UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
CURRENT REPORT
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Item 5.02. Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.
As previously disclosed, in July 2020, AAR CORP. (the “Company”) entered into a Payroll Support Program Agreement (the “PSP Agreement”) with the U.S. Treasury Department providing the Company with funding pursuant to the Coronavirus Aid, Relief, and Economic Security Act of 2020 (the “CARES Act”). Under the PSP Agreement, the Company was subject to certain restrictions, including on the amount of compensation that could be paid to certain employees of the Company through March 24, 2022.
The COVID-19 pandemic caused a steep decline in commercial flying and adversely impacted the commercial aviation sector, including the Company, and the amount the Company received pursuant to the PSP Agreement allowed it to largely keep its workforce intact through the pandemic. In order to comply with the CARES Act and the PSP Agreement, certain key executives, including John M. Holmes, the Company’s President and Chief Executive, had their equity-based compensation reduced in July 2020 and July 2021 for the Fiscal Years ending May 31, 2021 and May 31, 2022.
Since the beginning of the COVID-19 pandemic the Company, under the leadership of Mr. Holmes, has achieved the following:
| · | Reduced debt, including by repaying all outstanding principal and interest on the loan received pursuant to the PSP Agreement. |
| · | Initiated numerous cost-cutting actions that allowed the Company to successfully navigate the pandemic, including: |
| o | Temporary reductions in base salary of 20% for Mr. Holmes and 15% for the other executive officers, |
| o | Temporary suspension of the Company’s 401(k) and Supplemental Key Employee Retirement Plan (“SKERP”) contributions during part of Fiscal Year 2021, |
| o | Suspension of the Company’s discretionary SKERP match for executive officers for Fiscal Years 2021 and 2022, and |
| o | Exiting or restructuring numerous unprofitable contracts, and exiting and consolidating certain facilities. |
| · | Entered into and expanded numerous profitable contracts. |
| · | Oversaw an increase in the Company’s stock price from $20.08 as of June 1, 2020 to $44.94 as of February 28, 2022. |
| · | Implemented several environmental, social and governance initiatives. |
On March 25, 2022, the Compensation Committee (the “Committee”) of the Board of Directors of the Company met and considered the above accomplishments of the Company under the leadership of Mr. Holmes, and with the support of the other executive officers who had also forgone market-based compensation as a result of the CARES Act, Christopher A. Jessup, Vice President, Chief Commercial Officer, and Eric. S. Pachapa, Vice President, Controller, and Chief Accounting Officer. The Committee thereafter determined to award Messrs. Holmes, Jessup and Pachapa the following awards of stock options and restricted stock awards (“RSAs”):
| Name | Stock Options Awarded | Restricted Shares Awarded | Grant Date Fair Value of Award | |||||||||
| John M. Holmes President and Chief Executive Officer | 312 | 144,165 | $ | 7,349,003 | ||||||||
| Christopher A. Jessup Vice President, Chief Commercial Officer | 59 | 9,764 | $ | 498,544 | ||||||||
| Eric S. Pachapa Vice President, Controller and Chief Accounting Officer | 21 | 3,534 | $ | 180,436 | ||||||||
When determining the amount and type of equity to award Messrs. Holmes, Jessup and Pachapa, the Committee considered the following factors:
| · | The need to maintain competitive and fair compensation. |
| · | The retentive value of RSA awards, which have three year-cliff vesting. |
| · | The ability of stock options to align management’s interests with those of our shareholders, promote performance and to encourage long-term value creation. |
| · | The type and amount of equity-based compensation forgone by each Messrs. Holmes, Jessup and Pachapa as a result of CARES Act restrictions during Fiscal Year 2021 and 2022. |
| · | The similar actions being taken for non-executive employees that had their compensation reduced due to CARES Act restrictions during Fiscal Year 2022. |
The RSA awards have a three-year cliff vesting period. The stock option awards will vest in 1/3 annual installments, beginning on March 25, 2023. The option awards are subject to the terms and conditions set forth on the form of Non-Qualified Stock Option Agreement attached as Exhibit 10.1 hereto and the RSA awards are subject to the terms and conditions set forth on the form of Restricted Stock Award Agreement attached as Exhibit 10.2 hereto.
| Item 9.01 | Financial Statements and Exhibits. |
EXHIBIT
(d) Exhibits.
| Exhibit No. | Description | |
| 10.1 | Form of AAR CORP. Fiscal 2022 Special Non-Qualified Stock Option Agreement | |
| 10.2 | Form of AAR CORP. Fiscal 2022 Special Restricted Stock Agreement | |
| 104 | Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101) |
SIGNATURES
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: March 25, 2022 | ||
| AAR CORP. | ||
| By: | /s/ Jessica A. Garascia | |
| Jessica A. Garascia | ||
| Vice President, General Counsel and Secretary | ||