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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No.            )

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Filed by a Party other than the Registrant o

Check the appropriate box:

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Preliminary Proxy Statement

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Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

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Definitive Proxy Statement

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Definitive Additional Materials

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Soliciting Material under §240.14a-12

 

AAR CORP.

(Name of Registrant as Specified In Its Charter)

 

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

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Fee paid previously with preliminary materials.

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Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.

 

 

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LOGO

One AAR Place
1100 North Wood Dale Road
Wood Dale, Illinois 60191

Dear Fellow Stockholders,

On behalf of the Board of Directors and employees of AAR CORP., I cordially invite you to join us at our 2016 annual meeting of stockholders on Tuesday, October 11, 2016 at 9:00 a.m., Central Time, at the Company's headquarters located at 1100 North Wood Dale Road, Wood Dale, Illinois 60191.

Our fiscal year ended May 31, 2016 was a good year for the Company, one in which we further solidified our position as a global leader in providing aviation services to the commercial aviation and government and defense markets. Our Aviation Services business group delivered exceptional results across its supply chain and MRO activities, and our Expeditionary Services business group continued to make progress toward becoming an invaluable partner with the United States government on key government contracts.

This past fiscal year we also devoted significant time and attention to our culture and business mission, refreshing our core values under a "Doing It Right" campaign. We embraced core values that speak to who we are as a company and how we conduct our business. For example, our core values reflect our commitment to excellence ("Quality First — Safety Always"); resourcefulness ("Find a Way — Every Day"); integrity ("Be Honest — Inspire Trust"); and accountability ("Own It"). We firmly believe that our pursuit of these and our other core values will benefit our stockholders, our customers and our employees, as well as the communities in which we do business.

We are committed on your behalf to achieving positive short-term financial results for the Company. We also understand the importance of maintaining a strong long-term focus on the strategic direction of the Company. We are proud of what we have accomplished together, and we remain very excited about our future.

We thank you for your continued investment in AAR. We look forward to seeing you at the annual meeting. Whether or not you plan to attend the annual meeting, please vote as promptly as possible. Every stockholder vote is important!

David P. Storch
Chairman, President and Chief Executive Officer

August 31, 2016


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Notice of Annual Meeting of Stockholders
to be Held on Tuesday, October 11, 2016
 
LOGO

To Our Stockholders:

We are pleased to invite you to attend our 2016 annual meeting of stockholders. Please read the information below and in the accompanying proxy statement to learn more about AAR CORP. and the matters to be voted on at the annual meeting.

    Date       Tuesday, October 11, 2016
    Time       9:00 a.m., Chicago time
    Place       AAR CORP.
One AAR Place
1100 North Wood Dale Road
Wood Dale, Illinois 60191
    Purposes       You will be asked at the annual meeting to:

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Elect four directors;

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Vote on an advisory resolution to approve our Fiscal 2016 executive compensation;

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Approve amendments to the AAR CORP. 2013 Stock Plan

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Ratify the appointment of KPMG LLP as our independent registered public accounting firm for Fiscal 2017; and

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Transact any other business that may properly come before the annual meeting or any adjournment or postponement of the annual meeting.

    Record Date       You may vote your shares at the annual meeting if you were a stockholder on August 16, 2016.
    Voting       Your vote is important. We encourage you to vote your shares as soon as possible. You may vote by proxy over the Internet, by telephone, or by completing and returning the enclosed proxy card in the postage-paid envelope provided. We also welcome you to attend the meeting and vote in person.

By Order of the Board of Directors,

Robert J. Regan
Vice President, General Counsel and Secretary

August 31, 2016


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PROXY STATEMENT FOR THE 2016 ANNUAL MEETING OF STOCKHOLDERS

Table of Contents

 
 
 
Page
 

2016 PROXY STATEMENT SUMMARY

  iv  

       

QUESTIONS AND ANSWERS ABOUT OUR ANNUAL MEETING

  1  

       

PROPOSAL 1 — ELECTION OF OUR DIRECTORS

  4  

Information about Our Director Nominees and Our Continuing Directors

  4  

       

PROPOSAL 2 — ADVISORY RESOLUTION TO APPROVE OUR FISCAL 2016 EXECUTIVE COMPENSATION

  8  

       

PROPOSAL 3 — APPROVAL OF AMENDMENTS TO THE AAR CORP. 2013 STOCK PLAN

  10  

       

PROPOSAL 4 — RATIFICATION OF THE APPOINTMENT OF KPMG LLP AS OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR FISCAL 2017

  17  

       

CORPORATE GOVERNANCE

  18  

General

  18  

Stockholder Engagement

  18  

Board Refreshment

  18  

Director Nominations and Qualifications

  19  

Director Independence

  20  

Board Leadership and Lead Director

  20  

Risk Management Oversight

  20  

Executive Sessions

  21  

Corporate Governance Guidelines

  21  

Ethics Hotline

  22  

Code of Business Ethics and Conduct

  22  

Related Person Transaction Policy

  22  

Director Orientation and Continuing Education

  23  

Board and Committee Evaluations

  23  

Communications with the Board of Directors

  23  

       

BOARD MATTERS

  24  

Board Committees

  24  

Audit Committee Fiscal 2016 Report

  24  

Board Meetings and Attendance

  27  

Director Compensation

  27  

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Page
 

Director Compensation Table

  28  

Compensation Committee Interlocks and Insider Participation

  29  

       

EXECUTIVE COMPENSATION

  30  

Compensation Discussion and Analysis

  30  

Compensation Committee Fiscal 2016 Report on Executive Compensation

  46  

Summary Compensation Table

  47  

Fiscal 2016 Grants of Plan-Based Awards

  50  

Outstanding Equity Awards at Fiscal 2016 Year-End

  51  

Fiscal 2016 Option Exercises and Stock Vested

  53  

Retirement Program Benefits

  53  

Fiscal 2016 Pension Benefits

  53  

Fiscal 2016 Non-Qualified Deferred Compensation

  55  

Potential Payments Upon a Termination of Employment or a Change in Control of the Company

  57  

Tables of Potential Payments Upon a Termination of Employment or a Change in Control of the Company

  63  

       

SECURITY OWNERSHIP OF OUR MANAGEMENT AND OTHERS

  65  

Security Ownership of Management

  65  

Security Ownership of Certain Beneficial Owners

  66  

Section 16(a) Beneficial Ownership Reporting Compliance

  67  

       

EQUITY COMPENSATION PLAN INFORMATION

  68  

       

STOCKHOLDER PROPOSALS FOR OUR 2017 ANNUAL MEETING

  69  

       

OTHER BUSINESS

  69  

       

EXHIBIT A: AAR CORP. 2013 STOCK PLAN, AS PROPOSED TO BE AMENDED

  A-1  

Important Notice Regarding the Availability of Proxy Materials For Our Annual Meeting of Stockholders
to be Held on Tuesday, October 11, 2016:

Copies of this Notice and Proxy Statement, our 2016 Annual Report to Stockholders and our Annual Report on Form 10-K for the fiscal year ended May 31, 2016 are available free of charge at www.proxyvote.com.

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2016 Proxy Statement Summary

This summary highlights certain information contained in this proxy statement. Please read the entire proxy statement carefully before voting your shares.

Annual Meeting Information

Time and Date       Tuesday, October 11, 2016 at 9:00 a.m., Chicago time

Place

 

 

 

AAR CORP.
One AAR Place
1100 North Wood Dale Road
Wood Dale, Illinois 60191

Record Date

 

 

 

Tuesday, August 16, 2016

Voting

 

 

 

Stockholders of record as of the record date may vote over the Internet at www.proxyvote.com; by telephone at 1-800-690-6903; by completing and returning their proxy card or voting information card; or in person at the annual meeting.

 

 

 

 

 

Proposals To Be Voted On By Our Stockholders


    
      Board
Recommendation

Proposal 1 — Election of four directors (pages 4-7):

 

 

 

FOR

Name

 

Age

     

Brief Biography

       

NORMAN R. BOBINS

 

73

     

Non-Executive Chairman of The PrivateBank and Trust Company — Chicago (a financial services company) and Chief Executive Officer of Norman Bobins Consulting, LLC.

     

FOR

RONALD R. FOGLEMAN

 

74

     

Non-Executive Chairman of Orbital ATK, Inc. (an aerospace and defense technologies company); President and Chief Operating Officer of B Bar J Cattle & Consulting Company (a consulting company).

     

FOR

JAMES E. GOODWIN

 

72

     

Lead Director of Federal Signal Corporation (a safety and security products manufacturer); from 2009 to April 2016, Non-Executive Chairman of Federal Signal Corporation.

     

FOR

MARC J. WALFISH

 

64

     

Founding Partner of Merit Capital Partners (a mezzanine investor company).

     

FOR


Proposal 2 — Advisory resolution to approve our Fiscal 2016 executive compensation (pages 8-9).

 

 

 

FOR

Proposal 3 — Approval of amendments to the AAR CORP. 2013 Stock Plan (pages 10-16)

 

 

 

FOR

Proposal 4 — Ratification of the appointment of KPMG LLP as our independent registered public accounting firm for Fiscal 2017 (page 17).

 

 

 

FOR

 

 

 

 

 

 

 

 

 

 

 

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Fiscal 2016 Business Performance Highlights

Fiscal 2016 marked our continuing transition to a predominantly aviation services-oriented company following our Fiscal 2015 divestment of significant manufacturing operations, including our Telair Cargo Group. In Fiscal 2016:

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We reported sales of $1,663 million, net income attributable to AAR of $47.7 million and total diluted earnings per share of $1.37;

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We continued to maintain a strong balance sheet, with working capital of $544.1 million, net debt of $118.9 million and available liquidity of $413.3 million as of May 31, 2016;

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We returned capital of $30.0 million to our stockholders through common stock repurchases and dividends; and

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We secured important new contracts with our customers, including:

Fiscal 2016 Executive Compensation Highlights

Our Compensation Committee made several important changes to our executive compensation program, based principally on market-based information provided by its independent compensation consultant, input from several proxy advisory firms and feedback received through our stockholder engagement efforts, each of which emphasized pay for performance.

Changes to Our Executive Compensation Program

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Adjusted base salaries and reduced annual cash bonus targets to align them with our market peers

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Shifted variable compensation to more stock and less cash as a percentage of total compensation to align with stockholders' interests and to encourage long-term value creation

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Eliminated the use of the time-based restricted stock and moved to performance-based restricted stock and stock options as the preferred stock vehicles for executive officers

GRAPHIC

Updated our stock ownership policy to reflect a greater emphasis on stock compensation and retention

Emphasis on Pay for Performance

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Pay-for-performance compensation (cash bonus plus the value of performance-based restricted stock and stock options) represented 81.4% of the total direct compensation of our Chief Executive Officer, David P. Storch, in Fiscal 2016, compared to fixed compensation (base salary) at 18.6% of his total direct compensation.

GRAPHIC

Pay-for-performance compensation (cash bonus plus the value of performance-based restricted stock and stock options) represented 64.8% of the total direct compensation of our non-CEO named executive officers in Fiscal

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GRAPHIC
 
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Key Compensation Policies and Practices

The key features of the Company's executive compensation program are:

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Annual advisory stockholder approval of executive compensation

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No guaranteed performance-based annual cash bonuses

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Significant emphasis on stock-based compensation

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Challenging performance targets under annual cash bonus and stock-based compensation

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Multi-year vesting periods for stock-based awards

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Stock award agreements under the AAR CORP. 2013 Stock Plan with "double trigger" change-in-control provisions (change-in-control and termination of employment)

GRAPHIC

No repricing of stock options without stockholder approval

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No dividends on performance-based restricted stock until performance goals are met

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Stock ownership guidelines for directors and executive officers

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Insider trading policy prohibiting short sales, pledging and hedging transactions

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No tax gross-ups in any agreement with an executive officer, except for one legacy agreement in the year 2000

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Clawback of incentive compensation in the event of certain financial restatements

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Fiscal 2016 Corporate Governance Highlights

Good corporate governance remains an essential part of the Company's culture. The Board of Directors annually reviews the Company's key corporate governance documents, including the Corporate Governance Guidelines and the Board Committee charters. We also seek feedback from our stockholders on our corporate governance practices through our stockholder engagement program. Our goal is to ensure that our corporate governance practices reflect best practices consistent with the Company's culture, strategy and business performance.

The following table identifies the Company's key corporate governance practices and related information:

Corporate Governance Information

      As of August 31, 2016

Number of directors

      12

Number of independent directors

      10

Average age of directors

      66

Average tenure of directors

      11 years

Director retirement age

      75 on nomination date

Lead director

      Yes

Stock ownership and retention guidelines

      Yes

Annual stock grant to non-employee directors

      Yes

Independent directors — executive sessions

      Yes

Independent compensation consultant

      Yes

Annual board and committee self-evaluations

      Yes

Director orientation and continuing education programs

      Yes

All Directors are "audit committee financial experts"

      Yes

Code of business ethics and conduct

      Yes

Ethics hotline policy

      Yes

Related person transaction policy

      Yes

Disclosure committee for financial reporting

      Yes

Annual advisory stockholder approval of executive compensation

      Yes

Stockholder engagement program

      Yes

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LOGO

One AAR Place
1100 North Wood Dale Road
Wood Dale, Illinois 60191

We will hold our 2016 annual meeting of stockholders on Tuesday, October 11, 2016 at 9:00 a.m., Chicago time, at AAR CORP.'s corporate headquarters located at One AAR Place, 1100 North Wood Dale Road, Wood Dale, Illinois 60191. We cordially invite you to attend the annual meeting and ask that you vote on the proposals described in this proxy statement.

QUESTIONS AND ANSWERS ABOUT OUR ANNUAL MEETING

Why am I receiving the proxy materials?

Our Board of Directors is providing these proxy materials to you, beginning on or about August 31, 2016, in connection with its solicitation of proxies for use at the Company's 2016 annual meeting of stockholders.

What information is contained in the proxy materials?

The proxy materials contain information about the proposals to be voted on at the annual meeting, the compensation of our directors and our most highly paid executive officers, corporate governance and other information about the Company required by the rules of the Securities and Exchange Commission ("SEC").

How do I access the proxy materials electronically?

We are distributing our proxy materials via the Internet under the "notice and access" approach permitted by SEC rules. This approach reduces the cost and environmental impact of printing and distributing the proxy materials for our annual meeting.

We mailed a "Notice of Internet Availability of Proxy Materials" to all of our stockholders on or about August 31, 2016. The Notice provides you with instructions on how to:

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Access and review our proxy materials over the Internet;

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Submit your vote over the Internet; and

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Request printed copies of our proxy materials.

This proxy statement, our annual report to stockholders for the fiscal year ended May 31, 2016 ("Fiscal 2016") and our Fiscal 2016 annual report on Form 10-K may be viewed online at www.proxyvote.com.

What proposals am I voting on at the annual meeting?

You will vote on four proposals at the annual meeting:

GRAPHIC

Proposal 1 — The election of Norman R. Bobins, Ronald R. Fogleman, James E. Goodwin and Marc J. Walfish as directors to serve until the 2019 annual meeting of stockholders;

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Proposal 2 — An advisory resolution to approve the Company's Fiscal 2016 executive compensation;

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Proposal 3 — The approval of amendments to the AAR CORP. 2013 Stock Plan; and

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Proposal 4 — The ratification of the appointment of KPMG LLP as the Company's independent registered public accounting firm for the fiscal year ending May 31, 2017 ("Fiscal 2017")

Who is entitled to vote?

You are entitled to vote if you were an AAR CORP. stockholder at the close of business on August 16, 2016. This date is referred to in this proxy statement as the "record date."

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Stockholder of Record.    You are a "stockholder of record" if your shares are registered in your name with Computershare, the Company's 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 or voting by telephone or over the Internet, or in person by attending and voting at the annual meeting.

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 on behalf of 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.

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 during the meeting.

On the record date, 34,299,774 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. (Chicago time) on 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 it is exercised by:

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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;

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Submitting a later-dated proxy by telephone, over the Internet or by mail; or

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Voting in person at the annual meeting.

How will the proxy holders vote the shares?

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 as follows:

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FOR the election of the four director nominees;

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FOR the advisory resolution to approve our Fiscal 2016 executive compensation;

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FOR the approval of the amendments to the AAR CORP. 2013 Stock Plan; and

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FOR the ratification of KPMG LLP as our independent registered public accounting firm for Fiscal 2017.

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 interest 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.

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What are the quorum and vote requirements?

A quorum of stockholders is necessary to hold a valid meeting. A quorum will exist if a majority of the outstanding shares of common stock entitled to vote at the meeting is present in person 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" will occur when a broker, bank or other nominee holding shares for a beneficial owner does not vote on a particular proposal because the 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, bank and other nominees will have discretionary authority to vote shares on the ratification of KPMG LLP; however, they may not vote shares on the election of directors, the advisory resolution to approve executive compensation or the approval of the amendments to the AAR CORP. 2013 Stock Plan without specific instructions from their beneficial owners. Accordingly, please provide voting instructions to your broker, bank or other nominee so that your vote may be counted.

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 "withhold" votes, abstentions, and broker non-votes.

      Required Vote       Effect of "Withhold" Votes,
Abstentions and Broker Non-Votes

 

Proposal 1 —
Election of Four Directors

  Affirmative vote of a plurality of the shares of common stock present and entitled to vote (the four nominees who receive the greatest number of votes will be elected directors of the Company).       "Withhold" votes and broker non-votes will have no effect on the voting for this matter.

 

Proposal 2 —
Advisory Resolution to Approve Fiscal 2016 Executive Compensation

  Affirmative vote of a majority of the shares of common stock present and entitled to vote.       Abstentions will have the effect of a vote "against" and broker non-votes will have no effect on the voting for this matter.

 

Proposal 3 —
Approval of Amendments to the AAR CORP. 2013 Stock Plan

  Affirmative vote of a majority of the shares of common stock present and entitled to vote.       Abstentions will have the effect of a vote "against" and 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 and entitled to vote.       Abstentions will have the effect of a vote "against"; there will be no broker non-votes for this matter.

 

How will the vote be tabulated?

Inspectors of election appointed for the annual meeting will tabulate all votes cast in person 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 $12,000, 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. Certain officers, directors and employees of the Company may also solicit proxies for no additional compensation.

Where can I find the voting results for the proposals at the annual meeting?

We intend to announce preliminary voting results at the annual meeting. We will publish the final voting results on a Current Report on Form 8-K to be filed with the SEC within four business days of the annual meeting.

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PROPOSAL 1 — ELECTION OF OUR DIRECTORS

The Company's Restated Certificate of Incorporation and By-Laws provide that the Board of Directors shall consist of between three and 15 directors, with the exact number of directors to be set from time to time by the Board. The number of directors is currently set at 12. The members of the Board are divided into three classes: Class I (four directors), Class II (four directors), and Class III (four directors). Each class has a three-year term.

The Board of Directors has nominated four individuals to be elected as Class II directors at the annual meeting, each to serve a three-year term expiring at the 2019 annual meeting or until the individual is succeeded by another qualified director who has been duly elected. The nominees for director in Class II are Norman R. Bobins, Ronald R. Fogleman, James E. Goodwin and Marc J. Walfish.

Each nominee is currently serving as a director of the Company. Each nominee has been determined by the Board to be "independent" within the meaning of the rules of the New York Stock Exchange ("NYSE") and the SEC.

Information about Our Director Nominees and Our Continuing Directors

Information about our director nominees and continuing directors whose terms expire in future years is set forth below:

OUR DIRECTOR NOMINEES

 
  Director
Since
 

Class II Directors whose terms expire at the 2016 annual meeting

       

NORMAN R. BOBINS, 73: Since 2008, Non-Executive Chairman of The PrivateBank and Trust Company – Chicago (a financial services company) and Chief Executive Officer of Norman Bobins Consulting,  LLC (a financial consulting company). From May 2007 until October 2007, Chairman of the Board of LaSalle Bank Corporation. From 2002 to 2007, President and Chief Executive Officer of LaSalle Bank Corporation.

   
2007
 

Other current public company directorships: Omega Healthcare Investors, Inc. and PrivateBancorp, Inc.

   
 
 

Other public company directorships held in the past five years: AGL Resources Inc., Aviv REIT, Inc., Nicor Inc. and SIMS Metal Management Limited.

   
 
 

Director Qualifications: The Board of Directors concluded that Mr. Bobins should serve as a director of the Company based on his 45 years of banking experience, his financial and accounting knowledge, his service as a director of other public companies, and his civic involvement and business acumen as a director of numerous not-for-profit organizations.

       

RONALD R. FOGLEMAN, 74: Since 2009, Non-Executive Chairman of Orbital ATK, Inc. (an aerospace and defense technologies company). Since 1997, President and Chief Operating Officer of B Bar J Cattle & Consulting Company (a consulting company). From 1994 to 1997, General, Chief of Staff of the United States Air Force, Washington, D.C.

   
2001
 

Other current public company directorships: Orbital ATK Inc.

   
 
 

Other public company directorships held in the past five years: Alliant Techsystems, Inc.

   
 
 

Director Qualifications: The Board of Directors concluded that General Fogleman should serve as a director of the Company based on his leadership ability and record of accomplishment during a 34-year career with the United States Air Force, his business experience and business relationships gained during and subsequent to his military service, his understanding of the government and defense markets, and his service as a director of other public companies. General Fogleman currently serves as the Company's Lead Director.

       

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  Director
Since
 

JAMES E. GOODWIN, 72: Since April 2016, Lead Director of Federal Signal Corporation (a safety and security products manufacturer). From 2009 to April 2016, Chairman of Federal Signal Corporation. From 2007 to 2008, Interim President and Chief Executive Officer of Federal Signal Corporation. From 2001 to 2007, an independent business consultant. From 1999 to 2001, Chairman and Chief Executive Officer of UAL, Inc. and United Airlines, Inc., from which he retired after 34 years.

    2002  

Other current public company directorships: Federal Signal Corporation and John Bean Technologies Corporation.

       

Other public company directorships held in the past five years: First Chicago Bancorp.

       

Director Qualifications: The Board of Directors concluded that Mr. Goodwin should serve as a director of the Company based on his significant airline industry experience and expertise, including his leadership positions at UAL, Inc. and United Airlines, Inc., his management experience and his financial expertise, as well as his global consulting experience, and his service as a director of other public companies.

   
 
 

MARC J. WALFISH, 64: Since 2003, Founding Partner of Merit Capital Partners (a mezzanine investor company). From 1991 to 2003, partner at William Blair Mezzanine Capital Partners. From 1978 to 1991, various positions at Prudential Capital Corporation, most recently as Senior Vice President.

   
2003
 

Director Qualifications: The Board of Directors concluded that Mr. Walfish should serve as a director of the Company based on his experience and proven success in the finance industry, including as a founding partner of Merit Capital Partners, a mezzanine investor company, his knowledge of the capital markets and his expertise in corporate finance, strategic planning and risk management.

   
 
 

OUR CONTINUING DIRECTORS

Class III Directors whose terms expire at the 2017 annual meeting

       

PATRICK J. KELLY, 61: Since 1986, Managing Director of KMK & Associates, LLC (a private equity firm with interests in companies operating in the food, distribution, technology, financial services, real estate and energy industries).

   
2006
 

Director Qualifications: The Board of Directors concluded that Mr. Kelly should serve as a director of the Company based on his leadership and operational experience at various businesses, his background as a long- term chief executive officer and his business expertise gained through his experience at a private equity firm with a diversified portfolio of operating companies.

   
 
 

PETER PACE, 70: General, U.S. Marine Corps (Retired). From 2005 to 2007, Chairman of the Joint Chiefs of Staff.

   
2012
 

Other current public company directorships: Qualys, Inc.

   
 
 

Other public company directorships held in the past five years: Laserlock Technologies, Inc., Pike Electric Corp., Textura Corporation and Wi2Wi Corporation.

       

Director Qualifications: The Board of Directors concluded that General Pace should serve as a director of the Company based on his leadership and management skills and experience from over 40 years of service with the United States Marine Corps, culminating in his appointment as the 16th Chairman of the Joint Chiefs of Staff (the most senior position in the United States Armed Forces), where he served from 2005 to 2007 as the principal military adviser to the President, the Secretary of Defense, the National Security Council and the Homeland Security Council, his understanding of the government and defense markets, and his current and prior service as a director of other public companies.

   
 
 

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  Director
Since
 

TIMOTHY J. ROMENESKO, 59: Since August 2016, Vice Chairman and Chief Financial Officer of AAR CORP. From August 2015 to August 2016, Vice Chairman of AAR CORP. and Chief Operating Officer of the Expeditionary Services business group. From March 2015 to August 2015, President of AAR CORP. and Chief Operating Officer of the Expeditionary Services business group. From 2007 to March 2015, President and Chief Operating Officer of AAR CORP. From 1994 to 2007, Vice President, Chief Financial Officer and Treasurer of AAR CORP.

    2007  

Director Qualifications: The Board of Directors concluded that Mr. Romenesko should serve as a director of the Company based on his leadership positions with the Company, his experience in various accounting and financial capacities during his 34-year career with the Company, and his knowledge of the commercial aviation and government and defense markets.

   
 
 

RONALD B. WOODARD, 73: Since 2014, retired Chairman of MagnaDrive, Inc. (an industrial torque transfer equipment company, which he co-founded following his retirement from The Boeing Company after 32 years of service). From 1995 to 1998, President of the Boeing Commercial Airplane Group. From 1991 to 1994, Vice President and General Manager of the Renton Division of Boeing Commercial Aircraft. From 1987 to 1991, President of de Havilland Aircraft. Prior to that, Vice President and General Manager of the Materiel Division of Boeing Commercial Aircraft, and various other management positions.

   
2004
 

Other public company directorships held in the past five years: Continental Airlines, Inc. and Outerwall, Inc. (formerly Coinstar, Inc.).

   
 
 

Director Qualifications: The Board of Directors concluded that Mr. Woodard should serve as a director of the Company based on his management expertise and manufacturing experience as a senior officer of The Boeing Company, his knowledge of the commercial aviation industry and his experience as a director of other public companies, including Continental Airlines, Inc.

   
 
 

Class I Directors whose terms expire at the 2018 annual meeting

   
 
 

ANTHONY K. ANDERSON, 60: Since 2012, an independent business consultant. From 2006 to April 2012, Vice Chairperson and Managing Partner of Midwest Area at Ernst & Young LLP (a global accounting firm). Prior thereto, served in various management positions during a 35-year career with Ernst & Young LLP.

   
2012
 

Other current public company directorships: Avery Dennison Corp. and Exelon Corp.

   
 
 

Other public company directorships held in the past five years: First American Financial Corporation.

   
 
 

Director Qualifications: The Board of Directors concluded that Mr. Anderson should serve as a director of the Company based on his 35 years working with a global accounting firm, his accounting and financial knowledge, his leadership in developing management talent programs, his service as a director of other public companies, and his professional, civic and charitable service, including as a director of numerous not-for-profit organizations.

       

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  Director
Since
 

MICHAEL R. BOYCE, 68: Chairman of the Board of PQ Corporation (a specialty chemicals and catalyst company) and Chairman and Chief Executive Officer of The Peak Group (an operating and acquisition company). From 2005 to May 2015, Chairman and Chief Executive Officer of PQ Corporation. From 1990 to 1998, President and Chief Operating Officer of Harris Chemical Group, Inc. (a chemicals company).

    2005  

Other current public company directorships: Stepan Company.

   
 
 

Director Qualifications: The Board of Directors concluded that Mr. Boyce should serve as a director of the Company based on his experience as Chairman and Chief Executive Officer of two leading global organizations, his insight into global manufacturing, supply and distribution practices and his international business experience.

   
 
 

DAVID P. STORCH, 63: Since August 2015 and from 2005 to 2007, Chairman of the Board, President and Chief Executive Officer of AAR CORP. From 2007 to August 2015, Chairman of the Board and Chief Executive Officer of AAR CORP. From 1996 to 2005, President and Chief Executive Officer of AAR CORP. From 1989 to 1996, President and Chief Operating Officer of AAR CORP.

   
1989
 

Other current public company directorships: KapStone Paper and Packaging Corp. and Kemper Corporation.

   
 
 

Director Qualifications: The Board of Directors concluded that Mr. Storch should serve as a director of the Company based on his current position as Chairman of the Board, President and Chief Executive Officer of the Company, his leadership and management skills, his understanding of the Company's businesses gained during his 37-year career with the Company, his knowledge of the commercial aviation and government and defense services industries, and his leadership role in transforming the Company into a leading international provider of aviation services to the commercial aviation and government and defense markets.

   
 
 

JENNIFER L. VOGEL, 54: Since 2012, co-founder and owner of InVista Advisors, an advisory firm focused on legal department effectiveness, leadership, compliance, crisis readiness and risk management. Prior thereto, from 2003 to 2010, Senior Vice President, General Counsel, Secretary and Chief Compliance Officer of Continental Airlines.

   
2016
 

Other current public company directorships: American Science and Engineering, Inc. and Virgin America, Inc.

   
 
 

Other public company directorships held in the past five years: Clearwire Corporation.

   
 
 

Director Qualifications: The Board of Directors concluded that Ms. Vogel should serve as a director of the Company based on her experience as a highly successful corporate executive with over 25 years of leadership experience in the airline and energy industries, including her leadership positions with Continental Airlines and on the board of Virgin America, her legal and board governance expertise, her experience in regulatory issues, mergers and acquisitions, ethics and compliance matters and her experience as a director of other public companies.

   
 
 

Our Board of Directors unanimously recommends that you vote "FOR" each director nominee.

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PROPOSAL 2 — ADVISORY RESOLUTION TO APPROVE OUR FISCAL 2016 EXECUTIVE COMPENSATION

We are asking our stockholders to approve the following advisory resolution — commonly known as a say-on-pay proposal — on the compensation awarded to our named executive officers for Fiscal 2016 as disclosed in this proxy statement:

We hold an annual vote on say-on-pay because we value the opinions of our stockholders on our executive compensation program. Our say-on-pay votes for the last two fiscal years — Fiscal 2015: 73% and Fiscal 2014: 96% – demonstrate that our stockholders have supported our Compensation Committee's decisions on executive compensation. Each year (but particularly in Fiscal 2016 after the lower say-on-pay vote in Fiscal 2015), our Compensation Committee takes a fresh look at the Company's executive compensation program, with an eye toward determining whether design or implementation modifications are warranted as a result of the say-on-pay vote, stockholder feedback, market practices, peer group changes, the financial performance of the Company and other relevant factors.

In Fiscal 2016, our Compensation Committee worked with senior management and Mercer (US) Inc. ("Mercer"), the Compensation Committee's independent compensation consultant, on the design of an executive compensation program that properly incentivizes the Company's executive officers in line with peer group companies and the best interests of the Company and its stockholders. The Compensation Committee's analysis embraced the following principles:

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An appropriate mix of base salary, annual cash bonus opportunities and long-term stock-based compensation;

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A greater use of performance-based compensation over fixed compensation;

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A reliance on stock-based compensation as a significant portion of performance-based compensation;

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The use of performance metrics that promote the achievement of short-term and long-term strategic and operational goals; and

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Executive pay practices tied to robust risk and control features.

Please see the "Compensation Discussion and Analysis" section of this proxy statement on pages 30-46 for a detailed description of the Fiscal 2016 executive compensation program approved by the Compensation Committee of the Board of Directors.

Fiscal 2016:    Performance-Based Compensation Versus Fixed Compensation

The table below shows the breakdown of performance-based compensation and fixed compensation paid to David P. Storch, the Company's Chief Executive Officer, and the other named executive officers for Fiscal 2016 (other than John C. Fortson,

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who resigned as Vice President and Chief Financial Officer on September 28, 2015 and forfeited his performance-based compensation as a result):

NAMED EXECUTIVE OFFICER

      PERFORMANCE-BASED
COMPENSATION
      FIXED COMPENSATION    

      Annual          
Performance-Based
Cash Bonus      
  Performance-Based
Restricted Stock   
  Stock Options       Base Salary   Discretionary
Cash Bonus 
   

David P. Storch

      $1,014,800   $1,150,500   $1,150,500       $755,250      

Timothy J. Romenesko

        $375,000   $375,000       $456,250   $507,400    

John M. Holmes

      $517,949   $375,000   $375,000       $456,250   $117,551    

Michael J. Sharp

      $370,462   $368,750   $131,250       $382,418      

Robert J. Regan

      $361,200   $312,000   $312,000       $390,396      

Based on the above, the percentage of performance-based compensation versus the percentage of fixed compensation for each named executive officer for Fiscal 2016 is set forth below:

NAMED EXECUTIVE OFFICER       TOTAL PERFORMANCE-BASED COMPENSATION       TOTAL FIXED COMPENSATION
David P. Storch       81.4%       18.6%
Timothy J. Romenesko       43.8%       56.2%
John M. Holmes       68.8%       31.2%
Michael J. Sharp       69.5%       30.5%
Robert J. Regan       71.6%       28.4%

Our Compensation Committee believes that the executive compensation paid to our named executive officers in Fiscal 2016, in form and amount, was fair, appropriate and in the best interests of the Company and its stockholders.

Our Board of Directors unanimously recommends that you vote "FOR" the advisory resolution to approve our Fiscal 2016 executive compensation.

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PROPOSAL 3 — APPROVAL OF AMENDMENTS TO THE AAR CORP. 2013 STOCK PLAN

The Company maintains the AAR CORP. 2013 Stock Plan (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.

Requests for Approval

We are asking our stockholders to:

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Approve an additional 2,850,000 shares of common stock for issuance under the Plan;

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Re-approve the material terms of the Plan's performance goals to ensure continued deductibility under Section 162(m) of the Internal Revenue Code ("Section 162(m)"); and

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Approve limitations on the awards granted, and the total compensation payable, to non-employee directors.

Each of these three requests (collectively referred to as "amendments" to the Plan) are described in detail below:

Share Increase.    The Board of Directors of the Company has approved an amendment to the Plan to increase the number of shares available under the Plan by 2,850,000, from 2,500,000 shares to 5,350,000 shares. This increase is subject to approval by the Company's stockholders. Fiscal 2017 stock grants made in July 2016 used up all available shares under the Plan. Although these stock option grants exceeded the remaining number of available shares by 184,784 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.

The purpose of this amendment 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.

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:

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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.

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Shares repurchased by the Company with proceeds received from a stock option exercise may not be used for future grants under the Plan.

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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.

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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.

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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.

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Repricing of stock options or SARs without stockholder approval is prohibited.

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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).

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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.

The Company, 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 Company expects its practice of repurchasing shares of its common stock will mitigate, at least in part, the impact of any dilution. In Fiscal 2016, the Company repurchased 814,078 shares at an average price of $22.91. The Company further expects share usage under the Plan to be generally consistent with share usage under the Plan to date, with the Plan shares likely to be awarded over the next two to three years at which time the Company once again would seek stockholder approval for the award of any additional shares under the Plan.

Historical Stock Option and Stock Award Information. Set forth below is certain historical information as of August 1, 2016 about stock options and stock awards granted under the Plan and its predecessor plan (the AAR CORP. Amended and Restated Stock Benefit Plan):

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The number of granted but unexercised stock options: 2,749,488

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The weighted average exercise price of the granted but unexercised stock options: $22.69

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The weighted average remaining term of the granted but unexercised stock options: 6.7 years

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The number of granted but unvested full share awards (stock awards and stock units payable in stock): 674,830

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The number of shares available for future grants under the Plan and the predecessor plan: 0

Material Terms of the Plan's Performance Goals.    Section 162(m) generally precludes a publicly traded company from taking a tax deduction for compensation in excess of $1 million paid to certain executives. These executives are the company's chief executive officer and the three other highest paid executives, other than the chief financial officer, who are the named executive officers listed in the Summary Compensation Table of a company's annual proxy statement. This restriction is subject to an exception for "performance-based" compensation that meets certain requirements, including a requirement that the "material terms of the performance goals" applicable to these named executive officers must be disclosed to and approved by stockholders before any compensation is paid to them. Stockholders approved the Plan, including the material terms of the performance goals, at the 2013 annual meeting. Section 162(m) requires that if the targets under the performance goals can be changed, the material terms of the performance goals must be re-approved by stockholders at least every five years in order to retain qualification under Section 162(m).

Re-approval of the material terms of the performance goals will provide the Compensation Committee with the continued ability to make awards that qualify as "performance-based compensation" under Section 162(m). The material terms of the performance goals for purposes of Section 162(m) are:

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The individuals eligible to receive compensation;

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A description of the business criteria on which the performance goals are based; and

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The maximum amount of compensation that can be paid to an individual under the performance goals.

Each of these material terms is described below.

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Individuals Eligible to Receive Compensation. The Committee administers the Plan. It has the authority to determine the key employees and non-employee directors to whom awards are to be granted under the Plan. All employees of the Company designated by the Committee and all non-employee directors of the Company are eligible to receive awards under the Plan.

Description of the Business Criteria on Which the Performance Goals Are Based. The Plan already contains a comprehensive list of business criteria that fit within the "performance-based compensation" exception under Section 162(m) from which the Compensation Committee may select a particular year's performance goals. The Board of Directors has approved an amendment to the Plan that specifically adds "working capital turns" to the listed business criteria.

The following is the list of business criteria, as may be selected and defined by the Committee: earnings per share or earnings per share growth; earnings before interest and taxes, or earnings before interest, taxes, depreciation and/or amortization; net income; 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; extraordinary items; significant, non-recurring charges or credits; and fluctuations in foreign exchange rates.

Maximum Amount of Compensation. Subject to certain adjustments, (i) the maximum number of shares as to which a key employee may receive stock options and SARs in any calendar year is 800,000, and (ii) the maximum number of shares issuable as stock awards and stock unit awards intended to qualify as "performance-based" under Section 162(m) of the Internal Revenue Code to any single key employee in any calendar year is 300,000 (or in the event an award is settled in cash, an amount equal to the closing sales price of such shares (the "fair market value") on the date on which the award is settled).

Limitation on Awards Granted, and Total Compensation Payable, to Non-Employee Directors.    The Board of Directors of the Company approved an amendment to the Plan that 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. The purpose of this amendment is to protect against a conflict of interest, given that the Board of Directors is responsible for fixing its own compensation.

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 Exhibit A to this proxy statement (with the proposed amendments to the Plan highlighted). Stockholders are encouraged to review the Plan, as proposed to be amended, 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 and the "outside director" definition under Section 162(m) of the Internal Revenue Code. 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 or who are or may become subject to Section 162(m) of the Internal Revenue Code. 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 2,500,000 shares (5,350,000 if the amendment 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

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number of available shares by two 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 31, 2016, approximately 100 key employees and all non-employee directors 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. It is intended that stock options qualify as "performance-based compensation" under Section 162(m) of the Internal Revenue Code and thus be fully deductible by the Company for federal income tax purposes, to the extent permitted by law.

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.

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

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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. It is intended that SARs qualify as "performance-based compensation" under Section 162(m) of the Internal Revenue Code and thus be fully deductible by the Company for federal income tax purposes, to the extent permitted by law.

Performance-Based Awards. The Committee has the discretion to establish restrictions on any stock awards and stock unit awards to qualify the awards as "performance-based compensation" under Section 162(m) of the Internal Revenue Code so that they are fully deductible by the Company for federal income tax purposes. In such case, the Committee may establish performance goals for certain performance periods and targets for achievement of the performance goals, and the restrictions on the award will lapse if the performance goals and targets are achieved for the designated performance period. The performance goals will be based on one or more of the following criteria as described above.

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.

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.

Awards Granted Under the Plan

It is not possible at this time to determine all of the specific awards that will be made in future years under the Plan.

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As of August 1, 2016, a total of 1,166,767 stock options with exercise prices ranging from $24.00 to 26.62 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: David P. Storch: 378,810; Timothy J. Romenesko: 125,134; John M. Holmes: 125,134; Michael J. Sharp 17,547; Robert J. Regan: 101,711; John C. Fortson: 45,455; all current executive officers as a group: 793,791; 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: 372,976. On August 23, 2016, the last reported sales price for the common stock on the New York Stock Exchange was $24.65 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.

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

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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 amendments to the Plan requires the affirmative vote of the holders of a majority of the shares present in person or represented by proxy and entitled to vote at the annual meeting.

The Board of Directors unanimously recommends a vote "FOR" the above-described amendments to the Plan.

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PROPOSAL 4 — RATIFICATION OF THE APPOINTMENT OF KPMG LLP AS OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR FISCAL 2017

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 Audit Committee appointed KPMG LLP ("KPMG") as the Company's independent registered public accounting firm for Fiscal 2017. 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 thereon.

The Audit Committee believes that the appointment of KPMG is in the best interests of the Company and its stockholders for the following primary reasons:

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KPMG's independence from the Company;

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The quality of KPMG's past performance as the Company's independent registered public accounting firm;

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KPMG's understanding of the Company's businesses, operations, accounting policies and practices and internal control over financial reporting;

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KPMG's reputation in the industry and its experience in accounting matters for aerospace and defense companies;

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The reasonableness of the fees paid by the Company to KPMG for its services; and

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Market information on KPMG's audit quality and performance, including recent Public Company Accounting Oversight Board ("PCAOB") reports on KPMG.

The Board of Directors asks that stockholders ratify the appointment of KPMG as the Company's independent registered public accounting firm for Fiscal 2017. Representatives of KPMG are expected to be present at the annual meeting, with the opportunity to make a statement if they so desire and to respond to appropriate questions from stockholders.

Independent Registered Public Accounting Firm Fees and Services

The following table sets forth the aggregate fees billed by KPMG to the Company for Fiscal 2015 and Fiscal 2016 for audit, audit-related and tax services provided by the Company's independent registered public accounting firm.

Description of Fees

  Fiscal 2015       Fiscal 2016

Audit Fees

  $1,914,366       $1,854,803

Audit-Related Fees1

  $7,500       $330,000

Tax Fees2

  $332,341       $448,566

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.

Our Board of Directors unanimously recommends that you vote "FOR" the ratification of the appointment of KPMG LLP as our independent registered public accounting firm for Fiscal 2017.

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CORPORATE GOVERNANCE

General

We review our corporate governance policies and procedures on an annual basis. We strive to emulate "best practices" and tailor them, where appropriate, to fit our specific needs. We believe that we comply with all applicable SEC and NYSE rules and regulations. We also have adopted additional corporate governance practices that we believe are in the best interests of the Company and its stockholders.

Copies of the following corporate governance documents are available on the Company's website at www.aarcorp.com under "Investor Relations/Corporate Governance":

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Corporate Governance Guidelines, which include policies on:

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Categorical Standards for Determining Director Independence

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Code of Business Ethics and Conduct

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Audit Committee Charter

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Compensation Committee Charter

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Nominating and Governance Committee Charter

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Executive Committee Charter

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Conflict Minerals Policy and Form SD Filings

These corporate governance documents are also available in print to any stockholder upon written request to the Secretary of the Company at the Company's address listed on the first page of this proxy statement.

Stockholder Engagement

We maintain a stockholder engagement program as a "best practice" under our corporate governance and executive compensation initiatives. The purposes of this program are to promote communication, increase transparency and, most importantly, better understand and address the perspectives of our stockholders. We believe that opportunities to receive and consider stockholder feedback enhance our corporate governance and executive compensation practices.

In Fiscal 2016, our stockholder engagement program consisted of individual meetings and calls with stockholders and presentations at various investor conferences. Through this program, we estimate that we communicated with stockholders owning approximately 75% of our outstanding shares.

Board Refreshment

We regularly consider the size, skills and diversity of our Board of Directors to assure that we maintain a proper balance between director stability and fresh perspectives in the boardroom. We recruit new directors who we believe will complement and diversify the experience, skills and perspectives of our existing directors. To that end, we were pleased to welcome Jennifer L. Vogel to our Board in January 2016. Ms. Vogel is an accomplished business executive with significant aviation experience. See "Proposal 1 — Election of Our Directors — Our Continuing Directors" for additional information about Ms. Vogel.

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Director Nominations and Qualifications

The Board of Directors, acting through its Nominating and Governance Committee, is responsible for identifying, evaluating and recommending candidates for director. The Nominating and Governance Committee obtains recommendations from management, other directors, business and community leaders and stockholders, and may retain the services of a consultant to assist in identifying candidates. The Nominating and Governance Committee considers all director candidates in the same manner, including director candidates recommended by stockholders, regardless of the source of the recommendation. In its evaluation of director candidates, the Nominating and Governance Committee considers the factors specified in the Company's Corporate Governance Guidelines, including:

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A high level of integrity and professional and personal ethics and values consistent with those of the Company;

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Professional background and relevant business and industry experience;

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Current employment, leadership experience and other board service;

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Demonstrated business acumen or special technical skills or expertise (e.g., audit, financial, legal or aviation and government and defense), particularly in areas where the Board currently lacks specific skills;

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A commitment to enhancing stockholder value and serving the interests of all stockholders;

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Independence (including within the meaning of the applicable NYSE rules) and freedom from any conflicts of interest that would interfere with a director's ability to discharge his duties;

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Willingness and ability to make the commitment of time and attention necessary for effective Board service

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A balance of business, financial and other experience, expertise, capabilities and perspectives among sitting directors in the context of the current composition of the Board, operating requirements of the Company and long-term interests of stockholders; and

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Other factors the Nominating and Governance Committee deems appropriate.

The Nominating and Governance Committee considers the racial, ethnic and gender diversity of the Board and director candidates, as well as the diversity of their knowledge, skills, experience, background and perspective, to assure that the Company maintains the benefit of a diverse, balanced and effective Board.

A full list of the qualifications of director candidates considered by the Committee is set forth in the Corporate Governance Guidelines on the Company's website at www.aarcorp.com under "Investor Relations/Corporate Governance" and is available in print to any stockholder upon written request to the Secretary of the Company at the address listed on the first page of this proxy statement. The Nominating and Governance Committee regularly reviews these qualifications and the performance of individual directors and the Board as a whole.

Following its evaluation of director candidates, the Nominating and Governance Committee recommends its director nominees to the Board of Directors. Based on its review and consideration of the Committee's recommendation, the Board makes the final determination of director nominees to be elected by the Company's stockholders.

Stockholders may submit a proposed nomination to the Nominating and Governance Committee for consideration with respect to the 2017 annual meeting of stockholders by writing to the Secretary, AAR CORP., One AAR Place, 1100 North Wood Dale Road, Wood Dale, Illinois 60191. To be considered, proposed nominations must be received by the Secretary of the Company no later than April 19, 2017, must state the reasons for the proposed nomination and contain the information required under the Company's By-Laws, including the full name and address of each proposed nominee, as well as a brief biographical history setting forth past and present directorships, employment and occupations, information as to stock ownership, other arrangements regarding the common stock, and any other qualifications. Proposed nominations must also include a statement indicating that the proposed nominees have consented to being named in the proxy statement and to serve if elected.

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Director Independence

A majority of the members of the Board of Directors must be independent directors under the Company's Corporate Governance Guidelines and applicable SEC and NYSE rules. The Nominating and Governance Committee and the Board of Directors review each director annually and make a determination concerning independence after consideration of all known facts and circumstances. The Board has established categorical standards to assist it in determining director independence. The Company's "Categorical Standards for Determining Director Independence" include all of the elements of the applicable SEC and NYSE rules with respect to director independence, as well as those of the Company, and are available on the Company's website.

Based on these categorical standards, its review of all relevant facts and information available, and the recommendations of the Nominating and Governance Committee, the Board, at its meeting in July 2016, affirmatively determined that no director has a material relationship with the Company that would impair the director's ability to exercise independent judgment and, accordingly, that each director is an independent director, except for David P. Storch and Timothy J. Romenesko who are both employees of the Company. Under the NYSE rules, a director employed by the Company is not an independent director by definition.

Board Leadership and Lead Director

The Board of Directors determines the leadership structure for the Board and the Company in a manner that it believes best serves the interests of the Company's stockholders.

The Corporate Governance Guidelines provide that the Board shall have a Lead Director elected annually by the independent directors. The Lead Director chairs all executive sessions of the independent directors and works closely with the Chief Executive Officer on Board agendas, schedules and meetings. Ronald R. Fogleman, Chair of the Nominating and Governance Committee, currently serves as the Board's Lead Director, having been re-elected by the independent directors at the Board's January 2016 meeting.

The Board has no fixed policy with respect to combining or separating the offices of Chairman of the Board and Chief Executive Officer. Currently, the Company's President and Chief Executive Officer, David P. Storch, is also Chairman of the Board. The Board continues to believe that having Mr. Storch as Chairman and Chief Executive Officer is the most effective and appropriate leadership structure for the Board and the Company at this time given his tenure with the Company, his knowledge of the Company's businesses and the markets in which they compete, and the Board's assessment of his performance.

Risk Management Oversight

The Board of Directors, directly and through its committees, oversees management's process for assessing and managing the Company's exposure to risks. The Board regularly reviews and responds to management's business strategies and initiatives, the Company's quarterly and annual financial results, and information relating to the Company's competitive position, customer base, and capital and liquidity position. The Board holds an annual strategy session with senior management devoted entirely to a review and consideration of the Company's businesses, markets, customers, competitors, and strategic initiatives and direction. This meeting includes an assessment of the key challenges and risks of the Company's businesses, and the opportunities for addressing and responding to these challenges and risks.

At its July 2016 meeting, the Board decided to increase its risk management oversight of the Company at the Board level by designating that two Board meetings per year will include review and consideration of the Company's risk profile and its risk mitigation strategies. These risk sessions will be led by Director Peter Pace and will focus in particular on cybersecurity risk and the activities of the Company's enterprise risk management committee. The Board considered but deferred for now the formation of a Board Risk Committee, instead deciding to maintain a comprehensive risk assessment structure at the full Board level.

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The following table outlines the risk oversight responsibilities of the Board committees, and the succeeding narrative elaborates on these responsibilities:

Committee       Risk Oversight Responsibilities
Nominating and Governance Committee      

Corporate governance

Board and committee membership

Succession planning

Board and CEO effectiveness

Compensation Committee      

Cash incentive program

Stock-based compensation

Compensation policies and practices

Impact of performance-based compensation on risk-taking by management

Audit Committee      

Financial reporting and investor disclosure

Accounting and auditing

Quality and adequacy of processes and internal controls

Oversight of enterprise risk management program

The Nominating and Governance Committee oversees and reports to the Board on corporate governance risks, including Board and committee membership, director independence and related party transactions. It is responsible for succession planning at the CEO and senior executive level and takes the lead on the evaluation of the performance of the Board and the Company's Chief Executive Officer.

The Compensation Committee oversees and reports to the Board on the Company's cash incentive programs and stock-based compensation to provide that they are appropriately structured to incentivize officers and key employees while avoiding unnecessary or excessive risk-taking.

The Audit Committee, on behalf of the Board, oversees the enterprise risk management committee, which is composed of Company employees and is responsible for identifying the principal risks to the Company, developing and implementing risk mitigation strategies, auditing the effectiveness of the risk mitigation strategies and reporting to the Audit Committee. The enterprise risk management committee meets regularly with the Audit Committee to review and discuss the Company's principal risks and outline its risk mitigation approach for addressing these risks. The Audit Committee also reviews and assesses management's processes for managing risks relating to accounting, financial reporting, investment, tax and legal compliance, risks identified by the Company's internal and external auditors, and matters raised through the Company's Ethics Hotline.

The Board and its committees receive information from and have regular access to the individual members of management responsible for managing risk, including the Company's President and Chief Executive Officer, Vice Chairman, Chief Financial Officer, Chief Accounting Officer and Controller, General Counsel, Internal Auditor and business group leaders. The directors meet each quarter with a broader group of the Company's employees at regularly scheduled Board dinners as an informal way of learning more about the Company's businesses and its employees. The Board also schedules at least one meeting per year at a Company facility other than the corporate headquarters to promote interaction with local management and employees and allow directors a first-hand opportunity to inspect the Company's business operations.

Executive Sessions

Independent directors of the Board meet in executive session without management as part of each regular Board meeting and otherwise when circumstances make it advisable or necessary. The Lead Director presides at the executive sessions of independent directors.

Corporate Governance Guidelines

The Board of Directors adopted Corporate Governance Guidelines to codify long-standing policies and procedures and to demonstrate its commitment to corporate governance best practices. These Guidelines, under the administration of the

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Nominating and Governance Committee of the Board of Directors, address director qualification standards, director responsibilities, director access to management and independent advisors, director compensation, management evaluation and succession, and the annual performance evaluation of the Board of Directors. These Guidelines are reviewed and approved annually by the Nominating and Governance Committee and the Board of Directors, most recently in July 2016.

Ethics Hotline

The Company maintains an Ethics Hotline through an independent third-party provider to receive confidential complaints, information, suggestions or recommendations concerning the Company, its officers, directors, employees, policies, procedures, employment and business practices, accounting or audit matters, financial reporting or compliance with other Company policies or applicable regulatory or legal requirements. The Ethics Hotline is toll-free and permits callers to identify themselves or remain anonymous at their election.

Code of Business Ethics and Conduct

The Company's Code of Business Ethics and Conduct adopted by the Board of Directors applies to all directors, officers, and employees, including the President and Chief Executive Officer, Vice Chairman, Chief Financial Officer, Chief Accounting Officer and Controller, General Counsel, Internal Auditor and business group leaders. The purpose of the Code of Business Ethics and Conduct is to promote the highest ethical standards in the Company's business practices and procedures, including the ethical handling of actual or apparent conflicts of interest; full, fair and timely disclosure; and compliance with applicable laws and governmental rules and regulations. Employees are encouraged to report to the Company any conduct that they believe in good faith to be in violation of the Code of Business Ethics and Conduct. We post any amendments to the Code of Business Ethics and Conduct and any waivers from the Code granted by the Board to directors or executive officers on the Company's website, as required under SEC rules.

Related Person Transaction Policy

The purpose of the Related Person Transaction Policy, as adopted by the Board of Directors, is to provide for the identification, review, and consideration of transactions between the Company or its subsidiaries and any related persons. "Related persons" means: the Company's directors; director nominees; executive officers; greater than five percent beneficial owners of the Company's voting securities; members of their immediate families; and any firm, corporation or other entity in which any of the foregoing persons is employed or is a partner, a principal, or in a similar position, or in which such person has a 10% or greater beneficial ownership interest.

Under the Policy, any related person transaction involving amounts in excess of $120,000 must be reviewed, considered, and approved by the Board of Directors directly or through the Nominating and Governance Committee. Review of a proposed related person transaction takes into consideration the purpose of, and the potential benefits to the Company from, the related person transaction, and the impact of the related person transaction on a director's independence in the event that the related person is a director or an immediate family member of a director. No member of the Board or the Nominating and Governance Committee may participate in any review, consideration, or approval of any related person transaction with respect to which such member or any of his or her immediate family members is the related person.

The Policy provides that the Company may undertake certain pre-approved related person transactions (e.g., transactions in which the related person's interest derives solely from his or her service as a director of another corporation or entity that is a party to the transaction) without further specific review, consideration and approval.

Norman R. Bobins is a director of the Company and the Non-Executive Chairman of the PrivateBank and Trust Company. The PrivateBank and Trust Company is a member of the lending group under our Credit Agreement. All loans under the Credit Agreement are made in the ordinary course of business, are made on substantially the same terms, including interest rates, as those prevailing at the time for comparable loans with persons not related to the lender, and do not involve more than the normal risk of collectability or present other unfavorable features.

Patrick J. Kelly is a director of the Company and the majority owner of Resource 1, a technology staffing company. In Fiscal 2016, the Company paid approximately $390,000 to Resource 1 for staffing services.

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The Company has a Board-approved Founder's Agreement with Ira A. Eichner, the Founder and former Chairman of the Board of the Company. The Founder's Agreement recognizes Mr. Eichner's extraordinary contributions to the Company. Under the Founder's Agreement. Mr. Eichner receives a quarterly retainer of $25,000. Mr. Eichner is Mr. Storch's father-in-law.

Director Orientation and Continuing Education

We hold director orientation sessions with new directors to familiarize them with our businesses, business strategies and corporate policies and practices. Our goal is to assist our new directors in understanding the Company and developing the skills and knowledge that they need to serve the interests of our stockholders. We also make continuing education programs available to our directors to help them maintain and enhance their skills and knowledge in carrying out their ongoing responsibilities as directors.

Board and Committee Evaluations

Our Nominating and Governance Committee conducts an annual evaluation of the performance of the Board. Our Lead Director reports the evaluation results — which include an assessment of the Board's performance as well as the identification of specific areas for improvement — to the full Board. Each Board committee also conducts an annual evaluation of its performance and reports the results to the full Board.

Communications with the Board of Directors

Stockholders and other interested parties may communicate with the Board, the Chairman of the Board, the Lead Director, independent directors as a group, or any individual director or Committee Chairman by mail addressed to:

The independent members of the Board of Directors have approved procedures for the processing, review and disposition of all communications sent by stockholders or other interested parties to the Board of Directors.

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BOARD MATTERS

Board Committees

The Board has an Audit Committee, a Compensation Committee, a Nominating and Governance Committee, and an Executive Committee. The following table identifies the current members of each committee:

    Director       Audit
Committee
      Compensation
Committee
      Nominating and
Governance
Committee
      Executive
Committee
   
    Anthony K. Anderson               X                    
    Norman R. Bobins       X       X                    
    Michael R. Boyce               X       X            
    Ronald R. Fogleman               X       Chair       X    
    James E. Goodwin       Chair               X       X    
    Patrick J. Kelly       X               X            
    Peter Pace       X       X       X            
    Timothy J. Romenesko                                    
    David P. Storch                               Chair    
    Jennifer L. Vogel               X       X            
    Marc J. Walfish       X               X       X    
    Ronald B. Woodard       X       Chair                    

Audit Committee

Audit Committee Fiscal 2016 Report

Dear Fellow Stockholders:

The Audit Committee is comprised entirely of independent directors qualified to serve on the Audit Committee under applicable SEC and NYSE rules and the Company's Categorical Standards for Determining Director Independence. The Board of Directors has determined that each Audit Committee member is an "audit committee financial expert" within the meaning of applicable SEC rules.

The Audit Committee acts pursuant to a written charter adopted by the Board of Directors. The charter was last reviewed and approved by the Audit Committee and the Board of Directors at their July 2016 meetings. The full text of the Audit Committee charter appears on the Company's website and is available in print to any stockholder upon written request to the Secretary of the Company at the Company's address listed on the first page of this proxy statement.

The Audit Committee's primary responsibility is to assist the Board of Directors in fulfilling its duty to stockholders to oversee and review: the quality and integrity of the Company's financial statements and internal controls over financial reporting; the qualifications, independence and performance of the Company's independent registered public accounting firm; and the performance of the Company's Internal Audit function.

The Audit Committee performs the specific functions described in its charter, including:

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Approves and engages the independent registered public accounting firm that audits the Company's consolidated financial statements;

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Pre-approves all non-audit and audit-related services furnished by the independent registered public accounting firm;

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Maintains communication between the Board and the independent registered public accounting firm;

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Monitors the qualifications, independence and performance of the independent registered public accounting firm;

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Oversees and reviews the Company's financial reporting processes and practices;

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Oversees and reviews the quality and adequacy of internal controls over financial reporting, disclosure controls and the organization and performance of the Company's internal audit department;

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Reviews the scope and results of audits;

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Oversees the Company's enterprise risk management committee; and

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Meets with the independent registered public accounting firm representatives and internal audit department representatives without members of management present.

The Audit Committee held seven meetings during Fiscal 2016. The Audit Committee meets outside the presence of management for portions of its meetings to hold separate discussions with KPMG, the Company's independent registered public accounting firm, the internal auditors and other representatives of the Company.

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 by PCAOB Auditing Standard No. 16 ("Communications with Audit Committees") 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 2017. The Audit Committee recommends that the stockholders of the Company ratify that appointment (see Proposal 4).

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 2016 for filing with the SEC.

Respectfully submitted,

The Audit Committee of the Board of Directors of AAR CORP.

James E. Goodwin, Chair
Norman R. Bobins
Patrick J. Kelly
Peter Pace
Marc J. Walfish
Ronald B. Woodard

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Compensation Committee

The Compensation Committee is comprised entirely of independent directors qualified to serve on the Compensation Committee under applicable SEC and NYSE rules and the Company's Categorical Standards for Determining Director Independence. Its members are Ronald B. Woodard (Chair), Anthony K. Anderson, Norman R. Bobins, Michael R. Boyce, Ronald R. Fogleman, Peter Pace and Jennifer L. Vogel.

The Compensation Committee acts pursuant to a written charter adopted by the Board of Directors. The charter was reviewed and approved by the Compensation Committee and the Board of Directors at their July 2016 meetings. The full text of the Compensation Committee charter appears on the Company's website and is available in print to any stockholder upon written request to the Secretary of the Company at the Company's address listed on the first page of this proxy statement.

The Compensation Committee is primarily concerned with establishing, reviewing and approving Chief Executive Officer compensation, reviewing and approving other senior executive compensation and overseeing the Company's stock plans and any other compensation and employee benefit plans. The Compensation Committee performs the specific functions described in its charter, including:

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Reviews and approves compensation policies and practices for all elected corporate officers, including named executive officers;

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Sets the compensation of the Chief Executive Officer and, together with the full Board, evaluates the Chief Executive Officer's performance;

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Administers the Company's annual cash incentive and long-term stock incentive programs for officers, the AAR CORP. 2013 Stock Plan, the AAR CORP. Stock Plan, and the AAR CORP. Section 162(m) Annual Cash Incentive Plan;

GRAPHIC

Recommends director compensation and benefits to the Board for approval; and

GRAPHIC

Oversees administration of certain other employee benefit, director deferred compensation, savings and retirement plans.

The Compensation Committee held five meetings during Fiscal 2016. The Compensation Committee Fiscal 2016 Report on Executive Compensation appears on page 46. Information about the role of the Compensation Committee consultant and management in the executive compensation process is set forth under "Executive Compensation — Compensation Discussion and Analysis."

Nominating and Governance Committee

The Nominating and Governance Committee is comprised entirely of independent directors qualified to serve on the Committee under applicable SEC and NYSE rules and the Company's Categorical Standards for Determining Director Independence. Its members are Ronald R. Fogleman (Chair), Michael R. Boyce, James E. Goodwin, Patrick J. Kelly, Peter Pace, Jennifer L. Vogel and Marc J. Walfish.

The Nominating and Governance Committee acts pursuant to a written charter adopted by the Board of Directors. The charter was reviewed and approved by the Nominating and Governance Committee and the Board of Directors at their July 2016 meetings. The full text of the Nominating and Governance Committee charter appears on the Company's website and is available in print to any stockholder upon written request to the Secretary of the Company at the Company's address listed on the first page of this proxy statement.

The Nominating and Governance Committee is responsible for both nominating and governance matters as described in its charter. The Nominating and Governance Committee performs the specific functions described in its charter, including:

GRAPHIC

Oversees the composition, structure and evaluation of the Board and its committees;

GRAPHIC

Reviews, considers, and acts upon related person transactions;

GRAPHIC

Develops and recommends Corporate Governance Guidelines for Board approval; and

GRAPHIC

Monitors and screens directors for independence and recommends to the Board qualified candidates for election as directors and to serve on Board committees.

The Nominating and Governance Committee held four meetings during Fiscal 2016.

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Executive Committee

The Executive Committee is comprised of David P. Storch (Chair), James E. Goodwin, Ronald R. Fogleman and Marc J. Walfish. Messrs. Goodwin, Fogleman and Walfish are independent directors as defined by applicable SEC and NYSE rules. As Chairman, President and Chief Executive Officer of the Company, Mr. Storch does not qualify as an independent director under the NYSE and SEC rules.

The Executive Committee acts pursuant to a written charter adopted by the Board of Directors. The charter was reviewed and approved by the Board of Directors at its July 2016 meeting. The full text of the Executive Committee charter appears on the Company's website and is available in print to any stockholder upon written request to the Secretary of the Company at the Company's address listed on the first page of this proxy statement.

The Executive Committee is authorized to meet between meetings of the Board of Directors and exercise certain powers of the Board with respect to urgent matters or other matters referred to it by the Board for deliberation or action, subject to limitations imposed by the Committee's charter, the Board, applicable law and the Company's By-Laws.

The Executive Committee held one meeting during Fiscal 2016.

Board Meetings and Attendance

During Fiscal 2016, the Board held four meetings. All directors attended at least 75% of the Board meetings and meetings of Board committees on which they served in Fiscal 2016.

The Company's Corporate Governance Guidelines provide that directors are expected to attend all stockholder meetings. All members of the Company's Board of Directors serving at that time attended the Company's 2015 annual meeting of stockholders.

Director Compensation

The Board of Directors reviews director compensation annually to ensure that it is fair, appropriate and in line with its peer group companies. At its April 2015 meeting, the Board, upon the recommendation of the Compensation Committee and following a presentation by Mercer, its independent compensation consultant, approved the same director compensation program for Fiscal 2016 that was in effect in Fiscal 2015.

The Fiscal 2016 director compensation program, as approved by the Board, consists of the compensation elements set forth in the table below:

 

Compensation Element

      Fiscal 2016 Non-Employee Director
Compensation Program
   

 

Annual Retainer

      $50,000    

 

Lead Director Annual Retainer

      $30,000    

 

Committee Chair Annual Retainer

      $10,000    

 

Board and Committee Meeting Fees

      $2,500 per meeting ($1,250 for telephone meetings)    

 

Annual Stock Award

      5,000 shares of common stock (vesting after one year)    

All retainers are paid quarterly, and meeting fees are paid promptly following each meeting attended. The annual stock award was approved at the Board's April 2015 meetings with an effective date of June 1, 2015 and a vesting date of June 1, 2016.

Each non-employee director may elect to defer receipt of the retainers and meeting fees pursuant to the Company's Non-Employee Directors' Deferred Compensation Plan (the "Director Plan"). Under the Director Plan, deferred retainer fees are converted into stock units equivalent to shares of common stock based on the then current stock price, and at distribution are paid out, at the participant's election, in cash or in shares of common stock. Deferred meeting fees are credited with interest quarterly based on the 10-year United States Treasury Bond rate and at distribution are paid out in cash. Distribution occurs upon termination of service on the Board or on the happening of certain other events, as specified in the Director Plan.

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Each non-employee director, upon being elected a director, receives term life insurance coverage of $200,000 and is eligible (with spouse) to participate in a Company-paid, annual physical program. The Company also reimburses its non-employee directors for travel, lodging and related expenses that they incur in attending Board and committee meetings.

Director Compensation Table

Fiscal 2016 Director Compensation.    The following table sets forth all compensation paid to each non-employee director for Fiscal 2016:

 

Name1

      Fees
Earned
or Paid
in Cash
($)2
      Stock
Awards
($)3
      Option
Awards
($)4
      Non-Equity
Incentive
Plan
Compensation
($)
      Change in
Pension
Value and
Non-Qualified
Deferred
Compensation
Earnings
($)
      All Other
Compensation
($)5
      Total ($)    

 

Anthony K. Anderson

      87,500       147,700                         5,828       241,028    

 

Norman R. Bobins

      83,750       147,700                         878       232,328    

 

Michael R. Boyce

      81,250       147,700                         10,298       239,248    

 

Ronald R. Fogleman

      122,500       147,700                         2,557       272,757    

 

James E. Goodwin

      97,500       147,700                         7,378       252,578    

 

Patrick J. Kelly

      85,000       147,700                         878       233,578    

 

Peter Pace

      81,250       147,700                         878       229,828    

 

Jennifer L. Vogel

      38,332       48,659                         177       87,168    

 

Marc J. Walfish

      87,500       147,700                         878       236,078    

 

Ronald B. Woodard

      97,500       147,700                         1,901       247,101    

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Name

      Annual
Retainer
($)
      Committee Chair
Retainer Fees ($)
      Meeting Fees
($)
      Lead
Director
Fee ($)
      Total ($)    

 

Anthony K. Anderson

      50,000             37,500             87,500    

 

Norman R. Bobins

      50,000             33,750             83,750    

 

Michael R. Boyce

      50,000             31,250             81,250    

 

Ronald R. Fogleman

      50,000       10,000       32,500       30,000       122,500    

 

James E. Goodwin

      50,000       10,000       37,500             97,500    

 

Patrick J. Kelly

      50,000             35,000             85,000    

 

Peter Pace

      50,000             31,250             81,250    

 

Jennifer L. Vogel

      20,832             17,500             38,332    

 

Marc J. Walfish

      50,000             37,500             87,500