| Common Stock, $1.00 par value | AIR |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant
to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of Earliest Event Reported): July 13, 2021
AAR CORP.
(Exact name of registrant as specified in its charter)
| Delaware | 1-6263 | 36-2334820 | ||
| (State of Incorporation) | (Commission File Number) | (IRS Employer Identification No.) |
One AAR Place
1100 N. Wood Dale Road
Wood Dale, Illinois 60191
(Address and Zip Code of Principal Executive Offices)
Registrant’s telephone number, including area code: (630) 227-2000
Not Applicable
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Securities registered pursuant to Section 12(b) of the Act:
| Title of Each Class | Trading Symbol(s) | Name of Each Exchange on Which Registered | ||
| Common Stock, $1.00 par value | AIR | New York Stock Exchange | ||
| Chicago Stock Exchange |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§ 230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§ 240.12b-2 of this chapter).
Emerging growth company ¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Item 5.02. Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.
In July 2020, AAR CORP. (the “Company”) received financial support under the Coronavirus Aid, Relief, and Economic Security Act of 2020 (the “CARES Act”). As a result, the Company is currently subject to CARES Act restrictions on the amount of compensation that can be paid to certain executives of the Company during the restricted period, which ends on March 24, 2022.
Due to these restrictions, the Fiscal Year 2021 equity grant made in July 2020 to our President and Chief Executive Officer, John M. Holmes, was reduced by approximately 92,904 stock options and 53,537 shares subject to a restricted stock award, or RSAs, having an aggregate grant date fair value of $1,538,000 on the date of grant, from the amount that the Compensation Committee (the “Committee”) intended to grant him, had such restrictions not been in place.
At its meeting on July 12, 2021, the Committee reviewed and considered the intended long-term equity compensation levels for Fiscal 2022 as an element of the annual total target compensation package based on peer benchmarking and other factors. However, in designing the Fiscal 2022 program, the Committee determined to reduce the grant level of the long-term equity awards to comply with the CARES Act compensation limits. As a result, three of the Named Executive Officers, Mr. Holmes, Christopher A. Jessup, Vice President and Chief Commercial Officer, and Eric S. Pachapa, Vice President, Controller and Chief Accounting Officer, had their July 2021 equity awards reduced to comply with the CARES Act limits, as detailed in the table below and based on grant date fair value.
| Name |
Intended
Fiscal 2022 LTI Equity Award Level ($) |
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 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).
| Item 9.01. | Financial Statements and Exhibits. |
| (d) | Exhibits |
| Exhibit No. | Description | |
| 10.1* | Deferred Cash Award Agreement dated July 13, 2021 between AAR CORP. and John M. Holmes (filed herewith) | |
| 104 | Cover Page Interactive Data File (the cover page XBRL tags are embedded in the Inline XBRL document) | |
| * | Management contract and compensatory arrangement. |
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
Date: July 16, 2021
| AAR CORP. | ||
| By: | /s/ Jessica A. Garascia | |
| Jessica A. Garascia | ||
| Vice President, General Counsel, Chief Compliance Officer and Secretary | ||
Exhibit 10.1
AAR CORP.
DEFERRED CASH AWARD AGREEMENT
This Deferred Cash Award Agreement (the “Agreement”) is made and entered into as of the 13th day of July, 2021, by and between AAR CORP., a Delaware corporation (the “Company”), and John M. Holmes (the “Executive”).
WHEREAS, the Company currently employs the Executive as its President and Chief Executive Officer; and
WHEREAS, the Company has obtained financial assistance from the U.S. government under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), and in order to comply with the provisions of the CARES Act, the Company is required to limit the compensation paid to certain employees, including any employee who received total compensation in excess of $3,000,000 from the Company in calendar year 2019, so that during the two-year period beginning March 24, 2020 and ending March 24, 2022 (the “Restricted Period”), the total compensation paid to such employee during any 12 consecutive months of such period does not exceed certain specified limits.
NOW, THEREFORE, in consideration of the mutual agreements herein set forth and other good and valuable consideration, the parties hereto agree as follows:
1. CARES Act Restrictions. The Executive acknowledges and agrees that the Executive’s total compensation from the Company for the fiscal year ended May 31, 2021 was substantially reduced by the Company in order to comply with the applicable provisions of the CARES Act.
2. Deferred Cash Award.
(a) Subject to Section 2(c) below, if the Executive remains in continuous employment with the Company and its affiliates through the end of the Restricted Period, the Company shall provide the Executive with a cash payment equal to $1,000,000 (the “Deferred Cash Award”). Payment of the Deferred Cash Award shall be made to the Executive within 30 days after the expiration of the Restricted Period, net of all applicable withholding taxes required by law to be withheld.
(b) Subject to Section 2(c) below:
(i) If prior to the end of the Restricted Period the Executive’s employment with the Company and all affiliates terminates due to the Executive’s death or Disability (as defined in the Company’s RSA Agreement on file with the Securities and Exchange Commission), the Company will provide the Executive (or the Executive’s estate, in the case of death) with the Deferred Cash Award. Payment shall be made within 30 days after the date of the Executive’s termination of employment, net of all applicable withholding taxes required by law to be withheld.
(ii) If the Executive’s employment with the Company and all affiliates terminates prior to the expiration of the Restricted Period for any reason other than as described above in Section 2(b)(i), the Deferred Cash Award shall be forfeited to the Company for no consideration, and no portion of the Deferred Cash Award shall be paid to the Executive.
(c) Notwithstanding the foregoing provisions of this Section 2, payment of the Deferred Cash Award shall only be made to the extent permitted by the CARES Act and applicable guidance, and if any applicable guidance prohibits the Company from paying all or any portion of the Deferred Cash Award, the Executive agrees that such amount will be forfeited to the Company for no consideration, and the Company shall have no obligation to the Executive to provide payment of such amount. The Executive agrees that any prohibition on payment of the Deferred Cash Award shall not affect the Company’s right to reduce or limit the Executive’s compensation to the extent necessary to comply with the CARES Act.
| 3. | Miscellaneous. |
(a) This Agreement shall be construed, administered and governed in all respects under and by the CARES Act, and to the extent not pre-empted by the CARES Act, under and by the laws of the State of Illinois.
(b) The Company and the Executive intend that payment under this Agreement complies with Internal Revenue Code Section 409A. The Executive agrees that the Company may modify this Agreement to the extent necessary to comply with Code Section 409A, and any such modification shall be made in good faith, and to the extent reasonably possible, shall maintain the original intent and economic benefit to the Executive and the Company.
(c) Nothing in this Agreement shall confer on the Executive any right to be or to continue in the employ of the Company or any of its affiliates or shall interfere in any way with the right of the Company or any of its affiliates to terminate the employment of the Executive at any time for any reason or no reason.
(d) The Executive agrees that the Deferred Cash Award is subject to the terms of the Company’s Policy for Recoupment of Incentive Compensation.
(e) This Agreement has been examined by the parties hereto, and accordingly the rule of construction that ambiguities be construed against a party which causes a document to be drafted shall have no application in the construction or interpretation hereof. If any part of this Agreement is held invalid for any reason, the remainder hereof shall nevertheless remain in full force and effect.
(f) This Agreement constitutes the entire agreement between the parties concerning the subject matter hereof and any prior understanding or representation of any kind antedating this Agreement concerning such subject matter shall not be binding upon either. No consent, waiver, modification or amendment hereof, or additional obligation assumed by either party in connection herewith, shall be binding unless evidenced by a writing signed by both parties and referring specifically hereto. No consent, waiver, modification or amendment with respect hereto shall be construed as applicable to any past or future events other than the one in respect of which it was specifically made.
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(g) This Agreement may be executed in multiple counterparts, each of which shall be deemed an original and which shall constitute but one and the same Agreement.
WITNESS the due execution of this Agreement by the parties hereto as of the day and year first above written.
AAR CORP.
| /s/ David P. Storch | |
| By: David P. Storch | |
| Title: Chairman of the Board |
EXECUTIVE:
| /s/ John M. Holmes | |
| John M. Holmes | |
| President and Chief Executive Officer |
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