Document:

Exhibit
10.2

 

EXECUTION
COPY

 

Confirmation
of OTC Convertible Note Hedge

 

Date:      February 5, 2008

 

To:                            AAR
Corp. (“Counterparty”)

1100
N. Wood Dale Road

Wood
Dale, Illinois 60191

Attention:
Richard J. Poulton, Chief Financial Officer

Facsimile
No.:  (630) 227-2039

Telephone
No.: (630) 227-2075

 

From:                Merrill Lynch Financial Markets, Inc. (“Dealer”)

 

Dealer Reference:

 

Dear Sir / Madam:

 

The purpose of this
letter agreement (this “Confirmation”) is to confirm the terms and conditions of
the above-referenced transaction entered into among Counterparty, Dealer and
Merrill Lynch, Pierce, Fenner & Smith Incorporated, (the
“Agent”) on the Trade Date specified below (the “Transaction”). This Confirmation
constitutes a “Confirmation” as referred to in the Agreement specified below.

 

The definitions and
provisions contained in the 2000 ISDA Definitions (the “Swap Definitions”) and the 2002 ISDA
Equity Derivatives Definitions (the “Equity
Definitions”  and,
together with the Swap Definitions, the “Definitions”),  in
each case as published by the International Swaps and Derivatives Association, Inc.
are incorporated into this Confirmation. In the event of any inconsistency
between the Swap Definitions and the Equity Definitions, the Equity Definitions
will govern, and in the event of any inconsistency between the Definitions and
this Confirmation, this Confirmation will govern. References herein to a
“Transaction” shall be deemed to be references to a “Share Option Transaction”
for purposes of the Equity Definitions and a “Swap Transaction” for the
purposes of the Swap Definitions.

 

This Confirmation
evidences a complete binding agreement between you and us as to the terms of
the Transaction to which this Confirmation
relates. This Confirmation (notwithstanding anything to the contrary herein),
shall be subject to, and form part of, an agreement in the 2002 form of the
ISDA Master Agreement (the “Master
Agreement” or “Agreement”) as if we had executed an agreement in such form (but without any Schedule and with the
elections specified in the “ISDA Master Agreement” Section of this
Confirmation) on the Trade Date. In the event of any inconsistency between the
provisions of that Agreement  and this Confirmation, this Confirmation will
prevail for the purpose of this Transaction. 
The parties hereby agree that the Transaction evidenced by this
Confirmation shall be the only Transaction subject to and governed by the
Agreement.

 

The parties acknowledge
that this Confirmation is entered into on the date hereof with the
understanding that the provisions of the Note Indenture (as defined below) that
are referred to herein will conform to the descriptions thereof in the Offering Memorandum dated February 5,
2008 (the “Offering Memorandum”)
relating to the Reference Notes (as defined below).  The parties agree that in the event of any
inconsistency between the Note Indenture and the Offering Memorandum, the
parties will amend this Confirmation in good faith to preserve the intent of
the parties.

 

The
terms of the particular Transaction to which this Confirmation relates are as
follows:

 

OTC
Convertible Note Hedge (2016)

 

 

General Terms:

 

	
  Trade Date:

  	
   

  	
  February 5, 2008

  
	
   

  	
   

  	
   

  
	
  Effective Date:

  	
   

  	
  The date of issuance of
  the Reference Notes.

  
	
   

  	
   

  	
   

  
	
  Option Style:

  	
   

  	
  Modified American, as
  described under “Settlement Terms” below.

  
	
   

  	
   

  	
   

  
	
  Option Type:

  	
   

  	
  Call

  
	
   

  	
   

  	
   

  
	
  Seller:

  	
   

  	
  Dealer

  
	
   

  	
   

  	
   

  
	
  Buyer:

  	
   

  	
  Counterparty

  
	
   

  	
   

  	
   

  
	
  Shares:

  	
   

  	
  The shares of Common
  Stock, $1.00 par value, of Counterparty (Security Symbol: “AIR”) or such
  other securities or property (including cash) into which the Reference Notes
  are convertible on the date of determination.

  
	
   

  	
   

  	
   

  
	
  Number of Options:

  	
   

  	
  The number of Reference
  Notes in denominations of USD1,000 principal amount issued by Counterparty on
  the closing date for the initial issuance of the Reference Notes; provided
  that the Number of Options shall be automatically increased as of the date of
  exercise by Merrill Lynch, Pierce, Fenner & Smith Incorporated of
  the Initial Purchasers’ (as such term is defined in the Purchase Agreement)
  option to purchase additional Reference Notes pursuant to
  Section 2(b) of the Purchase Agreement related to the purchase and
  sale of the Reference Notes dated as of February 5, 2008 among
  Counterparty and the Initial Purchasers (the “Purchase Agreement”) by the
  number of Reference Notes in denominations of USD1,000 principal amount
  issued pursuant to such exercise (such Reference Notes, the “Additional Reference Notes”).

  
	
   

  	
   

  	
   

  
	
  Number of Shares:

  	
   

  	
  The product of the
  Number of Options and the Conversion Rate (as defined in the Note Indenture),
  but without regard to any adjustment to the Conversion Rate as a result of
  the Excluded Provisions.

  
	
   

  	
   

  	
   

  
	
  Premium:

  	
   

  	
  $30,890,000; provided
  that if the Number of Options is increased pursuant to the proviso to the
  definition of “Number of Options” above, an additional Premium equal to the
  product of the number of Options by which the Number of Options is so
  increased and $308.90 shall be paid on the Additional Premium Payment Date.

  
	
   

  	
   

  	
   

  
	
  Premium Payment Date:

  	
   

  	
  The date of issuance of
  the Reference Notes.

  
	
   

  	
   

  	
   

  
	
  Additional Premium
  Payment Date:

  	
   

  	
  The closing date for
  the purchase and sale of the Additional Reference Notes.

  
	
   

  	
   

  	
   

  
	
  Exchange:

  	
   

  	
  New York Stock
  Exchange, Chicago Stock Exchange

  
	
   

  	
   

  	
   

  
	
  Related Exchange(s):

  	
   

  	
  All Exchanges

  
	
   

  	
   

  	
   

  
	
  Reference Notes:

  	
   

  	
  2.25% Convertible
  Senior Notes due 2016 of Counterparty

  

 

2

 

	
  Note Indenture:

  	
   

  	
  The indenture, dated as
  of closing of the issuance of the Reference Notes, between Counterparty and
  U.S. Bank National Association, as trustee relating to the Reference Notes, as the same may be amended, modified or
  supplemented from time to time. Certain defined terms used herein have the
  meanings assigned to them in the Note Indenture.

  

 

Procedures for Exercise:

 

	
  Potential Exercise
  Dates:

  	
   

  	
  Each Conversion Date.

  
	
   

  	
   

  	
   

  
	
  Conversion Date:

  	
   

  	
  Each “conversion date”
  for any Reference Note pursuant to the terms of the Note Indenture occurring
  before the Expiration Date.

  
	
   

  	
   

  	
   

  
	
  Exercise on Conversion
  Dates:

  	
   

  	
  

  On each Conversion Date, a number of Options equal to the number of Reference
  Notes in denominations of USD1,000 principal amount validly submitted for
  conversion on such Conversion Date in accordance with the terms of the Note
  Indenture shall be automatically exercised; provided
  that if Counterparty makes the direction described in Section 9.6 of the
  Note Indenture for the surrender of any Reference Notes for exchange in lieu
  of conversion, such Reference Notes shall be deemed not to have been
  submitted for conversion and no Conversion Date shall be deemed to have
  occurred for such Reference Notes.

  
	
   

  	
   

  	
   

  
	
  Exercise Period:

  	
   

  	
  The period from and
  excluding the Effective Date to and including the Expiration Date.

  
	
   

  	
   

  	
   

  
	
  Expiration Date:

  	
   

  	
  The earliest of
  (i) the maturity date of the Reference Notes and (ii) the first day
  on which none of such Reference Notes remain outstanding, whether by virtue
  of conversion, issuer repurchase or otherwise.

  
	
   

  	
   

  	
   

  
	
  Multiple Exercise:

  	
   

  	
  Applicable, as provided
  above under “Required Exercise on Conversion Dates”.

  
	
   

  	
   

  	
   

  
	
  Minimum Number of
  Options:

  	
   

  	
  Zero

  
	
   

  	
   

  	
   

  
	
  Maximum Number of
  Options:

  	
   

  	
  Number of Options

  
	
   

  	
   

  	
   

  
	
  Automatic Exercise:

  	
   

  	
  As provided above under
  “Required Exercise on Conversion Dates”.

  

 

3

 

	
  Exercise Notice:

  	
   

  	
  Notwithstanding the
  exercise of any Options hereunder, Buyer shall be entitled to receive the
  deliveries provided under “Settlement Terms” below only if Buyer shall have
  delivered to Seller a written notice (“Exercise Notice”)
  prior to 5:00 PM, New York City time, on the “Business Day”, as defined in
  the Note Indenture, prior to the first Scheduled Trading Day of the
  Conversion Reference Period relating to the Reference Notes converted on the
  Conversion Date occurring on the relevant Exercise Date (such time, the “Notice Deadline”) of
  (i) the number of Options being exercised, (ii) the first Scheduled
  Trading Day of the Conversion Reference Period, (iii) the scheduled
  settlement date under the Note Indenture for the Reference Notes converted on
  the Conversion Date occurring on the Exercise Date for such exercise and
  (iv) the applicable Cash Percentage (as defined in the Note Indenture),
  if any; provided that with respect
  to Reference Notes converted during the period beginning on February 1,
  2016 and ending on the Business
  Day immediately preceding the
  Stated Maturity (as defined in the Note Indenture) of the Reference Notes,
  the related Exercise Notice need not contain the information specified in
  clause (i) of this sentence and, in order to exercise any Options hereunder,
  Buyer shall deliver to Seller prior to 5:00 p.m. New York City time on
  the Business Day (as defined in the Note Indenture) prior to such Stated
  Maturity a written notice (“Supplemental Exercise
  Notice”) setting forth the number of Reference Notes converted
  during such period; provided further
  that, notwithstanding the foregoing, such notice (and the related automatic
  exercise of Options) shall be effective if given after the relevant Notice
  Deadline but prior to 5:00 PM New York City time, on the fifth Scheduled
  Trading Day following the Notice Deadline, in which event (A) the
  Calculation Agent shall adjust the Delivery Obligation (as defined below) as
  appropriate to reflect the additional costs (including, but not limited to,
  hedging mismatches and market losses) and reasonable expenses incurred by
  Seller in connection with its hedging activities (including the unwinding of
  any hedge position) as a result of its not having received such notice prior
  to the applicable Notice Deadline and (B) the Cash Percentage shall be
  deemed to be zero. If Buyer wishes to designate a Cash Percentage different
  from zero, then Buyer shall represent and warrant in the Exercise Notice
  that, at the time such election was made, Buyer has publicly disclosed all
  material information with respect to itself and the Shares necessary for
  Buyer to be able to purchase or sell Shares in compliance with applicable
  federal securities laws.

  
	
  

  Seller’s Telephone Number and Telex and/or Facsimile Number and Contact
  Details for purpose of Giving Notice:

  	
   

  	
  Address:

  

  

  

  Attention:

  Facsimile No.:

  Telephone No.:

  	
  Merrill Lynch Financial
  Markets, Inc.

  4 World Financial Center, 17th Floor

  New York, New York 10080

  Merrill Lynch Financial Centre

  Manager of Equity Documentation

  (917) 778-0835

  (212) 449-1951

  

 

Settlement Terms:

 

	
  Settlement Date:

  	
   

  	
  The settlement date
  specified in the Note Indenture for the delivery of Shares upon the
  conversion of Reference Notes.

  

 

4

 

	
  Delivery Obligation:

  	
   

  	
  In lieu of the obligations
  set forth in Sections 8.1 and 9.1 of the Equity Definitions, and subject to
  “Exercise Notice” above, in respect of an Exercise Date occurring on a
  Conversion Date, Seller will deliver to Buyer on the related Settlement Date
  the product of the number of Options exercised on such Exercise Date and the
  sum of (x) the number of Shares, if any, and (y) the amount of
  cash, if any, in lieu of the “Remaining Shares”, as defined in the Note
  Indenture, in each case, that Buyer is obligated to deliver or pay, as the
  case may be, to the holder of a Convertible Note (in the principal amount of
  USD1,000) converted on such Conversion Date pursuant to
  Section 9.18(a) or Section 9.18(b), as applicable, of the Note
  Indenture (such Shares and cash, collectively, the “Convertible Obligation”); provided that the Delivery Obligation shall be determined
  by excluding any Shares (and cash in lieu of fractional Shares) that Buyer is
  obligated to deliver to holders of the Reference Notes as a direct or
  indirect result of any adjustments to the Conversion Rate pursuant to the
  Excluded Provisions of the Note Indenture and any interest payment or
  distribution that Buyer is obligated to deliver in respect of References
  Notes converted on such Conversion Date (including, for the avoidance of
  doubt, any distributed property that Buyer is obligated to deliver in lieu of
  any adjustment pursuant to Sections 9.8(c), (d) or (e) of the Note
  Indenture); provided further that, for
  purposes of determining the Delivery Obligation, the Cash Percentage shall be
  deemed to be zero if Buyer has not made the representation and warranty
  specified in the final sentence under “Exercise Notice” above or if the final
  proviso to the first sentence under “Exercise Notice” above is applicable.

   

  Any fractional Shares
  to be delivered with respect to any Delivery Obligation shall be valued at
  the Relevant Price for the last Trading Day (as defined in the Note
  Indenture) of the Conversion Reference Period, and Dealer shall deliver cash
  in lieu thereof.

  
	
   

  	
   

  	
   

  
	
  Excluded Provisions:

  	
   

  	
  Section 9.12 of
  the Note Indenture. Notwithstanding anything to the contrary herein or in the
  Equity Definitions, in no event shall any adjustments in respect of any
  Potential Adjustment Event or Extraordinary Event be made hereunder as a
  result of any adjustments to the Conversion Rate pursuant to the Excluded
  Provisions of the Note Indenture.

  
	
   

  	
   

  	
   

  
	
  Conversion Reference
  Period:

  	
   

  	
  For any Exercise Date,
  the “conversion reference period” as defined in the Note Indenture with
  respect to the Conversion Date occurring on such Exercise Date.

  
	
   

  	
   

  	
   

  
	
  Other Applicable
  Provisions:

  	
   

  	
  To the extent Seller is
  obligated to deliver Shares hereunder, the provisions of Sections 9.1(c),
  9.8, 9.9, 9.10, 9.11 (except that the Representation and Agreement contained
  in Section 9.11 of the Equity Definitions shall be modified by excluding
  any representations therein relating to restrictions, obligations,
  limitations or requirements under applicable securities laws as a result of
  the fact that Buyer is the issuer of the Shares) and 9.12 of the Equity
  Definitions will be applicable as if “Physical Settlement” applied to the
  Transaction.

  

 

5

 

Adjustments:

 

	
  Method of Adjustment:

  	
   

  	
  Calculation Agent
  Adjustment; provided that the terms of this Transaction shall be adjusted in
  a manner consistent with adjustments of the Conversion Rate of the Reference
  Notes as provided in the Note Indenture; provided that no adjustment in
  respect of any Potential Adjustment Event or Extraordinary Event shall be
  made hereunder as a result of any adjustments to the Conversion Rate pursuant
  to the Excluded Provisions of the Note Indenture.

  
	
   

  	
   

  	
   

  
	
  Potential Adjustment
  Event:

  	
   

  	
  Notwithstanding
  Section 11.2(e) of the Equity Definitions, a “Potential Adjustment
  Event” means, subject to the preceding paragraph, the occurrence of an event
  or condition that would result in an adjustment of the Conversion Rate of the
  Reference Notes pursuant to the Note Indenture.

  

 

Extraordinary Events:

 

	
  Merger Events:

  	
   

  	
  Notwithstanding
  Section 12.1(b) of the Equity Definitions, a “Merger Event” means
  the occurrence of any event or condition to which Section 9.14 of the
  Note Indenture applies.

  
	
   

  	
   

  	
   

  
	
  Consequences for Merger
  Events:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Share-for-Share:

  	
   

  	
  The Transaction will be
  adjusted in a manner corresponding to the adjustments to the Reference Notes
  as provided in the Note Indenture.

  
	
   

  	
   

  	
   

  
	
  Share-for-Other:

  	
   

  	
  The Transaction will be
  adjusted in a manner corresponding to the adjustments to the Reference Notes
  as provided in the Note Indenture.

  
	
   

  	
   

  	
   

  
	
  Share-for-Combined:

  	
   

  	
  The Transaction will be
  adjusted in a manner corresponding to the adjustments to the Reference Notes
  as provided in the Note Indenture.

  
	
   

  	
   

  	
   

  
	
  Notice of Merger
  Consideration:

  	
   

  	
  Upon the occurrence of
  a Merger Event that causes the Shares to be converted into the right to
  receive more than a single type of consideration (determined based in part
  upon any form of stockholder election), Buyer shall reasonably promptly (but
  in any event prior to the third Exchange Business Day prior to the effective
  date of such Merger Event) notify the Calculation Agent of the weighted
  average of the types and amounts of consideration (a) received by the
  holders of Shares entitled to receive cash, securities or other property or
  assets with respect to or in exchange for such Shares in any Merger Event who
  affirmatively make such an election and (b) selected by holders of the
  Reference Notes as the form of consideration into which the Reference Notes
  shall be convertible from and after the effective date of such Merger Event.

  
	
   

  	
   

  	
   

  
	
  Tender Offer:

  	
   

  	
  Applicable, subject to
  “Consequences of Tender Offers” below. Notwithstanding
  Section 12.1(d) of the Equity Definitions, “Tender Offer” means the
  occurrence of any event or condition set forth in Section 9.8(f) of
  the Note Indenture.

  
	
   

  	
   

  	
   

  
	
  Consequences of Tender
  Offers:

  	
   

  	
  The Transaction will be
  adjusted in a manner corresponding to the adjustments to the Reference Notes
  as provided in the Note Indenture.

  

 

6

 

	
  Nationalization,
  Insolvency and Delisting:

  	
   

  	
  Cancellation and
  Payment (Calculation Agent Determination); provided
  that Buyer shall determine whether payment shall be settled in cash or
  Shares. In addition to the provisions of Section 12.6(a)(iii) of
  the Equity Definitions, it will also constitute a Delisting if the Exchange
  is located in the United States and the Shares are not immediately re-listed,
  re-traded or re-quoted on any of the New York Stock Exchange, the American
  Stock Exchange, the NASDAQ Global Market or the NASDAQ Global Select Market
  (or their respective successors); if the Shares are immediately re-listed,
  re-traded or re-quoted on any such exchange or quotation system, such
  exchange or quotation system shall thereafter be deemed to be the Exchange.

  
	
   

  	
   

  	
   

  
	
  Additional Disruption
  Events:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Change
  in Law:

  	
   

  	
  Applicable

  
	
   

  	
   

  	
   

  
	
  Failure to
  Deliver:

  	
   

  	
  Applicable.

  
	
   

  	
   

  	
   

  
	
  Insolvency
  Filing:

  	
   

  	
  Applicable

  
	
   

  	
   

  	
   

  
	
  Hedging
  Disruption Event:

  	
   

  	
  Applicable

  
	
   

  	
   

  	
   

  
	
  Increased Cost
  of Hedging:

  	
   

  	
  Not Applicable

  
	
   

  	
   

  	
   

  
	
  Loss of Stock Borrow:

  	
   

  	
  Not Applicable

  
	
   

  	
   

  	
   

  
	
  Increased Cost
  of Stock Borrow:

  	
   

  	
  Not Applicable

  
	
   

  	
   

  	
   

  
	
  Hedging Party:

  	
   

  	
  Seller

  
	
   

  	
   

  	
   

  
	
  Determining
  Party:

  	
   

  	
  Seller

  
	
   

  	
   

  	
   

  
	
  Non-Reliance:

  	
   

  	
  Applicable

  
	
   

  	
   

  	
   

  
	
  Agreements and
  Acknowledgments Regarding Hedging Activities:

  	
   

  	
  Applicable

  
	
   

  	
   

  	
   

  
	
  Additional
  Acknowledgments:

  	
   

  	
  Applicable

  

 

Additional
Agreements, Representations and Covenants of Buyer, Etc.:

 

1.                                      Buyer
hereby represents and warrants to Seller, on each day from the Trade Date to
and including the earlier of (i) March 5, 2008 and (ii) the date
by which Seller is able to initially complete a hedge of its position relating
to this Transaction, that:

 

a.                                      it will effect
(and cause any “affiliated purchaser” (as defined in Rule 10b-18
promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”))  to
effect) any purchases, direct or indirect (including by means of any
cash-settled or other derivative instrument), of Shares 

 

7

 

or any security convertible into or exchangeable or exercisable for
Shares solely through Agent in a manner that would not cause any purchases by
Seller of its hedge in connection with this Transaction not to
comply applicable securities laws;

 

b.                                     it will not engage
in, or be engaged in, any “distribution,” as such term is defined in Regulation
M promulgated under the Exchange Act, other than a distribution meeting the
requirements of the exceptions set forth in
sections 101(b)(10) and 102(b)(7) of
Regulation M (it being understood that
Buyer makes no representation pursuant to this clause in respect of any action
or inaction taken by Seller or any initial purchaser of the Reference
Notes); and

 

c.                                      Buyer has
publicly disclosed all material information necessary for Buyer to be able to
purchase or sell Shares in compliance with
applicable federal securities laws.

 

2.                                      If Buyer would be obligated to pay cash (other
than payment of the Premium and except in the case of an Event of
Default in which Buyer is the Defaulting Party or a Termination Event in which
Buyer is the Affected Party, other than an (x) Event of Default of the
type described in Section 5(a)(iii), (v), (vi) or (vii) of the
Master Agreement or (y) a Termination Event of the type described in Section 5(b)(i),
(ii), (iii), (iv), or (v) of the Master Agreement that in the case of
either (x) or (y) resulted from an event or events outside Buyer’s
control) to, or receive cash from, Seller
pursuant to the terms of this Agreement for any reason without having
had the right (other than pursuant to this paragraph (2), but including (x) the
right to deliver Shares under the Note Indenture upon conversion of the
Reference Notes or (y) the right to deliver or receive Shares in any other
document or agreement that would result, directly or indirectly, in a cash payment
hereunder) to elect to deliver or receive
Shares in satisfaction of such payment obligation, then Buyer may elect (by
giving notice to Seller no later than 8 a.m. New York time on the Exchange
Business Day immediately following the date of occurrence of the event giving
rise to such payment obligation) that such payment obligation shall be
satisfied by the delivery of a number of Shares (or, if the Shares have been converted into other securities or property in
connection with an Extraordinary Event, a number or amount of such other securities or property as a holder of
Shares would be entitled to receive upon the consummation or closing of
such Extraordinary Event) having a cash value equal to the amount of such
payment obligation. Such number of Shares or amount of other securities or
property to be delivered shall be determined by the Calculation Agent to be the
number of Shares or amount of such other securities
or property that could be purchased or sold, as applicable, over a reasonable
period of time with the cash equivalent of or producing the cash
equivalent of such payment obligation). Settlement relating to any delivery of
Shares or other securities or property pursuant to this paragraph (2) shall
occur within a reasonable period of time. 
Notwithstanding anything herein or in the Agreement to the contrary, the
aggregate number of Shares that Counterparty may be required to deliver to
Dealer under this Transaction shall not exceed the product of (a) 1.5 and (b) the
Number of Shares, as adjusted by the Calculation Agent to account for any
subdivision, stock-split, stock combination, reclassification or similar
dilutive or anti-dilutive event with respect to the Shares.

 

3.                                      Counterparty is
not, and after giving effect to the Transaction contemplated hereby, will not
be, an “investment company” as such term is defined in the Investment Company
Act of 1940, as amended.

 

4.                                      As of the Trade Date and each date on which a
payment or delivery is made by Counterparty hereunder, (i) the
assets of Counterparty at their fair valuation exceed the liabilities of
Counterparty, including contingent liabilities; (ii) the capital of
Counterparty is adequate to conduct its business; and (iii) Counterparty
has the ability to pay its debts and other
obligations as such obligations mature and does not intend to, or believe that
it will, incur debt or other obligations beyond its ability to pay as such
obligations mature.

 

5.                                      The
representations and warranties set forth in Section 1 of the Purchase
Agreement (as defined herein) are hereby deemed to be repeated to Dealer as if
set forth herein.

 

8

 

Additional
Termination Events:

 

The occurrence of an
Amendment Event or a Repayment Event shall be an Additional Termination Event
with respect to which the Transaction is the sole Affected Transaction,
Counterparty is the sole Affected Party and Dealer is the sole party entitled
to designate an Early Termination Date; provided that
in the case of a Repayment Event, the Transaction shall be subject to
termination only in respect of the number of Reference Notes that cease to be
outstanding in connection with or as a result of such Repayment Event:

 

1.                                     “Amendment
Event” means that the Counterparty, without Dealer’s consent,
amends, modifies, supplements or obtains a waiver of (a) any term of the
Note Indenture (as in effect prior to such amendment, modification, supplement
or waiver) or the Reference Notes relating to the principal amount, coupon, maturity, repurchase obligation of the Counterparty
or redemption right of the Counterparty, (b) any material term relating to
conversion of the Reference Notes, including, without limitation, any changes
to the conversion price, conversion
settlement dates or conversion conditions or (c) any term that would
require consent of the holders of 100% of the principal amount of the
Reference Notes to amend.

 

2.                                     “Repayment Event” means that
(a) any Reference Notes are repurchased (whether in connection with or as
a result of a fundamental change or change of control, howsoever defined, or
for any other reason) by the Counterparty, (b) any Reference Notes are
delivered to the Counterparty in exchange for delivery of any property or
assets of the Counterparty or any of its
subsidiaries (howsoever described), other than as a result of and in connection
with a Conversion Date, (c) any
principal of any of the Reference Notes is repaid prior to the Stated Maturity
(as defined in the Note Indenture) (whether following acceleration of the
Reference Notes or otherwise),
provided that no payments of cash made in respect of the conversion of a
Reference Note shall be deemed a
payment of principal under this clause (c), (d) any Reference Notes are
exchanged by or for the benefit of the holders thereof for any other securities
of the Counterparty or any of its Affiliates (or any other property, or any
combination thereof) pursuant to any exchange offer or similar transaction or
(e) any of the Reference Notes is surrendered by Counterparty to the
trustee for cancellation, other than registration of a transfer of such
Reference Notes or as a result of and in connection with a Conversion Date.

 

3.                                     Initial Purchase Event. If an Initial Purchase Event (as
defined below) occurs, this Transaction shall terminate
automatically in its entirety and, notwithstanding anything to the contrary
herein, only the payments specified below shall be required hereunder in
connection with such Initial Purchase Event.

 

“Initial Purchase Event” means that the
transactions contemplated by the Purchase Agreement shall fail to close for any
reason by the closing date for the offering of the Reference Notes as specified
in the Purchase Agreement.

 

If an Initial Purchase
Event occurs for any reason other than due to a breach of the Purchase Agreement
by the Initial Purchasers, then all payments previously made hereunder shall be
returned to the person making such payment,
including the Premium, less an amount equal to the product of (a) the
Number of Shares, (b) 0.50 and (c) an amount equal to the excess, if any, of
the closing price of the Shares on the Trade Date over the closing price
of the Shares on the date of the Termination Event (the “Break Expense”); provided that any
negative amount shall be replaced by zero and provided further that to the
extent the Premium has not been paid, Buyer
shall promptly pay Seller the Break Expense. Seller and Buyer agree that actual
damages would be difficult to ascertain under these circumstances and that the
amount of liquidated damages resulting from the determination in the
preceding sentence is a good faith estimate of such damages and not a penalty.

 

If an Initial Purchase
Event occurs due to a breach of the Purchase Agreement by the Initial
Purchasers, then all payments previously made hereunder, including the Premium,
promptly shall be returned to the 

 

9

person making such payment and no payments shall be
required hereunder in connection with such Initial Purchase Event.

 

Staggered
Settlement:

 

If Seller determines
reasonably and in good faith that the number of Shares required to be delivered
to Buyer hereunder on any Settlement Date would exceed 8.0% of all outstanding
Shares, then Seller may, by notice to Buyer on
or prior to such Settlement Date (a “Nominal
Settlement Date”), elect
to deliver the Shares comprising the related
Delivery Obligation on two or more dates (each, a “Staggered Settlement Date”) or at two or more times on the
Nominal Settlement Date as follows:

 

1.                                      in such notice, Seller will specify to Buyer the
related Staggered Settlement Dates (each
of which will be such Nominal Settlement Date and the last of which will be no
later than twenty (20) Trading Days following such Nominal Settlement Date) or
delivery times and how it will allocate the Shares it is required to deliver
hereunder among the Staggered Settlement Dates or delivery times;

 

2.                                      the aggregate
number of Shares that Seller will deliver to Buyer hereunder on all such
Staggered Settlement Dates or delivery times will equal the number of Shares
that Seller would otherwise be required to deliver on such Nominal Settlement
Date; and

 

3.                                      the procedures
set forth above under the heading “Settlement Terms” will apply on each
Staggered Settlement Date, except that the Shares comprising the Delivery
Obligation will be allocated among such Staggered Settlement Dates or delivery
times as specified by Seller in the notice referred to in clause (1) above.

 

Notwithstanding anything
herein to the contrary, solely in connection with a Staggered Settlement Date,
Seller shall be entitled to deliver Shares to Buyer from time to time prior to
the date on which Seller would be obligated to deliver them to Buyer pursuant
to the Delivery Obligation terms set forth above, and Buyer agrees to credit
all such early deliveries against Seller’s obligations hereunder in the direct
order in which such obligations arise. No such early delivery of Shares will
accelerate or otherwise affect any of Buyer’s obligations to Seller hereunder.

 

Disposition
of Hedge Shares:

 

Counterparty
hereby agrees that if, in the reasonable judgment of Seller based on advice of counsel, the Shares acquired by Seller for the purpose of hedging its obligations
pursuant to the Transaction (the “Hedge
Shares”) cannot be sold in the
U.S. public market by Seller without registration under the Securities Act,
Counterparty shall, at its election: (i) in order to allow Seller to sell
the Hedge Shares in a registered offering, make available to Seller an
effective registration statement under the Securities Act to cover the resale
of such Hedge Shares and (a) enter into an agreement, in form and
substance satisfactory to Seller, substantially in the form of an underwriting
agreement for a registered offering, (b) provide accountant’s “comfort”
letters in customary form for registered offerings of equity securities, (c) provide
disclosure opinions of nationally recognized outside counsel to Counterparty reasonably acceptable to Seller, (d) provide
other customary opinions, certificates and closing documents customary in form
for registered offerings of equity securities and (e) afford Seller a
reasonable opportunity to conduct a “due diligence” investigation with respect
to Counterparty customary in scope for underwritten offerings of equity
securities; provided, however, that
if Seller, in its sole reasonable discretion, is not satisfied with access to
due diligence materials, the results of its due diligence investigation, or the
procedures and documentation for the registered offering referred to above,
then clause (ii) or clause (iii) of this Section shall apply at
the election of Counterparty; (ii) in order to allow Seller to sell the
Hedge Shares in a private placement, enter into a private placement agreement
substantially similar to private placement purchase agreements customary for
private placements of equity securities, in form and substance satisfactory to
Seller, including customary representations, covenants, blue sky and other
governmental filings and/or registrations, indemnities to Seller, due diligence
rights (for Seller or any designated buyer of the Hedge Shares from Seller),
opinions and certificates and such other documentation as is customary for
private placements agreements, all reasonably acceptable to Seller (in which
case, the Calculation Agent shall make any adjustments to the terms of the
Transaction that are necessary to compensate

 

10

 

Seller for any discount
from the public market price of the Shares incurred on the sale of Hedge Shares
in a private placement); or (iii) purchase
the Hedge Shares from Seller at the VWAP Price on such Exchange Business Days, and
in such amounts, as requested by Seller. “VWAP
Price” means, on any Exchange Business Day, the per Share volume-weighted average price as displayed under
the heading “Bloomberg VWAP” on Bloomberg page AAR.N <equity>
VAP (or any successor thereto) in respect of the period from 9:30 a.m. to
4:00 p.m. (New York City time) on such Exchange Business Day (or if such
volume-weighted average price is unavailable, the market value of one Share on
such Exchange Business Day, as determined by the Calculation Agent using a
volume-weighted method).

 

Repurchase Notices:

 

Counterparty shall, on
any day on which Counterparty effects any repurchase of Shares, promptly give
Seller a written notice of such repurchase (a “Repurchase Notice”) on such day
if following such repurchase, the Notice Percentage as determined on such day
is (i) greater than 6% and (ii) greater by 0.5% than the Notice Percentage
included in the immediately preceding Repurchase Notice (or, in the case of the
first such Repurchase Notice, greater than the Notice Percentage as of the date
hereof). In the event that Counterparty fails to provide Seller with a
Repurchase Notice on the day and in the manner specified in this section, then
Counterparty agrees to indemnify and hold harmless Seller, its affiliates and
their respective directors, officers, employees, agents and controlling persons
(Seller and each such person being an “Indemnified Party”) from and against any
and all losses, claims, damages and liabilities (or actions in respect
thereof), joint or several, to which such Indemnified Party may become subject
under applicable securities laws, including without limitation, Section 16
of the Exchange Act, relating to or arising out of such failure. If for any
reason the foregoing indemnification is unavailable to any Indemnified Party or
insufficient to hold harmless any Indemnified Party, then Counterparty shall
contribute, to the maximum extent permitted by law, to the amount paid or
payable by the Indemnified Party as a result of such loss, claim, damage or
liability. In addition, Counterparty will reimburse any Indemnified Party for
all reasonable and documented expenses (including reasonable counsel fees and
expenses) as they are incurred (after notice to Counterparty) in connection
with the investigation of, preparation for or defense or settlement of any
pending or threatened claim or any action, suit or proceeding arising
therefrom, whether or not such Indemnified Party is a party thereto and whether
or not such claim, action, suit or proceeding is initiated or brought by or on
behalf of Counterparty. This indemnity shall survive the completion of the
Transaction contemplated by this Confirmation and any assignment and delegation
of the Transaction made pursuant to this Confirmation or the Agreement shall
inure to the benefit of any permitted assignee of Seller. Counterparty will not
be liable under this Indemnity provision to the extent that any loss, claim,
damage, liability or expense is found in a final judgment by a court to have
resulted from Dealer’s gross negligence or willful misconduct. The “Notice
Percentage” as of any day is the fraction, expressed as a percentage, (i) the
numerator of which is the product of (a) the number of outstanding
Reference Notes and (b) a number of Shares per Reference Note equal to the
Conversion Rate (as defined in the Note Indenture) and (ii) the
denominator of which is the number of Shares outstanding on such day.

 

Conversion Rate Adjustment
Notices

 

In connection with any
adjustments to the Conversion Rate under the terms of the Note Indenture,
Counterparty shall provide to Dealer a copy of the notice of adjustment
required to be delivered to the Trustee (as defined in the Note Indenture)
pursuant to Section 9.11 of the Note Indenture concurrently with filing of
such notice with the Trustee.

 

11

 

	
  Compliance
  with Securities Laws:

  	
   

  	
  Each party represents
  and agrees that, in connection with this Transaction and all related or
  contemporaneous sales and purchases of Shares by either party, Buyer, or in
  the case of Seller, the person(s) that directly influences the specific
  trading decisions of Seller, has complied and will comply with the applicable
  provisions of the Securities Act of 1933, as amended (the “Securities Act”), and the Exchange Act, and the rules and regulations each
  thereunder, including, without limitation, Section 9(a) of, and Rules 10b-5 and 13e and
  Regulation M under, the Exchange Act; provided that each party shall be
  entitled to rely conclusively on any information communicated by the other
  party concerning such other party’s market activities.

   

  Each
  party acknowledges that the offer and sale of the Transaction to it is
  intended to be exempt from registration under the Securities Act by virtue of
  Section 4(2) thereof. Accordingly, Buyer represents and warrants to
  Seller that (i) it has the financial ability to bear the economic risk
  of its investment in the Transaction and is able to bear a total loss of its investment, (ii) it
  is an “accredited investor” as that term is defined in Regulation D as promulgated under the Securities Act and
  (iii) the disposition of the
  Transaction is restricted under this Confirmation, the Securities Act and
  state securities laws.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Buyer
  further represents:

   

  (a)  Buyer
  is not entering into this Transaction to create actual or apparent trading
  activity in the Shares (or any security convertible into or exchangeable for
  Shares) or to raise or depress or otherwise manipulate the price of the
  Shares (or any security convertible into or exchangeable for Shares);

   

  (b)  Buyer
  acknowledges that as of the date hereof and without limiting the generality
  of Section 13.1 of the Equity Definitions, Seller is not making any
  representations or warranties with respect
  to the treatment of the Transaction under FASB Statements 149 or 150, EITF Issue No. 00-19 (or any
  successor issue statements) or under FASB’s Liabilities &
  Equity Project.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Account
  for payments to Buyer:

  	
  To be
  advised

  
	
  Account Details:

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Account
  for payment to Seller:

  	
  Merrill Lynch Financial
  Markets

  Chase Manhattan Bank

  ABA# 021000021

  Acct# 066642892 

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Accounts
  for deliveries of Shares:

  	
  To be
  advised

  
	
   

  	
   

  	
   

  	
   

  
	
  Bankruptcy Rights:

  	
   

  	
  In
  the event of Buyer’s bankruptcy, Seller’s rights in connection with this
  Transaction shall not exceed those rights
  held by common shareholders. For the avoidance of doubt, the parties acknowledge and agree that Seller’s
  rights with respect to any other claim arising from this Transaction prior to
  Buyer’s bankruptcy shall remain in full force and effect and shall not
  be otherwise abridged or modified in connection herewith.

  
	
   

  	
   

  	
   

  
	
  Set-Off:

  	
   

  	
  Each party waives any and all rights it may have to
  set-off, whether arising under any
  agreement, applicable law or otherwise.

  
	
   

  	
   

  	
   

  
	
  Collateral:

  	
   

  	
  None.

  

 

12

 

	
  Transfer:

  	
   

  	
  Buyer
  shall have the right to assign its rights and delegate its obligations  hereunder with  respect to any portion of this Transaction, subject to Seller’s
  consent, such consent not to be unreasonably withheld; provided that such
  assignment or transfer shall be subject to receipt by Seller of opinions and
  documents reasonably satisfactory to Seller and effected on terms reasonably
  satisfactory to the Seller with respect to any legal and regulatory
  requirements relevant to the Seller; provided further that Buyer shall not be
  released from its obligation to deliver any Exercise Notice or its
  obligations pursuant to “Disposition of Hedge Shares”, “Repurchase Notices”
  or “Conversion Rate Adjustment Notices” above.  

   

  Seller may transfer any
  of its rights or delegate its obligations under this Transaction with the prior
  written consent of Buyer, such consent not to be unreasonably withheld. In
  addition, if, as determined in Seller’s sole discretion, its “beneficial
  ownership” (within the meaning of Section 13 of the Exchange Act and
  rules promulgated thereunder) could be deemed to exceed 8% of
  Counterparty’s outstanding Shares, Seller may, without Counterparty’s
  consent, transfer or assign all or any part of its rights or obligations
  under this Transaction to reduce such “beneficial ownership” to 7.5% to any
  third party with a rating for its (or, if applicable, its Credit Support
  Provider’s) long term, unsecured and unsubordinated indebtedness of AA or
  better by Standard & Poor’s Ratings Service or its successor
  (“S&P”), or Aa3 or better by Moody’s Investors Service (“Moody’s”) or, if
  either S&P or Moody’s ceases to rate such debt, at least an equivalent
  rating or better by a substitute rating agency mutually agreed by Company and
  Seller. If after Seller’s commercially reasonable efforts, Seller is unable
  to effect such a transfer or assignment on pricing terms reasonably
  acceptable to Seller and within a time period reasonably acceptable to Seller
  of a sufficient number of Options to reduce Seller’s “beneficial ownership”
  (within the meaning of Section 13 of the Exchange Act and
  rules promulgated thereunder) to 7.5% of Counterparty’s outstanding
  Shares or less, Seller may designate any Exchange Business Day as an Early
  Termination Date with respect to a portion (the “Terminated Portion”) of this
  Transaction, such that its “beneficial ownership” following such partial
  termination will be equal to or less than 7.5%. In the event that Seller so
  designates an Early Termination Date with respect to a portion of this
  Transaction, a payment shall be made pursuant to Section 6 of the
  Agreement as if (i) an Early Termination Date had been designated in
  respect of a Transaction having terms identical to this Transaction and a
  Number of Options equal to the Terminated Portion, (ii) Counterparty
  shall be the sole Affected Party with respect to such partial termination and
  (iii) such Transaction shall be the only Terminated Transaction.

  

 

Matters Relating to Agent:

 

	
  1.

  	
   

  	
  Agent will be responsible for the
  operational aspects of the Transactions effected through it, such as record
  keeping, reporting, and confirming Transactions to Buyer and Seller;

  
	
   

  	
   

  	
   

  
	
  2.

  	
   

  	
  Unless Buyer is a “major U.S. institutional
  investor,” as defined in Rule 15a-6 of the Exchange Act, neither Buyer
  nor Seller will contact the other without the direct involvement of Agent;

  
	
   

  	
   

  	
   

  
	
  3.

  	
   

  	
  Agent’s sole role under this Agreement and
  with respect to any Transaction is as an agent of Buyer and Seller on a
  disclosed basis and Agent shall have no responsibility or liability to Buyer
  or Seller hereunder except for gross negligence or willful misconduct in the
  performance of its duties as agent. Agent is authorized to act as agent for
  Buyer, but only to the extent expressly required to satisfy the requirements
  of Rule 15a-6 under the Exchange Act in respect of the Options described
  hereunder. Agent shall have no authority to act as agent for Buyer generally
  or with respect to transactions or other matters governed by this Agreement, except to the extent expressly
  required to satisfy the requirements of Rule 15a-6 or in

  

 

13

 

accordance with express instructions from Buyer.

 

Certain Important Information:

 

Dealer is an OTC
Derivatives Dealer registered with the U.S. Securities and Exchange Commission
(SEC). Applicable SEC rules require us to provide you with the following
information regarding SEC regulation of OTC Derivatives Dealers: Dealer is
exempt from the provisions of the Securities Investor Protection Act of 1970
(SIPA), including membership in the Securities Investor Protection Corporation
(SIPC). Therefore, your account is not covered by SIPA protection. Except as
otherwise agreed in writing by you and us, Dealer may repledge and otherwise
use in its business collateral you have pledged to Dealer under the Agreement.
Collateral you have pledged to Dealer will not be subject to the requirements
of Securities Exchange Act Rules: 8c-1 and 15c2-1 regarding hypothecation of
collateral; 15c3-2 regarding free credit balances; or 15c3-3 regarding custody
of securities and calculations of a reserve formula applicable to a fully
regulated SEC registered broker or dealer. In the event of Dealer’s failure (by
insolvency or otherwise), you would likely be considered to be an unsecured
creditor of Dealer as to any collateral pledged to Dealer under the Agreement.

 

Dealer is incorporated in
Delaware and is a direct, wholly owned subsidiary of Merrill Lynch &
Co., Inc. Dealer has entered into this transaction as principal through
Agent as its agent. The time of this Transaction shall be notified to the Counterparty
upon request.

 

ISDA
Master Agreement:

 

With respect to the
Agreement, Seller and Counterparty each agree as follows:

 

“Specified Entity”  means in relation to Seller and in
relation to Counterparty for purposes of this Transaction: Not applicable.

 

“Specified
Transaction” has the meaning assigned to such term in Section 14
of this Agreement.

 

The “Cross Default”  provisions of Section 5(a)(vi) of
the Agreement will apply to Seller and will apply to Counterparty.  For such purpose, “Threshold
Amount” means, with respect to Counterparty, USD10,000,000  and, with respect to Seller, three percent of
the consolidated shareholders equity of Merrill Lynch and Co., Inc.

 

The “Credit Event Upon Merger”  provisions of Section 5(b)(v) of
the Agreement will not apply to Seller and will not apply to Counterparty.

 

The “Automatic Early Termination”  provision of Section 6(a) of
the Agreement will not apply to Seller or to Counterparty.

 

“Termination Currency”  means USD.

 

Tax
Representations.

 

(a)                                Payer Representations. For the purpose of Section 3(e) of the
Agreement, each party represents to the other party that it is not required by
any applicable law, as modified by the practice of any relevant governmental
revenue authority, of any Relevant Jurisdiction to make any deduction or
withholding for or on account of any Tax from any payment (other than
interest under Section 2(e), 6(d)(ii), or 6(e) of the Agreement) to be made by it to the other party
under the Agreement. In making this representation, each party may rely on (i) the
accuracy of any representations made by the other party pursuant to Section 3(f) of
the Agreement, (ii) the satisfaction of the agreement contained in Section 4(a)(i) or
4(a)(iii) of the Agreement, and the accuracy and effectiveness of any document
provided by the other party pursuant to Section 4(a)(i) or 4(a)(iii) of
the Agreement, and (iii) the satisfaction of the agreement of the other
party contained in Section 4(d) of the Agreement; provided that it
will not be a breach of this representation where reliance is placed on clause (ii) above
and the other party does not deliver a form or document

 

14

 

under Section 4(a)(iii) of the Agreement by reason of
material prejudice to its legal or commercial position.

 

(b)                                Payee
Representations. For the purpose of Section 3(f) of the
Agreement, each party makes the following representations to the other party:

 

(i)                                     Dealer
represents that it is a company incorporated in a jurisdiction within the
United States.

 

(ii)                                  Counterparty
represents that it is a corporation incorporated in Delaware.

 

Delivery
Requirements. For the purpose of Sections 4(a)(i) and
(ii) of the Agreement, each party agrees to deliver the following
documents:

 

(a)                                 Tax
forms, documents or certificates to be delivered are:

 

Dealer agrees to complete
(accurately and in a manner reasonably satisfactory to Counterparty), execute,
and deliver to Counterparty, United States Internal Revenue Service Form W-9
and all required attachments, or any successor of such form(s): (i) before
the first payment date under this agreement; (ii) promptly upon reasonable
demand by Counterparty; and (iii) promptly upon learning that any such Form previously
provided by Dealer has become obsolete or incorrect.

 

Counterparty agrees to
complete (accurately and in a manner reasonably satisfactory to Dealer),
execute, and deliver to Dealer, United States Internal Revenue Service Form W-9
or W-8 BEN, or any successor of such form(s): (i) before the first payment
date under this agreement; (ii) promptly upon reasonable demand by Dealer;
and (iii) promptly upon learning that any such form(s) previously
provided by Counterparty has become obsolete or incorrect.

 

(b)                                Other
documents to be delivered:

 

	
  Party
  Required to

  Deliver Document

  	
   

  	
  Document
  Required to be Delivered

  	
   

  	
  When
  Required

  	
   

  	
  Covered
  by

  Section 3(d)

  Representation

  
	
  Counterparty and
  Dealer

  	
   

  	
  Evidence of the
  authority and true signatures of each official or representative signing this
  Confirmation

  	
   

  	
  Upon or before
  execution and delivery of this Confirmation

  	
   

  	
  Yes

  
	
  Counterparty

  	
   

  	
  Certified copy
  of the resolution of the Board of Directors or equivalent document
  authorizing the execution and delivery of this Confirmation and such other
  certificates as Seller shall reasonably request

  	
   

  	
  Upon or before
  execution and delivery of this Confirmation

  	
   

  	
  Yes

  
	
  Dealer

  	
   

  	
  Guarantee of its
  Credit Support Provider, substantially in the form of Exhibit A attached
  hereto, together with evidence of the authority and true signatures of the
  signatories, if applicable

  	
   

  	
  Upon or before
  execution and delivery of this Confirmation

  	
   

  	
  No

  

 

Additional Notice Requirements. Counterparty hereby agrees to promptly deliver to
Seller a copy of all notices and other communications required or permitted to
be given to the holders of any Reference Notes pursuant to the terms of the
Note Indenture on the dates so required or permitted in the Note Indenture and
all other notices given and other
communications made by Counterparty in respect of the Reference Notes to holders
of any Reference Notes. Counterparty further covenants to Seller that it
shall promptly notify Seller of each Conversion Date, Amendment Event
(including in such notice a detailed description of any such amendment) and
Repayment Event

 

15

 

(identifying in such
notice the nature of such Repayment Event and the principal amount at maturity
of Reference Notes being paid).

 

Addresses
for Notices.  For the
purpose of Section 12(a) of the Agreement: 

 

Address
for notices or communications to Seller for all purposes:

 

	
  Address:

  	
   

  	
  Merrill Lynch Financial
  Markets, Inc.

  
	
   

  	
   

  	
  4 World Financial
  Center, 17th Floor

  
	
   

  	
   

  	
  New York, New York
  10080

  
	
   

  	
   

  	
  Merrill Lynch Financial
  Centre

  
	
  Attention:

  	
   

  	
  Manager of Equity
  Documentation

  
	
  Facsimile No.:

  	
   

  	
  (917) 778-0835

  
	
  Telephone No.:

  	
   

  	
  (212) 449-1951

  

 

Additionally, a copy of
all notices pursuant to Sections 5, 6, and 7 as well as
any changes to Counterparty’s address, telephone number or facsimile number
should be sent to:

 

	
  Address:

  	
   

  	
  Merrill Lynch Financial
  Markets, Inc.

  
	
   

  	
   

  	
  4 World Financial
  Center, 17th Floor

  
	
   

  	
   

  	
  New York, New York
  10080

  
	
   

  	
   

  	
  Merrill Lynch Financial
  Centre

  
	
  Attention:

  	
   

  	
  Manager of Equity
  Documentation

  
	
  Facsimile
  No.:

  	
   

  	
  (917) 778-0835

  
	
  Telephone
  No.:

  	
   

  	
  (212) 449-1951

  

 

Address
for notices or communications to Counterparty for all purposes:

 

	
  Address:

  	
   

  	
  AAR CORP.

  
	
   

  	
   

  	
  1100 N. Wood Dale Road

  
	
   

  	
   

  	
  Wood Dale, Illinois 60191

  
	
  Attention:

  	
   

  	
  Richard J. Poulton,
  Chief Financial Officer

  
	
  Facsimile
  No.:

  	
   

  	
  (630) 227-2039

  
	
  Telephone
  No.:

  	
   

  	
  (630) 227-2075

  

 

In addition, in the case
of notices or communications relating to Section 5, 6, 11
or 13 of this Agreement, a second copy of any such notice or
communication shall be addressed to the attention of Counterparty’ General
Counsel as follows:

 

	
  Address:

  	
   

  	
  AAR CORP.

  
	
   

  	
   

  	
  1100 N. Wood Dale Road

  
	
   

  	
   

  	
  Wood Dale, Illinois 60191

  
	
  Attention:

  	
   

  	
  General Counsel’s Office

  
	
  Facsimile
  No.:

  	
   

  	
  (630) 227-2058

  
	
  Telephone
  No.:

  	
   

  	
  (630) 227-2000

  

 

Process
Agent.  For the purpose
of Section 13(c) of the Agreement, Seller appoints as its Process
Agent:

 

	
  Address:

  	
   

  	
  Merrill Lynch, Pierce,
  Fenner & Smith Incorporated

  
	
   

  	
   

  	
  222 Broadway, 16th
  Floor

  
	
   

  	
   

  	
  New York, New York
  10038

  
	
   

  	
   

  	
   

  
	
  Attention:

  	
   

  	
  Litigation Department

  

 

16

 

Counterparty does not
appoint a Process Agent.

 

	
  Multibranch Party.

  	
   

  	
  For
  the purpose of Section 10(c) of the Agreement: Neither
  Seller nor Counterparty is a Multibranch Party.

  
	
   

  	
   

  	
   

  
	
  Calculation
  Agent.

  	
   

  	
  Seller; provided that all determinations made by the Calculation
  Agent shall be made in good faith and in a commercially reasonable manner.

  

 

Credit
Support Document.

 

Seller: Guarantee of
Merrill Lynch & Co., Inc. in the form attached hereto as Exhibit A.

 

Counterparty: Not Applicable

 

Credit
Support Provider.

 

With
respect to Seller: Merrill Lynch & Co., Inc.

 

With respect to
Counterparty: Not Applicable.

 

Governing
Law.           This
Confirmation will be governed by, and construed in accordance with, the laws of
the State of New York.

 

Submission to Jurisdiction.  Each party hereby irrevocably and unconditionally
submits for itself and its property in any legal action or proceeding by the
other party against it relating to the Transaction to which it is a party, or
for recognition and enforcement of any judgment in respect thereof, to the
exclusive jurisdiction of the Supreme Court of the State of New York, sitting
in New York County, the courts of the United States of America for the Southern
District of New York, and appellate courts from any of the foregoing.

 

Waiver
of Jury Trial. Each party waives, to the fullest extent
permitted by applicable law, any right it may have to a trial by jury in
respect of any suit, action or proceeding relating to this Transaction. Each
party (i) certifies that no representative, agent or attorney of the other
party has represented, expressly or otherwise, that such other party would not, in the event of such a suit, action or
proceeding, seek to enforce the foregoing waiver and (ii) acknowledges that it and the other party have been
induced to enter into this Transaction, as applicable, by, among other
things, the mutual waivers and certifications provided herein.

 

Netting
of Payments. The provisions of Section 2(c) of
the Agreement shall not be applicable to this Transaction.

 

Basic
Representations. Section 3(a) of
the Agreement is hereby amended by the deletion of “and” at the end of Section 3(a)(iv);
the substitution of a semicolon for the period at the end of Section 3(a)(v) and
the addition of Sections 3(a)(vi), as follows:

 

Eligible
Contract Participant; Line of Business.  Each
party agrees and represents that it is an “eligible contract participant” as
defined in Section 1a(12) of the U.S. Commodity Exchange Act, as amended (“CEA”), this Agreement and the Transaction
thereunder are subject to individual negotiation by the parties and have not
been executed or traded on a “trading facility” as defined in Section 1a(33)
of the CEA, and it has entered into this Confirmation and this Transaction in
connection with its business or a line of business (including financial
intermediation), or the financing of its business.

 

Acknowledgements:

 

(a)                                 The
parties acknowledge and agree that there are no other representations,
agreements or other undertakings of the parties in relation to this
Transaction, except as set forth in this Confirmation.

 

17

 

(b)                                 The
parties hereto intend for:

 

(i)                                    Seller
to be a “financial institution” as defined in Section 101(22) of Title 11
of the United States Code (the “Bankruptcy
Code”) and this
Transaction to be a “securities contract” as defined in Section 741(7) of
the Bankruptcy Code  and a “swap agreement” as defined in Section 101(53C)
of the Bankruptcy Code,  qualifying
for the protections of, among other sections, Sections 362(b)(6), 362 (b)(17),
546(e), 546(g), 555 and 560 of the Bankruptcy Code;

 

(ii)                                 a
party’s right to liquidate this Transaction and to exercise any other remedies
upon the occurrence of any Event of Default under the Agreement with respect to
the other party to constitute a “contractual right” as defined in the
Bankruptcy Code;

 

(iii)                              all payments for, under
or in connection with this Transaction, all payments for the Shares and the transfer
of such Shares to constitute “settlement payments” as defined in the Bankruptcy
Code.

 

Amendment of Section 6(d)(ii).  Section 6(d)(ii) of the Agreement is modified by deleting the words
“on the day” in the second line thereof and substituting therefore “on
the day that is three Local Business Days after the day.” Section 6(d)(ii) is
further modified by deleting the words “two Local Business Days” in the fourth
line thereof and substituting therefore “three Local Business Days.”

 

Consent
to Recording. Each party consents to the recording of the
telephone conversations of trading and marketing personnel of the parties and
their Affiliates in connection with this Confirmation. To the extent that one
party records telephone conversations (the “Recording Party”) and the other
party does not (the “Non-Recording   Party”), the Recording Party shall in the
event of any dispute, make a complete and unedited copy of such party’s tape of
the entire day’s conversations with the Non-Recording Party’s personnel
available to the Non-Recording Party. The Recording Party’s tapes may be used
by either party in any forum in which a dispute is sought to be resolved and
the Recording Party will retain tapes for a consistent period of time in
accordance with the Recording Party’s policy unless one party notifies the
other that a particular transaction is under review and warrants further
retention.

 

Disclosure.
Each party hereby acknowledges and agrees that Seller has
authorized Counterparty to disclose this Transaction and any related hedging
transaction between the parties if and to the extent that Counterparty reasonably
determines (after consultation with Seller)
that such disclosure is required by law or by the rules of the New York
Stock Exchange or any securities exchange.  Notwithstanding the foregoing, effective from
the date of commencement of discussions concerning the Transaction,
Counterparty and each of its employees, representatives, or other agents may
disclose to any and all persons, without limitation of any kind, the tax
treatment and tax structure of the Transaction and all materials of any kind
(including opinions or other tax analyses) that are provided to Counterparty
relating to such tax treatment and tax structure.

 

Severability. If any term, provision, covenant or condition of this Confirmation, or
the application thereof to any party or circumstance, shall be held to
be invalid or unenforceable in whole or in part for any reason, the remaining
terms, provisions, covenants, and conditions hereof shall continue in full
force and effect as if this Confirmation had been executed with the invalid or
unenforceable provision eliminated, so long as this Confirmation as so modified
continues to express, without material change, the original intentions of the
parties as to the subject matter of this Confirmation
and the deletion of such portion of this Confirmation will not substantially
impair the respective benefits or expectations of parties to this Agreement; provided,
however, that this severability provision shall not be applicable if
any provision of Section 2, 5, 6 or 13 of the
Agreement (or any definition or provision in Section 14 to the
extent that it relates to, or is used in or in connection with any such
Section) shall be so held to be invalid or unenforceable.

 

Affected
Parties. For purposes of Section 6(e) of the
Agreement, each party shall be deemed to be an Affected Party in connection
with Illegality and any Tax Event.

 

[Signatures follow on separate page]

 

18

 

Please confirm that the
foregoing correctly sets forth the terms of our agreement by executing the copy
of this Confirmation enclosed for that purpose and returning it to us.

 

	
   

  	
  Very truly
  yours,

  
	
   

  	
   

  
	
   

  	
  MERRILL LYNCH FINANCIAL MARKETS, INC.

  
	
   

  	
   

  
	
   

  	
  By:

  	
    /s/
  Fran Jacobson

  	
   

  
	
   

  	
  Name: Fran
  Jacobson

  
	
   

  	
  Title:
  Authorized Signatory

  

 

Confirmed as of
the date first above written:

 

AAR CORP.

 

 

	
  By:

  	
    /s/
  Timothy J. Romenesko

  	
   

  	
   

  
	
  Name: Timothy J.
  Romenesko

  	
   

  
	
  Title:
  President & COO

  	
   

  

 

 

Acknowledged and agreed
as to matters to the Agent:

 

MERRILL LYNCH,
PIERCE, FENNER & SMITH INCORPORATED

 

 

Solely in its
capacity as Agent hereunder

 

	
  By:

  	
    /s/
  Angelina Lopes

  	
   

  	
   

  
	
  Name: Angelina
  Lopes

  	
   

  
	
  Title:
  Authorized Signatory

  	
   

  

 

 

EXHIBIT A

 

GUARANTEE
OF MERRILL LYNCH & CO., INC.

 

FOR VALUE
RECEIVED, receipt of which is hereby acknowledged, MERRILL LYNCH &
CO., INC., a corporation duly organized and existing under the laws of the
State of Delaware (“ML & Co.”), hereby unconditionally guarantees to
AAR Corp. (the “Company”), the due and punctual payment of any and all amounts
payable by Merrill Lynch Financial Markets, Inc., a company incorporated
in Delaware (“ML”), under the terms of the Confirmation of OTC Convertible Note
Hedge between the Company and ML (ML as Seller), dated as of February 5,
2008, with respect to the Reference Notes (as defined therein) of Company due
2016 (the “Confirmation”), including, in case of default, interest on any
amount due, when and as the same shall become due and payable, whether on the
scheduled payment dates, at maturity, upon declaration of termination or
otherwise, according to the terms thereof. 
In case of the failure of ML punctually to make any such payment, ML  &
Co. hereby agrees to make such payment, or cause such payment to be made,
promptly upon demand made by the Company to ML & Co.; provided,
however that delay by the Company in giving such demand shall in no event
affect ML & Co.’s obligations under this Guarantee.  This Guarantee shall remain in full force and
effect or shall be reinstated (as the case may be) if at any time any payment
guaranteed hereunder, in whole or in part, is rescinded or must otherwise be
returned by the Company upon the insolvency, bankruptcy or reorganization of ML
or otherwise, all as though such payment had not been made.

 

ML & Co. hereby
agrees that its obligations hereunder constitute a guarantee of payment when
due and not of collection and that its obligations hereunder shall be
unconditional, irrespective of the validity, regularity or enforceability of
the Confirmation; the absence of any action to enforce the same; any waiver or
consent by the Company concerning any provisions thereof; the rendering of any
judgment against ML or any action to enforce the same; or any other
circumstances that might otherwise constitute a legal or equitable discharge of
a guarantor or a defense of a guarantor. 
ML covenants that this guarantee will not be discharged except by
complete payment of the amounts payable under the Confirmation.  This Guarantee shall continue to be effective
if ML merges or consolidates with or into another entity, loses its separate
legal identity or ceases to exist.

 

ML & Co. shall
not exercise any rights that it may acquire by way of subrogation as a result
of a payment by it under this Guarantee at any time when any of the obligations
of ML shall have become due and remain unpaid. Any amount paid to ML &
Co. in violation of the preceding sentence shall be held for the benefit of the
Company and shall forthwith be paid to the Company to be credited and applied
to such obligations of ML then due and unpaid. 
Subject to the foregoing, upon payment of all such obligations of ML, ML &
Co. shall be subrogated to the rights of the Company against ML, and the
Company agrees to take at ML & Co.’s expense such steps as ML &Co.
may reasonably request to implement such subrogation.

 

ML & Co.
hereby waives diligence; presentment; protest; notice of protest, acceleration,
and dishonor; filing of claims with a court in the event of insolvency or
bankruptcy of ML; all demands whatsoever, except as noted in the first
paragraph hereof; and any right to require a proceeding first against ML.

 

ML & Co.
hereby certifies and warrants that this Guarantee constitutes the valid
obligation of ML & Co.  and
complies with all applicable laws.

 

This Guarantee
shall be governed by, and construed in accordance with, the laws of the State
of New York.

 

This Guarantee becomes
effective concurrent with the effectiveness of the Confirmation, according to
its terms.

 

 

IN WITNESS WHEREOF, ML &
Co. has caused this Guarantee to be executed in its corporate name by its duly
authorized representative.

 

	
   

  	
  MERRILL
  LYNCH & CO., INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
    /s/
  Patricia Kropiewnicki

  	
   

  
	
   

  	
   

  	
    Name:
  Patricia Kropiewnicki

  
	
   

  	
   

  	
    Title:
  Designated Signatory

  
	
   

  	
   

  	
    Date:
  February 6, 2008Exhibit
10.3

 

EXECUTION COPY

 

Confirmation
of OTC Warrant Transaction

 

	
  Date:

  	
  February 5,
  2008

  
	
  To:

  	
  AAR
  Corp. (“Counterparty”)

  
	
   

  	
  1100 N. Wood Dale Road

  
	
   

  	
  Wood Dale, Illinois 60191

  
	
   

  	
  Attention: Richard J. Poulton, Chief Financial Officer

  
	
   

  	
  Facsimile No.: (630) 227-2039

  
	
   

  	
  Telephone No.: (630) 227-2075

  

 

	
  From:

  	
  Merrill
  Lynch Financial Markets, Inc. (“Dealer” or “MLFM”)

  
	
   

  	
  4 World Financial Center 5th Floor

  
	
   

  	
  New York, New York 10080

  
	
   

  	
  Attention: Corporate Derivatives

  
	
   

  	
  Facsimile No.: (212) 738-1069

  
	
   

  	
  Telephone No.: (212) 449-6763

  

 

MLFM
Reference:

 

Dear Sir / Madam:

 

The purpose of this
letter agreement (this “Confirmation”)
is to confirm the terms and conditions of the above-referenced transaction
entered into among Counterparty, Dealer and Merrill Lynch, Pierce, Fenner &
Smith Incorporated (the “Agent”)
on the Trade Date specified below (the “Transaction”).  This
Confirmation constitutes a “Confirmation” as referred to in the Agreement
specified below.

 

The definitions and
provisions contained in the 2000 ISDA Definitions (the “Swap Definitions”) and the 2002 ISDA
Equity Derivatives Definitions (the “Equity
Definitions”  and,
together with the Swap Definitions, the “Definitions”), in each case as published by the
International Swaps and Derivatives Association, Inc., are incorporated
into this Confirmation. In the event of any inconsistency between the Swap
Definitions and the Equity Definitions, the Equity Definitions will govern, and
in the event of any inconsistency between the Definitions and this
Confirmation, this Confirmation will govern. References herein to a
“Transaction” shall be deemed to be references to a “Share Option Transaction”
for the purposes of the Equity Definitions and to a “Swap Transaction” for the
purposes of the Swap Definitions. For purposes of this Transaction, “Warrant
Style”, “Warrant Type”, “Number of Warrants” and “Warrant Entitlement” (each as
defined below) shall be used herein as if such terms were referred to as
“Option Style”, “Option Type”, “Number of Options” and “Option Entitlement”,
respectively, in the Definitions.

 

This Confirmation
evidences a complete binding agreement between you and us as to the terms of
the Transaction to which this Confirmation relates. This Confirmation
(notwithstanding anything to the contrary herein), shall be subject to, and
form part of, an agreement in the 2002 form of the ISDA Master Agreement (the “Master Agreement”  or “Agreement”)
as if we had executed an agreement in such form (but without any Schedule and
with elections specified in the “ISDA Master Agreement” Section of this
Confirmation) on the Trade Date. In the event of any inconsistency between the
provisions of that Agreement and this Confirmation, this Confirmation will
prevail for the purpose of this Transaction. The parties hereby agree that the
Transaction evidenced by this Confirmation shall be the only Transaction
subject to and governed by the Agreement.

 

The terms of the
particular Transaction to which this Confirmation relates are as follows:

 

OTC Warrant Confirmation (2014)

 

 

General
Terms:

 

	
  Trade Date:

  	
   

  	
  February 5, 2008

  
	
   

  	
   

  	
   

  
	
  Effective Date:

  	
   

  	
  February 11, 2008
  subject to cancellation of the OTC Warrant Transaction prior to
  5:00 p.m. (New York City time) on such date by the Counterparty. In the event of such cancellation, any
  payments previously made hereunder, including the Premium, shall be returned
  to the person making such payment. In addition, Counterparty shall reimburse
  Dealer for any costs or expenses (including market losses) relating to the
  unwinding of its hedging activities in connection with the Transaction
  (including any loss or cost incurred as a result of its terminating,
  liquidating, obtaining or reestablishing any hedge or related trading
  position).

  
	
   

  	
   

  	
   

  
	
  Warrant Style:

  	
   

  	
  European

  
	
   

  	
   

  	
   

  
	
  Warrant Type:

  	
   

  	
  Call

  
	
   

  	
   

  	
   

  
	
  Seller:

  	
   

  	
  Counterparty

  
	
   

  	
   

  	
   

  
	
  Buyer:

  	
   

  	
  Dealer

  
	
   

  	
   

  	
   

  
	
  Shares:

  	
   

  	
  Shares of Common Stock,
  $1.00 par value, of Counterparty (Security Symbol: “AIR”).

  
	
   

  	
   

  	
   

  
	
  Number of Warrants:

  	
   

  	
  3,513,950

  
	
   

  	
   

  	
   

  
	
  Daily Number of
  Warrants:

  	
   

  	
  For any day, the
  unexercised Number of Warrants on such day divided
  by the remaining number of Expiration Dates (including such day)
  and rounded down to the nearest whole number, with the balance of the Number
  of Warrants exercised on the final Expiration Date.

  
	
   

  	
   

  	
   

  
	
  Warrant Entitlement:

  	
   

  	
  One (1) Share per
  Warrant

  
	
   

  	
   

  	
   

  
	
  Strike Price:

  	
   

  	
  $48.825

  
	
   

  	
   

  	
   

  
	
  Premium:

  	
   

  	
  $17,250,000.00

  
	
   

  	
   

  	
   

  
	
  Premium Payment Date:

  	
   

  	
  The Effective Date; provided
  that no cancellation of the Transaction has occurred prior to 5:00 p.m.
  (New York City time) on such date by the Counterparty.

  
	
   

  	
   

  	
   

  
	
  Exchange:

  	
   

  	
  New York Stock
  Exchange, Chicago Stock Exchange

  
	
   

  	
   

  	
   

  
	
  Related Exchange(s):

  	
   

  	
  All Exchanges

  
	
   

  	
   

  	
   

  
	
  Full Exchange Business
  Day:

  	
   

  	
  A Scheduled Trading Day
  that has a scheduled closing time for its regular trading session at
  4:00 p.m. (New York City time) or the then standard closing time for
  regular trading on the Exchange and is not a Disrupted Day.

  

 

Procedures for Exercise:

 

	
  Expiration Time:

  	
   

  	
  11:59 p.m. (New
  York City time).

  

 

2

 

	
  Expiration Dates:

  	
   

  	
  The 90 consecutive Full Exchange Business Days
  beginning on and including May 30, 2014 each shall be the Expiration
  Date for a number of Warrants equal to the Daily Number of Warrants on such
  date.

  
	
   

  	
   

  	
   

  
	
  Exercise Dates:

  	
   

  	
  Each Expiration Date
  shall be an Exercise Date for a number of Warrants equal to the Daily Number
  of Warrants on such date. The Warrants shall not be exercised prior to the
  first such Exercise Date.

  
	
   

  	
   

  	
   

  
	
  Automatic Exercise:

  	
   

  	
  Applicable; provided
  that Section 3.4(a) of the Equity Definitions shall apply to Cash
  Settlement and Net Physical Settlement; and provided  further
  that, unless all Warrants have been previously exercised hereunder, a number
  of Warrants for each Expiration Date equal to the Daily Number of Warrants
  for such Expiration Date shall be deemed to be automatically exercised.

  
	
  

  Counterparty’s Telephone Number and Telex and/or Facsimile Number and Contact
  Details for purpose of Giving Notice:

  	
   

  	
  Address:

  

  

  Attention:

  Facsimile No.:

  Telephone No.:

  	
  AAR CORP.

  1100 N. Wood Dale Road

  Wood Dale, Illinois 60191

  Richard J. Poulton, Chief Financial Officer

  (630) 227-2039

  (630) 227-2075

  

 

Valuation:

 

	
  Valuation Dates:

  	
   

  	
  Each Exercise Date

  

 

Settlement Terms:

 

	
  Cash Settlement:

  	
   

  	
  Applicable; provided that it shall be a
  condition of Counterparty’s right to elect Cash Settlement that on the date
  of the Cash Settlement election, none of Counterparty, its directors,
  executive officers, or any person controlling, or exercising influence over,
  its decision to elect Cash Settlement is in possession of any material
  non-public information with respect to Counterparty or the Shares. If
  Counterparty elects to settle the Transaction by Cash Settlement,
  Counterparty represents and agrees that:

   

  (i) Counterparty is not, on the date of the
  Cash Settlement election, and will not be, on any day during the period from
  and including the first Expiration Date to and including the final Expiration
  Date, engaged in a distribution, as such term is used in Regulation M under
  the Securities Exchange Act of 1934, as amended (the “Exchange Act”);  and

   

  (ii) during the period from and including the
  first Expiration Date to and including the final Expiration Date, without the
  prior written consent of Dealer, the Counterparty shall not, and shall cause
  its affiliates and affiliated purchasers (each as defined in Rule 10b-18
  under the Exchange Act) not to, directly or indirectly (including, without
  limitation, by means of a derivative instrument) purchase, offer to purchase,
  place any bid or limit order that would effect a purchase of, or commence any
  tender offer relating to, any Shares (or equivalent interest, including a
  unit of beneficial interest in a trust or limited partnership or a depository
  share) or any security convertible into or exchangeable for the Shares.

  
	
   

  	
   

  	
   

  
	
  Settlement Currency:

  	
   

  	
  USD

  

 

3

 

	
  Settlement Price:

  	
   

  	
  For each Valuation
  Date, the Rule 10b-18 Dollar Volume Weighted Average Price of the Shares
  (“VWAP”) calculated from 9:45 a.m. to 3:45 p.m., as observed under
  the heading Bloomberg “VWAP” on Bloomberg page AIR.N <equity> VAP
  (or any successor thereto) (or if such volume-weighted average price is
  unavailable, the market value of one Share on such Valuation Date, as
  determined by the Calculation Agent); provided that, if the scheduled
  weekday closing time of the Exchange for any Valuation Date is later than
  4:00 p.m. (without regard to after hours or any other trading outside of
  the regular trading session hours) the VWAP shall be calculated for such
  Valuation Date from 9:45 a.m. until 15 minutes prior to such later
  closing time of the Exchange.

   

  Section 6.3(a) of
  the Equity Definitions is hereby amended by replacing clause (ii) in its
  entirety with “(ii) an Exchange Disruption, or” and inserting
  immediately following clause (iii) the phrase “; in each case that the
  Calculation Agent determines is material.”

  
	
   

  	
   

  	
   

  
	
  Cash Settlement Payment
  Date:

  	
   

  	
  With respect to each
  Valuation Date, three (3) Currency Business Days after the final
  Valuation Date.

  
	
   

  	
   

  	
   

  
	
  Settlement Method
  Election:

  	
   

  	
  Applicable with respect
  to Cash Settlement or Net Physical Settlement only.

  
	
   

  	
   

  	
   

  
	
  Electing Party:

  	
   

  	
  Counterparty

  
	
   

  	
   

  	
   

  
	
  Settlement Method Election Date:

  	
   

  	
  Ten (10) Business Days prior to the first
  Expiration Date

  
	
   

  	
   

  	
   

  
	
  Default Settlement
  Method:

  	
   

  	
  Net Physical Settlement.

  
	
   

  	
   

  	
   

  
	
  Net Physical
  Settlement:

  	
   

  	
  In the event that the
  Counterparty elects to settle this Transaction by Net Physical Settlement,
  Counterparty shall deliver to Dealer on the Settlement Date a number of
  Shares (the “Delivered Shares”)  equal to the Share Delivery Quantity; provided
  that in the event that the number of Shares calculated comprises any
  fractional Share, only whole Shares shall be delivered and an amount in cash
  equal to the value of such fractional share shall be payable by the
  Counterparty to Dealer in lieu of such fractional Share. If, in the
  reasonable opinion of Dealer based on advice of counsel, for any reason, the
  Shares deliverable upon Net Physical Settlement would not be immediately
  freely transferable by Dealer under Rule 144(b)(1) under the
  Securities Act of 1933, as amended (the “Securities Act”), then Dealer may
  elect to either (x) accept delivery of such Shares notwithstanding any
  restriction on transfer or (y) have the provisions set forth under
  “Registration/Private Placement” below apply, mutatis mutandis.

  
	
   

  	
   

  	
   

  
	
  Share Delivery
  Quantity:

  	
   

  	
  For each Exercise Date,
  a number of Shares, as calculated by the Calculation Agent, equal to the Net
  Physical Settlement Amount for such Exercise Date divided by the Settlement
  Price on the Valuation Date in respect of such Settlement Date plus an amount
  in cash in lieu of any fractional shares (based on the applicable Settlement
  Price).

  
	
   

  	
   

  	
   

  
	
  Net Physical Settlement
  Amount:

  	
   

  	
  For any Exercise Date,
  an amount equal to the product of (i) the Number of Warrants being
  exercised on the relevant Exercise Date, (ii) the Strike Price
  Differential for such Exercise Date and (iii) the Warrant Entitlement.

  
	
   

  	
   

  	
   

  
	
  Strike Price
  Differential:

  	
   

  	
  For any Valuation Date,
  (i) if the Settlement Price is greater than the Strike Price, an amount
  equal to the excess of such Settlement Price over the Strike Price for 

  

 

4

 

	
   

  	
   

  	
  such Valuation Date or
  (ii) if such Settlement Price is less than or equal to the Strike Price,
  zero.

  
	
   

  	
   

  	
   

  
	
  Settlement Date:

  	
   

  	
  Settlement with respect
  to each Exercise Date shall occur on the third (3rd) Full Exchange Business
  Day following the final Valuation Date; provided that Dealer shall have the right to request
  by prior written notice to Counterparty a Settlement Date with respect to any
  Exercise Date and the related Share Delivery Quantity that is three
  (3) Full Exchange Business Days following such Exercise Date. Such
  request shall not unreasonably be denied.

  
	
   

  	
   

  	
   

  
	
  Limitations on Net
  Physical Settlement by Counterparty:

  	
   

  	
  Notwithstanding
  anything herein or in the Agreement to the contrary, the number of Shares
  that may be delivered at settlement by Counterparty shall not exceed
  5,270,925 Shares at any time (“Maximum
  Deliverable Share Amount”), as
  adjusted by Calculation Agent to account for any subdivision, stock-split,
  stock combination, reclassification or similar dilutive or anti-dilutive
  event with respect to the Shares.

   

  Counterparty represents
  and warrants that the number of Available Shares as of the Trade Date is
  greater than the Maximum Deliverable Share Amount. Counterparty covenants and
  agrees that (i) Counterparty shall not take any action of corporate
  governance or otherwise to reduce the number of Available Shares below the
  Maximum Deliverable Share and (ii) Counterparty shall use its reasonable
  efforts to cause the number of Available Shares at all times to be greater
  than the Maximum Deliverable Share Amount.

   

  For this purpose, “Available Shares”  means the number of Shares Counterparty
  currently has authorized (but not issued and outstanding) less the maximum
  number of Shares that may be required to be issued by Counterparty in
  connection with stock options, convertibles, and other commitments of
  Counterparty that may require the issuance or delivery of Shares in
  connection therewith.

  

 

Dividends:

 

	
  Dividends:

  	
   

  	
  If at any time during
  the period from and including the Trade Date, to and including the date on
  which Counterparty has fully performed its obligations to deliver Shares
  hereunder, an ex-dividend date for a cash dividend occurs with respect to the
  Shares (an “Ex-Dividend Date”), and that dividend is different from the
  Regular Dividend on a per Share basis, then the Calculation Agent will, in
  its reasonable discretion, adjust the Strike Price, the Number of Warrants,
  the Daily Number of Warrants, the Warrant Entitlement and any other variable
  it deems appropriate to preserve the fair value of the Warrants after taking
  into account such dividend.

  
	
   

  	
   

  	
   

  
	
  Regular Dividend:

  	
   

  	
  Initially USD $0.00 per
  Share per quarter in respect of the Shares. In the event that, in any
  quarter, a regular quarterly Ex-Dividend Date occurs for which the amount of
  the corresponding cash dividend is different (the “New Dividend Amount”) from
  the Regular Dividend or no Ex-Dividend Date occurs (in which case the New
  Dividend Amount shall be zero), then following the adjustment by the
  Calculation Agent pursuant to “Dividends” above, the Regular Dividend shall
  equal the New Dividend Amount.

  
	
   

  	
   

  	
   

  
	
  Extraordinary
  Dividends:

  	
   

  	
  Any dividend other than
  Regular Dividends. For the avoidance of doubt, if more 

  

 

5

 

	
   

  	
   

  	
  than one Ex-Dividend
  Date occurs in a quarter, the Calculation Agent shall designate any cash
  dividend other than a Regular Dividend as an Extraordinary Dividend and will,
  in its reasonable discretion, adjust the Strike Price, the Number of
  Warrants, the Daily Number of Warrants, the Warrant Entitlement and any other
  variable it deems appropriate to preserve the fair value of the Warrants
  after taking into account such Extraordinary Dividend.

  

 

Adjustments:

 

	
  Method of Adjustment:

  	
   

  	
  Calculation Agent
  Adjustment

  

 

Extraordinary Events:

 

	
  Consequences of Merger
  Events:

  	
   

  	
  (a) Share-for-Share:

  	
  Modified Calculation
  Agent Adjustment

  
	
   

  	
   

  	
  (b) Share-for-Other:

  	
  Cancellation and
  Payment (Calculation Agent Determination)

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (c) Share-for-Combined:

  	
  Component Adjustment
  (Calculation Agent Determination)

  
	
   

  	
   

  	
   

  
	
  Tender Offer:

  	
   

  	
  Applicable

  
	
   

  	
   

  	
   

  
	
  Consequences of Tender
  Offers:

  	
   

  	
  (a) Share-for-Share:

  	
  Modified Calculation
  Agent Adjustment

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (b) Share-for-Other:

  	
  Cancellation and
  Payment (Calculation Agent Determination)

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (b) Share-for-Combined:

  	
  Component Adjustment
  (Calculation Agent Determination)

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  With respect to any
  Extraordinary Events hereunder, upon the occurrence of Cancellation and
  Payment in whole or in part, the parties agree that the amount to be paid, in
  accordance with the Equity Definitions, shall constitute a Transaction Early
  Termination Amount, subject to satisfaction by the payment or delivery of
  Shares or cash as set forth in the Early Termination section below.

  
	
   

  	
   

  	
   

  
	
  Nationalization,
  Insolvency or Delisting:

  	
   

  	
  Cancellation and
  Payment (Calculation Agent Determination) (subject to satisfaction by payment
  or delivery of Shares or cash as set forth in “Early Termination”
  below). In addition to the provisions of Section 12.6(a)(iii) of
  the Equity Definitions, it will also constitute a Delisting if the Exchange
  is located in the United States and the Shares are not immediately re-listed,
  re-traded or re-quoted on any of the New York Stock Exchange, the American
  Stock Exchange, the NASDAQ Global Market or the NASDAQ Global Select Market
  (or their respective successors); if the Shares are immediately re-listed,
  re-traded or re-quoted on any such exchange or quotation system, such
  exchange or quotation system shall thereafter be deemed to be the Exchange.

  
	
   

  	
   

  	
   

  
	
  Determining Party:

  	
   

  	
  Dealer

  

 

Additional Disruption Events:

 

	
  Change in Law:

  	
   

  	
  Applicable

  

 

6

 

	
  Failure to Deliver:

  	
   

  	
  Not Applicable

  
	
   

  	
   

  	
   

  
	
  Insolvency Filing:

  	
   

  	
  Applicable

  
	
   

  	
   

  	
   

  
	
  Hedging Disruption
  Event:

  	
   

  	
  Applicable

  
	
   

  	
   

  	
   

  
	
  Increased Cost of
  Hedging:

  	
   

  	
  Not Applicable

  
	
   

  	
   

  	
   

  
	
  Loss of Stock Borrow:

  	
   

  	
  Applicable.
  Section 12.9(b)(iv) of the Equity Definitions is hereby amended by
  deleting the text from and including “(A)” to and including “(B)” and by
  deleting the words “in each case”.

  
	
   

  	
   

  	
   

  
	
  Maximum Stock Loan
  Rate:

  	
   

  	
  0.60%

  
	
   

  	
   

  	
   

  
	
  Increased Cost of Stock
  Borrow:

  	
   

  	
  Applicable; provided
  that it shall be a condition to Counterparty’s right to make the election
  described in clause (C) of Section 12.9(b)(v) of the Equity
  Definitions that on the date of such election, none of Counterparty, its
  directors, executive officers, or any person controlling, or exercising
  influence over, its decision to make such election is in possession of any
  material non-public information with respect to Counterparty or the Shares;
  and provided  further that, if Counterparty timely makes the
  election described in clause (A) or (B) of Section 12.9(b)(v) of
  the Equity Definitions, Counterparty shall thereafter remain entitled,
  subject to the foregoing condition, to terminate the Transaction pursuant to
  Section 12.9(b)(v)(C) of the Equity Definitions upon ten Scheduled
  Trading Days’ notice to Dealer.
  Section 12.9(b)(v) of the Equity Definitions is hereby amended by
  deleting the text from and including “(X)” to and including “(Y)”.

  
	
   

  	
   

  	
   

  
	
  Initial Stock Loan
  Rate:

  	
   

  	
  0.25%

  
	
   

  	
   

  	
   

  
	
  Hedging Party:

  	
   

  	
  Dealer

  
	
   

  	
   

  	
   

  
	
  Determining Party:

  	
   

  	
  Dealer

  
	
   

  	
   

  	
   

  
	
  Non-Reliance:

  	
   

  	
  Applicable

  
	
   

  	
   

  	
   

  
	
  Agreements and
  Acknowledgments Regarding Hedging Activities:

  	
   

  	
  Applicable

  
	
   

  	
   

  	
   

  
	
  Additional
  Acknowledgments:

  	
   

  	
  Applicable

  

 

Other Provisions:

 

	
  Additional Agreements:

  	
   

  	
  If Counterparty would
  be obligated to pay cash to Dealer pursuant to the terms of this Agreement
  due to an event or circumstance outside Counterparty’s control without having
  had the right (other than pursuant to this paragraph) to elect to deliver
  Shares in satisfaction of such payment obligation, then Counterparty may elect
  to deliver to Dealer a number of Shares (whether registered or unregistered)
  having a cash value equal to the amount of such payment obligation. Such
  number of Shares to be delivered shall be the number of Shares, determined by
  the Calculation Agent, sufficient for Dealer to realize the cash equivalent of such payment obligation
  from proceeds of the sale of such number of Shares over a reasonable period
  of time taking into account any applicable discount 

  

 

7

 

	
   

  	
   

  	
  (determined in a
  commercially reasonable manner) to reflect any restrictions on transfer as
  well as the market value of the Shares. Settlement relating to any delivery
  of Shares pursuant to this paragraph shall occur within a reasonable period
  of time. The number of Shares delivered pursuant to this paragraph shall not
  exceed the Maximum Deliverable Share Amount and shall be subject to the
  provisions under “Early Termination” hereof regarding Proceeds Amount and the
  provisions set forth in subsection (c) under “Additional Agreements,
  Representations and Covenants of Counterparty, Etc.” below.

  
	
   

  	
   

  	
   

  
	
  Early Termination:

  	
   

  	
  Notwithstanding any
  provision to the contrary, upon the designation of an Early Termination Date
  or the occurrence of Cancellation and Payment in whole or in part hereunder
  (except in the case of an Event of Default in which Counterparty is the
  Defaulting Party or a Termination Event in which Counterparty is the Affected
  Party, other than an (x) Event of Default of the type described in Section 5(a)(iii),
  (v), (vi) or (vii) of the Master Agreement or (y) a
  Termination Event of the type described in Section 5(b)(i), (ii), (iii),
  (iv), or (v) of the Master Agreement that in the case of either
  (x) or (y) resulted from an event or events outside Counterparty’s
  control), Counterparty’s payment obligation in respect of this Transaction
  (the “Transaction Early Termination
  Amount”) may, at the option of Counterparty, be satisfied by
  the delivery of a number of Shares equal to the Transaction Early Termination
  Amount divided by the Termination Price (“Early Termination Stock Settlement”); provided, however,
  that Counterparty must notify Dealer of its election of Early Termination Stock Settlement by
  the close of business on the day that is two Exchange Business Days following
  the day that the notice designating the Early Termination Date, or notice
  that an Extraordinary Event has resulted in the cancellation or termination
  of the Transaction in whole or in part, is effective. “Termination Price” means the market
  value per Share on the date that Shares
  are delivered in connection with such Early Termination Date, as
  determined by the Calculation Agent in a commercially reasonable manner
  taking into account any applicable discount to reflect any restrictions on
  transfer.

   

  A number of Shares
  calculated as being due in respect of any Early Termination Stock Settlement
  will be deliverable on the third Clearance System Business Day following the
  date that notice specifying the number of Shares deliverable is effective; provided
  that, if Counterparty is delivering Shares as a result of a Merger Event,
  the Settlement Date for such delivery will be immediately prior to the
  effective time of the Merger Event and the Shares will be deemed delivered at
  such time such that Dealer
  will be a holder of the Shares prior to such effective time and be entitled to receive such merger consideration
  as a holder of Shares at such time would be entitled to receive (and
  references herein to Shares shall be deemed to refer to such merger
  consideration, as applicable). Section 6(d)(i) of the
  Agreement is hereby amended by adding the following words after the word
  “paid” in the fifth line thereof: “or any delivery is to be made, as
  applicable.”

   

  On or prior to the
  Early Termination Date or date on which notice that an Extraordinary Event
  has resulted in the cancellation or termination of the Transaction in whole
  or in part is effective, as applicable, if Early Termination Stock Settlement
  is elected and if so requested by Dealer upon advice of counsel, Counterparty
  shall comply with the provisions set forth below opposite the caption
  “Registration/Private Placement”.

  
	
   

  	
   

  	
   

  
	
  Registration/Private
  Placement:

  	
   

  	
  If the provisions under
  this heading “Registration/Private Placement” apply, Counterparty shall
  (subject to its right to make the election described in the immediately
  succeeding paragraph) (A) afford
  Dealer a reasonable opportunity to 

  

 

8

 

	
   

  	
   

  	
  conduct a due diligence investigation with respect to Counterparty that
  is customary in scope for underwritten offerings of equity securities that
  yields a result reasonably satisfactory to Dealer; (B) enter into
  a registration rights agreement with Dealer (a “Registered Settlement”)
  in form and substance reasonably acceptable to Dealer which agreement (“Registration Rights
  Agreement”) will contain among other things, customary
  representations and warranties and indemnification, restrictions on sales
  during “blackout dates” as provided for in the Registration Rights Agreement
  and shall satisfy the conditions contained therein; and (C) promptly file and procure the effectiveness a Registration Statement pursuant to
  Rule 415 under the Securities Act. If and when such Registration
  Statement shall have been declared effective by the Securities and Exchange
  Commission, Counterparty shall have made available to Dealer such Prospectuses as Dealer may reasonably request to comply with the applicable
  prospectus delivery requirements for the resale by Dealer of such number of Shares as Dealer shall specify (or, if greater, the number of Shares that
  Counterparty shall specify). Such Registration Statement shall be effective
  and Prospectus shall be current until the earliest of the date on which
  (i) all the Delivered Shares or Shares
  delivered by Counterparty in connection with an Early Termination Date, as the case may be, have been sold,
  (ii) Dealer has advised
  Counterparty that it no longer requires that such Registration Statement be
  effective or (iii) all remaining Shares could be sold by Dealer without registration pursuant
  to Rule 144 promulgated under the Securities Act (the “Termination Registration Period”). It is understood that the Registration
  Statement and Prospectus will cover a number of Shares equal to the aggregate
  number of Shares (if any) reasonably estimated by Dealer to be potentially deliverable by Counterparty in connection
  with Net Physical Settlement or
  Early Termination Stock Settlement hereunder, as the case may be, but in no event exceeding the Maximum
  Deliverable Share Amount. On each day during the Termination Registration
  Period Counterparty shall represent that each of its filings under the
  Securities Act, the Exchange Act or other applicable securities laws that are
  required to be filed have been filed and that, as of the respective dates
  thereof and as of the date of this representation, they do not contain any
  untrue statement of a material fact or omission of a material fact required
  to be stated therein or necessary to make the statements made, in the light
  of the circumstances under which they were made, not misleading.

   

  In lieu of a Registered
  Settlement, Counterparty may elect, by notice to Dealer no later than the time the relevant delivery
  obligation is due , that this paragraph shall apply:

   

  (a)       Counterparty
  shall afford Dealer
  and any potential institutional purchaser of any Shares identified by Dealer a reasonable opportunity to
  conduct a due diligence investigation with respect to Counterparty that is
  customary in scope for private placements of equity securities subject to
  execution of any customary confidentiality agreements;

   

  (b)        Counterparty
  shall enter into an agreement (a “Private
  Placement Agreement”) with Dealer on commercially reasonable
  terms in connection with the private placement of such Shares (including any additional Shares pursuant to
  clause (c) below) by Counterparty to Dealer or an affiliate and the private resale of such shares by Dealer or such affiliate,
  substantially similar to private placement purchase agreements customary for
  private placements of equity securities, in form and substance commercially
  reasonably satisfactory to Dealer,
  which Private Placement Agreement shall include provisions relating to

  

 

9

 

	
   

  	
   

  	
  the indemnification of,
  and contribution in connection with the liability of, Dealer and its affiliates, shall
  provide for the payment by Counterparty of all expenses in connection with
  such resale, including all reasonable and documented fees and expenses of
  counsel for Dealer, shall
  contain representations, warranties and agreements of Counterparty reasonably
  necessary or advisable to establish and maintain the availability of an
  exemption from the registration requirements of the Securities Act for such
  resales, and shall use commercially reasonable efforts to provide for the
  delivery of accountants’ “comfort letters” to Dealer or such affiliate with respect to the financial statements
  and certain financial information contained in or incorporated by reference
  into the offering memorandum prepared for the resale of such Shares; 

   

  (c)       Dealer shall sell the
  Delivered Shares or the Shares
  delivered by Counterparty in connection with Early Termination Stock
  Settlement, as the case may be, in a commercially reasonable manner
  until the amount received by Dealer
  for the sale of the Shares (the “Proceeds
  Amount”) is equal to the Net Physical Settlement Amount or the Transaction Early
  Termination Amount, as applicable.
  Any remaining delivered Shares
  shall be returned to Counterparty. If the Proceeds Amount is less than the Net Physical Settlement Amount or the Transaction
  Early Termination Amount, as
  applicable, Counterparty shall promptly deliver upon notice from Dealer additional Shares to Dealer until the dollar amount from
  the sale of such Shares by Dealer
  equals the difference between the Net
  Physical Settlement Amount or the Transaction Early Termination Amount, as applicable, and the Proceeds
  Amount. In no event shall Counterparty be required to deliver to Dealer a number of Shares greater than
  the Maximum Deliverable Share Amount. 

   

  Notwithstanding the
  foregoing: (I) if Counterparty has elected to deliver Shares as described in paragraph (a) above and
  either (A) Counterparty does not provide for the sale of the Shares
  under the Registration Statement as provided in the Registration Rights
  Agreement, (B) some Shares
  cannot be registered under the Registration Statement due to
  Rule 415(a)(4) under the Securities Act or (C) some Shares cannot be sold due to the application of a
  blackout period or the failure of the Registration Statement to become
  effective on or prior to the date on which the relevant delivery obligation
  is due, then the provisions of the preceding paragraph shall apply to
  the extent Counterparty has not satisfied its obligations hereunder.
  (II) If the preceding paragraph is applicable and Counterparty fails to
  satisfy its obligations under such paragraph, then Counterparty may deliver
  unregistered Shares of equivalent value to the Net Physical Settlement Amount or the Transaction Early
  Termination Amount, as applicable,
  (or, if applicable, the unsatisfied portion thereof). The value of any
  unregistered Shares so delivered shall be discounted to reflect an
  appropriate liquidity discount (determined by Dealer in a commercially reasonable manner, taking into account Dealer’s policies and determinations
  with respect to any transfer restrictions that Dealer deems it advisable to observe in connection with sales of
  such Shares). (III) If some or all of the Delivered Shares or Shares delivered in connection with an
  Early Termination Stock Settlement, as applicable, cannot be used to
  close out stock loans in the shares of Counterparty entered into to establish
  or maintain short positions by Dealer
  in connection with this Transaction without a prospectus being required by
  applicable law to be delivered to such lender, then the value of any such
  Shares shall reflect the cost (determined by Dealer in good faith and in a commercially reasonable manner) to Dealer of trading Shares in order to
  close out its hedge position if any, and
  the

  

 

10

 

	
   

  	
   

  	
  number of Shares required to be delivered shall be adjusted accordingly. In
  no event shall Counterparty be required to (i) top-up the delivery in
  cash or (ii) deliver to Dealer
  a number of Shares greater than the Maximum Deliverable Share Amount.

  
	
   

  	
   

  	
   

  
	
  Compliance With
  Securities Laws:

  	
   

  	
  Counterparty represents
  and agrees that it has complied, and will comply, in connection with this
  Transaction and all related or contemporaneous sales and purchases of Shares,
  with the applicable provisions of the Securities Act, the Exchange Act and
  the rules and regulations promulgated thereunder, including, without
  limitation, Rule 10b-5 and 13e and Regulation M under the Exchange Act. 

   

  Each party acknowledges
  that the offer and sale of the Transaction to it is intended to be exempt
  from registration under the Securities Act by virtue of
  Section 4(2) thereof. Accordingly, each party represents and
  warrants to the other party that (i) it has the financial ability to
  bear the economic risk of its investment in the Transaction and is able to
  bear a total loss of its investment, (ii) it is an “accredited investor”
  as that term is defined in Regulation D as promulgated under the Securities
  Act and (iii) the disposition of the Transaction is restricted under
  this Confirmation, the Securities Act and state securities laws.

   

  Counterparty further
  represents and warrants that:

   

  (a)       Counterparty
  is not entering into this Transaction to create actual or apparent trading
  activity in the Shares (or any security convertible into or exchangeable for
  Shares) or to raise or depress or otherwise manipulate the price of the
  Shares (or any security convertible into or exchangeable for Shares);

   

  (b)       Counterparty
  represents and acknowledges that as of the date hereof and without limiting
  the generality of Section 13.1 of the Equity Definitions, Dealer is not making any
  representations or warranties with respect to the treatment of the
  Transaction under FASB Statements 149 or 150, EITF Issue No. 00-19 (or
  any successor issue statements) or under FASB’s Liabilities & Equity
  Project;

   

  (c)       Counterparty
  is not, and after giving effect to the Transaction contemplated hereby, will
  not be, an “investment company” as such term is defined in the Investment
  Company Act of 1940, as amended;

   

  (d)       As
  of the Trade Date and each date on which a payment of cash is made by
  Counterparty hereunder, (i) the assets of Counterparty at their fair
  valuation exceed the liabilities of Counterparty, including contingent
  liabilities; (ii) the capital of Counterparty is adequate to conduct its
  business; and (iii) Counterparty has the ability to pay its debts and other
  obligations as such obligations mature and does not intend to, or believe
  that it will, incur debt or other obligations beyond its ability to pay as
  such obligations mature.

  
	
   

  	
   

  	
   

  
	
  Account Details:

  	
   

  	
  Account for payments to
  Counterparty: 

  
	
   

  	
   

  	
  To be
  advised.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Account
  for payments to Dealer:

  Merrill Lynch Financial
  Markets

  Chase Manhattan Bank

  ABA# 021000021

  Acct# 066642892

  

 

11

 

	
   

  	
   

  	
  Account for delivery of
  Shares to Dealer:

   

  To be advised.

  
	
   

  	
   

  	
   

  
	
  Agreement Regarding
  Shares:

  	
   

  	
  Counterparty agrees
  that, in respect of any Shares delivered to Dealer, such Shares shall be, upon
  such delivery, duly and validly authorized, issued and outstanding, fully
  paid and non-assessable and subject to no adverse claims of any other party.
  The issuance of such Shares does not and will not require the consent,
  approval, authorization, registration or qualification of any government
  authority, except such as shall have been obtained on or before the delivery
  date of any Shares or as may be required in connection with any Registration
  Statement filed with respect to any Shares.

  
	
   

  	
   

  	
   

  
	
  Bankruptcy Rights:

  	
   

  	
  In the event of
  Counterparty’s bankruptcy, Dealer’s rights in connection with this Transaction shall not
  exceed those rights held by common shareholders. For the avoidance of doubt,
  the parties acknowledge and agree that Dealer’s rights with respect to any other claim arising from this
  Transaction prior to Counterparty’s bankruptcy shall remain in full force and
  effect and shall not be otherwise abridged or modified in connection
  herewith.

  
	
   

  	
   

  	
   

  
	
  Set-Off:

  	
   

  	
  Each party waives any
  and all rights it may have to set-off, whether arising under any agreement,
  applicable law or otherwise.

  
	
   

  	
   

  	
   

  
	
  Transfer:

  	
   

  	
  Neither party may
  transfer its rights or delegate its obligations under this Transaction
  without the prior written consent of the other party, except that Dealer, after payment in full of the
  Premium, may assign its rights and delegate its obligations hereunder, in
  whole or in part, to any other person (an “Assignee”) without the prior consent of the
  Counterparty, so long as Assignee makes to Counterparty the representations
  set forth in the second paragraph under “Compliance with Securities Laws,”
  effective (the “Transfer Effective Date”)
  upon delivery to Counterparty of an executed acceptance and assumption by the
  Assignee (an “Assumption”)
  of the transferred obligations of Dealer
  under this Transaction (the “Transferred
  Obligations”). Notwithstanding any other provision in this
  Confirmation to the contrary requiring or allowing Dealer to purchase, sell, receive or deliver any Shares or other
  securities to or from Counterparty, Dealer
  may designate any of its affiliates to purchase, sell, receive or deliver
  such Shares or other securities and otherwise to perform Dealer’s obligations in respect of
  this Transaction and any such designee may assume such obligations. Dealer shall be discharged of its
  obligations to Counterparty to the extent of any such performance.

  
	
   

  	
   

  	
   

  
	
  Indemnity:

  	
   

  	
  Counterparty agrees to
  indemnify Dealer,
  its Affiliates and their respective directors, officers, agents and
  controlling parties (each such person being an “Indemnified
  Party”) from and against any and all losses, claims, damages
  and liabilities, joint and several, to which such Indemnified Party may
  become subject because of a breach of any representation or covenant
  hereunder, in the Agreement or any other agreement relating to the Agreement
  or Transaction and will reimburse Indemnified Party for all reasonable
  expenses (including reasonable legal fees and expenses) as they are incurred
  in connection with the investigation of, preparation for, or defense of, any
  pending or threatened claim or any action or proceeding arising therefrom,
  whether or not such Indemnified Party is a party thereto. Seller will not be
  liable under the foregoing Indemnity provision to the extent that any loss,
  claim, damage, liability or expense is found in a final judgment by a court
  to have resulted from Dealer’s
  gross negligence or

  

 

12

 

	
   

  	
   

  	
  willful misconduct.

  

 

Additional
Agreements, Representations and Covenants of Counterparty, Etc.:

 

(a)                                 Counterparty
hereby represents and warrants to Dealer,
on each day from the Trade Date to and including the earlier of (i) March 5,
2008 and (ii) the date by which Dealer
is able to initially complete a hedge of its position created by this
Transaction, that:

 

(1)                                 it
will not, and will not permit any person or entity subject to its control to,
bid for or purchase Shares during such period except pursuant to transactions
or arrangements which have been approved by Dealer or an affiliate of Dealer;
and

 

(2)                                 it
has publicly disclosed all material information necessary for it to be able to
purchase or sell Shares in compliance with applicable federal securities laws.

 

(b)                                No
collateral shall be required by either party for any reason in connection with
this Transaction.

 

(c)                                 Notwithstanding
anything to the contrary herein, Dealer
shall not be entitled to exercise any Warrant or receive any Shares deliverable
hereunder, and Automatic Exercise shall not apply with respect to any Warrant
to the extent (but only to the extent) that after such receipt of any Shares
upon the exercise of such Warrant or otherwise hereunder Dealer, or its ultimate parent entity
would, directly or indirectly, be the beneficial owner (as such term is defined
for purposes of Section 13(d) of the Exchange Act) at any time of
more than 8.0 percent of the class of the Counterparty’s outstanding equity securities
that is comprised of the Shares (an “Excess
Share Owner”).

 

Dealer
shall provide prior notice to Counterparty if the exercise of any Warrant or
delivery of Shares hereunder would cause Dealer to become directly or indirectly, an Excess Share Owner; provided
that the failure of Dealer to
provide such notice shall not alter the effectiveness of the provisions set
forth in the preceding sentence and any purported exercise or delivery in
violation of such provisions shall be void and have no effect. If any delivery
owed to Dealer hereunder is not
made, in whole or in part, as a result of this provision, Counterparty’s
obligation to make such delivery shall not be extinguished and Counterparty
shall make such delivery as promptly as practicable after Dealer gives notice that such delivery
would not result in Dealer being
an Excess Share Owner.

 

If Dealer is not entitled to exercise any
Warrant because such exercise would cause Dealer to become, directly or indirectly, an Excess Share Owner and Dealer thereafter disposes of Shares
owned by it or any action is taken that would then permit Dealer to exercise such Warrant without
such exercise causing it to become, directly or indirectly, an Excess Share
Owner, then Dealer shall provide
notice of the taking of such action to Counterparty and such Warrant shall then
become exercisable by Dealer to
the extent such Warrant is otherwise or had otherwise become exercisable
hereunder. In such event, the Expiration Date with respect to such Warrant
shall be the date on which Counterparty receives such notice from Dealer, and the related Settlement Date
shall be as soon as reasonably practicable after receipt of such notice but no
more than three (3) Exchange Business Days thereafter (but in no event
shall the Settlement Date occur prior to the date on which it would have
otherwise occurred but for the provisions of this subsection); provided
that the related Net Physical Settlement Amount shall be the same as the Net
Physical Settlement Amount but for the provisions of this subsection. In
addition, within 30 calendar days of any Settlement Date, Counterparty shall
use its reasonable efforts to refrain from activities that could reasonably be
expected to result in Dealer’s
ownership of Shares exceeding 10% of all issued and outstanding Shares.

 

Matters
Relating to Agent:

 

1.                                       Agent
will be responsible for the operational aspects of the Transactions effected
through it, such as record keeping, reporting, and confirming Transactions to
Counterparty and Dealer;

 

13

 

2.                                      Unless
Counterparty is a “major U.S. institutional investor,” as defined in Rule 15a-6
of the Exchange Act, neither Counterparty nor Dealer will contact the other without the direct involvement of
Agent;

 

3.                                      Agent’s
sole role under this Agreement and with respect to any Transaction is as an
agent of Counterparty and Dealer
on a disclosed basis and Agent shall have no responsibility or liability to
Counterparty or Dealer hereunder
except for gross negligence or willful misconduct in the performance of its
duties as agent. Agent is authorized to act as agent for Dealer, but only to the extent expressly
required to satisfy the requirements of Rule 15a-6 under the Exchange Act
in respect of the Options described hereunder. Agent shall have no authority to
act as agent for Counterparty generally or with respect to transactions or
other matters governed by this Agreement, except to the extent expressly
required to satisfy the requirements of Rule 15a-6 or in accordance with express
instructions from Counterparty.

 

Certain Important Information:

 

Dealer is an OTC
Derivatives Dealer registered with the U.S. Securities and Exchange Commission
(SEC). Applicable SEC rules require us to provide you with the following
information regarding SEC regulation of OTC Derivatives Dealers: Dealer is
exempt from the provisions of the Securities Investor Protection Act of 1970
(SIPA), including membership in the Securities Investor Protection Corporation
(SIPC). Therefore, your account is not covered by SIPA protection. Except as
otherwise agreed in writing by you and us, Dealer may repledge and otherwise
use in its business collateral you have pledged to Dealer under the Agreement.
Collateral you have pledged to Dealer will not be subject to the requirements
of Securities Exchange Act Rules: 8c-1 and 15c2-1 regarding hypothecation of
collateral; 15c3-2 regarding free credit balances; or 15c3-3 regarding custody
of securities and calculations of a reserve formula applicable to a fully
regulated SEC registered broker or dealer. In the event of Dealer’s failure (by
insolvency or otherwise), you would likely be considered to be an unsecured
creditor of Dealer as to any collateral pledged to Dealer under the Agreement.

 

Dealer is incorporated in
Delaware and is a direct, wholly owned subsidiary of Merrill Lynch &
Co., Inc. Dealer has entered into this transaction as principal through
Agent as its agent. The time of this Transaction shall be notified to the
Counterparty upon request.

 

ISDA
Master Agreement:

 

With respect to the
Agreement, Dealer
and Counterparty each agree as follows:

 

“Specified Entity”  means in relation to Seller and in relation to Counterparty
for purposes of this Transaction: Not applicable.

 

“Specified
Transaction” has the meaning assigned to such term in Section 14
of this Agreement.

 

The “Cross Default”  provisions of Section 5(a)(vi) of the
Agreement will apply to Dealer and will apply to Counterparty.

 

“Threshold Amount” means
with respect to Dealer, 3% of the consolidated shareholders equity of Merrill
Lynch & Co., Inc.

 

“Threshold Amount” means
with respect to Counterparty, $10,000,000.

 

The “Credit Event Upon Merger”  provisions of Section 5(b)(v) of
the Agreement will not apply to Dealer or to Counterparty.

 

Additional Termination Event.

 

The occurrence of any of the following shall
constitute an Additional Termination Event with respect to which the
Transaction shall be the sole Affected Transaction and Counterparty shall be
the sole Affected Party; provided
that with respect to any Additional Termination Event, Dealer may choose to treat part of the Transaction
as the sole

 

14

 

Affected Transaction, and, upon the
termination of the Affected Transaction, a Transaction with terms identical to
those set forth herein except with a Number of Warrants equal to the unaffected
number of Warrants shall be treated for all purposes as the Transaction, which
shall remain in full force and effect:

 

(i) within the
period commencing on the Trade Date and ending on the second anniversary of the
Premium Payment Date, Buyer reasonably determines that it is advisable to
terminate a portion of the Transaction so that Buyer’s related hedging
activities will comply with applicable securities laws, rules or
regulations;

 

(ii) any
“person” or “group” (as such terms are used in Sections 13(d) and 14(d) of
the Exchange Act) is or becomes the “beneficial owner” (as defined in Rules 13d-3
and 13d-5 under the Exchange Act, except that a person shall be deemed to have
beneficial ownership of all shares that such person has the right to acquire,
whether such right is exercisable immediately or only after the passage of
time), directly or indirectly, of voting stock representing 50% or more of the
total voting power of all outstanding voting stock of the company;

 

(iii) Counterparty
consolidates with, or merges with or into, another person or Counterparty
sells, assigns, conveys, transfers, leases or otherwise disposes of all or
substantially all of its assets to any person, other than any such transaction (a) entered
into solely for the purpose of changing the Counterparty’s jurisdiction of
incorporation and resulting in a reclassification, conversion or exchange of
outstanding shares of common stock solely into shares of common stock of the
surviving entity, (b) where immediately after such transaction the person
or persons that “beneficially owned” (as defined in Rules 13d-3 and 13d-5
under the Exchange Act) immediately prior to such transaction, directly or
indirectly, voting stock representing a majority of the total voting power of
all outstanding voting stock of Counterparty, “beneficially own or owns” (as so
determined), directly or indirectly, voting stock representing a majority of
the total voting power of the outstanding voting stock of the surviving or
transferee person or (c) that does not result in a reclassification,
conversion, exchange or cancellation of outstanding hares of common stock;

 

(iv) the
adoption of a plan of liquidation or dissolution of Counterparty; or

 

(v) the Shares (or
other common stock into which the Shares have been converted or for which the
Shares have been exchanged in connection with any merger, reclassification or
recapitalization of Counterparty) are not listed for trading on the New York
Stock Exchange  or the NASDAQ Global
Market or the NASDAQ Global Select Market (or their respective successors) or
cease to be so traded or quoted in contemplation of a delisting or withdrawal
of approval.

 

Notwithstanding the foregoing, a transaction
described in clause (ii) or (iii) above will not constitute an
Additional Termination Event if all the consideration for the Shares (excluding
cash payments for fractional shares and cash payments made in respect of
dissenters’ appraisal rights) in the transaction or transactions consists of
common stock and any associated rights listed on a United States national
securities exchange, or which will be so traded or quoted when issued or
exchanged in connection with such transaction, and as a result of such
transaction or transactions the Warrants hereunder become convertible solely
into such common stock.

 

The “Automatic Early Termination”  provision of Section 6(a) of
the Agreement will not apply to Dealer or to Counterparty.

 

“Termination Currency” means USD.

 

Tax
Representations.

 

(I)                                  Payer Representations. For the purpose of Section 3(e) of
the Agreement, each party represents to the other party that it is not required
by any applicable law, as modified by the practice of any relevant governmental
revenue authority, of any Relevant Jurisdiction to make any deduction or
withholding for or on account of any Tax from any payment (other than interest
under Section 2(e), 6(d)(ii), or 6(e) of the Agreement) to be made by
it to the other party under the Agreement. In making this representation, each

 

15

 

party may rely on (i) the
accuracy of any representations made by the other party pursuant to Section 3(f) of
the Agreement, (ii) the satisfaction of the agreement contained in Section 4(a)(i) or
4(a)(iii) of the Agreement, and the accuracy and effectiveness of any
document provided by the other party pursuant to Section 4(a)(i) or
4(a)(iii) of the Agreement, and (iii) the satisfaction of the
agreement of the other party contained in Section 4(d) of the
Agreement; provided that it will not be a breach of this representation
where reliance is placed on clause (ii) above and the other party does not
deliver a form or document under Section 4(a)(iii) of the Agreement by
reason of material prejudice to its legal or commercial position.

 

(II)                              Payee Representations. For the purpose of Section 3(f) of
the Agreement, each party makes the following representations to the other
party:

 

(i)                                     Dealer represents that it is a company
incorporated in Delaware.

 

(ii)                                  Counterparty
represents that it is a corporation incorporated in Delaware.

 

Delivery
Requirements. For the purpose of Sections 4(a)(i) and
(ii) of the Agreement, each party agrees to deliver the following
documents:

 

(a)                                Tax
forms, documents or certificates to be delivered are:

 

Dealer
agrees to complete (accurately and in a manner reasonably satisfactory to
Counterparty), execute, and deliver to Counterparty, United States Internal
Revenue Service Form W-9 and all required attachments, or any successor of
such form(s): (i) before the first payment date under this agreement; (ii) promptly
upon reasonable demand by Counterparty; and (iii) promptly upon learning
that any such Form previously provided by Dealer has become obsolete or incorrect.

 

Counterparty agrees to
complete (accurately and in a manner reasonably satisfactory to Dealer), execute, and deliver to Dealer, United States Internal Revenue
Service Form W-9, or any successor of such form(s): (i) before the
first payment date under this agreement; (ii) promptly upon reasonable
demand by Dealer; and (iii) promptly
upon learning that any such form(s) previously provided by Counterparty
has become obsolete or incorrect.

 

(b)                               Other
documents to be delivered:

 

	
  Party
  Required to

  Deliver Document

  	
   

  	
  Document
  Required to be Delivered

  	
   

  	
  When
  Required

  	
   

  	
  Covered
  by

  Section 3(d)

  Representation

  
	
  Counterparty and Dealer

  	
   

  	
  Evidence of the
  authority and true signatures of each official or representative signing this
  Confirmation

  	
   

  	
  Upon or before
  execution and delivery of this Confirmation

  	
   

  	
  Yes

  
	
  Counterparty

  	
   

  	
  Certified copy of the
  resolution of the Board of Directors or equivalent document authorizing the
  execution and delivery of this Confirmation and such other certificate or
  certificates as Dealer
  shall reasonably request

  	
   

  	
  Upon or before
  execution and delivery of this Confirmation

  	
   

  	
  Yes

  

 

Effectiveness.  If, prior to the Effective Date, Dealer reasonably determines
that it is advisable to cancel the

 

16

 

Transaction
because of concerns that Dealer’s related hedging activities could be viewed
as not complying with applicable securities laws, rules or regulations,
such Transaction shall be cancelled and shall not become effective, and neither
party shall have any obligation in respect of such Transaction.

 

Addresses
for Notices: For the purpose of Section 12(a) of
the Agreement:

 

Address
for notices or communications to Dealer for all purposes:

 

	
  Address:

  	
  Merrill Lynch Financial
  Markets, Inc.

  
	
   

  	
  4 World Financial
  Center, 17th Floor

  
	
   

  	
  New York, New York
  10080

  
	
   

  	
  Merrill Lynch Financial
  Centre

  
	
  Attention:

  	
  Manager of Equity
  Documentation

  
	
  Facsimile No.:

  	
  (917) 778-0835

  
	
  Telephone No.:

  	
  (212) 449-1951

  

 

Address
for notices or communications to Counterparty for all purposes:

 

	
  Address:

  	
  AAR CORP.

  
	
   

  	
  1100 N. Wood Dale Road

  
	
   

  	
  Wood Dale, Illinois 60191

  
	
  Attention:

  	
  Richard J. Poulton, Chief Financial Officer

  
	
  Facsimile No.:

  	
  (630) 227-2039

  
	
  Telephone No.:

  	
  (630) 227-2075

  

 

In addition, in the case
of notices or communications relating to Section 5, 6, 11 or 13 of this
Agreement, a second copy of any such notice or communication shall be addressed
to the attention of Counterparty’ General Counsel as follows:

 

	
  Address:

  	
  AAR CORP.

  
	
   

  	
  1100 N. Wood Dale Road

  
	
   

  	
  Wood Dale, Illinois 60191

  
	
  Attention:

  	
  General Counsel’s
  Office

  
	
  Facsimile No.:

  	
  (630) 227-2058

  
	
  Telephone No.:

  	
  (630) 227-2000

  

 

Multibranch
Party. For the purpose of Section 10(c) of
the Agreement: Neither Dealer nor
Counterparty is a Multibranch Party.

 

Calculation
Agent.  “Calculation
Agent” means Dealer, acting in
good faith and in a commercially reasonable manner.

 

Credit
Support Document.

 

Dealer:
Not Applicable.

 

Counterparty: Not
Applicable

 

Credit
Support Provider.

 

With respect to Dealer: Not Applicable.

 

With respect to
Counterparty: Not Applicable.

 

Governing
Law. This Confirmation will be governed by, and construed in
accordance with, the laws of the State of New York.

 

Submission to Jurisdiction.  Each party hereby irrevocably and
unconditionally submits for itself and its property

 

17

 

in any legal action or
proceeding by the other party against it relating to the Transaction to which
it is a party, or for recognition and enforcement of any judgment in respect
thereof, to the exclusive jurisdiction of the Supreme Court of the State of New
York, sitting in New York County, the courts of the United States of America
for the Southern District of New York, and appellate courts from any thereof.

 

Waiver
of Jury Trial. Each party waives, to the fullest extent
permitted by applicable law, any right it may have to a trial by jury in
respect of any suit, action or proceeding relating to this Transaction. Each
party (i) certifies that no representative, agent or attorney of the other
party has represented, expressly or otherwise, that such other party would not,
in the event of such a suit, action or proceeding, seek to enforce the
foregoing waiver and (ii) acknowledges that it and the other party have
been induced to enter into this Transaction, as applicable, by, among other
things, the mutual waivers and certifications provided herein.

 

Netting
of Payments. The provisions of Section 2(c) of
the Agreement shall not be applicable to this Transaction.

 

Basic
Representations. Section 3(a) of the
Agreement is hereby amended by the deletion of “and” at the end of Section 3(a)(iv);
the substitution of a semicolon for the period at the end of Section 3(a)(v) and
the addition of Sections 3(a)(vi), as follows:

 

Eligible
Contract Participant; Line of Business. Each party agrees and
represents that it is an “eligible contract participant” as defined in Section 1  (a)(12) of the U.S. Commodity Exchange
Act, as amended (“CEA”), this
Agreement and the Transaction thereunder are subject to individual negotiation
by the parties and have not been executed or traded on a “trading facility” as
defined in Section 1(a)(33) of the CEA, and it has entered into this
Confirmation and this Transaction in connection with its business or a line of
business (including financial intermediation), or the financing of its
business.

 

Acknowledgements:

 

(a)                                The
parties acknowledge and agree that there are no other representations,
agreements or other undertakings of the parties in relation to this
Transaction, except as set forth in this Confirmation.

 

(b)                               The
parties hereto intend for:

 

(i)                                   Buyer
to be a “financial institution” as defined in Section 101(22) of Title 11
of the United States Code (the “Bankruptcy
Code”) and this
Transaction to be a “securities contract” as defined in Section 741(7) of
the Bankruptcy Code  and a “swap agreement” as defined in Section 101(53C)
of the Bankruptcy Code,  qualifying
for the protections of, among other sections, Sections 362(b)(6), 362 (b)(17),
546(e), 546(g), 555 and 560 of the Bankruptcy Code;

 

(ii)                                a
party’s right to liquidate this Transaction and to exercise any other remedies
upon the occurrence of any Event of Default under the Agreement with respect to
the other party to constitute a “contractual right” as defined in the Bankruptcy
Code;

 

(iii)                             all payments for, under or
in connection with this Transaction, all payments for the Shares and the
transfer of such Shares to constitute “settlement payments” as defined in the
Bankruptcy Code.

 

(c)                                The
parties acknowledge and agree that in the event of an Early Termination Date as
a result of an Event of Default that is within Counterparty’s control, the
amount payable under the Agreement will be a cash amount calculated as
described therein and that any delivery specified in this Transaction will no
longer be required.

 

Amendment
of Section 6(d)(ii). Section 6(d)(ii) of
the Agreement is modified by deleting the words “on the day” in the second line
thereof and substituting therefor “on the day that is three Local Business Days
after the day”. Section 6(d)(ii) is further modified by
deleting the words “two Local Business Days” in the fourth line thereof and
substituting therefor “three Local Business Days.”

 

18

 

Consent
to Recording. Each party consents to the recording of the
telephone conversations of trading and marketing personnel of the parties and
their Affiliates in connection with this Confirmation. To the extent that one
party records telephone conversations (the “Recording Party”) and the other
party does not (the “Non-Recording Party”), the Recording Party shall in the
event of any dispute, make a complete and unedited copy of such party’s tape of
the entire day’s conversations with the Non-Recording Party’s personnel
available to the Non-Recording Party. The Recording Party’s tapes may be used
by either party in any forum in which a dispute is sought to be resolved and
the Recording Party will retain tapes for a consistent period of time in
accordance with the Recording Party’s policy unless one party notifies the
other that a particular transaction is under review and warrants further
retention.

 

Disclosure.
Each party hereby acknowledges and agrees that Dealer has authorized Counterparty to
disclose this Transaction and any related hedging transaction between the
parties if and to the extent that Counterparty reasonably determines (after
consultation with Dealer) that
such disclosure is required by law or by the rules of the New York Stock
Exchange or any securities exchange.  Notwithstanding
the foregoing, effective from the date of commencement of discussions
concerning the Transaction, Counterparty and each of its employees,
representatives, or other agents may disclose to any and all persons, without
limitation of any kind, the tax treatment and tax structure of the Transaction
and all materials of any kind (including opinions or other tax analyses) that
are provided to Counterparty relating to such tax treatment and tax structure.

 

Severability.
If any term, provision, covenant or condition of this
Confirmation, or the application thereof to any party or circumstance, shall be
held to be invalid or unenforceable in whole or in part for any reason, the
remaining terms, provisions, covenants, and conditions hereof shall continue in
full force and effect as if this Confirmation had been executed with the
invalid or unenforceable provision eliminated, so long as this Confirmation as
so modified continues to express, without material change, the original
intentions of the parties as to the subject matter of this Confirmation and the
deletion of such portion of this Confirmation will not substantially impair the
respective benefits or expectations of parties to this Agreement; provided,
however, that this severability provision shall not be applicable if any
provision of Section 2, 5, 6 or 13 of the
Agreement (or any definition or provision in Section 14 to the
extent that it relates to, or is used in or in connection with any such
Section) shall be so held to be invalid or unenforceable.

 

Affected
Parties. For purposes of Section 6(e) of the
Agreement, each party shall be deemed to be an Affected Party in connection
with Illegality and any Tax Event.

 

[Signatures follow on separate page]

 

19

 

Please confirm that the
foregoing correctly sets forth the terms of our agreement by executing the copy
of this Confirmation enclosed for that purpose and returning it to us.

 

	
   

  	
  Very truly yours,

  
	
   

  	
   

  
	
   

  	
  MERRILL LYNCH FINANCIAL MARKETS, INC.

  
	
   

  	
   

  
	
   

  	
  By:

  	
    /s/ Fran
  Jacobson

  	
   

  
	
   

  	
  Name: Fran Jacobson

  
	
   

  	
  Title: Authorized
  Signatory

  

 

Confirmed as of
the date first above written:

 

AAR CORP.

 

	
  By:

  	
    /s/ Timothy
  J. Romenesko

  	
   

  	
   

  
	
  Name: Timothy J.
  Romenesko

  	
   

  
	
  Title:
  President & COO

  	
   

  

 

 

Acknowledged and agreed
as to matters to the Agent:

 

MERRILL LYNCH, PIERCE,
FENNER & SMITH INCORPORATED

 

Solely in its capacity as
Agent hereunder

 

 

	
  By:

  	
    /s/
  Angelina Lopes

  	
   

  	
   

  
	
  Name: Angelina Lopes

  	
   

  
	
  Title: Authorized
  Signatory

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