | X | X | |||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | |||||||||||||||||||
Ronald R. Fogleman | X | Chair | X | ||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | |||||||||||||||||||
James E. Goodwin | Chair | X | X | ||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | |||||||||||||||||||
Patrick J. Kelly | X | X | |||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | |||||||||||||||||||
Peter Pace | X | X | X | ||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | |||||||||||||||||||
Timothy J. Romenesko | |||||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | |||||||||||||||||||
David P. Storch | Chair | ||||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | |||||||||||||||||||
Jennifer L. Vogel | X | X | |||||||||||||||||||||||||||||||||||||
| |
| | | | | | | | | | | | | | | | | | | |||||||||||||||||||
Marc J. Walfish | X | X | X | ||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | |||||||||||||||||||
Ronald B. Woodard | X | Chair | |||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | |
Audit Committee
Audit Committee Fiscal 2016 Report
Dear Fellow Stockholders:
The Audit Committee is comprised entirely of independent directors qualified to serve on the Audit Committee under applicable SEC and NYSE rules and the Company's Categorical Standards for Determining Director Independence. Its members are James E. Goodwin (Chair), Anthony K. Anderson, Norman R. Bobins, Patrick J. Kelly, Marc J. Walfish and Ronald B. Woodard. The Board of Directors has determined that each Audit Committee member is an "audit committee financial expert" within the meaning of applicable SEC rules.
The Audit Committee acts pursuant to a written charter adopted by the Board of Directors. The charter was last reviewed and approved by the Audit Committee and the Board of Directors at their July 20142016 meetings. The full text of the Audit Committee charter appears on the Company's website and is available in print to any stockholder upon written request to the Secretary of the Company at the Company's address listed on the first page of this proxy statement.
The Audit CommitteeCommittee's primary responsibility is primarily concerned withto assist the Board of Directors in fulfilling its duty to stockholders to oversee and review: the quality and integrity of the Company's financial statements compliance with legal and regulatory requirementsinternal controls over financial reporting; the qualifications, independence and performance of the Company's independent registered public accounting firm; and the performance of the Company's internal audit function and independent registered public accounting firm. Internal Audit function.
The Audit Committee performs the specific functions described in its charter, including:
Approves and engages the independent registered public accounting firm that audits the Company's consolidated financial statements;
Pre-approves all non-audit and audit-related services furnished by the independent registered public accounting firm;
Maintains communication between the Board and the independent registered public accounting firm;
Monitors the qualifications, independence and performance of the independent registered public accounting firm;
Oversees and reviews the Company's financial reporting processes and practices;
Oversees and reviews the quality and adequacy of internal controls over financial reporting, disclosure controls and the organization and performance of the Company's internal audit department;
Reviews the scope and results of audits;
Oversees the Company's enterprise risk management committee; and
Meets with the independent registered public accounting firm representatives and internal audit department representatives without members of management present.
The Audit Committee held seven meetings during Fiscal 2014.2016. The Audit Committee meets outside the presence of management for portions of its meetings to hold separate discussions with KPMG, the Company's independent registered public accounting firm, the internal auditors and other representatives of the Company.
The Company's management has primary responsibility for the Company's financial statements and the quality and integrity of the reporting process and systems of internal control. KPMG is responsible for auditing the Company's financial statements and issuing a report on the conformity of those statements with generally accepted accounting principles ("GAAP") and a report on the effectiveness of the Company's internal controls over financial reporting.
In fulfilling its responsibilities, the Audit Committee reviewed and discussed with the Company's management and KPMG the Company's audited financial statements contained in the Company's Annual Report on Form 10-K filed with the SEC, including the critical accounting policies applied by the Company in preparing these financial statements. The Audit Committee also reviewed with management and KPMG the preparation of the financial statements and related disclosures contained in the Company's earnings announcements and Quarterly Reports on Form 10-Q.
The Audit Committee reviewed and discussed with management and KPMG the overall scope and plans for the audit, the quality, adequacy and assessment of the effectiveness of internal controls over financial reporting and the Internal Audit Department's management, organization, responsibilities, budget and staffing. The Audit Committee also met with KPMG without management present and discussed the results of its audits, its evaluation of the Company's internal controls over financial reporting, disclosure controls and the overall quality, not just the acceptability, of the Company's accounting principles, the reasonableness of significant accounting judgments and the clarity of disclosures in the financial statements.
The Audit Committee also reviewed and discussed with KPMG the matters required by PCAOB Auditing Standard No. 16 ("Communications with Audit Committees") and KPMG's independence from the Company and its management, including the matters in the written disclosures and letter furnished to the Audit Committee by KPMG and required by applicable requirements of the PCAOB.
The Audit Committee concluded that KPMG is independent from the Company and appointed KPMG as the Company's independent registered public accounting firm for Fiscal 2014 appears2017. The Audit Committee recommends that the stockholders of the Company ratify that appointment (see Proposal 4).
In reliance on pages 13-14.its review of the audited financial statements and the discussions referred to above and subject to the limitations on the role and responsibilities of the Audit Committee referred to above and in its charter, the Audit Committee recommended to the Board of Directors, and the Board of Directors approved, that the audited financial statements be included in the Company's Annual Report on Form 10-K for Fiscal 2016 for filing with the SEC.
Respectfully submitted,
The Audit Committee of the Board of Directors of AAR CORP.
James E. Goodwin, Chair
Norman R. Bobins
Patrick J. Kelly
Peter Pace
Marc J. Walfish
Ronald B. Woodard
Compensation Committee
The Compensation Committee is comprised entirely of independent directors as definedqualified to serve on the Compensation Committee under applicable SEC and NYSE rules and the Company's Categorical Standards for Determining Director Independence. Its members are Ronald B. Woodard (Chair), Anthony K. Anderson, Norman R. Bobins, Michael R. Boyce, Ronald R. Fogleman, Peter Pace and Peter Pace.Jennifer L. Vogel.
The Compensation Committee acts pursuant to a written charter adopted by the Board of Directors. The charter was reviewed and approved by the Compensation Committee and the Board of Directors at their July 20142016 meetings. The full text of the Compensation Committee charter appears on the Company's website and is available in print to any stockholder upon written request to the Secretary of the Company at the Company's address listed on the first page of this proxy statement.
The Compensation Committee is primarily concerned with establishing, reviewing and approving Chief Executive Officer compensation, reviewing and approving other senior executive compensation and overseeing the Company's stock plans and any other compensation and employee benefit plans. The Compensation Committee performs the specific functions described in its charter, including:
Reviews and approves compensation policies and practices for all elected corporate officers, including named executive officers;
Sets the compensation of the Chief Executive Officer and, together with the full Board, evaluates the Chief Executive Officer's performance;
Administers the Company's annual cash incentive and long-term stock incentive programs for officers, the AAR CORP. 2013 Stock Benefit Plan, the AAR CORP. 2013 Stock Plan, and the AAR CORP. Section 162(m) Annual Cash Incentive Plan;
Recommends director compensation and benefits to the Board for approval; and
Oversees administration of certain other employee benefit, director deferred compensation, savings and retirement plans.
The Compensation Committee held five meetings during Fiscal 2014.2016. The Compensation Committee Fiscal 2016 Report on Executive Compensation for Fiscal 2014 appears on page 51.46. Information about the role of the Compensation Committee consultant and management in the executive compensation process is set forth under "Executive Compensation — Compensation Discussion and Analysis" section on pages 46-47.Analysis."
Nominating and Governance Committee
The Nominating and Governance Committee is comprised entirely of independent directors as definedqualified to serve on the Committee under applicable SEC and NYSE rules and the Company's Categorical Standards for Determining Director Independence. Its members are Ronald R. Fogleman (Chair), Michael R. Boyce, James E. Goodwin, Patrick J. Kelly, Peter Pace, Jennifer L. Vogel and Marc J. Walfish.
The Nominating and Governance Committee acts pursuant to a written charter adopted by the Board of Directors. The charter was reviewed and approved by the Nominating and Governance Committee and the Board of Directors at their July 20142016 meetings. The full text of the Nominating and Governance Committee charter appears on the Company's website and is available in print to any stockholder upon written request to the Secretary of the Company at the Company's address listed on the first page of this proxy statement.
The Nominating and Governance Committee is responsible for both nominating and governance matters as described in its charter. The Nominating and Governance Committee performs the specific functions described in its charter, including:
Oversees the composition, structure and evaluation of the Board and its committees;
Reviews, considers, and acts upon related person transactions;
Develops and recommends Corporate Governance Guidelines for Board approval; and
Monitors and screens directors for independence and recommends to the Board qualified candidates for election as directors and to serve on Board committees.
The Nominating and Governance Committee held threefour meetings during Fiscal 2014.2016.
Executive Committee
The Executive Committee is comprised of David P. Storch (Chair), James E. Goodwin, Ronald R. Fogleman and Marc J. Walfish. Messrs. Goodwin, Fogleman and Walfish are independent directors as defined by applicable SEC and NYSE rules. As Chairman, President and Chief Executive Officer of the Company, Mr. Storch does not qualify as an independent director under the NYSE and SEC rules.
The Executive Committee acts pursuant to a written charter adopted by the Board of Directors. The charter was reviewed and approved by the Board of Directors at its July 20142016 meeting. The full text of the Executive Committee charter appears on the Company's website and is available in print to any stockholder upon written request to the Secretary of the Company at the Company's address listed on the first page of this proxy statement.
The Executive Committee is authorized to meet between meetings of the Board of Directors and exercise certain powers of the Board with respect to urgent matters or other matters referred to
it by the Board for deliberation or action, subject to limitations imposed by the Committee's charter, the Board, applicable law and the Company's By-Laws.
The Executive Committee did not meetheld one meeting during Fiscal 2014.2016.
During Fiscal 2014,2016, the Board held five meetings and acted by unanimous written consent on two occasions.four meetings. All directors attended at least 75% of the Board meetings and meetings of Board committees on which they served in Fiscal 2014.2016.
The Company's Corporate Governance Guidelines provide that directors are expected to attend all stockholder meetings. All members of the Company's Board of Directors serving at that time attended the Company's 20132015 annual meeting of stockholders.
The Board believes that compensation for any director who is not an officer or employee of the Company or any subsidiary should be a mix of cash and equity compensation. Directors who are officers or employees of the Company or any subsidiary receive no additional compensation for service on the Board or any of its committees.
The Board of Directors reviews director compensation annually to ensure that it is fair, appropriate and in line with its peer group companies. At its January 2013April 2015 meeting, the Board reviewed the findings of a report by its independent compensation consultant analyzing director compensation information of the Company and its peer group companies. This report showed that the Company's cash compensation for directors was above the median of the Company's peer group, the Company's equity compensation was below the median and total compensation was slightly below the median of the peer group (see pages 35-37 for information relating to the Company's peer group). Based on this information, the Board, upon the recommendation of the Compensation Committee made no changes toand following a presentation by Mercer, its Fiscal 2014independent compensation consultant, approved the same director compensation program.program for Fiscal 2016 that was in effect in Fiscal 2015.
The following table identifies the elements ofFiscal 2016 director compensation program, as approved by the Board, consists of the compensation elements set forth in effect during Fiscal 2014:the table below:
Compensation Element | Fiscal 2016 Non-Employee Director Compensation Program | |||||||
| | | | | | | | |
Annual Retainer | $50,000 | |||||||
| | | | | | | | |
Lead Director Annual Retainer | $30,000 | |||||||
| | | | | | | | |
Committee Chair Annual Retainer | $10,000 | |||||||
| | | | | | | | |
Board and Committee Meeting Fees | $2,500 per meeting | |||||||
| | | | | | | | |
Annual Stock Award | 5,000 shares of common stock | |||||||
| | | | | | | | |
All retainers are paid quarterly, and meeting fees are paid promptly following each meeting attended. The annual stock award was approved at the Board's January 2014 meetingApril 2015 meetings with an effective date of June 1, 2014. 2015 and a vesting date of June 1, 2016.
Each non-employee director may elect to defer receipt of the retainers and meeting fees pursuant to the Company's Non-Employee Directors' Deferred Compensation Plan (the "Director Plan"). Under the Director Plan, deferred retainer fees are converted into stock units equivalent to shares of common stock based on the then current stock price, and deferredat distribution are paid out, at the participant's election, in cash or in shares of common stock. Deferred meeting fees are
credited with interest quarterly based on the 10-Year10-year United States Treasury Bond rate. Distributions of deferred retainer fees under the Director Planrate and at distribution are paid out in cash or in shares of common stock of equivalent value, at the participant's election, and distribution of deferred meeting fees are made in cash, in each casecash. Distribution occurs upon termination of service on the Board or on the happening of certain other events, as specified in the Director Plan.
Each non-employee director, upon being elected a director, receives term life insurance coverage of $200,000 and is eligible (with spouse) to participate in a Company-paid, annual physical program. The Company also reimburses its non-employee directors for travel, lodging and related expenses that they incur in attending Board and committee meetings.
General.Fiscal 2016 Director Compensation. The following table sets forth all compensation paid to each non-employee director for Fiscal 2014:2016:
| |||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Name1 | | Fees Earned or Paid in Cash ($)2 | | Stock Awards ($)3 | | Option Awards ($)4 | | Non-Equity Incentive Plan Compensation ($) | | Change in Pension Value and Non-Qualified Deferred Compensation Earnings ($) | | All Other Compensation ($)5 | | Total ($) | | |||||||||||||||||||||||
| Anthony K. Anderson | 86,250 | 103,400 | 0 | 0 | 0 | $ | 747 | 190,397 | ||||||||||||||||||||||||||||||
| Norman R. Bobins | 86,250 | 103,400 | 0 | 0 | 0 | 747 | 190,397 | |||||||||||||||||||||||||||||||
| Michael R. Boyce | 72,500 | 103,400 | 0 | 0 | 0 | 2,238 | 178,138 | |||||||||||||||||||||||||||||||
| Ronald R. Fogleman | 120,000 | 103,400 | 0 | 0 | 0 | 2,429 | 225,829 | |||||||||||||||||||||||||||||||
| James E. Goodwin | 92,500 | 103,400 | 0 | 0 | 0 | 7,247 | 203,147 | |||||||||||||||||||||||||||||||
| Patrick J. Kelly | 82,500 | 103,400 | 0 | 0 | 0 | 747 | 186,647 | |||||||||||||||||||||||||||||||
| Peter Pace | 78,750 | 103,400 | 0 | 0 | 0 | 4,596 | 186,746 | |||||||||||||||||||||||||||||||
| Marc J. Walfish | 80,000 | 103,400 | 0 | 0 | 0 | 2,331 | 185,731 | |||||||||||||||||||||||||||||||
| Ronald B. Woodard | 96,250 | 103,400 | 0 | 0 | 0 | 747 | 200,397 |
Name1 | Fees Earned or Paid in Cash ($)2 | Stock Awards ($)3 | Option Awards ($)4 | Non-Equity Incentive Plan Compensation ($) | Change in Pension Value and Non-Qualified Deferred Compensation Earnings ($) | All Other Compensation ($)5 | Total ($) | |||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Anthony K. Anderson | 87,500 | 147,700 | — | — | — | 5,828 | 241,028 | |||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Norman R. Bobins | 83,750 | 147,700 | — | — | — | 878 | 232,328 | |||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Michael R. Boyce | 81,250 | 147,700 | — | — | — | 10,298 | 239,248 | |||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Ronald R. Fogleman | 122,500 | 147,700 | — | — | — | 2,557 | 272,757 | |||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
James E. Goodwin | 97,500 | 147,700 | — | — | — | 7,378 | 252,578 | |||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Patrick J. Kelly | 85,000 | 147,700 | — | — | — | 878 | 233,578 | |||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Peter Pace | �� | 81,250 | 147,700 | — | — | — | 878 | 229,828 | ||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Jennifer L. Vogel | 38,332 | 48,659 | — | — | — | 177 | 87,168 | |||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Marc J. Walfish | 87,500 | 147,700 | — | — | — | 878 | 236,078 | |||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Ronald B. Woodard | 97,500 | 147,700 | — | — | — | 1,901 | 247,101 | |||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | |||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Name | | Annual Retainer ($) | | Committee Chair Retainer Fees ($) | | Meeting Fees ($) | | Lead Director Fee | | Total ($) | | |||||||||||||||||
| Anthony K. Anderson | 50,000 | — | 36,250 | — | 86,250 | |||||||||||||||||||||||
| Norman R. Bobins | 50,000 | — | 36,250 | — | 86,250 | |||||||||||||||||||||||
| Michael R. Boyce | 50,000 | — | 22,500 | — | 72,500 | |||||||||||||||||||||||
| Ronald R. Fogleman | 50,000 | 10,000 | 30,000 | 30,000 | 120,000 | |||||||||||||||||||||||
| James E. Goodwin | 50,000 | 10,000 | 32,500 | — | 92,500 | |||||||||||||||||||||||
| Patrick J. Kelly | 50,000 | — | 32,500 | — | 82,500 | |||||||||||||||||||||||
| Peter Pace | 50,000 | — | 28,750 | — | 78,750 | |||||||||||||||||||||||
| Marc J. Walfish | 50,000 | — | 30,000 | — | 80,000 | |||||||||||||||||||||||
| Ronald B. Woodard | 50,000 | 10,000 | 36,250 | — | 96,250 |
Name | Annual Retainer ($) | Committee Chair Retainer Fees ($) | Meeting Fees ($) | Lead Director Fee ($) | Total ($) | |||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | |
Anthony K. Anderson | 50,000 | — | 37,500 | — | 87,500 | |||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | |
Norman R. Bobins | 50,000 | — | 33,750 | — | 83,750 | |||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | |
Michael R. Boyce | 50,000 | — | 31,250 | — | 81,250 | |||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | |
Ronald R. Fogleman | 50,000 | 10,000 | 32,500 | 30,000 | 122,500 | |||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | |
James E. Goodwin | 50,000 | 10,000 | 37,500 | — | 97,500 | |||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | |
Patrick J. Kelly | 50,000 | — | 35,000 | — | 85,000 | |||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | |
Peter Pace | 50,000 | — | 31,250 | — | 81,250 | |||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | |
Jennifer L. Vogel | 20,832 | — | 17,500 | — | 38,332 | |||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | |
Marc J. Walfish | 50,000 | — | 37,500 | — | 87,500 | |||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | |
Ronald B. Woodard | 50,000 | 10,000 | 37,500 | — | 97,500 | |||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | |
Fiscal 20152017 Director Compensation. At its April 20142016 meeting, the Board of Directors, upon the recommendation of the Compensation Committee and following a presentation by Mercer, its independent compensation consultant, on director compensation trends and best practices, approved the same director compensation program infor Fiscal 20152017 that was in effect for Fiscal 2016.
At its July 2016 meeting, the Board of Directors, upon the recommendation of the Compensation Committee, approved an amendment to the AAR CORP. 2013 Stock Plan that caps at $500,000 the total annual non-employee director compensation — consisting of cash compensation and stock compensation — that may be payable in Fiscal 2014.any given year. This amendment is subject to stockholder approval. See "Proposal 3 — Approval of Amendments to the AAR CORP. 2013 Stock Plan — Requests for Approval — Limitation on Awards Granted, and Total Compensation Payable, to Non-Employee Directors."
Compensation Committee Interlocks and Insider Participation
Messrs. Anderson, Bobins, Boyce, and Woodard, General Fogleman, and General Pace and Ms. Vogel, all of whom are independent non-employee directors, are the current members of the Compensation Committee of the Board of Directors of the Company. During Fiscal 2014,2016, none of the executive officers of the Company served on the board of directors or compensation committee of any entity whose officers served either on the Board of Directors of the Company or on the Compensation Committee of the Board of Directors of the Company.
EXECUTIVE COMPENSATION |
Compensation Discussion and Analysis
This Compensation Discussion and Analysis ("CD&A") describes our Fiscal 20142016 executive compensation program. It provides information about the goals, philosophy and the key elements of the program and explains the reasons behind the Compensation Committee's executive compensation decisions.decisions in Fiscal 2016.
Our focus in this CD&A is the Fiscal 20142016 compensation of the following "named executive officers" of the Company:Company, together with their titles in Fiscal 2016:
Name | Title | ||||||||||||||||
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David P. Storch | Chairman of the Board, President and Chief Executive Officer | ||||||||||||||||
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Timothy J. Romenesko | |||||||||||||||||
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John | Vice | ||||||||||||||||
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Robert J. Regan | Vice President, General Counsel and Secretary | ||||||||||||||||
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I. Executive Summary
This executive summary identifies the goals of our executive compensation program and explains our executive compensation philosophy. It also describes our Fiscal 2016 business performance highlights and our Fiscal 2016 executive compensation highlights, which together demonstrate commitment to pay for performance as a fundamental principle of our executive compensation program.
Goals and Philosophy of Our Executive Compensation Program
The primary goals of our executive compensation program are to:
Attract and retain talented executives capable of producing outstanding business results for the Company;
Motivate and reward executives by paying for performance in a manner that takes into account Company, business group and individual performance; and
Provide for compensation that strikes a proper balance between short-term and long-term compensation, and between cash and stock compensation, with an emphasis on stock compensation to align the interests of executives with the interests of the Company's stockholders.
Our executive compensation philosophy is to target "total direct compensation" — defined as base salaryplus annual cash bonusplus the value of annual stock-based awards — of our named executive officers at the market median (50th percentile) of our peer group and to provide the opportunity for our named executive officers to reach the market 75th percentile with exceptional performance. By recognizing and rewarding outstanding performance, our executive compensation program directly links the achievement of key business goals with the pay outcomes for our named executive officers.
Fiscal 20142016 Business Performance Highlights
AAR CORP. (the "Company")The Company is a leading global provider of diversified products andaviation services to the worldwidecommercial aviation and government and defense markets. We delivered solid financial results for Fiscal 2014 despite reductionsAAR combines a close-to-the-customer business model with a broad menu of capabilities to help customers operate more efficiently, lower costs and maintain high levels of safety, quality and service.
AAR operates in demand from our governmenttwo business segments: Aviation Services and defense customers owing principally to the drawdown of the U.S. military presence in Afghanistan.Expeditionary Services.
OurAviation Services business segment consists of:
Our continued focus onSupply chain activities — aircraft and engine parts supply; inventory management; original equipment manufacturer parts distribution; component repair management; and aircraft and engine sales and leasing — that help our core businesses — aviation services and technology products — together with ongoing efforts to managecustomers reduce costs and strengthenincrease aircraft availability; and
Maintenance, repair, and overhaul ("MRO") services — aircraft maintenance and modifications; landing gear, wheel and brake services; component repair and engineering solutions — that enable our balance sheet, contributedcustomers to operate safely and efficiently.
OurExpeditionary Services business segment includes aircraft and search and rescue services in support of vital defense, contingency and humanitarian aid operations in austere environments around the world. Expeditionary Services also includes mobility services that supply shelters, containers and pallets to support the movement of troops and supplies, as well as command and control systems and technical services.
Fiscal 2016 marked our continuing transition to a predominantly aviation services-oriented company following performance highlights inour Fiscal 2014:2015 divestment of significant manufacturing operations, including our Telair Cargo Group. In Fiscal 2016:
We reported recordsales of $1,663 million, net income attributable to AAR of $47.7 million and total diluted earnings per share of $1.83, compared$1.37;
We continued to $1.38 per share in Fiscal 2013;maintain a strong balance sheet, with working capital of $544.1 million, net debt of $118.9 million and available liquidity of $413.3 million as of May 31, 2016;
We returned capital of $30.0 million to our stockholders through common stock repurchases and dividends; and
We secured important new contracts with our customers, including:
For more information about our financial and operating performance in Fiscal 2014,2016, please see "Business" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K filed with the SEC on July 17, 2014.13, 2016. For more information about our stock price performance, please see "Comparison of Cumulative Five-Year Total Return" in our Form 10-K.
Fiscal 20142016 Executive Compensation Highlights
Stockholder Outreach Program
We conducted a formal stockholder outreach program in Fiscal 2014 following the say-on-pay vote at our 2013 annual meeting. The purpose of the program was to gain a better understanding of concerns relatedOur Compensation Committee made several important changes to our executive compensation program, and other matters of stockholder interest. Under the program, which was supplemental to our regular ongoing communications with stockholders, we reached out to stockholders owning approximately 75% of our outstanding shares. Participants in the outreach effort included at various times our Chairman and Chief Executive Officer, President and Chief Operating Officer, Chief Financial Officer and General Counsel. We also received feedbackbased principally on market-based information provided by its independent compensation consultant, input from twoseveral proxy advisory firms Institutional Stockholder Services ("ISS") and Glass Lewis & Co., Inc. ("Glass Lewis").
Based on the information gained fromfeedback received through our stockholder outreach program, we made significant substantive changesengagement efforts, each of which emphasized pay for performance.
Changes to Our Executive Compensation Program
Adjusted base salaries and reduced annual cash bonus targets to align them with our executivemarket peers
Shifted variable compensation policiesto more stock and practices. We believe that,less cash as a resultpercentage of these changes,total compensation to align with stockholders' interests and to encourage long-term value creation
Eliminated the use of the time-based restricted stock and moved to performance-based restricted stock and stock options as the preferred stock vehicles for executive officers
Updated our executivestock ownership policy to reflect a greater emphasis on stock compensation program is better designed to enhance stockholder value and attract and retain executive talent pivotal to the Company's success.retention
Emphasis on Pay for Performance
Here arePay-for-performance compensation (cash bonus plus the highlightsvalue of performance-based restricted stock and stock options) represented 81.4% of the substantive changes made tototal direct compensation of our executive compensation program in Fiscal 2014:
Pay-for-performance compensation (cash bonus plus the 25th month after a change in control to terminate employment for any reasonvalue of performance-based restricted stock and still receive severance, and imposes a "double trigger" onstock options) represented 64.8% of the vestingtotal direct compensation of stock awards upon a change in control ("double trigger" meaning a change of control and a termination of employment). The agreement also provides that the Compensation Committee will determine all short-term and long-term incentive awards for Mr. Storch.
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| | Additional Supplemental Company Contribution | | |||||||||||
| Named Executive Officer | | Formula Amount | | Actual Amount | | ||||||||
| David P. Storch | $ | 495,115 | $ | 247,557 | |||||||||
| Timothy J. Romenesko | $ | 187,513 | $ | 93,756 | |||||||||
| Robert J. Regan | $ | 81,309 | $ | 40,655 |
Two other named executive officers received the minimum contribution and the sixth named executive officer does not participate in the SKERP.
Chief Executive Officer Compensation
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| | | Fiscal 2013 ($) | | Fiscal 2014 ($) | | ||||||||||||||||||
| Compensation Element | | Actual | | Target | | Per Formula | | Actual | | ||||||||||||||
| Base Salary | 877,838 | 906,449 | N/A | 906,449 | |||||||||||||||||||
| Annual Cash Incentive | 1,350,685 | 1,133,061 | 1,216,498 | 851,548 | |||||||||||||||||||
| Long-Term Incentive Compensation | 1,314,720 | 2,964,720 | N/A | 2,964,720 |
Fiscal 2015 Executive Compensation Actions
Our Compensation Committee made significant changes to the Company's executive compensation program in Fiscal 2015 based on its consideration of the following factors: the macro-environment in which the Company operates its businesses; the Company's performance in Fiscal 2014 and its expected performance in Fiscal 2015; the executive compensation assessment prepared by its independent compensation consultant in July 2014; the Company's commitment to meeting the burn rate parameters under the AAR CORP. 2013 Stock Plan; stockholder concerns identified in our stockholder outreach program; and other relevant items. In sum, the Compensation Committee took the following Fiscal 2015 executive compensation actions:
I.II. Principal Compensation Elements of Our Fiscal 2016 Executive Compensation Program
The table below identifiesdescribes and explains the purpose of the principal elements of ourthe Fiscal 20142016 executive compensation program and the subsequent narrative provides a fuller description of each element.for our named executive officers:
Compensation | Form of Compensation | Performance Period | Performance Measures | Purpose of this Compensation Element | ||||||||||||||||
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Base salary | Cash | N/A | • Individual performance and contributions • Qualifications and responsibilities • Experience and tenure with the Company • Competitive salary considerations | • Rewards individual performance and contributions consistent with an individual's position and responsibilities • Provides competitive compensation • Balances risk-taking concerns associated with performance-based compensation | ||||||||||||||||
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Annual cash | Cash | |||||||||||||||||||
Earnings per share • Working capital turns • Business group goals | • Provides short-term, cash-based incentive • Measures performance against key corporate goals | |||||||||||||||||||
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Stock options | ||||||||||||||||||||
Up to 10 years | ||||||||||||||||||||
• Stock price | • | Provides long-term, stock-based incentive • | ||||||||||||||||||
Aligns payout directly with stockholder value creation | ||||||||||||||||||||
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3 years | Cumulative net income • Return on invested capital | • Provides long-term, stock-based incentive • Ties payout to | ||||||||||||||||||
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The Company provides base salaries as a guaranteed minimum amount of compensation in consideration of day-to-day performance. Base salaries are designed to reward individual performance and contributions consistent with an executive officer's position and responsibilities. The Compensation Committee annually reviews the base salaries of all executive officers, including the Chief Executive Officer and the other named executive officers, and may adjust base salaries, typically at the beginning of a fiscal year, based upon consideration of:
The Compensation Committee believes that annual incentive opportunities, payable in cash, serve as an appropriate incentive for achievement of the Company's short-term (i.e., one-year) performance goals at either the corporate level or at the business group level. A cash-based incentive provides an opportunity that is consistent with market practice and allows the named executive officers to receive the value of their performance over the measurement period.
Within the first 90 days of each fiscal year, the Company establishes specific performance goals for its executive officers, including the named executive officers, that govern the payment of annual cash incentive awards for that fiscal year. The Company pays an annual cash bonus to each named executive officer, typically measured as a percentage of the executive officer's base salary, based on the extent to which the Company and the executive officer achieve applicable performance goals. Performance at a target level results in a target annual cash bonus, and performance above or below target results in payment of an annual cash bonus at a higher or lower percentage of base salary, respectively. Performance below a minimum threshold results in no annual cash bonus. In all cases, the Compensation Committee has the discretion to not award any annual cash bonuses in a given year. For named executive officers at the corporate level, the annual cash bonus in Fiscal 2014 was based on two performance goals: earnings per share and cash flow from operations. For named executive officers in charge of a business group, the annual cash bonus is based on the performance results of the business group, rather than the Company as a whole.
The Company uses stock compensation to provide long-term incentive opportunities for its named executive officers and certain other officers and key employees. The Company believes that the use of stock compensation rewards executives in a manner that aligns their interests with the interests of the Company's stockholders. Given the importance of this alignment, long-term stock-based compensation typically represents the most significant component of total compensation for the Company's executive officers. Long-term stock incentive compensation awards representpotential compensation at the time of grant; their value is realized by a named executive officer only if applicable performance and vesting conditions are satisfied.
Generally, when determining restricted stock and stock option grant opportunities, the Compensation Committee considers the executive's position and responsibilities in the Company, performance and contributions during the preceding year, capabilities and potential for future contributions to the Company, the number of restricted stock shares and options previously granted to the executive and, for senior management (including the named executive officers), their stock ownership relative to the Company's stock ownership guidelines and the Chief Executive Officer's recommendation. The particular mix of stock awards — whether performance-based restricted shares, time-based restricted shares or stock options — depends on
various factors considered byIII. Fiscal 2016 Executive Compensation Decision-Making Process
Each year the Compensation Committee includingreviews the number of shares available for award, the Company's performance priorities and the participants involved. In addition, the value of stock grants in any year will vary depending on the Board's assessment of the Company's business and share price performance in the prior fiscal year.
The Company's named executive officers participate in three retirement plans: the Retirement Plan, the Retirement Savings Plan and the Supplemental Key Employee Retirement Plan (the "SKERP").
management's recommendation, reduced by 50% the annual supplemental contributions earned by formula by three named executive officers, including the Chairman and Chief Executive Officer and the President and Chief Operating Officer.
The Company provides certain executive officers, including its named executive officers, with a limited number of perquisites, as identified in the footnote to the "Other Compensation" column of the Summary Compensation Table. The Company believes these perquisites are reasonable, competitive and consistent with the Company's overall executive compensation program. The Compensation Committee reviews on an annual basis the types and costs of perquisites provided by the Company to its executive officers.
II. Fiscal 2014 Executive Compensation
Each year management and the Compensation Committee review the Company's existing executive compensation program and the programs of other companies, including its peer group companies and other companies known for compensation "best practices."companies. The CompanyCompensation Committee seeks to confirm that each compensation element of its compensation elements,the Company's program, as well as itsthe compensation structure, is not only competitive within the Company's marketplace, but also fits the Company in light of its history, culture, performance and strategy. Particular attention is given to the Company's stock price performance to ensure proper alignment between executive compensation and stock price performance.
The Compensation Committee tookfollowed the following key actionsprocess below in setting and approving executive compensation in Fiscal 2014, each of which is described in detail below:2016.
TotalThe Compensation Committee believes that total compensation opportunities for the Company's key executives, including eachthe named executive officer, are intended toofficers, should be competitive with those offered by other companies competing for talent in the Company's employment market.
In June 2013,July 2015, the Compensation Committee reviewed its peer group for executive compensation purposes using the following criteria: company type (publicly traded on a major exchange); industry classification (using Standard and Poor's GICS codes); annual revenues (one-half to two times the Company's annual revenues); and business model (organizations that conducted business in the Company's two operating segments —business segments: Aviation Services and Technology
Products)Expeditionary Services). The Compensation Committee's objective is to assemble a set of peer group companies to which relevant pay and performance comparisons may be made with the Company.
The Compensation Committee acted onengaged Mercer to assist in determining the composition of the Company's Fiscal 2016 peer group for executive compensation purposes. Following consideration of Mercer's peer group report, the Board of Directors, upon the recommendation of Mercer (US) Inc. ("Mercer"), its independent compensation consultant, and the Company's management to revise the Company'sCompensation Committee, approved a Fiscal 2016 peer group for Fiscal 2014 to consistconsisting of the following 1819 companies, updown from 1720 peer companies in Fiscal 2013:2015:
| KLX Inc. | | ||||||
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| | Moog Inc. | | |||||
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| | Rockwell Collins, Inc. | | |||||
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| | Teledyne Technologies, Inc. | | ||||
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| | TransDigm Group Inc. | | ||||
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| | Triumph Group, Inc. | | ||||
| Heico Corp. | | Wesco Aircraft Holdings, Inc. | | ||||
| Hexcel Corporation | | Woodward, Inc. | | ||||
| Kaman Corporation | | | |
The twofive companies added to the Fiscal 20142016 peer group were Barnes Group, Inc., CACI International, Inc., Heico Corp., KLX Inc. and Service Application International, Corp. The six companies dropped from the Fiscal 2015 peer group were Alliant Techsystems,TechSystems, Inc. and, Applied Technologies Inc., B/E Aerospace, Inc., Kratos Defense & Security Solutions, Inc., Orbital ATK Inc. and Spirit Aerosystems Holdings, Inc.
The one company dropped fromBoard of Directors and the Compensation Committee generally aim to minimize year-to-year changes in the Company's peer group. However, Fiscal 20142016 peer group was Interline Brands, Inc., which was acquired and is no longerchanges were deemed necessary to reflect the Company's transition to a public company.predominantly aviation services-oriented business. The Compensation Committee annually revisits the composition of the peer groupchanges also were designed to ensure that the Company's performance and executive compensation program are measured against those of comparably-sized companies (e.g., in terms of revenue, market capitalization and situated companies. The mix of the Company's commercial and defense businesses presents aother financial measures). A continuing challenge in constructing athe Company's peer group givenis that many defense contractorscontractor competitors have substantiallysignificantly greater resourcesrevenues and higher market capitalizations than the Company.
Fiscal 2016 Executive Compensation Assessment
Following the Compensation Committee's approval of the Fiscal 20142016 peer group, Mercer provided the Compensation Committee with an executive compensation assessment analyzing the characteristics of the compensation design of high-performing companies (i.e., those companies that consistently outperform their market peers). Mercer focused on short-term and long-term incentive plans and then compared its findings with the Company's short-term and long-term incentive plans.
Mercer concluded that the design of the Company's short-term incentive plan was comparable to the plan designs of high-performing companies for the following key reasons:
The Company's short-term incentive plan used two financial metrics — earnings per share and working capital turns — to determine annual cash bonuses for its named executive officers.
The Company's payout levels were competitive, with maximum payouts generally capped at 200% of target.
Mercer also concluded that the design of the Company's long-term incentive plan was comparable to the plan designs of high-performing companies based on its use of two to three stock vehicles (stock options, performance-based restricted stock and time-based restricted stock), as well as its use of two performance metrics for performance-based restricted stock (cumulative net income and return on invested capital).
Mercer conducted an executive compensation assessment in July 2013,2015, at the direction of the Compensation Committee, to assist with Fiscal 2016 executive compensation decisions. Mercer's executive compensation assessment included (i) aincluded:
A benchmarking analysis showing how the compensation paid to the Company's named executive officers compared to compensation paid to the named executive officers of the Company's peer group companiescompanies; and (ii) a
A comparison of the Company's Fiscal 2015 financial performance against the financial performance of its peer group companies.
The key findings and recommendations of the Mercer'Mercer executive compensation assessment of the Company, are set forth below:based on peer group information, were:
The Company's base salaries are generallyof the named executive officers were targeted at the 50th percentile of its peer group companies;market median in the aggregate (Mercer recommended minor adjustments in individual cases);
Long-term incentives for the Company's peer group companies;named executive officers were targeted between the market 25th and 50th percentiles in the aggregate (Mercer's recommendation were to increase target long-term incentives to the market median to emphasize the achievement of long-term goals, change the vesting period for stock awards to three-year cliff vesting and increase the maximum performance-based stock opportunity to 250% of target); and
Actual totalTotal direct compensation (base salaryplus annual cash bonusplus the three-year averagedollar value of annual stock awards) falls betweengrants) for the 50thnamed executive officers was appropriately positioned at the market median in the aggregate.
In addition to its review and 75th percentilesconsideration of Mercer's executive compensation assessment and recommendations, the Compensation Committee reviewed and considered historical compensation data for the Company's executives. This data included summaries of cash and equity compensation received in past years by each executive. The Compensation Committee also reviewed the executives' total annual compensation, including cash and non-cash direct compensation, cumulative benefits and savings under retirement plans and equity compensation programs, perquisites and potential payments on termination of employment, whether on a change in control of the Company or otherwise. It reviewed the performance of the Company and the executives during the year, taking into account established goals, leadership qualities, operational performance, business responsibilities, career experience, and long-term potential to enhance stockholder value. The Compensation Committee reviewed internal pay comparisons among the Company's peer group companies;
The Company hadRecommendations of the highest one-year total stockholder return compared to its peer group companies; it outperformed its peer group on one-year free cash flow growth, was at the median for one-year net income growth and lagged its peer group in other one-year metrics (e.g., earnings per share growth, revenue growth and return on invested capital); andChief Executive Officer
The Compensation Committee considered the Mercerrecommendations of the Chief Executive Officer in making Fiscal 2016 compensation decisions for all of the named executive officers other than the Chief Executive Officer. In making these recommendations, the Chief Executive Officer evaluated the performance of the executives during the prior year against pre-established performance goals. Some of the performance goals related to the financial performance of the Company or the executive's business group. Other performance goals were non-quantitative and related to leadership development, customer relationships, acquisition integration, diversity development, or similar Company initiatives. The Chief Executive Officer's recommendations reflected his assessment of an individual executive officer's contributions to the performance of the Company.
The Compensation Committee has the ultimate decision-making authority and responsibility for compensation assessment,decisions affecting the Company's executives, including its named executive officers. The Chief Executive Officer does not play any role in any decision affecting his own compensation.
Stockholder Advisory Vote
The Compensation Committee carefully considers the results of the stockholder say-on-pay votes in designing the executive compensation levelsprogram and making executive compensation decisions for the Company's key executives. Holders of approximately 73% of the peer group companies, in approvingoutstanding shares approved the Fiscal 2014 base salaries, target annual cash bonuses and target long-term incentive2015 compensation ofpaid to the Company's named executive officers. In addition,This result was lower than the 96% say-on-pay vote in Fiscal 2014. The Compensation Committee believes that the lower say-on-pay vote result in Fiscal 2015 was the result of a negative recommendation from a single proxy advisory firm. As described under " — Fiscal 2016 Executive Compensation Decisions," the Compensation Committee recognized thatmade changes to its Fiscal 2016 program in response to this negative recommendation and feedback received from other parties, including its stockholders.
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The Compensation Committee considered all of the Company has posted significantabove items in making Fiscal 2016 executive compensation decisions as to base salaries, annual cash bonuses and stock price increases inawards for the last two fiscal years following a disappointing result inCompany's named executive officers. Each of these Fiscal 2012, as shown below:2016 compensation elements is addressed below.
IV. Fiscal 2016 Executive Compensation Decisions
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| Fiscal Year | | Opening Stock Price on June 1 ($) | | Closing Stock Price on May 31 ($) | | Increase (Decrease) (%) | | |||||||||||
| 2014 | 20.06 | 24.30 | 21 | |||||||||||||||
| 2013 | 12.05 | 20.06 | 66 | |||||||||||||||
| 2012 | 25.78 | 12.05 | (53 | ) |
As a part of its approval process,Base Salaries
For Fiscal 2016, the Compensation Committee, took into account that the Company has a higher percentage of defense business than most of its peer group companies, and that defense businesses experienced more modest performance returns than commercial businesses in Fiscal 2014.
Based in part on its consideration ofconsistent with Mercer's executive compensation assessment, showing that the Company's performance was below its peers in certain respects, including three-year total stockholder return (due to Fiscal 2012 stock price performance), the Compensation Committee took the actions described in more detail below — namely, reduced Fiscal 2014 annual cash bonuses by 30%; reduced Fiscal 2015 stock awards by 43% for the Chairman and Chief Executive Officer and President and Chief Operating Officer and at least 25% for all other named executive officers; and froze Fiscal 2015 base salaries for all named executive officers.
The Compensation Committee generally setsadjusted the base salaries of the Company's named executive officers at or aroundto align them more closely with the 50th percentile level of salary levels of comparable positions at itsthe Company's peer group companies.companies' base salaries. The Company does not targetCompensation Committee believes that base salaries at any specific percentage of total— representing fixed compensation when setting base salary; however, given the Company's emphasis on the link between pay and performance, base salaries are— should be a less significant percentage of total direct compensation compared tothan performance-based compensation. In the Company's variable performance-based compensation.
The Compensation Committee,case of David P. Storch, the Chairman, President and CEO, his Fiscal 2016 base salary of $767,000 represented 18.6% of his total direct compensation and was a 15.4% reduction from his Fiscal 2015 base salary of $906,449. Mr. Storch's and Mr. Romenesko's base salary reductions in Fiscal 2016, taken at management's recommendation, approved a 2% increase overtheir initiative, also reflect the relatively smaller size of the Company following the divestiture of significant manufacturing operations in late Fiscal 2013 year-end base salaries for the named executive officers.2015.
The following table below shows actual Fiscal 20142015 base salaries compared to target Fiscal 20132016 base salaries for the named executive officers (note that Fiscal 2013 base salaries wereas set by the amounts paid in Fiscal 2013, not the year-end base salaries):Compensation Committee:
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| Named Executive Officer | | Fiscal 2013 ($) | | Fiscal 2014 ($) | | ||||||||
| David P. Storch | 877,838 | 906,449 | |||||||||||
| Timothy J. Romenesko | 483,513 | 499,272 | |||||||||||
| John C. Fortson | N/A | 400,000 | |||||||||||
| Randy J. Martinez | 349,070 | 360,447 | |||||||||||
| Robert J. Regan | 379,226 | 391,586 | |||||||||||
| Michael J. Sharp | 312,576 | 360,353 |
Named Executive Officer | Fiscal 2015 ($) (Actual) | Fiscal 2016 ($) (Target)* | ||||||||||
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David P. Storch | 906,449 | 767,000 | ||||||||||
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Timothy J. Romenesko | 499,272 | 450,000 | ||||||||||
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John M. Holmes | 409,375 | 450,000 | ||||||||||
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Michael J. Sharp | 360,353 | 400,000** | ||||||||||
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Robert J. Regan | 391,586 | 390,000 | ||||||||||
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John C. Fortson | 400,000 | 425,000 | ||||||||||
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The Fiscal 2014 short-term incentive plan provides certain employees, including"Summary Compensation Table" for actual base salaries received by the named executive officers withfor Fiscal 2016. The difference between target Fiscal 2016 base salaries and actual Fiscal 2016 salaries reflects the opportunitydifferent effective dates of the actual Fiscal 2016 base salaries.
Annual Cash Bonuses
Section 162(m) Annual Cash Incentive Plan. The Compensation Committee previously approved the AAR CORP. Section 162(m) Annual Cash Incentive Plan, which setsset a ceiling on the annual cash bonuses payable under the Company's short-term incentive planplans, including the Fiscal 2016 short-term incentive plan. The purpose of the Section 162(m) Annual Cash Incentive Plan is to enable the annual bonuses to qualify as "performance-based compensation" under Section 162(m) of the Internal Revenue Code, as determined by the Compensation Committee. Code.
The Section 162(m) Annual Cash Incentive Plan uses as its performance goal the Company's net income for a given fiscal year. It establishes a maximum award opportunity for each participant, expressed as a percentage of net income (e.g., theincome. The maximum annual award isawards are 5% of net income for the Chief Executive Officer 3% for the President and 2% for all others), and then provides thatother participating officers. These maximum awards are designed to cap the Compensation Committee has the discretion to reduce these amounts so that the actual bonuses to be paid to participants will be determined under the Company's annual short-term bonus plans. Accordingly, any bonus determined under the Fiscal 20142016 short-term incentive plan.plan below is subject to these caps. In all yearseach year since the inception of the Section 162(m) Annual Cash Incentive Plan includingin Fiscal 2014,2010, the Compensation Committee has exercised negative discretion to reduce the annual cash bonuses of the named executive officer.officers to the amounts determined under the Company's annual short-term bonus plans, as discussed below.
Fiscal 2014 Performance Goals.2016 Short-Term Incentive Plan. The Compensation Committee, approved, after consideration of Mercer's executive compensation assessment, peer group information, other market data, and the current state of the business environment in which the Company operates two performance goals underand the factors described above, approved the Fiscal 20142016 short-term incentive plan for corporate officers, including Mr. Storch, Mr. Romenesko, Mr. Fortson,Sharp, Mr. Regan and Mr. Sharp:Fortson. Mr. Romenesko and Mr. Holmes participated, as described below, in separate performance incentive plans tied to the results of their business groups.
The Fiscal 2016 short-term incentive plan is a performance-based plan in which the Company measured its performance against two performance goals: earnings per share (weighted 80%) and cash flow from operationsworking capital turns (weighted 20%) at the targetsthreshold, target and maximum levels set forth in the table below:
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| Performance Goal | | Target | | Percentage Weighting | | |||||||
| Earnings per share | $2.02 | 75 | % | |||||||||
| Cash flow from operations | $120 million | 25 | % |
Performance Goal | Threshold | Target | Maximum | |||||||||||||
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Earnings per share (80%) | $1.04 | $1.30 | $1.56 | |||||||||||||
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Working capital turns (20%) | 2.4 | 3.0 | 3.6 | |||||||||||||
| | | | | | | | | | | | | | | | |
Earnings per share has been used as a performance goal in past years, and cash flow from operations is a new performance goal this year. Previously the Company had used free cash flow, but the Compensation Committee determined that cash flow from operations is a better measure
than freeThe Compensation Committee believes that these two performance goals are critical measures of the Company's financial success. Earnings per share demonstrates the Company's emphasis on delivering earnings to stockholders, and working capital turns measures the Company's effectiveness in using its working capital (current assets minus current liabilities) and, in particular, its use of its cash. The Compensation Committee used working capital turns in place of cash flow forfrom operations in Fiscal 2016 because of the Company because it shows how wellemphasis placed upon working capital turns by the senior leadership of the Company. The Compensation Committee set the target goals based on the Company's businesses are producing cash that will ultimately benefit stockholders, whether in the form of increased investment, stock repurchases or dividend payouts. The choice offinancial plan, with earnings per share and cash flow from operations performance goals reflects the Company's continuing emphasis on preserving and growing stockholder wealth and maintaining a strong balance sheet.
working capital turns determined in accordance with generally accepted accounting principles (subject to certain possible adjustments). The Compensation Committee determined that for purposeslowered the threshold, target and maximum levels year over year to take account of measuring attainmentthe smaller relative size of these performance goalsthe Company following the Fiscal 2015 divestment of significant manufacturing operations and the reduced target bonus opportunities described below.
Based on Mercer's executive compensation assessment, the Compensation Committed reduced the target bonus opportunities of certain named executive officers in Fiscal 2014: (i) earnings per share means diluted earnings per share as disclosed by2016: Mr. Storch, to 100% of base salary from 125%; Mr. Regan, to 70% of base salary from 90.9%; and Mr. Fortson, to 70% from 90.9%. (Mr. Sharp's target bonus opportunity remained the Companysame at 70% of base salary in its periodic reports filedrecognition of his promotion to Chief Financial Officer.) These reductions, which likewise affected the threshold and maximum bonus opportunities, demonstrated the Compensation Committee's intention to align compensation with the SEC, as adjusted for special charges or unusual or infrequent items incurred during the performance period, and (ii) cash flow from operations means cash flow from operations as disclosed by the Company in its periodic reports filed with the SEC, as adjusted for working capital investments in certain original equipment manufacturers' programs, special charges or unusual or infrequent items incurred during the performance period.Company's market peers.
The Fiscal 20142016 annual cash bonus opportunities at threshold, target and maximum levels expressed as a percentage of base salary and in dollar amounts for the named executive officers are set forth in the table below:
| ||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Threshold | | Target | | Maximum | | |||||||||||||||||||||||||||
| Named Executive Officer | | Percent of Base Salary (%) | | ($) | | Percent of Base Salary (%) | | ($) | | Percent of Base Salary (%) | | ($) | | ||||||||||||||||||||
David P. Storch | 62.5 | 566,531 | 125.0 | 1,133,061 | 250.0 | 2,266,122 | ||||||||||||||||||||||||||||
Timothy J. Romenesko | 56.8 | 283,677 | 113.6 | 567,354 | 227.2 | 1,134,708 | ||||||||||||||||||||||||||||
John C. Fortson | 45.5 | 181,818 | 90.9 | 363,637 | 181.8 | 727,274 | ||||||||||||||||||||||||||||
Robert J. Regan | 45.5 | 177,994 | 90.9 | 355,988 | 181.8 | 711,976 | ||||||||||||||||||||||||||||
Michael J. Sharp | 38.4 | 138,204 | 76.7 | 276,407 | 153.4 | 552,814 |
| Threshold | Target | Maximum | |||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Named Executive Officer | Dollar Amount ($) | Percent of Base Salary (%) | Dollar Amount ($) | Percent of Base Salary (%) | Dollar Amount ($) | Percent of Base Salary (%) | ||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
David P. Storch | 383,500 | 50% | 767,000 | 100% | 1,917,500 | 250% | ||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Michael J. Sharp | 140,000 | 35% | 280,000 | 70% | 700,000 | 250% | ||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Robert J. Regan | 136,500 | 35% | 273,000 | 70% | 682,500 | 250% | ||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
John C. Fortson | 148,750 | 35% | 297,500 | 70% | 743,750 | 250% | ||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
For Messrs. Storch, Romenesko, Fortson, Regan and Sharp, an annual cash incentive award required: (i) at the threshold level, attainment ofThe Company's actual Fiscal 2016 earnings per share of at least $1.62 (80% of the target of $2.02) and cash flow from operations of at least $90 million (75% of the target of $120 million); (ii) atworking capital turns results compared to the target level attainment of 100% ofwere:
Performance Goal | Target | Actual | ||||||||||
| | | | | | | | | | | | |
Earnings per share | $1.30 | $1.37 | ||||||||||
| | | | | | | | | | | | |
Working capital turns | 3.0 | 3.0 | ||||||||||
| | | | | | | | | | | | |
Based on the performance goal targets (earnings per share of $2.02 and cash flow from operations of $120 million); and (iii) at the maximum level, attainment of at least 120% of theCompany's above-target earnings per share performance goal targets (earnings per share of at least $2.42) and at least 125% ofworking capital turns results in Fiscal 2016, the cash flow from operations performance goalbonuses paid to Mr. Storch, Mr. Sharp and Mr. Regan under the Fiscal 2016 short-term incentive plan exceeded their target (cash flow from operations of at least $150 million).annual bonuses (but were substantially less than the maximum bonuses), as shown in the table below:
| Fiscal 2016 Short-Term Incentive Plan | |||||||||||
| | | | | | | | | | | | |
Named Executive Officer | Target Bonus | Actual Bonus | ||||||||||
| | | | | | | | | | | | |
David P. Storch | $767,000 | $1,014,800 | ||||||||||
| | | | | | | | | | | | |
Michael J. Sharp | $280,000 | $370,462 | ||||||||||
| | | | | | | | | | | | |
Robert J. Regan | $273,000 | $361,200 | ||||||||||
| | | | | | | | | | | | |
John C. Fortson | $297,500 | N/A* | ||||||||||
| | | | | | | | | | | | |
Performance Incentive Plans. The Compensation Committee, after consideration of Mercer's executive compensation assessment, peer group information, other market data and the overall performance of the Company. Mr. Martinez's Fiscal 2014 performance goals were Airlift's pre-tax income (threshold of $21 million and a target of $26 million) and freeother factors described above, approved separate annual cash flow (threshold of $49 million and a target of $61 million). Mr. Martinez's target bonus for Fiscal 2014 was $360,447 and his maximum bonus was $720,894. Mr. Martinez's bonus opportunity was designed to provide appropriate incentive for excellent performance in Airlift's pre-tax income and free cash flow performance.
bonus plans for Mr. Romenesko and Mr. Holmes in Fiscal 2014 Actual Results. The Company's actual Fiscal 2014 results compared to the targets as follows:
| | | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Performance Goal | | Target | | Actual | | Actual as Percentage of Target | | |||||||||
| Earnings per share | $2.02 | $1.83 | 90.6 | % | ||||||||||||
| Cash flow from operations | $120 million | $167.8 million | 139.8 | % |
There were no adjustments made to earnings per share results of $1.83, and the cash flow from operations of $167.8 million reflects2016 (each, a $28 million adjustment for the Company's working capital investment in a customer program. Excluding this adjustment, cash flow from operations was $139.8 million or 116.5% above the target of $120 million.
BasedPerformance Incentive Plan ("PIP")) based on the earnings per share and cash flow from operations results,performance of their business units rather than the Fiscal 2014 cash bonuses payable to Messrs. Storch, Romenesko, Fortson, Regan and Sharp under the termsperformance of the Fiscal 2014Company as a whole. Mr. Romenesko, who participated in the corporate short-term incentive plan would have represented 107%in prior fiscal years, was moved to a PIP in Fiscal 2016 in light of their target annual cash bonuses. However, management instead recommended — andhis position as Chief Operating Officer of Expeditionary Services.
Mr. Romenesko's PIP was based on the Compensation Committee approved — Fiscal 2014 cash bonuses equal to 75.2%2016 results of the target bonus awards. This represented a 30% reduction for the named executive officersExpeditionary Services business group in the cash bonuses otherwise determined by Formula under the Fiscal 2014 short-term incentive plan. These bonus reductions applied only to the five named executive officers at the corporate level; Mr. Martinez, Group Vice President at the Company's Airlift subsidiary, received his entire earned bonus given the performance of his business unit in Fiscal 2014.
Despite the Company's above-target performance in Fiscal 2014, including its exceptional cash flow results, management and the Compensation Committee reduced Fiscal 2014 annual cash bonuses principally in response to the Company's challenging operational environment, which negatively affected Fiscal 2014 sales (down 4.8% from Fiscal 2013) and caused the Company to effect reductions in force at several businesses to align its staffing resources with business demand and corporate strategy.
The table below reflects the cash bonus reductions, which totaled $868,505 for the listed named executive officers, by showing, for each named executive officer, the target bonus, the bonus determined by the performance formula under the Fiscal 2014 short-term incentive plan and the actual cash bonus approved by the Compensation Committee at management's recommendation.
| ||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | Fiscal 2014 Annual Cash Bonus | | ||||||||||||||||||||
| Named Executive Officer | | Target Bonus ($) | | Bonus Determined Under the Short-Term Incentive Plan ($) | | Actual Bonus ($) | | Percentage Reduction in Actual Bonus Over Bonus Determined Under the Plan (%) | | ||||||||||||||
| David P. Storch | 1,133,061 | 1,216,498 | 851,548 | 30 | |||||||||||||||||||
| Timothy J. Romenesko | 567,354 | 609,133 | 426,393 | 30 | |||||||||||||||||||
| John C. Fortson | 363,637 | 390,415 | 273,290 | 30 | |||||||||||||||||||
| Robert J. Regan | 355,988 | 382,202 | 267,541 | 30 | |||||||||||||||||||
| Michael J. Sharp | 276,407 | 296,762 | 207,733 | 30 |
Mr. Martinez received an annual cash bonus of $570,029 based upon Airlift's performance in Fiscal 2014, in which Airlift exceeded itstwo areas — pre-tax income and free cash flow, targets.as shown below:
Performance Goal | Threshold | Target | ||||||||||
| | | | | | | | | | | | |
Pre-tax income | ($7.5 million) | $3.9 million | ||||||||||
| | | | | | | | | | | | |
Free cash flow | $15.2 million | $27.9 million | ||||||||||
| | | | | | | | | | | | |
Mr. Romenesko was eligible for a maximum bonus of $675,000 under his PIP (separate and apart from any bonus payable for his services as Vice Chairman of the Company), as follows: $225,000 under the pre-tax income performance goal; $225,000 under the free cash flow performance goal; and $225,000 in the sole discretion of the Company's Chief Executive Officer based on the performance of Expeditionary Services. Based on the below-threshold performance of Expeditionary Services in Fiscal 2016, Mr. Romenesko did not receive a performance-based cash bonus under his PIP. However, in consideration of the significant services provided by Mr. Romenesko in his capacity as Vice Chairman of the Company, Mr. Romenesko received a discretionary Fiscal 2016 cash bonus of $507,400 (which would have been his bonus if he had participated, as in prior years, in the Company's short-term incentive plan).
Mr. Holmes's PIP was based on the Fiscal 2016 results of the Aviation Services business group in four areas — pre-tax income, free cash flow, return on average net invested capital and working capital turns, as shown below:
Performance Goal | Threshold | Target | ||||||||||
| | | | | | | | | | | | |
Pre-tax income | $38.2 million | $47.7 million | ||||||||||
| | | | | | | | | | | | |
Free cash flow | $63.5 million | $79.4 million | ||||||||||
| | | | | | | | | | | | |
Return on average net invested capital | 8.28% | 10.35% | ||||||||||
| | | | | | | | | | | | |
Working capital turns | 2.61 | 3.26 | ||||||||||
| | | | | | | | | | | | |
Mr. Holmes was eligible for a maximum bonus of $900,000 under his PIP, as follows: $540,000 under the pre-tax income performance goal; $180,000 under the free cash flow performance goal; $90,000 under the return on average net invested capital performance goal; and $90,000 under the net working capital turns performance goal. Based on the performance of Aviation Services in Fiscal 2016, Mr. Holmes received a performance-based cash bonus of $517,949 under his PIP. Mr. Holmes also received a discretionary Fiscal 2016 cash bonus of $117,551 in consideration of his additional services as a member of the Company's senior leadership team.
D.
The Compensation Committee granted awards of performance-based restricted stock, time-based restricted stock and stock options to the named executive officers and certain other officers and key employees under the Fiscal 20142016 long-term incentive plan. For the named executive officers,
In Fiscal 2016, as in other years, the Compensation Committee allocateddetermined the types and dollar value of the stock awards as follows: performance-based restricted stock — 23%; time-based restricted stock — 23%; and stock options — 54%. Mr. Martinez received only stock option awards in Fiscal 2014, consistent with the Company's general approach in providing Group Vice Presidents with relatively modest equity compensation awards and significant cash bonus opportunities.
The Compensation Committee determines the annual allocationamounts of stock awards amongto be granted. These determinations took into account:
The Fiscal 2016 executive compensation assessment presented by Mercer;
The Committee's emphasis on performance-based restricted stock, time-based restricted stock and stock options based on a variety of factors, including: its preference for performance-based awards; the
The Company's burn rate commitmentexperience under the AAR CORP. 2013 Stock Plan; the
The number of participants in the program; the positionsstock plan;
The levels of responsibility, seniority and overall compensation levels of the participants; the
The Company's performance in the last fiscal year and its forecasted performance in the current fiscal year; the
The Company's budget for compensation expense; and the
The Company' stock price. For
In Fiscal 2014,2016, the Compensation Committee determined that setting performance-basedallocated the stock awards (performance-basedin the following manner: performance-based restricted stock — 50%; and stock options — 50%. No shares of time-based restricted stock — a form of stock-based compensation not tied to any performance measure — were granted to any named executive officer in Fiscal 2016. The Committee's use of performance-based restricted stock and stock options) at 77% andoptions (rather than time-based restricted stock at 23% was the proper allocation.
The Fiscal 2014 stock awards represented a 10% increase over the number of shares awarded in Fiscal 2013. The Compensation Committee approved this increase to reward executives for the stock price increase in Fiscal 2013 (up to $20.06 per share from $12.05 per share) and to incentivize Fiscal 2014 performance. The increase also took account of the 40% reductionstock) provides appropriate incentives, in the prior year's stock awards dueCommittee's view, for key performers to concerns at that time about the stock price.meet and exceed pre-established financial measures.
Performance-Based Restricted Stock. At its meeting on July 15, 2013August 7, 2015 (and October 13, 2015, in the case of a second award to Mr. Sharp in connection with his promotion to Chief Financial Officer of the Company), the Compensation Committee approved the following grants of performance-based restricted stock to Mr. Storch, Mr. Romenesko, Mr. Fortson, Mr. Regan and Mr. Sharpthe named executive officers for Fiscal 2014,2016, subject to aperformance conditions over the three-year cumulative net income performance conditionperiod Fiscal 2016 through Fiscal 2018 and separate vesting requirements, each as described below (dollar value based on the grant date fair value):below:
| ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Performance-Based Restricted Stock | | |||||||||||
| Named Executive Officer | | Number of Shares | | Dollar Value ($) | | ||||||||
David P. Storch | 26,400 | 671,352 | ||||||||||||
Timothy J. Romenesko | 13,200 | 335,676 | ||||||||||||
John C. Fortson | 4,750 | 120,793 | ||||||||||||
Robert J. Regan | 7,920 | 201,406 | ||||||||||||
Michael J. Sharp | 3,168 | 80,562 |
Fiscal 2016 Performance-Based Restricted Stock | ||||||||||||
| | | | | | | | | | | | |
Named Executive Officer | Number of Shares | Dollar Value ($) | ||||||||||
| | | | | | | | | | | | |
David P. Storch | 43,219 | 1,150,500 | ||||||||||
| | | | | | | | | | | | |
Timothy J. Romenesko | 14,087 | 375,000 | ||||||||||
| | | | | | | | | | | | |
John M. Holmes | 14,087 | 375,000 | ||||||||||
| | | | | | | | | | | | |
Michael J. Sharp | 15,591 | 368,750 | ||||||||||
| | | | | | | | | | | | |
Robert J. Regan | 11,721 | 312,000 | ||||||||||
| | | | | | | | | | | | |
John C. Fortson | 12,772 | 340,000 | ||||||||||
| | | | | | | | | | | | |
SharesThe dollar value of the shares in the table above is based on the $26.62 closing price of the Common Stock on the August 7, 2015 date of grant (and, in the case of Mr. Sharp's second award, the $22.37 closing price of the Common Stock on October 13, 2015).
The Company's cumulative net income (weighted 75%) and return on invested capital (weighted 25%) are the two performance goals for the performance-based restricted stock are subject to a performance condition and time-based vesting requirements. Ifunder the Fiscal 2016 long-term incentive plan. The Compensation Committee believes cumulative net income and return on invested capital are appropriate measures because they capture critical elements of the Company's performance over the three-year period.
The table below shows the threshold, target and maximum levels (which were lower than Fiscal 2015 levels for the three-yearsame reasons as described for the reduced levels under the short-term incentive plan above) set by the Compensation Committee for each of these performance goals:
Performance Goal | Threshold | Target | Maximum | |||||||||||||
| | | | | | | | | | | | | | | | |
Cumulative Net Income | $121.8 million | $152.3 million | $182.8 million | |||||||||||||
| | | | | | | | | | | | | | | | |
Three-Year Return on Invested Capital | 4.38% | 5.47% | 6.56% | |||||||||||||
| | | | | | | | | | | | | | | | |
performance period beginning June 1, 2013 and ending May 31, 2016 is less than $210.4 million (80% of target net income), the performance condition is not met and the shares are forfeited. Cumulative net income performance (i)Performance at athe threshold level of $210.4 million (80% of target net income) results in a 50% payout of 50% of the shares, (ii) at a target level of $263 million results in a payment of 100% of the shares, (iii) at a maximum level of $315.6 million (120% of target net income) results in a payout of 200% of the shares, and (iv) at levels between threshold and target and target and maximum, the shares will be paid out on a straight-line basis, in each case subject to time-based vesting requirements. These performance measures are designed to be "stretch" measures, and it is not uncommon for shares of performance-based restricted stock to be forfeited for failing to meetstock; performance at the applicabletarget level results in a 100% payout; and performance measures (e.g., approximately 25% ofat or above the shares ofmaximum level results in a 250% payout. Performance between the Fiscal 2012 performance-based restricted stock award were forfeited as a result ofthreshold and target levels and between the Company not meeting its cumulative net income performance target for the three-year period ending May 31, 2014).and maximum levels results in proportionate straight-line payouts. The Compensation Committee believes that the performance-based nature of these restricted stock awards provideprovides appropriate incentives to executives in line with the interests of the Company's stockholders.
If the performance condition isgoals for the three-year performance period through Fiscal 2018 are met, the shares of performance-based restricted stockwill vest 331/3%100% on each of May 31, 2016, May 31, 2017, and MayJuly 31, 2018. The Compensation Committee believes that the useAs a part of a meaningful time vesting period encourages executivesits changes to build their careers with the Company and contributes to greater stability within the Company's executive leadership.compensation program, the Compensation Committee
adopted three-year cliff vesting of the earned performance-based shares (compared to prior years' vesting in the third, fourth and fifth years after the performance-based shares were earned) in recognition of similar vesting periods used by its market peers, as well as the addition of a retention requirement under its revised Stock Ownership Guidelines. Performance-based shares of restricted stock, once vested, isare not subject to any further holding requirement beyond the Company's stock ownership guidelines.
The Compensation Committee recognized that the cumulative net income and return on invested capital performance measures are "absolute" (as opposed to "relative") measures. However, given that the threshold and targets levels under these measures were set at "stretch" levels, with a significant risk of full or partial forfeiture of shares (e.g., all or a significant portion of the performance-based shares granted to the named executive officers for the three-year performance periods ended May 31, 2014, May 31, 2015 and May 31, 2016 were forfeited), the Compensation Committee believed these measures were appropriate for this type of long-term stock award.
Time-Based Restricted Stock.Stock Options. At its meeting on July 15, 2013,August 7, 2015, the Compensation Committee approved the following grants of time-based restricted stock option awards for Fiscal 2014,2016, subject to time-based vesting (dollar value based on the grant date fair value):vesting:
| ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Time-Based Restricted Stock | | |||||||||||
| Named Executive Officer | | Number of Shares | | Dollar Value ($) | | ||||||||
David P. Storch | 26,400 | 671,352 | ||||||||||||
Timothy J. Romenesko | 13,200 | 335,676 | ||||||||||||
John C. Fortson | 4,750 | 120,793 | ||||||||||||
Robert J. Regan | 7,920 | 201,406 | ||||||||||||
Michael J. Sharp | 3,168 | 80,562 |
Fiscal 2016 Stock Options | ||||||||||||
| | | | | | | | | | | | |
Named Executive Officer | Number of Shares | Dollar Value ($) | ||||||||||
| | | | | | | | | | | | |
David P. Storch | 153,810 | 1,150,500 | ||||||||||
| | | | | | | | | | | | |
Timothy J. Romenesko | 50,134 | 375,000 | ||||||||||
| | | | | | | | | | | | |
John M. Holmes | 50,134 | 375,000 | ||||||||||
| | | | | | | | | | | | |
Michael J. Sharp | 17,547 | 131,250 | ||||||||||
| | | | | | | | | | | | |
Robert J. Regan | 41,711 | 312,000 | ||||||||||
| | | | | | | | | | | | |
John C. Fortson | 45,455 | 340,000 | ||||||||||
| | | | | | | | | | | | |
For Fiscal 2014,The dollar value of the Compensation Committee decided to place less emphasis on time-based restricted stock (23% of total stock awards) in favor of greater emphasis on performance-based restricted stock and stock options (77%in the table above is based on a Black-Scholes valuation, using the $26.62 closing price of totalthe Common Stock on the August 7, 2015 date of grant.
The stock awards). The sharesoptions vest 331/3% on each of time-based restricted stock vest 50% on MayJuly 31, 2016, July 31, 2017 and 50% MayJuly 31, 2018. Time-based restricted stock, once vested, is not subject to any further holding requirements beyond the Company's stock ownership guidelines. The Compensation Committee believes that time-based restricted stock servesoption serve a valuable purpose in helping to retain executives and reward them for building a career with the Company.
Stock Options. At its meeting on July 15, 2013, the The Compensation Committee approvedreduced the following grants ofvesting period for stock options to the Company's named executive officers for Fiscal 2014, subject to time-based vesting (dollar value based on a Black-Scholes valuation):
| ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Stock Options | | |||||||||||
| Named Executive Officer | | Number | | Dollar Value ($) | | ||||||||
David P. Storch | 158,400 | 1,622,016 | ||||||||||||
Timothy J. Romenesko | 79,200 | 811,008 | ||||||||||||
John C. Fortson | 44,768 | 458,424 | ||||||||||||
Randy J. Martinez | 27,500 | 281,600 | ||||||||||||
Robert J. Regan | 47,520 | 486,605 | ||||||||||||
Michael J. Sharp | 19,008 | 194,642 |
The stock options have an exercise price of $25.43 share (the closing stock price on the date of grant), vest 20% per year over a five-year period and expire 10three years from five years for the date of grant. Shares issued uponsame reasons supporting the exercise ofreduction in the vesting period for performance-based shares. Stock options, once vested, stock options are not subject to any further holding requirements beyond the Company's stock ownership guidelines. The Compensation Committee views stock options as performance-based incentives that align the interests of the Company's executives with the interests of the Company's stockholders given that stock options provide no value without an increase in the stock price over the option exercise price.
E.
The Compensation Committee reviewed and approved Fiscal 20142016 target "total direct compensation" for the named executive officers, consisting of the three compensation elements discussed above:elements: base salary, target annual cash incentive compensation and target long-term stock incentive compensation. Total direct compensation is the sum of base salary, annual cash incentive compensation and long-term stock incentive compensation.
The Compensation Committee historically benchmarks target total direct compensation for the Company's named executive officers in the range of the 50th50th to 75th75th percentile of total direct compensation levels of comparable positions at its peer group companies, with benchmarks above the 50th50th percentile typically requiring performance above the 50th50th percentile. In addition, the Compensation Committee considers the Company's prior year's financial results in setting target total direct compensation for the upcoming year. In setting target total compensation, the Compensation Committee seeks to promote its goals of motivating and rewarding executives and providing appropriate pay-for-performance incentives.
The table below divides target total direct compensation into its component parts — base salary, target annual cash bonuses and target long-term incentive compensation — and shows each as a dollar amount and as a percentage of target total direct compensation, as set by the Compensation Committee at the beginning of Fiscal 20142016 for each named executive officer. As shown, target total direct compensation is heavily weighted toward variable performance-based compensation (annual cash bonuses, performance-based restricted stock and long-term incentive compensation)stock options), consistent with the
Compensation Committee's view that compensation for the named executive officers should be tied to performance.
| | | Fiscal 2014 Target Total Direct Compensation | | ||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | Base Salary | | Target Annual Cash Incentive | | Target Long-Term Incentive Compensation | | ||||||||||||||||||||||||||
| | | ||||||||||||||||||||||||||||||||
| Named Executive Officer | | Dollar Amount ($) | | % of Total Target Direct Compensation | | Dollar Amount ($) | | % of Total Target Direct Compensation | | Dollar Amount ($) | | % of Total Target Direct Compensation | | ||||||||||||||||||||
| David P. Storch | 906,449 | 18 | 1,133,061 | 23 | 2,964,720 | 59 | |||||||||||||||||||||||||||
| Timothy J. Romenesko | 499,272 | 20 | 567,354 | 22 | 1,482,360 | 58 | |||||||||||||||||||||||||||
| John C. Fortson | 400,000 | 27 | 363,637 | 25 | 700,010 | 48 | |||||||||||||||||||||||||||
| Randy J. Martinez | 360,447 | 36 | 360,447 | 36 | 281,600 | 28 | |||||||||||||||||||||||||||
| Robert J. Regan | 391,586 | 24 | 355,988 | 22 | 889,417 | 54 | |||||||||||||||||||||||||||
| Michael J. Sharp | 360,353 | 36 | 276,407 | 28 | 355,766 | 36 |
| Fiscal 2016 Target Total Direct Compensation | |||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Base Salary | Target Annual Cash Incentive | Target Long-Term Incentive Compensation | Total | ||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Named Executive Officer | Dollar Amount ($) | % of Total Target Direct Compensation | Dollar Amount ($) | % of Total Target Direct Compensation | Dollar Amount ($) | % of Total Target Direct Compensation | Dollar Amount ($) | |||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
David P. Storch | 767,000 | 20% | 767,000 | 20% | 2,301,000 | 60% | 3,835,000 | |||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Timothy J. Romenesko | 450,000 | 27% | 450,000 | 27% | 750,000 | 46% | 1,650,000 | |||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
John M. Holmes | 450,000 | 27% | 450,000 | 27% | 750,000 | 46% | 1,650,000 | |||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Michael J. Sharp | 400,000 | 34% | 280,000 | 24% | 500,000 | 42% | 1,180,020 | |||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Robert J. Regan | 390,000 | 30% | 273,000 | 21% | 624,000 | 49% | 1,287,000 | |||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
John C. Fortson | 425,000 | 30% | 297,000 | 21% | 680,000 | 49% | 1,402,000 | |||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Actual total direct compensation differs fromThe following table shows thetarget total direct compensation by taking into accountset for each named executive officer at the actual annual cash bonus rather than the target annual cash bonus. As actual annual cash bonuses were less than target annual cash bonuses inbeginning of Fiscal 2014,2016, compared to theactual total direct compensation received by each named executive officer for Fiscal 2016:
| Fiscal 2016 Total Direct Compensation | |||||||||||
| | | | | | | | | | | | |
Named Executive Officer | Target ($) | Actual ($) | ||||||||||
| | | | | | | | | | | | |
David P. Storch | 3,835,000 | 4,071,050 | ||||||||||
| | | | | | | | | | | | |
Timothy J. Romenesko | 1,650,000 | 1,713,650 | ||||||||||
| | | | | | | | | | | | |
John M. Holmes | 1,650,000 | 1,841,750 | ||||||||||
| | | | | | | | | | | | |
Michael J. Sharp | 1,180,020 | 1,252,880 | ||||||||||
| | | | | | | | | | | | |
Robert J. Regan | 1,287,000 | 1,375,596 | ||||||||||
| | | | | | | | | | | | |
John C. Fortson | 1,402,000 | N/A | ||||||||||
| | | | | | | | | | | | |
The difference between the target and actual total direct compensation amounts is principally due to the fact that Fiscal 2016 annual cash bonuses exceeded target bonuses.
V. Fiscal 2017 Executive Compensation Actions
At its July 2016 meeting, the Compensation Committee maintained the principal design of the Company's executive compensation program with its emphasis on pay-for-performance compensation over fixed and discretionary compensation. To that end, the Compensation Committee took the following actions:
Approved a 3.0% base salary increase for each named executive officer likewise was less(other than hisMr. Storch);
targetApproved an 8.9% base salary increase for Mr. Storch to $835,000, which places Mr. Storch at the 25th percentile among CEOs of the Company's peer group companies;
total direct compensation
Maintained annual cash bonus targets at the Fiscal 2016 level and generally in Fiscal 2014.line with the market median, and kept earnings per share and working capital turns as the performance measures for determining annual cash bonuses;
The following table shows target total direct compensation versus actual total direct compensationContinued the use of performance-based restricted stock (again using cumulative net income and return on invested capital as the relevant performance measures) and stock options for the named executive officers for Fiscal 2014:
| ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Fiscal 2014 Total Direct Compensation | | |||||||||||
| Named Executive Officer | | Target ($) | | Actual ($) | | ||||||||
David P. Storch | 5,004,230 | 4,722,717 | ||||||||||||
Timothy J. Romenesko | 2,548,986 | 2,408,025 | ||||||||||||
John C. Fortson | 1,463,647 | 1,373,300 | ||||||||||||
Randy J. Martinez | 1,002,494 | 1,212,076 | ||||||||||||
Robert J. Regan | 1,636,991 | 1,548,544 | ||||||||||||
Michael J. Sharp | 992,526 | 923,852 |
III. Fiscal 2015 Executive Compensation Actions
Our Compensation Committee met in July 2014lieu of any time-based restricted stock awards; and approved the following Fiscal 2015 executive compensation actions based on its consideration of performance results for Fiscal 2014, the executive compensation assessment prepared by its independent compensation consultant in July 2014, stockholder concerns identified in our stockholder outreach program and other relevant items:
| |||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Named Executive Officer | | Fiscal 2014 ($) | | Fiscal 2015 ($) | | Percentage Difference (%) | | |||||||||||
| David P. Storch | 2,964,720 | 1,695,200 | 43 | |||||||||||||||
| Timothy J. Romenesko | 1,482,360 | 847,600 | 43 | |||||||||||||||
| John C. Fortson | 700,010 | 521,600 | 25 | |||||||||||||||
| Robert J. Regan | 889,417 | 521,600 | 41 | |||||||||||||||
| Michael J. Sharp | 355,766 | 260,800 | 27 | |||||||||||||||
| Randy J. Martinez | 281,600 | 208,640 | 26 |
Provided a one-time special grant of stock awards under the Fiscal 2015 long-term incentive plan to place greater emphasis on performance-based restricted stock:
| ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Percentage of Stock Awards | | |||||||||||
| Type of Long-Term Stock Award | | Fiscal 2014 | | Fiscal 2015 | | ||||||||
Performance-Based Restricted Stock | 23 | % | 75 | % | ||||||||||
Time-Based Restricted Stock | 23 | % | 25 | % | ||||||||||
Stock Options | 54 | % | 0 | % |
Also, at its July 2016 meeting, the Board of Directors, upon the recommendation of the Compensation Committee, determinedapproved a cap of $500,000 on total annual director compensation — consisting of cash compensation and stock compensation — that it was appropriatemay be payable to add a second performance goal — return on invested capital — to cumulative net income, so as to assure that the Company's performance is measurednon-employee director in two separate ways that are critical to the Company's financial success.
IV.VI. Key Executive Compensation Policies and Practices
The following are key factors affectingthat also affect the executive compensation decisions made by the Compensation Committee for the Company's executives, including its named executive officers:
Stockholder Advisory Vote. At the Company's 2013 annual meeting of stockholders, holders of approximately 68% of the outstanding shares approved the Fiscal 2013 compensation paid to the named executive officers. Although this stockholder vote on executive compensation was advisory, the Company carefully considered the results of this say-on-pay vote. In response to the say-on-pay vote, the Company conducted a formal stockholder outreach program to gain a better understanding of stockholder concerns related to its executive compensation policies and practices, corporate governance practices and other matters of stockholder interest. This proxy statement contains further information in the "2014 Proxy Statement Summary" and elsewhere in this CD&A about
the Company's Fiscal 2014 stockholder outreach program, including the executive compensation actions taken by the Company in Fiscal 2014.
The Compensation Committee reviews and considers historical compensation data for the Company's executives. This data includes summaries of cash and equity compensation received in past years by each executive. In addition, the Compensation Committee reviews the executives' total annual compensation, including cash and non-cash direct compensation, cumulative benefits and savings under retirement plans and equity compensation programs, perquisites and potential payments on termination of employment, whether on a change in control of the Company or otherwise. It reviews the performance of the Company and the executives during the year, taking into account established goals, leadership qualities, operational performance, business responsibilities, career experience, and long-term potential to enhance stockholder value. In addition to peer group compensation information and general industry compensation information, the Compensation Committee reviews internal pay comparisons among the Company's executives to ensure that the Company's executive compensation program reflects the executives' positions, responsibilities, and contributions to the Company.
The Compensation Committee engaged Mercer as its independent compensation consultant to assist in determining the composition of the Company's Fiscal 2014 peer group for executive compensation purposes and the benchmarking of executive and director compensation for Fiscal 2014. Mercer also provided advice and information on other executive compensation matters, including executive pay philosophy and design, prevailing market practices, relevant legal and regulatory requirements, and peer-group data. The Company paid Mercer $227,672 in Fiscal 2014 for its consulting services to the Compensation Committee on executive compensation matters. In Fiscal 2014, Mercer also provided consulting services on the Company's domestic and international health and benefit plans `for which it received fees of $167,500, and other consulting fees for which it received fees of $140,300.
The Compensation Committee considered whether any conflicts of interest were created by its of Mercer to provide compensation consulting services in Fiscal 2014. Its consideration focused on the following factors: (i) services other than compensation consulting services provided to the Company by Mercer, (ii) total paid by the Company to Mercer for such other services ($307,800), including as a percentage of total revenue of
Mercer (.005%), (iii) conflicts of interest policies and procedures of the Company and of Mercer, (iv) the lack of any relationships between Mercer and members of the Company's Board of Directors, (v) Company stock owned by Mercer and its employees and (vi) the lack of any relationships between Mercer and any of the Company's executive officers. Based on this assessment, the Compensation Committee concluded that no conflicts of interest existed with respect to Mercer.
The Company's Human Resources Department assists the Chief Executive Officer by collecting and organizing relevant historical and current compensation information, including information received from the Compensation Committee's consultant, as well as peer group compensation information and industry trends. The Company's Vice President and Chief Human Resources Officer participates in all regularly scheduled Compensation Committee meetings.
The Chief Executive Officer and the Compensation Committee actively discuss compensation decisions for the Company's executives. However, the Compensation Committee has the ultimate decision-making authority and responsibility for compensation decisions affecting the Company's executives, including its named executive officers. The Chief Executive Officer does not play any role in any decision affecting his own compensation.
The Company has stock ownership guidelines requiring directors and executive officers to own and retain a significant equity stake so as to align their interests with the interestsmeaningful amount of the Company's stockholders. Thesestock. The Board revised these stock ownership guidelines which were increased in Fiscal 2013, provide as follows:
Applicable Persons | Stock Ownership Requirement | |||||||
| | | | | | | | |
Non-Employee Directors | 20,000 shares (within four years of joining the Board) | |||||||
| | | | | | | | |
Executive Officers | ||||||||
| | | | | | | | |
| 6 times base salary | |||||||
| | | | | | | | |
| ||||||||
| | | | | | | | |
| 1 times base salary | |||||||
| | | | | | | | |
TheseExecutive officers not in compliance with these guidelines must retain at least 50% of the net after-tax profit shares from an option exercise or the vesting of restricted stock or performance-based stock. All named executive officers of the Company comply with the stock ownership levels must be achieved within four years of becoming a director or executive officer and then maintained while in that position. requirements.
Failure to meet these stock ownership levels or to show sustained progress may result in a reduction in future stock awards. All current directors
and executive officers comply with the stock ownership guidelines. Stock values are measured as of each fiscal year-end, with unvested stock awards counted at 50% and stock options not counted at all.0%.
Employment, Agreements.Severance and Other Agreements
The Company does not have anhas employment agreementagreements with any executive officer other than Mr. Storch, its Chairman andthe Company's Chief Executive Officer. See "Compensation Arrangement withOfficer, and Mr. Holmes, the Chief Executive Officer"Operating Officer of the Aviation Services business group. See "Executive Compensation — Employment Agreements" for a description of the terms of thatthese employment agreement.agreements. The Company has severance and change in control agreements with Messrs.Mr. Romenesko, Fortson,the Company's Vice Chairman and Chief Financial Officer, and Mr. Regan, the Company's Vice President, General Counsel and Sharp.Secretary. The Company also entered into an agreement with Mr. Sharp in connection with his retirement from the Company. See "Potential Payments upon a Termination of Employment or a Change in Control of the Company" on pages 57-64 for a description of the terms of these agreements. In all cases, the
The rationale for thesethe employment agreements and the severance and change in control agreements is to provide an appropriate measure of security and incentive to the executive officers in line with market practice. Effective June 1, 2012,practice and the Company's goal of senior leadership stability.
The Company determined that it willhas no longer provide tax gross-up provisions in any new agreement with anits executive officers, except for one legacy agreement in the year 2000.
Equity Grant Practices.Practices
The Compensation Committee meets from time to time to consider and act with respect to equity compensation awards for the Company's executive officers. TheAs described, the Compensation Committee typically makes its equity compensation decisions at its July meeting. The Compensation Committee — or the Chief Executive Officer pursuant to authority delegated by the Compensation Committee — also may grant equity compensation awards to newly hired or newly promoted employees at other times during the year. In all cases, the grant equity date is the date on which the Compensation Committee acts to approve the award, unless the Compensation Committee establishes the grant date at a specified future date. Board and Compensation Committee meetings are generally scheduled a year in advance and without regard to anticipated earnings or other major announcements by the Company. The Company does not time the granting of its equity compensation awards to affect the value of its executive compensation.
Perquisites
We provide limited perquisites to our executive officers in support of our goal of attracting and retaining talented leaders. See footnotes to the "Other Compensation" column of the Summary Compensation Table on pages 47-48 for a description and valuation of these perquisites. The Compensation Committee believes these perquisites are reasonable, market-competitive and consistent with the Company's overall executive compensation program.
Retirement Benefits
The Company's named executive officers participate in one or more of the following retirement plans:
Retirement Plan: A tax-qualified defined benefit plan whose benefit accruals ceased in June 2005.
Retirement Savings Plan: A tax-qualified 401(k) savings plan available to all employees.
SKERP: A non-qualified retirement plan that makes up 401(k) benefits that would otherwise be lost as a result of U.S. Tax Code limits and provides additional employer contributions.
Change in Control Benefits
The Company provides certain change in control benefits to encourage the participating executives to consider the best interest of the Company without concern about their own personal financial well-being in the face of a potential change in control of the Company. See "Potential Payments Upon a Termination of Employment or a Change in Control of the Company" on pages 57-64 for additional information.
Risk Management of Compensation Practices, including Incentive Compensation Recoupment, Anti-Hedging and Anti-Pledging Policies.
The Compensation Committee considered, with the assistance of Mercer, its independent compensation consultant, whether the Company's compensation policies and practices in Fiscal 20142016 for its employees, including the named executive officers, were reasonably likely to have a material adverse effect on the Company. The Compensation Committee determined that there was no such material adverse effect and that the Company's compensation policies and practices do not encourage excessive or inappropriate risk-taking.
The Compensation Committee determined that the design and operation of the Company's executive compensation program were consistent with the Company's risk management strategies based onfor the following reasons:
The executive compensation program is designed to provide a proper balance between cash and equity compensation, fixed and variable compensation, and short-term and long-term compensation.
Fiscal 2014 annual cash2016 short-term incentive plan awards — a form of variableperformance-based cash compensation — were based on two different performance metrics: earnings per share and cash flow from operations.
The Company uses PIPs to provide annual incentive cash compensation opportunities for executives at its two principal business groups. The PIPs employ multiple business metrics — e.g., pre-tax income, free cash flow — to provide balanced incentives and in fact, exercised this discretion to reduce by 30% the annual cash bonus awarded to each named executive officer other than Mr. Martinez.appropriate risk-taking.
The balance built into the short-term incentive plan and the PIPs is also reflected in long-term incentive compensation awards, which in Fiscal 20142016 consisted of performance-based restricted stock and stock options, and did not include any time-based restricted stock and performance-based restricted stock.for executive officers. Each of these long-term equity-based incentive awards contains multi-year vesting periods designed to promote employee growth, development and retention. They also are linked to the value of the Company's common stock, thus aligning management's interest with thosethe interests of the Company's stockholders.
The performance goals for performance-based restricted stock under the long-term incentive plan — cumulative net income in Fiscal 2014 and cumulative net income and return on invested capital in Fiscal 20152016 — are different from the performance goals used under the short-term incentive plan (earnings per share and working capital turns). In addition, the Fiscal 2016 long-term incentive plan has a three-year performance period compared to the one-year performance period under the Fiscal 2016 short-term incentive plan.
The Company's stock ownership guidelines an incentive compensation recoupment policy,align the interests of directors and an anti-hedging and anti-pledging policy asexecutive officers with the interests of stockholders, providing further protections forassurance that decisions are made in the Company.best interest of stockholders.
The Compensation Committee and senior management work together to ensure that the aggregate level of executive compensation fits within the Company's budget.
Independence of Compensation Consultant
The Compensation Committee considered the independence of Mercer, its compensation consultant, in Fiscal 2016. The Compensation Committee's consideration of Mercer's independence focused on the following factors: (i) the total dollar amount paid by the Company to Mercer for compensation consulting services ($232,900 in Fiscal 2016); (ii) services other than compensation consulting services (
e.g.,
Incentive Compensation Clawback Policy
The Company has an incentive compensation clawback policy. The policy provides for the recoupment of incentive compensation paid to a current or former executive officer of the Company where such person's misconduct contributed to an accounting restatement of the Company's financial statements.
The Company is aware of the proposed compensation clawback rules issued by the SEC in July 2015. The Company will revise its incentive compensation clawback policy to comply with the requirements of the SEC's final rules.
Anti-Hedging and Anti-Pledging Policies
The Company maintains a strong insider trading policy aimed at ensuring that its directors, officers and employees do not use confidential or material non-public information in connection with trading in Company securities or in the securities of other companies with which the Company does business. The purpose of the insider trading policy is to promote compliance with applicable securities laws governing insider trading.
An important part of the Company's insider trading policy is the prohibition on short sales, market put and call options, margining and hedging, pledging or hypothecation of the Company's securities. The Company discourages its directors,
officers and employees from engaging in short-term speculative trading, and the prohibition on hedging and pledging securities is consistent with this perspective.
Deductibility of Executive Compensation.Compensation
Internal Revenue Code Section 162(m) generally prevents any public company from claiming a deduction for compensation in excess of $1 million for certain executive officers (namely, the chief executive officer and the three most highly compensated officers other than the chief executive officer and the chief financial officer). This deduction limitation, however, does not apply to performance-based compensation that satisfies certain requirements under Section 162(m). The Compensation Committee has determined that it is in the best interests of the Company and its stockholders to structure compensation of executive officers so that compensation will not be subject to the deduction limit to the extent that it can reasonably do so in a manner that provides adequate incentives and allows the Company to attract and retain qualified executives. However, the Compensation Committee has previously, and may in the future, structure compensation arrangements that under certain circumstances may be subject to the deduction limit.
Under the Company's Section 162(m) Annual Cash Incentive Plan, the annual cash bonuses qualified in Fiscal 2014 as performance-based compensationlimit under Section 162(m). Stock options and performance-based restricted stock grants awarded under the Stock Benefit Plan also qualified as performance-based
compensation. Base salaries and time-based restricted stock grants do not qualify as performance-based compensation.
As required under the United States tax rules, the Company must obtain stockholder approval every five years of the material terms of the performance goals for qualifying performance-based compensation, except where a plan (such as the AAR CORP. 162(m) Annual Cash Incentive Plan) contains only a single performance goal. The Company received stockholder approval of the net income performance goal under the AAR CORP. 162(m) Annual Cash Incentive Plan at its 2010 annual meeting of stockholders and thus does not need any further stockholder approval unless and until it changes or adds to that performance goal. The Company also received stockholder approval of the performance goals under the Company's 2013 Stock Plan at its 2013 annual meeting of stockholders. Accordingly, theThe Company must seekis seeking stockholder approval at this 2016 annual meeting of the performance goals relating to stock compensation no later than its 2018 annual meetingas a part of stockholders.
Table of Contentsthe amendments to the AAR CORP. 2013 Stock Plan.
Compensation Committee Fiscal 2016 Report on Executive Compensation for Fiscal 2014
The Compensation Committee of the Board of Directors of the Company furnishes the following report to the stockholders of the Company in accordance with applicable SEC rules.
The Compensation Committee reviewed and discussed the Compensation Discussion and Analysis set forth above with the Company's management. Based on that review and discussion, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this proxy statement.
Respectfully submitted,
Compensation Committee
Ronald B. Woodard, Chairman
Anthony K. Anderson
Norman R. Bobins
Michael R. Boyce
Ronald R. Fogleman
Peter Pace
Jennifer L. Vogel
The following table sets forth compensation information for the Company's named executive officers for Fiscal 2014,2016, Fiscal 20132015 and Fiscal 2012:2014:
| ||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Name and Principal Position | | Year | | Salary ($)2 | | Bonus ($) | | Stock Awards ($)3 | | Option Awards ($)4 | | Non-Equity Incentive Plan Compensation ($)5 | | Change in Pension Value and Non-Qualified Deferred Compensation Earnings ($)6 | | All Other Compensation ($)7 | | Total ($) | | ||||||||||||||||||||||||||||
DAVID P. STORCH | 2014 | 906,449 | 0 | 1,342,704 | 1,622,016 | 851,548 | 55,793 | 525,062 | 5,303,572 | |||||||||||||||||||||||||||||||||||||||
Chairman of the Board and | 2013 | 877,838 | 0 | 619,200 | 695,520 | 1,350,685 | 60,352 | 639,589 | 4,243,184 | |||||||||||||||||||||||||||||||||||||||
Chief Executive Officer | 2012 | 867,000 | 0 | 2,664,745 | 578,460 | 850,000 | 50,454 | 826,195 | 5,836,854 | |||||||||||||||||||||||||||||||||||||||
TIMOTHY J. ROMENESKO | 2014 | 499,272 | 0 | 671,352 | 811,008 | 426,393 | 39,367 | 202,405 | 2,649,797 | |||||||||||||||||||||||||||||||||||||||
President and Chief | 2013 | 483,513 | 0 | 309,600 | 347,760 | 676,324 | 40,816 | 251,357 | 2,109,370 | |||||||||||||||||||||||||||||||||||||||
Operating Officer | 2012 | 477,544 | 0 | 1,287,491 | 279,483 | 423,277 | 35,958 | 313,361 | 2,817,114 | |||||||||||||||||||||||||||||||||||||||
JOHN C. FORTSON8 | 2014 | 400,000 | 0 | 241,586 | 458,424 | 273,290 | 0 | 37,856 | 1,411,156 | |||||||||||||||||||||||||||||||||||||||
Vice President, Chief Financial Officer and Treasurer | ||||||||||||||||||||||||||||||||||||||||||||||||
RANDY J. MARTINEZ9 | 2014 | 360,447 | 0 | 0 | 281,600 | 570,029 | 0 | 34,533 | 1,246,609 | |||||||||||||||||||||||||||||||||||||||
Aviation Services, | 2013 | 349,070 | 0 | 120,750 | 638,178 | 0 | 23,178 | 1,131,176 | ||||||||||||||||||||||||||||||||||||||||
Group Vice President — Airlift | ||||||||||||||||||||||||||||||||||||||||||||||||
ROBERT J. REGAN | 2014 | 391,586 | 0 | 402,812 | 486,605 | 267,541 | 0 | 100,311 | 1,648,855 | |||||||||||||||||||||||||||||||||||||||
Vice President, General Counsel | 2013 | 379,226 | 0 | 185,760 | 208,656 | 424,362 | 0 | 114,848 | 1,312,852 | |||||||||||||||||||||||||||||||||||||||
and Secretary | 2012 | 374,544 | 0 | 767,431 | 166,592 | 265,586 | 0 | 152,916 | 1,727,069 | |||||||||||||||||||||||||||||||||||||||
MICHAEL J. SHARP10 | 2014 | 360,353 | 0 | 161,124 | 194,642 | 207,733 | 3,037 | 79,347 | 1,006,236 | |||||||||||||||||||||||||||||||||||||||
Former Acting Chief Financial | 2013 | 312,576 | 0 | 74,304 | 83,462 | 322,185 | 2,905 | 48,677 | 844,109 | |||||||||||||||||||||||||||||||||||||||
Officer and Treasurer and Current | ||||||||||||||||||||||||||||||||||||||||||||||||
Vice President, Controller and Chief | ||||||||||||||||||||||||||||||||||||||||||||||||
Accounting Officer |
Name and Principal Position | Year | Salary ($)2 | Bonus ($)3 | Stock Awards ($)4 | Option Awards ($)5 | Non-Equity Incentive Plan Compensation ($)6 | Change in Pension Value and Non-Qualified Deferred Compensation Earnings ($)7 | All Other Compensation ($)8 | Total ($) | |||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
David P. Storch | 2016 | 755,250 | — | 1,150,500 | 1,150,500 | 1,014,800 | 35,727 | 603,414 | 4,710,191 | |||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Chairman of the Board, President and | 2015 | 906,449 | — | 1,695,200 | — | 2,158,713 | 34,177 | 474,286 | 5,268,825 | |||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Chief Executive Officer | 2014 | 906,449 | — | 1,342,704 | 1,622,016 | 851,548 | 55,793 | 525,062 | 5,303,572 | |||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Timothy J. Romenesko | 2016 | 456,250 | 507,400 | 375,000 | 375,000 | — | 31,576 | 316,962 | 2,062,188 | |||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Vice Chairman; Chief Financial | 2015 | 499,272 | — | 847,600 | — | 1,727,250 | 30,207 | 198,397 | 3,302,726 | |||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Officer (beginning August 1, 2016); | 2014 | 499,272 | — | 671,352 | 811,008 | 426,393 | 39,367 | 202,405 | 2,649,797 | |||||||||||||||||||||||||||||||
Chief Operating Officer of | ||||||||||||||||||||||||||||||||||||||||
Expeditionary Services (through | ||||||||||||||||||||||||||||||||||||||||
July 31, 2016) | ||||||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
John M. Holmes9 | 2016 | 456,250 | 117,551 | 375,000 | 375,000 | 517,949 | 633 | 96,707 | 1,939,090 | |||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Vice President; Chief Operating | 2015 | 409,375 | — | 208,640 | — | 548,000 | 606 | 103,917 | 1,270,538 | |||||||||||||||||||||||||||||||
Officer of Aviation Services | ||||||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Michael J. Sharp10 | 2016 | 382,418 | — | 368,750 | 131,250 | 370,462 | 3,319 | 98,212 | 1,354,411 | |||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Former Vice President, Chief | 2014 | 360,353 | — | 161,124 | 194,642 | 207,733 | 3,037 | 79,397 | 1,006,286 | |||||||||||||||||||||||||||||||
Financial Officer (from | ||||||||||||||||||||||||||||||||||||||||
September 29, 2015 through July 31, 2016) | ||||||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Robert J. Regan | 2016 | 390,396 | — | 312,000 | 312,000 | 361,200 | — | 111,380 | 1,486,976 | |||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Vice President, General Counsel | 2015 | 391,586 | — | 521,600 | — | 750,825 | — | 97,963 | 1,761,974 | |||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
and Secretary | 2014 | 391,586 | — | 402,812 | 486,605 | 267,541 | — | 100,311 | 1,648,855 | |||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
John C. Fortson11 | 2016 | 168,109 | — | 340,000 | 340,000 | — | — | 33,032 | 881,141 | |||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Former Vice President and | 2015 | 400,000 | — | 521,600 | — | 1,220,356 | — | 90,629 | 2,232,585 | |||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Chief Financial Officer | 2014 | 400,000 | — | 241,586 | 458,424 | 273,290 | — | 37,856 | 1,411,156 | |||||||||||||||||||||||||||||||
(through September 28, 2015) | ||||||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Generally, theThe grant date fair value representsvalues generally represent the Company's totalaccounting expense for the grants made to the named executive officers in each of Fiscal 2014, Fiscal 2013 and Fiscal 2012. The abovea given year.These amounts reflect the aggregate accounting expense for these awards and do not correspond torepresent the actual value that may be recognizedrealized by the named executive officers when the awards vest.because an award may be forfeited or may not vest or may vest at a lower or higher level. The "Compensation Discussion and Analysis" section of this proxy statement contains vesting and other information about theawards of performance-based restricted stock awards and the time-based restricted stock awards granted in Fiscal 2014.2016.
Statements contained in the Company's Annual Report on Form 10-K for Fiscal 20142016 for an explanation of the assumptions made by the Company in the valuation of these awards. Generally, the
The grant date fair value representsvalues represent the Company's totalaccounting expense for the grants made to the named executive officers in each of Fiscal 2014, Fiscal 2013 and Fiscal 2012. The abovein a given year.These amounts reflect the aggregate accounting expense for these awards and do not correspond torepresent the actual value that may be recognizedrealized by the named executive officers.officers because an award may be forfeited or may not be exercised. The "Compensation Discussion and Analysis" section of this proxy statement contains vesting and other information about theawards of stock option awardsoptions granted in Fiscal 2014.2016.
| |||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Named Executive Officer | | Company 401(k) Plan Contributions ($) | | Company SKERP Contributions ($) | | Club Dues ($) | | Financial Planning ($) | | Personal Use of Aircraft ($) | | Auto Allowance ($) | | Company-Paid Split-Dollar Life Insurance Premium ($) | | Executive Physical ($) | | Spouse Travel ($) | | Total ($) | | |||||||||||||||||||||||||||||||
| David P. Storch | 17,733 | 376,736 | 49,009 | 20,275 | 0 | 12,300 | 42,535 | 6,474 | 0 | 525,062 | ||||||||||||||||||||||||||||||||||||||||||
| Timothy J. Romenesko | 17,785 | 152,620 | 9,450 | 14,303 | 0 | 0 | 6,760 | 1,487 | 0 | 202,405 | ||||||||||||||||||||||||||||||||||||||||||
| John C. Fortson | 1,692 | 13,477 | 8,700 | 13,987 | 0 | 0 | 0 | 0 | 0 | 37,856 | ||||||||||||||||||||||||||||||||||||||||||
| Randy J. Martinez | 20,230 | 0 | 0 | 14,303 | 0 | 0 | 0 | 0 | 0 | 34,533 | ||||||||||||||||||||||||||||||||||||||||||
| Robert J. Regan | 15,227 | 70,781 | 0 | 14,303 | 0 | 0 | 0 | 0 | 0 | 100,311 | ||||||||||||||||||||||||||||||||||||||||||
| Michael J. Sharp | 15,206 | 53,839 | 8,100 | 0 | 0 | 0 | 2,202 | 0 | 0 | 79,347 |
Named Executive Officer | Company 401(k) Plan Contributions ($) | Company SKERP Contributions ($) | Club Dues ($) | Financial Planning ($) | Auto Allowance ($) | Company-Paid Split-Dollar Life Insurance Premium ($) | Executive Physical ($) | Total ($) | ||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
David P. Storch | 13,265 | 461,072 | 46,634 | 18,166 | 12,300 | 51,977 | — | 603,414 | ||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Timothy J. Romenesko | 12,331 | 270,016 | 12,149 | 12,132 | — | 8,138 | 2,196 | 316,962 | ||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
John M. Holmes | 8,502 | 75,198 | 875 | 12,132 | — | — | — | 96,707 | ||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Michael J. Sharp | 12,139 | 72,557 | 11,005 | — | — | 2,511 | — | 98,212 | ||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Robert J. Regan | 9,450 | 89,798 | — | 12,132 | — | — | — | 111,380 | ||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
John C. Fortson | 3,975 | 23,743 | 2,375 | 2,939 | — | — | — | 33,032 | ||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Employment Agreement with David P. Storch
We have an employment agreement with David P. Storch, our Chairman, President and Chief Executive Officer, that runs through May 31, 2017. The table below outlines the principal terms of Mr. Storch's employment agreement.
Type of Benefit | Description | |||||||
| | | | | | | | |
Base salary | Not less than $906,449 without Mr. Storch's consent | |||||||
| | | | | | | | |
Annual cash bonus | Target cash bonus opportunity of 100% of base salary and a maximum opportunity of 250% of base salary based on achievement of performance goals established by the Compensation Committee | |||||||
| | | | | | | | |
Annual stock award | As determined by the Compensation Committee | |||||||
| | | | | | | | |
Perquisites | Personal use by Mr. Storch of an aircraft chartered by the Company (subject to the Company's aircraft use policy), an annual automobile allowance, payment of country club dues, reimbursement of fees and expenses relating to membership in professional clubs or organizations, financial planning and tax preparation services and participation in an executive physical program(Mr. Storch did not have any personal use of aircraft in Fiscal 2016) | |||||||
| | | | | | | | |
Termination / change in control benefits | See "Potential Benefits Payable Upon Termination of Employment or a Change in Control of the Company — Employment Agreement of David P. Storch" | |||||||
| | | | | | | | |
Employment Agreement with John M. Holmes
At its July 11, 2016 meeting, the Board of Directors, upon the recommendation of the Compensation Committee, approved an employment agreement with John M. Holmes, Vice President of the Company from October 27, 2012 to July 25, 2013. He continues to serve as Vice President, Controller and Chief AccountingOperating Officer of the Aviation Services business group. The employment agreement, effective July 11, 2016, has a four-year term through May 31, 2020. The table below outlines the principal terms of Mr. Holmes's employment agreement.
Type of Benefit | Description | |||||||
| | | | | | | | |
Base salary | Not less than $463,500 without Mr. Holmes's consent | |||||||
| | | | | | | | |
Annual cash bonus | Target cash bonus opportunity of 100% of base salary and a maximum opportunity of 250% of base salary based on achievement of performance goals established by the Compensation Committee | |||||||
| | | | | | | | |
Annual stock award | As determined by the Compensation Committee | |||||||
| | | | | | | | |
Perquisites | Personal use of country club dues, reimbursement of fees and expenses relating to membership in professional clubs or organizations, financial planning and tax preparation services and participation in an executive physical program | |||||||
| | | | | | | | |
Termination / change in control benefits | See "Potential Benefits Payable Upon Termination of Employment or a Change in Control of the Company — Employment Agreement with John Holmes" | |||||||
| | | | | | | | |
The employment agreement also provides Mr. Holmes with a one-time award of shares of performance-based restricted stock with a grant date fair value on July 11, 2016 of $2 million. This award is subject to performance conditions based upon the pre-tax income and average return on invested capital performance of the Aviation Services business group over a three-year performance period. The award vests 50% at the end of year three and 50% at the end of year four, assuming the performance conditions have been satisfied. The purpose of this one-time award is to recognize Mr. Holmes's increasing role and responsibilities with the Company, his leadership as Chief Operating Officer of Aviation Services (the business group responsible for approximately 85% of the Company's revenues in Fiscal 2016) and the important relationship between Mr. Holmes's performance and the future success of the Company.
New Employment Agreement with Our Chairman and Chief Executive Officer
In May 2014, the Company entered into a new employment agreement with Mr. Storch for a three-year term ending May 31, 2017. The new agreement automatically renews thereafter for one-year periods unless either party gives 90 days advance notice prior to the end of the one-year period. The new agreement retains many of the principal terms of the prior agreement, but Mr. Storch voluntarily forfeited certain protections that were included in prior employment agreements dating back to 1989. Specifically:
The new agreement provides the following benefits to Mr. Storch:
Fiscal 20142016 Grants of Plan-Based Awards
The following table sets forth information for each named executive officer with respect to:
Estimated possible payouts under non-equity incentive plan award opportunities for Fiscal 2014;2016;
Estimated possible payouts under equity incentive plan award opportunities for Fiscal 2014;2016;
Other stock awards made in Fiscal 2014;2016; and
Stock options granted in Fiscal 2014.
| | | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | | | Estimated Possible Payouts Under Non-Equity Incentive Plan Awards2 | | Estimated Possible Payouts Under Equity Incentive Plan Awards3 | | | | | | | | | | |||||||||||||||||||||||||||||||||||||||||
Named Executive Officer | Grant Date1 | Threshold ($) | Target ($) | Maximum ($) | Threshold (#) | Target (#) | Maximum (#) | All Other Stock Awards: Number of Shares of Stock or Units (#)4 | All Other Option Awards: Number of Securities Underlying Options (#)5 | Exercise or Base Price of Option Awards ($/sh) | Grant Date Fair Value of Stock and Option Awards ($)6 | ||||||||||||||||||||||||||||||||||||||||||||||
| David P. Storch | 566,531 | 1,133,061 | 2,266,122 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| 7/15/13 | 13,200 | 26,400 | 52,800 | 671,352 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| 7/15/13 | 26,400 | 671,352 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 7/15/13 | 158,400 | 25.43 | 1,622,016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Timothy J. Romenesko | 283,677 | 567,354 | 1,134,708 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| 7/15/13 | 6,600 | 13,200 | 26,400 | 335,676 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| 7/15/13 | 13,200 | 335,676 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 7/15/13 | 79,200 | 25.43 | 811,008 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| John C. Fortson | 181,818 | 363,637 | 727,274 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| 7/15/13 | 2,375 | 4,750 | 9,500 | 120,793 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| 7/15/13 | 4,750 | 120,793 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 7/15/13 | 44,768 | 25.43 | 458,424 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Randy J. Martinez7 | — | 360,447 | 720,894 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| 7/15/13 | 27,500 | 25.43 | 281,600 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Robert J. Regan | 177,994 | 355,988 | 711,976 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| 7/15/13 | 3,960 | 7,920 | 15,840 | 201,406 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| 7/15/13 | 7,920 | 201,406 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 7/15/13 | 47,520 | 25.43 | 486,605 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Michael J. Sharp | 138,204 | 276,407 | 552,814 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| 7/15/13 | 1,584 | 3,168 | 6,336 | 80,562 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| 7/15/13 | 3,168 | 80,562 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 7/15/13 | 19,008 | 25.43 | 194,642 |
| Estimated Possible Payouts Under Non-Equity Incentive Plan Awards2,7 | Estimated Possible Payouts Under Equity Incentive Plan Awards3 | All Other Stock Awards: Number of Shares | All Other Option Awards: Number of Securities | Exercise or Base Price | Grant Date Fair Value of Stock and | ||||||||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Named Executive Officer | Grant Date1 | Threshold ($) | Target ($) | Maximum ($) | Threshold (#) | Target (#) | Maximum (#) | of Stock or Units (#)4 | Underlying Options (#)5 | of Option Awards ($/sh) | Option Awards ($)6 | |||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
David P. Storch | 383,500 | 767,000 | 1,917,500 | — | — | |||||||||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
8/7/15 | 21,610 | 43,219 | 108,048 | 1,150,500 | ||||||||||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
8/7/15 | 153,810 | 26.62 | 1,150,500 | |||||||||||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Timothy J. Romenesko7 | — | 450,000 | 675,000 | — | — | |||||||||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
8/7/15 | 7,044 | 14,087 | 35,218 | 375,000 | ||||||||||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
8/7/15 | 50,134 | 26.62 | 375,000 | |||||||||||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
John M. Holmes7 | — | 450,000 | 900,000 | — | — | |||||||||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
8/7/15 | 7,044 | 14,087 | 35,218 | 375,000 | ||||||||||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
8/7/15 | 50,134 | 26.62 | 375,000 | |||||||||||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Michael J. Sharp8 | 140,000 | 280,000 | 700,000 | — | — | |||||||||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
8/7/15 | 2,466 | 4,931 | 12,328 | 131,250 | ||||||||||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
8/7/15 | 17,547 | 26.62 | 131,250 | |||||||||||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
10/13/15 | 5,330 | 10,660 | 26,650 | 237,500 | ||||||||||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Robert J. Regan | 136,500 | 273,000 | 682,500 | — | — | |||||||||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
8/7/15 | 5,636 | 11,271 | 28,178 | 312,000 | ||||||||||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
8/7/15 | 41,711 | 26.62 | 312,000 | |||||||||||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
John C. Fortson9 | 148,750 | 297,500 | 743,750 | — | — | |||||||||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
8/7/15 | 6,386 | 12,772 | 31,930 | 340,000 | ||||||||||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
8/7/15 | 45,455 | 26.62 | 340,000 | |||||||||||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | ��� | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
"Compensation Discussion and Analysis" section of this proxy statement for a description of the Fiscal 2014 short-term incentive plan.
Outstanding Equity Awards at Fiscal 20142016 Year-End
The following table sets forth information for each named executive officer with respect to:
Each stock option that remained outstanding as of May 31, 2014;2016; and
Each award of restricted stock that was not vested and remained outstanding as of May 31, 2014.
| |||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | Option Awards1 | | Restricted Stock Awards | | |||||||||||||||||||||||||||||||||||||||||||
Named Executive Officer | Number of Securities Underlying Unexercised Options Exercisable (#) | Number of Securities Underlying Unexercised Options Unexercisable (#) | Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#) | Option Exercise Price ($) | Option Expiration Date | Number of Shares or Units of Stock That Have Not Vested (#)2 | Market Value of Shares or Units of Stock That Have Not Vested ($)3 | Equity Incentive Plan Awards: Number of Unearned Shares, Units, or Other Rights That Have Not Vested (#)4 | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($)3 | ||||||||||||||||||||||||||||||||||||||||
| David P. Storch | 200,000 | 0 | 15.10 | 7/13/19 | 174,657 | 4,244,165 | 66,929 | 1,626,375 | ||||||||||||||||||||||||||||||||||||||||
| 84,163 | 0 | 17.27 | 7/11/20 | |||||||||||||||||||||||||||||||||||||||||||||
| 29,412 | 19,610 | 29.65 | 7/11/21 | |||||||||||||||||||||||||||||||||||||||||||||
| 28,800 | 115,200 | 12.90 | 7/16/22 | |||||||||||||||||||||||||||||||||||||||||||||
| 0 | 158,400 | 25.43 | 7/15/23 | |||||||||||||||||||||||||||||||||||||||||||||
| Timothy J. Romenesko | 100,000 | 0 | 15.10 | 7/13/19 | 84,246 | 2,047,178 | 33,186 | 806,420 | ||||||||||||||||||||||||||||||||||||||||
| 40,664 | 0 | 17.27 | 7/11/20 | |||||||||||||||||||||||||||||||||||||||||||||
| 14,211 | 9,474 | 29.65 | 7/11/21 | |||||||||||||||||||||||||||||||||||||||||||||
| 14,400 | 57,600 | 12.90 | 7/16/22 | |||||||||||||||||||||||||||||||||||||||||||||
| 0 | 79,200 | 25.43 | 7/15/23 | |||||||||||||||||||||||||||||||||||||||||||||
| John C. Fortson | 0 | 44,768 | 25.43 | 7/15/23 | 4,750 | 115,425 | 4,750 | 115,425 | ||||||||||||||||||||||||||||||||||||||||
| Randy J. Martinez | 5,000 | 0 | 15.10 | 7/13/19 | 15,668 | 380,732 | — | — | ||||||||||||||||||||||||||||||||||||||||
| 20,000 | 0 | 17.27 | 7/11/20 | |||||||||||||||||||||||||||||||||||||||||||||
| 10,000 | 0 | 27.80 | 1/18/21 | |||||||||||||||||||||||||||||||||||||||||||||
| 5,000 | 20,000 | 12.90 | 7/16/22 | |||||||||||||||||||||||||||||||||||||||||||||
| 0 | 27,500 | 25.43 | 7/15/23 | |||||||||||||||||||||||||||||||||||||||||||||
| Robert J. Regan | 20,000 | 0 | 15.10 | 7/13/19 | 41,626 | 1,011,512 | 19,880 | 483,084 | ||||||||||||||||||||||||||||||||||||||||
| 24,239 | 0 | 17.27 | 7/11/20 | |||||||||||||||||||||||||||||||||||||||||||||
| 8,469 | 5,649 | 29.65 | 7/11/21 | |||||||||||||||||||||||||||||||||||||||||||||
| 8,640 | 34,560 | 12.90 | 7/16/22 | |||||||||||||||||||||||||||||||||||||||||||||
| 0 | 47,520 | 25.43 | 7/15/23 | |||||||||||||||||||||||||||||||||||||||||||||
| Michael J. Sharp | 9,165 | 0 | 17.27 | 7/11/20 | 16,047 | 389,942 | 7,848 | 190,706 | ||||||||||||||||||||||||||||||||||||||||
| 3,201 | 2,137 | 29.65 | 7/11/21 | |||||||||||||||||||||||||||||||||||||||||||||
| 3,456 | 13,824 | 12.90 | 7/16/22 | |||||||||||||||||||||||||||||||||||||||||||||
| 0 | 19,008 | 25.43 | 7/15/23 |
Option Awards1 | Restricted Stock Awards | |||||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Named Executive Officer | Number of Securities Underlying Unexercised Options Exercisable (#) | Number of Securities Underlying Unexercised Options Unexercisable (#) | Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#) | Option Exercise Price ($) | Option Expiration Date | Number of Shares or Units of Stock That Have Not Vested (#)2 | Market Value of Shares or Units of Stock That Have Not Vested ($)3 | Equity Incentive Plan Awards: Number of Unearned Shares, Units, or Other Rights That Have Not Vested (#)4 | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($)5 | |||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
David P. Storch | 49,022 | — | — | 29.65 | 7/11/21 | 54,650 | 1,334,007 | 91,969 | 2,244,963 | |||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
28,800 | 57,600 | — | 12.90 | 7/16/22 | ||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
63,360 | 95,040 | — | 25.43 | 7/15/23 | ||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
— | 153,810 | — | 26.62 | 8/7/25 | ||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Timothy J. Romenesko | 23,685 | — | — | 29.65 | 7/11/21 | 27,325 | 667,003 | 38,462 | 938,857 | |||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
14,400 | 28,800 | — | 12.90 | 7/16/22 | ||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
31,680 | 47,520 | — | 25.43 | 7/15/23 | ||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
— | 50,134 | — | 26.62 | 8/7/25 | ||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
John M. Holmes | 4,000 | — | — | 33.44 | 6/1/17 | 2,000 | 48,820 | 20,087 | 490,324 | |||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
5,000 | 10,000 | — | 12.90 | 7/16/22 | ||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
5,500 | 16,500 | — | 25.43 | 7/15/23 | ||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
— | 50,134 | — | 26.62 | 8/7/25 | ||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Michael J. Sharp | 9,165 | — | — | 17.27 | 7/11/20 | 7,108 | 173,506 | 23,091 | 563,651 | |||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
5,338 | — | — | 29.65 | 7/16/21 | ||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
5,368 | 6,912 | — | 12.90 | 7/16/22 | ||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
7,602 | 11,406 | — | 25.43 | 7/15/23 | ||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
— | 17,547 | — | 26.62 | 8/7/25 | ||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Robert J. Regan | 20,000 | — | — | 15.10 | 7/13/19 | 16,520 | 403,253 | 26,721 | 652,260 | |||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
24,239 | — | — | 17.27 | 7/11/20 | ||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
14,118 | — | — | 29.65 | 7/11/21 | ||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
25,920 | 17,280 | — | 12.90 | 7/16/22 | ||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
19,008 | 28,512 | — | 25.43 | 7/15/23 | ||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
— | 41,711 | — | 26.62 | 8/7/25 | ||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
John C. Fortson | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Certain options listed were "reload" options, which have an exercise price equal to the NYSE closing price on the date the original option was exercised, but retain the original option expiration date. The Company no longer grants reloadstock options, and all outstanding options have been amended to eliminate the reload provisions.
| ||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Vesting Date | | Mr. Storch | | Mr. Romenesko | | Mr. Fortson | | Mr. Martinez | | Mr. Regan | | Mr. Sharp | | ||||||||||||||||||||
| 5/31/15 | 52,001 | 25,124 | — | 6,668 | 14,976 | 5,664 | |||||||||||||||||||||||||||
| 6/1/15 | 60,000 | 28,000 | — | 4,000 | 8,000 | 3,000 | |||||||||||||||||||||||||||
| 5/31/16 | 24,256 | 11,922 | — | 5,000 | 7,130 | 2,775 | |||||||||||||||||||||||||||
| 5/31/17 | 25,200 | 12,600 | 2,375 | — | 7,560 | 3,024 | |||||||||||||||||||||||||||
| 5/31/18 | 13,200 | 6,600 | 2,375 | — | 3,960 | 1,584 |
| Vesting Date | | Mr. Storch | | Mr. Romenesko | | Mr. Holmes | | Mr. Sharp | | Mr. Regan | | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | | | | | | | | | | | | | | | | | | | | | | |
5/31/17 | 25,200 | 12,600 | — | 3,024 | 7,560 | |||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | |
5/31/18 | 13,200 | 6,600 | — | 1,584 | 3,960 | |||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | |
7/31/18 | 8,125 | 4,062 | 1,000 | 1,250 | 2,500 | |||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | |
7/31/19 | 8,125 | 4,063 | 1,000 | 1,250 | 2,500 | |||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | |
| Vesting Date | | Mr. Storch | | Mr. Romenesko | | Mr. Holmes | | Mr. Sharp | | Mr. Regan | | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | | | | | | | | | | | | | | | | | | | | | | |
7/31/17 | 16,249 | 8,124 | 1,999 | 2,499 | 4,999 | |||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | |
7/31/18 | 59,468 | 22,211 | 16,086 | 18,090 | 16,720 | |||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | |
7/31/19 | 16,252 | 8,127 | 2,002 | 2,502 | 5,002 | |||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | |
The vesting rules for stock options, shares of time-based restricted stock and shares of performance-based restricted stock are described in the following table:
| ||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Vesting Date | | Mr. Storch | | Mr. Romenesko | | Mr. Fortson | | Mr. Martinez | | Mr. Regan | | Mr. Sharp | | ||||||||||||||||||||
| 5/31/15 | 16,263 | 7,992 | — | — | 4,779 | 1,859 | |||||||||||||||||||||||||||
| 5/31/16 | 25,064 | 12,392 | 1,583 | — | 7,419 | 2,915 | |||||||||||||||||||||||||||
| 5/31/17 | 16,802 | 8,402 | 1,583 | — | 5,042 | 2,018 | |||||||||||||||||||||||||||
| 5/31/18 | 8,800 | 4,400 | 1,584 | — | 2,640 | 1,056 |
Stock Options | Time-Based Restricted Stock1 | Performance-Based Restricted Stock | ||||||||||||||
| | | | | | | | | | | | | | | | |
General Rule | 331/3% in years 1, 2 and 3 | 100% cliff vesting in year 3 | 100% cliff vesting in year 3, assuming performance conditions are met | |||||||||||||
(Stock options granted prior to Fiscal 2016 vest 20% per year for five years) | (Stock granted prior to Fiscal 2016 vests 50% each in years 4 and 5) | (Stock granted prior to Fiscal 2016 vests 331/3% each in years 3, 4 and 5, assuming the performance conditions are met) | ||||||||||||||
| | | | | | | | | | | | | | | | |
Retirement2 | Stock options continue to vest in accordance with vesting schedule (except if death occurs before the option expiration date, unvested options are forfeited and vested options are exercisable for the period described below under "Death") | Stock continues to vest in accordance with the vesting schedule | Stock continues to vest in accordance with the vesting schedule | |||||||||||||
| | | | | | | | | | | | | | | | |
Disability | Stock options continue to vest until the earlier of (i) one year after termination of employment and (ii) the option expiration date (except that if death occurs before the option expiration date, unvested options are forfeited and vested options are exercisable for the period described below under "Death") | Stock vests pro-rata based on the date of disability (Stock granted prior to Fiscal 2016 vests 100% if disability occurs after the 4th anniversary of grant and vests 50% if disability occurs before the 4th anniversary of grant) | Stock vests pro-rata based on the date of Disability (Stock granted prior to Fiscal 2016 continues to vest in accordance with the vesting schedule) | |||||||||||||
| | | | | | | | | | | | | | | | |
Death | Unvested stock options expire on the date of death and vested stock options continue to be exercisable until the earlier of one year after the date of death or the expiration date of the stock option, provided that if death occurs after three months of Retirement, the vested stock options are exercisable until the expiration date. | Stock vests pro-rata based on the date of death (Stock granted prior to Fiscal 2016 vests 100% if death occurs after the 4th anniversary of grant and vests 50% if death occurs before the 4th anniversary of grant) | Stock vests pro-rata based on the date of death (Stock granted prior to Fiscal 2016 continues to vest in accordance with the vesting schedule) | |||||||||||||
| | | | | | | | | | | | | | | | |
Fiscal 20142016 Option Exercises and Stock Vested
The following table sets forth information for each named executive officer concerning:
| ||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | Option Awards | | Stock Awards | | ||||||||||||||||||
| Named Executive Officer | | Number of Shares Acquired on Exercise (#) | | Value Realized on Exercise1 ($) | | Number of Shares Acquired on Vesting (#) | | Value Realized on Vesting2 ($) | | ||||||||||||||
| David P. Storch | 27,607 | 183,863 | 160,007 | 3,413,290 | |||||||||||||||||||
| Timothy J. Romenesko | 2,109 | 15,037 | 69,195 | 1,486,399 | |||||||||||||||||||
| John C. Fortson | — | — | — | — | |||||||||||||||||||
| Randy J. Martinez | — | — | 5,666 | 113,660 | |||||||||||||||||||
| Robert J. Regan | — | — | 21,826 | 496,452 | |||||||||||||||||||
| Michael J. Sharp | 10,000 | 124,300 | 10,227 | 227,316 |
Option Awards | Stock Awards | |||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | |
Named Executive Officer | Number of Shares Acquired on Exercise (#) | Value Realized on Exercise1 ($) | Number of Shares Acquired on Vesting (#) | Value Realized on Vesting2 ($) | ||||||||||||||||
| | | | | | | | | | | | | | | | | | | | |
David P. Storch | — | — | 92,521 | 2,566,238 | ||||||||||||||||
| | | | | | | | | | | | | | | | | | | | |
Timothy J. Romenesko | — | — | 43,915 | 1,215,605 | ||||||||||||||||
| | | | | | | | | | | | | | | | | | | | |
John M. Holmes | — | — | 13,000 | 358,370 | ||||||||||||||||
| | | | | | | | | | | | | | | | | | | | |
Michael J. Sharp | — | — | 6,675 | 178,327 | ||||||||||||||||
| | | | | | | | | | | | | | | | | | | | |
Robert J. Regan | — | — | 17,510 | 468,459 | ||||||||||||||||
| | | | | | | | | | | | | | | | | | | | |
John C. Fortson | — | — | — | — | ||||||||||||||||
| | | | | | | | | | | | | | | | | | | | |
The Company provides defined benefit pension benefits under the SKERP and the Retirement Plan. The following table shows the years of service currently credited to each named executive officer under the applicable plan and the present value of the accumulated benefit payable under the applicable plan to each named executive officer at the earliest age an unreduced benefit is payable.
| ||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Named Executive Officer | | Plan Name | | Number of Years Credited Service (#)1 | | Present Value of Accumulated Benefit ($)2 | | Payments During Fiscal 2014 ($) | | ||||||||||
| David P. Storch | Retirement Plan | 26.4 | 753,600 | — | |||||||||||||||
| SKERP | N/A | 245,992 | — | ||||||||||||||||
| Timothy J. Romenesko | Retirement Plan | 24.4 | 666,053 | — | |||||||||||||||
| SKERP | N/A | 192,611 | — | ||||||||||||||||
| John C. Fortson3 | Retirement Plan | N/A | N/A | N/A | |||||||||||||||
| SKERP | N/A | N/A | N/A | ||||||||||||||||
| Randy J. Martinez3 | Retirement Plan | N/A | N/A | N/A | |||||||||||||||
| SKERP | N/A | N/A | N/A | ||||||||||||||||
| Robert J. Regan3 | Retirement Plan | N/A | N/A | N/A | |||||||||||||||
| SKERP | N/A | N/A | N/A | ||||||||||||||||
| Michael J. Sharp3 | Retirement Plan | 8.9 | 70,002 | — | |||||||||||||||
| SKERP | N/A | N/A | N/A |
Fiscal 2016 Pension Benefits | ||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | |
Named Executive Officer | Plan Name | Number of Years Credited Service (#)1 | Present Value of Accumulated Benefit ($)2 | Payments During Fiscal 2016 ($) | ||||||||||||||||
| | | | | | | | | | | | | | | | | | | | |
David P. Storch | Retirement Plan | 26.4 | 823,504 | — | ||||||||||||||||
| | | | | | | | | | | | | | | | | | | | |
SKERP | N/A | 280,686 | — | |||||||||||||||||
| | | | | | | | | | | | | | | | | | | | |
Timothy J. Romenesko | Retirement Plan | 24.4 | 727,836 | — | ||||||||||||||||
| | | | | | | | | | | | | | | | | | | | |
SKERP | N/A | 222,436 | — | |||||||||||||||||
| | | | | | | | | | | | | | | | | | | | |
John M. Holmes3 | Retirement Plan | 3.7 | 14,597 | — | ||||||||||||||||
| | | | | | | | | | | | | | | | | | | | |
SKERP | N/A | N/A | N/A | |||||||||||||||||
| | | | | | | | | | | | | | | | | | | | |
Michael J. Sharp3 | Retirement Plan | 8.9 | 76,496 | — | ||||||||||||||||
| | | | | | | | | | | | | | | | | | | | |
SKERP | N/A | N/A | N/A | |||||||||||||||||
| | | | | | | | | | | | | | | | | | | | |
Robert J. Regan3 | Retirement Plan | N/A | N/A | N/A | ||||||||||||||||
| | | | | | | | | | | | | | | | | | | | |
SKERP | N/A | N/A | N/A | |||||||||||||||||
| | | | | | | | | | | | | | | | | | | | |
John C. Fortson3 | Retirement Plan | N/A | N/A | N/A | ||||||||||||||||
| | | | | | | | | | | | | | | | | | | | |
SKERP | N/A | N/A | N/A | |||||||||||||||||
| | | | | | | | | | | | | | | | | | | | |
SKERP — Defined Benefit Portion
The Company provides supplemental retirement benefits to certain executives and key employees under the SKERP. The SKERP, which is a non-qualified plan, contains a defined benefit portion and a defined contribution portion (discussed below). Only Mr. Storch and
Mr. Romenesko participate in the defined benefit portion of the SKERP, the material terms and conditions of which include the following:
Benefit Accruals: Under the defined benefit portion of the SKERP, benefits were accrued until October 1, 2001 pursuant to a formula that provides a monthly single life annuity at retirement at age 65 equal to: (i) 1/12 of 60% (50% for Mr. Romenesko) of Final Average Earnings less (ii) the monthly benefit payable under the Company's Retirement Plan determined as of October 1, 2001. For purposes of this benefit formula, (i) "Final Average Earnings" is defined as1/5 of a participant's Compensation during the five consecutive years within the last 10 years preceding termination of employment during which such Compensation was the highest, and (ii) "Compensation" is defined as the participant's income reported on Form W-2, including pre-tax contributions to the Retirement Savings Plan, reduced by the income attributable to restricted stock and stock options, reimbursements or other expense allowances and fringe benefits. Benefits accrued on and after October 1, 2001 under the defined benefit portion of the SKERP will accrue pursuant to a formula that provides a monthly single life annuity at retirement at age 65 equal to1/12 of 60% (50% for Mr. Romenesko) of 25% of the percentage increase in the participant's base salary from September 30, 2001 to the date of the participant's termination of employment. The benefits accrued by Messrs. Storch and Romenesko as of May 31, 2006 have been transferred to the defined contribution portion of the SKERP and are held in an account established and maintained thereunder for each participant.
Benefits accrued under the defined benefit portion of the SKERP for all other participants ceased on October 1, 2001 and were distributed to them in a lump sum as soon as practicable thereafter.
Benefit Entitlement: A participant is eligible to receive the benefit accrued under the SKERP following termination of employment when he reaches age 65. If a participant terminates employment after he reaches age 55 and his age plus years of service equal or exceed 62, benefits will be paid on the date of his termination or on a date no later than 15 years after termination of employment, as previously specified by the participant.
Form of Benefit Payment: Each participant has previously elected to have the remainder of his retirement benefit paid in a lump sum. The assumptions set forth in the Company's Retirement Plan will be used to convert the retirement benefits from an annuity payment to a lump sum. The participant may change the time or form of payment in accordance with procedures set forth in the SKERP.
Forfeiture Events: A participant will forfeit the retirement benefit if his employment is terminated due to theft, embezzlement, fraud or willful misconduct in the performance of his duties that materially injures the Company, or if during employment or the one-year period thereafter the participant violates the covenant not to compete contained in the SKERP. As a condition to receiving his retirement benefit, a participant must agree in writing to return his benefit, plus 8% interest, in the event of such forfeiture. The forfeiture provision does not apply if the participant's termination of employment causes benefits to be paid to him under Change in Control provisions of any agreement between the participant and the Company.
Retirement Plan
The Company's Retirement Plan is a tax-qualified pension plan. Benefit accruals ceased under the Retirement Plan with respect to most participants, including the named executive officers, effective June 1, 2005. Messrs.Mr. Regan and Mr. Fortson Martinez and Regan do not participate in the Retirement Plan because their dates of hire were after June 1, 2005. The material terms and conditions of the Retirement Plan as they pertain to Messrs. Storch, Romenesko, Holmes and Sharp are as follows:
Benefit Formula: Until January 1, 2000, benefits were accrued pursuant to a formula that provides a monthly single life annuity at retirement at age 65 equal to 11/2% of the participant's Final Average Earnings reduced by the participant's Social
Security offset determined under the Plan, multiplied by the participant's years of Credited Service (up to 20). Effective as of January 1, 2000, the Plan was converted to a cash balance type of plan, subject to a "grandfather" provision applicable to certain participants based on age and years of service. An account is maintained for each participant which consists of (i) an opening account balance equal to the then present value of the benefit accrued by the participant under the prior formula as of December 31, 1999, (ii) quarterly contributions made by the Company equal to a percentage of compensation based on the participant's age and years of Credited Service, and (iii) quarterly interest credits made by the Company equal to 25% of the 30-year Treasury securities interest rate for the second month preceding the beginning of each quarter. For purposes of the benefit formulae, "Final Average Earnings" and "Compensation" have the same definitions as used in the SKERP, as discussed above.
The benefits under the Retirement Plan generally ceased accruing on June 1, 2005, although the participants' cash balance accounts continue to be credited with interest until the benefits are distributed.
Vesting: Participants are eligible to receive benefits from the Retirement Plan after completing five years of Vesting Service. The named executive officers who participate in the Retirement Plan are fully vested in their benefits.
Payment of Retirement Benefits: Participants can elect to receive their benefits upon termination of employment or they can defer receipt of benefits until normal retirement age (age 65). Any vested participant can elect benefits at any time after termination of employment, with the benefit actuarially reduced to reflect payment prior to age 65. The Retirement Plan also provides for a Disability retirement benefit.
Forms of Benefit Payment: The normal form of benefit payment for a married participant is a joint and 50% survivor annuity, and the normal form of benefit payment for an unmarried participant is a single life annuity. Participants, with spousal consent, if applicable, can waive the normal form of benefit payment and elect to have benefits paid in various annuity forms, which are the actuarial equivalent of the normal form, or in a lump sum.
Retirement Savings Plan: In connection with ceasing benefits under the Retirement Plan, the Company amended its Retirement Savings Plan to provide additional benefits, as described below in the discussion following the Non-Qualified Deferred Compensation table.
Non-Qualified Deferred Compensation
The Company provides non-qualified deferred compensation benefits under the defined contribution portion of the SKERP. The following table below shows the contributions made by
each named executive officer and by the Company in Fiscal 2014,2016, the earnings accrued on the named executive officer's account balance in Fiscal 2014,2016, and the account balance as of May 31, 2014. Mr. Martinez does not participate in the SKERP.2016.
Fiscal 2014 Non-Qualified Deferred Compensation
| |||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Named Executive Officer | | Executive Contributions in Fiscal 2014 ($)1 | | Company Contributions in Fiscal 2014 ($)2 | | Aggregate Earnings in Fiscal 2014 ($)3 | | Aggregate Withdrawal/ Distributions ($) | | Aggregate Balance at May 31, 2014 ($)4 | | |||||||||||||||||
| David P. Storch | 112,840 | 376,736 | 2,057,158 | — | 12,936,046 | |||||||||||||||||||||||
| Timothy J. Romenesko | 58,770 | 152,620 | 402,816 | — | 3,159,904 | |||||||||||||||||||||||
| John C. Fortson | 20,462 | 13,477 | 2,317 | — | 36,256 | |||||||||||||||||||||||
| Robert J. Regan | 43,048 | 70,781 | 152,996 | — | 1,027,588 | |||||||||||||||||||||||
| Michael J. Sharp | 15,805 | 53,839 | 74,799 | — | 512,437 |
Fiscal 2016 Non-Qualified Deferred Compensation | ||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | |
Named Executive Officer | Executive Contributions in Fiscal 2016 ($)1 | Company Contributions in Fiscal 2016 ($)2 | Aggregate Earnings in Fiscal 2016 ($)3 | Aggregate Withdrawal/ Distributions ($) | Aggregate Balance at May 31, 2016 ($)4 | |||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | |
David P. Storch | 42,888 | 461,072 | (321,124) | — | 15,082,770 | |||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | |
Timothy J. Romenesko | 27,115 | 270,016 | (43,260) | — | 3,954,845 | |||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | |
John M. Holmes | 50,241 | 75,198 | (37,413) | — | 1,117,961 | |||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | |
Michael J. Sharp | 57,338 | 72,557 | (3,282) | — | 780,619 | |||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | |
Robert J. Regan | 21,072 | 89,798 | (53,203) | — | 1,295,073 | |||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | |
John C. Fortson | 8,564 | 23,734 | (4,672) | 217,4735 | — | |||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | |
SKERP — Defined Contribution Portion
The defined contribution portion of the SKERP covers certain executives and key employees and provides the portion of a participant's benefit that cannot be paid under the Retirement Savings Plan due to Internal Revenue Code limits, including the limit on the amount of compensation that can be taken into account in determining benefits ($255,000265,000 in 20132015 and $260,000 in 2014)2016). The material terms and conditions of the defined contribution portion of the SKERP include the following:
Contributions: Each participant may make an election which satisfies Code Section 409A to contribute a portion of his base salary (up to 75%) for that calendar year that exceeds the Code's compensation limit and a portion of the bonus (up to 75%) paid to him for the Company's fiscal year beginning in such calendar year that exceeds the Code's compensation limit. The Company
makes a matching contribution under the SKERP using the formula in the Retirement Savings Plan (i.e., 20% of the first 5% of the participant's contributions, up to 1% of compensation), as well as the portion of the Company's retirement benefit and profit sharing contributions that could not be made under the Savings Plan due to the Code's compensation limit. The Company also makes annual supplemental contributions to the accounts of the Chief Executive Officer (22%(up to 22% of base salary and bonus), the President (16%Vice Chairman (up to 16% of base salary and bonus) and other eligible officers (5%(up to 5% or 10% of base salary and bonus). To receive a credit of this contribution, the eligible participant must be employed as of the day before the contribution is made to the SKERP (unless termination of employment is due to death or Disability). In Fiscal 2014, the annual supplemental contribution for2016, Messrs. Storch, Romenesko and Regan received annual supplemental contributions of 11%, 8% and 5%, respectively, which represented 50% less than the maximum amounts to which these individuals were reduced, at management's recommendation, by 50% (Mr. Fortsonentitled. Mr. Holmes and Mr. Sharp each received a 5% contribution and Mr. Martinez does not participate in the SKERP).annual supplemental contribution.
Mr. Storch and Mr. Romenesko also have amounts held in a supplemental account that were transferred from the defined benefit portion of the SKERP, which represent the lump sum value of each participant's accrued benefit as of May 31, 2006 under the defined benefit portion. These amounts are now subject to the terms and conditions of the defined contribution portion of the SKERP.
Vesting: A participant is fully vested in amounts attributable to his own deferral contributions, and vests in all Company contributions, except supplemental contributions, at a rate equal to 331/3% for each year of vesting service (subject to full vesting upon age 65, death or Disability)disability). A participant vests in amounts attributable to Company supplemental contributions (i) made prior to October 17, 2007, upon the earlier of age 65, or age 57 with 15 years of service, and (ii) made after October 17, 2007, upon the earlier of age 65, or age 55 with the sum of age and years of service equal to at least 75.
Investments: Each participant's plan accounts are credited with earnings and losses based on investment alternatives made available by the plan committee and selected by the participant from time to time. The investment options currently offered under the SKERP consist of 24 mutual funds including 10 "Life Cycle" fund choices. Participants may change investment elections at any time.
Distributions: Distribution of a participant's accounts is generally made upon the participant's termination of employment or on a date no later than 15 years after termination of employment, as previously specified by the participant. Participants were to elect by December 31, 2005 whether their accounts are to be paid in a lump sum or installments not to exceed 15 years (a participant who failed to make an election will have his account paid in a lump sum). Notwithstanding the foregoing, (i) a participant may elect distribution of the portion of his accounts earned and vested as of December 31, 2004 (and earnings thereon) upon six month's advance written election or if such distribution is subject to a 10% forfeiture; (ii) a participant can change the time and form of payment of the portion of his accounts earned and vested after December 31, 2004 in
accordance with procedures set forth in the plan; (iii) a participant can elect a distribution at any time in order to satisfy an unforeseeable hardship (as defined in the plan); and (iv) in the event of a potential Change in Control of the Company (as determined by the Board), the portion of the participant's accounts earned and vested as of December 31, 2004 (including earnings thereon) will be distributed in an immediate lump sum. Distributions to "key employees" as defined in Code Section 409A upon termination of employment will not be paid earlier than six months following such termination.
Forfeiture Events: A participant will forfeit the portion of his plan accounts attributable to Company supplemental contributions and to amounts transferred from the defined benefit portion of the SKERP, if applicable, if his employment is terminated due to theft, embezzlement or fraud or willful misconduct in the performance of his duties that materially injures the Company, or if during employment or the one-year period thereafter the participant violates the covenant not to compete contained in the SKERP. As a condition to receiving such amounts, a participant must agree in writing to return such amounts, plus 8% interest, in the event of such forfeiture. The forfeiture provision does not apply if the participant's termination of employment causes benefits to be paid to him under change in control provisions of any agreement between the participant and the Company.
Retirement Savings Plan
The Retirement Savings Plan is a tax-qualified retirement plan that covers most United States employees, including the named executive officers. The material terms and conditions of the Retirement Savings Plan as it pertains to non-union employees are as follows:
Contributions: A participant can elect to defer 1% to 75% of compensation, up to a maximum of $17,500$18,000 for 2014,2016, or $23,000$24,000 if age 50 or older. Contributions can be made on a pre-tax or after-tax basis, as elected by the participant. Unless a participant elects otherwise: (i) participation for non-union employees hired on or after June 1, 2007 and prior to June 26, 2009 is automatic at a 3% deferral rate; and (ii) participation for non-union employees hired on or after June 26, 2009 is automatic at a 5% deferral rate, with automatic 1% annual increase. The Company provides a matching contribution, a profit sharing contribution and a retirement benefit contribution. The current matching contribution is made, as of each payroll period, in an amount equal to 20% of the first 5% of the participant's contributions, up to 1% of compensation, to the Plan for such payroll period. The profit sharing contribution is made,based on the participant's contributions as of the end of eachthe prior calendar year and is based on the participant's contributions and the economic performance of the participant's operating unit, and is equal to a percentage of the participant's compensation, up to 4%. The retirement benefitA non-elective contribution which is also made as of the end of each calendar year, was added to the Plan, effective June 1, 2005, and is equal to a percentage of compensation, up to 4%, based on the participant's age and years of credited service. A participant must have earned one year of service to be eligible for a retirement benefitthe non-elective contribution, and generally must be employed on the last day of the calendar year to receive a profit sharing contribution. Compensation for purposes of determining contributions includes cash compensation shown as income on the participant's Form W-2, reduced by the participant's contributions to the plan and excluding the income attributable to restricted stock options, reimbursements or other expense allowances and fringe benefits and subject to the Code's compensation limit ($255,000265,000 for 20132015 and $260,000 for 2014)2016).
Investments: Each participant's plan account is credited with earnings and losses based on investment alternatives made available by the plan committee and selected by the participant from time to time. The investment options currently offered under the plan consist of 24 mutual funds including 10 "Life Cycle" fund choices. Participants may change investment elections at any time.
Vesting: Participants hired prior to July 1, 1999 are fully vested in their accounts under the plan. Participants hired on or after January 1, 1999 are fully vested in their own contribution accounts,
and vest in the Company contribution accounts at a rate equal to 331/3% for each year of vesting service (subject to full vesting upon age 65, death or Disability).
Distributions: Participants can elect distributions of the plan accounts upon termination of employment, in a lump sum, an eligible rollover distribution, or, if early or normal retirement has been attained, in installments not to exceed 15 years.
Potential Payments Upon a Termination of Employment or a Change in Control of the Company
The Company provides certain benefits to eligible employees upon certain types of termination of employment, including a termination of employment involving a Change in Control of the Company. These benefits are in addition to the benefits to which the employees would be entitled upon a termination of employment generally (i.e., vested retirement benefits accrued
as of the date of termination, stock options and restricted stock that are otherwise vested as of the date of termination and the right to elect continued health coverage pursuant to COBRA). These benefits as they pertain to the named executive officers are as described and set forth in the tables beginning on page .63.
Employment Agreement ofwith David P. Storch
The Company entered into a newCompany's employment agreement with Mr. Storch in Fiscal 2014 that provides for the following severance benefits:
Termination of Employment — Prior to, or More than 24 Months After, a Change in Control: If prior to or more than 24 months after a Change in Control, either the Company terminates his employment withoutother than for Cause or Disability or Mr. Storch terminates his employment for Good Reason, Mr. Storch is entitled to: (i) continued payment of his base salary for 36 months, and (ii) a lump sum payment equal to three times the average of the cash incentive bonus paid to him for the preceding three fiscal years of the Company. Payments cease upon a breach of the confidentiality or non-compete provisions set forth in the agreement (the non-compete provisions remain in effect for the two-year period following any such termination of employment).
Termination of Employment — Within 24 Months Following a Change in Control: If Mr. Storch's employment is terminated within 24 months following a Change in Control either by the Company other than for Cause or Disability or by Mr. Storch for Good Reason, he is entitled to:
An immediate lump sum payment equal to the sum of (A) any unpaid salary through the date of termination and any unpaid bonus earned for the preceding fiscal year, (B) a pro rata portion of the bonus that would have been paid to him had he remained employed until the end of the fiscal year and all performance goals were met at target level, and (C) three times his base salary and cash bonus for either the most recently completed fiscal year prior to the termination or the preceding fiscal year, whichever produces the higher amount;
Continued coverage for Mr. Storch and his spouse under the Company's welfare and fringe benefit plans for three years following termination of employment (he and his spouse can elect continued medical and dental coverage pursuant to COBRA at the end of such three-year period);
A lump sum payment of an amount equal to the lesser of (A) three times the amount of Company contributions made under the Retirement Savings Plan and the defined
contribution portion of the SKERP for the calendar year preceding the year in which the termination occurs or (B) $1,526,405;
Reasonable legal fees incurred by Mr. Storch in enforcing the agreement; and
Outstanding awards under the 2013 Stock Plan will vest and performance goals will be deemed satisfied at the higher of target level or actual level (outstanding but unvested awards under the prior Stock Benefit Plan still vest on the Change in Control).
If any excise tax would be triggered, Mr. Storch can elect to either (i) receive the full amount of severance benefits and be responsible for paying the excise tax or (ii) receive severance benefits up to the maximum amount that can be paid without triggering the excise tax.
General. Regardless of whether a Change of Control is involved:
If Mr. Storch's termination is due to Retirement, he has the right to enter into a consulting agreement for a period of not less than one year, which pays consulting fees equal to 50% of his then current base salary. In addition, Mr. Storch and his spouse are entitled to continued coverage under the Company's medical, dental, welfare and executive health programs for his (and his spouse's) lifetime (or until he obtains health coverage from a new employer);
If Mr. Storch's employment terminates due to Disability, he will receive payment pursuant to the Company's disability plans then in effect, and he will continue to receive coverage under the Company's medical, dental, and life insurance plans for three years following such termination (the employment agreement provides that payments under the Company's disability plans will be at a level no less favorable than that in effect on May 31, 2014); and
If Mr. Storch's employment is terminated following the expiration of the initial three-year term of his agreement, he will be entitled to receive the same benefits as if he were terminated without Cause by the Company prior to a Change in Control.
In any event, payments under the employment agreement in connection with Mr. Storch's termination of employment that would be considered deferred compensation under Section 409A of the Internal Revenue Code will be delayed for six months following such termination to the extent necessary to comply with Section 409A.
For purposes of Mr. Storch's employment agreement:
"Change in Control" means the earliest of (i) a person's acquisition of more than 35% of the voting power of the Company's outstanding stock, (ii) a merger or consolidation of the Company that results in the holders of the voting stock immediately prior thereto holding less than 60% of the voting stock of the resulting or surviving entity, (iii) a sale of substantially all of the Company's assets other than to an entity at least 80% owned by the Company, or (iv) the election, without the consent of the incumbent Board, of a majority of the directors then in office.
"Cause" means Mr. Storch's (i) dishonesty, intentional breach of fiduciary duty, or intentional wrongdoing or malfeasance, (ii) disregard of a material, lawful and proper direction from the Board, or (iii) material breach of the employment agreement that is not cured within 30 days of receipt of notice from the Company.
"Disability" means a physical or mental condition that has prevented Mr. Storch from substantially performing his duties under the employment agreement for a period of 180 days and that is expected to continue to render Mr. Storch unable to substantially perform his duties for the remaining term of the employment agreement on a full-time basis.
"Good Reason" means (i) the removal of Mr. Storch from the position of Chairman or Chief Executive Officer of the Company or any successor, (ii) a material reduction in the nature or scope of Mr. Storch's duties or responsibilities or in his compensation (including benefits), (iii) a material breach of the employment agreement by the Company that is not cured within 30 days of receipt of notice from Mr. Storch, or (iv) a relocation of his primary place of employment by 50 or more miles.
"Retirement" means Mr. Storch's voluntary termination of employment that does not result in severance payments under the employment agreement.
Employment Agreement with John M. Holmes
The Company entered into an employment agreement with Mr. Holmes in July 2016. The employment agreement provides for the following severance benefits:
Termination of Employment — Prior to, or More than 18 Months After, a Change in Control: If prior to, or more than 18 months after, a Change in Control, either the Company terminates his employment other than for Cause or Mr. Holmes terminates his employment for Good Reason, Mr. Holmes is entitled to: (i) continued payment of his base salary for 24 months, and (ii) a lump sum payment equal to two times the average of the cash incentive bonus paid to him for the preceding two fiscal years of the Company. Payments cease upon a breach of the confidentiality or non-compete provisions set forth in the agreement (the non-compete provisions remain in effect for the eighteen-month period following any such termination of employment).
Termination of Employment — Within 18 Months Following a Change in Control: If Mr. Holmes's employment is terminated within 18 months following a Change in Control either by the Company other than for Cause or Disability or by Mr. Holmes for Good Reason, he is entitled to:
An immediate lump sum payment equal to the sum of (A) any unpaid salary through the date of termination and any unpaid bonus earned for the preceding fiscal year, (B) a pro rata portion of the bonus that would have been paid to him had he remained employed until the end of the fiscal year and all performance goals were met at target level, and (C) two times his base salary and cash bonus for either the most recently completed fiscal year prior to the termination or the preceding fiscal year, whichever produces the higher amount;
Continued coverage for Mr. Holmes and his spouse under the Company's welfare and fringe benefit plans for two years following termination of employment (he and his spouse can elect continued medical and dental coverage pursuant to COBRA at the end of such two-year period);
Reasonable legal fees incurred by Mr. Holmes in enforcing the agreement; and
Outstanding awards under the 2013 Stock Plan will vest and performance goals will be deemed satisfied at the higher of target level or actual level (outstanding but unvested awards under the prior Stock Plan still vest on the Change in Control).
Termination of Employment — Disability. Regardless of whether a Change of Control is involved, if Mr. Holmes's employment terminates due to Disability, he will receive payment pursuant to the Company's disability plans then in effect, and he will continue to receive coverage under the Company's medical, dental, and life insurance plans for two years following such termination.
In any event, payments under the employment agreement in connection with Mr. Holmes's termination of employment that would be considered deferred compensation under Section 409A of the Internal Revenue Code will be delayed for six months following such termination to the extent necessary to comply with Section 409A.
The terms "Change in Control," "Cause," "Disability," and "Good Reason" generally have the same meanings given to them in Mr. Storch's employment agreement.
Severance and Change in Control Agreements
The Company has severance and change in control agreements with Messrs.Mr. Romenesko Fortson,and Mr. Regan. Mr. Fortson's severance and change in control agreement terminated upon his resignation on September 28, 2015, and Mr. Sharp's severance and change in control agreement terminated on July 27, 2016 when he entered into an agreement in connection with his retirement from the Company.
The severance and change in control agreements with Mr. Romenesko and Mr. Regan and Sharp and with certain other key employees. The agreements as they pertain to these named executive officers provide for the following benefits upon the following types of employment termination:
Termination of Employment — Prior to, or More than 18 Months After, a Change in Control: If prior to, or more than 18 months after, a Change in Control of the Company, has not occurred and the executive's employment is terminated by the Company other than for Cause, he is entitled to (i) continued salary for 12 months or, if earlier, until he obtains comparable employment, (ii) any earned bonus not yet paid for the preceding fiscal year, and (iii) a pro-rata portion of the bonus that would have been paid to the executive had he remained employed until the end of the fiscal year in which the termination occurs. Any bonus will be paid in a lump sum on the later of the time bonuses are paid to other officers and the end of the severance period (with interest at the prime rate plus 1% from the earlier of such dates). If the executive terminates his employment, or if the Company terminates the executive's employment for Cause, the Company may, but is not required to, pay the above-described severance benefits. Severance payments will cease if the executive breaches the confidentiality or non-compete provisions in the agreement, which are in effect for the one-year severance period.
Termination of Employment — Within 18 Months Following a Change in Control: If the executive's employment is terminated within 18 months following a Change in Control by the Company other than for Cause or Disability or by the executive for Good Reason, or if the executive's employment terminates for any reason other than Disability or death during the 30-day period following the 18th month after a Change in Control, he is entitled to (i) an immediate lump sum payment equal to the sum of (A) any unpaid salary and bonus earned for the preceding fiscal year, (B) a pro rata portion of the bonus that would have been paid to the executive had he remained employed until the end of the fiscal year and as if all performance targets had been met (including the value of any restricted stock granted in lieu of bonus), and (C) two times (for Mr. Regan) or three times (for Mr. Romenesko) base salary and cash bonus (depending upon the executive involved) for either the most recently completed fiscal year prior to the termination or the preceding fiscal year, whichever produces the higher amount, (ii) continued coverage for the executive and his dependents under the Company's welfare and fringe benefit plans for two years (for Mr. Regan) or three years (for Mr. Romenesko) following termination of employment (the executive and his dependents can elect continued medical and dental coverage pursuant to COBRA at the end of such two- or three-year period), (iii) for Mr. Romenesko, and Mr. Sharp, an immediate
lump sum payment equal to the actuarial equivalent of the additional benefits
that would be earned under the Company's retirement plans with three additional years of service and a gross-up payment to cover any related income tax liability, (iv) Company-paid outplacement services for the earlier of 18 months or the attainment of new employment (up to a maximum Company expense of 3.5% of the amount paid to the executive pursuant to (i)(C) above), (v) reasonable legal fees incurred by the executive in enforcing the agreement, and (vi) for Mr. Romenesko, and Mr. Sharp, a gross-up payment to cover any excise and related tax liability arising under Section 280G of the Internal Revenue Code as a result of any payment or benefit arising under the agreement. The agreements' non-compete provisions do not apply in the case of a termination of employment following a Change in Control.
Termination of Employment — Disability: If the executive's employment terminates due to Disability, the executive will receive payment pursuant to the Company's disability plans then in effect and will continue to receive coverage under the Company's medical, dental and life insurance plans for two or three years following such termination.
Acceleration of Equity Awards: The severance and change in control agreements also provide that upon any Change in Control, all outstanding stock options and restricted stock will vest immediately.
For purposes of the severance and change in control agreements:
"Change in Control" means (i) a person's acquisition of more than 20% of the voting power of the Company's outstanding stock, (ii) a merger or consolidation of the Company that results in the holders of the voting stock immediately prior thereto holding less than 60% of the voting stock of the resulting or surviving entity, (iii) a sale of substantially all of the Company's assets other than to an entity at least 80% owned by the Company, or (iv) the election, without the consent of the incumbent Board, of the lesser of three directors or a majority of the directors then in office.
"Cause" means the executive's (i) dishonesty, intentional breach of fiduciary duty, or intentional wrongdoing, (ii) disregard of a material and proper direction from the Board, or (iii) material breach of the agreement that is not cured within 10 days of receipt of notice from the Company.
"Disability" means a physical or mental condition that has prevented the executive from substantially performing his duties under the agreement for a period of 180 days and that is expected to continue to render the executive unable to substantially perform his duties for the remaining term of the agreement on a full-time basis.
"Good Reason" means (i) a material reduction in the nature or scope of the executive's duties or responsibilities, or in his compensation (including benefits), (ii) if Mr. Storch is not the Chief Executive Officer at the time of termination, the executive's determination that as a result of a material change in employment circumstances he is unable to adequately carry out his duties, or (iii) a relocation of the executive's primary place of employment by more than 100 miles.
In any event, payments under the agreements in connection with termination of employment that would be considered deferred compensation under Section 409A of the Internal Revenue Code will be delayed for six months following such termination to the extent necessary to comply with Section 409A.
Agreement with Michael J. Sharp
The Company entered into an agreement with Mr. Sharp on July 27, 2016 in connection with his retirement from the Company. The agreement provides that Mr. Sharp will retire from the Company on the earlier of December 5, 2016 and the date that he begins full-time employment with a new employer, and that during this period prior to retirement, Mr. Sharp will provide transitional financial and accounting services to the Company. The agreement provides for severance pay in the form of salary continuation beginning after the employment period and continuing through December 5, 2017, subject to earlier termination under certain circumstances set forth in the agreement. The agreement also provides for payment of the cost of COBRA coverage during the severance period and career counseling and outplacement services with a firm of the Company's choosing at a cost not to exceed $10,000 and a pro-rata bonus for his employment from June 1, 2016 through July 31, 2016 based on actual Company performance (capped at the target level). The agreement confirms that Mr. Sharp will be retirement eligible for purposes of the Company's stock plans and the SKERP, and that Mr. Sharp will receive his SKERP contributions for the portion of the plan year from January 1, 2016 through the end of the employment period, including the additional supplemental Company contribution of 5% of cash compensation. The agreement obligates Mr. Sharp not to disclose the
Company's confidential information and terminated his severance and change in control agreement with the Company effective July 27, 2016.
Split Dollar Insurance Agreements
The Company has entered into split dollar life insurance agreements with Mr. Storch, Mr. Romenesko and Mr. Sharp. Under the agreements, the employees own the policies, except for the cash value portion of the policies owned by the Company. The Company funds the annual insurance premiums for the policies during the term of the agreement subject to reimbursement from the cash value or death benefit proceeds of the policies. Upon a Change in Control of the Company (as defined for such executive above), the Company will prepay all premiums, plus any amounts necessary for the cash value and death benefits to be at the same level at the Change in Control date. If the executive's employment terminates after a Change in Control and benefits are paid under the severance and change in control agreements, the split dollar agreements will continue for the severance period.
Stock Plans
A named executive officer's termination of employment can result in enhanced benefits under the AAR CORP. Stock Benefit Plan and the AAR CORP. 2013 Stock Plan, depending on the reason for such termination:
Stock Options: If termination is due to Retirement (as defined), options continue to vest in accordance with the vesting schedule and can be exercised until the expiration date, except that if death occurs before the award expires, then unvested stock options are forfeited. If death occurs within three months after Retirement, vested options can be exercised until the earlier of one year after death or the option expiration date, and if death occurs after three months from Retirement, vested options can be exercised until the option expiration date. If termination is due to Disability (as defined), options continue to vest and are exercisable until the earlier of one year after termination of employment and the option expiration date, except that if death occurs before the award expires, then unvested options are forfeited and vested options are exercisable for the period described herein. If death occurs during employment, or within three months after termination of employment for reasons other than Cause, then unvested options are forfeited and vested options are exercisable until the earlier of one year after death or the option expiration date.
Restricted Stock Awards: IfIn the case of performance-based or time-based restricted stock awards, if termination is due to Retirement, restricted stockDisability or death, the awards continue to vest in accordance with their vesting schedule. If termination is due to Disability or death on or before the third anniversary of the date of grant, then the difference between one-half of the total award shares and the number of shares already vested will vest as of such termination. If termination is due to Disability or death after the third anniversary of the date of grant, all awards shares will vest as of such termination.
The AAR CORP. Stock Benefit Plan has change in control provisions that apply to participants who do not have a severance and change in control agreement. Upon a Change in Control of the Company (as defined in the Stock Benefit Plan) that does not have prior written approval of the Board, all options and restricted stock awards will fully vest. Upon a Change in Control that has the approval of the Board, the Compensation Committee has the discretion to either provide for full vesting of options and restricted stock awards or grant replacement awards with respect to the successor company's stock.
Award agreements under the AAR CORP. 2013 Stock Plan do not provide for vesting upon a Change in Control (as defined) unless there is a termination of employment by the Company without Cause or by the participant for Good Reason within two years following the Change in Control.
Tables of Potential Payments Upon a
Termination
of Employment or a Change in Control of the Company
The tables set forth below quantify the additional benefits described above that would be paid to each current named executive officer under the following termination of employment or change in control events, assuming a change in control or a termination of employment occurred on May 30, 201431, 2016 (the last business day of Fiscal 2014)2016).
| ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Equity Vesting — On or After a Change in Control | | |||||||||||
| Named Executive Officer | | Vesting of Restricted Stock ($)1 | | Vesting of Stock Options ($)2 | | ||||||||
| David P. Storch | 5,870,540 | 1,313,280 | |||||||||||
| Timothy J. Romenesko | 2,853,598 | 656,640 | |||||||||||
| John C. Fortson | 230,850 | — | |||||||||||
| Randy J. Martinez | 380,732 | 228,000 | |||||||||||
| Robert J. Regan | 1,494,596 | 393,984 | |||||||||||
| Michael J. Sharp | 580,649 | 157,594 |
| | Equity Vesting — On or After a Change in Control | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
| Named Executive Officer | | Vesting of Restricted Stock ($)1 | | Vesting of Stock Options ($)2 | | ||||||
| | | | | | | | | | | | |
David P. Storch | 3,578,970 | 662,976 | ||||||||||
| | | | | | | | | | | | |
Timothy J. Romenesko | 1,605,861 | 331,488 | ||||||||||
| | | | | | | | | | | | |
John M. Holmes | 539,144 | 115,100 | ||||||||||
| | | | | | | | | | | | |
Robert J. Regan | 1,055,513 | 198,893 | ||||||||||
| | | | | | | | | | | | |
zero) between the option exercise price and $24.30,$24.41, the closing price of the common stock on May 30, 2014 (the last business day of Fiscal 2014).
| |||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | | | | | | | | | | | | | | | | | | | |||||||||||||||||||||||||||||
Termination of Employment — Prior to a Change in Control | |||||||||||||||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | ||||||||||||||||||||||||||||||
| | | Other than Cause | | Disability | | Death | | |||||||||||||||||||||||||||||||||||||||||
| Named Executive Officer | | Salary ($)1 | | Bonus ($)2 | | Restricted Stock ($)3 | | Stock Options ($)4 | | Health and Welfare ($)5 | | Health and Welfare ($)6 | | Restricted Stock ($)7 | | Stock Options ($)8 | | Restricted Stock ($)7 | | |||||||||||||||||||||||||||||
| David P. Storch | 2,719,346 | 3,052,233 | 5,870,540 | 1,313,280 | 305,074 | 36,506 | 3,819,510 | 328,320 | 3,819,510 | |||||||||||||||||||||||||||||||||||||||
| Timothy J. Romenesko | 499,272 | 426,393 | 2,853,598 | 656,640 | — | 41,829 | 1,842,001 | 164,160 | 1,842,001 | |||||||||||||||||||||||||||||||||||||||
| John C. Fortson | 400,000 | 273,290 | 230,850 | — | — | 27,886 | 115,425 | — | 115,425 | |||||||||||||||||||||||||||||||||||||||
| Randy J. Martinez | — | — | 380,732 | 228,000 | — | — | 238,966 | 57,000 | 238,966 | |||||||||||||||||||||||||||||||||||||||
| Robert J. Regan | 391,586 | 267,541 | 1,494,596 | 393,984 | — | 27,886 | 889,210 | 98,496 | 889,210 | |||||||||||||||||||||||||||||||||||||||
| Michael J. Sharp | 360,353 | 207,733 | 580,649 | 157,594 | — | 41,829 | 343,687 | 39,398 | 343,687 |
Termination of Employment | ||||||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Other than Cause | Disability | Death | |||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Named Executive Officer | Salary ($)1 | Bonus ($)2 | Restricted Stock ($)3 | Stock Options ($)4 | Health and Welfare ($)5 | Health and Welfare ($)6 | Restricted Stock ($)7 | Stock Options ($)8 | Restricted Stock ($)7 | |||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
David P. Storch | 2,301,000 | 1,866,348 | 3,578,970 | 662,976 | 368,084 | 45,758 | 1,672,201 | 331,488 | 1,672,201 | |||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Timothy J. Romenesko | 450,000 | 507,400 | 1,605,861 | 331,488 | — | 50,336 | 790,195 | 165,744 | 790,195 | |||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
John M. Holmes | 900,000 | 1,065,949 | 539,144 | 115,100 | — | 33,557 | 110,372 | 57,550 | 110,372 | |||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Robert J. Regan | 390,000 | 361,200 | 1,055,513 | 198,893 | — | 33,557 | 500,167 | 99,446 | 500,167 | |||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Michael J. Sharp9 | 400,000 | 46,667 | 737,158 | 79,557 | 17,758 | — | — | — | — | |||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
on the difference between the exercise price and $24.30,$24.41, the closing price of the common stock on May 30, 2014.
| ||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Termination of Employment — Following a Change in Control1 | ||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||
| Named Executive Officer | | Salary2 ($) | | Bonus3 ($) | | Health and Welfare Continuation ($) | | Additional Retirement Plan Credits4 ($) | | Outplacement Services ($) | | 280G Gross-Up ($) | | ||||||||||||||||||||
| David P. Storch | 2,719,346 | 4,903,603 | 36,506 | 1,183,269 | — | — | 5 | ||||||||||||||||||||||||||
| Timothy J. Romenesko | 1,497,816 | 2,455,365 | 41,829 | 1,322,546 | 123,438 | 3,717,705 | |||||||||||||||||||||||||||
| John C. Fortson | 800,000 | 819,870 | 27,886 | — | 47,130 | — | |||||||||||||||||||||||||||
| Robert J. Regan | 783,172 | 1,116,265 | 27,886 | — | 57,116 | — | |||||||||||||||||||||||||||
| Michael J. Sharp | 1,081,059 | 1,174,288 | 41,829 | 365,645 | 71,666 | 1,453,115 |
Termination of Employment — Within 18 Months (24 Months for Mr. Storch) Following a Change in Control1 | |||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Named Executive Officer | Salary2 ($) | Bonus3 ($) | Health and Welfare Continuation ($) | Additional Retirement Plan Credits4 ($) | Outplacement Services ($) | 280G Gross-Up ($) | |||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
David P. Storch | 2,301,000 | 4,059,200 | 45,758 | 1,490,382 | — | —5 | |||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Timothy J. Romenesko | 1,350,000 | 2,029,600 | 50,336 | 1,077,075 | 100,527 | — | |||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
John M. Holmes | 900,000 | 1,613,949 | 33,557 | — | — | —5 | |||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Robert J. Regan | 780,000 | 1,083,600 | 33,557 | — | 52,584 | — | |||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
The following tables show the shares of common stock beneficially owned, the percent of shares outstanding if greater than 1% and the number of stock units held, all as of July 31, 2014,2016, by (i) each current director and director nominee for election to the Board, (ii) each executive officer named in the Summary Compensation Table, (iii) all directors and executive officers of the Company as a group, and (iv) each beneficial owner of more than five percent of the outstanding shares of common stock. Except as noted, the nature of beneficial ownership for shares shown in the tables is sole voting and sole investment power, and none of the shares shown in the tables is pledged by any of the persons listed.
Security Ownership of Management
| |||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Name | | Shares Beneficially Owned1 | | Percent of Shares Outstanding if Greater than 1% | | Stock Units2 | | |||||||||||
| Anthony K. Anderson | 13,333 | — | 0 | |||||||||||||||
| Norman R. Bobins | 35,572 | — | 0 | |||||||||||||||
| Michael R. Boyce3 | 69,938 | — | 0 | |||||||||||||||
| Ronald R. Fogleman | 29,072 | — | 36,723 | |||||||||||||||
| John C. Fortson | 38,453 | — | — | |||||||||||||||
| James E. Goodwin | 44,815 | — | 9,202 | |||||||||||||||
| Patrick J. Kelly4 | 51,620 | — | 0 | |||||||||||||||
| Randy J. Martinez | 79,232 | — | — | |||||||||||||||
| Peter Pace | 20,048 | — | 0 | |||||||||||||||
| Robert J. Regan | 182,126 | — | — | |||||||||||||||
| Timothy J. Romenesko | 472,896 | 1.19 | % | — | ||||||||||||||
| Michael J. Sharp | 58,211 | — | — | |||||||||||||||
| David P. Storch5 | 1,737,973 | 4.36 | % | — | ||||||||||||||
| Marc J. Walfish | 72,157 | — | 28,110 | |||||||||||||||
| Ronald B. Woodard | 25,072 | — | 0 | |||||||||||||||
| All directors and executive officers as a group | 2,930,518 | 7.35 | % | 74,035 |
Name | Shares Beneficially Owned1 | Percent of Shares Outstanding if Greater than 1% | Stock Units2 | |||||||
| | | | | | | | | | |
Anthony K. Anderson | 23,513 | — | — | |||||||
| | | | | | | | | | |
Norman R. Bobins | 45,572 | — | — | |||||||
| | | | | | | | | | |
Michael R. Boyce3 | 79,957 | — | — | |||||||
| | | | | | | | | | |
Ronald R. Fogleman | 26,406 | — | 44,866 | |||||||
| | | | | | | | | | |
James E. Goodwin | 54,815 | — | 9,451 | |||||||
| | | | | | | | | | |
John M. Holmes | 155,030 | — | — | |||||||
| | | | | | | | | | |
Patrick J. Kelly4 | 61,620 | — | — | |||||||
| | | | | | | | | | |
Peter Pace | 25,048 | — | — | |||||||
| | | | | | | | | | |
Robert J. Regan | 210,039 | — | — | |||||||
| | | | | | | | | | |
Timothy J. Romenesko | 379,460 | 1.1% | — | |||||||
| | | | | | | | | | |
Michael J. Sharp | 61,853 | — | — | |||||||
| | | | | | | | | | |
David P. Storch5 | 1,558,342 | 4.5% | — | |||||||
| | | | | | | | | | |
Jennifer L. Vogel | 7,083 | — | — | |||||||
| | | | | | | | | | |
Marc J. Walfish | 102,157 | — | 33,338 | |||||||
| | | | | | | | | | |
Ronald B. Woodard | 35,072 | — | — | |||||||
| | | | | | | | | | |
All directors and executive officers as a group (16 persons) | 2,825,967 | 8.23% | 87,655 | |||||||
| | | | | | | | | | |
Security Ownership of Certain Beneficial Owners
| ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Name and Address of Beneficial Owner | | Number of Shares | | Percent of Class | | ||||||||
| BlackRock, Inc.1 | 3,914,897 | 9.9 | |||||||||||
| Dimensional Fund Advisors LP2 | 3,361,841 | 8.49 | |||||||||||
| Franklin Resources Inc.3 | 3,664,284 | 9.3 | |||||||||||
| Vanguard Group, Inc.4 | 2,352,195 | 5.93 |
Name and Address of Beneficial Owner | Number of Shares | Percent of Class | ||||||
| | | | | | | | |
BlackRock, Inc.1 | 3,539,307 | 10.10% | ||||||
| | | | | | | | |
Dimensional Fund Advisors LP2 | 3,297,199 | 9.41% | ||||||
| | | | | | | | |
Franklin Resources Inc.3 | 4,302,107 | 12.30% | ||||||
| | | | | | | | |
Vanguard Group, Inc.4 | 2,475,007 | 7.06% | ||||||
| | | | | | | | |
• Sole voting power: | ||||
• Shared voting power: | 0 | |||
• Sole dispositive power: | ||||
• Shared dispositive power: | 0 |
• Sole voting power: | ||||
• Shared voting power: | 0 | |||
• Sole dispositive power: | ||||
• Shared dispositive power: | 0 |
• Sole voting power: | ||||
Franklin Resources, Inc. | ||||
Charles B. Johnson | 0 | |||
Rupert H. Johnson | 0 | |||
Franklin Advisory Services, LLC | 3,836,507 | |||
• Shared voting power: | 0 | |||
• Sole dispositive power: | ||||
Franklin Resources, Inc. | ||||
Charles B. Johnson | 0 | |||
Rupert H. Johnson | 0 | |||
Franklin Advisory Services, LLC | 4,302,103 | |||
• Shared dispositive power: | 0 |
• Sole voting power: | ||||
• Shared voting power: | ||||
• Sole dispositive power: | ||||
• Shared dispositive power: |
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's officers and directors, and beneficial owners of more than 10% of the Company's stock, if any, to file reports of ownership and changes in ownership on Forms 3, 4, and 5 with the SEC and the NYSE, and to furnish copies of these forms to the Company. To the Company's knowledge, based solely upon a review of copies of SEC Forms 3, 4 and 5 and upon related written representations furnished to the Company with respect to Fiscal 2014,2016, the Company believes that all of the Company's officers and directors filed on a timely basis all reports required by Section 16(a) of the Securities Exchange Act of 1934 during Fiscal 2014.2016, except that due to Company error (i) Forms 4 relating to the acquisition of 926 and 595 stock units by General Fogleman and Mr. Walfish, respectively, were filed late and (ii) a Form 4 relating to the disposition of 1,127 shares used to pay the taxes upon the vesting of a time-based restricted stock award held by Mr. Sharp was filed one day late.
EQUITY COMPENSATION PLAN INFORMATION
EQUITY COMPENSATION PLAN INFORMATION |
The following table provides information as of May 31, 20142016 with respect to the Company's compensation plans under which equity securities of the Company are authorized for issuance (shares in thousands):
| | | Number of securities to be issued upon exercise of outstanding options, warrants and rights (a) | | Weighted-average exercise price of outstanding options, warrants and rights (b) | | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c) | | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity compensation plans approved by securities holders | 2,753 | 19.59 | 2,017 | |||||||||||||||
| Equity compensation plans not approved by securities holders | — | — | — | |||||||||||||||
| Total | 2,753 | 19.59 | 2,017 |
| | | Number of securities to be issued upon exercise of outstanding options, warrants and rights (a) | | | Weighted-average exercise price of outstanding options, warrants and rights (b) | | | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c)* | | |||||||||||||||
| | | | | | | | | | | | | | | | | |||||||||
| Equity compensation plans approved by securities holders | | | | 2,095 | | | | | 22.17 | | | | | 3,801 | | | ||||||||
| | | | | | | | | | | | | | | | | |||||||||
| Equity compensation plans not approved by securities holders | | | | — | | | | | — | | | | | — | | | ||||||||
| | | | | | | | | | | | | | | | | |||||||||
| Total | | | | 2,095 | | | | | 22.17 | | | | | 3,801 | | | ||||||||
| | | | | | | | | | | | | | | | |
STOCKHOLDER PROPOSALS FOR OUR 2015 ANNUAL MEETING
STOCKHOLDER PROPOSALS FOR OUR 2017 ANNUAL MEETING |
Any stockholder who, in accordance with SEC Rule 14a-8, wishes to present a proposal for consideration at the annual meeting of stockholders to be held in 20152017 must submit such proposal to the Company, in writing, to be received by the Secretary of the Company, AAR CORP., One AAR Place, 1100 N. Wood Dale Road, Wood Dale, Illinois 60191, no later than May 4, 2015,2, 2017, in order for the proposal to be eligible for inclusion in the Company's proxy statement and form of proxy for that meeting. The proposal must comply with applicable SEC rules and the Company's By-Laws.
Under the Company's By-Laws, any stockholder who wishes to submit a matter (other than a stockholder proposal brought in accordance with SEC Rule 14a-8) for consideration at the 20152017 annual meeting of stockholders, including any stockholder proposal or director nomination, that would not be included in the Company's proxy statement, must submit the matter to the Company, in writing, to be received by the Secretary of the Company no later than April 11, 2015.19, 2017. The notice of such matter must contain the information required by the By-Laws.
OTHER BUSINESS |
Management knows of no other matters whichthat are to be brought before the annual meeting. However, if any other matter properly comes before the annual meeting, the named proxy holders will vote all proxies in their discretion and best judgment on such other matter.
By Order of the Board of Directors, | ||
Robert J. Regan | ||
Vice President, General Counsel and Secretary |
August 29, 201431, 2016
Upon the written request of any record holder or beneficial owner of common stock of AAR CORP., the Company will provide, without charge, a copy of its annual report on Form 10-K filed with the Securities and Exchange Commission for the fiscal year ended May 31, 2014.2016. Requests should be made to Mr. Robert J. Regan, Vice President, General Counsel and Secretary, AAR CORP., One AAR Place, 1100 North Wood Dale Road, Wood Dale, Illinois 60191, (630) 227-2000.227 2000.
EXHIBIT A AAR CORP. 2013 STOCK PLAN, AS PROPOSED TO BE AMENDED* |
1. Purpose
The purpose of the AAR CORP. 2013 Stock Plan is to encourage Key Employees and Non-Employee Directors of the Company to increase their investment in the Company and to provide additional opportunities to such persons to share in the success of the Company. These opportunities are intended to foster in Key Employees and Non-Employee Directors a strong incentive to put forth maximum effort for the continued success and growth of the Company, to aid in retaining individuals who put forth such efforts and to assist in attracting the best available individuals in the future.
2. Definitions
For purposes of this Plan, the following terms shall have the meanings set forth below:
3. Administration
3.1The Committee. The Plan shall be administered by the Committee.
majority vote at a meeting duly called and held. The Committee may appoint a Secretary, who need not be a member of the Committee, and may make such rules and regulations for the conduct of its business as it shall deem advisable.
4. Shares Subject to the Plan
after October 11, 2016), adjusted in accordance with the provisions of Section 4.3 hereof. The Shares so issued may be Shares held in the treasury or Shares that are authorized but unissued, as elected by the Committee.
4.2Shares Subject to Awards. Of the Shares authorized for issuance under the Plan:
4.3Adjustment. Any increase or decrease in the number of outstanding Shares of the Company occurring through stock splits, stock dividends, stock consolidations, spin-offs, other distributions of assets to stockholders, or assumptions or conversions of outstanding Awards due to an acquisition after the adoption of the Plan shall be reflected proportionately in an increase or decrease in the aggregate number of Shares then available for the grant of Awards under the Plan or becoming available through the lapse, expiration, cancellation or termination of Awards previously granted but unexercised, and in the number of Shares subject to Awards then outstanding; and a proportionate reduction or increase shall be made in the per Share exercise price of any outstanding Options or SARs. Any fractional Shares resulting from such adjustments shall be eliminated. If changes in capitalization other than those considered above shall occur, the Committee shall make such adjustment in the number or class of Shares as to which Awards may thereafter be granted, in the number and class of Shares remaining subject to Awards then outstanding and in the per Share exercise price as the Committee in its discretion may consider appropriate, and all such adjustments shall be conclusive upon all persons.
5. Awards and Award Agreements
Subject to the terms of the Plan, the Committee from time to time may grant Awards to selected Participants. Each Award shall be evidenced by a written Award Agreement, which shall specify the terms and conditions of the Award. An Award Agreement shall contain a vesting schedule as determined in the sole discretion of the Compensation Committee; provided that Options and SARs shall not become exercisable until at least one year following the date of grant, and the restrictions on Stock Awards and Stock Units shall not lapse for at least one year following the date of grant; and provided further that notwithstanding the foregoing, no minimum vesting schedule shall apply to Awards that result in the issuance of up to an aggregate of 5% of the Shares reserved for issuance under Section 4 (285,000 Shares). An Award Agreement may, in the sole
discretion of the Compensation Committee, contain a non-competition agreement, a confidentiality provision, provisions for forfeiture and such restrictions, conditions and other terms as the Committee shall determine in its sole discretion.
6. Grants of Options
6.1Grants. Subject to the terms of the Plan, the Committee may grant Options, which may be NSOs or ISOs if granted to Key Employees and must be NSOs if granted to Non-Employee Directors. Unless otherwise expressly provided at the time of the grant, Options granted to Key Employees will be NSOs.
In addition to the foregoing, each ISO granted to a Key Employee shall be subject to the following rules:
7. Stock Awards
7.1Grants of Stock Awards. Subject to the terms of the Plan, the Committee may grant Stock Awards to Key Employees and Non-Employee Directors. The terms and conditions of any such Award shall be determined by the Committee at the time of grant.
8. Grants of Stock Units
8.1Grants. Subject to the terms of the Plan, the Committee may grant Stock Units to Key Employees and Non-Employee Directors. Each Stock Unit shall entitle the Key Employee or Non-Employee Director to receive, on the date or upon the occurrence of an event (including the attainment of performance goals) as described in the Stock Unit Agreement, one Share or cash equal to the Fair Market Value of one Share on the date of such event, as provided in the Stock Unit Agreement. The terms and conditions of any such Award shall be determined by the Committee at the time of grant.
9. Grants of SARs
9.1Grants. Subject to the terms of the Plan, the Committee may grant SARs to Key Employees. Upon exercise, an SAR entitles the Key Employee to receive from the Company the number of Shares having an aggregate Fair Market Value equal to the excess of the Fair Market Value of one Share as of the date on which the SAR is exercised over the exercise price, multiplied by the number of Shares with respect to which the SAR is being exercised. Cash shall be delivered in lieu of any fractional Shares. The Committee, in its discretion, shall be entitled to cause the Company to elect to settle any part or all of its obligations arising out of the exercise of an SAR by the payment of cash in lieu of all or part of the Shares it would otherwise be obligated to deliver in an amount equal to the Fair Market Value of such Shares on the date of exercise. The terms and conditions of any such Award shall be determined at the time of grant.
of its obligations arising out of the exercise of the SAR in cash, deliver to the Key Employee an amount in cash equal to the Fair Market Value, as of the date of exercise, of the Shares it would otherwise be obligated to deliver.
10. Non-Transferability of Awards
10.1 No Award or rights under any Award shall be transferable otherwise than by will or the laws of descent and distribution, and the rights and the benefits of any such Award may be exercised and received, respectively, during the lifetime of the Participant only by him or her.
10.2 Notwithstanding the provisions of the preceding paragraph, a Participant, at any time prior to his or her death, may assign all or any portion of an Option granted to him or her (other than an ISO) to (a) his or her spouse or lineal descendant, (b) the trustee of a trust for the primary benefit of his or her spouse or lineal descendant, (c) a partnership of which his or her spouse and lineal descendants are the only partners, or (d) a tax exempt organization as described in Section 501(c)(3) of the Code. In such event, the spouse, lineal descendant, trustee, partnership or tax exempt organization will be entitled to all of the rights of the Participant with respect to the assigned portion of such Option, and such portion of the Option will continue to be subject to all of the terms, conditions and restrictions applicable to the Option, as set forth herein, and in the related Option Agreement, immediately prior to the effective date of the assignment. Any such assignment will be permitted only if the Participant does not receive any consideration therefor, and the assignment is expressly approved by the Company. Any such assignment shall be evidenced by an appropriate written document executed by the Participant, and a copy thereof shall be delivered to the Company on or prior to the effective date of the assignment.
11. Change in Control
In addition to the Committee's authority set forth in Section 3, upon a Change in Control of the Company, the Committee is authorized and has sole discretion as to any Award, either at the time such Award is granted hereunder or any time thereafter, to take any one or more of the following actions: (a) provide that (i) all outstanding Awards shall become fully vested and exercisable, and (ii) all restrictions applicable to all Awards shall terminate or lapse; (b) provide for the purchase of any outstanding Stock Option or SAR for an amount of cash equal to the difference between the exercise price and the then Fair Market Value of the Shares covered thereby; (c) make such adjustment to any such Award then outstanding as the Committee deems appropriate to reflect such Change in Control; and (d) cause any such Award then outstanding to be assumed by the acquiring or surviving entity after such Change in Control.
12. Book Entry Form
Notwithstanding the foregoing provisions of the Plan, the Company, in lieu of issuing stock certificates pursuant to an Award, may reflect the issuance of Shares to a Participant on a non-certificated basis, with the ownership of such Shares by the Participant evidenced solely by book entry in the records of the Company's transfer agent; provided, however, that upon the written request of the Participant, the Company shall issue, in the name of the Participant, stock certificates representing such Shares.
13. Taxes
In connection with any Award, the Company shall have the right to require the Participant to remit to the Company an amount sufficient to satisfy all minimum federal, state, local and foreign withholding tax requirements prior to the delivery by the Company of cash or any certificates for Shares. The Participant may elect to satisfy his or her tax withholding obligation by (a) cash payment, (b) directing the Company to withhold a portion of the Shares otherwise distributable to the Participant, (c) by transferring to the Company a certain number of Shares (either subject to such Award or previously owned) with an aggregate Fair Market Value equal to the amount required to be withheld, (d) in cash from a broker-dealer to whom the Participant has submitted a notice together with instructions to deliver promptly to the Company the amount of sales proceeds from the sale of Shares subject to the Award to pay the withholding taxes, or (e) by any combination thereof. In the case of payment pursuant to (b), (c) or (d) above, the Participant's election must be made on or prior to the date of exercise and must be irrevocable.
14. Postponement
The Committee may postpone any grant, exercise or settlement of an Award for such time as the Committee in its sole discretion may deem necessary in order to permit the Company (a) to effect, amend or maintain any necessary registration of the Plan or the Shares issuable pursuant to an Award under the Securities Act of 1933, as amended, or the securities laws of any applicable jurisdiction, (b) to permit any action to be taken in order to (i) list such Shares on a stock exchange if Shares are then listed on such exchange or (ii) comply with restrictions or regulations incident to the maintenance of a public market for the Shares, including any rules or regulations of any stock exchange on which the Shares are listed, or (c) to determine that such Shares and the Plan are exempt from such registration or that no action of the kind referred to in (b)(ii) needs to be taken; and the Company shall not be obligated by virtue of any terms and conditions of any Award or any provision of the Plan to sell or issue Shares in violation of the Securities Act of 1933 or the law of any government having jurisdiction thereof. Any such postponement shall not extend the term of an Award and neither the Company nor its directors or officers shall have any obligation or liability to a Participant, the Participant's successor, or any other person with respect to any Shares as to which the Award shall expire because of such postponement or as to which issuance under an Award is delayed.
15. Stockholder Status
No person shall have any rights as a stockholder by virtue of the grant of an Award under the Plan except with respect to Shares actually issued to that person.
16. Termination or Amendment of Plan and Award Agreements
16.2Amendment of Award Agreements. The Committee shall have the authority to amend any Award Agreement at any time; provided however, that no such amendment shall adversely affect the right of any Participant or successor under any outstanding Award Agreement in any material way without the written consent of the Participant or successor, unless such amendment is required by applicable law, regulation or rule of any stock exchange on which the Shares are listed.
16.3Repricing of Stock Options and SARs. Notwithstanding the foregoing, there shall be no amendment to the Plan or any Award Agreement that results in the repricing of Options or SARs without stockholder approval. For this purpose, repricing includes a reduction in the exercise price of the Option or SAR, the cancellation of an Option or SAR in exchange for cash, Options or SARs with an exercise price less than the exercise price of the cancelled Options or SARs, Stock Awards, Stock Units or any other consideration provided by the Company but does not include any adjustment described in Section 4.3.
17. Tenure
Nothing contained in the Plan shall be construed as a contract of employment between the Company or a Subsidiary and any person, nor shall the Plan be deemed to give any person the right to be retained in the employ of the Company or a Subsidiary or as a Non-Employee Director of the Board, to limit the right of the Company or a Subsidiary to employ or discharge any person with or without cause, or to discipline any Key Employee.
18. Other Actions
Nothing in the Plan shall be construed to limit the authority of the Company to exercise its corporate rights and powers, including, by way of illustration and not by way of limitation, the right to grant options for proper corporate purposes otherwise than under the Plan to any employee or any other person, firm, corporation, association, or other entity, or to grant options to, or assume options of, any person in connection with the acquisition, by purchase, lease, merger, consolidation, or otherwise, of all or any part of the business and assets of any person, firm, corporation, association, or other entity.
19. Loan Agreements
Each Award shall be subject to the condition that the Company shall not be obligated to issue or transfer its Shares or to pay an amount in cash to the Participant thereof on its exercise, or otherwise, if the Committee or the Board determines that such issuance, transfer, or payment would violate any covenant in any loan agreement or other contract to which the Company or a Subsidiary is a party.
20. Governing Law
The Plan, and all Awards and agreements hereunder, shall be construed in accordance with and governed by the laws of the State of Illinois and, in the case of ISOs, Code Section 422 and regulations issued thereunder.
21. Effective Date and Term of Plan
21.1Effective Date. The Plan has been adopted by the Committee, and is effective, as of the date it is approved by the stockholders of the Company at the Company's annual meeting of stockholders held on October 9, 2013 and any adjournment or postponement thereof. In the event the Plan is not approved by stockholders of the Company at its 2013 annual meeting, the Plan shall have no effect.
21.2Term of Plan. Notwithstanding anything to the contrary contained herein, no Awards shall be granted on or after the tenth anniversary of the Plan's effective date set forth in Section 21.1 above.
See the reverse side of this notice to obtain proxy materials and voting instructions. *** Exercise Your Right to Vote *** Important Notice Regarding the Availability of Proxy Materials for the |
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THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED. KEEP THIS PORTION FOR YOUR RECORDS DETACH AND RETURN THIS PORTION ONLY TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: Signature (Joint Owners) Signature [PLEASE SIGN WITHIN BOX] Date Date To withhold authority to vote for any individual nominee(s), mark “For All Except” and write the number(s) of the nominee(s) on the line below. 0 0 0 0 0 0 0 0 0 0 0 0 0 0000298915_1 R1.0.1.25 For Withhold For All All All Except The Board of Directors recommends you vote FOR the following: 1. Election of Directors Nominees 01 Norman R. Bobins 02 Ronald R. Fogleman 03 James E. Goodwin 04 Marc J. Walfish AAR CORP. ONE AAR PLACE 1100 NORTH WOOD DALE ROAD WOOD DALE, IL 60191 VOTE BY INTERNET - www.proxyvote.com Use the Internet to transmit your voting instructions and for electronic delivery of information up until 10:59 P.M. Central Time the day before the meeting date. Have your proxy card in hand when you access the website and follow the instructions to obtain your records and to create an electronic voting instruction form. ELECTRONIC DELIVERY OF FUTURE PROXY MATERIALS If you would like to reduce the costs incurred by our Company in mailing proxy materials, you can consent to receiving all future proxy statements, proxy cards and annual reports electronically via e-mail or the Internet. To sign up for electronic delivery, please follow the instructions above to vote using the Internet and, when prompted, indicate that you agree to receive or access proxy materials electronically in future years. VOTE BY PHONE - 1-800-690-6903 Use any touch-tone telephone to transmit your voting instructions up until 10:59 P.M. Central Time the day before the meeting date. Have your proxy card in hand when you call and then follow the instructions. VOTE BY MAIL Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717. The Board of Directors recommends you vote FOR proposals 2, 3 and 4. For Against Abstain 2. Advisory vote to approve executive compensation. 3. Approval of amendments to the AAR CORP. 2013 Stock Plan. 4. Ratification of the appointment of KPMG LLP as the Company's independent registered public accounting firm for the fiscal year ending May 31, 2017. NOTE: As to any other business as may properly come before the meeting or any adjournment or postponement thereof, this Proxy will be voted in the discretion of the proxies. Please sign exactly as your name(s) appear(s) hereon. When signing as attorney, executor, administrator, or other fiduciary, please give full title as such. Joint owners should each sign personally. All holders must sign. If a corporation or partnership, please sign in full corporate or partnership name, by authorized officer. For address change/comments, mark here. (see reverse for instructions)
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0000298915_2 R1.0.1.25 Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting: The Notice & Proxy Statement, Annual Report to Stockholders, Annual Report on Form 10-K is/are available at www.proxyvote.com AAR CORP. This proxy is solicited by the Board of Directors Annual Meeting of Stockholders The undersigned hereby appoints DAVID P. STORCH and ROBERT J. REGAN, or either of them, with full power of substitution, as Proxies, and hereby authorizes them to represent the undersigned at the 2016 Annual Meeting of Stockholders of AAR CORP. to be held at 9:00 AM Central Time on October 11, 2016, at One AAR Place, 1100 North Wood Dale Road, Wood Dale, IL 60191, or any adjournment or postponement thereof, and to vote, as designated on the reverse side of this Proxy, all shares of AAR CORP. Common Stock that the undersigned is entitled to vote. This proxy, when properly executed, will be voted in the manner directed herein. If no such direction is made, this proxy will be voted in accordance with the Board of Directors' recommendations on the reverse side. (If you noted any Address Changes and/or Comments above, please mark corresponding box on the reverse side.) Address change/comments: Continued and to be signed on reverse side