Exhibit 10.15

 

EXECUTION COPY

 

PURCHASE AND SALE AGREEMENT

 

Dated as of March 21, 2003

 

by and among

 

AAR DISTRIBUTION, INC.

AAR PARTS TRADING, INC.

AAR MANUFACTURING, INC.

AAR ENGINE SERVICES, INC.

AAR ALLEN SERVICES, INC.,

as Originators

 

and

 

AAR CORP.,
as initial Servicer

 

and

 

AAR RECEIVABLES CORPORATION II,

as the Company

 

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TABLE OF CONTENTS

 

ARTICLE I AGREEMENT TO PURCHASE AND SELL

1.1

Agreement To Purchase and Sell.

1.2

Timing of Purchases.

1.3

Consideration for Purchases.

1.4

Purchase and Sale Termination Date.

1.5

Intention of the Parties.

 

ARTICLE II CALCULATION OF PURCHASE PRICE

2.1

Calculation of Purchase Price.

 

ARTICLE III PAYMENT OF PURCHASE PRICE

3.1

Initial Purchase Price Payment.

3.2

Subsequent Purchase Price Payments.

3.3

Settlement as to Specific Receivables and Dilution.

3.4

Reconveyance of Receivables.

 

ARTICLE IV The COMPANY’S RIGHTS

 

ARTICLE V REPRESENTATIONS AND WARRANTIES OF THE ORIGINATORS

5.1

Organization and Good Standing.

5.2

Due Qualification.

5.3

Power and Authority; Due Authorization.

5.4

Valid Sale; Binding Obligations.

5.5

No Violation.

5.6

Proceedings.

5.7

Bulk Sales Acts.

5.8

Government Approvals.

5.9

Financial Condition.

5.10

Licenses, Contingent Liabilities, and Labor Controversies.

5.11

Margin Regulation.

5.12

Quality of Title.

5.13

Accuracy of Information.

5.14

Offices.

5.15

Trade Names.

5.16

Taxes.

5.17

Compliance With Applicable Laws.

5.18

Reliance on Separate Legal Identity.

5.19

Investment Company.

5.20

Security Interest.

5.21

Lock-Box Bank and Lock-Box Account.

5.22

ERISA.

5.23

Accounting.

5.24

Compliance with Credit and Collection Policy.

 

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ARTICLE VI COVENANTS OF THE ORIGINATORS

6.1

Covenants.

6.2

Substantive Consolidation.

 

ARTICLE VII ADDITIONAL RIGHTS AND OBLIGATIONS IN RESPECT OF THE RECEIVABLES

7.1

Rights of the Company.

7.2

Application of Collections.

7.3

Assignment of Claims Act.

 

ARTICLE VIII PURCHASE AND SALE TERMINATION EVENTS

8.1

Purchase and Sale Termination Events.

8.2

Remedies.

 

ARTICLE IX INDEMNIFICATION

9.1

Indemnities by the Originator.

 

ARTICLE X MISCELLANEOUS

10.1

Amendments, Etc.

10.2

Notices, Etc.

10.3

No Waiver, Cumulative Remedies.

10.4

Binding Effect; Assignability.

10.5

Governing Law.

10.6

Costs, Expenses and Taxes.

10.7

Submission to Jurisdiction.

10.8

Waiver of Jury Trial.

10.9

Captions and Cross-References; Incorporation by Reference.

10.10

Execution in Counterparts.

10.11

Acknowledgment and Agreement.

10.12

No Recourse.

10.13

Administration of Receivables.

10.14

Servicer and Sub-Servicer.

 

EXHIBIT A

Form of Purchase Report

EXHIBIT B

Form of Company Note

EXHIBIT C

Form of Originator Assignment Certificate

EXHIBIT D

Proceedings

EXHIBIT E

Office Locations

EXHIBIT F

Trade Names

EXHIBIT G

Benefit Plans

 

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PURCHASE AND SALE AGREEMENT

 

THIS PURCHASE AND SALE AGREEMENT (this “Agreement”), dated as of March 21, 2003,
is by and among AAR Distribution, Inc., an Illinois corporation, AAR Parts
Trading, Inc., an Illinois corporation, AAR Manufacturing, Inc., an Illinois
corporation, AAR Engine Services, Inc., an Illinois corporation, AAR Allen
Services, Inc., an Illinois corporation (each, an “Originator” and,
collectively, the “Originators”), AAR Corp., a Delaware corporation, as the
initial Servicer, and AAR Receivables Corporation II, an Illinois corporation
(the “Company”).

 

Definitions

 

Unless otherwise indicated, certain terms that are capitalized and used
throughout this Agreement are defined in Exhibit I to the Receivables Purchase
Agreement dated of even date herewith (as the same may be amended, supplemented
or otherwise modified from time to time, the “Receivables Purchase Agreement”)
among AAR Corp., a Delaware corporation, individually (in its individual
capacity, “AAR”) and as Servicer, the Company, certain financial institutions
from time to time parties thereto as “Purchasers” and LaSalle Business Credit,
LLC, as agent (“Agent”) on behalf of the Purchasers.  All references herein to
months are to calendar months unless otherwise expressly indicated.

 

Background

 

(a)           The Company is a special purpose corporation, all of the
outstanding stock of which is owned by AAR.

 

(b)           The Originators generate Receivables in the ordinary course of
their businesses.

 

(c)           The Originators, in order to finance their businesses, wish to
sell Receivables to the Company, and the Company is willing, on the terms and
subject to the conditions set forth herein, to purchase Receivables from the
Originators.

 

(d)           The Originators and the Company intend this transaction to be a
true sale of Receivables and the Related Rights by the Originators to the
Company, providing the Company with the full benefits of ownership of the
Receivables and the Originators and the Company do not intend the transactions
hereunder to be, or for any purpose to be, characterized as a loan from the
Company to the Originators.

 

(e)           The Company intends to sell the Purchased Interest in the
Receivables to the Purchasers pursuant to the Receivables Purchase Agreement.

 

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NOW, THEREFORE, in consideration of the premises and the mutual agreements
herein contained, the parties hereto agree as follows:

 

ARTICLE I

AGREEMENT TO PURCHASE AND SELL

 

1.1           Agreement To Purchase and Sell.

 

On the terms and subject to the conditions set forth in this Agreement
(including Article IV), the Originators, jointly and severally, agree to sell to
the Company, and the Company agrees to purchase from the Originators, from time
to time on or after the Closing Date, but before the Purchase and Sale
Termination Date (as defined below), all of Originators’ right, title and
interest in and to:

 

(A)           EACH RECEIVABLE (AS DEFINED BELOW) OF EACH ORIGINATOR THAT EXISTED
AND WAS OWING TO SUCH ORIGINATOR AT THE CLOSING OF SUCH ORIGINATOR’S BUSINESS ON
THE CLOSING DATE;

 

(B)           EACH RECEIVABLE CREATED BY EACH ORIGINATOR FROM AND INCLUDING THE
CLOSING DATE TO AND INCLUDING THE PURCHASE AND SALE TERMINATION DATE;

 

(C)           ALL RIGHTS TO, BUT NOT THE OBLIGATIONS UNDER, ALL RELATED
SECURITY;

 

(D)           ALL MONIES DUE OR TO BECOME DUE WITH RESPECT TO ANY OF THE
FOREGOING;

 

(E)           ALL BOOKS AND RECORDS RELATED TO ANY OF THE FOREGOING; AND

 

(F)            ALL COLLECTIONS AND OTHER PRODUCTS AND PROCEEDS OF ANY OF THE
FOREGOING (AS DEFINED IN THE APPLICABLE UCC) THAT ARE OR WERE RECEIVED BY EACH
ORIGINATOR ON OR AFTER THE CLOSING DATE, INCLUDING, WITHOUT LIMITATION, ALL
FUNDS WHICH EITHER ARE RECEIVED BY SUCH ORIGINATOR, THE COMPANY OR THE SERVICER
FROM OR ON BEHALF OF THE OBLIGORS IN PAYMENT OF ANY AMOUNTS OWED (INCLUDING,
WITHOUT LIMITATION, INVOICE PRICE, FINANCE CHARGES, INTEREST AND ALL OTHER
CHARGES) IN RESPECT OF RECEIVABLES, OR ARE APPLIED TO SUCH AMOUNTS OWED BY THE
OBLIGORS (INCLUDING, WITHOUT LIMITATION, INSURANCE PAYMENTS THAT SUCH ORIGINATOR
OR SERVICER APPLIES IN THE ORDINARY COURSE OF ITS BUSINESS TO AMOUNTS OWED IN
RESPECT OF ANY RECEIVABLE AND NET PROCEEDS OF SALE OR OTHER DISPOSITION OF
REPOSSESSED GOODS OR OTHER COLLATERAL OR PROPERTY OF THE OBLIGORS OR ANY OTHER
PARTIES DIRECTLY OR INDIRECTLY LIABLE FOR PAYMENT OF SUCH RECEIVABLES) ((A)
THROUGH (F) COLLECTIVELY, THE “PURCHASED ASSETS”).

 

As used herein, “Receivables” shall have the meaning ascribed to such term in
the Receivables Purchase Agreement, provided that, however, it is not intended
that any of the following Receivables will be sold hereunder: (i) any Foreign
Receivable the Obligor of which is not specified on Schedule VII of the
Receivables Purchase Agreement (as such Schedule may be modified from time to
time), (ii) any Government Receivable which is not a Permitted

 

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Government Receivable and (iii) any Receivable which is not an Eligible
Receivable at the time of the sale thereof.

 

All purchases hereunder shall be made without recourse, but shall be made
pursuant to, and in reliance upon, the representations, warranties and covenants
of the Originators set forth in this Agreement and each other Transaction
Document.  No obligation or liability to any Obligor on any Receivable is
intended to be assumed by the Company hereunder, and any such assumption is
expressly disclaimed.  The Company’s foregoing commitment to purchase
Receivables and the proceeds and rights described in clauses (c) through (f)
(collectively, the “Related Rights”) is herein called the “Purchase Facility.”

 

1.2           Timing of Purchases.

 

(A)           CLOSING DATE PURCHASES.  EACH ORIGINATOR’S ENTIRE RIGHT, TITLE AND
INTEREST IN (I) EACH RECEIVABLE THAT EXISTED AND WAS OWING TO SUCH ORIGINATOR AT
THE CLOSING DATE AND (II) ALL RELATED RIGHTS AUTOMATICALLY SHALL BE DEEMED TO
HAVE BEEN SOLD TO THE COMPANY ON THE CLOSING DATE.

 

(B)           REGULAR PURCHASES.  AFTER THE CLOSING DATE, UNTIL THE PURCHASE AND
SALE TERMINATION DATE, EACH RECEIVABLE (AND THE RELATED RIGHTS) CREATED BY EACH
ORIGINATOR SHALL BE DEEMED TO HAVE BEEN SOLD TO THE COMPANY IMMEDIATELY (AND
WITHOUT FURTHER ACTION) UPON THE CREATION OF SUCH RECEIVABLE.

 

1.3           Consideration for Purchases.

 

On the terms and subject to the conditions set forth in this Agreement, the
Company agrees to make Purchase Price (as defined below) payments to the
Originators in accordance with Article III.

 

1.4           Purchase and Sale Termination Date.

 

The “Purchase and Sale Termination Date” shall be the earliest to occur of
(a) the Facility Termination Date, (b) the date of the termination of this
Agreement pursuant to Section 8.2 and (c) the Payment Date immediately following
the day on which the Originators shall have given notice to the Company at or
prior to 10:00 a.m. (Chicago time) that the Originators desire to terminate this
Agreement.

 

1.5           Intention of the Parties.

 

It is the express intent of the parties hereto that the transfers of the
Receivables and Related Rights by the Originators to the Company, as
contemplated by this Agreement be, and be treated as, sales and not as loans
secured by the Receivables and Related Rights.  If, however, notwithstanding the
intent of the parties, such transactions are deemed to be loans, each Originator
hereby grants to the Company a first priority security interest in all of such

 

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Originator’s right, title and interest in and to the Receivables and the Related
Rights now existing and hereafter created by such Originator, all Collections
and all amounts received with respect thereto, and all proceeds thereof, to
secure all of such Originator’s obligations hereunder.

 

ARTICLE II

CALCULATION OF PURCHASE PRICE

 

2.1           Calculation of Purchase Price.

 

On the Closing Date and on each Monthly Settlement Date, the Servicer shall
deliver to the Company and the Originators a report in substantially the form of
Exhibit A (each such report being herein called a “Purchase Report”; each such
Purchase Report shall set forth the information required hereby for the calendar
month (or such shorter period) immediately preceding such Monthly Settlement
Date) with respect to the matters set forth therein and the Company’s purchases
of Receivables from the Originators:

 

(A)           THAT ARE TO BE MADE ON THE CLOSING DATE (IN THE CASE OF THE
PURCHASE REPORT TO BE DELIVERED ON THE CLOSING DATE), OR

 

(B)           THAT WERE MADE DURING THE MONTH COVERED BY THE PURCHASE REPORT
DELIVERED ON SUCH MONTHLY SETTLEMENT DATE.

 

The “Purchase Price” (to be paid to the Originators in accordance with the terms
of Article III) for the Receivables and the Related Rights that are purchased
hereunder from the Originators shall be determined in accordance with the
following formula:

 

PP

=

OB X FMVD

 

 

 

where:

 

 

 

 

 

PP

=

Purchase Price for each Receivable as calculated on the relevant Payment Date.

 

 

 

OB

=

The Outstanding Balance of such Receivable on the relevant Payment Date.

 

 

 

FMVD

=

Fair Market Value Discount, as measured on such Payment Date, which is equal to
the quotient (expressed as a percentage) of (a) one divided by (b) the sum of
(i) one plus (ii) the sum of (A) YD and (B) LD.

 

 

 

YD

=

Yield Discount, as measured on such Payment Date, which is equal to the sum of
(A) 0.25% plus (B) the product of (x) the Base Rate as in effect on such Payment
Date and (y) a fraction, the numerator of which is the Days’ Sales Outstanding,
(calculated as of the last day of the Settlement Period next preceding such
Payment Date) and the denominator of which is 365.

 

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LD

=

Loss Discount, as measured on such Payment Date, which is equal to the greater
of (i) one-eighth of one percent and (ii) 1.5 times the Loss to Liquidation
Ratio (as defined below) as calculated in the Purchase Report most recently
delivered prior to such Payment Date.  The “Loss to Liquidation Ratio” shall
mean, the ratio (expressed as a percentage) of (a) the Outstanding Balance of
all Receivables that became Charged-Off Receivables during the three calendar
month period ending on the last day of the month covered under the applicable
Purchase Report to (b) the aggregate amount of Collections during such three
month period.

 

The Purchase Price shall be calculated in each Purchase Report and such
calculation shall be utilized in the calculation of the applicable Purchase
Price owed to each Originator under this Agreement for all purchases occurring
hereunder from the date such Purchase Report is delivered (or should have been
delivered pursuant hereto) to the date upon which the Purchase Price is next
calculated pursuant to the succeeding Purchase Report.

 

“Payment Date” means (i) the Closing Date and (ii) each Business Day thereafter
until the Purchase and Sale Termination Date.

 

ARTICLE III

PAYMENT OF PURCHASE PRICE

 

3.1           Initial Purchase Price Payment.

 

On the terms and subject to the conditions set forth in this Agreement, the
Company agrees to pay to each Originator the Purchase Price for the purchase to
be made from such Originator on the Closing Date in cash (in an amount to be
agreed between the Company and such Originator and set forth in the initial
Purchase Report).

 

In order to evidence all such purchases hereunder and the Company’s ownership
interest in the Purchased Assets, each Originator shall execute and deliver to
the Company an Originator Assignment Certificate in the form of Exhibit C hereto
(as the same may be amended, restated, substituted or otherwise modified,
together with substitutions therefor, an “Originator Assignment Certificate”).

 

3.2           Subsequent Purchase Price Payments.

 

On each Payment Date subsequent to the Closing Date, on the terms and subject to
the conditions set forth in this Agreement, the Company shall pay to each
Originator the Purchase Price for the Receivables generated by such Originator
on such Payment Date:

 

(A)           FIRST, THE PURCHASE PRICE SHALL BE PAID IN CASH TO THE EXTENT THE
COMPANY HAS CASH AVAILABLE THEREFOR; AND

 

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(B)           SECOND, TO THE EXTENT ANY PORTION OF THE PURCHASE PRICE REMAINS
UNPAID, BY INCREASING THE PRINCIPAL AMOUNT OUTSTANDING UNDER CERTAIN PROMISSORY
NOTES EXECUTED AND DELIVERED BY THE COMPANY TO EACH ORIGINATOR ON THE DATE
HEREOF IN THE FORM OF EXHIBIT B (SUCH PROMISSORY NOTES, AS THEY MAY BE AMENDED,
SUPPLEMENTED, INDORSED OR OTHERWISE MODIFIED FROM TIME TO TIME, TOGETHER WITH
ALL PROMISSORY NOTES ISSUED FROM TIME TO TIME IN SUBSTITUTION THEREFOR OR
RENEWAL THEREOF IN ACCORDANCE WITH THE TRANSACTION DOCUMENTS, EACH BEING HEREIN
CALLED A “COMPANY NOTE”) BY AN AMOUNT EQUAL TO SUCH REMAINING PURCHASE PRICE.

 

Servicer shall make all appropriate record keeping entries with respect to the
Company Note or otherwise to reflect the foregoing payments, and Servicer’s
books and records shall constitute rebuttable presumptive evidence of the
principal amount of, and accrued interest on, the Company Note at any time. 
Furthermore, Servicer shall hold a Company Note for the benefit of each
Originator.  Each Originator hereby irrevocably authorizes Servicer to mark the
Company Note “CANCELLED” and to return such Company Note to the Company upon the
final payment thereof after the occurrence of the Purchase and Sale Termination
Date.

 

3.3           Settlement as to Specific Receivables and Dilution.

 

(A)           IF, ON THE DAY OF PURCHASE OF ANY RECEIVABLE FROM ANY ORIGINATOR
HEREUNDER, ANY OF THE REPRESENTATIONS OR WARRANTIES SET FORTH IN SECTIONS 5.4
AND 5.12 ARE NOT TRUE WITH RESPECT TO SUCH RECEIVABLE OR AS A RESULT OF ANY
ACTION OR INACTION OF SUCH ORIGINATOR, ON ANY DAY, ANY OF SUCH REPRESENTATIONS
OR WARRANTIES SET FORTH IN SECTIONS 5.4 AND 5.12 IS NO LONGER TRUE WITH RESPECT
TO SUCH A RECEIVABLE, THEN THE PURCHASE PRICE WITH RESPECT TO SUCH RECEIVABLES
SHALL BE REDUCED BY AN AMOUNT EQUAL TO THE OUTSTANDING BALANCE OF SUCH
RECEIVABLE AND SHALL BE ACCOUNTED TO SUCH ORIGINATOR AS PROVIDED IN
SUBSECTION (C) BELOW; PROVIDED, THAT IF THE COMPANY THEREAFTER RECEIVES PAYMENT
ON ACCOUNT OF COLLECTIONS DUE WITH RESPECT TO SUCH RECEIVABLE, THE COMPANY
PROMPTLY SHALL DELIVER SUCH FUNDS TO SUCH ORIGINATOR.

 

(B)           IF, ON ANY DAY, THE OUTSTANDING BALANCE OF ANY RECEIVABLE
PURCHASED HEREUNDER IS REDUCED OR ADJUSTED AS A RESULT OF ANY DEFECTIVE,
REJECTED, RETURNED GOODS OR SERVICES, OR ANY DISCOUNT OR OTHER ADJUSTMENT MADE
BY ANY ORIGINATOR, THE COMPANY OR SERVICER OR ANY SETOFF OR DISPUTE BETWEEN SUCH
ORIGINATOR OR THE SERVICER AND AN OBLIGOR AS INDICATED ON THE BOOKS OF THE
COMPANY (OR, FOR PERIODS PRIOR TO THE CLOSING DATE, THE BOOKS OF SUCH
ORIGINATOR), THEN THE PURCHASE PRICE WITH RESPECT TO SUCH RECEIVABLE SHALL BE
REDUCED BY THE AMOUNT OF SUCH NET REDUCTION AND SHALL BE ACCOUNTED TO SUCH
ORIGINATOR AS PROVIDED IN SUBSECTION (C) BELOW.

 

(C)           ANY REDUCTION IN THE PURCHASE PRICE OF ANY RECEIVABLE PURSUANT TO
SUBSECTION (A) OR (B) ABOVE SHALL BE APPLIED AS A CREDIT FOR THE ACCOUNT OF THE
COMPANY AGAINST THE PURCHASE PRICE OF RECEIVABLES SUBSEQUENTLY PURCHASED BY THE
COMPANY FROM ANY ORIGINATOR HEREUNDER; PROVIDED, HOWEVER, IF THERE HAVE BEEN NO
PURCHASES OF RECEIVABLES FROM THE ORIGINATORS (OR INSUFFICIENTLY LARGE PURCHASES
OF RECEIVABLES) TO CREATE A PURCHASE PRICE SUFFICIENT TO SO APPLY SUCH CREDIT
AGAINST, THE AMOUNT OF SUCH CREDIT:

 

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(I)            SHALL BE PAID IN CASH TO THE COMPANY BY SUCH ORIGINATOR IN THE
MANNER AND FOR APPLICATION AS DESCRIBED IN THE FOLLOWING PROVISO, OR

 

(II)           SHALL BE DEEMED TO BE A PAYMENT UNDER, AND SHALL BE DEDUCTED FROM
THE PRINCIPAL AMOUNT OUTSTANDING UNDER, THE COMPANY NOTE PAYABLE TO SUCH
ORIGINATOR;

 

provided, further, that at any time (y) when a Termination Event or Unmatured
Termination Event exists under the Receivables Purchase Agreement or (z) on or
after the Purchase and Sale Termination Date, the amount of any such credit
shall be paid by such Originator to the Company by deposit in immediately
available funds into the relevant Lock-Box Account for application by Servicer
to the same extent as if Collections of the applicable Receivable in such amount
had actually been received on such date.

 

(D)           EACH PURCHASE REPORT (OTHER THAN THE PURCHASE REPORT DELIVERED ON
THE CLOSING DATE) SHALL INCLUDE, IN RESPECT OF THE RECEIVABLES PREVIOUSLY
GENERATED BY ANY ORIGINATOR, A CALCULATION OF THE AGGREGATE REDUCTIONS DESCRIBED
IN SUBSECTION (A) OR (B) RELATING TO SUCH RECEIVABLES SINCE THE LAST PURCHASE
REPORT DELIVERED HEREUNDER, AS INDICATED ON THE BOOKS OF THE COMPANY (OR, FOR
SUCH PERIOD PRIOR TO THE CLOSING DATE, THE BOOKS OF SUCH ORIGINATOR).

 

3.4           Reconveyance of Receivables.

 

In the event that any Originator has paid to the Company the full Outstanding
Balance of any Receivable pursuant to Section 3.3, the Company shall reconvey
such Receivable to such Originator, without representation or warranty, but free
and clear of all liens, security interests, charges, and encumbrances created by
the Company.

 

ARTICLE IV

THE COMPANY’S RIGHTS

 

THE COMPANY SHALL HAVE NO OBLIGATION TO ACCOUNT FOR, TO REPLACE, TO SUBSTITUTE
OR TO RETURN ANY RECEIVABLE TO THE ORIGINATORS.  THE COMPANY SHALL HAVE THE
UNRESTRICTED RIGHT TO FURTHER ASSIGN, TRANSFER, DELIVER, HYPOTHECATE, SUBDIVIDE
OR OTHERWISE DEAL WITH THE RECEIVABLES ON WHATEVER TERMS THE COMPANY SHALL
DETERMINE.  WITHOUT LIMITING THE FOREGOING, THE ORIGINATORS HEREBY ACKNOWLEDGE
THAT THE COMPANY INTENDS TO TRANSFER CERTAIN OF THE RECEIVABLES TO THE
PURCHASERS FROM TIME TO TIME PURSUANT TO THE TERMS OF THE RECEIVABLES PURCHASE
AGREEMENT.

 

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ARTICLE V

REPRESENTATIONS AND WARRANTIES OF THE
ORIGINATORS

 

In order to induce the Company to enter into this Agreement and to make
purchases hereunder, the Originators hereby jointly and severally make the
representations and warranties set forth in this Article V, and each Originator,
by accepting the Purchase Price related to each purchase of Receivables
generated by such Originator, shall be deemed to have certified that the
representations and warranties set forth in this Article V are true and correct
on and as of the day of such purchase, with the same effect as though made on
and as of such day.

 

5.1           Organization and Good Standing.

 

Each of the Originators has been duly organized and is validly existing as a
corporation in good standing under the laws of the State of Illinois, with power
and authority to own its properties and to conduct its business as such
properties are presently owned and such business is presently conducted.

 

5.2           Due Qualification.

 

Each Originator is duly licensed and in good standing in the jurisdiction where
its chief executive office is located and is qualified to do business as a
foreign corporation in good standing in all other jurisdictions in which (a) the
ownership or lease of its property or the conduct of its business requires such
licensing or qualification and (b) the failure to be so licensed or qualified
would be reasonably likely to have a Material Adverse Effect.

 

5.3           Power and Authority; Due Authorization.

 

Each Originator has (a) all necessary power, authority and legal right (i) to
execute and deliver, and perform its obligations under, each Transaction
Document to which it is a party and (ii) to generate, own, sell and assign
Receivables on the terms and subject to the conditions herein and therein
provided; and (b) duly authorized such execution and delivery and such sale and
assignment and the performance of such obligations by all necessary
organizational action.

 

5.4           Valid Sale; Binding Obligations.

 

Each sale made by each Originator pursuant to this Agreement shall constitute a
valid sale, transfer, and assignment of Receivables to the Company, enforceable
against creditors of, and purchasers from, such Originator and each such sale
shall have been made for “reasonably equivalent value” (as such term is used
under Section 548 of the Bankruptcy Code) and not for or on account of
“antecedent debt” (as such term is used under Section 547 of the Federal
Bankruptcy Code) owed by the Originator to the Company; and this Agreement

 

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constitutes, and each other Transaction Document to be signed by the
Originators, when duly executed and delivered, will constitute, a legal, valid
and binding obligation of each Originator, enforceable in accordance with its
terms, except as enforceability may be limited by bankruptcy, insolvency,
reorganization, or other similar laws affecting the enforcement of creditors’
rights generally and by general principles of equity, regardless of whether such
enforceability is considered in a proceeding in equity or at law.

 

5.5           No Violation.

 

The consummation of the transactions contemplated by this Agreement and the
other Transaction Documents and the fulfillment of the terms hereof or thereof
will not (a) conflict with, result in any breach of any of the terms and
provisions of, or constitute (with or without notice or lapse of time) a default
under (i) any Originator’s articles of incorporation or bylaws or (ii) any
indenture, loan agreement, mortgage, deed of trust, or other material agreement
or instrument to which it is a party or by which it is bound, (b) result in the
creation or imposition of any Adverse Claim upon any of its properties pursuant
to the terms of any such indenture, loan agreement, mortgage, deed of trust, or
other material agreement or instrument, other than the Transaction Documents, or
(c) violate any material law or any material order, rule or regulation
applicable to it of any court or of any state or foreign regulatory body,
administrative agency, or other governmental instrumentality having jurisdiction
over it or any of its properties.

 

5.6           Proceedings.

 

Except as set forth in Exhibit D, there is no action, suit, proceeding or
investigation pending before any court, regulatory body, arbitrator,
administrative agency, or other tribunal or governmental instrumentality
(a) asserting the invalidity of any Transaction Document, (b) seeking to prevent
the issuance of any Originator Assignment Certificate or the consummation of any
of the transactions contemplated by any Transaction Document or (c) seeking any
determination or ruling that is reasonably likely to have a Material Adverse
Effect.

 

5.7           Bulk Sales Acts.

 

No transaction contemplated hereby requires compliance with, or will be subject
to avoidance under, any bulk sales act or similar law.

 

5.8           Government Approvals.

 

Except for the filing of notices under the Assignment of Claims Act and the
filing of the UCC financing statements referred to in Section 5.20, all of which
shall have been duly made and shall be in full force and effect, no
authorization or approval or other action by, and no notice to or filing with,
any governmental authority or regulatory body is required for any

 

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Originator’s due execution, delivery and performance of any Transaction Document
to which it is a party.

 

5.9           Financial Condition.

 

(A)           MATERIAL ADVERSE EFFECT.  SINCE MAY 31, 2002, NO EVENT HAS
OCCURRED THAT HAS HAD, OR IS REASONABLY LIKELY TO HAVE, A MATERIAL ADVERSE
EFFECT.

 

(B)           SOLVENT.  ON THE DATE HEREOF, AND ON THE DATE OF EACH PURCHASE
HEREUNDER (BOTH BEFORE AND AFTER GIVING EFFECT TO SUCH PURCHASE) EACH ORIGINATOR
SHALL BE SOLVENT.

 

5.10         Licenses, Contingent Liabilities, and Labor Controversies.

 

(A)           NO ORIGINATOR HAS FAILED TO OBTAIN ANY LICENSES, PERMITS,
FRANCHISES OR OTHER GOVERNMENTAL AUTHORIZATIONS NECESSARY TO THE OWNERSHIP OF
ITS PROPERTIES OR TO THE CONDUCT OF ITS BUSINESS, WHICH VIOLATION OR FAILURE TO
OBTAIN WOULD BE REASONABLY LIKELY TO HAVE A MATERIAL ADVERSE EFFECT.

 

(B)           THERE ARE NO LABOR CONTROVERSIES PENDING AGAINST ANY ORIGINATOR
THAT HAVE HAD (OR ARE REASONABLY LIKELY TO HAVE) A MATERIAL ADVERSE EFFECT.

 

5.11         Margin Regulation.

 

No proceeds of any purchase or reinvestment will be used for the purpose of
purchasing or carrying any margin securities or for the purpose of reducing or
retiring any indebtedness which was originally incurred to purchase any margin
securities or for any other purpose not permitted by Regulation U of the Board
of Governors of the Federal Reserve System as in effect from time to time.

 

5.12         Quality of Title.

 

(A)           EACH RECEIVABLE OF EACH ORIGINATOR (TOGETHER WITH THE RELATED
RIGHTS WITH RESPECT TO SUCH RECEIVABLE) WHICH IS TO BE SOLD TO THE COMPANY
HEREUNDER IS OR SHALL BE OWNED BY SUCH ORIGINATOR, FREE AND CLEAR OF ANY ADVERSE
CLAIM, EXCEPT AS PROVIDED HEREIN AND IN THE RECEIVABLES PURCHASE AGREEMENT. 
WHENEVER THE COMPANY MAKES A PURCHASE HEREUNDER, IT SHALL HAVE ACQUIRED AND
SHALL CONTINUE TO HAVE MAINTAINED A VALID AND PERFECTED OWNERSHIP INTEREST (FREE
AND CLEAR OF ANY ADVERSE CLAIM OTHER THAN ADVERSE CLAIMS CREATED BY THE
TRANSACTION DOCUMENTS) IN ALL RECEIVABLES GENERATED BY THE ORIGINATORS AND ALL
COLLECTIONS RELATED THERETO, AND IN THE ORIGINATORS’ ENTIRE RIGHT, TITLE AND
INTEREST IN AND TO THE RELATED RIGHTS WITH RESPECT THERETO.

 

(B)           NO EFFECTIVE FINANCING STATEMENT OR OTHER INSTRUMENT SIMILAR IN
EFFECT COVERING ANY RECEIVABLE GENERATED BY EACH ORIGINATOR OR ANY RELATED
RIGHTS WHICH IS TO BE SOLD TO THE COMPANY HEREUNDER IS ON FILE IN ANY RECORDING
OFFICE EXCEPT SUCH AS MAY BE FILED IN FAVOR OF THE COMPANY (AND THE AGENT AS
ASSIGNEE OF THE COMPANY) OR THE

 

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AGENT, AS THE CASE MAY BE, IN ACCORDANCE WITH THIS AGREEMENT OR IN FAVOR OF THE
COMPANY (AND THE AGENT AS ASSIGNEE OF THE COMPANY) OR THE AGENT, IN ACCORDANCE
WITH THE RECEIVABLES PURCHASE AGREEMENT.

 

(C)           UNLESS OTHERWISE IDENTIFIED TO THE COMPANY IN THE PURCHASE REPORT
DELIVERED PRIOR TO THE DATE OF THE PURCHASE HEREUNDER, EACH RECEIVABLE PURCHASED
HEREUNDER IS ON THE DATE OF PURCHASE, AN ELIGIBLE RECEIVABLE.

 

5.13         Accuracy of Information.

 

All factual written information heretofore or contemporaneously furnished (and
prepared) by each Originator to the Company or the Agent for purposes of or in
connection with any Transaction Document or any transaction contemplated hereby
or thereby is, and all other such factual written information hereafter
furnished (and prepared) by such Originator to the Company or the Agent pursuant
to or in connection with any Transaction Document will be, true and accurate in
every material respect on the date as of which such information is dated or
certified.

 

5.14         Offices.

 

Each Originator’s principal place of business and chief executive office is
located at the address specified in Exhibit E, each Originator’s state of
incorporation is as specified in Exhibit E, and the offices where each
Originator keeps all its books, records and documents evidencing its
Receivables, the related Contracts and all other agreements related to such
Receivables are located at the addresses specified in Exhibit E (or at such
other locations, notified to the Company in accordance with Section 6.1(c), in
jurisdictions where all action required by Section 6.1(e) have been taken and
completed).

 

5.15         Trade Names.

 

No Originator uses any trade name other than its actual corporate name and the
trade names set forth in Exhibit F.  From and after the date that fell five (5)
years before the date hereof, except as set forth in Exhibit F, no Originator
has been known by any legal name other than its corporate name as of the date
hereof, and no Originator has been the subject of any merger or other
organizational reorganization.

 

5.16         Taxes.

 

Each Originator has filed all material tax returns and reports required by law
to have been filed by it and has paid all taxes and governmental charges thereby
shown to be owing, except any such taxes or charges which are being diligently
contested in good faith by appropriate proceedings and for which adequate
reserves in accordance with GAAP shall have been set aside on its books.

 

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5.17         Compliance With Applicable Laws.

 

Each Originator is in compliance with the requirements of all applicable laws,
rules, regulations and orders of all governmental authorities, a breach of any
of which, individually or in the aggregate, would be reasonably likely to have a
Material Adverse Effect.

 

5.18         Reliance on Separate Legal Identity.

 

Each Originator acknowledges that the Purchasers and the Agent are entering into
the Receivables Purchase Agreement in reliance upon the Company’s identity as a
legal entity separate from the Originator.

 

5.19         Investment Company.

 

No Originator is an “investment company,” or a company “controlled” by an
“investment company” within the meaning of the Investment Company Act of 1940,
as amended.  In addition, no Originator is a “holding company,” a “subsidiary
company” of a “holding company” or an “affiliate” of a “holding company” or of a
“subsidiary company” of a “holding company” within the meaning of the Public
Utility Holding Company Act of 1935, as amended.

 

5.20         Security Interest.

 

This Agreement creates a valid and continuing security interest (as defined in
the applicable UCC) in all of such Originator’s right, title and interest in and
to the Receivables and the Related Rights, now existing and hereafter created by
the Originators in favor of the Company, which security interest is prior to all
other Adverse Claims, and is enforceable as such against creditors of and
purchasers from the Originators.  The Receivables constitute “accounts” within
the meaning of the applicable UCC.  Each Originator owns and has good and
marketable title to the Purchased Assets free and clear of any Adverse Claim. 
Each Originator has caused the filing of all appropriate UCC financing
statements in the proper filing offices in the appropriate jurisdictions under
applicable law in order to perfect the security interest in the Purchased Assets
granted to the Company hereunder (and to the Agent, as assignee of the Company,
under the Receivables Purchase Agreement).  Other than the security interest
granted to the Company pursuant to this Agreement (and to the Agent, as assignee
of the Company, under the Receivables Purchase Agreement), no Originator has
pledged, assigned, sold, granted a security interest in, or otherwise conveyed
any of the Purchased Assets.  No Originator has authorized the filing of and no
Originator is aware of any UCC financing statements against it that included a
description of collateral covering the Purchased Assets other than any UCC
financing statement relating to the security interest granted to the Company
hereunder (and to the Agent, as assignee of the Company) or that has been
terminated.  No Originator is aware of any judgment or tax lien filings against
it.

 

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5.21         Lock-Box Bank and Lock-Box Account.

 

The names and addresses of all the Lock-Box Banks, together with the account
numbers of the Lock-Box Accounts at such Lock-Box Banks, are specified in
Schedule II to the Receivables Purchase Agreement (or at such other Lock-Box
Banks and/or with such other Lock-Box Accounts as have been notified to the
Agent in accordance with the Receivables Purchase Agreement) and all Lock-Box
Accounts are subject to Lock-Box Agreements.  The Originators have not granted
any interest in any Lock-Box or Lock-Box Account to any Person other than the
Agent and the Lock-Box Bank and, upon delivery to a Lock-Box Bank of the related
Lock-Box Agreement, the Agent will have exclusive ownership and control of the
Lock-Box Account and/or Lock-Box at such Lock-Box Bank.

 

5.22         ERISA.

 

As of the Closing Date, neither the Originators nor any ERISA Affiliate of the
Originators maintains any Benefit Plans other than as set forth on Exhibit G. 
Neither the Originators nor any ERISA Affiliate of the Originators has ever
contributed to a Multiemployer Plan.  Each Benefit Plan of the Originators and
the ERISA Affiliates of the Originators which is intended to be a qualified plan
has been determined by the Internal Revenue Service to be qualified under
Section 401(a) of the Code, and each trust related to any such Benefit Plan, if
any, has been determined to be exempt from federal income tax under Section
501(a) of the Code.  In the aggregate, there is no unfunded liability for any
Benefit Plan of the Originators or any such ERISA Affiliate which is a defined
benefit plan qualified under Section 401(a) of the Code, as determined under
Section 412 of the Code.  Each of the Originators and the ERISA Affiliates of
the Originators are in compliance in all material respects with the
responsibilities, obligations and duties imposed on them by ERISA and the
regulations promulgated thereunder with respect to each of its Benefit Plans,
and no Reportable Event has occurred with respect to any such Benefit Plan.

 

5.23         Accounting.

 

Each Originator has accounted (for all purposes) for each sale of Receivables to
the Company hereunder in its respective books and financial statements, in each
case, as sales, consistent with generally accepted accounting principles.

 

5.24         Compliance with Credit and Collection Policy.

 

Each Originator is in compliance in all material respects with the Credit and
Collection Policy of the Originators with regard to each Receivable originated
by the Originator.

 

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ARTICLE VI

COVENANTS OF THE ORIGINATORS

 

6.1           Covenants.

 

From the date hereof until all amounts owed by the Originators hereunder to the
Company or any other Purchase and Sale Indemnified Party shall be paid in full,
the Originators jointly and severally agree as follows, unless the Agent and the
Company shall otherwise consent in writing:

 

(a)           Conduct of Business.  The Originators shall perform all actions
necessary (i) to maintain their corporate existence and to remain in good
standing as a domestic corporation in their jurisdiction of organization and
(ii) to maintain all requisite authority to conduct their business in each
jurisdiction in which their business is conducted (except where the failure to
do so would not cause a Material Adverse Effect) or their Records are
maintained.

 

(b)           Compliance with Laws, Etc.  The Originators shall comply with all
laws, rules, regulations, orders, writs, judgments, injunctions, decrees or
awards imposed by any Governmental Authority to which they or any of their
properties may be subject (including any requirements of licensing,
registration, authorizations, consents and approvals necessary to enter into any
Contract or create any Receivable and including laws, rules and regulations
relating to usury, disclosures, truth-in-lending, fair credit billing, fair
credit reporting, equal credit opportunity, fair debt collection practices,
trade practices, consumer protection and privacy), except, in each case, where
the failure to do so would not cause a Material Adverse Effect.  The Originators
will pay all Taxes payable thereby as and when due, except Taxes that are being
contested in good faith by appropriate proceedings and for which the applicable
Originator has set aside on its books adequate reserves and so long as such
Taxes have not become a tax or ERISA lien on any of the assets of such
Originators or the Seller.

 

(c)           Offices, Records and Books of Account, Etc.  The Originators shall
(i) keep their respective principal place of business, chief executive office
and state of formation (as such terms or similar terms are used in the UCC) and
the office where they keep their records concerning the Receivables at the
applicable address for such Originator set forth in Exhibit E or at any other
locations in jurisdictions in the United States where all actions reasonably
requested by the Company to protect and perfect the interest of the Company in
the Receivables and related items (including the other Purchased Assets) have
been taken and completed and (ii) provide the Company with at least 30 days’
written notice before making any change in any Originator’s name or making any
other change in any Originator’s identity or corporate structure (including a
Change in Control) that could render any UCC financing statement filed in
connection with this Agreement “seriously misleading” as such term (or similar
term) is used in the UCC.  Each notice to the Company pursuant to this sentence
shall set forth the applicable change and the effective date thereof.  The
Originators shall also maintain and implement (or cause the Servicer to maintain
and implement) administrative and operating procedures (including an ability to
recreate records evidencing Receivables and related Contracts in the event of
the destruction of the originals thereof), and keep and maintain (or cause the
Servicer to keep and maintain) all

 

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documents, books, records, computer tapes and disks and other information
reasonably necessary or advisable for the identification and collection of all
Receivables (including records adequate to permit the daily identification of
each Receivable and all Collections of and adjustments to each existing
Receivable).  Notwithstanding the above, in no event shall the Originators have
or maintain, or be a partner in any partnership that has or maintains, its
jurisdiction of organization or principal place of business in any of the states
of Colorado, Kansas, New Mexico, Oklahoma, Utah or Wyoming.  In the event that
any such Originator moves its chief executive office to a location which may
charge Taxes, fees or other charges to perfect the Company’s interests
hereunder, the Originators shall pay all such Taxes, fees and other charges and
any other costs and expenses incurred in order to maintain the enforceability of
the Transaction Documents and the right, title and interest of the Company in
the Purchased Assets.

 

(d)           Performance and Compliance with Contracts and Credit and
Collection Policy.  The Originators shall, at their expense, timely and fully
perform and comply with, and shall cause to be fully performed and complied
with, all material provisions, covenants and other promises required to be
observed by them under the Contracts related to the Receivables, and timely and
fully comply in all material respects with the applicable Credit and Collection
Policy with regard to each Receivable and the related Contract.

 

(e)           Ownership Interest, Etc.  The Originators and the Servicer shall,
at their expense, take, and shall cause to be taken, all action necessary or
desirable in the reasonable determination of the Company and the Agent to
establish and maintain a valid and enforceable ownership interest in the
Receivables, the Related Security and Collections with respect thereto, and a
first priority perfected security interest in the Purchased Assets, free and
clear of any Adverse Claim, in favor of Company (and the Agent, as assignee of
the Company), including taking such action to perfect, protect or more fully
evidence the interest of the Company (and the Agent, as assignee of the Company)
as the Company and the Agent may reasonably request, other than notices of
assignment pursuant to the Assignment of Claims Act (which, other than as
required pursuant to Section 7.3 of this Agreement, are not required to be made
hereunder).  Notwithstanding the foregoing, the Originators hereby irrevocably
make, constitute and appoint the Company (and the Agent, as assignee of the
Company) (and all Persons designated by the Company and the Agent from time to
time for that purpose) as the Originators’ true and lawful attorney and agent in
fact to execute and file financing statements and take all such other actions
and do all such other things as may be necessary or desirable in the reasonable
judgment of the Company and the Agent to preserve and perfect the Company’s (and
the Agent’s) ownership and/or security interest (all at the Originators’
expense) in the Purchased Assets.  The Originators further agree that a carbon,
photographic, photostatic or other reproduction of this Agreement or of a
financing statement shall be sufficient as a financing statement.  The
Originators further ratify and confirm the prior filing by the Company (and the
Agent, as assignee of the Company) of any and all financing statements
(including any amendments or continuation thereto or thereof) which identify the
Originators as debtor, seller or assignor and the Company as secured party,
buyer or assignee (and the Agent, as assignee of the Company).  Without limiting
the foregoing, the Originators shall hold any and all Receivables evidenced by
any instruments or chattel paper, if any, in trust for the Company (and the
Agent, as assignee of the Company), separate from its own assets and marked with
a legend, in each case, as set forth in Section 6.1(l), and upon the

 

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Company’s or Agent’s request therefor, shall deliver such instruments and/or
chattel paper to the Company or the Agent, as applicable, or their designee.

 

(f)            Sales, Liens, Etc.  The Originators shall not sell, pledge,
assign (by operation of law or otherwise) or otherwise dispose of, or create or
suffer to exist any Adverse Claim upon or with respect to, any or all of its
right, title or interest in, to or under any Purchased Assets (including the
Originators’ undivided interest in any Receivable, Related Security or
Collections, or upon or with respect to any account to which any Collections of
any Receivables are sent), or assign any right to receive income in respect of
any items contemplated by this paragraph.

 

(g)           Extension or Amendment of Receivables.  Except as provided in the
Agreement, the Originators shall not, and shall not permit the Servicer to,
extend the maturity or adjust the Outstanding Balance or otherwise modify the
terms of any Receivable in any respect, or amend, modify or waive, in any
respect, any term or condition of any related Contract, in either case, which
affects the Outstanding Balance of any Receivables, the time for payment thereof
or thereunder, or the enforceability thereof, or is in any other way adverse to
the Company, the Agent or the Purchasers.

 

(h)           Change in Business or Credit and Collection Policy.  The
Originators shall not make (i) any material change in the character of their
businesses or (ii) or any change in any Credit and Collection Policy that would
adversely effect the enforceability, collectibility or creditworthiness of any
Receivable.  The Originators shall not make any other change in any Credit and
Collection Policy without giving prior written notice thereof to the Company.

 

(i)            Audits.  The Originators will furnish to the Company and the
Servicer such information with respect to the Receivables as reasonably
requested, including listings identifying the Obligor and the Outstanding
Balance for each Receivable.  The Originators shall, from time to time during
regular business hours as reasonably requested in advance (unless a Purchase and
Sale Termination Event or Unmatured Purchase and Sale Termination Event exists)
by the Company or the Servicer, permit the Company, the Servicer or any of their
respective agents or representatives: (i) to examine and make abstracts from all
books, records and documents (including computer tapes and disks) in the
possession or under the control of the Originators relating to any Receivables
and the Related Security, including the related Contracts, (ii) to visit the
offices and properties of the Originators for the purpose of examining such
materials described in clause (i) above, and to discuss matters relating to
Receivables and the Related Security or the Originators’ performance under the
Transaction Documents or under the Contracts with any of the officers,
employees, agents or contractors of the Originators having knowledge of such
matters and (iii) without limiting the clauses (i) and (ii) above, to engage
certified public accountants or other auditors acceptable to the Company to
conduct, at the Originators’ expense (not to exceed $20,000 per audit), a review
of the Originators’ books and records with respect to such Receivables.  So long
as there exists no Purchase and Sale Termination Event or Unmatured Purchase and
Sale Termination Event, the audit required pursuant to clause (iii) need not be
performed more than once in any twelve month period except at the Company’s
expense, otherwise such audits may be conducted at such intervals as deemed
appropriate by the Company, at the Originators’ expense.

 

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(j)            Change in Lock-Box Banks, Lock-Box Accounts and Payment
Instructions to Obligors.  The Originators shall not, and shall not permit the
Servicer to, add or terminate any bank as a Lock-Box Bank or any account as a
Lock-Box Account from those listed in Schedule II to the Receivables Purchase
Agreement, or make any change in the instructions to Obligors regarding payments
to be made to the Originators, the Servicer or any Lock-Box Account (or related
post office box), unless the Company shall have consented thereto in writing and
the Company shall have received copies of all agreements and documents
(including Lock-Box Agreements) that it may request in connection therewith.

 

(k)           Deposits to Lock-Box Accounts.  The Originators shall (or shall
cause the Servicer to):  (i) instruct all relevant Obligors to make payments of
all Receivables to one or more Lock-Box Accounts or to post office boxes to
which only Lock-Box Banks have access (and shall instruct the Lock-Box Banks to
cause all items and amounts relating to such Receivables received in such post
office boxes to be removed and deposited into a Lock-Box Account on a daily
basis), and (ii) deposit, or cause to be deposited, any Collections received by
them or the Servicer into Lock-Box Accounts not later than one Business Day
after receipt thereof.  Each Lock-Box Account shall at all times be subject to a
Lock-Box Agreement.  The Originators will not (and will not permit the Servicer
to) deposit or otherwise credit, or cause to be so deposited or credited, to any
Lock-Box Account cash or cash proceeds other than Collections, and if such funds
are nevertheless deposited into any such Lock-Box or account, the Originators
will promptly identify such funds for segregation therefrom; it being
acknowledged however that without limiting the other requirements of this
paragraph (k) (including the obligation of the Company, the Servicer and the
Originators to provide payment instructions to the Obligors, and to promptly
segregate any payments not constituting Collections), that certain payments not
constituting Collections will continue to made to the Lock-Box Bank by Obligors
either in disregard of the payment instructions or in combined payments of funds
attributable to Collections and non-collections, and provided that the
Originators and the Servicer otherwise comply with the terms hereof, such
remittances shall not constitute a breach of this provision.  The Originators
shall not terminate any Lock-Box Bank or close any Lock-Box Account unless the
Company shall have received at least thirty (30) days prior notice of such
termination.  Each Originator hereby grants to the Company (who may further
grant to another Person) an irrevocable power of attorney, with full power of
substitution, coupled with an interest, to take in the name of such Originator
all steps necessary or advisable to endorse, negotiate or otherwise realize on
any writing or other right of any kind held or transmitted by such Originator or
transmitted or received by the Company (whether or not from such Originator) in
connection with any Receivable.

 

(l)            Marking of Records.  At their expense, the Originators shall mark
(or cause the Servicer to mark) its master data processing records relating to
both Receivables and related Contracts, including with the following legend, or
such other marking reasonably acceptable to the Company or, after the assignment
hereof to the Agent pursuant to the Receivables Purchase Agreement, the Agent,
evidencing that the ownership interests with regard to such Receivables and
related Contracts have been sold in accordance with the Agreement: “THE
RECEIVABLES DESCRIBED HEREIN HAVE BEEN SOLD BY [INSERT NAME OF APPLICABLE
ORIGINATOR] TO AAR RECEIVABLES CORPORATION II PURSUANT TO A PURCHASE AND SALE
AGREEMENT, DATED AS OF MARCH 21, 2003, AS AMENDED,

 

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AMONG AAR DISTRIBUTION, INC., ET AL., AAR CORP., AS INITIAL SERVICER AND AAR
RECEIVABLES CORPORATION II; AND AN UNDIVIDED, FRACTIONAL OWNERSHIP INTEREST IN
THE RECEIVABLES DESCRIBED HEREIN HAS BEEN SOLD TO CERTAIN PURCHASERS PURSUANT TO
A RECEIVABLES PURCHASE AGREEMENT, DATED AS OF MARCH 21, 2003, AS AMENDED, AMONG
AAR CORP., AS INITIAL SERVICER, AAR RECEIVABLES CORPORATION II, AS SELLER, AND
LASALLE BUSINESS CREDIT, LLC, AS AGENT ON BEHALF OF THE PURCHASERS FROM TIME TO
TIME PARTIES THERETO.”  Upon the request of the Company at any time after the
appointment of a new Servicer (other than AAR or an Affiliate) by the Agent
pursuant to Section 4.1(a) of the Receivables Purchase Agreement, the
Originators shall (1)  so mark each Contract and its other Records and (2)
deliver to the Company all Contracts (including all multiple originals of such
Contracts), with any appropriate endorsement or assignment, and Records or
segregate (from all other receivables then owned or being serviced by the
Originators) the Receivables and all Contracts and Records relating to any
Purchased Assets and hold in trust and safely keep such Contracts and Records in
separate filing cabinets or other suitable containers (x) marked to show the
Company’s interest with the legend specified above and (y) maintained in such
place as shall be designated by the Company or such replacement Servicer.

 

(m)          Reporting Requirements.  The Originators will keep books of record
and account in accordance with GAAP in which will be made accurate recordings of
all dealings or transactions in relation to its business and activities.  The
Originators will provide to the Company (in multiple copies, if requested by the
Company) the following:

 

(1)           As soon as possible and in any event within five days after the
occurrence of each Purchase and Sale Termination Event or Unmatured Purchase and
Sale Termination Event in respect of any Originator, a statement of the chief
financial officer of AAR setting forth details of such Purchase and Sale
Termination Event or Unmatured Purchase and Sale Termination Event and the
action that such Originator has taken and proposes to take with respect thereto;

 

(2)           Promptly after the filing or receiving thereof, copies of all
reports and notices that the Originators, AAR or any ERISA Affiliate of the
Originators or AAR files with or receives from the Internal Revenue Service, the
Pension Benefit Guaranty Corporation or the U.S. Department of Labor, in each
case, in respect of any Reportable Event, the assessment of withdrawal liability
or an event or condition that could, in the aggregate, result in the imposition
of liability on any Originator, AAR and/or any such ERISA Affiliate under ERISA;

 

(3)           promptly after any Originator obtains knowledge thereof, notice of
any:  (A) material litigation, investigation or proceeding that may exist at any
time between any Originator and any Person, (B) material litigation or
proceeding relating to any Transaction Document or (C) material litigation,
investigation or proceeding which could reasonably be expected to have a
Material Adverse Effect;

 

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(4)           promptly after the occurrence thereof, notice of a Material
Adverse Effect; and

 

(5)           such other information respecting the Receivables or the condition
or operations, financial or otherwise, of any Originator or any Affiliate as the
Company may from time to time reasonably request.

 

(n)           Restricted Payments.  (i) Except pursuant to clause (ii) below, no
Originator shall: (A) purchase or redeem any shares of its capital stock, (B)
declare or pay any dividend or set aside any funds for any such purpose, (C)
prepay, purchase or redeem any Debt, (D) lend or advance any funds to or invest
in the equity of any Person or (E) repay any loans or advances to, for or from
any of its Affiliates (the amounts described in clauses (A) through (E) being
referred to as “Restricted Payments”).

 

(ii)           Subject to the limitations set forth in clause (iii) below, the
Originators may, no more frequently than once every calendar quarter, declare
and pay dividends.

 

(iii)          No Originator shall pay, make or declare:  (A) any distributions
if, after giving effect thereto, such Originator’s tangible net worth (to be
calculated consistently with the definition of Consolidated Tangible Net Worth
solely with respect to such Originator) would be less than $12,000,000, or (B)
any Restricted Payment (including any dividend) if, after giving effect thereto,
any Purchase and Sale Termination Event or Unmatured Purchase and Sale
Termination Event shall have occurred and be continuing or it is a Termination
Day.

 

(o)           Other Business.  The Originators will not: (i) engage in any
business other than that engaged in as of the date hereof or (ii) form any
Subsidiary or make any investments in any other Person.

 

(p)           Merger, etc.  The Originators will not (i) merge or consolidate
with or into any Person, (ii) convey, transfer, lease or otherwise dispose of
(whether in one transaction or in a series of transactions) any substantial part
of their respective assets (whether now owned or hereafter acquired); provided,
that that (x) AAR may merger or consolidate with any Originator if and to the
extent (1) no Termination Event exist or would result therefrom, (2) AAR is the
surviving entity, and (3) the Consolidated Tangible Net Worth of the combined
entity would be equal or greater to that of AAR prior to such merger or
consolidation, and (y) any Originator may be merged or consolidated with, or
sell all or substantially all of its assets to, any other Originator.

 

(q)           Accounting for Sale.  The Originators will not account for, or
otherwise treat, the transactions contemplated hereby in any manner for tax or
accounting purposes other than as a sale of Receivables by the Originators to
the Company, except to the extent otherwise required in accordance with GAAP or
applicable law.  In addition, the Originators shall disclose (in a footnote or
otherwise) in all financial statements (including any such financial statements
consolidated with any other Person’s financial statements) the existence and
nature of the transaction contemplated hereby and the interest of the Company in
the Purchased Assets.

 

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(R)            RECEIVABLES NOT TO BE EVIDENCED BY PROMISSORY NOTES OR CHATTEL
PAPER.  THE ORIGINATORS SHALL NOT TAKE ANY ACTION TO CAUSE OR PERMIT ANY
RECEIVABLE GENERATED BY ANY OF THEM TO BECOME EVIDENCED BY ANY “INSTRUMENT” OR
“CHATTEL PAPER” (AS DEFINED IN THE APPLICABLE UCC).

 

(s)           Credit Insurance.  The Originators shall pay when due all
premiums, and timely and properly file and pursue all claims under, and take
such other actions as shall be required under any such policy in connection
therewith (including, without limitation, filing all such reports, terminating
shipments and otherwise mitigating potential losses as required under such
policy) and to maintain in full force and effect for the term of, any credit
insurance policy covering any Permitted Foreign Receivable.  The Originators
shall at all times maintain cash sufficient to pay any additional premiums
required (in excess of the minimum premium) in respect of any Receivables in
excess of projected sales volume under such policy.  The Originators shall not
cancel or make any amendments, modifications or changes to, any such policy
without the prior written consent of the Agent.  The Originators shall provide
copies of all credit insurance policies to the Agent, all of which shall be with
Qualified Insurers and shall be in form and substance reasonably satisfactory to
the Agent (and the Agent shall have the right to require changes therein as it
in its reasonable credit judgment deems necessary or desirable to maintain
coverage on at least 90% of the Outstanding Balance of all Permitted Foreign
Receivables included in the Pool Assets), and shall ensure that the Agent is
named as an assignee thereof (pursuant to an assignment endorsement in form and
substance satisfactory to the Agent) thereon.  Notwithstanding the foregoing,
the Originators shall deliver to the Agent, promptly after receipt thereof by
such Person, any notice of cancellation or denial of claim of or under any such
policy.  In any circumstance where there is likely to be insufficient proceeds
of insurance to cover at least 90% of the Outstanding Balance of any affected
Pool Receivables, the Originators shall make claims for coverage, and apply any
and all proceeds received by any of them under, any such policies to affected
Pool Receivables in which interests have been sold to the Company pursuant to
the Receivables Purchase Agreement prior to making any such claim or applying
any such proceeds to other Receivables owing by the same Obligor.

 

(t)            Material Agreements.  AAR shall include copies of this Agreement
and the Receivables Purchase Agreement as exhibits to the first Form 10-Q or
Form 10-K to be filed by AAR with the Securities and Exchange Commission after
the Closing Date.

 

6.2           Substantive Consolidation.

 

The Originators hereby acknowledge that this Agreement and the other Transaction
Documents are being entered into in reliance upon the Company’s identity as a
legal entity separate from the Originators and their Affiliates.  Therefore,
from and after the date hereof, the Originators shall take all reasonable steps
necessary to make it apparent to third Persons that the Company is an entity
with assets and liabilities distinct from those of any Originator and any other
Person, and is not a division of any Originator, its Affiliates or any other
Person.  Without limiting the generality of the foregoing and in addition to and
consistent with the other covenants set forth herein, the Originators shall take
such actions as shall be required in order that:

 

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(A)           NO ORIGINATOR SHALL BE INVOLVED IN THE DAY-TO-DAY MANAGEMENT OF
THE COMPANY;

 

(B)           THE ORIGINATORS SHALL MAINTAIN SEPARATE ORGANIZATIONAL RECORDS AND
BOOKS OF ACCOUNT FROM THE COMPANY AND OTHERWISE WILL OBSERVE ORGANIZATIONAL
FORMALITIES AND HAVE A SEPARATE AREA FROM THE COMPANY FOR ITS BUSINESS;

 

(C)           THE FINANCIAL STATEMENTS AND BOOKS AND RECORDS OF THE ORIGINATORS
SHALL BE PREPARED AFTER THE DATE OF CREATION OF THE COMPANY TO REFLECT AND SHALL
REFLECT THE SEPARATE EXISTENCE OF THE COMPANY; PROVIDED, HOWEVER, THAT THE
COMPANY’S ASSETS AND LIABILITIES MAY BE INCLUDED IN A CONSOLIDATED FINANCIAL
STATEMENT ISSUED BY AN AFFILIATE OF THE COMPANY; PROVIDED, FURTHER, THAT ANY
SUCH CONSOLIDATED FINANCIAL STATEMENT SHALL MAKE CLEAR THAT THE COMPANY’S ASSETS
ARE NOT AVAILABLE TO SATISFY THE OBLIGATIONS OF SUCH AFFILIATE;

 

(D)           EXCEPT AS PERMITTED BY THE RECEIVABLES PURCHASE AGREEMENT, (I) THE
ORIGINATORS SHALL MAINTAIN THEIR ASSETS SEPARATELY FROM THE ASSETS OF THE
COMPANY, (II) AND THE COMPANY’S ASSETS, AND RECORDS RELATING THERETO, HAVE NOT
BEEN, ARE NOT, AND SHALL NOT BE, COMMINGLED WITH THOSE OF THE ORIGINATORS;

 

(E)           ALL OF THE COMPANY’S BUSINESS CORRESPONDENCE AND OTHER
COMMUNICATIONS SHALL BE CONDUCTED IN THE COMPANY’S OWN NAME AND ON ITS OWN
STATIONERY;

 

(F)            NO ORIGINATOR SHALL ACT AS AN AGENT FOR THE COMPANY, OTHER THAN
ANY ORIGINATOR IN ITS CAPACITY AS THE SUB-SERVICER, AND IN CONNECTION THEREWITH,
SHALL PRESENT ITSELF TO THE PUBLIC AS AN AGENT FOR THE COMPANY AND A LEGAL
ENTITY SEPARATE FROM THE COMPANY;

 

(G)           NO ORIGINATOR SHALL CONDUCT ANY OF THE BUSINESS OF THE COMPANY IN
ITS OWN NAME;

 

(H)           NO ORIGINATOR SHALL PAY ANY LIABILITIES OF THE COMPANY OUT OF ITS
OWN FUNDS OR ASSETS;

 

(I)            EACH ORIGINATOR SHALL MAINTAIN AN ARM’S-LENGTH RELATIONSHIP WITH
THE COMPANY;

 

(J)            NO ORIGINATOR SHALL ASSUME OR GUARANTEE OR BECOME OBLIGATED FOR
THE DEBTS OF THE COMPANY OR HOLD OUT ITS CREDIT AS BEING AVAILABLE TO SATISFY
THE OBLIGATIONS OF THE COMPANY;

 

(K)           NO ORIGINATOR SHALL ACQUIRE OBLIGATIONS OF THE COMPANY;

 

(L)            THE ORIGINATORS SHALL ALLOCATE FAIRLY AND REASONABLY OVERHEAD OR
OTHER EXPENSES THAT ARE PROPERLY SHARED WITH THE COMPANY, INCLUDING, WITHOUT
LIMITATION, SHARED OFFICE SPACE;

 

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(M)          THE ORIGINATORS SHALL IDENTIFY AND HOLD THEMSELVES OUT AS SEPARATE
AND DISTINCT ENTITIES FROM THE COMPANY;

 

(N)           THE ORIGINATORS SHALL CORRECT ANY KNOWN MISUNDERSTANDING REGARDING
THEIR SEPARATE IDENTITY FROM THE COMPANY;

 

(O)           NO ORIGINATOR SHALL ENTER INTO, OR BE A PARTY TO, ANY TRANSACTION
WITH THE COMPANY, EXCEPT IN THE ORDINARY COURSE OF ITS BUSINESS AND ON TERMS
WHICH ARE INTRINSICALLY FAIR AND NOT LESS FAVORABLE TO IT THAN WOULD BE OBTAINED
IN A COMPARABLE ARM’S-LENGTH TRANSACTION WITH AN UNRELATED THIRD PARTY; AND

 

(P)           THE ORIGINATORS SHALL NOT PAY THE SALARIES OF THE COMPANY’S
EMPLOYEES, IF ANY.

 

ARTICLE VII

ADDITIONAL RIGHTS AND OBLIGATIONS IN RESPECT
OF THE RECEIVABLES

 

7.1           Rights of the Company.

 

Each Originator hereby authorizes the Company (who may further authorize another
Person), the Servicer, or their respective designees to take any and all steps
in such Originator’s name necessary or desirable, in their respective
determination, to collect all amounts due under any and all Receivables,
including, without limitation, endorsing the name of such Originator on checks
and other instruments representing Collections and enforcing such Receivables
and the provisions of the related Contracts that concern payment and/or
enforcement of rights to payment.

 

7.2           Application of Collections.

 

Any payment by an Obligor in respect of any indebtedness owed by it to any
Originator shall, except as otherwise specified by such Obligor or otherwise
required by contract or law and unless otherwise instructed by the Company (or
any other Person to whom the Company has assigned such right to instruct), be
applied as a Collection of any Receivable or Receivables of such Obligor to the
extent of any amounts then due and payable thereunder before being applied to
any other indebtedness of such Obligor.

 

7.3           Assignment of Claims Act.

 

Other than as set forth in this Section 7.3, the Originators shall not be
required to comply with the Assignment of Claims Act with respect to any
Government Receivables.  Each Originator shall fully cooperate and assist the
Agent and the Servicer (if other than AAR or an Affiliate thereof) in the
enforcement of any such Receivable in such Originator’s own name for

 

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and on behalf of the Agent and the Purchasers, and shall take such actions in
such enforcement of such Receivable as the Agent or the Servicer (if other than
AAR or an Affiliate thereof) may reasonably request.  Notwithstanding the
foregoing, upon the appointment by the Agent of a new Servicer (other than an
Affiliate of AAR), each Originator shall, if requested by such new Servicer and
at each such Originator’s expense, comply with the Assignment of Claims Act with
respect to specified Government Receivables identified by such new Servicer.

 

ARTICLE VIII

PURCHASE AND SALE TERMINATION EVENTS

 

8.1           Purchase and Sale Termination Events.

 

Each of the following events or occurrences described in this Section 8.1 shall
constitute a “Purchase and Sale Termination Event”:

 

(A)           A TERMINATION EVENT (AS DEFINED IN THE RECEIVABLES PURCHASE
AGREEMENT) SHALL HAVE OCCURRED AND, IN THE CASE OF A TERMINATION EVENT (OTHER
THAN ONE DESCRIBED IN PARAGRAPHS (G) OR (S) OF EXHIBIT V OF THE RECEIVABLES
PURCHASE AGREEMENT), THE AGENT, SHALL HAVE DECLARED THE FACILITY TERMINATION
DATE TO HAVE OCCURRED; OR

 

(B)           ANY REPRESENTATION OR WARRANTY MADE OR DEEMED TO BE MADE BY ANY
ORIGINATOR (OR ANY OF ITS OFFICERS) UNDER OR IN CONNECTION WITH THIS AGREEMENT,
ANY OTHER TRANSACTION DOCUMENTS, OR ANY OTHER INFORMATION OR REPORT DELIVERED
PURSUANT HERETO OR THERETO SHALL PROVE TO HAVE BEEN INCORRECT OR UNTRUE IN ANY
MATERIAL RESPECT (OR, IF SUCH REPRESENTATION IS ALREADY QUALIFIED BY ANY
STANDARD OF MATERIALITY, IN ANY RESPECT) WHEN MADE OR DEEMED MADE, AND SHALL
REMAIN INCORRECT OR UNTRUE FOR FIVE BUSINESS DAYS AFTER NOTICE TO SUCH
ORIGINATOR OF SUCH INACCURACY; OR

 

(C)           ANY ORIGINATOR SHALL FAIL TO PERFORM OR OBSERVE ANY TERM, COVENANT
OR AGREEMENT CONTAINED IN THIS AGREEMENT OR ANY OF THE OTHER TRANSACTION
DOCUMENTS ON ITS PART TO BE PERFORMED OR OBSERVED AND SUCH FAILURE SHALL REMAIN
UNREMEDIED FOR 15 DAYS AFTER SUCH PERSON BECAME AWARE OF, OR RECEIVED NOTICE OF,
SUCH FAILURE.

 

8.2           Remedies.

 

(A)           OPTIONAL TERMINATION.  UPON THE OCCURRENCE OF A PURCHASE AND SALE
TERMINATION EVENT, THE COMPANY (AND NOT THE SERVICER) OR, AFTER THE ASSIGNMENT
HEREOF TO THE AGENT PURSUANT TO THE RECEIVABLES PURCHASE AGREEMENT, THE AGENT,
SHALL HAVE THE OPTION, BY NOTICE TO THE ORIGINATORS (WITH, IN THE CASE OF THE
COMPANY, A COPY TO THE AGENT), TO DECLARE THE PURCHASE AND SALE TERMINATION DATE
TO HAVE OCCURRED.

 

(B)           REMEDIES CUMULATIVE.  UPON ANY TERMINATION OF THE PURCHASE
FACILITY PURSUANT TO SECTION 8.2(A), THE COMPANY OR, AFTER THE ASSIGNMENT HEREOF
TO THE AGENT PURSUANT TO THE RECEIVABLES PURCHASE AGREEMENT, THE AGENT, SHALL
HAVE, IN ADDITION TO ALL

 

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OTHER RIGHTS AND REMEDIES UNDER THIS AGREEMENT, ALL OTHER RIGHTS AND REMEDIES
PROVIDED UNDER THE UCC OF EACH APPLICABLE JURISDICTION AND OTHER APPLICABLE
LAWS, WHICH RIGHTS SHALL BE CUMULATIVE.

 

ARTICLE IX

INDEMNIFICATION

 

9.1           Indemnities by the Originator.

 

Without limiting any other rights that the Company or any of its Affiliates,
employees, officers, directors, agents, counsel, successors, transferees or
assigns (each, a “Purchase and Sale Indemnified Party”) may have hereunder or
under applicable law, each Originator hereby agrees to indemnify each Purchase
and Sale Indemnified Party (on an after tax basis) from and against any and all
claims, damages, expenses, costs, losses and liabilities (including Attorney
Costs) (all of the foregoing being collectively referred to as “Purchase and
Sale Indemnified Amounts”) arising out of, or resulting from or in connection
with, this Agreement or any of the other Transaction Documents (whether directly
or indirectly) or the transactions contemplated thereby, the use of proceeds
thereof, the commingling of funds (whether or not permitted hereunder), the
Purchased Assets (including the merchandise and sale of merchandise giving rise
to Receivables), the ownership of or any interest in or in respect of any
Receivable, Related Security, Contract or other Purchased Assets, excluding,
however: (a) Purchase and Sale Indemnified Amounts to the extent a final
judgment of a court of competent jurisdiction holds they result from the gross
negligence or willful misconduct on the part of such Purchase and Sale
Indemnified Party or its officers, directors, agents or counsel, (b) any
indemnification which has the effect of recourse to any indemnitor for the
uncollectibility of Receivables due to the lack of creditworthiness of the
applicable Obligor thereof, (c) Purchase and Sale Indemnified Amounts relating
to the failure of any Originator to comply with the Assignment of Claims Act,
except to the extent the Servicer or any Originator shall have failed to take
all action required pursuant to Section 7.3 hereof, or (d) overall net income
taxes (to the extent the computation of such taxes are consistent with the
Intended Tax Characterization) or franchise taxes imposed on such Purchase and
Sale Indemnified Party by the jurisdiction under the laws of which such Purchase
and Sale Indemnified Party is organized or any political subdivision thereof.;
provided, however, that nothing contained in this Sentence shall limit the
liability of the Originators, or limit the recourse of the Company to the
Originators, for any amounts otherwise specifically provided to be paid by the
Originators hereunder or under any of the other Transaction Documents.  Without
limiting or being limited by the foregoing, and subject to the exclusions set
forth in the preceding sentence, the Originators shall pay on demand (which
demand shall be accompanied by documentation of the Purchase and Sale
Indemnified Amounts, in reasonable detail) to each Purchase and Sale Indemnified
Party any and all amounts necessary to indemnify such Purchase and Sale
Indemnified Party from and against any and all Purchase and Sale Indemnified
Amounts relating to or resulting from any of the following:

 

(i)            the failure of any Receivable sold hereunder to be an Eligible
Receivable on the date of the sale thereof pursuant hereto, the failure of any
information contained in

 

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Purchase Report or Monthly Settlement Statement and provided by or on behalf of
the Originators or any of their Affiliates to be true and correct in any
material respect, or the failure of any other information provided to any
Purchase and Sale Indemnified Party with respect to the Purchased Assets, this
Agreement, the other Transaction Documents or the transactions contemplated
hereby or thereby, to be true and correct in any material respect and not to be
materially misleading as of the date made or deemed made,

 

(ii)           the failure of any representation, warranty or statement made or
deemed made by the Originators (or any of the foregoing’s respective officers,
directors, employees or agents) under or in connection with this Agreement, any
of the other Transaction Documents or any certificate or written disclosure
delivered thereby to any Purchase and Sale Indemnified Party to have been (x)
true and correct in any material respect, if and to the extent such
representation, warranty or statement is not qualified by materiality or
Material Adverse Effect, otherwise, in any respect and (y) not materially
misleading, in each case, as of the date made or deemed made,

 

(iii)          the failure by the Originators or any of their Affiliates to
comply in any material respect with any applicable law, rule or regulation with
respect to any Receivable or the related Contract or any other Purchased Assets,
or the failure of any Receivable or the related Contract or any other Purchased
Assets to conform in any material respect to any such applicable law, rule or
regulation,

 

(iv)          the failure to vest in the Company a valid and enforceable: (A)
perfected ownership interest in the Receivables concerned hereunder by the
Originators free and clear of any Adverse Claims, other than Adverse Claims
arising solely as a result of an act of the Company or the Agent, whether
existing at the time of the purchase of such Receivables or at any time
thereafter, or (B) first priority perfected security interest in the other
Purchased Assets, free and clear of any Adverse Claim,

 

(v)           the failure to have filed, or any delay in filing, financing
statements or other similar instruments or documents under the UCC of any
applicable jurisdiction or other applicable laws with respect to any Purchased
Assets, whether at the time of any purchase or reinvestment or at any subsequent
time,

 

(vi)          any dispute, claim, offset or defense (other than discharge in
bankruptcy of the Obligor) of the Obligor to the payment of any Receivable
(including a defense based on such Receivable or the related Contract not being
a legal, valid and binding obligation of such Obligor enforceable against it in
accordance with its terms), or any other claim resulting from the sale of the
goods or services related to such Receivable or the furnishing or failure to
furnish such goods or services or relating to collection activities with respect
to such Receivable (if such collection activities were performed by the
Originators or any of their Affiliates acting as Servicer or by any agent or
independent contractor retained by the Originators or any of their Affiliates),

 

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(vii)         any failure of any Originator (or, to the extent it is AAR or an
Affiliate of AAR, the Servicer) to perform in any material respect its duties or
obligations in accordance with the provisions hereof or under the Contracts,

 

(viii)        any products liability or other claim, investigation, litigation
or proceeding arising out of or in connection with merchandise, insurance or
services that are the subject of any Contract or Receivable,

 

(ix)           the commingling of Collections of Receivables at any time with
other funds by any Originator or, to the extent it is AAR or an Affiliate of
AAR, the Servicer (or any delegee thereof) at any time with other funds,

 

(x)            the use of proceeds of purchases or reinvestments,

 

(xi)           the failure to pay when due any taxes, including sales taxes or
excise taxes payable in connection with the Receivables; or

 

(xii)          any attempt by any Person to void the sale by the Originator to
the Company of any Receivables under any statutory provision or common-law or
equitable action, including any provision of the Bankruptcy Reform Act of 1978
(11 U.S.C. §§ 101 et seq.) as amended;

 

(xiii)         any repayment by any Purchase and Sale Indemnified Party of any
amount previously distributed in reduction of Capital, Discount or any other
amounts owing hereunder which such Purchase and Sale Indemnified Party believes
in good faith is required to be made (other than in respect of a voidable
preference of an Obligor; however, whether or not such amount is indemnifiable
hereunder, until such amount is paid, the outstanding amount of Capital,
Discount or other amount, as applicable, shall be increased by the amount
previously applied and required to have been repaid, as if such payment had not
been made);

 

(xiv)        any investigation, litigation or proceeding related to this
Agreement, any of the other Transaction Documents, the use of proceeds of
purchases by the Originators, or the ownership of any Receivable, Related
Security, Contract or other Purchased Assets;

 

(xv)         the failure of any Lock-Box Bank to remit any amounts held in the
Lock-Boxes and/or the Lock-Box Accounts pursuant to the instructions of the
Servicer, the Agent, or the Company (to the extent such Person is entitled to
give such instructions in accordance with the terms hereof and of any applicable
Lock-Box Letter) whether by reason of the exercise of set-off rights or
otherwise;

 

(xvi)        any inability to obtain any judgment in, or utilize the court or
other adjudication system of, any state in which an Obligor may be located as a
result of the failure of any Originator to qualify to do business or file any
notice of business activity report or any similar report;

 

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(xvii)        any action taken by any Originator or the Servicer (if AAR or any
Affiliate or designee thereof) in the enforcement or collection of any
Receivable;

 

(xviii)       any inability to exercise any non-assignable right or remedy under
a Contract relating to a Receivable sold by an Originator to the Company, which
Purchase and Sale Indemnified Loss could reasonably foreseeably have been
avoided if such right or remedy had been assignable by such Originator, or

 

(xix)          any failure by any Originator to maintain in full force and
effect with respect to at least 90% of Outstanding Balance of any Permitted
Foreign Receivables one or more Qualified Policies insuring payment of such
amount in the event of the bankruptcy, insolvency or other failure to pay of or
by the Obligors thereon; or any failure by any Originator or the Servicer to
timely and properly file and/or diligently pursue any claim under any such
insurance policy.

 

Notwithstanding anything to the contrary in this Agreement, for purposes of this
Section, any representations, warranties and covenants contained in this
Agreement which are qualified by materiality, or are otherwise limited to,
events, circumstances, conditions or changes that are likely to or would or
could reasonably be expected to give rise to a material liability or Material
Adverse Effect, shall be deemed not to be so limited.

 

ARTICLE X

MISCELLANEOUS

 

10.1         Amendments, Etc.

 

(A)           THE PROVISIONS OF THIS AGREEMENT MAY FROM TIME TO TIME BE AMENDED,
MODIFIED OR WAIVED, IF SUCH AMENDMENT, MODIFICATION OR WAIVER IS IN WRITING AND
CONSENTED TO BY THE COMPANY AND THE ORIGINATORS (WITH RESPECT TO AN AMENDMENT)
OR BY THE COMPANY (WITH RESPECT TO A WAIVER OR CONSENT BY IT).

 

(B)           NO FAILURE OR DELAY ON THE PART OF THE COMPANY, THE SERVICER, THE
ORIGINATORS OR ANY THIRD-PARTY BENEFICIARY IN EXERCISING ANY POWER OR RIGHT
HEREUNDER SHALL OPERATE AS A WAIVER THEREOF, NOR SHALL ANY SINGLE OR PARTIAL
EXERCISE OF ANY SUCH POWER OR RIGHT PRECLUDE ANY OTHER OR FURTHER EXERCISE
THEREOF OR THE EXERCISE OF ANY OTHER POWER OR RIGHT.  NO NOTICE TO OR DEMAND ON
THE COMPANY, THE SERVICER OR THE ORIGINATORS IN ANY CASE SHALL ENTITLE IT TO ANY
NOTICE OR DEMAND IN SIMILAR OR OTHER CIRCUMSTANCES.  NO WAIVER OR APPROVAL BY
THE COMPANY OR THE SERVICER UNDER THIS AGREEMENT SHALL, EXCEPT AS MAY OTHERWISE
BE STATED IN SUCH WAIVER OR APPROVAL, BE APPLICABLE TO SUBSEQUENT TRANSACTIONS. 
NO WAIVER OR APPROVAL UNDER THIS AGREEMENT SHALL REQUIRE ANY SIMILAR OR
DISSIMILAR WAIVER OR APPROVAL THEREAFTER TO BE GRANTED HEREUNDER.

 

(C)           THE TRANSACTION DOCUMENTS CONTAIN A FINAL AND COMPLETE INTEGRATION
OF ALL PRIOR EXPRESSIONS BY THE PARTIES HERETO WITH RESPECT TO THE SUBJECT
MATTER THEREOF AND SHALL

 

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CONSTITUTE THE ENTIRE AGREEMENT AMONG THE PARTIES HERETO WITH RESPECT TO THE
SUBJECT MATTER THEREOF, SUPERSEDING ALL PRIOR ORAL OR WRITTEN UNDERSTANDINGS.

 

10.2         Notices, Etc.

 

All notices and other communications provided for hereunder shall, unless
otherwise stated herein, be in writing (including facsimile communication) and
shall be personally delivered or sent by certified mail, postage prepaid, or by
facsimile, to the intended party at the address or facsimile number of such
party set forth under its name on the signature pages hereof or at such other
address or facsimile number as shall be designated by such party in a written
notice to the other parties hereto.  All such notices and communications shall
be effective (i) if personally delivered, when received, (ii) if sent by
certified mail three (3) Business Days after having been deposited in the mail,
postage prepaid, and (iii) if transmitted by facsimile, when sent, receipt
confirmed by telephone or electronic means.

 

10.3         No Waiver, Cumulative Remedies.

 

The remedies herein provided are cumulative and not exclusive of any remedies
provided by law.  Without limiting the foregoing, each Originator hereby
authorizes the Company, at any time and from time to time, to the fullest extent
permitted by law, to set off, against any obligations of any Originator to the
Company arising in connection with the Transaction Documents (including, without
limitation, amounts payable pursuant to Section 9.1) that are then due and
payable or that are not then due and payable but are accruing in respect of the
then current Settlement Period, any and all indebtedness at any time owing by
the Company to or for the credit or the account of any Originator.

 

10.4         Binding Effect; Assignability.

 

This Agreement shall be binding upon and inure to the benefit of the Company and
the Originators and their respective successors and permitted assigns.  The
Originators may not assign any of their rights hereunder or any interest herein
without the prior written consent of the Company, except as otherwise herein
specifically provided.  This Agreement shall create and constitute the
continuing obligations of the parties hereto in accordance with its terms, and
shall remain in full force and effect until such time as the parties hereto
shall agree.  The rights and remedies with respect to any breach of any
representation and warranty made by the Originators pursuant to Article V and
the indemnification and payment provisions of Article IX and Section 10.6 shall
be continuing and shall survive any termination of this Agreement.  Neither the
Company nor any other Person may waive a breach of Section 5.20 of this
Agreement for so long as the Notes are outstanding.

 

10.5         Governing Law.

 

THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS
OF THE STATE OF ILLINOIS.

 

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10.6         Costs, Expenses and Taxes.

 

In addition to the obligations of the Originators under Article IX, the
Originators, jointly and severally, agree to pay on demand:

 

(A)           ALL REASONABLE COSTS AND EXPENSES IN CONNECTION WITH THE
ENFORCEMENT OF THIS AGREEMENT, THE ORIGINATOR ASSIGNMENT CERTIFICATE AND THE
OTHER TRANSACTION DOCUMENTS; AND

 

(B)           ALL STAMP AND OTHER TAXES AND FEES PAYABLE OR DETERMINED TO BE
PAYABLE IN CONNECTION WITH THE EXECUTION, DELIVERY, FILING AND RECORDING OF THIS
AGREEMENT OR THE OTHER TRANSACTION DOCUMENTS TO BE DELIVERED HEREUNDER, AND
AGREES TO INDEMNIFY EACH PURCHASE AND SALE INDEMNIFIED PARTY AGAINST ANY
LIABILITIES WITH RESPECT TO OR RESULTING FROM ANY DELAY IN PAYING OR OMISSION TO
PAY SUCH TAXES AND FEES.

 

10.7         Submission to Jurisdiction.

 

EACH PARTY HERETO HEREBY IRREVOCABLY (a) SUBMITS TO THE NON-EXCLUSIVE
JURISDICTION OF ILLINOIS OR UNITED STATES FEDERAL COURT FOR THE NORTHERN
DISTRICT OF ILLINOIS, OVER ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING
TO ANY TRANSACTION DOCUMENT; (b) AGREES THAT ALL CLAIMS IN RESPECT OF SUCH
ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN SUCH STATE OR UNITED STATES
FEDERAL COURT; (c) WAIVES, TO THE FULLEST EXTENT IT MAY EFFECTIVELY DO SO, THE
DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH ACTION OR
PROCEEDING; (d) IRREVOCABLY CONSENTS TO THE SERVICE OF ANY AND ALL PROCESS IN
ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES OF SUCH PROCESS TO SUCH
PERSON AT ITS ADDRESS SPECIFIED IN SECTION 10.2; AND (e) AGREES THAT A FINAL,
NON-APPEALABLE JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND
MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER
MANNER PROVIDED BY LAW.  NOTHING IN THIS SECTION 10.7 SHALL AFFECT A PARTY’S
RIGHT TO SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO BRING
ANY ACTION OR PROCEEDING AGAINST ANY OTHER PARTY OR ITS PROPERTY IN THE COURTS
OF ANY OTHER JURISDICTIONS.

 

10.8         Waiver of Jury Trial.

 

EACH PARTY HERETO WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR
PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS UNDER OR RELATING TO THIS AGREEMENT,
ANY OTHER TRANSACTION DOCUMENT, OR ANY AMENDMENT, INSTRUMENT, DOCUMENT OR
AGREEMENT DELIVERED OR WHICH MAY IN THE FUTURE BE DELIVERED IN CONNECTION
HEREWITH OR ARISING FROM ANY RELATIONSHIP EXISTING IN CONNECTION WITH THIS
AGREEMENT OR ANY OTHER TRANSACTION DOCUMENT, AND AGREES THAT

 

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(a) ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A
JURY AND (b) ANY PARTY HERETO (OR ANY ASSIGNEE OR THIRD-PARTY BENEFICIARY OF
THIS AGREEMENT) MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS AGREEMENT
WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF ANY OTHER PARTY OR PARTIES
HERETO TO WAIVER OF ITS OR THEIR RIGHT TO TRIAL BY JURY.

 

10.9         Captions and Cross-References; Incorporation by Reference.

 

The various captions (including, without limitation, the table of contents) in
this Agreement are included for convenience only and shall not affect the
meaning or interpretation of any provision of this Agreement.  References in
this Agreement to any underscored Section or Exhibit are to such Section or
Exhibit of this Agreement, as the case may be.  The Exhibits hereto are hereby
incorporated by reference into and made a part of this Agreement.

 

10.10       Execution in Counterparts.

 

This Agreement may be executed in any number of counterparts and by different
parties hereto in separate counterparts, each of which when so executed shall be
deemed to be an original and all of which when taken together shall constitute
one and the same Agreement.

 

10.11       Acknowledgment and Agreement.

 

By execution below, each Originator expressly acknowledges and agrees that all
of the Company’s rights, title, and interests in, to, and under this Agreement
(but not its obligations), shall be assigned by the Company pursuant to the
Receivables Purchase Agreement, and each Originator consents to such
assignment.  Each of the parties hereto acknowledges and agrees that the Agent
and the Purchasers are third-party beneficiaries of the rights of the Company
arising hereunder and under the other Transaction Documents to which the
Originators are a party.

 

10.12       No Recourse.

 

Except as otherwise expressly set forth in this Agreement, the sale and purchase
of the Purchased Assets under this Agreement shall be without recourse to the
Originators. The Originators shall be liable to the Company for the amount of
all credits, deductions, extensions, allowances and other reductions (for
whatever cause or purpose other than uncollectibility) to the principal amount
of such Purchased Assets granted by the Originators, and the Company hereby
consents to the Originators’ granting of such credits, deductions, extensions,
allowances and other reductions which the Originators deem necessary or
appropriate in the conduct of their business and which are consistent with the
Originators’ Credit and Collection Policy.  Notwithstanding anything contained
to the contrary herein, no obligation or liability to any customer on any
Receivable is intended to be assumed by the Company hereunder, and any such
assumption is expressly disclaimed.

 

30

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10.13       Administration of Receivables.

 

Consistent with the Company’s ownership of the Purchased Assets, the Company
shall be solely responsible for servicing, administering and collecting such
Purchased Assets, and the Originators shall have no obligation whatsoever in
this regard.  The Originators hereby grant the Company an irrevocable power of
attorney, with full power of substitution, coupled with an interest to take in
the name of the Originators all steps necessary or desirable, in the Company’s
determination, to collect all amounts due under any Receivable, including
without limitation, endorsing the name of the applicable Originator on checks
and other instruments representing collection, enforcing such Receivables and
the contracts or tariffs under which such Receivables arise, and adjusting,
settling or compromising the amount or payment thereof, in the same manner and
to the same extent as the Originators would have been entitled.  Any payment by
an Obligor in respect of any indebtedness owed by it to the Company shall,
except as otherwise specified by such Obligor or otherwise required by contract
or law, and subject to the Receivables Purchase Agreement, be applied in
accordance with the Originators’ Credit and Collection Policy. The Originators
hereby acknowledge and agree that the undertakings, covenants, and agreements
made by the Originators in favor of the Company and the rights and powers
granted to the Originators, in each case, pursuant to this Section 10.13 shall,
subject to the terms of the Receivables Purchase Agreement and following a
Termination Event, apply to the same extent to, and have the same force and
effect in respect of, the Agent, as if such undertakings, covenants, agreements,
rights and powers were made or granted directly to the Agent by the Originators.

 

10.14       Servicer and Sub-Servicer.

 

Until the Company or, after the assignment hereof to the Agent pursuant to the
Receivables Purchase Agreement, the Agent, gives notice to AAR (in accordance
with the terms of the Receivables Purchase Agreement) of the designation of a
new Servicer, AAR is hereby designated as, and hereby agrees to perform, the
duties and obligations of the Servicer hereunder pursuant to the terms hereof
and the Receivables Purchase Agreement, which terms are hereby incorporated by
reference.  The Servicer may and hereby does delegate its duties and obligations
hereunder and under the Receivables Purchase Agreement to each of the
Originators as subservicer (each a “Sub-Servicer”); provided, that, in such
delegation:  (i) each such Sub-Servicer shall and hereby does agree in writing
to perform the duties and obligations of the Servicer pursuant to the terms
hereof and the Receivables Purchase Agreement, (ii) each such Sub-Servicer shall
assume liability for the performance of all duties and obligations of the
Servicer, (iii) the Company, the Agent and the Purchasers shall have the right
to look solely to each Sub-Servicer for performance, (iv) such delegation by the
Servicer shall not relieve it of its liability for the performance of all duties
and obligations of the Servicer and (v) the Agent may immediately terminate such
agreement upon the termination of the Servicer under the Receivables Purchase
Agreement by giving notice of its desire to terminate such agreement to the
Servicer (and the Servicer shall provide appropriate notice to each such
Sub-Servicer).

 

[SIGNATURE PAGES FOLLOW]

 

31

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IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by
their respective officers thereunto duly authorized as of the date first above
written.

 

ORIGINATORS:

AAR DISTRIBUTION, INC.

 

 

 

By:

  /s/  TIMOTHY J. ROMENESKO

 

 

Name:  Timothy J. Romenesko

 

Title:  Vice President

 

 

 

AAR PARTS TRADING, INC.

 

 

 

By:

  /s/  TIMOTHY J. ROMENESKO

 

 

Name:  Timothy J. Romenesko

 

Title:  Vice President

 

 

 

AAR MANUFACTURING, INC.

 

 

 

By:

  /s/  TIMOTHY J. ROMENESKO

 

 

Name:  Timothy J. Romenesko

 

Title:  Vice President

 

 

 

AAR ALLEN SERVICES, INC.

 

 

 

By:

  /s/  TIMOTHY J. ROMENESKO

 

 

Name:  Timothy J. Romenesko

 

Title:  Vice President

 

 

 

AAR ENGINE SERVICES, INC.

 

 

 

By:

  /s/  TIMOTHY J. ROMENESKO

 

 

Name:  Timothy J. Romenesko

 

Title:  Vice President

 

 

 

Address for each Originator:

 

 

 

1100 North Wood Dale Road

 

Wood Dale, Illinois 60191

 

 

 

Attention:

Timothy J. Romenesko

 

Telephone:

630-227-2090

 

Facsimile:

630-227-2101

 

--------------------------------------------------------------------------------

 

COMPANY:

AAR RECEIVABLES CORPORATION II

 

 

 

By:

  /s/  TIMOTHY J. ROMENESKO

 

 

Name:  Timothy J. Romenesko

 

Title:  Vice President

 

 

 

Address:

1100 North Wood Dale Road

 

 

Wood Dale, Illinois 60191

 

 

 

Attention:

Timothy J. Romenesko

 

Telephone:

630-227-2090

 

Facsimile:

630-227-2101

 

 

INITIAL SERVICER:

AAR CORP.

 

 

 

By:

  /s/  TIMOTHY J. ROMENESKO

 

 

Name:  Timothy J. Romenesko

 

Title:  Vice President

 

 

 

Address:

1100 North Wood Dale Road

 

 

Wood Dale, Illinois 60191

 

 

 

Attention:

Timothy J. Romenesko

 

Telephone:

630-227-2090

 

Facsimile:

630-227-2101

 

--------------------------------------------------------------------------------

 

Exhibit A

to Purchase and Sale Agreement

 

FORM OF PURCHASE REPORT

 

ORIGINATOR:

 

 

 

 

 

PURCHASER:

 

AAR RECEIVABLES CORPORATION II

 

 

 

DATE:

 

 

 

 

 

I.

 

OUTSTANDING BALANCE OF RECEIVABLES PURCHASED:

 

 

 

II.

 

FAIR MARKET VALUE DISCOUNT:

 

 

 

 

 

1/[ 1 + (YD + LD)]

 

 

 

YD

=

0.25% + (Base Rate X Days’ Sales Outstanding)

 

 

365

 

 

 

LD

=

Greater of: (x) one-eighths of one percent and (y)1.5 times Loss Liquidation
Ratio

 

 

 

 

 

Base Rate =

 

 

 

 

 

Days’ Sales Outstanding =

 

 

 

III.

 

PURCHASE PRICE (I X II) = $_____________________

 

A-1

--------------------------------------------------------------------------------

 

Exhibit B

to Purchase and Sale Agreement

 

FORM OF COMPANY NOTE

 

B-1

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EXHIBIT B

FORM OF COMPANY NOTE

                  , 2003

 

FOR VALUE RECEIVED, the undersigned, AAR Receivables Corporation II, an Illinois
corporation, promises to pay to [Name of Originator], an Illinois corporation
(“Originator”), on the terms and subject to the conditions set forth herein and
in the Purchase and Sale Agreement referred to below, the aggregate unpaid
Purchase Price of all Receivables purchased by AAR Receivables Corporation II
from Originator pursuant to such Purchase and Sale Agreement, as such unpaid
Purchase Price is shown in the records of Servicer.

 

1.             Purchase and Sale Agreement.  This Company Note is one of the
Company Notes described in, and is subject to the terms and conditions set forth
in, that certain Purchase and Sale Agreement of even date herewith (as the same
may be amended, supplemented, amended and restated or otherwise modified in
accordance with its terms, the “Purchase and Sale Agreement”), between AAR
Receivables Corporation II, AAR Corp. as initial Servicer, AAR Parts Trading,
Inc., AAR Manufacturing, Inc., AAR Engine Services, Inc., AAR Allen Services,
Inc. and AAR Distribution, Inc.  Reference is hereby made to the Purchase and
Sale Agreement for a statement of certain other rights and obligations of AAR
Receivables Corporation II and Originator.

 

2.             Definitions.  Capitalized terms used (but not defined) herein
have the meanings assigned thereto in Exhibit I to the Receivables Purchase
Agreement (as defined in the Purchase and Sale Agreement).  In addition, as used
herein, the following terms have the following meanings:

 

“Bankruptcy Proceedings” has the meaning set forth in clause (b) of paragraph 9
hereof.

 

“Final Maturity Date” means the Business Day immediately following the date that
falls one hundred twenty one (121) days after the Purchase and Sale Termination
Date.

 

“Interest Period” means the period from and including a Monthly Settlement Date
(or, in the case of the first Interest Period, the date hereof) to but excluding
the next Monthly Settlement Date.

 

“Senior Interests” means, collectively, (i) all accrued Discount, (ii) all fees
payable by AAR Receivables Corporation II to the Senior Interest Holders
pursuant to the Receivables Purchase Agreement, (iii) all amounts payable
pursuant to Section 1.8 and 1.9 of the Receivables Purchase Agreement, (iv) the
aggregate Capital and (v) all other obligations owed by AAR Receivables
Corporation II to the Senior Interest Holders under the Receivables Purchase
Agreement and other Transaction Documents that are due and payable, together
with any and all interest and Discount accruing on any such amount after the
commencement of any Bankruptcy Proceedings, notwithstanding any provision or
rule of law that might restrict the rights of any Senior Interest Holder, as
against AAR Receivables Corporation II or anyone else, to collect such interest.

 

“Senior Interest Holders” means, collectively, the Purchasers, the Agent and the
Indemnified Parties.

 

B-2

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“Subordination Provisions” means, collectively, clauses (a) through (l) of
paragraph 9 hereof.

 

“Telerate Screen Rate” means, for any Interest Period, the rate for thirty day
commercial paper denominated in dollars which appears on Page 1250 of the Dow
Jones Telerate Service (or such other page as may replace that page on that
service for the purpose of displaying dollar commercial paper rates) at
approximately 9:00 a.m., New York City time, on the first day of such Interest
Period.

 

3.             Interest.  Subject to the Subordination Provisions set forth
below, AAR Receivables Corporation II promises to pay interest on this Company
Note as follows:

 

(a)           Prior to the Final Maturity Date, the aggregate unpaid Purchase
Price from time to time outstanding during any Interest Period shall bear
interest at a rate per annum equal to the Telerate Screen Rate for such Interest
Period, as determined by Servicer; and

 

(b)           From (and including) the Final Maturity Date to (but excluding)
the date on which the entire aggregate unpaid Purchase Price payable to
Originator is fully paid, such aggregate unpaid Purchase Price from time to time
outstanding shall bear interest at a rate per annum equal to the rate of
interest publicly announced from time to time by LaSalle Bank National
Association, as its “prime rate”, “reference rate” or other comparable rate, as
determined by Servicer.

 

4.             Interest Payment Dates.  Subject to the Subordination Provisions
set forth below, AAR Receivables Corporation II shall pay accrued interest on
this Company Note on each Monthly Settlement Date, and shall pay accrued
interest on the amount of each principal payment made in cash on a date other
than a Monthly Settlement Date at the time of such principal payment.

 

5.             Basis of Computation.  Interest accrued hereunder that is
computed by reference to the Telerate Screen Rate shall be computed for the
actual number of days elapsed on the basis of a 360-day year, and interest
accrued hereunder that is computed by reference to the rate described in
paragraph 3(b) of this Company Note shall be computed for the actual number of
days elapsed on the basis of a 365- or 366-day year.

 

6.             Principal Payment Dates.  Subject to the Subordination Provisions
set forth below, payments of the principal amount of this Company Note shall be
made as follows:

 

(a)           The principal amount of this Company Note shall be reduced by an
amount equal to each payment deemed made pursuant to Section 3.3 of the Purchase
and Sale Agreement; and

 

(b)           The entire remaining unpaid Purchase Price of all Receivables
purchased by AAR Receivables Corporation II from Originator pursuant to the
Purchase and Sale Agreement shall be due and payable on the Final Maturity Date.

 

Subject to the Subordination Provisions set forth below, the principal amount of
and accrued interest on this Company Note may be prepaid on any Business Day
without premium or penalty.

 

B-3

--------------------------------------------------------------------------------

 

7.             Payment Mechanics.  All payments of principal and interest
hereunder are to be made in lawful money of the United States of America.

 

8.             Enforcement Expenses.  In addition to and not in limitation of
the foregoing, but subject to the Subordination Provisions set forth below and
to any limitation imposed by applicable law, AAR Receivables Corporation II
agrees to pay all expenses, including reasonable attorneys’ fees and legal
expenses, incurred by Originator in seeking to collect any amounts payable
hereunder which are not paid when due.

 

9.             Subordination Provisions.  AAR Receivables Corporation II
covenants and agrees, and Originator and any other holder of this Company Note
(collectively, Originator and any such other holder are called the “Holder”), by
its acceptance of this Company Note, likewise covenants and agrees on behalf of
itself and any holder of this Company Note, that the payment of the principal
amount of and interest on this Company Note is hereby expressly subordinated in
right of payment to the payment and performance of the Senior Interests to the
extent and in the manner set forth in the following clauses of this paragraph 9:

 

(a)           No payment or other distribution of AAR Receivables Corporation
II’s assets of any kind or character, whether in cash, securities, or other
rights or property, shall be made on account of this Company Note except to the
extent such payment or other distribution is made pursuant to clause (a) or (b)
of paragraph 6 of this Company Note;

 

(b)           In the event of any dissolution, winding up, liquidation,
readjustment, reorganization or other similar event relating to AAR Receivables
Corporation II, whether voluntary or involuntary, partial or complete, and
whether in bankruptcy, insolvency or receivership proceedings, or upon an
assignment for the benefit of creditors, or any other marshalling of the assets
and liabilities of AAR Receivables Corporation II or any sale of all or
substantially all of the assets of AAR Receivables Corporation II other than as
permitted by the Purchase and Sale Agreement (such proceedings being herein
collectively called “Bankruptcy Proceedings”), the Senior Interests shall first
be paid and performed in full and in cash before Originator shall be entitled to
receive and to retain any payment or distribution in respect of this Company
Note.  In order to implement the foregoing: (i) all payments and distributions
of any kind or character in respect of this Company Note to which Holder would
be entitled except for this clause (b) shall be made directly to the Agent (for
the benefit of the Senior Interest Holders); (ii) Holder shall promptly file a
claim or claims, in the form required in any Bankruptcy Proceedings, for the
full outstanding amount of this Company Note, and shall use commercially
reasonable efforts to cause said claim or claims to be approved and all payments
and other distributions in respect thereof to be made directly to the Agent (for
the benefit of the Senior Interest Holders) until the Senior Interests shall
have been paid and performed in full and in cash; and (iii) Holder hereby
irrevocably agrees that the Purchasers (or the Agent acting on the Purchasers’
behalf), in the name of Holder or otherwise, demand, sue for, collect, receive
and receipt for any and all such payments or distributions, and file, prove and
vote or consent in any such Bankruptcy Proceedings with respect to any and all
claims of Holder relating to this Company Note, in each case until the Senior
Interests shall have been paid and performed in full and in cash;

 

B-4

--------------------------------------------------------------------------------

 

(c)           In the event that Holder receives any payment or other
distribution of any kind or character from AAR Receivables Corporation II or
from any other source whatsoever, in respect of this Company Note, other than as
expressly permitted by the terms of this Company Note, such payment or other
distribution shall be received in trust for the Senior Interest Holders and
shall be turned over by Holder to the Agent (for the benefit of the Senior
Interest Holders) forthwith. Holder will mark its books and records so as
clearly to indicate that this Company Note is subordinated in accordance with
the terms hereof.  All payments and distributions received by the Agent in
respect of this Company Note, to the extent received in or converted into cash,
may be applied by the Agent (for the benefit of the Senior Interest Holders)
first to the payment of any and all expenses (including reasonable attorneys’
fees and legal expenses) paid or incurred by the Senior Interest Holders in
enforcing these Subordination Provisions, or in endeavoring to collect or
realize upon this Company Note, and any balance thereof shall, solely as between
Originator and the Senior Interest Holders, be applied by the Agent (in the
order of application set forth in Section 1.4(d)(ii) of the Receivables Purchase
Agreement) toward the payment of the Senior Interests; but as between AAR
Receivables Corporation II and its creditors, no such payments or distributions
of any kind or character shall be deemed to be payments or distributions in
respect of the Senior Interests;

 

(d)           Notwithstanding any payments or distributions received by the
Senior Interest Holders in respect of this Company Note, while any Bankruptcy
Proceedings are pending Holder shall not be subrogated to the then existing
rights of the Senior Interest Holders in respect of the Senior Interests until
the Senior Interests have been paid and performed in full and in cash.  If no
Bankruptcy Proceedings are pending, Holder shall only be entitled to exercise
any subrogation rights that it may acquire (by reason of a payment or
distribution to the Senior Interest Holders in respect of this Company Note) to
the extent that any payment arising out of the exercise of such rights would be
permitted under this Company Note;

 

(e)           These Subordination Provisions are intended solely for the purpose
of defining the relative rights of Holder, on the one hand, and the Senior
Interest Holders on the other hand.  Nothing contained in these Subordination
Provisions or elsewhere in this Company Note is intended to or shall impair, as
between AAR Receivables Corporation II, its creditors (other than the Senior
Interest Holders) and Holder, AAR Receivables Corporation II’s obligation, which
is unconditional and absolute, to pay Holder the principal of and interest on
this Company Note as and when the same shall become due and payable in
accordance with the terms hereof or to affect the relative rights of Holder and
creditors of AAR Receivables Corporation II (other than the Senior Interest
Holders);

 

(f)            Holder shall not, until the Senior Interests have been paid and
performed in full and in cash, (i) cancel, waive, forgive, transfer or assign,
or commence legal proceedings to enforce or collect, or subordinate to any
obligation of AAR Receivables Corporation II, howsoever created, arising or
evidenced, whether direct or indirect, absolute or contingent, or now or
hereafter existing, or due or to become due, other than the Senior Interests,
this Company Note or any rights in respect hereof or (ii) convert this Company
Note into an equity interest in AAR Receivables Corporation II, unless Holder
shall have received the prior written consent of the Agent and the Purchasers in
each case;

 

B-5

--------------------------------------------------------------------------------

 

(g)           Holder shall not, without the advance written consent of the Agent
and the Purchasers, commence, or join with any other Person in commencing, any
Bankruptcy Proceedings with respect to AAR Receivables Corporation II until at
least one year and one day shall have passed since the Senior Interests shall
have been paid and performed in full and in cash;

 

(h)           If, at any time, any payment (in whole or in part) of any Senior
Interest is rescinded or must be restored or returned by a Senior Interest
Holder (whether in connection with Bankruptcy Proceedings or otherwise), these
Subordination Provisions shall continue to be effective or shall be reinstated,
as the case may be, as though such payment had not been made;

 

(i)            Each of the Senior Interest Holders may, from time to time, at
its sole discretion, without notice to Holder, and without waiving any of its
rights under these Subordination Provisions, take any or all of the following
actions:  (i) retain or obtain an interest in any property to secure any of the
Senior Interests; (ii) retain or obtain the primary or secondary obligations of
any other obligor or obligors with respect to any of the Senior Interests;
(iii) extend or renew for one or more periods (whether or not longer than the
original period), alter or exchange any of the Senior Interests, or release or
compromise any obligation of any nature with respect to any of the Senior
Interests; (iv) amend, supplement, amend and restate, or otherwise modify any
Transaction Document; and (v) release its security interest in, or surrender,
release or permit any substitution or exchange for all or any part of any rights
or property securing any of the Senior Interests, or extend or renew for one or
more periods (whether or not longer than the original period), or release,
compromise, alter or exchange any obligations of any nature of any obligor with
respect to any such rights or property;

 

(j)            Holder hereby waives:  (i) notice of acceptance of these
Subordination Provisions by any of the Senior Interest Holders; (ii) notice of
the existence, creation, non-payment or non-performance of all or any of the
Senior Interests; and (iii) all diligence in enforcement, collection or
protection of, or realization upon, the Senior Interests, or any thereof, or any
security therefor;

 

(l)            Each of the Senior Interest Holders may, from time to time, on
the terms and subject to the conditions set forth in the Transaction Documents
to which such Persons are party, but without notice to Holder, assign or
transfer any or all of the Senior Interests, or any interest therein; and,
notwithstanding any such assignment or transfer or any subsequent assignment or
transfer thereof, such Senior Interests shall be and remain Senior Interests for
the purposes of these Subordination Provisions, and every immediate and
successive assignee or transferee of any of the Senior Interests or of any
interest of such assignee or transferee in the Senior Interests shall be
entitled to the benefits of these Subordination Provisions to the same extent as
if such assignee or transferee were the assignor or transferor, and

 

(m)          These Subordination Provisions constitute a continuing offer from
the holder of this Company Note to all Persons who become the holders of, or who
continue to hold, Senior Interests; and these Subordination Provisions are made
for the benefit of the Senior Interest Holders, and the Agent may proceed to
enforce such provisions on behalf of each of such Persons.

 

B-6

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10.           General.  No failure or delay on the part of Originator in
exercising any power or right hereunder shall operate as a waiver thereof, nor
shall any single or partial exercise of any such power or right preclude any
other or further exercise thereof or the exercise of any other power or right. 
No amendment, modification or waiver of, or consent with respect to, any
provision of this Company Note shall in any event be effective unless (i) the
same shall be in writing and signed and delivered by AAR Receivables Corporation
II and Holder and (ii) all consents required for such actions under the
Transaction Documents shall have been received by the appropriate Persons.

 

11.           Maximum Interest.  Notwithstanding anything in this Company Note
to the contrary, AAR Receivables Corporation II shall never be required to pay
unearned interest on any amount outstanding hereunder and shall never be
required to pay interest on the principal amount outstanding hereunder at a rate
in excess of the maximum nonusurious interest rate that may be contracted for,
charged or received under applicable federal or state law (such maximum rate
being herein called the “Highest Lawful Rate”).  If the effective rate of
interest which would otherwise be payable under this Company Note would exceed
the Highest Lawful Rate, or if the holder of this Company Note shall receive any
unearned interest or shall receive monies that are deemed to constitute interest
which would increase the effective rate of interest payable by AAR Receivables
Corporation II under this Company Note to a rate in excess of the Highest Lawful
Rate, then (i) the amount of interest which would otherwise be payable by AAR
Receivables Corporation II under this Company Note shall be reduced to the
amount allowed by applicable law, and (ii) any unearned interest paid by AAR
Receivables Corporation II or any interest paid by AAR Receivables Corporation
II in excess of the Highest Lawful Rate shall be refunded to AAR Receivables
Corporation II.  Without limitation of the foregoing, all calculations of the
rate of interest contracted for, charged or received by Originator under this
Company Note that are made for the purpose of determining whether such rate
exceeds the Highest Lawful Rate applicable to Originator (such Highest Lawful
Rate being herein called the “Originator’s Maximum Permissible Rate”) shall be
made, to the extent permitted by usury laws applicable to Originator (now or
hereafter enacted), by amortizing, prorating and spreading in equal parts during
the actual period during which any amount has been outstanding hereunder all
interest at any time contracted for, charged or received by Originator in
connection herewith.  If at any time and from time to time (i) the amount of
interest payable to Originator on any date shall be computed at Originator’s
Maximum Permissible Rate pursuant to the provisions of the foregoing sentence
and (ii) in respect of any subsequent interest computation period the amount of
interest otherwise payable to Originator would be less than the amount of
interest payable to Originator computed at Originator’s Maximum Permissible
Rate, then the amount of interest payable to Originator in respect of such
subsequent interest computation period shall continue to be computed at
Originator’s Maximum Permissible Rate until the total amount of interest payable
to Originator shall equal the total amount of interest which would have been
payable to Originator if the total amount of interest had been computed without
giving effect to the provisions of the foregoing sentence.

 

12.           No Negotiation.  This Company Note is not negotiable.

 

13.          Governing Law.  THIS COMPANY NOTE SHALL BE DEEMED TO BE A CONTRACT
MADE UNDER AND GOVERNED BY THE INTERNAL LAWS OF THE STATE OF ILLINOIS.

 

B-7

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14.           Captions.   Paragraph captions used in this Company Note are for
convenience only and shall not affect the meaning or interpretation of any
provision of this Company Note.

 

[SIGNATURE PAGE FOLLOWS]

 

B-8

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[SIGNATURE PAGE 1 OF 1 TO NOTE]

 

 

AAR RECEIVABLES CORPORATION II

 

 

 

By:

 

 

 

 

 

Title:

 

 

 

B-9

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Exhibit C

to Purchase and Sale Agreement

 

FORM OF ORIGINATOR ASSIGNMENT CERTIFICATE

 

C-1

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FORM OF ORIGINATOR ASSIGNMENT CERTIFICATE

 

Reference is made to the Purchase and Sale Agreement of even date herewith (as
the same may be amended, supplemented, restated or otherwise modified from time
to time, the “Purchase and Sale Agreement”) between the Originators, AAR Corp.
as initial Servicer and AAR Receivables Corporation II.  Unless otherwise
defined herein, capitalized terms used herein have the meanings provided in the
Purchase and Sale Agreement or, to the extent not superceded by the Purchase and
Sale Agreement, in Exhibit I to the Receivables Purchase Agreement (as defined
in the Purchase and Sale Agreement), as applicable.

 

The undersigned hereby sells, assigns and transfers unto AAR Receivables
Corporation II and its successors and assigns all right, title and interest of
the undersigned in and to:

 

(a)           each Receivable of the undersigned that existed and was owing to
the undersigned at the closing of the undersigned’s business as of the Closing
Date;

 

(b)           each Receivable created by the undersigned from and including the
Closing Date to and including the Purchase and Sale Termination Date;

 

(c)           all rights to, but not the obligations under, all Related
Security;

 

(d)           all monies due or to become due with respect to any of the
foregoing;

 

(e)           all books and records related to any of the foregoing; and

 

(f)            all collections and other products proceeds thereof (as defined
in the Illinois UCC) that are or were received by the undersigned on or after
the Closing Date including, without limitation, all funds which either are
received by the undersigned, AAR Receivables Corporation II or the Servicer from
or on behalf of the Obligors in payment of any amounts owed (including, without
limitation, invoice price, finance charges, interest and all other charges) in
respect of Receivables, or are applied to such amounts owed by the Obligors
(including, without limitation, insurance payments that the undersigned or the
Servicer applies in the ordinary course of its business to amounts owed in
respect of any Receivable and net proceeds of sale or other disposition of
repossessed goods or other collateral or property of the Obligors or any other
parties directly or indirectly liable for payment of such Receivables).

 

This Originator Assignment Certificate is made without recourse but on the terms
and subject to the conditions set forth in the Transaction Documents to which
the undersigned is a party.  The undersigned acknowledges and agrees that AAR
Receivables Corporation II and its successors and assigns are accepting this
Originator Assignment Certificate in reliance on the representations, warranties
and covenants of the undersigned contained in the Transaction Documents to which
the undersigned is a party.

 

C-2

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THIS ORIGINATOR ASSIGNMENT CERTIFICATE SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE PURCHASE AND SALE AGREEMENT AND THE INTERNAL LAWS OF THE
STATE OF ILLINOIS.

 

C-3

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IN WITNESS WHEREOF, the undersigned has caused this Originator Assignment
Certificate to be duly executed and delivered by its duly authorized officer
this [      ] day of [               ], 2003.

 

 

[NAME OF ORIGINATOR]

 

 

 

By:

 

 

 

 

 

Name:

 

 

 

 

 

Title:

 

 

 

C-4

--------------------------------------------------------------------------------

 

Exhibit D

to Purchase and Sale Agreement

 

PROCEEDINGS

 

None.

 

D-1

--------------------------------------------------------------------------------

 

Exhibit E

to Purchase and Sale Agreement

 

[To be Provided]

 

E-1

--------------------------------------------------------------------------------

 

Exhibit F

to Purchase and Sale Agreement

 

TRADE NAMES

 

Legal Name/Trade Names/Fictitious Names

 

(1)           AAR Distribution, Inc.

 

AAR Airframe & Accessories Group, Inc.

AAR Allen Group, Inc.

AAR Distribution

AAR Expendables

AAR Defense Systems

AAR Defense Systems & Logistics

AAR Air Sales

AAR Oklahoma

AAR Aircraft Services

AAR Allen Aircraft

AAR Cooper Aviation

 

(2)           AAR Parts Trading, Inc.

 

AAR Aircraft & Engine Group, Inc.

AAR Engine Group, Inc.

AAR Aircraft Turbine Center

AAR Aircraft & Turbine Center

AAR Aircraft Sales & Leasing

AAR Engine Sales & Leasing

AAR Allen Aircraft

AAR Expendables

AAR Defense Systems

AAR Defense Systems & Logistics

AAR PMA Products

 

(3)           AAR Manufacturing, Inc.

 

AAR Manufacturing Group, Inc.

AAR Manufacturing

AAR-ATICS

AAR Cargo Systems

AAR Cadillac Manufacturing

AAR Composites

AAR Craig Systems

AAR Skydyne

AAR Mobility Systems

 

(4)           AAR Engine Services, Inc.

 

AAR Engine Component Services, Inc.

 

F-1

--------------------------------------------------------------------------------

 

AAR Engine Component Services

AAR Energy Services

AAR Power Services

 

(5)           AAR Allen Services, Inc.

 

AAR Landing Gear Services

AAR Aircraft Component Services

AAR Hermetic

AAR Tempco

Mars Aircraft Radio

 

F-2

--------------------------------------------------------------------------------

 

Exhibit G

to Purchase and Sale Agreement

 

Benefit Plans

 

[to be provided]

 

E-1

--------------------------------------------------------------------------------