Business Context and Reporting Period
This Form 8-K Current Report was filed by AAR CORP. on June 2, 2010. The filing discloses the execution of an amended and restated employment agreement with David P. Storch, the Company's Chairman of the Board and Chief Executive Officer. The agreement term runs from May 31, 2010, to May 31, 2014.
Key Financial Metrics
This filing does not contain financial performance data such as revenue, profit, cash flow, margins, debt, or liquidity metrics. The document focuses exclusively on executive compensation terms.
Material Changes
The primary material change is the replacement of the prior employment agreement, which expired on May 31, 2010, with a new four-year contract. The new agreement retains many principal terms of the prior arrangement but formalizes specific compensation and severance structures.
Management Commentary and Compensation Details
The agreement outlines the following compensation and benefit provisions for Mr. Storch:
- Base Salary: Not less than $850,000 per year.
- Cash Incentive: Annual opportunity of up to 165% of base salary based on financial goals.
- Equity Incentives: Long-term equity compensation under the Company's Stock Benefit Plan.
- Fringe Benefits: Includes personal use of Company aircraft (with payment for accompanying passengers), automobile allowance, country club dues, professional membership fees, financial planning, tax preparation, executive physicals, and legal fees for negotiation.
Severance Provisions
Termination Without Cause or for Good Reason (Pre-Change in Control):
- 36 months of continued base salary.
- Lump sum equal to three times the average cash incentive bonus of the preceding three fiscal years.
- Non-compete provisions apply for two years post-termination.
Termination Within 24 Months of Change in Control:
- Immediate lump sum including pro rata bonus and three times base salary plus cash bonus (or a fixed amount of $4,747,770 if terminated by Mr. Storch in the 30-day window following the 24-month period).
- Three years of continued welfare and fringe benefit coverage.
- Lump sum equal to the lesser of three times Company retirement contributions or $1,575,876, plus tax gross-up.
- Outplacement services for up to 18 months.
- Section 280G excise tax gross-up.
Other Termination Scenarios:
- Retirement: Lifetime medical, dental, and welfare coverage for Mr. Storch and spouse.
- Disability: Coverage under disability plans and three years of medical, dental, and life insurance.
- Expiration: Benefits equivalent to termination without Cause prior to a Change in Control.
All stock-based awards vest immediately upon a Change in Control.
Investor Verification Checklist
- Review the full text of the Amended and Restated Employment Agreement filed as Exhibit 10 to verify specific definitions of "Cause," "Good Reason," and "Change in Control."
- Assess the impact of the $850,000 base salary and potential 165% bonus on future operating expenses.
- Evaluate the potential liability of the severance package, particularly the $4.7 million fixed payout scenario and the tax gross-up provisions.
- Confirm the status of the Company's aircraft usage policy regarding executive personal use.