Document:

Exhibit 4.6

EXECUTION VERSION

 

AAR CORP.

 

2.25% Convertible Senior Notes
due 2016

 

Registration Rights Agreement

 

February 11, 2008

 

MERRILL LYNCH & CO.

Merrill Lynch, Pierce, Fenner & Smith

                                                                    Incorporated

as Representative of the several Purchasers

4 World Financial Center

New York, New York  10080

 

 

Ladies and Gentlemen:

 

AAR CORP., a Delaware corporation (the “Company”), proposes to issue
and sell to the Purchasers (as defined herein) upon the terms set forth in the
Purchase Agreement (as defined herein) its 2.25% Convertible Senior Notes due 2016 (the “Securities”).  As an inducement to the Purchasers to enter
into the Purchase Agreement and in satisfaction of a condition to the
obligations of the Purchasers thereunder, the Company agrees with the Purchasers
for the benefit of Holders (as defined herein) from time to time of the
Registrable Securities (as defined herein) as follows:

 

1.                                       Definitions.

 

(a)                                  Capitalized
terms used herein without definition shall have the meanings ascribed to them
in the Purchase Agreement.  As used in
this Agreement, the following defined terms shall have the following meanings:

 

“Affiliate”
of any specified person means any other person which, directly or indirectly,
is in control of, is controlled by, or is under common control with such
specified person.  For purposes of this
definition, control of a person means the power, direct or indirect, to direct
or cause the direction of the management and policies of such person whether by
contract or otherwise; and the terms “controlling” and “controlled” have
meanings correlative to the foregoing.

 

“Closing
Date” means the Initial Closing Time as defined in the Purchase Agreement.

 

 

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“Commission”
means the United States Securities and Exchange Commission, or any other
federal agency at the time administering the Exchange Act or the Securities
Act, whichever is the relevant statute for the particular purpose.

 

“Common
Stock” means the Company’s common stock, par value $1.00 per share, together
with any associated share purchase rights.

 

“DTC”
means The Depository Trust Company.

 

“Effectiveness
Period” has the meaning assigned thereto in Section 2(b)(i) hereof.

 

“Effective
Time” means the time at which the Commission declares the Shelf Registration
Statement effective or at which the Shelf Registration Statement otherwise
becomes effective.

 

“Electing
Holder” has the meaning assigned thereto in Section 3(a)(iii) hereof.

 

“Exchange
Act” means the United States Securities Exchange Act of 1934, as amended.

 

“FINRA
Rules” means the Rules of the Financial Industry Regulatory Authority, as
amended from time to time.

 

“Holder”
means any person that is the record owner of Registrable Securities (and
includes any person that has a beneficial interest in any Registrable Security
in book-entry form).

 

“Indenture”
means the Indenture, dated as of February 11, 2008, between the Company and U.S. Bank
National Association, as trustee, as amended and supplemented from time to time
in accordance with its terms.

 

“Issuer
Free Writing Prospectus” has the meaning assigned thereto in Section 2(d) hereof.

 

“Liquidated
Damages” has the meaning assigned thereto in Section 7(a) hereof.

 

“Managing
Underwriters” means the investment banker or investment bankers and manager or
managers that shall administer an underwritten offering, if any, conducted
pursuant to Section 6 hereof.

 

“Notice
and Questionnaire” means a Notice of Registration Statement and Selling
Securityholder Questionnaire substantially in the form of Appendix A hereto.

 

The
term “person” means an individual, partnership, corporation, limited liability
company, trust or unincorporated organization, or a government or agency or
political subdivision thereof.

 

“Prospectus”
means the prospectus (including, without limitation, any preliminary
prospectus, any final prospectus and any prospectus that discloses information
previously omitted from a prospectus filed as part of an effective registration
statement in reliance upon Rule 430B under the Securities Act) included in
the Shelf Registration Statement, as amended or 

 

 

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supplemented by any prospectus supplement with respect
to the terms of the offering of any portion of the Registrable Securities
covered by the Shelf Registration Statement and by all other amendments and
supplements to such prospectus, including all material incorporated by
reference in such prospectus and all documents filed after the date of such
prospectus by the Company under the Exchange Act and incorporated by reference
therein.  Any information included in the
Prospectus that was omitted from the Shelf Registration Statement at the time
it became effective but that is deemed to be part of and included in the Shelf
Registration Statement pursuant to Rule 430B(f) is referred to as the
“Rule 430B Information.”

 

“Purchase
Agreement” means the purchase agreement, dated as of February 5, 2008, between the Purchasers and the
Company relating to the Securities.

 

“Purchasers”
means the Purchasers named in Schedule A to the Purchase Agreement.

 

“Registrable
Securities” means all or any portion of the Securities issued from time to time
under the Indenture in registered form and the shares of Common Stock issuable
upon conversion of such Securities; provided, however, that a Security or a
share of Common Stock ceases to be a Registrable Security when it is no longer
a Restricted Security.

 

“Registration
Default” has the meaning assigned thereto in Section 7(a) hereof.

 

“Restricted
Securities” means any Securities or shares of Common Stock issuable upon
conversion thereof except any such Securities or shares of Common Stock where (i) a
Shelf Registration Statement with respect to such Securities or shares of
Common Stock shall have become effective under the Securities Act and such
Securities or shares of Common Stock shall have been disposed of pursuant to
such Shelf Registration Statement, (ii) such Securities or shares of
Common Stock shall have been sold to the public pursuant to Rule l44
(or any similar provision then in force, but not Rule 144A) under the
Securities Act, (iii) one
year has passed since the issue date of the Securities or (iv) such
Securities or shares of Common Stock shall have ceased to be outstanding.

 

“Rules and
Regulations” means the published rules and regulations of the Commission
promulgated under the Securities Act or the Exchange Act, as in effect at any
relevant time.

 

“Securities
Act” means the United States Securities Act of 1933, as amended.

 

“Shelf
Registration” means a registration effected pursuant to Section 2 hereof.

 

“Shelf
Registration Statement” means a “shelf” registration statement filed under the
Securities Act providing for the registration of, and the sale on a continuous
or delayed basis by the Holders of, all of the Registrable Securities pursuant
to Rule 415 under the Securities Act and/or any similar rule that may
be adopted by the Commission, filed by the Company pursuant to the provisions
of Section 2 of this Agreement, including the Prospectus contained therein,
any amendments and supplements to such registration statement, including
post-effective amendments, and all exhibits and all material incorporated by
reference in such registration statement.

 

“Suspension
Period” has the meaning assigned thereto in Section 2(c) hereof.

 

 

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“Trust
Indenture Act” means the Trust Indenture Act of 1939, or any successor thereto,
and the rules, regulations and forms promulgated thereunder, as the same shall
be amended from time to time.

 

“Underwritten
Offering” means a registration in which Registrable Securities are sold to one
or more underwriters for reoffering to the public.

 

The
term “underwriter” means any underwriter of Registrable Securities in
connection with an offering thereof under a Shelf Registration Statement.

 

(b)           Wherever there is a reference in this Agreement to a
percentage of the “principal amount” of Registrable Securities or to a
percentage of Registrable Securities, shares of Common Stock shall be treated
as representing the principal amount of Securities that was surrendered for
conversion or exchange in order to receive such number of shares of Common
Stock.

 

2.                                       Shelf
Registration.

 

(a)                                  Subject to Section 2(e) of
this Agreement, the Company shall, no later than six months of the Closing
Date, file with the Commission a Shelf Registration Statement or designate an
existing Shelf Registration Statement filed with the Commission relating to the
offer and sale of the Registrable Securities by the Holders from time to time
in accordance with the methods of distribution elected by such Holders and set
forth in such Shelf Registration Statement and, thereafter, shall use its
reasonable best efforts to cause such Shelf Registration Statement to be
declared or otherwise become effective under the Securities Act no later than
six months of the Closing Date; provided, however, that the Company may, upon
written notice to all Holders, postpone having the Shelf Registration Statement
become effective for a reasonable period not to exceed 90 days if the Company
possesses material non-public information, the disclosure of which would have a
material adverse effect on the Company and its subsidiaries taken as a whole,
if a pending transaction that would be material to the Company and its
subsidiaries, taken as a whole, could be materially adversely affected as a
result, or if the Company is unable to file financial statements required to be
included in a shelf registration statement as a result of a pending litigation;
provided, further, however, that no Holder shall be entitled to be named as a
selling securityholder in the Shelf Registration Statement or to use the
Prospectus forming a part thereof for resales of Registrable Securities unless
such Holder is an Electing Holder.

 

(b)                                 Subject to Section 2(e) of
this Agreement, the Company shall use its reasonable best efforts:

 

(i)                                     to keep the
Shelf Registration Statement continuously effective under the Securities Act in
order to permit the Prospectus forming a part thereof to be usable by Holders
until the earlier of (1) the date on which all of the Securities and the
shares of Common Stock issued and issuable upon conversion thereof have been
sold pursuant to the Shelf Registration Statement, (2) the date on which
all of the outstanding Securities and shares of Common Stock issued and
issuable upon conversion thereof and held by Holders who are not Affiliates of
the Company may be freely transferred immediately 

 

 

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pursuant
to the second sentence of Rule 144(b)(1)(i) (as such rule shall
become effective on February 15, 2008) or any successor rule thereto, (3) one
year after the issue date of the Securities and (4) the date on which
there are no outstanding Registrable Securities (such period being referred to
herein as the “Effectiveness Period”).

 

(ii)                                  after the
Effective Time of the Shelf Registration Statement, promptly upon the request
of any Holder of Registrable Securities that is not then an Electing Holder, to
take any action reasonably necessary to enable such Holder to use the
Prospectus forming a part thereof for resales of Registrable Securities,
including, without limitation, any action necessary to identify such Holder as
a selling securityholder in the Shelf Registration Statement; provided,
however, that nothing in this subparagraph shall relieve such Holder of the
obligation to return a completed and signed Notice and Questionnaire to the
Company in accordance with Section 3(a)(ii) hereof; and

 

(iii)                               if at any time
the Securities, pursuant to Article 4.2 of the Indenture, are convertible
into securities other than Common Stock, to cause, or to cause any successor
under the Indenture to cause, such securities to be included in the Shelf
Registration Statement no later than the date on which the Securities may then
be convertible into such securities.

 

The
Company shall be deemed not to have used its reasonable best efforts to keep
the Shelf Registration Statement effective during the requisite period if the
Company voluntarily takes any action that would result in Holders of
Registrable Securities covered thereby not being able to offer and sell any of
such Registrable Securities during that period, unless such action is (A) required
by applicable law and the Company thereafter promptly complies with the
requirements of paragraph 3(j) below or (B) permitted pursuant to Section 2(c) below.

 

(c)                                  The Company may
suspend the use of the Prospectus for a period not to exceed 30 days in any
90-day period or an aggregate of 90 days in any 12-month period (each, a
“Suspension Period”) if the Board of Directors of the Company shall have
determined in good faith that because of valid business reasons (not including
avoidance of the Company’s obligations hereunder), including the acquisition or
divestiture of assets, pending corporate developments, public filings with the
Commission and similar events, it is in the best interests of the Company to
suspend such use, and prior to suspending such use the Company provides the
Holders with written notice of such suspension, which notice need not specify
the nature of the event giving rise to such suspension.

 

(d)                                 The Company represents and agrees that,
unless it obtains the prior consent of the Holders of a majority of the
Registrable Securities that are registered under the Shelf Registration
Statement at such time or the consent of the Managing Underwriter in connection
with any underwritten offering of Registrable Securities, it will not make any
offer relating to the Securities that would constitute an “issuer free writing
prospectus,” as defined in Rule 433 (an “Issuer Free Writing Prospectus”),
or that would otherwise constitute a “free writing prospectus,” as defined in
Rule 405, required to be filed with the Commission.  Each Holder represents and agrees that,
unless it obtains the prior consent of the Company and any such Managing
Underwriter, it will not make any offer relating to the Securities that would
constitute a “free writing prospectus,” as defined in Rule 405, required to
be filed with the 

 

 

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Commission. 
The Company represents that any Issuer Free Writing Prospectus or a
“free writing prospectus”will not include any information that conflicts with
the information contained in the Shelf Registration Statement or the Prospectus
and, any Issuer Free Writing Prospectus or a “free writing prospectus”, when
taken together with the information in the Shelf Registration Statement and the
Prospectus, will not include any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading.

 

(e)                                  The Company’s
obligations pursuant to Sections 2 and 3 of this Agreement shall be suspended
during any period in which Holders that are not Affiliates of the Company (and
have not been Affiliates of the Company during the preceding three months) (i) do
not hold any Registrable Securities or (ii) may freely transfer their
Registrable Securities immediately pursuant to Rule 144 (or any similar
provision then in force) under the Securities Act, including Rule 144(b)(1)(i) (as
such rule shall become effective on February 15, 2008).

 

3.             Registration Procedures. 
In connection with the Shelf Registration Statement, the following
provisions shall apply subject to Section 2(e) of this Agreement:

 

(a)                                  Not less than
30 calendar days prior to the Effective Time of the Shelf Registration
Statement, the Company shall mail the Notice and Questionnaire to the Holders
of Registrable Securities.  No Holder
shall be entitled to be named as a selling securityholder in the Shelf
Registration Statement as of the Effective Time, and no Holder shall be entitled
to use the Prospectus forming a part thereof for resales of Registrable
Securities until such Holder has returned a completed and signed Notice and
Questionnaire to the Company; provided, however, to be included in the
Registration Statement as of the Effective Time, Holders of Registrable
Securities shall have at least 28 calendar days from the date on which the
Notice and Questionnaire is first mailed to such Holders to return a completed
and signed Notice and Questionnaire to the Company.

 

(i)                                     After the
Effective Time of the Shelf Registration Statement, the Company shall, upon the
request of any Holder of Registrable Securities that is not then an Electing
Holder, promptly send a Notice and Questionnaire to such Holder.  From and after the Effective Time of the
Shelf Registration Statement, the Company shall (A) use reasonable best
efforts, within 15 Business Days after receipt, to prepare and file with the
Commission (x) any Exchange Act report, (y) a supplement to the
Prospectus or, if required by applicable law, a post-effective amendment to the
Shelf Registration Statement and (z) any other document required by
applicable law, so that the Holder delivering such Notice and Questionnaire is
named as a selling securityholder in the Shelf Registration Statement and is
permitted to deliver the Prospectus to purchasers of such Holder’s Registrable
Securities in accordance with applicable law, and (B) if the Company shall
file a post-effective amendment to the Shelf Registration Statement, use its
reasonable best efforts to cause such post-effective amendment to become
effective under the Securities Act as promptly as is practicable; provided,
however, that if a Notice and Questionnaire is delivered to the Company during
a Suspension Period, the Company shall not be obligated to take the actions set
forth in this clause (ii) until the termination of such Suspension Period;
provided further, the Company shall not be obligated to file more than one
post-effective amendment in any 90-day period. 
Notwithstanding the 

 

6

 

foregoing, if the
Registrable Securities are converted as provided under the Indenture, the
Company shall use its reasonable best efforts to file the Exchange Act filing,
prospectus supplement, post-effective amendment or other document within 10
Business Days of the end of the Conversion Reference Period, as defined in the
Indenture; provided, however, that the Company shall not be obligated to take
the actions set forth in this sentence during a Suspension Period.

(ii)                                  The term “Electing
Holder” shall mean any Holder of Registrable Securities that has returned a
completed and signed Notice and Questionnaire to the Company in accordance with
Section 3(a)(i) or 3(a)(ii) hereof.

 

(b)                                 The Company
shall furnish to each Electing Holder, prior to the Effective Time, a copy of
the Shelf Registration Statement initially filed with the Commission, and shall
furnish to such Holders, prior to the filing thereof with the Commission,
copies of each amendment thereto and each amendment or supplement, if any, to
the Prospectus included therein, and shall use its reasonable best efforts to
reflect in each such document, at the Effective Time or when so filed with the
Commission, as the case may be, such comments as such Holders and their
respective counsel reasonably may propose.

 

(c)                                  The Company
shall promptly take such action as may be necessary so that (i) each of
the Shelf Registration Statement and any amendment thereto and the Prospectus
forming a part thereof and any amendment or supplement thereto (and each report
or other document incorporated therein by reference in each case) complies in
all material respects with the Securities Act and the Exchange Act and the
respective rules and regulations thereunder, (ii) each of the Shelf
Registration Statement and any amendment thereto does not, when it becomes
effective, including any Rule 430B Information, contain an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading and (iii) each
of the Prospectus forming a part of the Shelf Registration Statement, and any
amendment or supplement to such Prospectus, does not at any time during the
Effectiveness Period include an untrue statement of a material fact or omit to
state a material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading.

 

(d)                                 The Company
shall promptly advise each Electing Holder, and shall confirm such advice in
writing if so requested by any such Electing Holder:

 

(i)                                     when a Shelf
Registration Statement and any amendment thereto has been filed with the
Commission and when a Shelf Registration Statement or any post-effective
amendment thereto has become effective, in each case making a public
announcement thereof by release made to Reuters Economic Services and Bloomberg
Business News;

 

(ii)                                  of any request
by the Commission for amendments or supplements to the Shelf Registration
Statement or the Prospectus included therein or for additional information;

 

 

7

 

(iii)                               of the issuance
by the Commission of any stop order suspending the effectiveness of the Shelf
Registration Statement or the initiation of any proceedings for such purpose;

 

(iv)                              of the receipt
by the Company of any notification with respect to the suspension of the
qualification of the securities included in the Shelf Registration Statement
for sale in any jurisdiction or the initiation of any proceeding for such
purpose; and

 

(v)                                 of the
occurrence of any event or the existence of any state of facts that requires
the making of any changes in the Shelf Registration Statement or the Prospectus
included therein so that, as of such date, such Shelf Registration Statement
and Prospectus do not contain an untrue statement of a material fact and do not
omit to state a material fact required to be stated therein or necessary to
make the statements therein (in the case of the Prospectus, in light of the
circumstances under which they were made) not misleading (which advice shall be
accompanied by an instruction to such Holders to suspend the use of the
Prospectus until the requisite changes have been made).

 

(e)                                  The Company
shall use its reasonable best efforts to prevent the issuance, and if issued to
obtain the withdrawal at the earliest possible time, of any order suspending
the effectiveness of the Shelf Registration Statement.

 

(f)                                    The Company
shall furnish to each Electing Holder, without charge, at least one copy of the
Shelf Registration Statement and all post-effective amendments thereto,
including financial statements and schedules, and, if such Electing Holder so
requests in writing, all reports, other documents and exhibits that are filed
with or incorporated by reference in the Shelf Registration Statement.

 

(g)                                 The Company
shall, during the Effectiveness Period, deliver to each Electing Holder,
without charge, as many copies of the Prospectus (including each preliminary
prospectus) included in the Shelf Registration Statement and any amendment or
supplement thereto as such Electing Holder may reasonably request; and the
Company consents (except during a Suspension Period or during the continuance
of any event or the existence of any state of facts described in Section 3(d)(v) above)
to the use of the Prospectus and any amendment or supplement thereto by each of
the Electing Holders in connection with the offering and sale of the
Registrable Securities covered by the Prospectus and any amendment or
supplement thereto during the Effectiveness Period.

 

(h)                                 Prior to any
offering of Registrable Securities pursuant to the Shelf Registration
Statement, the Company shall (i) register or qualify or cooperate with the
Electing Holders and their respective counsel in connection with the
registration or qualification of such Registrable Securities for offer and sale
under the securities or “blue sky” laws of such jurisdictions within the United
States as any Electing Holder may reasonably request, (ii) keep such
registrations or qualifications in effect and comply with such laws so as to
permit the continuance of offers and sales in such jurisdictions for so long as
may be necessary to enable any Electing Holder or underwriter, if any, to
complete its distribution of Registrable Securities pursuant to the Shelf
Registration Statement, and (iii) take any and all other actions necessary
or 

 

8

 

advisable to enable the disposition in such
jurisdictions of such Registrable Securities; provided, however, that in no
event shall the Company be obligated to (A) qualify as a foreign
corporation or as a dealer in securities in any jurisdiction where it would not
otherwise be required to so qualify but for this Section 3(h) or (B) file
any general consent to service of process in any jurisdiction where it is not
as of the date hereof so subject.

 

(i)                                     Unless any
Registrable Securities shall be in book-entry only form, the Company shall
cooperate with the Electing Holders to facilitate the timely preparation and
delivery of certificates representing Registrable Securities to be sold
pursuant to the Shelf Registration Statement, which certificates, if so
required by any securities exchange upon which any Registrable Securities are
listed, shall be penned, lithographed or engraved, or produced by any
combination of such methods, on steel engraved borders, and which certificates
shall be free of any restrictive legends and in such permitted denominations
and registered in such names as Electing Holders may request in connection with
the sale of Registrable Securities pursuant to the Shelf Registration
Statement.

 

(j)                                     Upon the
occurrence of any event or the existence of any state of facts contemplated by
paragraph 3(d)(v) above, the Company shall promptly prepare a
post-effective amendment to any Shelf Registration Statement or an amendment or
supplement to the related Prospectus or file any other required document so
that, as thereafter delivered to purchasers of the Registrable Securities
included therein, the Prospectus will not include an untrue statement of a
material fact or omit to state any material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.  If the Company
notifies the Electing Holders of the occurrence of any event or the existence
of any state of facts contemplated by paragraph 3(d)(v) above, the
Electing Holders shall suspend the use of the Prospectus until the requisite
changes to the Prospectus have been made.

 

(k)                                  Not later than
the Effective Time of the Shelf Registration Statement, the Company shall
provide a CUSIP number for the Registrable Securities that are debt securities.

 

(l)                                     The Company
shall use its reasonable best efforts to comply with all applicable Rules and
Regulations, and to make generally available to its securityholders as soon as
practicable, but in any event not later than eighteen months after (i) the
effective date (as defined in Rule 158(c) under the Securities Act)
of the Shelf Registration Statement, (ii) the effective date of each
post-effective amendment to the Shelf Registration Statement, and (iii) the
date of each filing by the Company with the Commission of an Annual Report on Form 10-K
that is incorporated by reference in the Shelf Registration Statement, an
earning statement of the Company and its subsidiaries complying with Section 11(a) of
the Securities Act and the applicable Rules and Regulations (including, at
the option of the Company, Rule 158).

 

(m)                               Not later than
the Effective Time of the Shelf Registration Statement, the Company shall cause
the Indenture to be qualified under the Trust Indenture Act; in connection with
such qualification, the Company shall cooperate with the Trustee under the
Indenture and the Holders (as defined in the Indenture) to effect such changes
to the Indenture as may be required for such Indenture to be so qualified in
accordance with the terms of the Trust Indenture Act; and the Company shall
execute, and shall use all reasonable efforts to cause the Trustee to execute,
all documents that may be required to effect such changes and all other forms
and 

 

 

9

 

documents required to be filed with the
Commission to enable such Indenture to be so qualified in a timely manner.  In the event that any such amendment or
modification referred to in this Section 3(m) involves the
appointment of a new trustee under the Indenture, the Company shall appoint a
new trustee thereunder pursuant to the applicable provisions of the Indenture.

 

(n)                                 In the event of
an underwritten offering conducted pursuant to Section 6 hereof, the
Company shall, if requested, promptly include or incorporate in a prospectus
supplement or post-effective amendment to the Shelf Registration Statement such
information as the Managing Underwriters reasonably agree should be included
therein and to which the Company does not reasonably object and shall make all
required filings of such prospectus supplement or post-effective amendment as
soon as practicable after it is notified of the matters to be included or
incorporated in such prospectus supplement or post-effective amendment.

 

(o)                                 The Company
shall enter into such customary agreements (including an underwriting agreement
in customary form in the event of an underwritten offering conducted pursuant
to Section 6 hereof) and take all other appropriate action in order to
expedite and facilitate the registration and disposition of the Registrable
Securities, and in connection therewith, if an underwriting agreement is
entered into, cause the same to contain indemnification provisions and
procedures substantially identical to those set forth in Section 5 hereof
with respect to all parties to be indemnified pursuant to Section 5
hereof.

 

(p)                                 The Company
shall:

 

(i)                                     (A) make
reasonably available for inspection by the Electing Holders, any underwriter
participating in any disposition pursuant to the Shelf Registration Statement,
and any attorney, accountant or other agent retained by such Electing Holders
or any such underwriter all relevant financial and other records, pertinent
corporate documents and properties of the Company and its subsidiaries, and (B) cause
the Company’s officers, directors and employees to supply all information
reasonably requested by such Electing Holders or any such underwriter,
attorney, accountant or agent in connection with the Shelf Registration
Statement, in each case, as is customary for similar due diligence
examinations; provided, however, that all records, information and documents
that are designated in writing by the Company, in good faith, as confidential
shall be kept confidential by such Electing Holders and any such underwriter,
attorney, accountant or agent, unless such disclosure is made in connection
with a court proceeding or required by law, or such records, information or
documents become available to the public generally or through a third party
without an accompanying obligation of confidentiality; and provided further
that, if the foregoing inspection and information gathering would otherwise
disrupt the Company’s conduct of its business, such inspection and information
gathering shall, to the greatest extent possible, be coordinated on behalf of
the Electing Holders and the other parties entitled thereto by one counsel
designated by and on behalf of the Electing Holders and other parties;

 

(ii)                                  in connection
with any underwritten offering conducted pursuant to Section 6 hereof,
make such representations and warranties to the Electing Holders participating
in such underwritten offering and to the Managing Underwriters, in form,
substance and scope as are customarily made by the Company to underwriters in
primary 

 

 

10

 

underwritten
offerings of equity and convertible debt securities and covering matters
including, but not limited to, those set forth in the Purchase Agreement;

 

(iii)                               in connection
with any underwritten offering conducted pursuant to Section 6 hereof, obtain
opinions of counsel to the Company (which counsel and opinions (in form, scope
and substance) shall be reasonably satisfactory to the Managing Underwriters)
addressed to each Electing Holder participating in such underwritten offering
and the underwriters, covering such matters as are customarily covered in
opinions requested in primary underwritten offerings of equity and convertible
debt securities and such other matters as may be reasonably requested by such
Electing Holders and underwriters (it being agreed that the matters to be
covered by such opinions shall include, without limitation, as of the date of
the opinion, as of the date of pricing of such underwritten offering and as of
the Effective Time of the Shelf Registration Statement or most recent
post-effective amendment thereto, as the case may be, the absence from the
Shelf Registration Statement, including any Rule 430B Information, and the
Prospectus, including the documents incorporated by reference therein, of an
untrue statement of a material fact or the omission of a material fact required
to be stated therein or necessary to make the statements therein not
misleading);

 

(iv)                              in connection
with any underwritten offering conducted pursuant to Section 6 hereof,
obtain “comfort” letters and updates thereof from the independent registered
public accountants of the Company (and, if necessary, from the independent
registered public accountants of any subsidiary of the Company or of any
business acquired by the Company for which financial statements and financial
data are, or are required to be, included in the Shelf Registration Statement),
addressed to each Electing Holder participating in such underwritten offering
(if such Electing Holder has provided such letter, representations or documentation,
if any, required for such comfort letter to be so addressed) and the
underwriters, in customary form and covering matters of the type customarily
covered in “comfort” letters in connection with primary underwritten offerings;

 

(v)                                 in connection
with any underwritten offering conducted pursuant to Section 6 hereof,
deliver such documents and certificates as may be reasonably requested by any
Electing Holders participating in such underwritten offering and the Managing
Underwriters, if any, including, without limitation, certificates to evidence
compliance with Section 3(j) hereof and with any conditions contained
in the underwriting agreement or other agreements entered into by the Company.

 

(q)                                 The Company
will use its reasonable best efforts to cause the shares of Common Stock
issuable upon conversion of the Securities to be listed on the New York Stock
Exchange or other stock exchange or trading system on which the Common Stock
primarily trades on or prior to the Effective Time of the Shelf Registration
Statement hereunder.

 

(r)                                    In the event
that any broker-dealer registered under the Exchange Act shall be an
“affiliate” (as defined in Rule 2720(b)(1) of the FINRA Rules (or
any successor provision thereto)) of the Company or has a “conflict of
interest” (as defined in Rule 2720(b)(7) of the FINRA Rules (or
any successor provision thereto)) and such broker-dealer shall 

 

11

 

underwrite, participate as a member of an
underwriting syndicate or selling group or assist in the distribution of any
Registrable Securities covered by the Shelf Registration Statement, whether as
a Holder of such Registrable Securities or as an underwriter, a placement or
sales agent or a broker or dealer in respect thereof, or otherwise, the Company
shall assist such broker-dealer in complying with the requirements of the FINRA
Rules, including, without limitation, by (A) engaging a “qualified
independent underwriter” (as defined in Rule 2720(b)(15) of the FINRA Rules (or
any successor provision thereto)) to participate in the preparation of the
registration statement relating to such Registrable Securities, to exercise
usual standards of due diligence in respect thereto and to recommend the public
offering price of such Registrable Securities, (B) indemnifying such
qualified independent underwriter to the extent of the indemnification of
underwriters provided in Section 5 hereof, and (C) providing such
information to such broker-dealer as may be required in order for such
broker-dealer to comply with the requirements of the FINRA Rules.

 

(s)                                  The Company
shall use its reasonable best efforts to take all other steps necessary to
effect the registration, offering and sale of the Registrable Securities
covered by the Shelf Registration Statement contemplated hereby.

 

4.                                       Registration Expenses. 
Except as otherwise provided in Section 3, the Company shall bear
all fees and expenses incurred in connection with the performance of its
obligations under Sections 2, 3 and 6 hereof and shall bear or reimburse the
Electing Holders for the reasonable fees and disbursements of a single counsel
selected by a plurality of all Electing Holders who own an aggregate of not
less than 25% of the Registrable Securities covered by the Shelf Registration
Statement to act as counsel therefor in connection therewith or, if no counsel
is designated by such Electing Holders, one designated by the Purchasers.  Each Electing Holder shall pay all
underwriting discounts and commissions and transfer taxes, if any, relating to
the sale or disposition of such Electing Holder’s Registrable Securities
pursuant to the Shelf Registration Statement.

 

5.                                       Indemnification and Contribution.

 

(a)                                  Indemnification
by the Company.  Upon the
registration of the Registrable Securities pursuant to Section 2 hereof,
the Company shall indemnify and hold harmless each Purchaser, Electing Holder
and each underwriter, selling agent or other securities professional, if any,
which facilitates the disposition of Registrable Securities, and each of their
respective officers and directors and each person who controls such Purchaser,
Electing Holder, underwriter, selling agent or other securities professional
within the meaning of Section 15 of the Securities Act or Section 20
of the Exchange Act (each such person being sometimes referred to as an
“Indemnified Person”) as follows:

 

(i)                                     against any
losses, claims, damages or liabilities, joint or several, to which such
Indemnified Person may become subject under the Securities Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon an untrue statement or alleged untrue
statement of a material fact contained in any Shelf Registration Statement,
including any Rule 430B Information, under which such Registrable
Securities are to be registered under the Securities Act, or any Prospectus
contained therein or furnished by the Company to any Indemnified 

 

 

12

Person, or any amendment
or supplement thereto, or any Issuer Free Writing Prospectus, or arise out of
or are based upon the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading;

 

(ii)                                  against any
losses, claims, damages or liabilities (or actions in respect thereof), as
incurred, to the extent of the aggregate amount paid in settlement of any
litigation, or any investigation or proceeding by any governmental agency or
body, commenced or threatened, or of any claim whatsoever based upon any such
untrue statement or omission, or any such alleged untrue statement or
omission;  provided that any such
settlement is effected with the written consent of the Company, except as
provided in Section 5(d); and

 

(iii)                               the Company
hereby agrees to reimburse such Indemnified Person for any legal or other
expenses reasonably incurred by them in connection with investigating or
defending any such action or claim as such expenses are incurred;

 

provided, however, that
the Company shall not be liable to any such Indemnified Person in any such case
to the extent that any such loss, claim, damage or liability arises out of or
is based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in such Shelf Registration Statement or Prospectus, or
amendment or supplement, in reliance upon and in conformity with written
information furnished to the Company by such Indemnified Person expressly for
use therein.

 

(b)                                 Indemnification
by the Electing Holders and any Agents and Underwriters.  Each Electing Holder agrees, as a consequence
of the inclusion of any of such Electing Holder’s Registrable Securities in
such Shelf Registration Statement, and each underwriter, selling agent or other
securities professional, if any, which facilitates the disposition of
Registrable Securities shall agree, as a consequence of facilitating such
disposition of Registrable Securities, severally and not jointly, to (i) indemnify
and hold harmless the Company, the Purchasers, the other Electing Holders, the
other underwriters and each of their respective directors and officers and each
person, if any, who controls the Company, the Purchasers, the other Electing
Holders or the other underwriters within the meaning of either Section 15
of the Securities Act or Section 20 of the Exchange Act, against any
losses, claims, damages or liabilities to which the Company or such other
persons may become subject, under the Securities Act or otherwise, insofar as
such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon an untrue statement or alleged untrue statement
of a material fact contained in such Shelf Registration Statement or
Prospectus, or any amendment or supplement, or arise out of or are based upon
the omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not misleading,
in each case to the extent, but only to the extent, that such untrue statement
or alleged untrue statement or omission or alleged omission was made in
reliance upon and in conformity with written information furnished to the
Company by such Electing Holder, underwriter, selling agent or other securities
professional expressly for use therein, and (ii) reimburse the Company for
any legal or other expenses reasonably incurred by the Company in connection
with investigating or defending any such action or claim as such expenses are
incurred.

 

 

13

 

(c)                                  Notices
of Claims, Etc.  Promptly
after receipt by an indemnified party under subsection (a) or (b) above
of notice of the commencement of any action, such indemnified party shall, if a
claim in respect thereof is to be made against an indemnifying party under this
Section 5, notify such indemnifying party in writing of the commencement
thereof; but the omission so to notify the indemnifying party shall not relieve
it from any liability which it may have to any indemnified party otherwise than
under the indemnification provisions of or contemplated by subsection (a) or
(b) above.  In case any such action
shall be brought against any indemnified party and it shall notify an
indemnifying party of the commencement thereof, such indemnifying party shall
be entitled to participate therein and, to the extent that it shall wish,
jointly with any other indemnifying party similarly notified, to assume the
defense thereof, with counsel satisfactory to such indemnified party (who shall
not, except with the consent of the indemnified party, be counsel to the
indemnifying party), and, after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, such
indemnifying party shall not be liable to such indemnified party under this Section 5
for any legal expenses of other counsel or any other expenses, in each case
subsequently incurred by such indemnified party, in connection with the defense
thereof other than reasonable costs of investigation. No indemnifying party
shall, without the written consent of the indemnified party, effect the
settlement or compromise of, or consent to the entry of any judgment with
respect to, any pending or threatened action or claim in respect of which
indemnification or contribution may be sought hereunder (whether or not the
indemnified party is an actual or potential party to such action or claim)
unless such settlement, compromise or judgment (i) includes an
unconditional release of the indemnified party from all liability arising out
of such action or claim and (ii) does not include a statement as to, or an
admission of, fault, culpability or a failure to act, by or on behalf of any
indemnified party.

 

(d)                                 Settlement
without Consent if Failure to Reimburse.  If at any time an indemnified party shall
have requested an indemnifying party to reimburse the indemnified party for
fees and expenses of counsel, such indemnifying party agrees that it shall be
liable for any settlement of the nature contemplated by Section 5(a)(ii) effected
without its written consent if (x) such settlement is entered into more
than 45 days after receipt by such indemnifying party of the aforesaid request,
(y) such indemnifying party shall have received notice of the terms of
such settlement at least 30 days prior to such settlement being entered into
and (z) such indemnifying party shall not have reimbursed such indemnified
party for fees and expenses of counsel in accordance with such request prior to
the date of such settlement.

 

(e)                                  Contribution.  If the indemnification provided for in this Section 5
is unavailable to or insufficient to hold harmless an indemnified party under
subsection (a) or (b) above in respect of any losses, claims, damages
or liabilities (or actions in respect thereof) referred to therein, then each
indemnifying party shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages or liabilities
(or actions in respect thereof) in such proportion as is appropriate to reflect
the relative fault of the indemnifying party and the indemnified party in
connection with the statements or omissions which resulted in such losses,
claims, damages or liabilities (or actions in respect thereof), as well as any
other relevant equitable considerations. 
The relative fault of such indemnifying party and indemnified party
shall be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or omission or alleged omission to
state a material fact relates to information supplied by such indemnifying
party or by such indemnified 

 

 

14

 

party, and the parties’ relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission.  The parties
hereto agree that it would not be just and equitable if contribution pursuant
to this Section 5(e) were determined by pro rata allocation (even if
the Electing Holders or any underwriters, selling agents or other securities
professionals or all of them were treated as one entity for such purpose) or by
any other method of allocation which does not take account of the equitable
considerations referred to in this Section 5(e).  The amount paid or payable by an indemnified
party as a result of the losses, claims, damages or liabilities (or actions in
respect thereof) referred to above shall be deemed to include any legal or
other fees or expenses reasonably incurred by such indemnified party in
connection with investigating or defending any such action or claim.  No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. 
The obligations of the Electing Holders and any underwriters, selling
agents or other securities professionals in this Section 5(e) to
contribute shall be several in proportion to the percentage of principal amount
of Registrable Securities registered or underwritten, as the case may be, by
them and not joint.

 

(f)            Notwithstanding any other provision of this Section 5,
in no event will any (i) Electing Holder be required to undertake
liability to any person under this Section 5 for any amounts in excess of
the dollar amount of the proceeds to be received by such Holder from the sale
of such Holder’s Registrable Securities (after deducting any fees, discounts
and commissions applicable thereto) pursuant to any Shelf Registration
Statement under which such Registrable Securities are to be registered under
the Securities Act and (ii) underwriter, selling agent or other securities
professional be required to undertake liability to any person hereunder for any
amounts in excess of the discount, commission or other compensation payable to
such underwriter, selling agent or other securities professional with respect
to the Registrable Securities underwritten by it and distributed to the public.

 

(g)           The obligations of the Company under this Section 5
shall be in addition to any liability which the Company may otherwise have to
any Indemnified Person and the obligations of any Indemnified Person under this
Section 5 shall be in addition to any liability which such Indemnified
Person may otherwise have to the Company. 
The remedies provided in this Section 5 are not exclusive and shall
not limit any rights or remedies which may otherwise be available to an
indemnified party at law or in equity.

 

6.                                       Underwritten Offering. 
The Holders of Registrable Securities covered by the Shelf Registration
Statement who desire to do so may sell such Registrable Securities in an
Underwritten Offering.  In any such
Underwritten Offering, the Managing Underwriter will be selected by the holders
of a majority in aggregate principal amount of Registrable Securities then
outstanding included in such offering; provided that such Underwriters must be
reasonably acceptable to the Company; and provided further that the Company
shall not be obligated to cooperate with more than one Underwritten Offering
during the Effectiveness Period.

 

 

15

 

                                                7.                                       Liquidated
Damages.  (a) Notwithstanding any postponement of
effectiveness permitted by Section 2(a) hereof, if, at any time the
Company’s obligations regarding the Shelf Registration Statement are not
suspended pursuant to Section 2(e) hereof,

 

(i) a Shelf
Registration Statement has not been filed and become effective within six
months of the Closing Date,

 

(ii) the Company has
failed, through its omission, to name, pursuant to Section 3(a) hereof,
a Holder as a selling securityholder in the Prospectus, prospectus supplement,
an Exchange Act filing or post-effective amendment within the time periods
required in Section 3(a) hereof, or

 

(iii) at any time after
the effective date, the Shelf Registration Statement ceases to be effective or
is not usable by the Holders and (Y) the Company does not cure the lapse
of effectiveness or usability within 10 Business Days by a post-effective
amendment, prospectus supplement or report filed under the Exchange Act,
subject to Section 2(e) of this Agreement, or (Z) a Suspension
Period, when aggregated with other Suspension Periods during the prior 90-day
or 360-day period, continues, without being terminated, for more than 30 or 90
days, respectively

 

(each, a “Registration Default”), the Company shall be required to pay
liquidated damages (“Liquidated Damages”), from and including the day following
such Registration Default for as long as it is continuing at a rate per annum
equal to an additional one-quarter of one percent (0.25%) of the principal
amount of Registrable Securities, to and including the 90th day following such
Registration Default and one-half of one percent (0.50%) thereof from and after
the 91st day following such Registration Default.

 

                                                                                                (b)                                 Any amounts to
be paid as Liquidated Damages pursuant to paragraph (a) of this Section 7
shall be paid in cash semi-annually in arrears, with the first semi-annual
payment due on the first Interest Payment Date (as defined in the Indenture),
as applicable, following the date of such Registration Default or Effective
Failure, as applicable.  Such Liquidated
Damages will accrue (1) in respect of the Securities at the rates set
forth in paragraph (a) of this Section 7, as applicable, on the
principal amount of the Securities and (2) in respect of the Common Stock
issued upon conversion of the Securities, at the rates set forth in paragraph (a) of
this Section 7, as applicable, applied to the Conversion Price (as defined
in the Indenture) at that time.

 

                                                                                                (c)                                  Except as
provided in Section 8(b) hereof, the Liquidated Damages as set forth
in this Section 7 shall be the exclusive monetary remedy available to the
Holders of Registrable Securities for such Registration Default or Effective
Failure. In no event shall the Company be required to pay Liquidated Damages in
excess of the applicable maximum amount of one-half of one percent (0.50%) set
forth above, regardless of whether one or multiple Registration Defaults or Effective
Failures exist.

 

 

16

 

8.                                       Miscellaneous.

 

(a)                                  Other
Registration Rights.  The Company
may grant registration rights that would permit any person that is a third
party the right to piggy-back on any Shelf Registration Statement, provided
that if the Managing Underwriter of any Underwritten Offering conducted
pursuant to Section 6 hereof notifies the Company and the Electing Holders
that the total amount of securities which the Electing Holders and the holders
of such piggy-back rights intend to include in any Shelf Registration Statement
is so large as to materially threaten the success of such offering (including
the price at which such securities can be sold), then the amount, number or
kind of securities to be offered for the account of holders of such piggy-back
rights will be reduced to the extent necessary to reduce the total amount of
securities to be included in such offering to the amount, number and kind
recommended by the Managing Underwriter prior to any reduction in the amount of
Registrable Securities to be included in such Shelf Registration Statement.

 

(b)           Specific Performance.  The parties hereto acknowledge that there
would be no adequate remedy at law if the Company fails to perform any of its
obligations hereunder and that the Purchasers and the Holders from time to time
may be irreparably harmed by any such failure, and accordingly agree that the
Purchasers and such Holders, in addition to any other remedy to which they may
be entitled at law or in equity and without limiting the remedies available to
the Electing Holders under Section 7 hereof, shall be entitled to compel
specific performance of the obligations of the Company under this Registration
Rights Agreement in accordance with the terms and conditions of this
Registration Rights Agreement, in any court of the United States or any State
thereof having jurisdiction.

 

(c)           Amendments and Waivers.  This Agreement, including this Section 8(c),
may be amended, and waivers or consents to departures from the provisions
hereof may be given, only by a written instrument duly executed by the Company
and the holders of a majority in aggregate principal amount of Registrable
Securities then outstanding.  Each Holder
of Registrable Securities outstanding at the time of any such amendment, waiver
or consent or thereafter shall be bound by any amendment, waiver or consent
effected pursuant to this Section 8(c), whether or not any notice, writing
or marking indicating such amendment, waiver or consent appears on the
Registrable Securities or is delivered to such Holder.

 

(d)           Rule 144 and Rule 144A.  For so long as the Company is subject to the
reporting requirements of Section 13 or 15(d) of the Exchange Act,
the Company covenants that it will file the reports required to be filed by it
under Section 13(a) or 15(d) of the Exchange Act and the
applicable Rules and Regulations. 
If the Company ceases to be so required to file such reports, the
Company covenants that it will upon the request of any Holder of Registrable
Securities (a) make publicly available such information as is necessary to
permit sales pursuant to Rule 144 under the Securities Act, (b) deliver
such information to a prospective purchaser as is necessary to permit sales
pursuant to Rule 144A under the Securities Act and it will take such
further action as any Holder of Registrable Securities may reasonably request
for such purpose, and (c) take such further action that is reasonable in
the circumstances, in each case, to the extent required from time to time to
enable such Holder to sell its Registrable Securities without registration
under the Securities Act within the limitation of the exemptions provided by (i) Rule 144
under the Securities Act, as such Rule may be amended from time to time, (ii) Rule 144A

 

17

 

under the Securities Act, as such Rule may
be amended from time to time, or (iii) any similar rules or
regulations hereafter adopted by the Commission.  Upon the request of any Holder of Registrable
Securities, the Company will deliver to such Holder a written statement as to
whether it has complied with such reporting requirements.

 

(e)                                  Notices.  All notices and other communications provided
for or permitted hereunder shall be deemed to have been duly given if mailed or
transmitted by any standard form of telecommunication. Notices to the
Purchasers shall be directed to the Representative at 4 World Financial Center,
New York, New York 10080, attention of John Fortson, Director, notices to the
Company shall be directed to it at One AAR Place, 1100 N. Wood Dale Road, Wood
Dale, Illinois 60191, Attention: Secretary, and notices to a Holder, at the
most current address or fax number given by such Holder to the Company by means
of a notice given in accordance with the provisions of this Section 8(e).
Copies of all such notices or other communications shall be concurrently
delivered by the person giving the same to the Trustee at  U.S. Bank National Association, 60 Livingston
Avenue, St. Paul, MN  55107,
Attention:  Corporate Trust Services,
Fax: (651) 495-8097.

 

(f)                                    Parties
in Interest.  The parties
to this Agreement intend that all Holders of Registrable Securities shall be
entitled to receive the benefits of this Agreement and that any Electing Holder
shall be bound by the terms and provisions of this Agreement by reason of such
election with respect to the Registrable Securities which are included in a
Shelf Registration Statement.  All the
terms and provisions of this Agreement shall be binding upon, shall inure to
the benefit of and shall be enforceable by the respective successors and
assigns of the parties hereto and any Holder from time to time of the
Registrable Securities to the aforesaid extent. 
In the event that any transferee of any Holder of Registrable Securities
shall acquire Registrable Securities, in any manner, whether by gift, bequest,
purchase, operation of law or otherwise, such transferee shall, without any
further writing or action of any kind, be entitled to receive the benefits of
and, if an Electing Holder, be conclusively deemed to have agreed to be bound
by and to perform all of the terms and provisions of this Agreement to the
aforesaid extent.

 

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

 

(h)                                 Headings.  The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.

 

(i)                                     Governing
Law.  This Agreement shall be
governed by and construed in accordance with the laws of the State of New York.

 

(j)                                     Severability.  In the event that any one or more of the
provisions contained herein, or the application thereof in any circumstances,
is held invalid, illegal or unenforceable in any respect for any reason, the
validity, legality and enforceability of any such provision in every other respect
and of the remaining provisions hereof shall not be in any way impaired or
affected thereby, it being intended that all of the rights and privileges of
the parties hereto shall be enforceable to the fullest extent permitted by law.

 

18

 

 

(k)                                  Survival.  The respective indemnities, agreements,
representations, warranties and other provisions set forth in this Agreement or
made pursuant hereto shall remain in full force and effect, regardless of any
investigation (or any statement as to the results thereof) made by or on behalf
of any Electing Holder, any director, officer or partner of such Holder, any
agent or underwriter, any director, officer or partner of such agent or
underwriter, or any controlling person of any of the foregoing, and shall
survive the transfer and registration of the Registrable Securities of such
Holder.

 

Please
confirm that the foregoing correctly sets forth the agreement between the
Company and you.

 

 

	
  Very truly
  yours,

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  AAR CORP.

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
   /s/ Michael J. Sharp

  	
   

  
	
   

  	
  Name:  Michael J. Sharp

  	
   

  
	
   

  	
  Title:    Vice President, Controller,
              Chief Accounting Officer

  	
   

  

 

Accepted as of the date hereof:

 

 

MERRILL LYNCH & CO.

MERRILL LYNCH, PIERCE, FENNER & SMITH

                                                                                                INCORPORATED

STIFEL, NICOLAUS & COMPANY INCORPORATED

As Purchasers

 

By:  MERRILL LYNCH PIERCE FENNER &
SMITH

                                                                                                                                                INCORPORATED

 

	
  By:

  	
   

  	
   /s/ John C.
  Fortson

  
	
   

  	
   

  	
  Authorized Signatory

  

 

For itself and as Representative of the other Purchaser

 

 

19

 

Appendix A

 

AAR CORP.

 

Notice of Registration Statement

and

Selling Securityholder Questionnaire

 

[Date]

 

                                                AAR CORP. (the “Company”) has filed or may file with the
United States Securities and Exchange Commission (the “Commission”) a registration statement on Form S-3
(the “Shelf Registration Statement”)
for the registration and resale under Rule 415 of the United States
Securities Act of 1933, as amended (the “Securities
Act”), of the Company’s 2.25% Convertible Senior
Notes due March 1, 2016 (the “Securities”)
and the shares of common stock, par value $1.00 per share (the “Common Stock”), issuable upon conversion
thereof, in accordance with the Registration Rights Agreement, dated as of February 11, 2008 (the “Registration Rights Agreement”), between
the Company and the purchasers named therein. A copy of the Registration Rights
Agreement is attached hereto.  All
capitalized terms not otherwise defined herein shall have the meanings ascribed
thereto in the Registration Rights Agreement.

 

                                                In order to have Registrable
Securities included in the Shelf Registration Statement (or a supplement or
amendment thereto), this Notice of Registration Statement and Selling
Securityholder Questionnaire (“Notice and
Questionnaire”) must be completed, executed and delivered to the
Company at the address set forth herein for receipt within 28 calendar days
from the date on which Notice and Questionnaire is first mailed to selling
securityholders.  Beneficial owners of
Registrable Securities who do not complete, execute and return this Notice and
Questionnaire by such date (i) will not be named as selling
securityholders in the Shelf Registration Statement and (ii) may not use
the Prospectus forming a part thereof for resales of Registrable Securities
until they complete, execute and return to the Company this Notice and
Questionnaire.

 

                                                Certain legal
consequences arise from being named as a selling securityholder in the Shelf
Registration Statement and related Prospectus. Accordingly, holders and
beneficial owners of Registrable Securities are advised to consult their own
securities law counsel regarding the consequences of being named or not being
named as a selling securityholder in the Shelf Registration Statement and
related Prospectus.

 

                                                The term “Registrable Securities” is defined in the
Registration Rights Agreement to mean all or any portion of the Securities
issued from time to time under the Indenture in registered form and the shares
of Common Stock issuable upon conversion of such Securities; provided, however,
that such Securities or shares of Common Stock cease to be a Registrable
Securities when (i) a
shelf registration statement with respect to such Securities or shares of
Common Stock shall have become effective and such Securities or shares of
Common Stock shall have been disposed of pursuant to such shelf registration
statement, (ii) such Securities or shares of Common Stock have been sold
to the public pursuant to Rule 144 (or any similar provision then in
force, but not 

 

 

20

 

Rule 144A) under the
Securities Act, (iii) one year has passed since the issue date of such
Securities or (iv) such Securities or shares of Common Stock shall have
ceased to be outstanding.

 

ELECTION

 

                The undersigned holder (the “Selling Securityholder”) of Registrable
Securities hereby elects to include in the Shelf Registration Statement the
Registrable Securities beneficially owned by it and listed below in
Item (3). The undersigned, by signing and returning this Notice and
Questionnaire, agrees to be bound with respect to such Registrable Securities
by the terms and conditions of this Notice and Questionnaire and the
Registration Rights Agreement, including, without limitation, Section 6 of
the Registration Rights Agreement, as if the undersigned Selling Securityholder
were an original party thereto.

 

                                                Upon any sale of
Registrable Securities pursuant to the Shelf Registration Statement, the
Selling Securityholder will be required to deliver to the Company and the
Trustee the Notice of Transfer (completed and signed) set forth in Exhibit 1
to this Notice and Questionnaire.

 

                                                The Selling
Securityholder hereby provides the following information to the Company and
represents and warrants that such information is accurate and complete:

 

QUESTIONNAIRE

 

	
  (1)

  	
   

  	
  (a)

  	
  Full legal name of Selling
  Securityholder:

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (b)

  	
  Full legal name of Registered
  Holder (if not the same as in (a) above) of Registrable Securities
  Listed in Item (3) below:

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (c)

  	
  Full legal name of the broker-dealer or other third
  party through which Registrable Securities, Listed in Item (3) below are
  held:

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (d)

  	
  Full legal name of DTC
  Participant (if applicable and if not the same as (b) above) through
  which Registrable Securities listed in Item (3) below are Held:

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (e)

  	
  If Selling Securityholder is not, and is not a
  wholly-owned subsidiary of a company that is, required to file periodic and
  other reports (e.g., Forms 10-K, 10-Q, and 8-K) with the Commission pursuant
  to Section 13(a) or 15(d) of the Securities Exchange Act of
  1934, identify any natural person(s) who exercise voting power and
  investment control over any Registrable Securities and provide each such
  person’s address:

  
	
   

  	
   

  	
   

  	
   

  
	
  (2)

  	
   

  	
  Address for notices to Selling
  Securityholder:

  
	
   

  	
   

  	
   

  

 

 

21

 

	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Telephone:

  	
   

  
	
   

  	
   

  	
  Fax:

  	
   

  
	
   

  	
   

  	
  Contact Person:

  	
   

  
	
  (3)

  	
   

  	
  Beneficial Ownership of the
  Securities:

  
	
   

  	
   

  	
  Except as set
  forth below in this Item (3), the undersigned Selling Securityholder
  does not beneficially own any Securities or shares of Common Stock issued
  upon conversion, repurchase or redemption of any Securities.

  
	
   

  	
   

  	
  (a)

  	
   

  	
  Principal
  amount of Registrable Securities (as defined in the Registration Rights
  Agreement) beneficially owned:

  
	
   

  	
   

  	
   

  	
   

  	
  CUSIP No(s).
  of such Registrable Securities:

  
	
   

  	
   

  	
   

  	
   

  	
  Number of
  shares of Common Stock (if any) issued upon conversion, repurchase or
  redemption of Registrable Securities:

  
	
   

  	
   

  	
  (b)

  	
   

  	
  Principal
  amount of Securities other than Registrable Securities beneficially owned:

  
	
   

  	
   

  	
   

  	
   

  	
  CUSIP No(s).
  of such other Securities:

  
	
   

  	
   

  	
   

  	
   

  	
  Number of
  shares of Common Stock (if any) issued upon conversion of such other
  Securities:

  
	
   

  	
   

  	
  (c)

  	
   

  	
  Principal
  amount of Registrable Securities which the undersigned wishes to be included
  in the Shelf Registration Statement:

  
	
   

  	
   

  	
   

  	
   

  	
  CUSIP No(s).
  of such Registrable Securities to be included in the Shelf Registration
  Statement:

  
	
   

  	
   

  	
   

  	
   

  	
  Number of
  shares of Common Stock (if any) issued upon conversion of Registrable
  Securities which are to be included in the Shelf Registration Statement:

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  (4)

  	
   

  	
  Beneficial Ownership of Other
  Securities of the Company:

  
	
   

  	
   

  	
  Except as set
  forth below in this Item (4), the undersigned Selling Securityholder is
  not 

  
									

 

 

22

 

	
   

  	
   

  	
  the
  beneficial or registered owner of any shares of Common Stock or any other
  securities of the Company, other than the Securities and shares of Common
  Stock listed above in Item (3).

  
	
   

  	
   

  	
  State any
  exceptions here:

  
	
  (5)

  	
   

  	
  Relationships with the Company:

  
	
   

  	
   

  	
  Except as set
  forth below, neither the Selling Securityholder nor any of its affiliates,
  officers, directors or principal equity holders (5% or more) has held any
  position or office or has had any other material relationship with the
  Company (or its predecessors or affiliates) during the past three years.

  
	
   

  	
   

  	
  State any
  exceptions here:

  
	
  (6)

  	
   

  	
  Nature of the Selling
  Securityholder:

  
	
   

  	
   

  	
  (a)

  	
   

  	
  Is the
  selling Securityholder a reporting company under the Securities Exchange Act,
  a majority owned subsidiary of a reporting company under the Securities
  Exchange Act or a registered investment company under the Investment Company
  Act? If so, please state which one.

  
	
   

  	
   

  	
   

  	
   

  	
  If the entity
  is a majority owned subsidiary of a reporting company, identify the majority
  stockholder that is a reporting company.

  
	
   

  	
   

  	
   

  	
   

  	
  If the entity
  is not any of the above, identify the natural person or persons having voting
  and investment control over the Company’s securities that the entity owns.

  

 

 

23

 

	
   

  	
   

  	
  (b)

  	
   

  	
  Is the
  Selling Securityholder a registered broker-dealer? Yes  o No
   o

  
	
   

  	
   

  	
   

  	
   

  	
  State whether
  the Selling Securityholder received the Registrable Securities as
  compensation for underwriting activities and, if so, provide a brief
  description of the transaction(s) involved.

  
	
   

  	
   

  	
   

  	
   

  	
  State whether
  the Selling Securityholder is an affiliate of a broker-dealer and if so, list
  the name(s) of the broker-dealer affiliate(s).

  
	
   

  	
   

  	
   

  	
   

  	
  Yes  o No
   o

  
	
   

  	
   

  	
   

  	
   

  	
  If the answer
  is “Yes,” you must answer the following:

  
	
   

  	
   

  	
   

  	
   

  	
  If
  the Selling Securityholder is an affiliate of a registered broker-dealer, the
  Selling Securityholder purchased the Registrable Securities (i) in the
  ordinary course of business and (ii) at the time of the purchase of the
  Registrable Securities had no agreements or understandings, directly or
  indirectly, with any person to distribute the Registrable Securities.

  
	
   

  	
   

  	
   

  	
   

  	
  Yes  o No o

  
	
   

  	
   

  	
   

  	
   

  	
  If
  the answer is “No,” state any exceptions here:

  
	
   

  	
   

  	
   

  	
   

  	
  If the answer
  is “No,” this may affect your ability to be included in the registration
  statement.

  
	
  (7)

  	
   

  	
  Plan of Distribution:

  
	
   

  	
   

  	
  Except as set
  forth below, the undersigned Selling Securityholder intends to distribute the
  Registrable Securities listed above in Item (3) only as follows (if
  at all): Such Registrable Securities may be sold from time to time directly
  by the undersigned Selling Securityholder or, alternatively, through
  underwriters, broker-dealers or agents. Such Registrable Securities may be
  sold in one or more transactions at fixed prices, at prevailing market prices
  at the time of sale, at varying prices determined at the time of sale or at
  negotiated prices. Such sales may be effected in transactions (which may
  involve crosses or block transactions) (i) on any national securities
  exchange or quotation service on which the Registrable Securities may be
  listed or quoted at the time of sale, (ii) in the over-the-counter
  market, (iii) in transactions otherwise than on such exchanges or
  services or in the over-the-counter market or (iv) through the writing
  of options. In connection with sales of the Registrable Securities or
  otherwise, the Selling Securityholder may enter into transactions with
  broker-dealers, which may in turn engage in short sales of the Registrable
  Securities in the course of hedging the positions they assume. The Selling
  Securityholder may also sell Registrable Securities short and deliver
  Registrable Securities to close out such short positions, or loan or pledge
  Registrable Securities to broker-dealers that in turn may sell such
  securities. The Selling Securityholder also may transfer and donate Registrable
  Securities in other circumstances in which case the transferees, donees,
  pledgees or other successors in interest will be the Selling Securityholder
  for purposes of the prospectus.

  
	
   

  	
   

  	
  State any
  exceptions here:

  

 

 

24

 

 

                By signing below, the Selling
Securityholder acknowledges that it understands its obligation to comply, and
agrees that it will comply, with the prospectus delivery and other provisions
of the Securities Act and the Exchange Act and the rules and regulations
thereunder, particularly Regulation M.

 

                In the event that the Selling
Securityholder transfers all or any portion of the Registrable Securities
listed in Item (3) above after the date on which such information is
provided to the Company, the Selling Securityholder agrees to notify the
transferee(s) at the time of the transfer of its rights and obligations
under this Notice and Questionnaire and the Registration Rights Agreement.

 

                The Selling Securityholder hereby
acknowledges its obligations under the Registration Rights Agreement to
indemnify and hold harmless some persons as set forth therein.

 

Pursuant
to the Registration Rights Agreement, the Company has agreed under some
circumstances to indemnify the Selling Securityholder against some liabilities.

 

                By
signing below, the Selling Securityholder consents to the disclosure of the
information contained herein in its answers to Items (1) through (7) above
and the inclusion of such information in the Shelf Registration Statement and
related Prospectus.  The Selling
Securityholder understands that such information will be relied upon by the
Company in connection with the preparation of the Shelf Registration Statement
and related Prospectus.  The Selling
Securityholder further agrees that if the Company notifies the Selling
Securityholder further that the Registration Statement is not available, the
Selling Securityholder further will suspend use of the Prospectus until receipt
of notice from the Company that the Prospectus is again available.

 

                In accordance with the Selling
Securityholder’s obligation under the Registration Rights Agreement to provide
such information as may be required by law for inclusion in the Shelf
Registration Statement, the Selling Securityholder agrees to promptly notify
the Company of any inaccuracies or changes in the information provided herein
which may occur subsequent to the date hereof at any time while the Shelf
Registration Statement remains in effect. All notices hereunder and pursuant to
the Registration Rights Agreement shall be made in writing, by hand-delivery,
first-class mail or air courier guaranteeing overnight delivery as follows:

 

	
  (i) 

  	
  To the Company:

  	
   

  
	
   

  	
   

  	
  Richard J. Poulton

  
	
   

  	
   

  	
  Vice President, Chief Financial Officer and Treasurer

  
	
   

  	
   

  	
  AAR CORP.

  
	
   

  	
   

  	
  One AAR Place

  
	
   

  	
   

  	
  1100 North Wood Dale Road

  
	
   

  	
   

  	
  Wood Dale, Illinois 60191

  
	
  (ii) 

  	
  With a copy to:

  	
   

  
	
   

  	
   

  	
  Howard A. Pulsifer

  
	
   

  	
   

  	
  Vice President, General Counsel & Secretary

  
	
   

  	
   

  	
  AAR CORP.

  

 

 

25

 

	
   

  	
   

  	
  One AAR Place

  
	
   

  	
   

  	
  1100 North Wood Dale Road

  
	
   

  	
   

  	
  Wood Dale, Illinois 60191

  

 

                Once this Notice and
Questionnaire is executed by the Selling Securityholder and received by the
Company, the terms of this Notice and Questionnaire, and the representations
and warranties contained herein, shall be binding on, shall inure to the
benefit of and shall be enforceable by the respective successors, heirs,
personal representatives and assigns of the Company and the Selling
Securityholder (with respect to the Registrable Securities beneficially owned by
such Selling Securityholder and listed in Item (3) above). This
Agreement shall be governed in all respects by the laws of the State of New
York.

 

 

26

 

                IN WITNESS WHEREOF, the
undersigned, by authority duly given, has caused this Notice and Questionnaire
to be executed and delivered either in person or by its duly authorized agent.

 

Dated:

 

Selling Securityholder

(Print/type full legal name of beneficial owner of Registrable
Securities) 

By:

Name:

Title: 

 

PLEASE
RETURN THE COMPLETED AND EXECUTED NOTICE AND QUESTIONNAIRE  TO THE COMPANY AT:

 

Richard J. Poulton

Vice President, Chief Financial Officer and Treasurer

AAR CORP.

One AAR Place

1100 North Wood Dale Road

Wood Dale, Illinois 60191

 

 

27

 

Exhibit 1

to Appendix A

 

NOTICE OF TRANSFER PURSUANT TO REGISTRATION
STATEMENT

 

AAR Corp.

One AAR Place

1100 N. Wood Dale Road

Wood Dale, Illinois 60191

Attention:  Howard A. Pulsifer

 

U.S. Bank National Association

60 Livingston Avenue

St. Paul, MN  55107

Attention:  Corporate Trust Services

 

Re:          AAR
Corp. (the “Company”)

2.25% Convertible Senior Notes due 2016 (the “Notes”)

 

Dear Sirs:

 

Please be advised that                               has transferred
$                      aggregate principal amount of the
above referenced Notes or shares of the Company’s common stock, issued upon
conversion, repurchase or redemption of Notes, pursuant to an effective
Registration Statement on Form S-3 (File No. 333-            ) filed by the Company.

 

We hereby certify that the prospectus delivery requirements, if any, of
the Securities Act of 1933, as amended, have been satisfied with respect to the
transfer described above and that the above-named beneficial owner of the Notes
or common stock is named as a selling securityholder in the Prospectus dated
[date], or in amendments or supplements thereto, and that the aggregate
principal amount of the Notes or number of shares of common stock transferred
are a portion of the Notes or shares of common stock listed in such Prospectus
as amended or supplemented opposite such owner’s name.

 

Dated:

 

	
   

  	
   

  	
  Very truly
  yours,

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (Name)

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  (Authorized
  Signature)

  

 

 

28EXHIBIT
4.1

 

 

 

DESIGNATION
OF RIGHTS, TERMS AND PREFERENCES

OF

SERIES C
CONVERTIBLE PREFERRED STOCK

OF

SPACEHAB,
INCORPORATED

 

(Pursuant to
Chapter 6 of the

Washington
Business Corporation Act)

 

Spacehab, Incorporated (the “Corporation”), a corporation organized
and existing under the Business Corporation Act of the State of Washington (the
“Business Corporation Act”), certifies that the following resolution was
adopted by the board of directors of the Corporation (the “Board of
Directors”) as required by Chapter 6 of the Business Corporation Act at a
meeting duly called and held on August 20, 2007:

 

RESOLVED, that pursuant to the authority granted to and vested in the
Board of Directors of this Corporation in accordance with the provisions of the
Articles of Incorporation, the Board of Directors creates a series of Preferred
Stock of the Corporation, no par value per share (the “Preferred Stock”),
and states the designation and number of shares, and fixes the relative rights,
preferences, and limitations thereof, as follows:

 

Series C Convertible Preferred Stock:

 

Section 1.       Designation
and Amount.   The shares of such
series shall be designated as “Series C Convertible Preferred Stock” (the “Series C
Preferred Stock”).  The number of
shares of Series C Preferred Stock shall be one million (1,000,000).  The number of shares of Series C
Preferred Stock may be decreased by resolution of the Board of Directors;
provided, however, that no decrease shall reduce the number of shares of Series C
Preferred Stock to a number less than the number of shares then outstanding.

 

Section 2.       Dividends.   The holders of
the Series C Preferred Stock shall be entitled to receive, out of funds
legally available therefor, such dividends with respect to the shares of Series C
Preferred Stock as may be declared by the Board of Directors.  In addition, when and if the Board of
Directors shall declare a dividend payable with respect to the then outstanding
shares of Common Stock, no par value per share (“Common Stock”) of the
Corporation, each holder of Series C Preferred Stock shall be entitled to
the amount of dividends as would be payable on the largest number of whole
shares of Common Stock into which shares of Series C Preferred Stock held
by such holder could then be converted pursuant to Section 5 hereof (such
number to be determined as of the record date for the determination of holders
of Common Stock entitled to receive such dividend).  Dividends shall not be declared or paid to
holders of Common Stock unless and until the Corporation shall simultaneously
declare and pay to holders of Series C Preferred Stock the dividend
referred to in the preceding sentence.

 

 

 

Section 3.       Liquidation,
Dissolution or Winding Up; Certain Mergers, Consolidations and Asset Sales.

 

a.             In
the event of any voluntary or involuntary liquidation, dissolution or
winding-up of the Corporation, the holders of then outstanding shares of Series C
Preferred Stock shall be entitled to be paid out of the assets available for
distribution to the Corporation’s shareholders, and before any payment shall be
made to the holders of any class of common stock of the Corporation (the “Common
Stock”) or any other class or series of stock ranking on liquidation junior
to the Series C Preferred Stock (the Common Stock and other classes or
series of stock ranking on liquidation junior to the Series C Preferred
Stock being collectively referred to as the “Junior Stock”), by reason
of their ownership thereof, an amount equal to $584.40 for each outstanding
share of Series C Preferred Stock (the “Series C Original Issue
Price”).  If on any such liquidation,
dissolution, or winding-up of the Corporation, the Corporation’s remaining
assets available for distribution to stockholders is insufficient to pay the
holders of the Series C Preferred Stock in full, the holders of the Series C
Preferred Stock shall share ratably in any distribution of the Corporation’s
remaining assets and funds in proportion to the respective amounts that would
otherwise be payable in connection with the shares held by them on such
distribution if the full amounts payable on or in respect of such shares were
paid.

 

b.             After
the full payment of all preferential amounts required to be paid to the holders
of the Series C Preferred Stock on the liquidation, dissolution, or
winding-up of the Corporation, the holders of the Junior Stock then outstanding
shall be entitled to receive the remaining assets and funds available for
distribution to the Corporation’s stockholders.

 

c.             The
consolidation or merger of the Corporation into or with any other entity or
entities resulting in the exchange of outstanding shares of the Corporation for
securities or other consideration issued or paid (or caused to be issued or
paid) by any such entity or affiliate thereof, and the sale or transfer by the
Corporation of all or substantially all its assets, shall be deemed to be a
liquidation, dissolution or winding up of the Corporation within the meaning of
the provisions of this Section 3, but only for the purposes of the
redemption of such Series C Preferred Stock, and only if so elected by the
holders of a majority of the outstanding shares of Series C Preferred
Stock, in their sole discretion.

 

Section 4.       Voting.

 

a.             Each
holder of outstanding shares of Series C Preferred Stock shall be entitled
to the number of votes equal to the number of whole shares of Common Stock into
which the shares of Series C Preferred Stock held by such holder are then
convertible (as periodically adjusted pursuant to Section 5 hereof), at
each meeting of stockholders of the Corporation (and written actions of
stockholders in lieu of meetings) concerning any and all matters presented to
the stockholders of the Corporation for their action or consideration.  Except as required by law or by Section 4(b) below,
holders of Series C Preferred Stock shall vote together with the holders
of Common Stock as a single class.

 

2

 

b.             As
long as any shares of the Series C Preferred Stock remain outstanding,
unless the vote or consent of the holders of a greater number of shares shall
then be required by law, the affirmative vote or consent of the holders of more
than 50% of all of the shares of Series C Preferred Stock at the time
outstanding, voting separately as a class, given in person or by proxy either
in writing (as may be permitted by law and the Articles of Incorporation and
By-laws of the Corporation) or at any special or annual meeting, shall be
necessary to permit, effect, or validate the taking of any of the following
actions by the Corporation:

 

(i)            create, authorize, issue or sell (a) any
class or series of capital stock ranking senior to or on parity with the Series C
Preferred Stock as to dividends or on liquidation, dissolution or winding up;
provided, however, that holders of Common Stock may receive dividends to the
extent provided by Section 2 above and, provided further, that the consent
to issuance of any class or series of capital stock ranking on parity with the Series C
Preferred Stock shall not be unreasonably withheld, or (b) any rights,
options or other securities convertible, exercisable or exchangeable for or
into, or having rights to purchase, any shares of capital stock described in
clause (a) hereof;

 

(ii)           amend the Articles of Incorporation
or By-laws of the Corporation, or in any other manner alter or change the relative
powers, rights, privileges or preferences of the Series C Preferred Stock,
but only to the extent such amendment or action would alter, change or affect
adversely the relative powers, rights, privileges or preferences of the holders
of the Series C Preferred Stock;

 

(iii)          increase the number of shares of Series C
Preferred Stock authorized for issuance above 1,000,000 shares; or

 

(iv)          at any time after the initial issuance
date of the Series C Preferred Stock, issue any shares of Series C
Preferred Stock, except (i) issuances of share certificates upon
transfers or exchanges of shares by holders (other than the Corporation) or in
replacement of lost, stolen, damaged or mutilated share certificates; or (ii) issuances
pursuant to or permitted by the Restructuring and Exchange Agreement.

 

Section 5.       Conversion
Rights.   The holders of the Series C
Preferred Stock shall each have the following conversion rights (collectively,
the “Conversion Rights”):

 

a.             Mandatory
Conversion.  Each share of Series C
Preferred Stock shall automatically be converted, immediately on the
effectiveness of an amendment to the Corporation’s Articles of Incorporation
increasing the number of authorized shares of Common Stock to at least 200
million shares (such date being the “Conversion Date”), into such number
of fully paid and nonassessable shares of Common Stock as is determined by
dividing the aggregate Series C Original Issue Price of the Shares of Series C
Preferred Stock being converted by the Series C Conversion Price in effect
at the time of conversion or such share. 
The initial “Series C Conversion Price” shall be $.40, 

 

3

 

subject to adjustment as provided below. For purposes of this Section 5,
“Original Issue Date” shall mean, for the Series C Preferred Stock, the
date on which the first share of Series C Preferred Stock was issued.

 

b.             Fractional
Shares.  No fractional shares of
Common Stock shall be issued on conversion of the Series C Preferred
Stock.  The number of shares of Common
Stock to be issued shall be rounded to the nearest whole share.  The shares issuable on the conversion shall
be determined on the basis of the total number of shares of Series C
Preferred Stock that the holder is then converting into Common Stock and the
number of shares of Common Stock issuable on such aggregate conversion.

 

c.             Mechanics
of Conversion.

 

(i)            Not
more than 15 days after the Conversion Date, the Corporation shall send a
notice containing a letter of transmittal (which shall specify that the
delivery shall be effected, and risk of loss and title with respect to the
stock certificates shall pass, only upon proper delivery of the stock
certificates to the transfer agent) and instructions for use in effecting the
surrender of the Shares of Series C Preferred Stock.  If required by the Corporation, certificates
surrendered for conversion shall be endorsed or accompanied by a written
instrument or instruments of transfer, in form satisfactory to the Corporation
(in its sole discretion), duly executed by the registered holder or his/her/its
attorney duly authorized in writing.  The
Corporation shall cause its transfer agent, as soon as practicable after the transfer
agent’s receipt of properly surrendered Shares of Series C Preferred Stock,
issue and deliver at such office to such holder of Series C Preferred
Stock, or to his/her/its nominee(s), a certificate or certificates for the
number of shares of Common Stock such holder is entitled to.  The number of shares of Common Stock to be
issued shall be rounded to the nearest whole share.

 

(ii)           Upon
any such conversion, no adjustment to the Series C Conversion Price shall
be made for any declared or accrued but unpaid dividends on the Series C
Preferred Stock surrendered for conversion or on the Common Stock delivered
upon conversion, but, as provided in clause (iii) below, such dividends
shall remain payable to the holder thereof.

 

(iii)          On
the Conversion Date, all shares of Series C Preferred Stock will no longer
be deemed to be outstanding, and all rights with respect to such shares
(including the rights, if any, to receive notices and to vote) shall
immediately cease and terminate on the Conversion Date; provided, however, that
the right of the holders thereof to receive shares of Common Stock in exchange
therefor and payment of any dividends declared or accrued and unpaid thereon on
the Conversion Date shall not cease and terminate on the Conversion Date.  Any shares of Series C Preferred Stock
so converted shall be retired and cancelled and shall not be reissued, and the
Corporation (without the need for stockholder action) may from time to time
take such appropriate action necessary to reduce the authorized Series C
Preferred Stock accordingly.

 

4

 

(iv)          The
Corporation shall pay any and all issue and other taxes that may be payable in
respect of any issuance or delivery of shares of Common Stock on conversion of
shares of Series C Preferred Stock pursuant to this Section 5.  The Corporation shall not, however, be
required to pay any tax that may be payable in respect of any transfer involved
in the issuance and delivery of shares of Common Stock in a name other than
that in which the shares of Series C Preferred Stock so converted were
registered, and no such issuance or delivery shall be made unless and until the
person or entity requesting such issuance has paid to the Corporation the
amount of any such tax or has established, to the satisfaction of the
Corporation, that such tax has been paid.

 

d.             Adjustment
for Stock Splits and Combinations. 
If the Corporation shall at any time (or from time to time) after the
Original Issue Date of the Series C Preferred Stock effect a subdivision
of the outstanding Common Stock, the Series C Conversion Price then in
effect with respect to the Series C Preferred Stock immediately before
that subdivision shall be proportionately decreased.  If the Corporation shall at any time (or from
time to time) after the Original Issue Date of the Series C Preferred
Stock combine the outstanding shares of Common Stock, the Series C
Conversion Price then in effect immediately before the combination with respect
to the Series C Preferred Stock shall be proportionately increased.  Any adjustment under this paragraph shall
become effective at the close of business on the date the subdivision or
combination becomes effective.

 

e.             Adjustment
for Certain Dividends and Distributions. 
In the event the Corporation at any time, or from time to time after the
Original Issue Date of the Series C Preferred Stock shall make or issue,
or fix a record date for the determination of holders of Common Stock entitled
to receive, a dividend or other distribution payable in additional shares of
Common Stock, then and in each such event the Series C Conversion Price
with respect to the Series C Preferred Stock then in effect shall be
decreased as of the time of such issuance or, in the event such a record date
shall have been fixed, as of the close of business on such record date, by
multiplying the Series C Conversion Price for the Series C Preferred
Stock then in effect by a fraction:

 

(1)           the numerator of which shall be the
total number of shares of Common Stock issued and outstanding immediately
before the time of such issuance or the close of business on such record date
and

 

(2)           the denominator of which shall be the
total number of shares of Common Stock issued and outstanding immediately
before the time of such issuance or the close of business on such record date
plus the number of shares of Common Stock issuable in payment of such dividend
or distribution;

 

provided,
however, that if such record date shall have been fixed and such dividend is
not fully paid or if such distribution is not fully made on the date fixed
therefor, the Series C Conversion Price for the Series C Preferred
Stock shall be recomputed accordingly as of the close of business on such
record date and thereafter the Series C Conversion Price for the Series C
Preferred Stock shall be adjusted pursuant to this paragraph as of the time of
actual payment of such dividends or distributions.

 

5

 

f.              Adjustments
for Other Dividends and Distributions. 
In the event the Corporation at any time or from time to time after the
Original Issue Date of the Series C Preferred Stock shall make or issue,
or fix a record date for the determination of holders of Common Stock entitled
to receive, a dividend or other distribution payable in securities of the
Corporation other than shares of Common Stock, then and in each such event
provision shall be made so that the holders of Series C Preferred Stock
shall receive on conversion thereof in addition to the number of shares of Common
Stock receivable thereupon, the amount of securities of the Corporation that
they would have received had the Series C Preferred Stock been converted
into Common Stock on the date of (and immediately prior to) such event and had
thereafter, during the period from the date of such event to and including the
conversion date, retained such securities receivable by them as aforesaid
during such period, giving application to all adjustments called for during
such period under this paragraph with respect to the rights of the holders of
the Series C Preferred Stock.

 

g.             Adjustment
for Reclassification, Exchange or Substitution.  If the Common Stock issuable on the
conversion of the Series C Preferred Stock is changed into the same or a
different number of shares of any class or classes of stock, whether by capital
reorganization, reclassification, or otherwise (other than a subdivision or
combination of shares or stock dividend provided for above, or a
reorganization, merger, consolidation, or sale of assets provided for below),
then and in each such event the holders of the Series C Preferred Stock
shall have the right thereafter to convert such share into the kind and amount
of shares of stock and other securities and property receivable on such
reorganization, reclassification, or other change, by holders of the number of
shares of Common Stock into which such shares of Series C Preferred Stock
might have been converted immediately before such reorganization,
reclassification, or change, all subject to further adjustment as provided
herein.

 

h.             Adjustment
for Merger or Reorganization, etc. 
In case of any consolidation or merger of the Corporation with or into
another corporation or the sale of all or substantially all of the assets of
the Corporation to another corporation (other than a consolidation, merger or
sale covered by Section 3(b) above), each share of Series C
Preferred Stock shall thereafter be convertible (or shall be converted into a
security that is convertible) into the kind and amount of shares of stock or
other securities or property to which a holder of the number of shares of
Common Stock deliverable on conversion of such Series C Preferred Stock
would have been entitled to on such consolidation, merger or sale; and, in such
case, appropriate adjustment (as determined in good faith by the Board of
Directors) shall be made in the application of the provisions in this Section 5
set forth with respect to the rights and interest thereafter of the holders of
the Series C Preferred Stock, to the end that the provisions set forth in
this Section 5 (including provisions with respect to changes in and other
adjustments of the Series C Conversion Price) shall thereafter be
applicable, as nearly as reasonably may be, in relation to any shares of stock
or other property thereafter deliverable on the conversion of the Series C
Preferred Stock.

 

i.              No
Impairment.  The Corporation will
not, by amendment of its Articles of Incorporation, or through any
reorganization, transfer of assets, consolidation, 

 

6

 

merger, dissolution, issue or sale of securities or any other voluntary
action, avoid or seek to avoid the observance or performance of any of the
terms to be observed or performed hereunder by the Corporation, but will at all
times in good faith assist in the carrying out of all the provisions of this Section 5
and in the taking of all such action as may be necessary or appropriate in
order to protect the respective Conversion Rights of the holders of the Series C
Preferred Stock against impairment.

 

j.              Certificate
as to Adjustments.  On the occurrence
of each adjustment or readjustment of the Series C Conversion Price
pursuant to this Section 5, the Corporation (at its expense) shall
promptly compute such adjustment or readjustment in accordance with the terms
hereof and furnish to each holder of Series C Preferred Stock a
certificate setting forth such adjustment or readjustment and showing in detail
the facts on which such adjustment or readjustment is based.  On the written request at any time of any
holder of Series C Preferred Stock, the Corporation shall furnish or cause
to be furnished to such holder a similar certificate setting forth (i) such
adjustments and readjustments, (ii) the Series C Conversion Price
then in effect, and (iii) the number of shares of Common Stock and the
amount, if any, of other property that then would be received on the conversion
of such Series C Preferred Stock.

 

k.             Notice
of Record Date.  In the event:

 

(i)            that the Corporation declares a
dividend (or any other distribution) on its Common Stock payable in Common
Stock or other securities of the corporation;

 

(ii)           that the Corporation subdivides or
combines its outstanding shares of Common Stock;

 

(iii)          of any reclassification of the Common
Stock of the Corporation (other than a subdivision or combination of its
outstanding shares of Common Stock or a stock dividend or stock distribution
thereon), or of any consolidation or merger of the Corporation into or with
another corporation, or of the sale of all or substantially all of the assets
of the Corporation; or

 

(iv)          of the involuntary or voluntary
dissolution, liquidation, or winding-up of the Corporation;

 

then
the Corporation shall cause to be filed at its principal office, and shall
cause to be mailed to the holders of the Series C Preferred Stock at their
last addresses as shown on the records of the Corporation or its transfer
agent, at least ten days before the date specified in (A) below or 20 days
before the date specified in (B) below, a notice stating

 

(i)                                     the record date of such dividend,
distribution, subdivision or combination, or, if a record is not to be taken,
the date as of which the holders of Common Stock of record to be entitled to
such dividend, distribution, subdivision or combination are to be determined,
or

 

7

 

(ii)                                  the date such reclassification,
consolidation, merger, sale, dissolution, liquidation or winding-up is expected
to become effective, and the date that it is expected that holders of Common
Stock of record shall be entitled to exchange their shares of Common Stock for
securities or other property deliverable on such reclassification,
consolidation, merger, sale, dissolution or winding-up.

 

[The remainder of this page intentionally left
blank.]

 

8

 

IN WITNESS WHEREOF, this Designation of Rights, Terms
and Preferences is executed on behalf of the Corporation by its Secretary, and
attested by its Assistant Secretary on September 19, 2007.

 

	
   

  	
   

  	
   

  	
  SPACEHAB,
  INCORPORATED

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  By:

  	
  /s/Brian
  K. Harrington

  
	
   

  	
   

  	
   

  	
  Name:

  	
  Brian
  K. Harrington

  
	
   

  	
   

  	
   

  	
  Title:

  	
  Secretary

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Attest: 

  	
  /s/Bryan Leger

  	
   

  	
   

  	
   

  
	
  Name:

  	
  Bryan Leger

  	
   

  	
   

  	
   

  
	
  Title:

  	
  Assistant Secretary

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  

 

9

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