Document:

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-1Exhibit

10.16

 

EXECUTION COPY

 

 

RECEIVABLES PURCHASE AGREEMENT

 

DATED AS OF MARCH 21, 2003

 

 

BY AND AMONG

 

 

AAR RECEIVABLES CORPORATION II,

As Seller,

 

 

AND

 

 

AAR CORP.,

Individually and as Initial Servicer

 

 

AND

 

 

THE FINANCIAL INSTITUTIONS FROM TIME TO TIME PARTIES HERETO,

As Purchasers

 

 

AND

 

 

LASALLE BUSINESS CREDIT, LLC,

As Agent

 

 

TABLE OF CONTENTS

 

	

  ARTICLE I. 

  AMOUNTS AND TERMS OF THE PURCHASES

  
	

   

  	

  Section 1.1

  	

  Purchase Facility.

  
	

   

  	

  Section

  1.2

  	

  Making Purchases.

  
	

   

  	

  Section 1.3

  	

  Purchased Interest

  Computation.

  
	

   

  	

  Section 1.4

  	

  Settlement Procedures.

  
	

   

  	

  Section 1.5

  	

  Fees.

  
	

   

  	

  Section 1.6

  	

  Payments and

  Computations, Etc.

  
	

   

  	

  Section 1.7

  	

  Increased Costs.

  
	

   

  	

  Section 1.8

  	

  Requirements of Law.

  
	

   

  	

  Section 1.9

  	

  Inability to Determine

  Euro-Rate.

  
	

   

  	

   

  	

   

  
	

  ARTICLE

  II.  REPRESENTATIONS AND WARRANTIES;

  COVENANTS; TERMINATION EVENTS

  
	

   

  	

  Section 2.1

  	

  Representations and

  Warranties; Covenants.

  
	

   

  	

  Section 2.2

  	

  Termination Events.

  
	

   

  	

   

  	

   

  
	

  ARTICLE III.  INDEMNIFICATION

  
	

   

  	

  Section 3.1

  	

  Indemnities by the

  Seller.

  
	

   

  	

  Section 3.2

  	

  Indemnities by the

  Servicer.

  
	

   

  	

   

  	

   

  
	

  ARTICLE IV.  ADMINISTRATION AND COLLECTIONS

  
	

   

  	

  Section 4.1

  	

  Appointment of the

  Servicer.

  
	

   

  	

  Section 4.2

  	

  Duties of the Servicer.

  
	

   

  	

  Section 4.3

  	

  Lock-Box Arrangements.

  
	

   

  	

  Section 4.4

  	

  Reports.

  
	

   

  	

  Section 4.5

  	

  Enforcement Rights.

  
	

   

  	

  Section 4.6

  	

  Responsibilities of the

  Seller.

  
	

   

  	

  Section 4.7

  	

  Computer and other

  Records.

  
	

   

  	

  Section 4.8

  	

  Servicing Fee.

  
	

   

  	

   

  	

   

  
	

  ARTICLE V. 

  THE AGENT

  
	

   

  	

  Section 5.1

  	

  Appointment.

  
	

   

  	

  Section

  5.2

  	

  Delegation

  of Duties.

  
	

   

  	

  Section

  5.3

  	

  Exculpatory

  Provisions.

  
	

   

  	

  Section 5.4

  	

  Reliance by

  Agent.

  
	

   

  	

  Section

  5.5

  	

  Notice

  of Termination.

  
	

   

  	

  Section 5.6

  	

  Non-Reliance

  on Agent and the Purchasers.

  
	

   

  	

  Section 5.7

  	

  Indemnification.

  
	

   

  	

  Section 5.8

  	

  Agent in its

  Individual Capacity.

  
	

   

  	

  Section 5.9

  	

  Successor Agent.

  
	

   

  	

   

  	

   

  
	

  ARTICLE VI.  MISCELLANEOUS

  
	

   

  	

  Section 6.1

  	

  Amendments, Etc.

  
	

   

  	

  Section 6.2

  	

  Notices, Etc.

  

 

ii

 

	

   

  	

  Section 6.3

  	

  Assignability.

  
	

   

  	

  Section

  6.4

  	

  Costs, Expenses and

  Taxes.

  
	

   

  	

  Section 6.5

  	

  Confidentiality

  
	

   

  	

  Section 6.6

  	

  GOVERNING LAW AND

  JURISDICTION.

  
	

   

  	

  Section 6.7

  	

  Execution in

  Counterparts.

  
	

   

  	

  Section 6.8

  	

  Survival of Termination.

  
	

   

  	

  Section 6.9

  	

  WAIVER OF JURY TRIAL;

  OTHER WAIVERS.

  
	

   

  	

  Section 6.10

  	

  Entire Agreement.

  
	

   

  	

  Section 6.11

  	

  Headings.

  
	

   

  	

   

  	

   

  
	

  EXHIBIT

  I

  	

  DEFINITIONS

  
	

  EXHIBIT

  II

  	

  CONDITIONS OF PURCHASES

  
	

  EXHIBIT III

  	

  REPRESENTATIONS AND

  WARRANTIES

  
	

  EXHIBIT

  IV

  	

  COVENANTS

  
	

  EXHIBIT

  V

  	

  TERMINATION EVENTS

  
	

  EXHIBIT

  VI

  	

  ACTIVITIES

  TO MAINTAIN CORPORATE SEPARATENESS

  
	

  EXHIBIT VII

  	

  CONTRACTUAL REQUIREMENTS

  
	

   

  
	

  SCHEDULE I

  	

  CREDIT AND COLLECTION POLICIES

  
	

  SCHEDULE II

  	

  LOCK-BOX BANKS AND LOCK-BOX ACCOUNTS

  
	

  SCHEDULE III

  	

  TRADE NAMES

  
	

  SCHEDULE IV

  	

  OFFICE LOCATIONS

  
	

  SCHEDULE V

  	

  ORIGINATORS

  
	

  SCHEDULE VI

  	

  [RESERVED]

  
	

  SCHEDULE VII

  	

  PERMITTED FOREIGN OBLIGORS

  
	

  SCHEDULE VIII

  	

  BENEFIT PLANS

  
	

  SCHEDULE IX

  	

  GOVERNMENT PROCEEDINGS; DEFAULTS

  
	

   

  	

   

  	

   

  
	

  ANNEX A

  	

  FORM OF INFORMATION PACKAGE

  
	

  ANNEX B

  	

  FORM OF PURCHASE NOTICE

  
	

  ANNEX C

  	

  FORM OF PAYDOWN NOTICE

  
	

  ANNEX D

  	

  FORM OF COMPLIANCE CERTIFICATE

  
	

  ANNEX E

  	

  FORM OF ASSIGNMENT AND ACCEPTANCE

  
	

  ANNEX F

  	

  [RESERVED]

  
	

  ANNEX G

  	

  LIST OF CLOSING DOCUMENTS

  
	

  ANNEX H

  	

  FORM OF SETTLEMENT STATEMENT

  
				

 

iii

 

This RECEIVABLES PURCHASE AGREEMENT (as amended,

supplemented or otherwise modified from time to time, this “Agreement”) is

entered into as of March 21, 2003, by and among AAR RECEIVABLES CORPORATION II,

an Illinois corporation, as seller (the “Seller”), AAR CORP., a Delaware

corporation, individually (“AAR”) and as initial servicer (in such capacity,

together with its successors and permitted assigns in such capacity, the

“Servicer”), THE FINANCIAL INSTITUTIONS FROM TIME TO TIME PARTIES HERETO, as

purchasers (collectively, the “Purchasers” and each individually, a “Purchaser”),

and LASALLE BUSINESS CREDIT, LLC, a Delaware limited liability company

(“LaSalle”), as agent for itself and the Purchasers (in such capacity, together

with its successors and assigns in such capacity, the “Agent”).

 

PRELIMINARY

STATEMENTS

 

Certain terms that are capitalized and used throughout

this Agreement are defined in Exhibit I.  References in the Exhibits hereto to the “Agreement” refer to

this Agreement, as amended, supplemented or otherwise modified from time to

time.

 

The Seller desires to sell, transfer and assign

undivided variable percentage interests in a pool of receivables, and the

Purchasers desire to acquire such undivided variable percentage interests as

such percentage interests shall be adjusted from time to time based upon, in

part, reinvestment payments that are made by the Purchasers.

 

In consideration of the mutual agreements, provisions

and covenants contained herein, the parties hereto agree as follows:

 

ARTICLE

I.

AMOUNTS AND TERMS OF THE PURCHASES

 

Section 1.1             Purchase

Facility.

 

(a)           On

the terms and conditions hereinafter set forth, from the date hereof until the

Facility Termination Date, each Purchaser hereby agrees to (i) purchase its Pro

Rata Share of undivided percentage ownership interests of the Purchased

Interests from time to time offered by the Seller and approved by the Agent, in

its sole discretion and (ii) make reinvestments of undivided percentage

ownership interests with regard to the Purchased Interests.  All Purchased Interests purchased by, or

reinvested in by, the Purchasers shall be held by the Agent for the benefit of

each respective Purchaser.  Under no

circumstances shall the Purchasers make any such purchase or reinvestment if,

after giving effect to such purchase or reinvestment, (i) the aggregate outstanding

Capital of the Purchased Interest would exceed the Purchase Limit or (ii) such

Purchaser’s outstanding Capital attributable to its Pro Rata Share of the

Purchased Interest would exceed such Purchaser’s Maximum Purchase Limit.

 

(b)           The

Seller may, upon at least 30 days’ written notice to the Agent, terminate the

purchase facility provided in this Section in whole or, upon at least 30 days’

written notice to the Agent, from time to time, irrevocably reduce in part the

unused portion of the Purchase Limit; provided, that each partial reduction

shall be in the amount of at least $5,000,000, or an integral

 

 

multiple of $1,000,000 in excess thereof, and that, unless terminated

in whole, the Purchase Limit shall in no event be reduced below

$15,000,000.  Any such reduction in the

Purchase Limit shall be applied to reduce each Purchaser’s Maximum Purchase

Limit by the amount of such Purchaser’s Pro Rata Share of the total reduction

in the Purchase Limit.

 

(c)           In

addition, on any date (other than a Termination Day) on which (i) Capital in

the amount of the Purchase Limit is then outstanding and (ii) the Purchased

Interest is less than 100%, the Agent, if requested in writing by the Seller,

shall within five (5) Business Days after its receipt of such request, identify

no less than ten (10) Obligors which the Seller may elect to have treated by

the Agent as ineligible for further purchase hereunder and under the Sale

Agreement.  Subject to the following

proviso, the Seller, by written notice to the Agent, may designate any or all

of such Obligors as thereafter being ineligible, which election shall be

irrevocable; provided that immediately after giving effect to such election no

Termination Event or Unmatured Termination Event shall then exist or result

therefrom and the Purchased Interest shall be equal to or less than 100%.  From and after any such election by the

Seller with respect to any particular Obligor, the Seller shall cease making

any further purchases of Receivables originated by any such Obligor under the

Sale Agreement; it being agreed that such election shall not affect the

eligibility of any Receivables previously purchased by the Seller under the

Sale Agreement or by the Purchasers under this Agreement, in either case, prior

to the effective date of such election. 

If the Agent shall fail to identify such Obligors within such time, the

Purchaser may prepare and submit a written list of such Obligors for the

Agent’s consideration.  If the Agent

does not respond to the Seller within five (5) Business Days after its receipt

of the Seller’s suggestions, then the Seller shall be permitted, subject to the

conditions above, to designate any number of Group D Obligors for

ineligibility hereunder by giving written notice thereof to the Agent.

 

(d)           The

Seller may, by written request delivered to the Agent not more than six (6) and

not less than five (5) months prior to the Facility Termination Date and

payment of a non-refundable fee of $35,000 to the Agent, request that the Agent

and the Purchasers undertake a new credit review and analysis in contemplation

of the extension of the Facility Termination Date, and the Agent and the

Purchasers agree to undertake such review and analysis and to use their best

efforts to complete such review and analysis by no later than three (3) months

prior to the Facility Termination Date. 

Upon completion of such review and analysis, the Agent and the

Purchasers shall promptly notify the Seller as to whether, in the sole

discretion of the Agent and the Purchasers, they are willing to extend the

Facility Termination Date and the terms therefor.  Any such extension pursuant to this clause (c) shall thereupon

become effective upon mutual agreement to such terms, the finalization and

execution of any necessary documentation therefor, and the satisfaction of any

other conditions to the effectiveness thereof pursuant to such

documentation.  Notwithstanding anything

contained herein to the contrary, (i) in no event shall the Agent or any

Purchaser have any obligation to agree to any such extension, all of which

shall be at its sole discretion and (ii) no such extension shall be for a

period in excess of 364 days from the effective date thereof.

 

(e)           Agent

and the Purchasers are entering into this Agreement in reliance on the Seller’s

identity as a legal entity separate from the Originators.

 

2

 

Section 1.2             Making

Purchases.

 

(a)           Each

purchase (but not reinvestment) of undivided percentage ownership  interests with regard to the Purchased Interest

hereunder shall be made upon the Seller’s irrevocable written notice in the

form of Annex B (the “Purchase Notice”) delivered to the Agent in

accordance with Section 1.2 (which notice must be received by the Agent

before 11:00 a.m., Chicago time) at least three Business Days prior to the

requested date of purchase, which notice shall specify:  (A) the amount requested to be paid to the

Seller (such amount, which shall not be less than $500,000 and shall be in

integral multiples of $100,000 in excess thereof, being the Capital relating to

the undivided percentage ownership interest then being purchased), (B) the date

of such purchase (which shall be a Business Day), and (C) the pro forma

calculation of the Purchased Interest after giving effect to the increase in

Capital.  If the Agent, in its sole

discretion, approves such purchase, the Agent shall promptly (but in any event,

prior to 1:00 p.m. (Chicago time) on such date) notify each Purchaser of the

Agent’s receipt of such notice and the amounts of the requested aggregate

purchase thereunder (and each such Purchaser’s Pro Rata Share thereof).

 

(b)           Each

Purchaser shall remit its Pro Rata Share of the requested Capital to the Agent

by no later than 10:00 a.m. (Chicago time) on the requested purchase date

specified in such notice.  The Agent,

upon satisfaction of the applicable conditions set forth in Exhibit II

hereof, shall make available to the Seller by no later than 2:00 p.m. on the

requested date of any approved purchase, in same day funds, at the Seller’s

account no. 5800363490 at LaSalle Bank National Association, ABA 071000505, an

amount equal to the Capital relating to the undivided percentage ownership

interest then being purchased.

 

(c)           If

the Agent has not received notice from a Purchaser that such Purchaser will not

make any requested Purchase prior to such time (all such Purchasers that have

not so notified the Agent, being “Participating Purchasers”), the Agent shall

be entitled to assume each such Participating Purchaser’s participation in such

purchase and may, but shall not be required to, remit funds on behalf of each

such Participating Purchaser to fund the purchase of such undivided percentage

ownership interests on such Participating Purchaser’s behalf.  If and to the extent that a Participating

Purchaser does not settle with the Agent as required under this Agreement (a

“Defaulting Purchaser”), the Seller and the Defaulting Purchaser severally

agree to repay the Agent forthwith on demand, such amount required to be paid

by the Defaulting Purchaser to the Agent, together with interest thereon for

each day from the date such amount is made available to the Seller until the

date such amount is repaid to the Agent (x) in the case of the Defaulting

Purchaser, at the rate published by the Federal Reserve Bank of New York on the

next succeeding Business Day as the “Federal Funds Rate” or if no such rate is

published for any Business Day, at the average rate quoted for such day for

such transactions from three (3) federal funds brokers of recognized standing

selected by the Agent and (y) in the case of the Seller, at the interest rate

applicable at such time to the Capital; provided that (i) Seller’s obligation

to repay such advance to the Agent shall not relieve such Defaulting Purchaser

from its obligation to repay the Agent for its failure to settle as provided in

this Agreement and (ii) in no event shall the Agent or any other Purchaser be

responsible for any failure by any other Purchaser to fund its Pro Rata Share

of any offered Purchased Interest hereunder. 

If such amounts are repaid by the Seller, the Agent shall make

appropriate adjustments to the Capital and the Purchased Interest to

 

3

 

reflect the reversal of the incremental undivided percentage ownership

interests in the Purchases Interest resulting therefrom.  Unless and until the Agent is reimbursed as

required above, the Agent shall be deemed the owner of the undivided percentage

ownership interest in the Purchased Interest associated with that portion of

the Capital it advanced, the Agent shall be deemed the Purchaser of such

percentage ownership interest and shall be entitled to all rights and benefits

as such hereunder.

 

(d)           Effective

on the date of each purchase pursuant to this Section and each reinvestment

pursuant to Section 1.4, the Seller hereby sells and assigns to the

Agent, for the ratable benefit of each of the Purchasers, an undivided

percentage ownership interest in: (i) each Pool Receivable then existing, (ii)

all Related Security with respect to such Pool Receivables, and (iii) all

Collections with respect to, and other products and proceeds of, such Pool

Receivables and Related Security.

 

(e)           To

secure all of the Seller’s obligations (monetary or otherwise) under this

Agreement and the other Transaction Documents to which it is a party, whether

now or hereafter existing or arising, due or to become due, direct or indirect,

absolute or contingent, the Seller hereby grants to the Agent, for the ratable

benefit of itself and the Purchasers, a security interest in all of the

Seller’s right, title and interest (including any undivided interest of the

Seller) in, to and under all of the following, whether now or hereafter owned,

existing or arising: (i) all Pool Receivables, (ii) all Related Security with

respect to such Pool Receivables, (iii) all Collections with respect to such

Pool Receivables, (iv) the Lock-Box Accounts and all amounts on deposit

therein, and all certificates and instruments, if any, from time to time evidencing

such Lock-Box Accounts and amounts on deposit therein, (v) all rights (but none

of the obligations) of the Seller under the Sale Agreement, and (vi) all

proceeds of, and all amounts received or receivable under any or all of, the

foregoing (collectively, the “Pool Assets”). 

The Agent shall have, with respect to the Pool Assets, and in addition

to all the other rights and remedies available to it hereunder and under law,

all the rights and remedies of a secured party under any applicable UCC.

 

Section 1.3             Purchased

Interest Computation.

 

The Purchased Interest shall be initially computed on

the date of the initial purchase hereunder. 

Thereafter, until the Facility Termination Date, the Purchased Interest

shall be automatically recomputed (or deemed to be recomputed) on each Business

Day other than a Termination Day, and such percentage (as in effect as of the

last day of the period covered by any Information Package or Settlement

Statement) shall be reported to the Agent by the Seller and the Servicer in

each Information Package and Settlement Statement or as and at such times as

the Agent may from time to time otherwise require.  The Purchased Interest as computed (or deemed recomputed) as of

the day before the Facility Termination Date shall thereafter remain

constant.  The Purchased Interest shall

become zero when the Capital thereof and Discount thereon shall have been paid

in full, all the amounts owed by the Seller and the Servicer hereunder to the

Purchasers, the Agent and any other Indemnified Party or Affected Person are

paid in full, and the Servicer shall have received the accrued Servicing Fee

thereon.

 

4

 

Section 1.4             Settlement

Procedures.

 

(a)           The

collection of the Pool Receivables shall be administered by the Servicer in

accordance with this Agreement.  The

Seller shall provide to the Servicer on a timely basis all information needed

for such administration, including notice of the occurrence of any Termination

Day and current computations of the Purchased Interest.

 

(b)           The

Servicer shall, on each day on which Collections of Pool Receivables are

received (or deemed received) by the Seller or the Servicer:

 

(i)               set aside and hold in trust (and

shall, at the request of the Agent, segregate in a separate account approved by

the Agent) for the Purchasers out of such Collections attributable to the

Purchased Interest, first, an amount equal to the Discount accrued through such

day for each Portion of Capital and not previously set aside, second, an amount

equal to the fees set forth in the Fee Letter accrued and unpaid through such

day, and third, to the extent funds are available therefor, an amount equal to

the Purchaser’s Share of the Servicing Fee accrued through such day and not

previously set aside which will be paid over to the Servicer in accordance with

and subject to Sections 1.4(c) and (d),

 

(ii)              subject to Section 1.4(f),

if such day is not a Termination Day, remit to the Seller, on behalf of the

Agent and the Purchasers, the remainder of the Collections attributable to the

Purchased Interest.  Such remainder

shall be automatically reinvested in Pool Receivables, and in the Related

Security, Collections and other Pool Assets with respect thereto; provided,

however, that if the Purchased Interest would exceed 100%, then the

Servicer shall not reinvest, but shall set aside and hold in trust for the

Agent, for the benefit of itself and the Purchasers (and shall, at the request

of the Agent, segregate in a separate account approved by the Agent), such

portion of such Collections that, together with the other Collections set aside

pursuant to this paragraph, shall equal the amount necessary to reduce the

Purchased Interest to 100%,

 

(iii)             if such day is a Termination Day,

set aside, segregate and hold in trust (and shall, at the request of the Agent,

segregate in a separate account approved by the Agent) for the Purchasers the

entire balance of any and all Collections of all Pool Assets; provided, that if

amounts are set aside and held in trust on any Termination Day of the type

described in clause (a) of the definition of “Termination Day” and, thereafter,

the conditions set forth in Section 2 of Exhibit II are satisfied or

waived by the Agent, such previously set-aside amounts shall be reinvested in

accordance with clause (ii) on the day of such subsequent satisfaction or

waiver of conditions, and

 

(iv)            release to the Seller (subject to Section

1.4(d)) for its own account any Collections in excess of: (x) amounts

required to be reinvested in accordance with clause (ii) plus (y) the

amounts that are required to be set aside pursuant to clause (i), the

proviso to clause (ii) and clause (iii) plus (z) the Seller’s

Share of the Servicing Fee accrued and unpaid through such day and all

reasonable and appropriate out-of-pocket costs and expenses of the Servicer for

servicing, collecting and administering the Pool Assets.

 

(c)           The

Servicer shall deposit into the Administration Account (or such other account

designated by the Agent), on each Settlement Date, Collections held for the

Purchasers pursuant

 

5

 

to clause (b)(i) or (f) plus the amount of Collections

then held for the Purchasers pursuant to the proviso to clause (b)(ii)

and clause (b)(iii), in each case, of this Section 1.4; provided,

that if AAR or an Affiliate thereof is the Servicer, such day is not a

Termination Day and the Agent has not notified AAR (or such Affiliate) that

such right is revoked, AAR (or such Affiliate) may retain the portion of the

Collections set aside pursuant to clause (b)(i) that represents the

Purchasers’ Share of the Servicing Fee.  

On the last day of each Settlement Period, the Agent will notify the

Servicer by facsimile of the amount of Discount accrued with respect to each

Portion of Capital during such Settlement Period or portion thereof.

 

(d)           Upon

receipt of funds deposited into the Administration Account pursuant to clause

(c), the Agent shall cause such funds to be distributed as follows:

 

(i)               if such distribution occurs on a

day that is not a Termination Day and the Purchased Interest does not exceed

100%, first to the Purchasers in payment in full of all accrued Discount and

fees payable pursuant to the Fee Letter (other than Servicing Fees) with

respect to each Portion of Capital, and second, if the Servicer has set aside

amounts in respect of the Servicing Fee pursuant to clause (b)(i) and

has not retained such amounts pursuant to clause (c), to the

Servicer (payable in arrears on each Settlement Date) in payment in full of the

Purchasers’ Share of accrued Servicing Fees so set aside, and

 

(ii)              if such distribution occurs on a

Termination Day or on a day when the Purchased Interest exceeds 100%, first to

the Purchasers in payment in full of all accrued Discount with respect to each

Portion of Capital, second to the Agent, for the benefit of the Purchasers, in

payment in full of Capital (or, if such day is not a Termination Day, the

amount necessary to reduce the Purchased Interest to 100%), third, to the

Servicer in payment in full of all accrued Servicing Fees, and fourth, if the

Capital and accrued Discount with respect to each Portion of Capital have been

reduced to zero, and all accrued Servicing Fees payable to the Servicer have

been paid in full, to the Purchasers, the Agent and any other Indemnified Party

or Affected Person in payment in full of any other amounts owed thereto by the

Seller hereunder.

 

(iii)          after

the Capital, Discount, fees payable pursuant to the Fee Letter and Servicing

Fees with respect to the Purchased Interest, and any other amounts payable by

the Seller and the Servicer to the Purchasers, the Agent or any other

Indemnified Party or Affected Person hereunder, have been paid in full, the

Purchased Interest shall be reduced to zero and all additional Collections with

respect to the Purchased Interest shall be paid to the Seller for its own

account.

 

(e)           For

the purposes of this Section 1.4:

 

(i)               if on any day the Outstanding

Balance of any Pool Receivable is reduced or adjusted as a result of any

defective, rejected, returned, repossessed or foreclosed goods or services, or

any revision, cancellation, allowance, rebate, discount or other adjustment

made by the Seller or any Affiliate of the Seller, or any setoff or dispute

between the Seller or any Affiliate of the Seller and an Obligor, the Seller

shall be deemed to have received on such day a Collection of such Pool

Receivable in the amount of such reduction or adjustment;

 

6

 

(ii)              if on any day any of the

representations or warranties relating to any Pool Receivable set forth in Section l(g)

of Exhibit III hereof is not true, the Seller shall be deemed to have

received on such day a Collection of such Pool Receivable in full;

 

(iii)             except as provided in clause (i)

or (ii) immediately above, or as otherwise required by applicable law or

the relevant Contract, all Collections received from an Obligor of any

Receivable shall be applied to the Receivables of such Obligor in the order of

the age of such Receivables, starting with the oldest such Receivable, unless

such Obligor designates in writing its payment for application to specific

Receivables; and

 

(iv)            if and to the extent the Agent or

the Purchasers shall be required for any reason to pay over to an Obligor (or

any trustee, receiver, custodian or similar official in any insolvency

Proceeding) any amount received by it hereunder, such amount shall be deemed

not to have been so received by the Agent or the Purchasers but rather to have

been retained by the Seller and, accordingly, the Agent or the Purchasers, as

the case may be, shall have a claim against the Seller for such amount, payable

when and to the extent that any distribution from or on behalf of such Obligor

is made in respect thereof.

 

(f)            If

at any time the Seller shall wish to cause the reduction of Capital (but not to

commence the liquidation, or reduction to zero, of the entire Capital of the

Purchased Interest), the Seller may do so as follows:

 

(i)               the Seller shall give the Agent

and the Servicer written notice in the form of Annex C, (A) at least two

Business Days’ prior to the date of such reduction for any reduction of Capital

less than or equal to $10,000,000 and (B) at least five Business Days’ prior to

the date of such reduction for any reduction of Capital greater than

$10,000,000, in each case such notice shall include the amount of such

reduction and the proposed date on which such reduction shall commence;

 

(ii)              On the proposed date of the

commencement of such reduction and on each day thereafter, the Servicer shall

cause Collections not to be reinvested until the amount thereof not so

reinvested shall equal the desired amount of reduction; and

 

(iii)             the Servicer shall hold such

Collections in trust for the Purchasers, for payment to the Agent on the next

Settlement Date immediately following the current Settlement Period or such

other date approved by the Agent, and Capital shall be deemed reduced in the

amount to be paid to the Agent only when in fact finally so paid;

 

provided, that (A) the amount of any

such reduction shall be not less than $500,000 and shall be an integral

multiple of $100,000 in excess thereof, and the entire Capital of the Purchased

Interest after giving effect to such reduction shall be not less than

$15,000,000 and shall be in an integral multiple of $100,000 and (B) the Seller

shall choose a reduction amount, and the date of commencement thereof, so that

to the extent practicable such reduction shall commence and conclude in the

same Settlement Period.

 

7

 

Section 1.5             Fees.

 

The Seller shall pay to the Agent certain fees in the

amounts and on the dates set forth in a letter, dated the date hereof, among

AAR, the Seller and the Agent (as such letter agreement may be amended,

supplemented or otherwise modified from time to time, the “Fee Letter”).

 

Section 1.6             Payments

and Computations, Etc.

 

(a)           All

amounts to be paid or deposited by the Seller or the Servicer hereunder shall

be made without reduction for offset or counterclaim and shall be paid or

deposited no later than noon (Chicago time) on the day when due in same day

funds to the Administration Account. 

All amounts received after noon (Chicago time) will be deemed to have

been received on the next Business Day.

 

(b)           The

Seller or the Servicer, as the case may be, shall, to the extent permitted by

law, pay interest on any amount not paid or deposited by the Seller or the

Servicer, as the case may be, when due hereunder, at an interest rate equal to 2.0%

per annum above the Base Rate, payable on demand.

 

(c)           All

computations of interest, Discount, fees and other amounts hereunder shall be

made on the basis of a year of 360 (or 365 or 366, as applicable, with respect

to Discount or other amounts calculated by reference to the Base Rate) days for

the actual number of days elapsed.  

Whenever any payment or deposit to be made hereunder shall be due on a

day other than a Business Day, such payment or deposit shall be made on the

next Business Day and such extension of time shall be included in the

computation of such payment or deposit.

 

Section 1.7             Increased

Costs.

 

(a)           If

the Agent, any Purchaser or any of the Agent’s or the Purchasers’ respective

Affiliates (each an “Affected Person”) reasonably determines that the existence

of or compliance with: (i) any law or regulation or any change therein or in

the interpretation or application thereof, in each case adopted, issued or

occurring after the date hereof, or (ii) any request, guideline or directive

from any central bank or other Governmental Authority (whether or not having

the force of law) issued or occurring after the date of this Agreement, affects

or would affect the amount of capital required or expected to be maintained by

such Affected Person, and such Affected Person determines that the amount of

such capital is increased by or based upon the existence of any commitment to

make purchases of (or otherwise to maintain the investment in) Pool Receivables

or other Pool Assets related to this Agreement and other commitments of the

same type, then, upon demand by such Affected Person (with a copy to the

Agent), the Seller shall promptly pay to the Agent, for the account of such

Affected Person, from time to time as specified by such Affected Person, additional

amounts sufficient to compensate such Affected Person in the light of such

circumstances, to the extent that such Affected Person reasonably determines

such increase in capital to be allocable to the existence of any of such

commitments.  A certificate as to such

amounts submitted to the Seller and the Agent by such Affected Person shall be

prima facie evidence of the amount to be paid, absent manifest error.

 

8

 

(b)           If,

due to either:  (i) the introduction of

or any change in or in the interpretation of any law or regulation or (ii)

compliance with any guideline or request from any central bank or other

Governmental Authority (whether or not having the force of law), there shall be

any increase in the cost to any Affected Person of agreeing to purchase or

purchasing, or maintaining the ownership of, the Purchased Interest in respect

of which Discount is computed by reference to the Euro-Rate, then, upon demand

by such Affected Person, the Seller shall promptly pay to such Affected Person,

from time to time as specified by such Affected Person, additional amounts

sufficient to compensate such Affected Person for such increased costs.  A certificate as to such amounts submitted

to the Seller and the Agent by such Affected Person shall be conclusive and

binding for all purposes, absent manifest error.

 

(c)           If

such increased costs affect the related Affected Person’s portfolio of

financing transactions, such Affected Person shall use reasonable averaging and

attribution methods to allocate such increased costs to the transactions

contemplated by this Agreement.

 

Section 1.8             Requirements

of Law.

 

If any Affected Person reasonably determines that the

existence of or compliance with: (a) any law or regulation or any change

therein or in the interpretation or application thereof, in each case adopted,

issued or occurring after the date hereof, or (b) any request, guideline or

directive from any central bank or other Governmental Authority (whether or not

having the force of’ law) issued or occurring after the date of this Agreement:

 

(i)               does or shall subject such

Affected Person to any tax of any kind whatsoever with respect to this

Agreement, any increase in the Purchased Interest or in the amount of Capital

relating thereto, or does or shall change the basis of taxation of payments to

such Affected Person on account of Collections, Discount or any other amounts

payable hereunder (excluding taxes imposed on the overall or branch pre-tax net

income of such Affected Person (so long as the computation of such tax is

consistent with the Intended Tax Characterization) and franchise taxes imposed

on such Affected Person, by the jurisdiction under the laws of which such

Affected Person is organized or otherwise is considered doing business (unless

the Affected Person would not be considered doing business in such

jurisdiction, but for having entered into, or engaged in the transactions in

connection with, this Agreement or any other Transaction Document) or a

political subdivision thereof),

 

(ii)              does or shall impose, modify or

hold applicable any reserve, special deposit, compulsory loan or similar

requirement against assets held by, or deposits or other liabilities in or for

the account of, purchases, advances or loans by, or other credit extended by,

or any other acquisition of funds by, any office of such Affected Person that

are not otherwise included in the determination of the Euro-Rate or the Base

Rate hereunder, or

 

(iii)             does or shall impose on such

Affected Person any other condition, and the result of any of the foregoing is:

(A) to increase the cost to such Affected Person of acting as Agent, or of

agreeing to purchase or purchasing or maintaining the

 

9

 

ownership of undivided percentage ownership interests

with regard to the Purchased Interest (or interests therein) or any Portion of

Capital, or (B) to reduce any amount receivable hereunder (whether directly or

indirectly),

 

then, in any such case, upon demand by such Affected Person, the Seller

shall promptly pay to such Affected Person additional amounts necessary to

compensate such Affected Person for such additional cost or reduced amount

receivable.  All such amounts shall be

payable as incurred.  A certificate from

such Affected Person to the Seller and the Agent certifying, in reasonably

specific detail, the basis for, calculation of, and amount of such additional

costs or reduced amount receivable shall be conclusive and binding for all

purposes, absent manifest error; provided, however, that no Affected Person

shall be required to disclose any confidential or tax planning information in

any such certificate.

 

Section 1.9             Inability

to Determine Euro-Rate.

 

(a)           If

the Agent determines before the first day of any Settlement Period (which

determination shall be final and conclusive) that, by reason of circumstances

affecting the interbank eurodollar market generally, deposits in dollars (in

the relevant amounts for such Settlement Period) are not being offered to banks

in the interbank eurodollar market for such Settlement Period, or adequate

means do not exist for ascertaining the Euro-Rate for such Settlement Period,

then the Agent shall give notice thereof to the Seller.  Thereafter, until the Agent notifies the

Seller that the circumstances giving rise to such suspension no longer exist,

(a) no Portion of Capital shall be funded at the Alternate Rate determined by

reference to the Euro-Rate and (b) the Discount for any outstanding Portions of

Capital then funded at the Alternate Rate determined by reference to the

Euro-Rate shall, on the last day of the then current Settlement Period, be

converted to the Alternate Rate determined by reference to the Base Rate.

 

(b)           If,

on or before the first day of any Settlement Period, the Agent shall have

determined, or shall have been notified by any Purchaser that such Purchaser

has determined (which determination shall be final and conclusive), that any

enactment, promulgation or adoption of or any change in any applicable law,

rule or regulation, or any change in the interpretation or administration

thereof by a governmental authority, central bank or comparable agency charged

with the interpretation or administration thereof, or compliance by the Agent

or any such Purchaser with any guideline, request or directive (whether or not

having the force of law) of any such authority, central bank or comparable

agency shall make it unlawful or impossible for such Purchaser to fund or

maintain any Portion of Capital at the Alternate Rate based upon the Euro-Rate,

the Agent shall notify the Seller thereof. 

Upon receipt of such notice, until the Agent notifies the Seller that

the circumstances giving rise to such determination no longer apply, (a) no

Portion of Capital shall be funded at the Alternate Rate determined by

reference to the Euro-Rate and (b) the Discount for any outstanding Portions of

Capital then funded at the Alternate Rate determined by reference to the

Euro-Rate shall be converted to the Alternate Rate determined by reference to

the Base Rate either (i) on the last day of the then current Settlement Period

if and to the extent the Agent and all Purchaser may lawfully continue to

maintain such Portion of Capital at the Alternate Rate determined by reference

to the Euro-Rate to such day, or (ii) immediately, if the Agent or any

applicable Purchaser may not lawfully

 

10

 

continue to maintain such Portion of Capital at the Alternate Rate

determined by reference to the Euro-Rate to such day.

 

ARTICLE

II.

REPRESENTATIONS AND WARRANTIES; COVENANTS; TERMINATION EVENTS

 

Section 2.1             Representations

and Warranties; Covenants.

 

Each of the Seller, AAR and, to the extent the

Servicer is AAR or an Affiliate thereof, the Servicer hereby makes the

representations and warranties, and hereby agrees to perform and observe the

covenants, applicable to it set forth in Exhibits III and IV,

respectively.

 

Section 2.2             Termination

Events.

 

If any of the Termination Events set forth in Exhibit

V shall occur, the Agent may, by notice to the Seller, declare the Facility

Termination Date to have occurred (in which case the Facility Termination Date

shall be deemed to have occurred); provided, that automatically upon the

occurrence of any event (without any requirement for the passage of time or the

giving of notice) described in paragraph (g) and/or (s) of Exhibit V,

the Facility Termination Date shall automatically occur without notice or the

taking of any action.  Upon any such

declaration, occurrence or deemed occurrence of the Facility Termination Date,

the Purchasers and the Agent shall have, in addition to the rights and remedies

that they may have under this Agreement, all other rights and remedies provided

after default under the Illinois UCC and under other applicable law, which

rights and remedies shall be cumulative.

 

ARTICLE

III.

INDEMNIFICATION

 

Section 3.1             Indemnities

by the Seller.

 

Without limiting any other rights that the Agent, the

Purchasers or any of their respective Affiliates, employees, officers,

directors, agents, counsel, successors, transferees or assigns (each, an

“Indemnified Party”) may have hereunder or under applicable law, the Seller

hereby agrees to indemnify each 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 “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 of purchases or reinvestments, the commingling of

funds (whether or not permitted hereunder), the Pool Assets (including the merchandise

and sale of merchandise giving rise thereto), the ownership of the Purchased

Interest, or any interest therein, or in respect of any Receivable, Related

Security, Contract or other Pool Asset, excluding, however: (a) 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 Indemnified Party or its officers, directors, agents or counsel, (b)

except as otherwise specifically provided herein, including under Section

1.4 (e) and

 

11

 

this Section 3.1, hereof, any indemnification which has the

effect of recourse to any indemnitor for the uncollectibility of Pool

Receivables due to the lack of creditworthiness of the applicable Obligor

thereof, (c) Indemnified Amounts relating to the failure of the Seller or any

Originator to comply with the Assignment of Claims Act except to the extent any

of the Seller, the Servicer and the Originators shall have failed to take all

action required pursuant to Section 4.6(c) hereof and Section 7.3

of the Sale Agreement, 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 Indemnified Party by the jurisdiction

under the laws of which such Indemnified Party is organized or any political

subdivision thereof; provided, however, that nothing contained in

this Sentence shall limit the liability of the Seller, AAR or the Servicer, as

applicable, or limit the recourse of the Agent and each Purchaser to the

Seller, AAR or the Servicer, as applicable, for any amounts otherwise

specifically provided to be paid by the Seller, AAR or the Servicer 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 Seller shall pay on

demand (which demand shall be accompanied by documentation of the Indemnified

Amounts, in reasonable detail) to each Indemnified Party any and all amounts

necessary to indemnify such Indemnified Party from and against any and all

Indemnified Amounts relating to or resulting from any of the following:

 

(i)               the failure of any Receivable

included in the calculation of the Net Receivables Pool Balance as an Eligible

Receivable to be an Eligible Receivable, the failure of any information

contained in an Information Package and provided by or on behalf of the Seller

or any of its Affiliates to be true and correct in any material respect, or the

failure of any other information provided to any Indemnified Party with respect

to the Pool 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 Seller, AAR or any of its

Subsidiaries (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 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 Seller, AAR or

any of its Subsidiaries to comply in any material respect with any applicable

law, rule or regulation with respect to any Pool Receivable, Pool Asset or the

related Contract, or the failure of any Pool Receivable, Pool Asset or the

related Contract to conform in any material respect to any such applicable law,

rule or regulation,

 

(iv)            the failure to vest in the Agent,

for the benefit of the Purchasers, a valid and enforceable: (A) perfected

undivided percentage ownership interest, to the extent of the Purchased

Interest, in the Receivables in, or purporting to be in, the Receivables Pool

and the

 

12

 

other Pool Assets, or (B) first priority perfected security interest in

the Pool Assets, in each case, 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 Receivables in, or purporting to be in, the Receivables Pool and

the other Pool 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 in, or purporting to be in, the Receivables Pool

(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

Seller or any of its Affiliates acting as Servicer or by any agent or

independent contractor retained by the Seller or any of its Affiliates),

 

(vii)           any failure of the Seller (or any of

its Affiliates acting as 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 Pool

Receivable,

 

(ix)             the commingling of Collections of

Receivables at any time with other funds by the Seller, AAR, any Originator or,

to the extent it is the Seller or an Affiliate of the Seller, 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 failure by the Seller to give

reasonably equivalent value to any Originator in consideration for the sale by

the Originator to Seller of any Receivables, or any attempt by any Person to

void any such transfer 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 Indemnified

Party of any amount previously distributed in reduction of Capital, Discount or

any other amounts owing hereunder which such 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

 

13

 

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 or reinvestments by the Seller, the ownership

of Purchased Interests, or any Receivable, Related Security, Contract or other

Pool Asset;

 

(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 Seller (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 the Seller or any Originator to qualify to do business or

file any notice of business activity report or any similar report;

 

(xvii)          any action taken by the Seller, any

Originator or the Servicer (if AAR or any Affiliate or designee thereof) in the

enforcement or collection of any Pool Receivable;

 

(xviii)         the Purchased Interest exceeding 100%

at any time on or prior to the Termination Date;

 

(xix)          any inability to exercise any

non-assignable right or remedy under a Contract relating to a Receivable sold

by an Originator to the Seller and by the Seller to the Purchaser, which Indemnified

Loss could reasonably foreseeably have been avoided if such right or remedy had

been assignable by such Originator;

 

(xx)            any reduction in Capital as a result

of the distribution of Collections pursuant to Section 1.4(d) or Section

1.4(f), if all or a portion of such distributions shall thereafter be

rescinded or otherwise must be returned for any reason(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); or

 

(xxi)           any failure by the Seller or any

Originator to maintain in full force and effect with respect to at least 90% of

the entire Outstanding Balance of any Permitted Foreign Receivable 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 the Seller, any Originator or the Servicer to timely and

properly file and/or diligently pursue any claim under any such insurance

policy.

 

14

 

Notwithstanding anything

to the contrary in this Agreement, for purposes of this Section 3.1, 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.

 

Section 3.2             Indemnities

by the Servicer.

 

Without limiting any

other rights that the Agent, the Purchasers or any other Indemnified Party may

have hereunder or under applicable law, the Servicer hereby agrees to indemnify

each Indemnified Party from and against any and all Indemnified Amounts arising

out of or resulting from (whether directly or indirectly): (a) the failure of

any information contained in an Information Package provided by or on behalf of

AAR, the Servicer or any delegee or agent thereof to be true and correct in any

material respect, or the failure of any other information provided to the

Purchasers or the Agent by, or on behalf of, the Servicer or any delegee or

agent thereof to be true and correct in any material respect, (b) the failure

of any representation, warranty or statement made or deemed made by the

Servicer, any delegee or agent thereof (or any of the foregoing’s officers,

directors or employees) under or in connection with this Agreement to have been

true and correct in any material respect as of the date made or deemed made in

all respects when made, (c) the failure by the Servicer or any delegee or agent

thereof to comply with any applicable law, rule or regulation with respect to

any Pool Receivable, any Pool Assets or the related Contract, (d) any dispute,

claim, offset or defense of the Obligor (other than discharge in bankruptcy of

the Obligor) to the payment of any Receivable in, or purporting to be in, the

Receivables Pool resulting from or related to the collection activities with

respect to such Receivable, or (e) any failure of the Servicer to perform in

any material respect its duties or obligations in accordance with the

provisions hereof.

 

ARTICLE

IV.

ADMINISTRATION

AND COLLECTIONS

 

Section 4.1             Appointment

of the Servicer.

 

(a)           The

servicing, administering and collection of the Pool Receivables shall be

conducted by the Person so designated from time to time as the Servicer in

accordance with this Section.  Until the

Agent gives notice to AAR (in accordance with this Section) of the designation

of a new Servicer, AAR is hereby designated as, and hereby agrees to perform

the duties and obligations of, the Servicer pursuant to the terms hereof.  Upon the occurrence of a Termination Event,

the Agent may designate as Servicer any Person (including itself) to succeed

AAR or any successor Servicer, on the condition in each case that any such

Person so designated shall agree to perform the duties and obligations of the

Servicer pursuant to the terms hereof.

 

(b)           Upon

the designation of a successor Servicer as set forth in clause (a), AAR

agrees that it will terminate its activities as Servicer hereunder in a manner

that the Agent determines will facilitate the transition of the performance of

such activities to the new Servicer, and AAR agrees to, and to cause any of the

Sub-Servicers to, take all reasonable actions

 

15

 

requested by, and shall fully cooperate with and assist, such new

Servicer in that regard.  Such

cooperation shall include providing access to and transfer of related records

and use by the new Servicer of all licenses, hardware or software necessary or

desirable to collect the Pool Receivables and the Related Security.

 

(c)           AAR

acknowledges that, in making their decision to execute and deliver this

Agreement, the Agent and the Purchasers have relied on AAR’s agreement to act

as Servicer hereunder.  Accordingly, AAR

agrees that it will not voluntarily resign as Servicer.

 

(d)           The

Servicer may and hereby does delegate its duties and obligations hereunder to

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, (ii) the Servicer

shall remain primarily liable for the performance of all duties and obligations

so delegated, (iii) the Seller, the Agent and the Purchasers shall have the

right to look solely to the Servicer for performance, and (iv) the terms of any

agreement with any Sub-Servicer shall and hereby do provide that the Agent may

immediately terminate such agreement upon the termination of the Servicer

hereunder 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); provided, however, that if any such delegation is

to any Person other than 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, or

AAR Allen Services, Inc., an Illinois corporation, the Agent shall have

consented in writing in advance to such delegation.

 

Section 4.2             Duties

of the Servicer.

 

(a)           The

Servicer shall take or cause to be taken all such action as may be necessary or

advisable to administer and collect each Pool Receivable from time to time, all

in accordance with this Agreement and all applicable laws, rules and

regulations, with reasonable care and diligence, and in accordance with the

Credit and Collection Policies.  The

Servicer shall set aside, for the accounts of the Seller and the Purchasers,

the amount of the Collections to which each is entitled in accordance with

Article I.  If instructed by the Agent,

the Servicer shall segregate and deposit with the Agent the amount of

Collections to which the Agent is entitled pursuant to Article I hereof.  The Servicer may, in accordance with the

applicable Credit and Collection Policy, extend the maturity of any Pool

Receivable and extend the maturity or adjust the Outstanding Balance of any

Defaulted Receivable, in each case, as the Servicer may determine to be

appropriate to maximize Collections thereof; provided, however,

that: for the purposes of this Agreement, (i) such extension shall not change

the number of days such Pool Receivable has remained unpaid from the date of

the invoice date related to such Pool Receivable, (ii) such extension or

adjustment shall not alter the status of such Pool Receivable as a Delinquent

Receivable or a Defaulted Receivable or limit the rights of the Purchasers or

the Agent under this Agreement and (iii) if a Termination Event has occurred

and AAR or an Affiliate thereof is serving as the Servicer, AAR or such

Affiliate may make such extension or adjustment only upon the prior approval of

the Agent.  The Seller shall deliver to

the Servicer and the Servicer shall hold for the benefit of the Seller and the

Agent (individually and for the benefit of the Purchasers), in accordance with

their respective interests, all records and

 

16

 

documents (including computer tapes or disks) with respect to each Pool

Receivable.  Notwithstanding anything to

the contrary contained herein, after a Termination Event, the Agent may direct

the Servicer (whether the Servicer is AAR or any other Person) to commence or

settle any legal action to enforce collection of any Pool Receivable or to

foreclose upon or repossess any Related Security.  At the request of the Servicer, the Seller shall, and shall cause

each Originator to, deliver to the Servicer, and the Servicer shall hold in

trust for the Seller, the Agent and each Purchaser in accordance with their

respective interests, all Records with respect to the each Receivable; it being

agreed that until that time, AAR and each Originator shall be deemed to be

holding all such Records in trust for the Seller, the Agent and each

Purchaser.  Notwithstanding anything

contained to the contrary herein or in any of the other Transaction Documents,

upon the occurrence and during the continuance of a Termination Event or an

Unmatured Termination Event, the Agent, for the benefit of the Purchasers,

shall have the absolute and unlimited right to direct the Servicer (whether the

Servicer is AAR, an Affiliate thereof or any other Person) to commence or

settle any legal action to enforce collection of any Receivable or to foreclose

upon or repossess any Related Security.

 

(b)           The

Servicer shall, as soon as practicable following actual receipt of collected

funds, turn over to the Seller the collections of any indebtedness that is not

a Pool Receivable, less, if AAR or an Affiliate thereof is not the Servicer,

all reasonable and appropriate out-of-pocket costs and expenses of such

Servicer of servicing, collecting and administering such collections.  The Servicer, if other than AAR or an

Affiliate thereof, shall, as soon as practicable upon demand, deliver to the

Seller all records in its possession that evidence or relate to any

indebtedness that is not a Pool Receivable, and copies of records in its

possession that evidence or relate to any indebtedness that is a Pool

Receivable.

 

(c)           The

Servicer’s obligations hereunder shall terminate on the later of:  (i) the Facility Termination Date and (ii)

the date on which all amounts required to be paid to the Purchasers, the Agent

and any other Indemnified Party or Affected Person hereunder shall have been

paid in full.  After such termination,

if AAR or an Affiliate thereof was not the Servicer on the date of such

termination, the Servicer shall promptly deliver to the Seller all books,

records and related materials that the Seller previously provided to the

Servicer, or that have been obtained by the Servicer, in connection with this

Agreement.

 

(d)           Notwithstanding

anything contained herein to the contrary, the Servicer, if not AAR or an

Affiliate thereof, shall have no obligation to collect, enforce or take any

other action described in this Article IV with respect to any indebtedness that

is not a Pool Receivable or Pool Asset hereunder, other than to deliver the

same, and any Collections or Records relating thereto, to the Seller as set

forth above.

 

Section 4.3             Lock-Box

Arrangements.

 

Prior to the initial purchase hereunder, the Seller

shall enter into Lock-Box Agreements with all of the Lock-Box Banks and the

Agent and deliver original counterparts thereof to the Agent.  Seller shall be permitted to change Lock-Box

Banks, provided that prior to any such change (and, in any event, prior to any

payments flowing into any new such Lock-Box Accounts), the Agent shall have

received satisfactory Lock-Box Agreements executed by any

 

17

 

such new Lock-Box Banks.  At any

time after the occurrence and during the continuance of a Termination Event,

the Agent may give notice (which notice shall, unless otherwise elected by the

Agent in its sole discretion, continue in effect notwithstanding the cure or

waiver of any such Termination Event) to each Lock-Box Bank that the Agent is

exercising its rights under the Lock-Box Agreements to do any or all of the

following, in each case, without notice to or the consent of, the Seller or any

Originator: (a) to have the exclusive ownership and control of the

Lock-Box-Accounts transferred to the Agent and to exercise exclusive dominion

and control over the funds deposited therein, (b) to have the proceeds that are

sent to the respective Lock-Box Accounts redirected pursuant to the Agent’s

instructions rather than deposited in the applicable Lock-Box Account, and (c)

to take any or all other actions permitted under the applicable Lock-Box

Agreement.  The Seller hereby agrees

that if the Agent at any time takes any action set forth in the preceding sentence,

the Agent shall have exclusive control of the proceeds (including Collections)

of all Pool Receivables and the Seller hereby further agrees to, and to cause

each Originator to, take any other action that the Agent may reasonably request

to transfer such control.  Any proceeds

of Pool Receivables received by the Seller or the Servicer thereafter shall be

sent immediately to the Agent.  The

parties hereto hereby acknowledge that if at any time the Agent takes control

of any Lock-Box Account, the Agent shall not have any rights to the funds therein

in excess of the unpaid amounts due to the Agent, the Purchasers or any other

Person hereunder, and the Agent shall distribute or cause to be distributed

such funds in accordance with Section 1.4 (in each case as if such funds

were held by the Servicer thereunder). 

In any such case, the Agent may, and the Seller shall, and shall cause

each Originator to, withhold the identities of the Purchasers from any Lock-Box

Bank or any Obligor.  In case any

authorized signatory of the Seller whose signature shall appear on any Lock-Box

Agreement shall cease to have such authority before notice of exercise of the

Lock-Box Agreement is given to the applicable Lock-Box Bank, such signature

shall nevertheless be valid and sufficient for all purposes as if such authority

had remained in force at the time of such delivery.  In the event that the Agent shall then be receiving disbursements

from a Lock-Box Account, whether because it is then the Servicer hereunder or

because it has exercised its rights under any applicable Lock-Box Agreements or

for any other reason, the Agent shall promptly remit to the Seller any amounts

received by it from a Lock-Box Bank (i) upon its receipt of evidence

reasonably satisfactory to it that such amounts do not constitute Collections

with respect to Pool Receivables and (ii) to the extent of the Seller’s

residual interest, if any, therein after accounting for each Purchased

Interest. In determining whether the Seller has, in any instance, presented

reasonably satisfactory evidence of its ownership of items that do not

constitute Collections, the Agent shall be entitled to the presumption that, in

respect of any collections or other items for which the remitting Obligor has

not expressly indicated its intended application on the face of the payment

item or the accompanying documentation, the appropriate application thereof

shall be to Pool Receivables of such Obligor, and thus subject to the Purchased

Interests hereunder, and, if there shall be more than one Receivable of such

Obligor, to the oldest first.

 

Section 4.4             Reports.

 

(a)  On or

prior to 12:00 p.m. (Chicago time) on each Settlement Date, and at such other

times as is requested by the Agent pursuant hereto, the Seller and the Servicer

shall prepare and forward to the Agent a report substantially in the form of Annex

H (certified therein as true and

 

18

 

correct by Chief Financial Officer or other financial officer of the

Servicer) (a “Settlement Statement”) reflecting the information required

therein as of the close of business of the Seller for the immediately preceding

Settlement Period (and containing such additional information in respect of the

Receivables and the Obligors as is from time to time requested by the Agent

(including, if so requested, a listing by Obligor of all Receivables together

with an aging of such Receivables)).

 

(b)           On

or prior to 11:00 a.m. (Chicago time) on Thursday (or if not a Business Day, on

the immediately succeeding Business Day) of each calendar week and at such

other times as is requested by the Agent or required hereunder, the Seller and

the Servicer shall deliver to the Agent an Information Package substantially in

the form of that attached hereto as Annex A (certified therein as true

and correct by Chief Financial Officer or other financial officer of the

Servicer) reflecting the information required therein as of the close of

business of the Seller on the last Business Day of the immediately preceding

week (and containing such additional information as from time to time may be

requested by the Agent).

 

(c)  To the

extent the Agent reasonably disagrees with any of the computations set forth in

any such Information Package or Settlement Statement  delivered to it pursuant to this Section, it may recompute such

information and, to the extent the result of such recomputation differs from

the original computation provided by the Seller and the Servicer, the Agent may

designate such recomputed result to be the relevant result until such

discrepancy is resolved to the reasonable satisfaction of the Agent.  Notwithstanding the foregoing, the Agent

shall have no obligation to confirm the accuracy of any of the information

provided to it by the Seller and the Servicer in any report (including, without

limitation, any Information Package or Settlement Statement) and shall have no

liability to any Person in connection therewith.

 

(d)           The

Agent will deliver to any Purchaser upon its request therefor a copy of any

Information Package or Settlement Statement previously delivered to the Agent.

 

Section 4.5             Enforcement

Rights.

 

(a)           At

any time following the occurrence of a Termination Event:

 

(i)               the Agent may direct the Obligors

that payment of all amounts payable under any Pool Receivable is to be made

directly to the Agent or its designee,

 

(ii)              the Agent may instruct the Seller

or the Servicer to give notice of the Purchasers’ interest in Pool Receivables

to each Obligor, which notice shall direct that payments be made directly to

the Agent or its designee, and the Seller or the Servicer, as the case may be,

shall give such notice at the expense of the Seller or the Servicer, as the

case may be; provided, that if the Seller or the Servicer, as the case

may be, fails to so notify each Obligor, the Agent (at the Seller’s or the

Servicer’s, as the case may be, expense) may so notify the Obligors, and

 

(iii)             the Agent may request the Servicer

to, and upon such request the Servicer shall: (A) assemble all of the Records

necessary or desirable to collect the Pool

 

19

 

Receivables and the Related Security, and transfer or license to a

successor Servicer the use of all software necessary or desirable to collect

the Pool Receivables and the Related Security, and make the same available to

the Agent or its designee at a place selected by the Agent, and (B) segregate

all cash, checks and other instruments received by it from time to time

constituting Collections in a manner acceptable to the Agent and, promptly upon

receipt, remit all such cash, checks and instruments, duly endorsed or with

duly executed instruments of transfer, to the Agent or its designee.

 

(b)          The Seller hereby authorizes the

Agent, and irrevocably appoints the Agent as its attorney-in-fact with full

power of substitution and with full authority in the place and stead of the

Seller, which appointment is coupled with an interest, to take, after a

Termination Event, any and all steps in the name of the Seller and on behalf of

the Seller, or in its own name, in either case, necessary or desirable, in the

determination of the Agent, to endorse, negotiate and collect any and all

amounts or portions thereof due under any and all Pool Assets, including

endorsing the name of the Seller on checks and other instruments representing

Collections and enforcing such Pool Assets. 

Notwithstanding anything to the contrary contained in this subsection,

none of the powers conferred upon such attorney-in-fact pursuant to the

preceding sentence shall subject such attorney-in-fact to any liability if any

action taken by it shall prove to be inadequate or invalid, nor shall they

confer any obligations upon such attorney-in-fact in any manner whatsoever.

 

Section 4.6            Responsibilities of the Seller.

 

(a)           Anything

herein to the contrary notwithstanding, the Seller shall, and the Servicer (if

AAR or an Affiliate thereof) and Seller shall cause each of the Originators to:

(i) perform all of its obligations, if any, under the Contracts related to the

Pool Receivables to the same extent as if interests in such Pool Receivables

had not been transferred hereunder, and the exercise by the Agent or the

Purchasers of their respective rights hereunder shall not relieve the Seller or

the Originators from such obligations, and (ii) pay when due any taxes, including

any sales taxes payable in connection with the Pool Receivables and their

creation and satisfaction.  The Agent

and the Purchasers shall not have any obligation or liability with respect to

any Pool Asset or any related Contract, nor shall either of them be obligated

to perform any of the obligations of the Seller, AAR or any Originator

thereunder.

 

(b)           AAR

hereby irrevocably agrees that if at any time it shall cease to be the Servicer

hereunder, it shall act (if the then-current Servicer so requests) as the

data-processing agent of the Servicer and, in such capacity, AAR shall conduct

the data-processing functions of the administration of the Receivables and the

Collections thereon in substantially the same way that AAR conducted such

data-processing functions while it acted as the Servicer.

 

(c)           Other

than as set forth in this paragraph (c) and in the Sales Agreement, neither

AAR, the Seller or any of the Originators shall be required to comply with the

Assignment of Claims Act with respect to any Government Receivables.  Each of AAR and the Seller shall, and shall

cause each of the Originators to, 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 the Seller’s, AAR’s or such Originator’s, as applicable, own

name for and on behalf of the Agent

 

20

 

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) pursuant to Section 4.1(a),

AAR and the Seller shall, and shall cause each Originator to, at its own

expense if requested by such new Servicer, comply with the Assignment of Claims

Act with respect to specified Government Receivables identified by such new

Servicer.

 

Section 4.7             Computer

and Other Records.

 

Each computer record relating to the Pool Assets and

all ledger cards or other account records relating to such Pool Assets

maintained at the offices of the Seller, the Originators or the Servicer (if

AAR or an Affiliate thereof) will be clearly and conspicuously marked in a manner

reasonably acceptable to the Agent that indicates that the Pool Assets are

subject to an undivided percentage ownership interest pursuant to and governed

by this Agreement.  Upon the request of

the Agent at any time after its appointment of a new Servicer pursuant to Section

4.1(a), AAR and the Seller shall, and shall cause each of the Originators

to, segregate from all other receivables then owned or being serviced by such

Person all Contracts relating to a Pool Asset and will hold in trust and safely

keep such Contracts in separate filing cabinets or other suitable containers

marked to show the Agent’s and the Purchasers’ interest with the legend

specified above and maintained in such place or places as shall be designated

by the Agent.

 

Section 4.8             Servicing

Fee.

 

(a)           Subject

to clause (b), the Servicer shall be paid a fee equal to 1.00% per

annum (the “Servicing Fee Rate”) of the daily average aggregate Outstanding

Balance of the Pool Receivables.  The

Purchasers’ Share of such fee shall be paid through the distributions

contemplated by Section 1.4(d), and the Seller’s Share of such fee shall

be paid by the Seller on each Settlement Date.

 

(b)           If

the Servicer ceases to be AAR or an Affiliate thereof, the servicing fee shall

be the greater of: (i) the amount calculated pursuant to clause (a), and

(ii) an alternative amount specified by the successor Servicer not to exceed

110% of the aggregate reasonable costs and expenses incurred by such successor

Servicer in connection with the performance of its obligations as Servicer.

 

ARTICLE

V.

THE

AGENT

 

5.1  Appointment.

 

Each of the Purchasers hereby irrevocably designates

and appoints LaSalle as Agent hereunder, and authorizes the Agent to take such

action on its behalf under the provisions of this Agreement and to exercise

such powers and perform such duties as are expressly delegated to the Agent by

the terms of this Agreement, together with such other powers as are reasonably

incidental thereto.  Notwithstanding any

provision to the contrary elsewhere in this Agreement,

 

21

 

the Agent shall not have any duties or responsibilities, except those

expressly set forth herein, or any fiduciary relationship with any Purchaser,

and no implied covenants, functions, responsibilities, duties, obligations or

liabilities on the part of the Agent shall be read into this Agreement or

otherwise exist against the Agent.  The

provisions of this Article V are solely for the benefit of the Agent and

the Purchasers and the Seller shall not have any rights as a third-party

beneficiary or otherwise under any of the provisions hereof.  In performing its functions and duties

hereunder, the Agent shall act solely as the agent of the Purchasers and does

not assume, nor shall be deemed to have assumed, any obligation or relationship

of trust or agency with or for the Seller or any of its successors and assigns.

 

5.2  Delegation

of Duties.

 

The Agent may execute any of its duties under this

Agreement by or through agents or attorneys-in-fact and shall be entitled to

advice of counsel concerning all matters pertaining to such duties.  The Agent shall not be responsible for the

negligence or misconduct of any agents or attorneys-in-fact selected by it with

reasonable care.

 

5.3  Exculpatory

Provisions.

 

Neither the Agent nor any of its directors, officers,

agents or employees shall be (i) liable for any action lawfully taken or

omitted to be taken by it or them or any Person described in Section 5.2

under or in connection with this Agreement (except for its, their or such

Person’s own gross negligence or willful misconduct), or (ii) responsible in

any manner to any of the Purchasers for any recitals, statements,

representations or warranties made by the Seller, any of its Affiliates, or the

Servicer contained in this Agreement, any of the other Transaction Documents or

in any certificate, report, statement or other document referred to or provided

for in, or received under or in connection herewith or therewith, or for the

value, validity, effectiveness, genuineness, enforceability or sufficiency of

this Agreement or any other document furnished in connection herewith, or for

any failure of the Seller, any of its Affiliates or the Servicer to perform any

of their respective obligations hereunder or under any other Transaction

Documents, or for the satisfaction of any condition specified in Exhibit II,

except receipt of items required to be delivered to the Agent.  The Agent shall not be under any obligation

to any Purchaser to ascertain or to inquire as to the observance or performance

of any of the agreements or covenants contained in, or conditions of, this

Agreement or the other Transaction Documents, or to inspect the properties,

books or records of the Seller or its Affiliates.  This Section is intended solely to govern the relationship

between the Agent, on the one hand, and the Purchasers, on the other, and shall

not convey any rights to or diminish any obligations of the Seller or any of

its Affiliates under the Transaction Documents or otherwise effect any of the

rights and remedies of the Agent and the Purchasers as against the Pool Assets

or the Seller and its Affiliates thereunder.

 

5.4  Reliance by

Agent.

 

The Agent shall in all cases be entitled to rely, and

shall be fully protected in relying, upon any note, writing, resolution,

notice, consent, certificate, affidavit, letter, cablegram, facsimile,

telegram, telex or teletype message, statement, order or other document or

 

22

 

conversation believed by it to be genuine and correct and to have been

signed, sent or made by the proper Person or Persons and upon advice and

statements of legal counsel (including, without limitation, counsel to the

Seller), independent accountants and other experts selected by the Agent.  The Agent shall in all cases be fully

justified in failing or refusing to take any action under this Agreement, the

other Transaction Documents or any other document furnished in connection

herewith or therewith, unless it shall first receive such advice or concurrence

of the Required Purchasers as it deems appropriate or it shall first be

indemnified to its satisfaction by the Purchasers against any and all

liability, cost and expense which may be incurred by it by reason of taking or

continuing to take any such action (excluding any such liability, cost or

expense which shall have been incurred by the Agent as a result of its own

gross negligence or willful misconduct in the taking of any such action).  The Agent shall in all cases be fully

protected in acting, or in refraining from acting, under this Agreement in

accordance with a request of the Required Purchasers and such request and any

action taken or failure to act pursuant thereto shall be binding upon all of

the Purchasers.

 

5.5  Notice of

Termination.

 

The Agent shall not be deemed to have knowledge or

notice of the occurrence of any Termination Event unless the Agent has received

notice from a Purchaser or the Seller, referring to this Agreement, stating

that a Termination Event has occurred hereunder and describing such event.  In the event that the Agent receives such a

notice, the Agent shall promptly give notice thereof to each Purchaser.  The Agent shall take such action with

respect to such Termination Event as shall be directed by the Required

Purchasers; provided that unless and until the Agent shall have received

such directions, the Agent may (but shall not be obligated to) take such

action, or refrain from taking such action, with respect to such Termination

Event as the Agent shall deem advisable and in the best interests of the

Purchasers.

 

5.6  Non-Reliance

on Agent and the Purchasers.

 

Each of the Purchasers expressly acknowledges that

neither the Agent, nor any of its officers, directors, employees, agents, attorneys-in-fact

or affiliates has made any representations or warranties to it and that no act

by the Agent hereafter taken, including, without limitation, any review of the

affairs of the Seller, shall be deemed to constitute any representation or warranty

by the Agent.  Each of the Purchasers

represents and warrants to the Agent that it has, independently and without

reliance upon the Agent or any other Purchaser and based on such documents and

information as it has deemed appropriate, made its own appraisal of and

investigation into the business, operations, property, prospects, financial and

other conditions and creditworthiness of the Seller and made its own decision

to enter into this Agreement.  Each of

the Purchasers also represents that it will, independently and without reliance

upon the Agent or any other Purchaser, and based on such documents and

information as it shall deem appropriate at the time, continue to make its own

credit analysis, appraisals and decisions in taking or not taking action under

this Agreement, and to make such investigation as it deems necessary to inform

itself as to the business, operations, property, prospects, financial and other

condition and creditworthiness of the Seller. 

The Agent shall not have any duty or responsibility to provide any

Purchaser with any credit or other information concerning the business,

operations, property, prospects, financial and other condition or

creditworthiness of the Seller

 

23

 

which may come into the possession of the Agent or any of its officers,

directors, employees, agents, attorneys-in-fact or affiliates other than the

reports provided by the Seller and the Servicer pursuant to clause (m)

of Exhibit IV and such additional information as a Purchaser may

reasonably request.

 

5.7  Indemnification.

 

The Purchasers agree to indemnify the Agent and its

officers, directors, employees, representatives and agents (to the extent not

reimbursed by the Seller and without limiting the obligation of the Seller to

do so), ratably according to their Pro Rata Shares, from and against any and

all liabilities, obligations, losses, damages, penalties, actions, judgments,

suits, costs, expenses or disbursements of any kind or nature whatsoever

(including, without limitation, the fees and disbursements of counsel for the

Agent or such Person in connection with any investigative, administrative or

judicial proceeding commenced or threatened, whether or not the Agent or such

Person shall be designated a party thereto) that may at any time be imposed on,

incurred by or asserted against the Agent or such Person as a result of, or

arising out of, or in any way related to or by reason of, any of the

transactions contemplated hereunder or the execution, delivery or performance

of this Agreement or any other document furnished in connection herewith (but

excluding any such liabilities, obligations, losses, damages, penalties,

actions, judgments, suits, costs, expenses or disbursements resulting solely

from the gross negligence or willful misconduct of the Agent or such Person as

finally determined by a court of competent jurisdiction).

 

5.8  Agent

in Its Individual Capacity.

 

The Agent and its affiliates may make loans to, accept

deposits from and generally engage in any kind of business with the Seller or

any Affiliate of the Seller as though the Agent were not the Agent

hereunder.  With respect to the purchase

of Receivables pursuant to this Agreement, the Agent shall have the same rights

and powers under this Agreement as any Purchaser and may exercise the same as

though it were not the Agent, and the terms “Purchaser” and “Purchasers” shall

include the Agent in its individual capacity.

 

5.9  Successor Agent.

 

The Agent may resign as Agent upon five (5) days’

notice to the Seller and the Purchasers. 

If the Agent shall resign as Agent under this Agreement, then the

Required Purchasers shall appoint from among the Purchasers a successor agent,

whereupon such successor agent shall succeed to the rights, powers and duties of

the Agent and the term “Agent” shall mean such successor agent, effective upon

its appointment, and the former Agent’s rights, powers and duties as Agent

shall be terminated, without any other or further act or deed on the part of

such former Agent or any of the parties to this Agreement.  After any retiring Agent’s resignation

hereunder as Agent, the provisions of this Article V shall inure to its

benefit as to any actions taken or omitted to be taken by it while it was Agent

under this Agreement.

 

24

 

ARTICLE

VI.

MISCELLANEOUS

 

Section 6.1             Amendments,

Etc.

 

No amendment or waiver of any provision of this

Agreement or any other Transaction Document, or consent to any departure by the

Seller or the Servicer therefrom, shall be effective unless in a writing signed

by the Agent; and, in the case of any amendment, by the other parties thereto;

and then such amendment, waiver or consent shall be effective only in the

specific instance and for the specific purpose for which given.  No failure on the part of the Purchasers or

the Agent to exercise, and no delay in exercising, any right hereunder shall

operate as a waiver thereof, nor shall any single or partial exercise of any

right hereunder preclude any other or further exercise thereof or the exercise

of any other right.

 

Section 6.2             Notices,

Etc.

 

All notices and other communications hereunder shall,

unless otherwise stated herein, be in writing (which shall include facsimile

communication) and be sent or delivered to each party hereto at its address set

forth under its name on the signature pages hereof or at such other address as

shall be designated by such party in a written notice to the other parties

hereto.  Notices and communications by

facsimile shall be effective when sent (and shall be followed by hard copy sent

by first class mail), and notices and communications sent by other means shall

be effective when received.

 

Section 6.3             Assignability.

 

(a)           This

Agreement and the Purchasers’ rights and obligations herein (including

ownership of the Purchased Interest or an interest therein) shall be

assignable, in whole or in part, by the Purchasers and their successors and

assigns to another financial institution, with the prior consent of the Agent,

which consent shall not unreasonably be withheld.  Each such assignment shall be evidenced by an Assignment and

Acceptance in the form of that attached hereto as Annex E (an

“Assignment and Acceptance”), executed by the assignee and assignor, and shall

become effective (i) upon payment by the Purchaser to the Agent of an

assignment fee of $3500 (payment of which may be waived by the Agent in its

sole discretion) and (ii) written acceptance by the Agent of such Assignment

and Acceptance.  Each assignor may, in

connection with the assignment, disclose to the applicable assignee (that shall

have agreed to be bound by Section 6.5) any information relating to the

Servicer, the Seller or the Pool Receivables furnished to such assignor by or

on behalf of the Servicer, the Seller, the Purchasers or the Agent.

 

(b)           The

Purchasers may at any time grant to one or more banks or other

institutions  participating interests in

the Purchased Interest, with the prior consent of the Agent, which consent

shall not unreasonably be withheld.  In

the event of any such grant by the Purchasers of a participating interest to

another financial institution, the assigning Purchaser shall remain responsible

for the performance of its obligations hereunder.  The Seller agrees that each participant shall be entitled to the

benefits of Sections 1.7 and 1.8; provided, that if any

such participant shall make a claim under such provisions in excess of that

otherwise payable to the

 

25

 

assigning Purchaser, the Agent shall work with the Seller and Servicer

in order to find a replacement for such claimant.

 

(c)           This

Agreement and the rights and obligations of the Agent hereunder shall be

assignable, in whole or in part, by the Agent and its successors and assigns; provided,

that unless (i) such assignment is to an Affiliate of LaSalle, (ii) it becomes

unlawful for LaSalle to serve as Agent, or (iii) a Termination Event has

occurred and is continuing, the Seller has consented to such assignment, which

consent shall not unreasonably be withheld or delayed.

 

(d)           Except

as provided in Section 4.1 (d), none of the Seller, AAR or the Servicer

may assign its rights or delegate its obligations hereunder or any interest

herein without the prior written consent of the Agent.

 

(e)           Without

limiting any other rights that may be available under applicable law, the

rights of the Purchasers may be enforced through it or by its agents.

 

Section 6.4             Costs,

Expenses and Taxes.

 

(a)           In

addition to the rights of indemnification granted under Section 3.1, the

Seller agrees to pay on demand (which demand shall be accompanied by

documentation thereof in reasonable detail) all reasonable costs and expenses

in connection with the preparation, negotiation, execution, delivery and

administration (including periodic internal audits by the Agent of Pool

Receivables) of this Agreement, the other Transaction Documents and the other

documents and agreements to be delivered hereunder (and all reasonable costs

and expenses in connection with any amendment, waiver or modification of any

thereof), including:  (i) Attorney Costs

for the Agent, the Purchasers and their respective Affiliates and agents with

respect thereto and with respect to advising the Agent, the Purchasers and

their respective Affiliates and agents as to their rights and remedies under

this Agreement and the other Transaction Documents, and (ii) all reasonable

costs and expenses (including Attorney Costs but excluding allocated costs of

in house counsel and other personnel), if any, of the Agent, the Purchasers and

their respective Affiliates and agents in connection with the enforcement of

this Agreement and the other Transaction Documents.

 

(b)           In

addition, the Seller shall pay on demand any and all stamp and other taxes and

fees payable in connection with the execution, delivery, filing and recording

of this Agreement or the other documents or agreements to be delivered

hereunder, and agrees to save each Indemnified Party harmless from and against

any liabilities with respect to or resulting from any delay in paying or

omission to pay such taxes and fees.

 

Section 6.5             Confidentiality.

 

Unless otherwise required by applicable law, each of

the Agent and the Purchasers agrees to maintain the confidentiality of

non-public financial information regarding AAR and its Subsidiaries and

Affiliates; provided, that such information may be disclosed to: (i)

third parties to the extent such disclosure is made pursuant to a written

agreement of confidentiality in form and substance reasonably satisfactory to

AAR, (ii) legal counsel and auditors of the Purchasers

 

26

 

or the Agent if they agree to hold it confidential, (iii) any potential

assignee or participant (if they agree to hold it confidential), and (iv) any

regulatory or governmental authorities having jurisdiction over the Agent

and/or the Purchasers.

 

Section 6.6             GOVERNING

LAW AND JURISDICTION.

 

(a)           THIS

AGREEMENT SHALL BE DEEMED TO BE A CONTRACT MADE UNDER AND GOVERNED BY THE

INTERNAL LAWS OF THE STATE OF ILLINOIS EXCEPT TO THE EXTENT THAT THE VALIDITY

OR PERFECTION OF A SECURITY INTEREST OR REMEDIES HEREUNDER, IN RESPECT OF ANY

PARTICULAR COLLATERAL ARE GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE

STATE OF ILLINOIS.

 

(b)           ANY

LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT MAY BE BROUGHT IN THE

COURTS OF THE STATE OF ILLINOIS LOCATED IN COOK COUNTY OR OF THE UNITED STATES

FOR THE NORTHERN DISTRICT OF ILLINOIS; AND, BY EXECUTION AND DELIVERY OF THIS

AGREEMENT, EACH OF THE PARTIES HERETO CONSENTS, FOR ITSELF AND IN RESPECT OF

ITS PROPERTY, TO THE NON-EXCLUSIVE JURISDICTION OF THOSE COURTS.  EACH OF THE PARTIES HERETO IRREVOCABLY

WAIVES, TO THE MAXIMUM EXTENT PERMITTED BY LAW, ANY OBJECTION, INCLUDING ANY

OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON

CONVENIENS, THAT IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY ACTION OR

PROCEEDING IN SUCH JURISDICTION IN RESPECT OF THIS AGREEMENT OR ANY DOCUMENT

RELATED HERETO.  EACH OF THE PARTIES

HERETO WAIVES PERSONAL SERVICE OF ANY SUMMONS, COMPLAINT OR OTHER PROCESS,

WHICH SERVICE MAY BE MADE BY ANY OTHER MEANS PERMITTED BY ILLINOIS LAW.

 

Section 6.7             Execution

in Counterparts.

 

This Agreement may be executed in any number of

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.

 

Section 6.8             Survival

of Termination.

 

The provisions of Sections 1.7, 1.8, 3.1,

3.2, 5.7, 6.4, 6.5, 6.6 and 6.9 shall

survive any termination of this Agreement.

 

Section 6.9             WAIVER

OF JURY TRIAL; OTHER WAIVERS.

 

(A)          EACH

OF THE PARTIES HERETO WAIVES THEIR RESPECTIVE RIGHTS TO A TRIAL BY JURY OF ANY

CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF OR RELATED TO THIS

AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY IN ANY ACTION, PROCEEDING OR

OTHER LITIGATION

 

27

 

OF ANY TYPE BROUGHT BY ANY OF THE PARTIES AGAINST ANY OTHER PARTY OR

PARTIES, WHETHER WITH RESPECT TO CONTRACT CLAIMS, TORT CLAIMS OR

OTHERWISE.  EACH OF THE PARTIES HERETO

AGREES THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE TRIED BY A COURT TRIAL

WITHOUT A JURY.  WITHOUT LIMITING THE

FOREGOING, EACH OF THE PARTIES HERETO FURTHER AGREES THAT ITS RESPECTIVE RIGHT

TO A TRIAL BY JURY IS WAIVED BY OPERATION OF THIS SECTION AS TO ANY ACTION,

COUNTERCLAIM OR OTHER PROCEEDING THAT SEEKS, IN WHOLE OR IN PART, TO CHALLENGE

THE VALIDITY OR ENFORCEABILITY OF THIS AGREEMENT, THE OTHER TRANSACTION

DOCUMENTS OR ANY PROVISION HEREOF OR THEREOF. 

THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS,

SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT AND/OR ANY OF THE OTHER

TRANSACTION DOCUMENTS.

 

(b)          The

Seller hereby waives the benefit of any law that would otherwise restrict or limit

Agent, any of the Purchasers or any Affiliate of any of the foregoing in the

exercise of its right, which is hereby acknowledged and agreed to, to set-off,

without notice at any time hereafter, any indebtedness, matured or unmatured,

owing by the Agent, any Purchaser or any such Affiliate thereof to the Seller,

including, without limitation any deposit account maintained with the Agent,

any Purchaser or any Affiliate of any of the foregoing.

 

(c)           NOTWITHSTANDING

ANYTHING CONTAINED HEREIN OR IN ANY OTHER TRANSACTION DOCUMENT TO THE CONTRARY,

IN NO EVENT SHALL THE AGENT, ANY PURCHASER OR ANY AFFILIATE OF ANY OF THE

FOREGOING BE LIABLE TO THE SELLER OR ANY AFFILIATE THEREOF FOR LOST PROFITS OR

OTHER SPECIAL, PUNITIVE, CONSEQUENTIAL, INDIRECT OR EXEMPLARY DAMAGES.

 

(d)          The

Agent’s and/or the Purchasers’ failure, at any time or times hereafter, to

require strict performance by the Seller or the Servicer of any provision of

this Agreement or any of the other Transaction Documents shall not waive,

affect or diminish any right of Agent or any Purchaser thereafter to demand

strict compliance and performance therewith. 

Any suspension or waiver by Agent or any Purchaser of any Termination

Event under this Agreement or any default under any of the Other Transaction

Documents shall not suspend, waive or affect any other Termination Event under

this Agreement or any other default under any of the other Transaction

Documents, whether the same is prior or subsequent thereto and whether of the

same or of a different kind or character. 

No delay on the part of Agent or any Purchaser in the exercise of any

right or remedy under this Agreement or under any other Transaction Document

shall preclude other or further exercise thereof or the exercise of any right

or remedy.  None of the undertakings,

agreements, warranties, covenants and representations of the Seller, the

Servicer or their respective Affiliates contained in this Agreement and the

other Transaction Documents and no Termination Event under this Agreement or

default under any of the other Transaction Documents shall be deemed to have

been suspended or waived by Agent and/or the Purchasers unless such suspension

or waiver is in writing, signed by a duly authorized officer of the Agent, the

Requisite Purchasers or all Purchasers, as required herein, and directed to the

Seller specifying such suspension or waiver.

 

28

 

Section 6.10           Entire

Agreement.

 

This Agreement and the other Transaction Documents

embody the entire agreement and understanding between the parties hereto, and

supersede all prior or contemporaneous agreements and understandings of such

Persons, verbal or written, relating to the subject matter hereof and thereof,

except for any prior arrangements made with respect to the payment by the

Purchasers of(or any indemnification for) any fees, costs or expenses payable

to or incurred (or to be incurred) by or on behalf of the Seller, the Servicer

and the Agent.

 

Section 6.11           Headings.

 

The captions and headings of this Agreement and any

Exhibit, Schedule or Annex hereto are for convenience of reference only and

shall not affect the interpretation hereof or thereof.

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

 

29

 

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.

 

	

   

  	

   

  	

  LASALLE BUSINESS CREDIT, LLC,

  	

   

  
	

   

  	

   

  	

  as Agent and as the sole initial Purchaser

  	

   

  
	

  Maximum Purchase Limit:

  	

   

  	

   

  	

   

  
	

  $35,000,000

  	

   

  	

   

  	

   

  
	

   

  	

   

  	

  By:

  	

  /s/ JOHN MOSTOFI

  	

   

  
	

  Pro Rata Share:

  	

   

  	

  Name:

  	

  John Mostofi

  	

   

  
	

  100%

  	

   

  	

  Title:

  	

  Senior Vice President

  	

   

  
	

   

  	

   

  	

   

  	

   

  
	

   

  	

   

  	

  Address:

  	

   

  
	

   

  	

   

  	

   

  	

   

  
	

   

  	

   

  	

  LaSalle Business Credit, LLC

  	

   

  
	

   

  	

   

  	

  135 South LaSalle

  Street

  	

   

  
	

   

  	

   

  	

  Chicago, IL 60603-4105

  	

   

  
	

   

  	

   

  	

  Attention: 

  John Mostofi

  	

   

  
	

   

  	

   

  	

  Telephone No.: 

  312-904-8141

  	

   

  
	

   

  	

   

  	

  Facsimile No.: 

  312-904-6450

  	

   

  
	

   

  	

   

  	

   

  	

   

  
	

   

  	

   

  	

  AAR RECEIVABLES CORPORATION II,

  	

   

  
	

   

  	

   

  	

  as Seller

  	

   

  
	

   

  	

   

  	

   

  	

   

  
	

   

  	

   

  	

   

  	

   

  
	

   

  	

   

  	

  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

  
											

 

30

 

	

   

  	

   

  	

  AAR CORP.,

  	

   

  
	

   

  	

   

  	

  individually and as initial Servicer

  	

   

  
	

   

  	

   

  	

   

  	

   

  
	

   

  	

   

  	

   

  	

   

  
	

   

  	

   

  	

  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

  
									

 

31

 

EXHIBIT

I

DEFINITIONS

 

As used in the Agreement (including its Exhibits,

Schedules and Annexes), the following terms shall have the following meanings

(such meanings to be equally applicable to both the singular and plural forms

of the terms defined).  Unless otherwise

indicated, all Section, Annex, Exhibit and Schedule references in this Exhibit

are to Sections of and Annexes, Exhibits and Schedules to the Agreement.

 

“AAR” has the meaning set forth in the preamble to the

Agreement.

 

“Adjusted Eligible Receivables” means (i) the

aggregate Outstanding Balance of all Pool Receivables, minus (ii) the aggregate

Outstanding Balance of all Pool Receivables that were Delinquent Receivables

and minus (iii) the aggregate Outstanding Balance of all Pool Receivables owed

by Obligors that were Affiliates of AAR or any other Originator.

 

“Administration Account” means the account number

439992 of the Agent maintained at the office of LaSalle Bank National Association

at 135 S. LaSalle Street, Chicago, Illinois 60603-4105, or such other account

as may be so designated in writing by the Agent to the Servicer.

 

“Agent” has the meaning set forth in the preamble to

the Agreement.

 

“Adverse Claim” means a lien, security interest or

other charge or encumbrance, or any other type of preferential arrangement; it

being understood that any of the foregoing in favor of, or assigned to, the

Purchasers or the Agent (for the benefit of the Purchasers) shall not

constitute an Adverse Claim.

 

“Affected Person” has the meaning set forth in Section

1.7 of the Agreement.

 

“Affiliate” means, as to any Person: (a) any Person

that, directly or indirectly, is in control of, is controlled by or is under

common control with such Person, or (b) who is a director or officer: (i) of

such Person or (ii) of any Person described in clause (a), except that, with

respect to the Purchasers, Affiliate shall mean the holder(s) of its capital

stock.  For purposes of this definition,

control of a Person shall mean the power, direct or indirect: (x) to vote 10%

or more of the securities having ordinary voting power for the election of

directors or managers of such Person, or (y) to direct or cause the direction

of the management and policies of such Person, in either case whether by

ownership of securities, contract, proxy or otherwise.

 

“Agreement” has the meaning set forth in the preamble

to the Agreement.

 

“Alternate Rate” for any Settlement Period for any

Portion of Capital of the Purchased Interest means an interest rate per annum

equal to:  (a) 3.00% per annum above the

Euro-Rate for such Settlement Period; provided, however, that if

(x) it shall become unlawful for any Purchaser to obtain funds in the London

interbank eurodollar market in order to make, fund or maintain any Purchased

Interest, or if such funds shall not be reasonably available to any Purchaser,

or (y)

 

 

there shall not be at least two Business Days prior to the commencement

of an applicable Settlement Period to determine Euro-Rate in accordance with

its terms, then the “Alternate Rate” shall be equal to the Base Rate in effect

for each day during the remainder of such Settlement Period or (b) if requested

by the Seller the Base Rate for such Settlement Period; provided, however,

that the “Alternate Rate” for any day while a Termination Event exists shall be

an interest rate equal to 2.00% per annum above the Base Rate otherwise in

effect on such day.

 

“Assignment and Acceptance” shall have the meaning set

forth in Section 6.3(a).

 

“Assignment of Claims Act” means the Assignment of

Claims Act, 31 U.S.C. §§ 3727 et  seq. (1982) and 41 U.S.C. §§15 et

seq. (1982), in each case, as amended.

 

“Attorney Costs” means and includes all reasonable

fees and disbursements of any law firm or other external counsel.

 

“Bankruptcy Code” means the United States Bankruptcy

Reform Act of 1978 (11 U.S.C.  § 101, et

seq.), as amended from time to time.

 

“Base Rate” means, for any day, a fluctuating interest

rate per annum as shall be in effect from time to time, which rate shall be at

all times equal to the higher of:

 

(a)           shall mean LaSalle Bank National

Associations publicly announced prime rate (which is not intended its lowest or

most favorable rate in effect at any time) in effect from time to time; and

 

(b)           0.50% per annum above the latest

Federal Funds Rate.

 

“BBA” means the British Bankers’ Association.

 

“Benefit Plan” means any employee benefit pension plan

as defined in Section 3(2) of ERISA in respect of which the Seller, any

Originator, AAR or any ERISA Affiliate is, or at any time during the

immediately preceding six years was, an “employer” as defined in Section 3(5)

of ERISA.

 

“Business Day” means any day (other than a Saturday or

Sunday) on which: (a) banks are not authorized or required to close in Chicago,

Illinois and (b) if this definition of “Business Day” is utilized in connection

with the Euro-Rate, dealings are carried out in the London interbank market.

 

“Capital” means the amount paid to the Seller in

respect of the Purchased Interest by the Purchasers pursuant to the Agreement,

or such amount divided or combined in order to determine the Discount

applicable to any Portion of Capital, in each case, as reduced from time to

time by Collections actually distributed and applied on account of such Capital

pursuant to Section 1.4(d) or 1.4(f) of the Agreement; provided,

that if such Capital shall have been reduced by any distribution, and

thereafter all or a portion of such distribution is rescinded or must

 

I-2

 

otherwise be returned for any reason, such Capital shall be increased

by the amount of such rescinded or returned distribution as though it had not

been made.

 

“Capital Expenditures” shall mean with respect to any

period, the aggregate of all expenditures (whether paid in cash or accrued as

liabilities and including expenditures for capitalized lease obligations) by

AAR and its Subsidiaries during such period that are required by GAAP to be

included in or reflected by the property, plant and equipment or similar fixed

asset accounts (or intangible accounts subject to amortization) on the balance

sheet of AAR and/or its Subsidiaries.

 

“Change in Control” means (i) the acquisition by any Person or two or more Persons acting in

concert, of beneficial ownership (within the meaning of Rule 13d-3 of the

Securities and Exchange Commission under the Securities Exchange Act of 1934,

as amended) of 35% or more of the outstanding shares of voting stock of AAR or

(ii) that AAR ceases to own, directly or indirectly, 100% of the capital

stock of the Seller and each of the Originators free and clear of all Adverse

Claims.

 

“Charged-Off Receivable” means, at any time, any Pool

Receivable that has been (in accordance with the Credit and Collection Policy of

the applicable Originator thereof) or should have been (in the reasonable

judgment of the Required Purchasers and based upon the past practices of the

Seller and the applicable Originator thereof) charged off or written off by the

Seller, including, without limitation, any such charged-off or written-off Pool

Receivable that shall have been deemed collected pursuant to Section 1.4(e).

 

“Closing Date” means March 21, 2003.

 

“Collections” means, with respect to any Pool

Receivable:  (a) all funds that are received

by an Originator, AAR, the Seller or the Servicer in payment of any amounts

owed in respect of such Receivable (including purchase price, finance charges,

interest and all other charges) or Related Security, or applied to amounts owed

in respect of such Receivable (including insurance payments and net proceeds of

the sale or other disposition of repossessed goods or other collateral or

property of the related Obligor or any other Person directly or indirectly

liable for the payment of such Pool Receivable and available to be applied

thereon), (b) all amounts deemed to have been received pursuant to Section

1.4(e) of the Agreement and (c) all other proceeds of such Pool Receivable

and any Related Security therefor.

 

“Company Note” has the meaning set forth in Section

3.1 of the Sale Agreement.

 

“Concentration Percentage” means: (a) for any Group A

Obligor, 25%, (b) for any Group B Obligor, 25%, (c) for any Group C Obligor,

15%, (d) for any Group D Obligor, 5% and (e) for Permitted Government

Receivables, as a class, 25%.

 

“Consolidated Net Worth” shall mean, as of any date of

determination, the consolidated stockholders’ equity of AAR and its

Subsidiaries determined in accordance with GAAP.

 

I-3

 

“Consolidated Tangible Net Worth” shall mean, as of

any date of determination, the sum of (a) Consolidated Net Worth, less (i)

consolidated Intangible Assets of AAR and its Subsidiaries, (ii) Investments by

AAR and its Subsidiaries in leveraged leases, and (iii) the value as at any

such date of determination of those assets which are or which, consistent with

AAR’s and its Subsidiaries’ practices as in effect as of the close of the most

recent fiscal year, should be categorized on the consolidated balance sheet of AAR

and its consolidated Subsidiaries as “Other Assets,” plus (b) Subordinated

Debt.  For purposes of this definition

“Intangible Assets” means the amount (to the extent reflected in determining

such Consolidated Net Worth) of (i) all write-ups (other than write-ups

resulting from foreign currency translations and write-ups of assets of a going

concern business made within twelve months after the acquisition of such

business) in the book value of any asset owned by AAR or any consolidated

Subsidiary thereof subsequent to May 31, 2002, and (ii) all unamortized debt

discount and expense, unamortized deferred charges, goodwill, patents,

trademarks, service marks, trade names, copyrights, organization or development

expenses, costs in excess of underlying assets of acquired companies, covenants

to not compete, and other intangible items of AAR and its consolidated

Subsidiaries, for purposes of this clause (ii), in each case, to the extent

such items are disclosed as separate line items on AAR’s consolidated financial

statements.

 

“Contract” means, with respect to any Receivable, any

and all contracts, instruments, agreements, invoices, notes or other writings

pursuant to which such Receivable arises or that evidence such Receivable or

under which an Obligor becomes or is obligated to make payment in respect of

such Receivable.

 

“Contra Adjustment” means an amount equal to 5% of the

Outstanding Balance of Eligible Receivables in the Receivables Pool.

 

“Credit and Collection Policy” means, as the context

may require, those receivables credit and collection policies and practices of

the Originators in effect on the date of the Agreement and described in Schedule

I to the Agreement, as modified in compliance with the Agreement.

 

“Cut-off Date” has the meaning set forth in the Sale

Agreement.

 

“Days’ Sales Outstanding” means, at any time, an

amount computed as of the last day of each calendar month equal to: (a) the

average of the Outstanding Balance of all Pool Receivables as of the last day

of each of the three most recent calendar months ended on the last day of such

calendar month divided by (b)(i) the aggregate credit sales made by an

Originator during the three calendar months ended on or before the last day of

such calendar month divided by (ii) 90.

 

“Debt” means: (a) indebtedness for borrowed money, (b)

obligations evidenced by bonds, debentures, notes or other similar instruments,

(c) obligations to pay the deferred purchase price of property or services, (d)

obligations as lessee under leases that shall have been or should be, in

accordance with generally accepted accounting principles, recorded as capital

leases, and (e) obligations under direct or indirect guaranties in respect of,

and obligations (contingent or otherwise) to purchase or otherwise acquire, or

otherwise to assure a creditor against loss in respect of, indebtedness or

obligations of others of the kinds referred to in clauses (a) through (d).

 

I-4

 

“Defaulted Receivable” means a Receivable:

 

(a)           as to which any payment, or part

thereof, remains unpaid for 120 days or more from the invoice date for such

payment, or

 

(b)           without duplication (i) as to which

an Insolvency Proceeding shall have occurred with respect to the Obligor

thereof or any other Person obligated thereon or owning any Related Security

with respect thereto or (ii) that has become a Charged-Off Receivable.

 

“Default Ratio” means the ratio (expressed as a

percentage and rounded to the nearest 1/100 of 1%, with 5/1000th of 1% rounded

upward) computed as of the last day of each calendar month by dividing: (a) the

aggregate Outstanding Balance of all Pool Receivables that became Defaulted

Receivables during such month, by (b) the aggregate credit sales made by the

Originators during the month that is six calendar months before such month.

 

“Delinquency Ratio” means the ratio (expressed as a

percentage and rounded to the nearest 1/100 of 1%, with 5/1000th of 1% rounded

upward) computed as of the last day of each calendar month by dividing: (a) the

aggregate Outstanding Balance of all Pool Receivables that were Delinquent

Receivables on such day by (b) the aggregate Outstanding Balance of all Pool

Receivables on such day.

 

“Delinquent Receivable” means a Receivable (other than

a Defaulted Receivable) as to which any payment, or part thereof, remains

unpaid for 90 days or more from the invoice date for such payment.

 

“Dilution Horizon” means, for any calendar month, the

ratio (expressed as a percentage and rounded to the nearest 1/100th of 1%, with

5/1000th of 1% rounded upward) computed as of the last day of such calendar

month of: (a) the aggregate credit sales made by the Originators during the two

most recent calendar months to (b) the Adjusted Eligible Receivables at the

last day of the most recent calendar month.

 

“Dilution Ratio” means the ratio (expressed as a

percentage and rounded to the nearest 1/100th of 1%, with 5/1000th of 1%

rounded upward), computed as of the last day of each calendar month by

dividing: (a) the aggregate amount of payments required to be made by the

Seller pursuant to Section 1.4(e)(i) of the Agreement during such

calendar month by (b) the aggregate credit sales made by the Originators during

the month two months prior to the current month.

 

“Dilution Reserve” means an amount computed as of the

last day of each calendar month equal to: (a) the Capital at the close of

business of the Seller on such date multiplied by (b) (i) the Dilution Reserve

Percentage on such date, divided by (ii) 100% minus the Dilution Reserve

Percentage on such date.

 

I-5

 

“Dilution Reserve Percentage” means on any date, the

greater of (a) 12% and (b) the product of (i) the Dilution Horizon multiplied

by (ii) 2 times the highest Dilution Ratio for any month during the

immediately preceding twelve calendar month period then ending.

 

“Discount” means, at any time for any Portion of

Capital:

 

AR x C x (ED/Year) + TF

 

where:

 

AR  =      the

Alternate Rate for the Portion of Capital for such Settlement Period,

 

C  =         the

Portion of Capital during such Settlement Period,

 

ED  =      the

actual number of days during such Settlement Period,

 

Year =                if such Portion of

Capital is funded based upon: (i) the Euro-Rate, 360 days, and (ii) the Base

Rate, 365 or 366 days, as applicable, and

 

TF  =                      the Termination Fee, if any, for

the Portion of Capital for such Settlement Period;

 

provided, that no provision of the

Agreement shall require the payment or permit the collection of Discount in

excess of the maximum permitted by applicable law; and provided  further,

that Discount for the Portion of Capital shall not be considered paid by any

distribution to the extent that at any time all or a portion of such

distribution is rescinded or must otherwise be returned for any reason.

 

“EBITDA” shall mean, with respect to any period, AAR

and its consolidated Subsidiaries’ net income after taxes for such period

(excluding any after-tax gains or losses on the sale of assets and excluding

other after-tax extraordinary gains or losses) plus interest expense, income

tax expense, depreciation and amortization for such period, less gains and

losses attributable to any fixed asset sales made during such period, plus or

minus any other non-cash charges or gains which have been subtracted or added

in calculating net income after taxes for such period, all on a consolidated

basis.

 

“Eligible Receivable” means, at any time, a Pool

Receivable which prior to the date of purchase thereof by the Seller has not

been identified by the Agent, in its sole discretion, as being ineligible for

purchase of an interest therein (either specifically or as part of a class or

type of Receivable), and:

 

(a)           the Obligor of which is (i) (x) a

United States resident or incorporated or organized in the United States or (y)

if such Obligor is not a United States resident or incorporated or organized in

the United States, such Pool Receivable is a Permitted Foreign Receivable, (ii)

unless such Pool Receivable is a Permitted Government Receivable, not a

Governmental Authority, (iii) not subject to any action of the type

 

I-6

 

described in paragraph (g) of Exhibit V to the

Agreement and (iv) not an Affiliate of AAR or any Originator,

 

(b)           (x) that is denominated and payable

only in U.S. dollars in the United States to an Originator at a Lockbox

Account, (y) no portion of which is payable on account of sales tax and (z) it

is not subject to any dispute, defense, cancellation, reduction, rebate,

discount, refund, offset, counterclaim or other Adverse Claim; provided

that, in each of the cases of (y) and (z) above, only that portion of such

Receivable subject to any such sales tax, dispute, defense, cancellation,

reduction, rebate, discount, refund, offset, counterclaim or other Adverse Claim

shall be deemed ineligible pursuant to this clause (b),

 

(c)           which is stated to be due and payable

in full within 60 days after the original invoice date of such Receivable,

except that up to 5% of all Eligible Receivables may consist of Receivables stated

to be due and payable in excess of 60 but no more than 90 days after the

original invoice date of such Receivable,

 

(d)           that arises under a duly authorized

Contract for the bona fide sale and delivery of goods and/or rendering

services, in each case, (x) within the United States, (y) in the ordinary

course of an Originator’s business, and (z) that have been fully-completed by

the Seller or the applicable Originator (whether or not invoiced prior to or

after the final completion of the sale and delivery of goods and/or rendering

of services); it being agreed that “rendering service” hereunder shall be

deemed to include fees owing by Obligors under any long-term service contract

(such as a flight-hour service contract), provided that (i) the Receivable thereunder

is then due and owing, (ii) the time period to which any such Receivable

relates has fully-elapsed, and (iii) the Originator originating such Receivable

has fully-performed its obligations under such contract, in each case, whether

services were actually performed or not;

 

(e)           that arises under a duly authorized

Contract (x) that meets the requirements set forth on Exhibit VII, (y)

that contains an obligation of the Obligor to pay a specified dollar amount and

is in full force and effect, and (z) is a legal, valid and binding obligation

of the related Obligor, enforceable against such Obligor in accordance with its

terms,

 

(f)            that, together with the Contract,

conforms in all material respects with all applicable laws, rulings and

regulations in effect and applicable thereto (including, without limitation,

laws, rules and regulations relating to truth in lending, fair credit billing,

fair credit reporting, equal credit opportunity, fair debt collection practices

and privacy) and with respect to which no part of the Contract related thereto

is in material violation of any such law, rule or regulation,

 

(g)           that (i) was originated in accordance

with, and satisfies all applicable requirements of, the applicable Credit and

Collection Policy and (ii) complies with such other criteria and requirements

as the Agent may from time to time in its sole discretion specify to the

Seller,

 

I-7

 

(h)           that has not been modified, waived or

restructured since its creation, except as permitted pursuant to Section 4.2

of the Agreement,

 

(i)            in which the Seller owns good and

marketable title, free and clear of any Adverse Claims and which was validly

purchased by the Seller from, or contributed to the Seller by, one of the Originators

pursuant to the Sale Agreement, which purchase is not voidable pursuant to

Section 548 of the Federal Bankruptcy Code or any similar law regarding

fraudulent conveyances or fraudulent transfers and which purchase or

contribution, as applicable, vests in the Seller a valid and perfected first

priority ownership interest therein,

 

(j)            that is freely assignable by the

Seller (including without any consent of the related Obligor; provided,

that in accordance with Section 4.6(c), that Permitted Government

Receivables shall not be deemed ineligible pursuant to this clause (j) by

virtue of the failure by the Seller, AAR, the Servicer or any Originator to

comply with the Assignment of Claims Act with respect thereto), and upon such

assignment to the Agent hereunder the Agent shall have a valid and enforceable

undivided percentage ownership or security interest, to the extent of the

Purchased Interest, and a valid and enforceable first priority perfected

security interest therein and in the Related Security and Collections with

respect thereto, in each case free and clear of any Adverse Claim,

 

(k)           that constitutes an “account” as

defined in the UCC, and that is not evidenced by any note, bond, debenture,

other instrument or chattel paper,

 

(l)            that is not a Defaulted Receivable;

 

(m)          for which neither an Originator

thereof, the Seller nor the Servicer has established any offset arrangements

with the related Obligor,

 

(n)           (i) the aggregate Outstanding Balance

of the Defaulted Receivables of the Obligor thereon do not exceed 10% of the

aggregate Outstanding Balance of all Eligible Receivables owing by such Obligor

and (ii) the aggregate Outstanding Balance of the Delinquent Receivables of the

Obligor thereon do not exceed 25% of the aggregate Outstanding Balance of all

Eligible Receivables owing by such Obligor;

 

(o)           that represents amounts earned and

payable by the Obligor that are not subject to the performance of additional

services by an Originator thereof;

 

(p)           that arises under a Contract which

does not contain a confidentiality provision that purports to restrict the

ability of the Agent or any of the Purchasers to exercise their rights under

this Agreement, including, without limitation, their rights to review the

Contracts; and

 

(q)           if arising under any long-term,

supply, master, flight-hour service, programmatic or other similar Contract,

(x) is evidenced by a separate invoice and (y)

 

I-8

 

such Contract or invoice contains a provision

prohibiting offset, reduction, counterclaim or similar Adverse Claims for any

claim of the Obligor unrelated to the sale of goods or rendering of services

giving rise to Receivable evidenced by such invoice.

 

“ERISA” means the Employee Retirement Income Security

Act of 1974, as amended from time to time, and any successor statute of similar

import, together with the regulations thereunder, in each case as in effect

from time to time.  References to

sections of ERISA also refer to any successor sections.

 

“ERISA Affiliate” means: (a) any corporation that is a

member of the same controlled group of corporations (within the meaning of

Section 414(b) of the Internal Revenue Code) as the Seller, an Originator or

AAR, (b) a trade or business (whether or not incorporated) under common control

(within the meaning of Section 414(c) of the Internal Revenue Code) with the

Seller, an Originator or AAR, or (c) a member of the same affiliated service

group (within the meaning of Section 414(m) of the Internal Revenue Code) as

the Seller, an Originator, any corporation described in clause (a) or

any trade or business described in clause (b).

 

“Euro-Rate” means with respect to any Settlement

Period the interest rate per annum determined by the Agent by dividing (the

resulting quotient rounded upwards, if necessary, to the nearest 1/100th of 1%

per annum) (i) the rate of interest determined by the Agent in accordance with

its usual procedures (which determination shall be conclusive absent manifest

error) to be the average of the London interbank market offered rates for U.S.

dollars quoted by the BBA as set forth on Dow Jones Markets Service (formerly

known as Telerate) (or appropriate successor or, if the BBA or its successor

ceases to provide display page 3750 (or such other display page on the Dow

Jones Markets Service system as may replace display page 3750) at or about

11:00 a.m.  (London time) on the

Business Day which is two (2) Business Days prior to the first day of such

Settlement Period for an amount comparable to the Portion of Capital to be

funded at the Alternate Rate and based upon the Euro-Rate during such

Settlement Period by (ii) a number equal to 1.00 minus the Euro-Rate Reserve

Percentage.  The Euro-Rate may also be

expressed by the following formula:

 

	

  Euro-Rate =

  	

  Average of London interbank offered rates quoted

  by BBA as shown on Dow Jones Markets Service

  display page 3750 or appropriate successor

  
	

   

  	

  1.00 - Euro-Rate

  Reserve Percentage

  

 

where “Euro-Rate Reserve Percentage” means, the maximum effective

percentage in effect on such day as prescribed by the Board of Governors of the

Federal Reserve System (or any successor) for determining the reserve

requirements (including without limitation, supplemental, marginal, and

emergency reserve requirements) with respect to eurocurrency funding (currently

referred to as “Eurocurrency Liabilities”). 

The Euro-Rate shall be adjusted with respect to any Portion of Capital

funded at the Alternate Rate and based upon the Euro-Rate that is outstanding

on the effective date of any change in the Euro-Rate Reserve Percentage as of

such effective date.  The Agent shall

give prompt notice to the Seller of the Euro-Rate as determined or adjusted in

accordance herewith (which determination shall be conclusive absent manifest

error).

 

I-9

 

“Excess Concentration” means the sum of the amounts by

which the Outstanding Balance of Eligible Receivables of each Obligor then in

the Receivables Pool exceeds an amount equal to: (a) the Concentration

Percentage for such Obligor multiplied by (b) the Outstanding Balance of all

Eligible Receivables then in the Receivables Pool.

 

“Facility Termination Date” means the earliest to

occur of: (a) March 19, 2004 (b) the date determined pursuant to Section 2.2

of the Agreement, and (c) the date the Purchase Limit reduces to zero pursuant

to Section 1.1 (b) of the Agreement.

 

“Federal Funds Rate” means, for any day, the per annum

rate set forth in the weekly statistical release designated as H.15(519), or

any successor publication, published by the Federal Reserve Board (including

any such successor, “H.l5(519)”) for such day opposite the caption “Federal

Funds (Effective).”  If on any relevant

day such rate is not yet published in H.15(519), the rate for such day will be

the rate set forth in the daily statistical release designated as the Composite

3:30 p.m. Quotations for U.S. 

Government Securities, or any successor publication, published by the

Federal Reserve Bank of New York (including any such successor, the “Composite

3:30 p.m.  Quotations”) for such day

under the caption “Federal Funds Effective Rate.”  If on any relevant day the appropriate rate is not yet published

in either H.15(519) or the Composite 3:30 p.m. Quotations, the rate for such

day will be the arithmetic mean as determined by the Agent of the rates for the

last transaction in overnight Federal funds arranged before 9:00 a.m. (Chicago

time) on that day by each of three leading brokers of Federal funds

transactions in Chicago selected by the Agent.

 

“Federal Government” means the Federal government of

the United States of America or any department or agency thereof.

 

“Federal Reserve Board” means the Board of Governors

of the Federal Reserve System, (i) or any entity succeeding to any of its

principal functions.

 

“Fee Letter” has the meaning set forth in Section 1.5

of the Agreement.

 

“Fixed Charges” shall mean for any period, without

duplication, scheduled payments of principal during the applicable period with

respect to all Debt (other than (i) the $50,000,000 7.25% Notes due

October 15, 2003 issued by AAR under that certain Indenture dated as of October

15, 1989 between U.S. Bank Trust National Association (as successor to

Continental Bank, National Association) and AAR and (ii) the Specified

Non-Recourse Debt) of AAR and its Subsidiaries, on a consolidated basis, for

borrowed money, plus scheduled payments of principal during the applicable

period with respect to all capitalized lease obligations of AAR and its

Subsidiaries, on a consolidated basis, plus scheduled payments of interest

during the applicable period with respect to all Debt of AAR and its

Subsidiaries, on a consolidated basis, for borrowed money, including capital

lease obligations, plus unfinanced Capital Expenditures of AAR and its

Subsidiaries, on a consolidated basis, during the applicable period, plus

payments during the applicable period in respect of income or franchise taxes

of AAR and its Subsidiaries, on a consolidated basis.

 

I-10

 

“Foreign Receivable” means any Receivable the direct

Obligor on which is not a United States resident.

 

“GAAP” shall mean United States generally accepted

accounting principles as in effect from time to time, using the accrual basis

of accounting and consistently applied.

 

“Governmental Authority” means any nation or

government, any state or other political subdivision thereof, any central bank

(or similar monetary or regulatory authority) thereof, any body or entity

exercising executive, legislative, judicial, regulatory or administrative

functions of or pertaining to government, including any court, and any Person

owned or controlled, through stock or capital ownership or otherwise, by any of

the foregoing.

 

“Government Receivable” means any Receivable the

Obligor on which is a Governmental Authority.

 

“Group A Obligor” means any Obligor (other than a

Governmental Authority) with a short-term rating of at least: (a) “A-1” by

Standard & Poor’s, or if such Obligor does not have a short-term rating

from Standard & Poor’s, a rating of “A+” or better by Standard & Poor’s

on its long-term senior unsecured and unenhanced debt securities, and

(b) “P-1” by Moody’s, or if such Obligor does not have a short-term rating from

Moody’s, “A1” or better by Moody’s on its long-term senior unsecured and

unenhanced debt securities.

 

“Group B Obligor” means an Obligor (other than a

Governmental Authority), not a Group A Obligor with a short-term rating of at

least: (a) “A-2” by Standard & Poor’s, or if such Obligor does not have a

short-term rating from Standard & Poor’s, a rating of “BBB+” to “A” by

Standard & Poor’s on its long-term senior unsecured and unenhanced debt

securities, and (b) “P-2” by Moody’s, or if such Obligor does not have a

short-term rating from Moody’s, “Baa1” to “A2” by Moody’s on its long-term

senior unsecured and unenhanced debt securities.

 

“Group C Obligor” means an Obligor (other than a

Governmental Authority), not a Group A Obligor, a Group B Obligor with a

short-term rating of at least: (a) “A-3” by Standard & Poor’s, or if such

Obligor does not have a short-term rating from Standard & Poor’s, a rating

of “BBB-” to “BBB” by Standard & Poor’s on its long-term senior unsecured

and unenhanced debt securities, and (b) “P-3” by Moody’s, or if such

Obligor does not have a short-term rating from Moody’s, “Baa3” to “Baa2” by

Moody’s on its long-term senior unsecured and unenhanced debt securities.

 

“Group D Obligor” means any Obligor that is not a

Group A Obligor, Group B Obligor, Group C Obligor or Governmental Authority.

 

“Guarantor” means AAR.

 

“Indemnified Amounts” has the meaning set forth in Section

3.1 of the Agreement.

 

“Indemnified Party” has the meaning set forth in Section

3.1 of the Agreement.

 

I-11

 

“Independent Director” has the meaning set forth in paragraph

(c) of Exhibit VI to the Agreement.

 

“Information Package” means a report, in substantially

the form of Annex A to the Agreement, furnished to the Agent pursuant to

the Agreement.

 

“Insolvency Proceeding, means: (a) any case, action or

proceeding before any court or other Governmental Authority relating to

bankruptcy, reorganization, insolvency, liquidation, receivership, dissolution,

winding-up or relief of debtors, or (b) any general assignment for the benefit

of creditors of a Person, composition, marshaling of assets for creditors of a

Person, or other, similar arrangement in respect of its creditors generally or

any substantial portion of its creditors, in each of cases (a) and (b)

undertaken under U.S.  Federal, state or

foreign law, including the Bankruptcy Code.

 

“Intended Tax Characterization” means the intended characterization

of this Transaction for purposes of all Taxes as a loan by the Agent (on

behalf of the Purchasers) or the Purchasers to the Seller that is secured by

the Pool Assets.

 

“Internal Revenue Code” means the Internal Revenue

Code of 1986, as amended from time to time, and any successor statute of

similar import, together with the regulations thereunder, in each case as in

effect from time to time.  References to

sections of the Internal Revenue Code also refer to any successor sections.

 

“Investment” of a Person means any loan, advance

(other than commission, travel and similar advances to its officers, employees,

agents and representatives made in the ordinary course of business), extension

of credit (other than accounts receivable arising in the ordinary course of

business), deposit account or contribution of capital by such Person to any

other Person or any investment in, or purchase or other acquisition of, the

stock, partnership interests, notes, debentures or other securities of any

other Person made by such Person.

 

“Lock-Box Account” means an account in the name of the

Seller and maintained by the Seller at a Lock-Box Bank for the purpose of

receiving Collections.

 

“Lock-Box Agreement” means an agreement, in form and

substance satisfactory to the Agent, among the Seller, the Servicer, the Agent

and a Lock-Box Bank.

 

“Lock-Box Bank” means any of the banks or other

financial institutions holding one or more Lock-Box Accounts.

 

“Loss Reserve” means, on any date, an amount equal to:

(a) the Capital at the close of business of the Seller on such date multiplied

by (b)(i) the Loss Reserve Percentage on such date divided by (ii) 100% minus

the Loss Reserve Percentage on such date.

 

“Loss Reserve Percentage” means, on any date, the

greater of: (a) 20% or (b) the product of (i) 2 times (ii) the highest average

of the Default Ratios for any three consecutive calendar months during the

twelve most recent calendar months and (iii) (A) the aggregate credit sales

 

I-12

 

made by the Originators during the four most recent calendar months

divided by (B) the aggregate Outstanding Balance of Eligible Receivables as of

such date.

 

“Material Adverse Effect” means, with respect to any

event or circumstance, a material adverse effect on (i) the Seller’s assets,

operations, business, or financial condition, (ii) AAR and its subsidiaries’

assets, operations, businesses or financial condition taken as a whole, (iii)

the ability of any of the Seller, AAR or the Originators to perform their

respective obligations under any of the Transaction Documents, (iv) the Agent’s

ability to enforce its rights under the Transaction Documents or (v) the

status, perfection, enforceability or priority of the Agent’s, the Purchasers’

or the Seller’s interest in the Pool Assets; it being agreed that for all

purposes under this Agreement and the other Transaction Documents, neither the

Seller, AAR nor any Originator shall be deemed to have knowledge or awareness

of the occurrence, likely occurrence or existence of a Material Adverse Effect

of the type described in clause (iv) above unless and until so notified of the

existence thereof by the Agent, and as such shall have no duty to notify the

Agent (or any have any liability for failure to notify the Agent) thereof.

 

“Maximum Purchase Limit” means, with respect to any

Purchaser, the maximum amount of Capital that such Purchaser shall permit to be

outstanding at any time in connection with its purchases hereunder.  The sum of the Maximum Purchase Limits of

all Purchasers shall equal the Purchase Limit.

 

“Monthly Settlement Date” means the twentieth day of

each calendar month (or the next succeeding Business Day if such day is not a

Business Day), beginning April 21, 2003.

 

“Moody’s” means Moody’s Investors Service, Inc.

 

“Multiemployer Plan” means a multiemployer plan as

defined in Section 3(37)(A) of ERISA.

 

“Net Receivables Pool Balance” means, at anytime: (a)

the Outstanding Balance of Eligible Receivables then in the Receivables Pool,

minus (b) Excess Concentration and minus (c) the Contra Adjustment.

 

“Obligor” means, with respect to any Receivable, the

Person obligated to make payments pursuant to the Contract relating to such

Receivable and, in addition in the case of any Permitted Foreign Receivables,

the applicable Qualified Insurer thereof; it being agreed that any Person and

its Affiliates shall be deemed to be one and the same Obligor for all purposes

hereunder.

 

“Originator” and “Originators” have the meaning set

forth in the Sale Agreement.

 

“Originator Assignment Certificate” means the

assignment, in substantially the form of Exhibit C to the Sale

Agreement, evidencing Seller’s ownership of the Receivables generated by an

Originator, as the same may be amended, supplemented, amended and restated, or

otherwise modified from time to time in accordance with the Sale Agreement.

 

I-13

 

“Outstanding Balance” of any Receivable at any time

means the then outstanding principal balance thereof.

 

“Participation Agreement” means the Participation

Agreement dated as of June 28, 2000 (as the same may heretofore, now or

hereafter be amended, restated, supplemented or otherwise modified) among AAR

Corp., as Guarantor, and the Lessees, the Certificate Trustee, Administrative

Agent, CP Lender, Certificate Holders, Facility Purchasers and Liquidity Banks

(all as defined therein), and Bank of America, National Association, as Agent.

 

“Payment Date” has the meaning set forth in Section

2.1 of the Sale Agreement.

 

“Permitted Foreign Receivable” means a Foreign

Receivable, (i) the direct Obligor on which is a Permitted Foreign Obligor,

(ii) arising from a sale of goods shipped from an Originator in the United

States or the rendering of services in the United States, (iii) denominated and

payable only in Dollars and payable to an Originator (or the Seller as the

assignee thereof) at a Lock-Box Account, and (iv) which is in all respects

eligible for coverage under, and the collection of at least 90% of the

Outstanding Balance of which, in the event of the bankruptcy, insolvency or

other failure of the direct Obligor to pay such Receivable shall be insured by

a Qualified Insurer pursuant to, one or more Qualified Policies.

 

“Permitted Foreign Obligor” means a specific company

listed on Schedule VII and/or any different or additional companies as

the Agent and the Seller may from time to time hereafter agree in writing;

provided that the Agent, in its discretion, shall at all times have the right

to exclude any such company after notice to the Seller (and subsequent to such

notice, no Receivables originated by such Originator which are purchased by the

Seller after such date shall be Eligible Receivables hereunder).

 

“Permitted Government Receivable” means a Government

Receivable the Obligor on which is the Federal Government.

 

“Performance Guaranty” means the Performance Guaranty,

dated of even date herewith, by AAR in favor of the Agent, for the benefit of

the Purchasers, as the same may be amended, restated, supplemented or otherwise

modified from time to time.

 

“Performance Reserve” means the sum of the Loss

Reserve and the Dilution Reserve.

 

“Person” means an individual, partnership, corporation

(including a business trust), joint stock company, trust, unincorporated

association, joint venture, limited liability company or other entity, or a

government or any political subdivision or agency thereof.

 

“Pool Assets” has the meaning set forth in Section

1.2(e) of the Agreement.

 

“Pool Receivable” means a Receivable in the

Receivables Pool.

 

“Portion of Capital” means any separate portion of

Capital being funded or maintained by the Purchasers (or its successors or

permitted assigns) by reference to a particular interest rate

 

I-14

 

basis.  At any time when the

Capital of the Purchased Interest is not divided into two or more such

portions, “Portion of Capital” means 100% of the Capital.

 

“Pro Rata Share” means with respect to a Purchaser, a

percentage equal to such Purchaser’s pro rata share of the total purchase

commitment of the Purchasers hereunder, in each case, as set forth next to such

Purchaser’s name on the signature pages hereto or on any assignment pursuant to

which such Purchaser becomes a party hereto.

 

“Purchase and Sale Indemnified Amounts” has the

meaning set forth in Section 9.1 of the Sale Agreement.

 

“Purchase and Sale Indemnified Party” has the meaning

set forth in Section 9.1 of the Sale Agreement.

 

“Purchase and Sale Termination Date” has the meaning

set forth in Section 1.4 of the Sale Agreement.

 

“Purchase and Sale Termination Event” has the meaning

set forth in Section 8.1 of the Sale Agreement.

 

“Purchase Facility” has the meaning set forth in

Section 1.1 of the Sale Agreement.

 

“Purchase Limit” means $35,000,000, as such amount may

be reduced pursuant to Section 1.1 (b) of the Agreement.  References to the unused portion of the

Purchase Limit shall mean, at any time, the Purchase Limit minus the then

outstanding Capital.

 

“Purchase Notice” has the meaning set forth in Section

1.2(a) of this Agreement.

 

“Purchase Price” has the meaning set forth in Section

2.1 of the Sale Agreement.

 

“Purchase Report” has the meaning set forth in Section

2.1 of the Sale Agreement.

 

“Purchased Interest” means, at any time, the undivided

percentage ownership interest in: (a) each and every Pool Receivable now

existing or hereafter arising, (b) all Related Security with respect to such

Pool Receivables and (c) all Collections with respect to, and other proceeds

of, such Pool Receivables and Related Security.  Such undivided percentage interest shall be computed as:

 

	

  Capital + Total

  Reserves

  
	

  Net Receivables Pool

  Balance

  

 

The Purchased Interest shall be determined from time to time pursuant

to Section 1.3 of the Agreement.

 

“Purchasers” and “Purchaser” have the meaning set

forth in the preamble to the Agreement.

 

I-15

 

“Purchasers’ Share” of any amount means such amount

multiplied by the Purchased Interest at the time of determination.

 

“Qualified Insurer” means, with respect to any

Permitted Foreign Receivable, an insurance company having a long-term

unsecured, unenhanced credit rating of at least “A” or better by Standard &

Poor’s and (b) “A” or better by A.M. Best Company.

 

“Qualified Policy” means a credit insurance policy

with a Qualified Insurer and in form and substance satisfactory to the Agent,

insuring, among other things, the collection of the aggregate Outstanding

Balances of the Foreign Receivables covered thereunder (subject only to a

deductible not to exceed 10% thereof) in the event of the bankruptcy,

insolvency or other failure to pay of or by the Obligors thereon.

 

“Receivable” means any indebtedness and other

obligations owed to the Seller (as assignee of an Originator) or an Originator

by, or any right of the Seller or an Originator to payment from or on behalf

of, an Obligor, whether constituting an account, chattel paper, instrument or

general intangible (including a payment intangible), arising in connection with

the bona

fide sale of goods or rendering of services by an Originator, and

includes the obligation to pay any finance charges, fees and other charges with

respect thereto, but shall exclude any payments of (i) rent or otherwise under

any lease or sublease of goods, or (ii) from the sale of any Aircraft or Engine

from AAR Aircraft & Engine Group, Inc. under (and as defined in) the

Participation Agreement.  Indebtedness

and other obligations arising from any one transaction, including indebtedness

and other obligations represented by an individual invoice or agreement, shall

constitute a Receivable separate from a Receivable consisting of the indebtedness

and other obligations arising from any other transaction.

 

“Receivables Pool” means, at any time, all of the then

outstanding Receivables purchased by the Seller pursuant to the Sale Agreement

prior to the Facility Termination Date.

 

“Records” means for any Pool Receivable, all Contracts

and other documents, books, records, ledgers and other information (including

computer programs, tapes, disks, software and related property and rights)

relating to each such Pool Receivable or the related Obligor.

 

“Related Rights” has the meaning set forth in Section

1.1 of the Sale Agreement.

 

“Related Security” means, with respect to any

Receivable:

 

(a)           all of the Seller’s and the relevant

Originator’s interest in any goods (including returned and repossessed goods,

other than any such returned or repossessed goods relating to a Pool Receivable

in respect of which the Seller, pursuant to Section 1.4(e), has been

deemed to have collected and payment therefor in full has been delivered in

accordance with Section 1.4, with the effect that, in accordance with Section

1.4(e), such Receivable is no longer a Pool Receivable hereunder) and

documentation of title evidencing the shipment or storage of any goods

(including returned and repossessed goods), relating to any sale giving rise to

such Receivable,

 

I-16

 

(b)           Records relating to, and all

instruments and chattel paper that may evidence, such Receivable,

 

(c)           all other security interests or liens

and property subject thereto from time to time purporting to secure payment of

such Receivable, whether pursuant to the Contract related to such Receivable or

otherwise, together with all UCC financing statements or similar filings

relating thereto,

 

(d)           all of the Seller’s and the relevant

Originator’s rights, interests and claims under the Contracts and all

guaranties, letters of credit, indemnities, insurance (including credit

insurance on any Permitted Foreign Receivables) and other agreements (including

the related Contract) or arrangements of whatever character from time to time

supporting or securing payment of such Receivable or otherwise relating to such

Receivable, whether pursuant to the Contract related to such Receivable or

otherwise,

 

(e)           all of the Seller’s rights, remedies

and privileges (but not obligations) under the Sale Agreement, and all UCC

Financing Statements filed by the Seller against any of the Originators

pursuant thereto,

 

(f)            the Lock-Box Accounts, and

 

(g)           all proceeds and products of any of

the foregoing.

 

“Reportable Event” means

a reportable event as defined in Section 4043 of ERISA and the regulations

issued under such section, with respect to a Benefit Plan, excluding, however,

such events as to which the Pension Benefit Guaranty Corporation has by regulation

waived the requirement of Section 4043(a) of ERISA that it be notified within

30 days of the occurrence of such event; provided, however, that

a failure to meet the minimum funding standard of Section 412 of the Code and

of Section 302 of ERISA shall be a Reportable Event regardless of the issuance

of any such waiver of the notice requirement in accordance with either Section

4043(a) of ERISA or Section 412(d) of the Code.

 

“Required Purchasers” means (i) at any time prior to

the Facility Termination Date, Purchasers having Pro Rata Shares aggregating to

at least 51% and (ii) at any time after the Facility Termination Date,

Purchasers having outstanding Capital aggregating to at least 51% of the

aggregate outstanding Capital as at such time.

 

“Sale Agreement” means the Purchase and Sale

Agreement, dated as of even date herewith, between the Seller, the Originators

and the initial Servicer as such agreement may be amended, amended and

restated, supplemented or otherwise modified from time to time.

 

“Seller” has the meaning set forth in the preamble to

the Agreement.

 

“Seller’s Share” of any amount means the greater of:

(a) $0 and (b) such amount minus the Purchasers’ Share.

 

I-17

 

“Servicer” has the meaning set forth in the preamble

to the Agreement; provided that any reference to the Servicer in this Agreement

or any of the other Transaction Documents shall mean and be deemed to include

all Sub-Servicers as well.

 

“Servicing Fee” shall mean the fee referred to in Section

4.9 of the Agreement.

 

“Servicing Fee Rate” shall mean the rate referred to

in Section 4.9 of the Agreement.

 

“Settlement Date” means with respect to any Portion of

Capital for any Settlement Period, (i) prior to the Facility Termination Date,

the Monthly Settlement Date and (ii) on and after the Facility Termination

Date, each day selected from time to time by the Agent (it being understood

that the Agent may select such Settlement Date to occur as frequently as

daily), or, in the absence of such selection, the Monthly Settlement Date.

 

“Settlement Period” means: (a) before the Facility

Termination Date: (i) initially the period commencing on the date of the

initial purchase pursuant to Section 1.2 of the Agreement (or in the

case of any fees payable hereunder, commencing on the Closing Date) and ending

on (but not including) the next Monthly Settlement Date, and (ii) thereafter,

each period commencing on such Monthly Settlement Date and ending on (but not

including) the next Monthly Settlement Date, and (b) on and after the Facility

Termination Date: such period (including a period of one day) as shall be

selected from time to time by the Agent or, in the absence of any such

selection, each period of 30 days from the last day of the preceding Settlement

Period.

 

“Settlement Statement” means a report, in

substantially the form of Annex H to the Agreement, furnished to the

Agent pursuant to the Agreement.

 

“Solvent” means, with respect to any Person at any

time, a condition under which:

 

(i)            the fair value and present fair

saleable value of such Person’s total assets is, on the date of determination,

greater than such Person’s total liabilities (including contingent and

unliquidated liabilities) at such time;

 

(ii)           the fair value and present fair

saleable value of such Person’s assets is greater than the amount that will be

required to pay such Person’s probable liability on its existing debts as they

become absolute and matured (“debts,” for this purpose, includes all

legal liabilities, whether matured or unmatured, liquidated or unliquidated,

absolute, fixed, or contingent);

 

(iii)          such Person is and shall continue to

be able to pay all of its liabilities as such liabilities mature; and

 

(iv)          such Person does not have unreasonably

small capital with which to engage in its current and in its anticipated

business.

 

For purposes of this

definition:

 

I-18

 

(A)          the amount of a Person’s contingent or

unliquidated liabilities at any time shall be that amount which, in light of

all the facts and circumstances then existing, represents the amount which can

reasonably be expected to become an actual or matured liability;

 

(B)           the “fair value” of an asset shall be

the amount which may be realized within a reasonable time either through

collection or sale of such asset at its regular market value;

 

(C)           the “regular market value” of an

asset shall be the amount which a capable and diligent business person could

obtain for such asset from an interested buyer who is willing to Purchase such

asset under ordinary selling conditions; and

 

(D)          the “present fair saleable value” of

an asset means the amount which can be obtained if such asset is sold with

reasonable promptness in an arm’s-length transaction in an existing and not

theoretical market.

 

“Specified Non-Recourse Debt” shall mean the

non-recourse debt of AAR/SSB I, LLC (the “LLC”) owing to TransAmerica

Equipment Financial Services Corporation and outstanding as of the date hereof

incurred in connection with the acquisition of, and limited in recourse solely

to, that certain Boeing 767–300ER in which the LLC holds a beneficial

interest, the principal balance of which as of February 28, 2003 was $32,

832,287.

 

“Standard & Poor’s” means Standard & Poor’s, a

division of The McGraw-Hill Companies, Inc.

 

“Subordinated Debt” means Debt of AAR or any of its

Subsidiaries evidenced by instruments (other than the Company Notes) containing

provisions by which the payment of such indebtedness is postponed and

subordinated to the payment of any other Debt of AAR or any of its

Subsidiaries; provided that any indebtedness owing by AAR or any of its

Subsidiaries to any Affiliate (other than AAR, the Seller or any Originator)

shall be deemed to constitute Subordinated Debt hereunder without regard as to

whether such indebtedness contains any express subordination provisions.

 

“Subsidiary” means, as to any Person, a corporation,

partnership, limited liability company or other entity of which more than 50%

of the shares of common stock or other ownership interests having ordinary

voting power (other than stock or other interests having such power only by

reason of the happening of a contingency) to elect directors or other managers

of such entity are at the time owned, or management of which is otherwise

controlled: (a) by such Person, (b) by one or more Subsidiaries of such Person

or (c) by such Person and one or more Subsidiaries of such Person.

 

“Taxes” means all taxes, charges, fees, levies or

other assessments (including income, gross receipts, profits, withholding,

excise, property, sales, use, license, occupation and franchise taxes and

including any related interest, penalties or other additions) imposed by any

jurisdiction or taxing authority (whether foreign or domestic).

 

I-19

 

“Termination Day” means: (a) each day on which the

conditions set forth in Section 2 of Exhibit II to the Agreement

are not satisfied or (b) each day that occurs on or after the Facility

Termination Date.

 

“Termination Event” has the meaning specified in Exhibit

V to the Agreement.

 

“Termination Fee” means, for any Settlement Period

during which a Termination Day occurs, the amount, if any, by which: (a) the

additional Discount (calculated without taking into account any Termination Fee

or any shortened duration of such Settlement Period pursuant to the definition

thereof) that would have accrued during such Settlement Period on the

reductions of Capital relating to such Settlement Period had such reductions

not been made, exceeds (b) the income, if any, received by the Purchasers from

investing the proceeds of such reductions of Capital, as determined by the

Agent, which determination shall be binding and conclusive for all purposes,

absent manifest error.

 

“Total Reserves” means, at any time the sum of: (a)

the Yield Reserve, plus (b) the Performance Reserve.

 

“Transaction Documents” means the Agreement, the

Lock-Box Agreements, the Fee Letter, the Sale Agreement, the Performance

Guaranty, and all other certificates, instruments, UCC financing statements,

reports, notices, agreements and documents executed or delivered under or in

connection with the Agreement or any of the other foregoing documents or

agreements, in each case as the same may be amended, supplemented or otherwise

modified from time to time in accordance with the Agreement.

 

“UCC” means the Uniform Commercial Code as from time

to time in effect in the State of Illinois.

 

“Unmatured Purchase and Sale Termination Event”-means

any event which, with the giving of notice or lapse of time, or both, would

become a Purchase and Sale Termination Event.

 

“Unmatured Termination Event” means an event that,

with the giving of notice or lapse of time, or both, would constitute a

Termination Event.

 

“Yield Reserve” means, on any date, an amount equal to

the product of (a) the Capital at the close of business of the Servicer on such

date multiplied by (b)(i) the Yield Reserve Percentage on such date divided by

(ii) 100% minus the Yield Reserve Percentage on such date.

 

“Yield Reserve Percentage” means at any time:

 

	

  (BR+SFR)

  	

   

  	

  x 2.0 x DSO

  
	

  360

  	

   

  	

   

  

 

where:

 

I-20

 

BR =       the Base Rate computed for the most

recent Settlement Period,

 

DSO =    Days’ Sales Outstanding, and

 

SFR =     the

Servicing Fee Rate

 

Other Terms.  All accounting terms not specifically

defined herein shall be construed in accordance with GAAP.  All terms used in Article 9 of the UCC in

the State of Illinois, and not specifically defined herein, are used herein as

defined in such Article 9.  Unless the

context otherwise requires, “or” means “and/or,” and “including” (and with

correlative meaning “include” and “includes”) means including without limiting

the generality of any description preceding such term.

 

I-21

 

EXHIBIT

II

CONDITIONS

OF PURCHASES

 

1.             Conditions

Precedent to Initial Purchase.  The

Initial Purchase under this Agreement is subject to the following conditions

precedent that the Agent shall have received on or before the date of such

purchase, in such number of copies and each in form and substance (including

the date thereof) satisfactory to the Agent:

 

(a)           Fully-executed counterparts of this

Agreement, the Sales Agreement, the Performance Guaranty and the other

Transaction Documents set forth on the List of Closing Documents set forth on Annex

G, in each case, executed by each of 

the parties thereto other than the Agent.

 

(b)           Certified copies of:  (i) the resolutions of the Board of

Directors of each of the Seller, the Originators and AAR authorizing the

execution, delivery and performance by the Seller, the Originators and AAR, as

the case may be, of the Agreement and the other Transaction Documents to which

it is a party; (ii) all documents evidencing other necessary corporate or

organizational action and governmental approvals, if any, with respect to the

Agreement and the other Transaction Documents and (iii) the certificate of

incorporation, articles of incorporation and by-laws of the Seller, the

Originators and AAR.

 

(c)           A certificate of the Secretary or

Assistant Secretary of the Seller, each of the Originators and AAR certifying

the names and true signatures of its officers who are authorized to sign the

Agreement and the other Transaction Documents to which it is a party.  Until the Agent receives a subsequent

incumbency certificate from the Seller, the Originators or AAR, as the case may

be, the Agent shall be entitled to rely on the last such certificate delivered

to it by the Seller, the Originators or AAR, as the case may be.

 

(d)           Completed UCC search reports in

respect of the Seller and each Originator from all jurisdictions that the Agent

may deem necessary or desirable, dated on or shortly before the date of the

initial purchase hereunder showing no financing statements filed against such

Persons and covering any of the Pool Assets, other than those financing

statements as to which those financing statements (Form UCC-3) referred to in subsection(f)

below shall terminate, and similar search reports with respect to judgment

liens, federal tax liens and liens of the Pension Benefit Guaranty Corporation

in such jurisdictions, as the Agent may request, showing no Adverse Claims on

any Pool Assets other than such Adverse Claims as to which those financing

statements (Form UCC-3) referred to in subsection(f) below shall

terminate.

 

(e)           Copies of repurchase agreements (i)

among AAR Receivables Corporation, an Illinois corporation (“ARC”), Market

Street Funding Corporation (“Market Street”), and PNC Bank, National

Association, as administrator (the “Administrator”), pursuant to which ARC

shall repurchase all of the receivables, related security and collections sold

to Market Street and/or the Administrator pursuant to that certain Receivables

Purchase Agreement dated as of August 30, 2001 (as amended, the

 

 

“Prior RPA”) among such parties, and (ii) among ARC

and each of the Originators pursuant to which each such Originator shall

repurchase all right, title and interest of ARC in and to the outstanding

receivables, related security and collections previously sold by such

Originators to ARC pursuant to that certain Purchase and Sale Agreement dated

as of August 30, 2001 (the “Prior Transfer Agreement”) among such parties.

 

(f)            Proper financing statements (Form

UCC-3) suitable for filing under the UCC of all jurisdictions that the Agent

may deem, if any, necessary or desirable to release all security interests and

other rights of any Person in the Receivables, Contracts or Related Security

previously granted by the Originators or the Seller, including pursuant to the

Prior RPA and the Prior Transfer Agreement.

 

(g)           Proper financing statements suitable

for filing under the UCC of all jurisdictions that the Agent may deem necessary

or desirable in order to perfect the interests of the Seller and the Agent

contemplated by the Agreement and the Sale Agreement.

 

(h)           Favorable opinions, in form and

substance reasonably satisfactory to the Agent of Schiff Hardin & Waite,

counsel for the Seller, including, true sale, non-consolidation,

enforceability, general legal and corporate matters (including, no conflict

with other material agreements) and perfection of liens.

 

(i)            Satisfactory results of a review and

audit (performed by representatives of the Agent) of the Servicer’s collection,

operating and reporting systems, the Credit and Collection Policies of the

Originators, historical receivables data and accounts, including satisfactory

results of a review of the Servicer’s operating location(s) and satisfactory review

and approval of the Eligible Receivables in existence on the date of the

initial purchase under the Agreement.

 

(j)            A pro forma Information Package

representing the performance of the Receivables Pool for the calendar month

before closing.

 

(k)           Evidence of payment by the Seller of

all accrued and unpaid fees (including those contemplated by the Fee Letter),

costs and expenses to the extent then due and payable on the date thereof,

including any such costs, fees and expenses arising under or referenced in Section

6.4 of the Agreement and the Fee Letter.

 

(l)            The Fee Letter duly executed by the

Seller and the Servicer.

 

(m)          Good standing certificates with

respect to each of the Seller, the Originators, and AAR issued by the Secretary

of State (or similar official) of the state of each such Person’s organization

or formation and principal place of business.

 

(n)           Certificates from officers of the

Seller and each of the Originators as to their compliance with all

representations, warranties, covenants and conditions and

 

II-2

 

absence of any Termination Event or Unmatured

Termination Event, in each case, as of the date of closing;

 

(o)           Letters from the Chief Financial

Officer of each of the Seller, AAR and the Originators to such company’s

outside independent accounting firm authorizing such accountants to communicate

directly with the Agent, provided that the Chief Financial Officer of the

applicable company is present during any such discussion;

 

(p)           All other information with respect to

the Receivables and any and all such other documents and/or agreements as the

Agent or the Purchasers may reasonably request;

 

(q)           An independent director acceptable to

the Agent has been appointed and is currently serving as a member of the board

of directors of the Seller;

 

(r)            Assignment in favor of the Agent

relating to all Qualified Policies and certificates of insurance confirming

that the Agent is an assignee thereof; and

 

(s)           Such other approvals, opinions or

documents set forth on Annex G or as the Agent or the Purchasers may

reasonably request.

 

2.             Conditions

Precedent to All Purchases and Reinvestment.  Each purchase (including the initial purchase) and, except as set

forth below, each reinvestment shall be subject to the further conditions

precedent that:

 

(a)           in the case of each purchase (but not

any reinvestment), the Servicer shall have delivered to the Agent on or before

such purchase, in form and substance satisfactory to the Agent, a completed pro

forma Information Package to reflect the level of Capital and related reserves

and the calculation of the Purchased Interest (which shall not exceed 100%)

after such subsequent purchase and a completed Purchase Notice in the form of Annex

B; and

 

(b)           on the date of such purchase or

reinvestment the following statements shall be true (and acceptance of the

proceeds of such purchase or reinvestment shall be deemed a representation and

warranty by the Seller that such statements are then true):

 

(i)            the representations and warranties

contained in Exhibit III to the Agreement are true and correct in all

material respects on and as of the date of such purchase or reinvestment as

though made on and as of such date;

 

(ii)           no event has occurred and is

continuing, or would result from such purchase or reinvestment, that

constitutes (x) a Termination Event or (y) with respect to any purchase (but

not any reinvestment) an Unmatured Termination Event;

 

II-3

 

(iii)          no law or regulation of any

Governmental Authority or order, judgment or decree of any federal, state or

local court or Governmental Authority shall, in any case, prohibit or enjoin

the sale by the Seller, or the  purchase

or maintenance by any of the Agent or the Purchasers of Purchased Interests, in

each case, in accordance with the terms hereof; and

 

(iv)          both immediately before and

immediately after giving effect to any such purchase or reinvestment, Capital

does not exceed the Purchase Limit.

 

II-4

 

EXHIBIT

III

REPRESENTATIONS

AND WARRANTIES

 

1.             Representations

and Warranties of the Seller.  The

Seller represents and warrants as follows:

 

(a)           The

Seller is a corporation duly organized, validly existing and in good standing

under the laws of the State of Illinois, and is duly qualified to do business

and is in good standing as a foreign corporation in every jurisdiction where

the nature of its business requires it to be so qualified, except where the

failure to be so qualified would not have a Material Adverse Effect.

 

(b)           The

execution, delivery and performance by the Seller of the Agreement and the

other Transaction Documents to which it is a party, including its use of the

proceeds of purchases and reinvestments: (i) are within its organizational

powers; (ii) have been duly authorized by all necessary corporate and

organizational action; (iii) do not contravene or result in a default under or

conflict with: (A) its articles of incorporation, by-laws or any other

organizational document of the Seller,(B) any material law, rule or regulation

applicable to it, (C) any material 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, or (D) any order, writ, judgment, award, injunction or

decree binding on or affecting it or any of its property; and (iv) do not

result in or require the creation of any Adverse Claim upon or with respect to

any of its properties or give rise to any right of acceleration of any Debt of

the Seller.  Each of the Agreement and

the other Transaction Documents to which it is a party have been duly executed

and delivered by the Seller.

 

(c)           No

authorization, approval or other action by, and no notice to or filing with,

any Governmental Authority or other Person is required for the due execution,

delivery and performance by the Seller of the Agreement or any other

Transaction Document to which it is a party, other than (i) notices of

assignment pursuant to the Assignment of Claims Act (which, other than as

required pursuant to Section 4.6(c), are not required to be made

hereunder) and (ii) the Uniform Commercial Code filings referred to in Exhibit

II to the Agreement, all of which (in the case of clause (ii)) shall have

been filed on or before the date of the first purchase hereunder.  No transaction under the Agreement or the

other Transaction Documents require compliance with any bulk sales law or any

similar law.

 

(d)           Each

of the Agreement and the other Transaction Documents to which the Seller is a

party constitutes its legal, valid and binding obligation enforceable against

the Seller in accordance with its terms, except as enforceability may be

limited by bankruptcy, insolvency, reorganization or other similar laws from time

to time in effect 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.

 

(e)           There

is no pending or, to Seller’s best knowledge, threatened action, proceeding or

investigation affecting Seller or any of its properties before any Governmental

Authority or arbitrator.  The Seller is

not in material default of any contractual obligation or in material violation

of any order, writ, injunction, decree, rule or regulation of any Governmental

Authority applicable to it or any of its properties.

 

 

(f)            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.

 

(g)           The

Seller is the legal and beneficial owner of, and has good and marketable title

to, the Pool Receivables, Related Security and Collections, free and clear of

any Adverse Claim.  Upon each purchase

or reinvestment, the Purchasers shall acquire a valid and enforceable perfected

undivided percentage ownership or security interest, to the extent of the

Purchased Interest, in each Pool Receivable then existing or thereafter arising

and in the Related Security, Collections and other proceeds with respect

thereto, free and clear of any Adverse Claim. 

The Agreement creates a valid and continuing security interest (as

defined in the applicable UCC) in favor of the Purchasers in the Pool Assets,

which security interest is prior to all Adverse Claims, and is enforceable as

such against creditors of and purchasers from the Seller.  The Pool Assets constitute “accounts” within

the meaning of the applicable UCC.  The

Seller has caused the filing of all appropriate UCC financing statements

(including UCC financing statements to be filed by the Seller against the

Originators and assigned to the Agent) in the proper filing offices in the

appropriate jurisdictions under applicable laws in order to perfect the

security interest in the Pool Assets granted to the Purchasers hereunder.  Other than the security interest granted to

the Purchasers pursuant to this Agreement, Seller has not pledged, assigned,

sold, granted a security interest in, or otherwise conveyed any interest in any

of the Pool Assets to any Person.  Seller

has not authorized the filing of and is not aware of any UCC financing

statements against Seller that include a description of collateral covering the

Pool Assets, other than any UCC financing statement relating to the security

interest granted to the Purchasers hereunder or that has been terminated.  Seller is not aware of any judgment or tax

lien filings against the Seller.  Each

Pool Receivable included in the calculation of the Net Receivables Pool Balance

in any certificate or report (including any Information Package or Settlement

Statement) delivered by the Seller, AAR, the Servicer (if AAR or any Affiliate

thereof) or any Originator to the Agent is an Eligible Receivable.

 

(h)           Each

Information Package and Settlement Statement (in each case, if prepared by the

Seller or one of its Affiliates, or to the extent that information contained

therein is supplied by the Seller or an Affiliate), and all other information,

exhibits, financial statements, documents, books, records or reports furnished

or to be furnished at any time by or on behalf of the Seller to the Agent in

connection with the Agreement or any other Transaction Document to which it is

a party is or will be complete and accurate in all material respects as of its

date or (except as otherwise disclosed to the Agent at such time) as of the

date so furnished.

 

(i)            The

Seller’s principal place of business, chief executive office and state of

formation (as such terms are used in the UCC), corporate organizational number

and the office where it keeps its records concerning the Receivables are

located at the address referred to in clause (c) of Exhibit IV to

the Agreement.  The Seller has no

Subsidiaries and does not own or hold, directly or indirectly, any equity

interest in any Person.

 

III-2

 

(j)            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 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

Agreement) and all Lock-Box Accounts are subject to Lock-Box Agreements.  The Seller has 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.

 

(k)           Each

sale or contribution of Receivables and the associated Related Security and

Collections by an Originator to the Seller shall have been effected under, and

in accordance with the terms of, the Sale Agreement, including the payment (or

incurrence of indebtedness or issuance of equity for the payment) by the Seller

to the applicable Originator of an amount equal to the purchase price therefor

as described in the Sale Agreement 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 Seller.

 

(l)            [Reserved]

 

(m)          No

event has occurred and is continuing, or would result from a purchase in

respect of, or reinvestment in respect of, the Purchased Interest or from the

application of the proceeds therefrom, that constitutes a Termination Event or

an Unmatured Termination Event.

 

(n)           The

Seller has accounted (for financial accounting purposes) for each sale of

undivided percentage ownership interests in Receivables hereunder in its books

and financial statements, and the Seller and each Originator have accounted

(for all purposes) for each sale of Receivables to the Seller pursuant to the

Sales Agreement in its respective books and financial statements, in each case,

as sales, consistent with generally accepted accounting principles.

 

(o)           The

Seller has complied in all material respects with the Credit and Collection

Policies of the Originator with regard to each Receivable originated by the

Originator.

 

(p)           The

Seller has complied in all material respects with all of the terms, covenants

and agreements contained in the Agreement and the other Transaction Documents

that are applicable to it.

 

(q)           The

Seller’s complete corporate name is set forth in the preamble to the Agreement,

and it does not use and has not during the last six years used any other

corporate name, trade name, doing-business name or fictitious name, except as

set forth on Schedule III to the Agreement and except for names first

used after the date of the Agreement and set forth in a notice delivered to the

Agent pursuant to clause (c) of Exhibit IV to the Agreement.

 

(r)            The

Seller is not 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, the Seller is

not a “holding company,” a “subsidiary company” of a “holding

 

III-3

 

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.

 

(s)           As

of the Closing Date, neither the Seller nor any ERISA Affiliate of the Seller

maintains any Benefit Plans other than as set forth on Schedule VIII.  Neither the Seller nor any ERISA Affiliate

of the Seller has ever contributed to a Multiemployer Plan.  Each Benefit Plan of the Seller and the

ERISA Affiliates of the Seller 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 Seller 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 Seller and the ERISA Affiliates of the Seller 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.

 

(t)            The

Seller has no knowledge of any breach by any Originator of the terms and

provisions of the Transaction Documents to which such Originator is a party,

other than those disclosed by the Seller to the Agent pursuant to clause

(m)(5)(i) of Exhibit IV.

 

(u)           No

event or condition having a Material Adverse Effect has occurred or exists.

 

2.             Representations

and Warranties of AAR (including in its capacity as the Servicer).  AAR, individually and in its capacity as the

Servicer, represents and warrants as follows:

 

(a)           AAR

is a corporation duly formed, validly existing and in good standing under the

laws of the State of Delaware, and is duly qualified to do business and is in

good standing as a foreign corporation in every jurisdiction where the nature

of its business requires it to be so qualified, except where the failure to be

so qualified would not have a Material Adverse Effect.

 

(b)           The

execution, delivery and performance by AAR of the Agreement and the other

Transaction Documents to which it is a party, including the Servicer’s use of

the proceeds of purchases and reinvestments: (i) are within its corporate powers;

(ii) have been duly authorized by all necessary corporate action; (iii) do not

contravene or result in a default under or conflict with: (A) its certificate

of incorporation or bylaws, (B) any material law, rule or regulation applicable

to it, (C) any material 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, or (D) any material order, writ, judgment, award, injunction or decree

binding on or affecting it or any of its property; and (iv) do not result in or

require the creation of any Adverse Claim upon or with respect to any of its

properties.  The Agreement and the other

Transaction Documents to which AAR is a party have been duly executed  and delivered by AAR.

 

(c)           No

authorization, approval or other action by, and no notice to or filing with any

Governmental Authority or other Person, is required for the due execution,

delivery and

 

III-4

 

performance by AAR of the Agreement or any other Transaction Document

to which it is a party, other than (i) notices of assignment pursuant to the

Assignment of Claims Act (which, other than as required pursuant to Section

4.6(c), are not required to be made hereunder) and (ii) the Uniform

Commercial Code filings referred to in Exhibit II to the Agreement, all

of which (in the case of clause (ii)) shall have been filed on or before the

date of the first purchase hereunder.

 

(d)           Each

of the Agreement and the other Transaction Documents to which AAR is a party

constitutes the legal, valid and binding obligation of AAR enforceable against

AAR in accordance with its terms, except as enforceability may be limited by

bankruptcy, insolvency, reorganization or other similar laws from time to time

in effect 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.

 

(e)           The

balance sheets of AAR and its consolidated Subsidiaries as at May 31, 2002, and

the related statements of income and retained earnings for the fiscal year then

ended, copies of which have been furnished to the Agent, fairly present the

financial condition of AAR and its consolidated Subsidiaries in all material

respects as at such date and the results of the operations of AAR  and its Subsidiaries for the period ended on

such date, all in accordance with generally accepted accounting principles

consistently applied, and since May 31, 2002 there has been no event or

circumstances which have had a Material Adverse Effect.

 

(f)            Except

as set forth on Schedule IX, (i) there are no pending or, to its best

knowledge, threatened action, proceeding or investigation affecting it or any

of its Subsidiaries before any Governmental Authority or arbitrator, which

could reasonably be expected to result in a Material Adverse Effect and (ii)

AAR is not in default of any material contractual obligation or in violation of

any material order, writ, injunction, decree, rule or regulation of any

Governmental Authority applicable to it or any of its properties.

 

(g)           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.

 

(h)           Each

Information Package (if prepared by AAR or one of its Affiliates, or to the

extent that information contained therein is supplied by AAR or an Affiliate),

information, exhibit, financial statement, document, book, record or report

furnished or to be furnished at any time by or on behalf of the Servicer to the

Agent in connection with the Agreement is or will be complete and accurate in

all material respects as of its date or (except as otherwise disclosed to the

Agent at such time) as of the date so furnished.

 

(i)            The

principal place of business, chief executive office, state of formation  an corporate organizational number (as such

terms are used in the UCC) of the Originators and the office where they keep

their records concerning the Receivables are located at the address referred to

in Schedule IV to the Agreement or such other locations as shall have

been notified to the Agent as required pursuant to clause (c) of Exhibit

IV.

 

III-5

 

(j)            Neither

AAR nor any of its Affiliates has any direct or indirect ownership or other

financial interest in the Purchasers.

 

(k)           The

Servicer has complied in all material respects with the Credit and Collection

Policies of the Originators with regard to each Receivable originated by the Originators.

 

(l)            AAR

has complied in all material respects with all of the terms, covenants and

agreements contained in the Agreement and the other Transaction Documents that

are applicable to it.

 

(m)          AAR

is not 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, AAR is not 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.

 

(o)           As

of the Closing Date, neither AAR nor any ERISA Affiliate of AAR maintains any

Benefit Plans, other than as set forth on Schedule VIII.  Neither AAR nor any ERISA Affiliate of AAR

has ever contributed to or been required to contribute to any Multiemployer

Plan.  Each Benefit Plan of AAR and the

ERISA Affiliates of AAR 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 AAR 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

AAR and the ERISA Affiliates of AAR 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.

 

(p)           AAR

has no knowledge of any breach by the Seller or any Originator of the terms and

provisions of the Transaction Documents to which the Seller or such Originator

is a party, other than those disclosed by the Seller to the Agent pursuant to clause

(m)(5)(i) of Exhibit IV.

 

(q)           The

final regular, periodic and current reports and proxy statements filed by AAR

with the Securities and Exchange Commission pursuant to the Securities Exchange

Act of 1934 (as amended) do not contain any material misstatement of fact or

omit to state any material fact necessary to make such reports or statements

not materially misleading, other than any such misstatements or omissions

corrected in any subsequent filing of record as of the date hereof.

 

(r)            AAR

has received confirmation from its certified public accounting firm that, as of

the Closing Date, the sale of Receivables contemplated under the Sale Agreement

and this Agreement may be properly characterized as sales of such Receivables

for accounting purposes under GAAP, and AAR has not received any notice from

its current certified public accounting firm that such treatment is no longer

proper or appropriate.

 

III-6

 

EXHIBIT

IV

COVENANTS

 

Until the latest of the Facility Termination Date, the

date on which no Capital of or Discount in respect of the Purchased Interest

shall be outstanding or the date all other amounts owed by the Seller under the

Agreement to the Purchasers, the Agent and any other Indemnified Party or

Affected Person shall be paid in full (references to AAR in this Section shall

be deemed to refer to AAR individually and, for so long as applicable, as

Servicer):

 

(a)           Conduct

of Business.  The Seller and AAR

will, and will cause each of the Originators to, each perform all actions

necessary (i) to maintain its corporate existence and to remain in good

standing as a domestic corporation in its jurisdiction of organization and (ii)

to maintain all requisite authority to conduct its business in each jurisdiction

in which its business is conducted (except where the failure to do so would not

cause a Material Adverse Effect) or its Records are maintained.

 

(b)           Compliance

with Laws, Etc.  The Seller and AAR

will, and will cause each of the Originators to, each comply in all material

respects with all laws, rules, regulations, orders, writs, judgments,

injunctions, decrees or awards imposed by any Governmental Authority to which

it or any of its properties may be subject, including those with respect to (i)

in the case of the Seller, the sale to the Agent of the Purchased Interest and

(ii) and in all cases, any Pool Receivable, the collectibility or

enforceability thereof, or any Contract related thereto (including any

requirements of licensing, registration, authorizations, consents and approvals

necessary or desirable 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 Seller and AAR will, and will cause each of the Originators to, pay

all Taxes payable thereby as and when due.

 

(c)           Offices,

Records and Books of Account, Etc. 

The Seller shall, and the Seller and AAR shall cause each of the

Originators to: (i) keep its 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 it keeps its records concerning the

Receivables at the address of such Person set forth on Schedule IV or,

subject to clause (ii) below, at any other locations in jurisdictions in

the United States where all actions reasonably requested by the Agent to

protect and perfect the interest of the Seller, the Agent and the Purchasers in

the Receivables and related items (including the Pool Assets) have been taken and

completed and (ii) shall provide the Agent with at least 30 days’ written

notice before making any change in such Person’s name or making any other

change in the Seller’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 Agent

pursuant to this sentence shall set forth the applicable change and the

effective date thereof.  The Seller

shall also maintain and implement (or cause the Servicer or the Originators 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 or the

Originators to keep and maintain) all 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 Seller (or shall AAR or

the Seller permit any Originator to) 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 the Seller or any such Originator moves its chief executive office to a

location which may charge Taxes, fees or other charges to perfect the Agent’s

and the Purchasers’ interests hereunder, the Seller shall, or (without limiting

the Seller’s payment liability hereunder) shall cause any such Originator to,

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, the

Purchased Interest and the right, title and interest of the Agent and the

Purchasers in the Pool Assets.

 

(d)           Performance

and Compliance with Contracts and Credit and Collection Policy.  The Seller shall, and AAR and the Seller

shall cause each Originator to, at no expense to the Agent or the Purchasers,

timely and fully perform and comply with all material provisions, covenants and

other promises required to be observed by it under the Contracts related to the

Receivables, and timely and fully comply in all material respects with the

applicable Credit and Collection Policies with regard to each Receivable and

the related Contract.

 

(e)           Ownership

Interest, Etc.  The Seller and the

Servicer shall, and the Seller and AAR agree to cause each of the Originators

to, at no expense to the Agent or the Purchasers, take all action necessary or

desirable in the reasonable determination of the Agent to establish and

maintain a valid and enforceable undivided percentage ownership or security

interest, to the extent of the Purchased Interest, in the Pool Receivables, the

Related Security and Collections with respect thereto, and a first priority

perfected security interest in the Pool Assets, in each case free and clear of

any Adverse Claim, in favor of Agent for the benefit of the Purchasers,

including taking such action to perfect, protect or more fully evidence the

interest of the Purchasers as the Purchasers, through the Agent, may reasonably

request.  Notwithstanding the foregoing,

the Seller hereby irrevocably makes, constitutes and appoints the Agent (and

all Persons designated by the Agent from time to time for that purpose) as the

Seller’s 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 Agent

to preserve and perfect the Agent’s ownership and/or security interest (all at

the Seller’s expense) in the Pool Assets. 

The Seller further agrees that a carbon, photographic, photostatic or

other reproduction of this Agreement or of a financing statement shall be

sufficient as a financing statement. 

Seller further ratifies and confirms the prior filing by the Agent of

any and all financing statements (including any amendments or continuation

thereto or thereof) which identify the Seller as debtor, seller or assignor and

the Agent as secured party, buyer or assignee, and any or all of the Purchased

Interest as collateral.  Without

limiting the foregoing, the Seller and AAR shall, and shall cause each

Originator to, hold any and all Pool Receivables evidenced by any instruments

or chattel paper, if any, in trust for the Agent and the Purchasers, separate

from its own assets and marked with a legend, in each case, as set forth above,

and upon

 

IV-2

 

the Agent’s request therefor, shall deliver such instruments and/or

chattel paper to the Agent or its designee.

 

(f)            Sales,

Liens, Etc.  Neither the Seller nor

AAR shall, nor shall it permit any of the Originators to, 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 Pool Assets (including the Seller’s

undivided interest in any Receivable, Related Security or Collections, or upon

or with respect to any account to which any Collections of any Pool 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, neither the Seller nor AAR shall, or permit any

Originator to, extend the maturity or adjust the Outstanding Balance or otherwise

modify the terms of any Pool 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 Pool Receivable, the time

for payment thereof or thereunder, the enforceability thereof or is in any

other way adverse to the Agent and the Purchasers.

 

(h)           Change

in Business or Credit and Collection Policy.  Neither the Seller nor AAR shall, or shall permit any of the

Originators to, make (i) any material change in the character of its business

or (ii) any change in any Credit and Collection Policy that would adversely

effect the enforceability, collectibility or creditworthiness of any Pool

Receivable.  Neither the Seller nor AAR

shall, or permit any of the Originators to, make any other change in any Credit

and Collection Policy without giving prior written notice thereof to the Agent.

 

(i)            Audits.  The Seller and AAR will, and will cause each

Originator to, furnish to the Agent, the Purchasers 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 Seller and AAR will,

and will cause each Originator to, from time to time during regular business

hours as reasonably requested in advance (unless a Termination Event or

Unmatured Termination Event exists) by the Agent or the Servicer, permit the

Agent, the Servicer or any 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 any such Person

relating to any Receivables and the Related Security, including the related

Contracts, (ii) to visit the offices and properties of the Seller, AAR and/or

any such Originator 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 Seller’s, AAR’s or the Originators’ performance under the

Transaction Documents or under the Contracts with any of the officers,

employees, agents or contractors of the Seller, AAR or 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 Agent to conduct, at the Seller’s expense (not to exceed

$20,000 per audit), a review of the Seller’s books and records with respect to

such Receivables and reconciliations to the Information Packages and Settlement

Statements.  So long as there exists no

Termination Event or Unmatured Termination Event, the audit required pursuant

to clause (iii) need not be performed more than once in any twelve month

 

IV-3

 

period except at the Agent’s expense; otherwise such audits may be

conducted at such intervals as deemed appropriate by the Agent, at the Seller’s

expense.

 

(j)            Change

in Lock-Box Banks, Lock-Box Accounts and Payment Instructions to Obligors.  Neither the Seller nor AAR shall, or permit

any of the Originators 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

Agreement, or make any change in the instructions to Obligors regarding

payments to be made to the Seller, the Originators, the Servicer or any

Lock-Box Account (or related post office box), unless the Agent shall have

consented thereto in writing and the Agent 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 Seller

and AAR shall, and shall cause each of the Originators to, (i) instruct all

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 it, the Servicer or the Originators 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. 

Neither the Seller nor AAR shall, or shall permit any of the Originators

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 Seller

and AAR shall, or shall cause the Servicer or the applicable Originator to,

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 Seller, 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 Seller

and the Servicer otherwise comply with the terms hereof, such remittances shall

not constitute a breach of this provision. 

Neither the Seller nor AAR shall, or shall permit any Originator to,

terminate any Lock-Box Bank or close any Lock-Box Account unless the Agent

shall have received at least thirty (30) days prior notice of such termination.

 

(l)            Marking

of Records.  At its expense, the

Seller and AAR shall: (i) mark (or cause the Servicer to mark) its master data

processing records relating to both Pool Receivables and related Contracts,

including with a legend evidencing that the undivided percentage ownership

interests with regard to the Purchased Interest related to such Receivables and

related Contracts have been sold in accordance with the Agreement, and (ii)

cause each Originator to so mark (or cause the Servicer to mark) its master

data processing records pursuant to the Sale Agreement.  Upon the request of the Agent at any time

after the appointment of a new Servicer (other than AAR or an Affiliate

thereof) by the Agent pursuant to Section 4.1(a), the Seller shall, and

AAR and the Seller shall cause each Originator to (1) so mark each Contract and

its other Records and (2) deliver to the Agent all Contracts (including all

multiple originals of such Contracts), with

 

IV-4

 

any appropriate endorsement or assignment, and Records or segregate

(from all other receivables then owned or being serviced by the Seller) the

Receivables and all Contracts and Records relating to any Pool Asset and hold

in trust and safely keep such Contracts and Records in separate filing cabinets

or other suitable containers (x) marked to show the Agent’s and the Purchasers’

interest with the legend specified above and (y) maintained in such place as

shall be designated by the Agent or such replacement Servicer.

 

(m)          Reporting

Requirements.  The Seller and AAR

will, and will cause each Originator to, 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 Seller and AAR each agree to provide to

the Agent (in multiple copies, if requested by the Agent) the following:

 

(1)           Annual Financial Statements.  Within ninety (90) days after the end of

each fiscal year of the Seller (beginning with the fiscal year ending May 31,

2003, copies of (A) for the Seller, its annual unaudited financial statements

(including a consolidated balance sheet, the related consolidated statement of

income and retained earnings and the related statement of cash flows, with

related footnotes) certified by the Chief Financial Officer of the Seller, in

each case, prepared in conformity with GAAP for such fiscal year then ended and

(B) for AAR, (x) its annual audited consolidated financial statements for AAR

and its consolidated Subsidiaries (including, a consolidated balance sheet, the

related consolidated statement of income and retained earnings and the related

statement of cash flows, with related footnotes) certified by a national

independent certified public accounting firm, in each case prepared on a

consolidated basis in conformity with GAAP as of the close of such fiscal year

for the year then ended and (y) annual unaudited consolidating financial

statements of each of the Originators (including a balance sheet, the related

statement of income and retained earnings and the related statement of cash

flows), in each case, prepared in conformity with GAAP for the fiscal year then

ended;

 

(2)           Quarterly Financial Statements.  Within sixty (60) days after the end of each

fiscal quarter of the Seller (except the last quarter of its fiscal year),

copies of (A) for the Seller, its unaudited financial statements (including at

least a balance sheet, the related statement of income and earnings and the

related statement of cash flows), in each case, as of the close of such quarter

and for the period from the beginning of such fiscal year to the close of such

quarter) and certified by the Chief Financial Officer of the Seller and (B) for

AAR, (x) its unaudited consolidated quarterly financial statements for AAR and

its consolidated Subsidiaries (including at least a balance sheet, the related

statement of income and earnings and the related statement of cash flows), in

each case, as of the close of such quarter and for the period from the

beginning of such fiscal year to the close of such quarter) and certified by

the Chief Financial Officer of AAR and (y) unaudited consolidating financial

statements of each of the Originators (including a balance sheet, the

related  statement of income and

retained earnings and the related statement of cash flows), in each case, as of

the close of such quarter and for the period from the beginning of such fiscal

year to the close of such quarter) and certified by the Chief Financial Officer

of AAR, in each of the cases of clause (A) and (B) above, prepared in

conformity with GAAP consistently applied;

 

IV-5

 

(3)           Officer’s Certificate.  Each time financial statements are furnished

pursuant to clause (1) or (2) above, compliance certificates (in substantially

the form of Annex D) signed by the Chief Financial Officer of the Seller

or AAR, as applicable, and dated the date of such annual or quarterly financial

statement;

 

(4)           Public Reports.  Promptly upon becoming available, a copy of

each regular, current, or periodic report or proxy statement filed by the

Seller or AAR with any securities exchange or with the Securities and Exchange

Commission;

 

(5)           Other Information:

 

(i)            As soon as possible and in any event

within five days after the occurrence of each Termination Event or Unmatured

Termination Event, a statement of the chief financial officer of the Seller

setting forth details of such Termination Event or Unmatured Termination Event

and the action that the Seller has taken and proposes to take with respect

thereto;

 

(ii)           Promptly after the filing or

receiving thereof, copies of all reports and notices that the Seller, AAR or

any ERISA Affiliate of the Seller 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 the Seller, AAR and/or any

such ERISA Affiliate under ERISA;

 

(iii)          promptly after the Seller obtains

knowledge thereof, notice of any: 

(A) material litigation, investigation or proceeding that may exist

at any time between the Seller 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;

 

(iv)          promptly after the occurrence thereof,

notice of a Material Adverse Effect; and

 

(v)           such other information respecting the

Receivables or the condition or operations, financial or otherwise, of the

Seller or any of its Affiliates as the Agent may from time to time reasonably

request.

 

(n)           Certain

Agreements.  Without the prior

written consent of the Agent, (i) the Seller shall not amend, restate,

supplement or otherwise modify any provision of its articles of incorporation

or bylaws and (ii) AAR shall not, nor shall the Seller or AAR permit any of the

Originators to, amend, restate, supplement or otherwise modify any provision of

its articles of incorporation or bylaws in any way adverse to the Agent or the

Purchasers.

 

IV-6

 

(o)           Restricted

Payments.

 

(i) Except pursuant to clause

(ii) below, the Seller will not: (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 Seller may make Restricted Payments so long

as such Restricted Payments are made only in one or more of the following

ways:  (A) the Seller may make cash

payments (including prepayments) on the Company Note in accordance with its

terms, and (B) if no amounts are then outstanding under the Company Note, the

Seller may, no more frequently than once every calendar quarter, declare and

pay dividends.

 

(iii)          The Seller may make Restricted

Payments only out of the funds it receives pursuant to Sections 1.4(b)(ii)

and (iv) of the Agreement. 

Furthermore, the Seller shall not pay, make or declare:  (A) any distributions if, after giving

effect thereto, the Seller’s tangible net worth (to be calculated consistently

with the definition of Consolidated Tangible Net Worth solely with respect to

the Seller) would be less than $12,000,000, or (B) any Restricted Payment

(including any dividend) if, after giving effect thereto, any Termination Event

or Unmatured Termination Event shall have occurred and be continuing or it is a

Termination Day.

 

(p)           Other

Business.  The Seller will not: (i)

engage in any business other than the transactions contemplated by the

Transaction Documents; (ii) create, incur or permit to exist any Debt of any

kind (or cause or permit to be issued for its account any letters of credit or

bankers’ acceptances) other than pursuant to this Agreement or the Company

Notes; or (iii) form any Subsidiary or make any investments in any other

Person; provided, however, that the Seller shall be permitted to incur minimal

obligations to the extent necessary for the day-to-day operations of the Seller

(such as expenses for stationery, audits, maintenance of legal status, etc.).

 

(q)           Use

of Seller’s Share of Collections. 

The Seller shall apply the Seller’s Share of Collections to make

payments in the following order of priority: 

(i) the payment of its expenses (including all obligations payable to

the Purchasers and the Agent under the Agreement and under the Fee Letter);

(ii) the payment of accrued and unpaid interest on the Company Note; and (iii)

other legal and valid organizational purposes.

 

(r)            Merger,

etc.  The Seller 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 its assets (whether now owned or

hereafter acquired), (iii) acquire any assets, capital stock or other ownership

interest of or in any Person (other than in connection herewith) or (iv)

otherwise enter into any partnership or joint venture arrangement.  AAR shall not, and shall not permit any of

the Originators to (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 its assets (whether now

owned or hereafter

 

IV-7

 

acquired); provided, that (x) AAR may merger or consolidate with any

Person 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.

 

(s)           Accounting

for Sale.  Neither the Seller nor

AAR shall, or shall permit any of the Originators to, account for or otherwise

treat, (i) the transactions contemplated by the Sale Agreement in any manner

for tax or accounting purposes other than as a sale of Receivables by the

Originators to the Seller, except to the extent otherwise required in

accordance with GAAP or applicable law or (ii) the transactions contemplated

hereby (a) for financial accounting purposes, other than as a sale of an

undivided fractional ownership interest in the Pool Assets and (b) for tax

purposes, in any manner inconsistent with the Intended Tax Characterization, in

each case, except to the extent otherwise required by applicable law.  In addition, the Seller and AAR shall, and

shall cause, to the extent applicable, each of the Originators to, disclose (in

a footnote or otherwise) in all of its 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 by the Sale

Agreement and the interests of the Seller, the Agent and the Purchasers in the

Pool Assets.

 

(u)           Contingent

Liabilities.  The Seller will not

guarantee, endorse or otherwise become contingently liable (including by

agreement to maintain balance sheet tests) in connection with the obligations

or Debt of any other Person, except endorsements of negotiable instruments for

collection in the ordinary course of business or as provided hereunder.

 

(v)           Limitation

on Transactions with Affiliates. 

The Seller will not enter into any transaction with any Affiliate except

for the transactions contemplated by the Transaction Documents and other

transactions upon fair and reasonable terms materially no less favorable to the

Seller than would be obtained in a comparable arm’s length transaction with a

Person not an Affiliate.

 

(w)          Change

in Sale Agreement.  Unless the Agent

shall otherwise consent in writing, the Seller will not amend, terminate or

grant any waiver or forbearance under the Purchase Agreement, which right to

amend, terminate and grant waivers and forbearances has been assigned to the

Agent.   The Seller shall fully enforce

the Sales Agreement and its rights thereunder in accordance with the terms

thereof, and shall take such actions, and do such other things, as the Agent

shall from time to time request in furtherance thereof.

 

(x)            Credit

Insurance.  The Seller and AAR

shall, and shall cause each Originator to, 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 Seller shall, and/or AAR and the Seller shall cause each Originator

to, at all times maintain cash sufficient to pay any additional premiums

required (in excess of the minimum premium) in

 

IV-8

 

respect of any Receivables in excess of projected sales volume under

such policy.  Neither the Seller nor AAR

shall, or shall permit any Originator to, cancel or make any amendments,

modifications or changes to, any such policy without the prior written consent

of the Agent.  The Seller and AAR shall,

and shall cause each Originator to, 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).  Notwithstanding the foregoing,

the Seller and AAR shall, and shall cause each Originator to, 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, each of the Seller, AAR and the

Servicer shall, and shall cause each of the Originators to, make claims for

coverage, and apply any and all proceeds received by it under, any such

policies to Receivables within the Purchased Interest prior to making any such

claim or applying any such proceeds to any other Receivables owing by the same

Obligor.

 

(y)           Material

Agreements.  AAR shall include

copies of this Agreement and the Sale 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.

 

2.             Separate

Existence.  Each of the Seller and

AAR hereby acknowledges that the Purchasers and the Agent are entering into the

transactions contemplated by this Agreement and the other Transaction Documents

in reliance upon the Seller’s identity as a legal entity separate from AAR and

its Affiliates.  Therefore, from and

after the date hereof, each of the Seller and AAR shall take all steps

specifically required by the Agreement or reasonably required by the Agent to

continue the Seller’s identity as a separate legal entity and to make it

apparent to third Persons that the Seller is an entity with assets and

liabilities distinct from those of AAR and any other Person, and is not a

division of AAR, 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 Seller shall

operate its business in conformity with the restrictions set forth on Exhibit

VI hereto.

 

IV-9

 

EXHIBIT

V

TERMINATION

EVENTS

 

Each of the following shall be a “Termination Event”:

 

(a)           (i)

either the Servicer (if other than the Agent or any Purchaser) or the Seller

shall fail to make any payment or deposit to be made by it under Section 1.4

or clause (k) of Exhibit IV when due, (ii) any two consecutive or

two of the most recent four Information Packages or Settlement Statements shall

fail to be completed and delivered to the Agent on the dates required pursuant

to Section 4.4 or any Information Package or Settlement Statement shall

fail to be completed and delivered to the Agent within 3 days of the date

required pursuant to Section 4.4, or (iii) the Servicer (if other than

the Agent or any Purchaser) shall fail to perform or observe any term, covenant

or agreement hereunder (other than as referred to in subclauses (i) or (ii)

immediately above) and such failure shall remain unremedied for three (3)

Business Days after the Servicer became aware of, or received notice of, the

existence of such default;

 

(b)           (i)

the Seller shall fail to make any payment of fees due hereunder or under the

Fee Letter within three (3) days after the date on which such amount shall have

become due and payable; or (ii) the Seller shall fail to pay any amount

required to be paid by it hereunder and not otherwise described in clause (a)

above or subclause (i) immediately above within ten (10) days after the date on

which such amount shall have become due and payable;

 

(c)           the

Seller, AAR or any Originator shall fail to observe or perform any covenant or

agreement contained herein or in any of the other Transaction Documents and

applicable to it (other than any covenant or agreement of the type described in

clause (a) and (b) above or any such covenant or agreement specifically

referred to in any clause below) and such failure shall continue for fifteen

days such Person became aware of, or received notice of, such failure; provided

that no such failure with respect to any Pool Receivable shall constitute a

Termination Event under this clause (c) if the Seller has, pursuant to Section

1.4(e), been deemed to have collected such Receivable and payment therefor

in full has been delivered in accordance with Section 1.4, with the

effect that, in accordance with Section 1.4(e), such Receivable is no

longer a Pool Receivable hereunder;

 

(d)           any

representation, warranty, certification or statement made or deemed made by the

Seller, AAR, any Originator or the Servicer (if other than the Agent or any

Purchaser) in, or pursuant to, this Agreement, any other Transaction Document

or in any certificate, financial statement or other document delivered pursuant

hereto or thereto shall prove to have been incorrect in any material respect

(or, if such representation is already qualified by any standard of

materiality, in any respect) when made or deemed made; provided that no such

breach with respect to any Pool Receivable shall constitute a Termination Event

under this clause (d) if the Seller has, pursuant to Section 1.4(e),

been deemed to have collected such Receivable and payment therefor in full has

been delivered in accordance with Section 1.4, with the effect that, in

accordance with Section 1.4(e), such Receivable is no longer a Pool

Receivable hereunder;

 

(e)           AAR

shall cease to be Servicer and no successor Servicer reasonably satisfactory,

to the Agent shall have been appointed;

 

 

(f)            the

Seller shall for any reason fail or cease to have a valid and enforceable

perfected ownership or security interest in each Pool Receivable and the

Related Security and Collections with respect thereto, free and clear of any

Adverse Claim (other than the Adverse Claim in favor of the Agent and the

Purchasers hereunder), or (ii) the Agent and the Purchasers shall for any

reason fail or cease to have a valid and enforceable perfected undivided

percentage ownership or security interest to the extent of the Purchased

Interest in each Pool Receivable, the Related Security and Collections with

respect thereto, free and clear of any Adverse Claim;

 

(g)           the

Seller, the Servicer (if other than the Agent or any of the Purchasers), AAR or

any Originator shall generally not pay its debts as such debts become due, or

shall admit in writing its inability to pay its debts generally, or shall make

a general assignment for the benefit of creditors; or any proceeding shall be

instituted by or against the Seller, such Servicer, AAR or any Originator

seeking to adjudicate it as bankrupt or insolvent, or seeking liquidation,

winding up, reorganization, arrangement, adjustment, protection, relief or

composition of it or its debts under any law relating to bankruptcy, insolvency

or reorganization or relief of debtors, or seeking the entry of an order for

relief or the appointment of a receiver, trustee, custodian or other similar

official for it or for any substantial part of its property and, in the case of

any such proceeding instituted against it (but not instituted by it), such

proceeding shall remain undismissed or unstayed for a period of 60 days, or any

of the actions sought in such proceeding (including the entry of an order for

relief against, or the appointment of a receiver, trustee, custodian or other

similar official for, it or for any substantial part of its property) shall occur;

or the Seller, such Servicer, AAR or any Originator shall take any corporate

action to authorize any of the actions set forth above in this paragraph;

 

(h)           (i)

the (A) Default Ratio shall exceed 7.0%, (B) the Delinquency Ratio shall exceed

15.0% or (C) the Dilution Ratio shall exceed 15.0% or (ii) the average for

three consecutive calendar months of: 

(A) the Default Ratio shall exceed 5.0%, (B) the Delinquency Ratio shall

exceed 15.0% or (C) the Dilution Ratio shall exceed 11.0%;

 

(i)            a

Change in Control shall occur;

 

(j)            the

Purchased Interest at any time exceeds 100% and such circumstance is not

remedied within three (3) Business Days after the Seller or an Affiliate

thereof learned or should have learned of such circumstance (including as would

or should have been learned of in connection with the preparation of any

required Information Package or Settlement Statement, whether or not such

Information Package or Settlement Statement is in fact so prepared);

 

(k)           (i)

The Seller, AAR, or any Subsidiaries of AAR shall fail to pay any principal of

or premium or interest on any of its Debt that is outstanding in a principal

amount of at least $2,000,000, individually or in the aggregate, when the same

becomes due and payable (whether by scheduled maturity, required prepayment,

acceleration, demand or otherwise), and such failure shall continue after the

applicable grace period, if any, specified in the agreement, mortgage,

indenture or instrument relating to such Debt (and shall have not been waived);

or (ii) any other event shall occur or condition shall exist under any

agreement, mortgage, indenture or instrument relating to any such Debt and

shall continue after the applicable grace period, if any,

 

V-2

 

specified in such agreement, mortgage, indenture or instrument (and

shall have not been waived), if, in either case: (a) the effect of such

non-payment, event or condition is to give the applicable debtholders the right

(whether acted upon or not) to accelerate the maturity of such Debt (other than

the Specified Non-Recourse Debt to the extent such Debt shall be extinguished

solely by recourse to the aircraft described in the definition of Specified

Non-Recourse Debt), or (b) any such Debt shall be declared to be due and

payable, or required to be prepaid (other than by a regularly scheduled

required prepayment), redeemed, purchased or defeased, or an offer to repay,

redeem, purchase or defease such Debt shall be required to be made (other than

the Specified Non-Recourse Debt to the extent such Debt shall be extinguished

solely by recourse to the aircraft described in the definition of Specified

Non-Recourse Debt), in each case before the stated maturity thereof;

 

(l)            either:

(i) a contribution failure shall occur with respect to any Benefit Plan of the

Seller, AAR or any ERISA Affiliate of the Seller or AAR, in either case,

sufficient to give rise to a lien under Section 302(a) of ERISA, (ii) the

Internal Revenue Service shall file a notice of lien asserting a claim or

claims pursuant to the Internal Revenue Code with regard to any of the assets

of Seller, any Originator, AAR or any ERISA Affiliate and such lien shall have

been filed and not released within 10 days, or (iii) the Pension Benefit

Guaranty Corporation shall, or shall indicate its intention in writing to the

Seller, any Originator, AAR or any ERISA Affiliate to, either file a notice of

lien asserting a claim pursuant to ERISA with regard to any assets of the

Seller, any Originator, AAR or any ERISA Affiliate or terminate any Benefit

Plan that has unfunded benefit liabilities, or any steps shall have been taken

to terminate any Benefit Plan subject to Title IV of ERISA so as to result in

any liability;

 

(m)          the

Days’ Sales Outstanding exceeds 70 days;

 

(n)           a

default shall occur under the Performance Guaranty; the Performance Guaranty is

terminated or held to be unenforceable for any reason; or any Person shall

attempt to terminate, or assert the invalidity or unenforceability of, the

Performance Guaranty or any provision thereof;

 

(o)           the

Sale Agreement shall be terminated for any reason; or any of the Originators

shall cease making sales of Receivables thereunder;

 

(p)           any

judgment (or any related series of judgments) shall be rendered against AAR, any

of its Subsidiaries, or the Seller that (i) exceeds the insurance coverage

therefor by an amount in excess of $5,000,000 or in respect of which such

Person’s insurance carrier has not acknowledged coverage for such loss (or any

portion thereof) in excess of $5,000,000 or (ii) otherwise causes a Material

Adverse Effect, and in each case, such judgment has not been fully discharged

or stayed within the period required to preserve the right to appeal such

judgment;

 

(q)                                 (i)            Consolidated Tangible Net Worth as

determined as at the last day of any fiscal quarter of AAR shall be less than

$152,000,000, minus the aggregate amount of all impairment charges taken by AAR

and its Subsidiaries in respect of assets included in the calculation of

Consolidated Net Worth during each fiscal quarter commencing with the fiscal

quarter ending February 28, 2003;

 

V-3

 

(ii)           Capital Expenditures of AAR and its

Subsidiaries, on a consolidated basis, as determined as of the last day of each

fiscal quarter of AAR for the twelve fiscal month period ending as of the last

day of such fiscal quarter then ended exceeds $16,000,000; or

 

(iii)          The ratio of EBITDA to Fixed Charges,

in each case as determined as of the last day of each fiscal quarter of AAR for

the twelve fiscal month period ending as of the last day of such fiscal quarter

then ended shall be less than 1.15 to 1.00;

 

(r)            The

tangible net worth of the Seller (to be calculated consistently with the

definition of Consolidated Tangible Net Worth solely with respect to the

Seller) shall at any time be less than $12,000,000; or

 

(s)           The

aggregate outstanding principal balance of the Company Notes as of the last

Business Day of any month exceeds $4,500,000 for any two consecutive months or

an amount equal to 15% of the aggregate Outstanding Balance of all Eligible

Receivables owned by the Seller at such time.

 

V-4

 

EXHIBIT

VI

ACTIVITIES TO MAINTAIN CORPORATE SEPARATENESS

 

The Seller shall take all reasonable steps to continue

its identity as a separate legal entity and to make it apparent to third

Persons that it is an entity with assets and liabilities distinct from those of

AAR, the Servicer, any of the Originators, or any other Person, and that the

Seller is not a division of AAR, the Servicer, any of the Originators, or any

other Person.  In that regard, and

without limiting the foregoing in any manner, the Seller shall:

 

(a)           be

organized as a limited purpose corporation organized under the laws of the

State of Illinois and its Articles of Incorporation shall limit its activities

to: (i) entering into, performing and complying with a purchase and sale

agreement with AAR and/or any subsidiary of AAR pursuant to which the Seller

may purchase accounts receivables and related property from AAR and/or such

subsidiaries; (ii) owning, holding and servicing the receivables and related

property so purchased; (iii) borrowing from and/or selling interests in the

receivables to trusts, banks, financial institutions, commercial paper

purchasers, insurance companies or similar entities in order to fund such

purchases; (iv) pledging all or substantially all of its assets, including the

receivables so purchased, as collateral security for any such financing

arrangements; (v) investing proceeds derived from such activities as determined

by the Seller’s Board of Directors; and (vi) engaging in any lawful act or

activity or exercising any powers permitted to corporations organized under the

general corporate laws of the state of Illinois, in either case that are

incidental to and necessary or convenient for the accomplishment of the

above-mentioned purposes;

 

(b)           not

engage in any business or activity except as set forth in this Agreement nor

incur any indebtedness or liability, other than as expressly permitted by the

Transaction Documents;

 

(c)           have

not less than one director (the “Independent Director”) which is an individual

who is not a direct, indirect or beneficial stockholder, officer, director,

employee, affiliate, advisor, customer or supplier of AAR or any of its

Affiliates (an “AAR Person”), nor a direct, indirect or beneficial owner of

more than 10% of the outstanding capital stock of any AAR Person “), nor a

relative of any of the foregoing, nor a trustee in bankruptcy for any of the

foregoing (any such Person also being an “AAR Person”);

 

(d)           maintain

in its Articles of Incorporation of the Seller provide that the Seller will

not, without the affirmative note of all of its directors (including the duly

appointed Independent Directors), (i) dissolve or liquidate, in whole or in

part, or institute proceedings to be adjudicated bankrupt or insolvent, (ii)

consent to the institution of any bankruptcy or insolvency proceedings against

it, (iii) file a petition seeking, or consenting to, reorganization or relief

under any applicable federal or state law relating to bankruptcy or insolvency,

(iv) consent to the appointment of a receiver, trustee, liquidator,

sequestrator or assignee (or other similar official) for it or a substantial

part of its property, (v) make a general assignment for the benefit of

creditors, (vi) admit in writing its inability to pay its debts as they become

due, (vii) enter into or approve any merger, consolidation or sale of all or substantially

all of its assets, or (viii) amend the articles of incorporation to remove any

requirement for an Independent Director or the

 

 

requirement of the consent of such Independent Director with respect to

the matters set forth in this clause (c) without the consent of the Independent

Director, in either case, without the consent of (x) a majority of directors on

the Seller’s Board of Directors and (y) the Independent Director;

 

(e)           maintain

its own board of directors and make independent decisions with respect to its

daily operations and business affairs and not be controlled in making such

decisions by AAR, any of its Affiliates or any other AAR Person;

 

(f)            maintain

separate and clearly delineated office space owned by it or evidenced by a

written lease or sublease  (even if

located in an office shared with AAR, any of its Affiliates or any other AAR

Person);

 

(g)           maintain

its assets in a manner which facilitates their identification and segregation

from those of AAR, any of its Affiliates or any other AAR Person;

 

(h)           maintain

a separate telephone number which will be answered only in its own name and

separate stationery and other business forms;

 

(i)            conduct

all intercompany transactions with AAR, its Affiliates and any other AAR

Persons on terms which the Seller reasonably believes to be on an arm’s-length

basis;

 

(j)            not

guarantee any obligation of AAR, any of its Affiliates or any other AAR Person,

nor have any of its obligations guaranteed (other than pursuant to the

Performance Guarantee) by AAR, any of its Affiliates or any other AAR Person or

hold itself out as responsible for the debts of AAR, any of its Affiliates or

any other AAR Person or for the decisions or actions with respect to the

business and affairs of AAR, any of its Affiliates or any other AAR Person, nor

seek or obtain credit or incur any obligation to any third-party based upon the

creditworthiness or assets of AAR, any of its Affiliates, any AAR Person or any

other Person;

 

(k)           not

permit the commingling or pooling of its funds or other assets with the assets

of AAR, any of its Affiliates or any other AAR Person;

 

(l)            maintain

separate deposit and other bank accounts to which none of AAR, any Affiliate

thereof or any other AAR Person (other than as Servicer) has any access;

 

(m)          maintain

financial records which are separate from those of AAR, any of its Affiliates

or any other AAR Person;

 

(n)           compensate

all employees, consultants and agents, and other AAR Persons, to the extent

applicable, from the Seller’s own funds, for services provided to the Seller by

such employees, consultants and agents or other AAR Persons;

 

(o)           have

agreed in writing with AAR and the other Originators and AAR Persons to

allocate among themselves shared overhead and corporate operating services and

expenses which are not reflected in the Servicing Fee (including without

limitation the services of shared

 

VI-2

 

employees, consultants and agents and reasonable legal and auditing

expenses) on the basis of actual use or the value of services rendered, and

otherwise on a basis reasonably related to actual use or the value of services

rendered;

 

(p)           pay

directly for its own account for accounting and payroll services, rent, lease

and other expenses and not have such operating expenses paid by AAR, any of its

Affiliates or any other AAR Person;

 

(q)           maintain

adequate capitalization in light of its business and purpose;

 

(r)            conduct

all of its business (whether in writing or orally) solely in its own name

through its duly authorized officers, employees and agents;

 

(s)           not

operate its business or take any action which is inconsistent with the

assumptions set forth in, and serving as the basis for the conclusions of law

in, the opinion of  Seller’s counsel

delivered in connection with this Agreement concerning certain bankruptcy

matters (“true sale” and substantive consolidation) relating to the transaction

contemplated hereby;

 

(t)            maintain

at least one employee (who may be an employee of AAR, any Affiliate thereof or

any other AAR Person shared by the Seller pursuant to a written agreement

allocating the compensation and benefit costs of such employee) in charge of

day to day operations of the Seller; and

 

(u)           otherwise

practice and adhere to corporate formalities such as complying with its

Articles of Incorporation, By-laws and corporate resolutions, the holding of

regularly scheduled board of directors meetings, and maintaining complete and

correct books and records and minutes of meetings and other proceedings of its

stockholders and board of directors.

 

VI-3

 

EXHIBIT

VII

CONTRACTUAL

REQUIREMENTS

 

 

1.             Such

Contract provides for the sale of goods or the rendering of services within the

United States in exchange for a specified sum of money in United States Dollars

payable in the United States.

 

2.             Such

Contract shall require that full payment by the Obligor party thereto for the

merchandise or services provided by the Transferring Distributor thereunder

shall be due no later than 150 days from the original invoice date thereof..

 

3.             The

legal name of the Originator party to such Contract shall be identical to the

legal name of the applicable Originator party to the Sale Agreement and

transferring the Receivable arising under such Contract (or a predecessor by

merger thereto).

 

4.             Once

a Receivable arises under such Contract, such Contract does not contain

continuing obligations of the Originator party thereto with respect to such

Receivable or the inventory, goods, merchandise or services sold or rendered in

connection therewith.

 

6.             Such

Contract shall only contain terms and conditions concerning the payment of

finance charges or interest thereunder (if any) by the Obligor party thereto

that comply with all rules, laws and regulations of the applicable jurisdiction

governing such Contract including, but not limited to, any usury laws of such

jurisdiction.

 

7.             Such

Contract shall not constitute an “instrument,” or “chattel paper.”

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