Exhibit
4.8


 


EXECUTION
COPY


 


SECOND AMENDMENT TO

CREDIT
AGREEMENT


 


THIS SECOND AMENDMENT TO LOAN AND SECURITY AGREEMENT (“Second
Amendment”) is made as of the 24th day of August, 2004 by and among AAR CORP.,
a Delaware corporation, (“AAR”), AAR Distribution, Inc., an Illinois
corporation (“Distribution”), AAR Parts Trading, Inc., an Illinois Corporation
(“Parts Trading”), AAR Manufacturing, Inc., an Illinois corporation
(“Manufacturing”), AAR Engine Services, Inc., an Illinois corporation (“Engine
Services”) and AAR Allen Services, Inc., an Illinois corporation (“Allen
Service”) and together with AAR, Distribution, Parts Trading, Manufacturing and
Engine Services, individually a “Borrow” and collectively “Borrowers”, the
financial institutions, party hereto, each as a “Lender” and Merrill Lynch
Capital a division of Merrill Lynch Business Financial Services, Inc.,
individually as a Lender and as Agent.


 


W I T N E S S E T H:


 


WHEREAS, Borrowers, Agent and Lenders entered into a certain Credit
Agreement dated as of May 29, 2003 as amended by a certain First Amendment to
Credit Agreement dated as of January 23, 2004 by and among Borrowers,
Agent and Lenders (said Credit Agreement, as so amended, is hereinafter
referred to as the “Credit Agreement”); and


 


WHEREAS, Borrowers desire to amend and modify certain provisions of the
Credit Agreement and, subject to the terms hereof, Agent and Lenders are
willing to agree to such amendments and modifications;


 


NOW THEREFORE, in consideration of the premises, the mutual covenants
and agreements herein contained, and any extension of credit heretofore, now or
hereafter made by Agent and Lenders to Borrowers, the parties hereto hereby
agree as follows:


 


1.             Definitions.  All
capitalized terms used herein without definition shall have the meaning given
to them in the Loan Agreement.


 


2.             Additional
and Amended Definitions.  The following definitions of “AAR-GS
737 Classics Leasing LLC Joint Venture” and “AAR-GS 737 Classics Leasing LLC
Joint Venture Debt Documents” are hereby inserted into Section 1.1 of the
Credit Agreement; the definition of “Borrowing Base” contained in
Section 1.1 of the Credit Agreement is hereby deleted and the following is
inserted in its stead.


 


“AAR-GS 737 Classics Leasing LLC Joint
Venture” means the joint venture relationship pursuant to that certain
Agreement of AAR-GS 737 Classics Leasing LLC by and among AAR International
Financial Services LLC and GS 737 Classics Leasing LLC, which Agreement shall
be in substantially the form delivered by AAR CORP. to Agent on August 24,
2004.


 


“AAR-GS 737 Classics Leasing LLC Joint
Venture Debt Documents” means any agreement, instrument, note, schedules and
exhibits to be executed and/or delivered in


 

















 


connection with any Debt incurred by the AAR-GS 737 Classics Leasing
LLC Joint Venture and all amendments and/or modifications or any replacements
(whether effected upon termination or any time thereafter) and/or refinancings
to any of the foregoing (to the extent any such amendment, modification,
replacement or refinancing is permitted hereunder).


 


“Borrowing Base” means, as of any date of calculation, a dollar amount
calculated pursuant to the Borrowing Base Certificate most recently delivered
to Agent in accordance with the terms hereof, equal to the lesser of (x) sixty
percent (60%) of (i) the Net Orderly Liquidation Value multiplied by
(ii) the value of Eligible Inventory calculated on the basis of the lower of
cost or market on a first-in, first-out basis minus the sum of
$5,000,000 plus the amount of any Reserves established by Agent or (y)
ten percent (10%) of the Consolidated Adjusted Net Worth minus
$1,000,000.


 


*              *              *


 


3.                                       Additional
Debt. The following Section (r) is inserted into Section 5.1:


 


“Section 5.1         Debt.   Borrowers
will not, directly or indirectly, create, incur, assume, guarantee or otherwise
become or remain directly or indirectly liable with respect to, any Debt, or
any contingent obligations which would be Debt hereunder if they were
non-contingent, except for:


*              *              *


 


(r)            Debt
incurred by the AAR-GS 737 Classics Leasing LLC Joint Venture (or its
Subsidiaries) pursuant to the AAR-GS 737 Classics Leasing LLC Joint Venture
Debt Documents; provided
that such Debt is non-recourse to any Borrower.”


 


*              *              *


 


4.             Purchase
of Assets, Investments.  Section 5.7 of the Credit Agreement
is hereby deleted and the following is inserted in its stead (new language is
underscored):


 


“Section 5.7         Purchase of Assets,
Investments.              No
Borrower will, and no Borrower will permit any Subsidiary to, directly or indirectly
acquire any assets other than (x) in the ordinary course of business, (y) with
respect to intercompany Debt permitted hereunder or (z) to facilitate a
transaction in which such Borrower or Subsidiary will incur Permitted Mortgage
Debt. No Borrower will and no Borrower will not permit any Subsidiary to,
directly or indirectly make, acquire or own any Investment in any Person other
than (a) Investments set forth on the Information Certificate; (b) Cash
Equivalents; (c) Investments in Domestic Subsidiaries, so long as any such
Domestic Subsidiary has Guaranteed the Obligations and secured such Guarantee
by granting in favor of Agent, for its benefit and the benefit of the Lenders,
a Lien on all or substantially all of that portion of such Domestic Subsidiary’s
assets which, if owed by a Borrower, would constitute Collateral; (d) bank
deposits established in accordance with Section 5.14; (e) Investments in
securities of Account Debtors received pursuant to any plan of reorganization
or similar arrangement upon the bankruptcy or insolvency of such


 


2

















 


Account Debtors; (f) loans to officers and employees in an aggregate
principal amount not to exceed $1,000,000 at any time outstanding; (g)
Investments in Subsidiaries formed after the Closing in order to facilitate any
refinancing or replacement of Debt outstanding under the Securitization
Documents; (h) Investments in Subsidiaries formed to facilitate the incurrence
of the Permitted Mortgage Debt, which Investments consist of Borrowers’ Real
Property in Wood Dale, Illinois or Garden City, New Jersey; (i) intercompany
Debt permitted pursuant to Section 5.1; (j) Investments in the Crane Joint
Venture so long as the amount of any such Investment does not exceed One
Million Five Hundred Thousand Dollars ($1,500,000) plus any amount paid by
Borrowers pursuant to Borrowers’ guarantee of the Debt incurred by the Crane
Joint Venture under the Crane Joint Venture Debt Documents; (k) Investments in
the AAR-GS 737 Classics Leasing LLC Joint Venture or its Subsidiaries so long
as the amount of such Investment does not exceed Ten Million Dollars
($10,000,000); and (1) other Investments not exceeding $3,000,000 in any Fiscal
Year and $9,000,000 in the aggregate so long as at the time of any such
Investment, no Event of Default exists and is continuing. Without limiting the
generality of the foregoing, except as otherwise provided above, no Borrower
will, and no Borrower will permit any Subsidiary (except to facilitate a transaction
in which such Subsidiary will incur Permitted Mortgage Debt) to, (i) acquire or
create any Subsidiary or  (ii) engage,
outside of the ordinary course of business, in any joint venture or partnership
with any other Person.


 


5.             Capital
Expenditures. Section 7.1 of the Credit Agreement is hereby deleted
and the following is inserted in its stead:


 


“Capital Expenditures.                         Borrowers will not
permit the aggregate amount of Capital Expenditures for any period set forth
below to exceed the amount set forth below for such period:


 


	
  Period

  	
   

  	
  Amount

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  June 1, 2004 to May 31, 2005 and each
  Fiscal Year thereafter

  	
   

  	
  $

  	
  15,000,000

  	
   

  
					



 


If Borrowers do not utilize the entire amount of Capital Expenditures
permitted in any period set forth above, Borrowers may carry forward to the
immediately succeeding period only seventy-five percent (75%) of such
unutilized amount (with Capital Expenditures made by Borrowers in such
succeeding period applied last to such carried forward amount).”


 


6.             Compliance
Certificate/Capital Expenditures and Borrowing Base Certificate. 


 


Page 3 of Exhibit B to the Credit Agreement (Compliance Certificate) is
hereby deleted and the page 3 of Exhibit B (Compliance Certificate) attached to
this Second Amendment is inserted in its stead. Page 4 of Exhibit C to the
Credit Agreement (Borrowing Base Certificate) is hereby deleted and page 4 of
Exhibit C (Borrowing Base Certificate) attached to this Second Amendment is
inserted in its stead.


 


3

















 


7.              Effectiveness.              This Second Amendment shall become
effective upon the satisfaction of each of the following conditions:


 


(a)                                  Agent, Lenders and
Borrowers shall have executed and delivered to each other this Second
Amendment.


 


8.             Pledge
of Interests.              Upon
payment in full of the Debt outstanding under the AAR-GS 737 Classics Leasing
LLC Joint Venture Debt Documents, Borrowers shall deliver to Agent a properly
executed Pledge Supplement or Amendment to Pledge Agreement, as applicable,
with respect to AAR Corp.’s (or its Subsidiaries’) membership    interests in AAR-GS 737 Classics Leasing LLC and
AAR International Financial Services LLC and an acknowledgment by the manager
of AAR-GS 737 Classics Leasing LLC and AAR International Financial Services
LLC, as applicable, of the pledge of such membership interests to Agent for the
benefit of Lenders.


 


9.             Execution
in Counterparts.  This Second Amendment may be executed in any
number of counterparts and by different parties hereto in separate
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.


 


10.           Continuing
Effect.                Except as
otherwise specifically set out herein, the provisions of the Credit Agreement
shall remain in full force and effect.


 


(Signature Page Follows)


 


4

















 


(Signature Page to
Second Amendment to Credit Agreement)


 


IN WITNESS WHEREOF, this Second Amendment has been duly executed as of
the day and year specified at the beginning hereof.


 


 


	
   

  	
  MERRILL LYNCH CAPITAL, A

  
	
  AAR DISTRIBUTION, INC.

  	
  DIVISION OF MERRILL LYNCH

  
	
  AAR PARTS TRADING, INC.

  	
  BUSINESS FINANCIAL SERVICES, INC.,

  
	
  AAR MANUFACTURING, INC.

  	
  as Agent and Lender

  
	
  AAR ENGINE SERVICES, INC.

  	
   

  
	
  AAR ALLEN SERVICES, INC.

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
  /s/ Timothy J. Romenesko

  	
   

  	
  By:

  	
  /s/ Mark K. Gertzof

  	
   

  
	
  Name: Timothy J. Romenesko

  	
  Name: Mark K. Gertzof

  
	
  Title:

  	
  Vice President

  	
  Title:

  	
  Director

  
								



 

















 


(Compliance Certificate)


 


CAPITAL EXPENDITURES

(Section 7.1)


 


Capital Expenditures for the applicable measurement period (the “Defined Period”) are defined as follows:


 


	
  Amount capitalized during the Defined Period by AAR Corp. and its
  Consolidated Subsidiaries as capital expenditures for property, plant, and
  equipment or similar fixed asset accounts, including any such expenditures by
  way of acquisition of a Person or by way of assumption of Debt or other
  obligations, to the extent-reflected as plant, property and equipment

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Plus:

  	
   

  	
  deposits made in the Defined Period in Connection with property,
  plant, and equipment; less deposits of a prior period included above

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Less:

  	
   

  	
  Net Cash Proceeds of Asset Dispositions received during the Defined
  Period which (i) Borrowers or a Subsidiary is or are permitted to reinvest
  pursuant to the terms of the Credit Agreement and (ii) are included in
  capital expenditures above

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Proceeds of Property Insurance Policies received during the Defined
  Period which (i) Borrower or a Subsidiary is permitted to reinvest pursuant
  to the terms of the Credit Agreement and (ii) are included in capital
  expenditures above

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Capital Expenditures

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   Less:

  	
   

  	
  Portion of Capital Expenditures financed during the Defined Period
  under Capital Leases or other Debt (Debt, for this purpose, does not include
  drawings under the Revolving Loan Commitment)

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Portion of Capital Expenditures incurred in connection with
  Borrowers’ maintenance facilities in Oklahoma or Indiana for which Borrowers
  have either been reimbursed or are entitled to be reimbursed by a local,
  state or governmental authority

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Unfinanced and Unreimbursed Capital Expenditures

  	
   

  	
  $

  	
   

  



 


Exhibit B - Page 3

















 


	
  Permitted Capital Expenditures (including carry forward of
  $                                  from
  prior fiscal year)

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  In Compliance

  	
   

  	
  Yes/No

  	
   

  



 


Exhibit B - Page 4

















 


(Borrowing Base)


 


	
  4.

  	
   

  	
  NET
  FORCED PARTS LIQUIDATION PERCENTAGE PER APPRAISAL (To be updated quarterly by
  SH&E or appraisal firm acceptable to Agent)

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  5.

  	
   

  	
  TOTAL
  ELIGIBLE PARTS INVENTORY AFTER LIQUIDATION PERCENTAGE (Line 3 multiplied by
  Line 4)

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  6.

  	
   

  	
  SIXTY
  PERCENT OF LINE 5

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  7.

  	
   

  	
  TOTAL
  ELIGIBLE AIRCRAFT AND ENGINE INVENTORY (FLV) BEFORE MAXIMUM CAP (To be updated
  quarterly by SH&E or appraisal firm acceptable to Agent)

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  8.

  	
   

  	
  MAXIMUM
  CAP — TOTAL ELIGIBLE AIRCRAFT AND ENGINE INVENTORY (FLV — To be updated
  quarterly by SH&E or appraisal firm acceptable to Agent)

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  9.

  	
   

  	
  SIXTY
  PERCENT OF THE LESSER OF LINE 7 OR LINE 8

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  10.

  	
   

  	
  TOTAL
  AVAILABLE PARTS INVENTORY AND  AIRCRAFT AND ENGINES INVENTORY PRIOR TO APPLICATION OF EXCLUSIONS AND RESERVES ESTABLISHED BY AGENT PURSUANT TO THE CREDIT AGREEMENT (LINES 6 PLUS LINE 9)

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  11.

  	
   

  	
  LESS:
  AT ALL TIMES COLLATERAL AVAILABILITY RESERVE ($5,000,000)

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  12.

  	
   

  	
  LESS:
  RENT RESERVES (IF APPLICABLE)

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  13.

  	
   

  	
  COLLATERAL
  PORTION OF BORROWING BASE (Line 10 less Line U and Line 12)

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  14.

  	
   

  	
  CONSOLIDATED
  NET WORTH COVENANT (AS CALCULATED BELOW) MINUS $1,000,000

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  15.

  	
   

  	
  REVOLVING
  LOAN COMMITMENT

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  16.

  	
   

  	
  OUTSTANDING
  REVOLVING LOANS

  	
   

  	
   

  	
   

  



 


Exhibit C - Page 4