Item 1.01. Entry into a Material Definitive Agreement.
On July 30, 2020, AAR Aircraft Services, Inc., Aviation Maintenance Staffing,
Inc., and AAR Landing Gear LLC, direct and indirect wholly-owned subsidiaries
(the "Subsidiaries") of AAR CORP. (the "Company"), entered into a Payroll
Support Program Agreement (the "PSP Agreement") with the U.S. Department of the
Treasury ("Treasury") with respect to the grant program (the "Payroll Support
Program") under the Coronavirus Aid, Relief, and Economic Security Act ("CARES
Act"). On April 3, 2020, the Company applied for $136,446,791.00 of payroll
support under the Payroll Support Program.
Payroll Support Program Agreement
Pursuant to the PSP Agreement, the Subsidiaries expect to receive from Treasury$57,180,647.00 in the aggregate. The funding is expected to be disbursed in two
installments: 75% ($42,885,485.00) on the closing date (the "Initial
Disbursement"), which was received on July 30, 2020 (the "Closing Date"), and
one additional disbursement of 25% on August 31, 2020.
In connection with the receipt of financial assistance under the Payroll Support
Program, the Subsidiaries are required to comply with the relevant provisions of
the CARES Act, including the requirement that the funding be used exclusively
for the continuation of payment of employee wages, salaries and benefits. The
Subsidiaries will also be subject to certain restrictions, including, but not
limited to, limitations on involuntary terminations and furloughs and reductions
in the pay rate of employees earning wages or salaries (as well as reductions in
benefits) from the signing date of the PSP Agreement through September 30, 2020.
In addition, the Subsidiaries and the Company are required to eliminate the
payment of dividends and the repurchase of shares through September 30, 2021,
and are subject to certain limitations on employee compensation through March
As compensation to Treasury for the provision of financial assistance under the
PSP Agreement, the Company issued Treasury a promissory note that is guaranteed
by certain of the Company's subsidiaries, including the Subsidiaries (the
"Promissory Note"). In connection with the Initial Disbursement, the Promissory
Note was issued at an initial principal amount of $2,369,613.00. Upon the
subsequent disbursement of payroll support to the Subsidiaries, the principal
amount of the Promissory Note will be increased in an amount equal to 44% of any
disbursement in excess of $37,500,000.00, up to a principal amount of
$8,659,485.00. The Promissory Note will bear interest at a rate per annum equal
to the sum of (i) 1.00% until the fifth anniversary of the Closing Date, and the
applicable secured overnight financing rate plus 2.00% thereafter until the
tenth anniversary of the Closing Date (the "Maturity Date"), which is payable in
cash, plus (ii) 3.0% until the fifth anniversary of the Closing Date, and
increasing by 1.0% each anniversary thereafter until the Maturity Date (the "PIK
Interest Rate"), which may be paid either in cash or in kind. If the Company
does not elect to pay such PIK Interest Rate amount in cash, the principal
amount of the Promissory Note will be increased by such amount. The Company may,
at any time, make voluntary prepayments of amounts due under the Promissory Note
without penalty or premium.
The Promissory Note is the Company's senior unsecured obligation. It contains
certain events of default, including cross-default with respect to acceleration
or failure to pay at maturity other material indebtedness. Subject to certain
grace periods, upon the occurrence of an event of default, the outstanding
obligations under the Promissory Note may, and in certain circumstances will
automatically, be accelerated and become due and payable immediately.
Item 9.01. Financial Statements and Exhibits.
Exhibit No. Description
10.1 Payroll Support Agreement dated July 30, 2020 by and between AAR
Aircraft Services, Inc., Aviation Maintenance Staffing, Inc., AAR
Landing Gear LLC, and the United States Treasury.
104 Cover Page Interactive Data File (the cover page XBRL tags are
embedded in the inline XBRL document)
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