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




 





























 




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.


  





 





























 




	

  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


  
			





 




ii





























 




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.




 





























 




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




 




2





























 




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




 




3





























 




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.


  





 




4





























 




	

  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




 




5





























 




(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:




 




6





























 




(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.




 




7





























 




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




 




8





























 




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




 




9





























 




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




 




10





























 




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.




 




11





























 




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.




 




12





























 




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.




 




13





























 




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




 




14





























 




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




 




15





























 




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.




 




16





























 




(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,




 




17





























 




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;




 




18





























 




(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.




 




19





























 




(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:




 




20





























 




(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;




 




21





























 




(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




 




22





























 




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




 




23





























 




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




 




24





























 




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),




 




25





























 




(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;




 




26





























 




(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




 




27





























 




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.




 




28





























 




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




 




29





























 




(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





























 




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





























 




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





























 




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





























 




“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





























 




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





























 




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





























 




[SIGNATURE

PAGE 1 OF 1 TO NOTE]




 




	

   


  	

  AAR RECEIVABLES

  CORPORATION II


  
	

   


  	

   


  
	

   


  	

  By:


  	

   


  	

   


  
	

   


  	

   


  
	

   


  	

  Title:


  	

   


  	

   


  
					





 




B-9





























 




Exhibit C




to

Purchase and Sale Agreement




 




FORM OF ORIGINATOR ASSIGNMENT CERTIFICATE




 




C-1





























 




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





























 




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





























 




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