The Compensation Committee carefully considered the results of prior years’ stockholder say-on-pay votes and other stockholder feedback in designing the Fiscal 2020The Compensation Committee carefully considered the results of prior years’ stockholder say-on-pay votes and other stockholder feedback in designing the Fiscal 2021 executive compensation program and making executive compensation decisions for the Company’s executives.
The table to the right shows the say-on-pay vote at the Company’s last three annual meetings of stockholders, reflecting a positive trend in stockholder support for the changes made by the Compensation Committee to the Company’s executive compensation program: | | | Say-on-pay vote |
|   |
Recommendations of the chief executive officer
The Compensation Committee may consider the Chief Executive Officer’s recommendations but retains the ultimate decision-making authority and responsibility for compensation decisions affecting the Company’s executive officers.
The Compensation Committee considered the recommendations of the Chief Executive Officer in making Fiscal 20202021 cash bonus and stock award decisions for 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.
Other compensation information
The Compensation Committee also considered certain historical compensation data for the Company’s executives. This data included summaries of cash and equity compensation received in past years by each executive officer. 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 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 contributions to the Company.
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Proposal 2 Executive compensation
Coronavirus aid, relief, and economic security act and compensation
As previously disclosed, on July 30, 2020, the Company entered into a Payroll Support Program Agreement (the “PSP Agreement”) with the U.S. Treasury Department providing the Company with total funding of approximately $57.2 million pursuant to the Payroll Support Program under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”)(CARES Act). Under the PSP Agreement, the Company and its business are subject to certain restrictions, including, but not limited to, certain limitations on executive compensation.compensation through March 24, 2022.
When settingAt its meeting on July 12, 2021, the Compensation Committee reviewed and considered the intended long-term equity compensation levels for Fiscal 2021, the Compensation Committee set them with reference to market practices of2022 as an industry peer group. However, as a resultelement of the PSP Agreement limitationsannual total target compensation package based on executive compensation,peer benchmarking and other factors. However, in designing the named executive officers may not realizeFiscal 2022 program, the full value of their respective compensation packages during any period in which those limitations apply. In particular, when making stock awards for Fiscal 2021, Mr. Holmes’ awards of stock options and restricted stock units were decreased by approximately $1,538,000, or the equivalent of 81,202 restricted stock awards, from the target amount of compensationCommittee determined to be appropriate byreduce the Compensation Committee, in ordergrant level of the long-term equity awards to comply with the CARES Act. We will continueAct compensation limits. As a result, three of the named executive officers, Messrs. Holmes, Jessup and Pachapa, had their July 2021 equity awards reduced to monitor and administer our compensation programs to be in compliancecomply with the PSP Agreement limitations.CARES Act limits, as detailed in the table below and based on grant date fair value.
| Name | | Intended
Fiscal 2022
LTI Equity Award Level
($) | | Actual
Fiscal 2022
LTI Equity Award Level
($) | | Reduction
For CARES Act
Limit
($) |
| John M. Holmes | | 3,380,000 | | 1,280,078 | | 2,099,922 |
| Christopher A. Jessup | | 800,000 | | 405,076 | | 394,924 |
| Eric S. Pachapa | | 403,000 | | 260,045 | | 142,955 |
In light of the compensation reductions made to comply with the CARES Act restrictions in Fiscal 2021 and Fiscal 2022, Mr. Holmes’ successful management of the Company during the Coronavirus pandemic and in recognition of the need to retain Mr. Holmes and maintain competitive compensation with our peer group, on July 13, 2021, the Board awarded a deferred cash retention award to Mr. Holmes in the amount of $1,000,000. In making the determination to grant this award, the Board considered Mr. Holmes’ strong leadership and performance over the past year, concerns related to the need to retain and reward Mr. Holmes, considerations related to compensation benchmarking and external pay parity, and Mr. Holmes’ voluntary pay reduction taken during the beginning of the pandemic. The Compensation Committee may consider additional actions in the future following the expiration of the CARES Act restricted period to maintain competitive compensation for and incentivize retention of those individuals impacted by the CARES Act. The deferred cash retention award will be paid to Mr. Holmes following the expiration of the CARES Act restricted period only if he remains continuously employed at the Company through such date (the award will be paid earlier in the case of his death or disability).
Fiscal 2022 compensation
The Compensation Committee determined in July 2021, when setting Fiscal 2022 compensation, to award performance-based restricted stock, restricted stock, and stock options at a 50%, 25% and 25% mix, respectively. The Compensation Committee determined to reinstate its long-standing practice of making performance-based restricted stock awards due to the stabilization of market conditions.
2020 Proxy Statement
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Fiscal 2021 compensation
For Fiscal 2021, when setting compensation, the Compensation Committee took into account the limitations on executive compensation imposed by the CARES Act, as well as the difficulty in setting multi-year targets given uncertain economic conditions. Accordingly, the Compensation Committee determined to grant a mix of 70% stock options and 30% restricted stock awards for Fiscal 2021 under the Company’s long-term incentive program, with an intention to reintroduce performance-based restricted stock as business conditions and visibility to future Company performance improve. The Compensation Committee made the decision to deviate from its normal practice primarily due to the environment of low visibility and subsequent difficulty in setting meaningful long-term performance targets, and because the Compensation Committee views stock options as the preferred equity award vehicle during the current economic environment to align management’s interests with those of its stockholders. In particular, the Compensation Committee considered the Company’s near-term strategy, and determined that the anticipated increase in stock price contemplated by a successful strategy implementation would be best complimented by stock options.
The Compensation Committee also views time-based restricted stock awards as having a retentive value that may help offset the reductions in compensation necessary to comply with the CARES Act. Similarly, when designing the short term incentive compensation for Fiscal 2021, the Compensation Committee determined to use adjusted earnings per share from continuing operations and adjusted working capital turns as annual financial metrics, but also introduce strategic objectives focused on the Company’s priorities for the upcoming fiscal year to emphasize management’s key areas of focus the Compensation Committee has determined are important for the Company’s success in Fiscal 2021.
Key executive compensation policies and practices
The following are key factors that also affect the executive compensation decisions made by the Compensation Committee for the Company’s executives, including its named executive officers:
Stock ownership guidelines
The Company has stock ownership guidelines requiring directors and executive officers to own and retain a meaningful amount of the Company’s stock.
The table below summarizes the current stock ownership guidelines:
| Applicable persons | | Stock ownership requirement market value |
| Non-Employee Directors | | Lesser of $370,000$285,000 market value of shares or 20,000 shares (within five years of joining the Board) |
Executive Officers | | |
| CEO | |   |
| Direct Reports to CEO | |   |
| Other Executive Officers | |   |
Executive officers not in compliance with these guidelines must retain at least 50% of the net shares after 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. Failure to meet these stock ownership levels or to show sustained progress toward meeting them 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, 2020.2021.
Employment, severance and other agreements
The Company has an employment agreement with Mr. Holmes, its President and Chief Executive Officer, and as of May 31, 2020,2021, had severance and change-in-control agreements in place with Mr. Gillen and Ms. Garascia. The Board determined to enter into severance and change-in-control agreements with the remainder of the named executive officers in July 2020. Mr. Regan, who is now retired, no longer has such an agreement.officers. See “— Employment Agreementagreement with Mr. Holmes” for a description of the employment agreement between the Company and Mr. Holmes and “Potential Paymentspayments upon a Terminationtermination of Employmentemployment or a Change-in-Controlchange-in-control of the Company” for a description of the severance and change-in-control agreements with Mr. Gillen and Ms. Garascia.
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The Company and Mr. Regan entered into a retirement agreement in connection with Mr. Regan’s retirement from the Company on December 31, 2019.
The retirement agreement provided Mr. Regan with continued salary through December 31, 2019 at an annual rate of $426,164; eligibility for a pro-rated Fiscal 2020 bonus under the Company’s Fiscal 2020 Short-Term Incentive Plan (which bonus was approved by the Compensation Committee in July 2020 in the amount of $234,923, as shown in the “Non-Equity Incentive Compensation” columnremainder of the Summary Compensation Table); continued coverage of group medical, dental and vision benefits for Mr. Regan, and his spouse and covered dependents until the earlier of Mr. Regan becoming eligible for Medicare or coverage through another employer; eligibility for financial planning services in 2020 (provided by the Company at a cost of $11,307 in Fiscal 2020, as shown in footnote 8 to the Summary Compensation Table); and confirmation that Mr. Regan is retirement-eligible (i. e., vested) as of December 31, 2019 for purposes of the Company’s stock option plans and the Supplemental Key Employee Retirement Plan.named executive officers.
The rationale for the employment agreement and the severance and change-in-control agreements is to provide an appropriate measure of security and incentive to the executive officers in line with market practice and to promote the Company’s goal of senior leadership stability.
The Company has no tax gross-up provisions or single trigger change-in-control provisions in any agreement with any executive officer.
Equity grant practices
The Compensation Committee meets from time to time to consider and act with respect to equity compensation awards for the Company’s executive officers. As described, the Compensation Committee typically grants annual stock awards at its July meeting. The Compensation Committee — or the Chief Executive Officer pursuant to authority delegated by the Compensation Committee — also grants stock awards to newly hired or newly promoted employees at other times during the year. In all cases, the grant 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.
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Proposal 2 Executive compensation
Perquisites
We provide limited perquisites to our executive officers. See footnotes to the “Other“All Other Compensation” column of the Summary Compensation Table for a description and valuation of these perquisites. The Compensation Committee believes these perquisites are reasonable, market-competitive and consistent with the Company’s overall executive compensation program.
Retirement benefits
The Company’s named executive officers participate in one or more of the following retirement plans:
| ● | Retirement Plan: A tax-qualified defined benefit plan whose benefit accruals ceased in June 2005. |
| ● | Retirement Savings Plan: A tax-qualified 401(k) savings plan available to all employees. |
| ● | SKERP: A non-qualified retirement plan that makes up 401(k) benefits that would otherwise be lost as a result of 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.
Risk management
The Compensation Committee considered, with the assistance of its independent compensation consultant, whether the Company’s compensation policies and practices in Fiscal 20202021 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 the Company’s compensation policies and practices did not encourage excessive or inappropriate risk-taking and that they were not reasonably likely to have any such material adverse effect on the Company.
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Proposal 2 Executive compensation
The Compensation Committee believes that the design and operation of the Company’s executive compensation program are consistent with the Company’s risk management strategies for the following reasons:
| ● | The Fiscal 20202021 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 20202021 short-term incentive plan awards — performance-based cash compensation — were based on twothree different performance metrics: adjusted earnings per share, andadjusted net working capital turns eachand strategic objectives, all of which providesprovide 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 20202021 short-term incentive plan was also reflected in the Fiscal 20202022 long-term incentive plan awards, which consisted of performance-based restricted stock and stock options and did not include any time-based restricted stock for executive officers.stock. Each of these long-term equity-based incentive awards contains vesting periods designed to promote employee retention. They alsoThe stock options, which comprised 70% of the awards (or 50% of the awards for Ms. Garascia and 100% of the awards for Mr. Holmes), 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 Fiscal 2020 long-term incentive plan — income from continuing operations, return on invested capital and relative total stockholder return — are different from the performance goals used under the Fiscal 2020 short-term incentive plan (earnings per share and working capital turns). In addition, the Fiscal 2020 long-term incentive plan has a three-year performance period compared to the one-year performance period under the Fiscal 2020 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. |
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Role of the independent compensation consultant
Semler Brossy Consulting Group (“Semler Brossy”) served as the independent compensation consultant to the Compensation Committee in Fiscal 2020.2021. Semler Brossy provides research, data analysis, market information and compensation plan design expertise and experience to the Compensation Committee. Semler Brossy assisted with the design and implementation of the Fiscal 20202021 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 2020.2021.
The Compensation Committee considered the independence of Semler Brossy in Fiscal 2020.2021. The Compensation Committee’s consideration of Semler Brossy’s independence focused on the following factors:
| ● | 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 Semler Brossy and that Semler Brossy was independent of the Company.
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Incentive compensation claw-back policy
The Company has an incentive compensation claw-back policy. The policy provides for the recoupment of incentive compensation, including bonuses and equity-based grants and awards, paid to a current or former executive officer of the Company where such person’s misconduct contributed to an accounting restatement of the Company’s financial statements.
The Company is aware of the proposed compensation claw-back rules issued by the SEC. The Company will revise its incentive compensation claw-back policy to comply with the requirements of the SEC’s final rules if and when they are adopted.
Anti-hedging and anti-pledging policies
The Company maintains a strong insider trading policy aimed at ensuring that its directors, officers and employees do not use confidential or material non-public information in connection with trading in Company securities or in the securities of other companies with which the Company does business. The purpose of the insider trading policy is to promote compliance with applicable securities laws governing insider trading.
An important part of the Company’s insider trading policy is the prohibition on directors, officers and employees engaging in short sales, market put and call options, margining and hedging, pledging or hypothecation of the Company’s securities, except for pledging or hypothecation in connection with a cashless exercise of stock options issued by the Company. The Company discourages its directors, officers and employees from engaging in short-term speculative trading, and the prohibition on hedging and pledging securities is consistent with this perspective.
Deductibility of executive compensation
Section 162(m) of the Internal Revenue Code as in effect prior to Fiscal 2019 generally prevented the Company from claiming a deduction for compensation in excess of $1 million paid to its chief executive officer and the three other most highly compensated officers other than the chief financial officer, unless it met the requirement to be considered performance-based compensation. Our annual cash bonuses, performance-based restricted stock awards and stock option grants were generally structured to qualify for this performance-based exception.
The Tax Cut and Jobs Act amended Section 162(m) to cover our chief financial officer and to eliminate the performance-based compensation exception beginning with Fiscal 2019, except with respect to certain grandfathered compensation arrangements. This means that starting in Fiscal 2019, no compensation of a covered employee will be deductible for federal income tax purposes to the extent it exceeds $1 million. In addition, any compensation paid to a covered employee after termination of employment will also be subject to the $1 million limitation.
Despite these new limits on the ability to deduct performance-based compensation, the Compensation Committee continues to believe that a significant portion of our executive compensation should be performance-based. While the Compensation Committee considers the deductibility of compensation, the Compensation Committee has the ability to award compensation in excess of the deductibility limit when it is appropriate to do so.
20202021 Proxy Statement
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Proposal 2 Executive compensation
Executive compensation tables
Summary compensation table1
The following table sets forth compensation information for the Company’s named executive officers for Fiscal 2021, Fiscal 2020 and Fiscal 2019 and Fiscal 2018:(where applicable):
| Name and principal position | | Year | | Salary
($)2 | | Bonus
($)3 | | Stock
awards
($)4 | | Option
awards
($)5 | | Non-equity
incentive
plan
compensation
($)6 | | Change in
pension
value and
non-qualified
deferred
compensation
earnings
($)7 | | All other
compensation
($)8 | | Total
($) | | Year | | Salary
($)2 | | Bonus
($) | | Stock
awards
($)3 | | Option
awards
($)4 | | Non-equity
incentive
plan
compensation
($)5 | | Change in
pension
value and
non-qualified
deferred
compensation
earnings
($)6 | | All other
compensation
($)7 | | Total
($) |
John M. Holmes
President and Chief
Executive Officer | | 2020 | | 801,101 | | — | | 1,300,212 | | 1,300,118 | | 1,113,750 | | 756 | | 220,970 | | 4,736,907 | | 2021 | | 780,655 | | — | | — | | 1,842,024 | | 1,413,000 | | 790 | | 86,957 | | 4,123,426 |
| 2019 | | 750,000 | | — | | 1,125,306 | | 1,125,041 | | — | | 723 | | 344,077 | | 3,345,147 | 2020 | | 801,101 | | — | | 1,300,212 | | 1,300,118 | | 1,113,750 | | 756 | | 220,970 | | 4,736,907 |
| 2018 | | 564,600 | | — | | 1,022,540 | | 889,920 | | 1,044,510 | | 692 | | 208,550 | | 3,730,812 | 2019 | | 750,000 | | — | | 1,125,306 | | 1,125,041 | | — | | 723 | | 344,077 | | 3,345,147 |
Sean M. Gillen
Vice President and
Chief Financial Officer | | 2020 | | 403,498 | | — | | 250,439 | | 428,841 | | 556,200 | | — | | 98,815 | | 1,737,793 | | 2021 | | 392,845 | | — | | 172,543 | | 402,527 | | 682,950 | | — | | 24,151 | | 1,675,016 |
| 2019 | | 160,215 | | 500,000 | | 250,020 | | 70,934 | | — | | — | | 6,276 | | 987,445 | 2020 | | 403,498 | | — | | 250,439 | | 428,841 | | 556,200 | | — | | 98,815 | | 1,737,793 |
Jessica A. Garascia9
Vice President, General
Counsel and Secretary | | 2020 | | 117,262 | | 50,000 | | — | | — | | 168,750 | | — | | 3,558 | | 339,570 | |
Sean M. Gillen
Vice President and
Chief Financial Officer | | | 2019 | | 160,215 | | 500,000 | | 250,020 | | 70,934 | | — | | — | | 6,276 | | 987,445 |
| 2021 | | 359,598 | | — | | 250,008 | | 250,021 | | 628,000 | | — | | 27,913 | | 1,515,540 |
| 2020 | | 117,262 | | 50,000 | | — | | — | | 168,750 | | — | | 3,558 | | 339,570 |
Jessica A. Garascia
Vice President, General
Counsel, Chief Compliance
Officer and Secretary | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| 2021 | | 382,738 | | — | | 195,082 | | 455,007 | | 667,250 | | — | | 30,355 | | 1,730,432 |
| 2020 | | 391,746 | | — | | 250,439 | | 249,775 | | 540,000 | | — | | 140,958 | | 1,572,918 |
Christopher A. Jessup
Vice President, Chief
Commercial Officer | | 2020 | | 391,746 | | — | | 250,439 | | 249,775 | | 540,000 | | — | | 140,958 | | 1,572,918 | | | | | | | | | | | | | | | | | | |
Eric S. Pachapa
Vice President, Controller
and Chief Accounting
Officer | | 2020 | | 327,843 | | 50,000 | | 175,119 | | 175,100 | | 248,553 | | — | | 60,530 | | 1,037,145 | 2021 | | 309,968 | | — | | 120,932 | | 282,113 | | 394,463 | | — | | 8,638 | | 1,116,114 |
| 2019 | | 308,697 | | 49,750 | | 125,034 | | 125,081 | | 250,250 | | — | | 30,733 | | 889,545 | 2020 | | 327,843 | | 50,000 | | 175,119 | | 175,100 | | 248,553 | | — | | 60,530 | | 1,037,145 |
| 2018 | | 288,400 | | — | | 52,890 | | 47,277 | | 279,576 | | — | | 21,699 | | 689,842 | | 2019 | | 308,697 | | 49,750 | | 125,034 | | 125,081 | | 250,250 | | — | | 30,733 | | 889,545 |
Robert J. Regan9
Retired Vice President,
General Counsel and
Secretary | | 2020 | | 248,596 | | — | | — | | — | | 234,923 | | — | | 327,961 | | 811,480 | |
| 2019 | | 426,164 | | — | | 350,095 | | 349,952 | | 417,641 | | — | | 196,479 | | 1,740,331 | |
| 2018 | | 413,751 | | — | | 458,380 | | 435,690 | | 535,808 | | — | | 112,743 | | 1,956,372 | |
Eric S. Pachapa
Vice President, Controller
and Chief Accounting
Officer | | | | | | | | | | | | | | | | | | | |
| 1 | General.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 2020.2021. |
| 2 | Salary.Salary. Through December 1, 2020 of Fiscal 2021, Mr. Holmes received a 10% base salary increase, Messrs. Gillen and Pachapa received a 3% base salary increase, and Ms. Garascia’s base salary was set at $375,000. Mr. Jessup received a 7% increase in his salary in recognition of his contributions to the Company. Mr. Regan did not receive an increase in salary due to his scheduled retirement at December 31, 2019. In an effort to support the Company’s cost reduction efforts related to COVID-19, Mr. Holmes’sHolmes’ base salary was reduced by 15% effective April 1, 2020,20%, and then further adjusted down by an additional 5% (to 20%) effective May 2, 2020. Thethe other named executive officers’ compensationbase salary was reduced by 10%,15%. Effective December 1, 2020 the named executive officers received the following base salary increases as follows to their initial base salary rates set prior to the pay reduction: Mr. Holmes 9.1%; Mr. Gillen 5.6%; Ms. Garascia 6.7%; and then further adjusted down by an additional 5% (to 15%) effective May 2, 2020.Mr. Jessup 6.3%. Mr. Pachapa did not receive a base salary increase. |
| 3 | Bonus.Ms. Garascia received a $50,000 signing bonus upon joining the Company. Mr. Pachapa received a discretionary bonus of $50,000 in addition to his performance-based bonus. |
4 | Stock Awards.Awards. The amounts in this column for Fiscal 20202021 reflect the grant date fair values of the performance-basedtime-based restricted stock awards at their target levels.awards. 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 as required by SEC rules, are Mr. Holmes: $3,250,530; Mr. Gillen: $626,098; Mr. Jessup: $626,098; and Mr. Pachapa: $437,798. Ms. Garascia and Mr. Regan did not receive a performance-based stock award in Fiscal 2020. |
| The Compensation Committee did not make anymade grants of time-based restricted stock awards to the named executive officers in Fiscal 2020.2021 with the exception of Mr. Holmes, who received only stock options. Generally, the time-based restricted stock vests on July 31, 2023. See Note 5, to the Consolidated Financial Statements contained in the Company’s Annual Report on Form 10-K for Fiscal 20202021 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 in Fiscal 2020.2021. Vesting information is presented under “Executive Compensation — Outstanding Equity Awards at Fiscal 20202021 Year End — Vesting.” |
54 | Option Awards.Awards. The amounts in this column for Fiscal 20202021 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 20202021 for an explanation of the assumptions made by the Company in the valuation of these awards. The Fiscal 2020 amount for Mr. Gillen includes a $179,066 grant of options received in Fiscal 2020 to correct an administrative error that occurred in Fiscal 2019, which resulted in him not receiving all the options contemplated by his employment agreement offer. |
| 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 2020.2021. Vesting information is presented under “Executive Compensation — Outstanding Equity Awards at Fiscal 20202021 Year End — Vesting.” |
65 | Non-Equity Incentive Plan Compensation. Compensation. The Fiscal 20202021 amounts in this column are the performance-based cash bonuses earned by Mr. Holmes, Mr. Gillen, Ms. Garascia, Mr. Jessup and Mr. Pachapa under the Company’s Fiscal 20202021 short-term incentive plan. Mr. Regan’s performance-based cash bonus in Fiscal 2020 was pro-rated based on his employment with the Company through December 31, 2019, and Ms. Garascia’s performance-based cash bonus in Fiscal 2020 was pro-rated based on her employment with the Company from February 3, 2020 through May 31, 2020. The “Compensation Discussion and Analysis” section of this proxy statement contains additional information about the Fiscal 20202021 bonuses. |
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76 | Change in Pension Value and Non-Qualified Deferred Compensation Earnings.Earnings. This column shows the increased pension value under the Retirement Plan for Mr. Homes,Holmes, who is the only named executive officer with a benefit 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. |
8 | 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 2020. As required by the SEC rules, the Company values perquisites based on the aggregate incremental cost to the Company. |
| Named executive officer | | Company 401(k)
plan contributions
($) | | Company
SKERP
contributions
($) | | Club dues and
expenses
($) | | Financial
planning
($) | | Severance
($) | | Spouse
travel
($) | | Executive
physical
($) | | Total
($) |
| John M. Holmes | | 19,898 | | 151,183 | | 36,166 | | 13,202 | | | | 521 | | | | 220,970 |
| Sean M. Gillen | | 6,700 | | 75,469 | | | | 16,125 | | | | 521 | | | | 98,915 |
| Jessica A. Garascia | | 3,037 | | | | | | | | | | 521 | | | | 3,558 |
| Christopher A. Jessup | | 19,221 | | 98,147 | | 3,510 | | 13,223 | | | | 2,862 | | 3,995 | | 140,958 |
| Eric S. Pachapa | | 17,641 | | 42,889 | | | | - | | | | | | | | 60,530 |
| Robert J. Regan | | 19,072 | | 112,738 | | | | 11,307 | | 184,844 | | | | | | 327,961 |
956 | For Ms. Garascia and Mr. Regan, base salary amounts are for their periods of employment in Fiscal 2020. |
Table of Contents
Proposal 2 Executive compensation
| 7 | All Other Compensation. The table below provides a breakdown, by type and amount, of the totals shown in the “All Other Compensation” column for each named executive officer in Fiscal 2021. As required by the SEC rules, the Company values perquisites based on the aggregate incremental cost to the Company. |
| | |
| | | | | | Company | | | | | | | | | | | | |
| | | | Company 401(k) | | SKERP | | Club dues and | | Financial | | | | Spouse | | Executive | | |
| | | | plan contributions | | contributions | | expenses | | planning | | Severance | | travel | | physical | | Total |
| | Named executive officer | | ($) | | ($) | | ($) | | ($) | | ($) | | ($) | | ($) | | ($) |
| | John M. Holmes | | 17,388 | | 9,284 | | 42,815 | | 13,300 | | — | | 175 | | 3,995 | | 86,957 |
| | Sean M. Gillen | | 6,856 | | — | | — | | 13,300 | | — | | — | | 3,995 | | 24,151 |
| | Jessica A. Garascia | | 5,997 | | — | | — | | 17,921 | | — | | — | | 3,995 | | 27,913 |
| | Christopher A. Jessup | | 11,490 | | — | | 1,395 | | 13,300 | | — | | 175 | | 3,995 | | 30,355 |
| | Eric S. Pachapa | | 8,638 | | — | | — | | — | | — | | — | | — | | 8,638 |
Employment agreement with Mr. Holmes
We entered into an amended and restated employment agreement with John M. Holmes, effective when he became President and Chief Executive Officer of the Company on June 1, 2018.2018, which agreement was amended on July 30, 2020 to, among other items, acknowledge that Mr. Holmes’s compensation may be reduced temporarily to comply with the restrictions of the CARES Act in connection with the Company receiving financial assistance under that Act. As in effect on May 31, 2020,2021, the agreement provides that it runs through May 31, 20212023 and thereafter renews annually, subject to either party’s right to terminate.
The table below outlines the principal terms of Mr. Holmes’s employment agreement.
| Type of benefit | | Description |
| Annual base salary | | $725,000,900,000 as may be subsequently increased by the Compensation Committee |
| Annual cash bonus | | Target cash bonus opportunity of 100% of base salary and a maximum opportunity of 250% of base salary based on achievement of performance goals established each year by the Compensation Committee |
Annual stock and stock
option awards | | As determined each year by the Compensation Committee ($2,600,330(award value of $1,842,024 in Fiscal 2020)2021, after CARES Act reductions) |
| Perquisites | | Financial planning and tax preparation services (not to exceed $15,000 per calendar year); participation in the Company’s executive physical program; club dues; and participation in the defined contribution portion of the Company’s SKERP.SKERP |
Termination / Change-in-
Control benefits | | See “Potential Benefits Payable Upon Terminationpayments upon a termination of Employmentemployment or a Change-in-Controlchange-in-control of the Company — Employment Agreementagreement with JohnMr. Holmes” |
Mr. Holmes’ employment agreement was amended as of July 30, 2020 to provide for (i) a two year extension of the term of the agreement until May 31, 2023, (ii) a salary increase to $900,000 effective as of December 1, 2020 or such other date as the Compensation Committee may determine (which will be retroactive to July 30, 2020 for purposes of determining the annual bonus and the bonus component of severance) and (iii) the inclusion of current year bonus as a potential component of severance. In the amendment, Mr. Holmes acknowledges that his compensation may be reduced temporarily to comply with the restrictions of the CARES Act in connection with the Company receiving financial assistance under Act.
Agreements with other named executive officers
Jessica A. Garascia became Vice President, General Counsel and Secretary of the Company on February 3, 2020. The Compensation Committee approved the following elements of Ms. Garascia’s compensation:
● | Annual base salary of $375,000
|
● | Signing bonus of $50,000
|
● | Stock awards under the Fiscal 2021 long-term incentive plan, consisting of: 44,300 stock options with an exercise price of $18.94, vesting 33- 1 / 3% per year on July 31, 2021, July 31, 2022 and July 31, 2023, and 13,200 shares of time based restricted stock, vesting 100% on December 31, 2020.
|
The Company has a severance and change-in-control agreement with Sean M. Gillen, the Company’s Chief Financial Officer, and with Ms. Garascia. The Board determined to enter into severance and change-in-control agreements with the remainder of the named executive officers in July 2020.officers. See “Potential Benefits Payable Uponpayments upon a Terminationtermination of Employmentemployment or a Change-in-Controlchange-in-control of the Company” for information about these severance and change-in-control agreements.
20202021 Proxy Statement
| 57 |
Table of Contents
Proposal 2 Executive compensation
The Company and Mr. Regan entered into a retirement agreement in connection with Mr. Regan’s retirement from the Company on December 31, 2019.
The retirement agreement provided Mr. Regan with continued salary through December 31, 2019 at an annual rate of $426,164; eligibility for a pro-rated Fiscal 2020 bonus under the Company’s Fiscal 2020 Short-Term Incentive Plan (which bonus was approved by the Compensation Committee in July 2020 in the amount of $234,923, as shown in the “Non-Equity Incentive Compensation” column of the Summary Compensation Table); continued coverage of group medical, dental and vision benefits for Mr. Regan, and his spouse and covered dependents until the earlier of Mr. Regan becoming eligible for Medicare or coverage through another employer; eligibility for tax and consulting services in 2020 (provided by the Company at a cost of $11,307 in Fiscal 2020, as shown in footnote 8 to the Summary Compensation Table); and confirmation that Mr. Regan is retirement-eligible (i. e., vested) as of December 31, 2019 for purposes of the Company’s stock option plans and the Supplemental Key Employee Retirement Plan.
Fiscal 20202021 grants of plan-based awards
The following table sets forth information for each named executive officer with respect to:
| ● | Estimated possible payouts under non-equity incentive plan award opportunities for Fiscal 2020; 2021; |
| ● | Estimated possible payouts under equity incentive plan award opportunities for Fiscal 2020; 2021; |
| ● | Other stock awards made in Fiscal 2020;2021; and |
| ● | Stock options granted in Fiscal 2020. 2021. |
| | | | Estimated future payouts
under non-equity incentive
plan awards2 | |
Estimated future payouts
under equity incentive
plan awards3 | | All other
stock
awards:
number
of shares
of stock
or units
(#)4 | | All other
option
awards:
number of
securities
underlying
options
(#)5 | | Exercise or
base price
of option
awards
($/sh) | | Grant date
fair value
of stock
and
option
awards
($)6 | |
Estimated future payouts
under non-equity incentive
plan awards2 | | Estimated future payouts
under equity incentive
plan awards | | All other
stock
awards:
number
of shares
of stock
or units
(#) | | All other
option
awards:
number of
securities
underlying
options
(#)3 | | Exercise or
base price
of option
awards
($/sh) | | Grant date
fair value
of stock
and
option
awards
($)4 |
| Named executive officer | | Grant
date1 | | Threshold
($) | | Target
($) | | Maximum
($) | | Threshold
(#) | | Target
(#) | | Maximum
(#) | | Grant
date1 | | Threshold
($) | | Target
($) | | Maximum
($) | | Threshold
(#) | | Target
(#) | | Maximum
(#) | |
| John M. Holmes | | | | 412,500 | | 825,000 | | 2,062,500 | | | | | | | | | | | | | | | | | 450,000 | | 900,000 | | 1,800,000 | | |
| 7/8/19 | | | | | | | | 17,263 | | 34,525 | | 86,313 | | | | | | | | 1,300,212 | |
| 7/8/19 | | | | | | | | | | | | | | | | 126,225 | | 37.66 | | 1,300,118 | |
| | | 7/13/20 | | 326,600 | | 18.94 | | 1,842,024 |
| Sean M. Gillen | | | | 206,000 | | 412,000 | | 1,030,000 | | | | | | | | | | | | | | | | | 217,500 | | 435,000 | | 870,000 | | |
| 7/8/19 | | | | | | | | 3,325 | | 6,650 | | 16,625 | | | | | | | | 250,439 | |
| 7/8/19 | | | | | | | | | | | | | | | | 24,250 | | 37.66 | | 249,775 | |
| 7/8/19 | | | | | | | | | | | | | | | | 17,385 | | 37.66 | | 179,066 | |
| | | 7/13/20 | | 9,110 | | 172,543 |
| | | 7/13/20 | | 71,370 | | 18.94 | | 402,527 |
| Jessica A. Garascia | | | | 187,500 | | 375,000 | | 937,500 | | | | | | | | | | | | | | | | | 200,000 | | 400,000 | | 800,000 | | |
| | | 7/13/20 | | 13,200 | | 250,008 |
| | | 7/13/20 | | 44,330 | | 18.94 | | 250,021 |
| Christopher A. Jessup | | | | 200,000 | | 400,000 | | 1,000,000 | | | | | | | | | | | | | | | | | 212,500 | | 425,000 | | 850,000 | | |
| 7/8/19 | | | | | | | | 3,325 | | 6,650 | | 16,625 | | | | | | | | 250,439 | |
| 7/8/19 | | | | | | | | | | | | | | | | 24,250 | | 37.66 | | 249,775 | |
| | | 7/13/20 | | 10,300 | | 195,082 |
| | | 7/13/20 | | 80,675 | | 18.94 | | 455,007 |
| Eric. S. Pachapa | | | | 92,056 | | 184,113 | | 460,281 | | | | | | | | | | | | | | | | | 125,625 | | 251,250 | | 502,500 | | |
| 7/8/19 | | | | | | | | 2,325 | | 4,650 | | 11,625 | | | | | | | | 175,119 | |
| 7/8/19 | | | | | | | | | | | | | | | | 17,000 | | 37.66 | | 175,100 | |
| Robert J. Regan | | | | 149,157 | | 298,315 | | 745,787 | | | | | | | | | | | | | | | |
| | | 7/13/20 | | 6,385 | | 120,932 |
| | | 7/13/20 | | 50,020 | | 18.94 | | 282,113 |
| 1 | The Compensation Committee granted annual stock awards under the Company’s Fiscal 20202021 long-term incentive plan at its meeting on July 8, 2019.13, 2020. |
| 2 | Annual cash bonuses under the Company’s Fiscal 20202021 short-term incentive plan were subject to performance in Fiscal 2020,2021, 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 8, 2019.13, 2020, and based on salary increases for Fiscal 2021 that were effective as of December 1, 2020. |
| 3 | 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 2020 long-term incentive plan. The actual number of shares of performance-based restricted stock granted under the Fiscal 2020 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 2020 long-term incentive plan. |
4 | There were no awards of time-based restricted stock to the Company’s named executive officers under the Company’s Fiscal 2020 long-term incentive plan. |
5 | This column shows the number of shares subject to stock options granted to the named executive officers under the Company’s Fiscal 20202021 long-term incentive plan. |
64 | The grant date fair values of the performance-based restricted stock awards at the target level and the stock option awards were computed in accordance with FASB ASC Topic 718. |
| 58 | |
Table of Contents
Proposal 2 Executive compensation
Outstanding equity awards at Fiscal 20202021 year-end
The following table sets forth information for each named executive officer with respect to:
| ● | Each stock option that remained outstanding as of May 31, 2020;2021; and |
| ● | Each award of restricted stock that was not vested and remained outstanding as of May 31, 2020 2021. |
| | Option awards1 | | Restricted stock awards | | 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 | | 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 |
| John M. Holmes | | 50,134 | | 0 | | — | | 26.62 | | 08/07/25 | | — | | — | | 128,592 | | 2,593,701 | | 50,134 | | 0 | | — | | 26.62 | | 08/07/25 | | — | | — | | 57,925 | | 2,418,369 |
| 75,000 | | 0 | | — | | 24.00 | | 07/11/26 | | — | | — | | — | | — | |
| 63,998 | | 32,002 | | — | | 35.26 | | 07/10/27 | | — | | — | | — | | — | |
| 27,433 | | 54,867 | | — | | 48.09 | | 07/09/28 | | — | | — | | — | | — | |
| 0 | | 126,225 | | — | | 37.66 | | 07/08/29 | | — | | — | | — | | — | |
| | | 75,000 | | 0 | | — | | 24.00 | | 07/11/26 | | — | | — | | — | | — |
| | | 96,000 | | 0 | | — | | 35.26 | | 07/10/27 | | — | | — | | — | | — |
| | | 54,866 | | 27,434 | | — | | 48.09 | | 07/09/28 | | — | | — | | — | | — |
| | | 42,075 | | 84,150 | | — | | 37.66 | | 07/08/29 | | — | | — | | — | | — |
| | | 0 | | 326,600 | | — | | 18.94 | | 07/13/30 | | — | | — | | — | | — |
| Sean M. Gillen | | 2,243 | | 4,487 | | — | | 37.15 | | 01/15/29 | | — | | — | | 6,650 | | 134,131 | | 4,486 | | 2,244 | | — | | 37.15 | | 01/15/29 | | 9,110 | | 380,343 | | 6,650 | | 277,638 |
| 0 | | 24,250 | | — | | 37.66 | | 07/08/29 | | — | | — | | — | | — | |
| 5,795 | | 11,590 | | — | | 37.66 | | 07/08/29 | | — | | — | | — | | — | |
| | |
| | | 8,083 | | 16,167 | | — | | 37.66 | | 07/08/29 | | — | | — | | — | | — |
| | | 11,590 | | 5,795 | | — | | 37.66 | | 07/08/29 | | — | | — | | — | | — |
| | | 0 | | 71,370 | | — | | 18.94 | | 07/13/30 | | — | | — | | — | | — |
| Jessica A. Garascia | | — | | — | | — | | — | | — | | — | | — | | — | | — | | 0 | | 44,330 | | — | | 18.94 | | 07/13/30 | | — | | — | | — | | — |
| Christopher A. Jessup | | — | | 6,001 | | 0 | | — | | 24.00 | | 07/11/26 | | 10,300 | | 430,025 | | 11,850 | | 494,738 |
| 6,001 | | 0 | | — | | 24.00 | | 07/11/26 | | 2,600 | | 52,442 | | 11,850 | | 239,015 | |
| 4,666 | | 4,668 | | — | | 35.26 | | 07/10/27 | | — | | — | | — | | — | |
| 6,100 | | 12,200 | | — | | 48.09 | | 07/09/28 | | — | | — | | — | | — | |
| 0 | | 24,250 | | — | | 37.66 | | 07/08/29 | | — | | — | | — | | — | |
| | | 9,334 | | 0 | | — | | 35.26 | | 07/10/27 | | — | | — | | — | | — |
| | | 12,200 | | 6,100 | | — | | 48.09 | | 07/09/28 | | — | | — | | — | | — |
| | | 8,083 | | 16,167 | | — | | 37.66 | | 07/08/29 | | — | | — | | — | | — |
| | | 0 | | 80,675 | | — | | 18.94 | | 07/13/30 | | — | | — | | — | | — |
| Eric S. Pachapa | | 4,400 | | 0 | | — | | 24.00 | | 07/11/26 | | 1,500 | | 30,255 | | 7,250 | | 146,233 | | 4,400 | | 0 | | — | | 24.00 | | 07/11/26 | | 6,385 | | 266,574 | | 7,250 | | 302,688 |
| 2,798 | | 1,702 | | — | | 35.26 | | 07/10/27 | | — | | — | | — | | — | |
| 3,050 | | 6,100 | | — | | 48.09 | | 07/09/28 | | — | | — | | — | | — | |
| 0 | | 17,000 | | — | | 37.66 | | 07/08/29 | | — | | — | | — | | — | |
| Robert J. Regan | | 14,118 | | 0 | | — | | 29.65 | | 07/11/21 | | — | | — | | 20,280 | | 409,048 | |
| 47,520 | | 0 | | — | | 25.43 | | 07/15/23 | | — | | — | | — | | — | |
| 41,711 | | 0 | | — | | 26.62 | | 08/07/25 | | — | | — | | — | | — | |
| 60,000 | | 0 | | — | | 24.00 | | 07/11/26 | | — | | — | | — | | — | |
| 31,332 | | 15,668 | | — | | 35.26 | | 07/10/27 | | — | | — | | — | | — | |
| 8,533 | | 17,067 | | — | | 48.09 | | 07/09/28 | | — | | — | | — | | — | |
| | | 4,500 | | 0 | | — | | 35.26 | | 07/10/27 | | — | | — | | — | | — |
| | | 6,100 | | 3,050 | | — | | 48.09 | | 07/09/28 | | — | | — | | — | | — |
| | | 5,666 | | 11,334 | | — | | 37.66 | | 07/08/29 | | — | | — | | — | | — |
| | | 0 | | 50,020 | | — | | 18.94 | | 07/13/30 | | — | | — | | — | | — |
| 1 | These columns show the number, option exercise price and option expiration date of outstanding stock options held by the named executive officers at the end of Fiscal 2020.2021. The first column shows this information for exercisable stock options, and the second column shows this information for unexercisable stock options. |
| 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 2020.2021. It does not reflect the 13,200 shares of the time-based restricted stock issued to Ms. Garascia on July 13, 2020 at $18.94, the closing price of the Common Stock on the July 13, 2020 date of grant, which vested on December 31, 2020 in accordance with the terms of her offer letter. The table below shows the vesting dates for these unvested shares:shares. |
| Vesting date | | Mr. Holmes | | Mr. Gillen | | Ms. Garascia | | Mr. Jessup | | Mr. Pachapa | | Mr. Regan |
| 7/31/20 | | — | | — | | — | | 2,600 | | 1,500 | | — |
| | Vesting date | | Mr. Holmes | | Mr. Gillen | | Ms. Garascia | | Mr. Jessup | | Mr. Pachapa |
| 7/31/23 | | — | | 9,110 | | — | | 10,300 | | 6,385 |
| 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 $20.17$41.75 per share (the closing price of the common stock on May 29, 2020)28, 2021). |
Table of Contents
Proposal 2 Executive compensation
| 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 2020.2021. The table below shows the vesting dates for these unvested shares: |
| | Vesting date | | Mr. Holmes | | Mr. Gillen | | Ms. Garascia | | Mr. Jessup | | Mr. Pachapa | | Mr. Regan |
| 07/11/20 | | 41,667 | | — | | — | | — | | — | | — |
| 07/31/20 | | 29,000 | | — | | — | | — | | — | | 13,000 |
| 07/31/21 | | 23,400 | | — | | — | | 5,200 | | 2,600 | | 7,280 |
| 07/31/22 | | 34,525 | | 6,650 | | — | | 6,650 | | 4,650 | | — |
| | Vesting date | | Mr. Holmes | | Mr. Gillen | | Ms. Garascia | | Mr. Jessup | | Mr. Pachapa |
| 07/31/21 | | 23,400 | | — | | — | | 5,200 | | 2,600 |
| 07/31/22 | | 34,525 | | 6,650 | | — | | 6,650 | | 4,650 |
| Mr. Holmes received an additional 41,666 shares that vested on July 11, 2019 under a special Fiscal 2017 award. Additional shares were received under the Fiscal 2017 long-term incentive plan that vested on July 31, 2019 as follows: Mr. Holmes, 43,560; Mr. Regan, 38,115. |
| 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 $20.17$41.75 per share (the closing price of the common stock on May 29, 2020)28, 2021). |
Table of Contents
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:
| | | General rule | | Retirement21 | | Disability | | Death |
| Stock options | | 33⅓% in each of years 1, 2 and 3 (Stock options granted prior to Fiscal 2016 vest 20% per year for five years)1 | | Stock 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 under “Death”) | | Stock options continue to vest until the earlier of (i) one year after termination of employment and (ii) the option expiration date (except that if death occurs before the option expiration date, unvested options are forfeited and vested options are exercisable for the period described under “Death”) | | Unvested stock options expire on the date of death and vested stock options continue to be exercisable until the earlier of one year after the date of death or the expiration date of the stock option, provided that if death occurs after three months of Retirement, the vested stock options are exercisable until the expiration date.date |
| Time-based
restricted
stock32 | | 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 Disability (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 4th anniversary of grant and vests 50% if death occurs on or before the 4th anniversary of grant) |
| Performance-
based
restricted
stock | | 100% cliff vesting in year 3, assuming the performance conditions are met (Stock granted prior to Fiscal 2017 vests 33⅓% 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 Disability (Stock granted prior to Fiscal 2017 continues to vest in accordance with the vesting schedule) | | 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) |
| 1 | Mr. Gillen was awarded a special grant of 17,385 options in Fiscal 2020 to compensate for an administrative error that occurred in Fiscal 2019, which resulted in him not receiving the options as contemplated by his employment agreement offer. These options vested in 1/3 annual installments, beginning on December 31, 2019. |
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. |
32 | Time-based restricted stock awards are typically made to employees below the executive officer level, except that Mr. Gillen received a time-based restricted stock award when he joined the Company on January 7, 2019 that vested 100% on December 31, 2019 and Ms. Garascia received a time-based restricted stock award on July 13, 2020 that vestsvested 100% on December 31, 2020.2020, and the remaining named executive officers (other than Mr. Holmes) received time-based restricted stock awards on July 12, 2020 that vest on July 21, 2023. |
| 60 | |
Table of Contents
Proposal 2 Executive compensation
Fiscal 20202021 option exercises and stock vested
The following table sets forth information for each named executive officer concerning:
| ● | The exercise of options during Fiscal 2020;2021; |
| ● | The dollar amount realized on exercise of the options; |
| ● | The number of shares of restricted stock that vested during Fiscal 2020;2021; and |
| ● | The value of those vested shares. |
| | Option awards | | Stock awards | | 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
($) | | Number of shares
acquired on
exercise
(#) | | Value
realized on
exercise1
($) | | Number of shares
acquired on
vesting
(#) | | Value
realized on
vesting2
($) |
| John M. Holmes | | 32,000 | | 800,653 | | 86,646 | | 3,658,668 | | — | | — | | 92,417 | | 1,666,005 |
| Sean M. Gillen | | — | | — | | 6,730 | | 303,523 | | — | | — | | — | | — |
| Jessica A. Garascia | | — | | — | | — | | — | | — | | — | | 13,200 | | 478,104 |
| Christopher A. Jessup | | — | | — | | 3,856 | | 161,412 | | — | | — | | 2,600 | | 44,772 |
| Eric S. Pachapa | | — | | — | | 2,000 | | 83,720 | | — | | — | | 1,500 | | 25,830 |
| Robert J. Regan | | — | | — | | 41,662 | | 1,743,971 | |
| 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. |
Retirement plan
The Company’s Retirement Plan is a tax-qualified pension plan. Benefit accruals ceased under the Retirement Plan with respect to most participants, including the named executive officers, effective June 1, 2005. Mr. Holmes is the only named executive officer who participates in the Retirement Plan.
The material terms and conditions of the Retirement Plan as they pertain to Mr. Holmes are as follows:
Benefit formula
UntilEffective January 1, 2000, benefits were accrued pursuant to a formula that provides a monthly single life annuity at retirement at age 65 equal to 1½% of the participant’s Final Average Earnings reduced by the participant’s Social Security offset determined under the Plan, multiplied by the participant’s years of Credited Service (up to 20). Effective as of January 1, 2000, theRetirement Plan was converted to a cash balance type of plan, subject to a “grandfather” provision applicable to certain participants based on age and years of service. Anplan. For each participant who was hired after January 1, 2000, an account is maintained for each participant which consists of (i) an opening account balance equal to the then present value of the benefit accrued by the participant under the prior formula as of December 31, 1999, (ii) quarterly contributions made by the Company equal to a percentage of compensation based on the participant’s age and years of Credited Service, and (iii)(ii) 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. “Final Average Earnings” is defined as 1/5 of a participant’s Compensation during the five consecutive years within the last 10 years preceding termination of employment during which Compensation was the highest. “Compensation” is defined as the participant’s income reported on Form W-2, including pre-tax contributions to the Retirement Savings Plan, reduced by the income attributable to restricted stock grants and stock options, reimbursement of other expense allowances and fringe benefits.
The benefits under the Retirement Plan generally ceased accruing on June 1, 2005, although the participants’ cash balance accounts continue to be credited with interest until the benefits are distributed.
Vesting
Participants are eligible to receive benefits from the Retirement Plan after completing five years of vesting service. Mr. Holmes is fully vested in his benefits.
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Proposal 2 Executive compensation
Payment of retirement benefits
Participants can elect to receive their benefits upon termination of employment or they can defer receipt of benefits until normal retirement age (age 65). Any vested participant can elect benefits at any time after termination of employment, with the benefit actuarially reduced to reflect payment prior to age 65. The Retirement Plan also provides for a disability retirement benefit. 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.
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Proposal 2 Executive compensation
Retirement plan benefits
The following table shows the years of service currently credited, and the present value of the accumulated benefit payable, to Mr. Holmes under the Retirement Plan at the earliest age an unreduced benefit is payable.
Fiscal 20202021 pension benefits
| Named executive officer | | Number of years
credited service
(#)1 | | Present value of
accumulated
benefit
($)2 | | Payments during
fiscal 2020
($) | | Number of years
credited service
(#)1 | | Present value of
accumulated
benefit
($)2 | | Payments during
fiscal 2020
($) |
| John M. Holmes | | 3.7 | | 17,431 | | — | | 3.7 | | 18,221 | | — |
| 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 2020,2021, which is the measurement date for reporting purposes in the Company’s Annual Report on Form 10-K for Fiscal 2020.2021. 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. |
Non-qualified deferred compensation (SKERP)
The Company provides non-qualified deferred compensation benefits under the Company’s Supplemental Key Employee Retirement Plan (“SKERP”).SKERP. The SKERP covers certain executives and key employees designated by the Compensation Committee. All of the named executive officers who participated in the SKERP in Fiscal 2020.2021.
The material terms and conditions of the SKERP include the following.
Contributions
Each participant may make an advance election to contribute a portion 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 could not be made under the Retirement Savings Plan due to the Internal Revenue Code limit on compensation that can be taken into account in determining benefits ($285,000290,000 in 2020)2021), based on the formula in the Retirement Savings Plan; (ii) the portion of the performance contribution that could not be made under the Retirement Savings Plan due to the Code’s compensation limit (this contribution was frozen as of January 1, 2020); (iii) the portion of the non-elective retirement benefit contribution that could not be made under the Retirement Savings Plan due to the Code’s compensation limit; and (iv)(iii) annual discretionary supplemental contributions to the accounts of eligible officers. To receive a credit of this annual supplemental contribution, the participant generally must be employed on the day before the contribution is made to the SKERP (unless termination of employment is due to death or disability). The SKERP was amended in 2020 to provide that in the event of suspension of the matchmatching contributions or non-elective retirement benefit contributions under the Retirement Savings Plan, corresponding contributions under the SKERP will be suspended (matching contributions and non-elective retirement benefit contributions were temporarily suspended effective June 1, 2020 but were reinstated on December 1, 2020).
Vesting
A participant is fully vested in amounts attributable to his own deferral contributions, and vests in all Company contributions, except supplemental contributions, at a rate equal to 33 1 / 333⅓% 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 according to the following schedule: (i) 50% upon reaching the earlier of 20 years of service or when the sum of age and years of service equals 65; (ii) 75% when the sum of age and service equals 75; and (iii) 100% upon the earlier of age 65 or when the sum of age and service equals 75. Participants fully vest in their benefits upon a change in control of the Company.
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Investments
Each participant’s plan accounts are credited with earnings and losses based on investment alternatives made available by the plan committee and selected by the participant from time to time. The investment options currently offered under the SKERP consist of 28 mutual funds. Participants may change investment elections at any time.
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Proposal 2 Executive compensation
Distributions
For contributions made prior to August 1, 2019, the portion of a participant’s account attributable to salary and bonus deferrals is paid on a date elected by the participant, which must be at least seven months and not later than 15 years after termination and the participant can elect to have this paid in a lump sum or installments not to exceed 15 years. A participant who fails to make an election will have his account paid in a lump 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. For contributions made on or after August 1, 2019, a participant can elect the time and form of payment of the entire account, as described above.
Notwithstanding the foregoing, (i) a participant can change the time and form of payment of the portion of his accounts earned and vested in accordance with procedures set forth in the plan; and (ii) a participant can elect a distribution at any time in order to satisfy an unforeseeable hardship (as defined in the plan).
Forfeiture events
A participant will forfeit the portion of his plan accounts attributable to Company supplemental contributions if his employment is terminated for cause (as defined in the SKERP), or if during employment or the one-year period thereafter the participant violates the covenant not to compete contained in the SKERP. 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.
SKERP benefits
The following table below shows the contributions made by each participating named executive officer and by the Company in Fiscal 2020,2021, the earnings accrued on the named executive officer’s account balance in Fiscal 2020,2021, and the account balance as of May 31, 2020.2021. In Fiscal 2021 the Board declined to make a voluntary discretionary supplemental SKERP contribution due to the economic environment resulting from COVID-19 at the time. All named executive officers participated in the SKERP in Fiscal 2020.2021.
Fiscal 20202021 non-qualified deferred compensation
| Named executive officer | | Executive
contributions
in Fiscal 2020
($)1 | | Company
contributions
in Fiscal 2020
($)2 | | Aggregate
earnings
in Fiscal 2020
($)3 | | Aggregate
withdrawal/
distributions
($) | | Aggregate
balance at
May 31, 2020
($)4 | | Executive
contributions
in Fiscal 2021
($)1 | | Company
contributions
in Fiscal 2021
($)2 | | Aggregate
earnings
in Fiscal 2021
($)3 | | Aggregate
withdrawal/
distributions
($) | | Aggregate
balance at
May 31, 2021
($)4 |
| John M. Holmes | | 40,068 | | 151,183 | | 292,883 | | | 2,861,759 | | 160,111 | | 9,284 | | 1,257,611 | | — | | 4,288,765 |
| Sean Gillen | | 9,577 | | 75,469 | | (5,866) | | | 79,180 | | 37,894 | | — | | 40,955 | | — | | 158,029 |
| Jessica A. Garascia | | — | | — | | — | | | — | | 1,517 | | — | | 172 | | — | | 1,689 |
| Christopher A. Jessup | | 27,872 | | 98,147 | | (3,561) | | | 122,458 | | 22,286 | | — | | 65,539 | | — | | 210,283 |
| Eric S. Pachapa | | 10,361 | | 42,889 | | (2,106) | | | 51,144 | | 3,843 | | — | | 18,162 | | — | | 73,149 |
| Robert J. Regan | | 33,175 | | 112,738 | | 403,341 | | | 2,905,405 | |
| 1 | The amount of contributions made by each named executive officer and reported in this column in respect of salary deferrals in Fiscal 20202021 is included in each named executive officer’s compensation reported in the Summary Compensation Table as “Salary.”Salary. The amount of contributions reported in this column also reflects deferral of cash bonuses paid in Fiscal 20202021 but earned and reported inon the Summary Compensation Table for Fiscal 2020.2021. |
| 2 | 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. Due to the temporary suspension of 401(k) and SKERP contributions and salary reductions, Mr. Holmes was the only SKERP participant to exceed the applicable compensation limits and receive Company contributions. In addition, the Company did not make any discretionary contributions. |
| 3 | The investment earnings reported in this column for each named executive officer are not reported in the Summary Compensation Table. |
| 4 | The aggregate balance as of May 31, 20202021 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 20202021 or prior years, except the following amounts of earnings included in the account balance: Mr. Holmes, $1,049,886,$2,307,497, Mr. Gillen, ($5,866),$35,089, Ms. Garascia, $172, Mr. Jessup ($3,561),$61,978, and Mr. Pachapa ($2,106) and Mr. Regan $1,353,451.$16,056. |
20202021 Proxy Statement
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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:
Contributions
A participant can elect to defer up to 75% of the participant’s compensation, up to a maximum of $19,500 for 2020,2021, or $26,000 if age 50 or older. Contributions can be made on a pre-tax or after-tax basis, as elected by the participant. Under the current eligibility provisions, unless a participant elects otherwise participation is automatic at a 5% deferral rate, with an automatic 1% annual increase.
The Company provides a matching contribution a performance contribution and a non-elective retirement benefit contribution. The current matching contribution is made, as of each payroll period, in an amount equal to 50% of the first 6% of the participant’s contributions, up to 3% of the participant’s compensation, to the Plan for such payroll period (prior to June January 1, 2020 the match was 20% of the first 6% of the participant’s contributions up to 1% of compensation). The performance contribution is based on the participant’s contributions as of the end of the prior calendar year and the economic performance of the participant’s operating unit, and is equal to a percentage of up to 6% of the participant’s compensation (this contribution was frozen as of January 1, 2020 in connection with the increase to the match).period. The non-elective retirement benefit contribution is available only to those hired or rehired before January 1, 2020 and is equal to a percentage of compensation, up to 4%, based on the participant’s age and years of credited service. A participant must have earned one year of service to be eligible for the non-elective retirement benefit contribution, and generally must be employed on the last day of the calendar year to receive a performance contribution. Compensation for purposes of determining contributions includes cash compensation shown as income on the participant’s Form W-2, reduced by the participant’s contributions to the plan and excluding the income attributable to restricted stock, stock options, reimbursements or other expense allowances and fringe benefits and subject to the Code’s compensation limit ($285,000290,000 for 2020)2021). Effective June 1, 2020, the Company suspended the matching contributioncontributions and non-elective contributions under the Retirement Savings Plan on a temporary basis. The Company reinstated these contributions effective December 1, 2020.
Investments
Each participant’s plan account is credited with earnings and losses based on investment alternatives made available by the plan committee and selected by the participant from time to time. The investment options currently offered under the plan consist of 12 target date funds and 1216 other funds. Participants may change investment elections at any time.
Vesting
Participants are fully vested in their own contribution accounts, and vest in the Company contribution accounts at a rate equal to 331 / 3% for each year of vesting service (subject to full vesting upon age 65, death or disability).
Distributions
Participants can elect distributions of the plan accounts upon termination of employment in a lump sum, an eligible rollover distribution, or, if early or normal retirement has been attained, in installments not to exceed 15 years.
Potential payments upon a termination of employment or a change-in-control of the Company
The Company provides certain benefits to eligible employees upon certain types of termination of employment, including a termination of employment involving a change-in-control of the Company. These benefits are in addition to the benefits to which the employees would be entitled upon a termination of employment generally (i.e., vested retirement benefits accrued as of the date of termination, stock options and restricted stock that are otherwise vested as of the date of termination and the right to elect continued health coverage pursuant to COBRA). These benefits as they pertain to the named executive officers are as described and set forth in the tables beginning on page 68.
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Proposal 2 Executive compensation
Employment agreement with Mr. Holmes
The Company’s employment agreement with Mr. Holmes as in effect May 31, 20202021 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 Disability 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 greater of (A) his target-level annual cash bonus amount for the fiscal year in which the termination occurs or (B) the average of the cash incentive bonuses 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 18-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) three times his base salary andplus the greater of (i) his target-level annual cash bonus amount for the fiscal year in which the termination occurs or the preceding fiscal year, whichever produces the higher amount or (ii) the cash bonus paid 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 |
| ● | The vesting of outstanding awards under the 2013 Stock Plan (with performance goals deemed satisfied at the higher of target level or actual level). |
If any excise tax would be triggered, Mr. Holmes 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.
Termination of employment — disability
Regardless of whether a Change-in-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.
For purposes of Mr. Holmes’s employment agreement:
“Change-in-Control” means the earliest of (i) a person’s acquisition of more than 35% of the voting power of the Company’s outstanding stock, (ii) a merger or consolidation of the Company that results in the holders of the voting stock immediately prior thereto holding less than 60% of the voting stock of the resulting or surviving entity, (iii) a sale of substantially all of the Company’s assets other than to an entity at least 80% owned by the Company, or (iv) the election, without the consent of the incumbent Board, of a majority of the directors then in office.
“Cause” means Mr. Holmes’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, (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.
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Proposal 2 Executive compensation
“Disability” means a physical or mental condition that has prevented Mr. Holmes from substantially performing his duties under the employment agreement for a period of 180 days and that is expected to continue to render Mr. Holmes unable to substantially perform his duties for the remaining term of the employment agreement on a full-time basis.
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Proposal 2 Executive compensation
“Good Reason” means (i) a material reduction in the nature or scope of Mr. Holmes’s duties or responsibilities or in his compensation (including benefits), other than a reduction in compensation that is necessary to comply with the CARES Act, (ii) removal of 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. Holmes, or (iv) a relocation of his primary place of employment by 50 or more miles.
“Retirement” means Mr. Holmes’s voluntary termination of employment that does not result in severance payments under the employment agreement.
Severance and change-in-control agreements
The Company has severance and change-in-control agreements with Mr. Gillen and Ms. Garasciathe remainder of the named executive officers as of May 31, 2020,2021, each of which provides for the following benefits upon the following types of employment termination:
Termination of employment — prior to, or more than 18 months after, a change-in-control
If prior to, or more than 18 months after, a Change-in-Control of the Company, the executive’s employment is terminated by the Company other than for Cause or Disability, the executive is entitled to (i) continued salary for 12 months or, if earlier, until the executive 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 the executive 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 employment, or if the Company terminates the executive’s employment for Cause, the Company may, but is not required to, pay the above-described severance benefits. Severance payments will cease if the executive breaches the confidentiality or non-compete provisions in the agreement, which are in effect for the one-year severance period.
Termination of employment — within 18 months following a change-in-control
If the executive’s employment is terminated within 18 months following a Change-in-Control by the Company other than for Cause or Disability or by the executive for Good Reason, the executive 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 the executive remained employed until the end of the fiscal year and all performance goals were met at target level (including the value of any restricted stock granted in lieu of bonus), and (C) two times 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, (ii) continued coverage for the executive and the executive’s dependents under the Company’s welfare and fringe benefit plans for two years following termination of employment (the executive and dependents can elect continued medical and dental coverage pursuant to COBRA at the end of such two-year period), (iii) 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) and (iv) reasonable legal fees incurred by the executive in enforcing the agreement. In addition, any outstanding awards under the 2013 Stock Plan will vest and performance goals will be deemed satisfied at the higher of target level or actual performance level. The agreements’ non-compete provisions do not apply in the case of a termination of employment following a Change-in-Control.
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.
Termination of employment — disability
If the executive’s employment terminates due to Disability, the executive will receive payment pursuant to the Company’s disability plans then in effect and will continue to receive coverage under the Company’s medical, dental and life insurance plans for two years following such termination.
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For purposes of the severance and change-in-control agreements:
“Change-in-Control” means (i) a person’s acquisition of more than 20% of the voting power of the Company’s outstanding stock, (ii) a merger or consolidation of the Company that results in the holders of the voting stock immediately prior thereto holding less than 60% of the voting stock of the resulting or surviving entity, (iii) a sale of substantially all of the Company’s assets other than to an entity at least 80% owned by the Company, or (iv) the election, without the consent of the incumbent Board, of the lesser of three directors or a majority of the directors then in office.
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Proposal 2 Executive compensation
“Cause” means the executive’s (i) dishonesty, intentional breach of fiduciary duty, or intentional wrongdoing, (ii) disregard of a material and proper direction from the Board, or (iii) material breach of the agreement that is not cured within 10 days of receipt of notice from the Company.
“Disability” means a physical or mental condition that has prevented the executive from substantially performing his or her 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 or her duties for the remaining term of the agreement on a full-time basis.
“Good Reason” means (i) a material reduction in the nature or scope of the executive’s duties or responsibilities, or in the executive’s compensation (including benefits), (ii) the executive’s determination that as a result of a material change in employment circumstances the executive is unable to adequately carry out his or her duties, or (iii) a relocation of the executive’s primary place of employment by more than 50 miles.
In any event, payments under the agreements in connection with termination of employment that would be considered deferred compensation under Section 409A of the Internal Revenue Code will be delayed for six months following such termination to the extent necessary to comply with Section 409A.
Stock plans
A named executive officer’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:
Stock options
If termination is due to Retirement (as defined), options continue to vest in accordance with the vesting schedule and can be exercised until the expiration date, except that if death occurs before the award expires, then unvested stock options are forfeited. If death occurs within three months after Retirement, vested options can be exercised until the earlier of one year after death or the option expiration date, and if death occurs after three months from Retirement, vested options can be exercised until the option expiration date. If termination is due to Disability (as defined), options continue to vest and are exercisable until the earlier of one year after termination of employment and the option expiration date, except that if death occurs before the award expires, then unvested options are forfeited and vested options are exercisable for the period described herein. If death occurs during employment, or within three months after termination of employment for reasons other than Cause, then unvested options are forfeited and vested options are exercisable until the earlier of one year after death or the option expiration date.
Restricted stock awards
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 change-in-control provisions that apply to participants who do not have a severance and change-in-control agreement. Upon a Change-in-Control of the Company (as defined in the Stock Benefit Plan) that does not have prior written approval of the Board, all options and restricted stock awards will fully vest. Upon a Change-in-Control that has the approval of the Board, the Compensation Committee has the discretion to either provide for full vesting of options and restricted stock awards or grant replacement awards with respect to the successor company’s stock.
Award agreements under the AAR CORP. 2013 Stock Plan do not provide for vesting upon a Change-in-Control (as defined) unless there is a termination of employment by the Company without Cause or by the participant for Good Reason within two years following the Change-in-Control.
20202021 Proxy Statement
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Tables of potential payments upon a termination of employment or a change-in-control of the Company
The tables below quantify the benefits described above that would be paid to each current named executive officer under the following termination of employment or change-in-control events, assuming a change-in-control or a termination of employment occurred on May 31, 2020.2021.
Equity vesting – on or after a change in control
Named executive officer | | Vesting of
restricted stock
($)1 | | Vesting of stock
options ($)2 |
John M. Holmes | | 2,593,701 | | — |
Sean M. Gillen | | 134,131 | | — |
Jessica A. Garascia | | — | | — |
Christopher A. Jessup | | 291,457 | | — |
Eric S. Pachapa | | 176,488 | | — |
| Named executive officer | | Vesting of
restricted stock
($)1 | | Vesting of stock
options ($)2 |
| John M. Holmes | | 2,418,369 | | 7,793,920 |
| Sean M. Gillen | | 657,980 | | 1,728,097 |
| Jessica A. Garascia | | — | | 1,011,167 |
| Christopher A. Jessup | | 924,763 | | 1,906,320 |
| Eric S. Pachapa | | 569,261 | | 1,187,312 |
| 1 | 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, 2020,2021, based on the number of shares multiplied by $20.17$41.75 (the closing price of the common stock on May 31, 2020)2021). |
| 2 | 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 $20.17$41.75 (the closing price of the common stock on May 31, 2020)2021). |
Termination of employment – prior to, or more than 18 months after, a change-in-control
| | Other than cause | | Disability | | Death | | Other than cause | | Disability | | Death |
| Named executive officer | | Salary
($)1 | | Bonus
($)2 | | Restricted
stock
($)3 | | Stock
options
($)4 | | Health
and
welfare
($) | | Health
and
welfare
($)5 | | Restricted
stock
($)6 | | Stock
options
($)7 | | Restricted
stock
($)6 | | 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
($)6 |
| John M. Holmes | | 1,320,000 | | 1,113,750 | | — | | — | | — | | 46,168 | | 1,392,857 | | — | | 1,392,857 | | 1,800,000 | | 2,526,750 | | — | | — | | — | | 46,381 | | 1,803,542 | | 2,655,320 | | 1,803,542 |
| Sean Gillen | | 350,200 | | 556,200 | | — | | — | | — | | 46,168 | | 37,258 | | — | | 37,258 | | 435,000 | | 682,950 | | — | | — | | — | | 46,381 | | 275,318 | | 609,733 | | 275,318 |
| Jessica A. Garascia | | 318,750 | | 168,750 | | — | | — | | — | | 43,360 | | — | | — | | | | 400,000 | | 628,000 | | — | | — | | — | | 43,628 | | — | | 337,041 | | — |
| Christopher A. Jessup | | — | | — | | — | | — | | — | | — | | 150,883 | | — | | 150,883 | | 425,000 | | 667,250 | | — | | — | | — | | 46,381 | | 494,157 | | 646,443 | | 494,157 |
| Eric S. Pachapa | | — | | — | | — | | — | | — | | — | | 86,675 | | — | | 86,675 | | 335,000 | | 394,963 | | — | | — | | — | | 46,381 | | 295,207 | | 403,485 | | 295,207 |
| 1 | Reflects continued salary for 24 months for Mr. Holmes under his employment agreement and 12 months for Mr. Gillen and Ms. Garasciathe remainder of the named executive officers under their severance and change-in-control agreements. |
| 2 | Reflects (i) in the case of Mr. Holmes, two times the average of the non-equity incentive compensation paid to him for Fiscal 20192021 and Fiscal 2020 and (ii) in the case of Mr. Gillen and Ms. Garascia,the remainder of the named executive officers, the non-equity incentive compensation paid to them for Fiscal 2020,2021, in each case as shown in the Summary Compensation Table. |
| 3 | At May 31, 2020,2021, no current named executive officer was eligible for continued vesting upon termination due to Retirement; accordingly, all named executive officers would forfeit their restricted stock upon termination of employment due to Retirement. |
| 4 | At May 31, 2020,2021, no current named executive officer was eligible for continued vesting upon termination due to Retirement; accordingly, all named executive officers would forfeit their stock options upon termination of employment due to Retirement. |
| 5 | Available if termination is due to Disability under the employment agreement for Mr. Holmes and the severance and change-in-control agreements for Mr. Gillen and Ms. Garascia.other named executives. |
| 6 | 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, 2020,2021, based on the number of shares, multiplied by $20.17$41.75 (the closing price of the common stock on May 31, 2020)2021). |
| 7 | 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, 2020,2021, based on the difference between the exercise price and $20.17$41.75 (the closing price of the common stock on May 31, 2020)2021). |
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Table of Contents
Proposal 2 Executive compensation
Termination of employment – within 18 months after a change-in-control1
| Named executive officer | | Salary2
($) | | Bonus3
($) | | Health and
welfare
continuation
($) | | Outplacement
services
($) | | Salary2
($) | | Bonus3
($) | | Health and
welfare
continuation
($) | | Outplacement
services
($) |
| John M. Holmes | | 1,980,000 | | 4,455,000 | | 70,827 | | — | | 2,700,000 | | 5,652,000 | | 71,135 | | — |
| Sean M. Gillen | | 700,400 | | 1,668,600 | | 46,168 | | 63,448 | | 870,000 | | 2,048,850 | | 46,381 | | 78,257 |
| Jessica A. Garascia | | 637,500 | | 506,250 | | 43,360 | | 34,125 | | 800,000 | | 1,884,000 | | 43,628 | | 71,960 |
| Christopher A. Jessup | | — | | — | | — | | — | | 850,000 | | 2,001,750 | | 46,381 | | 76,458 |
| Eric S. Pachapa | | — | | — | | — | | — | | 670,000 | | 1,183,389 | | 46,381 | | 51,062 |
| 1 | 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.” |
| 2 | Reflects three times salary for Mr. Holmes and two times salary for Mr. Gillen and Ms. Garascia.the remainder of the named executive officers. |
| 3 | Reflects (i) in the case of Mr. Holmes, the non-equity incentive plan compensation bonus paid to him for Fiscal 20202021 as shown in the Summary Compensation Table, plus three times his non-equity incentive plan compensation bonus paid to him for either the most recently completed fiscal year prior to termination or the preceding fiscal year, whichever produces the higher amount,Fiscal 2021 and (ii) in the case of Mr. Gillen and Ms. Garascia,the remainder of the named executive officers, the non-equity incentive compensation plan bonus paid to them for Fiscal 20202021 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. |
Other compensation matters
CEO pay ratio
A public company must disclose in its annual proxy statement its CEO pay ratio, defined as the ratio of the annual total compensation of its chief executive officer to the annual total compensation of its median employee. Our median employee is selected once every three years unless there has been a change in our employee population or employee compensation arrangements that would result in a significant change to our pay ratio disclosure. For Fiscal 2020, we do not believe that we have had a change in our employee population or employee compensation arrangements that would require selecting a new median employee. However, our median employee selected in Fiscal 2019 had a significant increase in compensation such that it would have an effect on the pay ratio disclosure. Therefore,2021, we have selected a new median employee whose compensation is substantially similar to the original median employee.
We used the following methodology to determine our CEO pay ratio for Fiscal 2019 and Fiscal 2020:2021:
| STEP 1: | We determined that as of March 1, 20192021 we had a total employee population of 5,7804,762 employees. |
| STEP 2: | Of this group, we identified a selected employee group of 5,6124,572 employees, representing all of our U.S. employees 4,707,3,812 plus our employees in Canada 485,503, the United Kingdom 271166 and the Netherlands 149.91. |
| STEP 3: | 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 employee population. The number of employees excluded in non-U.S. jurisdictions at the March 1, 20192021 determination date were: Afghanistan 29,33, Australia 3, Belgium 30,15, Brazil 1, China 7, Costa Rica 3,14, France 5,6, Germany 8, Guatemala 7, Hungary 1, India 1, Ireland 1, Japan 3,1, Malaysia 6, Mexico 1, New Zealand 3,2, Panama 18,20, Peru 30,34, Singapore 22,24, and United Arab Emirates 6.5. |
| STEP 4: | 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 20182020 calendar year, as reflected in our payroll records and systems. |
| STEP 5: | We identified our median employee from our selected employee group (excluding the Chief Executive Officer). |
| STEP 6: | Once we identified our median employee, we calculated the annual total compensation of this median employee for Fiscal 2020,2021, using the same methodology that we used to calculate the annual total compensation of our named executive officers, including our Chief Executive Officer, in the Summary Compensation Table. |
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 2020:2021:
Annual total compensation of our CEO for Fiscal 2020 | | $ | 4,736,907 |
Annual total compensation of our median employee for Fiscal 2020 | | $ | 62,725 |
Ratio of annual total compensation of our CEO to the annual total compensation of our median employee for Fiscal 2020 | | | 76 to 1 |
| Annual total compensation of our CEO for Fiscal 2021 | | $ | 4,123,426 |
| Annual total compensation of our median employee for Fiscal 2022 | | $ | 58,827 |
| Ratio of annual total compensation of our CEO to the annual total compensation of our median employee for Fiscal 2021 | | | 70 to 1 |
20202021 Proxy Statement
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Table of Contents
Proposal 3
Approve amendments to the AAR CORP. 2013 stock plan |  |
Proposal3 Approve amendments to the AAR CORP. 2013 stock plan |
Board recommendation |
 | Our Board of Directors unanimously recommends that you vote FOR this proposal. |
The Company maintains the AAR CORP. 2013 Stock Plan, as amended and restated effective July 13, 2020 (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.
Request for approval of share increase and extension of plan term
The Board of Directors of the Company has approved the Plan to (i) increase the number of shares available under the Plan by 2,100,000, from 5,350,000 shares to 7,450,000 shares and (ii) extend the term of the Plan by five years, to October 9, 2028. These amendments require the approval by the Company’s stockholders, which the Company is seeking at this stockholders’ meeting.
Fiscal 2021 stock grants made in July 2020 used up all available shares under the Plan. Although the stock option grants exceeded the remaining number of available shares by 783,176 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.
Currently, awards under the Plan cannot be granted after October 9, 2023. Obtaining stockholder approval of the extension of the term of the Plan by five years to October 9, 2028 will enable the Company to continue to make grants from the available shares already approved by stockholders without having to obtain further stockholder approval at a later date.
The purpose of the Plan 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.
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Proposal 3 Approve amendments to the AAR CORP. 2013 stock plan
Plan Restrictions. The Plan contains certain restrictions that further the Plan’s objectives and reflect sound corporate governance principles that protect the interests of stockholders:
● | Shares that are used to pay the stock option exercise price or required tax withholding on any award may not be used for future grants under the Plan. |
● | Shares repurchased by the Company with proceeds received from a stock option exercise may not be used for future grants under the Plan. |
● | Stock awards under the Plan must have a vesting period of at least one year; provided, however, that up to 5% of the shares available under the Plan may be granted without regard to such minimum vesting requirement. |
● | Dividends on performance-based stock awards and dividend equivalents on performance-based stock unit awards are paid only to the extent the performance goals are met. |
● | Stock options and SARs may not 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 control and 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. |
Burn Rate, Expected Duration and Dilution. The Plan’s three-year average “burn rate” was 2% for Fiscal 2018-2020. The burn rate is calculated as the total number of shares subject to awards granted to participants in a single fiscal year expressed as a percent of the basic weighted average common shares outstanding for that fiscal year. The Company expects future share usage under the Plan to be generally consistent with share usage under the Plan to date, and based on the shares reserved for issuance under the Plan and the average burn rate, expects that the requested shares will cover Plan awards for approximately two to three years.
The Board recognizes the impact of dilution on stockholders, and 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 total fully-diluted overhang as of August 1, 2020, assuming that the entire proposed share reserve is granted in stock options or SARs, would be 12.6%, and the total fully-diluted overhang, assuming the proposed share reserve is granted in full-value awards only, would be 15.5%. The Company’s historical practice has been to grant a combination of stock options and full-value awards, resulting in potential overhang between these two levels. In this context, fully-diluted overhang is calculated as the sum of shares subject to outstanding awards and shares available for future awards (numerator) divided by the sum of the numerator and common shares outstanding, with all data effective as of August 1, 2020. The Board believes that the proposed share reserve represents a reasonable amount of potential equity dilution.
Historical Stock Option and Stock Award Information. Set forth below is certain historical information as of August 1, 2020 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: 2,755,394 |
● | The weighted average exercise price of the granted but unexercised stock options: $28.18 |
● | The weighted average remaining term of the granted but unexercised stock options: 7.8 years |
● | The number of granted but unvested full share awards (stock awards and stock units payable in stock): 395,751 |
● | The number of shares available for future grants under the Plan and the predecessor plan: 0 shares remaining from the Plan and 0 shares remaining from our predecessor plan. |
Table of Contents
Proposal 3 Approve amendments to the AAR CORP. 2013 stock plan
Description of the plan
The following is a summary of the Plan. It is qualified by reference to the full text of the Plan, which is attached as Appendix C to this proxy statement. Stockholders are encouraged to review the Plan 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. 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. 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 5,350,000 shares (7,450,000 if the share increase is approved). Stock options and SARs reduce the number of available shares by one share for each share subject to the option or SAR, and stock awards and stock units settled in shares reduce the number of available shares by 1.65 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 shall not 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 1, 2020, the Company had approximately 67 key employees and all non-employee directors who 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.
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.
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Proposal 3 Approve amendments to the AAR CORP. 2013 stock plan
Stock Awards. The Committee may grant stock awards to participants. Stock awards consist of shares of common stock granted without any consideration from the participant. The number of shares awarded to each participant, and the restrictions, terms and conditions of the award, will be at the discretion of the Committee. Subject to the restrictions, a participant will be a stockholder with respect to the shares awarded to him or her and will have the rights of a stockholder with respect to the shares, including the right to vote the shares and receive dividends on the shares; provided that dividends otherwise payable on any performance-based stock award will be held by the Company and will be paid only when and to the extent the restrictions on such stock award lapse, and the Committee in its discretion can provide that the Company accumulate and hold the dividends on any other stock award until the restrictions on the shares lapse.
Stock Units. The Committee may grant stock unit awards to participants. Each stock unit entitles the participant to receive, on a specified date or event set forth in the award agreement, one share of common stock of the Company or cash equal to the fair market value of one share on such date or event, as provided in the award agreement. The number of stock units awarded to each participant, and the terms and conditions of the award, will be at the discretion of the Committee. A participant will not be a stockholder with respect to the stock units awarded to him prior to the date they are settled in shares of common stock. The Committee may provide that the participant will be paid an amount equal to the dividends that would have been paid had the stock units been actual shares; provided that dividend equivalents payable on performance-based stock units will be held by the Company and paid only when and to the extent the restrictions lapse, and the Committee in its discretion can provide that the Company accumulate and hold such amounts payable on any other stock units until the restrictions on the stock units lapse.
Stock Appreciation Rights. SARs may be awarded to key employees under the Plan. Each SAR entitles the key employee to receive the difference between the fair market value of the common stock on the date of exercise of the right and the exercise price thereof, multiplied by the number of shares with respect to which the right is being exercised. Upon exercise, the SAR will be paid in cash or in shares of common stock (based upon the fair market value on the date of exercise) or a combination thereof, as set forth in the award agreement. The Committee has the discretion to set the terms and conditions applicable to SARs, provided that (i) the exercise price of each SAR will not be less than the fair market value of the shares on the date the SAR is granted, (ii) each SAR will expire ten years from the date of grant, and (iii) no SAR can be amended such that it would be considered a “repricing” without stockholder approval.
Performance-Based Awards. The Committee can provide that any award granted under the Plan shall be subject to the attainment of performance goals. 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; unusual and/or non-recurring items; and fluctuations in foreign exchange rates.
Limitation on Awards Granted, and Total Compensation Payable, to Non-Employee Directors. The Plan 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.
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 control and 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.
Table of Contents
Proposal 3 Approve amendments to the AAR CORP. 2013 stock plan
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 (October 9, 2028 if the extension of the Plan term is approved).
Awards granted under the plan
Awards under the Plan are made at the discretion of the Committee. Accordingly, it is not possible at this time to determine all of the specific awards that will be made in future years under the Plan.
As of August 1, 2020, a total of 3,289,777 stock options with exercise prices ranging from $18.94 to $48.09 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: John M. Holmes (President and Chief Executive Officer): 756,259; Sean M. Gillen (Vice President and Chief Financial Officer): 119,735, Jessica A. Garascia (Vice President, General Counsel and Secretary): 44,330; Christopher A. Jessup (Vice President, Chief Commercial Officer): 155,225; Eric S. Pachapa (Vice President, Controller and Chief Accounting Officer): 86,270; Robert J. Regan (Retired Vice President, General Counsel and Secretary) 174,311; all current executive officers as a group: 1,616,819; 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: 1,246,426. On August 1, 2020, the last reported sales price for the common stock on the New York Stock Exchange was $17.22 per share.
Summary of federal income tax consequences
The following is a summary of the federal income tax consequences of the Plan. It is based on the federal tax laws and regulations currently in effect and existing administrative rulings of the Internal Revenue Service. Participants may also be subject to state and local taxes in connection with the grant of awards under the Plan. Participants should consult with their individual tax advisers to determine the tax consequences associated with awards granted under the Plan. This information may not be applicable to employees of foreign subsidiaries or to employees who are not residents of the United States.
Non-Qualified Stock Options. A participant will not recognize any income at the time the participant is granted a non-qualified stock option. On the date the participant exercises the non-qualified stock option, the participant will recognize ordinary income in an amount equal to the excess of the fair market value of the shares on the date of exercise over the exercise price. The participant will be responsible for remitting to the Company the withholding tax obligation that arises at the time the option is exercised. The Company generally will receive a tax deduction for the same amount of ordinary income recognized by the participant. When the participant sells these shares, any gain or loss recognized by the participant is treated as either short-term or long-term capital gain or loss depending on whether the participant has held the shares more than one year.
Incentive Stock Options. A participant will not recognize any income at the time the participant is granted an incentive stock option. If the participant is issued shares pursuant to the exercise of an incentive stock option, and if the participant does not make a disqualifying disposition of the shares within one year after the date of exercise or within two years after the date of grant, the participant will not recognize any income, for federal income tax purposes, at the time of the exercise. When the participant sells the shares issued pursuant to the incentive stock option, the participant will be taxed, for federal income tax purposes, as a long-term capital gain on any amount recognized by the participant in excess of the exercise price, and any loss sustained by the participant will be a long-term capital loss. No deduction will be allowed to the Company for federal income tax purposes. If, however, the participant sells the shares before the expiration of the holding periods, the participant will recognize ordinary income on the difference between the exercise price and the fair market value at exercise, and the Company generally will receive a tax deduction in the same amount. Upon exercise of an incentive stock option, the excess of the fair market value over the exercise price is an item of tax preference to the participant for purposes of determining the alternative minimum tax.
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Proposal 3 Approve amendments to the AAR CORP. 2013 stock plan
In order to qualify as an incentive stock option, the option must be exercised within three months after the participant’s termination of employment for any reason other than death or disability and within one year after termination of the participant’s employment due to disability. If the option is not exercised within this time period, it will be treated as a non-qualified stock option and taxed accordingly.
Stock Awards and Stock Unit Awards. If the participant receives a stock award, the participant generally will recognize ordinary income upon becoming entitled to transfer the shares at the end of any restriction period without forfeiture. A participant generally will recognize ordinary income when he receives shares or cash pursuant to the settlement of stock units, provided that if the shares are subject to any further restrictions on transfer, the participant will recognize ordinary income upon becoming entitled to transfer the shares at the end of the restriction period without forfeiture. The amount of income the participant recognizes will be equal to the fair market value of the shares on the day the restrictions lapse, or the amount of cash received. This amount will also be the participant’s tax basis for the shares. The participant will be responsible for remitting to the Company the withholding tax obligation that arises at the time the ordinary income is recognized. In addition, the holding period begins on the day the restrictions lapse, or the date the shares are received if not subject to any restrictions, for purposes of determining whether the participant has long-term or short-term capital gain or loss on a subsequent sale of the shares. The Company generally will be entitled to a deduction with respect to the ordinary income recognized by the participant.
If a participant who receives a stock award subject to restrictions makes an election under Section 83(b) of the Internal Revenue Code within 30 days after the date of the grant, the participant will have ordinary income equal to the fair market value on the date of grant, and the participant will recognize no additional income until the participant subsequently sells the shares. The participant will be responsible for remitting to the Company the withholding tax obligation that arises at the time the ordinary income is recognized. When the participant sells the shares, the tax basis will be equal to the fair market value on the date of grant, and the holding period for capital gains purposes begins on the date of the grant. If the participant forfeits the shares subject to the Section 83(b) election, the participant will not be entitled to any deduction, refund, or loss for tax purposes (other than a capital loss with respect to the amount of ordinary income previously recognized by the participant), and the Company will have to include the amount that it previously deducted from its gross income in the taxable year of the forfeiture.
Stock Appreciation Rights. A participant will not recognize any income at the time of the grant of an SAR. Upon exercise of the SAR, the participant will recognize ordinary income equal to the amount received upon exercise. The participant will be responsible for remitting to the Company the withholding tax obligation that arises at the time the ordinary income is recognized. The Company generally will be entitled to a deduction with respect to the ordinary income recognized by the participant.
Vote required for approval
Approval of the share increase and term extension under the Plan requires the affirmative vote of a majority of the shares of common stock present in person or represented by proxy and entitled to vote at the annual meeting.
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Proposal 4
Ratification of our independent registered public accounting firm
|   |
Proposal4 3 | Ratification of the appointment of KPMG LLP as our independent registered public accounting firm for Fiscal 20212022 |
| Board recommendation |
  | Our Board of Directors unanimously recommends that you vote FOR this proposal ratifying the appointment of KPMG. |
Proposal summary
We are asking you to ratify the selection of KPMG LLP (“KPMG”), an independent registered public accounting firm, to serve as our independent registered public accounting firm for Fiscal 2021.2022.
The Company’s independent registered public accounting firm reports to, and is engaged at the direction of, the Audit Committee of the Company’s Board of Directors. The 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.
The Audit Committee appointed KPMG as the Company’s independent registered public accounting firm for Fiscal 2021.2022. The Audit Committee believes that the appointment of KPMG is in the best interests of the Company 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, recent litigation against former KPMG partners, and an enforcement action against KPMG by the Securities and Exchange Commission. The Audit Committee reviewed this information as part of its overall evaluation of the performance, expertise and experience of the KPMG team that audits the Company. |
The Board of Directors asks that you ratify the appointment of KPMG as our independent registered public accounting firm for Fiscal 2021.2022. Representatives of KPMG are expected to be present virtually at the annual meeting, with the opportunity to make a statement if they so desire and to respond to appropriate questions from stockholders.
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Proposal 43 Ratification of our independent registered public accounting firm
Independent registered public accounting firm fees and services
The following table sets forth the aggregate fees billed by KPMG to the Company for Fiscal 20192020 and Fiscal 20202021 for audit, audit-related and tax services.
| Description of fees | | Fiscal 2019
($) | | Fiscal 2020
($) | | Fiscal 2020
($) | | Fiscal 2021
($) |
| Audit fees | | 2,452,081 | | 2,007,000 | | 2,720,000 | | 1,930,500 |
| Audit-related fees | | — | | — | | — | | — |
| Tax fees1 | | 167,501 | | 251,135 | | 251,135 | | 232,427 |
| All other fees | | | — | | — |
| 1 | Tax fees in Fiscal 20192020 and Fiscal 20202021 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. All permitted audit, audit-related, tax and other services were pre-approved pursuant to this policy.
Audit committeeCommittee Fiscal 20202021 report
Dear fellow stockholders:stockholders:
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 to be discussed by the applicable requirements of the PCAOB and the SEC rules 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 2021.2022. The Audit Committee recommends that the stockholders of the Company ratify that appointment (see Proposal 4)3).
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 20202021 for filing with the SEC.
Respectfully submitted,
The Audit Committee of the Board of Directors of AAR CORP.
Marc J. Walfish,, Chair
H. John Gilbertson
James E. Goodwin
Patrick J. KellyRobert F. Leduc
Duncan J. McNabb
Peter Pace
Ronald B. Woodard
20202021 Proxy Statement
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Stock ownership information | |
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, 2020,2021, by (i) each current director and director nominee for election to the Board, (ii) each executive officer named in the Summary Compensation Table, (iii) all directors and executive officers of the Company as a group, and (iv) each beneficial owner of more than five percent of the outstanding shares of common stock. Except as noted, the nature of beneficial ownership for shares shown in the tables is sole voting and sole investment power, and none of the shares shown in the tables is pledged by any of the persons listed.
Security ownership of our board and management
| Name | | Shares
beneficially
owned1 | | Percent of shares
outstanding if
greater than 1% | | Stock
units2 | | Shares
beneficially
owned1 | | Percent of shares
outstanding if
greater than 1%2 | | Stock
units3 |
| Anthony K. Anderson | | 23,663 | | — | | — | | 24,010 | | — | | — |
| Michael R. Boyce3 | | 97,503 | | — | | — | |
| Michael R. Boyce4 | | | 110,440 | | — | | — |
| Jessica A. Garascia | | 13,200 | | — | | — | | 32,068 | | — | | — |
| H. John Gilbertson, Jr. | | 6,957 | | — | | — | | 9,894 | | — | | — |
| Sean M. Gillen | | 35,629 | | — | | — | | 91,461 | | — | | — |
| James E. Goodwin | | 72,361 | | — | | 9,777 | | 75,298 | | — | | 9,777 |
| John M. Holmes | | 475,971 | | — | | — | | 608,826 | | — | | — |
| Christopher A. Jessup | | 67,183 | | — | | — | | 110,533 | | — | | — |
| Patrick J. Kelly4 | | 79,180 | | — | | — | |
| Robert F. Leduc | | 5,289 | | — | | — | | 8,226 | | — | | 354 |
| Ellen M. Lord | | | 3,933 | | — | | — |
| Duncan McNabb | | 8,392 | | — | | 9,898 | | 8,392 | | — | | 12,835 |
| Peter Pace | | 27,645 | | — | | — | | 30,583 | | — | | — |
| Eric S. Pachapa | | 39,000 | | — | | — | | 62,062 | | — | | — |
| Robert J. Regan | | 342,951 | | — | | — | |
| David P. Storch5 | | 1,449,611 | | 4.11 | % | | — | | 1,332,346 | | 3.76 | % | | — |
| Jennifer L. Vogel | | 24,800 | | — | | — | | 27,871 | | — | | — |
| Marc J. Walfish | | 119,703 | | — | | 40,050 | | 122,640 | | — | | 42,365 |
| Ronald B. Woodard | | 22,379 | | — | | — | |
| All directors and executive officers as a group (18 persons) | | 2,911,417 | | 8.25 | % | | 59,725 | |
| All directors and executive officers as a group (16 persons) | | | 2,658,583 | | 7.50 | % | | 65,331 |
| 1 | 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, 20202021 through the exercise of stock options: Mr. Holmes, 318,075496,450 shares; Mr. Gillen, 16,12156,032 shares; Mr. Regan, 227,415Ms. Garascia 14,776 shares; Mr. Jessup 38,21876,692 shares; Mr. Pachapa, 22,16641,656 shares; Mr. Storch, 329,663304,939 shares; and all directors and executive officers as a group, 951,658990,545 shares. |
| 2 | Based on 35,467,649 shares of common stock of AAR Corp. issued and outstanding as of July 31, 2021. |
| 3 | 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. |
34 | Includes 10,00020,000 shares beneficially owned through Maverick Investors Limited Partnership, a family partnership of which Mr. Boyce is a general partner. |
4 | Includes 16,000 shares beneficially owned through KMK & Associates, LLC, of which Mr. Kelly is a one-third owner. |
| 5 | Includes: (a) 18,810 shares beneficially owned by Mr. Storch’s wife, as to which Mr. Storch disclaims beneficial ownership; (b) 200,00083,000 shares beneficially owned through DPS Asset Management LLC, a family investment vehicleunder the David P. Storch 2020 Perpetual Trust of which Mr. Storch is President;the Settlor and Mr. Storch’s wife is the Trustee and the beneficiaries are Mr. Storch’s wife and descendants; (c) 2,025 shares under the Lorraine Storch Revocable Trust under which Mr. Storch is trustee and a beneficiary; (d) 286,408419,741 shares owned through the Storch Family 2012 Dynasty Trust, under which Mr. Storch is trustee and a beneficiary; (e) 39,57739,557 shares beneficially owned through a limited power of attorney arrangement, as to which Mr. Storch disclaims beneficial ownership; and (f) 76,738 shares by GRAT.under the Barbara R. Eichner 2020 Dynasty Trust of which Mr. Storch is a Co-Trustee of this trust and Mr. Storch’s wife is one of the beneficiaries. |
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Stock ownership information
Security ownership of certain beneficial owners
| Name and address of beneficial owner | | Number of shares | | Percent of class | | Number of shares | | Percent of class |
BlackRock, Inc.1
55 East 52nd Street
New York, NY 10055 | | 5,679,299 | | 16.3% | | 5,435,179 | | 15.4% |
Vanguard Group, Inc.2
100 Vanguard Blvd.
Malvern, PA 19355 | | 3,510,618 | | 10.05% | | 3,335,796 | | 9.45% |
Dimensional Fund Advisors LP3
Palisades West, Building One
6300 Bee Cave Road
Austin, TX 78746 | | 2,927,516 | | 8.39% | | 2,660,448 | | 7.5% |
AllianceBernstein L.P.4
135 Avenue of the Americas
New York, NY 10105 | | 2,502,041 | | 7.2% | |
AllianceBernstein L.P.4
1345 Avenue of the Americas
New York, NY 10105 | | | 3,037,643 | | 8.6% |
| 1 | Based on a Schedule 13G amendment filed on February 4, 2020,January 25, 2021, BlackRock, Inc. disclosed beneficial ownership with respect to the shares as follows: |
| ● | Sole voting power: | 5,575,4095,350,247 |
| ● | Shared voting power: | 0 |
| ● | Sole dispositive power: | 5,679,2995,435,179 |
| ● | Shared dispositive power: | 0 |
| 2 | Based on a Schedule 13G amendment filed on February 10, 2020,2021, the Vanguard Group, Inc. disclosed beneficial ownership with respect to the shares as follows: |
| ● | Sole voting power: | 32,3030 |
| ● | Shared voting power: | 5,99034,544 |
| ● | Sole dispositive power: | 3,476,8043,270,314 |
| ● | Shared dispositive power: | 33,81465,482 |
| 3 | Based on a Schedule 13G amendment filed on February 12, 2020,2021, Dimensional Fund Advisors LP disclosed beneficial ownership with respect to the shares as follows: |
| ● | Sole voting power: | 2,847,0442,576,783 |
| ● | Shared voting power: | 0 |
| ● | Sole dispositive power: | 2,927,5162,660,448 |
| ● | Shared dispositive power: | 0 |
| 4 | Based on a Schedule 13G filed on February 18, 2020,8, 2021, AllianceBernstein L.P. disclosed beneficial ownership with respect to the shares as follows: |
| ● | Sole voting power: | 2,070,8192,568,173 |
| ● | Shared voting power: | 0 |
| ● | Sole dispositive power: | 2,502,0413,037,643 |
| ● | Shared dispositive power: | 0 |
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Stock ownership information
Delinquent section 16(a) reports
Section 16(a) of the Securities Exchange Act of 1934 requires the Company’s officers and directors, and beneficial owners of more than 10% of the Company’s stock, if any, to file reports of ownership and changes in ownership on Forms 3, 4, and 5 with the SEC and the NYSE, and to furnish copies of these forms to the Company. To the Company’s knowledge, based solely upon a review of copies of SEC Forms 3, 4 and 5 and upon related written representations furnished to the Company with respect to Fiscal 2020,2021, the Company believes that all of the Company’s officers and directors filed on a timely basis all reports required by Section 16(a) of the Securities Exchange Act of 1934 during Fiscal 20202021 except that due to Company administrative errors (i) a Form 4 relating to the acquisition of 4,793 shares and the disposition of 4,793 shares by4A for Mr. StorchMarc Jay Walfish was filed three (3) days lateon September 25, 2020 and June 8, 2021 to amend his Form 4 filed on September 1, 2020 to reflect a correction and increase his phantom stock units to reflect his deferred annual chairman retainer fee and (ii) a Form 4 relating to the issuance of 6,650 stock awards shares and the issuance of 24,250 stock option shares to4A for Mr. JessupMarc Jay Walfish was filed five (5) days late.on March 1, 2021 to amend his Form 4 filed on September 4, 2018 and another Form 4A was also filed on the same day to amend his Form 4 filed on September 3, 2019. Both Form 4As filed were to correct and increase his phantom stock units due to an internal administrative error.
Equity compensation plan information
The following table provides information as of May 31, 20202021 with respect to the Company’s compensation plans under which equity securities of the Company are authorized for issuance:
| | 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)* | | Number of securities to
be issued upon exercise
of outstanding options,
warrants and rights
(a) | | Weighted-average
exercise price of
outstanding options,
warrants and rights
(b) | | Number of securities
remaining available
for future issuance under
equity compensation
plans (excluding securities
reflected in column (a))
(c)* |
| Equity compensation plans approved by securities holders | | 1,851,669 | | $32.74 | | 646,088 | | 2,612,839 | | $ | 28.34 | | 1,850,828 |
| Equity compensation plans not approved by securities holders | | | | | | — | | | — | | — |
| Total | | 1,851,669 | | $32.74 | | 646,088 | | 2,612,839 | | $ | 28.34 | | 1,850,828 |
| * | 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. |
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Stockholder proposals for our
20212022 annual meeting | |
Any stockholder who, in accordance with SEC Rule 14a-8, wishes to present a proposal for consideration at the annual meeting of stockholders to be held in 20212022 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 April 30, 2021,20, 2022, in order for the proposal to be eligible for inclusion in the Company’s proxy statement and form of proxy for that meeting. The proposal must comply with applicable SEC rules and the Company’s By-Laws.
Under the Company’s By-Laws, any stockholder who wishes to submit a matter (other than a stockholder proposal brought in accordance with SEC Rule 14a-8) for consideration at the 20212022 annual meeting of stockholders, including any stockholder proposal or director nomination, that would not be included in the Company’s proxy statement, must submit the matter to the Company, in writing, to be received by the Secretary of the Company no later than April 10, 2021.1, 2022. The notice of such matter must contain the information required by the By-Laws.
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Other business | |
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,
Jessica A. Garascia
Vice President, General Counsel, Chief Compliance Officer and Secretary
August 28, 202018, 2021
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, 2021. Requests should be made to Ms. Jessica A. Garascia, Vice President, General Counsel, Chief Compliance Officer and Secretary, AAR CORP., One AAR Place, 1100 North Wood Dale Road, Wood Dale, Illinois 60191, (630) 227-2000.
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, 2020. Requests should be made to Ms. Jessica A. Garascia, Vice President, General Counsel and Secretary, AAR CORP., One AAR Place, 1100 North Wood Dale Road, Wood Dale, Illinois 60191, (630) 227-2000. |
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Appendix A
Questions and answers about
our 20202021 annual meeting | |
We are furnishing this Proxy Statementproxy statement in connection with the solicitation of proxies by the Board for use in voting at our Annual Meeting.annual meeting. The Annual Meetingannual meeting will be held at www.virtualshareholdermeeting.com/AIR2020, AIR2021 on Wednesday, October 7, 2020,September 28, 2021, at 9:00 a.m. Central Time for the purpose of considering and acting upon the matters specified in the Noticenotice accompanying this Proxy Statement.proxy statement.
How does the Board of Directors recommend that I vote?
The Board of Directors recommends that you vote:
| ● | FORthe election of four director nominees; |
| ● | FOR the advisory proposal to approve our Fiscal 20202021 executive compensation; and |
| ● | FOR the approval of the amendments to AAR CORP. 2013 Stock Plan; and |
● | FOR the ratification of KPMG LLP as our independent registered public accounting firm for Fiscal 2021.2022. |
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 28, 2020.18, 2021. The Noticenotice provides you with instructions on how to:
| ● | Access and review our proxy materials over the Internet; |
| ● | Submit your vote over the Internet; and |
| ● | Request printed copies of our proxy materials. |
ThisThe notice, this proxy statement, the proxy card, our annual reportAnnual Report to stockholdersStockholders for the fiscal year ended May 31, 20202021 and our Fiscal 2020 annual report2021 Annual Report on Form 10-K may be viewed online at www.proxyvote.com.
Who is entitled to vote at the annual meeting?
You are entitled to vote at the annual meeting if you were an AAR CORP. stockholder at the close of business on August 12, 2020.3, 2021. 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 returning the enclosed proxy card, voting by telephone or over the Internet, or virtually by attending the annual meeting virtually and voting at the annual meeting.online.
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
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Appendix A Questions and answers about our 2020 annual meeting
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.
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Appendix A Questions and answers about our 2021 annual meeting
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 will be available through the web portal during the meeting at: www.virtualshareholdermeeting.com/AIR2020AIR2021.
On the August 12, 20203, 2021 record date for the 20202021 annual meeting, 35,303,46135,475,634 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., Central Time, on October 6, 2020September 27, 2021 (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 your proxy 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; or |
| ● | Voting virtuallyonline at the virtual annual meeting. |
A list of our stockholders of record will be available to stockholders during the meeting at: www.virtualshareholdermeeting.com/AIR2020.
What are the quorum and vote requirements?
A quorum of stockholders is necessary to hold a valid annual meeting. A quorum will exist if a majority of the outstanding shares of common stock entitled to vote at the annual meeting is present virtually 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.
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 20202021 executive compensation or the proposal to approve amendments to the 2013 Stock Benefit Plan 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.
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Appendix A Questions and answers about our 2020 annual meeting
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 abstentions and broker non-votes.
| | Required vote | | Effect of abstentions and broker non-votes |
Proposal 1 —
Election of four directors | | 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 —
Advisory proposal to approve our Fiscal
2020 2021 executive compensation | | 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 —
Approve Amendments to the AAR Corp.
2013 Stock Plan | | 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 4 —
Ratification of the appointment of KPMG LLP | | 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. |
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Appendix A Questions and answers about our 2021 annual meeting
Why is this annual meeting virtual and how do I attend?
Due to the public health impact of the COVID-19 pandemic, and out of concern for the health and safety of our stockholders, employees and directors, this year’s annual meeting will be a virtual meeting of the stockholders. We have designed the virtual annual meeting to provide substantially the same opportunities to participate as you would have at an in-person meeting. Stockholders will be able to attend and participate online, examine the list of stockholders and submit questions during the annual meeting by visiting www.virtualshareholdermeeting.com/AIR2021.
To attend and participate in the annual meeting, you will need the 16-digit control number that is printed in the box marked by the arrow on your Notice of Internet Availability of Proxy Materials or proxy card. The annual meeting will begin promptly at 9:00 a.m. Central Time. We encourage you to access the annual meeting prior to the start time. Online access will begin at 8:45 a.m. Central Time.
The annual meeting platform is fully supported across browsers (Edge, Firefox, Chrome, and Safari) and devices (desktops, laptops, tablets, and cell phones) running the most updated version of applicable software and plugins. Stockholders should ensure that they have a strong internet connection if they intend to attend and/or participate in the annual meeting. Attendees should allow plenty of time to log in (at least 15 minutes before the annual meeting) and ensure that they can hear streaming audio prior to the start of the annual meeting.
Can I submit questions? If so, how?
Shareholders who wish to submit a question to the Company for the meeting may do so live during the meeting at www.virtualshareholdermeeting.com/AIR2021. If you have questions, you may type them into the “Ask a Question” field, and click “Submit” at any point during the meeting until the floor is closed to questions. For technical assistance on the day of the annual meeting, please call the support line at 844-986-0822 (Toll Free) or 303-562-9302 (International Toll).
Questions pertinent to the annual meeting that comply with the meeting Rules of Conduct will be answered during the annual meeting, subject to time constraints. Additional information regarding the ability of shareholders to ask questions during the annual meeting and related Rules of Conduct will be available at www.virtualshareholdermeeting.com/AIR2021.
How will the votes at the annual meeting be tabulated?
Inspectors of election appointed for the annual meeting will tabulate all votes cast virtually 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 also may solicit proxies for no additional compensation.
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 a Current Report on Form 8-K that we will file with the SEC within four business days of the annual meeting.
20202021 Proxy Statement
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Table of Contents
Appendix B
Non-GAAP financial measures |  |
Non-GAAP financial measures
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 (the “Exchange Act”). We believe this non-GAAP financial measure is relevant and useful for investors as it illustrates our actual operating performance unaffected by the impact of certain items. When reviewed in conjunction with our GAAP results and the accompanying reconciliations, we believe this non-GAAP financial measure provides additional information that is useful to gain an understanding of the factors and trends affecting our business and provide a means by which to compare our operating performance against that of other companies in the industries in which we compete. This non-GAAP measure should be considered as a supplement to, and not as a substitute for, or superior to, the corresponding measuresmeasure calculated in accordance with GAAP. This non-GAAP measuresmeasure excludes items of an unusual nature including but not limited to certain income tax benefits, severance, restructuring costs, facility repositioningbusiness divestitures, workforce actions, subsidiaries and costs, impairment charges, facility consolidation and repositioning costs, investigation and remediation compliance costs, and significant customer bankruptcies.events such as early terminations, contract restructurings, forward loss provisions and bankruptcies and credit charges.
Pursuant to the requirements of Regulation G of the Exchange Act, we are providing the following tablestable that reconcilereconciles the above mentioned non-GAAP financial measuresmeasure to the most directly comparable GAAP financial measures:measure:
Adjusted diluted EPS from continuing operations(a)
| | FY2018 | | FY2019 | | FY2020 |
| Diluted EPS from continuing operations | | $ | 2.11 | | | $ | 2.40 | | | $ | 0.71 | |
| Deferred tax re-measurement from Tax Reform | | | (0.41 | ) | | | — | | | | — | |
| State income tax benefit | | | (0.06 | ) | | | (0.15 | ) | | | — | |
| Recognition of previously reserved income tax benefits | | | — | | | | (0.19 | ) | | | — | |
| Investigation and remediation compliance costs, net of tax | | | — | | | | 0.08 | | | | 0.22 | |
| Impairment charges related to exited product lines, net of tax | | | — | | | | — | | | | 0.25 | |
| Customer contract termination and restructuring costs, net of tax | | | 0.14 | | | | — | | | | 0.68 | |
| Customer bankruptcy charge, net of tax | | | — | | | | 0.27 | | | | 0.04 | |
| Facility consolidation and repositioning costs, net of tax | | | — | | | | 0.02 | | | | 0.11 | |
| Government workforce subsidies, net of tax | | | — | | | | — | | | | (0.06 | ) |
| Severance, furlough and pension settlement charges, net of tax | | | 0.09 | | | | 0.01 | | | | 0.19 | |
| Strategic financing evaluation costs, net of tax | | | — | | | | — | | | | 0.01 | |
| Adjusted Diluted EPS from Continuing Operations | | | 1.87 | | | | 2.44 | | | | 2.15 | |
| | FY2019 | | FY2020 | | FY2021 |
| Diluted EPS from continuing operations | | $ | 2.40 | | | $ | 0.71 | | | $ | 1.30 | |
| Deferred tax re-measurement from Tax Reform | | | — | | | | — | | | | — | |
| State income tax benefit | | | (0.15 | ) | | | — | | | | — | |
| Recognition of previously reserved income tax benefits | | | (0.19 | ) | | | — | | | | — | |
| Loss on sale of business | | | — | | | | — | | | | 0.44 | |
| Investigation and remediation compliance costs | | | 0.08 | | | | 0.22 | | | | 0.10 | |
| Asset impairment charges | | | — | | | | 0.25 | | | | 0.15 | |
| Contract termination/ restructuring costs and loss provisions | | | — | | | | 0.68 | | | | 0.20 | |
| Customer bankruptcy and credit charges | | | 0.27 | | | | 0.04 | | | | 0.10 | |
| Facility consolidation and repositioning costs | | | 0.02 | | | | 0.11 | | | | 0.09 | |
| Government COVID-related subsidies, net | | | — | | | | (0.06 | ) | | | (1.22 | ) |
| Severance, furlough and pension settlement charges | | | 0.01 | | | | 0.19 | | | | 0.22 | |
| Gain on legal settlement | | | — | | | | — | | | | (0.09 | ) |
| Strategic financing evaluation costs, net of tax | | | — | | | | 0.01 | | | | 0.02 | |
| Adjusted Diluted EPS from Continuing Operations | | | 2.44 | | | | 2.15 | | | | 1.31 | |
| (a) | All adjustments are presented net of applicable income taxes. |
20202021 Proxy Statement
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Table of Contents
Appendix C
AAR CORP. 2013 stock plan as amended and restated effective July 13, 2020
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AAR CORP.
2013 STOCK PLAN
(As Amended and Restated Effective July 13, 2020)
1. Purpose
The purpose of the AAR CORP. 2013 Stock Plan (As Amended and Restated Effective July 13, 2020) is to encourage Key Employees and Non-Employee Directors of the Company to increase their investment in the Company and to provide additional opportunities to such persons to share in the success of the Company. These opportunities are intended to foster in Key Employees and Non-Employee Directors a strong incentive to put forth maximum effort for the continued success and growth of the Company, to aid in retaining individuals who put forth such efforts and to assist in attracting the best available individuals in the future.
2. Definitions
For purposes of this Plan, the following terms shall have the meanings set forth below:
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 capital stock of the Company entitled to vote for the election of directors;
(b) the effective time of (i) a merger or consolidation or other business combination of the Company with one or more other corporations as a result of which the holders of the outstanding voting stock of the Company immediately prior to such business combination hold less than 60% of the voting stock of the surviving or resulting corporation, or (ii) a transfer of substantially all of the assets of the Company other than to an entity of which the Company owns at least 80% of the voting stock; or
(c) the election, over any period of time, to the Board of Directors of the Company without the recommendation or approval of the incumbent Board of Directors of the Company, of directors constituting a majority of the number of directors of the Company then in office.
2.5 “Code” means the Internal Revenue Code of 1986, as amended from time to time.
2.6 “Committee” means the Board’s Compensation Committee, or such other committee designated by the Board comprised of not less than two directors who are “non-employee directors” within the meaning of Rule 16b-3 under the Exchange Act.
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.
2.9 “Incentive Stock Option” or “ISO” means an Option meeting the requirements of Section 422 of the Code.
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Appendix C AAR CORP. 2013 stock plan as amended and restated effective July 13, 2020
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. Administration
3.1 The Committee. The Plan shall be administered by the Committee.
3.2 Authority 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 a majority vote at a meeting duly called and held. The Committee may appoint a Secretary, who need not be a member of the Committee, and may make such rules and regulations for the conduct of its business as it shall deem advisable.
(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 16 of the Exchange Act 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 pursuant to Article 5 of the Plan.
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(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 service on the Committee, or in 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 as 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.
3.3 Performance-Based Awards.
(a) The Committee may, in its discretion, provide that any Award granted under the Plan shall be subject to the attainment of performance goals.
(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; unusual and/or non-recurring items; 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 Plan
4.1 Total Number of Shares.
(a) The total number of Shares that may be available for Awards under the Plan from and after October 9, 2013 shall be 7,450,000 Shares (2,500,000 Shares prior to October 11, 2016, an additional 2,850,000 Shares from and after October 11, 2016 and an additional 2,100,000 Shares from and after October 7, 2020), 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 1.65 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.
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Appendix C AAR CORP. 2013 stock plan as amended and restated effective July 13, 2020
4.2 Shares 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 performance-based 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 maximum number of Shares that may be used for Stock Awards and Stock Unit Awards that are subject to time-based vesting 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.
(d) The maximum number of Shares that may be subject to ISOs is 7,450,000.
(e) 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.
4.3 Adjustment. Any increase or decrease in the number of outstanding Shares of the Company occurring through stock splits, stock dividends, stock consolidations, spin-offs, other distributions of assets to stockholders, or assumptions or conversions of outstanding Awards due to an acquisition after the adoption of the Plan shall be reflected proportionately in an increase or decrease in the aggregate number of Shares then available for the grant of Awards under the Plan or becoming available through the lapse, expiration, cancellation or termination of Awards previously granted but unexercised, and in the number of Shares subject to Awards then outstanding; and a proportionate reduction or increase shall be made in the per Share exercise price of any outstanding Options or SARs. Any fractional Shares resulting from such adjustments shall be eliminated. If changes in capitalization other than those considered above shall occur, the Committee shall make such adjustment in the number or class of Shares as to which Awards may thereafter be granted, in the number and class of Shares remaining subject to Awards then outstanding and in the per Share exercise price as the Committee in its discretion may consider appropriate, and all such adjustments shall be conclusive upon all persons.
5. Awards and Award Agreements
Subject to the terms of the Plan, the Committee from time to time may grant Awards to selected Participants. Each Award shall be evidenced by a written Award Agreement, which shall specify the terms and conditions of the Award. An Award Agreement shall contain a vesting schedule as determined in the sole discretion of the Compensation Committee; provided that Options and SARs shall not become exercisable until at least one year following the date of grant, and the restrictions on Stock Awards and Stock Units shall not lapse for at least one year following the date of grant; and provided further that notwithstanding the foregoing, no minimum vesting schedule shall apply to Awards that result in the issuance of up to an aggregate of 5% of the Shares reserved for issuance under Section 4 (372,500) Shares). An Award Agreement may, in the sole discretion of the Compensation Committee, contain a non-competition agreement, a confidentiality provision, provisions for forfeiture and such restrictions, conditions and other terms as the Committee shall determine in its sole discretion.
6. Grants of Options
6.1 Grants. 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.
6.2 Terms 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.
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Appendix C AAR CORP. 2013 stock plan as amended and restated effective July 13, 2020
(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; provided however, if a Participant is unable to exercise an Option because trading in the Shares is prohibited by law or the Company’s insider-trading policy, the Option exercise date shall be extended to the date that is 30 days after the expiration of the trading prohibition.
6.3 Required 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.
6.4 Exercise 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 Awards
7.1 Grants 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.
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Appendix C AAR CORP. 2013 stock plan as amended and restated effective July 13, 2020
7.2 Terms 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 or 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 Units
8.1 Grants. 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.
8.2 Terms 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.
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Appendix C AAR CORP. 2013 stock plan as amended and restated effective July 13, 2020
9. Grants of SARs
9.1 Grants. 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.
9.2 Terms 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; provided however, if a Participant is unable to exercise an SAR because trading in the Shares is prohibited by law or the Company’s insider-trading policy, the SAR exercise date shall be extended to the date that is 30 days after the expiration of the trading prohibition.
(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 other 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 part of its obligations arising out of the exercise of the SAR in cash, deliver to the Key Employee an amount in cash equal to the Fair Market Value, as of the date of exercise, of the Shares it would otherwise be obligated to deliver.
10. Non-Transferability of Awards
10.1 No Award or rights under any Award shall be transferable otherwise than by will or the laws of descent and distribution, and the rights and the benefits of any such Award may be exercised and received, respectively, during the lifetime of the Participant only by him or her.
10.2 Notwithstanding the provisions of the preceding paragraph, a Participant, at any time prior to his or her death, may assign all or any portion of an Option granted to him or her (other than an ISO) to (a) his or her spouse or lineal descendant, (b) the trustee of a trust for the primary benefit of his or her spouse or lineal descendant, (c) a partnership of which his or her spouse and lineal descendants are the only partners, or (d) a tax exempt organization as described in Section 50l(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.
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Appendix C AAR CORP. 2013 stock plan as amended and restated effective July 13, 2020
11. Change in Control
In addition to the Committee’s authority set forth in Section 3, upon a Change in Control of the Company, the Committee is authorized and has sole discretion as to any Award, either at the time such Award is granted hereunder or any time thereafter, to take any one or more of the following actions: (a) provide that (i) all outstanding Awards shall become fully vested and exercisable, and (ii) all restrictions applicable to all Awards shall terminate or lapse; (b) provide for the purchase of any outstanding Stock Option or SAR for an amount of cash equal to the difference between the exercise price and the then Fair Market Value of the Shares covered thereby; (c) make such adjustment to any such Award then outstanding as the Committee deems appropriate to reflect such Change in Control; and (d) cause any such Award then outstanding to be assumed by the acquiring or surviving entity after such Change in Control.
12. Book Entry Form
Notwithstanding the foregoing provisions of the Plan, the Company, in lieu of issuing stock certificates pursuant to an Award, may reflect the issuance of Shares to a Participant on a non-certificated basis, with the ownership of such Shares by the Participant evidenced solely by book entry in the records of the Company’s transfer agent; provided, however, that upon the written request of the Participant, the Company shall issue, in the name of the Participant, stock certificates representing such Shares.
13. Taxes
In connection with any Award, the Company shall have the right to require the Participant to remit to the Company an amount sufficient to satisfy all minimum federal, state, local and foreign withholding tax requirements prior to the delivery by the Company of cash or any certificates for Shares. The Participant may elect to satisfy his or her tax withholding obligation by (a) cash payment, (b) directing the Company to withhold a portion of the Shares otherwise distributable to the Participant, (c) by transferring to the Company a certain number of Shares (either subject to such Award or previously owned) with an aggregate Fair Market Value equal to the amount required to be withheld, (d) in cash from a broker-dealer to whom the Participant has submitted a notice together with instructions to deliver promptly to the Company the amount of sales proceeds from the sale of Shares subject to the Award to pay the withholding taxes, or (e) by any combination thereof. In the case of payment pursuant to (b), (c) or (d) above, the Participant’s election must be made on or prior to the date of exercise and must be irrevocable.
14. Postponement
The Committee may postpone any grant, exercise or settlement of an Award for such time as the Committee in its sole discretion may deem necessary in order to permit the Company (a) to effect, amend or maintain any necessary registration of the Plan or the Shares issuable pursuant to an Award under the Securities Act of 1933, as amended, or the securities laws of any applicable jurisdiction, (b) to permit any action to be taken in order to (i) list such Shares on a stock exchange if Shares are then listed on such exchange or (ii) comply with restrictions or regulations incident to the maintenance of a public market for the Shares, including any rules or regulations of any stock exchange on which the Shares are listed, or (c) to determine that such Shares and the Plan are exempt from such registration or that no action of the kind referred to in (b)(ii) needs to be taken; and the Company shall not be obligated by virtue of any terms and conditions of any Award or any provision of the Plan to sell or issue Shares in violation of the Securities Act of 1933 or the law of any government having jurisdiction thereof. Any such postponement shall not extend the term of an Award and neither the Company nor its directors or officers shall have any obligation or liability to a Participant, the Participant’s successor, or any other person with respect to any Shares as to which the Award shall expire because of such postponement or as to which issuance under an Award is delayed.
15. Stockholder Status
No person shall have any rights as a stockholder by virtue of the grant of an Award under the Plan except with respect to Shares actually issued to that person.
16. Termination or Amendment of Plan and Award Agreements
16.1 Termination 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.
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Appendix C AAR CORP. 2013 stock plan as amended and restated effective July 13, 2020
(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.
16.2 Amendment 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.
16.3 Repricing of Stock Options and SARs. Notwithstanding the foregoing, there shall be no amendment to the Plan or any Award Agreement that results in the repricing of Options or SARs without stockholder approval. For this purpose, repricing includes a reduction in the exercise price of the Option or SAR, the cancellation of an Option or SAR in exchange for cash, Options or SARs with an exercise price less than the exercise price of the cancelled Options or SARs, Stock Awards, Stock Units or any other consideration provided by the Company but does not include any adjustment described in Section 4.3.
17. Tenure
Nothing contained in the Plan shall be construed as a contract of employment between the Company or a Subsidiary and any person, nor shall the Plan be deemed to give any person the right to be retained in the employ of the Company or a Subsidiary or as a Non-Employee Director of the Board, to limit the right of the Company or a Subsidiary to employ or discharge any person with or without cause, or to discipline any Key Employee.
18. Other Actions
Nothing in the Plan shall be construed to limit the authority of the Company to exercise its corporate rights and powers, including, by way of illustration and not by way of limitation, the right to grant options for proper corporate purposes otherwise than under the Plan to any employee or any other person, firm, corporation, association, or other entity, or to grant options to, or assume options of, any person in connection with the acquisition, by purchase, lease, merger, consolidation, or otherwise, of all or any part of the business and assets of any person, firm, corporation, association, or other entity.
19. Loan Agreements
Each Award shall be subject to the condition that the Company shall not be obligated to issue or transfer its Shares or to pay an amount in cash to the Participant thereof on its exercise, or otherwise, if the Committee or the Board determines that such issuance, transfer, or payment would violate any covenant in any loan agreement or other contract to which the Company or a Subsidiary is a party.
20. Governing Law
The Plan, and all Awards and agreements hereunder, shall be construed in accordance with and governed by the laws of the State of Illinois and, in the case of ISOs, Code Section 422 and regulations issued thereunder.
21. Effective Date and Term of Plan
21.1 Effective Date.
(a) The Plan was initially approved by the stockholders of the Company at the Company’s annual meeting of stockholders held on October 9, 2013.
(b) The Plan (as amended and restated) was adopted by the Board on July 13, 2020, with the share increase described in Section 4.1(a) to be effective upon the approval of the Plan by the stockholders of the Company at the Company’s annual meeting of stockholders held on October 7, 2020, and any adjournment or postponement thereof (the “Annual Meeting”). In the event the share increase described in Section 4.1(a) is not approved by stockholders at the Annual Meeting, the revisions to Sections 4.1(a), 4.2(c) and 5 shall not become effective.
21.2 Term of Plan. Notwithstanding anything to the contrary contained herein, no Awards shall be granted on or after October 9, 2028 (October 9, 2023 in the event the extension of the term of the Plan by five years is not approved by the stockholders of the Company at the Annual Meeting).
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| | |
Americas
AAR World Headquarters
1100 N. Wood Dale Rd.
Wood Dale, IL 60191 USA
T: +1.630.227.2000
F: +1.630.227.2058
Europe
3rd Floor Eastside
World Business Centre 1
1206 Newall Road
Heathrow Airport, Middlesex
London, UK TW6 2RE
T: +44.208.990.6700 | | Asia Pacific & India
7 Changi Business Park Vista #03-01
Soo Kee Building
Singapore 486042
T: +65.6508.6460
Middle East & Africa
Boulevard Plaza, Tower 2, Level 23
Business Bay – Dubai, UAE
T: +971.4409.6768
AOG 24/7 worldwide
T: +1.630.227.2470
AOG@aarcorp.com |
Table of Contents
AAR CORP.
ONE AAR PLACE
1100 NORTH WOOD DALE ROAD
WOOD DALE, IL 60191
VOTE BY INTERNET
Before The Meeting - Go to www.proxyvote.com
Use the Internet to transmit your voting instructions and for electronic delivery of information. Vote byinformation up until 11:59 P.M. Eastern Time on October 6, 2020September 27, 2021 for shares held directly and by 11:59 P.M. Eastern Time on October 2, 2020September 24, 2021 for shares held in a Plan. Have your proxy card in hand when you access the web site and follow the instructions to obtain your records and to create an electronic voting instruction form.
During The Meeting - Go to www.virtualshareholdermeeting.com/AIR2020AIR2021
You may attend the meeting via the Internet and vote during the meeting. Have the information that is printed in the box marked by the arrow available and follow the instructions.
VOTE BY PHONE - 1-800-690-6903
Use any touch-tone telephone to transmit your voting instructions. Vote byinstructions up until 11:59 P.M. Eastern Time on October 6, 2020September 27, 2021 for shares held directly and by 11:59 P.M. Eastern Time on October 2, 2020September 24, 2021 for shares held in a Plan. Have your proxy card in hand when you call and then follow the instructions.
VOTE BY MAIL
Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717.
| TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: | |
D22433-P43323D58251-P59797 | KEEP THIS PORTION FOR YOUR RECORDS |
| DETACH AND RETURN THIS PORTION ONLY |
| THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED. |
AAR CORP.
| | The Board of Directors recommends you vote FOR
the following: | | | |
| | | | | |
| 1. | Election of Directors | | | |
| | | | | | |
| | Nominees: | For | Against | Abstain |
| | | | | | |
| | 1a. | H. John Gilbertson, Jr.Anthony K. Anderson. | ☐ | ☐ | ☐ |
| | | | | | | |
| | 1b. | Robert F. LeducMichael R. Boyce | ☐ | ☐ | ☐ |
| | | | | | | |
| | 1c. | Duncan J. McNabbDavid P. Storch | ☐ | ☐ | ☐ |
| | | | | | | |
| | 1d. | Peter PaceJennifer L. Vogel | ☐ | ☐ | ☐ |
| | | | | | |
| | The Board of Directors recommends you vote FOR proposals 2 3 and 4.3. | For | Against | Abstain |
| | | | | | |
| 2. | Advisory proposal to approve our Fiscal 20202021 executive compensation. | ☐ | ☐ | ☐ |
| | | | | | |
| 3. | Approve amendments to the AAR CORP. 2013 Stock Plan. | ☐ | ☐ | ☐ |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| Please sign exactly as your name(s) appear(s) hereon. When signing as attorney, executor, administrator, or other fiduciary, please give full title as such. Joint owners should each sign personally. All holders must sign. If a corporation or partnership, please sign in full corporate or partnership name by authorized officer.
|
| For | Against | Abstain |
| | | |
4. | The ratification of the appointment of KPMG LLP as our independent registered public accounting firm for the fiscal year ending May 31, 2021.2022. | ☐ | ☐ | ☐ |
| | | | | | |
| NOTE:As to any other business as may properly come before the meeting or any adjournment or postponement thereof, this Proxy will be voted in the discretion of the proxies. | | | |
Please sign exactly as your name(s) appear(s) hereon. When signing as attorney, executor, administrator, or other fiduciary, please give full title as such. Joint owners should each sign personally. All holders must sign. If a corporation or partnership, please sign in full corporate or partnership name by authorized officer.
| | | | | | | |
| Signature [PLEASE SIGN WITHIN BOX] | Date | | Signature (Joint Owners) | Date | |
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Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting:
The Notice & Proxy Statement, Annual Report on Form 10-K and Annual Report to Stockholders are available
at www.proxyvote.com.
D22434-P43323D58252-P59797 |
AAR CORP.
This proxy is solicited by the Board of Directors
Annual Meeting of Stockholders
The undersigned hereby appoints JOHN M. HOLMES and JESSICA A. GARASCIA, or either of them, with full power of substitution, as Proxies, and hereby authorizes them to represent the undersigned at the 20202021 Annual Meeting of Stockholders of AAR CORP. to be held at 9:00 AMA.M. Central Time on October 7, 2020,September 28, 2021, 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. Such meeting will be held via the Internet at www.virtualshareholdermeeting.com/AIR2020.AIR2021.
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.
Continued and to be signed on reverse side
FOR each director nominee
Annual say-on-pay stockholder vote
No tax gross-ups
Independent Lead Director
Annual say-on-pay stockholder vote
No tax gross-ups
