UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of thethe 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 PlaceCORP.
1100 North Wood Dale Road
Wood Dale, Illinois 60191
August 31, 2018
Dear Fellow Stockholders,Stockholders:
On behalf of theour Board of Directors, and employees of AAR CORP., I cordiallywe invite you to join us at our 20162018 annual meeting of stockholdersstockholders. The annual meeting will be held on Tuesday,Wednesday, October 11, 201610, 2018 at 9:00 a.m., Central Time, at the Company'sCompany’s corporate headquarters located at One AAR Place, 1100 North Wood Dale Road, Wood Dale, Illinois 60191. We urge you to vote your shares, and we welcome your attendance at the annual meeting.
Our fiscal year ended May 31, 2016Fiscal 2018 was a goodan important and successful year for AAR. We achieved significant financial, operational and leadership milestones as we continued to execute our strategy of becoming the Company, oneleading independent provider of innovative solutions to the aviation aftermarket.
In Fiscal 2018, sales grew 9.9% to $1.75 billion, consolidated gross profit increased 11.8% to $31.2 million, and income from continuing operations increased 41.7% to $73.7 million. Our balance sheet remains strong, with substantial available liquidity and low leverage ratios.
We successfully transitioned the U.S. State Department INL/A Worldwide Aviation Support Services program, the largest contract in which we further solidifiedthe Company’s history, in Fiscal 2018. We received other notable government program contract awards and continued to gain momentum in our Parts Supply (Trading and OEM aftermarket solutions) and Integrated Solutions (Commercial and Government Programs) businesses. We also expanded our global footprint by acquiring two MRO facilities in Canada and entering into a joint venture to construct a heavy maintenance facility in India.
For only the third time in its history, AAR has a new Chief Executive Officer. On June 1, 2018, John succeeded David as Chief Executive Officer, a position that David held for more than 22 years after taking over in 1996 from Ira A. Eichner, the Company’s Founder and first Chief Executive Officer. John has 17 years of leadership experience at AAR and begins his CEO tenure with a deep appreciation of the Company’s culture, past accomplishments and future challenges.
Like Ira and David before him, John embraces the key qualities that have enabled AAR to survive and succeed over the Company’s 63-year history as a global leaderpublic company: independent Board leadership; a committed team of employees; a strong customer base; and a fierce entrepreneurial spirit that allows AAR to find a way, every day, to provide best-in-class services.
We will lean on these same traits in providing aviation servicesthe coming year to propel AAR to greater heights. We remain confident that AAR, building on its past and harnessing the commercial aviationenergy, experience and government and defense markets. Our Aviation Services business group delivered exceptionalexpertise of our talented workforce, will meet the challenges ahead to deliver 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 benefityou, our stockholders, our customersexpect 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.deserve.
We thank you for your continued investment in AAR. We look forwardsupport of AAR and your commitment 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!our future.
Sincerely,
 | David P. Storch  Chairman of the Board |  | John M. Holmes  President and Chief Executive Officer |
David P. Storch
2018 Proxy Statement Chairman, President and Chief Executive Officer1
August 31, 2016
To Our Stockholders:TO OUR STOCKHOLDERS:
We are pleased to invite you to attend our 20162018 annual meeting of stockholders. Please read the information belowin this notice and in the accompanying proxy statement to learn more about AAR CORP. and the matters to be voted on at the annual meeting.
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Wednesday, October 10, 2018 9:00 a.m., | |||||||
| AAR CORP. One AAR Place 1100 North Wood Dale Road Wood Dale, Illinois 60191 | ||||||
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| You may vote your shares at the annual meeting if you were a stockholder on Tuesday, August |
Items of Business
You will be asked at our annual meeting to:
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Items of Business | Board Recommendation | Page | ||||||
| 1 | Elect four directors |  | FORall director nominees | 8 | ||||
| 2 | Vote on an advisory proposal to approve our Fiscal 2018 executive compensation | | FOR | 29 | ||||
| 3 | Ratify the appointment of KPMG LLP as our independent registered public accounting firm for Fiscal 2019 | | FOR | 63 | ||||
Stockholders will also transact any other business that may properly come before the annual meeting or any adjournment or postponement of the annual meeting
Voting
Your vote is important. We encourage you to vote your shares as soon as possible. You may vote by proxy over the Internet, by telephone, or by completing and returning the enclosed proxy card in the postage-paid envelope provided. We also welcome you to attend the meeting and vote in person.
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 |  | Complete and return the | ||||||||
By Order of the Board of Directors,
Robert J. ReganVice President, General Counsel and Secretary
August 31, 2016
Table of Contents
Please see Appendix A for important information about voting your shares at our 2018 annual meeting.
By Order of the Board of Directors,
Robert J. Regan
Vice President, General Counsel and Secretary
August 31, 2018
2 AAR
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Important Notice Regarding the Availability of the Proxy Materials for Our Annual Meeting of Stockholders to Be Held on Wednesday, October 10, 2018: |
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Important Notice Regarding the Availability of Proxy Materials For Our Annual Meeting of Stockholdersto be Held on Tuesday, October 11, 2016:
Copies of this Notice and2018 Proxy Statement our 2016 Annual Report to Stockholders and our Annual Report on Form 10-K for the fiscal year ended May 31, 2016 are available free of charge atwww.proxyvote.com.3
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This summary highlights Proposal Board Recommendation See FORall nominees (pages 8-28) Since 2012, an independent business consultant. From 2006 to April 2012, Vice Chairperson and Managing Partner of Midwest Area at Ernst & Young LLP (a global accounting firm). Prior thereto, Mr. Anderson served in various management positions during a 35-year career with Ernst & Young LLP. Since January 1, 2018, retired Chairman of the Board of PQ Corporation (a specialty chemicals and catalyst company) and retired Chairman and Chief Executive Officer of The Peak Group (an operating and acquisition company). From 2005 to May 2015, Chairman and Chief Executive Officer of PQ Corporation. Since 2005, Chairman of the Board of AAR CORP. Chief Executive Officer from 1996 to May 31, 2018 and President from 1989 to 2007 and 2015 to June 2017. Since 2012, co-founder and owner of InVista Advisors, an advisory firm focused on legal department effectiveness, leadership, compliance, crisis readiness and risk management. From 2003 to 2010, Senior Vice President, General Counsel, Secretary and Chief Compliance Officer of Continental Airlines, Inc. Proposal See FOR (pages 29-62) Proposal See FOR Our No Poison Pill.AAR’s Board decided not to renew the Company’s stockholder rights plan (“poison pill”) when it expired in August 2017. Although the Board believes a poison pill may serve as an effective defense to a hostile takeover bid under certain circumstances, the Board responded to concerns raised by stockholders by allowing the Company’s poison pill to expire. Adoption of Majority Voting.In July 2018, AAR’s Board amended the Company’s By-Laws to adopt majority voting in place of plurality voting in the uncontested election of directors. This action reflects the Board’s commitment to providing stockholders with a meaningful opportunity to vote on director nominees and to promote director accountability. 2018 Proxy Statement 5 2018 Proxy Statement Summary AAR is a leading global provider of aviation services to the commercial aviation and government/defense markets. AAR combines a close-to-the-customer business model with a broad menu of capabilities to help customers operate more efficiently, reduce costs and maintain high levels of safety, quality and service. We are strategically located in close proximity to key customers, with over 5,000 employees in more than 60 locations throughout the world. Key Achievements in Fiscal 2018 Implemented a leadership succession plan with John M. Holmes succeeding David P. Storch as Chief Executive Officer on June 1, 2018 and Mr. Storch continuing to serve as Chairman of the Board of Directors Continued to execute our Aviation Services “Connected Businesses” strategy: Leveraged our best-in-class services within Parts Supply (Trading and OEM aftermarket solutions), Integrated Solutions (Government and Commercial Programs) and MRO Services to reinforce and grow each business and all of Aviation Services Enhanced our manufacturing capabilities at our Mobility and Composites businesses Focused on driving revenue growth from new services and new markets Increased flight hour growth to over 1,300 commercial aircraft worldwide Transitioned the U.S. Department of State INL/A Worldwide Aviation Support program in Afghanistan, Iraq, Panama, Peru and Patrick Air Force Base Expanded our commercial aviation solutions to the government/defense markets (e.g., selected as the prime contractor for a $900 million landing gear performance-based contract with the U.S. Air Force) Expanded our aviation aftermarket capabilities Acquired two MRO facilities in Canada Commenced the construction of a heavy maintenance facility in India Emphasized digital solutions throughout our business (e.g.,AARIVE: a portal for component support customers; PAARTS Store: 24/7 availability to new and used parts in AAR’s inventory) FISCAL 2018 PERFORMANCE HIGHLIGHTS Selected Financial Highlights Sales growth of 9.9% in Fiscal 2018 over Fiscal 2017 Consolidated gross profit increase of 11.8% in Fiscal 2018 over Fiscal 2017 Income from continuing operations of $73.7 million (compared to $52.0 million in Fiscal 2017) Adjusted diluted earnings per share from continuing operations of $1.79 (a 17% increase over $1.53 in Fiscal 2017)* Strong balance sheet with $442 million of availability under credit facility and accounts receivable program. $13.1 million of stock repurchases and $10.3 million of cash dividends in Fiscal 2018 Please see Appendix B for a reconciliation of this non-GAAP measure. 6 AAR 2018 Proxy Statement Summary FISCAL 2018 EXECUTIVE COMPENSATION HIGHLIGHTS Pay–for–Performance Alignment for Executive Officers Annual cash bonuses linked to two key performance metrics: earnings per share (80%) and working capital turns (20%) Long-term incentives 100% performance-based: performance shares and stock options (except for one grant of 1,500 shares of time-based restricted stock) Performance shares linked to three key performance metrics: income from continuing operations, return on invested capital and relative total stockholder return (beginning Fiscal 2019) Competitive Pay Opportunities Target total pay opportunities for AAR’s executive officers as a group are within a competitive range around the median of the Company’s peer group AAR’s compensation mix – cash versus equity, fixed versus variable, and annual versus longer-term – also is generally consistent with peer group company best practices Recent Changes to Executive Compensation Program No discretionary cash bonus awards – all cash bonuses made annually under the short-term incentive plan No one-off stock awards – all stock awards granted annually under the long-term incentive plan Elimination of the stock price re-test provision in performance share awards (beginning fiscal 2019) Introduction of a new metric – relative total stockholder return – for performance share awards (beginning Fiscal 2019) Adoption of a fixed-dollar value annual stock award for directors in place of a fixed-share award (beginning Fiscal 2019) Fiscal 2018 Compensation of David P. Storch (our CEO in Fiscal 2018) Fiscal 2018 Compensation of our Other Named Executive Officers 2018 Proxy Statement 7 We The Each director nominee is currently serving as a director of the Company. Each director nominee has been determined by the Board to be Information about our director nominees and our continuing directors whose terms expire in future years is set forth Class I Directors whose terms expire at the 2021 annual meeting Anthony K. AndersonINDEPENDENT DIRECTOR Age: 62 Director Since: 2012 Career Highlights 8 AAR Proposal 1 – Election of Directors Michael R. Age: 70 Director Since: 2005 Career Highlights Director Qualifications David P. StorchCHAIRMAN OF THE BOARD Age: 65 Director Since: 1989 Career Highlights Director Qualifications 2018 Proxy Statement 9 Proposal 1 – Election of Directors Jennifer L. VogelINDEPENDENT DIRECTOR Age: 56 Director Since: 2016 Career Highlights Director Qualifications Our Continuing Directors Class II Directors whose terms expire at the 2019 annual meeting Norman R. BobinsINDEPENDENT DIRECTOR Age: 75 Director Since: 2007 Career Highlights Director 10 AAR Proposal 1 – Election of Directors Age: 74 Director Since: 2002 Career Highlights Director John M. HolmesDIRECTOR Age: 41 Director Since: 2017 Career Highlights 2018 Proxy Statement 11 Proposal 1 – Election of Directors Marc J. Age: 66 Director Since: 2003 Career Highlights Director Class III Directors whose terms expire at the 2020 annual meeting Patrick J. KellyINDEPENDENT DIRECTOR Director 12 AAR Proposal 1 – Election of Directors Duncan J. McNabbINDEPENDENT DIRECTOR Age: 66 Director Since: 2017 Career Highlights Director Qualifications Peter PaceINDEPENDENT DIRECTOR Age: 72 Director Since: 2011 Career Highlights Director 2018 Proxy Statement 13 Proposal 1 – Election of Directors Ronald WoodardINDEPENDENT DIRECTOR Age: 75 Director Director Proposal 1 – Election of Directors Our strategy is to become the leading independent provider of innovative solutions to the aviation aftermarket. We will achieve this strategy through our ability to: NAMED EXECUTIVE OFFICER David P. Storch Timothy J. Romenesko John M. Holmes Michael J. Sharp Robert J. Regan We also are Description of Fees Audit Fees Audit-Related Fees1 Tax Fees2 culture. We review our corporate governance policies and procedures on an annual basis. We strive to emulate Copies of the following corporate governance documents are available on the Our Corporate Culture – “Doing It Right” Our corporate culture is defined by our purpose, our mission and our values: OUR PURPOSE “Doing it Right to better connect to the world.” OUR MISSION “To be the best at designing and delivering technical, operational and financial solutions to enhance the efficiency and competitiveness of our commercial aviation and government customers.” OUR VALUES Quality first. Find a way. Do it fast. Be honest. Work as one. Ideas matter. Make money. Own it. 2018 Proxy Statement 15 These corporate governance documents are also available in print to any stockholder upon written request to the Secretary of the Company at the We In Fiscal We 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 Candidate considerations 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: 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. The Nominating and Governance Committee and the full Board maintain a current matrix of skills, competencies and experiences of each director. This matrix enables the Committee and the Board to ensure that the Board as a whole has the diversity of expertise and experience necessary for the effective oversight of the Company. 16 AAR Proposal 1 – Election of Following its evaluation of director candidates, the Nominating and Governance Committee recommends its director nominees to the full Board of Directors. Based on its review and consideration of the Committee’s recommendation, the Board makes the final determination of the director nominees to be presented for election by the Company’s stockholders. A full list of the qualifications of director candidates considered by the Committee is set forth in the Corporate Governance Guidelines on the Stockholders may submit a proposed director nomination to the Nominating and Governance Committee for consideration A majority of the members of the Board of Directors must be independent directors under the 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 The Board’s independence determinations consider the impact of Board service tenure on a director’s independence, particularly with respect to directors with 10 or more years of service. The Board concluded that all longer-tenured directors, based on their communications and interactions with management, their decisions and their adherence to their fiduciary duties to stockholders, demonstrated their independence from management. Board Refreshment We regularly consider the size, skills, tenure and diversity of our Board of Directors to assure that there is a proper balance between director We maintain a director matrix to ensure that we have the expertise, experience, diversity and skillset on our Board that we believe is critical to the Company’s success. Our matrix covers the following areas of expertise: current or recent CEO experience; finance; accounting; commercial aviation; military aviation; OEM relationships; aviation services; international business; sales and marketing; supply chain/logistics; operations; M&A; government contracting; cybersecurity; human resources; risk management; and corporate governance. Individual directors are rated in each area of expertise on a scale of 1 (lowest) to 5 (highest). The Company has multiple directors rated either 4 or 5 in each area of expertise. Although each is important, we have determined that the four areas of expertise most critical to the Company’s business success are: commercial aviation; government contracting; OEM relationships; and finance. Accordingly, the Board’s nomination process seeks to provide that the Company has at least one director with the highest expertise rating in each of these four critical areas. The Company has added three new directors — John M. Holmes, Duncan J. McNabb and Jennifer L. Vogel — in the last two years. 2018 Proxy Statement 17 Proposal 1 – Election of Directors THE BOARD’S ROLE AND RESPONSIBILITIES The Board of Directors In Fiscal 2018, the Board identified within its oversight responsibilities four “Critical Areas of Board Focus” – Risk Management (including Cybersecurity), Strategic Planning, Management Development, Succession Planning and Diversity, and Company Performance. In addition to time spent on these items in Committee meetings, the Board devoted a portion of each meeting in Fiscal 2018 to one or more of these “Critical Areas of Board Focus.” Risk Management (including Cybersecurity) Effective risk management is an important Board priority. The risk oversight function at the Board begins with a fundamental understanding of the Company’s culture, business and strategy. The Board delegates significant aspects of its risk management oversight responsibilities to its Committees, as detailed below for each Board Committee under “Risk Oversight Responsibilities.” The Board also works with management in managing risk through robust and comprehensive internal processes, an effective internal control environment and an enterprise risk management program. The Board places significant emphasis on the identification and management of cybersecurity risks. It receives regular reports from management on system vulnerabilities and security measures in effect to deter or mitigate breaches or hacking activities. The Company’s Annual Report on Form 10-K for Fiscal 2018 includes in Part I, “Item 1A, Risk Factors” a listing of the significant risks facing the Company. The risks described there are not the only risks facing the Company, as additional risks and uncertainties not currently known or foreseeable or risks that are currently deemed immaterial may materially adversely affect the Company’s business, financial condition or results of operations in future periods. Strategic Planning The Board oversees the Company’s business and capital allocation strategies. It discusses strategic planning at each Board meeting and holds a special strategy session with management in July of each year dedicated exclusively to strategic planning. This session focuses on the development and implementation of the Company’s short-term, intermediate-term and long-term strategic plans. The Board and management review and discuss the Company’s operations, financial and non-financial performance. They analyze aviation industry developments and trends, the Company’s service and solution offerings and the competitive landscape in which the Company operates. The Board monitors management’s performance in Management Development, Succession Planning and Diversity AAR’s Board The annual review addresses the The annual review also includes a diversity presentation that provides information on minority hiring and retention, the status of the Company’s diversity and inclusiveness programs, including outreach programs focused on increasing the employee applicant pool, particularly for women, minorities and veterans. The Board is focused on improved diversity at the 18 AAR Proposal 1 – Election of Directors Company Performance The Board receives regular updates relating to the Company’s financial performance against key measures, including sales growth, earnings per share growth, SG&A as a percentage of sales, return on invested capital and working capital turnover. The Board also monitors the Company’s growth ratios, margin ratios, people efficiency and asset efficiency. The Board oversees operational performance at the Company’s business units through management presentations. The Board receives a report from management that describes its corporate governance profile vis-à-vis peer group companies, competitors and market indices. In Fiscal 2018, this report included an analysis of plurality voting versus majority voting in the uncontested election of directors and contributed to the Board’s decision in July 2018 to adopt a majority voting standard. Role and Responsibilities of the Board Committees The Board has Committee. The following table outlines the risk oversight and general responsibilities of the Board Nominating and Governance Committee “A core principle of our Nominating and Governance Committee is that AAR’s corporate governance structure and policies should promote long-term investment and value creation for stockholders.” Chair Members Roles and Responsibilities The Nominating and Governance Committee acts under 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 2018 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: The Nominating and Governance Committee held four meetings during Fiscal 2018. 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 makes recommendations to the full Board on succession planning at the Chief Executive Officer and senior executive level and the annual evaluation of the performance of the Board of Directors. 2018 Proxy Statement 19 Proposal 1 – Election of Directors “Our challenge and responsibility as a Compensation Committee is to approve compensation programs that provide appropriate management incentives consistent with the best interests of AAR and its stockholders.” Chair Members The Compensation Committee acts under 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 2018 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 other executive compensation and employee benefit plans. The Compensation Committee performs the specific functions described in its charter, including: The Compensation Committee held four meetings during Fiscal 2018. Information about the roles of the Committee’s independent compensation consultant and management in the executive compensation process is set forth under “Executive Compensation — Compensation Discussion and Analysis.” The Compensation Committee oversees and reports to the Board on the Company’s cash bonus programs and stock-based compensation to be sure that they are appropriately structured to incentivize officers and key employees while avoiding unnecessary or excessive risk-taking. 20 AAR Proposal 1 – Election of Directors Audit Committee “The role of AAR’s Audit Committee – through its oversight of the performance and independence of the outside auditor and the quality of the audit – is vital to protecting the integrity of AAR’s name and reputation.” Chair Members Roles and Responsibilities The Audit Committee acts under 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 2018 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 Committee’s primary responsibility is to 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 and internal 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. The Audit Committee performs the specific functions described in its charter, including: The Audit Committee held seven meetings during Fiscal 2018. The Audit Committee 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 Audit Committee 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. 2018 Proxy Statement 21 Proposal 1 – Election of Directors Executive Committee The Executive Committee is comprised of David P. Storch (Chair), John M. Holmes, James E. Goodwin, Marc J. Walfish and Jennifer L. Vogel. The Executive Committee acts under a written charter adopted by the Board of Directors. The charter was reviewed and approved by the Board of Directors at its July 2018 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 meet during Fiscal 2018. The Board rotated several Committee Chairs in Fiscal 2018, with Mr. Goodwin becoming Chair of the Nominating and Governance Committee Board, Management and The Board and its committees receive information from, and have regular access to, The directors also meet each quarter with a broader group of the 22 AAR Proposal 1 – Election of Directors Board Leadership The Board of Directors determines the leadership structure for the Board and the Company in a manner that it believes serves the best interests of stockholders. The leadership structure aims to promote strong oversight, encourage open and independent viewpoints and contribute to the long-term success of the Company and the effective performance of the Board. The Board regularly reviews the Company’s leadership structure. David P. Storch held the combined roles of Chairman and Chief Executive Officer from 2005 to May 31, 2018. His retirement was the catalyst for the Board’s decision to separate the roles of Chairman and Chief Executive Officer. Effective June 1, 2018, the Board appointed Mr. Storch as Chairman of the Board and elected John M. Holmes, previously President and Chief Operating Officer, as the third Chief Executive Officer in the Company’s history. The Board believes that this is the most effective leadership structure for the Company at this time, but reserves the right to make future changes in the best interests of stockholders. In addition to separate Chairman of the Board and Chief Executive Officer roles, the Company has a Lead Director of the Board of the Directors, a position established under the Corporate Governance Guidelines and elected annually by the independent directors. The following provides a brief description of the key responsibilities of the Company’s Chairman of the Board, President and Chief Executive Officer and Lead Director: David P. Storch John M. Holmes James E. Goodwin 2018 Proxy Statement 23 Proposal 1 – Election of Directors BOARD PRACTICES, PROCESSES AND POLICIES Board Meetings and Attendance During Fiscal 2018, the Board held six meetings. All directors attended at least 75% of the Board meetings and meetings of Board committees on which they served in Fiscal 2018. The Company’s Corporate Governance Guidelines provide that directors are expected to attend all stockholder meetings. All directors attended the Company’s 2018 annual meeting of stockholders. Board and Committee Evaluations Our Nominating and Governance Committee conducts an annual evaluation of the performance of the Board. The Board’s 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. The Board decided that Fiscal 2019 director evaluations may include interviews conducted by a third-party firm with specialized expertise in the assessment of Board, Board committee and individual director performance. 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 regularly provide education materials to our directors on leadership, governance, compensation, risk and other topics of interest to public company directors. We also make external 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 of a public company. Board Retirement Policy Our Corporate Governance Guidelines fix the director retirement age at 75 at the date of nomination. The Board may make an exception to this requirement if it affirmatively determines that a director’s skills, experience or other relevant factors merit extended service as a director. The Board has used this exception only one time since the adoption of the retirement policy. Corporate Governance Guidelines The Board of Directors adopted Corporate Governance Guidelines to codify 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, most recently in July 2018, by the Nominating and Governance Committee and the Board of Code of Business Ethics and Conduct The The purpose of the Code of Business Ethics and Conduct is to promote the highest ethical standards in the 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 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 24 AAR Proposal 1 – Election of Directors In August 2018, we published on our website a “glossy” code of conduct. This code is a plain-English summary of our key compliance policies and procedures, including our Standards of Business Ethics and Conduct. It also describes our commitment to a culture of compliance and the ethical standards we follow in conducting our business and working with those inside and outside of the Company. Ethics Hotline 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, which is toll-free and also accessible through the Company’s website, permits individuals to identify themselves or remain anonymous at their election. 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. 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 The Policy provides that the Company may undertake certain pre-approved related person transactions (e.g., transactions in which the related Norman R. Bobins is a director of the Company and previously, the Non-Executive Chairman of Patrick J. Kelly is a director of the Company and the majority owner of Resource 1, a technology staffing company. In Fiscal Communications with the Board of Directors Stockholders and other interested parties may communicate with the Board, the Chairman of the Board, the Lead Director, the independent directors as a group, or any individual director or Committee AAR CORP. 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. 2018 Proxy Statement 25 The Board of Directors reviews director compensation annually to ensure that it is fair, appropriate and in line with its peer group companies. The Fiscal Annual Retainer Lead Director Annual Retainer Committee Chair Annual Retainer Board and Committee Meeting Fees Annual Stock Award All retainers are paid quarterly, and meeting fees are paid promptly following each meeting attended. The annual stock award for Fiscal 2018 was approved at the The Board approved — and obtained stockholder approval of — an amendment to the AAR CORP. 2013 Stock Plan in 2016 that places a cap on the annual compensation of non-employee directors at $500,000 per director. This cap takes into account all cash compensation and the dollar value of all stock awards granted to a non-employee director in a single fiscal year. The purpose of this provision is to protect against conflicts of interest given that the directors approve their own compensation and to ensure that directors receive fair and reasonable, but not excessive, compensation for their services. Ability to Defer Director Compensation Non-employee directors may elect to defer receipt of their compensation under the 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 26 AAR Proposal 1 – Election of Directors Director Compensation Table Fiscal The Name1 Anthony K. Anderson Norman R. Bobins Michael R. Boyce Ronald R. Fogleman James E. Goodwin Patrick J. Kelly Peter Pace Jennifer L. Vogel Marc J. Walfish Ronald B. Woodard Mr. Storch, Mr. Holmes and Mr. Romenesko are not included in this table because, as employee directors of the Company, they received no additional compensation for their service as directors in Fiscal 2018. Their compensation from the Company is set forth in the Summary Compensation Table in this proxy statement. Mr. Romenesko retired as a director of the Company on October 11, 2017. Ronald R. Fogleman, an independent director and former Lead Director of the Company, also retired on October 11, 2017. The following table provides a breakdown of director fees earned or paid in cash for Fiscal 2018: The amounts in this column reflect the aggregate grant date fair value of the Fiscal 2018 stock award of 5,000 shares granted on June 1, 2017 to each non-employee director computed in accordance with FASB ASC Topic 718. On May 31, 2018, each non-employee director held 5,000 unvested restricted shares that subsequently vested on June 1, 2018. On June 1, 2018, each non-employee director received a grant of 2,648 restricted shares that will vest on June 1, 2019. No stock options were granted to non-employee directors in Fiscal 2018. No non-employee director held any stock options as of May 31, 2018. This column includes the cost of the annual physical program, reimbursements for travel, lodging and hotel expenses in connection with the annual physical program, and the cost of term life insurance coverage. 2018 Proxy Statement 27 Proposal 1 – Election of Fiscal Name Anthony K. Anderson Norman R. Bobins Michael R. Boyce Ronald R. Fogleman James E. Goodwin Patrick J. Kelly Peter Pace Jennifer L. Vogel Marc J. Walfish Ronald B. Woodard At its April Except for this change, the Board kept in place for Fiscal 2019 the other components of the Fiscal 2018 director compensation Compensation Committee Interlocks and Insider Participation Messrs. Anderson, Bobins, Boyce, and Woodard, 28 AAR We are asking you to approve the following advisory proposal — commonly known as a “say-on-pay” proposal — on the compensation awarded to our named executive officers for Fiscal 2018 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 2018 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 hold an annual vote on say-on-pay because we believe it is important to obtain the opinions of our stockholders on our executive compensation program. Each year our Compensation Committee takes a fresh look at the Company’s executive compensation program to determine whether to make any design or implementation changes. Reasons to make changes may include the results of prior say-on-pay votes, stockholder feedback, the financial and operating performance of the Company, the performance of individual senior management members, peer group changes or market trends. The Compensation Committee designed the Fiscal 2018 executive compensation program to align executive pay with Company performance in order to create an identity of interest between management and stockholders. The Board encourages you to read the “Compensation Discussion and Analysis” and the accompanying executive compensation tables in this proxy statement for a comprehensive description of the Fiscal 2018 executive compensation program. The only fixed compensation paid to the named executive officers in Fiscal 2018 was their base salary (except for one time-based restricted stock award of 1,500 shares to one executive officer). All other executive compensation was performance-based compensation under the Fiscal 2018 short-term incentive plan and the Fiscal 2018 long-term incentive plan: 2018 Proxy Statement 29 Proposal 2 – Executive Compensation The tables below show the breakdown of performance-based compensation and fixed compensation paid to the Company’s named executive officers in Fiscal 2018. Stock Fixed Compensation ($) Our Compensation Committee believes that the executive compensation paid to our named executive officers in Fiscal 2018, in form and amount, was appropriate and in the best interests of the Company and its stockholders. This say-on-pay advisory vote is not binding on the Board of Directors. The Board, however, will review and consider the voting results and other relevant factors in responding to this advisory vote. Compensation Committee Fiscal 2018 Report on Executive Compensation 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” section of this proxy statement 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, The Compensation Committee of the Board of Directors of AAR CORP. Ronald B. Woodard, Chair 30 AAR Proposal 2 – Executive Compensation COMPENSATION DISCUSSION AND ANALYSIS Named Executive Officers This Compensation Discussion and Analysis We have had several named executive officer changes since June 1, 2017: On June 1, 2017, Mr. Holmes became President and Chief Operating Officer of the Company. Mr. Storch retained the positions of Chairman of the Board and Chief Executive Officer. On September 1, 2017, Mr. Milligan succeeded Mr. Romenesko as Chief Financial Officer On June 1, 2018, Mr. Storch became Chairman of the Board of the Company following his retirement on May 31, 2018. Mr. Holmes succeeded Mr. Storch as Chief Executive Officer on that date. Sales growth of 9.9% in Fiscal 2018 over Fiscal 2017 Consolidated gross profit increase of 11.8% in Fiscal 2018 over Fiscal 2017 Income from continuing operations of $73.7 million (compared to $52.0 million in Fiscal 2017) Adjusted diluted earnings per share from continuing operations of $1.79 (a 17% increase over $1.53 in Fiscal 2017)* Strong balance sheet with $442 million of availability under credit facility and accounts receivable program $13.1 million of stock repurchases and $10.3 million of cash dividends in Fiscal 2018 Please see Appendix B for a reconciliation of this non-GAAP measure. For more information about our 2018 Proxy Statement 31 Proposal 2 – Executive Compensation Fiscal Pay–for–Performance Alignment for Executive Officers Annual cash bonuses linked to two key performance metrics: earnings per share (80%) and working capital turns (20%) Long-term incentives 100% performance-based: performance shares and stock options (except for one grant of 1,500 shares of time-based restricted stock) Performance shares linked to three key performance metrics: income from continuing operations, return on invested capital and relative total stockholder return (beginning Fiscal 2019) Competitive Pay Opportunities Target total pay opportunities for AAR’s executive officers as a group are within a competitive range around the median of the Company’s peer group AAR’s compensation mix – cash versus equity, fixed versus variable, and annual versus longer-term – also is generally consistent with peer group company best practices Recent Changes to Executive Compensation Program No discretionary cash bonus awards under the short-term incentive plan No one-off stock awards – all stock awards granted annually under the long-term incentive plan Elimination of the stock price re-test provision in performance share awards (beginning Fiscal 2019) Introduction of a new pay metric – relative total stockholder return – for performance share awards (beginning Fiscal 2019) Adoption of a fixed-dollar value annual stock award for directors in place of a fixed-share award (beginning Fiscal 2019) OUR EXECUTIVE COMPENSATION GOALS AND PHILOSOPHY Our Engage Executive Talent:Attract and retain talented executives capable of producing outstanding business results for the Company; Align Pay and Performance:Motivate and reward executives by paying for performance in a manner that reflects the Company’s performance results, the business group performance and individual performance; and Diversify Pay Mix:Provide compensation that strikes a proper balance between short-term and long-term compensation, and between fixed compensation and at-risk or variable 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 salaryplusannual cash bonus opportunityplusthe dollar value of annual stock awards – of our named executive officers at or around the midpoint of market (i.e., ± 15% of the median of our peer group) and to provide the opportunity for our named executive officers to reach or exceed the market 75th percentile with exceptional performance. In practice, the compensation opportunities for individual executives may vary depending on experience, effectiveness, performance and other relevant factors. By incentivizing and rewarding outstanding performance, our executive compensation program The Company generally targets its annual pay mix to place significant weight on The table below describes and explains the purpose of the principal elements of the Fiscal Individual performance and contributions Rewards individual performance and contributions consistent with an Earnings per share Provides short-term, cash-based incentive Stock price 2018 Proxy Statement 33 FISCAL 2018 EXECUTIVE COMPENSATION Fiscal 2018 Base Salaries For Fiscal 2018, the The base salary of David P. Storch, the Company’s Chief Executive Officer at the time, was increased 12.7% to $941,000 to place him slightly above the median base salary for CEOs in the Company’s peer group; and The base salary of John M. Holmes was increased 21.8% to $564,600, principally in consideration of his promotion to, and increased responsibilities as, President and Chief Operating Officer of the Company beginning June 1, 2017. This base salary places Mr. Holmes slightly below the median base salary for Presidents in the Company’s peer group. The base salary of The following table shows Section 162(m) Annual Cash Incentive The The Section 162(m) Annual Cash Incentive Plan uses as its performance goal the 34 AAR Proposal 2 – Executive Compensation Fiscal The Compensation Committee The Fiscal The following table shows the earnings per share and working capital turns performance goals at the threshold, target and maximum Target earnings per share of $1.56 represented on 8% increase over the prior year’s actual earnings per share from continuing operations. Target working capital turns of 3.20 represented a slight decrease from the prior year’s actual working capital turns of 3.25, reflecting the expected investment in Performance Goal Earnings per share (80%) Working capital turns (20%) working capital during Fiscal 2018. The Compensation Committee believes The Fiscal 2018 annual cash bonus opportunities (in dollar amounts and as a percentage of base salary) at the threshold, target and maximum levels Named Executive Officer David P. Storch Michael J. Sharp Robert J. Regan John C. Fortson The Actual results reflect an adjustment made by the Compensation Committee, as permitted under the Fiscal 2018 short-term incentive plan, to exclude as special charges the $46.3 million ($1.34 per share) of impairment charges in Fiscal 2018 related to discontinued operations. The Compensation Committee determined that management’s decision to take the impairment charges was in the best interests of stockholders and should not adversely affect annual bonus decisions. 2018 Proxy Statement 35 Performance Goal Earnings per share Working capital turns Proposal 2 – Executive Compensation Based on the For the period through Mr. Romenesko's retirement on December 31, 2017 Named Executive Officer David P. Storch Michael J. Sharp Robert J. Regan John C. Fortson Performance Goal Pre-tax income Free cash flow Return on average net invested capital Working capital turns 2018 Stock Awards The Compensation Committee In Fiscal Its Fiscal 2018 executive compensation assessment; The Company’s performance in the last fiscal year and its forecasted performance for the current fiscal year; The Company’s budget for compensation expense; The Company’s stock price; The Committee’s emphasis on performance-based awards; The Company’s burn rate experience under its stock plan; The levels of responsibility, seniority and overall compensation of the participants; and The Chief Executive Officer’s recommendations for participants other than himself. In Fiscal The allocation for Fiscal 2018 was approximately 50% - 50% between performance-based restricted stock and stock options (depending on the The Compensation Committee’s use of performance-based restricted stock is intended to motivate executives to drive corporate performance, specifically with respect to net income performance and return on invested capital performance. The performance-based restricted stock is forfeited unless the Company achieves these performance goals at designated threshold levels over the three-year performance period. The Compensation Committee’s use of stock options is intended to focus executives on stock price appreciation. Stock options only have value to an executive if the Company’s stock price increases above its grant date value, thus providing a “win-win” for 36 AAR Proposal 2 – Executive Compensation Performance-Based Restricted The Compensation Committee approved the following grants of performance-based restricted stock to the named executive officers for Fiscal Named Executive Officer David P. Storch Timothy J. Romenesko John M. Holmes Michael J. Sharp Robert J. Regan John C. Fortson Mr. Pachapa received a grant of 1,500 shares of time-based restricted stock in lieu of a performance-based restricted stock award. The The The table below shows the threshold, target and maximum levels Performance Goal Cumulative Net Income Three-Year Return on Invested Capital If the performance goals for the three-year performance period through Fiscal The Compensation Committee 2018 Proxy Statement 37 Proposal 2 – Executive Compensation The Compensation Committee included a stock price acceleration feature to the Fiscal 2018 performance-based restricted stock grants. This features provides that if the Company’s stock trades at an average price equal to or greater than $44.075 (125% of the $35.26 grant date stock price) for the 20 consecutive trading days ending on the last day of the performance period (May 31, 2020), the performance goals shall be deemed to have been met at the target level, regardless of whether the performance goals were met. If, however, the performance goals were met at an above-target level, then the payout would be at the above-target level. In response to stockholder concerns about this stock price acceleration feature, the Compensation Committee Added a third performance measure – total stockholder return – to Fiscal 2019 performance-based restricted stock awards; and Determined that total stockholder return will be measured on a relative basis rather than an absolute basis; specifically, that the Company’s total stockholder return for the three-year performance period beginning June 1, 2018 and ending May 31, 2021 will be compared against the total stockholder return performance of the Capital Goods companies in the S&P 600 Small Cap Index (which includes the Company). Stock Options Named Executive Officer David P. Storch Timothy J. Romenesko John M. Holmes Michael J. Sharp Robert J. Regan John C. Fortson The The stock options vest Named Executive Officer David P. Storch Timothy J. Romenesko John M. Holmes Michael J. Sharp Robert J. Regan John C. Fortson The following table shows thetargettotal direct compensation set for each named executive officer The amounts for Mr. Milligan and Mr. Romenesko reflect the pro rata portion of base salary for the portion of the year worked. 38 AAR Named Executive Officer David P. Storch Timothy J. Romenesko John M. Holmes Michael J. Sharp Robert J. Regan John C. Fortson Proposal 2 – Executive Compensation Note that the difference between OUR COMPENSATION COMMITTEE’S DECISION-MAKING PROCESS Each year the Compensation Committee reviews the Company’s executive compensation program and the programs of other companies, including its peer group companies. The Compensation Committee seeks to The Compensation Committee took the following actions in setting and approving executive compensation for Fiscal 2018. Fiscal 2018 Peer Group The Compensation Committee believes that total compensation opportunities for the Company’s key executives, including the named executive officers, should be competitive with those offered by other companies competing for talent in The goal of the Compensation Committee is to assemble a set of peer group companies that provide relevant pay and performance comparisons with the Company. The Compensation Committee and its independent compensation consultant recognize that any 2018 Proxy Statement 39 The Compensation Committee, together with its independent consultant and management, reviewed and discussed the Fiscal 2017 peer group Following its review and analysis, the The Compensation Committee noted, in particular, the following reasons for maintaining the same peer group in Fiscal 2018 as was in place in Fiscal 2017: The importance of year-to-year consistency in the comparisons of executive compensation; The fact that 11 of the 19 companies in the Company’s peer group were also listed as peer group companies by Institutional Shareholder Services (“ISS”), a large proxy advisory firm; and The fact that 14 of the 19 companies in the Company’s peer group were also listed as peer group companies listed in the report of Glass Lewis, another large proxy advisory firm. Recommendations of the Chief Executive Officer The Compensation Committee considers the Chief Executive Officer’s recommendations but retains the ultimate decision-making authority and responsibility for compensation decisions affecting the Company’s executives, including its named executive officers. The Compensation Committee considered the recommendations of the Chief Executive Officer in making Fiscal 2018 compensation decisions for all of the executive officers other than the Chief Executive Officer. In making his 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 officer’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 overall contributions to the performance of the Company. Role of the Compensation Consultant Fiscal 2018 was the first full year in which Semler Brossy Consulting Group (“Semler Brossy”) served as the independent compensation consultant to the Compensation Committee. Semler Brossy provides research, data analysis, market information and compensation plan design expertise and experience to the Compensation Committee. In Fiscal 2018, Semler Brossy assisted with the design and implementation of the short-term and long-term incentive plans for the Company’s senior executives and the development of the Company’s peer group for executive compensation purposes. Semler Brossy also kept the Committee apprised of regulatory developments and market trends related to executive compensation practices. Semler Brossy does not determine or recommend the amount or form of executive compensation for any of the Company’s executive officers. Representatives of Semler Brossy attended all meetings of the Compensation Committee in Fiscal 2018. 40 AAR Proposal 2 – Executive Compensation Say-on-Pay Vote The Compensation Committee carefully considered the results of prior stockholder say-on-pay votes and other stockholder feedback in designing the current year’s executive compensation program and making executive compensation decisions for the Company’s executives. In July 2017 when the Compensation Committee was making Fiscal 2018 executive compensation decisions, it had the benefit of the say-on-pay vote at the Company’s October 2016 annual meeting where the holders of over 75% of the shares voted at the meeting approved the executive compensation paid to the Company’s named executive officers. The say-on-pay vote at the October 2017 annual meeting was over 78% in favor of our Fiscal 2017 executive compensation program. In the case of the October 2016 and October 2017 say-on-pay votes, the results were adversely affected by a Other Compensation Information The Compensation Committee also considered certain historical compensation data for the Company’s executives. This data included summaries of The following are key factors that also affect the executive compensation decisions made by the Compensation Committee for the Stock Ownership Guidelines The Company has stock ownership guidelines requiring directors and executive officers to own and retain a meaningful amount of the Changed the non-employee director requirement to shares with a market value of $400,000 from a fixed number of 20,000 shares consistent with the change to a fixed dollar value for the annual director stock grant; and Clarified the stock retention requirement. The table below summarizes the current stock ownership guidelines: Executive Officers CEO Direct Reports to CEO Other Executive Officers 2018 Proxy Statement 41 Proposal 2 – Executive Compensation Executive officers not in compliance with these guidelines must retain at least 50% of the net Failure to meet these stock ownership levels or to show sustained progress may result in a reduction in future stock awards. Stock values are measured as of each fiscal year-end, with unvested stock awards counted at 50% of their value and stock options counted at 0%. All directors and named executive officers of the Company complied with the stock ownership requirements as of May 31, 2018. Employment, Severance and Other Agreements The Company has an employment The rationale for the employment The Company also entered into agreements with Mr. Storch and Mr. Romenesko in connection with their retirement from the Company. See “— Agreements with Mr. Storch” and “— Agreements with Other Named Executive Officers.” The Company has no tax gross-up provisions or single trigger change-in-control provisions in any agreement with Equity Grant Practices The Compensation Committee meets from time to time to consider and act with respect to equity compensation awards for the Perquisites We provide Retirement Benefits The 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 Internal Revenue Code limits and provides additional employer contributions. The Compensation Committee views the retirement benefits for the named executive officers as reasonable, market-competitive and consistent with the Company’s overall executive compensation program. 42 AAR Risk Management The Compensation Committee considered, with the assistance of The Compensation Committee The Fiscal 2018 executive compensation program was designed to provide a proper balance between cash and stock compensation, fixed and variable compensation, and short-term and long-term compensation. The Compensation Committee generally favors a heavier weighting of longer-term, performance-based stock compensation to align the executives’ interests with the interests of stockholders, to promote performance and to encourage long-term value creation. Fiscal 2018 short-term incentive plan awards — performance-based cash compensation — were based on two different performance metrics: earnings per share and working capital turns, each of which provides benefits to the Company’s stockholders. In any year, regardless of the Company’s performance against these metrics, the Compensation Committee retains (and has exercised) the discretion to reduce any annual cash bonus for any reason. The balance built into the Fiscal 2018 short-term incentive plan was also reflected in the Fiscal 2018 long-term incentive compensation awards, which consisted of performance-based restricted stock and stock options, and did not include any time-based restricted stock for executive officers (other than Mr. Pachapa). Each of these long-term equity-based incentive awards contains vesting periods designed to promote employee retention. They also are linked to the value of the Company’s common stock, thus aligning the executives’ interests with the interests of the Company’s stockholders. The performance goals for performance-based restricted stock under the long-term incentive plan — cumulative net income and return on invested capital in Fiscal 2018 (and, beginning in Fiscal 2019, relative total stockholder return) — are different from the performance goals used under the short-term incentive plan (earnings per share and working capital turns). In addition, the Fiscal 2018 long-term incentive plan has a three-year performance period compared to the one-year performance period under the Fiscal 2018 short-term incentive plan. The Compensation Committee believes that these different performance goals and different performance periods allow the Company to pursue short-term and long-term goals in a balanced manner. The Company’s stock ownership guidelines align the interests of directors and executive officers with the interests of stockholders, providing further assurance that decisions are made in the best interest of stockholders. The Compensation Committee, its independent compensation consultant 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 Semler Brossy provides no other services to the Company and received no other fees from the Company apart from its compensation for consulting with the Compensation Committee; The conflicts of interest policies and procedures of the Company and of Semler Brossy; The fact that the Semler Brossy employees who provided compensation consulting services did not own any shares of the Company’s common stock; The lack of any relationships between Semler Brossy and members of the Company’s Board of Directors; and The lack of any relationships between Semler Brossy 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 2018 Proxy Statement 43 Proposal 2 – Executive Compensation 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 The Company is aware of the proposed compensation clawback rules issued by the 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 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 Section 162(m) of the Internal Revenue Code The Compensation Committee has considered the tax deductibility of executive compensation under Section 162(m) as one factor in determining the types and amounts of compensation to be paid to its executive officers. In some cases, the Compensation Committee determined that it Proposal 2 – Executive Compensation Summary Compensation Table1 The following table sets forth compensation information for the Total General.The Summary Compensation Table provides specific compensation information for the Company’s named executive officers in accordance with applicable SEC rules. Please read the “Compensation Discussion and Analysis” section of this proxy statement for a more detailed explanation of the Company’s executive compensation program in Fiscal 2018. Salary.The named executive officers, like all employees, received a 3% base salary increase in Fiscal 2018, except that Mr. Storch received a 12.7% increase and Mr. Holmes received a 21.8% increase for the reasons stated in the “Compensation Discussion and Analysis” section of the proxy statement. Bonus.The Company did not pay any discretionary bonuses to any named executive officer in Fiscal 2018. 2018 Proxy Statement 45 Name and Principal Position David P. Storch Chairman of the Board, President and Chief Executive Officer Timothy J. Romenesko Vice Chairman; Chief Financial Officer (beginning August 1, 2016); Chief Operating Officer of Expeditionary Services (through July 31, 2016) John M. Holmes9 Vice President; Chief Operating Officer of Aviation Services Michael J. Sharp10 Former Vice President, Chief Financial Officer (from September 29, 2015 through July 31, 2016) Robert J. Regan Vice President, General Counsel and Secretary John C. Fortson11 Former Vice President and Chief Financial Officer (through September 28, 2015) Proposal 2 – Executive Compensation Stock Awards.The amounts in this column for Fiscal 2018 reflect the grant date fair values of the performance-based restricted stock awards at their target levels and the time-based restricted stock award to Mr. Pachapa granted under the Fiscal 2018 long-term incentive plan. These values were computed in accordance with FASB ASC Topic 718. The grant date fair values of the performance-based stock awards, assuming the performance conditions are met at the maximum level (this assumption is required by SEC rules), are Mr. Storch: $4,231,200; Mr. Holmes: $2,556,350; Mr. Milligan: $937,508; Mr. Romenesko: $771,313; and Mr. Regan: $1,145,950. Mr. Pachapa did not receive a performance-based stock award in Fiscal 2018. The Compensation Committee did not make any grants of time-based restricted stock awards to the named executive officers in Fiscal 2018, except for the award to Mr. Pachapa. See Note 5, to the Consolidated Financial Statements contained in the Company’s Annual Report on Form 10-K for Fiscal 2018 for an explanation of the assumptions made by the Company in the valuation of the stock awards. The grant date fair values represent the Company’s accounting expense for the grants made to the named executive officers in a given year.These amounts do not represent the actual value that may be realized by the named executive officers 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 additional information about the awards of performance-based restricted stock granted in Fiscal 2018. Vesting information is presented under “Executive Compensation — Outstanding Equity Awards at Fiscal 2018 Year End — Vesting.” Option Awards.The amounts in this column for Fiscal 2018 reflect the grant date fair value of the stock option awards computed in accordance with FASB ASC Topic 718. See Note 5 to the Consolidated Financial Statements contained in the Company’s Annual Report on Form 10-K for Fiscal 2018 for an explanation of the assumptions made by the Company in the valuation of these awards. The grant date fair values represent the Company’s accounting expense for the grants of stock options made to the named executive officers in a given year.These amounts do not represent the actual value that may be realized by the named executive officers because a stock option may be forfeited, may not be exercised or may not vest.The “Compensation Discussion and Analysis” section of this proxy statement contains additional information about the awards of stock options granted in Fiscal 2018. Vesting information is presented under “Executive Compensation —Outstanding Equity Awards at Fiscal 2018 Year End — Vesting.” Non-Equity Incentive Plan Compensation.The Fiscal 2018 amounts in this column are the performance-based cash bonuses earned by Mr. Storch, Mr. Holmes, Mr. Milligan, Mr. Romenesko, Mr. Regan and Mr. Pachapa under the Company’s Fiscal 2018 short-term incentive plan. The “Compensation Discussion and Analysis” section of this proxy statement contains additional information about the Fiscal 2018 bonuses. Change in Pension Value and Non-Qualified Deferred Compensation Earnings.This column shows the increase in the portion of the SKERP benefit derived from the defined benefit formula and the increased pension value under the Retirement Plan. This column does not include any preferential or above-market earnings on deferred compensation as the Company does not pay such earnings on the deferred compensation of its named executive officers. All Other Compensation.The table below provides a breakdown, by type and amount, of the totals shown in the “All Other Compensation” column for each named executive officer in Fiscal 2018. As required by the SEC rules, the Company values perquisites based on the aggregate incremental cost to the Company. Actual base salary amount paid to Mr. Romenesko through his retirement date of December 31, 2017. Agreements with We entered into an agreement with Mr. Under his retirement agreement, Mr. Storch was entitled to receive his annual cash bonus under the Fiscal 2018 short-term incentive plan, his 2018 contributions under the Company’s SKERP (including the Additional Supplemental Company Contributions), and continued coverage under the Company’s health and dental plans and executive health programs for his and his spouse’s lifetime on the same terms generally made available to actively employed executive officers (this lifetime benefit was previously provided to Mr. Storch under his employment agreement). As Mr. Storch was retirement eligible under the Company’s stock plans, he continues to vest in 46 AAR Proposal 2 – Executive Compensation Under his agreement as Chairman of the Board and as a consultant to the Named Executive Officer David P. Storch Timothy J. Romenesko John M. Holmes Michael J. Sharp Robert J. Regan John C. Fortson reasonably requested by the Board. Employment Agreement with We The table below outlines the principal terms of Mr. Description $750,000, as may be subsequently increased by the Compensation Committee 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 each year by the Compensation Committee As determined each year by the Compensation Committee Financial planning and tax preparation services (not to exceed $15,000 per calendar year); participation in the Company’s executive physical program; and participation in See Agreements with Other Named Executive Officers The The Company entered into a The agreement further provides that Mr. 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 2018; Estimated possible payouts under equity incentive plan award opportunities for Fiscal 2018; Other stock awards made in Fiscal 2018; and Stock options granted in Fiscal 2018. Named Executive Officer David P. Storch Timothy J. Romenesko7 John M. Holmes7 Michael J. Sharp8 Robert J. Regan John C. Fortson9 Proposal 2 – Executive Compensation Estimated Future Payouts The Compensation Committee granted annual stock awards under the Company’s Fiscal 2018 long-term incentive plan at its meeting on July 10, 2017 (October 10, 2017 in the case of Mr. Milligan). Annual cash bonuses under the Company’s Fiscal 2018 short-term incentive plan were subject to performance in Fiscal 2018, which has now occurred. The information in these columns reflects the range of potential payouts at the time the performance goals were set by the Compensation Committee at its meeting on July 10, 2017 (October 10, 2017 in the case of Mr. Milligan). The information in these columns shows the range of performance-based restricted stock grants that could be earned by the named executive officers under the Fiscal 2018 long-term incentive plan. The actual number of shares of performance-based restricted stock granted under the Fiscal 2018 long-term incentive plan is listed in the “Target” column. See the “Compensation Discussion and Analysis” section of this proxy statement for a description of the performance-based restricted stock awards under the Fiscal 2018 long-term incentive plan. There were no awards of time-based restricted stock to the Company’s named executive officers under the Company’s Fiscal 2018 long-term incentive plan, except for the award to Mr. Pachapa. This column shows the number of shares subject to stock options granted to the named executive officers under the Company’s Fiscal 2018 long-term incentive plan. The grant date fair values of the performance-based restricted stock awards at the target level, the time-based restricted award to Mr. Pachapa and the stock option awards were computed in accordance with FASB ASC Topic 718. 48 AAR Proposal 2 – Executive Compensation Outstanding Equity Awards at Fiscal The following table sets forth information for each named executive officer with respect to: Each stock option that remained outstanding as of May 31, 2018; and Each award of restricted stock that was not vested and remained outstanding as of May 31, 2018. These columns show the number, option exercise price and option expiration date ofoutstanding stock options held by the named executive officers at the end of Fiscal 2018. The first column shows this information for exercisable stock options, and the second column shows this information for unexercisable stock options. Proposal 2 – Executive Compensation 50 AAR Proposal 2 – Executive Compensation Vesting 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: Stock Options (Stock options granted prior to Fiscal 2016 vest 20% per year for five years) Time-Based Restricted Stock1 100% cliff vesting in year 3 (Stock granted prior to Fiscal 2016 vests 50% in each of years 4 and 5) Stock continues to vest in accordance with the vesting schedule Stock vests pro-rata based on the date of (Stock granted prior to Fiscal 2016 vests 100% if disability occurs after the 4th anniversary of grant and vests 50% if disability occurs on or before the 4th anniversary of grant) Stock vests pro-rata based on the date of death (Stock granted prior to Fiscal 2017 vests 100% if death occurs after the Performance-Based Restricted Stock 100% cliff vesting in year 3, assuming performance conditions are met (Stock granted prior to Fiscal 2017 vests 331/3% in each of years 3, 4 and 5, assuming the performance conditions are met) Stock continues to vest in accordance with the vesting schedule Stock vests pro-rata based on the date of (Stock granted prior to Fiscal Stock vests pro-rata based on the date of death (Stock granted prior to Fiscal 2017 continues to vest in accordance with the vesting schedule) 2018 Proxy Statement 51 Proposal 2 – Executive Compensation The following table sets forth information for each named executive officer concerning: The exercise of options during Fiscal 2018; The dollar amount realized on exercise of the options; The number of shares of restricted stock that vested during Fiscal 2018; and The value of those vested shares. 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. 52 AAR Proposal 2 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 Benefit 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) Retirement Plan The The material terms and conditions of the Retirement Plan as they pertain to Benefit 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 Security offset determined under the Plan, multiplied by the The benefits under the Retirement Plan generally ceased accruing on June 1, 2005, although the Participants are eligible to receive benefits from the Retirement Plan after completing five years of 2018 Proxy Statement 53 Proposal 2 – Executive Compensation Payment of Retirement 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 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 participating named executive officer and by the Company in Fiscal The amount of contributions made by each named executive officer and reported in this column in respect of salary deferrals in Fiscal 2018 is included in each named executive officer’s compensation reported in the Summary Compensation Table as “Salary.” The amount of contributions reported in this column also reflects deferral of cash bonuses paid in Fiscal 2018 but earned and reported in the Summary Compensation Table for Fiscal 2017. The amount of Company contributions reported in this column for each named executive officer is reported in the “All Other Compensation” column in the Summary Compensation Table. The investment earnings reported in this column for each named executive officer are not reported in the Summary Compensation Table. The aggregate balance as of May 31, 2018 reported in this column for each named executive officer reflects amounts that have been previously reported as compensation in the Summary Compensation Table for Fiscal 2018 or prior years, except the following amounts of earnings included in the account balance: Mr. Storch, $12,047,894; Mr. Romenesko, $2,613,904; Mr. Holmes, $776,749; and Mr. Regan, $997,491. The aggregate balance as of May 31, 2018 also includes the following cumulative amounts transferred from the defined benefit portion of the SKERP: Mr. Storch, $1,712,865 and Mr. Romenesko, $272,876. Mr. Milligan and Mr. Pachapa did not participate in the SKERP in Fiscal 2018. SKERP — Defined Contribution Portion The defined contribution portion of the SKERP covers certain executives and key employees designated by the Compensation Committee. The material terms and Contributions Each participant may make an advance election to contribute a 54 AAR Table of formula in the Retirement Savings Plan (i.e., 20% of the first 5% of the 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 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 33 Each The portion of a 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 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 In connection with their respective retirements, and pursuant to Forfeiture 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 2018 Proxy Statement 55 Proposal 2 – Executive Compensation Retirement Savings Plan The Retirement Savings Plan is a tax-qualified retirement plan (i.e., a 401(k) 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: A participant can elect to defer 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 Each Participants 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. Mr. Storch and Mr. Romenesko have each taken a lump-sum distribution of their benefits following their retirement. Potential Payments Upon a Termination of Employment or a The Company provides certain benefits to eligible employees upon certain types of termination of employment, including a termination of employment involving a 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 56 AAR Proposal 2 – Executive Compensation Employment Agreement with The Termination of Employment — Prior to, or More than If prior to, or more than Termination of Employment — Within If Mr. 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. Holmes 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); 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. If any excise tax would be triggered, Mr. Regardless of whether a In any event, payments under the employment agreement in connection with Mr. For purposes of Mr. Proposal 2 – Executive Compensation “Good Severance and The Company has severance and The severance and Termination of Employment — Prior to, or More than 18 Months After, a If prior to, or more than 18 months after, a Termination of Employment — Within 18 Months Following a If the If any excise tax would be triggered, the executive may 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. 58 AAR Proposal 2 – Executive Compensation Termination of Employment — If the For purposes of the severance and 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. Stock Plans A named executive Stock 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 In the case of performance-based or time-based restricted stock awards, if termination is due to Retirement, Disability or death, the awards continue to vest in accordance with their vesting schedule. The AAR CORP. Stock Benefit Plan has 2018 Proxy Statement 59 Proposal 2 – Executive Compensation Award agreements under the AAR CORP. 2013 Stock Plan do not provide for vesting upon a Other Agreements We have entered into agreements with Mr. Storch and Mr. Romenesko in The tables Under the Company’s stock plans and severance and change-in-control agreements, all restricted stock (both performance-based and time-based) generally vests upon a change-in-control of the Company or upon a qualifying termination of employment that occurs within two years following a change-in-control. See “— Stock Plans” above. The amounts shown reflect the number of shares that would have vested upon a change-in-control and termination of employment, if applicable, on May 31, 2018, based on the number of shares multiplied by $44.69 (the closing price of the common stock on May 31, 2018). Under the Company’s stock plans and severance and change-in-control agreements, all stock options generally vest upon a change-in-control of the Company or upon a qualifying termination of employment that occurs within two years following a change-in-control. See “— Stock Plans” above. The amounts shown reflect the number of option shares that would have vested upon a change-in-control and termination of employment, if applicable, multiplied by the difference (but not less than zero) between the option exercise price and $44.69 (the closing price of the common stock on May 31, 2018). Termination of Employment Reflects continued salary for 24 months for Mr. Holmes under his employment agreement and 12 months for Mr. Milligan and Mr. Regan under their severance and change-in-control agreements. Reflects (i) in the case of Mr. Holmes, two times the average of the non-equity incentive compensation paid to him for Fiscal 2017 and Fiscal 2018 and (ii) in the case of Mr. Milligan and Mr. Regan, the non-equity incentive compensation paid to them for Fiscal 2018 as shown in the Summary Compensation Table. At May 31, 2018, no current named executive officer was eligible for continued vesting upon termination due to Retirement; accordingly, all current named executive officers would forfeit their restricted stock upon termination of employment. At May 31, 2018, no current named executive officer was eligible for continued vesting upon termination due to Retirement; accordingly, all current named executive officers would forfeit their options upon termination of employment. Available if termination is due to Disability under the employment agreement for Mr. Holmes and the severance and change-in-control agreements for Mr. Milligan and Mr. Regan. 60 AAR Proposal 2 – Executive Compensation The amounts in these columns reflect the value of the restricted stock that would vest upon termination due to Disability or death at May 31, 2018, based on the number of shares, multiplied by $44.69 (the closing price of the common stock on May 31, 2018). The amounts in this column reflect the value of continued vesting of options pursuant to the Company’s stock plans for one year following termination if termination is due to Disability at May 31, 2018, based on the difference between the exercise price and $44.69 (the closing price of the common stock on May 31, 2018). Termination of Employment These benefits are in addition to the vesting of stock awards shown above in the table for “Equity Vesting — On or After a Change-in-Control.” Reflects three times salary for Mr. Holmes and two times salary for Mr. Milligan and Mr. Regan. Reflects (i) in the case of Mr. Holmes, the non-equity incentive plan compensation bonus paid to him for Fiscal 2018 as shown in the Summary Compensation Table, plus three times his non-equity incentive plan compensation bonus for either the most recently completed fiscal year prior to termination or the preceding fiscal year, whichever produces the higher amount, and (ii) in the case of Mr. Milligan and Mr. Regan, the non-equity incentive compensation plan bonus paid to them for Fiscal 2018 as shown in the Summary Compensation Table, plus two times the non-equity incentive plan compensation bonus for either the most recently completed fiscal year prior to termination or the preceding fiscal year, whichever produces the higher amount. 2018 Proxy Statement 61 David P. Storch Timothy J. Romenesko John M. Holmes Robert J. Regan Proposal 2 – Executive Compensation CEO Pay Ratio The Dodd-Frank Wall Street Reform and Consumer Protection Act and related rules adopted by the We used the following methodology to determine our CEO pay ratio: Step One: We identified that as of March 1, 2018 our total employee population was 5,048 employees. Step Two: Of this group, we came up with a Step Three: As permitted by SEC rules, we excluded our employees in all other non-U.S. jurisdictions as these employees together represented less than 5% of our total non-U.S. employee population. The Step Four: For our selected employee group, we determined each domestic employee’s total cash compensation based on W-2 (Box 5) compensation (or its equivalent for non-U.S. employees) for the Step Five: We identified our median employee from our selected employee group (excluding the Chief Executive Officer). Step Six: Once we identified our median employee, we calculated the annual total compensation of Termination of Employment Named Executive Officer David P. Storch Timothy J. Romenesko John M. Holmes Robert J. Regan Michael J. Sharp9 The following table shows the ratio of the annual total compensation of our Chief Executive Officer compared to that of our median employee for Fiscal 2018: 62 AAR We are asking you to ratify the selection of KPMG LLP (“KPMG”), an independent registered accounting firm, to serve as our independent registered public accounting firm for Fiscal 2019. The Company’s independent registered public accounting firm reports to, and The Audit Committee appointed KPMG as the Company’s independent registered public accounting firm for Fiscal 2019. The Audit Committee believes that the appointment of KPMG is in the The Board of Directors asks that you ratify the appointment of KPMG as our independent registered public accounting firm for Fiscal 2019. 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 from 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 2017 and Fiscal 2018 for audit, audit-related and tax services. Fiscal 2017 audit-related fees were for assistance with SEC comment letters and acquisition due diligence assistance. Fiscal 2018 audit-related fees were for acquisition due diligence assistance. Tax fees in Fiscal 2017 and Fiscal 2018 were for reviews of domestic and foreign income tax returns and VAT services. 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. 2018 Proxy Statement 63 Proposal 3 – Ratification of our Independent Registered Public Accounting Firm AUDIT COMMITTEE FISCAL 2018 REPORT Dear Fellow Stockholders: The Company’s management has primary responsibility for the Company’s financial statements and the quality and integrity of the 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. 1301 (“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 The Audit Committee concluded that KPMG is In reliance on its review of the audited financial statements and the discussions referred to Respectfully submitted, The Marc J. Walfish, Chair 64 AAR Termination of Employment — Within 18 Months (24 Months for Mr. Storch) Following a Change in Control1 Named Executive Officer David P. Storch Timothy J. Romenesko John M. Holmes Robert J. Regan 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, SECURITY OWNERSHIP OF OUR MANAGEMENT Includes (a) unvested restricted shares held by directors and executive officers and (b) the following shares of the identified person that may be acquired within 60 days of July 31, 2018 through the exercise of stock options: Mr. Holmes, 164,132 shares; Mr. Milligan, 3,229 shares; Mr. Regan, 159,014 shares; Mr. Pachapa, 5,031 shares; Mr. Storch, 254,602 shares; and all directors and executive officers as a group, 586,008 shares. Represents stock units held by directors who defer all or a portion of their director compensation under the Non-Employee Directors’ Deferred Compensation Plan. Each stock unit represents the right to receive one share of common stock upon termination of service on the Board or the happening of certain other events, as specified in the Plan. Includes 10,000 shares beneficially owned through Maverick Investors Limited Partnership, a family partnership of which Mr. Boyce is a general partner. Includes 16,000 shares beneficially owned through KMK & Associates, LLC, of which Mr. Kelly is a one-third owner. Includes: (a) 18,810 shares beneficially owned by Mr. Storch’s wife, as to which Mr. Storch disclaims beneficial ownership; (b) 200,000 shares beneficially owned through DPS Asset Management LLC, a family investment vehicle of which Mr. Storch is President; (c) 2,025 shares under the Lorraine Storch Revocable Trust under which Mr. Storch is trustee and a beneficiary; (d) 250,000 shares owned through the Storch Family Dynasty Trust, under which Mr. Storch is trustee and a beneficiary; and (e) 52,473 shares beneficially owned through a limited power of attorney arrangement, as to which Mr. Storch disclaims beneficial ownership. 2018 Proxy Statement Name Anthony K. Anderson Norman R. Bobins Michael R. Boyce3 Ronald R. Fogleman James E. Goodwin John M. Holmes Patrick J. Kelly4 Peter Pace Robert J. Regan Timothy J. Romenesko Michael J. Sharp David P. Storch5 Jennifer L. Vogel Marc J. Walfish Ronald B. Woodard All directors and executive officers as a group (16 persons) Stock Ownership Information Name and Address of Beneficial Owner BlackRock, Inc.1 Dimensional Fund Advisors LP2 Franklin Resources Inc.3 Vanguard Group, Inc.4 Based on a Schedule 13G amendment filed on January 17, 2018, BlackRock, Inc. disclosed beneficial ownership with respect to the shares as follows: Sole voting power: ● ● ● Sole voting power: ● ● ● Sole voting power: Based on a Schedule 13G amendment filed on January 29, 2018, Franklin Advisory Services, LLC Franklin Resources, Inc. Shared voting power: ● 66 AAR Stock Ownership Information Section 16(a) of the Securities Exchange Act of 1934 requires the The following table provides information as of May 31, Represents shares under the AAR CORP. 2013 Stock Plan and the AAR CORP. Amended and Restated Stock Benefit Plan. The Company may not grant any future stock awards under the AAR CORP. Amended and Restated Stock Benefit Plan. 2018 Proxy Statement 67 Equity compensation plans approved by securities holders Equity compensation plans not approved by securities holders Total 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 Under the 68 AAR Management knows of no other matters that 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 August 31, 2018 Proxy Statement 69 How does the Board of Directors recommend that I vote? The Board of Directors recommends that you vote: The persons designated on the proxy card 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 in accordance with the Board’s recommendations. 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 interests 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. How do I access the proxy materials electronically? We mailed a “Notice of Internet Availability of Proxy Materials” to all of our stockholders on or about August 31, 2018. The Notice provides you with instructions on how to: This proxy statement, our annual report to stockholders for the fiscal year ended May 31, Who is entitled to You are entitled to vote at the annual meeting if you were an AAR CORP. stockholder at the close of business on August 14, 2018. This date is referred to as the “record date” in this proxy statement. Stockholder of Record. You are a “stockholder of record” if your shares are registered in your name with Computershare, our 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 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 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. The Company has directed brokers, banks and other nominees to obtain voting instructions from their beneficial owners. Proxies submitted by brokers, banks and other nominees on behalf of their 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 in more than one account. Please vote all of your shares. 2018 Proxy Statement A-1 On the record date, 35,039,588 shares of How do I vote by telephone or 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 How do I revoke a proxy? You may revoke your proxy (e.g., to change your vote) at any time before your proxy is exercised by: What are the quorum and vote requirements? A quorum of stockholders is necessary to hold Please note that brokers, banks and other nominees will have discretionary authority to vote beneficial owners' shares on the ratification of KPMG LLP. However, they will not have discretionary authority to vote shares on the election of directors or the advisory proposal to approve our Fiscal 2018 executive compensation and therefore cannot vote on these proposals, unless their beneficial owners provide specific voting instructions in each case. Accordingly, please provide specific voting instructions on these proposals to your broker, 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. Proposal 1 — Affirmative vote of a majority of the shares of common stock present in person or represented by proxy and entitled to vote. Abstentions will have the effect of a vote “against.” Broker non-votes will have no effect on the voting for this matter. Proposal 2 — Affirmative vote of a majority of the shares of common stock present in person or represented by proxy and entitled to vote. Abstentions will have the effect of a vote “against.” Broker non-votes will have no effect on the voting for this matter. Proposal 3 — Affirmative vote of a majority of the shares of common stock present in person or represented by proxy and entitled to vote. Abstentions will have the effect of a vote “against.” There will be no broker non-votes for this matter. A-2 AAR Appendix A – Questions and Answers about Our 2018 Annual Meeting How will the votes at the annual meeting 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. 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 $12,500 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. Directors, officers and employees of the Company Where will I find the voting results on the proposals presented at the annual meeting? We intend to announce the preliminary voting results at the annual meeting. We will publish the final voting results in 2018 Proxy Statement A-3 Adjusted diluted earnings per share from continuing operations is a “non-GAAP financial measure” as defined in Regulation G of the Securities Exchange Act of 1934, as amended Adjusted Diluted Earnings per Share from Continuing Operations 2018 Proxy Statement B-1 Americas Europe Asia Pacific & India Middle East & Africa AAR CORP. Meeting Information You are receiving this communication because you hold shares in This is not a ballot. You cannot use this notice to vote these shares. This communication presents only an overview of the See the reverse side of this notice to obtain proxy materials and voting instructions. — Before You Vote — — How To Vote — ELECTRONIC DELIVERY OF FUTURE PROXY MATERIALS VOTE BY PHONE - 1-800-690-6903 The undersigned hereby appoints 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.2016 Proxy Statement Summary
certainselected information contained in this proxy statement. Please read the entire proxy statement carefully before voting your shares.Annual Meeting InformationPROPOSALS TO BE VOTED ON AT THE ANNUAL MEETING
1 Election of four directors Time and Date Tuesday, October 11, 2016 at 9:00 a.m., Chicago time
PlaceAAR CORP.One AAR Place1100 North Wood Dale RoadWood Dale, Illinois 60191 Record DateTuesday, August 16, 2016 VotingStockholders of record as of the record date may vote over the Internet at www.proxyvote.com; by telephone at 1-800-690-6903; by completing and returning their proxy card or voting information card; or in person at the annual meeting. Proposals To Be Voted On By Our Stockholders
BoardRecommendation Proposal 1 — Election of four directors (pages 4-7):FOR NameAge Brief BiographyBoard Recommendation2 Advisory proposal to approve our Fiscal 2018 executive compensation NORMAN R. BOBINS 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 RONALD R. FOGLEMAN74 Non-Executive Chairman of Orbital ATK, Inc. (an aerospace and defense technologies company); President and Chief Operating Officer of B Bar J Cattle & Consulting Company (a consulting company). FORBoard Recommendation 3 JAMES E. GOODWIN72Lead Director of Federal Signal Corporation (a safety and security products manufacturer); from 2009 to April 2016, Non-Executive Chairman of Federal Signal Corporation. FOR MARC J. WALFISH64Founding Partner of Merit Capital Partners (a mezzanine investor company). FOR Proposal 2 — Advisory resolution to approve our Fiscal 2016 executive compensation (pages 8-9).FOR Proposal 3 — Approval of amendments to the AAR CORP. 2013 Stock Plan (pages 10-16)FOR Proposal 4 — Ratification of the appointment of KPMG LLP as our independent registered public accounting firm for Fiscal 2017 (page 17).2019FOR(pages 63-64) iv4 AARFiscal 2016 Business Performance HighlightsFiscal 2016 marked our continuing transition to a predominantly aviation services-oriented company following our Fiscal 2015 divestment of significant manufacturing operations, including our Telair Cargo Group. In Fiscal 2016:
We reported sales of $1,663 million, net income attributable to AAR of $47.7 million and total diluted earnings per share of $1.37;We continued to 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; andWe secured important new contracts with our customers, including:
2018 Proxy Statement Summary•New power-by-the-hour program services with multiple international carriers;•Prime contractor relationships providing logistics support to the U.S. Navy's C-40A and Afghan Air Force C-130 fleets;•Expansion of parts distribution and aftermarket support with Eaton, Crane Aerospace and UTC Aerospace Systems; and•A 10-year contract with the U.K. Ministry of Defence providing search and rescue services in the Falkland Islands.Fiscal 2016 Executive Compensation HighlightsBOARD AND CORPORATE GOVERNANCE HIGHLIGHTSCompensation Committee made several importantBoard approved three significant corporate governance 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 through our stockholder engagement efforts, each of which emphasized pay for performance. Changes to Our Executive Compensation ProgramAdjusted base salaries and reduced annual cash bonus targets to align them with our market peersShifted 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 creationEliminatedin 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 officerslast year:Updated our stock ownership policy to reflect a greater emphasis on stock compensation and retention Emphasis on Pay for PerformancePay-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 Fiscalv2016, compared to fixed compensation (base salary) plus discretionary bonus at 35.2% of their total direct compensation.● 
● 
Key Compensation Policies and PracticesThe key features of the Company's executive compensation program are:Annual advisory stockholder approval of executive compensationNo guaranteed performance-based annual cash bonusesSignificant emphasis on stock-based compensationChallenging performance targets under annual cash bonus and stock-based compensationMulti-year vesting periods for stock-based awardsStock 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 approvalNo dividends on performance-based restricted stock until performance goals are metStock ownership guidelines for directors and executive officersInsider trading policy prohibiting short sales, pledging and hedging transactionsNo tax gross-ups in any agreement with an executive officer, except for one legacy agreement in the year 2000Clawback of incentive compensation in the event of certain financial restatementsviFiscal 2016 Corporate Governance HighlightsGood corporate governance remains 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. We also seek feedback from our stockholders on our corporate governance practices through our stockholder engagement program. Our goal is to ensure that our corporate governance practices reflect best practices consistent with the Company'sCompany’s culture, strategy and business performance.The following table identifies the Company's key corporate governance practices and related information:Corporate Governance PracticesNumber of directors Majority voting in uncontested
director electionsDirector orientation and
continuing education programsAnnual stockholder approval of
executive compensationCorporate Governance Information As of August 31, 2016
Yes Number of directors
12 Number of independent directors Yes Yes10 Average age of directors 66 Average tenure of directors11 years Director retirement age75 on nomination date Lead directorYes Stock ownership and retention guidelinesYes Annual stock grant to non-employee directorsYes Independent directors — executive sessionsYes Independent compensation consultantYes Annual board and committee self-evaluationsYes Director orientation and continuing education programsYes All Directors are "audit committee financial experts"Yes Code of business ethics and conductYes Ethics hotline policyYes Related person transaction policyYes Disclosure committee for financial reportingYes Annual advisory stockholder approval of executive compensationYes Stockholder engagement programYes vii
One AAR Place1100 North Wood Dale RoadWood Dale, Illinois 60191We will hold our 2016 annual meeting of stockholders on Tuesday, October 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 MEETINGWhy am I receiving the proxy materials?Our Board of Directors is providing these proxy materials to you, beginning on or about August 31, 2016, in connection with its solicitation of proxies for use at the Company's 2016 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 required by the rules of the Securities and Exchange Commission ("SEC").How do I access the proxy materials electronically?We are distributing our proxy materials via the Internet under the "notice and access" approach permitted by 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 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; andRequest printed copies of our proxy materials.This proxy statement, our annual report to stockholders for the fiscal year ended May 31, 2016 ("Fiscal 2016") and our Fiscal 2016 annual report on Form 10-K may be viewed online atwww.proxyvote.com.What proposals am I voting on at the annual meeting?You will vote on four proposals at the annual meeting:Proposal 1 — The election of Norman R. Bobins, Ronald R. Fogleman, James E. Goodwin and Marc J. Walfish as directors to serve until the 2019 annual meeting of stockholders;Proposal 2 — An advisory resolution to approve the Company's Fiscal 2016 executive compensation;Proposal 3 — The approval of amendments to the AAR CORP. 2013 Stock Plan; andProposal 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, 2017 ("Fiscal 2017")Who is entitled to vote?You are entitled to vote if you were an AAR CORP. stockholder at the close of business on August 16, 2016. This date is referred to in this proxy statement as the "record date."Stockholder of Record. 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 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. The Company has directed brokers, banks and other nominees to obtain voting instructions from their beneficial owners. Proxies submitted 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 in more than one account. Please vote all of your 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 during the meeting.On the record date, 34,299,774 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 I 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 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 I 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 a later-dated proxy by telephone, over the Internet or by mail; orVoting in person at the annual meeting.How will the proxy holders vote the shares?The persons designated on the proxy card 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 the four director nominees;FOR the advisory resolution to approve our Fiscal 2016 executive compensation;FOR the approval of the amendments to the AAR CORP. 2013 Stock Plan; andFOR the ratification of KPMG LLP as our independent registered public accounting firm for Fiscal 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 of the shares.Please note that brokers, bank and other nominees will have discretionary authority to vote shares on the ratification of KPMG LLP; however, they may not vote shares on the election of directors, 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 provide voting instructions to your broker, 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.Number of
independent directorsStock ownership and retention
guidelinesAll directors are “audit
committee financial experts”Stockholder
engagement program Yes
Yes YesAverage age of directors Annual stock grant to
non-employee directorsCode of business ethics
and conductNo poison pill Yes Yes YesAverage tenure of directors Executive sessions of
Independent directorsEthics hotline policy Separation of Chairman
and CEO Roles Yes Yes YesDirector retirement age Independent compensation
consultantRelated person
transaction policyIndependent Board Committees Yes Yes YesLead director Annual Board and Board
Committee self-evaluationsDisclosure committee for
financial reportingEnterprise Risk Management
Program Yes Yes Yes Yes● 
● - - ● - - - ● - - ● (dollars in millions except per share data)
For the year ended May 31,2018 2017 2016 2015 2014 Net sales $ 1,748.3 $ 1,590.8 $ 1,525.4 $ 1,448.0 $ 1,415.5 Operating profit (loss) 86.0 82.3 75.5 (31.2) 53.8 Diluted earnings per share $ 0.41 $ 1.64 $ 1.37 $ 0.24 $ 1.83 Financial Position Working capital 609.4 553.4 540.3 456.9 645.4 Total assets 1,524.7 1,504.1 1,456.0 1,454.1 2,159.8 Total debt 178.9 156.2 145.3 154.0 634.0 Stockholders equity 936.3 914.2 865.8 845.1 1,000.7 ● ● ● ● ● ● * ● ● ● ● ● ● ● ● ● ● 
Executive Compensation Best Practices 
Annual say-on-pay stockholder voteNon-guaranteed performance-based annual cash bonusesChallenging performance targets under our annual cash bonus plan and long-term stock-based compensation planEmphasis on performance-based stock-based compensationMulti-year vesting periods for stock awards“Double trigger” change-in-control provisions in executive agreementsNo tax gross-ups in any executive agreementNo repricing of stock options without stockholder approvalNo dividends on performance-based restricted stock until performance goals are metStock ownership and retention guidelines for directors and executive officersProhibitions on short sales, pledging and hedging transactionsClawback of incentive compensation in the event of certain financial restatements
Proposal Board Recommendation 1 Election of four directors Our Board of Directors unanimously recommends that you vote FOR each director nominee. 
Required Vote Effect of "Withhold" Votes,Abstentions and Broker Non-Votes Proposal 1 —Election of Four DirectorsAffirmative 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. Proposal 2 —Advisory Resolution to Approve Fiscal 2016 Executive CompensationAffirmative 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. Proposal 3 —Approval of Amendments to the AAR CORP. 2013 Stock PlanAffirmative 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. Proposal 4 —Ratification of the Appointment of KPMG LLPAffirmative 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. 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.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 $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?PROPOSAL SUMMARYintendare asking you to announce preliminary voting resultselect four directors at thethis 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 DIRECTORSCompany's Restated Certificate of Incorporationdirector nominees are: Anthony K. Anderson, Michael R. Boyce, David P. Storch 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 12. The members of the Board are divided into three classes: Class I (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 II directors at the annual meeting, each to serve a three-year term expiring at the 2019 annual meeting or until the individual is succeeded by another qualified director who has been duly elected. The nominees for director in Class II are Norman R. Bobins, Ronald R. Fogleman, James E. Goodwin and Marc J. Walfish.Jennifer L. Vogel."independent"“independent” within the meaning of the rules of the New York Stock Exchange ("NYSE"(“NYSE”) and the SEC.SEC, except for Mr. Storch given his employment with the Company through the fiscal year ended May 31, 2018 (“Fiscal 2018”). Information about Our Director Nominees and Our Continuing Directors
INFORMATION ABOUT OUR DIRECTOR NOMINEES AND OUR CONTINUING DIRECTORSbelow:below.OUR DIRECTOR NOMINEESOur Director Nominees
DirectorSinceClass II Directors whose terms expire at the 2016 annual meeting
Since 2012, an independent business consultant. From 2006 to April 2012, Vice Chairperson and Managing Partner of Midwest Area at Ernst & Young LLP (a global accounting firm). Prior thereto, Mr. Anderson served in various management positions during a 35-year career with Ernst & Young LLP. NORMANDirector 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 talent management 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.
BOBINSBoyceINDEPENDENT DIRECTOR
Since January 2018, retired Chairman of the Board of PQ Corporation (a specialty chemicals and catalyst company) and retired Chairman and Chief Executive Officer of The Peak Group (an operating and acquisition company). From 2005 to May 2015, Chairman and Chief Executive Officer of PQ Corporation., 73: Stepan Company
The Board of Directors concluded that Mr. Boyce should serve as a director of the Company based on his experience in leading two global organizations, his insight into global manufacturing, supply and distribution practices and his international business development skills.
Since 2005, Chairman of the Board of AAR CORP. Chief Executive Officer from 1996 to May 31, 2018 and President from 1989 to 2007 and 2015 to June 2017.
The Board of Directors concluded that Mr. Storch should serve as a director of the Company based on his positions as Chairman of the Board and previously as Chief Executive Officer of the Company, his leadership and management skills, his understanding of the Company’s businesses gained during his 40-year career with the Company, his knowledge of the commercial aviation and government/defense markets, and his leadership role in the transformation of the Company into a leading independent provider of aviation services to the commercial aviation and government/defense markets.
Since 2012, co-founder and owner of InVista Advisors, an advisory firm focused on legal department effectiveness, leadership, compliance, crisis readiness and risk management. From 2003 to 2010, Senior Vice President, General Counsel, Secretary and Chief Compliance Officer of Continental Airlines, Inc.
The Board of Directors concluded that Ms. Vogel should serve as a director of the Company based on her experience as a highly successful corporate executive with over 25 years of leadership experience in the airline and energy industries, including her leadership positions with Continental Airlines, her legal and corporate governance expertise, her experience in regulatory issues, mergers and acquisitions, ethics and compliance matters and her past experience as a director of other public companies, including Virgin America, Inc.
Since June 2017, Vice Chairman, CIBC US Region. From 2008 to June 2017, Non-Executive Chairman of The PrivateBank and Trust Company – Chicago (a financial services company) and. From 2008 to 2017, 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 and PrivateBancorp, Inc., , and Qualifications:Qualifications
The Board of Directors concluded that Mr. Bobins should serve as a director of the Company based on his 4550 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:James E. Goodwin Orbital ATK Inc.INDEPENDENT DIRECTOROther 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. Table of ContentsDirectorSinceJAMES 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 and Corporation.CorporationOther public company directorships held in the past five years: First Chicago Bancorp.Qualifications: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. 
President and Chief Executive Officer of AAR CORP. since June 1, 2018. President and Chief Operating Officer from June 1, 2017 to June 1, 2018. From 2015 to June 1, 2017, Chief Operating Officer of the Aviation Services business group of AAR CORP. From 2012 to 2015, Group Vice President, Aviation Services – Inventory Management and Distribution; and prior thereto, General Manager and Division President of AAR Allen Asset Management. MARCDirector Qualifications
The Board of Directors concluded that Mr. Holmes should serve as a director of the Company based on his position as President and Chief Executive Officer, his demonstrated leadership and management abilities, and his knowledge of the Company’s businesses, its portfolio of services and the markets in which it competes, and the customer and supplier relationships that Mr. Holmes has developed during his 17-year tenure with the Company.
WALFISHWalfish, 64: INDEPENDENT DIRECTOR
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 Qualifications: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 2017 annual meeting PATRICK J. KELLYAge: 63 Director Since: 2006, 61: Career Highlights
Since 1986, Managing Director of KMK & Associates, LLC (a private equity firm with interests in companies operating in the food, distribution, technology, financial services, real estate and energy industries). 2006 Qualifications: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 long- termlong-term chief executive officer and his business expertise gained through his experience at a private equity firm with a diversified portfolio of operating companies. 
Since 2011, Co-Founder and Managing Partner of Ares Mobility Solutions Inc. (a privately-held logistics business); General, U.S. Air Force (Retired) after 37 years of active commissioned service. Former Commander, U.S. Air Mobility Command, 33rd Vice Chief of Staff of the U.S. Air Force and Former Commander of US TRANSCOM. PETER PACEOther current public company directorship:, 70: Atlas Air Worldwide, Inc.
The Board of Directors concluded that General McNabb should serve as a director of the Company based on his government resourcing and government affairs expertise, his strategic planning, operations and leadership skills and his 37-year record of service with the United States Air Force, including his service as Commander of the United States Transportation Command (the single manager for global air, land and sea transportation for the Department of Defense).
General, U.S. Marine Corps (Retired). From 2005 to 2007, Chairman of the Joint Chiefs of Staff.Staff (the most senior position in the United States Armed Forces).2012 directorships:directorship:yearsyears:: Laserlock Technologies, Inc., , and Qualifications: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 16thChairman of the Joint Chiefs of Staff (the most senior position in the United States Armed Forces), where(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 Council,Council), his understanding of the government and defense markets, his cybersecurity expertise and his current and prior service as a director of other public companies. 
DirectorSinceTIMOTHY J. ROMENESKO, 59: Since August 2016, Vice Chairman and Chief Financial Officer of AAR CORP. From August 2015 to August 2016, Vice Chairman of AAR CORP. and Chief Operating Officer of the Expeditionary Services business group. From March 2015 to August 2015, President of AAR CORP. and Chief Operating Officer of the Expeditionary Services business group. From 2007 to March 2015, President and Chief Operating Officer of AAR CORP. From 1994 to 2007, Vice President, Chief Financial Officer and Treasurer of AAR CORP. 2007Qualifications:Since: 2004 The Board of Directors concluded that Mr. Romenesko should serve as a director of the Company based on his leadership positions with the Company, his experience in various accounting and financial capacities during his 34-year career with the Company, and his knowledge of the commercial aviation and government and defense markets.Career HighlightsRONALD B. WOODARD, 73: Since 2014, retired Chairman of MagnaDrive, Inc. (an industrial torque transfer equipment company, which he co-founded following his retirement from The Boeing Company after 32 years of service). From 1995 to 1998, President of the Boeing Commercial Airplane Group. From 1991 to 1994, Vice President and General Manager of the Renton Division of Boeing Commercial Aircraft. From 1987 to 1991, President of de Havilland Aircraft. Prior to that, Vice President and General Manager of the Materiel Division of Boeing Commercial Aircraft, and various other management positions. 2004 Continental Airlines, Inc. and Outerwall, Inc. (formerly Coinstar, Inc.).Qualifications: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.Class I Directors whose terms expire at the 2018 annual meeting ANTHONY K. ANDERSON, 60: Since 2012, an independent business consultant. From 2006 to April 2012, Vice Chairperson and Managing Partner of Midwest Area at Ernst & Young LLP (a global accounting firm). Prior thereto, served in various management positions during a 35-year career with Ernst & Young LLP.2012Other current public company directorships: Avery Dennison Corp. and Exelon Corp.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.DirectorSinceMICHAEL R. BOYCE, 68: Chairman of the Board of PQ Corporation (a specialty chemicals and catalyst company) and Chairman and Chief Executive Officer of The Peak Group (an operating and acquisition company). From 2005 to May 2015, Chairman and Chief Executive Officer of PQ Corporation. From 1990 to 1998, President and Chief Operating Officer of Harris Chemical Group, Inc. (a chemicals company).2005Other current public company directorships: Stepan Company.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 experience.DAVID P. STORCH, 63: Since August 2015 and from 2005 to 2007, Chairman of the Board, President and Chief Executive Officer of AAR CORP. From 2007 to August 2015, Chairman of the Board and Chief Executive Officer of AAR CORP. From 1996 to 2005, President and Chief Executive Officer of AAR CORP. From 1989 to 1996, President and Chief Operating Officer of AAR CORP.1989Other current public company directorships: KapStone Paper and Packaging Corp. and Kemper Corporation.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 37-year career with the Company, his knowledge of the commercial aviation and government and defense services industries, and his leadership role in transforming the Company into a leading international provider of aviation services to the commercial aviation and government and defense markets.JENNIFER L. VOGEL, 54: Since 2012, co-founder and owner of InVista Advisors, an advisory firm focused on legal department effectiveness, leadership, compliance, crisis readiness and risk management. Prior thereto, from 2003 to 2010, Senior Vice President, General Counsel, Secretary and Chief Compliance Officer of Continental Airlines.2016Other current public company directorships: American Science and Engineering, Inc. and Virgin America, Inc.Other public company directorships held in the past five years: Clearwire Corporation.Director Qualifications: The Board of Directors concluded that Ms. Vogel should serve as a director of the Company based on her experience as a highly successful corporate executive with over 25 years of leadership experience in the airline and energy industries, including her leadership positions with Continental Airlines and on the board of Virgin America, her legal and board governance expertise, her experience in regulatory issues, mergers and acquisitions, ethics and compliance matters and her experience as a director of other public companies.Our Board of Directors unanimously recommends that you vote "FOR" each director nominee.14 AAR● PROPOSAL 2 — ADVISORY RESOLUTION TO APPROVE OUR FISCAL 2016 EXECUTIVE COMPENSATIONExecutethrough focus on customer satisfaction and cost leadership;● Pursueconnected businessesthat reinforce collective growth prospects; ● Leveragedata and digitalto deliver better customer-focused solutions; ● Expand margins throughintellectual property; ● Increase ourglobalfootprint into emerging markets; and ● Leverage ourindependenceto provide feasible solutions. We are askingTogether, our stockholdersAviation Services “Connected Businesses” – Parts Supply (Trading and OEM aftermarket solutions), Integrated Solutions (Government and Commercial Programs) and MRO Services – aim to approve the following advisory resolution — commonly known as a say-on-pay proposal — on the compensation awardeddrive growth through best–in–class services to our named executive officers for Fiscal 2016 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 2016 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 hold 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.customers.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; andExecutive pay practices tied to robust risk and control features.Please see the "Compensation Discussion and Analysis" section of this proxy statement on pages 30-46 for a detailed description of the Fiscal 2016 executive compensation program approved by the Compensation Committee of the Board of Directors.Fiscal 2016: Performance-Based Compensation Versus Fixed CompensationThe table below shows the breakdown of performance-based compensation and fixed compensation paid to David P. Storch, the Company's Chief Executive Officer, and the other named executive officers for Fiscal 2016 (other than John C. Fortson,
who resigned as Vice President and Chief Financial Officer on September 28, 2015 and forfeited his performance-based compensation as a result): PERFORMANCE-BASED
COMPENSATION FIXED COMPENSATION Annual
Performance-Based
Cash Bonus Performance-Based
Restricted Stock Stock Options Base Salary Discretionary
Cash Bonus $1,014,800 $1,150,500 $1,150,500 $755,250 — — $375,000 $375,000 $456,250 $507,400 $517,949 $375,000 $375,000 $456,250 $117,551 $370,462 $368,750 $131,250 $382,418 — $361,200 $312,000 $312,000 $390,396 — 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 David P. Storch 81.4% 18.6% Timothy J. Romenesko 43.8% 56.2% John M. Holmes 68.8% 31.2% Michael J. Sharp 69.5% 30.5% Robert J. Regan 71.6% 28.4% Our Compensation Committee believes that the executive compensation paid to our named executive officers in Fiscal 2016, in form and amount, was fair, appropriate and in the best interests of the Company and its stockholders.Our Board of Directors unanimously recommends that you vote "FOR" the advisory resolution to approve our Fiscal 2016 executive compensation.PROPOSAL 3 — APPROVAL OF AMENDMENTS TO THE AAR CORP. 2013 STOCK PLANThe 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 Approvalaskingfocused on enhancing our stockholders to:manufacturing capabilities at our Mobility and Composites businesses.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)"); andApprove 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 increaseGood corporate governance 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 soundour 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: 2,749,488The weighted average exercise price of the granted but unexercised stock options: $22.69The weighted average remaining term of the granted but unexercised stock options: 6.7 yearsThe number of granted but unvested full share awards (stock awards and stock units payable in stock): 674,830The number of shares available for future grants under the Plan and the predecessor plan: 0Material 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; andThe 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 PlanThe 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 thenumber 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 awardedto 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 PlanIt 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 ConsequencesThe 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 ofthe 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 ApprovalApproval 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 4 — RATIFICATION OF THE APPOINTMENT OF KPMG LLP AS OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR FISCAL 2017The 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 2017. The Company's 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.The Audit Committee believes that the appointment of KPMG is in the best interests of 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;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; andMarket 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 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 from stockholders.Independent Registered Public Accounting Firm Fees and ServicesThe following table sets forth the aggregate fees billed by KPMG to the Company for Fiscal 2015 and Fiscal 2016 for audit, audit-related and tax services provided by the Company's independent registered public accounting firm. Fiscal 2015 Fiscal 2016 $1,914,366 $1,854,803 $7,500 $330,000 $332,341 $448,566 1Fiscal 2015 audit-related fees were for assistance with an SEC comment letter. Fiscal 2016 fees were for assistance with an SEC comment letter and acquisition due diligence assistance.2Tax fees in Fiscal 2015 and Fiscal 2016 were for reviews of domestic and foreign income tax returns and VAT services.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 vote "FOR" the ratification of the appointment of KPMG LLP as our independent registered public accounting firm for Fiscal 2017.CORPORATE GOVERNANCE"best practices" and tailor“best practices,” tailoring them, whereas appropriate, to fit our specific needs.culture, strategy and performance. We believe that we comply with all applicable SEC and NYSE corporate governance rules and regulations. We also have adopted additional corporate governance practices that we believe are in the best interests of the Company and its stockholders.Company'sCompany’s website atwww.aarcorp.comunder "Investor“Investor Relations/Corporate Governance"Governance”:● Audit Committee Charter ● Compensation Committee Charter ● Nominating and Governance Committee Charter ● Executive Committee Charter ● Corporate Governance Guidelines ● Categorical Standards for Determining Director Independence ● Code of Business Ethics and Conduct ● AAR Code of Conduct ● Conflict Minerals Policy and Form SD Filings 
Safety always.
Every day.
Do it well.
Inspire trust.
Be inclusive.
Think new.
Think ahead.
Have fun.
Corporate Governance Guidelines, which include policies on:•Director qualification standards•Stock ownership and retention guidelines for directors and executive officers•Director retirement•Annual performance evaluationsProposal 1 – Election of the directors and the Chief Executive OfficerCategorical Standards for Determining Director IndependenceCode of Business Ethics and ConductAudit Committee CharterCompensation Committee CharterNominating and Governance Committee CharterExecutive Committee CharterConflict Minerals Policy and Form SD FilingsCompany'sCompany’s address listed on the first page of this proxy statement.maintain a stockholder engagement program as a "best practice" underrecognize and value the importance of engaging with our corporate governancestockholders and executive compensation initiatives.other key constituents in an open and constructive manner. The purposes of thisour stockholder engagement 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 and consider stockholder feedback enhance, in particular, our corporate governance and executive compensation practices.2016,2018, we participated through our stockholder engagement program consisted ofin numerous investor meetings to discuss our business strategy, operating performance, financial results and corporate governance and executive compensation practices. These meetings included individual meetingssessions and calls with stockholders and presentations at various investor conferences. Through this program, we estimate that we communicated with stockholders owning approximately 75%over a majority of our outstanding shares.regularlyalso engage directly with and consider carefully the size, skills and diversityviewpoints of our Boardthe proxy advisory firms that represent the interests 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.various stockholders.What We Heard What We Did Implementation
DateConcerns about plurality voting Adopted majority voting July 2018 Concerns about a combined Chair/CEO role Separated the two roles: appointed Mr. Storch as Chairman and elected Mr. Holmes as Chief Executive Officer June 2018 Concerns about a poison pill Allowed the Company’s poison pill to expire by its terms August 2017 Concerns about certain aspects of executive compensation Changed performance share provisions to eliminate the stockprice re-test and to adopt relative total stockholder return asa third performance measure; eliminated tax gross-ups; and implemented double-trigger change-in-control provisions July 2015-July 2018 Solicitation of
director candidate
recommendations and Governance Committee obtains recommendations from management, other directors, business and community leaders and stockholders, and Governance Committee solicits director candidate recommendations from management, other directors, business and community leaders and stockholders. The Nominating and Governance Committee also may retain the services of a search firm to assist in identifying director candidates.Consideration of inclusive
diversity and expertisethe 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:DirectorsA 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 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 serviceA 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; andOther 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.Recommendation Company'sCompany’s website atwww.aarcorp.comunder "Investor“Investor Relations/Corporate Governance"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.with respect toat the 20172019 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,eligible for consideration under the Company’s By-Laws, a proposed nominationsnomination must be received by the Secretary of the Company no later than April 19, 2017,16, 2019, must state the reasons for the proposed nomination and must contain the information required under the Company'sCompany’s By-Laws, including the full name and address of eachthe proposed nominee, as well as a brief biographical historybackground setting forth the nominee’s past and present directorships, employment and occupations and information as to stock ownership otherand certain arrangements regarding the Company’s common stock, and any other qualifications. Proposed nominationsstock. A proposed nomination must also include a statement indicating that the proposed nominees havenominee has consented to being named in the proxy statement and to serve if elected.Company'sCompany’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 "CategoricalCompany’s “Categorical Standards for Determining Director Independence"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.independence.2016,2018, affirmatively determined that no director has a material relationship with the Company that would impair the director'sdirector’s ability to exercise independent judgment and, accordingly, that each director is an independent director, except for David P.Mr. Storch, who until his May 31, 2018 retirement was an employee of the Company, and Timothy J. RomeneskoMr. Holmes, who are both employeesis a current employee of the Company. Under the NYSE rules, a director employedemployee, by the Companydefinition, is not an independent director.by definition.stability and fresh perspectives in the boardroom. Board LeadershipRole and Lead Director
Responsibilities of the Boarddeterminesis elected by the leadership structure forCompany’s stockholders and represents their interests in overseeing the Company’s management, strategic direction and financial success. The Board exercises its oversight responsibilities directly and through its Committees.a manner that it believes best serves the interestsexecution of the Company's stockholders.The Corporate Governance Guidelines provideCompany’s strategy throughout the year. It receives regular updates from management at each meeting on strategic opportunities and risks that the Company is currently assessing or addressing, including through the oversight of management’s enterprise risk management program.shall haveplaces a Lead Director elected annually by the independent directors.high priority on senior management development and succession planning. 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 ofprimarily through the Nominating and Governance Committee, currently servesconducts an annual evaluation review focused on CEO succession planning as well as the Board's Lead Director, having been re-elected bysuccession planning and retention practices for senior management leaders.independent directorsdevelopment and evaluation of current and potential senior leaders, the development of short-term and longer-term succession plans for key positions, including a succession plan for the CEO position. The Board relied on this process in determining that Mr. Holmes should succeed Mr. Storch as Chief Executive Officer of the Company on June 1, 2018. The Board also has a CEO emergency succession planning process to address unanticipated events and emergency situations.Board's January 2016 meeting.middle and senior management levels at the Company.no fixed policy with respect to combining or separating the offices of Chairman of the Boardan Audit Committee, a Compensation Committee, a Nominating and ChiefGovernance Committee and an 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 given his tenure with the Company, his knowledge of the Company's businesses and the markets in which they compete, and the Board's assessment of his performance.The Board of Directors, directly and through its committees, oversees management's process for assessing and managing the Company's exposure to risks. The 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.committees, and the succeeding narrative elaborates on these responsibilities:committees:
James E. Goodwin
Michael R. Boyce
Patrick J. Kelly
Duncan J. McNabb
Jennifer L. Vogel
Marc J. WalfishCommittee
The Nominating and Governance Committee is comprised entirely of independent directors qualified to serve on the Committee under applicable SEC and NYSE rules and the Company’s Categorical Standards for Determining Director Independence. 
•Compensation CommitteeCorporate governance•Board and committee membership•Succession planning•Board and CEO effectiveness
Ronald B. Woodard
Anthony K. Anderson
Norman R. Bobins
Michael R. Boyce
Peter Pace
Jennifer L. VogelCompensation Committee •Roles and Responsibilities
The Compensation Committee is comprised entirely of independent directors qualified to serve on the Compensation Committee under applicable SEC and NYSE rules and the Company’s Categorical Standards for Determining Director Independence.Cash●Sets the compensation of the Chief Executive Officer and, together with the Nominating and Governance Committee, conducts an annual performance review of the Chief Executive Officer;programstock plan;•Stock-based compensationKey Risk Oversight Responsibilities•• Audit Committee •
Marc J. Walfish
Norman R. Bobins
James E. Goodwin
Patrick J. Kelly
Duncan J. McNabb
Peter Pace
Ronald B. Woodard
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. The Board of Directors has determined that each Audit Committee member is an “audit committee financial expert” within the meaning of applicable SEC rules.••• 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 evaluationMr. Walfish becoming Chair 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 reviewdiscuss the Company's principal risks and outline its risk mitigation approach for addressing these risks. The Audit Committee also 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.Employee Interactionthe individual members of management responsible for managing risk, including the Company'sCompany’s President and Chief Executive Officer, Vice Chairman,the Chief Financial Officer, the Controller and Chief Accounting Officer, and Controller,the General Counsel, the Internal Auditor and the business group leaders.Company'sCompany’s employees at regularly scheduled Board dinners as anand in other informal way of learningsettings to learn more about the Company'sCompany’s businesses, employees and its employees.culture. The Board also schedules at least one meeting per yearperiodically holds meetings 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 and better understand the Company'sCompany’s business operations.IndependentThe 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 independent directors also hold meetings with and without the Chairman of the Board. The Lead Director presides at theall executive sessions of the independent directors.
CHAIRMAN OF THE BOARD PRESIDENT AND CHIEF
EXECUTIVE OFFICERLEAD INDEPENDENT DIRECTOR long-standingits policies and procedures and to demonstrate its commitment to corporate governance best practices. These Guidelines, under the administration of theDirectors, most recently in July 2016.Directors.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.Company'sCompany’s Code of Business Ethics and Conduct adopted by the Board of Directors applies to all directors, officers, and employees, including the Chairman of the Board, the President and Chief Executive Officer, Vice Chairman,the Chief Financial Officer, the Controller and Chief Accounting Officer, and Controller,the General Counsel, the Internal Auditor and the business group leaders.Company'sCompany’s business practices and procedures, includingincluding: 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.Company'sCompany’s website, as required under SEC rules."Related persons"“Related persons” means: the Company'sCompany’s directors; director nominees; executive officers; greater than five percent beneficial owners of the Company'sCompany’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.director'sdirector’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.person'sperson’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.theThe PrivateBank and Trust Company. The PrivateBank and Trust Company is a member of the lending group under our Credit Agreement.credit agreement. All loans under the Credit Agreementcredit 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.2016,2018, the Company paid approximately $390,000$766,824 to Resource 1 for staffing services.The Company has a Board-approved Founder's Agreement with Ira A. Eichner, the Founder and former ChairmanMr. Storch’s son, Michael E. Storch, is an employee of the BoardCompany in the Aviation Services business group and received total compensation of the Company. The Founder's Agreement recognizes Mr. Eichner's extraordinary contributions to the Company. Under the Founder's Agreement. Mr. Eichner receives a quarterly retainer of $25,000. Mr. Eichner is Mr. Storch's father-in-law.$175,279 in Fiscal 2018. Director Orientation and Continuing EducationWe 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 EvaluationsOur 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.ChairmanChair by mail addressed to:
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 60191BOARD MATTERSThe Board has an Audit Committee, a Compensation Committee, a Nominating and Governance Committee, and an Executive Committee. The following table identifies the current membersProposal 1 – Election of each committee:DirectorAuditCommitteeCompensationCommitteeNominating andGovernanceCommitteeExecutiveCommittee Anthony K. AndersonX Norman R. BobinsXX Michael R. BoyceXX Ronald R. FoglemanXChairX James E. GoodwinChairXX Patrick J. KellyXX Peter PaceXXX Timothy J. Romenesko David P. StorchChair Jennifer L. VogelXX Marc J. WalfishXXX Ronald B. WoodardXChair Audit CommitteeDirectorsAudit Committee Fiscal 2016 ReportDear 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. 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 2016 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 Committee's primary responsibility is to 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 and internal 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.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; andMeets 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 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 2017. The Audit Committee recommends that the stockholders of the Company ratify that appointment (see Proposal 4).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, 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, ChairNorman R. BobinsPatrick J. KellyPeter PaceMarc J. WalfishRonald B. WoodardCompensation CommitteeThe Compensation Committee is comprised entirely of independent directors qualified 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 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 2016 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 Plan, the AAR CORP. Stock Plan, and the AAR CORP. Section 162(m) Annual Cash Incentive Plan;Recommends director compensation and benefits to the Board for approval; andOversees administration of certain other employee benefit, director deferred compensation, savings and retirement plans.The Compensation Committee held five meetings during Fiscal 2016. The Compensation Committee Fiscal 2016 Report on Executive Compensation appears on page 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."Nominating and Governance CommitteeThe Nominating and Governance Committee is comprised entirely of independent directors qualified 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 2016 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; andMonitors 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 four meetings during Fiscal 2016.Executive CommitteeThe 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 2016 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 held one meeting during Fiscal 2016.During Fiscal 2016, the Board held four meetings. All directors attended at least 75% of the Board meetings and meetings of Board committees on which they served in Fiscal 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 2015 annual meeting of stockholders. Director Compensation
DIRECTOR COMPENSATIONAt its April 2015 meeting,Every other year the Board upon the recommendation ofworks with the Compensation Committee and following a presentation by Mercer, itsCommittee’s independent compensation consultant approvedto undertake an in-depth analysis of the sametype and amount of each element of director compensation program for compensation. This in-depth analysis was last done at the Compensation Committee’s April 2018 meeting and resulted in a change to the annual director stock award program. See “—Fiscal 2016 that was in effect in Fiscal 2015.2019 Director Compensation” below.20162018 director compensation program, as approved by the Board, consistswas identical to the Fiscal 2017 director compensation program and consisted of the following compensation elements set forth in the table below:elements:Compensation Element Compensation ElementFiscal 20162018 Non-Employee Director
Compensation Program $50,000 $30,000 $10,000 $2,500 per meeting ($1,250 for telephone meetings) 5,000 shares of common stock (vesting after one year) Board'sBoard’s April 2015 meetings2017 meeting with an effective date of June 1, 20152017 and a vesting date of June 1, 2016.2018.EachCap on Director Compensationretainers and meeting fees pursuant to the Company'sCompany’s Non-Employee Directors'Directors’ Deferred Compensation Plan (the "Director Plan"“Director Plan”). Under the Director Plan, non-employee directors may defer retainers, meeting fees and stock awards into (a) a stock account, with the deferred retainer fees arecompensation converted into stock units equivalent to shares of common stock based on the then current stock price, and at distribution are paid out, ator (b) a cash account, with the participant's election, in cash or in shares of common stock. Deferred meeting fees aredeferred compensation credited with interest quarterly based on the 10-year United States Treasury Bond rate andrate. Distributions of deferred compensation are made, at distribution are paid outthe participant’s election, in cash.cash or in shares of common stock. Distribution occurs upon termination of service on the Board or on the happening of certain other events,dates as specified inby the Director Plan.Table of Contentsparticipant.meetings.meetings and for other Company business expenses.20162018 Director Compensation.Compensationfollowing table below sets forth all compensation paid to each non-employee director for Fiscal 2016: Fees
Earned
or Paid
in Cash
($)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
($)5 Total ($) 87,500 147,700 — — — 5,828 241,028 83,750 147,700 — — — 878 232,328 81,250 147,700 — — — 10,298 239,248 122,500 147,700 — — — 2,557 272,757 97,500 147,700 — — — 7,378 252,578 85,000 147,700 — — — 878 233,578 �� 81,250 147,700 — — — 878 229,828 38,332 48,659 — — — 177 87,168 87,500 147,700 — — — 878 236,078 97,500 147,700 — — — 1,901 247,101
2017.1Mr. Storch2018. The table and Mr.related footnotes include Ronald R. Fogleman and Timothy J. Romenesko, are not included in this table, becausewho served as employee directors of the Company they receive no additional compensation forin Fiscal 2018 until their service as directors. Their compensation fromretirement at the Company is set forth in the Summary Compensation Table in this proxy statement. Ms. Vogel's amounts represent compensation paid to her from the date she joined the Board2018 annual meeting of stockholders on JanuaryOctober 11, 2016 through May 31, 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
($)Anthony K. Anderson 72,500 174,750 — — — 1,013 248,263 Norman R. Bobins 85,000 174,750 — — — 3,129 262,879 Michael R. Boyce 81,250 174,750 — — — 1,063 257,063 Ronald R. Fogleman 45,641 174,750 — — — 3,037 223,428 James E. Goodwin 115,453 174,750 — — — 1,063 291,266 Patrick J. Kelly 78,750 174,750 — — — 1,063 254,563 Duncan J. McNabb 82,500 174,750 — — — 4,199 261,449 Peter Pace 80,000 174,750 — — — 1,063 255,813 Jennifer L. Vogel 81,250 174,750 — — — 1,063 257,063 Marc J. Walfish 92,651 174,750 — — — 1,063 268,464 Ronald B. Woodard 96,250 174,750 — — — 2,221 273,221 1 2 Name Annual
Retainer ($) Committee Chair
Retainer Fees ($) Meeting
Fees ($) Lead
Director
Fee ($) Total ($) Anthony K. Anderson 50,000 — 22,500 — 72,500 Norman R. Bobins 50,000 — 35,000 — 85,000 Michael R. Boyce 50,000 — 31,250 — 81,250 Ronald R. Fogleman 17,995 3,599 13,250 10,797 45,641 James E. Goodwin 50,000 10,000 36,250 19,203 115,453 Patrick J. Kelly 50,000 — 28,750 — 78,750 Duncan J. McNabb 50,000 — 32,500 — 82,500 Peter Pace 50,000 — 30,000 — 80,000 Jennifer L. Vogel 50,000 — 31,250 — 81,250 Marc J. Walfish 50,000 6,401 36,250 — 92,651 Ronald B. Woodard 50,000 10,000 36,250 — 96,250 3 4 5 2The following table provides a breakdowndirector fees earned or paid in cash for Directors2016: Annual
Retainer
($) Committee Chair
Retainer Fees ($) Meeting Fees
($) Lead
Director
Fee ($) Total ($) 50,000 — 37,500 — 87,500 50,000 — 33,750 — 83,750 50,000 — 31,250 — 81,250 50,000 10,000 32,500 30,000 122,500 50,000 10,000 37,500 — 97,500 50,000 — 35,000 — 85,000 50,000 — 31,250 — 81,250 20,832 — 17,500 — 38,332 50,000 — 37,500 — 87,500 50,000 10,000 37,500 — 97,500 3The amounts in this column reflect the aggregate grant date fair value of the Fiscal 2016 stock awards granted to each non-employee director computed in accordance with FASB ASC Topic 718. As of May 31, 2016, each non-employee director held 5,000 unvested restricted shares (2,083 shares in the case of Ms. Vogel) that subsequently vested on June 1, 2016. On June 1, 2016, each non-employee director received a grant of 5,000 restricted shares that will vest on June 1, 2017.4No stock options were granted to non-employee directors in Fiscal 2016. No non-employee director held any stock options as of May 31, 2016.5This column includes reimbursed expenses in connection with spousal travel and/or travel and hotel expense in connection with the Company-paid director/spouse annual physical program as well as the cost of the annual physical program and the cost of term life insurance.Fiscal 20172019 Director Compensation.Compensation2016 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 for Fiscal 2017 that was in effect for Fiscal 2016.At its July 20162018 meeting, the Board of Directors, upon the recommendation of the Compensation Committee, approved an amendmenta change to the AAR CORP. 2013 Stock Plan that caps at $500,000stock award component of the total annual non-employee director compensation — consistingprogram. Specifically, the Board approved a fixed-dollar value annual stock award of cash$120,000 (meaning that number of shares having a market value of $120,000 on the June 1, 2018 award date) in place of the prior annual stock award of 5,000 shares. The Board made this change because it believed that 5,000 shares was too large a stock award for directors given that the Company’s stock price increased 28% to $44.69 per share in Fiscal 2018.and stock compensation — that may be payable in any given year. This amendment is subject to stockholder approval. See "Proposal 3 — Approval of Amendments to the AAR CORP. 2013 Stock Plan — Requests for Approval — Limitation on Awards Granted, and Total Compensation Payable, to Non-Employee Directors."program. General Fogleman, General Pace and Ms. Vogel, all of whom are independent non-employee directors, are the current members of the Compensation Committee of the Board of Directors of the Company. During Fiscal 2016,None of the members of the Compensation Committee is or ever was an officer or employee of the Company or any of its subsidiaries, and none of the executive officers of the Company served on the board of directors or compensation committee of any entity whose officers served either on the Board of Directors of the Company or on the Compensation Committee of the Board of Directors of the Company.EXECUTIVE COMPENSATIONProposalBoard Recommendation 2 Advisory proposal to approve our Fiscal 2018 executive compensation Our Board of Directors unanimously recommends that you voteFORthis resolution approving the Fiscal 2018 compensation paid to our named executive officers. Plan Performance Goals FY18 short-term incentive plan – cash bonuses FY18 long-term incentive plan – performance shares FY18 long-term incentive plan – stock options Performance-Based Compensation ($) Named Executive Officer Annual
Performance-
Based Cash Bonus Performance-Based
Restricted Stock
OptionsTotal
Performance-Based
Compensation Performance-Based
Compensation as a
Percentage of
Total Direct CompensationDavid P. Storch 1,740,850 1,692,480 1,483,200 4,916,530 84% John M. Holmes 1,044,510 1,022,540 889,920 2,956,970 84% Michael D. Milligan* 337,500 375,003 98,644 811,147 71% Timothy J. Romenesko** 515,200 308,525 308,228 1,131,953 80% Robert J. Regan 535,808 458,380 435,690 1,429,878 78% Eric S. Pachapa 279,576 — 47,277 326,853 49% * Joined AAR on September 1, 2017. ** Retired on December 31, 2017. Named Executive Officer Base Salary Time-Based
Restricted Stock Total Fixed
Compensation Fixed Compensation
as a Percentage of
Total Direct CompensationDavid P. Storch 941,000 — 941,000 16% John M. Holmes 564,600 — 564,600 16% Michael D. Milligan 337,500 — 337,500 29% Timothy J. Romenesko 278,486 — 278,486 20% Robert J. Regan 413,751 — 413,751 22% Eric S. Pachapa 288,400 52,890 341,290 51%
Anthony K. Anderson
Norman R. Bobins
Michael R. Boyce
Peter Pace
Jennifer L. Vogel("(“CD&A"&A”) describes our Fiscal 20162018 executive compensation program. It provides information aboutprogram for the goals, philosophy and key elementsfollowing “named executive officers” of the program and explains the reasons behind the Compensation Committee's executive compensation decisions in Fiscal 2016.Company:Our focus in this CD&A is the Fiscal 2016 compensation of the following "named executive officers" of the Company, together with their titles in Fiscal 2016:Name NameTitle David P. Storch Chairman of the Board; previously, Chairman of the Board President and Chief Executive OfficerJohn M. Holmes President (since June 1, 2017) and Chief Executive Officer (since June 1, 2018) Michael D. Milligan Vice President and Chief Financial Officer (since September 1, 2017)Timothy J. Romenesko Vice Chairman;Former Chief Financial Officer (beginning(through August 1, 2016); Chief Operating Officer of Expeditionary Services (through July 31, 2016) John M. HolmesVice President; Chief Operating Officer of Aviation Services Michael J. Sharp2017) and Former Vice President, Chief Financial Officer (from September 29, 2015 through JulyChairman (through December 31, 2016)2017) Robert J. Regan Vice President, General Counsel and Secretary Eric S. Pachapa Vice President, Controller and Chief Accounting Officer ● ● John C. FortsonFormer Vice President,and Treasurer (through September 28, 2015)of the Company. Mr. Romenesko retained his title of Vice Chairman until his retirement on December 31, 2017. ● I. Executive SummaryThis 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 ProgramThe 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; andProvide 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 20162018 Business Performance HighlightsThe Company is a leading global provider of aviation services to commercial aviation and government and defense markets. AAR 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 two business segments: Aviation Services and Expeditionary Services.(dollars in millions except per share data)
For the year ended May 31, 2018 2017 2016 2015 2014 Net sales $ 1,748.3 $ 1,590.8 $ 1,525.4 $ 1,448.0 $ 1,415.5 Operating profit (loss) 86.0 82.3 75.5 (31.2) 53.8 Diluted earnings per share $ 0.41 $ 1.64 $ 1.37 $ 0.24 $ 1.83 Financial Position Working capital 609.4 553.4 540.3 456.9 645.4 Total assets 1,524.7 1,504.1 1,456.0 1,454.1 2,159.8 Total debt 178.9 156.2 145.3 154.0 634.0 Stockholders equity 936.3 914.2 865.8 845.1 1,000.7 OurAviation Services business segment consists of:Supply 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 customers reduce costs and increase aircraft availability; andMaintenance, repair, and overhaul ("MRO") services — aircraft maintenance and modifications; landing gear, wheel and brake services; component repair and engineering solutions — that enable our customers 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 our Fiscal 2015 divestment of significant manufacturing operations, including our Telair Cargo Group. In Fiscal 2016:We reported sales of $1,663 million, net income attributable to AAR of $47.7 million and total diluted earnings per share of $1.37;We continued to 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; andWe secured important new contracts with our customers, including:•New power-by-the-hour program services with multiple international carriers;•Prime contractor relationships providing logistics support to the U.S. Navy's C-40A and Afghan Air Force C-130 fleets;•Expansion of parts distribution and aftermarket support with Eaton, Crane Aerospace and UTC Aerospace Systems; and•A 10-year contract with the U.K. Ministry of Defence providing search and rescue services in the Falkland Islands.● ● ● ● ● ● * financial and operatingFiscal 2018 performance, in Fiscal 2016, please see "Business"“Business” and "Management's“Management’s Discussion and Analysis of Financial Condition and Results of Operations"Operations” in our Annual Report on Form 10-K filed with the SEC on July 13, 2016.11, 2018. For more information about our stock price performance, please see "Comparison“Comparison of Cumulative Five-Year Total Return"Return” in our Form 10-K.20162018 Executive Compensation Highlights● ● ● ● ● ● ● ● ● ● Compensation Committee made several important changesexecutive compensation program has three primary goals:● ● ● based principally on market-based information provided by its independent compensation consultant, input from several proxy advisory firms and feedback received through our stockholder engagement efforts, each of which emphasized pay for performance. Changesseeks to Our Executive Compensation ProgramAdjusted base salaries and reduced annual cash bonus targets to align them with our market peersShifted 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 creationEliminatedlink the useachievement of the time-based restricted stock and moved to performance-based restricted stock and stock options asCompany’s key performance goals directly with the preferred stock vehiclespay outcomes for our named executive officersUpdated our stock ownership policy to reflect a greater emphasis on stock compensation and retention32 AAR EmphasisProposal 2 – Executive CompensationPay for PerformancePay-for-performanceperformance-based compensation (cash bonus plusover fixed compensation. This pay mix is reflected in the valuefollowing breakdown of performance-based restricted stock and stock options) represented 81.4% of thetarget 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.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 2016, compared to fixed compensation (base salary) plus discretionary bonus at 35.2% of their total direct compensation.Chief Executive Officer Other NEOs 
II. Principal Elements of Our Fiscal 2016 Executive Compensation ProgramPRINCIPAL ELEMENTS OF OUR FISCAL 2018 EXECUTIVE COMPENSATION PROGRAM20162018 executive compensation program for our named executive officers:Compensation
Element Form of
CompensationElement Performance
Period Form ofPerformanceCompensationMeasures PerformancePeriodPerformanceMeasuresPurposePurposes of thisthe
Compensation Element 
Base salary Cash 1 year N/A •●••• •●individual'sindividual’s position and responsibilities•• Annual cash bonus Cash 1 year •●••Business group goals •●• 
Stock options Stock Up to 10 years
(stock
option term) •● •●Provides long-term, stock-based incentivePromotes retention of executive talent• Performance-based
restricted stockStock 3 years •●Cumulative net incomeIncome from continuing operations• •●Provides long-term, stock-based incentivePromotes retention of executive talent• Time-based
restricted stock
(applicable to
only one named
executive officer in
Fiscal 2018) StockN/A III. Fiscal 2016Proposal 2 – Executive Compensation Decision-Making ProcessEach year the Compensation Committee reviews the Company's executive compensation program and the programs of other companies, includingAt its peer group companies. The Compensation Committee seeks to confirm that each compensation element of the Company's program, as well as the 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 followed the process below in setting and approving executive compensation in Fiscal 2016.Fiscal 2016 Peer GroupThe Compensation Committee believes that total compensation opportunities for the Company's key executives, including the named executive officers, should be competitive with those offered by other companies competing for talent in the Company's employment market.In 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 business segments: Aviation Services and 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 engaged 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 of2017 meeting, the Compensation Committee approved a Fiscal 2016 peer group2018 executive compensation, consisting of the following 19 companies, down from 20 peer companies in Fiscal 2015:Aerojet Rocketdyne Holdings, Inc. (formerly Gencorp Inc.)KLX Inc.Barnes Group, Inc.Moog Inc.CACI International, Inc.Rockwell Collins, Inc.Crane Co.Service Application International, Corp.Cubic CorporationTeledyne Technologies, Inc.Curtiss-Wright Corp.TransDigm Group Inc.Esterline Technologies CorporationTriumph Group, Inc.Heico Corp.Wesco Aircraft Holdings, Inc.Hexcel CorporationWoodward, Inc.Kaman CorporationThe five companies added to the Fiscal 2016 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, Inc., Applied Technologies Inc., B/E Aerospace, Inc., Kratos Defense & Security Solutions, Inc., Orbital ATK Inc. and Spirit Aerosystems Holdings, Inc.The Board of Directors and the Compensation Committee generally aim to minimize year-to-year changes in the Company's peer group. However, Fiscal 2016 peer group changes were deemed necessary to reflect the Company's transition to a predominantly aviation services-oriented business. The changes 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 other financial measures). A continuing challenge in constructing the Company's peer group is that many defense contractor competitors have significantly greater revenues and higher market capitalizations than the Company.Fiscal 2016 Executive Compensation AssessmentFollowing the Compensation Committee's approval of the Fiscal 2016 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 2015, at the direction of the Compensation Committee, to assist with Fiscal 2016 executive compensation decisions. Mercer's executive compensation assessment included: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 companies; andA 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 executive compensation assessment of the Company, based on peer group information, were:The base salaries of the named executive officers were targeted at the market median in the aggregate (Mercer recommended minor adjustments in individual cases);Annual cash bonuses for the named executive officers at the target level were positioned above the market 75th percentile in the aggregate (Mercer's recommendation was to reduce target bonuses to the market median and increase the maximum bonus opportunity to 250% of target);Long-term incentives for the 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); andTotal direct compensation (base salaryplus annual cash bonusplus the dollar value of annual stock grants) for the named executive officers was appropriately positioned at the market median in the aggregate.In addition to its review and consideration 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 executives to ensure that the Company's executive compensation program reflects the executives' relative positions, responsibilities, and contributions to the Company.Recommendations of the Chief Executive OfficerThe Compensation Committee considered the recommendations 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 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 VoteThe Compensation Committee carefully considers the results of the stockholder say-on-pay votes in designing the executive compensation program and making executive compensation decisions for the Company's key executives. Holders of approximately 73% of the outstanding shares approved the Fiscal 2015 compensation paid to the Company's named executive officers. 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 made changes to its Fiscal 2016 program in response to this negative recommendation and feedback received from other parties, including its stockholders.* * * * * * * * *The Compensation Committee considered all of the above items in making Fiscal 2016 executive compensation decisions as to base salaries, annual cash bonuses and long-term stock awards for the Company'sCompany’s named executive officers. Each of these 2016 compensation elements is addressed below.IV. Fiscal 2016 Executive Compensation DecisionsFor Fiscal 2016, the Compensation Committee, consistent with Mercer's executive compensation assessment, adjusted the base salaries of the named executive officers to align them more closely with the 50th percentile level of the Company's peer group companies' base salaries. The Compensation Committee believes that base salaries — representing fixed compensation — should be a less significant percentage of total direct compensation than performance-based compensation. IncaseCompensation Committee approved a 3% increase in the base salaries of David P. Storch, the Chairman, President and CEO, his Fiscal 2016named executive officers, except that:● ● $767,000 represented 18.6% of his total direct compensation andMichael D. Milligan, our Chief Financial Officer, was a 15.4% reduction from his Fiscal 2015 base salary of $906,449. Mr. Storch's and Mr. Romenesko's base salary reductions in Fiscal 2016, takenset at their initiative, also reflector around the relatively smaller sizemedian level for Chief Financial Officers of the Company following the divestiture of significant manufacturing operations in late Fiscal 2015.Table of ContentsCompany’s peer group companies.actual Fiscal 2015 base salaries compared to target2017 and Fiscal 20162018 annual base salaries for the named executive officers, as set by the Compensation Committee:Named Executive Officer Fiscal 2017 ($) Fiscal 2018 ($) David P. Storch 835,000 941,000 John M. Holmes 463,500 564,600 Michael D. Milligan — 337,500 * Timothy J. Romenesko 463,500 278,486 ** Robert J. Regan 401,700 413,751 Eric S. Pachapa 280,000 288,400 * Mr. Milligan joined the Company on September 1, 2017, and this amount represents9/12 of his annual salary of $450,000. ** Mr. Romenesko retired on December 31, 2017, and this amount represents7/12 of his annual salary of $477,405. Named Executive Officer Fiscal 2015 ($) (Actual) Fiscal 2016 ($) (Target)* David P. Storch 906,449 767,000 Timothy J. Romenesko 499,272 450,000 John M. Holmes 409,375 450,000 Michael J. Sharp 360,353 400,000** Robert J. Regan 391,586 390,000 John C. Fortson 400,000 425,000 *See the "Summary Compensation Table" for actual base salaries received by the named executive officers for Fiscal 2016. The difference between target Fiscal 2016 base salaries and actual Fiscal 2016 salaries reflects the different effective dates of the actual Fiscal 2016 base salaries.**Originally targeted at $325,000 and subsequently adjusted to $400,000 upon Mr. Sharp's promotion to Chief Financial Officer on September 29, 2015.Annual Cash BonusesFISCAL 2018 ANNUAL CASH BONUSESPlan.PlanCompensation CommitteeCompany’s stockholders previously approved the AAR CORP. Section 162(m) Annual Cash Incentive Plan, which setsets a ceiling on the annual cash bonuses payable under the Company'sCompany’s short-term incentive plans, including the Fiscal 20162018 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"“performance-based compensation” under Section 162(m) of the Internal Revenue Code.Company'sCompany’s net income for a given fiscal year. It establishes a maximum award opportunity for each participant, expressed as a percentage of net income. The maximum annual awards are 5% of net income for the Chief Executive Officer and 2% for all other participating officers. These maximum awards are designed to cap the bonuses determined under the Company'sCompany’s annual short-term bonus plans. Accordingly, any bonus determined under the Fiscal 20162018 short-term incentive plan belowor any performance plan is subject to these caps. In each year since the inception of the Section 162(m) Annual Cash Incentive Plan in Fiscal 2010, the Compensation Committee has exercised negative discretion to reduce the annual cash bonuses of the named executive officers to the amounts determined under the Company's annualCompany’s short-term bonus plans,incentive plan, as discusseddescribed below.20162018 Short-Term Incentive Plan.Planafter consideration of Mercer's executive compensation assessment, peer group information, other market data, the state of the business environment in which the Company operates and the factors described above, approved the Fiscal 20162018 short-term incentive plan for the executive officers of the Company – Mr. Storch, Mr. Sharp,Holmes, Mr. Romenesko, Mr. Regan and Mr. Fortson.Pachapa. The Compensation Committee added Mr. RomeneskoMilligan as a participant in this plan after he joined the Company as Vice President and Mr. Holmes participated, as described below, in separate performance incentive plans tied to the results of their business groups.Chief Financial Officer on September 1, 2017.20162018 short-term incentive plan is a performance-based plan in which the Company measured its performance againstused two performance goals:goals to determine annual cash bonuses: the Company’s earnings per share (weighted 80%) and the Company’s working capital turns (weighted 20%).levels set forthlevels:Performance Goal Threshold
(50%) Target
(100%) Maximum
(250%)Earnings per share (80% weighting) $1.25 $1.56 $1.87 Working capital turns (20% weighting) 2.56 3.20 3.84 the table below: Threshold Target Maximum $1.04 $1.30 $1.56 2.4 3.0 3.6 that these two performance goalsearnings per share and working capital turns are critical performance measures of the Company'sCompany’s financial success. Earnings per share demonstratesmeasures the Company's emphasis onCompany’s performance in delivering earnings to stockholders, and working capital turns measures the Company'sCompany’s effectiveness in using its working capital (current assets minus current liabilities) and, in particular, its use ofin using its cash. The Compensation Committee used working capital turns in place of cash flow from operations in“Earnings per share” is defined under the Fiscal 2016 because of the emphasis placed upon working capital turns by the senior leadership of the Company. The Compensation Committee set the target goals based on the Company's financial2018 short-term incentive plan withas diluted earnings per share (including earnings from both continuing operations and discontinued operations) as disclosed by the Company in its periodic reports filed with the SEC. “Working capital turns” is defined as net sales divided by average working capital turns determined in accordance with generally accepted accounting principles (subject to certain possible adjustments)(net accounts receivable plus net inventories minus accounts payable). TheIn calculating “earnings per share” and “working capital turns,” the Compensation Committee loweredmay exclude special charges or unusual or infrequent items incurred during the performance period and adjust for changes in GAAP if it determines that such exclusions are appropriate.year over year to take account offor the smaller relative size of the 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 2016: 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 same at 70% of base salary in recognition 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 Company's market peers.The Fiscal 2016 annual cash bonus opportunities at threshold, target and maximum levels for theparticipating named executive officers are set forth in the table below:below (performance between threshold and target levels and between target and maximum levels results in proportionate straight-line payouts): Threshold Target Maximum Dollar
Amount
($) Percent of
Base Salary
(%) Dollar
Amount
($) Percent of
Base Salary
(%) Dollar
Amount
($) Percent of
Base Salary
(%) 383,500 50% 767,000 100% 1,917,500 250% 140,000 35% 280,000 70% 700,000 250% 136,500 35% 273,000 70% 682,500 250% 148,750 35% 297,500 70% 743,750 250% 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 470,500 50 941,000 100 2,352,500 250 John M. Holmes 282,300 50 564,600 100 1,411,500 250 Michael D. Milligan 168,750 37.5 337,500 75 843,750 187.5 Timothy J. Romenesko* 238,703 50 477,405 100 1,193,513 250 Robert J. Regan 144,813 35 289,626 70 724,064 175 Eric S. Pachapa 75,561 26.2 151,122 52.4 377,805 131 * Mr. Romenesko retired on December 31, 2017 and thus was eligible to receive7/12of any bonus determined under the Fiscal 2018 short-term incentive plan. Company'sfollowing table shows the Company’s actual Fiscal 2016versus target performance with respect to earnings per share and working capital turns results compared tounder the target level were:Fiscal 2018 short-term incentive plan:Performance goal Fiscal 2018
Target Fiscal 2018
ActualEarnings per share (80%) $1.56 $1.75 * Working capital turns (20%) 3.20 4.14 * Target Actual $1.30 $1.37 3.0 3.0 Company'sCompany’s above-target earnings per share and working capital turns resultsperformance in Fiscal 2016,2018, the annual cash bonuses paid to Mr. Storch, Mr. Sharp and Mr. Reganfor the named executive officers under the Fiscal 20162018 short-term incentive plan exceeded theirpaid out an above-target level of approximately 185% (except for Mr. Milligan, who received a target annual bonuses (but were substantially less than the maximum bonuses)bonus given that he was employed for only nine months of Fiscal 2018), as shown in the table below:Fiscal 2018 Short-Term Incentive Plan Named Executive Officer Target Bonus ($) Actual Bonus ($) David P. Storch 941,000 1,740,850 John M. Holmes 564,600 1,044,510 Michael D. Milligan 337,500 337,500 Timothy J. Romenesko 278,486 * 515,200 * Robert J. Regan 289,626 535,808 Eric S. Pachapa 151,122 279,576 * Fiscal 2016 Short-Term
Incentive Plan Target Bonus Actual Bonus $767,000 $1,014,800 $280,000 $370,462 $273,000 $361,200 $297,500 N/A* *Mr. Fortson resigned prior to the end of Fiscal 2016 and thus did not receive a Fiscal 2016 cash bonus.Performance Incentive Plans.The Compensation Committee after consideration of Mercer's executive compensation assessment, peer group information, other market data and the other factors described above, approved separate annualdid not make any discretionary cashbonus plans for Mr. Romenesko and Mr. Holmes in Fiscal 2016 (each, a Performance Incentive Plan ("PIP")) based on the performance of their business units rather than the performance bonuses outside of the Company as a whole. Mr. Romenesko, who participated in the corporateFiscal 2018 short-term incentive plan in prior fiscal years, was moved to a PIPits named executive officers in Fiscal 2016 in light of his position as Chief Operating Officer of Expeditionary Services.2018.Mr. Romenesko's PIP was based on the Fiscal 2016 results of the Expeditionary Services business group in two areas — pre-tax income and free cash flow, as shown below:Performance GoalThresholdTarget 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: Threshold Target $38.2 million $47.7 million $63.5 million $79.4 million 8.28% 10.35% 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. under the Fiscal 2016 Long-Term Incentive Plangrantedapproved awards of performance-based restricted stock, stock options and time-based restricted stock to employees of the Company under the Fiscal 2018 long-term incentive plan. The Compensation Committee decided that the named executive officers (other than Mr. Pachapa) should receive performance-based stock awards only – consisting of performance-based restricted stock and stock options tooptions. The Compensation Committee further decided that all stock recipients other than the named executive officers should receive both performance-based stock awards – in the form of stock options – and certain other officers and key employees undernon-performance-based stock awards – in the Fiscal 2016 long-term incentive plan.form of time-based restricted stock.2016,2018, as in other years, the Compensation Committee determined the types and dollar amounts of stock awards to be granted. These determinations took into account:The Fiscal 2016 executive compensation assessment presented by Mercer;The Committee's emphasisgranted, based on performance-based awards;The Company's burn rate experience under the AAR CORP. 2013 Stock Plan;Thea number of participants in the stock plan;factors, including:The levels of responsibility, seniority and overall compensation of the participants;The Company's performance in the last fiscal year and its forecasted performance in the current fiscal year;The Company's budget for compensation expense; andThe Company' stock price.● ● ● ● ● ● ● ● 2016,2018, the Compensation Committee allocated thecontinued its policy of granting performance-based stock awards in 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 (rather than— as the exclusive preferred long-term incentive compensation vehicles for the Company’s executive officers (except for one grant of 1,500 shares of time-based restricted stock) provides appropriate incentives, in.Committee's view,executive officer involved). For Fiscal 2018, we continued to grant only performance-based restricted stock and stock options to our senior executives, underscoring our strong orientation to performance-based compensation. Deeper into the organization (including with respect to Mr. Pachapa), we granted shares of time-based restricted stock as a more value-certain, retention-oriented incentive.key performers to meetthe executives and exceed pre-established financial measures.the Company’s stockholders. In these ways, the stock component of the Company’s executive compensation program fully reflects a pay-for-performance emphasis.Stock.Stock At its meeting on August 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), the2016,2018, with the grants subject to performance and vesting conditions over the three-year performance period Fiscal 2016 through Fiscal 2018beginning June 1, 2017 and separate vesting requirements, each as described below:ending May 31, 2020: Fiscal 2016 Performance-Based
Restricted Stock Number of Shares Dollar Value ($) 43,219 1,150,500 14,087 375,000 14,087 375,000 15,591 368,750 11,721 312,000 12,772 340,000 Fiscal 2018 Performance-Based
Restricted StockNamed Executive Officer Number of Shares
at Target Grant Date
Fair Value ($)David P. Storch 48,000 1,692,480 John M. Holmes 29,000 1,022,540 Michael D. Milligan 9,690 375,003 Timothy J. Romenesko 8,750 308,525 Robert J. Regan 13,000 458,380 Eric S. Pachapa* — — * dollargrant date fair value of the shares in the table above iswas based on the $26.62$35.26 closing price of the Common Stock on the August 7, 2015July 9, 2017 date of grant (and,($38.70 on October 10, 2017 in the case of Mr. Sharp's second award, the $22.37 closing price of the Common Stock on October 13, 2015)Milligan).Company'sCompensation Committee designated cumulative net income (weighted 75%) and return on invested capital (weighted 25%) areas the two performance goals for the performance-based restricted stock under the Fiscal 20162018 long-term incentive plan. The Compensation Committee believes cumulative net incomethis combination of earnings growth and return on invested capital arereturns measures is appropriate measures because they captureit captures critical elements of the Company'sCompany’s performance over the three-year period.(which were lower than Fiscal 2015 levels for the same 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
(50%) Target
(100%) Maximum
(250%)Cumulative Net Income (75% weighting) $139.4 million $174.2 million $209.0 million Three-Year Return on Invested Capital (25% weighting) 4.68% 5.85% 7.02% Threshold Target Maximum $121.8 million $152.3 million $182.8 million 4.38% 5.47% 6.56% PerformanceThe Fiscal 2018 long-term incentive plan provides that: performance below the threshold level results in a 0% payout; performance at the threshold level results in a 50% payout of the shares of performance-based restricted stock; performance at the target level results in a 100% payout; and performance at or above the maximum level results in a 250% payout. Performance between the threshold and target levels and between the target and maximum levels results in proportionate straight-line payouts. The Compensation Committee believes that the performance-based nature of these restricted stock awards provides appropriate incentives to executives in line with the interests of the Company'sCompany’s stockholders.20182020 are met, the shares will vest 100% on July 31, 2018. As a part of its changes to2020. The Compensation Committee believes that the Company's executive compensation program, the Compensation Committeeadopted three-year cliff vesting of the earned performance-based shares (compared to prior years' vesting in the third, fourthperformance and fifth years after the performance-based shares were earned) in recognition of similar vesting periods used by its market peers, as well asprovide the additionappropriate combination of a retention requirement under its revised Stock Ownership Guidelines.incentive and risk management. Performance-based shares of restricted stock, once vested, are notremain subject to any further holding requirement beyond the Company'sretention requirements under the Company’s stock ownership guidelines.recognizedset the targets for these performance goals at challenging levels to provide appropriate incentives for the named executive officers. The Compensation Committee is aware 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 targetstarget levels under these measures were set at "stretch" levels, withpresent a significant risk of fullthat the performance-based shares will be fully or partial forfeiture of shares (e.g.,partially forfeited. In fact, all or a significant portion of the performance-based shares granted to the named executive officers forin the three-year performance periods ended May 31, 2014, May 31, 2015, May 31, 2016 and May 31, 20162017 were forfeited)forfeited, as shown below:Performance Period Ending May 31, Payout(%) 2017 21 2016 0 2015 0 2014 75.9 believed these measures were appropriate for this type of long-termdid not include it in Fiscal 2019 performance-based restricted stock award.awards. Instead, the Compensation Committee:● ● Stock Options. At its meeting on August 7, 2015, theThe Compensation Committee approved the following grants of stock option awards for Fiscal 2016,2018, subject to time-based vesting: Fiscal 2016 Stock Options Number of Shares Dollar Value ($) 153,810 1,150,500 50,134 375,000 50,134 375,000 17,547 131,250 41,711 312,000 45,455 340,000 Fiscal 2018Stock Options Named Executive Officer Number of
Shares Grant Date
Fair Value
($)David P. Storch 160,000 1,483,200 John M. Holmes 96,000 889,920 Michael D. Milligan 9,690 98,644 Timothy J. Romenesko 33,250 308,228 Robert J. Regan 47,000 435,690 Eric S. Pachapa 5,100 47,277 dollargrant date fair value of the stock options in the table above iswas based on a Black-Scholes valuation, using the $26.62$35.26 closing price of the Common Stock on the August 7, 2015July 9, 2017 date of grant.grant ($38.70 on October 10, 2017 in the case of Mr. Milligan).331/333⅓ % on each of July 31, 2016,2018, July 31, 20172019 and July 31, 2018.2020. The Compensation Committee believes that stock optionoptions serve a valuable purpose in helping to retain executives and reward them for building a career with the Company. The Compensation Committee reduced the vesting period for stock options to three years from five years for the same reasons supporting the reduction in the vesting period for performance-based shares. Stock options, once vested, are notremain subject to any further holdingthe retention requirements beyondunder the Company'sCompany’s stock ownership guidelines.Target Versus ActualFiscal 2018 Total Direct CompensationThe Compensation Committee reviewed and approved Fiscal 2016 target "total direct compensation" for the named executive officers, consisting of the three compensation 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 50th to 75th percentile of total direct compensation levels of comparable positions at its peer group companies, with benchmarks above the 50th percentile typically requiring performance above the 50th 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 2016 for each named executive officer. As shown, target total direct compensation is heavily weighted toward performance-based compensation (annual cash bonuses, performance-based restricted stock and stock options), consistent with the Compensation Committee's view that compensation for the named executive officers should be tied to performance. Fiscal 2016 Target Total Direct Compensation Base Salary Target Annual Cash
Incentive Target Long-Term
Incentive Compensation Total Dollar
Amount
($) % of Total
Target Direct
Compensation Dollar
Amount
($) % of Total
Target Direct
Compensation Dollar
Amount
($) % of Total
Target Direct
Compensation Dollar
Amount
($) 767,000 20% 767,000 20% 2,301,000 60% 3,835,000 450,000 27% 450,000 27% 750,000 46% 1,650,000 450,000 27% 450,000 27% 750,000 46% 1,650,000 400,000 34% 280,000 24% 500,000 42% 1,180,020 390,000 30% 273,000 21% 624,000 49% 1,287,000 425,000 30% 297,000 21% 680,000 49% 1,402,000 at the beginning offor Fiscal 2016,2018, compared to theactualtotal direct compensation received by each named executive officer for Fiscal 2016:2018 performance:Fiscal 2018 Total Direct Compensation Named Executive Officer Target
($) Actual
($) Actual as a %
of TargetDavid P. Storch 5,057,680 5,857,530 1.16 John M. Holmes 3,041,660 3,521,570 1.16 Michael D. Milligan 1,148,647 * 1,148,647 * 1.00 Timothy J. Romenesko 1,173,725 * 1,410,439 * 1.20 Robert J. Regan 1,597,447 1,843,629 1.15 Eric S. Pachapa 539,689 668,143 1.24 * Fiscal 2016 Total Direct Compensation Target ($) Actual ($) 3,835,000 4,071,050 1,650,000 1,713,650 1,650,000 1,841,750 1,180,020 1,252,880 1,287,000 1,375,596 1,402,000 N/A the target“target” and actual“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 ActionsAt 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 (other than Mr. Storch);Approved an 8.9% base salary increase forNote also that a significant portion of each named executive officer’s actual total direct compensation is performance-based compensation that will not be paid out unless the Company meets at least a threshold performance level. Again, using Mr. Storch as an example, $4,916,530 of his $5,857,530 total direct compensation (84%) in Fiscal 2018 is contingent on future performance.$835,000, which places Mr. Storch at the 25th percentile among CEOsconfirm that each compensation element of the Company's peer group companies;Maintained annual cash bonus targets at the Fiscal 2016 level and generally in line with the market median, and kept earnings per share and working capital turnsCompany’s program, as well as the compensation structure, is not only competitive within the Company’s marketplace, but also is appropriate for the Company in light of its history, culture, performance measures for determining annual cash bonuses;Continuedand strategy. Particular attention is given to the use of performance-based restrictedCompany’s stock (again using cumulative net incomeprice and total stockholder return on invested capital as the relevant performance measures)to ensure proper alignment between executive compensation and stock optionsprice performance.
lieuthe Company’s employment market.time-based restricted stock awards;peer group of the Company will be imprecise given the Company’s unique characteristics, the diversity of its businesses and the diversity of the markets in which the Company operates. They further recognize that there will be larger-sized and smaller-sized companies in the Company’s peer group; companies that are competitors in some but not all of the Company’s businesses; and other financial, business or market attributes that the peer group companies may or may not share with the Company.Provided a one-time special grantIn constructing the Company’s Fiscal 2018 peer group, the Compensation Committee used the following criteria: company type; industry classification (using Standard and Poor’s GICS codes); companies of performance-based restricted stock valued at $2 millioncomparable size to John M. Holmes as a part of his employment agreement in recognition of his increasing role and responsibilities with the Company his leadership as Chief Operating Officer of Aviation Services (theby annual revenue (with secondary consideration given to market value); and business focus (organizations that conducted business similar in nature to that conducted by the Company).responsibleto determine whether any changes were necessary or appropriate for approximately 85%Fiscal 2018. They considered the peer groups developed by the two largest proxy advisory firms. They also analyzed the similarities and differences between the Company’s businesses and the businesses of the Company's revenuescompanies in Fiscal 2016)these other peer groups.important relationship between his performanceCompensation Committee recommended and the future success of the Company.Also, at its July 2016 meeting, the Board of Directors uponapproved a Fiscal 2018 peer group consisting of the recommendationfollowing 19 companies – the same 19 companies that comprised its Fiscal 2017 peer group:
Aerojet Rocketdyne Holdings, Inc. KLX Inc. Barnes Group, Inc. Moog Inc CACI International, Inc. Rockwell Collins, Inc. Crane Co. Science Applications International Corporation Cubic Corporation Teledyne Technologies, Inc. Curtiss-Wright Corp. TransDigm Group Inc. Esterline Technologies Corporation Triumph Group, Inc. Heico Corp. Wesco Aircraft Holdings, Inc. Hexcel Corporation Woodward, Inc. Kaman Corporation ● ● ● capnegative recommendation from a large proxy advisory firm. The Compensation Committee carefully reviewed the reasons behind the negative recommendations and made adjustments to the executive compensation program that it considered appropriate (e.g., adding a relative total stockholder return measure to performance share awards).$500,000 oncash and equity compensation received in past years by each executive officer. The Compensation Committee also reviewed the executives’ total annual director compensation, — consistingincluding cash and non-cash direct compensation, cumulative benefits and savings under retirement plans and equity compensation programs, perquisites and potential payments on termination of cashemployment, whether on a change-in-control of the Company or otherwise. It reviewed the performance of the Company and the executive officers during the year, taking into account pre-established goals, 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 executives to ensure that the Company’s executive compensation program reflects the executives’ relative positions, responsibilities, and stock compensation — that may be payablecontributions to a non-employee director in any given year.the Company.VI. Key Executive Compensation Policies and PracticesKEY EXECUTIVE COMPENSATION POLICIES AND PRACTICESCompany'sCompany’s executives, including its named executive officers:Company'sCompany’s stock. The Board revisedof Directors, upon the recommendation of the Compensation Committee, recently made the following revisions to these stock ownership guidelines in Fiscal 2016 to increase the ownership requirement for direct reports to the CEO and to clarify the stock retention requirement. guidelines:● ● Applicable Persons Stock Ownership Requirement market value Non-Employee Directors $400,000market value of shares (within five years of joining the Board) Applicable PersonsStock Ownership Requirement 
Non-Employee Directors20,000 shares (within four years of joining the Board) Executive Officers Chairman and CEO6 times base salary 2 times base salary 
1 times base salary 
after-tax profit shares fromafter the payment of the exercise price and the withholding of taxes in the case of an option exercise or the withholding of taxes in the case of the vesting of restricted stock or performance-based stock. All named executive officers of the Company comply with the stock ownership requirements.agreementsagreement with Mr. Storch, the Company'sHolmes, its President and Chief Executive Officer, and Mr. Holmes, the Chief Operating Officer of the Aviation Services business group. See "Executive Compensation — Employment Agreements" for a description of these employment agreements. The Company has severance and change in controlchange-in-control agreements with Mr. Romenesko,Milligan, the Company'sCompany’s Vice ChairmanPresident and Chief Financial Officer, and Mr. Regan, the Company'sCompany’s Vice President, General Counsel and Secretary. The Company also entered into an agreementSee “— Employment Agreement with Mr. Sharp in connection with his retirement fromHolmes” for a description of the Company. See "Potentialemployment agreement between the Company and Mr. Holmes and “Potential Payments upon a Termination of Employment or a Change in ControlChange-in-Control of the Company" on pages 57-64Company” for a description of thesethe severance and change-in-control agreements.agreementsagreement and the severance and change in controlchange-in-control agreements is to provide an appropriate measure of security and incentive to the executive officers in line with market practice and to promote the Company'sCompany’s goal of senior leadership stability.itsany executive officers, except for one legacy agreement in the year 2000.Table of Contentsofficer.Company'sCompany’s executive officers. As described, the Compensation Committee typically makes its equity compensation decisionsgrants annual stock awards at its July meeting. The Compensation Committee — or the Chief Executive Officer pursuant to authority delegated by the Compensation Committee — also may grant equity compensationgrants stock 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.limitedcertain perquisites to our executive officers in support of our goal of attracting and retaining talented leaders. See footnotes to the "Other Compensation"“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'sCompany’s overall executive compensation program.Company'sCompany’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 BenefitsThe 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.Mercer, its independent compensation consultant, whether the Company'sCompany’s compensation policies and practices in Fiscal 20162018 for its employees, including the named executive officers, posed any significant risks or 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'sCompany’s compensation policies and practices dodid not encourage excessive or inappropriate risk-taking.risk-taking and that they were not reasonably likely to have any such material adverse effect on the Company.determinedbelieves that the design and operation of the Company'sCompany’s executive compensation program wereare consistent with the Company'sCompany’s risk management strategies for 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. The Compensation Committee generally favors a heavier weighting of long-term compensation to encourage long-term value creation.Fiscal 2016 short-term incentive plan awards — a form of performance-based cash compensation — were based on two different performance metrics: earnings per share and working capital turns, each of which provides benefits to the Company's stockholders. In any year, regardless of the Company's performance against these metrics, the Compensation Committee retains (and has exercised) the discretion to reduce any annual cash bonus for any reason.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 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 2016 consisted of performance-based restricted stock and stock options, and did not include any time-based restricted stock for executive officers. Each of these long-term equity-based incentive awards contains 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 the interests of the Company's stockholders.The performance goals for performance-based restricted stock under the long-term incentive plan — cumulative net income and return on invested capital in Fiscal 2016 — 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 Compensation Committee believes that these different performance periods allow the Company to pursue short-term and long-term goals in a complementary manner.The Company's stock ownership guidelines align the interests of directors and executive officers with the interests of stockholders, providing further assurance that decisions are made in the 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.Mercer,Semler Brossy, its compensation consultant in Fiscal 2016.2018. The Compensation Committee'sCommittee’s consideration of Mercer'sSemler’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., maintenance and engineering consulting services) provided to the Company's airlift subsidiary by a company affiliated with Mercer; (iii) the total dollar amount paid by the Company for such other services ($735,000 in Fiscal 2016); (iv) conflicts of interest policies and procedures of the Company and of Mercer; (v) the fact that the Mercer employees providing compensation consulting services do not own any shares of the Company's common stock; (vi) the lack of any relationships between Mercer and members of the Company's Board of Directors; and (vii) the lack of any relationships between Mercer and any of the Company's executive officers. ● ● ● ● ● MercerSemler Brossy and that MercerSemler Brossy was independent of the Company.person'sperson’s misconduct contributed to an accounting restatement of the Company'sCompany’s financial statements.SEC in July 2015.SEC. The Company will revise its incentive compensation clawback policy to comply with the requirements of the SEC'sSEC’s final rules.rules if and when they are adopted.Company'sCompany’s insider trading policy is the prohibition on short sales, market put and call options, margining and hedging, pledging or hypothecation of the Company'sCompany’s securities. The Company discourages its directors,Section 162(m)as in effect for Fiscal 2018 generally prevents anyprevented a public company from claiming a deduction for compensation in excess of $1 million for certain executive officers (namely,paid to the chief executive officer and the three other 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 underofficer. Section 162(m). , however, contained an exception for certain performance-based compensation.iswas in the best interests of the Company and its stockholders to structure compensationcertain elements of executive officers socompensation – for example, annual cash bonuses, performance-based restricted shares and stock options – that would qualify for the performance-based 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,exception under Section 162(m). In other cases, the Compensation Committee has previously, and may in the future, structureapproved compensation arrangements – such as base salary and time-based performance shares – that under certain circumstances may bewere not entitled to the performance-based compensation exception and thus were subject to the deduction limit under Section 162(m).As required underThe Tax Cut and Jobs Act (the “Tax Act”) amended Section 162(m) to cover a public company’s chief financial officer and to eliminate 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 exception for tax years beginning on or after January 1, 2018, 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 netwith respect to certain grandfathered compensation arrangements. Accordingly, annual cash bonuses, performance-based restricted shares and stock options granted in Fiscal 2019 and later years will no longer qualify for this exception, which means that starting in Fiscal 2019, these awards will not be deductible for federal 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. The Company is seeking stockholder approval at this 2016 annual meeting of the performance goals relating to stock compensation as a part of the amendmentstax purposes to the AAR CORP. 2013 Stock Plan.Compensation Committee Fiscal 2016 Report on Executive CompensationThe Compensation Committeeextent they cause compensation to exceed $1 million. In addition, compensation paid to a covered employee after termination of the Board of Directors of the Company furnishes the following reportemployment will also be subject to the stockholders of the Company in accordance with applicable SEC rules.The Compensation Committee reviewed$1 million limitation. Under a transition rule, outstanding performance-based restricted shares and discussed the Compensation Discussionstock options and Analysis set forth above with the Company's management. Based on that review and discussion, the Compensation Committee recommendedpost-termination compensation will not be subject to Section 162(m) as amended to the Boardextent such compensation is considered paid pursuant to a binding written contract in effect as of Directors that the Compensation Discussion and Analysis be included in this proxy statement.November 2, 2017.Respectfully submitted,44 AARCompensation CommitteeRonald B. Woodard, ChairmanAnthony K. AndersonNorman R. BobinsMichael R. BoyceRonald R. FoglemanPeter PaceJennifer L. VogelCompany'sCompany’s named executive officers for Fiscal 2016,2018, Fiscal 20152017 and Fiscal 2014:2016:Name and Principal
Position Year Salary
($)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
($)David P. Storch 2018 941,000 — 1,692,480 1,483,200 1,740,850 99,063 426,035 6,382,628 Chairman 2017 835,000 — 1,584,000 1,462,500 1,511,183 37,347 679,909 6,109,939 of the Board (effective 2016 755,250 — 1,150,500 1,150,500 1,014,800 35,727 603,414 4,710,191 June 1, 2018); Chief Executive Officer (through May 31, 2018) John M. Holmes 2018 564,600 — 1,022,540 889,920 1,044,510 692 208,550 3,730,812 President and 2017 463,500 — 2,528,000 487,500 788,381 662 195,321 4,463,364 Chief Executive 2016 456,250 117,551 375,000 375,000 517,949 633 96,707 1,939,090 Officer (effective June 1, 2018); President and Chief Operating Officer (through May 31, 2018) Michael D. Milligan 2018 337,500 — 375,003 98,644 337,500 — 1,731 1,150,378 Vice President and Chief Financial Officer (effective September 1, 2017) Timothy J. Romenesko 2018 278,4869 — 308,525 308,228 515,200 34,505 222,427 1,667,371 Former Chief Financial 2017 463,500 — 528,000 487,500 838,842 33,008 281,018 2,631,868 Officer (through 2016 456,250 507,400 375,000 375,000 — 31,576 316,962 2,062,188 August 31, 2018); Former Vice Chairman (through December 31, 2017) Robert J. Regan 2018 413,751 — 458,380 435,690 535,808 — 112,743 1,956,372 Vice President, General 2017 401,700 — 462,000 390,000 508,898 — 142,368 1,904,966 Counsel and Secretary 2016 390,396 — 312,000 312,000 361,200 — 111,380 1,486,976 Eric S. Pachapa 2018 288,400 — 52,890 47,277 279,576 21,699 689,842 Vice President, 2017 263,333 — 36,000 32,500 265,534 — 12,006 609,373 Controller and Chief Accounting Officer 1 2 3 Year Salary
($)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 ($) 2016 755,250 — 1,150,500 1,150,500 1,014,800 35,727 603,414 4,710,191 2015 906,449 — 1,695,200 — 2,158,713 34,177 474,286 5,268,825 2014 906,449 — 1,342,704 1,622,016 851,548 55,793 525,062 5,303,572 2016 456,250 507,400 375,000 375,000 — 31,576 316,962 2,062,188 2015 499,272 — 847,600 — 1,727,250 30,207 198,397 3,302,726 2014 499,272 — 671,352 811,008 426,393 39,367 202,405 2,649,797 2016 456,250 117,551 375,000 375,000 517,949 633 96,707 1,939,090 2015 409,375 — 208,640 — 548,000 606 103,917 1,270,538 2016 382,418 — 368,750 131,250 370,462 3,319 98,212 1,354,411 2014 360,353 — 161,124 194,642 207,733 3,037 79,397 1,006,286 2016 390,396 — 312,000 312,000 361,200 — 111,380 1,486,976 2015 391,586 — 521,600 — 750,825 — 97,963 1,761,974 2014 391,586 — 402,812 486,605 267,541 — 100,311 1,648,855 2016 168,109 — 340,000 340,000 — — 33,032 881,141 2015 400,000 — 521,600 — 1,220,356 — 90,629 2,232,585 2014 400,000 — 241,586 458,424 273,290 — 37,856 1,411,156 1General. The Summary Compensation Table provides specific compensation information for the Company's named executive officersof Contents4 5 6 7 8 Named Executive Officer Company
401(k)
Plan
Contributions
($) Company
SKERP
Contributions
($) Club
Dues and
Expenses
($) Financial
Planning
($) Auto
Allowance
($) Company-
Paid
Split-Dollar
Life
Insurance
Premium
($) Executive
Physical
($) Severance
($) Spouse
Travel
($) Total
($)David P. Storch 18,946 238,402 67,978 22,360 12,300 66,049 — — — 426,035 John M. Holmes 16,897 158,715 13,246 15,845 — — — — 3,847 208,550 Michael D. Milligan 1,731 — — — — — — — — 1,731 Timothy J. Romenesko 17,017 166,030 8,100 16,174 — 10,168 4,407 — 531 222,427 Robert J. Regan 16,146 80,767 — 15,830 — — — — — 112,743 Eric S. Pachapa 12,132 — — 9,567 — — — — — 21,699 9 SEC disclosure rules. Please read the "Compensation Discussion and Analysis" section of this proxy statement for a detailed explanation of the Company's executive compensation program in Fiscal 2016.2Salary. Base salaries for each named executive officer were adjusted in Fiscal 2016 to place them at or near the market median of the Company's peer group, with the exception of Mr. Storch whose Fiscal 2016 base salary was below the market median.3Bonus. The amounts in this column consists of (i) in the case ofRomenesko, a discretionary bonus paid in Fiscal 2016 for services in his capacity of Vice Chairman of the Company, and (ii) in the case of Mr. Holmes, a discretionary bonus paid in Fiscal 2016 for his services as a member of the Company's senior leadership team.4Stock Awards. The amounts in this column for Fiscal 2016 reflect the grant date fair value of the performance-based restricted stock awards (based on the target level) granted on August 7, 2015 under the Fiscal 2016 long-term incentive plan, computed in accordance with FASB ASC Topic 718. Mr. Sharp's grant date fair value also includes a second grant of performance-based shares on October 12, 2015Storch in connection with his promotionretirement from the Company and a separate agreement with respect to Chief Financial Officer. The grant date fair valueshis assumption of certain duties as Chairman of the awards, assuming the performance conditions are met at the maximum 250% level, are Mr. Storch: $2,876,250; Mr. Romenesko: $937,500; Mr. Holmes: $937,500; Mr. Sharp: $921,875; Mr. Regan: $780,000;Board and Mr. Fortson: $850,000. The Compensation Committee did not make any grants of time-based restricted stock awardsas a consultant to the namedCompany on June 1, 2018.Fiscal 2016. See Note 5 to the Consolidated Financial Statements contained in the Company's Annual Report on Form 10-K for Fiscal 2016 for an explanation of the assumptions made by the Company in the valuation of these awards.The grant date fair values generally represent the Company's accounting expense for the grants made to the named executive officers in a given year.These amounts do not represent the actual value that may be realized by the named executive officers 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 aboutoutstanding stock awards of performance-based restricted stock granted in Fiscal 2016.5Option Awards. The amounts in this column for Fiscal 2016 and Fiscal 2014 reflect the grant date fair value of the stock option awards computed in accordance with FASB ASC Topic 718. Thethe regular vesting schedule. Committee did not grant any stock optionsnamed executive officersCompany, Mr. Storch will receive compensation as a director under the Company’s director compensation program; a separate annual retainer of $180,000 and reimbursement in Fiscal 2015. See Note 5an annual amount not to the Consolidated Financial Statements contained in the Company's Annual Report on Form 10-K for Fiscal 2016exceed $30,000 for an explanationoutside office for the years that he serves as Chairman of the assumptions made by the Company in the valuationBoard; and a retainer of these awards.The grant date fair values represent the Company's accounting expense$475,000 for the grants madeservices as a consultant to the named executive officers in in a given year.These amounts do not represent the actual value that may be realized by the named executive officers because an award may be forfeited or may not be exercised. The "Compensation Discussion and Analysis" section of this proxy statement contains vesting and other information about awards of stock options granted in Fiscal 2016.6Non-Equity Incentive Plan Compensation. The Fiscal 2016 amounts in this column consist of performance-based cash bonuses earned by Mr. Storch, Mr. Sharp and Mr. Regan under the Company's short-term incentive plan. The Fiscal 2015 amounts in this column represents special performance bonuses earned by the named executive officers (other than Mr. Holmes) under a transaction bonus program established in connection with the strategic restructuring of the Company. For Mr. Holmes, the amounts in this column consist of performance-based cash bonuses earned under his PIP.7Change in Pension Value and Non-Qualified Deferred Compensation Earnings. This column shows the increase in the portion of the SKERP benefit derived from the defined benefit formula and the increased pension value under the Retirement Plan. This column does not include any preferential or above-market earnings on deferred compensation as the Company does not pay such earnings on the deferred compensation of its named executive officers.8All Other Compensation. The table below provides a breakdown, by type and amount, of the totals shown in the "All Other Compensation" column for each named executive officer in Fiscal 2016. As required by the SEC rules, the Company values perquisites based on the aggregate incremental cost to the Company. Company
401(k)
Plan
Contributions
($) Company
SKERP
Contributions
($) Club
Dues
($) Financial
Planning
($) Auto
Allowance
($) Company-Paid
Split-Dollar
Life
Insurance
Premium
($) Executive
Physical
($) Total
($) 13,265 461,072 46,634 18,166 12,300 51,977 — 603,414 12,331 270,016 12,149 12,132 — 8,138 2,196 316,962 8,502 75,198 875 12,132 — — — 96,707 12,139 72,557 11,005 — — 2,511 — 98,212 9,450 89,798 — 12,132 — — — 111,380 3,975 23,743 2,375 2,939 — — — 33,032 9Mr. Holmes. Mr. Holmes became a named executive officer of the Company in Fiscal 2015.10Sharp. Mr. Sharp served as Vice PresidentStorch’s consulting services include advising the Chief Executive Officer; assisting with the development and Chief Financial Officer from September 29, 2015, through July 31, 2016. Mr. Sharp was a named executive officerimplementation of the Company’s business strategy and capital allocation plans; representing the Company in Fiscal 2014to customers, suppliers and Fiscal 2016, but not in Fiscal 2015.11Mr. Fortson. Mr. Fortson servedindustry partners; and providing other services as Vice President and Chief Financial Officer through September 28, 2015.David P. StorchMr. Holmeshaveentered into an amended and restated employment agreement with David P. Storch, our Chairman,John M. Holmes, effective when he became President and Chief Executive Officer thatof the Company on June 1, 2018. The agreement runs through May 31, 2017. 2021 and thereafter renews annually, subject to either party’s right to terminate.Storch'sHolmes’s employment agreement.Type of Benefit Annual base salary Base salaryNot less than $906,449 without Mr. Storch's consent Annual cash bonus Annual stock award ($2.25 million for Fiscal 2019) Perquisites PerquisitesPersonal 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, financialan executive physical program(Mr. Storch did not have any personal usethe defined contribution portion of aircraft in Fiscal 2016)the Company’s SKERP. Termination / change in controlChange-in-Control benefits"Potential“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. HolmesAt 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 and Chief Operating 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 BenefitDescription Base salaryNot less than $463,500 without Mr. Holmes's consent Annual cash bonusTarget 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 awardAs determined by the Compensation Committee PerquisitesPersonal 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 benefitsSee "Potential Benefits Payable Upon Termination of Employment or a Change in ControlChange-in-Control of the Company — Employment Agreement with John Holmes" Holmes”employmentCompany has a severance and change-in-control agreement also provideswith each of Mr. Holmes withMilligan, the Company’s Chief Financial Officer, and Mr. Regan, the Company’s General Counsel and Secretary. See “Potential Benefits Payable Upon a one-time awardTermination of shares of performance-based restricted stock withEmployment or 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 performanceChange-in-Control of the Aviation Services business group overCompany” for information about these severance and change-in-control agreements.three-year performance period. The award vests 50% atretirement and consulting agreement with Mr. Romenesko, its former Vice Chairman and Chief Financial Officer, in connection with his retirement on December 31, 2017. Under this agreement, Mr. Romenesko was entitled to a pro-rata portion of the end of year threeannual cash bonus under the Fiscal 2018 short-term incentive plan, his annual contributions under the Company’s SKERP and 50% atcontinued coverage under the end of year four, assumingCompany’s health and dental plans and executive health plans for his and his spouse’s lifetime on the performance conditions have been satisfied. The purpose of this one-time award issame terms generally made available to recognizeactively employed executive officers. As Mr. Holmes's increasing role and responsibilitiesRomenesko was retirement eligible under the Company’s stock plans, he continues to vest in outstanding stock awards in accordance 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 betweenregular vesting schedule.Holmes's performance and the future success of the Company. The Compensation Committee's intention is that this stock awardRomenesko will provide Mr. Holmes withconsulting services to the Company through December 31, 2018 on financial and accounting matters for a significant performance-based incentiveretainer of $230,000 and certain other benefits as set forth in the agreement, including tax and financial planning (not to remain with the Company.Tableexceed $12,000), payment of Contentsclub dues (not to exceed $12,000) and health coverage for his dependents through December 31, 2018.
Fiscal 20162018 Grants of Plan-Based Awards● ● ● ● Estimated possible payouts under non-equity incentive plan award opportunities for Fiscal 2016;Estimated possible payouts under equity incentive plan award opportunities for Fiscal 2016;Other stock awards made in Fiscal 2016; andStock options granted in Fiscal 2016. Estimated Possible Payouts
Under Non-Equity Incentive
Plan Awards2,7 Estimated Possible Payouts
Under Equity Incentive
Plan Awards3 All Other
Stock
Awards:
Number
of Shares All Other
Option
Awards:
Number of
Securities Exercise or
Base Price Grant Date
Fair Value
of Stock and Grant
Date1
Threshold
($)
Target
($)
Maximum
($)
Threshold
(#)
Target
(#)
Maximum
(#) of Stock
or Units
(#)4 Underlying
Options
(#)5 of Option
Awards
($/sh) Option
Awards
($)6 383,500 767,000 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 — 450,000 675,000 — — 8/7/15 7,044 14,087 35,218 375,000 8/7/15 50,134 26.62 375,000 — 450,000 900,000 — — 8/7/15 7,044 14,087 35,218 375,000 8/7/15 50,134 26.62 375,000 140,000 280,000 700,000 — — 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 26,650 237,500 136,500 273,000 682,500 — — 8/7/15 5,636 11,271 28,178 312,000 8/7/15 41,711 26.62 312,000 148,750 297,500 743,750 — — 8/7/15 6,386 12,772 31,930 340,000 8/7/15 45,455 26.62 340,000 ��� 1The Compensation Committee approved the annual grant of performance-based restricted stock awards and time-based restricted stock awards under the Company's Fiscal 2016 long-term incentive plan at its meeting on August 7, 2015.2Annual cash bonuses under the Company's Fiscal 2016 short-term incentive plan and PIPs were contingent based upon performance in Fiscal 2016, which has now occurred. The information in these columns reflects the range of potential payouts at the time the performance goals were set by the Compensation Committee on August 7, 2015.3The information in these columns shows the range of performance-based restricted stock grants that could be earned by the named executive officers under the Fiscal 2016 long-term incentive plan. The actual number of shares of performance-based restricted stock granted under the Fiscal 2016 long-term incentive plan is listed in the "Target" column above. See the "Compensation Discussion and Analysis" section of this proxy statement for a description of the performance-based restricted stock awards under the Fiscal 2016 long-term incentive plan.4There were no awards of time-based restricted stock to the Company's named executive officers under the Company's Fiscal 2016 long-term incentive plan.5This column shows the number of shares subject to stock options granted on August 7, 2015 to the named executive officers under the Company's Fiscal 2016 long-term incentive plan.6The grant date fair values of the performance-based restricted stock awards at the target level and stock option awards were computed in accordance with FASB ASC Topic 718.7Mr. Romenesko and Mr. Holmes participated in PIPs based on the performance of their business units. See "Compensation Discussion and Analysis — Fiscal 2016 Executive Compensation — Annual Cash Bonuses — Performance Incentive Plan" for additional information.8In consideration of his promotion to Chief Financial Officer of the Company on September 29, 2015, Mr. Sharp received the following adjustments to his Fiscal 2016 compensation: an increase in his base salary to $400,000; a target cash bonus of $280,000 (70% of his base salary); and an additional stock grant of 10,660 shares of performance-based restricted stock with a grant date fair value of $237,500.9Mr. Fortson did not receive a Fiscal 2016 cash bonus and all of his Fiscal 2016 performance-based restricted stock awards and stock option awards were forfeited upon his resignation from the Company on September 28, 2015.
Under Non-Equity Incentive
Plan Awards2
Estimated Future Payouts
Under Equity Incentive
Plan Awards3All Other
Stock
Awards:
Number
of Shares
of Stock
or Units
(#)4All Other
Option
Awards:
Number of
Securities
Underlying
Options
(#)5Exercise or
Base Price
of Option
Awards
($/sh)Grant Date
Fair Value
of Stock
and
Option
Awards
($)6Named Executive Officer Grant
Date1 Threshold
($) Target
($) Maximum
($) Threshold
(#) Target
(#) Maximum
(#) David P. Storch 470,500 941,000 2,352,500 — — 7/10/17 24,000 48,000 120,000 1,692,480 7/10/17 160,000 35.26 1,483,200 John M. Holmes 282,300 564,600 1,411,500 — — 7/10/17 14,500 29,000 72,500 1,022,540 7/10/17 96,000 35.26 889,920 Michael D. Milligan 168,750 337,500 843,750 — — 10/10/17 4,845 9,690 24,225 375,003 10/10/17 9,690 38.70 98,644 Timothy J. Romenesko 238,703 477,405 1,193,513 — — 7/10/17 4,375 8,750 21,875 308,525 7/10/17 33,250 35.26 308,228 Robert J. Regan 144,813 289,626 724,064 — — 7/10/17 6,500 13,000 32,500 458,380 7/10/17 47,000 35.26 435,690 Eric. S. Pachapa 75,561 151,122 377,805 — — 7/10/17 1,500 52,890 7/10/17 5,100 35.26 47,277 1 2 3 4 5 6 20162018 Year-End● ● 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
($)5David P. Storch 49,022 0 — 29.65 7/11/21 18,898 844,552 164,021 7,330,098 126,720 31,680 — 25.43 7/15/23 102,540 51,270 — 26.62 8/7/25 74,999 150,001 — 24.00 7/11/26 0 160,000 — 35.26 7/10/27 John M. Holmes 10,000 0 — 12.90 7/16/22 2,000 89,380 149,258 6,670,340 16,500 5,500 — 25.43 7/15/23 33,422 16,712 — 26.62 8/7/25 24,999 50,001 — 24.00 7/11/26 0 96,000 — 35.26 7/10/27 Michael D. Milligan 0 9,690 — 38.70 10/10/27 0 0 9,690 433,046 — — — Timothy J. Romenesko 0 15,840 — 25.43 7/15/23 8,125 363,106 48,238 2,155,756 0 16,712 — 26.62 8/7/25 0 50,001 — 24.00 7/11/26 0 33,250 — 35.26 7/10/27 — Robert J. Regan 24,239 0 — 17.27 7/12/20 5,000 223,450 46,064 2,058,600 14,118 0 — 29.65 7/11/21 38,016 9,504 — 25.43 7/15/23 27,806 13,905 — 26.62 8/7/25 19,999 40,001 — 24.00 7/11/26 0 47,000 — 35.26 7/10/27 Eric S. Pachapa 1,666 3,334 — 24.00 7/11/26 8,488 379,329 0 0 0 5,100 — 35.26 7/10/27 1 Each stock option that remained outstanding as of May 31, 2016; andEach award of restricted stock that was not vested and remained outstanding as of May 31, 2016. Option Awards1 Restricted Stock Awards Named
Executive
Officer Number of
Securities
Underlying
Unexercised
Options
Exercisable
(#) Number of
Securities
Underlying
Unexercised
Options
Unexercisable
(#) Equity
Incentive
Plan Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options
(#) Option
Exercise
Price
($) 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 — — — — — — — — — 1These columns show the number, dollar value, option exercise price and option expiration date of stock options held by the named executive officers at the end of Fiscal 2016. The first column shows this information for exercisable stock options, and the second column shows this information for unexercisable stock options.2This column shows the number of unvested shares of time-based restricted stock held by the named executive officers at the end of Fiscal 2016. The following schedule shows the vesting dates for these unvested shares: 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 3This column shows the market value of the unvested shares of time-based restricted stock held by the named executive officers based on a price of $24.41 per share (the closing price of the common stock on May 31, 2016).2 This column shows the number of unvested shares of time-based restricted stock held by the named executive officers at the end of Fiscal 2018. The table below shows the vesting dates for these unvested shares: Vesting Date Mr. Storch Mr. Holmes Mr. Milligan Mr. Romenesko Mr. Regan Mr. Pachapa 7/31/18 8,125 1,000 — 4,062 2,500 4,988 7/31/19 8,125 1,000 — 4,063 2,500 2,000 7/31/20 — — — — — 1,500 3 This column shows the market value of the unvested shares of time-based restricted stock held by the named executive officers based on a price of $44.69 per share (the closing price of the common stock on May 31, 2018). 4 This column shows the number of unvested shares of performance-based restricted stock at the target level held by the named executive officers at the end of Fiscal 2018. The table below shows the vesting dates for these unvested shares: Vesting Date Mr. Storch Mr. Holmes Mr. Milligan Mr. Romenesko Mr. Regan Mr. Pachapa 7/31/18 46,619 14,505 — 15,787 12,767 — 7/11/19 — 41,666 — — — — 7/31/19 69,402 22,420 — 23,701 20,297 — 7/11/20 — 41,667 — — — — 7/31/20 48,000 29,000 9,690 8,750 13,000 — 5 This column shows the market value of the unvested shares of performance-based restricted stock at the target level held by the named executive officers based on a price of $44.69 per share (the closing price of the common stock on May 31, 2018). 4This column shows the number of unvested shares of performance-based restricted stock at the target level held by the named executive officers at the end of Fiscal 2016. The following schedule shows the vesting dates for these unvested shares: 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 5This column shows the market value of the unvested shares of performance-based restricted stock at the target level held by the named executive officers based on a price of $24.41 per share (the closing price of the common stock on May 31, 2016). General Rule Retirement2 Stock OptionsDisability Time-BasedRestricted Stock1DeathPerformance-BasedRestricted Stock General Rule3333 1/31/3% in each of years 1, 2 and 3100% cliff vesting in year 3100% cliff vesting in year 3, assuming performance conditions are met(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) Retirement2Stock options continue to vest in accordance with the 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"“Death”)Stock continues to vest in accordance with the vesting scheduleStock continues to vest in accordance with the vesting schedule DisabilityStock 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"“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) DeathUnvested 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. deathDisability4th4th anniversary of grant and vests 50% if death occurs on or before the 4th4th anniversary of grant)death20162017 continues to vest in accordance with the vesting schedule)1 Time-based restricted stock awards generally have not been made to the Company’s executive officers since Fiscal 2016. 2 Retirement is defined as voluntary retirement when an employee reaches age 65 or the employee reaches age 55 and the employee’s age and the number of consecutive years of service is at least 75. Mr. Storch and Mr. Romenesko were each retirement eligible when they retired and, accordingly, their outstanding stock awards continue to vest in accordance with the regular vesting schedule.1Time-based restricted stock awards are made to employees who are not named executive officers.2Retirement is defined as voluntary retirement when an employee reaches age 65 or the employee reaches age 55 and the employee's age and the number of consecutive years of service is at least 75.
Fiscal 20162018 Option Exercises and Stock Vested•● ● ● ● OptionAwards StockAwards Named Executive Officer Number
of Shares
Acquired on
Exercise
(#) Value
Realized on
Exercise1
($)Number of
Shares
Acquired on
Vesting
(#) Value
Realized on
Vesting2
($)David P. Storch 86,400 2,490,912 16,600 717,068 John M. Holmes — — 418 15,633 Michael D. Milligan — — — — Timothy J. Romenesko 188,666 3,628,084 8,300 358,534 Robert J. Regan 28,640 632,652 5,006 216,093 Eric S. Pachapa — — — — 1 These amounts represent the difference between the closing market price of the common stock on the date of exercise and the exercise price, multiplied by the number of shares covered by the option. 2 These amounts represent the closing market price of the common stock on the date of vesting, multiplied by the number of shares that vested. The exercise of options during Fiscal 2016;•The dollar amount realized on exercise of the options;•The number of shares of restricted stock that vested during Fiscal 2016; and•The value of those vested shares. Option Awards Stock Awards Named Executive Officer Number of Shares
Acquired on Exercise
(#) Value Realized on
Exercise1
($) Number of Shares
Acquired on Vesting
(#) Value Realized on
Vesting2
($) David P. Storch — — 92,521 2,566,238 Timothy J. Romenesko — — 43,915 1,215,605 John M. Holmes — — 13,000 358,370 Michael J. Sharp — — 6,675 178,327 Robert J. Regan — — 17,510 468,459 John C. Fortson — — — — 1This amount represents the difference between the closing market price of the common stock on the date of exercise and the exercise price, multiplied by the number of shares covered by the option.2These amounts represent the closing market price of the common stock on the date of vesting, multiplied by the number of shares that vested.Named Executive Officer Plan Name Number of
Years
Credited
Service
(#)1 Present
Value of
Accumulated
Benefit
($)2 Payments
During
Fiscal 2018
($)David P. Storch Retirement Plan 26.4 899,892 — SKERP N/A 372,427 — John M. Holmes3 Retirement Plan 3.7 15,951 — SKERP N/A N/A N/A Michael D. Milligan Retirement Plan N/A N/A — SKERP N/A N/A N/A Timothy J. Romenesko Retirement Plan 24.4 795,350 — SKERP N/A 261,535 — Robert J. Regan3 Retirement Plan N/A N/A N/A SKERP N/A N/A N/A Eric S. Pachapa3 Retirement Plan N/A N/A N/A SKERP N/A N/A N/A 1 Number of Years of Credited Service as of May 31, 2005, the date the Retirement Plan was frozen. 2 Amounts shown in this column are calculated as of the last business day of Fiscal 2018, which is the measurement date for reporting purposes in the Company’s Annual Report on Form 10-K for Fiscal 2018. See Note 8 to the Consolidated Financial Statements contained in the Company’s Annual Report on Form 10-K for an explanation of the assumptions made by the Company in determining the amounts reported in this column. 3 Mr. Holmes, Mr. Milligan, Mr. Regan and Mr. Pachapa do not participate in the defined benefit portion of the SKERP. Mr. Milligan, Mr. Regan and Mr. Pachapa do not participate in the Retirement Plan. Fiscal 2016 Pension Benefits Named Executive Officer Plan Name Number of
Years
Credited
Service
(#)1 Present
Value of
Accumulated
Benefit
($)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 1Number of Years of Credited Service as of May 31, 2005, the date the Retirement Plan was frozen.Amounts shown in this column are calculated as of the last business day of Fiscal 2016, which is the measurement date for reporting purposes in the Company's Annual Report on Form 10-K for Fiscal 2016. See Note 8 to the Consolidated Financial Statements contained in the Company's Annual Report on Form 10-K for an explanation of the assumptions made by the Company in determining the amounts reported in this column.3Mr. Holmes, Mr. Sharp, Mr. Regan and Mr. Fortson do not participate in the defined benefit portion of the SKERP, and Mr. Regan and Mr. Fortson do not participate in the Retirement Plan.portion (discussed below). Onlyportion. Mr. Storch and Mr. Romenesko participateare the only named executive officers who participated in the defined benefit portionportion. In connection with their respective retirements, and pursuant to their previous elections, Mr. Romenesko received a lump sum distribution of the SKERP, the material termshis benefit in July 2018 and conditionsMr. Storch will receive a lump sum distribution of which include the following:his benefit in December 2018.Accruals:Accruals Under the defined benefit portion of the SKERP, benefits1/1/12 of 60% (50% for Mr. Romenesko)Storch and 50% for Mr. Romenesko of Final Average Earnings less (ii) the monthly benefit payable under the Company'sCompany’s Retirement Plan determined as of October 1, 2001. For purposes of this benefit formula, (i) "Final“Final Average Earnings"Earnings” is defined as1/ 1/5 of a participant'sparticipant’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"“Compensation” is defined as the participant'sparticipant’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/ 1/12 of 60% (50% for Mr. Romenesko)Storch and 50% for Mr. Romenesko of 25% of the percentage increase in the participant'sparticipant’s base salary from September 30, 2001 to the date of the participant'sparticipant’s termination of employment. The benefits accrued by Messrs.Mr. Storch and Mr. Romenesko as of May 31, 2006 have beenwere transferred to the defined contribution portion of the SKERP and are held in an account established and maintained thereunder for each participant.Benefits accrued underparticipant, so the defined benefitonly remaining benefits paid from this 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.benefits accrued after May 31, 2006.Benefit Entitlement: A participant is eligible to receiveThe retirement benefit will be forfeited if during the benefit accrued under the SKERPone-year period 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 agreeagreed in writing to return histhe 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.Company'sCompany’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. Mr. Milligan, Mr. Regan and Mr. FortsonPachapa do not participate in the Retirement Plan because their dates of hire were after June 1, 2005.Messrs.Mr. Storch, Romenesko,Mr. Holmes and SharpMr. Romenesko are as follows:Formula:Formulaparticipant'sparticipant’s Final Average Earnings reduced by the participant'sparticipant’s Socialparticipant'sparticipant’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"“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'sparticipant’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“Final Average Earnings"Earnings” and "Compensation"“Compensation” have the same definitions as used in the SKERP, as discussed above.participants'participants’ cash balance accounts continue to be credited with interest until the benefits are distributed.Vesting:VestingVesting Service.vesting service. The named executive officers who participate in the Retirement Plan are fully vested in their benefits.Benefits:BenefitsDisabilitydisability 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 underMr. Storch received a lump sum payment of his benefit following his retirement, and Mr. Romenesko has not yet elected payment of his benefit (he is not yet age 65). Mr. Holmes is the only remaining named executive officer who participates in the Retirement Plan, the Company amended its Retirement Savings Plan to provide additional benefits, as described below in the discussion following the Plan. table.Non-Qualified Deferred Compensation2016,2017, the earnings accrued on the named executive officer'sofficer’s account balance in Fiscal 2016,2017, and the account balance as of May 31, 2016.2017.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 — 1The amount of contributions made by each named executive officer and reported in this column in respect of salary deferrals in Fiscal 2016 is included in each named executive officer's compensation reported in the Summary2018 Non-Qualified Deferred Compensation Table as "Salary." The amount of contributions reported in this column also reflects deferral of cash bonuses paid in Fiscal 2016 but earned and reported in the Summary Compensation Table for Fiscal 2015.Named Executive Officer Executive
Contributions
in Fiscal 2018
($)1 Company
Contributions
in Fiscal 2018
($)2 Aggregate
Earnings
in Fiscal 2018
($)3 Aggregate
Withdrawal/
Distributions
($) Aggregate
Balance at
May 31, 2018
($)4David P. Storch 122,446 238,402 2,567,562 — 21,365,459 John M. Holmes 67,494 158,715 225,405 — 1,994,252 Timothy J. Romenesko 56,610 166,030 652,269 (777,193 ) 5,032,966 Robert J. Regan 46,114 80,767 320,264 — 2,198,964 1 2 3 4 2The amount of Company contributions reported in this column for each named executive officer is reported in the "All Other Compensation" column in the Summary Compensation Table.3The investment earnings reported in this column for each named executive officer are not reported in the Summary Compensation Table.4The aggregate balance as of May 31, 2016 reported in this column for each named executive officer reflects amounts that have been previously reported as compensation in the Summary Compensation Table for Fiscal 2016 or prior years, except the following amounts of earnings included in the account balance: Mr. Storch, $6,754,101; Mr. Romenesko, $1,260,083; Mr. Holmes, $340,576; Mr. Sharp, $232,416 and Mr. Regan, $372,601. The aggregate balance as of May 31, 2016 also includes the following cumulative amounts transferred from the defined benefit portion of the SKERP: Mr. Storch, $1,712,865; and Mr. Romenesko, $272,876.5Upon his termination of employment, Mr. Fortson forfeited $60,396 unvested SKERP benefits and received a distribution of $157,077 on May 2, 2016.provides theconditions of this portion of the SKERP include the following:participant's benefitportion of the participant’s base salary (up to 75%) for a calendar year and a portion of the bonus (up to 75%) paid for the Company’s fiscal year. The Company makes the following contributions: (i) the matching contribution that cannotcould not be paidmade under the Retirement Savings Plan due to the Internal Revenue Code limits, including the limit on the amount of compensation that can be taken into account in determining benefits ($265,000275,000 in 2015 and 2016). The material terms and conditions2018), based on thethe defined contribution portion of the SKERP include the following:ContentsContributions: 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 Proposal 2 – Executive Compensationparticipant'sparticipant’s contributions, up to 1% of compensation), as well as; (ii) the portion of the Company's retirement benefit and profit sharing contributionscontribution that could not be made under the Retirement Savings Plan due to the Code'sCode’s compensation limit. The Company also makeslimit and (iii) annual supplemental contributions to the accounts of the Chief Executive Officer (up to 22% of base salary and bonus), the Vice Chairman (up to 16% of base salary and bonus) and other eligible officers (up to 5% or 10% of base salary and bonus).officers. To receive a credit of this annual supplemental contribution, the eligible participant generally must be employed as ofon the day before the contribution is made to the SKERP (unless termination of employment is due to death or Disability)disability). In Fiscal 2016, 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 entitled. Mr. Holmes and Mr. Sharp each received a 5% annual supplemental contribution.participant'sparticipant’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:Vesting1/3% 1/3% for each year of vesting service (subject to full vesting upon age 65, death or 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. Participants fully vest in their benefits upon a change in control of the Company.Investments:Investmentsparticipant'sparticipant’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"“Life Cycle” fund choices.choices and a Company common stock fund. Participants may change investment elections at any time.time, subject to limitations under the Company’s insider trading policy with respect to investment changes in the Company common stock fund.Distributions:Distributions Distributionparticipant's accountsparticipant’s account attributable to salary and bonus deferrals is generally made upon the participant's termination of employment orpaid on a date noelected by the participant, which must be at least seven months and not later than 15 years after termination of employment, as previously specified by the participant. Participants weretermination. The participant can elect to elect by December 31, 2005 whether their accounts are to behave this paid in a lump sum or installments not to exceed 15 years (ayears. A participant who failedfails to make an election will have his account paid in a lump sum). sum seven months after termination. This election generally must be made in advance, at the same time the participant completed his or her deferral election. The remainder of the participant’s SKERP account is paid in a lump sum seven months after termination.six month's advance written election or if such distribution is subjectprior to a 10% forfeiture;termination of employment; (ii) a participant can change the time and form of payment of the portion of his accounts earned and vested after December 31, 2004 inChangechange in Controlcontrol of the Company (as determined by the Board), the portion of the participant'sparticipant’s accounts earned and vested as of December 31, 2004 (including earnings thereon) will be distributed in an immediate lump sum. Distributions"key employees" as defined in Code Section 409A upon terminationtheir previous elections, Mr. Romenesko was paid all of employmenthis benefits by July, 2018 and Mr. Storch will not be paid earlier than six months following such termination.all his benefits by December, 2018.Events:Eventsdue to theft, embezzlement or fraud or willful misconductfor cause (as defined in the performance of his duties that materially injures the Company,SKERP), 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'sparticipant’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.Contributions:Contributions1%up to 75% of the participant’s compensation, up to a maximum of $18,000$18,500 for 2016,2018, or $24,000$24,500 if age 50 or older. Contributions can be made on a pre-tax or after-tax basis, as elected by the participant. UnlessUnder the current eligibility provisions, unless a participant elects otherwise: (i)otherwise 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 an automatic 1% annual increase.participant'sparticipant’s contributions, up to 1% of the participant’s compensation, to the Plan for such payroll period. The profit sharing contribution is based on the participant'sparticipant’s contributions as of the end of the prior calendar year and the economic performance of the participant'sparticipant’s operating unit, and is equal to a percentage of the participant's compensation, up to 4%. A5% of the participant’s compensation. The non-elective retirement benefit contribution was added to the Plan, effective June 1, 2005, and is equal to a percentage of compensation, up to 4%, based on the participant'sparticipant’s age and years of credited service. A participant must have earned one year of service to be eligible for the non-elective retirement benefit 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'sparticipant’s Form W-2, reduced by the participant'sparticipant’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'sCode’s compensation limit ($265,000275,000 for 2015 and 2016)2018).Investments:Investmentsparticipant'sparticipant’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"“Life Cycle” fund choices. Participants may change investment elections at any time.Vesting:Vesting 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% ⅓% for each year of vesting service (subject to full vesting upon age 65, death or Disability)disability).Distributions:DistributionsChange in ControlChange-in-Control of the CompanyChange in Controlchange-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 accrued63.__.David P. StorchPresident and Chief Executive Officer John M. HolmesCompany'sCompany’s employment agreement with Mr. StorchHolmes provides for the following severance benefits:2418 Months After, a Change in Control:Change-in-Control2418 months after, a Change in Control,Change-in-Control, either the Company terminates his employment other than for Cause or Disability or Mr. StorchHolmes terminates his employment for Good Reason, Mr. StorchHolmes is entitled to: (i) continued payment of his base salary for 3624 months, and (ii) a lump sum payment equal to threetwo times the average of the cash incentive bonusbonuses paid to him for the preceding threetwo 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-year18-month period following any such termination of employment).2418 Months Following a Change in Control:Change-in-ControlStorch'sHolmes’s employment is terminated within 2418 months following a Change in ControlChange-in-Control either by the Company other than for Cause or Disability or by Mr. StorchHolmes for Good Reason, he is entitled to:● 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; andOutstanding 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).● ● ● Storch canHolmes may 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.Termination of Employment — DisabilityChange of ControlChange-in-Control is involved:Ifinvolved, 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'sHolmes’s employment terminates due to Disability, he will receive payment pursuant to the Company'sCompany’s disability plans then in effect, and he will continue to receive coverage under the Company'sCompany’s medical, dental, and life insurance plans for threetwo 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); andIf 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.Storch'sHolmes’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.Storch'sHolmes’s employment agreement:"Change in Control"“Change-in-Control” means the earliest of (i) a person'sperson’s acquisition of more than 35% of the voting power of the Company'sCompany’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'sCompany’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"“Cause” means Mr. Storch'sHolmes’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, (iv) final, non-appealable conviction of a felony that involves bribery, embezzlement or fraud against the Company, or (v) willful misconduct that causes material financial, reputational or other harm to the Company."Disability"“Disability” means a physical or mental condition that has prevented Mr. StorchHolmes from substantially performing his duties under the employment agreement for a period of 180 days and that is expected to continue to render Mr. StorchHolmes unable to substantially perform his duties for the remaining term of the employment agreement on a full-time basis."2018 Proxy Statement 57Reason"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'sHolmes’s duties or responsibilities or in his compensation (including benefits), (ii) removal or a failure to nominate Mr. Holmes as a director, (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,Holmes, or (iv) a relocation of his primary place of employment by 50 or more miles."Retirement"“Retirement” means Mr. Storch'sHolmes’s voluntary termination of employment that does not result in severance payments under the employment agreement.Employment Agreement with John M. HolmesThe 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; andOutstanding 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.Change in ControlChange-in-Control Agreementschange in controlchange-in-control agreements with Mr. RomeneskoMilligan 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.change in controlchange-in-control agreements with Mr. RomeneskoMilligan and Mr. Regan provide for the following benefits upon the following types of employment termination:Change in Control:Change-in-ControlChange in ControlChange-in-Control of the Company, the executive'sexecutive’s employment is terminated by the Company other than for Cause or Disability, 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'sexecutive’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.Change in Control:Change-in-Controlexecutive'sexecutive’s employment is terminated within 18 months following a Change in ControlChange-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 metgoals were at target level (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'sCompany’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-yeartwo-year period), (iii) for Mr. Romenesko, an immediate lump sum payment equal to the actuarial equivalent of the additional benefitsthat 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) and (iv) reasonable legal fees incurred by the executive in enforcing the agreement, and (vi) for Mr. Romenesko, a gross-up payment to coveragreement. In addition, any excise and related tax liability arising under Section 280G of the Internal Revenue Code as a result of any payment or benefit arisingoutstanding awards under the agreement.2013 Stock Plan will vest and performance goals will be deemed satisfied at the higher of target level or actual performance level. The agreements'agreements’ non-compete provisions do not apply in the case of a termination of employment following a Change in Control.Change-in-Control.Disability:Disabilityexecutive'sexecutive’s employment terminates due to Disability, the executive will receive payment pursuant to the Company'sCompany’s disability plans then in effect and will continue to receive coverage under the Company'sCompany’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.change in controlchange-in-control agreements:"Change in Control"“Change-in-Control” means (i) a person'sperson’s acquisition of more than 20% of the voting power of the Company'sCompany’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'sCompany’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"“Cause” means the executive'sexecutive’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"“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"Reason” means (i) a material reduction in the nature or scope of the executive'sexecutive’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'sexecutive’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'sexecutive’s primary place of employment by more than 10050 miles.Agreement with Michael J. SharpThe 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 theCompany's confidential information and terminated his severance and change in control agreement with the Company effective July 27, 2016.Split Dollar Insurance AgreementsThe 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.officer'sofficer’s termination of employment can result in enhanced benefits under the AAR CORP. Amended and Restated. Stock Benefit Plan and the AAR CORP. 2013 Stock Plan, depending on the reason for such termination:Options:OptionsAwards:Awardschange in controlchange-in-control provisions that apply to participants who do not have a severance and change in controlchange-in-control agreement. Upon a Change in ControlChange-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 ControlChange-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'scompany’s stock.Change in ControlChange-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 ChangeChange-in-Control.Control.
Tables of Potential Payments Upon a
Termination of Employment or a Change in ControlChange-in-Control of the Companyset forth below quantify the additional benefits described above that would be paid to each current named executive officer (other than Mr. Storch and Mr. Romenesko who are no longer employees of the Company) under the following termination of employment or change in controlchange-in-control events, assuming a change in controlchange-in-control or a termination of employment occurred on May 31, 20162018 (the last business day of Fiscal 2016)2018). Equity Vesting — On or After a Change-in-Control Named Executive Officer Vesting of Restricted Stock ($)1 Vesting of Stock Options ($)2 John M. Holmes 6,759,720 2,347,717 Michael D. Milligan 433,046 58,043 Robert J. Regan 2,282,050 1,705,141 Eric S. Pachapa 379,329 117,073 1 2
Prior to, or More Than 18 Months After, a Change-in-Control Other than Cause Disability Death Named Executive Officer Salary
($)1 Bonus
($)2 Restricted
Stock
($)3 Stock
Options
($)4 Health and
Welfare
($) Health and
Welfare
($)5 Restricted
Stock
($)6 Stock
Options
($)7 Restricted
Stock
($)6John M. Holmes 1,129,200 1,832,891 — — — 43,015 2,451,938 925,145 2,451,938 Michael D. Milligan 450,000 337,500 — — — 43,015 84,203 19,342 84,203 Robert J. Regan 413,751 535,808 — — — 43,015 1,484,256 848,090 1,484,256 Eric S. Pachapa — — — — — — 204,561 50,491 204,561 1 2 3 4 5 6 7
Within 18 Months After a Change-in-Control1Named Executive Officer Salary2
($) Bonus3
($) Health and
Welfare
Continuation
($) Outplacement
Services
($)John M. Holmes 1,693,800 4,178,040 65,972 — Michael D. Milligan 900,000 1,012,500 43,015 55,125 Robert J. Regan 827,502 1,607,424 43,015 66,469 Eric S. Pachapa — — — — 1 2 3 Equity Vesting — On or After a Change in Control Named Executive Officer Vesting of Restricted Stock
($)1 Vesting of Stock Options
($)2 3,578,970 662,976 1,605,861 331,488 539,144 115,100 1,055,513 198,893 1UnderCompany's stock plans and severance and change in control agreements, all restricted stock (both performance-based and time-based) generally vests uponSEC require a Change in Controlpublic company to disclose the ratio of the Company or uponannual total compensation of its chief executive officer to the annual total compensation of its median employee.qualifying terminationsubset of employment that occurs within two years following a Change4,926 employees, representing all of our U.S. employees (4,113), plus our employees in Control. See " — Stock Plans" above.Canada (421), the United Kingdom (254) and the Netherlands (138). amounts shown reflect the number of shares that would have vested upon a Changeemployees excluded in Controlnon-U.S. jurisdictions at the March 1, 2018 determination date were: Australia (2), Belgium (37), Brazil (1), China (8), France (7), Germany (6), Japan (3), New Zealand (1), Singapore (26), Sweden (1), and termination of employment, if applicable, on May 31, 2016,United Arab Emirates (5).number2017 calendar year, as reflected in our payroll records and systems.shares multiplied by $24.41,this median employee using the closing pricesame methodology that we used to calculate the annual total compensation of the common stock on May 31, 2016.2Under the Company's stock plans and severance and change in control agreements, all stock options generally vest upon a Change in Control of the Company or upon a qualifying termination of employment that occurs within two years following a Change in Control. See " — Stock Plans" above. The amounts shown reflect the number of option shares that would have vested upon a Change in Control and termination of employment, if applicable, multiplied by the difference (but not less than zero) between the option exercise price and $24.41, the closing price of the common stock on May 31, 2016.
Prior to, or More than 18 Months (24 Months for Mr. Storch) After, a Change in Control Other than Cause Disability Death Salary
($)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 2,301,000 1,866,348 3,578,970 662,976 368,084 45,758 1,672,201 331,488 1,672,201 450,000 507,400 1,605,861 331,488 — 50,336 790,195 165,744 790,195 900,000 1,065,949 539,144 115,100 — 33,557 110,372 57,550 110,372 390,000 361,200 1,055,513 198,893 — 33,557 500,167 99,446 500,167 400,000 46,667 737,158 79,557 17,758 — — — —
Ronald B. Woodard1Reflects continued salary for 36 months for Mr. Storch under his employment agreement, 24 months for Mr. Holmes under his employment agreement, 12 months for Mr. Romenesko and Mr. Regan under their severance and change in control agreements and 12 months for Mr. Sharp under his July 27, 2016 agreement.2Reflects (i) in the case of Mr. Storch, three times the average of the non-equity incentive compensation paid to him for Fiscal 2014, Fiscal 2015 and Fiscal 2016, (ii) in the case of Mr. Holmes, two times the average of the non-equity incentive compensation paid to him for Fiscal 2015 and Fiscal 2016, (iii) in the case of Mr. Romenesko and Mr. Regan, the non-equity incentive compensation paid to them for Fiscal 2016 as shownour named executive officers, including our Chief Executive Officer, in the Summary Compensation Table.Annual total compensation of our CEO for Fiscal 2018 $ 6,382,628 Annual total compensation of our median employee for Fiscal 2018 $ 55,383 Ratio of annual total compensation of our CEO to the annual total compensation of our median employee for Fiscal 2018 115 to 1 
Proposal Board Recommendation 3 Ratification of the Appointment of KPMG LLP as Our Independent Registered Public Accounting Firm for Fiscal 2019 Our Board of Directors unanimouslyrecommends that you voteFORthis proposal ratifying the appointment of KPMG. 
(iv)is engaged at the direction of, the Audit Committee of the Company’s Board of Directors. The Company’s 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 on these matters.case of Mr. Sharp, a pro-rata target bonus for June 1, 2016 through July 31, 2016 under his July 27, 2016 agreement.3The amounts in this column reflect the valuebest interests of the continued vestingCompany and its stockholders for the following principal reasons:● KPMG’s independence from the Company; ● KPMG’s historical and recent performance as the Company’s independent registered public accounting firm; ● KPMG’s understanding of the Company’s business, 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, both on an absolute basis and as compared to its peer firms; and ● Publicly available information about KPMG, including Public Company Accounting Oversight Board (“PCAOB”) inspection reports on KPMG. In this regard, the Audit Committee reviewed and considered the negative findings by the PCAOB with respect to certain non-AAR audits by KPMG. The Audit Committee determined that these findings were tied to specific issues not relevant to the Company and were more than offset by the performance, expertise and experience of the KPMG audit team at the Company. Description of Fees Fiscal 2017 ($) Fiscal 2018 ($) Audit Fees 1,618,459 1,988,901 Audit-Related Fees1 617,040 174,659 Tax Fees2 248,477 142,637 1 2 restricted stock pursuantreporting 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.Company's stock plans if terminationAudit Committee by KPMG and required by applicable requirements of the PCAOB.dueindependent from the Company and appointed KPMG as the Company’s independent registered public accounting firm for Fiscal 2019. The Audit Committee recommends that the stockholders of the Company ratify that appointment (see Proposal 3).Retirement at May 31, 2016, basedabove and subject to the limitations on the number of shares, multiplied by $24.41, the closing pricerole and responsibilities of the common stockAudit 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 May 31, 2016. At May 31, 2016, only Mr. Storch and Mr. Romenesko were eligibleForm 10-K for vesting upon termination due to Retirement. Mr. Sharp was eligibleFiscal 2018 for vesting upon termination due to Retirement effectivefiling with his July 27, 2016 agreement.4amounts in this column reflect the valueAudit Committee of the continued vestingBoard of options pursuant to the Company's stock plans if termination is due to Retirement at May 31, 2016 based on the difference between the exercise price and $24.41, the closing priceDirectors of the common stock on May 31, 2016. At May 31, 2016, only Mr. Storch and Mr. Romenesko were eligible for continued vesting upon termination due to Retirement. Mr. Sharp was eligible for vesting upon termination due to Retirement effective with his July 27, 2016 agreement.AAR CORP.
Norman R. Bobins5Available if termination is due to Retirement under Mr. Storch's employment agreement and Mr. Sharp's July 27, 2016 agreement.James E. Goodwin
Patrick J. Kelly6Available if termination is due to Disability under the employment agreements for Mr. Storch and Mr. Holmes and the severance and change in control agreements for Mr. Romenesko and Mr. Regan.Duncan J. McNabb
Peter Pace7The amounts in these columns reflect the value of the restricted stock that would vest upon termination due to Disability or death at May 31, 2016, based on the number of shares, multiplied by $24.41, the closing price of the common stock on May 31, 2016.8The amounts in this column reflect the value of continued vesting of options pursuant to the Company's stock plans for one year following termination if termination is due to Disability at May 31, 2016, based on the difference between the exercise price and $24.41, the closing price of the common stock on May 31, 2016.9Mr. Sharp is entitled to outplacement services up to $10,000 and will vest in his Fiscal 2016 SKERP benefits under his July 27, 2016 agreement. Salary2
($) Bonus3
($) Health and
Welfare
Continuation
($) Additional
Retirement Plan
Credits4 ($) Outplacement
Services ($) 280G
Gross-Up
($) 2,301,000 4,059,200 45,758 1,490,382 — —5 1,350,000 2,029,600 50,336 1,077,075 100,527 — 900,000 1,613,949 33,557 — — —5 780,000 1,083,600 33,557 — 52,584 — 1These benefits are in addition to the vesting of stock awards shown above in the table for "Equity Vesting — On or After a Change in Control."2Reflects three times salary for Mr. Storch and Mr. Romenesko and two times salary for Mr. Holmes and Mr. Regan.3Reflects (i) in the case of Mr. Storch, the non-equity incentive plan compensation bonus paid to him for Fiscal 2016 as shown in the Summary Compensation Table, plus three times his non-equity incentive plan compensation bonus for either the most recently completed fiscal year prior to termination or the preceding fiscal year, whichever produces the higher amount, and (ii) in the case of the other named executive officers, the non-equity incentive compensation plan bonus paid to them for Fiscal 2016 as shown in the Summary Compensation Table, plus two or three times the non-equity incentive plan compensation bonus (depending on the officer involved) for either the most recently completed fiscal year prior to termination or the preceding fiscal year, whichever produces the higher amount.4Includes an income tax gross-up payment for Mr. Romenesko.5Mr. Storch and Mr. Holmes each have the right under their employment agreements to either (i) receive the full amount of severance benefits following a Change in Control and be responsible for paying the 280G excise tax or (ii) receive the severance benefits up to the maximum amount that can be paid without triggering the 280G excise tax. To receive benefits up to the maximum amount without triggering the excise tax, it is estimated that neither Mr. Storch nor Mr. Holmes would have to forfeit any benefits.2016,2018, by (i) each current director and director nominee for election to the Board, (ii) each executive officer named in the Summary Compensation Table (other than Mr. Romenesko who retired on December 31, 2017), (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.Name Shares
Beneficially
Owned1 Percent of Shares
Outstanding if
Greater than 1% Stock Units2 Anthony K. Anderson 23,083 — — Norman R. Bobins 53,303 — — Michael R. Boyce3 87,605 — — James E. Goodwin 62,463 — 9,616 John M. Holmes 337,644 — — Patrick J. Kelly4 69,282 — — Duncan J. McNabb 8,273 — — Michael D. Milligan 18,119 — — Peter Pace 22,748 — — Eric S. Pachapa 12,857 — — Robert J. Regan 267,475 — — David P. Storch5 1,492,500 4.26 % — Jennifer L. Vogel 14,790 — — Marc J. Walfish 109,805 — 36,699 Ronald B. Woodard 22,720 — — All directors and executive officers as a group (15 persons) 2,602,667 7.43 % 46,315 1 2 3 4 5 Security Ownership of Management
65 Shares Beneficially
Owned1 Percent of Shares
Outstanding if
Greater than 1% Stock Units2 23,513 — — 45,572 — — 79,957 — — 26,406 — 44,866 54,815 — 9,451 155,030 — — 61,620 — — 25,048 — — 210,039 — — 379,460 1.1% — 61,853 — — 1,558,342 4.5% — 7,083 — — 102,157 — 33,338 35,072 — — 2,825,967 8.23% 87,655 1Includes (a) unvested restricted shares held by directors and executive officers and (b) the following shares of the identified person that may be acquired within 60 days of July 31, 2016 through the exercise of stock options: Mr. Holmes, 14,500 shares; Mr. Regan, 103,285 shares; Mr. Romenesko, 69,765 shares; Mr. Sharp, 27,473; Mr. Storch, 141,182 shares; and all directors and executive officers as a group, 356,205 shares.2Represents stock units held by directors who defer all or a portion of their director retainer fees under the Non-Employee Directors' Deferred Compensation Plan. Each stock unit represents the right to receive one share of common stock upon termination of service on the Board or the happening of certain other events, as specified in the Plan.3Includes 10,000 shares beneficially owned through Maverick Investors Limited Partnership, a family partnership of which Mr. Boyce is a general partner.4Includes 16,000 shares beneficially owned through KMK & Associates, LLC, of which Mr. Kelly is a one-third owner.5Includes: (a) 18,810 shares beneficially owned by Mr. Storch's wife, as to which Mr. Storch disclaims beneficial ownership; (b) 50,000 shares beneficially owned through DPS Asset Management LLC, a family investment vehicle of which Mr. Storch is President; (c) 2,025 shares under the Lorraine Storch Revocable Trust under which Mr. Storch is trustee and a beneficiary; (d) 250,000 shares owned through the Storch Family Dynasty Trust, under which Mr. Storch is trustee and a beneficiary; and (e) 100,793 shares beneficially owned through a limited power of attorney arrangement, as to which Mr. Storch disclaims beneficial ownership. Security Ownership of Certain Beneficial Owners
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS Number of Shares Percent of Class
55 East 52nd Street
New York, NY 10022 3,539,307 10.10%
Palisades West, Building One
6300 Bee Cave Road
Austin, TX 78746 3,297,199 9.41%
One Franklin Parkway
San Mateo, CA 94403 4,302,107 12.30%
100 Vanguard Blvd.
Malvern, PA 19355 2,475,007 7.06% 1Based on a Schedule 13G amendment dated 1/31/16 and filed on 2/8/16, BlackRock, Inc. disclosed beneficial ownership with respect to the shares as follows:Name and Address of Beneficial Owner Number of Shares Percent of Class BlackRock, Inc.1
55 East 52ndStreet
New York, NY 10055 5,329,972 15.3 % Vanguard Group, Inc.2
100 Vanguard Blvd.
Malvern, PA 193553,073,924 8.85 % Dimensional Fund Advisors LP3
Palisades West, Building One
6300 Bee Cave Road
Austin, TX 787462,923,664 8.42 % Franklin Resources Inc.4
One Franklin Parkway
San Mateo, CA 944032,667,469 7.7 % 1 ● •3,433,6955,234,956 •Shared voting power: 0 •Sole dispositive power: 3,539,3075,329,972 •Shared dispositive power: 0 2 Based on a Schedule 13G amendment filed on February 7, 2018, the Vanguard Group, Inc. disclosed beneficial ownership with respect to the shares as follows: 2Based on a Schedule 13G amendment dated 12/31/15 and filed on 2/9/16, Dimensional Fund Advisors LP disclosed beneficial ownership with respect to the shares as follows:● •3,174,79336,023 •Shared voting power: 05,990 •Sole dispositive power: 3,297,1993,034,787 •Shared dispositive power: 039,137 3Based on a Schedule 13G amendment dated 12/31/15 and filed on 1/26/16, Franklin Resources, Inc. disclosed beneficial ownership with respect to the shares as follows:3 Based on a Schedule 13G amendment filed on February 9, 2018, Dimensional Fund Advisors LP disclosed beneficial ownership with respect to the shares as follows: ● •2,820,576 Franklin Resources, Inc.Shared voting power: 0 ● Sole dispositive power: 2,923,664 Charles B. JohnsonShared dispositive power: 0 Rupert H. Johnson40● Sole voting power: 3,836,5072,461,483 •Shared voting power:0 •Sole dispositive power:0Charles B. Johnson 0Rupert H. Johnson 0Franklin Advisory Services, LLC 4,302,103 •Shared dispositive power:04Based on a Schedule 13G amendment dated 12/31/15 and filed on 2/10/16, the Vanguard Group, Inc. disclosed beneficial ownership with respect to the shares as follows: •Sole voting power:43,969 •3,5000 •Sole dispositive power: 2,430,0382,667,469 •Franklin Resources, Inc. Charles B. Johnson Rupert H. Johnson Franklin Advisory Services, LLC ● Shared dispositive power: 44,9690 SectionSECTION 16(a) Beneficial Ownership Reporting Compliance
BENEFICIAL OWNERSHIP REPORTING COMPLIANCECompany'sCompany’s officers and directors, and beneficial owners of more than 10% of the Company'sCompany’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'sCompany’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 2016,2018, the Company believes that all of the Company'sCompany’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 2016,2018, except that due to Company error (i) Forms 4 relating tofor the acquisition of 926 and 595 stock units by General Fogleman and Mr. Walfish, respectively, werefollowing reports inadvertently filed late andby the Company: (i) a Form 4 filed two days late for Mr. Storch reporting the sale of 48,500 shares by a family trust of which Mr. Storch was trustee; (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.late for Mr. Storch reporting the sale of 25,000 shares; and (iii) a late Form 4 filed for General Fogleman reporting the sale of 3,000 shares.Table of ContentsEQUITY COMPENSATION PLAN INFORMATIONEQUITY COMPENSATION PLAN INFORMATION20162018 with respect to the Company'sCompany’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
holders2,082 $ 26.72 2,128 Equity compensation plans not approved by
securities holders— — — Total 2,082 $ 26.72 2,128 * 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)* 2,095 22.17 3,801 — — — 2,095 22.17 3,801 *Represents shares under the AAR CORP. 2013 Stock Plan and the AAR CORP. Amended and Restated Stock Benefit Plan. The Company may not grant any future stock awards under the AAR CORP. Amended and Restated Stock Benefit Plan.STOCKHOLDER PROPOSALS FOR OUR 2017 ANNUAL MEETING
20172019 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 2, 2017,1, 2019, in order for the proposal to be eligible for inclusion in the Company'sCompany’s proxy statement and form of proxy for that meeting. The proposal must comply with applicable SEC rules and the Company'sCompany’s By-Laws.Company'sCompany’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 20172019 annual meeting of stockholders, including any stockholder proposal or director nomination, that would not be included in the Company'sCompany’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 19, 2017.16, 2019. The notice of such matter must contain the information required by the By-Laws.
Vice President, General Counsel and SecretaryBy Order of the Board of Directors,Robert J. ReganVice President, General Counsel and Secretary20162018
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, 2018. 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. ● FORthe election of four director nominees; ● FORthe advisory proposal to approve our Fiscal 2018 executive compensation; and ● FORthe ratification of KPMG LLP as our independent registered public accounting firm for Fiscal 2019. ● Access and review our proxy materials over the Internet; ● Submit your vote over the Internet; and ● Request printed copies of our proxy materials. 2016. Requests should2018 (“Fiscal 2018”) and our Fiscal 2018 annual report on Form 10-K may be madeviewed online atwww.proxyvote.com.Mr. Robert J. Regan, Vice President, General Counselvote at the annual meeting?Secretary, AAR CORP., One AAR Place, 1100 North Wood Dale Road, Wood Dale, Illinois 60191, (630) 227 2000.returning the enclosed proxy card, voting by telephone or over the Internet, or in person by attending and voting at the annual meeting.EXHIBIT AAAR CORP. 2013 STOCK PLAN,AS PROPOSED TO BE AMENDED*1. PurposeAppendix A – Questions and Answers about Our 2018 Annual MeetingThe purposeA list of stockholders of record entitled to vote will be available at the AAR CORP. 2013 Stock Plan isCompany’s corporate headquarters for 10 days prior to encourage Key Employeesthe meeting and Non-Employee Directorsduring the meeting.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. DefinitionsFor purposes of this Plan, the following terms shall have the meanings set forth below:
industries we compete.2.1"Award" means an Option, a Stock Award, a Stock Unit, or an SAR.2.2"Award Agreement" means, as applicable, a Stock Option Agreement, Stock Award Agreement, Stock Unit Award Agreement, or SAR Agreement evidencing an Award granted under the Plan.2.3"Board" means the Board of Directors of the Company.2.4"Change in Control" means the earliest of:(a)any person (as such term is used in the Exchange Act) has acquired (other than directly from the Company) beneficial ownership (as that term is defined in Rule 13d-3 under the Exchange Act) of more than 20% of the outstanding capitalcommon stock of the Company were outstanding. Each share of common stock is entitled to one vote for the election of directors;(b)the effective time of (i) a merger or consolidation or other business combinationeach director nominee and one vote for each of the Company with oneother proposals to be voted on at the annual meeting.more other corporations asover the Internet?result of which the holders of the outstanding voting stock of the Company immediatelyday, seven days a week, until 10:59 p.m., Central Time, on October 9, 2018 (the day prior to such business combinationthe annual meeting). If you vote by telephone or over the Internet, please do not return your proxy card.● 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 a later-dated proxy by telephone, over the Internet or by mail; or ● Voting in person at the annual meeting. less than 60% of the voting stock of the surviving or resulting corporation, or (ii) a transfer of substantially all of the assets of the Company other than to an entity of which the Company owns at least 80% of the voting stock; or(c)the election, over any period of time, to the Board of Directors of the Company without the recommendation or approval of the incumbent Board of Directors of the Company, of directors constitutingvalid annual meeting. A quorum will exist if a majority of the numberoutstanding shares of common stock entitled to vote at the annual 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” occurs when a broker, bank or other nominee holding shares for a beneficial owner does not vote on a particular proposal because the broker, bank or other 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 of the shares.Required Vote Effect of “Withhold” Votes,
Abstentions and Broker Non-Votes
Election of four directors
Advisory proposal to approve
our Fiscal 2018 executive
compensation
Ratification of the appointment of
KPMG LLPthenalso may solicit proxies for no additional compensation.office.2.5"Code" meansa Current Report on Form 8-K that we will file with the Internal Revenue CodeSEC within four business days of 1986,the annual meeting.from time to time.2.6"Committee" means the Board's Compensation Committee, or such other committee designated(the “Exchange Act”). We believe this non-GAAP financial measure is relevant and useful for investors as it provides a better understanding of our actual operating performance unaffected by the Board comprisedimpact of not less than two directors who are "non-employee directors" withinseverance charges and other items. When reviewed in conjunction with our GAAP results and the meaning of Rule 16b-3 under the Exchange Act and "outside directors" within the meaning of Section 162(m)accompanying reconciliation, we believe this non-GAAP financial measure provides additional information that is useful to gain an understanding of the Codefactors and trends affecting our business and provide a means by which to compare our operating performance against that of other companies in the regulations thereunder.2.7"Company" means AAR CORP., a Delaware corporation.2.8"Fair Market Value" means, as of any date, the closing price of a Share on the New York Stock Exchange on such date, or if no trading occurred on the New York Stock Exchange on such date, the trading day immediately preceding such date.*This document reflects the AAR CORP. 2013 Stock Plan as amended since its adoption in 2013, including the proposed amendments described in Proposal 3, which are highlighted in bold type.2.9"Incentive Stock Option" or "ISO" means an Option meetingPursuant to the requirements of Section 422 of the Code.2.10"Key Employee" means an employee of the Company or a Subsidiary selected to participate in the Plan in accordance with Section 3.2. A Key Employee may also include a person who is granted an Award (other than an Incentive Stock Option) in connection with the hiring of the person prior to the date the person becomes an employee of the Company or any Subsidiary, provided that such Award shall not vest prior to the commencement of employment.2.11"Non-Employee Director" means a member of the Board who is not an employee of the Company or a Subsidiary.2.12"Non-Qualified Stock Option" or "NSO" means an Option other than an Incentive Stock Option.2.13"Option" means the grant of a right to purchase Shares under Section 6 of the Plan and will be either an Incentive Stock Option or a Non-Qualified Stock Option.2.14"Participant" means a Key Employee or Non-Employee Director selected to receive an Award under the Plan.2.15"Plan" means the AAR CORP. 2013 Stock Plan as reflected in the provisions contained herein, and as it may be amended from time to time.2.16"Shares" means the shares of the Company's $1.00 par value common stock.2.17"Stock Award" means the grant of Shares under Section 7 of the Plan.2.18"Stock Unit" means the grant of a right to receive Shares or cash under Section 8 of the Plan.2.19"Stock Appreciation Right" or "SAR" means the grant of a right to receive Shares or cash under Section 9 of the Plan.2.20"Subsidiary" means an entity of which the Company is the direct or indirect beneficial owner of not less than 50% of all issued and outstanding equity interest.3. Administration3.1The Committee. The Plan shall be administered by the Committee.3.2Authority of the Committee.(a)The Committee shall have plenary authority, subject to the provisions of the Plan, to determine the Key Employees and Non-Employee Directors to whom Awards shall be granted, the time at which Awards shall be granted, the term of each Award, the number of Shares covered by it, the effect of participation by a Participant in other plans and any other terms or conditions of each such Award. The number of Shares and other terms and conditions of a particular Award need not be the same even as to Awards made at the same time. The Committee's actions in making Awards and fixing their size and other terms and conditions shall be conclusive on all persons.(b)The Committee shall have the sole responsibility for construing and interpreting the Plan, for establishing and amending such rules and regulations as it deems necessary or desirable for the proper administration of the Plan and for resolving all questions arising under the Plan. Any decision or action taken by the Committee arising out of or in connection with the construction, administration, interpretation and effect of the Plan and of its rules and regulations shall, to the extent permitted by law, be within its absolute discretion, except as otherwise specifically provided herein, and shall be conclusive and binding upon all Participants and any other person, whether that person is claiming under or through any Participant or otherwise.(c)The Board shall designate one of the members of the Committee as the Chairman of the Committee. The Committee shall hold its meetings at such times and places as it may determine. A majority of its members shall constitute a quorum, and all determinations of the Committee shall be made by a majority of its members. Any determination reduced to writing and signed by all members shall be fully as effective as if it had been made by amajority 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.(d)To the extent permitted by applicable law, regulation and rules of a stock exchange on which the Shares are listed or traded, the Committee may delegate to the Chief Executive Officer of the Company its authority to grant Awards to Key Employees other than himself, and to determine the terms and conditions thereof; provided that (i) such Awards shall not be granted to officers subject to Section 16Regulation G of the Exchange Act, or officers whowe are or may become "covered employees" as definedproviding the following table that reconciles the above mentioned non-GAAP financial measure to the most directly comparable GAAP financial measure:Twelve Months Ended (in millions – unaudited) 2018 2017 Diluted earnings per share from continuing operations $ 2.11 $1.51 Deferred tax re-measurement from the Tax Cuts and Jobs Act (0.41 ) — Severance and restructuring charges, net of tax 0.09 0.02 Adjusted diluted earnings per share from continuing operations $ 1.79 $1.53 
AAR World Headquarters
1100 N. Wood Dale Rd.
Wood Dale, IL 60191
Tel: +1 630.227.2000
F: +1 630.227.2058
3rd Floor Eastside
World Business Centre 1
1206 Newall Road
Heathrow Airport, Middlesex
London, UK TW6 2RE
T: +44.208.990.6700
7 Changi Business Park Vista #03-01
Soo Kee Building
Singapore 486042
T:+65.6508.6460
Boulevard Plaza, Tower 2, Level 23
Business Bay – Dubai, UAE
T: +971.4409.6768
Important Notice Regarding the Availability of Proxy Materials for the
Stockholder Meeting to Be Held onOctober 10,.2018
ONE AAR PLACE
1100 NORTH WOOD DALE ROAD
WOOD DALE, IL 60191Meeting Type:Annual Meeting For holders as of:August 14, 2018 Date:October 10, 2018 Time:9:00 AM CDT Location: AAR CORP. One AAR Place 1100 North Wood Dale Road Wood Dale, IL 60191 Section 162(m)the above named company.Code, and (ii) the terms and conditions of such Awards shall not be inconsistent with the terms and conditions set forth in the forms of Award Agreement approved by the Committee pursuantmore complete proxy materials that are available to Article 5 of the Plan.(e)No member of the Committee or the Chief Executive Officer shall be liable, in the absence of bad faith, for any act or omission with respect to his or her serviceyou on the Committee, Internet. You may view the proxy materials online atin the case of the Chief Executive Officer with respect to his service performed in accordance with subsection 3.2(d) above. Such service shall constitute service aseasily request a director of the Company, so that the members of the Committee and the Chief Executive Officer shall be entitled to indemnification and reimbursement as directors of the Company pursuant to its By-Laws.3.3Performance-Based Awardspaper copy (see reverse side).(a)The Committee may, in its discretion, provide that any Award granted under the Plan shall be subject to the attainment of performance goals, including those that qualify the Award as "performance-based compensation" within the meaning of Section 162(m) of the Code.(b)Performance goals may be based on one or more business criteria, including, but not limited to: earnings, earnings per share or earnings per share growth; earnings before interest and taxes, or earnings before interest, taxes, depreciation and/or amortization; 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.(c)With respect to each performance period established by the Committee, the Committee shall establish such performance goals relating to one or more of the business criteria identified above, and shall establish targets for Participants for achievement of performance goals. The performance goals and performance targets established by the Committee may be identical for all Participants for a given performance period or, at the discretion of the Committee, may differ among Participants. Following the completion of each performance period, the Committee shall determine the extent to which performance goals for that performance period have been achieved, and the related performance-based restrictions shall lapse in accordance with the terms of the applicable Award Agreement.4. Shares Subject to the Plan4.1Total Number of Shares.(a)The total number of Shares that may be available for Awards under the Plan, including without limitation the total number of Shares that may be subject to ISOs under the Plan, from and after October 9, 2013, shall be 5,350,000 Shares (2,500,000 Shares prior to October 11, 2016 and an additional 2,850,000 Shares from andafter 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.(b)Stock Options and SAR Awards shall reduce the number of Shares available for Awards by one Share for every Share subject to the Stock Option or SAR Award; provided that SARs that may be settled only in cash shall not reduce the number of Shares available for Awards. Stock Awards and Stock Unit Awards settled in Shares shall reduce the number of Shares available for Awards by two Shares for each Share delivered.(c)Any Shares subject to an Award but that are not issued because of a lapse, expiration, cancellation or termination of any such Award, or that have been issued in connection with a Stock Award that is subsequently cancelled or forfeited, shall once again be available for issuance pursuant to subsequent Awards, added back in the same multiple as they were awarded pursuant to Section 4.1(b). The number of Shares delivered by the Participant or withheld by the Company on the Participant's behalf as full or partial payment of an Award, including the exercise price of an Option or of any required withholding taxes with respect to any Award, shall not again be available for issuance pursuant to subsequent Awards and shall count against the aggregate number of Shares that may be issued under the Plan. Any Shares purchased by the Company with proceeds from an Option exercise shall not again be available for issuance pursuant to subsequent Awards, shall count against the aggregate number of Shares that may be issued under the Plan and shall not increase the number of Shares available under the Plan.4.2Shares Subject to Awards. Of the Shares authorized for issuance under the Plan:(a)The maximum number of Shares with respect to which Options and SARs may be granted under the Plan to any Key Employee in any calendar year is 800,000.(b)The maximum number of Shares that may be used for Stock Awards and Stock Unit Awards that are intended to qualify as "performance-based" in accordance with Section 162(m) of the Code that may be granted to any Key Employee in any calendar year is 300,000, or, in the event the Award is settled in cash, an amount equal to the Fair Market Value of such number of Shares on the date on which the Award is settled.(c)The Fair Market Value of Shares that may be subject to Awards granted to any Non-Employee Director in any calendar year, together with the cash compensation paid to such Non-Employee Director in such calendar year, shall not exceed $500,000.4.3Adjustment. 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. AwardsWe encourage you to access and Award AgreementsSubject 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 solediscretion 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 Options6.1Grants. 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.6.2Terms and Conditions of Options.(a)Each Option shall be evidenced by a written Option Agreement specifying the terms and conditions of the Option as the Committee may determine, including the type of Option granted, the Option exercise price, the terms for payment of the exercise price, the duration of the Option and the number of Shares to which the Option pertains; provided, however, that no Option shall be credited with any amounts equal to dividends or other distributions that a Participant would have received had the Participant held the Shares subject to an unexercised Option.(b)The per Share exercise price of each Option shall not be less than 100% of the Fair Market Value of a Share on the date the Option is granted.(c)Each Option shall become exercisable at the time, and for the number of Shares, fixed by the Committee in the Option Agreement, provided that the Committee, in its discretion, shall have the power at any time to accelerate the dates for exercise of any or all Options granted to a Non-Employee Director or a Key Employee under the Plan.(d)Each Option shall expire and all rights to purchase Shares thereunder shall cease on the date fixed by the Committee in the Option Agreement, which shall not be later than the tenth anniversary of the date on which the Option was granted, except as otherwise required under subsection 6.3 of the Plan.6.3Required Terms and Conditions of ISOs.In addition to the foregoing, each ISO granted to a Key Employee shall be subject to the following rules:(a)The aggregate Fair Market Value (determined with respect to each ISO at the time such ISO is granted) of the Shares with respect to which ISOs are exercisable for the first time by an individual during any calendar year (under all incentive stock option plans of the Company and its Subsidiaries) shall not exceed $100,000. If the aggregate Fair Market Value (determined at the time of grant) of the Shares subject to an ISO which first becomes exercisable in any calendar year exceeds the limitation of this subsection, so much of the ISO that does not exceed the applicable dollar limit shall be an ISO, and the remainder shall be an NSO, but in all other respects, the original Option Agreement shall remain in full force and effect.(b)Notwithstanding anything herein to the contrary, if an ISO is granted to an individual who owns stock possessing more than 10% of the total combined voting power of all classes of stock of the Company or of its parent or subsidiary corporation, within the meaning of Section 422(b)(6) of the Code, (i) the purchase price of each Share subject to the ISO shall be not less than 110% of the Fair Market Value of a Share on the date the ISO is granted, and (ii) the ISO shall expire and all rights to purchase Shares thereunder shall cease no later than the fifth anniversary of the date the Option is granted.(c)No ISOs shall be granted under the Plan after ten years from the earlier of the date the Plan is adopted or the date the Plan is approved by stockholders of the Company.6.4Exercise of Options.(a)A person entitled to exercise an Option may do so by delivery of a written notice in accordance with procedures established by the Committee specifying the number of Shares with respect to which the Option is being exercised and any other information the Committee may prescribe.(b)Except as otherwise provided in the Plan or in any Option Agreement, the Participant shall pay the purchase price of the Shares upon exercise of any Option (i) in cash, (ii) in cash received 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 Option to pay the exercise price, (iii) by delivering Shares having an aggregate Fair Market Value on the date of exercise equal to the Option exercise price, (iv) by directing the Company to withhold such number of Shares otherwise issuable upon exercise of such Option having an aggregate Fair Market Value on the date of exercise equal to the Option exercise price, (v) by such other medium of payment as the Committee, in its discretion, shall authorize at the time of grant, or (vi) by any combination of the foregoing. In the case of payment pursuant to (ii), (iii) or (iv) above, the Participant's election must be made on or prior to the date of exercise and must be irrevocable.(c)The Company shall issue, in the name of the Participant, stock certificates representing the total number of Shares issuable pursuant to the exercise of any Option as soon as reasonably practicable after such exercise, provided that any Shares purchased by a Participant through a broker-dealer pursuant to subsection (ii) above shall be delivered to such broker-dealer in accordance with applicable law.7. Stock Awards7.1Grants 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.7.2Terms and Conditions of Stock Awards.(a)Each Stock Award shall be evidenced by a written Stock Award Agreement specifying the terms and conditions of the Award as the Committee may determine, including the number of Shares issuable under the Stock Award and the restrictions on transfer. Further, the Committee, in its discretion, shall have the power at any time to accelerate the dates the restrictions lapse on any orreview all of the Shares subject to the Stock Award.(b)Dividends paid on Stock Awards shall be subject to the following: (i) if the Stock Award is subject to performance-based restrictions as described in Section 3.3, the Company shall accumulate and hold such amounts, and (ii) if the Stock Award is subject only to time-based restrictions, the Committee shall have the discretion to cause the Company to accumulate and hold such amounts. To the extent dividends are held by the Company, the accumulated amounts shall be paid to the Participant only upon the lapse of the restrictions to which the Stock Award is subject, and any such amounts attributable to the portion of the Stock Award for which the restrictions do not lapse shall be forfeited.(c)Subject to the restrictions set forth herein and in the related Stock Award Agreement, upon grant of a Stock Award to a Participant, the Participant shall be a stockholder with respect to all the Shares subject to such Stock Award and shall have all the rights of a stockholder with respect to such Shares, including the right to vote such Shares and to receive dividends and other distributions paid with respect to such Shares. The Company shall issue the number of Shares granted under a Stock Award on an uncertificated basis, with the Participant's ownership of such Shares evidenced by book entry in the records of the Company's transfer agent. Following the lapse of all restrictions on the Stock Award, upon the Participant's request, the Company shall issue, in the name of the Participant, stock certificates representing the Shares subject to the Stock Award.8. Grants of Stock Units8.1Grants. 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.8.2Terms and Conditions of Stock Unit Awards.(a)Each Stock Unit Award shall be evidenced by a written Stock Unit Award Agreement specifying the terms and conditions of the Award as the Committee may determine, including the number of Shares issuable under the Stock Unit Award, the restrictions on transfer and the form of settlement. Further, the Committee, in its discretion, shall have the power at any time to accelerate the dates the restrictions lapse on any or all of the Stock Units.(b)A Participant shall have no rights of a stockholder, including voting or dividend or other distribution rights, with respect to any Stock Units prior to the date they are settled in Shares. A Stock Unit Agreement may provide that, until the Stock Units are settled in Shares or cash, the Participant shall receive, on each dividend or distribution payment date applicable to the Shares, an amount equal to the dividends or distributions that the Participant would have received had the Stock Units held by the Participant as of the related record date been actual Shares. Notwithstanding the preceding sentence, in the case of a Stock Unit Award that provides for the right to receive amounts related to dividends or distributions: (i) if such Stock Unit Award is subject to performance-based restrictions as described in Section 3.3, the Company shall accumulate and hold such amounts, and (ii) if such Stock Unit Award is subject only to time-based restrictions, the Committee shall have the discretion to cause the Company to accumulate and hold such amounts. To the extent such amounts are held by the Company, the accumulated amounts shall be paid to the Participant only upon the lapse of the restrictions to which the Stock Unit Award is subject, and any such amounts attributable to the portion of a Stock Unit Award for which the restrictions do not lapse shall be forfeited.(c)Upon settlement of Stock Units in Shares, the Company shall issue, in the name of the Participant, stock certificates representing a number of Shares equal to the number of Stock Units being settled.9. Grants of SARs9.1Grants. 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.9.2Terms and Conditions of SARs.(a)Each SAR shall be evidenced by a written SAR Agreement specifying the terms and conditions of the SAR as the Committee may determine, including the SAR exercise price, the duration of the SAR, the number of Shares to which the SAR pertains and the form of settlement. Further, the Committee, in its discretion, shall have the power at any time to accelerate the dates for exercise of any or all SARs.(b)The per Share exercise price of each SAR shall not be less than 100% of the Fair Market Value of a Share on the date the SAR is granted.(c)Each SAR shall expire and all rights thereunder shall cease on the date fixed by the Committee in the SAR Agreement, which shall not be later than the tenth anniversary of the date on which the SAR was granted.(d)A person entitled to exercise an SAR may do so by delivery of a written notice in accordance with procedures established by the Committee specifying the number of Shares with respect to which the SAR is being exercised and any otherimportant information the Committee may prescribe. As soon as reasonably practicable after the exercise of an SAR, the Company shall (i) issue, in the name of the Key Employee, stock certificates representing the total number of full Shares to which the Key Employee is entitled and cash in an amount equal to the Fair Market Value, as of the date of exercise, or any resulting fractional Share, and (ii) if the Committee causes the Company to elect to settle all or partof 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 Awards10.1 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 ControlIn 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 FormNotwithstanding 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. TaxesIn 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. PostponementThe 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 StatusNo 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 Agreements16.1Termination or Amendment of Plan.(a)The Board may at any time terminate, suspend, or modify the Plan without approval of stockholders unless such approval is required by applicable law, regulation, or rule of any stock exchange on which the Shares are listed. No termination, suspension, or modification of the Plan shall adversely affect in any material way any right of any Participant or any successor under an Award granted before the date of such termination, suspension or modification, without the written consent of the Participant or successor; provided that it shall be conclusively presumed that any adjustment for changes in capitalization as provided in Section 4.3 does not adversely affect any such right.(b)Any member of the Board who is an officer or employee of the Company shall be without vote on any proposed amendment to the Plan, or on any other matter which might affect that member's individual interest under the Plan.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. TenureNothing 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.proxy materials before voting.18. Other ActionsNothing 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 AgreementsEach 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 LawThe 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 Plan21.1Effective 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.
*** Exercise Your Right to Vote *** Important Notice Regarding the Availability of Proxy Materials for the Stockholder Meeting to Be Held on <mtgdate>. You are receiving this communication because you hold shares in the above named company. This is not a ballot. You cannot use this notice to vote these shares. This communication presents only an overview of the more complete proxy materials that are available to you on the Internet. You may view the proxy materials online at www.proxyvote.com or easily request a paper copy (see reverse side). We encourage you to access and review all of the important information contained in the proxy materials before voting. Meeting Information Meeting Type: <mtgtype> For holders as of: <recdate> Date: Time: <mtgtime> Location: 0000298914_1 R1.0.1.25 AAR CORP. AAR CORP. ONE AAR PLACE 1100 NORTH WOOD DALE ROAD WOOD DALE, IL 60191 Annual Meeting August 16, 2016 October 11, 2016 October 11, 2016 9:00 AM CDT AAR CORP. One AAR Place 1100 North Wood Dale Road Wood Dale, IL 60191
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Please Choose One of the Following Voting Methods Vote In Person: Many stockholder meetings have attendance requirements including, but not limited to, the possession of an attendance ticket issued by the entity holding the meeting. Please check the meeting materials for any special requirements for meeting attendance. At the meeting, you will need to request a ballot to vote these shares. Vote By Internet: To vote now by Internet, go to www.proxyvote.com. Have the information that is printed in the box marked by the arrow available and follow the instructions. Vote By Mail: You can vote by mail by requesting a paper copy of the materials, which will include a proxy card. How To Vote . Before You Vote How to Access the Proxy Materials Proxy Materials Available to VIEW or RECEIVE: How to View Online: Have the information that is printed in the box marked by the arrow (located on the following page) and visit: www.proxyvote.com. How to Request and Receive a PAPER or E-MAIL Copy: If you want to receive a paper or e-mail copy of these documents, you must request one. There is NO charge for requesting a copy. Please choose one of the following methods to make your request: 1) BY INTERNET: www.proxyvote.com 2) BY TELEPHONE: 1-800-579-1639 3) BY E-MAIL*: sendmaterial@proxyvote.com * If requesting materials by e-mail, please send a blank e-mail with the information that is printed in the box marked by the arrow (located on the following page) in the subject line. . . 0000298914_2 R1.0.1.25 1. Notice & Proxy Statement 2. Annual Report to Stockholders 3. Annual Report on Form 10-K Requests, instructions and other inquiries sent to this e-mail address will NOT be forwarded to your investment advisor. Please make the request as instructed above on or before September 27, 2016 to facilitate timely delivery.
Voting items 0000298914_3 R1.0.1.25 The Board of Directors recommends you vote FOR the following:1. Election of Directors Nominees 01 NormanAnthony K. Anderson 02 Michael R. Bobins 02 Ronald R. Fogleman Boyce03 James E. Goodwin David P. Storch 04 Marc J. Walfish Jennifer L. Vogel The Board of Directors recommends you vote FOR proposals 2 3 and 4. 3.2. Advisory voteproposal to approve our Fiscal 2018 executive compensation.3. Approval of amendments to the AAR CORP. 2013 Stock Plan. 4. RatificationThe ratification of the appointment of KPMG LLP as the Company'sour independent registered public accounting firm for the fiscal year ending May 31, 2017. 2019.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. 
0000298914_4 R1.0.1.25
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
Use the Internet to transmit your voting instructions and for electronic delivery of information up until 10:information. Vote by 11:59 P.M. Central Time the day before the meeting date.ET on 10/09/2018 for shares held directly and by 11:59 P.M. ET on 10/07/2018 for shares held in a Plan. Have your proxy card in hand when you access the websiteweb site and follow the instructions to obtain your records and to create an electronic voting instruction form.
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Use any touch-tone telephone to transmit your voting instructions up until 10:instructions. Vote by 11:59 P.M. Central Time the day before the meeting date.ET on 10/09/2018 for shares held directly and by 11:59 P.M. ET on 10/07/2018 for shares held in a Plan. Have your proxy card in hand when you call and then follow the instructions.
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. TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: KEEP THIS PORTION FOR YOUR RECORDS DETACH AND RETURN THIS PORTION ONLY THIS PROXY CARD IS VALIDONLYWHEN SIGNEDANDDATED. The Board of Directors recommends you vote FOR the following: 1. Election of Directors Nominees For Against Abstain 01 Anthony K. Anderson ☐ ☐ ☐ 02 Michael R. Boyce ☐ ☐ ☐ 03 David P. Storch ☐ ☐ ☐ 04 Jennifer L. Vogel ☐ ☐ ☐ The Board of Directors recommends you vote FOR proposals 2 and 3. For Against Abstain 2. Advisory proposal to approve our Fiscal 2018 executive compensation. ☐ ☐ ☐ 3. The ratification of the appointment of KPMG LLP as our independent registered public accounting firm for the fiscal year ending May 31, 2019. ☐ ☐ ☐ For address change/comments, mark here. (see reverse for instructions) ☐ For address change/comments, mark here. (see reverse for instructions)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. Signature [PLEASE SIGN WITHIN BOX] Date Signature (Joint Owners) Date 
Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting: The Notice and Proxy Statement, Annual Report on Form 10-K and Annual Report to Stockholders are available atwww.proxyvote.com 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 StockholdersDAVID P. STORCHJOHN M. HOLMES 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 20162018 Annual Meeting of Stockholders of AAR CORP. to be held at 9:00 AM Central Time on October 11, 2016,10, 2018, 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. (If you noted any Address Changes and/or Comments above, please mark corresponding box on the reverse side.) Address change/comments: Address change/comments: (If you noted any Address Changes and/or Comments above, please mark corresponding box on the reverse side.) 
