Item 5.02. Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.
Employment-Related Agreements
On October 11, 2017, AAR CORP. (the Company), upon approval of the Compensation Committee and the Board of Directors, entered into an amended and restated severance and change in control agreement with Robert J. Regan, Vice President, General Counsel and Secretary of the Company, and a severance and change in control agreement with Michael D. Milligan, Vice President and Chief Financial Officer of the Company. The material terms of these agreements are described below. The full text of these agreements are attached to this Current Report on Form 8-K as Exhibits 10.1 and 10.2, respectively.
Amended and Restated Severance and Change in Control Agreement with Mr. Regan
The Company entered into an amended and restated severance and change in control agreement, effective October 11, 2017, with Mr. Regan. The agreement reflects the following material changes to Mr. Regans prior severance and change in control agreement:
·
Mr. Regan may no longer terminate his employment for any reason during the 19
th
month following a Change in Control and still receive severance benefits. As amended, severance benefits are only payable in connection with a Change in Control if, within 18 months following the Change in Control, either the Company terminates Mr. Regans employment without Cause or Mr. Regan terminates his employment for Good Reason.
·
Mr. Regan may elect, with respect to any 280G excise tax, if applicable, either to receive the full amount of severance benefits and be responsible for paying any excise tax or to receive severance benefits that are reduced to the maximum amount that may be paid without triggering the excise tax. (Prior to the amendment and restatement, there was no ability to elect to receive a reduced amount to avoid any 280G excise tax.)
The agreement also reflects a prior amendment that added a double trigger provision, whereby full vesting of outstanding equity awards will only occur if
Mr. Regans employment is terminated within 18 months following a Change in Control, either by the Company other than for Cause or Disability or by Mr. Regan for Good Reason, and in such case all performance-based restricted stock shares and units will vest based on the higher of the target or actual performance through his employment termination date.
The agreement retains all of the other principal terms of the prior agreement.
In particular, the agreement retains the following severance provisions:
·
If prior to, or more than 18 months after, a Change in Control of the Company, Mr. Regans employment is terminated by the Company other than for Cause, he is entitled to (i) continued salary for 12 months or, if earlier, until he obtains comparable employment, (ii) any earned bonus not yet paid for the preceding fiscal year, and (iii) a pro-rata portion of the bonus that would have been paid to him had he remained employed until the end of the fiscal year in which the termination occurs. If Mr. Regan terminates his employment, or if the Company terminates Mr. Regans employment for Cause, the Company may, but is not required to, pay the above-described severance benefits. Severance payments will cease if Mr. Regan breaches the confidentiality or non-compete provisions in the agreement, which are in effect for the one-year severance period.
·
If Mr. Regans employment is terminated within 18 months following a Change in Control, either by the Company other than for Cause or Disability or by Mr. Regan for Good Reason, he is entitled to:
(i)
an immediate lump sum payment equal to the sum of (A) any unpaid salary and bonus earned for the preceding fiscal year, (B) a pro rata portion of the bonus that would have been paid to him had he remained employed until the end of the fiscal year and as if all performance goals had been met at target level (including the value of any restricted stock granted in lieu of bonus), and (C) two times base
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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 Mr. Regan and his dependents under the Companys welfare and fringe benefit plans for two years following termination of employment (he and his dependents can elect continued medical and dental coverage pursuant to COBRA at the end of such two-year period);
(iii)
reasonable legal fees incurred by Mr. Regan in enforcing the agreement; and
(iv)
Company-paid outplacement services for the earlier of 18 months or the attainment of new employment (up to a maximum Company expense of 3.5% of the amount paid to Mr. Regan pursuant to the payment described in (i)(C) above).
The agreements non-compete provisions do not apply in the case of a termination of employment following a Change in Control.
·
If Mr. Regans employment terminates due to Disability, he will receive payment pursuant to the Companys disability plans then in effect and will continue to receive coverage under the Companys medical, dental and life insurance plans for three years following such termination.
The terms Change in Control, Cause, Good Reason and Disability are defined in the agreement.
The foregoing description of the agreement is qualified in its entirety by reference to the full text of the agreement, a copy of which is filed with this Current Report on Form 8-K as Exhibit 10.1 and incorporated herein by reference.
Severance and Change in Control Agreement with Mr. Milligan
The Company entered into a severance and change in control agreement, effective October 11, 2017, with Mr. Milligan. The terms and conditions of Mr. Milligans agreement are identical to the terms and conditions of Mr. Regans agreement as described above.
The foregoing description of the agreement is qualified in its entirety by reference to the full text of the agreement, a copy of which is filed with this Current Report on Form 8-K as Exhibit 10.2 and incorporated herein by reference.
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