8-K

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 8-K

CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934

Date of report (Date of earliest event reported): December 30, 2002

MERCURY AIR GROUP, INC.

(Exact name of Registrant as specified in Charter)

DELAWARE	1-7134	11-1800515
(State or other jurisdiction of incorporation or organization)	(Commission File No.)	(I.R.S. Employer Identification No.)

5456 McConnell Avenue, Los Angeles, CA 90066

(Address of Principal Executive Offices/Zip Code)

Registrant’s telephone number, including area code: (310) 827-2737

Not Applicable

(Former Name or Former Address, if Changed Since Last Report)

TABLE OF CONTENTS

	ITEM 5. OTHER EVENTS
	ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
SIGNATURE
EXHIBIT INDEX
Exhibit 10.1
Exhibit 10.2
Exhibit 10.3
Exhibit 10.4
Exhibit 10.5
Exhibit 10.6
Exhibit 99.1

TABLE OF CONTENTS

	ITEM 5. OTHER EVENTS
	ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
SIGNATURE
EXHIBIT INDEX
EXHIBIT 10.1
EXHIBIT 10.2
EXHIBIT 10.3
EXHIBIT 10.4
EXHIBIT 10.5
EXHIBIT 10.6
EXHIBIT 99.1

- 2 -

ITEM 5. OTHER EVENTS

     On December 30th, 2002, the Company entered into agreements refinancing its senior secured credit facilities with Foothill Capital Corporation, a division of Wells Fargo Bank, for a five-year term, as agent for the lenders party thereto. In addition, the Company and J.H. Whitney Co. Mezzanine Fund entered into agreements revising the terms of their subordinated loan facility, which will mature on December 31, 2005. The funding under the senior facility and the amendments to the subordinated loan were completed on December 31, 2002.

     The Foothill facility provides a total of up to $42.5 million in revolving and term loans. The term loan is for an amount equal to $12,500,000, while the revolving loan is for an amount not to exceed 85% of Eligible Accounts (as defined), subject to certain limitations. The term loan is payable in $1,000,000 installments each April 1 and October 1, beginning April 1, 2003 and in $500,000 installments each July 1 and December 31, until paid in full. Amounts repaid under the term loan increase the maximum availability under the revolving loan. The Foothill facility also provides for the issuance of certain letters of credit. The facility may be terminated on December 23, 2005, if the Whitney facility is not paid in full or refinanced, on terms acceptable to Foothill, prior to October 31, 2005. The facility is secured by substantially all of the assets of the Company and its subsidiaries. The Foothill facility contains provisions that require the maintenance of certain financial ratios including minimum EBITDA levels, minimum fixed charge coverage ratios, and maximum annual capital expenditure levels. In addition, under the Foothill facility, the Company is prohibited from paying non-intercompany cash dividends. Although the Whitney obligation is generally subordinate to the Foothill facility, a portion of the Whitney obligation can be repaid ahead of the debt to Foothill in the event certain financing transactions are completed.

     The revised Whitney facility is in the form of a $24.0 million Senior Subordinated 12% Note (the “Note”) with detachable warrants to purchase 503,126 shares of the Company’s common stock exercisable at $3.742 per share through September 9, 2006. The warrant exercise price was reduced from $5.50 per share. The Note is secured by the Company’s assets, subordinate to Foothill’s interest. Warrants to purchase an additional 5% of the Company’s common stock, exercisable for nominal consideration, will be issued if the principal amount of the Note is not prepaid by December 31, 2003. Warrants to purchase a second 5% of the Company’s common stock, exercisable for nominal consideration, along with an additional note in the original principal amount of $5,000,000, will also be issued if the outstanding principal amount of the Note is greater than $12,000,000 after December 31, 2003. The Company is currently assessing various options that will enable it to prepay the principal portion of the Note to avoid the necessity of having to issue the additional warrants and incur the additional note obligation. If the Company determines that it is probable that the Note, or a portion of the Note, will be prepaid, the estimated amount of the prepayment may be classified as a current portion of long term debt on the Company’s balance sheet. If the Company determines that it is not probable that the Note, or any portion of the Note, will be prepaid, the Company will accrue the additional cost of the new warrants and the additional note obligation over the remaining term of

- 3 -

the Note when it is deemed that the prepayment is not probable. The Company is also required to prepay all outstanding principal of the Note and any additional note on December 31, 2004, but the failure by the Company to make such prepayment will not entitle the holder to accelerate the balance on the outstanding Note or outstanding additional note. The revised Whitney facility contains similar covenants as in the original Whitney facility, including covenants that, among other matters, limit senior indebtedness, the payment of dividends, and the disposition of assets. The revised covenants also include minimum EBITDA requirements and capital expenditure limitations. Under the Whitney facility, the Company is also required to file a registration statement with the SEC, by March 31, 2003, for the common stock underlying the warrants.

     As required by the Whitney agreement, the Company has formed committees consisting of its independent directors to seek opportunities for asset sales and other financing transactions, with a view to reducing the Company’s total debt.

ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS

     (c)  See exhibit index.

- 4 -

SIGNATURE

     Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

Date: January 27, 2003	MERCURY AIR GROUP, INC.
	By:
		Joseph A. Czyzyk
		President and Chief Executive Officer

- 5 -

EXHIBIT INDEX

10.1	Loan and Security Agreement dated as of December 30, 2002 by and among the Registrant, certain of its subsidiaries, Foothill Capital Corporation, and certain other lenders.
10.2	Amendment No. 3 to Securities Purchase Agreement, dated as of December 30, 2002, by and between Mercury Air Group, Inc. and J.H. Whitney Mezzanine Fund, L.P.
10.3	Amended and Restated WMF Warrant dated as of September 10, 1999.
10.4	Amended and Restated WMF Senior Subordinated Promissory Note dated as of September 10, 1999.
10.5	Security Agreement, dated as of December 30, 2002, between the Registrant, certain of its subsidiaries, and J.H. Whitney Mezzanine Fund.
10.6	Subordination Agreement dated December 30, 2002 among Registrant, certain of its subsidiaries, J.H. Whitney Mezzanine Fund, L.P., and Foothill Capital Corporation.
99.1	Press Release.

- 6 - EX-10.1 3 a87201exv10w1.txt EXHIBIT 10.1 Exhibit 10.1 - -------------------------------------------------------------------------------- LOAN AND SECURITY AGREEMENT BY AND AMONG MERCURY AIR GROUP, INC. AND EACH OF ITS SUBSIDIARIES THAT ARE SIGNATORIES HERETO AS BORROWERS, THE LENDERS THAT ARE SIGNATORIES HERETO AS THE LENDERS, AND FOOTHILL CAPITAL CORPORATION AS THE ARRANGER AND ADMINISTRATIVE AGENT DATED AS OF DECEMBER 30, 2002 - -------------------------------------------------------------------------------- LOAN AND SECURITY AGREEMENT THIS LOAN AND SECURITY AGREEMENT (this "Agreement"), is entered into as of December 30, 2002, by and among, on the one hand, the lenders identified on the signature pages hereof (such lenders, together with their respective successors and assigns, are referred to hereinafter each individually as a "Lender" and collectively as the "Lenders"), FOOTHILL CAPITAL CORPORATION, a California corporation, as the arranger and administrative agent for the Lenders ("Agent"), and, on the other hand, MERCURY AIR GROUP, INC., a Delaware corporation ("Parent") and each of Parent's Subsidiaries identified on the signature pages hereof (such Subsidiaries, together with Parent, are referred to hereinafter each individually as a "Borrower", and individually and collectively, jointly and severally, as the "Borrowers"). The parties agree as follows: 1. DEFINITIONS AND CONSTRUCTION. 1.1 DEFINITIONS. As used in this Agreement, the following terms shall have the following definitions: "Ableco" means Ableco Finance LLC, a Delaware limited liability company. "Account Debtor" means any Person who is or who may become obligated under, with respect to, or on account of, an Account, chattel paper, or a General Intangible. "Accounts" means all of Borrowers' now owned or hereafter acquired right, title, and interest with respect to "accounts" (as that term is defined in the Code), and any and all supporting obligations in respect thereof. "ACH Transactions" means any cash management or relates services (including the Automated Clearing House processing of electronic funds transfers through the direct Federal Reserve Fedline system) provided by Wells Fargo or its Affiliates for the account of Administrative Borrower or its Subsidiaries. "Additional Documents" has the meaning set forth in Section 4.4. "Administrative Borrower" has the meaning set forth in Section 17.9. "Advances" has the meaning set forth in Section 2.1. "Affiliate" means, as applied to any Person, any other Person who, directly or indirectly, controls, is controlled by, or is under common control with, such Person. For purposes of this definition, "control" means the possession, directly or indirectly, of the power to direct the management and policies of a Person, whether through the ownership of Stock, by contract, or otherwise; provided, however, that, for purposes of the definition of Eligible Accounts and Section 7.13 hereof: (a) any Person which owns directly or indirectly 10% or more of the securities having ordinary voting power for the election of directors or other members of the 1 governing body of a Person or 10% or more of the partnership or other ownership interests of a Person (other than as a limited partner of such Person) shall be deemed to control such Person; (b) each director (or comparable manager) of a Person shall be deemed to be an Affiliate of such Person; and (c) each partnership or joint venture in which a Person is a partner or joint venturer shall be deemed to be an Affiliate of such Person. "Agent" means Foothill, solely in its capacity as agent for the Lenders hereunder, and any successor thereto. "Agent's Account" means the account identified on Schedule A-1. "Agent Advances" has the meaning set forth in Section 2.3(e)(i). "Agent's Liens" means the Liens granted by Borrowers to Agent for the benefit of the Lender Group under this Agreement or the other Loan Documents. "Agent-Related Persons" means Agent together with its Affiliates, officers, directors, employees, and agents. "Agreement" has the meaning set forth in the preamble hereto. "Applicable Prepayment Premium" means, as of any date of determination, an amount equal to (a) during the period of time from and after the date of the execution and delivery of this Agreement up to the date that is the first anniversary of the Closing Date, 5.0% times the Maximum Revolver Amount, (b) during the period of time from and including the date that is the first anniversary of the Closing Date up to the date that is the second anniversary of the Closing Date, 4.0% times the Maximum Revolver Amount, (c) during the period of time from and including the date that is the second anniversary of the Closing Date up to the date that is the third anniversary of the Closing Date, 3.0% times the Maximum Revolver Amount, (d) during the period of time from and including the date that is the third anniversary of the Closing Date up to the date that is the fourth anniversary of the Closing Date, 2.0% times the Maximum Revolver Amount, and (e) during the period of time from and including the date that is the fourth anniversary of the Closing Date up to the Maturity Date, 1.0% times the Maximum Revolver Amount. Notwithstanding the foregoing, the Applicable Prepayment Premium shall be zero if the funds used to prepay the Obligations are obtained from, and this Agreement is terminated in connection with, a transaction between Wells Fargo or one of its Affiliates on the one hand and Parent and/or its Subsidiaries, or any one of them, on the other hand. "Asset Sale Reserve" means, as of any date of determination, a reserve in an amount equal to the lesser of (a) 50% of the aggregate amount of Net Cash Proceeds received by Borrowers (or any of them) prior to January 1, 2004 which exceed $19,500,000 and (b) the Target Amount. "Assignee" has the meaning set forth in Section 14.1. "Assignment and Acceptance" means an Assignment and Acceptance in the form of Exhibit A-1. 2 "Assignment of Claims" means an Assignment of Claims Under Government Contract, in form and substance acceptable to Agent, with respect to each contract under which Maytag or any other Borrower provides services or goods to an Account Debtor which is the United States or any department, agency, or instrumentality of the United States. "Authorized Person" means any officer or other employee of Administrative Borrower. "Availability" means, as of any date of determination, if such date is a Business Day, and determined at the close of business on the immediately preceding Business Day, if such date of determination is not a Business Day, the amount that Borrowers are entitled to borrow as Advances under Section 2.1 (after giving effect to all then outstanding Obligations (other than Bank Product Obligations) and all sublimits and reserves applicable hereunder). "Availability Block" means a reserve from Availability accruing on the first day of each month, beginning February 1, 2003, at a rate of $125,000 per month until such reserved amount equals $1,500,000. "Bank Product Agreements" means those certain cash management service agreements entered into from time to time by Administrative Borrower or its Subsidiaries in connection with any of the Bank Products. "Bank Product Obligations" means all obligations, liabilities, contingent reimbursement obligations, fees and expenses owing by Administrative Borrower or its Subsidiaries to Wells Fargo or its Affiliates pursuant to or evidenced by the Bank Product Agreements and irrespective of whether for the payment of money, whether direct or indirect, absolute or contingent, due or to become due, now existing or hereafter arising, and including all such amounts that a Borrower is obligated to reimburse to Agent or any member of the Lender Group as a result of Agent or such member of the Lender Group purchasing participations or executing indemnities or reimbursement obligations with respect to the Bank Products provided to Administrative Borrower or its Subsidiaries pursuant to the Bank Product Agreements. "Bank Product Reserves" means, as of any date of determination, the amount of reserves that Agent has established (based upon Wells Fargo's or its Affiliate's reasonable determination of the credit exposure in respect of then extant Bank Products) for Bank Products then provided or outstanding. "Bank Products" means any service or facility extended to Administrative Borrower or its Subsidiaries by Wells Fargo or any Affiliate of Wells Fargo including: (a) credit cards, (b) credit card processing services, (c) debit cards, (d) purchase cards, (e) ACH Transactions, (f) cash management, including controlled disbursement, accounts or services, or (g) Hedge Agreements. "Bankruptcy Code" means the United States Bankruptcy Code, as in effect from time to time. 3 "Base LIBOR Rate" means the rate per annum, determined by Agent in accordance with its customary procedures, and utilizing such electronic or other quotation sources as it considers appropriate (rounded upwards, if necessary, to the next 1/16%), on the basis of the rates at which Dollar deposits are offered to major banks in the London interbank market on or about 11:00 a.m. (California time) 2 Business Days prior to the commencement of the applicable Interest Period, for a term and in amounts comparable to the Interest Period and amount of the LIBOR Rate Loan requested by Administrative Borrower in accordance with this Agreement, which determination shall be conclusive in the absence of manifest error. "Base Rate" means, the rate of interest announced within Wells Fargo at its principal office in San Francisco as its "prime rate", with the understanding that the "prime rate" is one of Wells Fargo's base rates (not necessarily the lowest of such rates) and serves as the basis upon which effective rates of interest are calculated for those loans making reference thereto and is evidenced by the recording thereof after its announcement in such internal publication or publications as Wells Fargo may designate. "Base Rate Loan" means each portion of an Advance or the Term Loan that bears interest at a rate determined by reference to the Base Rate. "Base Rate Margin" means three-quarters of one (0.75) percentage point. "Base Year EBITDA" means, for any given FBO, the projected monthly EBITDA for the fiscal year ended June 30, 2003 for such FBO as set forth in the Closing Date Business Plan. "Benefit Plan" means a "defined benefit plan" (as defined in Section 3(35) of ERISA) for which any Borrower or any Subsidiary or ERISA Affiliate of any Borrower has been an "employer" (as defined in Section 3(5) of ERISA) within the past six years. "Board of Directors" means the board of directors (or comparable managers) of Parent or any committee thereof duly authorized to act on behalf thereof. "Books" means all of each Borrower's and its Subsidiaries' now owned or hereafter acquired books and records (including all of its Records indicating, summarizing, or evidencing its assets (including the Collateral) or liabilities, all of each Borrower's or its Subsidiaries' Records relating to its or their business operations or financial condition, and all of its or their goods or General Intangibles related to such information). "Borrower" and "Borrowers" have the respective meanings set forth in the preamble to this Agreement. "Borrowing" means a borrowing hereunder consisting of Advances (or term loans, in the case of the Term Loan) made on the same day by the Lenders (or Agent on behalf thereof), or by Swing Lender in the case of a Swing Loan, or by Agent in the case of an Agent Advance, in each case, to Administrative Borrower. "Borrowing Base" has the meaning set forth in Section 2.1. 4 "Business Day" means any day that is not a Saturday, Sunday, or other day on which national banks are authorized or required to close, except that, if a determination of a Business Day shall relate to a LIBOR Rate Loan, the term "Business Day" also shall exclude any day on which banks are closed for dealings in Dollar deposits in the London interbank market. "Capital Expenditures" means the expenditures made for the acquisition or additions of any equipment or other fixed assets or improvements, replacements, substitutions or additions thereto which are set forth as capital expenditures on the consolidated financial statements of Parent and its Subsidiaries prepared in accordance with GAAP, but shall exclude the amount of any casualty insurance proceeds used to repair or replace damaged or destroyed fixed assets. "Capital Lease" means a lease that is required to be capitalized for financial reporting purposes in accordance with GAAP. "Capitalized Lease Obligation" means any Indebtedness represented by obligations under a Capital Lease. "Cargo" means Mercury Air Cargo, Inc., a California corporation. "Cash Equivalents" means (a) marketable direct obligations issued or unconditionally guaranteed by the United States or issued by any agency thereof and backed by the full faith and credit of the United States, in each case maturing within 1 year from the date of acquisition thereof, (b) marketable direct obligations issued by any state of the United States or any political subdivision of any such state or any public instrumentality thereof maturing within 1 year from the date of acquisition thereof and, at the time of acquisition, having the highest rating obtainable from either S&P or Moody's, (c) commercial paper maturing no more than 270 days from the date of acquisition thereof and, at the time of acquisition, having a rating of A-1 or P-1, or better, from S&P or Moody's, and (d) certificates of deposit or bankers' acceptances maturing within 1 year from the date of acquisition thereof that are either (i) issued by any bank organized under the laws of the United States or any state thereof which bank has a rating of A or A2, or better, from S&P or Moody's, or (ii) in an amount less than or equal to $100,000 in the aggregate issued by any other bank insured by the Federal Deposit Insurance Corporation. "Cash Management Bank" has the meaning set forth in Section 2.7(a). "Cash Management Account" has the meaning set forth in Section 2.7(a). "Cash Management Agreements" means those certain cash management service agreements, in form and substance satisfactory to Agent, each of which is among a Borrower or a Guarantor, Agent, and one of the Cash Management Banks. "CEDFA" means the California Economic Development Financing Authority, a public instrumentality and political subdivision of the State of California. "Change of Control" means (a) any "person" or "group" (within the meaning of Sections 13(d) and 14(d) of the Exchange Act), other than a Permitted Holder, becomes the beneficial owner (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of 5 25%, or more, of the Stock of Parent having the right to vote for the election of members of the Board of Directors, or (b) a majority of the members of the Board of Directors do not constitute Continuing Directors, (c) any Borrower ceases to directly own and control 100% of the outstanding capital Stock of each of its Subsidiaries extant as of the Closing Date other than in connection with a Permitted Financing Transaction; or (d) a Change of Control (as defined in the Whitney Note). "ChevronTexaco Letter" means a letter agreement as to such matters as Agent may require, in form and substance satisfactory to Agent, among ChevronTexaco, Borrower and Agent. "Closing Date" means the date of the making of the initial Advance or Term Loan (or other extension of credit) hereunder. "Closing Date Business Plan" means the set of Projections of Borrowers for the 12-quarter period following the Closing Date (on a quarter by quarter basis), in form and substance (including as to scope and underlying assumptions) satisfactory to Agent. "Code" means the New York Uniform Commercial Code, as in effect from time to time. "Collateral" means all of each Borrower's now owned or hereafter acquired right, title, and interest in and to each of the following: (a) Accounts, (b) Books, (c) Equipment, (d) General Intangibles, (e) Inventory, (f) Investment Property, (g) Negotiable Collateral, (h) Real Property Collateral, (i) money or other assets of each such Borrower that now or hereafter come into the possession, custody, or control of any member of the Lender Group, and (j) the proceeds and products, whether tangible or intangible, of any of the foregoing, including proceeds of insurance covering any or all of the foregoing, and any and all Accounts, Books, Equipment, General Intangibles, Inventory, Investment Property, Negotiable Collateral, Real Property, money, deposit accounts, or other tangible or intangible property 6 resulting from the sale, exchange, collection, or other disposition of any of the foregoing, or any portion thereof or interest therein, and the proceeds thereof. "Collateral Access Agreement" means a landlord waiver, bailee letter, or acknowledgement agreement of any lessor, warehouseman, processor, consignee, or other Person in possession of, having a Lien upon, or having rights or interests in the Equipment or Inventory, in each case, in form and substance satisfactory to Agent. "Collections" means all cash, checks, notes, instruments, and other items of payment (including insurance proceeds, proceeds of cash sales, rental proceeds, and tax refunds) of Borrowers or Guarantors. "Commitment" means, with respect to each Lender, its Revolver Commitment, as of any date of determination, its Term Loan Commitment or its Total Commitment, as the context requires, and, with respect to all Lenders, their Revolver Commitments, their Term Loan Commitments or their Total Commitments, as the context requires, in each case as such Dollar amounts are set forth beside such Lender's name under the applicable heading on Schedule C-1 or on the signature page of the Assignment and Acceptance pursuant to which such Lender became a Lender hereunder in accordance with the provisions of Section 14.1. "Compliance Certificate" means a certificate substantially in the form of Exhibit C-1 delivered by the chief financial officer of Parent to Agent. "Continuing Director" means (a) any member of the Board of Directors who was a director (or comparable manager) of Parent on the Closing Date, and (b) any individual who becomes a member of the Board of Directors after the Closing Date if such individual was appointed or nominated for election to the Board of Directors by a majority of the Continuing Directors, but excluding any such individual originally proposed for election in opposition to the Board of Directors in office at the Closing Date in an actual or threatened election contest relating to the election of the directors (or comparable managers) of Parent (as such terms are used in Rule 14a-11 under the Exchange Act) and whose initial assumption of office resulted from such contest or the settlement thereof. "Control Agreement" means a control agreement, in form and substance satisfactory to Agent, executed and delivered by the applicable Borrower or Guarantor, Agent, and the applicable securities intermediary with respect to a Securities Account or a bank with respect to a deposit account. "Daily Balance" means, with respect to each day during the term of this Agreement, the amount of an Obligation owed at the end of such day. "DDA" means any checking or other demand deposit account maintained by any Borrower. "Default" means an event, condition, or default that, with the giving of notice, the passage of time, or both, would be an Event of Default. 7 "Defaulting Lender" means any Lender that fails to make any Advance (or other extension of credit) that it is required to make hereunder on the date that it is required to do so hereunder. "Defaulting Lender Rate" means (a) the Base Rate for the first 3 days from and after the date the relevant payment is due, and (b) thereafter, at the interest rate then applicable to Advances that are Base Rate Loans (inclusive of the Base Rate Margin applicable thereto). "Designated Account" means that certain DDA of Administrative Borrower identified on Schedule D-1. "Dilution" means, as of any date of determination, a percentage, based upon the experience of the immediately prior 90 days, that is the result of dividing the Dollar (or Dollar equivalent) amount of (a) bad debt write-downs, discounts, advertising allowances, credits, or other dilutive items with respect to the Accounts during such period, by (b) Borrowers' gross billings with respect to Accounts during such period (excluding extraordinary items). "Dilution Reserve" means, as of any date of determination, an amount sufficient to reduce the advance rate against Eligible Accounts and Eligible Foreign Accounts by one percentage point for each percentage point by which Dilution is in excess of 5%. "Disbursement Letter" means an instructional letter executed and delivered by Administrative Borrower to Agent regarding the extensions of credit to be made on the Closing Date, the form and substance of which is satisfactory to Agent. "Disqualified Capital Stock" means that portion of any equity security which, by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable at the option of the holder thereof), or upon the happening of any event, matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or is redeemable at the sole option of the holder thereof (except, in each case, upon the occurrence of a Change of Control) on or prior to the Maturity Date. "Dollars" or "$" means United States dollars. "Due Diligence Letter" means the due diligence letter sent by Agent's counsel to Administrative Borrower, together with Administrative Borrower's completed responses to the inquiries set forth therein, the form and substance of such responses to be satisfactory to Agent. "EBITDA" means, for any period as determined in accordance with GAAP, Parent's and Subsidiaries consolidated (a) net earnings for such period, plus (b) the sum of the following, without duplication, in each case to the extent included in the determination of such net earnings: (i) income and franchise taxes, (ii) Interest Expense, (iii) amortization, depreciation and other non-cash charges for stock compensation expenses, expenses incurred in connection with any employee stock ownership plan of any Borrower, and impairment write-downs of goodwill and other intangible assets, (iv) non-cash asset impairment charges, (v) cumulative effect of changes in accounting principles, (vi) Whitney's contingent fee associated with the Additional Warrants (as defined in the Whitney Agreement) and Additional Notes (as defined in 8 the Whitney Agreement) to the extent such fee is earned by Whitney, (vii) professional and transaction fees associated with the closing of the transactions contemplated by this Agreement, the closing of the transactions contemplated by the amendments effected on or about the date hereof with respect to the Whitney Documentation and any Permitted Financing Transactions, and (viii) professional and transaction fees associated with unconsummated Permitted Financing Transactions, not to exceed $500,000 in any fiscal year or $1,000,000 in the aggregate during the term of this Agreement, plus (or minus) (c) losses (or gains) attributable to any sale of equipment which constitutes a Permitted Disposition, to the extent included in the determination of net earnings, plus (or minus) (d) losses (or gains) attributable to any Permitted Financing Transaction, to the extent included in the determination of net earnings, less (e) any item classified as extraordinary income, to the extent included in the determination of net earnings. "Eligible Accounts" means those Accounts created by one of Borrowers in the ordinary course of its business, that arise out of its sale of goods or rendition of services, that comply with each of the representations and warranties respecting Eligible Accounts made by Borrowers under the Loan Documents, and that are not excluded as ineligible by virtue of one or more of the criteria set forth below; provided, however, that such criteria may be fixed and revised from time to time by Agent in Agent's Permitted Discretion to address the results of any audit performed by Agent from time to time after the Closing Date. In determining the amount to be included, Eligible Accounts shall be calculated net of customer deposits and unapplied cash remitted to Borrowers. Eligible Accounts shall not include the following: (a) Accounts that the Account Debtor has failed to pay within 60 days of the due date therefor or 90 days of the original invoice date therefor, (b) Accounts owed by an Account Debtor (or its Affiliates) where 50% or more of all Accounts owed by that Account Debtor (or its Affiliates) are deemed ineligible under clause (a) above, (c) Accounts with respect to which the Account Debtor is an employee, Affiliate, or agent of any Borrower, (d) Accounts arising in a transaction wherein goods are placed on consignment or are sold pursuant to a guaranteed sale, a sale or return, a sale on approval, a bill and hold, or any other terms by reason of which the payment by the Account Debtor may be conditional, (e) Accounts that are not payable in Dollars, (f) Accounts with respect to which the Account Debtor either (i) does not maintain its chief executive office in the United States or Canada, or (ii) is not organized under the laws of the United States or any state thereof or Canada or any province thereof, or (iii) is the government of any foreign country or sovereign state, or of any state, province, municipality, or other political subdivision thereof, or of any department, agency, public corporation, or other instrumentality thereof, unless (x) the Account is billed to an address in the United States and paid in Dollars drawn on an account at a federal or state chartered banking institution in the United States, (y) the Account is supported by an irrevocable letter of credit satisfactory to Agent 9 (as to form, substance, and issuer or domestic confirming bank) that has been delivered to Agent and is directly drawable by Agent, or (z) the Account is covered by credit insurance in form, substance, and amount, and by an insurer, satisfactory to Agent, (g) Accounts with respect to which the Account Debtor is either (i) the United States or any department, agency, or instrumentality of the United States (exclusive, however, of Accounts with respect to which the applicable Borrower has filed, by the dates required in this Agreement, a Notice of Assignment of Claims), or (ii) any state of the United States (exclusive, however, of (A) Accounts owed by any state that does not have a statutory counterpart to the Assignment of Claims Act or (B) Accounts owed by any state that does have a statutory counterpart to the Assignment of Claims Act as to which the applicable Borrower has complied to Agent's satisfaction), (h) Accounts with respect to which the Account Debtor is a creditor of any Borrower, has or has asserted a right of setoff, has disputed its liability, or has made any claim with respect to its obligation to pay the Account, to the extent of such claim, right of setoff, or dispute, (i) Accounts with respect to an Account Debtor whose total obligations owing to Borrowers exceed 10% (such percentage as applied to a particular Account Debtor being subject to reduction by Agent in its Permitted Discretion if the creditworthiness of such Account Debtor deteriorates) of all Eligible Accounts, to the extent of the obligations owing by such Account Debtor in excess of such percentage, (j) Accounts with respect to which the Account Debtor is subject to an Insolvency Proceeding, is not Solvent, has gone out of business, or as to which a Borrower has received notice of an imminent Insolvency Proceeding or a material impairment of the financial condition of such Account Debtor, (k) Accounts with respect to which the Account Debtor is located in the states of New Jersey, Minnesota, or West Virginia (or any other state that requires a creditor to file a business activity report or similar document in order to bring suit or otherwise enforce its remedies against such Account Debtor in the courts or through any judicial process of such state), unless the applicable Borrower has qualified to do business in New Jersey, Minnesota, West Virginia, or such other states, or has filed a business activities report with the applicable division of taxation, the department of revenue, or with such other state offices, as appropriate, for the then-current year, or is exempt from such filing requirement, (l) Accounts, the collection of which, Agent, in its Permitted Discretion, believes to be doubtful by reason of the Account Debtor's financial condition, (m) Accounts that are not subject to a valid and perfected first priority Agent's Lien, (n) Accounts with respect to which (i) the goods giving rise to such Account have not been shipped and billed to the Account Debtor, or (ii) the services giving rise to such Account have not been performed and billed to the Account Debtor, 10 (o) Accounts that represent the right to receive progress payments or other advance billings that are due prior to the completion of performance by the applicable Borrower of the subject contract for goods or services, (p) Accounts that are not billed to an address in the United States and paid in Dollars drawn on an account at a federal or state chartered banking institution in the United States, or (q) Accounts due from Airtran, Inc. or any of its Affiliates until such time as Agent deems otherwise. "Eligible Foreign Accounts" means Accounts which otherwise constitute Eligible Accounts, but which are owed by China Eastern Airlines or China Southern Airlines; provided, however Agent, in its Permitted Discretion, may revise the definition of "Eligible Foreign Accounts," from time to time, as Agent, in its Permitted Discretion deems necessary or appropriate. "Eligible Transferee" means (a) a commercial bank organized under the laws of the United States, or any state thereof, and having total assets in excess of $250,000,000, (b) a commercial bank organized under the laws of any other country which is a member of the Organization for Economic Cooperation and Development or a political subdivision of any such country and which has total assets in excess of $250,000,000, provided that such bank is acting through a branch or agency located in the United States, (c) a finance company, insurance company, or other financial institution or fund that is engaged in making, purchasing, or otherwise investing in commercial loans in the ordinary course of its business and having (together with its Affiliates) total assets in excess of $250,000,000, (d) any Affiliate (other than individuals) of a Lender that was party hereto as of the Closing Date or any Related Fund, (e) so long as no Event of Default has occurred and is continuing, any other Person approved by Agent and Administrative Borrower, and (f) during the continuation of an Event of Default, any other Person approved by Agent. "Environmental Actions" means any complaint, summons, citation, notice, directive, order, claim, litigation, investigation, judicial or administrative proceeding, judgment, letter, or other communication from any Governmental Authority, or any third party involving violations of Environmental Laws or releases of Hazardous Materials from (a) any assets, properties, or businesses of any Borrower or any predecessor in interest, (b) from adjoining properties or businesses, or (c) from or onto any facilities which received Hazardous Materials generated by any Borrower or any predecessor in interest. "Environmental Law" means any applicable federal, state, provincial, foreign or local statute, law, rule, regulation, ordinance, code, binding and enforceable guideline, binding and enforceable written policy or rule of common law now or hereafter in effect and in each case as amended, or any judicial or administrative interpretation thereof, including any judicial or administrative order, consent decree or judgment, to the extent binding on Borrowers, relating to the environment, employee health and safety, or Hazardous Materials, including CERCLA; RCRA; the Federal Water Pollution Control Act, 33 USC Section 1251 et seq; the Toxic Substances Control Act, 15 USC, Section 2601 et seq; the Clean Air Act, 42 USC Section 7401 et seq.; the Safe Drinking 11 Water Act, 42 USC. Section 3803 et seq.; the Oil Pollution Act of 1990, 33 USC. Section 2701 et seq.; the Emergency Planning and the Community Right-to-Know Act of 1986, 42 USC. Section 11001 et seq.; the Hazardous Material Transportation Act, 49 USC Section 1801 et seq.; and the Occupational Safety and Health Act, 29 USC. Section 651 et seq. (to the extent it regulates occupational exposure to Hazardous Materials); any state and local or foreign counterparts or equivalents, in each case as amended from time to time. "Environmental Liabilities and Costs" means all liabilities, monetary obligations, Remedial Actions, losses, damages, punitive damages, consequential damages, treble damages, costs and expenses (including all reasonable fees, disbursements and expenses of counsel, experts, or consultants, and costs of investigation and feasibility studies), fines, penalties, sanctions, and interest incurred as a result of any claim or demand by any Governmental Authority or any third party, and which relate to any Environmental Action. "Environmental Lien" means any Lien in favor of any Governmental Authority for Environmental Liabilities and Costs. "Equipment" means all of Borrowers' now owned or hereafter acquired right, title, and interest with respect to equipment, machinery, machine tools, motors, furniture, furnishings, fixtures, vehicles (including motor vehicles), tools, parts, goods (other than consumer goods, farm products, or Inventory), wherever located, including all attachments, accessories, accessions, replacements, substitutions, additions, and improvements to any of the foregoing. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended, and any successor statute thereto. "ERISA Affiliate" means (a) any Person subject to ERISA whose employees are treated as employed by the same employer as the employees of a Borrower under IRC Section 414(b), (b) any trade or business subject to ERISA whose employees are treated as employed by the same employer as the employees of a Borrower under IRC Section 414(c), (c) solely for purposes of Section 302 of ERISA and Section 412 of the IRC, any organization subject to ERISA that is a member of an affiliated service group of which a Borrower is a member under IRC Section 414(m), or (d) solely for purposes of Section 302 of ERISA and Section 412 of the IRC, any Person subject to ERISA that is a party to an arrangement with a Borrower and whose employees are aggregated with the employees of a Borrower under IRC Section 414(o). "Event of Default" has the meaning set forth in Section 8. "Excess Availability" means the amount, as of the date any determination thereof is to be made, equal to Availability minus the aggregate amount, if any, of all trade payables of Borrowers aged in excess of 60 days from the due date therefor and all book overdrafts in excess of their historical practices with respect thereto, in each case as determined by Agent in its Permitted Discretion. "Exchange Act" means the Securities Exchange Act of 1934, as in effect from time to time. 12 "Excluded FBOs" means the FBOs owned by Mercury Air Center-Los Angeles, Inc., Mercury Air Center-Santa Barbara, Inc. and Mercury Air Center-Hartsfield, LLC to the extent (a) any Person holds a Lien (other than a Permitted Lien) with respect to such FBOs, related Real Property or other assets that is senior to the Lien of Agent with respect to such FBOs, related Real Property or other assets or (b) such FBOs are not subject to leases with a term reasonably satisfactory to Agent. "Existing Lender" means Fleet National Bank. "Existing Operations Capital Expenditures" means Capital Expenditures used to acquire, add or replace equipment or other fixed assets at a location or facility operated by a Borrower and which are not financed with Indebtedness. "Expansion Capital Expenditures" means all Capital Expenditures, other than Existing Operations Capital Expenditures, which are financed with Indebtedness. "Extraordinary Receipts" means any cash received by the Parent or any of its Subsidiaries not in the ordinary course of business and other than from the disposition of assets, including (a) foreign, United States, state or local tax refunds, (b) pension plan reversions, (c) proceeds of insurance, (d) judgments, proceeds of settlements or other consideration of any kind in connection with any cause of action, (e) condemnation awards (and payments in lieu thereof), (f) indemnity payments and (g) any purchase price adjustments received in connection with any purchase agreement. "FBO" means a fixed base operator lease or similar agreement, identified on Schedule F-1 (as the same may be amended or modified from time to time), entered into by any Borrower with a municipality or other public agency owning or operating an airport located in the United States of America whereby such Borrower leases real property located at such airport for the purpose of providing services thereat. "FBO Borrowers" means Mercury Air Center-Birmingham, LLC, Mercury Air Center-Bakersfield, Inc., Mercury Air Center-Burbank, Inc., Mercury Air Center-Fresno, Inc., Mercury Air Center-Los Angeles, Inc., Mercury Air Center-Ontario, Inc., Mercury Air Center-Santa Barbara, Inc., Mercury Air Center-Hartsfield, LLC, Mercury Air Center-Peachtree-Dekalb, LLC, Mercury Air Center- Ft. Wayne, LLC., Mercury Air Center-Jackson, LLC., Mercury Air Center-Reno, LLC, Mercury Air Center-Tulsa, LLC., Mercury Air Center-Charleston, LLC., Mercury Air Center-Johns Island, LLC., Mercury Air Center-Nashville, LLC., Mercury Air Center-Addison, Inc. and Mercury Air Center - Corpus Christi, Inc. "FBO Documentation" means, collectively, with respect to each FBO listed on Schedule F-1 hereto (a) evidence, in form and substance satisfactory to Agent, that such FBO has been assigned or otherwise transferred to the applicable FBO Borrower, (b) a duly executed consent, in form and substance satisfactory to Agent, from the appropriate leasing authority of such FBO, consenting to the transfer of such FBO and such other matters as Agent may require, and (c) such other documentation with respect to the transfer of such FBO as Agent may reasonably require. 13 "FBO Enterprise Value" means the value of the FBOs other than the Excluded FBOs, as determined by Agent in its sole discretion, exercised in good faith (with a reference point being an appraisal by an independent appraiser acceptable to Agent), determined by assessing the value of stockholders' equity plus the stated value of interest bearing debt, when sold in a 6 to 12 month time frame, and includes discounts to reflect a sale in less than optimal time. "FBO Operations" means business operations of the applicable Borrower directly related to or arising from any FBO. "Fee Letter" means that certain fee letter, dated as of even date herewith, between Borrowers, the Lenders and Agent, in form and substance satisfactory to Agent. "FEIN" means Federal Employer Identification Number. "Fixed Charge Coverage Ratio" means, with respect to Parent and its Subsidiaries for any period, the ratio of (a) EBITDA for such period less cash payments with respect to Existing Operations Capital Expenditures of Parent and its Subsidiaries on a consolidated basis for such period, to (b) Fixed Charges for such period. "Fixed Charges" means, with respect to Parent and its Subsidiaries, for any period, the sum, without duplication, of (a) cash Interest Expense, (b) scheduled principal payments required to be made during such period with respect to Indebtedness (specifically excluding mandatory prepayments made under Section 2.4(c) or under Section 3 of the Whitney Note), and (c) the amount paid in cash to satisfy such entities' federal, state and local income tax obligations, other than, in the case of this clause (c), those incurred in connection with (i) a Permitted Financing Transaction, (ii) Permitted Dispositions and (iii) extraordinary income not included in calculating EBITDA. "Foothill" means Foothill Capital Corporation, a California corporation. "Funding Date" means the date on which a Borrowing occurs. "Funding Losses" has the meaning set forth in Section 2.13(b)(ii). "GAAP" means generally accepted accounting principles as in effect from time to time in the United States, consistently applied. "General Intangibles" means all of Borrowers' now owned or hereafter acquired right, title, and interest with respect to general intangibles (including payment intangibles, contract rights, rights to payment, rights arising under common law, statutes, or regulations, choses or things in action, goodwill, patents, trade names, trademarks, servicemarks, copyrights, blueprints, drawings, purchase orders, customer lists, monies due or recoverable from pension funds, route lists, rights to payment and other rights under any royalty or licensing agreements, infringement claims, computer programs, information contained on computer disks or tapes, software, literature, reports, catalogs, money, deposit accounts, insurance premium rebates, tax refunds, and tax refund claims), and any and all supporting obligations in respect thereof, and 14 any other personal property other than goods, Accounts, Investment Property, and Negotiable Collateral. "Governing Documents" means, with respect to any Person, the certificate or articles of incorporation, by-laws, or other organizational documents of such Person. "Governmental Authority" means any federal, state, local, or other governmental or administrative body, instrumentality, department, or agency or any court, tribunal, administrative hearing body, arbitration panel, commission, or other similar dispute-resolving panel or body. "Guarantors" mean, collectively, Hermes Aviation, Inc., a California corporation, Vulcan Aviation, Inc., a California corporation, Excel Cargo, Inc., a California corporation, Mercury Acceptance Corporation, a California corporation, Jupiter Airline Automation Services, Inc., a Florida corporation, AEG Finance Corporation, a Delaware corporation, and any other Person from time to time executing a Guaranty or similar agreement in favor of Agent, for the benefit of the Lender Group; sometimes referred to individually as a "Guarantor." "Guaranties" means, collectively, those certain Guaranty and Security Agreements, or similar agreements, executed and delivered by the applicable Guarantor in favor of Agent, for the benefit of the Lender Group, each in form and substance satisfactory to Agent; sometimes referred to individually as a "Guaranty." "Hazardous Materials" means (a) substances that are defined or listed in, or otherwise classified pursuant to, any applicable laws or regulations as "hazardous substances," "hazardous materials," "hazardous wastes," "toxic substances," or any other formulation intended to define, list, or classify substances by reason of deleterious properties such as ignitability, corrosivity, reactivity, carcinogenicity, reproductive toxicity, or "EP toxicity", (b) oil, petroleum, or petroleum derived substances, natural gas, natural gas liquids, synthetic gas, drilling fluids, produced waters, and other wastes associated with the exploration, development, or production of crude oil, natural gas, or geothermal resources, (c) any flammable substances or explosives or any radioactive materials, and (d) asbestos in any form or electrical equipment that contains any oil or dielectric fluid containing levels of polychlorinated biphenyls in excess of 50 parts per million. "Hedge Agreement" means any and all transactions, agreements, or documents now existing or hereafter entered into between Administrative Borrower or its Subsidiaries and Wells Fargo or its Affiliates, which provide for an interest rate, credit, commodity or equity swap, cap, floor, collar, forward foreign exchange transaction, currency swap, cross currency rate swap, currency option, or any combination of, or option with respect to, these or similar transactions, for the purpose of hedging Administrative Borrower's or its Subsidiaries' exposure to fluctuations in interest or exchange rates, loan, credit exchange, security or currency valuations or commodity prices. "Indebtedness" means (a) all obligations for borrowed money, (b) all obligations evidenced by bonds, debentures, notes, or other similar instruments and all reimbursement or other obligations in respect of letters of credit, bankers acceptances, interest rate swaps, or other 15 financial products, (c) the capitalized amount of all obligations under Capital Leases, determined in accordance with GAAP, (d) all obligations or liabilities of others secured by a Lien on any asset of Administrative Borrower or its Subsidiaries, irrespective of whether such obligation or liability is assumed, (e) all obligations for the deferred purchase price of assets (other than trade debt incurred in the ordinary course of business and repayable in accordance with customary trade practices), and (f) any obligation guaranteeing or intended to guarantee (whether directly or indirectly guaranteed, endorsed, co-made, discounted, or sold with recourse) any obligation of any other Person, including, without limitation, IRB Obligations. "Indemnified Liabilities" has the meaning set forth in Section 11.3. "Indemnified Person" has the meaning set forth in Section 11.3. "Insolvency Proceeding" means any proceeding commenced by or against any Person under any provision of the Bankruptcy Code or under any other state or federal bankruptcy or insolvency law, assignments for the benefit of creditors, formal or informal moratoria, compositions, extensions generally with creditors, or proceedings seeking reorganization, arrangement, or other similar relief. "Intangible Assets" means, with respect to any Person, that portion of the book value of all of such Person's assets that would be treated as intangibles under GAAP. "Interest Expense" means the aggregate interest expense of Parent and its Subsidiaries for a given period, on a consolidated basis, as determined in accordance with GAAP, and including the interest component of Capitalized Lease Obligations paid (to the extent not accrued in a prior period), accrued or scheduled to be paid or accrued by Parent and its Subsidiaries during such period. "Interest Period" means, with respect to each LIBOR Rate Loan, a period commencing on the date of the making of such LIBOR Rate Loan and ending 1, 2, or 3 months thereafter; provided, however, that (a) if any Interest Period would end on a day that is not a Business Day, such Interest Period shall be extended (subject to clauses (c)-(e) below) to the next succeeding Business Day, (b) interest shall accrue at the applicable rate based upon the LIBOR Rate from and including the first day of each Interest Period to, but excluding, the day on which any Interest Period expires, (c) any Interest Period that would end on a day that is not a Business Day shall be extended to the next succeeding Business Day unless such Business Day falls in another calendar month, in which case such Interest Period shall end on the next preceding Business Day, (d) with respect to an Interest Period that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period), the Interest Period shall end on the last Business Day of the calendar month that is 1, 2, or 3 months after the date on which the Interest Period began, as applicable, and (e) Borrowers (or Administrative Borrower on behalf thereof) may not elect an Interest Period which will end after the Maturity Date. "Inventory" means all Borrowers' now owned or hereafter acquired right, title, and interest with respect to inventory, including goods held for sale or lease or to be furnished under a contract of service, goods that are leased by a Borrower as lessor, goods that are 16 furnished by a Borrower under a contract of service, and raw materials, work in process, or materials used or consumed in a Borrower's business. "Investment" means, with respect to any Person, any investment by such Person in any other Person (including Affiliates) in the form of loans, guarantees, advances, or capital contributions (excluding (a) commission, travel, and similar advances to officers and employees of such Person made in the ordinary course of business, and (b) bona fide Accounts arising in the ordinary course of business consistent with past practices), purchases or other acquisitions for consideration of Indebtedness or Stock, and any other items that are or would be classified as investments on a balance sheet prepared in accordance with GAAP. "Investment Property" means all of Borrowers' now owned or hereafter acquired right, title, and interest with respect to "investment property" as that term is defined in the Code, and any and all supporting obligations in respect thereof. "IRB Obligations" means Indebtedness incurred with respect to revenue bonds issued by a Governmental Authority for purposes of financing improvements to or construction of facilities of substantially the same type or for substantially the same use as are currently operated by any Borrower at any airport where an FBO is located. "IRC" means the Internal Revenue Code of 1986, as in effect from time to time. "Issuing Lender" means Foothill or any other Lender that, at the request of Administrative Borrower and with the consent of Agent agrees, in such Lender's sole discretion, to become an Issuing Lender for the purpose of issuing L/Cs or L/C Undertakings pursuant to Section 2.12. "L/C" has the meaning set forth in Section 2.12(a). "L/C Disbursement" means a payment made by the Issuing Lender pursuant to a Letter of Credit. "L/C Undertaking" has the meaning set forth in Section 2.12(a). "Lender" and "Lenders" have the respective meanings set forth in the preamble to this Agreement, and shall include any other Person made a party to this Agreement in accordance with the provisions of Section 14.1. "Lender Group" means, individually and collectively, each of the Lenders (including the Issuing Lender) and Agent. "Lender Group Expenses" means all (a) costs or expenses (including taxes, and insurance premiums) required to be paid by a Borrower under any of the Loan Documents that are paid or incurred by the Lender Group, (b) fees or charges paid or incurred by Agent in connection with the Lender Group's transactions with Borrowers, including, fees or charges for photocopying, notarization, couriers and messengers, telecommunication, public record searches (including tax lien, litigation, and UCC searches and including searches with the patent and trademark office, the copyright office, or the department of motor vehicles), filing, recording, 17 publication, appraisal (including periodic Collateral appraisals or business valuations to the extent of the fees and charges (and up to the amount of any limitation) contained in this Agreement, real estate surveys, real estate title policies and endorsements, and environmental audits, (c) costs and expenses incurred by Agent in the disbursement of funds to or for the account of Borrowers (by wire transfer or otherwise), (d) charges paid or incurred by Agent resulting from the dishonor of checks, (e) reasonable costs and expenses paid or incurred by the Lender Group to correct any default or enforce any provision of the Loan Documents, or in gaining possession of, maintaining, handling, preserving, storing, shipping, selling, preparing for sale, or advertising to sell the Collateral, or any portion thereof, irrespective of whether a sale is consummated, (f) audit fees and expenses of Agent related to audit examinations of the Books to the extent of the fees and charges (and up to the amount of any limitation) contained in this Agreement, (g) reasonable costs and expenses of third party claims or any other suit paid or incurred by the Lender Group in enforcing or defending the Loan Documents or in connection with the transactions contemplated by the Loan Documents or the Lender Group's relationship with any Borrower or any guarantor of the Obligations, (h) Agent's and Ableco's reasonable fees and expenses (including reasonable attorneys fees) incurred in advising, structuring, drafting, reviewing, administering, syndicating or amending the Loan Documents, and (i) Agent's and each Lender's reasonable fees and expenses (including attorneys fees) incurred in terminating, enforcing (including reasonable attorneys fees and expenses incurred in connection with a "workout," a "restructuring," or an Insolvency Proceeding concerning any Borrower or in exercising rights or remedies under the Loan Documents), or defending the Loan Documents, irrespective of whether suit is brought, or in taking any Remedial Action concerning the Collateral. "Lender-Related Person" means, with respect to any Lender, such Lender, together with such Lender's Affiliates, and the officers, directors, employees, and agents of such Lender. "Letter of Credit" means an L/C or an L/C Undertaking, as the context requires. "Letter of Credit Usage" means, as of any date of determination, the aggregate undrawn amount of all outstanding Letters of Credit plus 100% of the amount of outstanding time drafts accepted by an Underlying Issuer as a result of drawings under Underlying Letters of Credit. "Liabilities" has the meaning set forth in Section 2.16. "LIBOR Deadline" has the meaning set forth in Section 2.13(b)(i). "LIBOR Notice" means a written notice in the form of Exhibit L-1. "LIBOR Rate" means, for each Interest Period for each LIBOR Rate Loan, the rate per annum determined by Agent (rounded upwards, if necessary, to the next 1/16%) by dividing (a) the Base LIBOR Rate for such Interest Period, by (b) 100% minus the Reserve Percentage. The LIBOR Rate shall be adjusted on and as of the effective day of any change in the Reserve Percentage. 18 "LIBOR Rate Loan" means each portion of an Advance that bears interest at a rate determined by reference to the LIBOR Rate. "LIBOR Rate Margin" means three and one-half (3.5) percentage points. "Lien" means any interest in an asset securing an obligation owed to, or a claim by, any Person other than the owner of the asset, whether such interest shall be based on the common law, statute, or contract, whether such interest shall be recorded or perfected, and whether such interest shall be contingent upon the occurrence of some future event or events or the existence of some future circumstance or circumstances, including the lien or security interest arising from a mortgage, deed of trust, encumbrance, pledge, hypothecation, assignment, deposit arrangement, security agreement, conditional sale or trust receipt, or from a lease, consignment, or bailment for security purposes and also including reservations, exceptions, encroachments, easements, rights-of-way, covenants, conditions, restrictions, leases, and other title exceptions and encumbrances affecting Real Property. "Liens to be Released" means, collectively, the Liens set forth on Schedule L-1. "Loan Account" has the meaning set forth in Section 2.10. "Loan Documents" means this Agreement, the Assignments of Claims, the Cash Management Agreements, the Control Agreements, the Disbursement Letter, the Due Diligence Letter, the Stock Pledge Documentation, the Fee Letter, the Guaranties, the Validity Agreement, the Mortgages, the Notices of Assignment of Claims, the Officers' Certificate, the Trademark Security Agreement, the Whitney Subordination, the ChevronTexaco Letter, any note or notes executed by a Borrower in connection with this Agreement and payable to a member of the Lender Group, and any other agreement entered into, now or in the future, by any Borrower and the Lender Group in connection with this Agreement. "MAC" means Mercury Air Centers, Inc., a California corporation. "Material Adverse Change" means (a) a material adverse change in the business, prospects, operations, results of operations, assets, liabilities or condition (financial or otherwise) of Borrowers taken as a whole, (b) a material impairment of a Borrower's ability to perform its obligations under the Loan Documents to which it is a party or of the Lender Group's ability to enforce the Obligations or realize upon the Collateral, or (c) a material impairment of the enforceability or priority of the Agent's Liens with respect to the Collateral as a result of an action or failure to act on the part of a Borrower. "Maturity Date" has the meaning set forth in Section 3.4. "Maximum Revolver Amount" means $42,500,000. "Maytag" means Maytag Aircraft Corporation, a Colorado corporation. "MercFuel" means MercFuel, Inc. a Delaware corporation. 19 "Mortgage Policy" means a mortgagee title insurance policy (or marked commitments to issue the same) with respect to any Mortgage, issued by a title insurance company satisfactory to Agent, in an amount satisfactory to Agent, assuring Agent that such Mortgage is a valid and enforceable first priority mortgage Lien on the Real Property Collateral subject thereto, free and clear of all defects and encumbrances except Permitted Liens, and otherwise in form and substance satisfactory to Agent. "Mortgages" means, individually and collectively, one or more mortgages, deeds of trust, or deeds to secure debt, at any time executed and delivered by a Borrower or Guarantor in favor of Agent, for the benefit of the Lender Group, in form and substance satisfactory to Agent, that encumbers any portion of the Real Property Collateral. "Negotiable Collateral" means all of Borrowers' now owned and hereafter acquired right, title, and interest with respect to letters of credit, letter of credit rights, instruments, promissory notes, drafts, documents, and chattel paper (including electronic chattel paper and tangible chattel paper), and any and all supporting obligations in respect thereof. "Net Cash Proceeds" means the gross proceeds of any Permitted Financing Transaction less (i) the Taxes paid or payable as a result of such Permitted Financing Transaction, as evidenced to Agent, (ii) the actual transaction costs and expenses (including fees of brokers or financial advisors) incurred in connection with such Permitted Financing Transaction and necessary to conclude such Permitted Financing Transaction and (iii) the amount required to repay in full any Advances made against any assets sold or otherwise disposed of in connection with such Permitted Financing Transaction which had previously constituted a portion of the Borrowing Base, as determined by Agent. "Net Liquidation Percentage" means the percentage of the book value of Borrowers' Inventory that is estimated to be recoverable in an orderly liquidation of such Inventory, such percentage to be as determined from time to time by a qualified appraisal company selected by Agent. "Notices of Assignment of Claims" means, collectively, the Notices of Assignment of Claims, executed by Agent, Maytag and/or such other Borrower as may be required by Agent, and addressed to the contracting officer and disbursing officer with respect to each contract subject to an Assignment of Claims. "Obligations" means (a) all loans (including the Term Loan), Advances, debts, principal, interest (including any interest that, but for the provisions of the Bankruptcy Code, would have accrued), contingent reimbursement obligations with respect to outstanding Letters of Credit, premiums, liabilities (including all amounts charged to Borrowers' Loan Account pursuant hereto), obligations, fees (including the fees provided for in the Fee Letter), charges, costs, Lender Group Expenses (including any fees or expenses that, but for the provisions of the Bankruptcy Code, would have accrued), lease payments, guaranties, covenants, and duties of any kind and description owing by Borrowers to the Lender Group pursuant to or evidenced by the Loan Documents and irrespective of whether for the payment of money, whether direct or indirect, absolute or contingent, due or to become due, now existing or hereafter arising, and including all interest not paid when due and all Lender Group Expenses that Borrowers are 20 required to pay or reimburse by the Loan Documents, by law, or otherwise and (b) all Bank Product Obligations. Any reference in this Agreement or in the Loan Documents to the Obligations shall include all amendments, changes, extensions, modifications, renewals replacements, substitutions, and supplements, thereto and thereof, as applicable, both prior and subsequent to any Insolvency Proceeding. "Officers' Certificate" means the representations and warranties of officers form submitted by Agent to Administrative Borrower, together with Borrowers' completed responses to the inquiries set forth therein, the form and substance of such responses to be satisfactory to Agent. "Originating Lender" has the meaning set forth in Section 14.1(e). "Overadvance" has the meaning set forth in Section 2.5. "Parent" has the meaning set forth in the preamble to this Agreement. "Participant" has the meaning set forth in Section 14.1(e). "Participant Register" has the meaning set forth in Section 14.1(i). "Pay-Off Letter" means a letter, in form and substance satisfactory to Agent, from Existing Lender to Agent respecting the amount necessary to repay in full all of the obligations of Borrowers and Guarantors owing to Existing Lender and obtain a release of all of the Liens existing in favor of Existing Lender in and to the assets of Borrowers and Guarantors. "Permitted Construction Indebtedness" means all Indebtedness created or incurred in connection with the construction of improvements to Real Property (including, without limitation, IRB Obligations) if such Indebtedness is secured only by a Lien on such improvements and fixtures and appurtenances thereto on terms reasonably satisfactory to the Required Lenders, plus Capital Lease Obligations or other Purchase Money Indebtedness (in each case to the extent permitted hereunder) incurred in connection with Expansion Capital Expenditures reasonably required to commence operations at such location. "Permitted Discretion" means a determination made in good faith and in the exercise of reasonable (from the perspective of a secured asset-based lender) business judgment. "Permitted Dispositions" means (a) sales or other dispositions by Administrative Borrower or its Subsidiaries of Equipment that is substantially worn, damaged, or obsolete in the ordinary course of business, (b) sales by Administrative Borrower or its Subsidiaries of Inventory to buyers in the ordinary course of business, (c) the use or transfer of money or Cash Equivalents by Administrative Borrower or its Subsidiaries in a manner that is not prohibited by the terms of this Agreement or the other Loan Documents, and (d) the licensing by Administrative Borrower or its Subsidiaries, on a non-exclusive basis, of patents, trademarks, copyrights, and other intellectual property rights in the ordinary course of business. "Permitted Financing Transactions" means transactions consented to by the Required Lenders consisting of: 21 (a) sales of assets constituting FBOs or FBO Operations or any other assets, other than Permitted Dispositions; (b) transactions involving the sale to a third party of improvements to Real Property where such third party then leases such improvements to a Borrower, whether or not such lease is classified as an operating lease in accordance with GAAP; (c) sales of stock of FBO Borrowers in connection with the sale of an FBO; (d) a Public Offering or other sale or issuance by a Borrower of equity securities (other than Disqualified Capital Stock) with respect to which (i) Agent has received at least 30 days prior written notice of such transaction, (ii) no Default or Event of Default shall then exist or would occur as a result thereof and (iii) no Change of Control would occur as a result thereof. "Permitted Holders" means CFK Partners and its Affiliates and Whitney and its Affiliates. "Permitted Investments" means (a) investments in Cash Equivalents, (b) investments in negotiable instruments for collection, (c) advances made in connection with purchases of goods or services in the ordinary course of business, and (d) investments by any Borrower in any other Borrower provided that if any such investment is in the form of Indebtedness, such Indebtedness investment shall be subordinated in right of payment to the prior payment in full of the Obligations in a manner satisfactory to Required Lenders, in their sole discretion. "Permitted Liens" means (a) Liens held by Agent for the benefit of Agent and the Lenders, (b) Liens for unpaid taxes that either (i) are not yet delinquent, or (ii) do not constitute an Event of Default hereunder and are the subject of Permitted Protests, (c) Liens set forth on Schedule P-1, (d) Liens granted to Whitney as of the date hereof under the Whitney Documentation, (e) the interests of lessors under operating leases, (f) purchase money Liens or the interests of lessors under Capital Leases to the extent that such Liens or interests secure Permitted Purchase Money Indebtedness and so long as such Lien attaches only to the asset purchased or acquired and the proceeds thereof, (g) Liens arising by operation of law in favor of warehousemen, landlords, carriers, mechanics, materialmen, laborers, or suppliers, incurred in the ordinary course of business and not in connection with the borrowing of money, and which Liens either (i) are for sums not yet delinquent, or (ii) are the subject of Permitted Protests, (h) Liens arising from deposits made in connection with obtaining worker's compensation or other unemployment insurance, (i) Liens or deposits to secure performance of bids, tenders, or leases incurred in the ordinary course of business and not in connection with the borrowing of money, (j) Liens granted as security for surety or appeal bonds in connection with obtaining such bonds in the ordinary course of business, (k) Liens resulting from any judgment or award that is not an Event of Default hereunder, (l) Liens with respect to the Real Property Collateral that are exceptions to the Mortgage Policies issued in connection with the Mortgages, as reasonably accepted by Agent, (m) with respect to any Real Property that is not part of the Real Property Collateral, easements, rights of way, and zoning restrictions that do not materially interfere with or impair the use or operation thereof; and (n) Liens granted in connection with Permitted 22 Construction Indebtedness that do not attach to the Collateral, as reasonably determined by Agent. "Permitted Protest" means the right of Administrative Borrower or any of its Subsidiaries, as applicable, to protest any Lien (other than any such Lien that secures the Obligations), taxes (other than payroll taxes or taxes that are the subject of a United States federal tax lien), or rental payment, provided that (a) a reserve with respect to such obligation is established on the Books in such amount as is required under GAAP, (b) any such protest is instituted promptly and prosecuted diligently by Administrative Borrower or any of its Subsidiaries, as applicable, in good faith, and (c) Agent is satisfied that, while any such protest is pending, there will be no impairment of the enforceability, validity, or priority of any of the Agent's Liens. "Permitted Purchase Money Indebtedness" means, as of any date of determination, Purchase Money Indebtedness incurred after the Closing Date not to exceed (a) $2,000,000 in any one fiscal year or (b) $5,000,000 in the aggregate outstanding at any one time. "Person" means natural persons, corporations, limited liability companies, limited partnerships, general partnerships, limited liability partnerships, joint ventures, trusts, land trusts, business trusts, or other organizations, irrespective of whether they are legal entities, and governments and agencies and political subdivisions thereof. "Personal Property Collateral" means all Collateral other than Real Property. "Projections" means Parent's forecasted (a) balance sheets, (b) profit and loss statements, and (c) cash flow statements, all prepared on a consistent basis with Parent's historical financial statements, together with appropriate supporting details and a statement of underlying assumptions. "Pro Rata Share" means, as of any date of determination: (a) with respect to a Lender's obligation to make Advances and receive payments of principal, interest, fees, costs, and expenses with respect thereto, (i) prior to the Revolver Commitment being terminated or reduced to zero, the percentage obtained by dividing (A) such Lender's Revolver Commitment by (B) the aggregate Revolver Commitments of all Lenders, and (ii) from and after the time that the Revolver Commitment has been terminated or reduced to zero, the percentage obtained by dividing (A) the aggregate principal amount of such Lender's Advances, by (B) the aggregate principal amount of all Advances, (b) with respect to a Lender's obligation to participate in Letters of Credit, to reimburse the Issuing Lender, and to receive payments of fees with respect thereto, (i) prior to the Revolver Commitment being terminated or reduced to zero, the percentage obtained by dividing (A) such Lender's Revolver Commitment by (B) the aggregate Revolver Commitments of all Lenders, and (ii) from and after the time that the Revolver Commitment has been terminated or reduced to zero, the percentage obtained by dividing (A) the aggregate principal amount of such Lender's Advances by (B) the aggregate principal amount of all Advances, 23 (c) with respect to a Lender's obligation to make the Term Loan and to receive payments of interest, fees and principal with respect thereto, (i) prior to the making of the Term Loan, the percentage obtained by dividing (A) such Lender's Term Loan Commitment by (B) the aggregate amount of all Lenders' Term Loan Commitments, and (ii) from and after the making of the Term Loan, the percentage obtained by dividing (A) the principal amount of such Lender's portion of the Term Loan by (B) the principal amount of the Term Loan, (d) with respect to a Lender's indemnification obligations arising under Section 16.7, (i) the percentage obtained by dividing (A) such Lender's Revolver Commitment plus the unpaid principal amount of such Lender's portion of the Term Loan by (B) the aggregate amount of Revolver Commitments of all Lenders plus the unpaid principal amount of the Term Loan or (ii) in the event the Revolver Commitments have been terminated or reduced to zero, the percentage obtained by dividing (A) the principal amount of such Lender's Advances plus such Lender's Risk Participation Liability with respect to outstanding Letter of Credit plus the unpaid principal amount of such Lender's portion of the Term Loan by (B) the principal amount of all outstanding Advances plus all Lenders' Risk Participation Liability with respect to outstanding Letters of Credit plus the unpaid principal amount of the Term Loan; and (e) with respect to all other matters as to a particular Lender, the percentage obtained by dividing (i) such Lender's Revolver Commitment, notwithstanding any termination of such Revolver Commitment as a result of an Event of Default, plus such Lender's Term Loan Commitment, notwithstanding any termination of such Term Loan Commitment as a result of an Event of Default, by (ii) the aggregate amount of Revolver Commitments of all Lenders, notwithstanding any termination of any Revolver Commitment as a result of an Event of Default, plus the aggregate amount of Term Loan Commitments of all Lenders, notwithstanding any termination of any Term Loan Commitments as a result of an Event of Default. "Public Offering" has the meaning set forth in the Whitney Note. "Purchase Money Indebtedness" means Indebtedness (other than the Obligations, but including Capitalized Lease Obligations), incurred at the time of, or within 20 days after, the acquisition of any fixed assets or equipment (but specifically excluding improvements to Real Property) for the purpose of financing all or any part of the acquisition cost thereof. "Rating Agencies" has the meaning set forth in Section 2.16. "Real Property" means any estates or interests in real property now owned or hereafter acquired by any Borrower or Guarantor and the improvements thereto. "Real Property Collateral" means any Real Property other than that described on Schedule R-1. "Register" has the meaning set forth in Section 14.1(h). "Registered Loan" has the meaning set forth in Section 14.1(h). "Registered Note" has the meaning set forth in Section 14.1(h). 24 "Record" means information that is inscribed on a tangible medium or which is stored in an electronic or other medium and is retrievable in perceivable form. "Related Fund" means any fund, money market account, investment account or other account managed by a Lender or an Affiliate of such Lender or its investment manager. "Remedial Action" means all actions taken to (a) clean up, remove, remediate, contain, treat, monitor, assess, evaluate, or in any way address Hazardous Materials in the indoor or outdoor environment, (b) prevent or minimize a release or threatened release of Hazardous Materials so they do not migrate or endanger or threaten to endanger public health or welfare or the indoor or outdoor environment, (c) perform any pre-remedial studies, investigations, or post-remedial operation and maintenance activities, or (d) conduct any other actions authorized by 42 USC Section 9601. "Replacement Lender" has the meaning set forth in Section 15.2. "Report" has the meaning set forth in Section 16.17. "Required Availability" means Excess Availability and unrestricted cash and Cash Equivalents in an amount of not less than $4,000,000. "Required Lenders" means, at any time, Lenders whose Pro Rata Shares, as determined pursuant to clause (e) of the definition of "Pro Rata Share," aggregate 66 2/3% of the Total Commitments. "Reserve Percentage" means, on any day, for any Lender, the maximum percentage prescribed by the Board of Governors of the Federal Reserve System (or any successor Governmental Authority) for determining the reserve requirements (including any basic, supplemental, marginal, or emergency reserves) that are in effect on such date with respect to eurocurrency funding (currently referred to as "eurocurrency liabilities") of that Lender, but so long as such Lender is not required or directed under applicable regulations to maintain such reserves, the Reserve Percentage shall be zero. "Revenue Bond Letter of Credit" means a Letter of Credit, or any replacement thereof, issued pursuant to the terms of this Agreement for the account of Borrowers and with respect to an Underlying Letter of Credit issued for the benefit of the California Economic Development Financing Authority in the maximum aggregate face amount of $15,000,000 less amortization of the underlying obligations to and including the Closing Date. "Revolver Commitment" means, with respect to each Lender, its Revolver Commitment, and, with respect to all Lenders, their Revolver Commitments, in each case (a) as such Dollar amounts are set forth beside such Lender's name under the applicable heading on Schedule C-1 or (b) on the signature page of the Assignment and Acceptance pursuant to which such Lender became a Lender hereunder in accordance with the provisions of Section 14.1. "Revolver Usage" means, as of any date of determination, the sum of (a) the then extant amount of outstanding Advances, plus (b) the then extant amount of the Letter of Credit Usage. 25 "Risk Participation Liability" means, as to each Letter of Credit, all reimbursement obligations of Borrowers to the Issuing Lender with respect to an L/C Undertaking, consisting of (a) the amount available to be drawn or which may become available to be drawn, (b) all amounts that have been paid by the Issuing Lender to the Underlying Issuer to the extent not reimbursed by Borrowers, whether by the making of an Advance or otherwise, and (c) all accrued and unpaid interest, fees, and expenses payable with respect thereto. "SEC" means the United States Securities and Exchange Commission and any successor thereto. "Securities Account" means a "securities account" as that term is defined in the Code. "Securitization" has the meaning set forth in Section 2.16. "Securitization Parties" has the meaning set forth in Section 2.16. "Settlement" has the meaning set forth in Section 2.3(f)(i). "Settlement Date" has the meaning set forth in Section 2.3(f)(i). "Solvent" means, with respect to any Person on a particular date, that such Person is not insolvent (as such term is defined in the Uniform Fraudulent Transfer Act). "Stock" means all shares, options, warrants, interests, participations, or other equivalents (regardless of how designated) of or in a Person, whether voting or nonvoting, including common stock, preferred stock, or any other "equity security" (as such term is defined in Rule 3a11-1 of the General Rules and Regulations promulgated by the SEC under the Exchange Act). "Stock Pledge Agreement" means a stock pledge agreement, in form and substance satisfactory to Agent, executed and delivered by a Borrower with respect to the Stock of a Subsidiary of such Borrower; referred to collectively as the "Stock Pledge Agreements." "Stock Pledge Documentation" means Stock Pledge Agreements, together with all certificates representing the shares of Stock pledged thereunder and Stock powers with respect thereto executed in blank. "Subsidiary" of a Person means a corporation, partnership, limited liability company, or other entity in which that Person directly or indirectly owns or controls the shares of Stock having ordinary voting power to elect a majority of the board of directors (or appoint other comparable managers) of such corporation, partnership, limited liability company, or other entity. "Swing Lender" means Foothill or any other Lender that, at the request of Administrative Borrower and with the consent of Agent agrees, in such Lender's sole discretion, to become the Swing Lender hereunder. 26 "Swing Loan" has the meaning set forth in Section 2.3(d)(i). "Target Amount" means, as of any date of determination, (a) $3,000,000 less (b) the amount of regularly scheduled principal payments which have been paid by Borrowers with respect to the Term Loan during the period between January 1, 2003 and December 31, 2003 less (c) $125,000 times the number of full months that have elapsed between February 1, 2003 and such date of determination. "Target FBOs" means the FBOs of which a sale is contemplated in the Closing Date Business Plan. "Taxes" has the meaning set forth in Section 16.11(e). "Term Loan" has the meaning set forth in Section 2.2. "Term Loan Amount" means $12,500,000. "Term Loan Commitment" means, with respect to each Lender, its Term Loan Commitment, and, with respect to all Lenders, their Term Loan Commitments, in each case as such Dollar amounts are set forth beside such Lender's name under the applicable heading on Schedule C-1, or on the signature page of the Assignment and Acceptance pursuant to which such Lender became a Lender hereunder in accordance with the provisions of Section 14.1. "Term Loan Margin" means two and one-half (2.5) percentage points. "Total Commitment" means, with respect to each Lender, its Total Commitment, and, with respect to all Lenders, their Total Commitments, in each case as such Dollar amounts are set forth beside such Lender's name under the applicable heading on Schedule C-1 or on the signature page of the Assignment and Acceptance pursuant to which such Lender became a Lender hereunder in accordance with the provisions of Section 14.1. "Trademark Security Agreement" means a trademark security agreement executed and delivered by the applicable Borrower with respect to any trademark applications made by such Borrower, in form and substance satisfactory to Agent. "Underlying Issuer" means a third Person which is the beneficiary of an L/C Undertaking and which has issued a letter of credit at the request of the Issuing Lender for the benefit of Borrowers. "Underlying Letter of Credit" means a letter of credit that has been issued by an Underlying Issuer. "Validity Agreement" means that certain Validity Agreement, dated as of the date hereof, executed and delivered by Joseph Czyzyk, in his capacity as an individual and in his capacity as Chief Executive Officer of Parent, in favor of Agent, for the benefit of the Lender Group, in form and substance satisfactory to Agent. "Voidable Transfer" has the meaning set forth in Section 17.7. 27 "Wells Fargo" means Wells Fargo Bank, National Association, a national banking association. "Whitney" means J. H. Whitney Mezzanine Fund, L.P., a Delaware limited partnership. "Whitney Agreement" means that certain Securities Purchase Agreement, dated September 10, 1999, between Whitney and Parent, as amended through and including the Closing Date. "Whitney Debt" means the Indebtedness owing to Whitney by Parent under the Whitney Documentation. "Whitney Documentation" means the Whitney Agreement, the Whitney Note and any other agreements, notes or other documents related thereto, together with any amendments or supplements thereto or modifications or replacements thereof. "Whitney Note" means that certain Amended and Restated WMF Senior Subordinated Promissory Note, dated September 10, 1999, issued by Parent to Whitney in the original principal amount of $24,000,000. "Whitney Subordination" means that certain Subordination Agreement, dated as of the date hereof, by and between Whitney and Agent. 1.2 ACCOUNTING TERMS. All accounting terms not specifically defined herein shall be construed in accordance with GAAP. When used herein, the term "financial statements" shall include the notes and schedules thereto. Whenever the term "Borrowers" or the term "Parent" is used in respect of a financial covenant or a related definition, it shall be understood to mean Parent and its Subsidiaries on a consolidated basis unless the context clearly requires otherwise. 1.3 CODE. Any terms used in this Agreement that are defined in the Code shall be construed and defined as set forth in the Code unless otherwise defined herein. 1.4 CONSTRUCTION. Unless the context of this Agreement or any other Loan Document clearly requires otherwise, references to the plural include the singular, references to the singular include the plural, the term "including" is not limiting, and the term "or" has, except where otherwise indicated, the inclusive meaning represented by the phrase "and/or." The words "hereof," "herein," "hereby," "hereunder," and similar terms in this Agreement or any other Loan Document refer to this Agreement or such other Loan Document, as the case may be, as a whole and not to any particular provision of this Agreement or such other Loan Document, as the case may be. Section, subsection, clause, schedule, and exhibit references herein are to this Agreement unless otherwise specified. Any reference in this Agreement or in the other Loan Documents to any agreement, instrument, or document shall include all alterations, amendments, changes, extensions, modifications, renewals, replacements, substitutions, joinders, and supplements, thereto and thereof, as applicable (subject to any restrictions on such alterations, amendments, changes, extensions, modifications, renewals, replacements, substitutions, joinders, and supplements set forth herein). Any reference herein to any Person shall be construed to 28 include such Person's successors and assigns. Any requirement of a writing contained herein or in the other Loan Documents shall be satisfied by the transmission of a Record and any Record transmitted shall constitute a representation and warranty as to the accuracy and completeness of the information contained therein. 1.5 SCHEDULES AND EXHIBITS. All of the schedules and exhibits attached to this Agreement shall be deemed incorporated herein by reference. 2. LOAN AND TERMS OF PAYMENT. 2.1 REVOLVER ADVANCES. (a) Subject to the terms and conditions of this Agreement, and during the term of this Agreement, each Lender with a Revolver Commitment agrees (severally, not jointly or jointly and severally) to make advances ("Advances") to Borrowers in an amount at any one time outstanding not to exceed such Lender's Pro Rata Share of an amount equal to the lesser of (i) the Maximum Revolver Amount (as in effect at the time of determination) less the then outstanding balance of the Term Loan less the Letter of Credit Usage, or (ii) the Borrowing Base less the Letter of Credit Usage. For purposes of this Agreement, "Borrowing Base," as of any date of determination, shall mean the result of: (x) the lesser of (i) the sum of: (A) 85% of the amount of Eligible Accounts plus (B) the lesser of (1) 85% of Eligible Foreign Accounts or (2) $2,000,000; less the amount, if any, of the Dilution Reserve, and (ii) an amount equal to Borrowers' Collections with respect to Accounts for the immediately preceding 45 day period, minus (y) the sum of the Bank Product Reserve, the Availability Block, the Asset Sale Reserve and the aggregate amount of all other reserves, if any, established by Agent under Section 2.1(b). (b) Anything to the contrary in this Section 2.1 notwithstanding, Agent shall have the right to establish reserves in such amounts, and with respect to such matters, as Agent in its Permitted Discretion shall deem necessary or appropriate, against the Borrowing Base, including, without limitation, reserves with respect to (i) sums that Borrowers are required to pay (such as taxes, assessments, insurance premiums, or, in the case of leased assets, rents or other amounts payable under such leases) and has failed to pay under any Section of this Agreement or any other Loan Document, (ii) amounts owing by Borrowers to any Person to the extent secured by a Lien on, or trust over, any of the Collateral (other than any existing Permitted Lien set forth on Schedule P-1 which is specifically identified thereon as entitled to have priority over the Agent's Liens), which Lien or trust, in the Permitted Discretion of Agent likely would have a priority superior to the Agent's Liens (such as Liens or trusts in favor of landlords, warehousemen, carriers, mechanics, materialmen, laborers, or suppliers, or Liens or trusts for ad valorem, excise, sales, or other taxes where given priority under applicable law) in and to such 29 item of the Collateral and (iii) mortgage, rent or other such payments with respect to any leased location of any Borrower at which Books and Records of such Borrower pertaining to Accounts and/or Inventory are located and for which Agent has not received a Collateral Access Agreement. (c) The Lenders with Revolver Commitments shall have no obligation to make additional Advances hereunder to the extent such additional Advances would cause the Revolver Usage to exceed the Maximum Revolver Amount. (d) Amounts borrowed pursuant to this Section may be repaid and, subject to the terms and conditions of this Agreement, reborrowed at any time during the term of this Agreement. 2.2 TERM LOAN. Subject to the terms and conditions of this Agreement, on the Closing Date each Lender with a Term Loan Commitment agrees (severally, not jointly or jointly and severally) to make term loans (collectively, the "Term Loan") to Borrowers in an amount equal to such Lender's Pro Rata Share of the Term Loan Amount. The Term Loan shall be repaid by Borrowers, beginning on April 1, 2003, on the following dates and in the following amounts:

Date Installment Amount ---- ------------------ Each April 1 $1,000,000 Each July 1 $500,000 Each October 1 $1,000,000 Each December 31 $500,000

until paid in full. Notwithstanding the foregoing, the outstanding unpaid principal balance and all accrued and unpaid interest under the Term Loan shall be due and payable on the date of termination of this Agreement, whether by its terms, by prepayment or by acceleration. All amounts outstanding under the Term Loan shall constitute Obligations. 2.3 BORROWING PROCEDURES AND SETTLEMENTS. (a) PROCEDURE FOR BORROWING. Each Borrowing shall be made by an irrevocable written request by an Authorized Person delivered to Agent (which notice must be received by Agent no later than 10:00 a.m. (California time) on the Business Day prior to the date that is the requested Funding Date in the case of a request for an Advance specifying (i) the amount of such Borrowing, and (ii) the requested Funding Date, which shall be a Business Day; provided, however, that in the case of a request for Swing Loan in an amount of $5,000,000, or less, such notice will be timely received if it is received by Agent no later than 10:00 a.m. (California time) on the Business Day that is the requested Funding Date) specifying (i) the amount of such Borrowing, and (ii) the requested Funding Date, which shall be a Business Day. At Agent's election, in lieu of delivering the above-described written request, any Authorized 30 Person may give Agent telephonic or electronic notice of such request by the required time, with such telephonic notice to be confirmed in writing within 24 hours of the giving of such notice. (b) AGENT'S ELECTION. Promptly after receipt of a request for a Borrowing pursuant to Section 2.3(a), Agent shall elect, in its discretion, (i) to have the terms of Section 2.3(c) apply to such requested Borrowing, or (ii) if the Borrowing is for an Advance, to request Swing Lender to make a Swing Loan pursuant to the terms of Section 2.3(d) in the amount of the requested Borrowing; provided, however, that if Swing Lender declines in its sole discretion to make a Swing Loan pursuant to Section 2.3(d), Agent shall elect to have the terms of Section 2.3(c) apply to such requested Borrowing. (c) MAKING OF ADVANCES. (i) In the event that Agent shall elect to have the terms of this Section 2.3(c) apply to a requested Borrowing as described in Section 2.3(b), then promptly after receipt of a request for a Borrowing pursuant to Section 2.3(a), Agent shall notify the Lenders, not later than 1:00 p.m. (California time) on the Business Day immediately preceding the Funding Date applicable thereto, by telecopy, telephone, or other similar form of transmission, of the requested Borrowing. Each Lender shall make the amount of such Lender's Pro Rata Share of the requested Borrowing available to Agent in immediately available funds, to Agent's Account, not later than 10:00 a.m. (California time) on the Funding Date applicable thereto. After Agent's receipt of the proceeds of such Advances, upon satisfaction of the applicable conditions precedent set forth in Section 3 hereof, Agent shall make the proceeds thereof available to Administrative Borrower on the applicable Funding Date by transferring immediately available funds equal to such proceeds received by Agent to Administrative Borrower's Designated Account; provided, however, that, subject to the provisions of Section 2.3(i), Agent shall not request any Lender to make, and no Lender shall have the obligation to make, any Advance (or its portion of any Term Loan) if Agent shall have actual knowledge that (1) one or more of the applicable conditions precedent set forth in Section 3 will not be satisfied on the requested Funding Date for the applicable Borrowing unless such condition has been waived, or (2) the requested Borrowing would exceed the Availability on such Funding Date. (ii) Unless Agent receives notice from a Lender on or prior to the Closing Date or, with respect to any Borrowing after the Closing Date, at least 1 Business Day prior to the date of such Borrowing, that such Lender will not make available as and when required hereunder to Agent for the account of Borrowers the amount of that Lender's Pro Rata Share of the Borrowing, Agent may assume that each Lender has made or will make such amount available to Agent in immediately available funds on the Funding Date and Agent may (but shall not be so required), in reliance upon such assumption, make available to Borrowers on such date a corresponding amount. If and to the extent any Lender shall not have made its full amount available to Agent in immediately available funds and Agent in such circumstances has made available to Borrowers such amount, that Lender shall on the Business Day following such Funding Date make such amount 31 available to Agent, together with interest at the Defaulting Lender Rate for each day during such period. A notice submitted by Agent to any Lender with respect to amounts owing under this subsection shall be conclusive, absent manifest error. If such amount is so made available, such payment to Agent shall constitute such Lender's Advance on the date of Borrowing for all purposes of this Agreement. If such amount is not made available to Agent on the Business Day following the Funding Date, Agent will notify Administrative Borrower of such failure to fund and, upon demand by Agent, Borrowers shall pay such amount to Agent for Agent's account, together with interest thereon for each day elapsed since the date of such Borrowing, at a rate per annum equal to the interest rate applicable at the time to the Advances composing such Borrowing. The failure of any Lender to make any Advance on any Funding Date shall not relieve any other Lender of any obligation hereunder to make an Advance on such Funding Date, but no Lender shall be responsible for the failure of any other Lender to make the Advance to be made by such other Lender on any Funding Date. (iii) Agent shall not be obligated to transfer to a Defaulting Lender any payments made by Borrowers to Agent for the Defaulting Lender's benefit, and, in the absence of such transfer to the Defaulting Lender, Agent shall transfer any such payments to each other non-Defaulting Lender member of the Lender Group ratably in accordance with their Commitments (but only to the extent that such Defaulting Lender's Advance was funded by the other members of the Lender Group) or, if so directed by Administrative Borrower and if no Default or Event of Default had occurred and is continuing (and to the extent such Defaulting Lender's Advance was not funded by the Lender Group), retain same to be re-advanced to Borrowers as if such Defaulting Lender had made Advances to Borrowers. Subject to the foregoing, Agent may hold and, in its Permitted Discretion, re-lend to Borrowers for the account of such Defaulting Lender the amount of all such payments received and retained by it for the account of such Defaulting Lender. Solely for the purposes of voting or consenting to matters with respect to the Loan Documents, such Defaulting Lender shall be deemed not to be a "Lender" and such Lender's Commitment shall be deemed to be zero. This Section shall remain effective with respect to such Lender until (x) the Obligations under this Agreement shall have been declared or shall have become immediately due and payable, (y) the non-Defaulting Lenders, Agent, and Administrative Borrower shall have waived such Defaulting Lender's default in writing, or (z) the Defaulting Lender makes its Pro Rata Share of the applicable Advance and pays to Agent all amounts owing by Defaulting Lender in respect thereof. The operation of this Section shall not be construed to increase or otherwise affect the Commitment of any Lender, to relieve or excuse the performance by such Defaulting Lender or any other Lender of its duties and obligations hereunder, or to relieve or excuse the performance by Borrowers of their duties and obligations hereunder to Agent or to the Lenders other than such Defaulting Lender. Any such failure to fund by any Defaulting Lender shall constitute a material breach by such Defaulting Lender of this Agreement and shall entitle Administrative Borrower at its option, upon written notice to Agent, 32 to arrange for a substitute Lender to assume the Commitment of such Defaulting Lender, such substitute Lender to be acceptable to Agent. In connection with the arrangement of such a substitute Lender, the Defaulting Lender shall have no right to refuse to be replaced hereunder, and agrees to execute and deliver a completed form of Assignment and Acceptance Agreement in favor of the substitute Lender (and agrees that it shall be deemed to have executed and delivered such document if it fails to do so) subject only to being repaid its share of the outstanding Obligations (other than Bank Product Obligations, but including an assumption of its Pro Rata Share of the Risk Participation Liability), without any premium or penalty of any kind whatsoever; provided further, however, that any such assumption of the Commitment of such Defaulting Lender shall not be deemed to constitute a waiver of any of the Lender Groups' or Borrowers' rights or remedies against any such Defaulting Lender arising out of or in relation to such failure to fund. (d) MAKING OF SWING LOANS. (i) In the event Agent shall elect, with the consent of Swing Lender, as a Lender, to have the terms of this Section 2.3(d) apply to a requested Borrowing as described in Section 2.3(b), Swing Lender as a Lender shall make such Advance in the amount of such Borrowing (any such Advance made solely by Swing Lender as a Lender pursuant to this Section 2.3(d) being referred to as a "Swing Loan" and such Advances being referred to collectively as "Swing Loans") available to Borrowers on the Funding Date applicable thereto by transferring immediately available funds to Administrative Borrower's Designated Account. Each Swing Loan is an Advance hereunder and shall be subject to all the terms and conditions applicable to other Advances, except that no such Swing Loan shall be eligible for the LIBOR Option and all payments on any Swing Loan shall be payable to Swing Lender as a Lender solely for its own account (and for the account of the holder of any participation interest with respect to such Swing Loan). Subject to the provisions of Section 2.3(i), Agent shall not request Swing Lender as a Lender to make, and Swing Lender as a Lender shall not make, any Swing Loan if Agent has actual knowledge that (i) one or more of the applicable conditions precedent set forth in Section 3 will not be satisfied on the requested Funding Date for the applicable Borrowing unless such condition has been waived, or (ii) the requested Borrowing would exceed the Availability on such Funding Date. Swing Lender as a Lender shall not otherwise be required to determine whether the applicable conditions precedent set forth in Section 3 have been satisfied on the Funding Date applicable thereto prior to making, in its sole discretion, any Swing Loan. (ii) The Swing Loans shall be secured by the Agent's Liens, shall constitute Advances and Obligations hereunder, and shall bear interest at the rate applicable from time to time to Advances that are Base Rate Loans. 33 (e) AGENT ADVANCES. (i) Agent hereby is authorized by Borrowers and the Lenders, from time to time in Agent's sole discretion, (1) after the occurrence and during the continuance of a Default or an Event of Default, or (2) at any time that any of the other applicable conditions precedent set forth in Section 3 have not been satisfied, to make Advances to Borrowers on behalf of the Lenders that Agent, in its Permitted Discretion deems necessary or desirable (A) to preserve or protect the Collateral, or any portion thereof, (B) to enhance the likelihood of repayment of the Obligations (other than Bank Product Obligations), or (C) to pay any other amount chargeable to Borrowers pursuant to the terms of this Agreement, including Lender Group Expenses and the costs, fees, and expenses described in Section 10 (any of the Advances described in this Section 2.3(e) shall be referred to as "Agent Advances"). Each Agent Advance is an Advance hereunder and shall be subject to all the terms and conditions applicable to other Advances, except that no such Agent Advance shall be eligible for the LIBOR Option and all payments thereon shall be payable to Agent solely for its own account (and for the account of the holder of any participation interest with respect to such Agent Advance). (ii) The Agent Advances shall be repayable on demand and secured by the Agent's Liens granted to Agent under the Loan Documents, shall constitute Advances and Obligations hereunder, and shall bear interest at the rate applicable from time to time to Advances that are Base Rate Loans. (f) SETTLEMENT. It is agreed that each Lender's funded portion of the Advances is intended by the Lenders to equal, at all times, such Lender's Pro Rata Share of the outstanding Advances. Such agreement notwithstanding, Agent, Swing Lender, and the other Lenders agree (which agreement shall not be for the benefit of or enforceable by Borrowers) that in order to facilitate the administration of this Agreement and the other Loan Documents, settlement among them as to the Advances, the Swing Loans, and the Agent Advances shall take place on a periodic basis in accordance with the following provisions: (i) Agent shall request settlement ("Settlement") with the Lenders on a weekly basis, or on a more frequent basis if so determined by Agent, (1) on behalf of Swing Lender, with respect to each outstanding Swing Loan, (2) for itself, with respect to each Agent Advance, and (3) with respect to Collections received, as to each by notifying the Lenders by telecopy, telephone, or other similar form of transmission, of such requested Settlement, no later than 2:00 p.m. (California time) on the Business Day immediately prior to the date of such requested Settlement (the date of such requested Settlement being the "Settlement Date"). Such notice of a Settlement Date shall include a summary statement of the amount of outstanding Advances, Swing Loans, and Agent Advances for the period since the prior Settlement Date. Subject to the terms and conditions contained herein (including Section 2.3(c)(iii)): (y) if a Lender's balance of the Advances, Swing Loans, and Agent Advances exceeds such Lender's Pro Rata Share of the Advances, Swing Loans, and Agent Advances as of a Settlement 34 Date, then Agent shall, by no later than 12:00 p.m. (California time) on the Settlement Date, transfer in immediately available funds to the account of such Lender as such Lender may designate, an amount such that each such Lender shall, upon receipt of such amount, have as of the Settlement Date, its Pro Rata Share of the Advances, Swing Loans, and Agent Advances, and (z) if a Lender's balance of the Advances, Swing Loans, and Agent Advances is less than such Lender's Pro Rata Share of the Advances, Swing Loans, and Agent Advances as of a Settlement Date, such Lender shall no later than 12:00 p.m. (California time) on the Settlement Date transfer in immediately available funds to the Agent's Account, an amount such that each such Lender shall, upon transfer of such amount, have as of the Settlement Date, its Pro Rata Share of the Advances, Swing Loans, and Agent Advances. Such amounts made available to Agent under clause (z) of the immediately preceding sentence shall be applied against the amounts of the applicable Swing Loan or Agent Advance and, together with the portion of such Swing Loan or Agent Advance representing Swing Lender's Pro Rata Share thereof, shall constitute Advances of such Lenders. If any such amount is not made available to Agent by any Lender on the Settlement Date applicable thereto to the extent required by the terms hereof, Agent shall be entitled to recover for its account such amount on demand from such Lender together with interest thereon at the Defaulting Lender Rate. (ii) In determining whether a Lender's balance of the Advances, Swing Loans, and Agent Advances is less than, equal to, or greater than such Lender's Pro Rata Share of the Advances, Swing Loans, and Agent Advances as of a Settlement Date, Agent shall, as part of the relevant Settlement, apply to such balance the portion of payments actually received in good funds by Agent with respect to principal, interest, fees payable by Borrowers and allocable to the Lenders hereunder, and proceeds of Collateral. To the extent that a net amount is owed to any such Lender after such application, such net amount shall be distributed by Agent to that Lender as part of such next Settlement. (iii) Between Settlement Dates, Agent, to the extent no Agent Advances or Swing Loans are outstanding, may pay over to Swing Lender any payments received by Agent, that in accordance with the terms of this Agreement would be applied to the reduction of the Advances, for application to Swing Lender's Pro Rata Share of the Advances. If, as of any Settlement Date, Collections received since the then immediately preceding Settlement Date have been applied to Swing Lender's Pro Rata Share of the Advances other than to Swing Loans, as provided for in the previous sentence, Swing Lender shall pay to Agent for the accounts of the Lenders, and Agent shall pay to the Lenders, to be applied to the outstanding Advances of such Lenders, an amount such that each Lender shall, upon receipt of such amount, have, as of such Settlement Date, its Pro Rata Share of the Advances. During the period between Settlement Dates, Swing Lender with respect to Swing Loans, Agent with respect to Agent Advances, and each Lender (subject to the effect of letter agreements between Agent and individual Lenders) with respect to the Advances other than Swing Loans and Agent Advances, shall be entitled to interest at the applicable rate or 35 rates payable under this Agreement on the daily amount of funds employed by Swing Lender, Agent, or the Lenders, as applicable. (g) NOTATION. Agent shall record on its books the principal amount of the Advances owing to each Lender, including the Swing Loans owing to Swing Lender, and Agent Advances owing to Agent, and the interests therein of each Lender, from time to time. In addition, each Lender is authorized, at such Lender's option, to note the date and amount of each payment or prepayment of principal of such Lender's Advances in its books and records, including computer records, such books and records constituting conclusive evidence, absent manifest error, of the accuracy of the information contained therein. (h) LENDERS' FAILURE TO PERFORM. All Advances (other than Swing Loans and Agent Advances) shall be made by the Lenders contemporaneously and in accordance with their Pro Rata Shares. It is understood that (i) no Lender shall be responsible for any failure by any other Lender to perform its obligation to make any Advance (or other extension of credit) hereunder, nor shall any Commitment of any Lender be increased or decreased as a result of any failure by any other Lender to perform its obligations hereunder, and (ii) no failure by any Lender to perform its obligations hereunder shall excuse any other Lender from its obligations hereunder. (i) OPTIONAL OVERADVANCES. Any contrary provision of this Agreement notwithstanding, the Lenders hereby authorize Agent or Swing Lender, as applicable, and Agent or Swing Lender, as applicable, may, but is not obligated to, knowingly and intentionally, continue to make Advances (including Swing Loans) to Borrowers notwithstanding that an Overadvance exists or thereby would be created, so long as (i) after giving effect to such Advances (including a Swing Loan), the Revolver Usage does not exceed the Borrowing Base by more than $4,000,000, (ii) after giving effect to such Advances (including a Swing Loan) the outstanding Revolver Usage (except for and excluding amounts charged to the Loan Account for interest, fees, or Lender Group Expenses) does not exceed the Maximum Revolver Amount, and (iii) at the time of the making of any such Advance (including a Swing Loan), Agent does not believe, in good faith, that the Overadvance created by such Advance will be outstanding for more than 90 days. The foregoing provisions are for the exclusive benefit of Agent, Swing Lender, and the Lenders and are not intended to benefit Borrowers in any way. The Advances and Swing Loans, as applicable, that are made pursuant to this Section 2.3(i) shall be subject to the same terms and conditions as any other Advance or Swing Loan, as applicable, except that they shall not be eligible for the LIBOR Option and the rate of interest applicable thereto shall be the rate applicable to Advances that are Base Rate Loans under Section 2.6(c) hereof without regard to the presence or absence of a Default or Event of Default. (i) In the event Agent obtains actual knowledge that the Revolver Usage exceeds the amounts permitted by the preceding paragraph, regardless of the amount of, or reason for, such excess, Agent shall notify Lenders as soon as practicable (and prior to making any (or any additional) intentional Overadvances (except for and excluding amounts charged to the Loan Account for interest, fees, or Lender Group Expenses) unless Agent determines that prior notice would result in imminent harm to the Collateral or its value), and the Lenders with Revolver Commitments thereupon shall, together with Agent, jointly determine 36 the terms of arrangements that shall be implemented with Borrowers and intended to reduce, within a reasonable time, the outstanding principal amount of the Advances to Borrowers to an amount permitted by the preceding paragraph. In the event Agent or any Lender disagrees over the terms of reduction or repayment of any Overadvance, the terms of reduction or repayment thereof shall be implemented according to the determination of the Required Lenders. (ii) Each Lender with a Revolver Commitment shall be obligated to settle with Agent as provided in Section 2.3(f) for the amount of such Lender's Pro Rata Share of any unintentional Overadvances by Agent reported to such Lender, any intentional Overadvances made as permitted under this Section 2.3(i), and any Overadvances resulting from the charging to the Loan Account of interest, fees, or Lender Group Expenses. 2.4 PAYMENTS. (a) PAYMENTS BY BORROWERS. (i) Except as otherwise expressly provided herein, all payments by Borrowers shall be made to Agent's Account for the account of the Lender Group and shall be made in immediately available funds, no later than 11:00 a.m. (California time) on the date specified herein. Any payment received by Agent later than 11:00 a.m. (California time), shall be deemed to have been received on the following Business Day and any applicable interest or fee shall continue to accrue until such following Business Day. (ii) Unless Agent receives notice from Administrative Borrower prior to the date on which any payment is due to the Lenders that Borrowers will not make such payment in full as and when required, Agent may assume that Borrowers have made (or will make) such payment in full to Agent on such date in immediately available funds and Agent may (but shall not be so required), in reliance upon such assumption, distribute to each Lender on such due date an amount equal to the amount then due such Lender. If and to the extent Borrowers do not make such payment in full to Agent on the date when due, each Lender severally shall repay to Agent on demand such amount distributed to such Lender, together with interest thereon at the Defaulting Lender Rate for each day from the date such amount is distributed to such Lender until the date repaid. (b) APPORTIONMENT AND APPLICATION. (i) Except as otherwise provided with respect to Defaulting Lenders and except as otherwise provided in the Loan Documents (including letter agreements between Agent and individual Lenders), aggregate principal and interest payments shall be apportioned ratably among the Lenders (according to the unpaid principal balance of the Obligations to which such payments relate held by each Lender) and payments of fees and expenses (other than fees or expenses that are for Agent's separate account, after giving effect to any letter 37 agreements between Agent and individual Lenders) shall be apportioned ratably among the Lenders having a Pro Rata Share of the type of Commitment or Obligation to which a particular fee relates. All payments shall be remitted to Agent and all such payments (other than payments received while no Default or Event of Default has occurred and is continuing and which relate to the payment of principal or interest of specific Obligations or which relate to the payment of specific fees, which shall be applied to such Obligations or fees), and all proceeds of Accounts or other Collateral received by Agent, shall be applied as follows: (A) first, so long as no Event of Default has occurred and is continuing, to pay any Lender Group Expenses then due to Agent under the Loan Documents, until paid in full, (B) second, so long as no Event of Default has occurred and is continuing, to pay any Lender Group Expenses then due to the Lenders under the Loan Documents, on a ratable basis, until paid in full, (C) third, so long as no Event of Default has occurred and is continuing, to pay any fees then due to Agent (for its separate account, after giving effect to any letter agreements between Agent and the individual Lenders) under the Loan Documents until paid in full, (D) fourth, so long as no Event of Default has occurred and is continuing, to pay any fees then due to any or all of the Lenders (after giving effect to any letter agreements between Agent and individual Lenders) under the Loan Documents, on a ratable basis, until paid in full, (E) fifth, so long as no Event of Default has occurred and is continuing, to pay interest due in respect of all Agent Advances, until paid in full, (F) sixth, so long as no Event of Default has occurred and is continuing, ratably to pay interest due in respect of the Advances (other than Agent Advances), the Swing Loans, and the Term Loan until paid in full, (G) seventh, so long as no Event of Default has occurred and is continuing, to pay the principal of all Agent Advances until paid in full, (H) eighth, so long as no Event of Default has occurred and is continuing, ratably to pay all principal amounts then due and payable with respect to the Term Loan until paid in full, (I) ninth, so long as no Event of Default has occurred and is continuing, to pay the principal of all Swing Loans until paid in full, (J) tenth, so long as no Event of Default has occurred and is continuing, and at Agent's election (which election Agent agrees will not 38 be made if an Overadvance would be created thereby), to pay amounts then due and owing by Administrative Borrower or its Subsidiaries in respect of Bank Products, until paid in full, (K) eleventh, so long as no Event of Default has occurred and is continuing, to pay the principal of all other Advances until paid in full, (L) twelfth, so long as no Event of Default has occurred and is continuing, to Borrowers to be wired to the Designated Account or such other Person entitled thereto under applicable law, (M) thirteenth, if an Event of Default has occurred and is continuing, to pay any Lender Group Expenses and fees due to Agent (for its separate account, after giving effect to any letter agreements between Agent and the individual Lenders) under the Loan Documents until paid in full, (N) fourteenth, if an Event of Default has occurred and is continuing, to pay any Lender Group Expenses and fees (other than the Applicable Prepayment Premium) due to any or all of the Lenders (after giving effect to any letter agreements between Agent and individual Lenders), under the Loan Documents, on a ratable basis until paid in full, (O) fifteenth, if an Event of Default has occurred and is continuing, ratably to pay interest due in respect of all Agent Advances, Advances and Swing Loans until paid in full, (P) sixteenth, if an Event of Default has occurred and is continuing, ratably to pay the principal of all Agent Advances, Advances and Swing Loans until paid in full, (Q) seventeenth, if an Event of Default has occurred and is continuing, to Agent, to be held by Agent, for the benefit of Wells Fargo or its Affiliates, as applicable, as cash collateral in an amount up to the amount of the Bank Product Reserve established prior to the occurrence of, and not in contemplation of, the subject Event of Default until Administrative Borrower's and its Subsidiaries' obligations in respect of the then extant Bank Products have been paid in full or the cash collateral amount has been exhausted, (R) eighteenth, if an Event of Default has occurred and is continuing, ratably to pay interest due in respect of the Term Loan until paid in full, (S) nineteenth, if an Event of Default has occurred and is continuing, ratably to pay the outstanding principal balance of the Term 39 Loan (in the inverse order of the maturity of the installments due thereunder) until the Term Loan is paid in full, (T) twentieth, if an Event of Default has occurred and is continuing, to Agent, to be held by Agent for the ratable benefit of Issuing Lender and those Lenders having a Revolver Commitment, as cash collateral in an amount up to 105% of the then extant Letter of Credit Usage until paid in full, (U) twenty-first, if an Event of Default has occurred and is continuing, ratably to pay the Applicable Prepayment Premium until paid in full, (V) twenty-second, if an Event of Default has occurred and is continuing, to pay any other Obligations (including Bank Product Obligations) until paid in full, and (W) twenty-third, if an Event of Default has occurred and is continuing, to Borrowers (to be wired to the Designated Account) or such other Person entitled thereto under applicable law. (ii) Agent promptly shall distribute to each Lender, pursuant to the applicable wire instructions received from each Lender in writing, such funds as it may be entitled to receive, subject to a Settlement delay as provided in Section 2.3. (iii) In each instance, so long as no Event of Default has occurred and is continuing, Section 2.4(b) shall not be deemed to apply to any payment by Borrowers specified by Borrowers to be for the payment of specific Obligations then due and payable (or prepayable) under any provision of this Agreement. (iv) For purposes of the foregoing, "paid in full" means payment of all amounts owing under the Loan Documents according to the terms thereof, including loan fees, service fees, professional fees, interest (and specifically including interest accrued after the commencement of any Insolvency Proceeding), default interest, interest on interest, and expense reimbursements, whether or not the same would be or is allowed or disallowed in whole or in part in any Insolvency Proceeding. (v) In the event of a direct conflict between the priority provisions of this Section 2.4 and other provisions contained in any other Loan Document, it is the intention of the parties hereto that such priority provisions in such documents shall be read together and construed, to the fullest extent possible, to be in concert with each other. In the event of any actual, irreconcilable conflict that cannot be resolved as aforesaid, the terms and provisions of this Section 2.4 shall control and govern. 40 (c) MANDATORY PREPAYMENTS. (i) Immediately upon the consummation of any Permitted Financing Transaction, Borrowers shall repay in full from the proceeds thereof any Advances made against any assets sold or otherwise disposed of in connection with such Permitted Financing Transaction which had previously constituted a portion of the Borrowing Base. (ii) Immediately upon Borrower's receipt of any Net Cash Proceeds: (A) if (1) no Default or Event of Default shall exist, (2) Excess Availability is and after giving effect to the following payment, shall be, $4,000,000 or more, (3) both before and after giving effect to the following payments and the transactions giving rise to them, Borrowers maintain FBO Operations at FBOs having an aggregate FBO Enterprise Value of at least $10,000,000 and (4) such Net Cash Proceeds exceed $500,000, then Borrowers shall prepay the outstanding principal amount of the Term Loan, in inverse order of maturity (or, if indicated below, the Advances or Obligations), and the outstanding principal amount of the Whitney Debt as follows: first, until the aggregate amount of $15,000,000 of Net Cash Proceeds have been so applied, equally to Agent for application to the Term Loan and to Whitney for application to the principal amount of the Whitney Debt; second, until an additional aggregate amount of $4,500,000 of Net Cash Proceeds have been so applied, to Whitney for application to the principal amount of the Whitney Debt; third, if such Net Cash Proceeds are received (I) prior to January 1, 2004 and the Asset Sale Reserve is then less than the Target Amount, equally to Whitney for application to the principal amount of the Whitney Debt and to Agent for application to the Advances, (II) prior to January 1, 2004 and the Asset Sale Reserve is then equal to the Target Amount, to Whitney for application to the principal amount of the Whitney Debt until the principal amount of the Whitney Debt has been repaid in the amount of $24,000,000, or (III) on or after January 1, 2004, to Whitney for application to the principal amount of the Whitney Debt until the principal amount of the Whitney Debt has been repaid in the amount of $24,000,000; fourth, to Whitney for application to the principal amount of the Whitney Debt until the principal amount of the 41 Whitney Debt has been repaid in the amount of $24,000,000; and fifth, to Agent for application to any outstanding Obligations; provided, however, if at any time such payments are to be made the only condition provided above not satisfied is that set forth in Section 2.4(c)(ii)(A)(2), then, such Net Cash Proceeds shall be applied to the Advances until Excess Availability is $4,000,000 and any remaining Net Cash Proceeds applied as set forth above; (B) if a Default or Event of Default shall then exist, then 100% of such Net Cash Proceeds shall be applied to the Obligations as set forth in Section 2.4(b)(i); (C) if (1) no Default or Event of Default shall then exist and (2) prior to or after giving effect to the following payment and the transaction giving rise to it, Borrowers do not maintain FBO Operations at FBOs having an aggregate FBO Enterprise Value of at least $10,000,000, then 100% of such Net Cash Proceeds shall be applied to the outstanding principal amount of the Term Loan, in inverse order of maturity, until paid in full and thereafter, the Advances; or (D) if such Net Cash Proceeds do not exceed $500,000, then 100% of such Net Cash Proceeds shall be applied to the outstanding principal amount of the Term Loan, in inverse order of maturity, until paid in full and thereafter, the Advances. Nothing contained in this Section 2.4(c)(i) shall be deemed to permit any Borrower or Subsidiary of any Borrower to make a disposition of any assets other than in accordance with the terms of this Agreement. In no event shall the Applicable Prepayment Premium apply to such prepayments unless Borrowers request that the Lender Group terminate this Agreement. (iii) Upon the issuance or incurrence by any Borrower or any Subsidiary of any Borrower of any Indebtedness (other than Permitted Construction Indebtedness or Permitted Purchase Money Indebtedness) or the sale or issuance by any Borrower or any Subsidiary of any Borrower of any shares of its Stock (other than the issuance of shares of Stock for consideration other than cash or a Permitted Financing Transaction), Borrowers shall prepay the outstanding principal amount of the Term Loan in inverse order of maturity (or, if the Term Loan has been paid in full, the Advances), in an amount equal to 100% of the net cash proceeds received by such Person in connection therewith. Nothing contained in this Section 2.4(c)(iii) shall be deemed to permit any such issuance, incurrence or sale otherwise prohibited by the terms and conditions of this Agreement. Any payments required to be made under this Section 2.4(c)(iii) 42 shall be applied to the Term Loan, in inverse order of maturity (or, if applicable, the Advances), as set forth in Section 2.4(b)(i); provided, however, if an Event of Default has occurred and is continuing, such payments shall be applied to the Obligations as set forth in Section 2.4(b)(i). In no event shall the Applicable Prepayment Premium apply to such prepayments unless Borrowers request that the Lender Group terminate this Agreement. (iv) Upon the receipt by any Borrower or any Subsidiary of any Borrower of any Extraordinary Receipts, Borrowers shall prepay the outstanding principal amount of the Term Loan, in inverse order of maturity (or, if the Term Loan has been paid in full, the Advances), in an amount equal to 100% of such Extraordinary Receipts. Any payments required to be made under this Section 2.4(c)(iv) shall be applied to the Term Loan, in inverse order of maturity (or, if applicable, the Advances), as set forth in Section 2.4(b)(i); provided, however, if an Event of Default has occurred and is continuing, such payments shall be applied to the Obligations as set forth in Section 2.4(b)(i). In no event shall the Applicable Prepayment Premium apply to such prepayments unless Borrowers request that the Lender Group terminate this Agreement. 2.5 OVERADVANCES. If, at any time or for any reason, the amount of Obligations (other than Bank Product Obligations) owed by Borrowers to the Lender Group pursuant to Section 2.1 and Section 2.12 is greater than either the Dollar or percentage limitations set forth in Section 2.1 or Section 2.12, (an "Overadvance"), Borrowers immediately shall pay to Agent, in cash, the amount of such excess, which amount shall be used by Agent to reduce the Obligations in accordance with the priorities set forth in Section 2.4(b). In addition, Borrowers hereby promise to pay the Obligations (including principal, interest, fees, costs, and expenses) in Dollars in full to the Lender Group as and when due and payable under the terms of this Agreement and the other Loan Documents. 2.6 INTEREST RATES AND LETTER OF CREDIT FEE: RATES, PAYMENTS, AND CALCULATIONS. (a) INTEREST RATES. Except as provided in clause (c) below, all Obligations (except for undrawn Letters of Credit and except for Bank Product Obligations) that have been charged to the Loan Account pursuant to the terms hereof shall bear interest on the Daily Balance thereof as follows: (i) if the relevant Obligation is an Advance that is a Base Rate Loan (or interest thereon or fees charged in connection therewith), at a per annum rate equal to the Base Rate plus the Base Rate Margin; (ii) if the relevant Obligation is an Advance that is a LIBOR Rate Loan (or interest thereon or fees charged in connection therewith), at a per annum rate equal to the LIBOR Rate plus the LIBOR Rate Margin; (iii) if the relevant Obligation is a portion of the Term Loan (or interest thereon or fees charged in connection therewith), at a per annum rate equal to the Base Rate plus the Term Loan Margin; 43 (iv) otherwise, at a per annum rate equal to the Base Rate plus the Term Loan Margin. The foregoing notwithstanding, at no time shall any portion of the Obligations (other than Bank Product Obligations) bear interest on the Daily Balance thereof at a per annum rate less than 5.00%. To the extent that interest accrued hereunder at the rate set forth herein would be less than the foregoing minimum daily rate, the interest rate chargeable hereunder for such day automatically shall be deemed increased to the minimum rate. (b) LETTER OF CREDIT FEES. Borrowers shall pay Agent (for the ratable benefit of the Lenders with a Revolver Commitment, subject to any letter agreement between Agent and individual Lenders), a Letter of Credit fee (in addition to the charges, commissions, fees, and costs set forth in Section 2.12(e)) which shall accrue at a rate equal to 3.00% per annum times the Daily Balance of the aggregate undrawn amount of all outstanding Letters of Credit. (c) DEFAULT RATE. Upon the occurrence and during the continuation of an Event of Default (and at the election of Agent or the Required Lenders), (i) all Obligations (except for undrawn Letters of Credit and except for Bank Product Obligations) that have been charged to the Loan Account pursuant to the terms hereof shall bear interest on the Daily Balance thereof at a per annum rate equal to 4 percentage points above the per annum rate otherwise applicable hereunder, and (ii) the Letter of Credit fee provided for above shall be increased to 4 percentage points above the per annum rate otherwise applicable hereunder. (d) PAYMENT. Interest, Letter of Credit fees, and all other fees payable hereunder shall be due and payable, in arrears, on the first day of each month at any time that Obligations or Commitments are outstanding. Borrowers hereby authorize Agent, from time to time, without prior notice to Borrowers, to charge such interest and fees, all Lender Group Expenses (as and when incurred), the charges, commissions, fees, and costs provided for in Section 2.12(e) (as and when accrued or incurred), the fees and costs provided for in Section 2.11 (as and when accrued or incurred), and all other payments as and when due and payable under any Loan Document (including the installments due and payable with respect to the Term Loan and including any amounts due and payable to Wells Fargo or its Affiliates in respect of Bank Products up to the amount of the then extant Bank Product Reserve) to Borrowers' Loan Account, which amounts shall thereafter constitute Advances hereunder and shall accrue interest at the rates set forth in Section 2.6(a) or, if applicable, Section 2.6(c). Any interest not paid when due shall be compounded by being charged to Borrowers' Loan Account and shall thereafter constitute Advances hereunder and shall accrue interest at the rates set forth in Section 2.6(a) or, if applicable, Section 2.6(a). (e) COMPUTATION. All interest and fees chargeable under the Loan Documents shall be computed on the basis of a 360 day year for the actual number of days elapsed. In the event the Base Rate is changed from time to time hereafter, the rates of interest 44 hereunder based upon the Base Rate automatically and immediately shall be increased or decreased by an amount equal to such change in the Base Rate. (f) INTENT TO LIMIT CHARGES TO MAXIMUM LAWFUL RATE. In no event shall the interest rate or rates payable under this Agreement, plus any other amounts paid in connection herewith, exceed the highest rate permissible under any law that a court of competent jurisdiction shall, in a final determination, deem applicable. Borrowers and the Lender Group, in executing and delivering this Agreement, intend legally to agree upon the rate or rates of interest and manner of payment stated within it; provided, however, that, anything contained herein to the contrary notwithstanding, if said rate or rates of interest or manner of payment exceeds the maximum allowable under applicable law, then, ipso facto, as of the date of this Agreement, Borrowers are and shall be liable only for the payment of such maximum as allowed by law, and payment received from Borrowers in excess of such legal maximum, whenever received, shall be applied to reduce the principal balance of the Obligations to the extent of such excess. 2.7 CASH MANAGEMENT. (a) Borrowers shall (i) establish and maintain cash management services of a type and on terms satisfactory to Agent at one or more of the banks set forth on Schedule 2.7(a) (each a "Cash Management Bank"), and shall request in writing and otherwise take such reasonable steps to ensure that all of its Account Debtors forward payment of the amounts owed by them directly to such Cash Management Bank, and (ii) deposit or cause to be deposited promptly, and in any event no later than the first Business Day after the date of receipt thereof, all Collections (including those sent directly by Account Debtors to a Cash Management Bank) into a bank account in Agent's name (a "Cash Management Account") at one of the Cash Management Banks; provided, however, to the extent such Collections do not at any one time exceed $50,000, Collections from FBO Operations received at an FBO may be deposited to a Cash Management Account no less frequently than twice per week. (b) Each Cash Management Bank shall establish and maintain, within the time frame specified in Section 3.2(a), Cash Management Agreements with Agent and Borrowers, in form and substance acceptable to Agent. Each such Cash Management Agreement shall provide, among other things, that (i) all items of payment deposited in such Cash Management Account and proceeds thereof are held by such Cash Management Bank as agent or bailee-in-possession for Agent, (ii) the Cash Management Bank has no rights of setoff or recoupment or any other claim against the applicable Cash Management Account, other than for payment of its service fees and other charges directly related to the administration of such Cash Management Account and for returned checks or other items of payment, and (iii) it immediately will forward by daily sweep all amounts in the applicable Cash Management Account to the Agent's Account. (c) So long as no Default or Event of Default has occurred and is continuing, Administrative Borrower may amend Schedule 2.7(a) to add or replace a Cash Management Account Bank or Cash Management Account; provided, however, that (i) such prospective Cash Management Bank shall be satisfactory to Agent and Agent shall have consented in writing in advance to the opening of such Cash Management Account with the prospective Cash Management Bank, and (ii) prior to the time of the opening of such Cash Management Account, Borrowers and such prospective Cash Management Bank shall have executed and delivered to 45 Agent a Cash Management Agreement. Borrowers shall close any of their Cash Management Accounts (and establish replacement cash management accounts in accordance with the foregoing sentence) promptly and in any event within 30 days of notice from Agent that the creditworthiness of any Cash Management Bank is no longer acceptable in Agent's reasonable judgment, or as promptly as practicable and in any event within 60 days of notice from Agent that the operating performance, funds transfer, or availability procedures or performance of the Cash Management Bank with respect to Cash Management Accounts or Agent's liability under any Cash Management Agreement with such Cash Management Bank is no longer acceptable in Agent's reasonable judgment. (d) The Cash Management Accounts shall be cash collateral accounts, with all cash, checks and similar items of payment in such accounts securing payment of the Obligations, and in which Borrowers are hereby deemed to have granted a Lien to Agent. 2.8 CREDITING PAYMENTS; FLOAT CHARGE. The receipt of any payment item by Agent (whether from transfers to Agent by the Cash Management Banks pursuant to the Cash Management Agreements or otherwise) shall not be considered a payment on account unless such payment item is a wire transfer of immediately available federal funds made to the Agent's Account or unless and until such payment item is honored when presented for payment. Should any payment item not be honored when presented for payment, then Borrowers shall be deemed not to have made such payment and interest shall be calculated accordingly. Anything to the contrary contained herein notwithstanding, any payment item shall be deemed received by Agent only if it is received into the Agent's Account on a Business Day on or before 11:00 a.m. (California time). If any payment item is received into the Agent's Account on a non-Business Day or after 11:00 a.m. (California time) on a Business Day, it shall be deemed to have been received by Agent as of the opening of business on the immediately following Business Day. From and after the Closing Date, Agent shall be entitled to charge Borrowers for 1 Business Day of `clearance' or `float' at the rate applicable to Base Rate Loans under Section 2.6 on all Collections that are received by Borrowers (regardless of whether forwarded by the Cash Management Banks to Agent). This across-the-board 1 Business Day clearance or float charge on all Collections is acknowledged by the parties to constitute an integral aspect of the pricing of the financing of Borrowers and shall apply irrespective of whether or not there are any outstanding monetary Obligations; the effect of such clearance or float charge being the equivalent of charging 1 Business Day of interest on such Collections. The parties acknowledge and agree that the economic benefit of the foregoing provisions of this Section 2.8 shall be for the exclusive benefit of Agent. 2.9 DESIGNATED ACCOUNT. Agent is authorized to make the Advances and the Term Loan, and Issuing Lender is authorized to issue the Letters of Credit, under this Agreement based upon telephonic or other instructions received from anyone purporting to be an Authorized Person, or without instructions if pursuant to Section 2.6(d). Administrative Borrower agrees to establish and maintain the Designated Account with the Designated Account Bank for the purpose of receiving the proceeds of the Advances requested by Borrowers and made by Agent or the Lenders hereunder. Unless otherwise agreed by Agent and Administrative Borrower, any Advance, Agent Advance, or Swing Loan requested by Borrowers and made by Agent or the Lenders hereunder shall be made to the Designated Account. 46 2.10 MAINTENANCE OF LOAN ACCOUNT; STATEMENTS OF OBLIGATIONS. Agent shall maintain an account on its books in the name of Borrowers (the "Loan Account") on which Borrowers will be charged with the Term Loan, all Advances (including Agent Advances and Swing Loans) made by Agent, Swing Lender, or the Lenders to Borrowers or for Borrowers' account, the Letters of Credit issued by Issuing Lender for Borrowers' account, and with all other payment Obligations hereunder or under the other Loan Documents (except for Bank Product Obligations), including, accrued interest, fees and expenses, and Lender Group Expenses. In accordance with Section 2.8, the Loan Account will be credited with all payments received by Agent from Borrowers or for Borrowers' account, including all amounts received in the Agent's Account from any Cash Management Bank. Agent shall render statements regarding the Loan Account to Administrative Borrower, including principal, interest, fees, and including an itemization of all charges and expenses constituting Lender Group Expenses owing, and such statements shall be conclusively presumed to be correct and accurate and constitute an account stated between Borrowers and the Lender Group unless, within 30 days after receipt thereof by Administrative Borrower, Administrative Borrower shall deliver to Agent written objection thereto describing the error or errors contained in any such statements. 2.11 FEES. Borrowers shall pay to Agent the following fees and charges, which fees and charges shall be non-refundable when paid (irrespective of whether this Agreement is terminated thereafter) and shall be apportioned among the Lenders in accordance with the terms of letter agreements between Agent and individual Lenders: (a) UNUSED LINE FEE. On the first day of each month during the term of this Agreement, an unused line fee in the amount equal to 0.375% per annum times the result of (a) the Maximum Revolver Amount, less (b) the sum of (i) the average Daily Balance of Advances that were outstanding during the immediately preceding month, plus (ii) the average Daily Balance of the Letter of Credit Usage during the immediately preceding month, plus (iii) the Availability Block, plus (iv) the average Daily Balance of the Term Loan outstanding during the immediately preceding month. (b) FEE LETTER FEES. As and when due and payable under the terms of the Fee Letter, Borrowers shall pay to Agent the fees set forth in the Fee Letter, and (c) AUDIT, APPRAISAL, AND VALUATION CHARGES. For the separate account of Agent, audit, appraisal, and valuation fees and charges as follows, (i) a fee of $850 pay day, per auditor, plus out-of-pocket expenses for each financial audit of a Borrower performed by personnel employed by Agent, and (ii) the actual charges paid or incurred by Agent to perform financial audits of Borrowers, to appraise the Collateral, or any portion thereof, or to assess a Borrower's business valuation; provided, however, Borrowers shall only be required to pay such charges and expenses with respect to four (4) audits performed per year unless an Event of Default has occurred in which case Borrowers shall be required to pay such charges and expenses with respect to as many audits as are performed. 2.12 LETTERS OF CREDIT. (a) Subject to the terms and conditions of this Agreement, the Issuing Lender agrees to issue letters of credit for the account of Borrowers (each, an "L/C") or to purchase 47 participations or execute indemnities or reimbursement obligations (each such undertaking, an "L/C Undertaking") with respect to letters of credit issued by an Underlying Issuer (as of the Closing Date, the prospective Underlying Issuer is to be Wells Fargo) for the account of Borrowers. To request the issuance of an L/C or an L/C Undertaking (or the amendment, renewal, or extension of an outstanding L/C or L/C Undertaking), Administrative Borrower shall hand deliver or telecopy (or transmit by electronic communication, if arrangements for doing so have been approved by the Issuing Lender) to the Issuing Lender and Agent (reasonably in advance of the requested date of issuance, amendment, renewal, or extension) a notice requesting the issuance of an L/C or L/C Undertaking, or identifying the L/C or L/C Undertaking to be amended, renewed, or extended, the date of issuance, amendment, renewal, or extension, the date on which such L/C or L/C Undertaking is to expire, the amount of such L/C or L/C Undertaking, the name and address of the beneficiary thereof (or of the Underlying Letter of Credit, as applicable), and such other information as shall be necessary to prepare, amend, renew, or extend such L/C or L/C Undertaking. If requested by the Issuing Lender, Borrowers also shall be an applicant under the application with respect to any Underlying Letter of Credit that is to be the subject of an L/C Undertaking. The Issuing Lender shall have no obligation to issue a Letter of Credit if any of the following would result after giving effect to the requested Letter of Credit: (i) the Letter of Credit Usage would exceed the Borrowing Base less the amount of outstanding Advances, or (ii) the Letter of Credit Usage would exceed $20,000,000, (iii) the Letter of Credit Usage, with respect to the Revenue Bond Letter of Credit only, would exceed $15,000,000, or (iv) the Letter of Credit Usage would exceed the Maximum Revolver Amount less the then extant amount of outstanding Advances. Borrowers and the Lender Group acknowledge and agree that certain Underlying Letters of Credit may be issued to support letters of credit that already are outstanding as of the Closing Date. Each Letter of Credit (and corresponding Underlying Letter of Credit) shall be in form and substance acceptable to the Issuing Lender (in the exercise of its Permitted Discretion), including the requirement that the amounts payable thereunder must be payable in Dollars. If Issuing Lender is obligated to advance funds under a Letter of Credit, Borrowers immediately shall reimburse such L/C Disbursement to Issuing Lender by paying to Agent an amount equal to such L/C Disbursement not later than 11:00 a.m., California time, on the date that such L/C Disbursement is made, if Administrative Borrower shall have received written or telephonic notice of such L/C Disbursement prior to 10:00 a.m., California time, on such date, or, if such notice has not been received by Administrative Borrower prior to such time on such date, then not later than 11:00 a.m., California time, on (i) the Business Day that Administrative Borrower receives such notice, if such notice is received prior to 10:00 a.m., California time, on the date of receipt, and, in the absence of such reimbursement, the L/C Disbursement immediately and automatically shall be deemed to be an Advance hereunder and, thereafter, shall bear interest at the rate then applicable to Advances that are Base Rate Loans under Section 2.6. To the extent an L/C Disbursement is deemed to be an Advance hereunder, Borrowers' obligation to reimburse such L/C Disbursement shall be discharged and replaced by the resulting Advance. Promptly 48 following receipt by Agent of any payment from Borrowers pursuant to this paragraph, Agent shall distribute such payment to the Issuing Lender or, to the extent that Lenders have made payments pursuant to Section 2.12(c) to reimburse the Issuing Lender, then to such Lenders and the Issuing Lender as their interest may appear. (b) Promptly following receipt of a notice of L/C Disbursement pursuant to Section 2.12(a), each Lender with a Revolver Commitment agrees to fund its Pro Rata Share of any Advance deemed made pursuant to the foregoing subsection on the same terms and conditions as if Borrowers had requested such Advance and Agent shall promptly pay to Issuing Lender the amounts so received by it from the Lenders. By the issuance of a Letter of Credit (or an amendment to a Letter of Credit increasing the amount thereof) and without any further action on the part of the Issuing Lender or the Lenders with Revolver Commitment, the Issuing Lender shall be deemed to have granted to each Lender with a Revolver Commitment, and each Lender with a Revolver Commitment shall be deemed to have purchased, a participation in each Letter of Credit, in an amount equal to its Pro Rata Share of the Risk Participation Liability of such Letter of Credit, and each such Lender agrees to pay to Agent, for the account of the Issuing Lender, such Lender's Pro Rata Share of any payments made by the Issuing Lender under such Letter of Credit. In consideration and in furtherance of the foregoing, each Lender with a Revolver Commitment hereby absolutely and unconditionally agrees to pay to Agent, for the account of the Issuing Lender, such Lender's Pro Rata Share of each L/C Disbursement made by the Issuing Lender and not reimbursed by Borrowers on the date due as provided in clause (a) of this Section, or of any reimbursement payment required to be refunded to Borrowers for any reason. Each Lender with a Revolver Commitment acknowledges and agrees that its obligation to deliver to Agent, for the account of the Issuing Lender, an amount equal to its respective Pro Rata Share pursuant to this Section 2.12(b) shall be absolute and unconditional and such remittance shall be made notwithstanding the occurrence or continuation of an Event of Default or Default or the failure to satisfy any condition set forth in Section 3 hereof. If any such Lender fails to make available to Agent the amount of such Lender's Pro Rata Share of any payments made by the Issuing Lender in respect of such Letter of Credit as provided in this Section, Agent (for the account of the Issuing Lender) shall be entitled to recover such amount on demand from such Lender together with interest thereon at the Defaulting Lender Rate until paid in full. (c) Each Borrower hereby agrees to indemnify, save, defend, and hold the Lender Group harmless from any loss, cost, expense, or liability, and reasonable attorneys fees incurred by the Lender Group arising out of or in connection with any Letter of Credit; provided, however, that no Borrower shall be obligated hereunder to indemnify for any loss, cost, expense, or liability that is caused by the gross negligence or willful misconduct of the Issuing Lender or any other member of the Lender Group. Each Borrower agrees to be bound by the Underlying Issuer's regulations and interpretations of any Underlying Letter of Credit or by Issuing Lender's interpretations of any L/C issued by Issuing Lender to or for such Borrower's account, even though this interpretation may be different from such Borrower's own, and each Borrower understands and agrees that the Lender Group shall not be liable for any error, negligence, or mistake, whether of omission or commission, in following Borrowers' instructions or those contained in the Letter of Credit or any modifications, amendments, or supplements thereto. Each Borrower understands that the L/C Undertakings may require Issuing Lender to indemnify the Underlying Issuer for certain costs or liabilities arising out of claims by Borrowers against such Underlying Issuer. Each Borrower hereby agrees to indemnify, save, defend, and hold the 49 Lender Group harmless with respect to any loss, cost, expense (including reasonable attorneys fees), or liability incurred by the Lender Group under any L/C Undertaking as a result of the Lender Group's indemnification of any Underlying Issuer; provided, however, that no Borrower shall be obligated hereunder to indemnify for any loss, cost, expense, or liability that is caused by the gross negligence or willful misconduct of the Issuing Lender, Underlying Issuer or any other member of the Lender Group. (d) Each Borrower hereby authorizes and directs any Underlying Issuer to deliver to the Issuing Lender all instruments, documents, and other writings and property received by such Underlying Issuer pursuant to such Underlying Letter of Credit and to accept and rely upon the Issuing Lender's instructions with respect to all matters arising in connection with such Underlying Letter of Credit and the related application. (e) Any and all charges, commissions, fees, and costs incurred by the Issuing Lender relating to Underlying Letters of Credit shall be Lender Group Expenses for purposes of this Agreement and immediately shall be reimbursable by Borrowers to Agent for the account of the Issuing Lender; it being acknowledged and agreed by each Borrower that, as of the Closing Date, the issuance charge imposed by the prospective Underlying Issuer is .825% per annum times the face amount of each Underlying Letter of Credit, that such issuance charge may be changed from time to time, and that the Underlying Issuer also imposes a schedule of charges for amendments, extensions, drawings, and renewals. (f) If by reason of (i) any change in any applicable law, treaty, rule, or regulation or any change in the interpretation or application thereof by any Governmental Authority, or (ii) compliance by the Underlying Issuer or the Lender Group with any direction, request, or requirement (irrespective of whether having the force of law) of any Governmental Authority or monetary authority including, Regulation D of the Federal Reserve Board as from time to time in effect (and any successor thereto): (i) any reserve, deposit, or similar requirement is or shall be imposed or modified in respect of any Letter of Credit issued hereunder, or (ii) there shall be imposed on the Underlying Issuer or the Lender Group any other condition regarding any Underlying Letter of Credit or any Letter of Credit issued pursuant hereto; and the result of the foregoing is to increase, directly or indirectly, the cost to the Lender Group of issuing, making, guaranteeing, or maintaining any Letter of Credit or to reduce the amount receivable in respect thereof by the Lender Group, then, and in any such case, Agent may, at any time within a reasonable period after the additional cost is incurred or the amount received is reduced, notify Administrative Borrower, and Borrowers shall pay on demand such amounts as Agent may specify to be necessary to compensate the Lender Group for such additional cost or reduced receipt, together with interest on such amount from the date of such demand until payment in full thereof at the rate then applicable to Base Rate Loans hereunder. The determination by Agent of any amount due pursuant to this Section, as set forth in a certificate setting forth the calculation thereof in reasonable detail, shall, in the absence of manifest or demonstrable error, be final and conclusive and binding on all of the parties hereto. 50 2.13 LIBOR OPTION. (a) INTEREST AND INTEREST PAYMENT DATES. In lieu of having interest charged at the rate based upon the Base Rate, Borrowers shall have the option (the "LIBOR Option") to have interest on all or a portion of the Advances be charged at a rate of interest based upon the LIBOR Rate. Interest on LIBOR Rate Loans shall be payable on the earliest of (i) the last day of the Interest Period applicable thereto, (ii) the occurrence of an Event of Default in consequence of which the Required Lenders or Agent on behalf thereof elect to accelerate the maturity of all or any portion of the Obligations, or (iii) termination of this Agreement pursuant to the terms hereof. On the last day of each applicable Interest Period, unless Administrative Borrower properly has exercised the LIBOR Option with respect thereto, the interest rate applicable to such LIBOR Rate Loan automatically shall convert to the rate of interest then applicable to Base Rate Loans of the same type hereunder. At any time that an Event of Default has occurred and is continuing, Borrowers no longer shall have the option to request that Advances bear interest at the LIBOR Rate and Agent shall have the right to convert the interest rate on all outstanding LIBOR Rate Loans to the rate then applicable to Base Rate Loans hereunder. (b) LIBOR ELECTION. (i) Administrative Borrower may, at any time and from time to time, so long as no Event of Default has occurred and is continuing, elect to exercise the LIBOR Option by notifying Agent prior to 11:00 a.m. (California time) at least 3 Business Days prior to the commencement of the proposed Interest Period (the "LIBOR Deadline"). Notice of Administrative Borrower's election of the LIBOR Option for a permitted portion of the Advances and an Interest Period pursuant to this Section shall be made by delivery to Agent of a LIBOR Notice received by Agent before the LIBOR Deadline, or by telephonic notice received by Agent before the LIBOR Deadline (to be confirmed by delivery to Agent of a LIBOR Notice received by Agent prior to 5:00 p.m. (California time) on the same day. Promptly upon its receipt of each such LIBOR Notice, Agent shall provide a copy thereof to each of the Lenders having a Revolver Commitment. (ii) Each LIBOR Notice shall be irrevocable and binding on Borrowers. In connection with each LIBOR Rate Loan, each Borrower shall indemnify, defend, and hold Agent and the Lenders harmless against any loss, cost, or expense incurred by Agent or any Lender as a result of (a) the payment of any principal of any LIBOR Rate Loan other than on the last day of an Interest Period applicable thereto (including as a result of an Event of Default), (b) the conversion of any LIBOR Rate Loan other than on the last day of the Interest Period applicable thereto, or (c) the failure to borrow, convert, continue or prepay any LIBOR Rate Loan on the date specified in any LIBOR Notice delivered pursuant hereto (such losses, costs, and expenses, collectively, "Funding Losses"). Funding Losses shall, with respect to Agent or any Lender, be deemed to equal the amount determined by Agent or such Lender to be the excess, if any, of (i) the amount of interest that would have accrued on the principal amount of such LIBOR Rate Loan had such event not occurred, at the LIBOR Rate that would have been applicable thereto, for the period from the date of such event to the last 51 day of the then current Interest Period therefor (or, in the case of a failure to borrow, convert or continue, for the period that would have been the Interest Period therefor), minus (ii) the amount of interest that would accrue on such principal amount for such period at the interest rate which Agent or such Lender would be offered were it to be offered, at the commencement of such period, Dollar deposits of a comparable amount and period in the London interbank market. A certificate of Agent or a Lender delivered to Administrative Borrower setting forth any amount or amounts that Agent or such Lender is entitled to receive pursuant to this Section shall be conclusive absent manifest error. (iii) Borrowers shall have not more than 5 LIBOR Rate Loans in effect at any given time. Borrowers only may exercise the LIBOR Option for LIBOR Rate Loans of at least $1,000,000 and integral multiples of $500,000 in excess thereof. (c) PREPAYMENTS. Borrowers may prepay LIBOR Rate Loans at any time; provided, however, that in the event that LIBOR Rate Loans are prepaid on any date that is not the last day of the Interest Period applicable thereto, including as a result of any automatic prepayment through the required application by Agent of proceeds of Collections in accordance with Section 2.4(b) or for any other reason, including early termination of the term of this Agreement or acceleration of all or any portion of the Obligations pursuant to the terms hereof, each Borrower shall indemnify, defend, and hold Agent and the Lenders and their Participants harmless against any and all Funding Losses in accordance with clause (b) above. (d) SPECIAL PROVISIONS APPLICABLE TO LIBOR RATE. (i) The LIBOR Rate may be adjusted by Agent with respect to any Lender on a prospective basis to take into account any additional or increased costs to such Lender of maintaining or obtaining any eurodollar deposits or increased costs due to changes in applicable law occurring subsequent to the commencement of the then applicable Interest Period, including changes in tax laws (except changes of general applicability in corporate income tax laws) and changes in the reserve requirements imposed by the Board of Governors of the Federal Reserve System (or any successor), excluding the Reserve Percentage, which additional or increased costs would increase the cost of funding loans bearing interest at the LIBOR Rate. In any such event, the affected Lender shall give Administrative Borrower and Agent notice of such a determination and adjustment and Agent promptly shall transmit the notice to each other Lender and, upon its receipt of the notice from the affected Lender, Administrative Borrower may, by notice to such affected Lender (y) require such Lender to furnish to Administrative Borrower a statement setting forth the basis for adjusting such LIBOR Rate and the method for determining the amount of such adjustment, or (z) repay the LIBOR Rate Loans with respect to which such adjustment is made (together with any amounts due under clause (b)(ii) above). (ii) In the event that any change in market conditions or any law, regulation, treaty, or directive, or any change therein or in the interpretation of 52 application thereof, shall at any time after the date hereof, in the reasonable opinion of any Lender, make it unlawful or impractical for such Lender to fund or maintain LIBOR Advances or to continue such funding or maintaining, or to determine or charge interest rates at the LIBOR Rate, such Lender shall give notice of such changed circumstances to Agent and Administrative Borrower and Agent promptly shall transmit the notice to each other Lender and (A) in the case of any LIBOR Rate Loans of such Lender that are outstanding, the date specified in such Lender's notice shall be deemed to be the last day of the Interest Period of such LIBOR Rate Loans, and interest upon the LIBOR Rate Loans of such Lender thereafter shall accrue interest at the rate then applicable to Base Rate Loans, and (B) Borrowers shall not be entitled to elect the LIBOR Option until such Lender determines that it would no longer be unlawful or impractical to do so. (e) NO REQUIREMENT OF MATCHED FUNDING. Anything to the contrary contained herein notwithstanding, neither Agent, nor any Lender, nor any of their Participants, is required actually to acquire eurodollar deposits to fund or otherwise match fund any Obligation as to which interest accrues at the LIBOR Rate. The provisions of this Section shall apply as if each Lender or its Participants had match funded any Obligation as to which interest is accruing at the LIBOR Rate by acquiring eurodollar deposits for each Interest Period in the amount of the LIBOR Rate Loans. 2.14 CAPITAL REQUIREMENTS. If, after the date hereof, any Lender determines that (i) the adoption of or change in any law, rule, regulation or guideline regarding capital requirements for banks or bank holding companies, or any change in the interpretation or application thereof by any Governmental Authority charged with the administration thereof, or (ii) compliance by such Lender or its parent bank holding company with any guideline, request or directive of any such entity regarding capital adequacy (whether or not having the force of law), has the effect of reducing the return on such Lender's or such holding company's capital as a consequence of such Lender's Commitments hereunder to a level below that which such Lender or such holding company could have achieved but for such adoption, change, or compliance (taking into consideration such Lender's or such holding company's then existing policies with respect to capital adequacy and assuming the full utilization of such entity's capital) by any amount deemed by such Lender to be material, then such Lender may notify Administrative Borrower and Agent thereof. Following receipt of such notice, Borrowers agree to pay such Lender on demand the amount of such reduction of return of capital as and when such reduction is determined, payable within 90 days after presentation by such Lender of a statement in the amount and setting forth in reasonable detail such Lender's calculation thereof and the assumptions upon which such calculation was based (which statement shall be deemed true and correct absent manifest error). In determining such amount, such Lender may use any reasonable averaging and attribution methods. 2.15 JOINT AND SEVERAL LIABILITY OF BORROWERS. (a) Each of Borrowers is accepting joint and several liability hereunder and under the other Loan Documents in consideration of the financial accommodations to be provided by the Agent and the Lenders under this Agreement, for the mutual benefit, directly and 53 indirectly, of each of Borrowers and in consideration of the undertakings of the other Borrowers to accept joint and several liability for the Obligations. (b) Each of Borrowers, jointly and severally, hereby irrevocably and unconditionally accepts, not merely as a surety but also as a co-debtor, joint and several liability with the other Borrowers, with respect to the payment and performance of all of the Obligations (including, without limitation, any Obligations arising under this Section 2.15), it being the intention of the parties hereto that all the Obligations shall be the joint and several obligations of each Person composing Borrowers without preferences or distinction among them. (c) If and to the extent that any of Borrowers shall fail to make any payment with respect to any of the Obligations as and when due or to perform any of the Obligations in accordance with the terms thereof, then in each such event the other Persons composing Borrowers will make such payment with respect to, or perform, such Obligation. (d) The Obligations of each Person composing Borrowers under the provisions of this Section 2.15 constitute the absolute and unconditional, full recourse Obligations of each Person composing Borrowers enforceable against each such Borrower to the full extent of its properties and assets, irrespective of the validity, regularity or enforceability of this Agreement or any other circumstances whatsoever. (e) Except as otherwise expressly provided in this Agreement, each Person composing Borrowers hereby waives notice of acceptance of its joint and several liability, notice of any Advances or Letters of Credit issued under or pursuant to this Agreement, notice of the occurrence of any Default, Event of Default, or of any demand for any payment under this Agreement, notice of any action at any time taken or omitted by Agent or Lenders under or in respect of any of the Obligations, any requirement of diligence or to mitigate damages and, generally, to the extent permitted by applicable law, all demands, notices and other formalities of every kind in connection with this Agreement (except as otherwise provided in this Agreement). Each Person composing Borrowers hereby assents to, and waives notice of, any extension or postponement of the time for the payment of any of the Obligations, the acceptance of any payment of any of the Obligations, the acceptance of any partial payment thereon, any waiver, consent or other action or acquiescence by Agent or Lenders at any time or times in respect of any default by any Person composing Borrowers in the performance or satisfaction of any term, covenant, condition or provision of this Agreement, any and all other indulgences whatsoever by Agent or Lenders in respect of any of the Obligations, and the taking, addition, substitution or release, in whole or in part, at any time or times, of any security for any of the Obligations or the addition, substitution or release, in whole or in part, of any Person composing Borrowers. Without limiting the generality of the foregoing, each of Borrowers assents to any other action or delay in acting or failure to act on the part of any Agent or Lender with respect to the failure by any Person composing Borrowers to comply with any of its respective Obligations, including, without limitation, any failure strictly or diligently to assert any right or to pursue any remedy or to comply fully with applicable laws or regulations thereunder, which might, but for the provisions of this Section 2.15 afford grounds for terminating, discharging or relieving any Person composing Borrowers, in whole or in part, from any of its Obligations under this Section 2.15, it being the intention of each Person composing Borrowers that, so long as any of the Obligations hereunder remain unsatisfied, the Obligations of such Person composing Borrowers 54 under this Section 2.15 shall not be discharged except by performance and then only to the extent of such performance. The Obligations of each Person composing Borrowers under this Section 2.15 shall not be diminished or rendered unenforceable by any winding up, reorganization, arrangement, liquidation, reconstruction or similar proceeding with respect to any Person composing Borrowers or any Agent or Lender. The joint and several liability of the Persons composing Borrowers hereunder shall continue in full force and effect notwithstanding any absorption, merger, amalgamation or any other change whatsoever in the name, constitution or place of formation of any of the Persons composing Borrowers or any Agent or Lender. (f) Each Person composing Borrowers represents and warrants to Agent and Lenders that such Borrower is currently informed of the financial condition of Borrowers and of all other circumstances which a diligent inquiry would reveal and which bear upon the risk of nonpayment of the Obligations. Each Person composing Borrowers further represents and warrants to Agent and Lenders that such Borrower has read and understands the terms and conditions of the Loan Documents. Each Person composing Borrowers hereby covenants that such Borrower will continue to keep informed of Borrowers' financial condition, the financial condition of other guarantors, if any, and of all other circumstances which bear upon the risk of nonpayment or nonperformance of the Obligations. (g) Each Borrower waives all rights and defenses arising out of an election of remedies by the Agent or any Lender, even though that election of remedies, such as a nonjudicial foreclosure with respect to security for a guaranteed obligation, has destroyed the Agent's or such Lender's rights of subrogation and reimbursement against such Borrower by the operation of Section 580(d) of the California Code of Civil Procedure or otherwise. (h) Each of the Persons composing Borrowers waives all rights and defenses that such Borrower may have because the Obligations are secured by Real Property. This means, among other things: (i) Agent and Lenders may collect from such Borrower without first foreclosing on any Real or Personal Property Collateral pledged by Borrowers. (ii) If Agent or any Lender forecloses on any Real Property Collateral pledged by Borrowers: (A) The amount of the Obligations may be reduced only by the price for which that collateral is sold at the foreclosure sale, even if the collateral is worth more than the sale price. (B) Agent and Lenders may collect from such Borrower even if Agent or Lenders, by foreclosing on the Real Property Collateral, has destroyed any right such Borrower may have to collect from the other Borrowers. This is an unconditional and irrevocable waiver of any rights and defenses such Borrower may have because the Obligations are secured by Real Property. These rights and defenses include, 55 but are not limited to, any rights or defenses based upon Section 580a, 580b, 580d or 726 of the California Code of Civil Procedure. (i) The provisions of this Section 2.15 are made for the benefit of the Agent, the Lenders and their respective successors and assigns, and may be enforced by it or them from time to time against any or all of the Persons composing Borrowers as often as occasion therefor may arise and without requirement on the part of any such Agent, Lender, successor or assign first to marshal any of its or their claims or to exercise any of its or their rights against any of the other Persons composing Borrowers or to exhaust any remedies available to it or them against any of the other Persons composing Borrowers or to resort to any other source or means of obtaining payment of any of the Obligations hereunder or to elect any other remedy. The provisions of this Section 2.15 shall remain in effect until all of the Obligations shall have been paid in full or otherwise fully satisfied. If at any time, any payment, or any part thereof, made in respect of any of the Obligations, is rescinded or must otherwise be restored or returned by any Agent or Lender upon the insolvency, bankruptcy or reorganization of any of the Persons composing Borrowers, or otherwise, the provisions of this Section 2.15 will forthwith be reinstated in effect, as though such payment had not been made. (j) Each of the Persons composing Borrowers hereby agrees that it will not enforce any of its rights of contribution or subrogation against the other Persons composing Borrowers with respect to any liability incurred by it hereunder or under any of the other Loan Documents, any payments made by it to the Agent or the Lenders with respect to any of the Obligations or any collateral security therefor until such time as all of the Obligations have been paid in full in cash. Any claim which any Borrower may have against any other Borrower with respect to any payments to any Agent or Lender hereunder or under any other Loan Documents are hereby expressly made subordinate and junior in right of payment, without limitation as to any increases in the Obligations arising hereunder or thereunder, to the prior payment in full in cash of the Obligations and, in the event of any insolvency, bankruptcy, receivership, liquidation, reorganization or other similar proceeding under the laws of any jurisdiction relating to any Borrower, its debts or its assets, whether voluntary or involuntary, all such Obligations shall be paid in full in cash before any payment or distribution of any character, whether in cash, securities or other property, shall be made to any other Borrower therefor. (k) Each of the Persons composing Borrowers hereby agrees that, after the occurrence and during the continuance of any Default or Event of Default, the payment of any amounts due with respect to the indebtedness owing by any Borrower to any other Borrower is hereby subordinated to the prior payment in full in cash of the Obligations. Each Borrower hereby agrees that after the occurrence and during the continuance of any Default or Event of Default, such Borrower will not demand, sue for or otherwise attempt to collect any indebtedness of any other Borrower owing to such Borrower until the Obligations shall have been paid in full in cash. If, notwithstanding the foregoing sentence, such Borrower shall collect, enforce or receive any amounts in respect of such indebtedness, such amounts shall be collected, enforced and received by such Borrower as trustee for the Agent, and the Agent shall deliver any such amounts to the Administrative Agent for application to the Obligations in accordance with Section 2.4(b). 56 2.16 SECURITIZATION. Each Borrower hereby acknowledges that the Lenders and each of their Affiliates may sell or securitize the Borrowings (a "Securitization") through the pledge of the Borrowings as collateral security for loans to such Lenders or their Affiliates or through the sale of the Borrowings or the issuance of direct or indirect interests in the Borrowings, which loans to such Lenders or their Affiliate or direct or indirect interests will be rated by Moody's, Standard & Poor's or one or more other rating agencies (the "Rating Agencies"). Each Borrower shall cooperate with such Lenders and their Affiliates to effect the Securitization including, without limitation, by (a) amending this Agreement and the other Loan Documents, and executing such additional documents, as reasonably requested by such Lenders in connection with the Securitization, provided that (i) any such amendment or additional documentation does not impose costs on Borrowers and the Lender that elects to securitize its Borrowings shall pay for costs and expenses associated therewith, and (ii) any such amendment or additional documentation does not materially adversely affect the rights, or materially increase the obligations, of Borrowers under the Loan Documents or change or affect in a manner adverse to Borrowers the financial terms of the Borrowings, (b) providing such information as may be reasonably requested by such Lenders in connection with the rating of the Borrowings or the Securitization, and (c) providing in connection with any rating of the Borrowings a certificate (i) agreeing to indemnify such Lenders and any of their Affiliates, any of the Rating Agencies, or any party providing credit support or otherwise participating in the Securitization (collectively, the "Securitization Parties") for any losses, claims, damages or liabilities (the "Liabilities") to which such Lenders, their Affiliates or such Securitization Parties may become subject insofar as the Liabilities arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in any Loan Document or in any writing delivered by or on behalf of Borrowers or its Affiliates to the Lender Group in connection with any Loan Document or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein, or necessary in order to make the statements therein, in light of the circumstances under which they were made not misleading, and such indemnity shall survive any transfer by any Lender or its successors or assigns of the Borrowings, and (ii) agreeing to reimburse such Lenders and any of their Affiliates for any legal or other expenses reasonably incurred by such Persons in connection with defending the Liabilities. 3. CONDITIONS; TERM OF AGREEMENT. 3.1 CONDITIONS PRECEDENT TO THE INITIAL EXTENSION OF CREDIT. The obligation of the Lender Group (or any member thereof) to make the initial Advance (or otherwise to extend any credit provided for hereunder), is subject to the fulfillment, to the satisfaction of Agent, of each of the conditions precedent set forth below: (a) the Closing Date shall occur on or before December 31, 2002; (b) Agent shall have received all financing statements required by Agent, duly executed by the applicable Borrowers, and Agent shall have received searches reflecting the filing of all such financing statements; (c) Agent shall have received each of the following documents, in form and substance satisfactory to Agent, duly executed, and each such document shall be in full force and effect: 57 (i) the Assignments of Claims, (ii) the Control Agreements, (iii) the Disbursement Letter, (iv) the Due Diligence Letter, (v) the Fee Letter, (vi) the Guaranties, (vii) the Validity Agreement, (viii) the Officers' Certificate, (ix) the Pay-Off Letter, (x) Stock Pledge Documentation with respect to all Subsidiaries of any Borrower or Guarantor in existence on the date hereof, and (xi) the Whitney Subordination. (d) Agent shall have received, in form and substance satisfactory to Agent, the Notices of Assignment of Claims, duly executed by the applicable Borrowers; (e) Agent shall have received a certificate from the Secretary of each Borrower attesting to the resolutions of such Borrower's board of directors authorizing its execution, delivery, and performance of this Agreement and the other Loan Documents to which such Borrower is a party and authorizing specific officers of such Borrower to execute the same; (f) Agent shall have received copies of each Borrower's Governing Documents, as amended, modified, or supplemented to the Closing Date, certified by the Secretary of such Borrower; (g) Agent shall have received a certificate of status with respect to each Borrower, issued by the appropriate officer of the jurisdiction of organization of such Borrower, which certificate shall indicate that such Borrower is in good standing in such jurisdiction; (h) Agent shall have received certificates of status with respect to each Borrower, issued by the appropriate officer of the jurisdictions (other than the jurisdiction of organization of such Borrower) in which its failure to be duly qualified or licensed would constitute a Material Adverse Change, which certificates shall indicate that such Borrower is in good standing in such jurisdictions; (i) Agent shall have received a certificate from the Secretary of each Guarantor attesting to the resolutions of such Guarantor's board of directors authorizing its 58 execution, delivery, and performance of the Loan Documents to which such Guarantor is a party and authorizing specific officers of such Guarantor to execute the same; (j) Agent shall have received copies of each Guarantor's Governing Documents, as amended, modified, or supplemented to the Closing Date, certified by the Secretary of such Guarantor; (k) Agent shall have received a certificate of status with respect to each Guarantor, issued by the appropriate officer of the jurisdiction of organization of such Guarantor, which certificate shall indicate that such Guarantor is in good standing in such jurisdiction; (l) Agent shall have received certificates of status with respect to each Guarantor, issued by the appropriate officer of the jurisdictions (other than the jurisdiction of organization of such Guarantor) in which its failure to be duly qualified or licensed would constitute a Material Adverse Change, which certificates shall indicate that such Guarantor is in good standing in such jurisdictions; (m) Agent shall have received a certificate of insurance, together with the endorsements thereto, as are required by Section 6.8, the form and substance of which shall be satisfactory to Agent; (n) Agent shall have received a Collateral Access Agreement with respect to 5456 McConnell Avenue, Los Angeles, California 90066; (o) Agent shall have received opinions of Borrowers' and Guarantors' counsel in form and substance satisfactory to Agent; (p) Agent shall have received satisfactory evidence (including a certificate of the chief financial officer of Parent) that all tax returns required to be filed by Borrowers or Guarantors have been timely filed and all taxes upon Borrowers, Guarantors or their respective properties, assets, income, and franchises (including Real Property taxes and payroll taxes) have been paid prior to delinquency, except such taxes that are the subject of a Permitted Protest or taxes subject to any Liens to be Released; (q) Borrowers shall have the Required Availability after giving effect to the initial extensions of credit hereunder; (r) Agent shall have completed its business, legal, and collateral due diligence, including (i) a collateral audit and review of Borrowers' books and records and verification of Borrowers' representations and warranties to the Lender Group, the results of which shall be satisfactory to Agent, and (ii) an inspection of each of the locations where Inventory is located, the results of which shall be satisfactory to Agent; (s) Agent's counsel shall have reviewed Borrowers' legal structure and Agent shall have been satisfied with the results of such review; (t) Agent's counsel shall have reviewed all material purchase and supply agreements of all Borrowers and Agent shall have been satisfied with the results of such review; 59 (u) Agent's counsel shall have reviewed all contracts entered into by Maytag with any Governmental Authority and Agent shall have been satisfied with the results of such review; (v) Agent's counsel shall have reviewed the FBO Documentation and Agent shall have been satisfied with the results of such review; (w) Agent's counsel shall have reviewed the Whitney Documentation and Agent shall have been satisfied with the results of such review; (x) Agent's counsel shall have received and reviewed all documentation requested by them from Borrowers with respect to the shareholder lawsuits filed against Borrowers or any of them and Agent shall have been satisfied with the results of such review; (y) Agent shall have received completed reference checks with respect to Borrowers' senior management, the results of which are satisfactory to Agent in its sole discretion; (z) Agent shall have received the Closing Date Business Plan; (aa) Borrowers shall pay all Lender Group Expenses incurred in connection with the transactions evidenced by this Agreement; (bb) Borrowers shall have received all licenses, approvals or evidence of other actions required by any Governmental Authority in connection with the execution and delivery by Borrowers of this Agreement or any other Loan Document or with the consummation of the transactions contemplated hereby and thereby; (cc) Agent shall have performed, with results satisfactory to Agent, a takeover audit of Borrowers operations and the Collateral which includes additional analysis on (i) FBO reporting, (ii) past due accounts payable of MercFuel and (iii) payment history, creditworthiness and other credit analysis with respect to China Eastern Airlines and China Southern Airlines; and (dd) all other documents and legal matters in connection with the transactions contemplated by this Agreement shall have been delivered, executed, or recorded and shall be in form and substance satisfactory to Agent. 3.2 CONDITIONS SUBSEQUENT TO THE INITIAL EXTENSION OF CREDIT. The obligation of the Lender Group (or any member thereof) to continue to make Advances (or otherwise extend credit hereunder) is subject to the fulfillment by Borrowers, on or before the date applicable thereto, of each of the conditions subsequent set forth below (the failure by Borrowers to so perform or cause to be performed constituting an Event of Default): (a) within 15 Business Days after the Closing Date, deliver to Agent the Cash Management Agreements, in form and substance satisfactory to Agent, duly executed by the parties thereto and effective as of the dates thereof; 60 (b) within 15 Business Days after the Closing Date, deliver to Agent certified copies of resolutions of each Borrower's and each Guarantor's board of directors authorizing the transactions contemplated by the Loan Documents to which such entities are party, any amendments or modifications thereto and such other matters as Agent may reasonably require; (c) within 30 days after the Closing Date, deliver to Agent an opinion of counsel to Maytag, Mercury Air Center-Hartsfield, LLC, Mercury Air Center-Peachtree-Dekalb, LLC, Mercury Air Center-Jackson, LLC., Mercury Air Center-Reno, LLC, Mercury Air Center-Charleston, LLC. and Mercury Air Center-Johns Island, LLC., each in form and substance satisfactory to Agent; (d) within 30 days after the Closing Date, deliver to Agent a certificate of insurance with respect to its business interruption insurance, together with a lenders loss payable endorsement thereto, all in form and substance satisfactory to Agent; (e) within 30 days after the Closing Date, deliver to Agent certified copies of the policies of insurance, together with the endorsements thereto, as are required by Section 6.8, the form and substance of which shall be satisfactory to Agent and its counsel; (f) within 30 days after the Closing Date, deliver to Agent a Collateral Access Agreement with respect to 6145 Lehman Drive, Suite 300, Colorado Springs, Colorado, 80918; (g) within 30 days after the Closing Date, deliver to Agent a deposit account control agreement, in form and substance satisfactory to Agent, with respect to each of the DDAs; (h) within 30 days after the Closing Date, deliver to Agent evidence, in form and substance satisfactory to Agent, of the satisfaction and release, as of record, of the Liens to be Released; (i) within 30 days after the Closing Date, deliver to Agent certificates of status, other than those received by Agent prior to the Closing Date, with respect to each Borrower, issued by the appropriate officer of the jurisdictions (other than the jurisdiction of organization of such Borrower) in which the nature of such Borrower's business operations require such Borrower to be duly qualified or licensed to do business in such jurisdiction, which certificates shall indicate that such Borrower is in good standing in such jurisdictions; (j) within 60 days after the Closing Date, deliver to Agent, all original motor vehicle title certificates with respect to all motor vehicles owned by any Borrower and registered with any state's department of motor vehicles, executed by the appropriate Borrower and, if necessary, the Existing Lender, so as to permit Agent to record a first priority Lien with respect thereto; (k) within 60 days after the Closing Date, deliver to Agent the ChevronTexaco Letter, in form and substance satisfactory to Agent; (l) within 90 days after the Closing Date, deliver to Agent all Notices of Assignment of Claims, duly executed by or on behalf of the parties addressed thereon; and 61 (m) within 6 months after the Closing Date, demonstrate to the satisfaction of Agent, their ability to report sales journals, collection journals and credit registers, by division. 3.3 CONDITIONS PRECEDENT TO ALL EXTENSIONS OF CREDIT. The obligation of the Lender Group (or any member thereof) to make all Advances (or to extend any other credit hereunder) shall be subject to the following conditions precedent: (a) the representations and warranties contained in this Agreement and the other Loan Documents shall be true and correct in all material respects on and as of the date of such extension of credit, as though made on and as of such date (except to the extent that such representations and warranties relate solely to an earlier date); (b) no Default or Event of Default shall have occurred and be continuing on the date of such extension of credit, nor shall either result from the making thereof; (c) no injunction, writ, restraining order, or other order of any nature prohibiting, directly or indirectly, the extending of such credit shall have been issued and remain in force by any Governmental Authority against any Borrower, Agent, any Lender, or any of their Affiliates; and (d) no Material Adverse Change shall have occurred. 3.4 TERM. This Agreement shall continue in full force and effect for a term ending on the earlier to occur of December 30, 2007 or (b) if the Whitney Debt has not been refinanced on terms acceptable to Agent in its sole discretion or repaid in full prior to October 3, 2005, then December 23, 2005 (such earlier date referred to herein as the "Maturity Date"). The foregoing notwithstanding, the Lender Group, upon the election of the Required Lenders, shall have the right to terminate its obligations under this Agreement immediately and without notice upon the occurrence and during the continuation of an Event of Default. 3.5 EFFECT OF TERMINATION. On the date of termination of this Agreement, all Obligations (including contingent reimbursement obligations of Borrowers with respect to any outstanding Letters of Credit and including all Bank Product Obligations) immediately shall become due and payable without notice or demand (including (a) either (i) providing cash collateral to be held by Agent for the benefit of those Lenders with a Revolver Commitment in an amount equal to 105% of the then extant Letter of Credit Usage, or (ii) causing the original Letters of Credit to be returned to the Issuing Lender and (b) providing cash collateral to be held by Agent for the benefit of Wells Fargo or its Affiliates with respect to the then extant Bank Product Obligations). No termination of this Agreement, however, shall relieve or discharge Borrowers of their duties, Obligations, or covenants hereunder and the Agent's Liens in the Collateral shall remain in effect until all Obligations have been fully and finally discharged and the Lender Group's obligations to provide additional credit hereunder have been terminated. When this Agreement has been terminated and all of the Obligations have been fully and finally discharged and the Lender Group's obligations to provide additional credit under the Loan Documents have been terminated irrevocably, Agent will, at Borrowers' sole expense, execute and deliver any UCC termination statements, lien releases, mortgage releases, re-assignments of trademarks, discharges of security interests, and other similar discharge or release documents 62 (and, if applicable, in recordable form) as are reasonably necessary to release, as of record, the Agent's Liens and all notices of security interests and liens previously filed by Agent with respect to the Obligations. 3.6 EARLY TERMINATION BY BORROWERS. Borrowers have the option, at any time upon 90 days prior written notice by Administrative Borrower to Agent, to terminate this Agreement by paying to Agent, for the benefit of the Lender Group, in cash, the Obligations (including (a) either (i) providing cash collateral to be held by Agent for the benefit of those Lenders with a Revolver Commitment in an amount equal to 105% of the then extant Letter of Credit Usage, or (ii) causing the original Letters of Credit to be returned to the Issuing Lender and (b) providing cash collateral to be held by Agent for the benefit of Wells Fargo or its Affiliates with respect to the then extant Bank Product Obligations), in full, together with the Applicable Prepayment Premium (to be allocated based upon letter agreements between Agent and individual Lenders). If Administrative Borrower has sent a notice of termination pursuant to the provisions of this Section, then the Commitments shall terminate and Borrowers shall be obligated to repay the Obligations (including (a) either (i) providing cash collateral to be held by Agent for the benefit of those Lenders with a Revolver Commitment in an amount equal to 105% of the then extant Letter of Credit Usage, or (ii) causing the original Letters of Credit to be returned to the Issuing Lender and (b) providing cash collateral to be held by Agent for the benefit of Wells Fargo or its Affiliates with respect to the then extant Bank Product Obligations), in full, together with the Applicable Prepayment Premium, on the date set forth as the date of termination of this Agreement in such notice. In the event of the termination of this Agreement and repayment of the Obligations at any time prior to the Maturity Date, for any other reason, including (w) termination upon the election of the Required Lenders to terminate after the occurrence of an Event of Default, (x) foreclosure and sale of Collateral, (y) sale of the Collateral in any Insolvency Proceeding, or (z) restructure, reorganization or compromise of the Obligations by the confirmation of a plan of reorganization, or any other plan of compromise, restructure, or arrangement in any Insolvency Proceeding, then, in view of the impracticability and extreme difficulty of ascertaining the actual amount of damages to the Lender Group or profits lost by the Lender Group as a result of such early termination, and by mutual agreement of the parties as to a reasonable estimation and calculation of the lost profits or damages of the Lender Group, Borrowers shall pay the Applicable Prepayment Premium to Agent (to be allocated based upon letter agreements between Agent and individual Lenders), measured as of the date of such termination. 4. CREATION OF SECURITY INTEREST. 4.1 GRANT OF SECURITY INTEREST. Each Borrower hereby grants to Agent, for the benefit of the Lender Group, a continuing security interest in all of its right, title, and interest in all currently existing and hereafter acquired or arising Personal Property Collateral in order to secure prompt repayment of any and all of the Obligations in accordance with the terms and conditions of the Loan Documents and in order to secure prompt performance by Borrowers of each of their covenants and duties under the Loan Documents. The Agent's Liens in and to the Personal Property Collateral shall attach to all Personal Property Collateral without further act on the part of Agent or Borrowers. Anything contained in this Agreement or any other Loan Document to the contrary notwithstanding, except for Permitted Dispositions, Borrowers have no authority, express or implied, to dispose of any item or portion of the Collateral. 63 4.2 NEGOTIABLE COLLATERAL. In the event that any Collateral, including proceeds, is evidenced by or consists of Negotiable Collateral, and if and to the extent that perfection or priority of Agent's security interest is dependent on or enhanced by possession, the applicable Borrower, immediately upon the request of Agent, shall endorse and deliver physical possession of such Negotiable Collateral to Agent. 4.3 COLLECTION OF ACCOUNTS, GENERAL INTANGIBLES, AND NEGOTIABLE COLLATERAL. At any time after the occurrence and during the continuation of an Event of Default, Agent or Agent's designee may (a) notify Account Debtors of Borrowers that the Accounts, chattel paper, or General Intangibles have been assigned to Agent or that Agent has a security interest therein, or (b) collect the Accounts, chattel paper, or General Intangibles directly and charge the collection costs and expenses to the Loan Account. Each Borrower agrees that it will hold in trust for the Lender Group, as the Lender Group's trustee, any Collections that it receives and immediately will deliver said Collections to Agent or a Cash Management Bank in their original form as received by the applicable Borrower. 4.4 DELIVERY OF ADDITIONAL DOCUMENTATION REQUIRED. At any time upon the request of Agent, Borrowers shall execute and deliver to Agent, any and all financing statements, original financing statements in lieu of continuation statements, fixture filings, security agreements, pledges, assignments, endorsements of certificates of title, and all other documents (the "Additional Documents") that Agent may request in its Permitted Discretion, in form and substance satisfactory to Agent, to perfect and continue perfected or better perfect the Agent's Liens in the Collateral (whether now owned or hereafter arising or acquired), to create and perfect Liens in favor of Agent in any Real Property acquired after the Closing Date, and in order to fully consummate all of the transactions contemplated hereby and under the other Loan Documents. Without limiting the generality of the foregoing, Borrowers agree to deliver to Agent a Trademark Security Agreement with respect to any trademark applications within 5 Business Days after the date such trademark applications are filed and application numbers assigned thereto by the U.S. Patent and Trademark Officer. To the maximum extent permitted by applicable law, each Borrower authorizes Agent to execute any such Additional Documents in the applicable Borrower's name and authorize Agent to file such executed Additional Documents in any appropriate filing office. In addition, on such periodic basis as Agent shall require, Borrowers shall (a) provide Agent with a report of all new patentable, copyrightable, or trademarkable materials acquired or generated by Borrowers during the prior period, (b) cause all patents, copyrights, and trademarks acquired or generated by Borrowers that are not already the subject of a registration with the appropriate filing office (or an application therefor diligently prosecuted) to be registered with such appropriate filing office in a manner sufficient to impart constructive notice of Borrowers' ownership thereof, and (c) cause to be prepared, executed, and delivered to Agent supplemental schedules to the applicable Loan Documents to identify such patents, copyrights, and trademarks as being subject to the security interests created thereunder. 4.5 POWER OF ATTORNEY. Each Borrower hereby irrevocably makes, constitutes, and appoints Agent (and any of Agent's officers, employees, or agents designated by Agent) as such Borrower's true and lawful attorney, with power to (a) if such Borrower refuses to, or fails timely to execute and deliver any of the documents described in Section 4.4, sign the name of such Borrower on any of the documents described in Section 4.4, (b) at any time that an Event of Default has occurred and is continuing, sign such Borrower's name on any invoice or bill of 64 lading relating to the Collateral, drafts against Account Debtors, or notices to Account Debtors, (c) send requests for verification of Accounts, (d) endorse such Borrower's name on any Collection item that may come into the Lender Group's possession, (e) at any time that an Event of Default has occurred and is continuing, make, settle, and adjust all claims under such Borrower's policies of insurance and make all determinations and decisions with respect to such policies of insurance, and (f) at any time that an Event of Default has occurred and is continuing, settle and adjust disputes and claims respecting the Accounts, chattel paper, or General Intangibles directly with Account Debtors, for amounts and upon terms that Agent determines to be reasonable, and Agent may cause to be executed and delivered any documents and releases that Agent determines to be necessary. The appointment of Agent as each Borrower's attorney, and each and every one of its rights and powers, being coupled with an interest, is irrevocable until all of the Obligations have been fully and finally repaid and performed and the Lender Group's obligations to extend credit hereunder are terminated. 4.6 RIGHT TO INSPECT. Agent and each Lender (through any of their respective officers, employees, or agents) shall have the right, from time to time hereafter to inspect the Books and to check, test, and appraise the Collateral in order to verify Borrowers' financial condition or the amount, quality, value, condition of, or any other matter relating to, the Collateral. 4.7 CONTROL AGREEMENTS. Each Borrower agrees that it will not transfer assets out of any Securities Accounts other than as permitted under Section 7.18 and, if to another securities intermediary, unless each of the applicable Borrower, Agent, and the substitute securities intermediary have entered into a Control Agreement. No arrangement contemplated hereby or by any Control Agreement in respect of any Securities Accounts or other Investment Property shall be modified by Borrowers without the prior written consent of Agent. Upon the occurrence and during the continuance of a Default or Event of Default, Agent may notify any securities intermediary to liquidate the applicable Securities Account or any related Investment Property maintained or held thereby and remit the proceeds thereof to the Agent's Account. 5. REPRESENTATIONS AND WARRANTIES. In order to induce the Lender Group to enter into this Agreement, each Borrower makes the following representations and warranties to the Lender Group which shall be true, correct, and complete, in all material respects, as of the date hereof, and shall be true, correct, and complete, in all material respects, as of the Closing Date, and at and as of the date of the making of each Advance (or other extension of credit) made thereafter, as though made on and as of the date of such Advance (or other extension of credit) (except to the extent that such representations and warranties relate solely to an earlier date) and such representations and warranties shall survive the execution and delivery of this Agreement: 5.1 NO ENCUMBRANCES. Each Borrower has good and indefeasible title to its Collateral and the Real Property, free and clear of Liens except for Permitted Liens. 5.2 ELIGIBLE ACCOUNTS AND ELIGIBLE FOREIGN ACCOUNTS. The Eligible Accounts and Eligible Foreign Accounts are bona fide existing payment obligations of Account Debtors created by the sale and delivery of Inventory or the rendition of services to such Account Debtors 65 in the ordinary course of each Borrower's business, owed directly (and not through a third-party billing intermediary) to each Borrower without defenses, disputes, offsets, counterclaims, or rights of return or cancellation. As to each Account that is identified by Administrative Borrower as an Eligible Account or an Eligible Foreign Account in a borrowing base report submitted to Agent, such Account is not excluded as ineligible by virtue of one or more of the excluding criteria set fort in the definition of Eligible Accounts or the definition of Eligible Foreign Accounts. 5.3 EQUIPMENT. All of the Equipment is used or held for use in Borrowers' business and is fit for such purposes. 5.4 LOCATION OF INVENTORY AND EQUIPMENT; FBOs. The Inventory and Equipment are not stored with a bailee, warehouseman, or similar party and are located only at the locations identified on Schedule 5.4. No Borrower is the holder of any FBO except for those identified on Schedule F-1. Each FBO Borrower holds a valid leasehold interest with respect to all Real Property necessary to enable it or another Borrower to operate the FBO's identified on Schedule F-1 which generate any portion of such Borrower's revenues. 5.5 INVENTORY RECORDS. Each Borrower keeps correct and accurate records itemizing and describing the type, quality, and quantity of its Inventory and the book value thereof. 5.6 LOCATION OF CHIEF EXECUTIVE OFFICE; FEIN. The chief executive office of each Borrower is located at the address indicated in Schedule 5.6 and each Borrower's FEIN is identified in Schedule 5.6. 5.7 DUE ORGANIZATION AND QUALIFICATION; SUBSIDIARIES (a) Each Borrower is duly organized and existing and in good standing under the laws of the jurisdiction of its organization and qualified to do business in any state where the failure to be so qualified reasonably could be expected to have a Material Adverse Change. (b) Set forth on Schedule 5.7(b), is a complete and accurate description of the authorized capital Stock of each Borrower other than Parent, by class, and, as of the Closing Date, a description of the number of shares of each such class that are issued and outstanding. Other than as described on Schedule 5.7(b), there are no subscriptions, options, warrants, or calls relating to any shares of each Borrower's capital Stock, including any right of conversion or exchange under any outstanding security or other instrument. No Borrower is subject to any obligation (contingent or otherwise) to repurchase or otherwise acquire or retire any shares of its capital Stock or any security convertible into or exchangeable for any of its capital Stock. (c) Set forth on Schedule 5.7(c), is a complete and accurate list of each Borrower's direct and indirect Subsidiaries, showing: (i) the jurisdiction of their organization; (ii) the number of shares of each class of common and preferred Stock authorized for each of such Subsidiaries; and (iii) the number and the percentage of the outstanding shares of each such class owned directly or indirectly by the applicable Borrower. All of the outstanding capital Stock of each such Subsidiary has been validly issued and is fully paid and non-assessable. 66 (d) Except as set forth on Schedule 5.7(c), there are no subscriptions, options, warrants, or calls relating to any shares of any Borrower's Subsidiaries' capital Stock, including any right of conversion or exchange under any outstanding security or other instrument. No Borrower or any of its respective Subsidiaries is subject to any obligation (contingent or otherwise) to repurchase or otherwise acquire or retire any shares of any Borrower's Subsidiaries' capital Stock or any security convertible into or exchangeable for any such capital Stock. 5.8 DUE AUTHORIZATION; NO CONFLICT. (a) As to each Borrower, the execution, delivery, and performance by such Borrower of this Agreement and the Loan Documents to which it is a party have been duly authorized by all necessary action on the part of such Borrower. (b) As to each Borrower, the execution, delivery, and performance by such Borrower of this Agreement and the Loan Documents to which it is a party do not and will not (i) violate any provision of federal, state, or local law or regulation applicable to any Borrower, the Governing Documents of any Borrower, or any order, judgment, or decree of any court or other Governmental Authority binding on any Borrower, (ii) conflict with, result in a breach of, or constitute (with due notice or lapse of time or both) a default under any material contractual obligation of any Borrower, (iii) result in or require the creation or imposition of any Lien of any nature whatsoever upon any properties or assets of Borrower, other than Permitted Liens, or (iv) require any approval of any Borrower's interestholders or any approval or consent of any Person under any material contractual obligation of any Borrower. (c) Other than the filing of financing statements, fixture filings, and Mortgages, the execution, delivery, and performance by each Borrower of this Agreement and the Loan Documents to which such Borrower is a party do not and will not require any registration with, consent, or approval of, or notice to, or other action with or by, any Governmental Authority or other Person. (d) As to each Borrower, this Agreement and the other Loan Documents to which such Borrower is a party, and all other documents contemplated hereby and thereby, when executed and delivered by such Borrower will be the legally valid and binding obligations of such Borrower, enforceable against such Borrower in accordance with their respective terms, except as enforcement may be limited by equitable principles or by bankruptcy, insolvency, reorganization, moratorium, or similar laws relating to or limiting creditors' rights generally and except to the extent that availability of the remedy of specific performance or injunctive relief is subject to the discretion of the court before which any proceeding therefor may be brought. (e) The Agent's Liens are validly created, perfected, and first priority Liens, subject only to Permitted Liens (f) The execution, delivery, and performance by each Guarantor of the Loan Documents to which it is a party have been duly authorized by all necessary action on the part of such Guarantor. 67 (g) The execution, delivery, and performance by each Guarantor of the Loan Documents to which it is a party do not and will not (i) violate any provision of federal, state, or local law or regulation applicable to such Guarantor, the Governing Documents of such Guarantor, or any order, judgment, or decree of any court or other Governmental Authority binding on such Guarantor, (ii) conflict with, result in a breach of, or constitute (with due notice or lapse of time or both) a default under any material contractual obligation of such Guarantor, (iii) result in or require the creation or imposition of any Lien of any nature whatsoever upon any properties or assets of such Guarantor, other than Permitted Liens, or (iv) require any approval of such Guarantor's interestholders or any approval or consent of any Person under any material contractual obligation of such Guarantor. (h) Other than the filing of financing statements, fixture filings and Mortgages, the execution, delivery, and performance by each Guarantor of the Loan Documents to which such Guarantor is a party do not and will not require any registration with, consent, or approval of, or notice to, or other action with or by, any Governmental Authority or other Person. (i) The Loan Documents to which each Guarantor is a party, and all other documents contemplated hereby and thereby, when executed and delivered by such Guarantor will be legally valid and binding obligations of such Guarantor, enforceable against such Guarantor in accordance with their respective terms, except as enforcement may be limited by equitable principles or by bankruptcy, insolvency, reorganization, moratorium, or similar laws relating to or limiting creditors' rights generally and except to the extent that availability of the remedy of specific performance or injunctive relief is subject to the discretion of the court before which any proceeding therefor may be brought. 5.9 LITIGATION. Other than those matters disclosed on Schedule 5.9, there are no actions, suits, or proceedings pending or, to the best knowledge of Borrowers, threatened against Borrowers, or any of their Subsidiaries, as applicable, except for (a) matters that are fully covered by insurance (subject to customary deductibles), and (b) matters arising after the Closing Date that, if decided adversely to Borrowers, or any of their Subsidiaries, as applicable, reasonably could not be expected to result in a Material Adverse Change. 5.10 NO MATERIAL ADVERSE CHANGE. All financial statements relating to Borrowers or Guarantors that have been delivered by Borrowers or Guarantors to the Lender Group have been prepared in accordance with GAAP (except, in the case of unaudited financial statements, for the lack of footnotes and being subject to year-end audit adjustments) and present fairly in all material respects, Borrowers' (or Guarantors', as applicable) financial condition as of the date thereof and results of operations for the period then ended. There has not been a Material Adverse Change with respect to Borrowers (or Guarantors, as applicable) since the date of the latest financial statements submitted to the Lender Group on or before the Closing Date. 5.11 FRAUDULENT TRANSFER. (a) each Borrower and each Guarantor is Solvent. (b) No transfer of property is being made by any Borrower or Guarantor and no obligation is being incurred by any Borrower or Guarantor in connection with the transactions 68 contemplated by this Agreement or the other Loan Documents with the intent to hinder, delay, or defraud either present or future creditors of Borrowers or Guarantors. 5.12 EMPLOYEE BENEFITS. Except as set forth on Schedule 5.12, none of Borrowers, any of their Subsidiaries, or any of their ERISA Affiliates maintains or contributes to any Benefit Plan. 5.13 ENVIRONMENTAL CONDITION. Except as set forth on Schedule 5.13, (a) to Borrowers' knowledge, none of Borrowers' properties or assets has ever been used by Borrowers or by previous owners or operators in the disposal of, or to produce, store, handle, treat, release, or transport, any Hazardous Materials, where such production, storage, handling, treatment, release or transport was in violation of applicable Environmental Law except for violations that could not reasonably be expected to result in a Material Adverse Change, (b) to Borrowers' knowledge, none of Borrowers' properties or assets has ever been designated or identified in any manner pursuant to any environmental protection statute as a Hazardous Materials disposal site, (c) none of Borrowers have received notice that a Lien arising under any Environmental Law has attached to any revenues or to any Real Property owned or operated by Borrowers, and (d) none of Borrowers have received a summons, citation, notice, or directive from the Environmental Protection Agency or any other federal or state governmental agency concerning any action or omission by any Borrower resulting in the releasing or disposing of Hazardous Materials into the environment, other than such notices that are not material to Borrowers in the aggregate. 5.14 BROKERAGE FEES. Except as set forth on Schedule 5.14, Borrowers have not utilized the services of any broker or finder in connection with Borrowers' obtaining financing from the Lender Group under this Agreement and no brokerage commission or finders fee is payable by Borrowers in connection herewith. 5.15 INTELLECTUAL PROPERTY. Each Borrower owns, or holds licenses in, all trademarks, trade names, copyrights, patents, patent rights, and licenses that are necessary to the conduct of its business as currently conducted. Attached hereto as Schedule 5.15 is a true, correct, and complete listing of all material patents, patent applications, trademarks, trademark applications, copyrights, and copyright registrations as to which each Borrower is the owner or is an exclusive licensee. 5.16 LEASES. Borrowers enjoy peaceful and undisturbed possession under all leases material to the business of Borrowers and to which Borrowers are a party or under which Borrowers are operating. All of such leases are valid and subsisting and no material default by Borrowers exists under any of them. 5.17 DDAS. Set forth on Schedule 5.17 are all of the DDAs of each Borrower, including, with respect to each depository (a) the name and address of that depository, and (b) the account numbers of the accounts maintained with such depository. 5.18 COMPLETE DISCLOSURE. All factual information (taken as a whole) furnished by or on behalf of Borrowers in writing to Agent or any Lender (including all information contained in the Schedules hereto or in the other Loan Documents) for purposes of or in connection with this Agreement, the other Loan Documents or any transaction contemplated herein or therein is, and 69 all other such factual information (taken as a whole) hereafter furnished by or on behalf of Borrowers in writing to the Agent or any Lender will be, true and accurate in all material respects on the date as of which such information is dated or certified and not incomplete by omitting to state any fact necessary to make such information (taken as a whole) not misleading in any material respect at such time in light of the circumstances under which such information was provided. The Projections provided on the Closing Date, or provided on any other date, represent Borrowers' good faith best estimate on such date of their future performance for the periods covered thereby. 5.19 INDEBTEDNESS. Set forth on Schedule 5.19 is a true and complete list of all Indebtedness of each Borrower outstanding immediately prior to the Closing Date that is to remain outstanding after the Closing Date and such Schedule accurately reflects the aggregate principal amount of such Indebtedness and the principal terms thereof. 5.20 CORPORATE ORGANIZATION. Set forth on Schedule 5.20 is a true and complete organizational chart listing Parent and all of its direct and indirect Subsidiaries. 6. AFFIRMATIVE COVENANTS. Each Borrower covenants and agrees that, so long as any credit hereunder shall be available and until full and final payment of the Obligations, Borrowers shall and shall cause each of their respective Subsidiaries to do all of the following: 6.1 ACCOUNTING SYSTEM. Maintain a system of accounting that enables Borrowers to produce financial statements in accordance with GAAP and maintain records pertaining to the Collateral that contain information as from time to time reasonably may be requested by Agent. Borrowers also shall keep an inventory reporting system that shows all additions, sales, claims, returns, and allowances with respect to the Inventory. 6.2 COLLATERAL REPORTING. Provide Agent (and if so requested by Agent, with copies for each Lender) with the following documents at the following times in form satisfactory to Agent: Daily (a) with respect to MercFuel, a sales journal, collection journal, and credit register since the last such schedule. (b) a detailed aging, by total, of the Accounts of the other Borrowers . At least once weekly (the first such report not later than Monday of each week) 70 Monthly (not later than with respect to all Borrowers other than Maytag: the 15th day of each month) (c) a sales journal, collection journal, and credit register since the last such schedule and a calculation of the Borrowing Base as of such date, (d) notice of all returns, disputes, or claims, (e) a detailed calculation of the Borrowing Base (including detail regarding those Accounts that are not Eligible Accounts or Eligible Foreign Accounts), (f) a detailed aging, by total, of the Accounts, together with a reconciliation to the detailed calculation of the Borrowing Base previously provided to Agent, (g) a summary aging, by vendor, of Borrowers' accounts payable and any book overdraft, together with a reconciliation to Borrower's general ledger, and (h) a calculation of Dilution for the prior month. Monthly (not later than with respect to Maytag: the 20th day of each month) (i) a sales journal, collection journal, and credit register since the last such schedule and a calculation of the Borrowing Base as of such date, (j) notice of all returns, disputes, or claims, (k) a detailed calculation of the Borrowing Base (including detail regarding those Accounts that are not Eligible Accounts or Eligible Foreign Accounts), (l) a detailed aging, by total, of the Accounts, together with a reconciliation to the detailed calculation of the Borrowing Base previously provided to Agent, (m) a summary aging, by vendor, of Borrowers' accounts payable and any book overdraft, together with a reconciliation to Borrower's general ledger, and (n) a calculation of Dilution for the prior month. Monthly (not later (o) a report as to sales, excise and fuel taxes than the 45th day payable by any Borrower, in form satisfactory to after the end of Agent. each month) Quarterly (p) a detailed list of each Borrower's customers, and (q) a report regarding each Borrower's accrued, but unpaid, ad valorem taxes. 71 Upon request by Agent (r) copies of invoices in connection with the Accounts, credit memos, remittance advices, deposit slips, shipping and delivery documents in connection with the Accounts and, for Inventory and Equipment acquired by Borrowers, purchase orders and invoices, and (s) such other reports as to the Collateral, or the financial condition of Borrowers as Agent may request. In addition, each Borrower agrees to cooperate fully with Agent to facilitate and implement a system of electronic collateral reporting in order to provide electronic reporting of each of the items set forth above. 6.3 FINANCIAL STATEMENTS, REPORTS, CERTIFICATES. Deliver to Agent, with copies to each Lender: (a) as soon as available, but in any event within 30 days (45 days in the case of a month that is the end of one of the first 3 fiscal quarters in a fiscal year) after the end of each month during each of Parent's fiscal years: (i) a company prepared consolidated balance sheet and income statement covering Parent's and its Subsidiaries' operations during such period; (ii) a schedule of principal debt payments and a schedule of Capital Expenditures detailed as to financed and non-financed Capital Expenditures for Parent and its Subsidiaries during such period; (iii) a certificate signed by the chief financial officer of Parent to the effect that: (A) the financial statements delivered hereunder have been prepared consistent with past practices in accordance with GAAP (except for the lack of footnotes and being subject to year-end audit adjustments) and fairly present in all material respects the financial condition of Parent and its Subsidiaries, (B) the representations and warranties of Borrowers contained in this Agreement and the other Loan Documents are true and correct in all material respects on and as of the date of such certificate, as though made on and as of such date (except to the extent that such representations and warranties relate solely to an earlier date) and (C) there does not exist any condition or event that constitutes a Default or Event of Default (or, to the extent of any non-compliance, describing such non-compliance as to which he or she may have knowledge and what action Borrowers have taken, are taking, or propose to take with respect thereto); 72 (iv) for each month that is the date on which a financial covenant in Section 7.19 is to be tested, a Compliance Certificate demonstrating, in reasonable detail, compliance at the end of such period with the applicable financial covenants contained in Section 7.19; (b) as soon as available, but in any event within 45 days after the end of each fiscal quarter (other than the last fiscal quarter in a fiscal year), a company prepared statement of cash flow covering Parent's and its Subsidiaries' operations during such fiscal quarter; (c) as soon as available, but in any event within 90 days after the end of each of Parent's fiscal years: (i) financial statements of Parent and its Subsidiaries for each such fiscal year, audited by independent certified public accountants reasonably acceptable to Agent and certified, without any qualifications, by such accountants to have been prepared in accordance with GAAP (such audited financial statements to include a balance sheet, income statement, and statement of cash flow and, if prepared, such accountants' letter to management), and (ii) a certificate of such accountants addressed to Agent and the Lenders stating that such accountants do not have knowledge of the existence of any Default or Event of Default under Section 7.19; (d) as soon as available, but in any event within 30 days prior to the start of each fiscal year of Parent, copies of Borrowers' Projections, in form and substance (including as to scope and underlying assumptions) satisfactory to Agent, in its sole discretion, for the forthcoming 3 years, year by year, and for the forthcoming fiscal year, quarter by quarter, certified by the chief financial officer of Parent as being such officer's good faith best estimate of the financial performance of Parent and its Subsidiaries during the period covered thereby; (e) if and when filed by any Borrower: (i) 10-Q quarterly reports, Form 10-K annual reports, and Form 8-K current reports, (ii) any other filings made by any Borrower with the SEC, (iii) copies of (A) Parent's federal income tax returns, and any amendments thereto, filed with the Internal Revenue Service and (B) upon request by Agent, such of the other Borrowers' federal income tax returns, and any amendments thereto, filed with the Internal Revenue Service as Agent may request, and (iv) any other information that is provided by Parent to its shareholders generally; (f) if and when filed by any Borrower and as requested by Agent, satisfactory evidence of payment of applicable excise taxes in each jurisdictions in which (i) any Borrower 73 conducts business or is required to pay any such excise tax, (ii) where any Borrower's failure to pay any such applicable excise tax would result in a Lien on the properties or assets of any Borrower, or (iii) where any Borrower's failure to pay any such applicable excise tax reasonably could be expected to result in a Material Adverse Change; (g) as soon as a Borrower has knowledge of any event or condition that constitutes a Default or an Event of Default, notice thereof and a statement of the curative action that Borrowers propose to take with respect thereto; (h) as and when delivered by Parent or any Borrower to Whitney: (i) the "Compliance Certificate" required to be delivered under the terms of Section 8.1(c) of the Whitney Agreement and (ii) the projections required to be delivered under the terms of Section 8.1(f) of the Whitney Agreement; and (i) upon the request of Agent, any other report reasonably requested relating to the financial condition of Borrowers. In addition to the financial statements referred to above, Borrowers agree to deliver to Agent with copies for each Lender, as and when set forth above, annual financial statements prepared on both a consolidated and consolidating basis. Borrowers agree that no Borrower, or any Subsidiary of a Borrower, will have a fiscal year different from that of Parent. Borrowers agree that their independent certified public accountants are authorized to communicate with Agent and to release to Agent whatever financial information concerning Borrowers that Agent reasonably may request. Each Borrower waives the right to assert a confidential relationship, if any, it may have with any accounting firm or service bureau in connection with any information requested by Agent pursuant to or in accordance with this Agreement, and agree that Agent may contact directly any such accounting firm or service bureau in order to obtain such information. 6.4 GUARANTOR REPORTS. Cause each Guarantor to deliver its annual financial statements at the time when Parent provides its audited financial statements to Agent, with copies for each Lender, and copies of all federal income tax returns as soon as the same are available and in any event no later than 30 days after the same are required to be filed by law. 6.5 RETURN. Cause returns and allowances as between Borrowers and their Account Debtors, to be on the same basis and in accordance with the usual customary practices of the applicable Borrower, as they exist at the time of the execution and delivery of this Agreement. If, at a time when no Event of Default has occurred and is continuing, any Account Debtor returns any Inventory to any Borrower, the applicable Borrower promptly shall determine the reason for such return and, if the applicable Borrower accepts such return, issue a credit memorandum (with a copy to be sent to Agent) in the appropriate amount to such Account Debtor. If, at a time when an Event of Default has occurred and is continuing, any Account Debtor returns any Inventory to any Borrower, the applicable Borrower promptly shall determine the reason for such return and, if Agent consents (which consent shall not be unreasonably withheld), issue a credit memorandum (with a copy to be sent to Agent) in the appropriate amount to such Account Debtor. 74 6.6 MAINTENANCE OF PROPERTIES. Maintain and preserve all of its properties which are necessary or useful in the proper conduct to its business in good working order and condition, ordinary wear and tear excepted, and comply at all times with the provisions of all leases to which it is a party as lessee, so as to prevent any loss or forfeiture thereof or thereunder. 6.7 TAXES. Cause all assessments and taxes, whether real, personal, or otherwise, due or payable by, or imposed, levied, or assessed against Borrowers or any of their assets to be paid in full, before delinquency or before the expiration of any extension period, except to the extent that the validity of such assessment or tax shall be the subject of a Permitted Protest. Borrowers will make timely payment or deposit of all tax payments and withholding taxes required of it by applicable laws, including those laws concerning F.I.C.A., F.U.T.A., state disability, and local, state, and federal income taxes, and will, upon request, furnish Agent with proof satisfactory to Agent indicating that the applicable Borrower has made such payments or deposits. Borrowers shall deliver satisfactory evidence of payment of applicable excise taxes in each jurisdictions in which any Borrower is required to pay any such excise tax. 6.8 INSURANCE. (a) At Borrowers' expense, maintain insurance respecting its property and assets wherever located, covering loss or damage by fire, theft, explosion, and all other hazards and risks as ordinarily are insured against by other Persons engaged in the same or similar businesses. Borrowers also shall maintain business interruption, public liability, and product liability insurance, as well as insurance against larceny, embezzlement, and criminal misappropriation. All such policies of insurance shall be in such amounts and with such insurance companies as are reasonably satisfactory to Agent. To the extent, and only to the extent, permitted by Borrowers' agreements with airports or other lessors, Borrowers shall deliver copies of all such policies, other than those policies insuring Borrowers' operations at airports, or affected by other agreements prohibiting the assignment of proceeds to a Person other than such airport or lessor, to Agent with a satisfactory lender's loss payable endorsement naming Agent as sole loss payee or additional insured, as appropriate (such policies referred to herein as the "Included Policies"). Each Included Policy or endorsement thereto shall contain a clause requiring the insurer to give not less than 30 days prior written notice to Agent in the event of cancellation of the policy for any reason whatsoever. (b) Administrative Borrower shall give Agent prompt notice of any loss covered by any insurance policy covering any Borrower, including, without limitation, the Included Policies. Agent shall have the exclusive right to adjust any losses payable under any Included Policy in excess of $50,000, without any liability to Borrowers whatsoever in respect of such adjustments. Any monies received as payment for any loss under any Included Policy (other than liability insurance policies) or as payment of any award or compensation for condemnation or taking by eminent domain, shall be paid over to Agent to be applied at the option of the Required Lenders either to the prepayment of the Obligations or shall be disbursed to Administrative Borrower under staged payment terms reasonably satisfactory to the Required Lenders for application to the cost of repairs, replacements, or restorations. Any such repairs, replacements, or restorations shall be effected with reasonable promptness and shall be of a value at least equal to the value of the items or property destroyed prior to such damage or destruction. 75 (c) Borrowers shall not take out separate insurance concurrent in form or contributing in the event of loss with that required to be maintained under this Section 6.8, unless, subject to the restrictions set forth in this Section, Agent is included thereon as named insured with the loss payable to Agent under a lender's loss payable endorsement or its equivalent (in which case such policy shall also constitute an Included Policy). Administrative Borrower immediately shall notify Agent whenever such separate insurance is taken out, specifying the insurer thereunder and full particulars as to the policies evidencing the same, and copies of such policies promptly shall be provided to Agent. 6.9 LOCATION OF INVENTORY AND EQUIPMENT. Keep the Inventory and Equipment only at the locations identified on Schedule 5.4; provided, however, that Administrative Borrower may amend Schedule 5.4 so long as such amendment occurs by written notice to Agent not less than 30 days prior to the date on which the Inventory or Equipment is moved to such new location, so long as such new location is within the continental United States, and so long as, at the time of such written notification, the applicable Borrower provides any financing statements or fixture filings necessary to perfect and continue perfected the Agent's Liens on such assets and also provides to Agent a Collateral Access Agreement. 6.10 COMPLIANCE WITH LAWS. (a) Comply with the requirements of all applicable laws, rules, regulations, and orders of any Governmental Authority (including without limitation, the Federal Aviation Administration, the Environmental Protection Agency, Air Quality Management Districts, the Occupational Safety and Health Administration and local fire departments), including the Fair Labor Standards Act and the Americans With Disabilities Act, other than laws, rules, regulations, and orders the non-compliance with which, individually or in the aggregate, would not result in and reasonably could not be expected to result in a Material Adverse Change. (b) Deliver to Agent every four (4) months, with the first such analysis completed and report delivered on or before March 31, 2003, a risk management analysis in customary form by an auditor selected by Administrative Borrower but satisfactory to Agent in its Permitted Discretion, with respect to Borrowers' methods and procedures to maintain compliance with the terms of Section 6.10(a), such that in the twelve (12) month period immediately following the Closing Date, such methods and procedures with respect to all FBOs have been analyzed, such analysis to be detailed in a report by such auditor, satisfactory to Agent as to scope, methodology, format and substance, upon which Agent is expressly permitted to rely. 6.11 LEASES. Pay when due all rents and other amounts payable under any leases to which any Borrower is a party or by which any Borrower's properties and assets are bound, unless such payments are the subject of a Permitted Protest. 6.12 BROKERAGE COMMISSIONS. Pay any and all brokerage commission or finders fees incurred in connection with or as a result of Borrowers' obtaining financing from the Lender Group under this Agreement. Borrowers agree and acknowledge that payment of all such brokerage commissions or finders fees shall be the sole responsibility of Borrowers, and each Borrower agrees to indemnify, defend, and hold Agent and the Lender Group harmless from and 76 against any claim of any broker or finder arising out of Borrowers' obtaining financing from the Lender Group under this Agreement. 6.13 EXISTENCE. At all times preserve and keep in full force and effect each Borrower's valid existence and good standing and any rights and franchises material to Borrowers' businesses. 6.14 ENVIRONMENTAL. (a) Keep any property either owned or operated by any Borrower free of any Environmental Liens or post bonds or other financial assurances sufficient to satisfy the obligations or liability evidenced by such Environmental Liens, (b) comply, in all material respects, with Environmental Laws and provide to Agent documentation of such compliance which Agent reasonably requests, (c) promptly notify Agent of any release of a Hazardous Material of any reportable quantity from or onto property owned or operated by any Borrower and take any Remedial Actions required to abate said release or otherwise to come into compliance with applicable Environmental Law, and (d) promptly provide Agent with written notice within 10 days of the receipt of any of the following: (i) notice that an Environmental Lien has been filed against any of the real or personal property of any Borrower, (ii) commencement of any Environmental Action or notice that an Environmental Action will be filed against any Borrower, and (iii) notice of a violation, citation, or other administrative order which reasonably could be expected to result in a Material Adverse Change. 6.15 DISCLOSURE UPDATES. Promptly and in no event later than 5 Business Days after obtaining knowledge thereof, (a) notify Agent if any written information, exhibit, or report furnished to the Lender Group contained any untrue statement of a material fact or omitted to state any material fact necessary to make the statements contained therein not misleading in light of the circumstances in which made, and (b) correct any defect or error that may be discovered therein or in any Loan Document or in the execution, acknowledgement, filing, or recordation thereof. 7. NEGATIVE COVENANTS. Each Borrower covenants and agrees that, so long as any credit hereunder shall be available and until full and final payment of the Obligations, Borrowers will not and will not permit any of their respective Subsidiaries to do any of the following: 7.1 INDEBTEDNESS. Create, incur, assume, permit, guarantee, or otherwise become or remain, directly or indirectly, liable with respect to any Indebtedness, except: (a) Indebtedness evidenced by this Agreement and the other Loan Documents, together with Indebtedness owed to Underlying Issuers with respect to Underlying Letters of Credit; (b) the Indebtedness set forth on Schedule 5.19; (c) Permitted Purchase Money Indebtedness; 77 (d) Permitted Construction Indebtedness in the amounts set forth on Schedule 7.1(d) to the extent incurred in connection with construction at the FBOs identified thereon opposite such amounts; (e) refinancings, renewals, or extensions of Indebtedness permitted under clauses (b) (other than the Indebtedness identified as items 6 and 7 on Schedule 5.19, the "CEDFA" IRB Obligations identified on Schedule 5.19 and the Whitney Debt), (c) and (d) of this Section 7.1 (and continuance or renewal of any Permitted Liens associated therewith) so long as: (i) the terms and conditions of such refinancings, renewals, or extensions do not, in the Agent's judgment, materially impair the prospects of repayment of the Obligations by Borrowers or materially impair Borrowers' creditworthiness, (ii) such refinancings, renewals, or extensions do not result in an increase in the principal amount of, or interest rate with respect to, the Indebtedness so refinanced, renewed, or extended, (iii) such refinancings, renewals, or extensions do not result in a shortening of the average weighted maturity of the Indebtedness so refinanced, renewed, or extended, nor are they on terms or conditions, that, taken as a whole, are materially more burdensome or restrictive to the applicable Borrower, and (iv) if the Indebtedness that is refinanced, renewed, or extended was subordinated in right of payment to the Obligations, then the terms and conditions of the refinancing, renewal, or extension Indebtedness must include subordination terms and conditions that are at least as favorable to the Lender Group as those that were applicable to the refinanced, renewed, or extended Indebtedness; (f) Indebtedness composing Permitted Investments; and (g) to the extent subject to the Whitney Subordination, the Whitney Debt; provided, that, no payments of any kind may be made by any Borrower with respect to the Whitney Debt except as permitted by the Whitney Subordination Agreement. Without in any way limiting the generality of any provision of this Agreement, at any time that any Indebtedness is to be incurred, at the request of Agent, Borrower shall provide such information and documentation with respect thereto as Agent may require in order to determine that the incurrence of such Indebtedness (i) complies with the terms of this Section 7.1 and (ii) will not immediately or prospectively cause a Default or Event of Default. 7.2 LIENS. Create, incur, assume, or permit to exist, directly or indirectly, any Lien on or with respect to any of its assets, of any kind, whether now owned or hereafter acquired, or any income or profits therefrom, except for Permitted Liens (including Liens that are replacements of Permitted Liens to the extent that the original Indebtedness is refinanced, renewed, or extended under Section 7.1(e) and so long as the replacement Liens only encumber those assets that secured the refinanced, renewed, or extended Indebtedness). 7.3 RESTRICTIONS ON FUNDAMENTAL CHANGES. (a) Enter into any merger, consolidation, reorganization, or recapitalization, or reclassify its Stock (it being understood that the conversion of preferred stock into common stock or the exchange of common stock for preferred stock that is not Disqualified Capital Stock is not prohibited by this covenant). 78 (b) Liquidate, wind up, or dissolve itself (or suffer any liquidation or dissolution). (c) Convey, sell, lease, license, assign, transfer, or otherwise dispose of, in one transaction or a series of transactions, any of its assets other than Permitted Dispositions or Permitted Financing Transactions. 7.4 CHANGE NAME. Change any Borrower's name, FEIN, corporate structure or identity, or add any new fictitious name; provided, however, that a Borrower may change its name upon at least 30 days prior written notice by Administrative Borrower to Agent of such change and so long as, at the time of such written notification, such Borrower provides any financing statements or fixture filings necessary to perfect and continue perfected Agent's Liens. 7.5 GUARANTEE. Guarantee or otherwise become in any way liable with respect to the obligations of any third Person except (a) by endorsement of instruments or items of payment for deposit to the account of Borrowers or which are transmitted or turned over to Agent, (b) for guaranties in favor of Whitney with respect to the Indebtedness owed to Whitney set forth on Schedule 5.19 hereto, to the extent the obligations under such guaranties are subordinated, in a manner satisfactory to Lenders, to the prior payment in full of all Obligations or (c) guaranties by one Borrower (other than an FBO Borrower) of obligations of another Borrower incurred in the ordinary course of business. 7.6 NATURE OF BUSINESS. Make any change in the principal nature of Borrowers' business. 7.7 PREPAYMENTS AND AMENDMENTS. (a) Except in connection with a refinancing permitted by Section 7.1(e), prepay, redeem, defease, purchase, or otherwise acquire any Indebtedness of any Borrower, other than the Obligations in accordance with this Agreement, and (b) Except in connection with a refinancing permitted by Section 7.1(e), directly or indirectly, amend, modify, alter, increase, or change any of the terms or conditions of any agreement, instrument, document, indenture, or other writing evidencing or concerning Indebtedness permitted under Section 7.1(b) or Section 7.1(c). 7.8 CHANGE OF CONTROL. Cause, permit, or suffer, directly or indirectly, any Change of Control. 7.9 CONSIGNMENTS. Consign any Inventory or sell any Inventory on bill and hold, sale or return, sale on approval, or other conditional terms of sale. 7.10 DISTRIBUTIONS. Other than distributions or declaration and payment of dividends by a Borrower to another Borrower, make any distribution or declare or pay any dividends (in cash or other property, other than common Stock or preferred Stock that is not Disqualified Capital Stock) on, or purchase, acquire, redeem, or retire any of any Borrower's Stock, of any class, whether now or hereafter outstanding. 79 7.11 ACCOUNTING METHODS. Modify or change its method of accounting (other than as may be required to conform to GAAP) or enter into, modify, or terminate any agreement currently existing, or at any time hereafter entered into with any third party accounting firm or service bureau for the preparation or storage of Borrowers' accounting records without said accounting firm or service bureau agreeing to provide Agent information regarding the Collateral or Borrowers' financial condition. 7.12 INVESTMENTS; ACQUISITIONS; SUBSIDIARIES. (a) Except for Permitted Investments, directly or indirectly, make or acquire any Investment, or incur any liabilities (including contingent obligations) for or in connection with any Investment; provided, however, that Administrative Borrower and its Subsidiaries shall not have Permitted Investments (other than in the Cash Management Accounts) in deposit accounts or Securities Accounts in excess of $25,000 outstanding at any one time unless the Administrative Borrower or any of its Subsidiaries, as applicable, and the applicable securities intermediary or bank have entered into Control Agreements or similar arrangements governing such Permitted Investments, as Agent shall determine in its Permitted Discretion, to perfect (and further establish) the Agent's Liens in such Permitted Investments. (b) Directly or indirectly purchase or otherwise acquire all or any substantial part of the business or assets of any Person. (c) Form or acquire any Subsidiaries. 7.13 TRANSACTIONS WITH AFFILIATES. Except as set forth on Schedule 7.13 directly or indirectly enter into or permit to exist any transaction with any Affiliate of any Borrower (other than for services as employees, officers or directors) except for transactions that are in the ordinary course of Borrowers' business consistent with past practices known to Agent, upon fair and reasonable terms, that are fully disclosed to Agent, and that are no less favorable to Borrowers than would be obtained in an arm's length transaction with a non-Affiliate. 7.14 SUSPENSION. Suspend or go out of a substantial portion of its business. 7.15 COMPENSATION. (a) Increase the annual fee or per-meeting fees paid to the members of its Board of Directors during any year by more than (i) the greater of (A) 15% over the prior year or (B) the percentage increase in the market rate for similarly situated companies' (as reported in sources reasonably acceptable to Agent) outside or independent directors' fees or (ii) 15% over the prior year for any other similarly situated companies' (as reported in sources reasonably acceptable to Agent) directors' fees; (b) pay or accrue total cash compensation, during any year, to its officers and senior management employees in an aggregate amount in excess of 115% of that paid or accrued in the prior year except for profit participation bonuses payable in accordance with such officers' and senior management employees' employment or similar agreements with a Borrower which are set forth on Schedule 7.15; provided, however, no increase in directors' fees or compensation to officers and senior management employees may be effected if an Event of Default has occurred and is continuing. 80 7.16 USE OF PROCEEDS. Use the proceeds of the Advances and the Term Loan for any purpose other than (a) on the Closing Date, (i) to repay in full the outstanding principal, accrued interest, and accrued fees and expenses owing to Existing Lender, and (ii) to pay transactional fees, costs, and expenses incurred in connection with this Agreement, the other Loan Documents, and the transactions contemplated hereby and thereby, and (b) thereafter, consistent with the terms and conditions hereof, for its lawful and permitted purposes. 7.17 CHANGE IN LOCATION OF CHIEF EXECUTIVE OFFICE; INVENTORY AND EQUIPMENT WITH BAILEES. Relocate its chief executive office to a new location without Administrative Borrower providing 30 days prior written notification thereof to Agent and so long as, at the time of such written notification, the applicable Borrower provides any financing statements or fixture filings necessary to perfect and continue perfected the Agent's Liens and also provides to Agent a Collateral Access Agreement with respect to such new location. The Inventory and Equipment shall not at any time now or hereafter be stored with a bailee, warehouseman, or similar party without Agent's prior written consent. 7.18 SECURITIES ACCOUNTS. Establish or maintain any Securities Account unless Agent shall have received a Control Agreement in respect of such Securities Account. Borrowers agree to not transfer assets out of any Securities Account; provided, however, that, so long as no Event of Default has occurred and is continuing or would result therefrom, Borrowers may use such assets (and the proceeds thereof) to the extent not prohibited by this Agreement. 7.19 FINANCIAL COVENANTS. (a) MINIMUM EBITDA. Fail to maintain EBITDA, when measured as of the end of the periods set forth below, of not less than the amount set forth opposite thereto (the "Applicable EBITDA Amount"):

Applicable Amount Applicable Period ----------------- ----------------- $6,500,000 For the 6-month period ending March 31, 2003 $10,700,000 For the 9-month period ending June 30, 2003 $13,600,000 For the 12-month period ending September 30, 2003 $14,200,000 For the 12-month period ending December 31, 2003 $13,500,000 For the 12-month period ending March 31, 2004 and each 12-month period ending on the last day of each fiscal quarter thereafter

81 (b) MINIMUM FIXED CHARGE COVERAGE RATIO. Fail to maintain a Fixed Charge Coverage Ratio, when measured as of the end of the periods set forth below, of not less than the ratio set forth opposite thereto:

Applicable Ratio Applicable Period ---------------- ----------------- 1.0 to 1.0 For the 6-month period ending March 31, 2003 1.0 to 1.0 For the 9-month period ending June 30, 2003 1.0 to 1.0 For the 12-month period ending September 30, 2003 1.0 to 1.0 For the 12 month period ending on the last day of each fiscal quarter thereafter

(c) MINIMUM EXCESS AVAILABILITY. Fail to maintain Excess Availability of $2,500,000 at all times. (d) CAPITAL EXPENDITURES. Make: (i) Capital Expenditures of more than $750,000 in any one instance without Agent's prior written consent if such expenditure is not wholly-financed with proceeds of a loan not made by the Lenders under the terms of this Agreement and the incurrence of such Indebtedness is otherwise permitted under the terms of this Agreement. (ii) Expansion Operations Capital Expenditures in any fiscal year in excess of the amount set forth in the following table for the applicable period:

Fiscal Year Amount 2003 $7,300,000 2004 $11,900,000 2005 $6,300,000 2006 $0 2007 $0

; provided, however, the amount of any permitted Expansion Operations Capital Expenditures not made in any year set forth above shall be added to the amount set forth in the following year; provided further, however, such Expansion 82 Operations Capital Expenditures may only be made with respect to the FBOs set forth on Schedule R-1. (iii) Existing Operations Capital Expenditures in any fiscal year in excess of the amount set forth in the following table for the applicable period:

Fiscal Year Amount ----------- ------ 2003 $4,000,000 2004 $5,500,000 2005 $5,500,000 2006 $5,500,000 2007 $5,500,000

(e) Notwithstanding the foregoing, the Applicable EBITDA Amounts set forth in Section 7.19(a) above shall be adjusted as follows: (i) after any sale of a Target FBO consummated prior to March 1, 2003, the Applicable EBITDA Amount for all periods through March 31, 2003 shall be reduced by 75% of the Base Year EBITDA attributed to such Target FBO times the number of months then remaining until March 31, 2003; (ii) after any sale of a Target FBO consummated prior to May 1, 2003, the Applicable EBITDA Amount for all periods through June 30, 2003 shall be reduced by 80% of Base Year EBITDA attributed to such Target FBO times the number of months then remaining until May 31, 2003; (iii) if any Target FBOs have not been sold by June 30, 2003, then the Applicable EBITDA Amounts for all periods thereafter until the Target FBOs are sold shall increase by 80% of Base Year EBITDA for such Target FBOs times the number of months remaining in any period for which such covenant is to be tested; and (iv) after the consummation of any sale of an FBO other than a Target FBO, the Applicable EBITDA Amount shall be reduced by (A) 75% of the Base Year EBITDA of such FBO times the number of months then remaining until March 31, 2003 if the sale of such FBO is consummated prior to March 31, 2003 for the covenant period ending March 31, 2003; (B) 80% of the Base Year EBITDA of such FBO times the number of months then remaining until June 30, 2003 if the sale of such FBO is consummated prior to June 30, 2003, for the covenant period ending June 30, 2003, (C) 88.68% of the Base Year EBITDA of such FBO times the number of months then remaining to the end of the 83 measurement period during the fiscal year ending June 30, 2004 if the sale of such FBO is consummated during such fiscal year, (D) 99.89% of the Base Year EBITDA of such FBO times the number of months then remaining to the end of the measurement period during the fiscal year ending June 30, 2005 if the sale of such FBO is consummated during such fiscal year, (E) 101.39% of the Base Year EBITDA of such FBO times the number of months then remaining to the end of the measurement period during the fiscal year ending June 30, 2006 if the sale of such FBO is consummated during such fiscal year, and (F) 102.91% of the Base Year EBITDA of such FBO times the number of months then remaining to the end of the measurement period during the fiscal year ending June 30, 2007 if the sale of such FBO is consummated during such fiscal year. 7.20 SPECIAL PURPOSE ENTITIES. Each of FBO Borrower (a) shall, beginning six months after the Closing Date, at all times have a member of its board of directors or managers who is not also a member of the board of directors of its parent corporation and (b) is prohibited from incurring or acquiring liabilities other than liabilities arising in the ordinary course of the ownership and operation of its FBO. 8. EVENTS OF DEFAULT. Any one or more of the following events shall constitute an event of default (each, an "Event of Default") under this Agreement: 8.1 If Borrowers fail to pay when due and payable or when declared due and payable, all or any portion of the Obligations (whether of principal, interest (including any interest which, but for the provisions of the Bankruptcy Code, would have accrued on such amounts), fees and charges due the Lender Group, reimbursement of Lender Group Expenses, or other amounts constituting Obligations); 8.2 If (a) any Borrower fails or neglects to perform, keep, or observe any term, provision, condition, covenant, or agreement contained in Section 6.2, Section 6.3 (other than Section 6.3(g)), to the extent such failure could not result in a Material Adverse Change, Section 6.8(a), Section 6.11 or Section 6.15 hereof and such failure or neglect continues for a period of 5 Business Days after the date on which such failure first occurs, or (b) if any Borrower fails to perform, keep, or observe any covenant or other provision contained in Section 6.1 or Section 6.7 hereof and such failure or neglect continues for a period of 15 Business Days after the date on which such failure first occurs, or (c) if any Borrower or Guarantor fails or neglects to perform, keep, or observe any other covenant or other provision contained in any Section of this Agreement (other than a Section that is expressly dealt with elsewhere in this Section 8) or the other Loan Documents (other than a Section of such other Loan Document dealt with elsewhere in this Section 8); provided, that, during any period of time that any such failure referred to in this Section 8.2 exists, even if such failure is not yet an Event of Default by virtue of the existence of a grace or cure period, Lender shall be relieved of its obligation to extend credit hereunder; 84 8.3 If any material portion of any Borrower's or any of its Subsidiaries' assets is attached, seized, subjected to a writ or distress warrant, levied upon, or comes into the possession of any third Person; 8.4 If an Insolvency Proceeding is commenced by any Borrower or any of its Subsidiaries; 8.5 If an Insolvency Proceeding is commenced against any Borrower, or any of its Subsidiaries, and any of the following events occur: (a) the applicable Borrower or the Subsidiary consents to the institution of the Insolvency Proceeding against it, (b) the petition commencing the Insolvency Proceeding is not timely controverted, (c) the petition commencing the Insolvency Proceeding is not dismissed within 45 calendar days of the date of the filing thereof; provided, however, that, during the pendency of such period, Agent (including any successor agent) and each other member of the Lender Group shall be relieved of their obligations to extend credit hereunder, (d) an interim trustee is appointed to take possession of all or any substantial portion of the properties or assets of, or to operate all or any substantial portion of the business of, any Borrower or any of its Subsidiaries, or (e) an order for relief shall have been entered therein; 8.6 If any Borrower or any of its Subsidiaries is enjoined, restrained, or in any way prevented by court order from continuing to conduct all or any material part of its business affairs; 8.7 If a notice of Lien, levy, or assessment is filed of record with respect to any Borrower's or any of its Subsidiaries' assets by the United States, or any department, agency, or instrumentality thereof, or by any state, county, municipal, or governmental agency, or if any taxes or debts owing at any time hereafter to any one or more of such entities becomes a Lien, whether choate or otherwise, upon any Borrower's or any of its Subsidiaries' assets and the same is not paid on the payment date thereof; 8.8 If a judgment or other claim becomes a Lien or encumbrance upon any material portion of any Borrower's or any of its Subsidiaries' properties or assets; 8.9 If there is a default in (a) any material agreement to which any Borrower or any of its Subsidiaries is a party and such default (i) occurs at the final maturity of the obligations thereunder, or (ii) results in a right by the other party thereto, irrespective of whether exercised, to accelerate the maturity of the applicable Borrower's or its Subsidiaries' obligations thereunder, to terminate such agreement, or to refuse to renew such agreement pursuant to an automatic renewal right therein, (b) that certain Loan Agreement, dated April 1, 1998, between CEDFA and Parent, or any agreement referenced therein or related thereto or (c) the Whitney Documentation; provided, however, with respect to a default under Section 8.7 of the Whitney Agreement, such default shall not be considered an Event of Default hereunder so long as such default does not give Whitney the right to accelerate the Whitney Debt or any portion thereof; 8.10 If any Borrower or any of its Subsidiaries makes any payment on account of Indebtedness that has been contractually subordinated in right of payment to the payment of the 85 Obligations, except to the extent such payment is permitted by the terms of the subordination provisions applicable to such Indebtedness; 8.11 If any material misstatement or misrepresentation exists now or hereafter in any warranty, representation, statement, or Record made to the Lender Group by any Borrower, its Subsidiaries, or any officer, employee, agent, or director of any Borrower or any of its Subsidiaries; 8.12 If the obligation of any Guarantor under its Guaranty is limited or terminated by operation of law or by such Guarantor thereunder; 8.13 If this Agreement or any other Loan Document that purports to create a Lien, shall, for any reason, fail or cease to create a valid and perfected and, except to the extent permitted by the terms hereof or thereof, first priority Lien on or security interest in the Collateral covered hereby or thereby; 8.14 Any provision of any Loan Document shall at any time for any reason be declared to be null and void, or the validity or enforceability thereof shall be contested by any Borrower, or a proceeding shall be commenced by any Borrower, or by any Governmental Authority having jurisdiction over any Borrower, seeking to establish the invalidity or unenforceability thereof, or any Borrower shall deny that any Borrower has any liability or obligation purported to be created under any Loan Document; or 8.15 If Parent or any Borrower shall be required to make any mandatory prepayment of the loans made to Parent by CEDFA. 9. THE LENDER GROUP'S RIGHTS AND REMEDIES. 9.1 RIGHTS AND REMEDIES. Upon the occurrence, and during the continuation, of an Event of Default, the Required Lenders (at their election but without notice of their election and without demand) may authorize and instruct Agent to do any one or more of the following on behalf of the Lender Group (and Agent, acting upon the instructions of the Required Lenders, shall do the same on behalf of the Lender Group), all of which are authorized by Borrowers: (a) Declare all Obligations, whether evidenced by this Agreement, by any of the other Loan Documents, or otherwise, immediately due and payable; (b) Cease advancing money or extending credit to or for the benefit of Borrowers under this Agreement, under any of the Loan Documents, or under any other agreement between Borrowers and the Lender Group; (c) Terminate this Agreement and any of the other Loan Documents as to any future liability or obligation of the Lender Group, but without affecting any of the Agent's Liens in the Collateral and without affecting the Obligations; (d) Settle or adjust disputes and claims directly with Account Debtors for amounts and upon terms which Agent considers advisable, and in such cases, Agent will credit the Loan Account with only the net amounts received by Agent in payment of such disputed 86 Accounts after deducting all Lender Group Expenses incurred or expended in connection therewith; (e) Cause Borrowers to hold all returned Inventory in trust for the Lender Group, segregate all returned Inventory from all other assets of Borrowers or in Borrowers' possession and conspicuously label said returned Inventory as the property of the Lender Group; (f) Without notice to or demand upon any Borrower or any Guarantor, make such payments and do such acts as Agent considers necessary or reasonable to protect its security interests in the Collateral. Each Borrower agrees to assemble the Personal Property Collateral if Agent so requires, and to make the Personal Property Collateral available to Agent at a place that Agent may designate which is reasonably convenient to both parties. Each Borrower authorizes Agent to enter the premises where the Personal Property Collateral is located, to take and maintain possession of the Personal Property Collateral, or any part of it, and to pay, purchase, contest, or compromise any Lien that in Agent's determination appears to conflict with the Agent's Liens and to pay all expenses incurred in connection therewith and to charge Borrowers' Loan Account therefor. With respect to any of Borrowers' owned or leased premises, each Borrower hereby grants Agent a license to enter into possession of such premises and to occupy the same, without charge, in order to exercise any of the Lender Group's rights or remedies provided herein, at law, in equity, or otherwise; (g) Without notice to any Borrower (such notice being expressly waived), and without constituting a retention of any collateral in satisfaction of an obligation (within the meaning of the Code), set off and apply to the Obligations any and all (i) balances and deposits of any Borrower held by the Lender Group (including any amounts received in the Cash Management Accounts), or (ii) Indebtedness at any time owing to or for the credit or the account of any Borrower held by the Lender Group; (h) Hold, as cash collateral, any and all balances and deposits of any Borrower held by the Lender Group, and any amounts received in the Cash Management Accounts, to secure the full and final repayment of all of the Obligations; (i) Ship, reclaim, recover, store, finish, maintain, repair, prepare for sale, advertise for sale, and sell (in the manner provided for herein) the Personal Property Collateral. Each Borrower hereby grants to Agent a license or other right to use, without charge, such Borrower's labels, patents, copyrights, trade secrets, trade names, trademarks, service marks, and advertising matter, or any property of a similar nature, as it pertains to the Personal Property Collateral, in completing production of, advertising for sale, and selling any Personal Property Collateral and such Borrower's rights under all licenses and all franchise agreements shall inure to the Lender Group's benefit; (j) Sell the Personal Property Collateral at either a public or private sale, or both, by way of one or more contracts or transactions, for cash or on terms, in such manner and at such places (including Borrowers' premises) as Agent determines is commercially reasonable. It is not necessary that the Personal Property Collateral be present at any such sale; 87 (k) Agent shall give notice of the disposition of the Personal Property Collateral as follows: (i) Agent shall give Administrative Borrower (for the benefit of the applicable Borrower) a notice in writing of the time and place of public sale, or, if the sale is a private sale or some other disposition other than a public sale is to be made of the Personal Property Collateral, the time on or after which the private sale or other disposition is to be made; and (ii) The notice shall be personally delivered or mailed, postage prepaid, to Administrative Borrower as provided in Section 12, at least 10 days before the earliest time of disposition set forth in the notice; no notice needs to be given prior to the disposition of any portion of the Personal Property Collateral that is perishable or threatens to decline speedily in value or that is of a type customarily sold on a recognized market; (l) Agent, on behalf of the Lender Group may credit bid and purchase at any public sale; (m) Agent may seek the appointment of a receiver or keeper to take possession of all or any portion of the Collateral or to operate same and, to the maximum extent permitted by law, may seek the appointment of such a receiver without the requirement of prior notice or a hearing; (n) The Lender Group shall have all other rights and remedies available to it at law or in equity pursuant to any other Loan Documents; (o) Any deficiency that exists after disposition of the Personal Property Collateral as provided above will be paid immediately by Borrowers. Any excess will be returned, without interest and subject to the rights of third Persons, by Agent to Administrative Borrower (for the benefit of the applicable Borrower); and (p) Agent may limit the amount of Borrowings available to each Borrower to an amount based solely on such Borrower's contribution to the Borrowing Base and otherwise allocate the Borrowings hereunder among the individual Borrowers. 9.2 REMEDIES CUMULATIVE. The rights and remedies of the Lender Group under this Agreement, the other Loan Documents, and all other agreements shall be cumulative. The Lender Group shall have all other rights and remedies not inconsistent herewith as provided under the Code, by law, or in equity. No exercise by the Lender Group of one right or remedy shall be deemed an election, and no waiver by the Lender Group of any Event of Default shall be deemed a continuing waiver. No delay by the Lender Group shall constitute a waiver, election, or acquiescence by it. 10. TAXES AND EXPENSES. If any Borrower fails to pay any monies (whether taxes, assessments, insurance premiums, or, in the case of leased properties or assets, rents or other amounts payable under 88 such leases) due to third Persons, or fails to make any deposits or furnish any required proof of payment or deposit, all as required under the terms of this Agreement, then, Agent, in its sole discretion and without prior notice to any Borrower, may do any or all of the following: (a) make payment of the same or any part thereof, (b) set up such reserves in Borrowers' Loan Account as Agent deems necessary to protect the Lender Group from the exposure created by such failure, or (c) in the case of the failure to comply with Section 6.8 hereof, obtain and maintain insurance policies of the type described in Section 6.8 and take any action with respect to such policies as Agent deems prudent. Any such amounts paid by Agent shall constitute Lender Group Expenses and any such payments shall not constitute an agreement by the Lender Group to make similar payments in the future or a waiver by the Lender Group of any Event of Default under this Agreement. Agent need not inquire as to, or contest the validity of, any such expense, tax, or Lien and the receipt of the usual official notice for the payment thereof shall be conclusive evidence that the same was validly due and owing. 11. WAIVERS; INDEMNIFICATION. 11.1 DEMAND; PROTEST; ETC. Each Borrower waives demand, protest, notice of protest, notice of default or dishonor, notice of payment and nonpayment, nonpayment at maturity, release, compromise, settlement, extension, or renewal of documents, instruments, chattel paper, and guarantees at any time held by the Lender Group on which any such Borrower may in any way be liable. 11.2 THE LENDER GROUP'S LIABILITY FOR COLLATERAL. Each Borrower hereby agrees that: (a) so long as the Lender Group complies with its obligations, if any, under the Code, Agent shall not in any way or manner be liable or responsible for: (i) the safekeeping of the Collateral, (ii) any loss or damage thereto occurring or arising in any manner or fashion from any cause, (iii) any diminution in the value thereof, or (iv) any act or default of any carrier, warehouseman, bailee, forwarding agency, or other Person, and (b) all risk of loss, damage, or destruction of the Collateral shall be borne by Borrowers. 11.3 INDEMNIFICATION. Each Borrower shall pay, indemnify, defend, and hold the Agent-Related Persons, the Lender-Related Persons with respect to each Lender, each Participant, and each of their respective officers, directors, employees, agents, and attorneys-in-fact (each, an "Indemnified Person") harmless (to the fullest extent permitted by law) from and against any and all claims, demands, suits, actions, investigations, proceedings, and damages, and all reasonable attorneys fees and disbursements and other costs and expenses actually incurred in connection therewith (as and when they are incurred and irrespective of whether suit is brought), at any time asserted against, imposed upon, or incurred by any of them (a) in connection with or as a result of or related to the execution, delivery, enforcement, performance, or administration of this Agreement, any of the other Loan Documents, or the transactions contemplated hereby or thereby, and (b) with respect to any investigation, litigation, or proceeding related to this Agreement, any other Loan Document, or the use of the proceeds of the credit provided hereunder (irrespective of whether any Indemnified Person is a party thereto), or any act, omission, event, or circumstance in any manner related thereto (all the foregoing, collectively, the "Indemnified Liabilities"). The foregoing to the contrary notwithstanding, Borrowers shall have no obligation to any Indemnified Person under this Section 11.3 with respect to any Indemnified Liability that a court of competent jurisdiction finally determines to 89 have resulted from the gross negligence or willful misconduct of such Indemnified Person. This provision shall survive the termination of this Agreement and the repayment of the Obligations. If any Indemnified Person makes any payment to any other Indemnified Person with respect to an Indemnified Liability as to which Borrowers were required to indemnify the Indemnified Person receiving such payment, the Indemnified Person making such payment is entitled to be indemnified and reimbursed by Borrowers with respect thereto. WITHOUT LIMITATION, THE FOREGOING INDEMNITY SHALL APPLY TO EACH INDEMNIFIED PERSON WITH RESPECT TO INDEMNIFIED LIABILITIES WHICH IN WHOLE OR IN PART CAUSED BY OR ARISE OUT OF ANY NEGLIGENT ACT OR OMISSION OF SUCH INDEMNIFIED PERSON OR OF ANY OTHER PERSON. 12. NOTICES. Unless otherwise provided in this Agreement, all notices or demands by Borrowers or Agent to the other relating to this Agreement or any other Loan Document shall be in writing and (except for financial statements and other informational documents which may be sent by first-class mail, postage prepaid) shall be personally delivered or sent by registered or certified mail (postage prepaid, return receipt requested), overnight courier, electronic mail (at such email addresses as Administrative Borrower or Agent, as applicable, may designate to each other in accordance herewith), or telefacsimile to Borrowers in care of Administrative Borrower or to Agent, as the case may be, at its address set forth below: If to Administrative Borrower: MERCURY AIR GROUP, INC. 5456 McConnell Avenue Los Angeles, California 90066 Attn: Chief Executive Officer Fax No. 310.827.6897 with copies to: MERCURY AIR GROUP, INC. Legal Department 5456 McConnell Avenue Los Angeles, California 90066 Attn: Wayne J. Lovett, Esq. Fax No. 310.827.0650 and to: MCBREEN, MCBREEN & KOPKO 20 North Wacker Drive, Suite 2520 Chicago, Illinois 60606 Attn: Frederick Kopko, Esq. Fax No. 312.332.2657 and to: RIORDAN & MCKINZIE 300 South Grand Avenue, 29th Floor Los Angeles, California 90071 Attn: Thomas A. Waldman, Esq. Fax No. 213.830.8608 90 If to Agent: FOOTHILL CAPITAL CORPORATION 2450 Colorado Avenue Suite 3000 West Santa Monica, California 90404 Attn: Business Finance Division Manager Fax No. 310.453.7413 with copies to: MAYER, BROWN, ROWE & MAW 350 South Grand Avenue, 25th Floor Los Angeles, California 90071 Attn: Marshall C. Stoddard, Jr., Esq. Fax No. 213.625.0248 If to any Lender at its ABLECO FINANCE LLC address as follows: 450 Park Avenue, 28th Floor New York, New York 10022 Attention: Kevin Genda Fax No.: 212.891.1541 FOOTHILL CAPITAL CORPORATION 2450 Colorado Avenue Suite 3000 West Santa Monica, California 90404 Attn: Business Finance Division Manager Fax No. 310.453.7413 Agent and Borrowers may change the address at which they are to receive notices hereunder, by notice in writing in the foregoing manner given to the other party. All notices or demands sent in accordance with this Section 12, other than notices by Agent in connection with enforcement rights against the Collateral under the provisions of the Code, shall be deemed received on the earlier of the date of actual receipt or 3 Business Days after the deposit thereof in the mail. Each Borrower acknowledges and agrees that notices sent by the Lender Group in connection with the exercise of enforcement rights against Collateral under the provisions of the Code shall be deemed sent when deposited in the mail or personally delivered, or, where permitted by law, transmitted by telefacsimile or any other method set forth above. 13. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER. (a) THE VALIDITY OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS (UNLESS EXPRESSLY PROVIDED TO THE CONTRARY IN ANOTHER LOAN DOCUMENT IN RESPECT OF SUCH OTHER LOAN DOCUMENT), THE CONSTRUCTION, INTERPRETATION, AND ENFORCEMENT HEREOF AND THEREOF, AND THE RIGHTS OF THE PARTIES HERETO AND THERETO WITH RESPECT TO ALL MATTERS ARISING HEREUNDER OR THEREUNDER OR RELATED HERETO OR THERETO SHALL BE DETERMINED UNDER, GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. 91 (b) THE PARTIES AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING IN CONNECTION WITH THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS SHALL BE TRIED AND LITIGATED ONLY IN THE STATE AND FEDERAL COURTS LOCATED IN THE BOROUGH OF MANHATTAN, COUNTY OF NEW YORK, STATE OF NEW YORK, PROVIDED, HOWEVER, THAT ANY SUIT SEEKING ENFORCEMENT AGAINST ANY COLLATERAL OR OTHER PROPERTY MAY BE BROUGHT, AT AGENT'S OPTION, IN THE COURTS OF ANY JURISDICTION WHERE AGENT ELECTS TO BRING SUCH ACTION OR WHERE SUCH COLLATERAL OR OTHER PROPERTY MAY BE FOUND. BORROWERS AND THE LENDER GROUP WAIVE, TO THE EXTENT PERMITTED UNDER APPLICABLE LAW, ANY RIGHT EACH MAY HAVE TO ASSERT THE DOCTRINE OF FORUM NON CONVENIENS OR TO OBJECT TO VENUE TO THE EXTENT ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS SECTION 13(b). BORROWERS AND THE LENDER GROUP HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS. BORROWERS AND THE LENDER GROUP REPRESENT THAT EACH HAS REVIEWED THIS WAIVER AND EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION, A COPY OF THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT. 14. ASSIGNMENTS AND PARTICIPATIONS; SUCCESSORS. 14.1 ASSIGNMENTS AND PARTICIPATIONS. (a) Any Lender may, with the written consent of Agent (provided that no written consent of Agent shall be required in connection with any assignment and delegation by a Lender to an Eligible Transferee), assign and delegate to one or more assignees (each an "Assignee") all, or any ratable part of all, of the Obligations, the Commitments and the other rights and obligations of such Lender hereunder and under the other Loan Documents, in a minimum amount of $5,000,000 (except such minimum amount shall not apply to any Affiliate of a Lender or to a Related Fund or account managed by a Lender) provided that if the minimum amount is not met Borrowers and Agent may continue to deal solely and direction with such Lender in connection with the interest so assigned to an Assignee; provided, however, that Borrowers and Agent may continue to deal solely and directly with such Lender in connection with the interest so assigned to an Assignee until (i) written notice of such assignment, together with payment instructions, addresses, and related information with respect to the Assignee, have been given to Administrative Borrower and Agent by such Lender and the Assignee, (ii) such Lender and its Assignee have delivered to Administrative Borrower and Agent an Assignment and Acceptance in form and substance satisfactory to Agent, and (iii) the assignor Lender or Assignee has paid to Agent for Agent's separate account a processing fee in the amount of $5,000. Anything contained herein to the contrary notwithstanding, the consent of Agent shall 92 not be required (and payment of any fees shall not be required) if such assignment is in connection with any merger, consolidation, sale, transfer, or other disposition of all or any substantial portion of the business or loan portfolio of such Lender or the assignee is an Affiliate (other than individuals) of a Lender or a Related Fund. (b) From and after the date that Agent notifies the assignor Lender (with a copy to Administrative Borrower) that it has received an executed Assignment and Acceptance and payment of the above-referenced processing fee, (i) the Assignee thereunder shall be a party hereto and, to the extent that rights and obligations hereunder have been assigned to it pursuant to such Assignment and Acceptance, shall have the rights and obligations of a Lender under the Loan Documents, and (ii) the assignor Lender shall, to the extent that rights and obligations hereunder and under the other Loan Documents have been assigned by it pursuant to such Assignment and Acceptance, relinquish its rights (except with respect to Section 11.3 hereof) and be released from its obligations under this Agreement (and in the case of an Assignment and Acceptance covering all or the remaining portion of an assigning Lender's rights and obligations under this Agreement and the other Loan Documents, such Lender shall cease to be a party hereto and thereto), and such assignment shall affect a novation between Borrowers and the Assignee. (c) By executing and delivering an Assignment and Acceptance, the assigning Lender thereunder and the Assignee thereunder confirm to and agree with each other and the other parties hereto as follows: (1) other than as provided in such Assignment and Acceptance, such assigning Lender makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with this Agreement or the execution, legality, validity, enforceability, genuineness, sufficiency or value of this Agreement or any other Loan Document furnished pursuant hereto, (2) such assigning Lender makes no representation or warranty and assumes no responsibility with respect to the financial condition of Borrowers or the performance or observance by Borrowers of any of their obligations under this Agreement or any other Loan Document furnished pursuant hereto, (3) such Assignee confirms that it has received a copy of this Agreement, together with such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into such Assignment and Acceptance, (4) such Assignee will, independently and without reliance upon Agent, such assigning Lender or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement, (5) such Assignee appoints and authorizes Agent to take such actions and to exercise such powers under this Agreement as are delegated to Agent, by the terms hereof, together with such powers as are reasonably incidental thereto, and (6) such Assignee agrees that it will perform all of the obligations which by the terms of this Agreement are required to be performed by it as a Lender. (d) Immediately upon each Assignee's making its processing fee payment under the Assignment and Acceptance and receipt and acknowledgment by Agent of such fully executed Assignment and Acceptance, this Agreement shall be deemed to be amended to the extent, but only to the extent, necessary to reflect the addition of the Assignee and the resulting adjustment of the Commitments arising therefrom. The Commitment allocated to each Assignee shall reduce such Commitments of the assigning Lender pro tanto. 93 (e) Any Lender may at any time, with the written consent of Agent, sell to one or more commercial banks, financial institutions, or other Persons not Affiliates of such Lender (a "Participant") participating interests in its Obligations, the Commitment, and the other rights and interests of that Lender (the "Originating Lender") hereunder and under the other Loan Documents (provided that no written consent of Agent shall be required in connection with any sale of any such participating interests by a Lender to an Eligible Transferee); provided, however, that (i) the Originating Lender shall remain a "Lender" for all purposes of this Agreement and the other Loan Documents and the Participant receiving the participating interest in the Obligations, the Commitments, and the other rights and interests of the Originating Lender hereunder shall not constitute a "Lender" hereunder or under the other Loan Documents and the Originating Lender's obligations under this Agreement shall remain unchanged, (ii) the Originating Lender shall remain solely responsible for the performance of such obligations, (iii) Borrowers, Agent, and the Lenders shall continue to deal solely and directly with the Originating Lender in connection with the Originating Lender's rights and obligations under this Agreement and the other Loan Documents, (iv) no Lender shall transfer or grant any participating interest under which the Participant has the right to approve any amendment to, or any consent or waiver with respect to, this Agreement or any other Loan Document, except to the extent such amendment to, or consent or waiver with respect to this Agreement or of any other Loan Document would (A) extend the final maturity date of the Obligations hereunder in which such Participant is participating, (B) reduce the interest rate applicable to the Obligations hereunder in which such Participant is participating, (C) release all or a material portion of the Collateral or guaranties (except to the extent expressly provided herein or in any of the Loan Documents) supporting the Obligations hereunder in which such Participant is participating, (D) postpone the payment of, or reduce the amount of, the interest or fees payable to such Participant through such Lender, or (E) change the amount or due dates of scheduled principal repayments or prepayments or premiums; and (v) all amounts payable by Borrowers hereunder shall be determined as if such Lender had not sold such participation; except that, if amounts outstanding under this Agreement are due and unpaid, or shall have been declared or shall have become due and payable upon the occurrence of an Event of Default, each Participant shall be deemed to have the right of set-off in respect of its participating interest in amounts owing under this Agreement to the same extent as if the amount of its participating interest were owing directly to it as a Lender under this Agreement. The rights of any Participant only shall be derivative through the Originating Lender with whom such Participant participates and no Participant shall have any rights under this Agreement or the other Loan Documents or any direct rights as to the other Lenders, Agent, Borrowers, the Collections, the Collateral, or otherwise in respect of the Obligations. No Participant shall have the right to participate directly in the making of decisions by the Lenders among themselves. (f) In connection with any such assignment or participation or proposed assignment or participation, a Lender may disclose all documents and information which it now or hereafter may have relating to Borrowers or Borrowers' business. (g) Any other provision in this Agreement notwithstanding, any Lender may at any time create a security interest in, or pledge, all or any portion of its rights under and interest in this Agreement in favor of any Federal Reserve Bank in accordance with Regulation A of the Federal Reserve Bank or U.S. Treasury Regulation 31 CFR Section 203.14, and such Federal 94 Reserve Bank may enforce such pledge or security interest in any manner permitted under applicable law. (h) Administrative Borrower shall maintain, or cause to be maintained, a register (the "Register") on which it enters the name of a Lender as the registered owner of the Term Loan held by such Lender. A loan so registered (a "Registered Loan"),and the note if any, evidencing the same (a "Registered Note") may be assigned or sold in whole or in part only by registration of such assignment or sale on the Register (and each Registered Note shall expressly so provide). Any assignment or sale of all or part of such Registered Loan (and the Registered Note, if any) may be effected only by registration of such assignment or sale on the Register, together with the surrender of the Registered Note, if any, duly endorsed by (or accompanied by a written instrument of assignment or sale duly executed by) the holder of such Registered Note, whereupon, at the request of the designated assignee(s) or transferee(s), one or more new Registered Notes in the same aggregate principal amount shall be issued to the designated assignee(s) or transferee(s). Prior to the registration of assignment or sale of any Registered Loan (and the Registered Note, if any), Administrative Borrower shall treat the Person in whose name such Registered Loan (and the Registered Note, if any) is registered as the owner thereof for the purpose of receiving all payments thereon and for all other purposes, notwithstanding notice to the contrary. In the case of an assignment or delegation covered by Section 14.1(a), the Lender that is the assignee shall maintain a comparable Register on behalf of Borrowers. (i) In the event that a Lender sells participations in the Registered Loan, such Lender shall maintain a register on which it enters the name of all participants in the Registered Loans held by it (the "Participant Register"). A Registered Loan (and the Registered Note, if any) may be participated in whole or in part only by registration of such participation on the Participant Register (and each Registered Note shall expressly so provide). Any participation of such Registered Loan (and the Registered Note, if any) may be effected only by the registration of such participation on the Participant Register. 14.2 SUCCESSORS. This Agreement shall bind and inure to the benefit of the respective successors and assigns of each of the parties; provided, however, that Borrowers may not assign this Agreement or any rights or duties hereunder without the Lenders' prior written consent and any prohibited assignment shall be absolutely void ab initio. No consent to assignment by the Lenders shall release any Borrower from its Obligations. A Lender may assign this Agreement and the other Loan Documents and its rights and duties hereunder and thereunder pursuant to Section 14.1 hereof and, except as expressly required pursuant to Section 14.1 hereof, no consent or approval by any Borrower is required in connection with any such assignment. 15. AMENDMENTS; WAIVERS. 15.1 AMENDMENTS AND WAIVERS. No amendment or waiver of any provision of this Agreement or any other Loan Document, and no consent with respect to any departure by Borrowers therefrom, shall be effective unless the same shall be in writing and signed by the Required Lenders (or by Agent at the written request of the Required Lenders) and Administrative Borrower (on behalf of all Borrowers) and then any such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; provided, however, that no such waiver, amendment, or consent shall, unless in writing and signed by all of 95 the Lenders affected thereby and Administrative Borrower (on behalf of all Borrowers) and acknowledged by Agent, do any of the following: (a) increase or extend any Commitment of any Lender, (b) postpone or delay any date fixed by this Agreement or any other Loan Document for any payment of principal, interest, fees, or other amounts due hereunder or under any other Loan Document, (c) reduce the principal of, or the rate of interest on, any loan or other extension of credit hereunder, or reduce any fees or other amounts payable hereunder or under any other Loan Document, (d) change the percentage of the Commitments that is required to take any action hereunder, (e) amend or modify this Section or any provision of the Agreement providing for consent or other action by all Lenders, (f) release Collateral other than as permitted by Section 16.12, (g) change the definition of "Required Lenders" or "Pro Rata Share", (h) contractually subordinate any of the Agent's Liens, (i) release any Borrower or any Guarantor from any obligation for the payment of money, or (j) change the definitions of Borrowing Base, Eligible Accounts or Maximum Revolver Amount or change Section 2.1(b); or (k) amend any of the provisions of Section 16. and, provided further, however, that no amendment, waiver or consent shall, unless in writing and signed by Agent, Issuing Lender, or Swing Lender, affect the rights or duties of Agent, Issuing Lender, or Swing Lender, as applicable, under this Agreement or any other Loan Document. The foregoing notwithstanding, any amendment, modification, waiver, consent, termination, or release of, or with respect to, any provision of this Agreement or any other Loan Document that relates only to the relationship of the Lender Group among themselves, and that does not affect the rights or obligations of Borrowers, shall not require consent by or the agreement of Borrowers. 15.2 REPLACEMENT OF HOLDOUT LENDER. If any action to be taken by the Lender Group or Agent hereunder requires the unanimous consent, authorization, or agreement of all Lenders, and a Lender ("Holdout Lender") fails to give its consent, authorization, or agreement, then Agent, upon at least 5 Business Days prior irrevocable notice to the Holdout Lender, may permanently replace the Holdout Lender with one or more substitute Lenders (each, a "Replacement Lender"), and the Holdout Lender shall have not right to refuse to be replaced 96 hereunder. Such notice to replace the Holdout Lender shall specify an effective date for such replacement, which date shall not be later than 15 Business Days after the date such notice is given. Prior to the effective date of such replacement, the Holdout Lender and each Replacement Lender shall execute and deliver an Assignment and Acceptance Agreement, subject only to the Holdout Lender being repaid its share of the outstanding Obligations (including an assumption of its Pro Rata Share of the Risk Participation Liability) without any premium or penalty of any kind whatsoever. If the Holdout Lender shall refuse or fail to execute and deliver any such Assignment and Acceptance Agreement prior to the effective date of such replacement, the Holdout Lender shall be deemed to have executed and delivered such Assignment and Acceptance Agreement. The replacement of any Holdout Lender shall be made in accordance with the terms of Section 14.1. Until such time as the Replacement Lenders shall have acquired all of the Obligations, the Commitments, and the other rights and obligations of the Holdout Lender hereunder and under the other Loan Documents, the Holdout Lender shall remain obligated to make the Holdout Lender's Pro Rata Share of Advances and to purchase a participation in each Letter of Credit, in an amount equal to its Pro Rata Share of the Risk Participation Liability of such Letter of Credit. 15.3 NO WAIVERS; CUMULATIVE REMEDIES. No failure by Agent or any Lender to exercise any right, remedy, or option under this Agreement or, any other Loan Document, or delay by Agent or any Lender in exercising the same, will operate as a waiver thereof. No waiver by Agent or any Lender will be effective unless it is in writing, and then only to the extent specifically stated. No waiver by Agent or any Lender on any occasion shall affect or diminish Agent's and each Lender's rights thereafter to require strict performance by Borrowers of any provision of this Agreement. Agent's and each Lender's rights under this Agreement and the other Loan Documents will be cumulative and not exclusive of any other right or remedy that Agent or any Lender may have. 16. AGENT; THE LENDER GROUP. 16.1 APPOINTMENT AND AUTHORIZATION OF AGENT. Each Lender hereby designates and appoints Foothill as its representative under this Agreement and the other Loan Documents and each Lender hereby irrevocably authorizes Agent to execute and deliver each of the other Loan Documents on its behalf and to take such other action on its behalf under the provisions of this Agreement and each other Loan Document and to exercise such powers and perform such duties as are expressly delegated to Agent by the terms of this Agreement or any other Loan Document, together with such powers as are reasonably incidental thereto. Agent agrees to act as such on the express conditions contained in this Section 16. The provisions of this Section 16 are solely for the benefit of Agent, and the Lenders, and Borrowers shall have no rights as a third party beneficiary of any of the provisions contained herein. Any provision to the contrary contained elsewhere in this Agreement or in any other Loan Document notwithstanding, Agent shall not have any duties or responsibilities, except those expressly set forth herein, nor shall Agent have or be deemed to have any fiduciary relationship with any Lender, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Agreement or any other Loan Document or otherwise exist against Agent; it being expressly understood and agreed that the use of the word "Agent" is for convenience only, that Foothill is merely the 97 representative of the Lenders, and only has the contractual duties set forth herein. Except as expressly otherwise provided in this Agreement, Agent shall have and may use its sole discretion with respect to exercising or refraining from exercising any discretionary rights or taking or refraining from taking any actions that Agent expressly is entitled to take or assert under or pursuant to this Agreement and the other Loan Documents. Without limiting the generality of the foregoing, or of any other provision of the Loan Documents that provides rights or powers to Agent, Lenders agree that Agent shall have the right to exercise the following powers as long as this Agreement remains in effect: (a) maintain, in accordance with its customary business practices, ledgers and records reflecting the status of the Obligations, the Collateral, the Collections, and related matters, (b) execute or file any and all financing or similar statements or notices, amendments, renewals, supplements, documents, instruments, proofs of claim, notices and other written agreements with respect to the Loan Documents, (c) make Advances, for itself or on behalf of Lenders as provided in the Loan Documents, (d) exclusively receive, apply, and distribute the Collections as provided in the Loan Documents, (e) open and maintain such bank accounts and cash management arrangements as Agent deems necessary and appropriate in accordance with the Loan Documents for the foregoing purposes with respect to the Collateral and the Collections, (f) perform, exercise, and enforce any and all other rights and remedies of the Lender Group with respect to Borrowers, the Obligations, the Collateral, the Collections, or otherwise related to any of same as provided in the Loan Documents, and (g) incur and pay such Lender Group Expenses as Agent may deem necessary or appropriate for the performance and fulfillment of its functions and powers pursuant to the Loan Documents. 16.2 DELEGATION OF DUTIES. Agent may execute any of its duties under this Agreement or any other Loan Document by or through agents, employees or attorneys-in-fact and shall be entitled to advice of counsel concerning all matters pertaining to such duties. Agent shall not be responsible for the negligence or misconduct of any agent or attorney-in-fact that it selects as long as such selection was made without gross negligence or willful misconduct. 16.3 LIABILITY OF AGENT. None of the Agent-Related Persons shall (i) be liable for any action taken or omitted to be taken by any of them under or in connection with this Agreement or any other Loan Document or the transactions contemplated hereby (except for its own gross negligence or willful misconduct), or (ii) be responsible in any manner to any of the Lenders for any recital, statement, representation or warranty made by any Borrower or any Subsidiary or Affiliate of any Borrower, or any officer or director thereof, contained in this Agreement or in any other Loan Document, or in any certificate, report, statement or other document referred to or provided for in, or received by Agent under or in connection with, this Agreement or any other Loan Document, or the validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement or any other Loan Document, or for any failure of any Borrower or any other party to any Loan Document to perform its obligations hereunder or thereunder. No Agent-Related Person shall be under any obligation to any Lender to ascertain or to inquire as to the observance or performance of any of the agreements contained in, or conditions of, this Agreement or any other Loan Document, or to inspect the Books or properties of Borrowers or the books or records or properties of any of Borrowers' Subsidiaries or Affiliates. 16.4 RELIANCE BY AGENT. Agent shall be entitled to rely, and shall be fully protected in relying, upon any writing, resolution, notice, consent, certificate, affidavit, letter, telegram, facsimile, telex or telephone message, statement or other document or conversation believed by 98 it to be genuine and correct and to have been signed, sent, or made by the proper Person or Persons, and upon advice and statements of legal counsel (including counsel to Borrowers or counsel to any Lender), independent accountants and other experts selected by Agent. Agent shall be fully justified in failing or refusing to take any action under this Agreement or any other Loan Document unless Agent shall first receive such advice or concurrence of the Lenders as it deems appropriate and until such instructions are received, Agent shall act, or refrain from acting, as it deems advisable. If Agent so requests, it shall first be indemnified to its reasonable satisfaction by Lenders against any and all liability and expense that may be incurred by it by reason of taking or continuing to take any such action. Agent shall in all cases be fully protected in acting, or in refraining from acting, under this Agreement or any other Loan Document in accordance with a request or consent of the Lenders and such request and any action taken or failure to act pursuant thereto shall be binding upon all of the Lenders. 16.5 NOTICE OF DEFAULT OR EVENT OF DEFAULT. Agent shall not be deemed to have knowledge or notice of the occurrence of any Default or Event of Default, except with respect to defaults in the payment of principal, interest, fees, and expenses required to be paid to Agent for the account of the Lenders, except with respect to Events of Default of which Agent has actual knowledge, unless Agent shall have received written notice from a Lender or Administrative Borrower referring to this Agreement, describing such Default or Event of Default, and stating that such notice is a "notice of default." Agent promptly will notify the Lenders of its receipt of any such notice or of any Event of Default of which Agent has actual knowledge. If any Lender obtains actual knowledge of any Event of Default, such Lender promptly shall notify the other Lenders and Agent of such Event of Default. Each Lender shall be solely responsible for giving any notices to its Participants, if any. Subject to Section 16.4, Agent shall take such action with respect to such Default or Event of Default as may be requested by the Required Lenders in accordance with Section 9; provided, however, that unless and until Agent has received any such request, Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default or Event of Default as it shall deem advisable. 16.6 CREDIT DECISION. Each Lender acknowledges that none of the Agent-Related Persons has made any representation or warranty to it, and that no act by Agent hereinafter taken, including any review of the affairs of Borrowers and their Subsidiaries or Affiliates, shall be deemed to constitute any representation or warranty by any Agent-Related Person to any Lender. Each Lender represents to Agent that it has, independently and without reliance upon any Agent-Related Person and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, prospects, operations, property, financial and other condition and creditworthiness of Borrowers and any other Person (other than the Lender Group) party to a Loan Document, and all applicable bank regulatory laws relating to the transactions contemplated hereby, and made its own decision to enter into this Agreement and to extend credit to Borrowers. Each Lender also represents that it will, independently and without reliance upon any Agent-Related Person and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit analysis, appraisals and decisions in taking or not taking action under this Agreement and the other Loan Documents, and to make such investigations as it deems necessary to inform itself as to the business, prospects, operations, property, financial and other condition and creditworthiness of Borrowers and any other Person (other than the Lender Group) party to a Loan Document. Except for notices, reports, and other documents expressly herein required to be furnished to the Lenders by Agent, 99 Agent shall not have any duty or responsibility to provide any Lender with any credit or other information concerning the business, prospects, operations, property, financial and other condition or creditworthiness of Borrowers and any other Person party to a Loan Document that may come into the possession of any of the Agent-Related Persons. 16.7 COSTS AND EXPENSES; INDEMNIFICATION. Agent may incur and pay Lender Group Expenses to the extent Agent reasonably deems necessary or appropriate for the performance and fulfillment of its functions, powers, and obligations pursuant to the Loan Documents, including court costs, reasonable attorneys fees and expenses, costs of collection by outside collection agencies and auctioneer fees and costs of security guards or insurance premiums paid to maintain the Collateral, whether or not Borrowers are obligated to reimburse Agent or Lenders for such expenses pursuant to the Loan Agreement or otherwise. Agent is authorized and directed to deduct and retain sufficient amounts from Collections received by Agent to reimburse Agent for such out-of-pocket costs and expenses prior to the distribution of any amounts to Lenders. In the event Agent is not reimbursed for such costs and expenses from Collections received by Agent, each Lender hereby agrees that it is and shall be obligated to pay to or reimburse Agent for the amount of such Lender's Pro Rata Share thereof. Whether or not the transactions contemplated hereby are consummated, the Lenders shall indemnify upon demand the Agent-Related Persons (to the extent not reimbursed by or on behalf of Borrowers and without limiting the obligation of Borrowers to do so), according to their Pro Rata Shares, from and against any and all Indemnified Liabilities; provided, however, that no Lender shall be liable for the payment to any Agent-Related Person of any portion of such Indemnified Liabilities resulting solely from such Person's gross negligence or willful misconduct nor shall any Lender be liable for the obligations of any Defaulting Lender in failing to make an Advance or other extension of credit hereunder. Without limitation of the foregoing, each Lender shall reimburse Agent upon demand for such Lender's ratable share of any costs or out-of-pocket expenses (including attorneys fees and expenses) incurred by Agent in connection with the preparation, execution, delivery, administration, modification, amendment, or enforcement (whether through negotiations, legal proceedings or otherwise) of, or legal advice in respect of rights or responsibilities under, this Agreement, any other Loan Document, or any document contemplated by or referred to herein, to the extent that Agent is not reimbursed for such expenses by or on behalf of Borrowers. The undertaking in this Section shall survive the payment of all Obligations hereunder and the resignation or replacement of Agent. 16.8 AGENT IN INDIVIDUAL CAPACITY. Foothill and its Affiliates may make loans to, issue letters of credit for the account of, accept deposits from, acquire equity interests in, and generally engage in any kind of banking, trust, financial advisory, underwriting, or other business with Borrowers and their Subsidiaries and Affiliates and any other Person (other than the Lender Group) party to any Loan Documents as though Foothill were not Agent hereunder, and, in each case, without notice to or consent of the other members of the Lender Group. The other members of the Lender Group acknowledge that, pursuant to such activities, Foothill or its Affiliates may receive information regarding Borrowers or their Affiliates and any other Person (other than the Lender Group) party to any Loan Documents that is subject to confidentiality obligations in favor of Borrowers or such other Person and that prohibit the disclosure of such information to the Lenders, and the Lenders acknowledge that, in such circumstances (and in the absence of a waiver of such confidentiality obligations, which waiver Agent will use its reasonable best efforts to obtain), Agent shall not be under any obligation to provide such 100 information to them. The terms "Lender" and "Lenders" include Foothill in its individual capacity. 16.9 SUCCESSOR AGENT. Agent may resign as Agent upon 45 days notice to the Lenders. If Agent resigns under this Agreement, the Required Lenders shall appoint a successor Agent for the Lenders. If no successor Agent is appointed prior to the effective date of the resignation of Agent, Agent may appoint, after consulting with the Lenders, a successor Agent. If Agent has materially breached or failed to perform any material provision of this Agreement or of applicable law, the Required Lenders may agree in writing to remove and replace Agent with a successor Agent from among the Lenders. In any such event, upon the acceptance of its appointment as successor Agent hereunder, such successor Agent shall succeed to all the rights, powers, and duties of the retiring Agent and the term "Agent" shall mean such successor Agent and the retiring Agent's appointment, powers, and duties as Agent shall be terminated. After any retiring Agent's resignation hereunder as Agent, the provisions of this Section 16 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent under this Agreement. If no successor Agent has accepted appointment as Agent by the date which is 45 days following a retiring Agent's notice of resignation, the retiring Agent's resignation shall nevertheless thereupon become effective and the Lenders shall perform all of the duties of Agent hereunder until such time, if any, as the Lenders appoint a successor Agent as provided for above. 16.10 LENDER IN INDIVIDUAL CAPACITY. Any Lender and its respective Affiliates may make loans to, issue letters of credit for the account of, accept deposits from, acquire equity interests in and generally engage in any kind of banking, trust, financial advisory, underwriting or other business with Borrowers and their Subsidiaries and Affiliates and any other Person (other than the Lender Group) party to any Loan Documents as though such Lender were not a Lender hereunder without notice to or consent of the other members of the Lender Group. The other members of the Lender Group acknowledge that, pursuant to such activities, such Lender and its respective Affiliates may receive information regarding Borrowers or their Affiliates and any other Person (other than the Lender Group) party to any Loan Documents that is subject to confidentiality obligations in favor of Borrowers or such other Person and that prohibit the disclosure of such information to the Lenders, and the Lenders acknowledge that, in such circumstances (and in the absence of a waiver of such confidentiality obligations, which waiver such Lender will use its reasonable best efforts to obtain), such Lender not shall be under any obligation to provide such information to them. With respect to the Swing Loans and Agent Advances, Swing Lender shall have the same rights and powers under this Agreement as any other Lender and may exercise the same as though it were not the sub-agent of the Agent. 16.11 WITHHOLDING TAXES. (a) If any Lender is a "foreign corporation, partnership or trust" within the meaning of the IRC and such Lender claims exemption from, or a reduction of, U.S. withholding tax under Sections 1441 or 1442 of the IRC, such Lender agrees with and in favor of Agent and Borrowers, to deliver to Agent and Administrative Borrower: (i) if such Lender claims an exemption from withholding tax pursuant to its portfolio interest exception, (a) a statement of the Lender, signed under 101 penalty of perjury, that it is not a (I) a "bank" as described in Section 881(c)(3)(A) of the IRC, (II) a 10% shareholder (within the meaning of Section 881(c)(3)(B) of the IRC), or (III) a controlled foreign corporation described in Section 881(c)(3)(C) of the IRC, and (B) a properly completed IRS Form W-8BEN, before the first payment of any interest under this Agreement and at any other time reasonably requested by Agent or Administrative Borrower; (ii) if such Lender claims an exemption from, or a reduction of, withholding tax under a United States tax treaty, properly completed IRS Form W-8BEN before the first payment of any interest under this Agreement and at any other time reasonably requested by Agent or Administrative Borrower; (iii) if such Lender claims that interest paid under this Agreement is exempt from United States withholding tax because it is effectively connected with a United States trade or business of such Lender, two properly completed and executed copies of IRS Form W-8ECI before the first payment of any interest is due under this Agreement and at any other time reasonably requested by Agent or Administrative Borrower; (iv) such other form or forms as may be required under the IRC or other laws of the United States as a condition to exemption from, or reduction of, United States withholding tax. Such Lender agrees promptly to notify Agent and Administrative Borrower of any change in circumstances which would modify or render invalid any claimed exemption or reduction. (b) If any Lender claims exemption from, or reduction of, withholding tax under a United States tax treaty by providing IRS Form W-8BEN and such Lender sells, assigns, grants a participation in, or otherwise transfers all or part of the Obligations of Borrowers to such Lender, such Lender agrees to notify Agent of the percentage amount in which it is no longer the beneficial owner of Obligations of Borrowers to such Lender. To the extent of such percentage amount, Agent will treat such Lender's IRS Form W-8BEN as no longer valid. (c) If any Lender is entitled to a reduction in the applicable withholding tax, Agent may withhold from any interest payment to such Lender an amount equivalent to the applicable withholding tax after taking into account such reduction. If the forms or other documentation required by clause 0 of this Section are not delivered to Agent, then Agent may withhold from any interest payment to such Lender not providing such forms or other documentation an amount equivalent to the applicable withholding tax. (d) If the IRS or any other Governmental Authority of the United States or other jurisdiction asserts a claim that Agent did not properly withhold tax from amounts paid to or for the account of any Lender (because the appropriate form was not delivered, was not properly executed, or because such Lender failed to notify Agent of a change in circumstances which rendered the exemption from, or reduction of, withholding tax ineffective, or for any other reason) such Lender shall indemnify and hold Agent harmless for all amounts paid, directly or indirectly, by Agent as tax or otherwise, including penalties and interest, and including any taxes 102 imposed by any jurisdiction on the amounts payable to Agent under this Section, together with all costs and expenses (including attorneys fees and expenses). The obligation of the Lenders under this subsection shall survive the payment of all Obligations and the resignation or replacement of Agent. (e) All payments made by Borrowers hereunder or under any note or other Loan Document will be made without setoff, counterclaim, or other defense, except as required by applicable law other than for Taxes (as defined below). All such payments will be made free and clear of, and without deduction or withholding for, any present or future taxes, levies, imposts, duties, fees, assessments or other charges of whatever nature now or hereafter imposed by any jurisdiction (other than the United States) or by any political subdivision or taxing authority thereof or therein (other than of the United States) with respect to such payments (but excluding, any tax imposed by any jurisdiction or by any political subdivision or taxing authority thereof or therein (i) measured by or based on the net income or net profits of a Lender, or (ii) to the extent that such tax results from a change in the circumstances of the Lender, including a change in the residence, place of organization, or principal place of business of the Lender, or a change in the branch or lending office of the Lender participating in the transactions set forth herein) and all interest, penalties or similar liabilities with respect thereto (all such non-excluded taxes, levies, imposts, duties, fees, assessments or other charges being referred to collectively as "Taxes"). If any Taxes are so levied or imposed, each Borrower agrees to pay the full amount of such Taxes, and such additional amounts as may be necessary so that every payment of all amounts due under this Agreement or under any note, including any amount paid pursuant to this Section 16.11(e) after withholding or deduction for or on account of any Taxes, will not be less than the amount provided for herein; provided, however, that Borrowers shall not be required to increase any such amounts payable to Agent or any Lender (i) that is not organized under the laws of the United States, if such Person fails to comply with the other requirements of this Section 16.11, or (ii) if the increase in such amount payable results from Agent's or such Lender's own willful misconduct or gross negligence. Borrowers will furnish to Agent as promptly as possible after the date the payment of any Taxes is due pursuant to applicable law certified copies of tax receipts evidencing such payment by Borrowers. 16.12 COLLATERAL MATTERS. (a) The Lenders hereby irrevocably authorize Agent, at its option and in its sole discretion, to release any Lien on any Collateral (i) upon the termination of the Commitments and payment and satisfaction in full by Borrowers of all Obligations, (ii) constituting property being sold or disposed of if a release is required or desirable in connection therewith and if Administrative Borrower certifies to Agent that the sale or disposition is permitted under Section 7.3(c) of this Agreement or the other Loan Documents (and Agent may rely conclusively on any such certificate, without further inquiry), (iii) constituting property in which no Borrower owned any interest at the time the security interest was granted or at any time thereafter, or (iv) constituting property leased to a Borrower under a lease that has expired or is terminated in a transaction permitted under this Agreement. Except as provided above, Agent will not execute and deliver a release of any Lien on any Collateral without the prior written authorization of (y) if the release is of all or substantially all of the Collateral, all of the Lenders, or (z) otherwise, the Required Lenders. Upon request by Agent or Administrative Borrower at any time, the Lenders will confirm in writing Agent's 103 authority to release any such Liens on particular types or items of Collateral pursuant to this Section 16.12; provided, however, that (1) Agent shall not be required to execute any document necessary to evidence such release on terms that, in Agent's opinion, would expose Agent to liability or create any obligation or entail any consequence other than the release of such Lien without recourse, representation, or warranty, and (2) such release shall not in any manner discharge, affect, or impair the Obligations or any Liens (other than those expressly being released) upon (or obligations of Borrowers in respect of) all interests retained by Borrowers, including, the proceeds of any sale, all of which shall continue to constitute part of the Collateral. (b) Agent shall have no obligation whatsoever to any of the Lenders to assure that the Collateral exists or is owned by Borrowers or is cared for, protected, or insured or has been encumbered, or that the Agent's Liens have been properly or sufficiently or lawfully created, perfected, protected, or enforced or are entitled to any particular priority, or to exercise at all or in any particular manner or under any duty of care, disclosure or fidelity, or to continue exercising, any of the rights, authorities and powers granted or available to Agent pursuant to any of the Loan Documents, it being understood and agreed that in respect of the Collateral, or any act, omission, or event related thereto, subject to the terms and conditions contained herein, Agent may act in any manner it may deem appropriate, in its sole discretion given Agent's own interest in the Collateral in its capacity as one of the Lenders and that Agent shall have no other duty or liability whatsoever to any Lender as to any of the foregoing, except as otherwise provided herein. 16.13 RESTRICTIONS ON ACTIONS BY LENDERS; SHARING OF PAYMENTS. (a) Each of the Lenders agrees that it shall not, without the express consent of Agent, and that it shall, to the extent it is lawfully entitled to do so, upon the request of Agent, set off against the Obligations, any amounts owing by such Lender to Borrowers or any deposit accounts of Borrowers now or hereafter maintained with such Lender. Each of the Lenders further agrees that it shall not, unless specifically requested to do so by Agent, take or cause to be taken any action, including, the commencement of any legal or equitable proceedings, to foreclose any Lien on, or otherwise enforce any security interest in, any of the Collateral the purpose of which is, or could be, to give such Lender any preference or priority against the other Lenders with respect to the Collateral. (b) If, at any time or times any Lender shall receive (i) by payment, foreclosure, setoff, or otherwise, any proceeds of Collateral or any payments with respect to the Obligations arising under, or relating to, this Agreement or the other Loan Documents, except for any such proceeds or payments received by such Lender from Agent pursuant to the terms of this Agreement, or (ii) payments from Agent in excess of such Lender's ratable portion of all such distributions by Agent, such Lender promptly shall (1) turn the same over to Agent, in kind, and with such endorsements as may be required to negotiate the same to Agent, or in immediately available funds, as applicable, for the account of all of the Lenders and for application to the Obligations in accordance with the applicable provisions of this Agreement, or (2) purchase, without recourse or warranty, an undivided interest and participation in the Obligations owed to the other Lenders so that such excess payment received shall be applied ratably as among the Lenders in accordance with their Pro Rata Shares; provided, however, that if all or part of such excess payment received by the purchasing party is thereafter recovered from it, those purchases 104 of participations shall be rescinded in whole or in part, as applicable, and the applicable portion of the purchase price paid [ ]utates[ ]e shall be returned to such purchasing party, but without interest except to the extent that such purchasing party is required to pay interest in connection with the recovery of the excess payment. 16.14 AGENCY FOR PERFECTION. Agent hereby appoints each other Lender as its agent (and each Lender hereby accepts such appointment) for the purpose of perfecting the Agent's Liens in assets which, in accordance with Article 9 of the Code can be perfected only by possession. Should any Lender obtain possession or control of any such Collateral, such Lender shall notify Agent thereof, and, promptly upon Agent's request therefor shall deliver possession or control of such Collateral to Agent or in accordance with Agent's instructions. 16.15 PAYMENTS BY AGENT TO THE LENDERS. All payments to be made by Agent to the Lenders shall be made by bank wire transfer or internal transfer of immediately available funds pursuant to such wire transfer instructions as each party may designate for itself by written notice to Agent. Concurrently with each such payment, Agent shall identify whether such payment (or any portion thereof) represents principal, premium, or interest of the Obligations. 16.16 CONCERNING THE COLLATERAL AND RELATED LOAN DOCUMENTS. Each member of the Lender Group authorizes and directs Agent to enter into this Agreement and the other Loan Documents relating to the Collateral, for the benefit of the Lender Group. Each member of the Lender Group agrees that any action taken by Agent in accordance with the terms of this Agreement or the other Loan Documents relating to the Collateral and the exercise by Agent of its powers set forth therein or herein, together with such other powers that are reasonably incidental thereto, shall be binding upon all of the Lenders. 16.17 FIELD AUDITS AND EXAMINATION REPORTS; CONFIDENTIALITY; DISCLAIMERS BY LENDERS; OTHER REPORTS AND INFORMATION. By becoming a party to this Agreement, each Lender: (a) is deemed to have requested that Agent furnish such Lender, promptly after it becomes available, a copy of each field audit or examination report (each a "Report" and collectively, "Reports") prepared by Agent, and Agent shall so furnish each Lender with such Reports, (b) expressly agrees and acknowledges that Agent does not (i) make any representation or warranty as to the accuracy of any Report, and (ii) shall not be liable for any information contained in any Report, (c) expressly agrees and acknowledges that the Reports are not comprehensive audits or examinations, that Agent or any other party performing any audit or examination will inspect only specific information regarding Borrowers and will rely significantly upon the Books, as well as on representations of Borrowers' personnel, (d) agrees to keep all Reports and other material, non-public information regarding Borrowers and their Subsidiaries and their operations, assets, and existing and contemplated business plans in a confidential manner; it being understood and agreed by 105 Borrowers that in any event such Lender may make disclosures (a) to counsel for and other advisors, accountants, and auditors to such Lender, (b) reasonably required by any bona fide potential or actual Assignee or Participant in connection with any contemplated or actual assignment or transfer by such Lender of an interest herein or any participation interest in such Lender's rights hereunder, (c) of information that has become public by disclosures made by Persons other than such Lender, its Affiliates, assignees, transferees, or Participants, or (d) as required or requested by any court, governmental or administrative agency, pursuant to any subpoena or other legal process, or by any law, statute, regulation, or court order; provided, however, that, unless prohibited by applicable law, statute, regulation, or court order, such Lender shall notify Administrative Borrower of any request by any court, governmental or administrative agency, or pursuant to any subpoena or other legal process for disclosure of any such non-public material information concurrent with, or where practicable, prior to the disclosure thereof, and (e) without limiting the generality of any other indemnification provision contained in this Agreement, agrees: (i) to hold Agent and any such other Lender preparing a Report harmless from any action the indemnifying Lender may take or conclusion the indemnifying Lender may reach or draw from any Report in connection with any loans or other credit accommodations that the indemnifying Lender has made or may make to Borrowers, or the indemnifying Lender's participation in, or the indemnifying Lender's purchase of, a loan or loans of Borrowers; and (ii) to pay and protect, and indemnify, defend and hold Agent, and any such other Lender preparing a Report harmless from and against, the claims, actions, proceedings, damages, costs, expenses, and other amounts (including, attorneys fees and costs) incurred by Agent and any such other Lender preparing a Report as the direct or indirect result of any third parties who might obtain all or part of any Report through the indemnifying Lender. In addition to the foregoing: (x) any Lender may from time to time request of Agent in writing that Agent provide to such Lender a copy of any report or document provided by Borrowers to Agent that has not been contemporaneously provided by Borrowers to such Lender, and, upon receipt of such request, Agent shall provide a copy of same to such Lender, (y) to the extent that Agent is entitled, under any provision of the Loan Documents, to request additional reports or information from Borrowers, any Lender may, from time to time, reasonably request Agent to exercise such right as specified in such Lender's notice to Agent, whereupon Agent promptly shall request of Administrative Borrower the additional reports or information reasonably specified by such Lender, and, upon receipt thereof from Administrative Borrower, Agent promptly shall provide a copy of same to such Lender, and (z) any time that Agent renders to Administrative Borrower a statement regarding the Loan Account, Agent shall send a copy of such statement to each Lender. 16.18 SEVERAL OBLIGATIONS; NO LIABILITY. Notwithstanding that certain of the Loan Documents now or hereafter may have been or will be executed only by or in favor of Agent in its capacity as such, and not by or in favor of the Lenders, any and all obligations on the part of Agent (if any) to make any credit available hereunder shall constitute the several (and not joint) obligations of the respective Lenders on a ratable basis, according to their respective Commitments, to make an amount of such credit not to exceed, in principal amount, at any one time outstanding, the amount of their respective Commitments. Nothing contained herein shall confer upon any Lender any interest in, or subject any Lender to any liability for, or in respect of, 106 the business, assets, profits, losses, or liabilities of any other Lender. Each Lender shall be solely responsible for notifying its Participants of any matters relating to the Loan Documents to the extent any such notice may be required, and no Lender shall have any obligation, duty, or liability to any Participant of any other Lender. Except as provided in Section 16.7, no member of the Lender Group shall have any liability for the acts or any other member of the Lender Group. No Lender shall be responsible to any Borrower or any other Person for any failure by any other Lender to fulfill its obligations to make credit available hereunder, nor to advance for it or on its behalf in connection with its Commitment, nor to take any other action on its behalf hereunder or in connection with the financing contemplated herein. 16.19 LEGAL REPRESENTATION OF AGENT. In connection with the negotiation, drafting, and execution of this Agreement and the other Loan Documents, or in connection with future legal representation relating to loan administration, amendments, modifications, waivers, or enforcement of remedies, Mayer, Brown, Rowe & Maw ("MBR&M") only has represented and only shall represent Foothill in its capacity as Agent and as a Lender. Each other Lender hereby acknowledges that MBR&M does not represent it in connection with any such matters. 17. GENERAL PROVISIONS. 17.1 EFFECTIVENESS. This Agreement shall be binding and deemed effective when executed by Borrowers, Agent, and each Lender whose signature is provided for on the signature pages hereof. 17.2 SECTION HEADINGS. Headings and numbers have been set forth herein for convenience only. Unless the contrary is compelled by the context, everything contained in each Section applies equally to this entire Agreement. 17.3 INTERPRETATION. Neither this Agreement nor any uncertainty or ambiguity herein shall be construed or resolved against the Lender Group or Borrowers, whether under any rule of construction or otherwise. On the contrary, this Agreement has been reviewed by all parties and shall be construed and interpreted according to the ordinary meaning of the words used so as to accomplish fairly the purposes and intentions of all parties hereto. 17.4 SEVERABILITY OF PROVISIONS. Each provision of this Agreement shall be severable from every other provision of this Agreement for the purpose of determining the legal enforceability of any specific provision. 17.5 AMENDMENTS IN WRITING. This Agreement only can be amended by a writing in accordance with Section 15.1. 17.6 COUNTERPARTS; TELEFACSIMILE EXECUTION. This Agreement may be executed in any number of counterparts and by different parties on separate counterparts, each of which, when executed and delivered, shall be deemed to be an original, and all of which, when taken together, shall constitute but one and the same Agreement. Delivery of an executed counterpart of this Agreement by telefacsimile shall be equally as effective as delivery of an original executed counterpart of this Agreement. Any party delivering an executed counterpart of this Agreement by telefacsimile also shall deliver an original executed counterpart of this Agreement 107 but the failure to deliver an original executed counterpart shall not affect the validity, enforceability, and binding effect of this Agreement. The foregoing shall apply to each other Loan Document mutatis mutandis. 17.7 REVIVAL AND REINSTATEMENT OF OBLIGATIONS. If the incurrence or payment of the Obligations by any Borrower or any Guarantor or the transfer to the Lender Group of any property should for any reason subsequently be declared to be void or voidable under any state or federal law relating to creditors' rights, including provisions of the Bankruptcy Code relating to fraudulent conveyances, preferences, or other voidable or recoverable payments of money or transfers of property (collectively, a "Voidable Transfer"), and if the Lender Group is required to repay or restore, in whole or in part, any such Voidable Transfer, or elects to do so upon the reasonable advice of its counsel, then, as to any such Voidable Transfer, or the amount thereof that the Lender Group is required or elects to repay or restore, and as to all reasonable costs, expenses, and attorneys fees of the Lender Group related thereto, the liability of Borrowers or Guarantors automatically shall be revived, reinstated, and restored and shall exist as though such Voidable Transfer had never been made. 17.8 INTEGRATION. This Agreement, together with the other Loan Documents, reflects the entire understanding of the parties with respect to the transactions contemplated hereby and shall not be contradicted or qualified by any other agreement, oral or written, before the date hereof. 17.9 PARENT AS AGENT FOR BORROWERS. Each Borrower hereby irrevocably appoints Parent as the borrowing agent and attorney-in-fact for all Borrowers (the "Administrative Borrower") which appointment shall remain in full force and effect unless and until Agent shall have received prior written notice signed by each Borrower that such appointment has been revoked and that another Borrower has been appointed Administrative Borrower. Each Borrower hereby irrevocably appoints and authorizes the Administrative Borrower (i) to provide Agent with all notices with respect to Advances and Letters of Credit obtained for the benefit of any Borrower and all other notices and instructions under this Agreement and (ii) to take such action as the Administrative Borrower deems appropriate on its behalf to obtain Advances and Letters of Credit and to exercise such other powers as are reasonably incidental thereto to carry out the purposes of this Agreement. It is understood that the handling of the Loan Account and Collateral of Borrowers in a combined fashion, as more fully set forth herein, is done solely as an accommodation to Borrowers in order to utilize the collective borrowing powers of Borrowers in the most efficient and economical manner and at their request, and that Lender Group shall not incur liability to any Borrower as a result hereof. Each Borrower expects to derive benefit, directly or indirectly, from the handling of the Loan Account and the Collateral in a combined fashion since the successful operation of each Borrower is dependent on the continued successful performance of the integrated group. To induce the Lender Group to do so, and in consideration thereof, each Borrower hereby jointly and severally agrees to indemnify each member of the Lender Group and hold each member of the Lender Group harmless against any and all liability, expense, loss or claim of damage or injury, made against the Lender Group by any Borrower or by any third party whosoever, arising from or incurred by reason of (a) the handling of the Loan Account and Collateral of Borrowers as herein provided, (b) the Lender Group's relying on any instructions of the Administrative Borrower, or (c) any other action taken by the Lender Group hereunder or under the other Loan Documents, except that Borrowers will have no liability to the 108 relevant Agent-Related Person or Lender-Related Person under this Section 17.9 with respect to any liability that has been finally determined by a court of competent jurisdiction to have resulted solely from the gross negligence or willful misconduct of such Agent-Related Person or Lender-Related Person, as the case may be. [Signature page to follow.] 109 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed and delivered as of the date first above written. MERCURY AIR GROUP, INC., a Delaware corporation By: -------------------------------------- Title: ------------------------------------ MERCURY AIR CENTERS, INC., a California corporation By: -------------------------------------- Title: ------------------------------------ MERCURY AIR CARGO, INC., a California corporation By: -------------------------------------- Title: ------------------------------------ MERCFUEL, INC., a Delaware corporation By: -------------------------------------- Title: ------------------------------------ MAYTAG AIRCRAFT CORPORATION, a Colorado corporation By: -------------------------------------- Title: ------------------------------------ MERCURY AIR CENTER-BIRMINGHAM, LLC, an Alabama limited liability company By: -------------------------------------- Title: ------------------------------------ MERCURY AIR CENTER-BAKERSFIELD, INC., a California corporation By: -------------------------------------- Title: ------------------------------------ MERCURY AIR CENTER-BURBANK, INC., a California corporation By: -------------------------------------- Title: ------------------------------------ MERCURY AIR CENTER-FRESNO, INC., a California corporation By: -------------------------------------- Title: ------------------------------------ MERCURY AIR CENTER-LOS ANGELES, INC., a California corporation By: -------------------------------------- Title: ------------------------------------ MERCURY AIR CENTER-ONTARIO, INC., a California corporation By: -------------------------------------- Title: ------------------------------------ MERCURY AIR CENTER-SANTA BARBARA, INC., a California corporation By: -------------------------------------- Title: ------------------------------------ MERCURY AIR CENTER-HARTSFIELD, LLC, a Georgia limited liability company By: -------------------------------------- Title: ------------------------------------ MERCURY AIR CENTER-PEACHTREE-DEKALB, LLC, a Georgia limited liability company By: -------------------------------------- Title: ------------------------------------ MERCURY AIR CENTER- FT. WAYNE, LLC., an Indiana limited liability company By: -------------------------------------- Title: ------------------------------------ MERCURY AIR CENTER-JACKSON, LLC., a Mississippi limited liability company By: -------------------------------------- Title: ------------------------------------ MERCURY AIR CENTER-RENO, LLC, a Nevada limited liability company By: -------------------------------------- Title: ------------------------------------ MERCURY AIR CENTER-TULSA, LLC., an Oklahoma limited liability company By: -------------------------------------- Title: ------------------------------------ MERCURY AIR CENTER-CHARLESTON, LLC., a South Carolina limited liability company By: -------------------------------------- Title: ------------------------------------ MERCURY AIR CENTER-JOHNS ISLAND, LLC., a South Carolina limited liability company By: -------------------------------------- Title: ------------------------------------ MERCURY AIR CENTER-NASHVILLE, LLC., a Delaware limited liability company By: -------------------------------------- Title: ------------------------------------ MERCURY AIR CENTER-ADDISON, INC., a Texas corporation By: -------------------------------------- Title: ------------------------------------ MERCURY AIR CENTER - CORPUS CHRISTI, INC., a Texas corporation By: -------------------------------------- Title: ------------------------------------ FOOTHILL CAPITAL CORPORATION, a California corporation, as Agent and as a Lender By: -------------------------------------- Title: ------------------------------------ ABLECO FINANCE LLC, a Delaware limited liability company, as a Lender By: -------------------------------------- Title: ------------------------------------ TABLE OF CONTENTS

PAGE 1. DEFINITIONS AND CONSTRUCTION...........................................1 1.1 Definitions......................................................1 1.2 Accounting Terms................................................28 1.3 Code............................................................28 1.4 Construction....................................................28 1.5 Schedules and Exhibits..........................................29 2. LOAN AND TERMS OF PAYMENT.............................................29 2.1 Revolver Advances...............................................29 2.2 Term Loan.......................................................30 2.3 Borrowing Procedures and Settlements............................30 2.4 Payments........................................................37 2.5 Overadvances....................................................43 2.6 Interest Rates and Letter of Credit Fee: Rates, Payments, and Calculations................................................43 2.7 Cash Management.................................................45 2.8 Crediting Payments; Float Charge................................46 2.9 Designated Account..............................................46 2.10 Maintenance of Loan Account; Statements of Obligations..........46 2.11 Fees............................................................47 2.12 Letters of Credit...............................................47 2.13 LIBOR Option....................................................50 2.14 Capital Requirements............................................53 2.15 Joint and Several Liability of Borrowers........................53 2.16 Securitization..................................................56 3. CONDITIONS; TERM OF AGREEMENT.........................................57 3.1 Conditions Precedent to the Initial Extension of Credit.........57 3.2 Conditions Subsequent to the Initial Extension of Credit........60 3.3 Conditions Precedent to all Extensions of Credit................61 3.4 Term............................................................62 3.5 Effect of Termination...........................................62 3.6 Early Termination by Borrowers..................................62

-i-

TABLE OF CONTENTS (continued) 4. CREATION OF SECURITY INTEREST.........................................63 4.1 Grant of Security Interest......................................63 4.2 Negotiable Collateral...........................................63 4.3 Collection of Accounts, General Intangibles, and Negotiable Collateral......................................................63 4.4 Delivery of Additional Documentation Required...................64 4.5 Power of Attorney...............................................64 4.6 Right to Inspect................................................65 4.7 Control Agreements..............................................65 5. REPRESENTATIONS AND WARRANTIES........................................65 5.1 No Encumbrances.................................................65 5.2 Eligible Accounts and Eligible Foreign Accounts.................65 5.3 Equipment.......................................................66 5.4 Location of Inventory and Equipment; FBOs.......................66 5.5 Inventory Records...............................................66 5.6 Location of Chief Executive Office; FEIN........................66 5.7 Due Organization and Qualification; Subsidiaries................66 5.8 Due Authorization; No Conflict..................................67 5.9 Litigation......................................................68 5.10 No Material Adverse Change......................................68 5.11 Fraudulent Transfer.............................................68 5.12 Employee Benefits...............................................68 5.13 Environmental Condition.........................................68 5.14 Brokerage Fees..................................................69 5.15 Intellectual Property...........................................69 5.16 Leases..........................................................69 5.17 DDAs............................................................69 5.18 Complete Disclosure.............................................69 5.19 Indebtedness....................................................70 5.20 Corporate Organization..........................................70 6. AFFIRMATIVE COVENANTS.................................................70

-ii-

TABLE OF CONTENTS (continued) 6.1 Accounting System...............................................70 6.2 Collateral Reporting............................................70 6.3 Financial Statements, Reports, Certificates.....................72 6.4 Guarantor Reports...............................................74 6.5 Return..........................................................74 6.6 Maintenance of Properties.......................................75 6.7 Taxes...........................................................75 6.8 Insurance.......................................................75 6.9 Location of Inventory and Equipment.............................76 6.10 Compliance with Laws............................................76 6.11 Leases..........................................................76 6.12 Brokerage Commissions...........................................76 6.13 Existence.......................................................77 6.14 Environmental...................................................77 6.15 Disclosure Updates..............................................77 7. NEGATIVE COVENANTS....................................................77 7.1 Indebtedness....................................................77 7.2 Liens...........................................................78 7.3 Restrictions on Fundamental Changes.............................78 7.4 Change Name.....................................................79 7.5 Guarantee.......................................................79 7.6 Nature of Business..............................................79 7.7 Prepayments and Amendments......................................79 7.8 Change of Control...............................................79 7.9 Consignments....................................................79 7.10 Distributions...................................................79 7.11 Accounting Methods..............................................80 7.12 Investments; Acquisitions; Subsidiaries.........................80 7.13 Transactions with Affiliates....................................80 7.14 Suspension......................................................80

-iii-

TABLE OF CONTENTS (continued) 7.15 Compensation....................................................80 7.16 Use of Proceeds.................................................80 7.17 Change in Location of Chief Executive Office; Inventory and Equipment with Bailees..........................................81 7.18 Securities Accounts.............................................81 7.19 Financial Covenants.............................................81 7.20 Special Purpose Entities........................................84 8. EVENTS OF DEFAULT.....................................................84 9. THE LENDER GROUP'S RIGHTS AND REMEDIES................................86 9.1 Rights and Remedies.............................................86 9.2 Remedies Cumulative.............................................88 10. TAXES AND EXPENSES....................................................88 11. WAIVERS; INDEMNIFICATION..............................................89 11.1 Demand; Protest; etc............................................89 11.2 The Lender Group's Liability for Collateral.....................89 11.3 Indemnification.................................................89 12. NOTICES...............................................................90 13. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER............................91 14. ASSIGNMENTS AND PARTICIPATIONS; SUCCESSORS............................92 14.1 Assignments and Participations..................................92 14.2 Successors......................................................95 15. AMENDMENTS; WAIVERS...................................................95 15.1 Amendments and Waivers..........................................95 15.2 Replacement of Holdout Lender...................................96 15.3 No Waivers; Cumulative Remedies.................................97 16. AGENT; THE LENDER GROUP...............................................97 16.1 Appointment and Authorization of Agent..........................97 16.2 Delegation of Duties............................................98 16.3 Liability of Agent..............................................98 16.4 Reliance by Agent...............................................98

-iv-

TABLE OF CONTENTS (continued) Page 16.5 Notice of Default or Event of Default...........................99 16.6 Credit Decision.................................................99 16.7 Costs and Expenses; Indemnification............................100 16.8 Agent in Individual Capacity...................................100 16.9 Successor Agent................................................100 16.10 Lender in Individual Capacity..................................101 16.11 Withholding Taxes..............................................101 16.12 Collateral Matters.............................................103 16.13 Restrictions on Actions by Lenders; Sharing of Payments........104 16.14 Agency for Perfection..........................................105 16.15 Payments by Agent to the Lenders...............................105 16.16 Concerning the Collateral and Related Loan Documents...........105 16.17 Field Audits and Examination Reports; Confidentiality; Disclaimers by Lenders; Other Reports and Information..........105 16.18 Several Obligations; No Liability..............................106 16.19 Legal Representation of Agent..................................107 17. GENERAL PROVISIONS...................................................107 17.1 Effectiveness..................................................107 17.2 Section Headings...............................................107 17.3 Interpretation.................................................107 17.4 Severability of Provisions.....................................107 17.5 Amendments in Writing..........................................107 17.6 Counterparts; Telefacsimile Execution..........................107 17.7 Revival and Reinstatement of Obligations.......................107 17.8 Integration....................................................108 17.9 Parent as Agent for Borrowers..................................108

-v- EXHIBITS AND SCHEDULES Exhibit A-1 Form of Assignment and Acceptance Exhibit C-1 Form of Compliance Certificate Exhibit L-1 Form of LIBOR Notice Exhibit R-1 Representations and Warranties of Officers Schedule A-1 Agent's Account Schedule C-1 Commitments Schedule D-1 Designated Account Schedule F-1 FBOs Schedule L-1 Liens to be Released Schedule P-1 Permitted Liens Schedule R-1 Real Property Excluded from Collateral Schedule 2.7(a) Cash Management Banks Schedule 5.4 Locations of Inventory and Equipment Schedule 5.6 Chief Executive Office; FEIN Schedule 5.7(b) Capitalization of Borrowers Schedule 5.7(c) Capitalization of Borrowers' Subsidiaries; Options, Warrants, etc. Schedule 5.9 Litigation Schedule 5.12 Benefit Plans Schedule 5.13 Environmental Matters Schedule 5.14 Brokerage Fees Schedule 5.15 Intellectual Property Schedule 5.17 Demand Deposit Accounts Schedule 5.19 Permitted Indebtedness Schedule 5.20 Corporate Organization Schedule 7.1(d) Permitted Constructions Indebtedness Schedule 7.13 Transactions with Affiliates Schedule 7.15 Profit Participation Bonuses -vi- SCHEDULE A-1 AGENT'S ACCOUNT An account at a bank designated by Agent from time to time as the account into which Borrowers shall make all payments to Agent for the benefit of the Lender Group and into which the Lender Group shall make all payments to Agent under this Agreement and the other Loan Documents; unless and until Agent notifies Administrative Borrower and the Lender Group to the contrary, Agent's Account shall be that certain deposit account bearing account number 323-266193 and maintained by Agent with JPMorgan Chase Bank, 4 New York Plaza, 15th Floor, New York, New York 10004, ABA #021000021. SCHEDULE C-1 COMMITMENTS

LENDER REVOLVER TERM LOAN TOTAL COMMITMENT COMMITMENT(1) COMMITMENT Foothill Capital Corporation $25,000,000 $ 7,352,941.18 $25,000,000.00 Ableco Finance LLC $17,500,000 $ 5,147,058.82 $17,500,000.00 All Lenders $42,500,000 $12,500,000.00 $42,500,000.00

- ----------------- (1) As of any date of calculation, amounts set forth are to be calculated less the then outstanding balance of the Term Loan. SCHEDULE L-1 LIENS TO BE RELEASED

DEBTOR JURISDICTION LIENHOLDER FILE NUMBER/ TYPE OF LIEN/ OF FILING FILING DATE ORIGINAL AMOUNT Parent Los Angeles Familian 98-1108276/ Mechanics Lien in County Recorder Corp dba 06/30/98 the amount of Familian $2,838.93, plus Pipe and $29.36 service Supply Co. charge (plus interest at 1.5% per month from 5/26/98) Parent Los Angeles Labor 98-0346774/ Mechanics Lien in County Recorder Connection S 03/03/99 the amount of F S $14,374.79, plus $100 service charge (plus interest at 18% per annum for the period from 12/21/98 - 2/19/99) Parent Los Angeles Robertson's 99-0719229/ Mechanics Lien in County Recorder 04/23/99 the amount of $7,566.68 Parent Barrow County Bank of 01-12239/ Possible blanket Clerk, Georgia America, N.A. 11/08/01 filing Parent Barrow County Wells Fargo 02-01675/ Possible blanket Clerk, Georgia Bank, 02/13/02 filing Minnesota Parent Rockdale Marine 96-816/ Blanket filing County Clerk, Midland Bank 05/24/96 Georgia Parent Allen County The State of Notice State tax lien (for Recorder, Indiana #02003117357, unpaid sales tax) in Indiana Warrant the amount of #03682383, $1,606.81 Docket 02, Page 7066/ 03/19/02 Parent Allen County The State of Notice State tax lien (for Recorder, Indiana #02001645913, unpaid withholding Indiana Warrant tax) in the amount #04013170, of $613.42 Docket 02, Page 26786/ 07/26/02

DEBTOR JURISDICTION LIENHOLDER FILE NUMBER/ TYPE OF LIEN/ OF FILING FILING DATE ORIGINAL AMOUNT Parent Texas Compass Bank 093103/ Blanket filing Secretary of 05/05/97 State Parent Texas Compass Bank 094390/ Blanket filing Secretary of 05/06/97 State Parent Texas Compass Bank 112977 Blanket filing Secretary of 06/02/97 State MAC Los Angeles California 97-477075/ State tax lien in County State Board 03/28/97 the amount of Recorder, CA of $376.31, additional Equalization interest accrues after 2/28/97 Cargo. Los Angeles California 97-1230993/ State tax lien in County Recorder Employment 08/11/97 the amount of Development $1,193.45 Department Cargo Los Angeles California 02-0036685/ State tax lien in County Recorder Employment 01/07/02 the amount of Development $1,851.84 Department Maytag Niagara New York 001339617/ State tax lien in County, New State 11/06/00 the amount of York Commissioner $__________ of Tax & Finance Maytag Niagara New York 001458377/ State tax lien in County, New State 09/10/01 the amount of York Commissioner $__________ of Tax & Finance Maytag New York New York 01-6704/ State tax lien in Secretary of State 03/09/01 the amount $1,711.44 State Commissioner of Tax & Finance Maytag New York New York 01-26312/ State tax lien in Secretary of State 12/04/01 the amount $404.97 State Commissioner of Tax & Finance

DEBTOR JURISDICTION LIENHOLDER FILE NUMBER/ TYPE OF LIEN/ OF FILING FILING DATE ORIGINAL AMOUNT Maytag New York New York 01-26313/ State tax lien in Secretary of State 12/04/01 the amount $3,263.24 State Commissioner of Tax & Finance Maytag Niagara County New York 4540227/ State tax lien in Clerk, New York State 04/03/01 the amount $1,711.44 Commissioner of Tax & Finance Hermes Los Angeles California 97-1655211/ State tax lien in Aviation, County Employment 10/21/97 the amount of $97.48 Inc. Recorder, CA Development Department

SCHEDULE P-1 PERMITTED LIENS

DEBTOR JURISDICTION SECURED PARTY FILE NO./ FILE DATE Mercury Air Group, Alabama The Independent 2000-38994/ Inc. Secretary of Bankers Bank 09/27/00 State Mercury Air Group, Alabama CCA Financial, 2001-09104/ Inc. Secretary of inc. 03/08/01 State Mercury Air Group, Alabama BSFS Equipment 2001-25232/ Inc. Secretary of Leasing 06/28/01 State Mercury Air Group, California Pitney Bowes 9600260020/ Inc. Secretary of Credit 12/27/95 State Corporation Mercury Air Group, California Oce-USA, Inc. 9719161065/ Inc. Secretary of 07/09/97 State Mercury Air Group, California Oce-USA, Inc. 9719161071/ Inc. Secretary of 07/09/97 State Mercury Air Group, California Tennant 9908360553/ Inc. Secretary of Financial 03/23/99 State Services Mercury Air Group, California Amsouth Bank of 0027860541/ Inc. Secretary of Alabama 09/25/00 State Mercury Air Group, California Winthrop 0106560301/ Inc. Secretary of Resources 03/01/01 State Corporation Mercury Air Group, California Winthrop 0123960727/ Inc. Secretary of Resources 08/27/01 State Corporation Mercury Air Group, Delaware Winthrop 10910153/ Inc. Secretary of Resources 08/13/01 State Corporation Mercury Air Group, Delaware Winthrop 11581920/ Inc. Secretary of Resources 11/02/01 State Corporation Mercury Air Group, Delaware Winthrop 20166607/ Inc. Secretary of Resources 12/19/01 State Corporation

DEBTOR JURISDICTION SECURED PARTY FILE NO./ FILE DATE Mercury Air Group, Delaware Citicorp Vendor 20692776/ Inc. Secretary of Finance, Ltd - 02/26/02 State Canada Mercury Air Group, Delaware US Bancorp 20943823/ Inc. Secretary of Equipment 04/16/02 State Finance, Inc. Mercury Air Group, Delaware US Bancorp 20943849/ Inc. Secretary of Equipment 04/16/02 State Finance, Inc. Mercury Air Group, Delaware US Bancorp 20943856/ Inc. Secretary of Equipment 04/16/02 State Finance, Inc. Mercury Air Group, Delaware US Bancorp 20943864/ Inc. Secretary of Equipment 04/16/02 State Finance, Inc. Mercury Air Group, Delaware US Bancorp 20943872/ Inc. Secretary of Equipment 04/16/02 State Finance, Inc. Mercury Air Group, Delaware US Bancorp 20943880/ Inc. Secretary of Equipment 04/16/02 State Finance, Inc. Mercury Air Group, Delaware US Bancorp 20943914/ Inc. Secretary of Equipment 04/16/02 State Finance, Inc. Mercury Air Group, Delaware Winthrop 21186489/ Inc. Secretary of Resources 04/24/02 State Corporation Mercury Air Group, Delaware Winthrop 21458656/ Inc. Secretary of Resources 05/20/02 State Corporation Mercury Air Group, Delaware Aviation 21662216/ Inc. Secretary of Equipment Co., 06/06/02 State L.P. Mercury Air Group, Delaware Aviation 21662398/ Inc. Secretary of Equipment Co., 06/06/02 State L.P.

DEBTOR JURISDICTION SECURED PARTY FILE NO./ FILE DATE Mercury Air Group, Delaware Aviation 21662448/ Inc. Secretary of Equipment Co., 06/06/02 State L.P. Mercury Air Group, Delaware Aviation 21662489/ Inc. Secretary of Equipment Co., 06/06/02 State L.P. Mercury Air Group, Delaware Aviation 21662620/ Inc. Secretary of Equipment Co., 06/06/02 State L.P. Mercury Air Group, Delaware Aviation 21662778/ Inc. Secretary of Equipment Co., 06/06/02 State L.P. Mercury Air Group, Delaware Aviation 21662786/ Inc. Secretary of Equipment Co., 06/06/02 State L.P. Mercury Air Group, Delaware Aviation 21662927/ Inc. Secretary of Equipment Co., 06/06/02 State L.P. Mercury Air Group, Delaware Aviation 21663016/ Inc. Secretary of Equipment Co., 06/06/02 State L.P. Mercury Air Group, Delaware Aviation 21663206/ Inc. Secretary of Equipment Co., 06/06/02 State L.P. Mercury Air Group, Delaware Aviation 21663289/ Inc. Secretary of Equipment Co., 06/06/02 State L.P. Mercury Air Group, Delaware Aviation 21663446/ Inc. Secretary of Equipment Co., 06/06/02 State L.P. Mercury Air Group, Delaware Aviation 21663453/ Inc. Secretary of Equipment Co., 06/06/02 State L.P. Mercury Air Group, Delaware Aviation 21663503/ Inc. Secretary of Equipment Co., 06/06/02 State L.P.

DEBTOR JURISDICTION SECURED PARTY FILE NO./ FILE DATE Mercury Air Group, Delaware Aviation 21663578/ Inc. Secretary of Equipment Co., 06/06/02 State L.P. Mercury Air Group, Delaware Aviation 21663636/ Inc. Secretary of Equipment Co., 06/06/02 State L.P. Mercury Air Group, Delaware Aviation 21663677/ Inc. Secretary of Equipment Co., 06/06/02 State L.P. Mercury Air Group, Delaware Aviation 21663826/ Inc. Secretary of Equipment Co., 06/06/02 State L.P. Mercury Air Group, Delaware Aviation 21663842/ Inc. Secretary of Equipment Co., 06/06/02 State L.P. Mercury Air Group, Delaware Aviation 21663891/ Inc. Secretary of Equipment Co., 06/06/02 State L.P. Mercury Air Group, Delaware Aviation 21663909/ Inc. Secretary of Equipment Co., 06/06/02 State L.P. Mercury Air Group, Delaware Aviation 21663974/ Inc. Secretary of Equipment Co., 06/06/02 State L.P. Mercury Air Group, Delaware Aviation 21664048/ Inc. Secretary of Equipment Co., 06/06/02 State L.P. Mercury Air Group, Delaware Aviation 21664097/ Inc. Secretary of Equipment Co., 06/06/02 State L.P. Mercury Air Group, Delaware Aviation 21664246/ Inc. Secretary of Equipment Co., 06/06/02 State L.P. Mercury Air Group, Delaware Aviation 21664253/ Inc. Secretary of Equipment Co., 06/06/02 State L.P.

DEBTOR JURISDICTION SECURED PARTY FILE NO./ FILE DATE Mercury Air Group, Delaware Aviation 21664295/ Inc. Secretary of Equipment Co., 06/06/02 State L.P. Mercury Air Group, Delaware Aviation 21664337/ Inc. Secretary of Equipment Co., 06/06/02 State L.P. Mercury Air Group, Delaware Aviation 21664345/ Inc. Secretary of Equipment Co., 06/06/02 State L.P. Mercury Air Group, Delaware Aviation 21664428/ Inc. Secretary of Equipment Co., 06/06/02 State L.P. Mercury Air Group, Delaware Aviation 21664436/ Inc. Secretary of Equipment Co., 06/06/02 State L.P. Mercury Air Group, Delaware Aviation 21664493/ Inc. Secretary of Equipment Co., 06/06/02 State L.P. Mercury Air Group, Delaware Aviation 21664501/ Inc. Secretary of Equipment Co., 06/06/02 State L.P. Mercury Air Group, Delaware Aviation 21664519/ Inc. Secretary of Equipment Co., 06/06/02 State L.P. Mercury Air Group, Delaware Aviation 21664550/ Inc. Secretary of Equipment Co., 06/06/02 State L.P. Mercury Air Group, Delaware Aviation 21664576/ Inc. Secretary of Equipment Co., 06/06/02 State L.P. Mercury Air Group, Delaware Aviation 21664584/ Inc. Secretary of Equipment Co., 06/06/02 State L.P. Mercury Air Group, Delaware Aviation 21664592/ Inc. Secretary of Equipment Co., 06/06/02 State L.P.

DEBTOR JURISDICTION SECURED PARTY FILE NO./ FILE DATE Mercury Air Group, Delaware Aviation 21664600/ Inc. Secretary of Equipment Co., 06/06/02 State L.P. Mercury Air Group, Delaware Aviation 21664618/ Inc. Secretary of Equipment Co., 06/06/02 State L.P. Mercury Air Group, Delaware Aviation 21664626/ Inc. Secretary of Equipment Co., 06/06/02 State L.P. Mercury Air Group, Delaware Aviation 21664634/ Inc. Secretary of Equipment Co., 06/06/02 State L.P. Mercury Air Group, Delaware Aviation 21664659/ Inc. Secretary of Equipment Co., 06/06/02 State L.P. Mercury Air Group, Delaware Aviation 21664667/ Inc. Secretary of Equipment Co., 06/06/02 State L.P. Mercury Air Group, Delaware Aviation 21664675/ Inc. Secretary of Equipment Co., 06/06/02 State L.P. Mercury Air Group, Delaware Aviation 21664683/ Inc. Secretary of Equipment Co., 06/06/02 State L.P. Mercury Air Group, Delaware Aviation 21664709/ Inc. Secretary of Equipment Co., 06/06/02 State L.P. Mercury Air Group, Delaware Aviation 21664725/ Inc. Secretary of Equipment Co., 06/06/02 State L.P. Mercury Air Group, Delaware Aviation 21664741/ Inc. Secretary of Equipment Co., 06/06/02 State L.P. Mercury Air Group, Delaware Aviation 21664774/ Inc. Secretary of Equipment Co., 06/06/02 State L.P.

DEBTOR JURISDICTION SECURED PARTY FILE NO./ FILE DATE Mercury Air Group, Delaware Aviation 21664782/ Inc. Secretary of Equipment Co., 06/06/02 State L.P. Mercury Air Group, Delaware Aviation 21664840/ Inc. Secretary of Equipment Co., 06/06/02 State L.P. Mercury Air Group, Delaware Aviation 21664915/ Inc. Secretary of Equipment Co., 06/06/02 State L.P. Mercury Air Group, Delaware Aviation 21664949/ Inc. Secretary of Equipment Co., 06/06/02 State L.P. Mercury Air Group, Delaware Aviation 21664956/ Inc. Secretary of Equipment Co., 06/06/02 State L.P. Mercury Air Group, Delaware Aviation 21664964/ Inc. Secretary of Equipment Co., 06/06/02 State L.P. Mercury Air Group, Delaware Aviation 21664972/ Inc. Secretary of Equipment Co., 06/06/02 State L.P. Mercury Air Group, Delaware Aviation 21664998/ Inc. Secretary of Equipment Co., 06/06/02 State L.P. Mercury Air Group, Delaware Aviation 21665003/ Inc. Secretary of Equipment Co., 06/06/02 State L.P. Mercury Air Group, Delaware Aviation 21667264/ Inc. Secretary of Equipment Co., 06/06/02 State L.P. Mercury Air Group, Delaware Aviation 21667298/ Inc. Secretary of Equipment Co., 06/06/02 State L.P. Mercury Air Group, Delaware Aviation 21667348/ Inc. Secretary of Equipment Co., 06/06/02 State L.P.

DEBTOR JURISDICTION SECURED PARTY FILE NO./ FILE DATE Mercury Air Group, Delaware Aviation 21667397/ Inc. Secretary of Equipment Co., 06/06/02 State L.P. Mercury Air Group, Delaware Aviation 21667405/ Inc. Secretary of Equipment Co., 06/06/02 State L.P. Mercury Air Group, Delaware Aviation 21667447/ Inc. Secretary of Equipment Co., 06/06/02 State L.P. Mercury Air Group, Delaware Aviation 216667454/ Inc. Secretary of Equipment Co., 06/06/02 State L.P. Mercury Air Group, Delaware Aviation 21667488/ Inc. Secretary of Equipment Co., 06/06/02 State L.P. Mercury Air Group, Delaware Aviation 21667512/ Inc. Secretary of Equipment Co., 06/06/02 State L.P. Mercury Air Group, Delaware Aviation 21667694/ Inc. Secretary of Equipment Co., 06/06/02 State L.P. Mercury Air Group, Delaware Aviation 21667702/ Inc. Secretary of Equipment Co., 06/06/02 State L.P. Mercury Air Group, Delaware Aviation 21667744/ Inc. Secretary of Equipment Co., 06/06/02 State L.P. Mercury Air Group, Delaware Aviation 21667769/ Inc. Secretary of Equipment Co., 06/06/02 State L.P. Mercury Air Group, Delaware Aviation 21667801/ Inc. Secretary of Equipment Co., 06/06/02 State L.P. Mercury Air Group, Delaware Aviation 21667835/ Inc. Secretary of Equipment Co., 06/06/02 State L.P.

DEBTOR JURISDICTION SECURED PARTY FILE NO./ FILE DATE Mercury Air Group, Delaware Aviation 21667934/ Inc. Secretary of Equipment Co., 06/06/02 State L.P. Mercury Air Group, Delaware The Equipment 21686165/ Inc. Secretary of Leasing Company 06/10/02 State Mercury Air Group, Indiana Verizon Credit 200100003151407/ Inc. Secretary of Inc. 06/07/01 State Mercury Air Group, Nevada Wells Fargo 0015160/ Inc. Secretary of Equipment 10/11/00 State Finance Inc. Mercury Air Group, Tennessee American Lease 301-065844/ Inc. Secretary of Plans, Inc. 01/26/01 State Mercury Air Cargo, Florida Ikon Office 980000257582/ Inc. Secretary of Solutions, Inc. 11/19/98 State Maytag Aircraft California Banc of America 0034160895/ Corporation Secretary of Leasing & 12/04/00 State Capital, LLC Maytag Aircraft California Banc of America 0100960871/ Corporation Secretary of Leasing & 01/04/01 State Capital, LLC Maytag Aircraft California Banc of America 0105860132/ Corporation Secretary of Leasing & 02/23/01 State Capital, LLC Maytag Aircraft California Banc of America 0105860225/ Corporation Secretary of Leasing & 02/23/01 State Capital, LLC Maytag Aircraft Colorado Textron 922082642/ Corporation Secretary of Financial 11/17/92 State Corporation Maytag Aircraft Colorado Textron 932004540/ Corporation Secretary of Financial 01/19/93 State Corporation Maytag Aircraft Mississippi Banc of America 01501551/ Corporation Secretary of Leasing & 02/23/01 State Capital, LLC

DEBTOR JURISDICTION SECURED PARTY FILE NO./ FILE DATE Maytag Aircraft Mississippi Banc of America 01501553/ Corporation Secretary of Leasing & 02/23/01 State Capital, LLC Maytag Aircraft Lauderdale Banc of America 01090/ Corporation County Clerk, Leasing & 02/23/01 Mississippi Capital, LLC Maytag Aircraft Lauderdale Banc of America 01091/ Corporation County Clerk, Leasing & 02/23/01 Mississippi Capital, LLC Maytag Aircraft New Jersey Banc of America 2011036/ Corporation Secretary of Leasing & 12/04/00 State Capital, LLC Maytag Aircraft Virginia Banc of America 010104-7237/ Corporation Corporation Leasing & 1/4/01 Commission Capital, LLC Maytag Aircraft Norfolk City Banc of America 01-0023/ Corporation Clerk, Virginia Leasing & 01/04/01 Capital, LLC

EX-10.2 4 a87201exv10w2.txt EXHIBIT 10.2 EXHIBIT 10.2 AMENDMENT NO. 3 TO SECURITIES PURCHASE AGREEMENT BY AND BETWEEN MERCURY AIR GROUP, INC., AND J. H. WHITNEY MEZZANINE FUND, L.P. DATED AS OF DECEMBER 30, 2002 TABLE OF CONTENTS ARTICLE I DEFINITIONS........................................................... 2 1.1 Definitions................................................... 2 Article II WAIVER............................................................... 6 2.1 Waiver........................................................ 6 ARTICLE III AGREEMENT TO ISSUE AMENDED AND RESTATED SECURITIES.................. 6 3.1 Issuance of Amended Note...................................... 6 3.2 Issuance of Amended Warrant................................... 6 3.3 Fees at Closing............................................... 6 3.4 Effectiveness................................................. 7 Article IV AMENDMENTS TO PURCHASE AGREEMENT..................................... 7 4.1 Amendments to Article 8....................................... 7 4.2 Amendments to Article 9....................................... 8 4.3 Additional Covenants.......................................... 12 ARTICLE V REPRESENTATIONS AND WARRANTIES........................................ 14 5.1 Representations and Warranties in the Purchase Agreement...... 14 5.2 Authority, Etc................................................ 14 5.3 Enforceability of Obligations................................. 14 5.4 No Default.................................................... 14 5.5 Collateral Documents; Security Interests...................... 14 Article VI AFFIRMATION OF GUARANTY.............................................. 15 6.1 Affirmation of Guaranty....................................... 15 Article VII CONDITIONS TO EFFECTIVENESS......................................... 15 7.1 Representations and Warranties................................ 15 7.2 Compliance with this Amendment and the Purchase Agreement..... 15 7.3 Secretary's Certificates...................................... 15 7.4 Documents..................................................... 16 7.5 Purchase of Securities Permitted by Applicable Laws........... 16 7.6 Opinion of Counsel............................................ 16 7.7 Approval of Counsel to the Purchaser.......................... 16 7.8 Consents and Approvals........................................ 16 7.9 Registration Rights Agreement................................. 16 7.10 Preemptive Rights Agreement................................... 17 7.11 No Material Judgment or Order................................. 17 7.12 Pro Forma Balance Sheet....................................... 17 7.13 Good Standing Certificates.................................... 17 7.14 No Litigation................................................. 17 7.15 Receipt of Additional Documents............................... 17 7.16 No Defaults................................................... 17 i 7.17 Senior Credit Agreement....................................... 18 ARTICLE VIII MISCELLANEOUS...................................................... 18 8.1 Continued Effectiveness....................................... 18 8.2 Notices....................................................... 18 8.3 Successors and Assigns; Third Party Beneficiaries............. 19 8.4 References.................................................... 19 8.5 Signatures; Counterparts...................................... 19 8.6 Headings...................................................... 20 8.7 GOVERNING LAW................................................. 20 8.8 Severabilily.................................................. 20 8.9 Certain Expenses.............................................. 20 ii AMENDMENT NO. 3 AMENDMENT NO. 3 (this "AMENDMENT"), dated as of December 30, 2002, between J.H. Whitney Mezzanine Fund, L.P. (the "PURCHASER"), a Delaware limited partnership, and Mercury Air Group, Inc., a Delaware corporation (the "COMPANY"), to the Securities Purchase Agreement (the "PURCHASE AGREEMENT"), dated as of September 10, 1999, between the Purchaser and the Company, as amended by Amendment No. 1 dated as of September 30, 2000 and Amendment No. 2 dated as of September 30, 2001. W I T N E S S E T H: WHEREAS, the Purchaser and the Company entered into the Purchase Agreement (the Purchase Agreement, as amended by this Amendment, is hereinafter referred to as the "AGREEMENT"), pursuant to which, among other things, the Purchaser purchased from the Company (i) a subordinated promissory note due September 9, 2006 in the principal amount of $24,000,000 (the "NOTE"), and (ii) a warrant to purchase 503,126 shares of common stock, $.01 par value per share, of the Company (the "WARRANT"); and WHEREAS, the Company is party to a senior credit facility with Fleet National Bank, N.A., ("FLEET") that provides for Fleet to make revolving loans to the Company thereunder; WHEREAS, the Company has informed WMF that Fleet has determined to cease making revolving loans to the Company; WHEREAS, Fleet has indicated its intention to prohibit the Company from making regularly scheduled interest payments on the Note, and therefore WMF will have the right, subject to the subordination provisions of the Note, to cause the Note to be accelerated and declared immediately payable; WHEREAS, Fleet's failure to make revolving loans has materially and adversely impaired the Company's working capital and financial condition and as a direct result thereof the Company is or may be unable to comply with certain covenants in the Agreement; WHEREAS, Foothill Capital Corporation ("FOOTHILL') and Ableco Finance LLC (together with Foothill, the "SENIOR LENDERS") have agreed to provide a senior secured loan to the Company, whereby the Company's obligations to Fleet will be refinanced and terminated; WHEREAS, The Senior Lenders have requested that WMF enter into a subordination agreement in form acceptable to the Senior Lenders, and WMF is willing to enter into such subordination agreement contingent upon the Company's willingness to execute and deliver this Amendment and to resume regularly scheduled interest payments to WMF upon the closing of the senior loan transaction, as permitted by such subordination agreement; WHEREAS, as a result of these or other conditions or events one or more Events of Default have occurred and are continuing under the Note and the Company has requested that WMF not exercise its rights to, among other things, declare all outstanding principal and accrued interest on the Note to be immediately due and payable WHEREAS, the Company has requested that WMF provide the waiver and enter into the amendments provided for herein, and WMF has agreed to provide such waiver and amend the Purchase Agreement on the terms and conditions set forth herein; WHEREAS, as a condition to WMF agreeing to amend the Purchase Agreement as provided for herein, the Company has agreed to grant a security interest in certain of its assets to WMF; WHEREAS, WMF and the Company have agreed to set the exercise price of the Warrant at the current fair market value of the Company's Common Stock; WHEREAS, the Purchaser and the Company desire to amend the Purchase Agreement, the Note and the Warrant. NOW THEREFORE, in consideration of the premises set forth herein and for other good and valuable consideration, the sufficiency and receipt of which is hereby acknowledged, the Purchaser and the Company agree as follows: ARTICLE I DEFINITIONS 1.1 DEFINITIONS. 1.1.1 As used in this Amendment, and unless the context requires a different meaning, the following terms shall have the meanings indicated: "ADDITIONAL NOTE" means a Note in the principal amount of $5,000,000, substantially in the form of Exhibit A, to be issued in accordance with Section 8.7 of the Purchase Agreement as amended hereby, which Additional Note shall for all purposes be deemed to be a "Note" from and after its date of issuance. "ADDITIONAL WARRANT" means a Warrant substantially in the form of Exhibit B, to be issued in accordance with Section 8.7 of the Purchase Agreement as amended hereby, which Additional Warrant shall for all purposes be deemed to be a "Warrant" from and after its date of issuance. "AMENDED NOTE" means the Amended and Restated Note of the Company issued in favor of WMF, dated the Effective Date, in the principal amount of $24,000,000, substantially in the form of Exhibit A, which shall for all purposes under the Purchase Agreement be deemed to be a Note from and after the Effective Date. "AMENDED WARRANT" means the Amended and Restated Warrant to purchase 503,126 shares of Common Stock for a price of $3.742 per share, issued to WMF, dated the Effective Date, substantially in the form of Exhibit B, which shall for all purposes under the Purchase Agreement be deemed to be a Warrant from and after the Effective Date. 2 "BASE YEAR EBITDA" has the meaning given to such term in the Senior Credit Agreement. "CAPITAL EXPENDITURES" has the meaning given to such term in the Senior Credit Agreement. "COLLATERAL" has the meaning given to such term in the Senior Credit Agreement. "DISQUALIFIED CAPITAL STOCK" has the meaning given to such term in the Senior Credit Agreement, except that it shall be interpreted with reference to the maturity date of the Note. "EBITDA" has the meaning given to such term in the Senior Credit Agreement. "EXCESS AVAILABILITY" has the meaning given to such term in the Senior Credit Agreement. "EXISTING IRB INDEBTEDNESS" means all indebtedness currently outstanding under the Loan Agreement between California Economic Development Financing Authority and the Company dated as of April 1, 1998 and all letters of credit supporting such indebtedness, all as set forth on Schedule 1.1.1. "EXISTING OPERATIONS CAPITAL EXPENDITURES" has the meaning given to such term in the Senior Credit Agreement. "EXPANSION CAPITAL EXPENDITURES" has the meaning given to such term in the Senior Credit Agreement. "FIXED CHARGE COVERAGE RATIO" has the meaning given to such term in the Senior Credit Agreement. "FBO" has the meaning given to such term in the Senior Credit Agreement. "FBO ENTERPRISE VALUE" has the meaning given to such term in the Senior Credit Agreement. "FBO OPERATIONS" has the meaning given to such term in the Senior Credit Agreement. "FOOTHILL" means Foothill Capital Corporation. "FULLY DILUTED BASIS" means the number of shares of Common Stock, plus the number of in-the-money warrants and options of the Company, all issued and outstanding as of January 1, 2004, including the Additional Warrants to be issued under Section 4.1.2 of this Amendment. For purposes of this definition, whether an option or warrant is "in-the-money" shall be measured with respect to the last sale price on for the common stock on the trading day immediately prior to January 1, 2004. 3 "NET CASH PROCEEDS" has the meaning given to such term in the Senior Credit Agreement. "PERMITTED ASSET SALE" means any sale or other disposition of assets, businesses or business lines of the Company or any of its Subsidiaries, other than a Permitted Disposition, sale-leaseback transaction or disposition of equity interests; provided that (i) the cash sale price is at least equal to the fair market value of such assets; (ii) both before and after giving effect to such transaction, the Company maintains FBO Operations at FBOs having an aggregate FBO Enterprise Value of at least $10,000,000, (iii) no Affiliate is an interested party in such transaction and (iv) at least 15 days prior to consummating such transaction, the Company advises the Purchaser in writing of its intention to do so and presents the Purchaser with such information as is reasonably required for the Purchaser to conclude that such transaction complies with clauses (i), (ii) and (iii) of this proviso. "PERMITTED CONSTRUCTION INDEBTEDNESS" has the meaning given to such term in the Senior Credit Agreement.; provided, that any Permitted Construction Indebtedness hereunder, as to which there is recourse against the assets of the Company or its Subsidiaries other than the improvements constructed and related equipment, must be expressly subordinated to the obligations of the Company and its Subsidiaries (other than the Subsidiary that is the primary obligor of such Permitted Construction Indebtedness). "PERMITTED DISPOSITION" has the meaning given to such term in the Senior Credit Agreement. "PERMITTED SALE-LEASEBACK" means a transaction in which the Company or a Subsidiary of the Company sells improvements to Real Property to a third party who then leases such improvements to a Subsidiary of the Company; provided that (i) such lease is solely an obligation of the Subsidiary the asset of which is sold and is non-recourse to the Company or any other Subsidiaries of the Company, (ii) the cash sale price is at least equal to the fair market value of such improvements, (iii) no Affiliate is an interested party in such Asset Disposition and (iv) at least 15 days prior to consummating such transaction, the Company advises the Purchaser in writing of its intention to do so and presents the Purchaser with such information as is reasonably required for the Purchaser to conclude that such transaction complies with clauses (i), (ii) and (iii) of this proviso. "PERMITTED FINANCING TRANSACTIONS" shall mean (a) Permitted Asset Sales; (b) Permitted Sale-Leasebacks, (c) Sales by the Company of Common Stock or preferred stock of the Company for cash in an amount at least equal to the fair market value thereof; (d) Any other transaction for which the Purchaser provides its consent in its sole discretion; 4 provided, in the case of clauses (a) through (d), that (i) no Event of Default shall have occurred and be continuing, or would exist as a result of giving effect to such Permitted Financing Transaction, that (i) would reasonably be expected to have a material adverse impact on the Company or Company's ability to comply with Section 8.7 of the Agreement or Section 4.3.2 of this Amendment or (ii) are caused by the failure to comply with Sections 9.1, 9.2, 9.4, 9.5, 9.6, 9.7, 9.11 (in the case of Investments made with cash), 9.13, 9.16 or 9.18 of this Agreement; (ii) after giving effect to the transaction, the Company would be in compliance on a pro forma basis with the covenants set forth in Section 9.8 of the Purchase Agreement, giving effect to any adjustments pursuant to Section 9.8(e), computed for the most recently ended month for which information is available and is in compliance with all other terms and conditions of the Purchase Agreement; (iii) the Company has complied with all requirements under the Senior Credit Agreement applicable to the transaction; and (iv) the Net Cash Proceeds obtained as a result of such Permitted Financing Transaction are first applied to repay the Senior Indebtedness and the Note in the manner set forth in the Subordination Agreement. "QUALIFIED ASSET SALE" means a Permitted Asset Sale that constitutes a Permitted Financing Transaction. "REAL PROPERTY" has the meaning given to such term in the Senior Credit Agreement. "SECURITY AGREEMENT" means the Security Agreement, dated as of the date hereof, by and among the Company, each subsidiary that are signatories thereto and the Purchaser. "SENIOR CREDIT AGREEMENT" means the Senior Credit Agreement, as in effect on the date hereof, by and among the Company, certain of its subsidiaries and the Senior Lenders. "SENIOR INDEBTEDNESS" means, without duplication, (i) up to $49,000,000 principal amount of Indebtedness of the Company and its Subsidiaries currently outstanding or incurred in the future under, and in compliance with, the Senior Credit Agreement, as such agreement may be amended from time to time in compliance with the Subordination Agreement; (ii) up to $40,000,000 of obligations under leases entered into in connection with Permitted Sale-Leasebacks to the extent such leases are required by GAAP to be categorized as senior indebtedness; (iii) Permitted Construction Indebtedness in the amounts listed on Schedule 1.1.2 to the extent incurred in connection with construction at the FBOs identified thereupon opposite such amounts; and (v) Existing IRB Indebtedness. "SUBORDINATION AGREEMENT" means the Subordination Agreement dated the date hereof by and among Foothill Capital Corporation, as agent, WMF and the Company. "TARGET FBOS" has the meaning given to such term in the Senior Credit Agreement. "WHITNEY MANAGEMENT" means Whitney Mezzanine Management Co., LLC 1.1.2 All capitalized terms used in this Amendment but not defined shall have the meanings given to them in the Purchase Agreement. In the event of a conflict between the 5 definitions contained in this Amendment and those contained in the Purchase Agreement, the definitions contained herein shall prevail. ARTICLE II WAIVER AND CONSENT 2.1 WAIVER AND CONSENT. Schedule 2.1 sets forth all defaults and Events of Default known by the Company to have occurred or, as a result of actions contemplated by the Company, may occur under the Purchase Agreement or the Note. Subject to the terms and provisions of this Amendment and in consideration of the fee paid pursuant to Section 3.3 and other valuable consideration, WMF hereby waives compliance by the Company and its Subsidiaries with the covenants set forth in Sections 8.1(h), 9.8(d) and (f), 9.7 and 9.11 with respect to the specific occurrences set forth on Schedule 2.1 and not to any further occurrences, and agrees to consent to the specific transactions listed on Schedule 2.1. This waiver is limited as specified and shall not constitute (i) an endorsement of any action or inaction of the Company or (ii) a modification, acceptance or waiver of any other provision of the Purchase Agreement or any of the other Transaction Documents. ARTICLE III AGREEMENT TO ISSUE AMENDED AND RESTATED SECURITIES 3.1 ISSUANCE OF AMENDED NOTE. Subject to the terms and conditions herein set forth, the Company agrees that it will issue to WMF on the Effective Date the Amended Note substantially in the form attached hereto as Exhibit A, appropriately completed in conformity herewith. The parties hereto acknowledge that no additional purchase price shall be payable in respect of the Amended Note. 3.2 ISSUANCE OF AMENDED WARRANT. Subject to the terms and conditions herein set forth, the Company agrees that it will issue to WMF on the Effective Date the Amended Warrant substantially in the form attached hereto as Exhibit B, appropriately completed in conformity herewith. The parties hereto acknowledge that no additional purchase price shall be payable in respect of the Amended Warrant. 3.3 FEES AT CLOSING. On the Effective Date, the Company shall (a) pay to Whitney Management a placement fee equal to one percent (1%) of the principal amount of the Amended Note, and (b) reimburse all of Whitney Management's and the Purchaser's reasonable out-of-pocket expenses (including, without limitation, fees, charges and disbursements of counsel and consultants) incurred in connection with (i) the negotiation and execution and delivery of this Amendment and the documents related to this Amendment (including, without limitation the Senior Credit Agreement) and Whitney Management's and the Purchaser's due diligence investigation, and (ii) the transactions contemplated by this Amendment and those documents, which payments shall be made by wire transfer of immediately available funds to an account or accounts designated by the Purchaser. 6 3.4 EFFECTIVENESS. The issuance of the Amended Note and the Amended Warrant shall take place at the closing (the "AMENDMENT CLOSING") to be held at the offices of Kirkland & Ellis, 153 East 53rd Street, New York, New York 10022 at 10:00 a.m., Local Time, on December 30, 2002 (the "EFFECTIVE DATE"). At the Amendment Closing, the Company shall deliver the Amended Note, the Amended Warrant and the amounts referred to in Section 3.3 to WMF, and WMF shall deliver the WMF Note and the WMF Warrant to the Company for cancellation. Article IV AMENDMENTS TO PURCHASE AGREEMENT 4.1 AMENDMENTS TO ARTICLE 8. 4.1.1 The Purchase Agreement is hereby amended to add a new subsection (n) to Section 8.1 to read as follows: "(n) The Company shall, concurrently with the delivery of any information to the lenders under the Senior Credit Agreement, deliver such information to WMF." 4.1.2 The Purchase Agreement is hereby amended to add the following to the end of Section 8.7: "In addition, the Company shall prepay (i) $12,000,000 principal amount of the Note on or before December 31, 2003 and (ii) all outstanding principal of the Note and any Additional Note on or before December 31, 2004. Any prepayments made pursuant to this Section shall be made in accordance with the provisions set forth in Section 3 of the Amended Note. If any amount of principal is outstanding after December 31, 2003, the Company shall within five (5) business days after December 31, 2003, effective as of January 1, 2004, issue Additional Warrants to WMF to purchase the number of shares of Common Stock that would, on such date, represent 5% of the outstanding Common Stock on a Fully Diluted Basis, for an exercise price of $.0001 per share. If the outstanding principal amount of the Note is greater than $12,000,000 after December 31, 2003, the Company shall within five (5) business days after December 31, 2003, effective as of January 1, 2004, issue to WMF (i) the Additional Note in the principal amount of $5,000,000; and (ii) Additional Warrants to WMF to purchase the number of shares of Common Stock that would, on such date, represent 5% of the outstanding Common Stock on a Fully Diluted Basis, for an exercise price of $.0001 per share (such Additional Warrants to be in addition to those issued pursuant to the preceding sentence)." 7 4.2 AMENDMENTS TO ARTICLE 9. 4.2.1 Subsection (b) of Section 9.4 of the Purchase Agreement is hereby amended and restated in its entirety to read as follows: "(b) (i) Senior Indebtedness, the permitted amount to be permanently reduced by the amount of (A) any prepayments or scheduled repayments of Permitted Construction Indebtedness or term debt (other than term debt under the Senior Credit Agreement, the repayment of which increases revolving facility availability), (B) any permanent repayments of, or reductions in commitments with respect to, revolving debt and (C) any payments made under leases entered into in connection with Permitted Sale-Leasebacks; and (ii) existing Indebtedness set forth on Schedule 5.27." 4.2.2 (a) Subsection (j) of Section 9.5 of the Purchase Agreement is hereby amended and restated in its entirety to read as follows: "(j) Liens securing Senior Indebtedness; and" (b) Subsection (e)(iii) of Section 9.5 of the Purchase Agreement is hereby amended and restated in its entirety to read as follows: (iii) the Indebtedness secured by all such Liens, shall not exceed $2,000,000 incurred in any one fiscal year or $5,000,000 in the aggregate outstanding at any time; and 4.2.3 Subsection (b) of Section 9.6 of the Purchase Agreement is hereby amended and restated in its entirety to read as follows: "(b) Asset Dispositions that constitute Permitted Financing Transactions." 4.2.4 Section 9.13 of the Purchase Agreement is amended and restated in its entirety to read as follows: "9.13 MANAGEMENT AND CONSULTING ARRANGEMENTS; DIRECTOR AND OFFICER COMPENSATION. (a) The Company shall not, nor shall it permit any of its Subsidiaries, directly or indirectly, to pay any management, consulting or similar fees to any Affiliate or to any director, officer or employee of the Company or any of its Subsidiaries except reasonable director's fees and expenses (including reasonable fees and expenses payable in connection with services provided with 8 respect to Permitted Financing Transactions) and except as set forth on Schedule 9.13. Notwithstanding the foregoing, no payments may be made with respect to any items set forth on Schedule 9.13 upon the occurrence and during the continuation of an Event of Default of the type described in clause (i) of definition of such term. (b) The Company shall not, nor shall it permit any of its Subsidiaries, directly or indirectly, to pay any professional, consulting, investment banking, advisory or management fees in excess of $2,000,000 per annum in the aggregate, except for (i) fees and expenses related to the preparation and negotiation of the Senior Credit Agreement and Amendment No. 3 to this Agreement, each set forth on Schedule 9.13, and (ii) reasonable fees and expenses in connection with Permitted Financing Transactions consummated in compliance with Section 4.3.2 of Amendment No. 3 to this Agreement. (c) The Company shall not, nor shall it permit any of its Subsidiaries, directly or indirectly, to increase or agree to increase the compensation or fringe benefits to any director or executive officer (within the meaning of the Securities Exchange Act of 1934) of the Company, other than as set forth on Schedule 9.13." 4.2.5 Section 9.8 of the Purchase Agreement is amended and restated in its entirety to read as follows: "9.8 FINANCIAL COVENANTS. (a) Minimum EBITDA. Fail to maintain EBITDA, when measured as of the end of the periods set forth below, of not less than the amount set forth opposite thereto (the "Applicable EBITDA Amount"):

Applicable Amount Applicable Period ----------------- ----------------- $5,850,000 For the 6-month period ending March 31, 2003 $9,630,000 For the 9-month period ending June 30, 2003 $12,240,000 For the 12-month period ending September 30, 2003 $12,780,000 For the 12-month period ending December 31, 2003 $12,150,000 For the 12-month period ending March 31, 2004 and each 12-month period ending on the last day of each fiscal quarter thereafter

9 (b) Minimum Fixed Charge Coverage Ratio. Fail to maintain a Fixed Charge Coverage Ratio, when measured as of the end of the periods set forth below, of not less than the ratio set forth opposite thereto:

Applicable Ratio Applicable Period ---------------- ----------------- 0.9 to 1.0 For the 6-month period ending March 31, 2003 0.9 to 1.0 For the 9-month period ending June 30, 2003 0.9 to 1.0 For the 12-month period ending September 30, 2003 0.9 to 1.0 For the 12 month period ending on the last day of each fiscal quarter thereafter

(c) Minimum Excess Availability. Fail to maintain Excess Availability (as defined in the Senior Credit Agreement) of $2,250,000 at all times. (d) Capital Expenditures. Make: (i) Capital Expenditures of more than $825,000 in any one instance without Agent's prior written consent if such expenditure is not wholly-financed with proceeds of a loan not made by the Lenders under the terms of this Agreement and the incurrence of such Indebtedness is otherwise permitted under the terms of this Agreement. (ii) Expansion Operations Capital Expenditures in any fiscal year in excess of the amount set forth in the following table for the applicable period:

Fiscal Year Amount ----------- ------ 2003 $8,030,000 2004 $13,090,000 2005 $6,930,000

provided, however, the amount of any permitted Expansion Operations Capital Expenditures not made in any year set forth above shall be added to the amount set forth in the following year; 10 provided, further, however, such Expansion Operations Capital Expenditures may only be made with respect to the FBOs set forth on Schedule R-1 to the Senior Credit Agreement. (iii) Existing Operations Capital Expenditures in any fiscal year in excess of the amount set forth in the following table for the applicable period:

Fiscal Year Amount ----------- ------ 2003 $4,400,000 2004 $6,050,000 2005 $6,050,000 2006 $6,050,000 2007 $6,050,000

(e) Notwithstanding the foregoing, the Applicable EBITDA Amounts set forth in Section 9.8(a) above shall be adjusted as follows: (i) after any sale of a Target FBO consummated prior to March 1, 2003, the Applicable EBITDA Amount for all periods through March 31, 2003 shall be reduced by 75% of the Base Year EBITDA attributed to such Target FBO times the number of months then remaining until March 31, 2003; (ii) after any sale of a Target FBO consummated prior to May 1, 2003, the Applicable EBITDA Amount for all periods through June 30, 2003 shall be reduced by 80% of Base Year EBITDA attributed to such Target FBO times the number of months then remaining until May 31, 2003; (iii) if any Target FBOs have not been sold by June 30, 2003, then the Applicable EBITDA Amounts for all periods thereafter until the Target FBOs are sold shall increase by 80% of Base Year EBITDA for such Target FBOs times the number of months remaining in any period for which such covenant is to be tested; and (iv) after the consummation of any sale of an FBO other than a Target FBO, the Applicable EBITDA Amount shall be reduced by (A) 75% of the Base Year EBITDA of such FBO times the number of months then remaining until March 31, 2003 if the sale of such FBO is consummated prior to March 31, 2003 for the covenant period ending March 31, 2003; (B) 80% of the Base Year 11 EBITDA of such FBO times the number of months then remaining until June 30, 2003 if the sale of such FBO is consummated prior to June 30, 2003, (C) 88.68% of the Base Year EBITDA of such FBO times the number of months then remaining to the end of the emasurement period during the fiscal year ending June 30, 2004 if the sale of such FBO is consummated during such fiscal year, (D) 99.89% of the Base Year EBITDA of such FBO times the number of months then remaining to the end of the measurement period during the fiscal year ending June 30, 2005 if the sale of such FBO is consummated during such fiscal year, (E) 101.39% of the Base Year EBITDA of such FBO times the number of months then remaining to the end of the measurement period during the fiscal year ending June 30, 2006 if the sale of such FBO is consummated during such fiscal year, and (F) 102.91% of the Base Year EBITDA of such FBO times the number of months then remaining to the end of the measurement period during the fiscal year ending June 30, 2007 if the sale of such FBO is consummated during such fiscal year." 4.3 ADDITIONAL COVENANTS. 4.3.1 SECURITY. As security for the full and timely payment of all obligations under the Amended Note and any Additional Note, and the performance of all obligations contained in this Amendment, the Purchase Agreement or any document related hereto or thereto in connection with the Amended Note or Additional Note, the Company covenants that it will, on and after the date hereof, do or cause to be done, all things necessary in the reasonable opinion of WMF and its counsel, to grant to WMF a duly perfected priority purchase security interest in all of the Collateral, second in priority solely to the security interest granted to Foothill, as agent, under the Senior Credit Agreement. At the request of WMF, the Company will cause its duly authorized officers to execute on its behalf, any certificate, instrument, statement or document, or to procure any such certificate, instrument, statement or document, or to take such other action which WMF counsel reasonably deems necessary, from time to time, to create, continue or preserve WMF's security interest in and to the Collateral (and the perfection and priority thereof) as contemplated hereby. 4.3.2 CERTAIN OBLIGATIONS RELATED TO PERMITTED FINANCING TRANSACTIONS. (a) The Company shall, and shall cause its Subsidiaries to, immediately commence an active process to engage in Qualified Asset Sales and other Permitted Financing Transaction and to continue to actively seek to engage in Qualified Asset Sales so long as any amounts are outstanding under the Note. The Company or the relevant Subsidiary shall promptly consummate any proposed Qualified Asset Sale or other Permitted Financing Transaction upon receiving any consents required under the Senior Credit Agreement. The Company shall immediately apply the Net Cash Proceeds of any Permitted Financing Transaction to prepay advances under the Senior Credit Agreement or to prepay outstanding amounts under the Amended Note or Additional Note, in each case as set forth in the Subordination Agreement. 12 (b) On the date hereof, the Company shall cause its by-laws to be amended to establish two new standing committees of its Board of Directors (the "SPECIAL COMMITTEES") to advise the Board of Directors as to the advisability of specific Permitted Financing Transactions. One such committee shall advise the Board of Directors as to the merits of all Permitted Financing Transactions available to the Company, other than Asset Dispositions. The second such committee (the "ASSET SALE COMMITTEE") shall advise the Board as to Qualified Asset Sales. The Purchaser shall at all times have the rights granted to it in Section 8.11 of the Purchase Agreement with respect to the Special Committees. In addition, the Company shall promptly inform the Purchaser as to the substance of any reports or advice given by the Special Committees to the Board of Directors as to any proposed transaction, together with details regarding such proposed transaction. The Company shall cause the Special Committees to exist and to meet regularly to conduct their duties, in each case so long as any amounts are outstanding under the Amended Note or the Additional Note. The Asset Sale Committee shall consist at all times solely of directors who are (i) "disinterested," within the meaning of Delaware law, in Qualified Asset Sales, (ii) neither "executive officers" of the Company, as defined under the Securities Exchange Act of 1934, nor affiliated with any such executive officers and (iii) "independent" within the meaning of Section 301 of the Sarbanes-Oxley Act of 2002; provided, however, in no case shall any of Joseph A. Czyzyk, Philip J. Fagan, Jr., M.D. or Frederick H. Kopko, Jr. serve on the Asset Sale Committee. (c) In furtherance of its obligations under paragraph (a) hereof, as promptly as practicable following the date hereof, the Company shall at all times retain a nationally recognized investment banking firm or firms acceptable to the Company and the Purchaser to engage in an active process to present suitable Asset Dispositions to the Company and to advise the Company with respect to Asset Dispositions. The Company agrees that such process shall include the actions specified on Schedule 4.3.2. The Company, the Asset Sale Committee and the Board of Directors of the Company shall consider in good faith the advice of such firm in proposing Qualified Asset Sales to WMF and Foothill. 4.3.3 REGISTRATION OF COMMON STOCK. Within 90 days after (i) the Effective Date with respect to the Amended Warrant and (ii) January 1, 2004 with respect to any Additional Warrant, the Company shall prepare and file with the Securities and Exchange Commission a registration statement on Form S-3 for an offering to be made on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 registering the resale from time to time by WMF of the shares of Common Stock issuable upon exercise of such Warrant (each, a "SHELF REGISTRATION STATEMENT"). Each Shelf Registration Statement shall permit the resale by WMF in accordance with the methods of distribution set forth in such Shelf Registration Statement (such methods of distribution to include underwritten offerings and other methods designated in writing by the Holders). The Company shall use commercially reasonable efforts to cause each Shelf Registration Statement to be declared effective under the Securities Act as soon as reasonably practicable after the date it is filed. The Company shall use commercially reasonable efforts to keep each Shelf Registration Statement continuously effective under the Securities Act of 1933 the sale of all of the Common Stock included in such Shelf Registration Statement. To the extent any provision in this Section 4.3.3 is inconsistent with the Registration Rights Agreement, this Section shall control. The parties hereby amend the Registration Rights Agreement so that (i) the definition of "WMF Note" in the Registration 13 Rights Agreement shall include the Amended Note and (ii) the definitions of "WMF Warrant" and "Warrant" shall include the Amended Warrant. ARTICLE V REPRESENTATIONS AND WARRANTIES The Company represents and warrants to the Purchaser as follows: 5.1 REPRESENTATIONS AND WARRANTIES IN THE PURCHASE AGREEMENT. The representations and warranties of the Company contained in the Article 5 of the Purchase Agreement were true, correct and complete as and when made and are true, correct and complete on the date hereof; provided that for purposes of determining whether a representation is true, correct and complete on the date hereof, and for no other purpose, any Schedule delivered pursuant to Section 8.1(k) of the Purchase Agreement as of the Effective Date with respect to a particular representation or warranty shall be deemed to have amended such representation and warranty. 5.2 AUTHORITY, ETC. The execution and delivery by the Company of this Amendment and the performance by the Company of all of its agreements and obligations under this Amendment, the Purchase Agreement and the Collateral Documents (i) are within the corporate authority of the Company, (ii) have been duly authorized by all necessary corporate proceedings by the Company, (iii) do not conflict with or result in any breach or contravention of any provision of law, statute, rule or regulation to which the Company is subject or any judgment, order, writ, injunction, license or permit applicable to the Company, and (iv) do not conflict with any provision of the corporate charter or by-laws of, or any agreement or other instrument binding upon, the Company. 5.3 ENFORCEABILITY OF OBLIGATIONS. This Amendment, the Purchase Agreement, the Collateral Documents, the Amended Note and the Amended Warrant constitute the legal, valid and binding obligations of the Company, enforceable against it in accordance with their respective terms. 5.4 NO DEFAULT. After giving effect to this Amendment and transactions contemplated by the Senior Credit Agreement, no default or Event of Default exists under the Agreement or the Note. 5.5 COLLATERAL DOCUMENTS; SECURITY INTERESTS. All filings and other actions necessary to perfect and protect the security interest in the Collateral created in favor of WMF under the Collateral Documents have been duly made or taken, and are in full force and effect, and the Collateral Documents create in favor of the WMF a valid and, together with such filings and other actions, perfected second priority security interest in the Collateral, securing the payment of the Company's obligations under this Amendment, the Purchase Agreement and under the Amended Note. The Company is the legal and beneficial owner of the Collateral free and clear of any Lien, except for the liens and security interests created or permitted under the Purchase Agreement, as amended by this Amendment. 14 ARTICLE VI AFFIRMATION OF GUARANTY 6.1 AFFIRMATION OF GUARANTY. For purposes of the Guaranty, by their respective signatures below, each Guarantor hereby consents and agrees to the entering into of this Amendment and acknowledges and affirms that the Guaranty (as amended, modified or supplemented prior to the date hereof) remains in full force and effect in accordance with its terms on the date hereof and after giving effect to this Amendment. ARTICLE VII CONDITIONS TO EFFECTIVENESS The effectiveness of this Amendment is conditioned upon the following: 7.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties of the Company contained in Article V hereof shall be true and correct at and as of the date hereof and the Effective Date as if made at and as of such date, and the Purchaser shall have received a certificate to the foregoing effect, dated the Effective Date, and executed by the Chief Executive Officer of the Company. 7.2 COMPLIANCE WITH THIS AMENDMENT AND THE PURCHASE AGREEMENT. The Company shall have performed and complied with all of its agreements and conditions set forth or contemplated herein or in the Purchase Agreement that are required to be performed or complied with by the Company on or before the Effective Date, and the Purchaser shall have received a certificate to the foregoing effect, dated the Effective Date, and executed by the Chief Executive Officer of the Company. 7.3 SECRETARY'S CERTIFICATES. 7.3.1 The Purchaser shall have received a certificate from the Company, dated the Closing Date and signed by the Secretary or an Assistant Secretary of the Company, certifying (i) that the attached copies of the Certificate of Incorporation and By-laws of the Company, and resolutions of the Board of Directors of the Company approving this Amendment and the transactions contemplated hereby and establishing the Asset Sale Committee are all true, complete and correct and remain unamended and in full force and effect, and (ii) the incumbency and specimen signature of each officer of the Company executing any Transaction Document to which it is a party or any other document delivered in connection herewith and therewith on behalf of the Company. 7.3.2 The Purchaser shall have received a certificate from each Subsidiary of the Company that is a Guarantor, certifying (i) that the attached copies of the Certificate of Incorporation and By-laws of such Subsidiary, and the resolutions of the Board of Directors of such Subsidiary approving this Amendment and the transactions contemplated hereby are all true, complete and correct and remain unamended and in full force and effect, and (ii) the 15 incumbency and specimen signatures of each officer of such Subsidiary executing this Amendment or any other document delivered in connection herewith on behalf of the Subsidiary. 7.4 DOCUMENTS. The Purchaser shall have received true, complete and correct copies of (i) the SEC Reports of the Company and (ii) such agreements, schedules, exhibits, certificates, documents, financial information and filings as they may request in connection with or relating to the transactions contemplated hereby, all in form and substance satisfactory to the Purchaser. 7.5 PURCHASE OF SECURITIES PERMITTED BY APPLICABLE LAWS. The consummation of the transactions contemplated hereby: 7.5.1 shall not be prohibited by any Requirement of Law, 7.5.2 shall not subject the Purchaser to any penalty or other onerous condition under or pursuant to any Requirement of Law, and 7.5.3 shall be permitted by all Requirements of Law to which Purchaser or the transactions contemplated by or referred to herein are subject; and the Purchaser shall have received such certificates or other evidence as it may reasonably request to establish compliance with this condition. 7.6 OPINION OF COUNSEL. The Purchaser shall have received an opinion of outside counsel to the Company and its Subsidiaries, dated as of the Effective Date, relating to the transactions contemplated by or referred to herein, in form and substance acceptable to the Purchaser. 7.7 APPROVAL OF COUNSEL TO THE PURCHASER. All actions and proceedings hereunder and all agreements, schedules, exhibits, certificates, financial information, filings and other documents required to be delivered by the Company and each of its Subsidiaries hereunder or in connection with the consummation of the transactions contemplated hereby, and all other related matters, shall have been in form and substance acceptable to Kirkland & Ellis, counsel to the Purchaser, in its reasonable judgment (including, without limitation, the opinion of counsel referred to in Section 7.6 hereof). 7.8 CONSENTS AND APPROVALS. All consents, exemptions, authorizations, or other actions by, or notices to, or filings with, Governmental Authorities and other Persons in respect of all Requirements of Law and with respect to those Contractual Obligations of the Company and each of its Subsidiaries necessary, desirable, or required in connection with the execution, delivery or performance (including, without limitation, the payment of interest on the Notes and the issuance of Common Stock upon the exercise of the Warrants) by the Company, or enforcement against the Company, of the Transaction Documents to which it is a party shall have been obtained and be in full force and effect, and the Purchaser shall have been furnished with appropriate evidence thereof, and all waiting periods shall have lapsed without extension or the imposition of any conditions or restrictions. 7.9 REGISTRATION RIGHTS AGREEMENT. The Registration Rights Agreement shall be in full force and effect. 16 7.10 PREEMPTIVE RIGHTS AGREEMENT. The Preemptive Rights Agreement shall be in full force and effect. 7.11 NO MATERIAL JUDGMENT OR ORDER. There shall not be on the Effective Date any judgment or order of a court of competent jurisdiction or any ruling of any Governmental Authority or any condition imposed under any Requirement of Law which, in the judgment of the Purchaser, would prohibit the purchase of the Securities hereunder or subject the Purchaser to any penalty or other onerous condition under or pursuant to any Requirement of Law if the Securities were to be purchased hereunder. 7.12 PRO FORMA BALANCE SHEET. The Company shall have delivered to the Purchaser as of the Closing Date a pro forma consolidated balance sheet of the Company and its Subsidiaries, certified by the chief financial officer of the Company that it fairly presents the pro forma adjustments reflecting the consummation of the transactions contemplated by hereby and by the Senior Credit Agreement, including all material fees and expenses in connection therewith. 7.13 GOOD STANDING CERTIFICATES. The Company shall have delivered to the Purchaser as of the Closing Date, good standing certificates for the Company and each of its Subsidiaries for each of their respective jurisdictions of incorporation and all other jurisdictions where they do business. 7.14 NO LITIGATION. Except as set forth on Schedule 7.14, no action, suit or proceeding before any court or any Governmental Authority shall have been commenced or threatened, no investigation by any Governmental Authority shall have been commenced and no action, suit or proceeding by any Governmental Authority shall have been threatened against the Purchaser, the Company or any Subsidiary (i) seeking to restrain, prevent or change the transactions contemplated hereby or questioning the validity or legality of any of such transactions, or (ii) which would, if resolved adversely to the Purchaser, Company or any Subsidiary, severally or in the aggregate, materially and adversely affect the Condition of the Company. 7.15 RECEIPT OF ADDITIONAL DOCUMENTS. (a) The Purchaser shall have received a Guaranty duly executed and delivered by each Subsidiary of the Company organized under the laws of any state or the District of Columbia of the United States of America, other than such Subsidiaries that have previously executed the Guaranty; and (b) The Purchaser shall have received manually signed copies of the Senior Credit Agreement, the Subordination Agreement and the Security Agreement, each executed by the Company and all other parties thereto, which agreements shall be in full force and effect. (c) The Purchaser shall have received a Validity Agreement from Joseph A. Czyzyk in favor of the Purchaser. 7.16 NO DEFAULTS. The Purchaser shall be satisfied that, after giving effect to this Amendment and the transactions contemplated by the Senior Credit Agreement, no default or Event of Default shall then exist. 17 7.17 SENIOR CREDIT AGREEMENT. All conditions for the benefit of the lenders to the effectiveness and first borrowing under the Senior Credit Agreement shall have been satisfied and not waived. ARTICLE VIII MISCELLANEOUS 8.1 CONTINUED EFFECTIVENESS. Notwithstanding anything contained herein, the terms of this Amendment are not intended to and do not serve to effect a novation as to the Purchase Agreement. The parties hereto expressly do not intend to extinguish the Purchase Agreement. Instead, it is the express intention of the parties hereto to reaffirm the indebtedness created under the Purchase Agreement (including, without limitation, the Note) and the other documents contemplated thereby and to reaffirm the rights and obligations contained therein. The Purchase Agreement as amended hereby and each of the other documents contemplated thereby shall remain in full force and effect. Except as herein amended, the Purchase Agreement shall remain unchanged and in full force and effect, and is hereby ratified in all respects. All of the representations, warranties and covenants contained in the Purchase Agreement and this Amendment shall survive the execution and delivery of this Amendment. 8.2 NOTICES. All notices, demands and other communications provided for or permitted hereunder shall be made in writing and shall be by registered or certified first-class mail, return receipt requested, telecopier, courier service or personal delivery: (a) if to the Purchaser: J.H. Whitney Mezzanine Fund, L.P. 177 Broad Street Stamford, Connecticut 06901 Telecopier No.: (203) 973-1422 Attention: Mr. Daniel J. O'Brien Mr. David Kroin Kevin Curley, Esq. with a copy to: Kirkland & Ellis 153 East 53rd Street New York, New York 10022 Telecopier No.: (212) 446-4900 Attention: Frederick Tanne, Esq. Andrew E. Nagel, Esq. 18 (b) if to the Company: Mercury Air Group, Inc. 5456 McConnel Avenue Los Angeles, CA 90066 Telecopier No.: (310) 827-0650 Attention: Mr. Joseph A. Czyzyk Wayne J. Lovett, Esq. with a copy to: McBreen, McBreen & Kopko 20 North Wacker Drive Suite 2520 Chicago, IL 60606 Attn: Fred Kopko Fax No. 312.332.2657 Riordan & McKinzie 300 South Grand Avenue, 29th Floor Los Angeles, CA 90071 Attn: Thomas A. Waldman Fax No. 213.830.8608 All such notices and communications shall be deemed to have been duly given: when delivered by hand, if personally delivered; when delivered by courier, if delivered by commercial overnight courier service; if mailed, five Business Days after being deposited in the mail, postage prepaid; and if telecopied, when receipt is acknowledged. 8.3 SUCCESSORS AND ASSIGNS; THIRD PARTY BENEFICIARIES. This Amendment shall inure to the benefit of and be binding upon the successors and permitted assigns of the parties hereto. 8.4 REFERENCES. Any reference to the Purchase Agreement contained in any notice, requisite, certificate, or other document executed concurrently with or after the execution and delivery of this Amendment shall be deemed to include the amendments contained in this Amendment unless the context shall otherwise require. 8.5 SIGNATURES; COUNTERPARTS. Telefacsimile transmissions of any executed original document and/or retransmission of any executed telefacsimile transmission shall be deemed to be the same as the delivery of an executed original. At the request of any party hereto, the other parties hereto shall confirm telefacsimile transmissions by executing duplicate original documents and delivering the same to the requesting party or parties. This Amendment may be executed in any number of counterparts and by the parties hereto in separate counterparts, each 19 of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. 8.6 HEADINGS. The headings in this Amendment are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. 8.7 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, CONSTRUED IN ACCORDANCE WITH, AND ENFORCED UNDER, THE LAW OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF LAW OF SUCH STATE (INCLUDING GIVING EFFECT TO GOL SECTION 5-1401). 8.8 SEVERABILITY. If any one or more of the provisions contained herein, or the application thereof in any circumstance, is held invalid, illegal or unenforceable in any respect for any reason, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions hereof shall not be in any way impaired, unless the provisions held invalid, illegal or unenforceable shall substantially impair the benefits of the remaining provisions hereof. 8.9 CERTAIN EXPENSES. The Company will pay all expenses of the Purchaser (including fees, charges and disbursements of counsel and consultants) in connection with this Amendment. 20 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed and delivered by their respective officers hereunto duly authorized as of the date first above written. MERCURY AIR GROUP, INC. By: ________________________________ Name: Title: J.H. WHITNEY MEZZANINE FUND, L.P. By: Whitney GP, L.L.C. By: ________________________________ Name: Title: A Managing Member [SIGNATURE PAGE TO AMENDMENT NO. 3 AGREEMENT] GUARANTORS: MERCFUEL, INC. By: ______________________________ Name: Title: MAYTAG AIRCRAFT CORPORATION By: ______________________________ Name: ______________________________ Title: ______________________________ MERCURY AIR CARGO, INC. By: ______________________________ Name: ______________________________ Title: ______________________________ AEG FINANCE CORPORATION By: ______________________________ Name: ______________________________ Title: ______________________________ MERCURY AIR CENTERS, INC. (F/K/A WOFFORD FLYING SERVICES, INC.) By: ______________________________ Name: ______________________________ Title: ______________________________ HERMES AVIATION, INC. By: ______________________________ Name: ______________________________ Title: ______________________________ VULCAN AVIATION, INC. By: ______________________________ Name: ______________________________ Title: ______________________________ [SIGNATURE PAGE TO AMENDMENT NO. 3 AGREEMENT] RPA AIRLINE AUTOMATION SERVICES, INC. (F/K/A RENE PEREZ AND ASSOCIATES, INC.) By: ______________________________ Name: ______________________________ Title: ______________________________ MERCURY ACCEPTANCE CORPORATION By: ______________________________ Name: ______________________________ Title: ______________________________ EXCEL CARGO, INC. By: ______________________________ Name: ______________________________ Title: ______________________________ MERCURY AIR CENTER-BIRMINGHAM, LLC By: ______________________________ Name: ______________________________ Title: ______________________________ MERCURY AIR CENTER-BAKERSFIELD, INC. By: ______________________________ Name: ______________________________ Title: ______________________________ MERCURY AIR CENTER-BURBANK, INC. By: ______________________________ Name: ______________________________ Title: ______________________________ MERCURY AIR CENTER-FRESNO, INC. By: ______________________________ Name: ______________________________ Title: ______________________________ MERCURY AIR CENTER-LOS ANGELES, INC. By: ______________________________ Name: ______________________________ Title: ______________________________ [SIGNATURE PAGE TO AMENDMENT NO. 3 AGREEMENT] MERCURY AIR CENTER-ONTARIO, INC. By: ______________________________ Name: ______________________________ Title: ______________________________ MERCURY AIR CENTER-SANTA BARBARA By: ______________________________ Name: ______________________________ Title: ______________________________ MERCURY AIR CENTER-HARTSFIELD, LLC By: ______________________________ Name: ______________________________ Title: ______________________________ MERCURY AIR CENTER-PEACHTREE-DEKALB, LLC By: ______________________________ Name: ______________________________ Title: ______________________________ MERCURY AIR CENTER- FT. WAYNE, LLC By: ______________________________ Name: ______________________________ Title: ______________________________ MERCURY AIR CENTER-JACKSON, L.L.C. By: ______________________________ Name: ______________________________ Title: ______________________________ MERCURY AIR CENTER-RENO, LLC By: ______________________________ Name: ______________________________ Title: ______________________________ MERCURY AIR CENTER-TULSA, LLC By: ______________________________ Name: ______________________________ Title: ______________________________ MERCURY AIR CENTER-CHARLESTON, LLC [SIGNATURE PAGE TO AMENDMENT NO. 3 AGREEMENT] By: ______________________________ Name: ______________________________ Title: ______________________________ MERCURY AIR CENTER-JOHNS ISLAND, LLC By: ______________________________ Name: ______________________________ Title: ______________________________ MERCURY AIR CENTER-NASHVILLE, LLC By: ______________________________ Name: ______________________________ Title: ______________________________ MERCURY AIR CENTER-ADDISON, INC. By: ______________________________ Name: ______________________________ Title: ______________________________ MERCURY AIR CENTER - CORPUS CHRISTI, INC. By: ______________________________ Name: ______________________________ Title: ______________________________ [SIGNATURE PAGE TO AMENDMENT NO. 3 AGREEMENT] EX-10.3 5 a87201exv10w3.txt EXHIBIT 10.3 EXHIBIT 10.3 AMENDED AND RESTATED WMF WARRANT September 10, 1999 THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAW OF ANY STATE AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN APPLICABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT AND SUCH LAWS. Warrant to Purchase 503,126 Shares of Common Stock MERCURY AIR GROUP, INC. COMMON STOCK PURCHASE WARRANT Void after September 9, 2006 Mercury Air Group, Inc. (the "Company" ), a Delaware corporation, hereby certifies that for value received, J. H. Whitney Mezzanine Debt Fund, L.P. ("WMF"), a Delaware limited partnership, or its successors or assigns (the "Holder"), is entitled to purchase, subject to the terms and conditions hereinafter set forth, an aggregate of 503,126 fully paid and nonassessable shares of Common Stock (as hereinafter defined) of the Company, at an exercise price of $3.742 per share (the "Purchase Price"), subject to adjustment as provided herein, at any time or from time to time beginning on the date hereof and prior to 5:00 P.M., New York City time, on September 9, 2006 (the "Expiration Date"). This Amended and Restated WMF Warrant amends and restates the Warrant issued pursuant to the Securities Purchase Agreement (the "PURCHASE Agreement"), dated as of the date hereof, between Mercury Air Group, Inc. and WMF, as amended, and is subject to the terms thereof. Capitalized terms used herein and not otherwise defined shall have the respective meanings assigned to such terms in the Purchase Agreement. The Holder is entitled to the rights and subject to the obligations contained in the Purchase Agreement, the Stockholders' Agreement and the Registration Rights Agreement relating to this Warrant and the shares of Common Stock issuable upon exercise of this Warrant. 1. Definitions. For the purposes of this Warrant, the following terms shall have the meanings indicated: "Applicable Price" shall mean the higher of (a) the Current Market Price per share of Common Stock on the applicable record or other relevant date and (b) the Dilution Price. "Business Day" shall mean any day other than a Saturday, Sunday or other day on which commercial banks in the City of New York are authorized or required by law or executive order to close. "Closing Price" shall mean, with respect to each share of Common Stock for any day, (a) the last reported sale price regular way or, in case no such sale takes place on such day, the average of the closing bid and asked prices regular way, in either case as reported on the principal national securities exchange on which the Common Stock is listed or admitted for trading or (b) if the Common Stock is not listed or admitted for trading on any national securities exchange, the last reported sale price or, in case no such sale takes place on such day, the average of the highest reported bid and the lowest reported asked quotation for the Common Stock, in either case as reported on the NASDAQ or a similar service if NASDAQ is no longer reporting such information. "Common Stock" means the common stock, par value $.01 per share, of the Company, and any class of stock resulting from successive changes or reclassification of such Common Stock. "Company" has the meaning ascribed to such term in the first paragraph of this Warrant. "Current Market Price" shall be determined in accordance with Subsection 3(e). "Dilution Price" shall mean, with respect to each share of Common Stock, $3.742, subject to appropriate adjustment for events described in Subsection 3(a). "Exercise Date" has the meaning ascribed to such term in Subsection 2(d). "Expiration Date" has the meaning ascribed to such term in the first paragraph of this Warrant. "Holder" has the meaning ascribed to such term in the first paragraph and Section 9 of this Warrant. "Issued Warrant Shares" means any shares of Common Stock issued upon exercise of the Warrant. "NASDAQ" shall mean the Automatic Quotation System of the National Association of Securities Dealers, Inc. "Person" shall mean any individual, firm, corporation, limited liability company, partnership, trust, incorporated or unincorporated association, joint venture, joint stock company, government (or an agency or political subdivision thereof) or other entity of any kind, and shall include any successor (by merger or otherwise) of such entity. "Purchase Agreement" has the meaning ascribed to such term in the second paragraph of this Warrant. 2 "Purchase Price" has the meaning ascribed to such term in the first paragraph of this Warrant. "Stockholders' Agreement" means the Stockholders' Agreement substantially in the form attached to the Purchase Agreement as Exhibit E. "Warrant" shall mean this Warrant and any subsequent Warrant issued pursuant to the terms of this Warrant. "Warrant Register" has the meaning ascribed to such term in Subsection 9(c). 2. Exercise of Warrant. (a) Exercise. This Warrant may be exercised, in whole or in part, at any time or from time to time during the period beginning on the date hereof and ending on the Expiration Date, by surrendering to the Company at its principal office this Warrant, with the form of Election to Purchase Shares (the "Election to Purchase Shares") attached hereto as Exhibit A duly executed by the Holder and accompanied by payment of the Purchase Price for the number of shares of Common Stock specified in such form. (b) Delivery of Shares; Payment of Purchase Price. As soon as practicable after surrender of this Warrant and receipt of payment, the Company shall promptly issue and deliver to the Holder a certificate or certificates for the number of shares of Common Stock set forth in the Election to Purchase Shares, in such name or names as may be designated by such Holder, along with a check for the amount of cash to be paid in lieu of issuance of fractional shares, if any. Payment of the Purchase Price may be made as follows (or by any combination of the following): (i) in United States currency by cash or delivery of a certified check, bank draft or postal or express money order payable to the order of the Company, (ii) by assigning to the Company all or any part of the unpaid principal amount of the WMF Note held by the Holder in a principal amount equal to the Purchase Price, (iii) by surrender of a number of shares of Common Stock held by the Holder equal to the quotient obtained by dividing (A) the Purchase Price payable with respect to the portion of this Warrant then being exercised by (B) the Current Market Price per share of Common Stock on the Exercise Date, or (iv) by cancellation of any portion of this Warrant with respect to the number of shares of Common Stock equal to the quotient obtained by dividing (A) the aggregate Purchase Price payable with respect to the portion of this Warrant then being exercised by (B) the difference between (1) Current Market Price per share of Common Stock on the Exercise Date, and (2) the Purchase Price per share of Common Stock. (c) Partial Exercise. If this Warrant is exercised for less than all of the shares of Common Stock purchasable under this Warrant, the Company shall cancel this Warrant upon surrender hereof and shall execute and deliver to the Holder a new Warrant of like tenor for the balance of the shares of Common Stock purchasable hereunder. (d) When Exercise Effective. The exercise of this Warrant shall be deemed to have been effective immediately prior to the close of business on the Business Day on which this Warrant is surrendered to and the Purchase Price is received by the Company as provided in this Section 2 (the "Exercise Date") and the Person in whose name any certificate for shares of 3 Common Stock shall be issuable upon such exercise, as provided in Subsection 2(b), shall be deemed to be the record holder of such shares of Common Stock for all purposes on the Exercise Date. (e) Issued Warrant Shares Fully Paid, Nonassessable. The Company shall take all actions necessary to ensure that following exercise of this Warrant in accordance with the provisions of this Section 2, the Issued Warrant Shares issued hereunder shall, without further action by the Holder, be fully paid and nonassessable. (f) Continued Validity. A Holder of shares of Common Stock issued upon the exercise of this Warrant, in whole or in part, shall continue to be entitled to all of the rights and subject to all of the obligations set forth in Section 9. 3. Adjustment of Purchase Price and Number of Shares. The Purchase Price and the number of shares of Common Stock issuable upon exercise of this Warrant shall be adjusted from time to time upon the occurrence of the following events: (a) Dividend, Subdivision, Combination or Reclassification of Common Stock. If the Company shall, at any time or from time to time, (i) declare a dividend on the Common Stock payable in shares of its capital stock (including Common Stock), (ii) subdivide the outstanding Common Stock into a larger number of shares of Common Stock, (iii) combine the outstanding Common Stock into a smaller number of shares of its Common Stock, or (iv) issue any shares of its capital stock in a reclassification of the Common Stock (including any such reclassification in connection with a consolidation or merger in which the Company is the continuing corporation), then in each such case, the Purchase Price in effect at the time of the record date for such dividend or of the effective date of such subdivision, combination or reclassification, and the number and kind of shares of capital stock issuable on such date shall be proportionately adjusted so that the Holder of any Warrant exercised after such date shall be entitled to receive, upon payment of the same aggregate amount as would have been payable before such date, the aggregate number and kind of shares of capital stock which, if such Warrant had been exercised immediately prior to such date, such Holder would have owned upon such exercise and been entitled to receive by virtue of such dividend, subdivision, combination or reclassification. Any such adjustment shall become effective immediately after the record date of such dividend or the effective date of such subdivision, combination or reclassification. Such adjustment shall be made successively whenever any event listed above shall occur. If a dividend is declared and such dividend is not paid, the Purchase Price shall again be adjusted to be the Purchase Price in effect immediately prior to such record date (giving effect to all adjustments that otherwise would be required to be made pursuant to this Section 3 from and after such record date). (b) Issuance of Rights to Purchase Common Stock Below Current Market Price or Dilution Price. If the Company shall, at any time or from time to time, fix a record date for the issuance of rights, options or warrants to all holders of Common Stock entitling them to subscribe for or purchase Common Stock, or securities convertible into Common Stock at a price per share of Common Stock or having a conversion price per share of Common Stock if a security is convertible into Common Stock (determined in either such case by dividing (x) the total consideration payable to the Company upon exercise, conversion or exchange of such 4 rights, options, warrants or other securities convertible into Common Stock by (y) the total number of shares of Common Stock covered by such rights, options, warrants or other securities convertible into Common Stock) which is lower than either the Current Market Price per share of Common Stock on such record date (or, if an ex-dividend date has been established for such record date, on the day next preceding such ex-dividend date) or the Dilution Price, then, the Purchase Price shall be reduced to the price determined by multiplying the Purchase Price in effect immediately prior to such record date by a fraction, the numerator of which shall be the sum of the number of shares of Common Stock outstanding on such record date plus the number of additional shares of Common Stock which the aggregate offering price of the total number of shares of Common Stock so to be offered (or the aggregate initial conversion price of the convertible securities so to be offered) would purchase at the Applicable Price and the denominator of which shall be the number of shares of Common Stock outstanding on such record date plus the number of additional shares of Common Stock to be offered for subscription or purchase (or into which the convertible securities so to be offered are initially convertible). In case such price for subscription or purchase may be paid in a consideration part or all of which shall be in a form other than cash, the value of such consideration shall be determined in good faith by the Board of Directors of the Company. Any such adjustment shall become effective immediately after the record date for such rights or warrants. Such adjustment shall be made successively whenever such a record date is fixed. If such rights, options or warrants are not so issued, the Purchase Price shall be adjusted to the Purchase Price that otherwise would be in effect but for the fact such record date was fixed (giving effect to all adjustments that otherwise would be required to be made pursuant to this Section 3 from and after such record date). (c) Certain Distributions. If the Company shall, at any time or from time to time, fix a record date for the distribution to all holders of Common Stock (including any such distribution made in connection with a consolidation or merger in which the Company is the continuing corporation) of evidences of indebtedness, assets or other property (other than regularly scheduled cash dividends or cash distributions payable out of consolidated earnings or earned surplus or dividends payable in capital stock for which adjustment is made under Subsection 3(a)) or subscription rights, options or warrants (excluding those referred to in Subsection 3(b)), then the Purchase Price shall be reduced to the price determined by multiplying the Purchase Price in effect immediately prior to such record date by a fraction (which shall in no event be less than zero), the numerator of which shall be the Current Market Price per share of Common Stock on such record date (or, if an ex-dividend date has been established for such record date, on the next day preceding such ex-dividend date), less the fair market value (as determined in good faith by the Board of Directors of the Company) of the portion of the assets, evidences of indebtedness, other property, subscription rights or warrants so to be distributed applicable to one share of Common Stock and the denominator of which shall be such Current Market Price per share of Common Stock. Any such adjustment shall become effective immediately after the record date for such distribution. Such adjustments shall be made successively whenever such a record date is fixed. In the event that such distribution is not so made, the Purchase Price shall be adjusted to the Purchase Price in effect immediately prior to such record date (giving effect to all adjustments that otherwise would be required to be made pursuant to this Section 3 from and after such record date). (d) Issuance of Common Stock Below Current Market Price or Dilution Price. (i) If the Company shall, at any time and from time to time, after the date hereof, directly or 5 indirectly, sell or issue shares of Common Stock (regardless of whether originally issued or from the Company's treasury), or rights, options, warrants or convertible or exchangeable securities containing the right to subscribe for or purchase shares of Common Stock) at a price per share of Common Stock (determined, in the case of rights, options, warrants or convertible or exchangeable securities, by dividing (x) the total consideration received or receivable by the Company in consideration of the sale or issuance of such rights, options, warrants or convertible or exchangeable securities, plus the total consideration payable to the Company upon exercise or conversion or exchange thereof, by (y) the total number of shares of Common Stock covered by such rights, options, warrants or convertible or exchangeable securities) which is lower than either the Current Market Price per share of Common Stock or the Dilution Price immediately prior to such sale or issuance, then, subject to clause 3(d)(ii), the Purchase Price shall be reduced to a price determined by multiplying the Purchase Price in effect immediately prior thereto by a fraction, the numerator of which shall be the sum of the number of shares of Common Stock outstanding immediately prior to such sale or issuance plus the number of shares of Common Stock which the aggregate consideration received (determined as provided below) for such sale or issuance would purchase at the Applicable Price and the denominator of which shall be the total number of shares of Common Stock outstanding immediately after such sale or issuance. Such adjustment shall be made successively whenever such sale or issuance is made. For the purposes of such adjustments, the shares of Common Stock which the holder of any such rights, options, warrants, or convertible or exchangeable securities shall be entitled to subscribe for or purchase shall be deemed to be issued and outstanding as of the date of such sale or issuance and the consideration "received" by the Company therefor shall be deemed to be the consideration actually received or receivable by the Company (plus any underwriting discounts or commissions in connection therewith) for such rights, options, warrants or convertible or exchangeable securities, plus the consideration stated in such rights, options, warrants or convertible or exchangeable securities to be payable to the Company for the shares of Common Stock covered thereby. If the Company shall sell or issue shares of Common Stock for a consideration consisting, in whole or in part, of property other than cash or its equivalent, then in determining the "price per share of Common Stock" and the "consideration" received or receivable by or payable to the Company for purposes of the first sentence and the immediately preceding sentence of this Subsection 3(d), the fair value of such property shall be determined in good faith by the Board of Directors of the Company. The determination of whether any adjustment is required under this Subsection 3(d) by reason of the sale and issuance of rights, options, warrants or convertible or exchangeable securities and the amount of such adjustment, if any, shall be made only at the time of such issuance or sale and not at the subsequent time of issuance of shares of Common Stock upon the exercise of such rights to subscribe or purchase. (ii) No adjustment shall be made to the Purchase Price pursuant to clause 3(d)(i) in connection with the issuance of (A) shares issued upon exercise of this Warrant; or (B) options to purchase an aggregate of 141,693 shares of Common Stock granted on or after December 30, 2002, if such shares would otherwise be included in clause 3(d)(i). (iii) Notwithstanding any provision in Section 3 to the contrary and without limitation to any other provision contained in Section 3, in the event any securities of the Company (other than this Warrant), including, without limitation, those securities set forth as exceptions in Subsection 3(d)(ii) (for purposes of this Subsection, collectively, the "SUBJECT SECURITIES"), are amended or otherwise modified by operation of its terms or otherwise 6 (including, without limitation, by operation of such Subject Securities' anti-dilution provisions, other than anti-dilution provisions substantially similar to those set forth in Subsection 3(d)(i)) in any manner whatsoever that results in (i) the reduction of the exercise, conversion or exchange price of such Subject Securities payable upon the exercise for, or conversion or exchange into, Common Stock or other securities exercisable for, or convertible or exchangeable into, Common Stock and/or (ii) such Subject Securities becoming exercisable for, or convertible or exchangeable into (A) more shares or dollar amount of such Subject Securities which are, in turn exercisable for, or convertible or exchangeable into, Common Stock, or (B) more shares of Common Stock, then such amendment or modification shall be treated for purposes of Section 3 as if the Subject Securities which have been amended or modified have been terminated and new securities have been issued with the amended or modified terms. The Company shall make all necessary adjustments (including successive adjustments if required) to the Purchase Price in accordance with Section 3, but in no event shall the Purchase Price be greater than it was immediately prior to the application of this Subsection to the transaction in question. On the expiration or termination of any such amended or modified Subject Securities for which adjustment has been made pursuant to the operation of the provisions of this Subsection under Section 3(b) or 3(d), as the case may be, without such Subject Securities having been exercised, converted or exchanged in full pursuant to their terms, the adjusted Purchase Price shall be appropriately readjusted in the manner specified in such Section. (e) Determination of Current Market Price. For the purpose of any computation under Subsections (b), (c) or (d) of this Section 3 or any other provision of this Warrant, the Current Market Price per share of Common Stock on any date shall be deemed to be the average of the daily Closing Prices per share of Common Stock for the 10 consecutive trading days commencing 15 trading days before such date. If on any such date the shares of Common Stock are not listed or admitted for trading on any national securities exchange or quoted by NASDAQ or a similar service, then the Company, on the one hand, and WMF on the other hand, shall each promptly appoint as an appraiser an individual who shall be a member of a nationally recognized investment banking firm. Each appraiser shall be instructed to, within 30 days of appointment, determine the Current Market Price per share of Common Stock which shall be deemed to be equal to the fair market value per share of Common Stock as of such date. If the two appraisers are unable to agree on the Current Market Price per share of Common Stock within such 30 day period, then the two appraisers, within 10 days after the end of such 30 day period shall jointly select a third appraiser. The third appraiser shall, within 30 days of its appointment, determine, in good faith, the Current Market Price per share of Common Stock and such determination shall be controlling. If any party fails to appoint an appraiser or if one of the two initial appraisers fails after appointment to submit its appraisal within the required period, the appraisal submitted by the remaining appraiser shall be controlling. The cost of the foregoing appraisals shall be shared one-half by the Company and one-half by WMF, provided, however, in the event a third appraiser is utilized and one of the two initial appraisals (but not the other initial appraisal) is greater than or less than the appraisal by such third appraiser by 10% or more, then the cost of all of the foregoing appraisals shall be borne by the party who appointed the appraiser who made such initial appraisal. (f) De Minimis Adjustments. No adjustment in the Purchase Price shall be made if the amount of such adjustment would result in a change in the Purchase Price per share of less than $0.05, but in such case any adjustment that would otherwise be required to be made 7 shall be carried forward and shall be made at the time of and together with the next subsequent adjustment, which together with any adjustment so carried forward, would result in a change in the Purchase Price of $0.05 per share or more. If the Company shall, at any time or from time to time, issue Common Stock by way of dividends on any stock of the Company or subdivide or combine the outstanding shares of the Common Stock, such amount of $0.05 (as theretofore increased or decreased, if such amounts shall have been adjusted in accordance with the provisions of this clause) shall forthwith be proportionately increased in the case of a combination or decreased in the case of a subdivision or stock dividend so as appropriately to reflect the same. Notwithstanding the provisions of the first sentence of this Subsection 3(f), any adjustment postponed pursuant to this Subsection 3(f) shall be made no later than the earlier of (i) three years from the date of the transaction that would, but for the provisions of the first sentence of this Section 3(f), have required such adjustment, (ii) an Exercise Date or (iii) the Expiration Date. (g) Adjustments to Other Shares. In the event that at any time, as a result of an adjustment made pursuant to Subsection 3(a), the Holder shall become entitled to receive, upon exercise of this Warrant, any shares of capital stock of the Company other than shares of Common Stock, the number of such other shares so receivable upon exercise of this Warrant shall be subject to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect to the shares of Common Stock contained in Subsections 3(a), (b), (c) and (d), inclusive, and the provisions of Sections 2, 5, 6 and 7 with respect to the shares of Common Stock shall apply on like terms to any such other shares. (h) Adjustment of Number of Shares Issuable Upon Exercise. Upon each adjustment of the Purchase Price as a result of the calculations made in Subsections 3(a), (b), (c) or (d), this Warrant shall thereafter evidence the right to receive, at the adjusted Purchase Price, that number of shares of Common Stock (calculated to the nearest one-hundredth) obtained by dividing (x) the product of the aggregate number of shares of Common Stock covered by this Warrant immediately prior to such adjustment and the Purchase Price in effect immediately prior to such adjustment of the Purchase Price by (y) the Purchase Price in effect immediately after such adjustment of the Purchase Price. (i) Reorganization, Reclassification, Merger and Sale of Assets. If there occurs any capital reorganization or any reclassification of the Common Stock of the Company, the consolidation or merger of the Company with or into another Person (other than a merger or consolidation of the Company in which the Company is the continuing corporation and which does not result in any reclassification or change of outstanding shares of its Common Stock) or the sale or conveyance of all or substantially all of the assets of the Company to another Person, then the Holder will thereafter be entitled to receive, upon the exercise of this Warrant in accordance with the terms hereof, the same kind and amounts of securities (including shares of stock) or other assets, or both, which were issuable or distributable to the holders of outstanding Common Stock of the Company upon such reorganization, reclassification, consolidation, merger, sale or conveyance, in respect of that number of shares of Common Stock then deliverable upon the exercise of this Warrant if this Warrant had been exercised immediately prior to such reorganization, reclassification, consolidation, merger, sale or conveyance; and, in any such case, appropriate adjustments (as determined in good faith by the Board of Directors of the Company) shall be made to assure that the provisions hereof (including provisions with 8 respect to changes in, and other adjustments of, the Purchase Price) shall thereafter be applicable, as nearly as reasonably may be practicable, in relation to any securities or other assets thereafter deliverable upon exercise of this Warrant. 4. Certificate as to Adjustments. Whenever the Purchase Price and the number of shares of Common Stock issuable, or the securities or other property deliverable, upon the exercise of this Warrant shall be adjusted pursuant to the provisions hereof, the Company shall promptly give written notice thereof to the Holder, in accordance with Section 13, in the form of a certificate signed by the Chairman of the Board, President or one of the Vice Presidents of the Company, and by the Chief Financial Officer, Treasurer or one of the Assistant Treasurers of the Company, stating the adjusted Purchase Price, the number of shares of Common Stock issuable, or the securities or other property deliverable, upon exercise of the Warrant and setting forth in reasonable detail the method of calculation and the facts requiring such adjustment and upon which such calculation is based. Each adjustment shall remain in effect until a subsequent adjustment is required. 5. Fractional Shares. Notwithstanding an adjustment pursuant to Section 3(h) in the number of shares of Common Stock covered by this Warrant or any other provision of this Warrant, the Company shall not be required to issue fractions of shares upon exercise of this Warrant or to distribute certificates which evidence fractional shares. In lieu of fractional shares, the Company may make payment to the Holder, at the time of exercise of this Warrant as herein provided, of an amount in cash equal to such fraction multiplied by the greater of the Current Market Price of a share of Common Stock on the Exercise Date and the Dilution Price. 6. Notice of Proposed Actions. In case the Company shall propose at any time or from time to time (a) to declare or pay any dividend payable in stock of any class to the holders of Common Stock or to make any other distribution to the holders of Common Stock (other than a regularly scheduled cash dividend), (b) to offer to the holders of Common Stock rights or warrants to subscribe for or to purchase any additional shares of Common Stock or shares of stock of any class or any other securities, rights or options, (c) to effect any reclassification of its Common Stock, (d) to effect any consolidation, merger or sale, transfer or other disposition of all or substantially all of the property, assets or business of the Company which would, if consummated, adjust the Purchase Price or the securities issuable upon exercise of the Warrants, (e) to effect the liquidation, dissolution or winding up of the Company, or (f) to take any other action that would require a vote of the Company's stockholders, then, in each such case, the Company shall give to the Holder, in accordance with Section 13, a written notice of such proposed action, which shall specify (i) the record date for the purposes of such stock dividend, distribution of rights or warrants or vote of the stockholders of the Company, or if a record is not to be taken, the date as of which the holders of shares of Common Stock of record to be entitled to such dividend, distribution of rights or warrants, or vote is to be determined, or (ii) the date on which such reclassification, consolidation, merger, sale, transfer, disposition, liquidation, dissolution or winding up is expected to become effective, and such notice shall be so given as promptly as possible but in any event at least ten (10) Business Days prior to the applicable record, determination or effective date specified in such notice. 7. No Dilution or Impairment. The Company will not, by amendment of its Certificate of Incorporation or through any reorganization, transfer of assets, consolidation, 9 merger, dissolution, issue or sale of securities or any other action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such action as may be necessary or appropriate in order to protect the rights of the Holder of this Warrant against dilution or other impairment. Without limiting the generality of the foregoing, the Company (a) will not increase the par value of any shares of stock receivable on the exercise of this Warrant above the amount payable therefor on such exercise, (b) will at all times reserve and keep available the maximum number of its authorized shares of Common Stock, free from all preemptive rights therein, which will be sufficient to permit the full exercise of this Warrant, and (c) will take all such action as may be necessary or appropriate in order that all shares of Common Stock as may be issued pursuant to the exercise of this Warrant will, upon issuance, be duly and validly issued, fully paid and nonassessable, and free from all taxes, liens and charges with respect to the issue thereof. 8. Replacement of Warrants. On receipt by the Company of an affidavit of an authorized representative of the Holder stating the circumstances of the loss, theft, destruction or mutilation of this Warrant (and in the case of any such mutilation, on surrender and cancellation of such Warrant), the Company at its expense will promptly execute and deliver, in lieu thereof, a new Warrant of like tenor which shall be exercisable for a like number of shares of Common Stock. If required by the Company, such Holder must provide an indemnity bond or other indemnity sufficient in the judgment of the Company to protect the Company from any loss which it may suffer if a lost, stolen or destroyed Warrant is replaced. 9. Restrictions on Transfer. (a) Subject to the provisions of this Section 9, this Warrant may be transferred or assigned, in whole or in part, by the Holder at any time, and from time to time. The term "Holder" as used herein shall also include any transferee of this Warrant whose name has been recorded by the Company in the Warrant Register (as hereinafter defined). Each transferee of the Warrant or the Common Stock issuable upon the exercise of the Warrant acknowledges that the Warrant or the Common Stock issuable upon the exercise of the Warrant has not been registered under the Securities Act and may be transferred only pursuant to an effective registration under the Securities Act or pursuant to an applicable exemption from the registration requirements of the Securities Act. (b) With respect to a transfer that should occur prior to the time that the Warrant or the Common Stock issuable upon the exercise thereof is registered under the Securities Act, such Holder shall request an opinion of counsel (which shall be rendered by counsel reasonably acceptable to the Company) that the proposed transfer may be effected without registration or qualification under any Federal or state securities or blue sky law. Counsel shall, as promptly as practicable, notify the Company and the Holder of such opinion and of the terms and conditions, if any, to be observed in such transfer, whereupon the Holder shall be entitled to transfer this Warrant or such shares of Common Stock (or portion thereof), subject to any other provisions and limitations of this Warrant. In the event this Warrant shall be exercised as an incident to such transfer, such exercise shall relate back and for all purposes of this Warrant be deemed to have occurred as of the date of such notice regardless of delays 10 incurred by reason of the provisions of this Section 9 which may result in the actual exercise on any later date. (c) The Company shall maintain a register (the "Warrant Register") in its principal office for the purpose of registering the Warrant and any transfer thereof, which register shall reflect and identify, at all times, the ownership of any interest in the Warrant. Upon the issuance of this Warrant, the Company shall record the name of the initial purchaser of this Warrant in the Warrant Register as the first Holder. Upon surrender for registration of transfer or exchange of this Warrant together with a properly executed Form of Assignment attached hereto as Exhibit B at the principal office of the Company, the Company shall, at its expense, execute and deliver one or more new Warrants of like tenor which shall be exercisable for a like aggregate number of shares of Common Stock, registered in the name of the Holder or a transferee or transferees. (d) Notwithstanding any provision in this Warrant to the contrary, the Holder shall not sell, assign, or otherwise transfer to any Person (a "Transferee") any Issued Warrant Shares prior to the Expiration Date unless such Transferee agrees in writing to be bound in the same manner as the Holder by the provisions of this Section 9. 10. No Rights or Liability as a Stockholder. This Warrant does not entitle the Holder hereof to any voting rights or other rights as a stockholder of the Company. No provisions hereof, in the absence of affirmative action by the Holder hereof to purchase Common Stock, and no enumeration herein of the rights or privileges of the Holder shall give rise to any liability of such Holder as a stockholder of the Company. 11. Charges, Taxes and Expenses. Issuance of certificates for shares of Common Stock upon the exercise of this Warrant shall be made without charge to the Holder hereof for any issue or transfer tax, or other incidental expense, in respect of the issuance or delivery of such certificates or the securities represented thereby, all of which taxes and expenses shall be paid by the Company. 12. Amendment or Waiver. This Warrant and any term hereof may be amended, waived, discharged or terminated only by and with the written consent of the Company and the Holder. 13. Notices. Any notice or other communication (or delivery) required or permitted hereunder shall be made in writing and shall be by registered mail, return receipt requested, telecopier, courier service or personal delivery to the Company at its principal office as specified in Section 11.2 of the Purchase Agreement and to the Holder at its address as it appears in the Warrant Register. All such notices and communications (and deliveries) shall be deemed to have been duly given: when delivered by hand, if personally delivered; when delivered by courier, if delivered by commercial overnight courier service; five Business Days after being deposited in the mail, postage prepaid, if mailed; and when receipt is acknowledged, if telecopied. 14. Certain Remedies. The Holder shall be entitled to an injunction or injunctions to prevent breaches of the provisions of this Warrant and to enforce specifically the terms and provisions of this Warrant in any court of the United States or any state thereof having 11 jurisdiction, this being in addition to any other remedy to which such Holder may be entitled at law or in equity. 15. Governing Law. This Warrant shall be governed by and construed in accordance with the laws of the State of New York, without regard to the principles of conflicts of law of such State (including giving effect to GOL Section 5-1401). 16. Headings. The headings in this Warrant are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. MERCURY AIR GROUP, INC. By: _______________________________ Name: Title: 12 EXHIBIT A TO COMMON STOCK PURCHASE WARRANT ELECTION TO PURCHASE SHARES The undersigned hereby irrevocably elects to exercise the Warrant to purchase _____ shares of Common Stock, par value $.01 per share ("Common Stock"), of Mercury Air Group, Inc. (the "Company") and hereby [makes payment of $_______ therefor] [or] [makes payment therefor by assignment to the Company pursuant to Section 2(b)(ii) of the Warrant of $_____________ aggregate principal amount of WMF Note (as defined in the Warrant)] [or] [makes payment therefore by surrendering pursuant to Section 2(b)(iii) _____ shares of Common Stock of the Company] [or] [makes payment therefor by cancellation pursuant to Section 2(b)(iv) of a portion of the Warrant with respect to _________ shares of Common Stock]. The undersigned hereby requests that certificates for such shares be issued and delivered as follows: ISSUE TO:______________________________________________________________________ (NAME) _______________________________________________________________________________ (ADDRESS, INCLUDING ZIP CODE) _______________________________________________________________________________ (SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER) DELIVER TO:____________________________________________________________________ (NAME) _______________________________________________________________________________ (ADDRESS, INCLUDING ZIP CODE) If the number of shares of Common Stock purchased hereby is less than the number of shares of Common Stock covered by the Warrant, the undersigned requests that a new Warrant representing the number of shares of Common Stock not purchased be issued and delivered as follows: ISSUE TO:______________________________________________________________________ (NAME) _______________________________________________________________________________ (ADDRESS, INCLUDING ZIP CODE) _______________________________________________________________________________ (SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER) DELIVER TO:____________________________________________________________________ (NAME) A-1 _______________________________________________________________________________ (ADDRESS, INCLUDING ZIP CODE) Dated: [NAME OF HOLDER(1)] By: ________________________________ Name: Title: - -------- 1 Name of Holder must conform in all respects to name of Holder as specified on the face of the Warrant. A-2 EXHIBIT B TO COMMON STOCK PURCHASE WARRANT ASSIGNMENT FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and transfers unto the Assignee named below all of the rights of the undersigned to purchase Common Stock, par value $0.01 per share ("Common Stock"), of Mercury Air Group, Inc. represented by the Warrant, with respect to the number of shares of Common Stock set forth below: Name of Assignee Address No. of Shares - ---------------- ------- ------------- and does hereby irrevocably constitute and appoint ____________________________ Attorney to make such transfer on the books of Mercury Air Group, Inc. maintained for that purpose, with full power of substitution in the premises. Dated: [NAME OF HOLDER(1)] By: _____________________________ Name: Title: - ---------------- 1 Name of Holder must conform in all respects to name of Holder as specified on the face of the Warrant. B-1 EX-10.4 6 a87201exv10w4.txt EXHIBIT 10.4 EXHIBIT 10.4 AMENDED AND RESTATED WMF SENIOR SUBORDINATED PROMISSORY NOTE THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD, TRANSFERRED, OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN APPLICABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT AND SUCH LAWS. THIS NOTE AND THE INDEBTEDNESS EVIDENCED HEREBY IS SUBORDINATE IN THE MANNER AND TO THE EXTENT SET FORTH IN THAT CERTAIN SUBORDINATION AGREEMENT, DATED AS OF DECEMBER 30, 2002, BY AND AMONG THE MAKER HEREOF, THE PAYEE NAMED HEREIN, AND FOOTHILL CAPITAL CORPORATION, AS SUCH AGREEMENT MAY BE AMENDED FROM TIME TO TIME, AND EACH HOLDER OF THIS NOTE, BY ITS ACCEPTANCE HEREOF, SHALL BE BOUND BY THE PROVISIONS OF SUCH SUBORDINATION AGREEMENT. MERCURY AIR GROUP, INC. 12% SENIOR SUBORDINATED PROMISSORY NOTE DUE December 31, 2005 $24,000,000 New York, New York September 10, 1999 FOR VALUE RECEIVED, the undersigned, MERCURY AIR GROUP, INC., a corporation organized under the laws of Delaware (the "Borrower"), hereby promises to pay to the order of J.H. WHITNEY MEZZANINE FUND, L.P. ("WMF"), a Delaware limited partnership, or its registered assigns (the "Holder"), the principal sum of Twenty Four Million Dollars ($24,000,000) on December 31, 2005 (the "Maturity Date"), with interest thereon from time to time as provided herein. 1. Purchase Agreement. This Senior Subordinated Promissory Note (the "Note") is issued by the Borrower, on the date hereof, pursuant to the Securities Purchase Agreement (the "Purchase Agreement"), dated as of September 10, 1999, as amended to date, by and between the Borrower and WMF, and is subject to the terms thereof. This Note, together with all other promissory notes issued under the Purchase Agreement, and all promissory notes issued pursuant to paragraph 12 hereof or any provision of the Purchase Agreement are hereinafter referred to as the "Notes." The Holder is entitled to the benefits of this Note and the Purchase Agreement, as it relates to the Note, and may enforce the agreements of the Borrower contained herein and therein and exercise the remedies provided for hereby and thereby or otherwise available in respect hereto and thereto. Capitalized terms used herein without definition are used herein with the meanings ascribed to such terms in the Purchase Agreement. 2. Interest. (a) Basic Interest. The Borrower promises to pay interest on the principal amount of this Note at the rate of 12% per annum. The Borrower shall pay accrued interest quarterly on each March 31, June 30, September 30 and December 31 of each year or, if any such date shall not be a Business Day, on the next succeeding Business Day to occur after such date (each date upon which interest shall be so payable, an "Interest Payment Date"), beginning on September 30, 1999. Interest on this Note shall be paid by wire transfer of immediately available funds to an account at a bank designated in writing by the Holder. In the absence of any such written designation, any such Interest payment shall be deemed made on the date a check in the applicable amount payable to the order of Holder is received by the Holder at its last address as reflected in Borrower's note register; if no such address appears, then to such Holder in care of the last address in such note register of any predecessor holder of this Note (or its predecessor). In addition to cash interest, during the period beginning on January 1, 2004 and ending on June 30, 2004, the interest rate on this Note shall increase by a rate of 1% per annum for each month Interest in excess of 12% per annum shall accrue and be added to principal, and shall not be payable in cash. This increase in interest rate shall take effect on the last day of each month from January 31, 2004 through June 30, 2004, inclusive. Interest on this Note shall accrue from and including the date of issuance through and until repayment of the principal and payment of all accrued interest in full. Interest shall accrue and be computed on the basis of a 360-day year of twelve 30-day months. (b) Default Rate of Interest. Notwithstanding the foregoing provisions of this Section 2, but subject to applicable law, any overdue principal of and overdue interest on this Note shall bear interest, payable on demand in immediately available funds, for each day from the date payment thereof was due to the date of actual payment, at a rate equal to the rate of interest otherwise in effect pursuant to the first sentence of this Section 2 plus 2% per annum, and, upon and during the occurrence of an Event of Default (as hereinafter defined), this Note shall bear interest, from the date of the occurrence of such Event of Default until such Event of Default is cured or waived, payable on demand in immediately available funds, at a rate equal to the rate of interest otherwise in effect pursuant to the first sentence of this Section 2 plus 2% per annum. Subject to applicable law, any interest that shall accrue on overdue interest on this Note as provided in the preceding sentence and shall not have been paid in full on or before the next Interest Payment Date to occur after the Interest Payment Date on which the overdue interest became due and payable shall itself be deemed to be overdue interest on this Note to which the preceding sentence shall apply. (c) Maximum Interest. The maximum interest payable on this Note pursuant to paragraphs (a) and (b) above is 18% per annum. - 2 - (d) No Usurious Interest. In the event that any interest rate provided for herein shall be determined to be unlawful, such interest rate shall be computed at the highest rate permitted by applicable law. Any payment by the Borrower of any interest amount in excess of that permitted by law shall be considered a mistake, with the excess being applied to the principal of this Note without prepayment premium or penalty; if no such principal amount is outstanding, such excess shall be returned to Borrower. 3. Mandatory Prepayment. (a) Public Offerings. Subject to the subordination provisions of Section 7 hereof and the Subordination Agreement (as hereinafter defined), upon the consummation of a Public Offering (as hereinafter defined), the Borrower shall, at the election of the Holder, prepay the outstanding principal amount of this Note at the redemption prices (the "Mandatory Redemption Price"), set forth below (together with interest accrued thereon), immediately following receipt by any of the Borrower, or any of its Subsidiaries of the proceeds of such Public Offering. For the purposes hereof, "Public Offering" means the sale by any of the Borrower, or any of its Subsidiaries of its equity securities (other than (i) stock options or warrants to acquire Common Stock awarded to employees and directors pursuant to incentive compensation plans or agreements with such Persons in an aggregate amount for all such options and warrants not to exceed $250,000 per annum, and (ii) stock issued to a seller party to, and as consideration for a Permitted Acquisition) pursuant to a registration statement (other than on Form S-4 or S-8) or otherwise under the Securities Act, including without limitation any offering which contemplates resale of the securities issued under Rule144A under the Securities Act, in which the issuer receives any Net Cash Proceeds. For the purposes hereof, "Net Cash Proceeds" means (x) the cash proceeds in respect of a Public Offering minus (y) all costs of sale, underwriting or brokerage costs and taxes paid or payable as a result thereof by the Borrower or any of its Subsidiaries. The foregoing notwithstanding, until all Senior Indebtedness to which this Note is subordinated shall be paid in full, the amount of Net Proceeds which the Borrower shall be obligated to pay under this Section 3(a) to the Holder as a prepayment of this Note at the election of the Holder, shall be limited as set forth in the Subordination Agreement. No penalty or premium shall apply to a prepayment made in accordance with this paragraph (b) Change of Control. Subject to the subordination provisions of Section 7 hereof and the Subordination Agreement, upon the occurrence of a Change of Control (as hereinafter defined), the Borrower shall, at the election of the Holder, prepay the outstanding principal amount of this Note in accordance with the Mandatory Redemption Prices set forth in Section 3(a) above (together with interest accrued thereon), within 5 Business Days after the - 3 - occurrence of such Change of Control. For the purposes hereof, "Change of Control" means (i) any transaction or series of transactions in which any Person or group, other than WMF, CFK Partners or any of their respective affiliates becomes the beneficial owner of 35% or more of the then outstanding capital stock of the Borrower or of any of its Subsidiaries, the operations of which would constitute a material part of the business or operations of the Borrower and all of its Subsidiaries, taken as a whole, (ii) the sale of all or substantially all of the assets of the Borrower or of any of its Subsidiaries, the operations of which would constitute a material part of the business or operations of the Borrower and all of its Subsidiaries, taken as a whole, (iii) the liquidation of the Borrower or any of its Subsidiaries, the operations of which would constitute a material part of the business or operations of the Borrower and all of its Subsidiaries, taken as a whole, other than transactions defined as Permitted Financing Transactions in, and entered into in compliance with, the Purchase Agreement, and/or (iv) the combination of the Borrower or of any of its Subsidiaries, the operations of which would constitute a material part of the business or operations of the Borrower and all of its Subsidiaries, taken as a whole, with another entity, as a result of which (A) any Person or group, other WMF, CFK Partners or any of their respective affiliates becomes the beneficial owner of 35% or more of the then outstanding capital stock of the combined entity or (B) the directors of the Borrower or such Subsidiary, as the case may be, constitute less than a majority of the Board of Directors of the combined entity. (c) Notice. The Borrower shall give written notice to the Holder of any mandatory prepayment pursuant to this Section 3 at least five (5) Business Days prior to the date of such prepayment. Such notice shall be given in the manner specified in Section 11.2 of the Purchase Agreement. 4. Optional Prepayment. (a) Upon notice given to the Holder as provided in Section 4(b), the Borrower, at its option, may, at any time prepay all or any portion of the principal amount of this Note at any time, by paying to the Holder an amount equal to the principal amount to be repaid together with interest accrued and unpaid thereon to the date fixed for such prepayment, and reasonable out-of-pocket costs and expenses (including, without limitation, reasonable fees, charges and disbursements of counsel), if any, associated with such prepayment; provided, however, each prepayment of less than the full outstanding balance of the principal amount of this Note shall be in an aggregate principal amount of this Note of $1,000,000 or integral multiples of $100,000 in excess thereof, and provided, further, that unless this Note and all Notes shall be paid in full, the aggregate principal balance of the Notes outstanding at any time shall be at least $500,000. No prepayment penalty or premium shall apply in respect of any optional prepayment made in accordance with this paragraph.(b) The Borrower may give written notice of prepayment of this Note or any portion thereof not less than 10 nor more than 60 days prior to the date fixed for such prepayment. Such notice of prepayment shall be given in the manner specified in Section 11.2 of the Purchase Agreement. Upon notice of prepayment being given by the Borrower, the Borrower covenants and agrees that it will prepay, on the date therein fixed for prepayment, this Note or the portion hereof so called for prepayment, at the outstanding principal amount thereof or the portion thereof so called for prepayment, together with interest accrued and unpaid thereon to the date fixed for such prepayment, together with the costs and expenses referred to in Section 4(a). - 4 - (c) All optional prepayments under this Section 4 shall include payment of accrued interest on the principal amount so prepaid and shall be applied first to all costs, expenses and indemnities payable under the Purchase Agreement, then to payment of default interest, if any, then to payment of accrued interest, and thereafter to principal. 5. Amendment. Amendments and modifications of this Note may be made only in the manner provided in Section 11.4 of the Purchase Agreement. 6. Defaults and Remedies. (a) Events of Default. An "Event of Default" shall occur if: (i) the Borrower shall default in the payment of the principal of this Note, when and as the same shall become due and payable, whether at maturity or at a date fixed for prepayment or by acceleration or otherwise; or (ii) the Borrower shall default in the payment of any installment of interest on this Note according to its terms, when and as the same shall become due and payable and such default shall continue for a period of 5 days; or (iii) the Borrower shall default in the due observance or performance of any covenant to be observed or performed pursuant to Sections 8.1, 8.2(a), 8.3, 8.7, 8.8, 8.10, 8.11 or Article 9 of the Purchase Agreement, and provided, however, that a default under Article 9 which does not or is not likely to have a material adverse effect on the Condition of the Company shall become an Event of Default only if such default shall continue for a period of 10 days; or (iv) the Borrower or any of its Subsidiaries shall default in the due observance or performance of any other covenant, condition or agreement on the part of the Borrower or any of its Subsidiaries to be observed or performed pursuant to the terms hereof or pursuant to the terms of the Purchase Agreement or any of the Transaction Documents (other than those referred to in clauses (i), (ii) or (iii) of this Section 6(a)), and such default shall continue for 30 days after the earliest of (A) the date the Borrower is required pursuant to the Transaction Documents or otherwise to give notice thereof to the Holder (whether or not such notice is actually given) or (B) the date of written notice thereof, specifying such default and, if such default is capable of being remedied, requesting that the same be remedied, shall have been given to the Borrower by the Holder; or (v) any representation, warranty or certification made by or on behalf of the Borrower or any of its Subsidiaries in the Purchase Agreement, this Note, the Transaction Documents or in any certificate or other document delivered pursuant hereto or thereto shall have been incorrect when made; or - 5 - (vi) any event or condition shall occur that results in the acceleration of the maturity of any Indebtedness of the Borrower or any of its Subsidiaries, in a principal amount aggregating $100,000 or more; or (vii) an involuntary proceeding shall be commenced or an involuntary petition shall be filed in a court of competent jurisdiction seeking (a) relief in respect of the Borrower or any of its Subsidiaries, or of a substantial part of its property or assets, under Title 11 of the United States Code, as now constituted or hereafter amended, or any other Federal or state bankruptcy, insolvency, receivership or similar law, (b) the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for the Borrower or any of its Subsidiaries, or for a substantial part of its property or assets, or (c) the winding up or liquidation of the Borrower or any Subsidiary; and such proceeding or petition shall continue undismissed for 60 days, or an order or decree approving or ordering any of the foregoing shall be entered; or (viii) the Borrower or any of its Subsidiaries shall (a) voluntarily commence any proceeding or file any petition seeking relief under Title 11 of the United States Code, as now constituted or hereafter amended, or any other Federal or state bankruptcy, insolvency, receivership or similar law, (b) consent to the institution of, or fail to contest in a timely and appropriate manner, any proceeding or the filing of any petition described in paragraph (vii) of this Section 6(a), (c) apply for or consent to the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for the Borrower or any of its Subsidiaries, or for a substantial part of their property or assets, (d) file an answer admitting the material allegations of a petition filed against it in any such proceeding, (e) make a general assignment for the benefit of creditors, (f) become unable, admit in writing its inability or fail generally to pay its debts as they become due or (g) take any action for the purpose of effecting any of the foregoing; or (ix) one or more judgments for the payment of money in an aggregate amount in excess of $500,000 (to the extent not covered by insurance) shall be rendered against the Borrower or any of its Subsidiaries and the same shall remain undischarged for a period of 30 days during which execution shall not be effectively stayed, or any action shall be legally taken by a judgment creditor to levy upon assets or properties of the Borrower or any of its Subsidiaries to enforce any such judgment. (b) Acceleration. If an Event of Default occurs under Section 6(a)(vii) or (viii), then the outstanding principal of and all accrued interest on this Note shall automatically become immediately due and payable, without presentment, demand, protest or notice of any kind, all of which are hereby expressly waived. If any other Event of Default occurs and is continuing, other than a default under Section 8.7 of the Purchase Agreement, the Holder, by written notice to the - 6 - Borrower, may declare the principal of and accrued interest on this Note to be immediately due and payable. Upon such declaration, such principal and interest shall become immediately due and payable. The Holder may rescind an acceleration and its consequences if all existing Events of Default have been cured or waived, except nonpayment of principal or interest that has become due solely because of the acceleration, and if the rescission would not conflict with any judgment or decree. Any notice or rescission shall be given in the manner specified in Section 11.2 of the Purchase Agreement. If any Event of Default occurs under Section 8.7 of the Purchase Agreement related to the failure to prepay amounts required on or prior to December 31, 2003, then, unless Borrower fails to take the remedial action set forth in such Section 8.7, Holder may not accelerate this Note or declare the full amount of principal then due and payable. Nothing in the preceding sentence shall impair any other remedy available to Holder as a result of such Event of Default (including the right to charge interest at the Default Rate, or the right to accelerate this Note upon Borrower's failure to issue Additional Notes or Additional Warrants or to prepay principal as agreed on or before December 31, 2004). 7. Subordination. Subject to the limitations set forth in Section 7(p) below, this Note shall at all times be wholly subordinate and junior in right of payment to all Senior Indebtedness to the extent and in the manner provided in this Section 7. (a) Definitions. As used in this Section 7, the following terms shall have the following meanings: "Indebtedness" shall have the meaning assigned to that term in the Purchase Agreement. "Senior Covenant Default" shall mean any event of default as defined under any agreement pertaining to Senior Indebtedness, other than a Senior Payment Default. "Senior Credit Agreement" means the Senior Credit Agreement, as in effect on the date hereof, by and among the Company, certain of its subsidiaries and Foothill Capital Corporation. "Senior Indebtedness" has the meaning given to such term in the Purchase Agreement. "Senior Default" shall mean a Senior Payment Default or a Senior Covenant Default. "Senior Payment Default" shall mean any default in the payment of any Senior Indebtedness. "Subordinated Indebtedness" shall mean (i) the principal of and interest on this Note; (ii) any other obligations of the Borrower arising out of or in connection with the Purchase Agreement, this Note or the other Transaction Documents and (iii) any obligations of any of - 7 - Borrower's Subsidiaries arising out of or in connection with the Guaranties or the other Transaction Documents. (b) General. Upon the maturity of any Senior Indebtedness by lapse of time, acceleration, required prepayment or otherwise, all Senior Indebtedness shall first be paid in full, or such payment duly provided for in cash or in a manner satisfactory to the holders of such Senior Indebtedness, before any payment is made on account of the Subordinated Indebtedness or by the Borrower or Affiliates of the Borrower to acquire this Note. Notwithstanding any provision in Section 7 of this Note to the contrary, (i) for so long as no Senior Default has occurred and is continuing, or would occur as a result of such a payment, the Borrower may pay and the Holder may receive (A) all regularly scheduled payments of interest under this Note, and (B) all amounts due to the Holder or its Affiliates pursuant to either Section 2.4 or Section 7.1 of the Purchase Agreement, (ii) for so long as no Senior Default has occurred and is continuing or would occur as a result of any such prepayment, Borrower may prepay this Note in accordance with the provisions of Section 3 hereof, and the Holder may receive such prepayments, (iii) for so long as no Senior Default has occurred and is continuing, or would occur as a result of such a payment, the Borrower may prepay this Note in accordance with the provisions of Section 4 hereof and the Holder may receive such prepayments, and (iv) the Holder may receive any distributions provided for in Section 7(e)(ii) or 7(e)(iv) hereof. (c) Limitation on Payment. (i) Upon receipt by the Borrower and the Holder of a Blockage Notice (as defined below), then unless and until (1) all Senior Defaults that gave rise to the Blockage Notice shall have been remedied or effectively waived or shall have ceased to exist, or (2) the Senior Indebtedness in respect of which such Senior Defaults shall have occurred shall have been paid in full, no direct or indirect payment (in cash, property, securities or by set-off or otherwise) of or on account of the principal of or interest on this Note or as a sinking fund for this Note or in respect of any redemption, retirement, purchase or other acquisition of this Note shall be made during any period prior to the expiration of the Blockage Period (as defined below). Notwithstanding the foregoing, all interest paid with respect to this Note prior to the receipt of the Blockage Notice in question by the Holder hereof may be kept by such Holder. (ii) For purposes of this Section 7, a "Blockage Notice" is a notice of a Senior Default that in fact has occurred and is continuing, given to the Borrower and the Holder by the holders of a majority in principal amount of the Senior Indebtedness then outstanding (or their authorized agent); provided, however, that no such notice shall be effective as a Blockage Notice if an effective Blockage Notice shall have been given within 360 days prior thereto. - 8 - (iii) For purposes of this Section 7, a "Blockage Period" with respect to a Blockage Notice is the period commencing upon the Borrower's receipt of such Blockage Notice and having a duration as follows: (1) 180 days if the Senior Default to which the Blockage Notice refers is a Senior Payment Default; or (2) 90 days if the Senior Default to which the Blockage Notice refers is a Senior Covenant Default. Notwithstanding any provision contained herein to the contrary: (A) the Borrower shall not be prohibited from making, and the Holder shall not be prohibited from receiving, payments under this Note pursuant to Section 7(c)(iii)(2) hereof for more than an aggregate of 180 days within any 360 day period, (B) there shall not be more than two Blockage Notices given in any 365 day period; (C) no Senior Covenant Default existing on the date any Blockage Notice is given to the Holder shall be used as a basis for any subsequent such notice, unless such Senior Covenant Default shall have ceased to exist for a period of at least 180 consecutive days; and (D) once all Senior Defaults which gave rise to the Blockage Notice in question shall have been remedied or effectively waived or shall have ceased to exist, or the Senior Indebtedness in respect of which such Senior Defaults shall have occurred shall have been paid in full, thereafter (unless another Blockage Period shall then be in effect) all amounts which would have been payable hereunder but for the existence of the Blockage Period effected by the Blockage Notice delivered with respect to the Senior Default in question shall be payable in their entirety. (d) Limitation on Remedies. As long as any Senior Indebtedness remains outstanding, upon the occurrence of an Event of Default under this Note, the Holder shall not, unless the holders of any Senior Indebtedness shall have caused such Senior Indebtedness to become due prior to its stated maturity or any Event of Default pursuant to Section 6(a)(vii) or (viii) of this Note shall have commenced, declare or join in any declaration of this Note to be due and payable by reason of such Event of Default or otherwise take any action against the Borrower (including, without limitation, commencing any legal action against the Borrower or filing or joining in the filing of any insolvency petition against the Borrower) prior to the expiration of 30 days after the written notice of the Holder's ability to accelerate on account of the occurrence of such Event of Default (a "Remedy Notice") shall have been given by the Holder to the Borrower and the holders of the Senior Indebtedness (a "Remedy Standstill Period"), provided, that such Remedy Standstill Period shall be extended to (i) 60 days from the date of such Remedy Notice if, at the time the Remedy Standstill Period would otherwise expire, there exists any Senior Covenant Default, or (ii) 90 days from the date of such Remedy Notice if, at the time the Remedy Standstill Period would otherwise expire, there exists any Senior Payment Default. Notwithstanding the foregoing, the Remedy Standstill Period shall be inapplicable or cease to be effective if the holders of any Senior Indebtedness shall have caused such Senior Indebtedness to become due prior to its stated maturity or an Event of Default pursuant to Section 6(a)(vii) or (viii) shall have occurred. In addition, any Remedy Standstill Period shall - 9 - cease to be effective if at any time during such period: (i) (A) substantial assets of Borrower or any of its Subsidiaries are sold or otherwise disposed of (other than to a Person which is either wholly owned by Borrower or a wholly owned Subsidiary thereof) outside of the ordinary course of business, (B) an agreement or other arrangement for such sale or disposition is entered into, or (C) the Board of Directors of the Borrower or such subsidiary authorizes or approves such agreement, arrangement, sale or disposition or (ii)(A) payment or any distribution of any character, whether in cash, securities or other property of Borrower or any of its Subsidiaries shall be made to or received by any creditor outside the ordinary course of business on any Indebtedness which is on the same level of priority with or junior and subordinate in right of payment to this Note, (B) an agreement or other arrangement for such payment or distribution is entered into, or (C) the Board of Directors of the Borrower or such Subsidiary authorizes or approves such agreement, arrangement, payment or distribution. Upon the expiration or termination of any Remedy Standstill Period, the Holder shall be entitled to exercise any of its rights with respect to this Note other than any right to accelerate the maturity date of this Note based upon the occurrence of any Event of Default in respect thereto which has been cured or otherwise remedied during the Remedy Period. (e) Subordination Upon Certain Events. Upon the occurrence of any Event of Default with respect to under Sections 6(a)(vii) or (viii) of this Note: (i) Upon any payment or distribution of assets of the Borrower to creditors of the Borrower, holders of Senior Indebtedness shall be entitled to receive indefeasible payment in full of all obligations with respect to the Senior Indebtedness before the Holder shall be entitled to receive any payment in respect of the Subordinated Indebtedness. (ii) Until all Senior Indebtedness is paid in full, any distribution to which the Holder would be entitled but for this Section 7 shall be made to the holders of Senior Indebtedness, as their interests may appear, except that the Holder may, pursuant to a plan of reorganization under Chapter 11 of the Bankruptcy Code of 1978, as amended, or any similar provision of any successor legislation thereto, receive securities that are subordinate to the Senior Indebtedness to at least the same extent as this Note if pursuant to such plan the distributions to the holders of the Senior Indebtedness in the form of cash, securities or other property, by set-off or otherwise, provide for payment of the full amount of the allowed claim of the holders of the Senior Indebtedness. (iii) For purposes of this Section 7, a distribution may consist of cash, securities or other property, by set-off or otherwise. (iv) Notwithstanding the foregoing provisions of Section 7(b),(c) or (e), if payment or delivery by the Borrower of cash, securities or other property to the Holder is authorized by an order or decree giving effect, and stating in such order or decree that effect is given, to the subordination of this Note to the Senior Indebtedness, and made by a court of competent - 10 - jurisdiction in a proceeding under any applicable bankruptcy or reorganization law, payment or delivery by such Borrower of such cash, securities or other property shall be made to the Holder in accordance with such order or decree. (f) Payments and Distributions Received. If the Holder shall have received any payment from or distribution of assets of the Borrower in respect of the Subordinated Indebtedness in contravention of the terms of this Section 7 before all Senior Indebtedness is paid in full, then and in such event such payment or distribution shall be received and held in trust for and shall be promptly paid over or delivered to the holders of Senior Indebtedness to the extent necessary to pay all such Senior Indebtedness in full. (g) Proofs of Claim. If, while any Senior Indebtedness is outstanding, any Event of Default under Section 6(a)(vii) or (viii) of this Note occurs with respect to the Borrower, the Holder shall duly and promptly take such action as any holder of Senior Indebtedness may reasonably request to collect any payment with respect to this Note for the account of the holders of the Senior Indebtedness and to file appropriate claims or proofs of claim in respect of this Note. Upon the failure of the Holder to take any such action, each holder of Senior Indebtedness is hereby irrevocably authorized and empowered (in its own name or otherwise), but shall have no obligation, to demand, sue for, collect and receive every payment or distribution referred to in respect of this Note and to file claims and proofs of claim and take such other action as it may deem necessary or advisable for the exercise or enforcement of any of the rights or interests of the Holder with respect to this Note. (h) Subrogation. After all amounts payable under or in respect of Senior Indebtedness are paid in full, the Holder shall be subrogated to the rights of holders of Senior Indebtedness to receive payments or distributions applicable to Senior Indebtedness to the extent that distributions otherwise payable to the Holder have been applied to the payment of Senior Indebtedness. A distribution made under this Section 7 to a holder of Senior Indebtedness which otherwise would have been made to the Holder is not, as between the Borrower and the Holder, a payment by the Borrower on Senior Indebtedness. (i) Relative Rights. This Section defines the relative rights of the Holder and the holders of Senior Indebtedness. Nothing in this Section shall: (1) impair, as between the Borrower and the Holder, the obligations of the Borrower, which are absolute and unconditional, to pay principal of and interest (including default interest) on this Note in accordance with its terms; (2) affect the relative rights of the Holder and creditors of the Borrower other than holders of Senior Indebtedness or (3) prevent the Holder from exercising its available remedies upon a default or Event of Default, subject to the rights, if any, under this Section 7 of holders of Senior Indebtedness. - 11 - (j) Subordination May Not Be Impaired by the Borrower. No right of any holder of any Senior Indebtedness to enforce the subordination of the Indebtedness evidenced by this Note shall be impaired by any failure to act by the Borrower or such holder of Senior Indebtedness or by the failure of the Borrower or such holder to comply with this Note. The provisions of this Section 7 shall continue to be effective or be reinstated, as the case may be, if at any time any payment of any of the Senior Indebtedness is rescinded or must otherwise be returned by any holder of Senior Indebtedness as a result of the insolvency, bankruptcy or reorganization of the Borrower or any of its Subsidiaries or otherwise, all as though such payment had not been made. (k) Payments. A payment with respect to principal of or interest on the Subordinated Indebtedness shall include, without limitation, payment of principal of, and interest on this Note, any depositing of funds for the defeasance of the Subordinated Indebtedness, any sinking fund and any payment on account of mandatory prepayment or optional prepayment provisions. (l) Section Not to Prevent Events of Default. The failure to make a payment on account of principal of or interest on or other amounts constituting Subordinated Indebtedness by reason of any provision of this Section 7 shall not be construed as preventing the occurrence of an Event of Default under Section 6. (m) Subordination Not Impaired: Benefit of Subordination. The Holder agrees and consents that without notice to or assent by such Holder, and without affecting the liabilities and obligations of the Borrower and the rights and benefits of the holders of the Senior Indebtedness set forth in this Section 7: (i) The obligations and liabilities of the Borrower and any other party or parties for or upon the Senior Indebtedness may, from time to time, be increased, renewed, refinanced, extended, modified, amended, restated, compromised, supplemented, terminated, waived or released, except as prohibited by Sections 9.3 and 9.4 of the Purchase Agreement; (ii) The holders of Senior Indebtedness, and any representative or representatives acting on behalf thereof, may exercise or refrain from exercising any right, remedy or power granted by or in connection with any agreements relating to the Senior Indebtedness; and (iii) Any balance or balances of funds with any holder of Senior Indebtedness at any time outstanding to the credit of the Borrower may, from time to time, in whole or in part, be surrendered or released; all as the holders of the Senior Indebtedness, and any representative or representatives acting on behalf thereof, may deem advisable, and all without impairing, abridging, diminishing, releasing or affecting the subordination of the Subordinated Indebtedness to the Senior Indebtedness provided for herein. - 12 - (n) Modification of Section 7. The provisions of this Section 7 are for the benefit of the holders from time to time of Senior Indebtedness and, so long as any Senior Indebtedness remains unpaid, may not be modified, rescinded or canceled in whole or in part without the prior written consent thereto of all holders of Senior Indebtedness. (o) Covenants of Holder. Until all of the Senior Indebtedness has been fully paid: (i) The Holder shall not hereafter give any subordination in respect of this Note. (ii) Upon the occurrence and during the continuance of a Senior Default, the Holder shall not release, exchange, extend the time of payment of, compromise, set off or otherwise discharge any part of this Note or modify or amend this Note; provided, however, that at such time or times as the actions referred to in this Section 7(o)(ii) may be taken by the Holder, such Holder shall give the holders of Senior Indebtedness five Business Days prior written notice before taking any of such actions. (iii) The Holder hereby undertakes and agrees for the benefit of the holders of Senior Indebtedness that, upon the occurrence and during the continuance of a Senior Default, it shall take any actions reasonably requested by any holder of Senior Indebtedness to effectuate the full benefit of the subordination contained herein. (p) Covenant of the Borrower, Limitation on Indebtedness. Until all Subordinated Indebtedness shall have been paid in full, the Borrower shall not, and shall not cause, suffer or permit any of its Subsidiaries to, directly or indirectly, collectively and in the aggregate, issue, assume or otherwise incur Senior Indebtedness or other Indebtedness except as permitted under Section 9.4 of the Purchase Agreement, as it now exists or may be amended or modified. (q) Miscellaneous. (i) To the extent permitted by applicable law, the Holder and the Borrower hereby waive (1) notice of acceptance hereof by the holders of the Senior Indebtedness, and (2) all diligence in the collection or protection of or realization upon the Senior Indebtedness. (ii) The Borrower and the Holder hereby expressly agree that the holders of Senior Indebtedness may enforce any and all rights derived herein by suit, either in equity or law, for specific performance of any agreement contained in this Section 7 or for judgment at law and any other relief whatsoever appropriate to such action or procedure. (iii) The Holder acknowledges and agrees that the foregoing subordination provisions are, and are intended to be, an inducement and a consideration to each holder of Senior Indebtedness, whether such Senior Indebtedness - 13 - was created or acquired before or after the issuance of this Agreement, and each holder of Senior Indebtedness shall be deemed conclusively to have relied upon such subordination provisions in acquiring and continuing to hold such Senior Indebtedness. (r) Subordination Agreement. Notwithstanding anything to the contrary contained in this Section 7, the terms and conditions of the Subordination Agreement dated the date hereof among WMF, the Borrower and Foothill Capital Corporation (the "Subordination Agreement") shall govern the subordination of the Subordinated Indebtedness as long as the Subordination Agreement remains in full force and effect. 8. Use of Proceeds. The Borrower shall use the principal amount of this Note in accordance with the permitted uses described in Section 8.10 of the Purchase Agreement. 9. Suits for Enforcement. (a) Subject to Section 7, upon the occurrence of any one or more Events of Default, the Holder of this Note may proceed to protect and enforce its rights hereunder by suit in equity, action at law or by other appropriate proceeding, whether for the specific performance of any covenant or agreement contained in the Purchase Agreement or this Note or in aid of the exercise of any power granted in the Purchase Agreement or this Note, or may proceed to enforce the payment of this Note, or to enforce any other legal or equitable right of the Holders of this Note. (b) In case of any default under this Note, the Borrower will pay to the Holder such amounts as shall be sufficient to cover the costs and expenses of such Holder due to such default, as provided in Article 7 of the Purchase Agreement. 10. Remedies Cumulative. No remedy herein conferred upon the Holder is intended to be exclusive of any other remedy and each and every such remedy shall be cumulative and shall be in addition to every other remedy given hereunder or now or hereafter existing at law or in equity or by statute or otherwise. 11. Remedies Not Waived. No course of dealing between the Borrower and the Holder or any delay on the part of the Holder in exercising any rights hereunder shall operate as a waiver of any right. 12. Transfer. (a) The term "Holder" as used herein shall also include any transferee of this Note whose name has been recorded by the Borrower in the Note Register. Each transferee of this Note acknowledges that this Note has not been registered under the Securities Act, and may be transferred only pursuant to an effective registration under the Securities Act or pursuant to an applicable exemption from the registration requirements of the Securities Act. - 14 - (b) The Borrower shall maintain a register (the "Note Register") in its principal offices for the purpose of registering the Note and any transfer or partial transfer thereof, which register shall reflect and identify, at all times, the ownership of record of any interest in the Note. Upon the issuance of this Note, the Borrower shall record the name and address of the initial purchaser of this Note in the Note Register as the first Holder. Upon surrender for registration of transfer or exchange of this Note at the principal offices of the Borrower, the Borrower shall, at its expense, execute and deliver one or more new Notes of like tenor and of denominations of at least $500,000 (except as may be necessary to reflect any principal amount not evenly divisible by $500,000 of a like aggregate principal amount, registered in the name of the Holder or a transferee or transferees. Every Note surrendered for registration of transfer or exchange shall be duly endorsed, or be accompanied by written instrument of transfer duly executed by the Holder of such Note or such holder's attorney duly authorized in writing. (c) This Note may be transferred or assigned, in whole or in part, by the Holder at any time. 13. Replacement of Note. On receipt by the Borrower of an affidavit of an authorized representative of the Holder stating the circumstances of the loss, theft, destruction or mutilation of this Note (and in the case of any such mutilation, on surrender and cancellation of such Note), the Borrower, at its expense, will promptly execute and deliver, in lieu thereof, a new Note of like tenor. If required by the Borrower, such Holder must provide indemnity sufficient in the reasonable judgment of the Borrower to protect the Borrower from any loss which they may suffer if a lost, stolen or destroyed Note is replaced. 14. Covenants Bind Successors and Assigns. All the covenants, stipulations, promises and agreements in this Note contained by or on behalf of the Borrower shall bind its successors and assigns, whether so expressed or not. 15. Notices. All notices, demands and other communications provided for or permitted hereunder shall be made in writing and shall be by registered or certified first-class mail, return receipt requested, telecopier (with receipt confirmed), courier service or personal delivery at the addresses specified in Section 11.2 of the Purchase Agreement. All such notices and communications shall be deemed to have been duly given when: delivered by hand, if personally delivered; when delivered by courier, if delivered by commercial overnight courier service; if mailed, five Business Days after being deposited in the mail, postage prepaid; or if telecopied, when receipt is acknowledged. 16. GOVERNING LAW. THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF LAW OF SUCH STATE (INCLUDING GIVING EFFECT TO GOL SECTION 5-1401). 17. Severability. If any one or more of the provisions contained herein, or the application thereof in any circumstance, is held invalid, illegal or unenforceable in any respect for any - 15 - reason, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions hereof shall not be in any way impaired, unless the provisions held - 16 - invalid, illegal or unenforceable shall substantially impair the benefits of the remaining provisions hereof 18. Headings. The headings in this Note are for convenience of reference only and shall not limit or otherwise affect the meaning hereof MERCURY AIR GROUP, INC. By: ____________________________ Name: Title: - 17 - EX-10.5 7 a87201exv10w5.txt EXHIBIT 10.5 EXHIBIT 10.5 SECURITY AGREEMENT BY AND BETWEEN MERCURY AIR GROUP, INC., AND EACH OF ITS SUBSIDIARIES THAT ARE SIGNATORIES HERETO AS OBLIGORS AND J. H. WHITNEY MEZZANINE FUND, L.P. AS THE LENDERS, DATED AS OF DECEMBER 30, 2002 THIS AGREEMENT AND THE INDEBTEDNESS EVIDENCED HEREBY IS SUBORDINATE IN THE MANNER AND TO THE EXTENT SET FORTH IN THAT CERTAIN SUBORDINATION AGREEMENT, DATED AS OF DECEMBER 30, 2002, BY AND AMONG THE PARTIES HERETO AND FOOTHILL CAPITAL CORPORATION, AS SUCH AGREEMENT MAY BE AMENDED FROM TIME TO TIME. Exhibit 10.5 TABLE OF CONTENTS 1. DEFINITIONS AND CONSTRUCTION............................................................................ 1 1.1. Definitions.................................................................................... 1 1.2. Accounting Terms............................................................................... 8 1.3. Code........................................................................................... 8 1.4. Construction................................................................................... 9 1.5. Schedules and Exhibits......................................................................... 9 2. APPLICATION OF PROCEEDS................................................................................. 9 2.1. Application.................................................................................... 9 2.2. Paid in Full................................................................................... 10 2.3. Conflict....................................................................................... 10 3. CONDITIONS PRECEDENT.................................................................................... 10 4. CREATION OF SECURITY INTEREST........................................................................... 10 4.1. Grant of Security Interest..................................................................... 10 4.2. Negotiable Collateral.......................................................................... 11 4.3. Collection of Accounts, General Intangibles, and Negotiable Collateral......................... 11 4.4. Delivery of Additional Documentation Required.................................................. 11 4.5. Power of Attorney.............................................................................. 12 4.6. Right to Inspect............................................................................... 12 4.7. Control Agreements............................................................................. 12 5. REPRESENTATIONS AND WARRANTIES.......................................................................... 12 5.1. No Encumbrances................................................................................ 12 5.2. Equipment...................................................................................... 13 5.3. Location of Inventory and Equipment; FBOs...................................................... 13 5.4. Inventory Records.............................................................................. 13 5.5. Location of Chief Executive Office; FEIN....................................................... 13 5.6. Stock and Subsidiaries......................................................................... 13 5.7. Due Authorization; No Conflict................................................................. 13 5.8. Fraudulent Transfer............................................................................ 14 5.9. Intellectual Property.......................................................................... 14 5.10. DDAs ...................................................................................... 14 6. AFFIRMATIVE COVENANTS................................................................................... 14 6.1. Post Closing Conditions........................................................................ 14 6.2. Accounting System.............................................................................. 15 6.3. Collateral Reporting........................................................................... 15 6.4. Maintenance of Properties...................................................................... 15 6.5. Insurance...................................................................................... 15 6.6. Location of Inventory and Equipment............................................................ 16 6.7. Leases......................................................................................... 16 6.8. Existence...................................................................................... 16 6.9. Environmental.................................................................................. 16 7. NEGATIVE COVENANTS...................................................................................... 17 7.1. Change Name.................................................................................... 17 7.2. Change in Location of Chief Executive Office; Inventory and Equipment with Bailees............. 17 7.3. Securities Accounts............................................................................ 17 8. SUBORDINATION AGREEMENT................................................................................. 17 9. THE LENDER'S RIGHTS AND REMEDIES........................................................................ 17 9.1. Rights and Remedies............................................................................ 17 9.2. Remedies Cumulative............................................................................ 19 10. TAXES AND EXPENSES...................................................................................... 19 11. WAIVERS; INDEMNIFICATION................................................................................ 19 11.1. Demand; Protest; etc........................................................................... 19 11.2. Lender's Liability for Collateral.............................................................. 20 11.3. Indemnification................................................................................ 20 12. NOTICES................................................................................................. 20 13. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER.............................................................. 20 13.1. GOVERNING LAW.................................................................................. 20 13.2. NEW YORK COURTS................................................................................ 20 13.3. WAIVER OF JURY TRIAL........................................................................... 20 14. ASSIGNMENTS AND SUCCESSORS.............................................................................. 21 15. AMENDMENTS; WAIVERS..................................................................................... 21 15.1. Amendments and Waivers......................................................................... 21 15.2. No Waivers; Cumulative Remedies................................................................ 21 16. GENERAL PROVISIONS...................................................................................... 21 16.1. Effectiveness.................................................................................. 21 16.2. Section Headings............................................................................... 21 16.3. Interpretation................................................................................. 21 16.4. Severability of Provisions..................................................................... 22 16.5. Amendments in Writing.......................................................................... 22 16.6. Counterparts; Telefacsimile Execution.......................................................... 22 16.7. Revival and Reinstatement of Obligations....................................................... 22 16.8. Integration.................................................................................... 22 16.9. Parent as Agent for Obligors................................................................... 22 ii EXHIBITS AND SCHEDULES Schedule D-1 Designated Account Schedule F-1 FBOs Schedule L-1 Liens to be Released Schedule R-1 Real Property Excluded from Collateral Schedule 5.3 Locations of Inventory and Equipment Schedule 5.5 Location of Chief Executive Office; FEIN Schedule 5.6 Stock and Subsidiaries Schedule 5.9 Intellectual Property Schedule 5.10 DDAs iii EXHIBIT 10.5 SECURITY AGREEMENT THIS SECURITY AGREEMENT (this "Agreement"), is entered into as of December 30, 2002, between J.H. Whitney Mezzanine Fund, L.P. ("Lender"), a Delaware limited partnership, and Mercury Air Group, Inc., a Delaware corporation ("Parent") and each of Parent's Subsidiaries identified on the signature pages hereof (such Subsidiaries, are referred to hereinafter each individually as a "Guarantor", and the Guarantors, together with Parent, are individually and collectively, jointly and severally, referred to as the "Obligors"). WHEREAS, Lender and Parent entered into a Securities Purchase Agreement, dated as of September 10, 1999, as amended by Amendment No. 1 dated as of September 30, 2000 and Amendment No. 2 dated as of September 30, 2001 (as so amended, the "Original Purchase Agreement"), pursuant to which, among other things, Lender purchased from Parent (a) a subordinated promissory note due September 9, 2006 in the principal amount of $24,000,000 (the "Note"), and (b) a warrant to purchase 503,126 shares of common stock, $.01 par value per share, of Parent (the "Warrant"); WHEREAS, one or more Events of Default have occurred and are continuing under the Note and Parent has requested that Lender not exercise its rights to, among other things, declare all outstanding principal and accrued interest on the Note to be immediately due and payable; WHEREAS, Parent has requested that Lender provide the waiver and enter into the amendments to the Original Purchase Agreement provided for Amendment No. 3, dated as of December 30, 2002, between Lender and Parent ("Amendment No. 3"), and Lender has agreed to provide such waiver and amend the Original Purchase Agreement on the terms and conditions set forth in Amendment No. 3; and WHEREAS, as a condition to Lender agreeing to enter into Amendment No. 3 and to amend the Original Purchase Agreement as provided for therein, Parent has agreed to grant, and to procure that each Guarantor grants, a security interest in certain of its assets to Lender. The parties agree as follows: 1. DEFINITIONS AND CONSTRUCTION. 1.1. Definitions. As used in this Agreement, the following terms shall have the following definitions: "Account Debtor" means any Person who is or who may become obligated under, with respect to, or on account of, an Account, chattel paper, or a General Intangible. "Accounts" means all of Obligor's now owned or hereafter acquired right, title, and interest with respect to "accounts" (as that term is defined in the Code), and any and all supporting obligations in respect thereof. "Additional Documents" has the meaning set forth in Section 4.4. "Affiliate" means, as applied to any Person, any other Person who, directly or indirectly, controls, is controlled by, or is under common control with, such Person. For purposes of this definition, "control" means the possession, directly or indirectly, of the power to direct the management and policies of a Person, whether through the ownership of Stock, by contract, or otherwise. "Agreement" has the meaning set forth in the preamble hereto. "Additional Note" has the meaning set forth in Amendment No. 3. "Additional Warrant" has the meaning set forth in Amendment No. 3. "Amended Note" has the meaning set forth in Amendment No. 3. "Amended Warrant" has the meaning set forth in Amendment No. 3. "Amendment No. 3" has the meaning set forth in the recitals hereto. "Assignment of Claims" means an Assignment of Claims Under Government Contract, in form and substance acceptable to Lender, with respect to each contract under which Maytag or any other Obligor provides services or goods to an Account Debtor which is the United States or any department, agency, or instrumentality of the United States. "Bankruptcy Code" means the United States Bankruptcy Code, as in effect from time to time. "Board of Directors" means the board of directors (or comparable managers) of Parent or any committee thereof duly authorized to act on behalf thereof. "Books" means all of each Obligor's and its Subsidiaries' now owned or hereafter acquired books and records (including all of its Records indicating, summarizing, or evidencing its assets (including the Collateral) or liabilities, all of each Obligor's or its Subsidiaries' Records relating to its or their business operations or financial condition, and all of its or their goods or General Intangibles related to such information). "Business Day" means any day that is not a Saturday, Sunday, or other day on which national banks are authorized or required to close. "Capital Lease" means a lease that is required to be capitalized for financial reporting purposes in accordance with GAAP. "Closing Date" means the date hereof. "Code" means the New York Uniform Commercial Code, as in effect from time to time. "Collateral" means all of each Obligor's now owned or hereafter acquired right, title, and interest in and to each of the following: 2 (a) Accounts, (b) Books, (c) Equipment, (d) General Intangibles, (e) Inventory, (f) Investment Property, (g) Negotiable Collateral, (h) Real Property Collateral, (i) money or other assets of each such Obligor that now or hereafter come into the possession, custody, or control of any member of the Lender Group, and (j) the proceeds and products, whether tangible or intangible, of any of the foregoing, including proceeds of insurance covering any or all of the foregoing, and any and all Accounts, Books, Equipment, General Intangibles, Inventory, Investment Property, Negotiable Collateral, Real Property, money, deposit accounts, or other tangible or intangible property resulting from the sale, exchange, collection, or other disposition of any of the foregoing, or any portion thereof or interest therein, and the proceeds thereof. "Collateral Access Agreement" means a landlord waiver, bailee letter, or acknowledgement agreement of any lessor, warehouseman, processor, consignee, or other Person in possession of, having a Lien upon, or having rights or interests in the Equipment or Inventory, in each case, in form and substance satisfactory to Lender. "Collections" means all cash, checks, notes, instruments, and other items of payment (including insurance proceeds, proceeds of cash sales, rental proceeds, and tax refunds) of Obligors. "Control Agreement" means a control agreement, in form and substance satisfactory to Lender, executed and delivered by the applicable Obligor, Lender, and the applicable securities intermediary with respect to a Securities Account or a bank with respect to a deposit account. "DDA" means any checking or other demand deposit account maintained by any Obligor. "Default" means an event, condition, or default that, with the giving of notice, the passage of time, or both, would be an Event of Default. "Designated Account" means that certain DDA of Parent identified on Schedule D-1. "Dollars" or "$" means United States dollars. 3 "Environmental Action" means any complaint, summons, citation, notice, directive, order, claim, litigation, investigation, judicial or administrative proceeding, judgment, letter, or other communication from any Governmental Authority, or any third party involving violations of Environmental Laws or releases of Hazardous Materials from (a) any assets, properties, or businesses of any Obligor or any predecessor in interest, (b) from adjoining properties or businesses, or (c) from or onto any facilities which received Hazardous Materials generated by any Obligor or any predecessor in interest. "Environmental Liabilities and Costs" means all liabilities, monetary obligations, Remedial Actions, losses, damages, punitive damages, consequential damages, treble damages, costs and expenses (including all reasonable fees, disbursements and expenses of counsel, experts, or consultants, and costs of investigation and feasibility studies), fines, penalties, sanctions, and interest incurred as a result of any claim or demand by any Governmental Authority or any third party, and which relate to any Environmental Action. "Environmental Lien" means any Lien in favor of any Governmental Authority for Environmental Liabilities and Costs. "Equipment" means all of Obligors' now owned or hereafter acquired right, title, and interest with respect to equipment, machinery, machine tools, motors, furniture, furnishings, fixtures, vehicles (including motor vehicles), tools, parts, goods (other than consumer goods, farm products, or Inventory), wherever located, including all attachments, accessories, accessions, replacements, substitutions, additions, and improvements to any of the foregoing. "Event of Default" has the meaning given to it in section 6 of the Note. "FBO" means a fixed base operator lease or similar agreement, identified on Schedule F-1 (as the same may be amended or modified from time to time), entered into by any Obligor with a municipality or other public agency owning or operating an airport located in the United States of America whereby such Obligor leases real property located at such airport for the purpose of providing services thereat. "FBO Obligors" means Mercury Air Center-Birmingham, LLC, Mercury Air Center-Bakersfield, Inc., Mercury Air Center-Burbank, Inc., Mercury Air Center-Fresno, Inc., Mercury Air Center-Los Angeles, Inc., Mercury Air Center-Ontario, Inc., Mercury Air Center-Santa Barbara, Inc., Mercury Air Center-Hartsfield, LLC, Mercury Air Center-Peachtree-Dekalb, LLC, Mercury Air Center- Ft. Wayne, LLC., Mercury Air Center-Jackson, L.L.C., Mercury Air Center-Reno, LLC, Mercury Air Center-Tulsa, LLC., Mercury Air Center-Charleston, LLC., Mercury Air Center-Johns Island, LLC., Mercury Air Center-Nashville, LLC., Mercury Air Center-Addison, Inc. and Mercury Air Center - Corpus Christi, Inc. "FEIN" means Federal Employer Identification Number. "General Intangibles" means all of Obligors' now owned or hereafter acquired right, title, and interest with respect to general intangibles (including payment intangibles, contract rights, rights to payment, rights arising under common law, statutes, or regulations, choses or things in action, goodwill, patents, trade names, trademarks, servicemarks, copyrights, blueprints, 4 drawings, purchase orders, customer lists, monies due or recoverable from pension funds, route lists, rights to payment and other rights under any royalty or licensing agreements, infringement claims, computer programs, information contained on computer disks or tapes, software, literature, reports, catalogs, money, deposit accounts, insurance premium rebates, tax refunds, and tax refund claims), and any and all supporting obligations in respect thereof, and any other personal property other than goods, Accounts, Investment Property, and Negotiable Collateral. "Governing Documents" means, with respect to any Person, the certificate or articles of incorporation, by-laws, or other organizational documents of such Person. "Guarantors" has the meaning given the term in the preamble of this Agreement, and includes any other Person executing a Guaranty in favor of Purchaser under the Purchase Agreement. "Insolvency Proceeding" means any proceeding commenced by or against any Person under any provision of the Bankruptcy Code or under any other state or federal bankruptcy or insolvency law, assignments for the benefit of creditors, formal or informal moratoria, compositions, extensions generally with creditors, or proceedings seeking reorganization, arrangement, or other similar relief. "Inventory" means all Obligors' now owned or hereafter acquired right, title, and interest with respect to inventory, including goods held for sale or lease or to be furnished under a contract of service, goods that are leased by a Obligor as lessor, goods that are furnished by a Obligor under a contract of service, and raw materials, work in process, or materials used or consumed in a Obligor's business. "Investment Property" means all of Obligors' now owned or hereafter acquired right, title, and interest with respect to "investment property" as that term is defined in the Code, and any and all supporting obligations in respect thereof. "Lender Expenses" means all (a) expenses of the Lender due under Section 11.13 of the Purchase Agreement, including fees or charges paid or incurred by Lender for public record searches (including tax lien, litigation, and UCC searches and including searches with the patent and trademark office, the copyright office, or the department of motor vehicles), filing, recording, publication, real estate surveys, real estate title policies and endorsements, (b) reasonable costs and expenses paid or incurred by Lender to correct any default or enforce any provision of this Agreement, or in gaining possession of, maintaining, handling, preserving, storing, shipping, selling, preparing for sale, or advertising to sell the Collateral, or any portion thereof, irrespective of whether a sale is consummated, (c) reasonable costs and expenses of third party claims or any other suit paid or incurred by Lender in enforcing or defending this Agreement, and (d) Lender's reasonable fees and expenses (including attorneys fees) incurred in terminating, enforcing (including reasonable attorneys fees and expenses incurred in connection with a "workout," a "restructuring," or an Insolvency Proceeding concerning any Obligor or in exercising rights or remedies under this Agreement), or defending this Agreement, irrespective of whether suit is brought, or in taking any Remedial Action concerning the Collateral. 5 "Lender's Liens" means the Liens granted by Obligors to Lender for the benefit of Lender under this Agreement or the other Loan Documents. "Lender-Related Persons" means Lender together with its Affiliates, officers, directors, employees, and agents. "Liens to be Released" means, collectively, the Liens set forth on Schedule L-1. "Loan Documents" means this Agreement, the Purchase Agreement, the Amended Note, the Amended Warrant, the Guaranties, the Mortgages, the Trademark Security Agreement, the Subordination Agreement, any Additional Note, any Additional Warrant, and any other agreement entered into, now or in the future, by any Obligor and Lender in connection with this Agreement. "Maytag" means Maytag Aircraft Corporation, a Colorado corporation. "Mortgage Policy" means a mortgagee title insurance policy (or marked commitments to issue the same) with respect to any Mortgage, issued by a title insurance company satisfactory to Lender, in an amount satisfactory to Lender, assuring Lender that such Mortgage is a valid and enforceable mortgage Lien on the Real Property Collateral subject thereto, free and clear of all defects and encumbrances except Permitted Encumbrances, and otherwise in form and substance satisfactory to Lender. "Mortgages" means, individually and collectively, one or more mortgages, deeds of trust, or deeds to secure debt, at any time executed and delivered by an Obligor in favor of Lender, in form and substance satisfactory to Lender, that encumbers any portion of the Real Property Collateral. "Negotiable Collateral" means all of Obligors' now owned and hereafter acquired right, title, and interest with respect to letters of credit, letter of credit rights, instruments, promissory notes, drafts, documents, and chattel paper (including electronic chattel paper and tangible chattel paper), and any and all supporting obligations in respect thereof. "Note" has the meaning set forth in the recitals hereto. "Notices of Assignment of Claims" means, collectively, the Notices of Assignment of Claims, executed by Lender, Maytag and/or such other Obligor as may be required by Lender, and addressed to the contracting officer and disbursing officer with respect to each contract subject to an Assignment of Claims. "Obligations" means all loans, advances, debts, principal, interest (including any interest that, but for the provisions of the Bankruptcy Code, would have accrued), premiums, liabilities, obligations, fees, charges, costs, Lender Expenses (including any fees or expenses that, but for the provisions of the Bankruptcy Code, would have accrued), lease payments, guaranties, covenants, and duties of any kind and description owing by Obligors to Lender pursuant to or evidenced by the Loan Documents and irrespective of whether for the payment of money, whether direct or indirect, absolute or contingent, due or to become due, now existing or 6 hereafter arising, and including all interest not paid when due and all Lender Expenses that Obligors are required to pay or reimburse by the Loan Documents, by law, or otherwise. Any reference in this Agreement or in the Loan Documents to the Obligations shall include all amendments, changes, extensions, modifications, renewals replacements, substitutions, and supplements, thereto and thereof, as applicable, both prior and subsequent to any Insolvency Proceeding. "Obligor" have the respective meanings set forth in the preamble to this Agreement. "Original Purchase Agreement" has the meaning set forth in the recitals hereto. "Parent" has the meaning set forth in the preamble to this Agreement. "Permitted Discretion" means a determination made in good faith and in the exercise of reasonable (from the perspective of a secured lender) business judgment. "Permitted Dispositions" means (a) sales or other dispositions by Obligors of Equipment that is substantially worn, damaged, or obsolete in the ordinary course of business, (b) sales by Obligors of Inventory to buyers in the ordinary course of business, (c) the use or transfer of money or Cash Equivalents by Obligors in a manner that is not prohibited by the terms of this Agreement or the other Loan Documents, and (d) the licensing by Obligors, on a non-exclusive basis, of patents, trademarks, copyrights, and other intellectual property rights in the ordinary course of business. "Permitted Protest" means the right of Parent or any of its Subsidiaries, as applicable, to protest any Lien (other than any such Lien that secures the Obligations), taxes (other than payroll taxes or taxes that are the subject of a United States federal tax lien), or rental payment, provided that (a) a reserve with respect to such obligation is established on the Books in such amount as is required under GAAP, (b) any such protest is instituted promptly and prosecuted diligently by Parent or any of its Subsidiaries, as applicable, in good faith, and (c) Lender is satisfied that, while any such protest is pending, there will be no impairment of the enforceability, validity, or priority of any of the Lender's Liens. "Personal Property Collateral" means all Collateral other than Real Property. "Purchase Agreement" means the Original Purchase Agreement as amended by Amendment No. 3. "Real Property" means any estates or interests in real property now owned or hereafter acquired by any Obligor or Guarantor and the improvements thereto. "Real Property Collateral" means any Real Property other than that described on Schedule R-1. "Record" means information that is inscribed on a tangible medium or which is stored in an electronic or other medium and is retrievable in perceivable form. 7 "Remedial Action" means all actions taken to (a) clean up, remove, remediate, contain, treat, monitor, assess, evaluate, or in any way address Hazardous Materials in the indoor or outdoor environment, (b) prevent or minimize a release or threatened release of Hazardous Materials so they do not migrate or endanger or threaten to endanger public health or welfare or the indoor or outdoor environment, (c) perform any pre-remedial studies, investigations, or post-remedial operation and maintenance activities, or (d) conduct any other actions authorized by 42 USC Section 9601. "SEC" means the United States Securities and Exchange Commission and any successor thereto. "Senior Agent" means the "Agent" as defined in the Senior Credit Agreement. "Senior Credit Agreement" has the meaning set forth in Amendment No. 3. "Senior Loan Documents" means the "Loan Documents" as set forth in the Senior Credit Agreement. "Stock" means all shares, options, warrants, interests, participations, or other equivalents (regardless of how designated) of or in a Person, whether voting or nonvoting, including common stock, preferred stock, or any other "equity security" (as such term is defined in Rule 3a11-1 of the General Rules and Regulations promulgated by the SEC under the Exchange Act). "Stock Pledge Agreement" means a stock pledge agreement, in form and substance satisfactory to Agent, executed and delivered by a Obligor with respect to the Stock of a Subsidiary of such Obligor; referred to collectively as the "Stock Pledge Agreements." "Stock Pledge Documentation" means Stock Pledge Agreements, together with all certificates representing the shares of Stock pledged thereunder and Stock powers with respect thereto executed in blank."Subordination Agreement" has the meaning set forth in Amendment No. 3. "Trademark Security Agreement" means a trademark security agreement executed and delivered by the applicable Obligor with respect to any trademark applications made by such Obligor, in form and substance satisfactory to Lender. "Voidable Transfer" has the meaning set forth in Section 16.7. "Warrant" has the meaning set forth in the recitals hereto. 1.2. Accounting Terms. All accounting terms not specifically defined herein shall be construed in accordance with GAAP. When used herein, the term "financial statements" shall include the notes and schedules thereto. Whenever the term "Obligor" or the term "Parent" is used in respect of a financial covenant or a related definition, it shall be understood to mean Parent and its Subsidiaries on a consolidated basis unless the context clearly requires otherwise. 1.3. Code. Any terms used in this Agreement that are defined in the Code shall be construed and defined as set forth in the Code unless otherwise defined herein. 8 1.4. Construction. (a) Unless the context of this Agreement or any other Loan Document clearly requires otherwise, references to the plural include the singular, references to the singular include the plural, the term "including" is not limiting, and the term "or" has, except where otherwise indicated, the inclusive meaning represented by the phrase "and/or." (b) The words "hereof," "herein," "hereby," "hereunder," and similar terms in this Agreement or any other Loan Document refer to this Agreement or such other Loan Document, as the case may be, as a whole and not to any particular provision of this Agreement or such other Loan Document, as the case may be. (c) Section, subsection, clause, schedule, and exhibit references herein are to this Agreement unless otherwise specified. (d) Any reference in this Agreement or in the other Loan Documents to any agreement, instrument, or document shall include all alterations, amendments, changes, extensions, modifications, renewals, replacements, substitutions, joinders, and supplements, thereto and thereof, as applicable (subject to any restrictions on such alterations, amendments, changes, extensions, modifications, renewals, replacements, substitutions, joinders, and supplements set forth herein). (e) Any reference herein to any Person shall be construed to include such Person's successors and assigns. (f) Any requirement of a writing contained herein or in the other Loan Documents shall be satisfied by the transmission of a Record and any Record transmitted shall constitute a representation and warranty as to the accuracy and completeness of the information contained therein. (g) Words and expressions defined in the Purchase Agreement shall, unless otherwise defined herein, have the same meanings when used herein. 1.5. Schedules and Exhibits. All of the schedules and exhibits attached to this Agreement shall be deemed incorporated herein by reference. 2. APPLICATION OF PROCEEDS. 2.1. Application. All proceeds of Accounts or other Collateral received by Lender shall be applied as follows: (a) first, to pay any Lender Expenses due under the Loan Documents until paid in full, (b) secondly, to pay interest due in respect of all outstanding amounts until paid in full, (c) thirdly, to pay outstanding principal until paid in full, and 9 (d) fourth, to Parent (to be wired to the Designated Account) or such other Person entitled thereto under applicable law. 2.2. Paid in Full. For purposes of the foregoing, "paid in full" means payment of all amounts owing under the Loan Documents according to the terms thereof, including loan fees, service fees, professional fees, interest (and specifically including interest accrued after the commencement of any Insolvency Proceeding), default interest, interest on interest, and expense reimbursements, whether or not the same would be or is allowed or disallowed in whole or in part in any Insolvency Proceeding. 2.3. Conflict. In the event of a direct conflict between the priority provisions of this Section 2.3 and other provisions contained in any other Loan Document, it is the intention of the parties hereto that such priority provisions in such documents shall be read together and construed, to the fullest extent possible, to be in concert with each other. In the event of any actual, irreconcilable conflict that cannot be resolved as aforesaid, the terms and provisions of this Section 2.3 shall control and govern. 3. CONDITIONS PRECEDENT. The effectiveness of Amendment No. 3 is conditioned upon the fulfillment, to the satisfaction of Lender, of each of the conditions precedent set forth below: (a) Lender shall have received all financing statements required by Lender, duly executed (if required) by the applicable Obligors, and Lender shall have received searches reflecting the filing of all such financing statements; (b) Lender shall have received the Subordination Agreement, in form and substance satisfactory to Lender, duly executed, and each such document shall be in full force and effect; and (c) Lender shall have received a certificate of insurance, together with the endorsements thereto, as are required by Section 6.5, the form and substance of which shall be satisfactory to Lender. 4. CREATION OF SECURITY INTEREST. 4.1. Grant of Security Interest. Each Obligor hereby grants to Lender a continuing security interest in all of its right, title, and interest in all currently existing and hereafter acquired or arising Personal Property Collateral in order to secure prompt repayment of any and all of the Obligations in accordance with the terms and conditions of the Loan Documents and in order to secure prompt performance by Obligors of each of their covenants and duties under the Loan Documents. The Lender's Liens in and to the Personal Property Collateral shall attach to all Personal Property Collateral without further act on the part of Lender or Obligors. Anything contained in this Agreement or any other Loan Document to the contrary notwithstanding, except for Permitted Dispositions, Obligors have no authority, express or implied, to dispose of any item or portion of the Collateral. 10 4.2. Negotiable Collateral. In the event that any Collateral, including proceeds, is evidenced by or consists of Negotiable Collateral, and if and to the extent that perfection or priority of Lender's security interest is dependent on or enhanced by possession, the applicable Obligor, immediately upon the request of Lender, shall endorse and deliver physical possession of such Negotiable Collateral to Lender provided that, if and for so long as required by the terms of the Senior Loan Documents, such Negotiable Collateral shall, be endorsed and physically delivered to the Senior Agent. 4.3. Collection of Accounts, General Intangibles, and Negotiable Collateral. At any time after the occurrence and during the continuation of an Event of Default, Lender or Lender's designee may (a) notify Account Debtors of Obligors that the Accounts, chattel paper, or General Intangibles have been assigned to Lender or that Lender has a security interest therein, or (b) collect the Accounts, chattel paper, or General Intangibles directly and charge the collection costs and expenses to the Obligors. Each Obligor agrees that it will hold in trust for the Lender, as the Lender's trustee, any Collections that it receives and immediately will deliver said Collections to Lender in their original form as received by the applicable Obligor. 4.4. Delivery of Additional Documentation Required. At any time upon the request of Lender, Obligors shall execute and deliver to Lender, any and all financing statements, original financing statements in lieu of continuation statements, fixture filings, security agreements, pledges, assignments, endorsements of certificates of title, and all other documents (the "Additional Documents") that Lender may request in its Permitted Discretion, in form and substance satisfactory to Lender, to perfect and continue perfected or better perfect the Lender's Liens in the Collateral (whether now owned or hereafter arising or acquired), to create and perfect Liens in favor of Lender in any Real Property acquired after the Closing Date, and in order to fully consummate all of the transactions contemplated hereby and under the other Loan Documents, including, without limitation, (a) promptly upon termination of the security interests created under the Senior Loan Documents, Assignments of Claims and Notices of Assignment of Claims and (b) all original motor vehicle title certificates with respect to all motor vehicles owned by any Obligor and registered with any state's department of motor vehicles, executed by the appropriate Obligor and, if necessary, any other Person, so as to permit Lender to record a Lien with respect thereto. Without limiting the generality of the foregoing, Obligors agree to deliver to Lender a Trademark Security Agreement with respect to any trademark applications within 5 Business Days after the date such trademark applications are filed and application numbers assigned thereto by the U.S. Patent and Trademark Officer. To the maximum extent permitted by applicable law, each Obligor authorizes Lender to execute any such Additional Documents in the applicable Obligor's name and authorize Lender to file such executed Additional Documents in any appropriate filing office. In addition, on such periodic basis as Lender shall require, Obligors shall (i) provide Lender with a report of all new patentable, copyrightable, or trademarkable materials acquired or generated by Obligors during the prior period, (ii) cause all patents, copyrights, and trademarks acquired or generated by Obligors that are not already the subject of a registration with the appropriate filing office (or an application therefor diligently prosecuted) to be registered with such appropriate filing office in a manner sufficient to impart constructive notice of Obligor's ownership thereof, and (iii) cause to be prepared, executed, and delivered to Lender supplemental schedules to the applicable Loan 11 Documents to identify such patents, copyrights, and trademarks as being subject to the security interests created thereunder. 4.5. Power of Attorney. Each Obligor hereby irrevocably makes, constitutes, and appoints Lender (and any of Lender's officers, employees, or agents designated by Lender) as such Obligor's true and lawful attorney, with power to (a) if such Obligor refuses to, or fails timely to execute and deliver any of the documents described in Section 4.4, sign the name of such Obligor on any of the documents described in Section 4.4, (b) at any time that an Event of Default has occurred and is continuing, sign such Obligor's name on any invoice or bill of lading relating to the Collateral, drafts against Account Debtors, or notices to Account Debtors, (c) send requests for verification of Accounts, (d) endorse such Obligor name on any Collection item that may come into the Lender's possession, (e) at any time that an Event of Default has occurred and is continuing, make, settle, and adjust all claims under such Obligor's policies of insurance and make all determinations and decisions with respect to such policies of insurance, and (f) at any time that an Event of Default has occurred and is continuing, settle and adjust disputes and claims respecting the Accounts, chattel paper, or General Intangibles directly with Account Debtors, for amounts and upon terms that Lender determines to be reasonable, and Lender may cause to be executed and delivered any documents and releases that Lender determines to be necessary. The appointment of Lender as each Obligor's attorney, and each and every one of its rights and powers, being coupled with an interest, is irrevocable until all of the Obligations have been fully and finally repaid and performed. 4.6. Right to Inspect. Lender (through any of its respective officers, employees, or agents) shall have the right, from time to time hereafter to inspect the Books and to check, test, and appraise the Collateral in order to verify Obligors' financial condition or the amount, quality, value, condition of, or any other matter relating to, the Collateral. 4.7. Control Agreements. Each Obligor agrees that it will not transfer assets out of any Securities Accounts other than as permitted under Section 7.3 and, if to another securities intermediary, unless each of the applicable Obligor, Lender, and the substitute securities intermediary have entered into a Control Agreement. No arrangement contemplated hereby or by any Control Agreement in respect of any Securities Accounts or other Investment Property shall be modified by Obligors without the prior written consent of Lender. Upon the occurrence and during the continuance of a Default or Event of Default, Lender may notify any securities intermediary to liquidate the applicable Securities Account or any related Investment Property maintained or held thereby and remit the proceeds thereof to such account of the Lender as Lender may specify. 5. REPRESENTATIONS AND WARRANTIES. Each Obligor makes the following representations and warranties to Lender which shall be true, correct, and complete, in all material respects, as of the date hereof, and such representations and warranties shall survive the execution and delivery of this Agreement: 5.1. No Encumbrances. Each Obligor has good and indefeasible title to its Collateral and the Real Property, free and clear of Liens except for Permitted Encumbrances. 12 5.2. Equipment. All of the Equipment is used or held for use in Obligors' business and is fit for such purposes. 5.3. Location of Inventory and Equipment; FBOs. The Inventory and Equipment are not stored with a bailee, warehouseman, or similar party and are located only at the locations identified on Schedule 5.3. 5.4. Inventory Records. Each Obligor keeps correct and accurate records itemizing and describing the type, quality, and quantity of its Inventory and the book value thereof. 5.5. Location of Chief Executive Office; FEIN. The chief executive office of each Obligor is located at the address indicated in Schedule 5.5 and each Obligor's FEIN is identified in Schedule 5.5. 5.6. Stock and Subsidiaries. (a) Set forth on Schedule 5.6(a), is a complete and accurate description of the authorized capital Stock of each Obligor other than Parent, by class, and, as of the Closing Date, a description of the number of shares of each such class that are issued and outstanding. Other than as described on Schedule 5.6(a), there are no subscriptions, options, warrants, or calls relating to any shares of each Obligor's capital Stock, including any right of conversion or exchange under any outstanding security or other instrument. No Obligor is subject to any obligation (contingent or otherwise) to repurchase or otherwise acquire or retire any shares of its capital Stock or any security convertible into or exchangeable for any of its capital Stock. (b) Set forth on Schedule 5.6(b), is a complete and accurate list of each Obligor's direct and indirect Subsidiaries, showing: (i) the jurisdiction of their organization; (ii) the number of shares of each class of common and preferred Stock authorized for each of such Subsidiaries; and (iii) the number and the percentage of the outstanding shares of each such class owned directly or indirectly by the applicable Obligor. All of the outstanding capital Stock of each such Subsidiary has been validly issued and is fully paid and non-assessable. (c) Except as set forth on Schedule 5.6(b), there are no subscriptions, options, warrants, or calls relating to any shares of any Obligor's Subsidiaries' capital Stock, including any right of conversion or exchange under any outstanding security or other instrument. No Obligor or any of its respective Subsidiaries is subject to any obligation (contingent or otherwise) to repurchase or otherwise acquire or retire any shares of any Obligor's Subsidiaries' capital Stock or any security convertible into or exchangeable for any such capital Stock. 5.7. Due Authorization; No Conflict. (a) As to each Obligor, the execution, delivery, and performance by such Obligor of this Agreement have been duly authorized by all necessary action on the part of such Obligor. (b) As to each Obligor, the execution, delivery, and performance by such Obligor of this Agreement do not and will not (i) violate any provision of federal, state, or local law or regulation applicable to any Obligor, the Governing Documents of any Obligor, or any order, 13 judgment, or decree of any court or other Governmental Authority binding on any Obligor, (ii) conflict with, result in a breach of, or constitute (with due notice or lapse of time or both) a default under any material contractual obligation of any Obligor, (iii) result in or require the creation or imposition of any Lien of any nature whatsoever upon any properties or assets of Obligor, other than Permitted Encumbrances, or (iv) require any approval of any Obligor's interestholders or any approval or consent of any Person under any material contractual obligation of any Obligor. (c) Other than the filing of financing statements, fixture filings, and Mortgages, the execution, delivery, and performance by each Obligor of this Agreement do not and will not require any registration with, consent, or approval of, or notice to, or other action with or by, any Governmental Authority or other Person. (d) As to each Obligor, this Agreement and all other documents contemplated hereby, when executed and delivered by such Obligor will be the legally valid and binding obligations of such Obligor, enforceable against such Obligor in accordance with their respective terms, except as enforcement may be limited by equitable principles or by bankruptcy, insolvency, reorganization, moratorium, or similar laws relating to or limiting creditors' rights generally and except to the extent that availability of the remedy of specific performance or injunctive relief is subject to the discretion of the court before which any proceeding therefor may be brought. (e) The Lender's Liens are validly created, perfected Liens, subject only to Permitted Encumbrances. 5.8. Fraudulent Transfer. No transfer of property is being made by any Obligor and no obligation is being incurred by any Obligor in connection with the transactions contemplated by this Agreement with the intent to hinder, delay, or defraud either present or future creditors of Obligors. 5.9. Intellectual Property. Each Obligor owns, or holds licenses in, all trademarks, trade names, copyrights, patents, patent rights, and licenses that are necessary to the conduct of its business as currently conducted. Attached hereto as Schedule 5.9 is a true, correct, and complete listing of all material patents, patent applications, trademarks, trademark applications, copyrights, and copyright registrations as to which each Obligor is the owner or is an exclusive licensee. 5.10. DDAs. Set forth on Schedule 5.10 are all of the DDAs of each Obligor, including, with respect to each depository (a) the name and address of that depository, and (b) the account numbers of the accounts maintained with such depository. 6. AFFIRMATIVE COVENANTS. Each Obligor covenants and agrees that, so long as until full and final payment of the Obligations, Obligors shall and shall cause each of their respective Subsidiaries to do all of the following: 6.1. Post Closing Conditions. 14 (a) within 5 days after the Closing Date, deliver to Lender (or to such other Person as Lender may instruct) the Stock Pledge Documentation, the form and substance of which shall be satisfactory to Lender and such documentation shall be in full force and effect; (b) within 30 days after the Closing Date, deliver to Lender certificates of insurance and certified copies of the policies of insurance, as are required by Section 6.5, together with the endorsements thereto, the form and substance of which shall be satisfactory to Lender and its counsel; (c) within 30 days after the Closing Date, deliver to Lender a Control Agreement, in form and substance satisfactory to Lender, with respect to each of the DDAs; (d) within 30 days after the Closing Date, deliver to Lender evidence, in form and substance satisfactory to Lender, of the satisfaction and release, as of record, of the Liens to be Released; and (e) within 30 days after the Closing Date, deliver to Lender a Collateral Access Agreement with respect to locations where Books are kept with respect to Accounts and Inventory. 6.2. Accounting System. Maintain records pertaining to the Collateral that contain information as from time to time reasonably may be requested by Lender. Obligors also shall keep an inventory reporting system that shows all additions, sales, claims, returns, and allowances with respect to the Inventory. 6.3. Collateral Reporting. Provide Lender with the following documents upon request by Lender in form satisfactory to Lender: (a) copies of invoices in connection with the Accounts, credit memos, remittance advices, deposit slips, shipping and delivery documents in connection with the Accounts and, for Inventory and Equipment acquired by Obligors, purchase orders and invoices, and; (b) such other reports as to the Collateral, or the financial condition of Obligors as Lender may request. In addition, each Obligor agrees to cooperate fully with Lender to facilitate and implement a system of electronic collateral reporting in order to provide electronic reporting of each of the items set forth above. 6.4. Maintenance of Properties. Maintain and preserve all of its properties which are necessary or useful in the proper conduct to its business in good working order and condition, ordinary wear and tear excepted, and comply at all times with the provisions of all leases to which it is a party as lessee, so as to prevent any loss or forfeiture thereof or thereunder. 6.5. Insurance. (a) At Obligors' expense, maintain insurance respecting its property and assets in accordance with section 8.8 of the Purchase Agreement. To the extent, and only to the extent, 15 permitted by Obligors' agreements with airports or other lessors, Obligors shall deliver copies of all such policies, other than those policies insuring Obligors' operations at airports, or affected by other agreements prohibiting the assignment of proceeds to a Person other than such airport or lessor, to Lender with a satisfactory lender's loss payable endorsement naming Agent as sole loss payee or additional insured, as appropriate (such policies referred to herein as the "Included Policies"). (b) Parent shall give Lender prompt notice of any loss covered by any insurance policy covering any Obligor, including, without limitation, the Included Policies. Lender shall have the exclusive right (subject to the Senior Agent's rights under the Senior Loan Documents) to adjust any losses payable under any Included Policy in excess of $50,000, without any liability to Obligors whatsoever in respect of such adjustments. Any monies received as payment for any loss under any Included Policy (other than liability insurance policies) or as payment of any award or compensation for condemnation or taking by eminent domain, shall, to the extent not required to be paid to the Senior Agent under the Senior Loan Documents, be paid over to Lender or shall be disbursed to Parent under staged payment terms reasonably satisfactory to Lender for application to the cost of repairs, replacements, or restorations. Any such repairs, replacements, or restorations shall be effected with reasonable promptness and shall be of a value at least equal to the value of the items or property destroyed prior to such damage or destruction. (c) Obligors shall not take out separate insurance concurrent in form or contributing in the event of loss with that required to be maintained under this Section 6.5, unless, subject to the restrictions set forth in this Section, Lender is included thereon as named insured with the loss payable to Lender under a lender's loss payable endorsement or its equivalent (in which case such policy shall also constitute an Included Policy). Parent immediately shall notify Lender whenever such separate insurance is taken out, specifying the insurer thereunder and full particulars as to the policies evidencing the same, and copies of such policies promptly shall be provided to Lender. 6.6. Location of Inventory and Equipment. Keep the Inventory and Equipment only at the locations identified on Schedule 5.3; provided, however, that Parent may amend Schedule 5.3 so long as such amendment occurs by written notice to Lender not less than 30 days prior to the date on which the Inventory or Equipment is moved to such new location, so long as such new location is within the continental United States, and so long as, at the time of such written notification, the applicable Obligor provides any financing statements or fixture filings necessary to perfect and continue perfected the Lender's Liens on such assets and also provides to Lender a Collateral Access Agreement. 6.7. Leases. Pay when due all rents and other amounts payable under any leases to which any Obligor is a party or by which any Obligor's properties and assets are bound, unless such payments are the subject of a Permitted Protest. 6.8. Existence. At all times preserve and keep in full force and effect each Obligor's valid existence and good standing and any rights and franchises material to Obligors' businesses. 6.9. Environmental. Promptly provide Lender with written notice within 10 days of the receipt of any of the following: (a) notice that an Environmental Lien has been filed against any 16 of the real or personal property of any Obligor and (b) commencement of any Environmental Action or notice that an Environmental Action will be filed against any Obligor. 7. NEGATIVE COVENANTS. Each Obligor covenants and agrees that, so long and until full and final payment of the Obligations, Obligors will not and will not permit any of their respective Subsidiaries to do any of the following: 7.1. Change Name. Change any Obligor's name, FEIN, corporate structure or identity, or add any new fictitious name; provided, however, that a Obligor may change its name upon at least 30 days prior written notice by Parent to Lender of such change and so long as, at the time of such written notification, such Obligor provides any financing statements or fixture filings necessary to perfect and continue perfected Lender's Liens. 7.2. Change in Location of Chief Executive Office; Inventory and Equipment with Bailees. Relocate its chief executive office to a new location without Parent providing 30 days prior written notification thereof to Lender and so long as, at the time of such written notification, the applicable Obligor provides any financing statements or fixture filings necessary to perfect and continue perfected the Lender's Liens and also provides to Lender a Collateral Access Agreement with respect to such new location. The Inventory and Equipment shall not at any time now or hereafter be stored with a bailee, warehouseman, or similar party without Lender's prior written consent. 7.3. Securities Accounts. Establish or maintain any Securities Account unless Lender shall have received a Control Agreement in respect of such Securities Account (in the case of the DDAs, within the time period referred to in Section 6.1(c)). Obligors agree to not transfer assets out of any Securities Account; provided, however, that, so long as no Event of Default has occurred and is continuing or would result therefrom, Obligors may use such assets (and the proceeds thereof) to the extent not prohibited by this Agreement or the other Loan Documents. 8. SUBORDINATION AGREEMENT. The rights and obligations of the Lender and each Obligor under this Agreement are subject in all respects to the provisions of the Subordination Agreement. 9. THE LENDER'S RIGHTS AND REMEDIES. 9.1. Rights and Remedies. Subject to the provisions of the Subordination Agreement, upon the occurrence, and during the continuation, of an Event of Default, Lender (at its election but without notice of its election and without demand) may do any one or more of the following, all of which are authorized by Obligors: (a) Cause Obligors to hold all returned Inventory in trust for Lender, segregate all returned Inventory from all other assets of Obligors or in Obligors' possession and conspicuously label said returned Inventory as the property of Lender; 17 (b) Without notice to or demand upon any Obligor make such payments and do such acts as Lender considers necessary or reasonable to protect its security interests in the Collateral. Each Obligor agrees to assemble the Personal Property Collateral if Lender so requires, and to make the Personal Property Collateral available to Lender at a place that Lender may designate which is reasonably convenient to both parties. Each Obligor authorizes Lender to enter the premises where the Personal Property Collateral is located, to take and maintain possession of the Personal Property Collateral, or any part of it, and to pay, purchase, contest, or compromise any Lien that in Lender's determination appears to conflict with the Lender's Liens and to pay all expenses incurred in connection therewith. With respect to any of Obligors' owned or leased premises, each Obligor hereby grants Lender a license to enter into possession of such premises and to occupy the same, without charge, in order to exercise any of the Lender's rights or remedies provided herein, at law, in equity, or otherwise; (c) Without notice to any Obligor (such notice being expressly waived), and without constituting a retention of any collateral in satisfaction of an obligation (within the meaning of the Code), set off and apply to the Obligations any and all (i) balances and deposits of any Obligor held by Lender or (ii) Indebtedness at any time owing to or for the credit or the account of any Obligor held by Lender; (d) Hold, as cash collateral, any and all balances and deposits of any Obligor held the Lender to secure the full and final repayment of all of the Obligations; (e) Ship, reclaim, recover, store, finish, maintain, repair, prepare for sale, advertise for sale, and sell (in the manner provided for herein) the Personal Property Collateral. Each Obligor hereby grants to Lender a license or other right to use, without charge, such Obligor's labels, patents, copyrights, trade secrets, trade names, trademarks, service marks, and advertising matter, or any property of a similar nature, as it pertains to the Personal Property Collateral, in completing production of, advertising for sale, and selling any Personal Property Collateral and such Obligor's rights under all licenses and all franchise agreements shall inure to Lender's benefit; (f) Sell the Personal Property Collateral at either a public or private sale, or both, by way of one or more contracts or transactions, for cash or on terms, in such manner and at such places (including Obligors' premises) as Lender determines is commercially reasonable. It is not necessary that the Personal Property Collateral be present at any such sale; (g) Lender shall give notice of the disposition of the Personal Property Collateral as follows: (i) Lender shall give Parent (for the benefit of the applicable Obligor) a notice in writing of the time and place of public sale, or, if the sale is a private sale or some other disposition other than a public sale is to be made of the Personal Property Collateral, the time on or after which the private sale or other disposition is to be made; and (ii) The notice shall be personally delivered or mailed, postage prepaid, to Parent as provided in section 8.2 of Amendment No. 3, at least 10 days before 18 the earliest time of disposition set forth in the notice; no notice needs to be given prior to the disposition of any portion of the Personal Property Collateral that is perishable or threatens to decline speedily in value or that is of a type customarily sold on a recognized market; (h) Lender may credit bid and purchase at any public sale; (i) Lender may seek the appointment of a receiver or keeper to take possession of all or any portion of the Collateral or to operate same and, to the maximum extent permitted by law, may seek the appointment of such a receiver without the requirement of prior notice or a hearing; (j) Lender shall have all other rights and remedies available to it at law or in equity pursuant to any other Loan Documents; and (k) Any deficiency that exists after disposition of the Personal Property Collateral as provided above will be paid immediately by Obligors. Any excess will be returned, without interest and subject to the rights of third Persons, by Lender to Parent (for the benefit of the applicable Obligor). 9.2. Remedies Cumulative. The rights and remedies of Lender under this Agreement, the other Loan Documents, and all other agreements shall be cumulative. Lender shall have all other rights and remedies not inconsistent herewith as provided under the Code, by law, or in equity. No exercise by Lender of one right or remedy shall be deemed an election, and no waiver by Lender of any Event of Default shall be deemed a continuing waiver. No delay by Lender shall constitute a waiver, election, or acquiescence by it. 10. TAXES AND EXPENSES. If any Obligor fails to pay any monies (whether taxes, assessments, insurance premiums, or, in the case of leased properties or assets, rents or other amounts payable under such leases) due to third Persons, or fails to make any deposits or furnish any required proof of payment or deposit, all as required under the terms of this Agreement, then, Lender, in its sole discretion and without prior notice to any Obligor, may do any or all of the following: (a) make payment of the same or any part thereof, (b) or in the case of the failure to comply with Section 6.5 hereof, obtain and maintain insurance policies of the type referred to in Section 6.5 and take any action with respect to such policies as Lender deems prudent. Any such amounts paid by Lender shall constitute Lender Expenses and any such payments shall not constitute an agreement by Lender to make similar payments in the future or a waiver by Lender of any Event of Default. Lender need not inquire as to, or contest the validity of, any such expense, tax, or Lien and the receipt of the usual official notice for the payment thereof shall be conclusive evidence that the same was validly due and owing. 11. WAIVERS; INDEMNIFICATION. 11.1. Demand; Protest; etc. Each Obligor waives demand, protest, notice of protest, notice of default or dishonor, notice of payment and nonpayment, nonpayment at maturity, release, 19 compromise, settlement, extension, or renewal of documents, instruments, chattel paper, and guarantees at any time held by Lender on which any such Obligor may in any way be liable. 11.2. Lender's Liability for Collateral. Each Obligor hereby agrees that: (a) so long as Lender complies with its obligations, if any, under the Code, Lender shall not in any way or manner be liable or responsible for: (i) the safekeeping of the Collateral, (ii) any loss or damage thereto occurring or arising in any manner or fashion from any cause, (iii) any diminution in the value thereof, or (iv) any act or default of any carrier, warehouseman, bailee, forwarding agency, or other Person, and (b) all risk of loss, damage, or destruction of the Collateral shall be borne by Obligors. 11.3. Indemnification. The provisions of article 7 of the Purchase Agreement shall apply to this Agreement as if this Agreement has been executed contemporaneously with the Purchase Agreement, and references therein to a "Transaction Document" shall include a reference to this Agreement. 12. NOTICES. Unless otherwise provided in this Agreement, all notices or demands by Obligors or Lender to the other relating to this Agreement or any other Loan Document shall be given in accordance with section 8.2 of Amendment No. 3. 13. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER. 13.1. GOVERNING LAW. THE VALIDITY OF THIS AGREEMENT, THE CONSTRUCTION, INTERPRETATION, AND ENFORCEMENT HEREOF, AND THE RIGHTS OF THE PARTIES HERETO WITH RESPECT TO ALL MATTERS ARISING HEREUNDER OR RELATED HERETO SHALL BE DETERMINED UNDER, GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. 13.2. NEW YORK COURTS. THE PARTIES AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING IN CONNECTION WITH THIS AGREEMENT SHALL BE TRIED AND LITIGATED ONLY IN THE STATE AND FEDERAL COURTS LOCATED IN THE BOROUGH OF MANHATTAN, COUNTY OF NEW YORK, STATE OF NEW YORK, PROVIDED, HOWEVER, THAT ANY SUIT SEEKING ENFORCEMENT AGAINST ANY COLLATERAL OR OTHER PROPERTY MAY BE BROUGHT, AT LENDER'S OPTION, IN THE COURTS OF ANY JURISDICTION WHERE LENDER ELECTS TO BRING SUCH ACTION OR WHERE SUCH COLLATERAL OR OTHER PROPERTY MAY BE FOUND. OBLIGORS AND LENDER WAIVE, TO THE EXTENT PERMITTED UNDER APPLICABLE LAW, ANY RIGHT EACH MAY HAVE TO ASSERT THE DOCTRINE OF FORUM NON CONVENIENS OR TO OBJECT TO VENUE TO THE EXTENT ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS SECTION 13.2. 13.3. WAIVER OF JURY TRIAL. OBLIGORS AND LENDER HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT OR ANY OF THE 20 TRANSACTIONS CONTEMPLATED HEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS. OBLIGORS AND LENDER REPRESENT THAT EACH HAS REVIEWED THIS WAIVER AND EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION, A COPY OF THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT. 14. ASSIGNMENTS AND SUCCESSORS. This Agreement shall bind and inure to the benefit of the respective successors and assigns of each of the parties; provided, however, that Obligors may not assign this Agreement or any rights or duties hereunder without the Lender's prior written consent and any prohibited assignment shall be absolutely void ab initio. No consent to assignment by the Lender shall release any Obligor from its Obligations. Lender may assign this Agreement and the other Loan Documents and its rights and duties hereunder and thereunder in accordance with the Purchase Agreement and, except as expressly required pursuant to the Purchase Agreement, no consent or approval by any Obligor is required in connection with any such assignment. 15. AMENDMENTS; WAIVERS. 15.1. Amendments and Waivers. No amendment or waiver of any provision of this Agreement, and no consent with respect to any departure by Obligors therefrom, shall be effective unless the same shall be in writing and signed by Lender and Parent (on behalf of all Obligors) and then any such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. 15.2. No Waivers; Cumulative Remedies. No failure by Lender to exercise any right, remedy, or option under this Agreement, or delay by Lender in exercising the same, will operate as a waiver thereof. No waiver by Lender will be effective unless it is in writing, and then only to the extent specifically stated. No waiver by Lender on any occasion shall affect or diminish Lender's rights thereafter to require strict performance by Obligors of any provision of this Agreement. Lender's rights under this Agreement will be cumulative and not exclusive of any other right or remedy that Lender may have. 16. GENERAL PROVISIONS. 16.1. Effectiveness. This Agreement shall be binding and deemed effective when executed by Obligors and Lender whose signature is provided for on the signature pages hereof. 16.2. Section Headings. Headings and numbers have been set forth herein for convenience only. Unless the contrary is compelled by the context, everything contained in each Section applies equally to this entire Agreement. 16.3. Interpretation. Neither this Agreement nor any uncertainty or ambiguity herein shall be construed or resolved against Lender or Obligors, whether under any rule of construction or otherwise. On the contrary, this Agreement has been reviewed by all parties and shall be 21 construed and interpreted according to the ordinary meaning of the words used so as to accomplish fairly the purposes and intentions of all parties hereto. 16.4. Severability of Provisions. Each provision of this Agreement shall be severable from every other provision of this Agreement for the purpose of determining the legal enforceability of any specific provision. 16.5. Amendments in Writing. This Agreement only can be amended by a writing in accordance with Section 15.1. 16.6. Counterparts; Telefacsimile Execution. This Agreement may be executed in any number of counterparts and by different parties on separate counterparts, each of which, when executed and delivered, shall be deemed to be an original, and all of which, when taken together, shall constitute but one and the same Agreement. Delivery of an executed counterpart of this Agreement by telefacsimile shall be equally as effective as delivery of an original executed counterpart of this Agreement. Any party delivering an executed counterpart of this Agreement by telefacsimile also shall deliver an original executed counterpart of this Agreement but the failure to deliver an original executed counterpart shall not affect the validity, enforceability, and binding effect of this Agreement. The foregoing shall apply to each other Loan Document mutatis mutandis. 16.7. Revival and Reinstatement of Obligations. If the incurrence or payment of the Obligations by any Obligor or the transfer to Lender of any property should for any reason subsequently be declared to be void or voidable under any state or federal law relating to creditors' rights, including provisions of the Bankruptcy Code relating to fraudulent conveyances, preferences, or other voidable or recoverable payments of money or transfers of property (collectively, a "Voidable Transfer"), and if Lender is required to repay or restore, in whole or in part, any such Voidable Transfer, or elects to do so upon the reasonable advice of its counsel, then, as to any such Voidable Transfer, or the amount thereof that Lender is required or elects to repay or restore, and as to all reasonable costs, expenses, and attorneys fees of Lender related thereto, the liability of Obligors automatically shall be revived, reinstated, and restored and shall exist as though such Voidable Transfer had never been made. 16.8. Integration. This Agreement, together with the other Loan Documents, reflects the entire understanding of the parties with respect to the transactions contemplated hereby and shall not be contradicted or qualified by any other agreement, oral or written, before the date hereof. 16.9. Parent as Agent for Obligors. Each Obligor hereby irrevocably appoints Parent as the borrowing agent and attorney-in-fact for all Obligors which appointment shall remain in full force and effect unless and until prior written notice signed by each Obligor that such appointment has been revoked and that another Obligor has been appointed Parent. [Signature page to follow.] 22 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed and delivered as of the date first above written. MERCURY AIR GROUP, INC., By: -------------------------------------- Name: Title: J.H. WHITNEY MEZZANINE FUND, L.P. By: Whitney GP, L.L.C. By: -------------------------------------- Name: Title: A Managing Member 23 GUARANTORS: MERCFUEL, INC. By: ------------------------------------- Name: Title: MAYTAG AIRCRAFT CORPORATION By: ------------------------------------- Name: ----------------------------------- Title: ---------------------------------- MERCURY AIR CARGO, INC. By: ------------------------------------- Name: ----------------------------------- Title: ---------------------------------- AEG FINANCE CORPORATION By: ------------------------------------- Name: ----------------------------------- Title: ---------------------------------- MERCURY AIR CENTERS, INC. (F/K/A WOFFORD FLYING SERVICES, INC.) By: ------------------------------------- Name: ----------------------------------- Title: ---------------------------------- HERMES AVIATION, INC. By: ------------------------------------- Name: ----------------------------------- Title: ---------------------------------- VULCAN AVIATION, INC. By: ------------------------------------- Name: ----------------------------------- Title: ---------------------------------- 24 RPA AIRLINE AUTOMATION SERVICES, INC. (F/K/A RENE PEREZ AND ASSOCIATES, INC.) By: ------------------------------------- Name: ----------------------------------- Title: ---------------------------------- MERCURY ACCEPTANCE CORPORATION By: ------------------------------------- Name: ----------------------------------- Title: ---------------------------------- EXCEL CARGO, INC. By: ------------------------------------- Name: ----------------------------------- Title: ---------------------------------- MERCURY AIR CENTER-BIRMINGHAM, LLC By: ------------------------------------- Name: ----------------------------------- Title: ---------------------------------- MERCURY AIR CENTER-BAKERSFIELD, INC. By: ------------------------------------- Name: ----------------------------------- Title: ---------------------------------- MERCURY AIR CENTER-BURBANK, INC. By: ------------------------------------- Name: ----------------------------------- Title: ---------------------------------- MERCURY AIR CENTER-FRESNO, INC. By: ------------------------------------- Name: ----------------------------------- Title: ---------------------------------- 25 MERCURY AIR CENTER-LOS ANGELES, INC. By: ------------------------------------- Name: ----------------------------------- Title: ---------------------------------- MERCURY AIR CENTER-ONTARIO, INC. By: ------------------------------------- Name: ----------------------------------- Title: ---------------------------------- MERCURY AIR CENTER-SANTA BARBARA By: ------------------------------------- Name: ----------------------------------- Title: ---------------------------------- MERCURY AIR CENTER-HARTSFIELD, LLC By: ------------------------------------- Name: ----------------------------------- Title: ---------------------------------- MERCURY AIR CENTER-PEACHTREE-DEKALB, LLC By: ------------------------------------- Name: ----------------------------------- Title: ---------------------------------- MERCURY AIR CENTER- FT. WAYNE, LLC By: ------------------------------------- Name: ----------------------------------- Title: ---------------------------------- MERCURY AIR CENTER-JACKSON, L.L.C. By: ------------------------------------- Name: ----------------------------------- Title: ---------------------------------- 26 MERCURY AIR CENTER-RENO, LLC By: ------------------------------------- Name: ----------------------------------- Title: ---------------------------------- MERCURY AIR CENTER-TULSA, LLC By: ------------------------------------- Name: ----------------------------------- Title: ---------------------------------- MERCURY AIR CENTER-CHARLESTON, LLC By: ------------------------------------- Name: ----------------------------------- Title: ---------------------------------- MERCURY AIR CENTER-JOHNS ISLAND, LLC By: ------------------------------------- Name: ----------------------------------- Title: ---------------------------------- MERCURY AIR CENTER-NASHVILLE, LLC By: ------------------------------------- Name: ----------------------------------- Title: ---------------------------------- MERCURY AIR CENTER-ADDISON, INC. By: ------------------------------------- Name: ----------------------------------- Title: ---------------------------------- MERCURY AIR CENTER - CORPUS CHRISTI, INC. By: ------------------------------------- Name: ----------------------------------- Title: ---------------------------------- 27 EX-10.6 8 a87201exv10w6.txt EXHIBIT 10.6 EXHIBIT 10.6 SUBORDINATION AGREEMENT AMONG J.H. WHITNEY MEZZANINE FUND, L.P., FOOTHILL CAPITAL CORPORATION, as Agent AND MERCURY AIR GROUP, INC. and certain of its subsidiaries signatory hereto December 30, 2002 SUBORDINATION AGREEMENT THIS SUBORDINATION AGREEMENT (this "Agreement"), dated as of December 30, 2002 is entered into by and among J.H. WHITNEY MEZZANINE FUND, L.P. ("Subordinating Lender"), FOOTHILL CAPITAL CORPORATION, as agent (in such capacity, "Agent") for the Senior Lenders (defined below)) and MERCURY AIR GROUP, INC. and certain of its subsidiaries signatory hereto (each an "Obligor" and collectively, "Obligors"), with reference to the following facts: RECITALS A. Certain of the Obligors have entered into the Junior Debt Documents (as defined below) with Subordinating Lender. B. Obligors have requested that Agent and the lenders signatory thereto (the "Senior Lenders") enter into various agreements with Obligors, including that certain Loan and Security Agreement dated as of the date hereof (as in effect from time to time, the "Loan Agreement"), the Loan Documents (as defined in the Loan Agreement) and other related supplements, agreements, documents and instruments, as amended or modified from time to time (collectively, the "Senior Debt Documents"), pursuant to which the Senior Lenders would extend certain loans and other financial accommodations to certain of the Obligors. C. Agent and the Senior Lenders are unwilling to enter into the Senior Debt Documents with Obligors and to extend to the applicable Obligors the loans and other financial accommodations contemplated thereunder unless Subordinating Lender enters into this Agreement. D. Subordinating Lender is interested in the financial success of Obligors and will benefit by the loans which the Senior Lenders propose to extend to the applicable Obligors under the Senior Debt Documents. E. Accordingly, to induce Agent and the Senior Lenders to enter into the Senior Debt Documents with Obligors and to extend to the applicable Obligors the loans contemplated thereunder, Subordinating Lender is willing to enter into this Agreement with Agent. AGREEMENT NOW, THEREFORE, the parties agree as follows: 1. Certain Defined Terms. (a) General. When used in this Agreement, the following terms have the following respective meanings: "Agent" has the meaning set forth in the introduction hereto, and in addition, includes any Senior Lender with respect to rights and interests of the Agent hereunder and under the Senior Debt Documents. 2 "Agreement" has the meaning set forth in the introduction hereto. "Amended Note" means the Amended and Restated WMF Senior Subordinated Promissory Note issued to the Subordinating Lender by Mercury Air Group, Inc. dated September 10, 1999. "Asset Sale Reserve" has the meaning set forth in the Loan Agreement as in effect on the date hereof. "Cure Period" has the meaning set forth in Section 3(c). "FBO Enterprise Value" has the meaning set forth in the Loan Agreement as in effect on the date hereof. "Insolvency Proceeding" means (i) any insolvency, bankruptcy, receivership, liquidation, reorganization, readjustment, custodianship, composition or other proceeding or case relating to Obligors, any of their subsidiaries, or any of their respective assets, (ii) any dissolution or winding up of Obligors or any of their subsidiaries, whether voluntary or involuntary and whether or not involving an insolvency or bankruptcy case or (iii) any assignment for the benefit of creditors or any other marshalling of any assets of Obligors or any of their subsidiaries. "Junior Debt" means all present and future indebtedness and other obligations (direct or indirect) owing by Obligors to Subordinating Lender under the Junior Debt Documents. "Junior Debt" includes (without limitation) indebtedness owed under the Junior Debt Documents, together with any other debts, demands, monies, indebtedness, liabilities, and obligations now or hereafter owed by Obligors to Subordinating Lender, including interest, principal, costs, and other charges, together with all claims, rights, causes of action, judgments, decrees and other obligations (whether or not incurred prior to or after any Insolvency Proceeding). "Junior Debt Documents" means that Securities Purchase Agreement, dated as of September 10, 1999, between Borrower and the Subordinating Lender, as amended, and the Amended Note, copies of which are attached hereto as Exhibit A and incorporated herein by this reference, together with all other documents related thereto. "Junior Default Notice" means a notice delivered by Subordinating Lender to Agent and Obligors in accordance with Section 17(i) and stating that an event of default has occurred and is continuing under the Junior Debt Documents. "Net Cash Proceeds" has the meaning set forth in the Loan Agreement as in effect on the date hereof. "Obligors" has the meaning set forth in the recitals of this Agreement. 3 "Senior Debt" has the meaning set forth in Section 3(a) of this Agreement. "Senior Debt Documents" has the meaning set forth in the recitals of this Agreement. "Senior Default Notice" means a notice delivered by Agent to Subordinating Lender and Obligors in accordance with Section 17(i) and stating that an Event of Default has occurred and is continuing under the Senior Debt Documents. "Senior Lenders" has the meaning set forth in the introduction of this Agreement. "Subordinating Lender" has the meaning set forth in the introduction of this Agreement. "Target Amount" has the meaning set forth in the Loan Agreement as in effect on the date hereof. "Voided Payment" has the meaning set forth in Section 13(b). (b) Other Terms. Unless otherwise defined in this Agreement, any and all initially capitalized terms set forth in this Agreement shall have the meaning ascribed thereto in the Senior Debt Documents. 2. Representations, Warranties, Waivers and Covenants. (a) Amount of Junior Debt. Subordinating Lender and Obligors represent and warrant that as of the date of this Agreement, the aggregate outstanding balance (principal plus interest) of the Junior Debt is Twenty-Four Million Dollars ($24,000,000). (b) Junior Debt Documents. Subordinating Lender and Obligors covenant to Agent that the Amended Note shall be marked with the following legend and, upon Agent's request, to be given by notice to Obligors and Subordinating Lender: (i) a copy of all Junior Debt Documents other than the Amended Note shall be delivered to Agent; and/or (ii) all Junior Debt Documents shall be conspicuously marked with substantially the following legend, modified as may be necessary to reflect proper references to such Junior Debt Document: "THIS NOTE AND THE INDEBTEDNESS EVIDENCED HEREBY IS SUBORDINATE IN THE MANNER AND TO THE EXTENT SET FORTH IN THAT CERTAIN SUBORDINATION AGREEMENT, DATED AS OF DECEMBER 30, 2002, BY AND AMONG THE MAKER HEREOF, THE PAYEE NAMED HEREIN, AND FOOTHILL CAPITAL CORPORATION, AS SUCH AGREEMENT MAY BE AMENDED FROM TIME TO TIME, AND EACH HOLDER OF THIS NOTE, BY ITS ACCEPTANCE HEREOF, SHALL BE BOUND BY THE PROVISIONS OF SUCH SUBORDINATION AGREEMENT." 4 and after being so marked, the originals of the Junior Debt Documents shall be exhibited to Agent and a copy of the marked Junior Debt Documents shall be delivered to Agent. (c) No Default. Obligors represent and warrant that Schedule A sets forth a complete list of past and existing defaults under the Junior Debt Documents. Subordinating Lender hereby represents and warrants that it is not aware of any past or existing default under the Junior Debt Documents that is not set forth on Schedule A and hereby waives the defaults listed on Schedule A. (d) Ownership of Junior Debt. The Subordinating Lender represents and warrants that it owns the Junior Debt, free and clear of any lien, charge or other adverse claim or encumbrance. (e) Further Action. Upon the reasonable request of another party, each party covenants that it will promptly take all actions which are necessary to carry out the purposes of this Agreement. 3. Subordination. This Section supercedes Section 7 of the Amended Note. (a) General. To the extent provided in the remainder of this Section 3, the Junior Debt is hereby subordinated and made junior to all obligations now or hereafter owing to Agent and/or the Senior Lenders under the Loan Documents by Obligors. The obligations referred to in the preceding sentence as being owing to Agent and/or the Senior Lenders are referred to in this Agreement as the "Senior Debt," and include the Obligations, all present and future representations, warranties, covenants, agreements, indemnities, all principal incurred (including debtor-in-possession loans or advances), all interest and all fees and expenses incurred after the commencement of an Insolvency Proceeding or any other federal or state bankruptcy, insolvency or reorganization act regardless of whether Agent's claim therefor or the security interests asserted are valid, binding, enforceable, void, voidable, voided, subordinated, reduced, disallowed or allowable in the Insolvency Proceeding. (b) Payments to Subordinating Lender. (i) Unless a Default or Event of Default resulting from the failure of Obligors to make any payment when due with respect to the Senior Debt has occurred or a Senior Default Notice has been delivered to Obligors, in which case the provisions of Section 3(b)(iii) and 3(b)(iv) hereof shall apply, Obligors may, subject to the other provisions of this Agreement, pay to Subordinating Lender quarterly interest payments at the non-default rate therefor not to exceed 12% per annum. (ii) Provided: A. no Default or Event of Default under the Senior Debt Documents shall have occurred, B. so long as Obligors, after giving effect to any such payments, have at least $4,000,000 of Excess Availability, and 5 C. at all times both before and after giving effect to any such payments and the transactions relating to them, Obligors maintain FBO Operations at FBO's having an aggregate FBO Enterprise Value of at least $10,000,000, Obligors shall pay the following payments: (1) from Net Cash Proceeds which exceed $500,000, which payments shall be made as follows: (I) First, until the aggregate amount of $15,000,000 of Net Cash Proceeds have been so applied, equally to Agent for application to the Term Loan and to Subordinating Lender for application to the principal amount of the Junior Debt; (II) Second, until an additional aggregate amount of $4,500,000 of Net Cash Proceeds have been so applied, to Subordinating Lender for application to the principal amount of the Junior Debt; (III) Third, if such Net Cash Proceeds are received (a) prior to January 1, 2004 and the Asset Sale Reserve is then less than the Target Amount, equally to Subordinating Lender for application to the principal amount of the Junior Debt and to Agent for application to the Advances, (b) prior to January 1, 2004 and the Asset Sale Reserve is then equal to the Target Amount, to Subordinating Lender for application to the principal amount of the Junior Debt until the principal amount of the Junior Debt has been repaid in the amount of $24,000,000, or (c) on or after January 1, 2004, to Subordinating Lender for application to the principal amount of the Junior Debt until the principal amount of the Junior Debt has been repaid in the amount of $24,000,000; (IV) Fourth, to Subordinating Lender for application to the principal amount of the Junior Debt until the principal amount of the Junior Debt has been repaid in the amount of $24,000,000; and (V) Fifth, to any Senior Debt; 6 provided, however, if at any time such payments are to be made the only condition provided above not satisfied is Obligors' failure to maintain Excess Availability of at least $4,000,000 as provided above, to the extent there are Net Cash Proceeds remaining after such Net Cash Proceeds are remitted to Agent and applied against the Advances (which Agent agrees to do) so as to cause the amount of Excess Availability to be $4,000,000 or greater, then any such remaining Net Cash Proceeds shall be applied as provided above; and (2) to Subordinating Lender for application to the principal amount of the Junior Debt on the first day of each fiscal quarter occurring prior to January 1, 2004 and on January 1, 2004, if the amount by which the Asset Sale Reserve is (I) greater than or equal to the previous fiscal quarter's Target Amount, an amount equal to the reduction in the Target Amount from the previous fiscal quarter and such fiscal quarter or (II) less than the previous quarter's Target Amount and greater than such fiscal quarter's Target Amount, an amount equal to the Asset Sale Reserve less such fiscal quarter's Target Amount, or (III) less than such fiscal quarter's Target Amount, none. Except as otherwise expressly provided above, Agent may apply the proceeds of any such asset sales or any other amounts to any portion of the Senior Debt in its sole discretion. Any reductions in the Term Loan shall be made in the inverse order of maturity of payments. (iii) Subsequent to the occurrence of a Default or Event of Default resulting from the failure of Obligors to make any payment when due with respect to the Senior Debt, Obligors may not pay, nor may Subordinating Lender receive and retain, any payment with respect to the Junior Debt, until such time as (A) such Default or Event of Default has been cured or waived or has ceased to exist (all in accordance with the terms of the Loan Agreement), (B) the Senior Debt has been indefeasibly paid in full, in cash and the Senior Lenders' commitments to provide financing to any Obligors have been terminated or (C) three hundred sixty-five (365) days have elapsed since the occurrence of such Default or Event of Default; provided, however, no payments may be made or received if Agent exercises its default rights and remedies or has accelerated the Senior Debt. There shall be no limit on the number of times that payments to Subordinating Lender may be prohibited pursuant to this Section 3(b)(iii) nor of the time period that such prohibition is in effect. (iv) Subsequent to the delivery of a Senior Default Notice other than resulting from the failure of Obligors to make any payment when due with respect to the Senior Debt, Obligors may not pay, nor subsequent to Subordinating Lender's receipt of a Senior 7 Default Notice, may Subordinating Lender receive and retain, any payment with respect to the Junior Debt; provided, however, on the earliest to occur of (A) one hundred eighty (180) days after the delivery of such Senior Default Notice, (B) the events set forth in the Senior Default Notice having been waived or cured or having ceased to exist (all in accordance with the terms of the Loan Agreement) or (C) the indefeasible payment of the Senior Debt, in full, in cash and the Senior Lenders' commitments to provide financing to any Obligors have been terminated; and provided that Agent has not subsequently delivered a Senior Default Notice pursuant to Section 3(b)(iii) above, such Senior Default Notice shall thereupon not be in effect for the current applicable period and Subordinating Lender may receive and retain (X) regularly scheduled payments of interest at the non-default rate therefor not to exceed 12% per annum and (Y) so long as both immediately before and immediately after giving effect to such payment Obligors have at least $4,000,000 of Excess Availability, interest payments which were prevented from being made as provided herein, but not any principal payments which were prevented from being made as provided herein; provided, further, however, that after giving effect to any such payment to Subordinating Lender, no default, event of default or unmatured event of default by Obligors under any present or future instrument or agreement (including an Event of Default under the Senior Debt Documents) will have occurred as a result therefrom. Agent may deliver a Senior Default Notice pursuant to this Section 3(b)(iv) each time there is a separate default or Event of Default under the Senior Debt Documents; provided, however, the aggregate number of days in any three hundred sixty (360) day period for which a Senior Default Notice (other than resulting from the failure of Obligors to make any payment when due or deemed by Agent to be due with respect to the Senior Debt) may be in effect shall not exceed one hundred eighty (180) days. (v) Notwithstanding anything in this Agreement to the contrary, the failure of Obligors to make a payment with respect to the Junior Debt by reason of the operation of this Section 3 shall not be construed as preventing or delaying the occurrence of a default under the Amended Note or the other Junior Debt Documents. (c) Actions by Subordinating Lender. Subordinating Lender hereby agrees that it shall deliver a Junior Default Notice to Obligors and Agent upon any default or event of default under the Junior Debt Documents and that, notwithstanding anything to the contrary in the Amended Note or the other Junior Debt Documents, Obligors shall have thirty (30) days (in addition to any applicable cure or grace periods, if any, set forth in the Junior Debt Documents) after receipt of such Junior Default Notice in which to cure the defaults or events of defaults set forth in such Junior Default Notice (the "Cure Period"). If after such Cure Period the events described in such Junior Default Notice have not been cured or waived by Subordinating Lender, then on the earliest to occur of (i) the ninetieth (90th) day following the expiration of such Cure Period, (ii) the acceleration of the Senior Debt, (iii) the occurrence of an Insolvency Proceeding or (iv) the indefeasible payment of the Senior Debt, in full, in cash, and the termination of the Senior Lenders' commitments to provide financing to any Obligors, Subordinating Lender may (subject to the provisions of this Agreement including, without limitation, Section 3(b) and Section 13 hereof), if Agent has not delivered a Senior Default Notice due to the failure of Obligors to make a payment to Agent when due with respect to the Senior Debt, exercise its rights as a general, unsecured creditor of Obligors to commence judicial action on the Junior Debt and otherwise seek a judgment on the Junior Debt but in no event shall Subordinating Lender exercise any default rights or remedies with respect to the Collateral whether as a secured 8 party, a judgment lienholder or otherwise, which limitation includes prohibitions on judicial or non-judicial foreclosure, possession of the Collateral, collection actions and other such activities. Notwithstanding the foregoing, Subordinating Lender shall be entitled, to the extent necessary, to commence any action required in order to toll the running of any applicable statute of limitation that might otherwise prevent Subordinating Lender from making claims in respect of the Junior Debt. Subordinating Lender shall not issue more than one Junior Default Notice after the date hereof in any three hundred sixty (360) day period. Subordinating Lender may not, except in accordance with the terms of this Section 3(c) exercise its rights as a general unsecured creditor of Obligors to commence judicial action on the Junior Debt or otherwise seek a judgment on the Junior Debt. (d) Priority of Interests in Collateral. Subordinating Lender's security interest, lien, judgment lien, claim in an Insolvency Proceeding or other right or interest in the Collateral shall at all times be junior, subordinate and subject to any security interest, lien or other right or interest Agent may now have or may hereafter acquire in the Collateral. The subordination provided in this Section 3 shall apply irrespective of the time or order of attachment or perfection of any security interest, irrespective of the time or order of filing of any financing statement or other document, and irrespective of any statute, rule, law, or court decision to the contrary. Subordinating Lender confirms that the Senior Debt and the liens securing the Senior Debt are in all respects senior to the Junior Debt and the liens securing the Junior Debt, and that this Agreement shall govern as between Agent and Subordinating Lender irrespective of whether the Senior Debt or the liens securing the Senior Debt, are held to be unperfected, deficient, invalid, void, voidable, voided, unenforceable, subordinated, reduced, discharged or are set aside by a court of competent jurisdiction, including, without limitation, pursuant to any Insolvency Proceeding. Subordinating Lender agrees to release, terminate, reconvey and extinguish any security interest, lien or other right or interest it may have in any Collateral at the request of Agent taking such identical action. Agent agrees that, solely with respect to any Collateral as to which Agent has perfected its security interest therein by possession and as to which Subordinating Lender has also been granted a security interest by Obligors, Agent will also hold such Collateral on behalf of Subordinating Lender for purposes of perfecting its junior security interest therein, provided that, Agent's only duties to Subordinating Lender with respect to such Collateral shall be to take commercially reasonable care of such Collateral and to deliver such Collateral, to the extent not disposed of as a result of Agent exercising its security interest with respect thereto, after the indefeasible payment in full in cash of the Senior Debt and the termination of the Senior Lenders' commitments to provide financing to any Obligors. Subordinating Lender agrees that, solely with respect to any Collateral as to which Subordinating Lender has perfected its security interest therein by possession and as to which Agent has also been granted a security interest by Obligors, Subordinating Lender will also hold such Collateral on behalf of Agent for purposes of perfecting its senior security interest therein, provided that, Subordinating Lender's only duties to Agent with respect to such Collateral shall be to take commercially reasonable care of such Collateral and to deliver such Collateral to Agent upon its request. (e) Subordination of Guaranties. In the event Subordinating Lender acquires any guaranty with respect to the Junior Debt, whether secured or unsecured, from any affiliate of Obligors, Subordinating Lender agrees that its rights with respect to such guaranty shall at all times be junior, subordinate and subject to the rights of Agent with respect to any guaranties 9 Agent may receive from such affiliates with respect to the Senior Debt on terms substantially the same as those set forth herein as if such affiliates were Obligors. 4. Restrictions On Subordinating Lender's Actions. Except as permitted in Section 3(c) hereof and unless it shall have obtained the Agent's prior written consent, until the Senior Debt has been paid in full, in cash, and the Senior Lenders' commitments to provide financing to any Obligors have been terminated, Subordinating Lender will not: (a) Demand or accept any payment upon the Junior Debt, except as may be permitted by this Agreement; (b) Foreclose, collect or realize upon any collateral hereafter securing the Junior Debt (whether such collateral constitutes part of the Collateral or consists of other assets of Obligors), or otherwise enforce any security agreement, mortgage, lien instrument, or other encumbrance hereafter securing the Junior Debt. 5. Remedies. If any Obligor or Subordinating Lender attempts to violate Section 3 or Section 4(a), or if Subordinating Lender in any other manner receives any funds which by virtue of this Agreement it is precluded from receiving, Subordinating Lender shall be deemed to hold any payment or distribution it receives in trust for the Agent's benefit. In such case, Subordinating Lender shall immediately remit such payment or distribution to the Agent. If Subordinating Lender attempts to violate Section 4(b), the Agent (in its or Obligors' name), or Obligors may seek injunctive or other equitable relief to prevent or stop Subordinating Lender's actions, it being agreed that legal remedies may be inadequate. The remedies provided in this Section 5 are not exclusive; the parties hereto shall be entitled to all other remedies available at law or in equity. The parties hereto shall not in any event be liable for any impairment or nonpayment of the Junior Debt that results, directly or indirectly, from the exercise by the other parties hereto of any of their rights or remedies under this Agreement, the any other agreement or under applicable law. 6. No Action to Violate Senior Debt Documents. Subordinating Lender shall not take any action which is reasonably likely to cause Obligors to violate the Senior Debt Documents or any other agreement between Obligors on the one hand and Agent and/or the Senior Lenders on the other hand. 7. No Amendment of Junior Debt Documents. Unless the Agent's prior written consent shall have been obtained, no Junior Debt Document may be amended or modified to: (a) increase the maximum principal amount of the Junior Debt or the rate of interest with respect to any of the Junior Debt, (b) accelerate the dates (including maturity dates) upon which payments of principal or interest with respect to the Junior Debt are due, (c) make more restrictive or add any event of default or any covenant with respect to the Junior Debt, (d) change the redemption or prepayment provisions with respect to the Junior Debt, (e) alter the subordination provisions with respect to the Junior Debt, including, without limitation, subordinating the Junior Debt to any other debt, (f) grant any additional liens or security interest in any assets of any Obligor or any other assets securing the Senior Debt or (g) if such modification or amendment would (i) materially increase the obligations of any Obligor, (ii) confer additional material rights upon 10 Subordinating Lender or any other holder of Junior Debt, or (iii) otherwise adversely affect any Obligor, Agent or any Senior Lender. 8. Extensions, Compromises, Etc. Without having to obtain either Obligors or Subordinating Lender's consent, the Agent may grant to Obligors extensions of the time of payment or performance, and may enter into compromises (including releases of collateral and settlements) with Obligors with respect to the Senior Debt. 9. Waiver. Subordinating Lender waives any right it may now or hereafter have to require the Agent to marshall assets, to exercise rights or remedies in a particular manner, or to forbear from exercising such rights and remedies in any particular manner or order. 10. No Constraint on Agent and the Senior Lenders. Nothing contained in this Agreement shall preclude Agent and the Senior Lenders from discontinuing their extension of credit to Obligors (whether under the Senior Debt Documents or otherwise) or from taking (without notice to Subordinating Lender, Obligors, or any other individual or entity) any other action in respect of the Senior Debt or the Collateral which Agent and/or the Senior Lenders are otherwise entitled to take with respect to the Senior Debt or the Collateral. Among the actions which Agent and the Senior Lenders may take in accordance with this Section 10 are: renewing, extending, and increasing the amount of the Senior Debt; otherwise changing the terms of the Senior Debt; settling, releasing, compromising, and collecting on the Senior Debt; making (and refraining from making) other secured and unsecured loans and advances to Obligors; amending any present or future agreement between Agent and/or the Senior Lenders on the one hand and Obligors on the other hand; and all other actions which Agent and/or the Senior Lenders deem advisable. Notwithstanding the foregoing, Agent agrees that it shall not, without the prior written consent of Subordinating Lender, amend or otherwise modify the Senior Debt Documents so as to: (a) increase the maximum principal amount available for borrowing thereunder to an amount in excess of $49,000,000, (b) increase the rate of interest set forth therein by more than two (2) percentage points or (c) except after an Event of Default, increase the frequency or amount of regularly scheduled principal payments with respect to the Term Loan. 11. Continuing Agreement. This Agreement (a) shall automatically terminate upon the indefeasible payment and satisfaction in full, in cash, of all Senior Debt and the termination of the Senior Debt Documents and the obligation of the Senior Lenders to make loans, advances and/or extensions of credit thereunder, (b) is a continuing agreement of subordination, (c) shall be binding upon Subordinating Lender, Obligors, any holder of Junior Debt and their respective successors, transferees and assigns, (d) shall inure to the benefit of and be enforceable by the parties hereto, any holders of Senior Debt, any holders of Junior Debt and their respective successors, transferees and assigns and (e) shall inure to the benefit of any lenders which provide replacement or other subsequent financing of Obligors. It is expressly intended that any successor, transferee, assignee, replacement or subsequent lender be a third party beneficiary of this Agreement without any further action required. Subordinating Lender agrees to take all actions reasonably necessary to amend and ratify this Agreement as to such lender. Without limiting the generality of the foregoing, the Agent and Senior Lenders may assign or otherwise transfer the Senior Debt to any other person or entity, such transferee shall thereupon become vested with all the rights and benefits in respect thereof granted to the Agent and/or Senior 11 Lenders herein or otherwise. This Agreement shall continue to be effective or be reinstated, as the case may be, if at any time any payment of any of the Senior Debt is rescinded or must otherwise be returned by Agent or any Senior Lender in connection with any Insolvency Proceeding or otherwise, all as though such payment had not been made. 12. Rights in Insolvency Proceedings. (a) Subordinating Lender hereby irrevocably authorizes and empowers the Agent, in any Insolvency Proceeding to file a proof of claim on behalf of Subordinating Lender with respect to the Junior Debt if Subordinating Lender fails to file such proof of claim prior to ten (10) days before the expiration of the time period during which such claims must be submitted; provided, however, that any failure of the Agent to file such proof of claim shall not be deemed to be a waiver by the Agent of any of the rights and benefits granted herein by Subordinating Lender. Subordinating Lender hereby covenants and agrees promptly to provide the Agent with a copy of any proof of claim filed by Subordinating Lender in any Insolvency Proceeding. (b) Subordinating Lender hereby irrevocably grants to the Agent, the sole and exclusive authority and power in any Insolvency Proceeding, unless and until this Agreement is terminated in accordance with its terms to accept and receive any payment or distribution which may be payable or deliverable at any time upon or in respect of the Junior Debt. Subordinating Lender shall provide to the Agent all information and documents reasonably necessary to present claims or seek enforcement as described in the immediately preceding sentence. (c) Subordinating Lender hereby agrees that, while it shall retain the right to vote its claims and, except as otherwise provided in this Agreement, otherwise act in any Insolvency Proceeding relative to the Obligors or any of their subsidiaries (including, without limitation, the right to vote to accept or reject any plan of partial or complete liquidation, reorganization, arrangement, composition, or extension), Subordinating Lender shall not: (i) take any action or vote in any way so as to directly or indirectly challenge or contest (A) the validity or the enforceability of the Senior Debt Documents or the liens and security interests granted to the Agent, with respect to the Senior Debt, (B) the rights and duties of Agent and/or the Senior Lenders established in the Senior Debt Documents, or (C) the validity or enforceability of this Agreement; (ii) seek, or acquiesce in any request, to convert an Insolvency Proceeding under chapter 11 of Title 11 of the United States Code to a case under chapter 7 of Title 11 of the United States Code; (iii) seek the appointment of a trustee or examiner with expanded powers for the Obligors or any of their subsidiaries; or (iv) take any other actions or exercise any voting rights which may impair timely repayment of the Senior Debt or otherwise impair or impede any rights of Agent or any Senior Lender. 13. Junior Debt Subordinated to Prior Payment of all Senior Debt in Insolvency. (a) Upon any payment or distribution of assets of Obligors or any of their subsidiaries of any kind, whether in cash, property or securities (including, without limitation, any issuance of securities by Obligors or any of their subsidiaries), in connection with any Insolvency Proceeding: 12 (i) Agent, for the benefit of the Senior Lenders, shall first be entitled to receive indefeasible payment in full in cash of all Senior Debt and the Senior Lenders' commitments to provide financing to any Obligors have been terminated before Subordinating Lender shall be entitled to receive any payment or other distribution of assets in respect of the Junior Debt; (ii) any payment or distribution of assets of Obligors or any of their subsidiaries of any kind or character, whether in cash, property or securities (including, without limitation, any issuance of securities by Obligors or any of their subsidiaries) to which Subordinating Lender would be entitled except for the provisions of this Agreement will be paid by Obligors or any of their subsidiaries, the liquidating trustee or agent or such other person or entity making such a payment or distribution directly to Agent for the benefit of the Senior Lenders, until all Senior Debt is indefeasibly paid in full, in cash; and (iii) if, notwithstanding the foregoing, any payment or distribution of assets of Obligors or any of their subsidiaries of any kind or character, whether in cash, property or securities (including, without limitation, any issuance of securities by Obligors or any of their subsidiaries), is received by Subordinating Lender as payment in respect of the Junior Debt before all Senior Debt is indefeasibly paid in full in cash (or in such other consideration as Agent and the Senior Lenders may, in their sole discretion, expressly agree to in a signed writing), such payment or distribution shall be received and held for and shall be paid over to Agent, or its representative, for application to the payment of the Senior Debt until all Senior Debt has been indefeasibly paid in full in cash. (b) To the extent that the Obligors or other provider of Collateral makes a payment on the Senior Debt that is subsequently invalidated, declared to be fraudulent or preferential or set aside or is required to be repaid to a trustee, receiver or any other party under any bankruptcy, insolvency or reorganization act, state of federal law, common law or equitable cause, including without limitation any Insolvency Proceeding (such payment being hereinafter referred to as a "Voided Payment"), then to the extent of such Voided Payment, that portion of the Senior Debt that had previously been satisfied by such Voided Payment shall be revived and continue in full force and effect as if such Voided Payment had never been made. In the event that a Voided Payment is recovered from Agent or any Senior Lender, an Event of Default shall be deemed to have existed and to be continuing under the Senior Debt Documents from the date of Agent or such Senior Lender's initial receipt of such Voided Payment until the full amount of such Voided Payment is restored to Agent or such Senior Lender. During any continuance of any such Event of Default, this Agreement shall be in full force and effect with respect to the Junior Debt. To the extent that Subordinating Lender has received any payments with respect to the Junior Debt subsequent to the date of Agent's or any Senior Lender's initial receipt of such Voided Payment and such payments have not been invalidated, declared to be fraudulent or preferential or set aside or are required to be repaid to a trustee, receiver, or any other party under any bankruptcy act, state of federal law, common law or equitable cause, Subordinating Lender shall be obligated and hereby agrees that any such payment so made or received shall be deemed to have been received in trust for the benefit Agent and the Senior Lenders, and Subordinating Lender hereby agrees to pay to Agent, for the benefit of the Senior Lenders, upon demand, the full amount so received by Subordinating Lender to the extent necessary to fully restore to Agent and the Senior Lenders the amount of such Voided Payment. In the event that the Subordinating 13 Lender makes any such payment to Agent, that portion of the Junior Debt that had been satisfied but, by reason of such payment to Agent, has ceased to be satisfied, shall be revived and continue in full force and effect as if the underlying payment with respect to that Junior Debt had never been made. 14. Subordination Rights Not Impaired by Acts or Omissions of Obligors, Agent or the Senior Lenders. No right of Agent or any Senior Lender to enforce subordination as provided in this Agreement will at any time in any way be prejudiced or impaired by any act or failure to act on the part of Obligors, or any of their subsidiaries, or by any act or failure to act by Agent or any Senior Lender, or by any noncompliance by Obligors, any of their subsidiaries, or any agent thereof with the terms of this Agreement, regardless of any knowledge thereof with which any such Person may have or otherwise by charged. Except as expressly provided to the contrary herein, Agent and the Senior Lenders may extend, renew, modify or amend any terms of the Senior Debt or any security therefore or guaranty thereof and grant any waiver, release or consent in respect of, or release, sell or exchange such security or Collateral and otherwise deal freely with Obligors, any of Obligors' subsidiaries, and their respective affiliates, all without notice to or consent from Subordinating Lender and without in any way impairing or affecting this Agreement. 15. Lien Related Bankruptcy Provisions. The provisions of this Agreement shall continue in full force and effect notwithstanding the occurrence of any Insolvency Proceeding. To the extent that Subordinating Lender has or acquires any rights under Section 362, 363 or 364 of the Bankruptcy Code with respect to the Collateral, Subordinating Lender hereby agrees not to assert such rights without the prior written consent of Agent; provided that, if requested by Agent, Subordinating Lender shall seek to exercise such rights in the manner requested by Agent, including the rights in payments in respect of such rights. Without limiting the generality of the foregoing sentence, to the extent that Agent consents to any Obligor's use of cash collateral under Section 363 of the Bankruptcy Code or Agent or any of the Senior Lenders agree to provide financing to any Obligor under Section 364 of the Bankruptcy Code, Subordinating Lender hereby agrees not to impede, object to (on grounds of lack of adequate protection, or otherwise), or otherwise interfere with such use of cash collateral or financing. Subordinating Lender specifically agrees that in connection with such cash collateral usage or such financing, Obligors (or a trustee appointed for the estate of Obligors) may grant to Agent liens and security interests upon all or any part of the assets of the Obligors, which liens and security interests: (i) shall secure payments of all Senior Obligations (whether such Senior Obligations arose prior to the filing of the bankruptcy petition or thereafter); and (ii) shall be superior in priority to the liens on and security interests in the assets of Obligors held by Subordinating Lenders. Subordinating Lender (both in its capacity as a Subordinating Lender and in its capacity (if any) as a party which may be obligated to Obligors or its Affiliates with respect to contracts which are part of Agent's Collateral) agrees not to initiate or prosecute or encourage any other Person to initiate or prosecute any claim, action, objection or other proceeding (A) challenging the enforceability of the claim of Agent or any Senior Lender, (B) challenging the enforceability of any liens or security interests in any assets securing the Senior Obligations, or (C) asserting any claims which any Obligor may hold with respect to Agent or any Senior Lender. Subordinating Lender agrees that it will not object to or oppose a sale or other disposition of any assets securing the Senior Obligations (or any portion thereof) free and clear of its security interests, liens or other claims under Section 363 of the Bankruptcy Code or any other provision of the Bankruptcy Code if 14 Agent has consented to such sale or disposition of such assets. Subordinating Lender agrees not to assert any right it may have to "adequate protection" of its interest in the Collateral in any Bankruptcy Proceeding and agrees that it will not seek to have the automatic stay lifted with respect to such security, without the prior written consent of Agent. Subordinating Lender waives any claim it may now or hereafter have against Agent arising out of the election of Agent, in any case instituted under the Bankruptcy Code, of the application of Section 1111(b)(2) of the Bankruptcy Code, and/or out of any cash collateral arrangement, or financing arrangement, or out of any grant of a security interest, under Section 363 or 364 of the Bankruptcy Code, with or by Obligors, as debtor in possession (or with or by any trustee for Obligors). Subordinating Lender agrees that it will not, in its capacity as a secured creditor: (a) propose, vote to accept, or otherwise support confirmation of, a plan of reorganization opposed by Agent, or (b) vote to reject, object to confirmation of, or otherwise oppose confirmation of, a plan of reorganization supported by Agent. The subordination and other provisions of this Agreement shall be enforceable under Section 510 of the Bankruptcy Code. 16. Releases of Collateral. If Agent releases, terminates or subordinates its security interest in any Collateral, the Subordinating Lender agrees to similarly release, terminate or subordinate its security interest in such Collateral. 17. Miscellaneous. (a) Amendment. No amendment or waiver of this Agreement shall be effective unless in a writing signed by each party hereto. (b) Governing Law; Venue. This Agreement shall be governed by and construed in accordance with the laws of the State of New York (applicable to contracts made and performed in such State). All actions and proceedings arising in connection with this Agreement shall be tried and litigated only in state or federal courts located in the Borough of Manhattan, County of New York, State of New York, or (at Agent's sole option) in any other court in which Agent may initiate legal or equitable proceedings, so long as such court has subject matter jurisdiction. Subordinating Lender and Obligors each waive any right it may have to plead forum non-conveniens or otherwise to object to venue, and hereby consents to any court-ordered relief. (c) WAIVER OF RIGHT TO JURY TRIAL. THE PARTIES HERETO EACH HEREBY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (i) ARISING UNDER THIS AGREEMENT OR (ii) IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO IN RESPECT OF THIS AGREEMENT OR THE TRANSACTIONS RELATED HERETO IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER IN CONTRACT, TORT, EQUITY OR OTHERWISE. THE PARTIES HERETO EACH HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY AND THAT ANY PARTY HERETO MAY FILE AN ORIGINAL COUNTERPART OF A COPY OF THIS AGREEMENT WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY. 15 (d) Counterparts, etc. This Agreement may be executed in any number of counterparts, each of which shall be an original, but all of which taken together shall constitute one and the same agreement. Delivery of an executed counterpart of this Agreement by telefacsimile shall have the same force and effect as the delivery of an original executed counterpart of this Agreement. Any party delivering an executed counterpart of any such agreement by telefacsimile shall also deliver an original executed counterpart, but the failure to do so shall not affect the validity, enforceability or binding effect of such agreement. (e) Headings. The headings contained in this Agreement are for convenience only. They shall not affect the interpretation of this Agreement. (f) Attorneys' Fees; Etc. In any suit or action brought to enforce this Agreement or to obtain an adjudication (declaratory or otherwise) of rights or obligations hereunder, the losing party shall pay to the prevailing party reasonable attorneys' fees and other costs and expenses incurred by the prevailing party. (g) Severability. Any provision of this Agreement that is prohibited by law or unenforceable in any jurisdiction shall be ineffective in that jurisdiction to the extent of such prohibition or unenforceability, without invalidating the remaining provisions hereof or affecting the validity or enforceability of such provision in any other jurisdiction. To the extent permissible, the parties waive any law that renders this Agreement prohibited or unenforceable. (h) Entire Agreement. This Agreement constitutes the entire agreement between and among the parties regarding the subject matter hereof. This Agreement supersedes all prior and contemporaneous agreements between or among the parties with respect to the subject matter hereof. (i) Notice. All notices or demands by any party hereunder must be in writing and shall be deemed to have been given or made: if delivered in person, immediately upon delivery; if by telex, telegram or facsimile transmission, immediately upon sending and upon confirmation of receipt; if by nationally recognized overnight courier service with instructions to deliver the next Business Day, one (1) Business Day after sending; and if by certified mail, return receipt requested, five (5) days after mailing. All such notices or demands are to be given as follows: Agent: FOOTHILL CAPITAL CORPORATION 2450 Colorado Avenue Suite 3000 West Santa Monica, California 90404-3576 Attn: Business Finance Division Manager Fax No.: 310.453.7413 16 with a copy to: MAYER, BROWN, ROWE & MAW 350 South Grand Avenue 25th Floor Los Angeles, California 90071-1503 Attn: Marshall C. Stoddard, Jr., Esq. Fax No.: 213.625.0248 and a copy to: ABLECO FINANCE LLC 450 Park Avenue, 28th Floor New York, New York 10022 Attention: Kevin Genda Fax No.: 212.891.1541 Subordinating Lender: J.H. WHITNEY MEZZANINE FUND, L.P. 177 Broad Street Stamford, Connecticut 06901 Attn: Mr. Daniel J. O'Brien Mr. David Kroin Kevin Curley, Esq. Fax No.: 203.973.1422 with a copy to: KIRKLAND & ELLIS 153 East 53rd Street New York, New York 10022 Attn: Andrew E. Nagel, Esq. Fax No.: 212.446.4900 Obligors: MERCURY AIR GROUP, INC. 5456 McConnell Avenue Los Angeles, California 90066 Attn: Chief Executive Officer Fax No.: 310.827.6897 with a copy to: MERCURY AIR GROUP, INC. Legal Department 5456 McConnell Avenue Los Angeles, California 90066 Attn: Wayne J. Lovett, Esq. Fax No. 310.827.0650 The parties may change the address at which they receive notice by giving notice to each other in the foregoing manner. (j) Rules of Construction. As used in this Agreement, the singular includes the plural; the plural includes the singular. References to one gender include all genders. Unless otherwise specified, references to Sections, Exhibits, and parties refer to Sections, Exhibits, and 17 parties of or to this Agreement. The words "include," "including," and similar words are not intended to be limiting. 18. Agreement by Obligors. Each Obligor hereby approves of, consents to and agrees to be bound by the terms of this Agreement. Each Obligor further agrees that this Agreement may be amended by the Agent and Subordinating Lender without notice to, or the consent of, Obligors. [Signatures follow on next page.] 18 IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their respective duly authorized officers, as of the date first above written. J.H. WHITNEY MEZZANINE FUND, L.P. By: ----------------------------------------- Title: -------------------------------------- FOOTHILL CAPITAL CORPORATION, as Agent By: ----------------------------------------- Title: Vice President MERCURY AIR GROUP, INC. By: ---------------------------------------- Title: -------------------------------------- MERCURY AIR CENTERS, INC. By: ---------------------------------------- Title: -------------------------------------- MERCURY AIR CARGO, INC. By: ---------------------------------------- Title: -------------------------------------- MERCFUEL, INC. By: ---------------------------------------- Title: -------------------------------------- 19 MAYTAG AIRCRAFT CORPORATION By: ---------------------------------------- Title: -------------------------------------- MERCURY AIR CENTER-BIRMINGHAM, LLC By: ---------------------------------------- Title: -------------------------------------- MERCURY AIR CENTER-BAKERSFIELD, INC. By: ---------------------------------------- Title: -------------------------------------- MERCURY AIR CENTER-BURBANK, INC. By: ---------------------------------------- Title: -------------------------------------- MERCURY AIR CENTER-FRESNO, INC. By: ---------------------------------------- Title: -------------------------------------- MERCURY AIR CENTER-LOS ANGELES, INC. By: ---------------------------------------- Title: -------------------------------------- MERCURY AIR CENTER-ONTARIO, INC. By: ---------------------------------------- Title: -------------------------------------- 20 MERCURY AIR CENTER-SANTA BARBARA, INC. By: ---------------------------------------- Title: -------------------------------------- MERCURY AIR CENTER-HARTSFIELD, LLC By: ---------------------------------------- Title: -------------------------------------- MERCURY AIR CENTER-PEACHTREE-DEKALB, LLC By: ---------------------------------------- Title: -------------------------------------- MERCURY AIR CENTER- FT. WAYNE, LLC. By: ---------------------------------------- Title: -------------------------------------- MERCURY AIR CENTER-JACKSON, LLC. By: ---------------------------------------- Title: -------------------------------------- MERCURY AIR CENTER-RENO, LLC By: ---------------------------------------- Title: -------------------------------------- 21 MERCURY AIR CENTER-TULSA, LLC. By: ---------------------------------------- Title: -------------------------------------- MERCURY AIR CENTER-CHARLESTON, LLC. By: ---------------------------------------- Title: -------------------------------------- MERCURY AIR CENTER-JOHNS ISLAND, LLC. By: ---------------------------------------- Title: -------------------------------------- MERCURY AIR CENTER-NASHVILLE, LLC. By: ---------------------------------------- Title: -------------------------------------- MERCURY AIR CENTER-ADDISON, INC. By: ---------------------------------------- Title: -------------------------------------- MERCURY AIR CENTER - CORPUS CHRISTI, INC. By: ---------------------------------------- Title: -------------------------------------- HERMES AVIATION, INC. By: ---------------------------------------- Title: -------------------------------------- 22 VULCAN AVIATION, INC. By: ---------------------------------------- Title: -------------------------------------- EXCEL CARGO, INC. By: ---------------------------------------- Title: -------------------------------------- MERCURY ACCEPTANCE CORPORATION By: ---------------------------------------- Title: -------------------------------------- JUPITER AIRLINE AUTOMATION SERVICES, INC. By: ---------------------------------------- Title: -------------------------------------- AEG FINANCE CORPORATION By: ---------------------------------------- Title: -------------------------------------- 23 EXHIBIT A Copies of Junior Debt Documents SCHEDULE A Junior Debt Defaults TABLE OF CONTENTS

PAGE 1. Certain Defined Terms................................................................................. 2 (a) General...................................................................................... 2 (b) Other Terms.................................................................................. 4 2. Representations, Warranties, Waivers and Covenants.................................................... 4 (a) Amount of Junior Debt........................................................................ 4 (b) Junior Debt Documents........................................................................ 5 (c) No Default................................................................................... 5 (d) Further Action............................................................................... 5 3. Subordination......................................................................................... 5 (a) General...................................................................................... 5 (b) Payments to Subordinating Lender............................................................. 5 (c) Actions by Subordinating Lender.............................................................. 8 (d) Priority of Interests in Collateral.......................................................... 8 4. Restrictions On Subordinating Lender's Actions........................................................ 9 5. Remedies.............................................................................................. 9 6. No Action to Violate Senior Debt Documents............................................................ 9 7. No Amendment of Junior Debt Documents................................................................. 10 8. Extensions, Compromises, Etc.......................................................................... 10 9. Waiver................................................................................................ 10 10. No Constraint on Agent and the Senior Lenders......................................................... 10 11. Continuing Agreement.................................................................................. 10 12. Rights in Insolvency Proceedings...................................................................... 11 13. Junior Debt Subordinated to Prior Payment of all Senior Debt in Insolvency............................ 12 14. Subordination Rights Not Impaired by Acts or Omissions of Obligors, Agent or the Senior Lenders....... 13 15. Lien Related Bankruptcy Provisions.................................................................... 13 16. Releases of Collateral................................................................................ 14 17. Miscellaneous......................................................................................... 14 (a) Amendment.................................................................................... 14 (b) Governing Law; Venue......................................................................... 14

-i- TABLE OF CONTENTS (continued)

PAGE (c) Waiver of Right to Jury Trial................................................................ 15 (d) Counterparts, etc............................................................................ 15 (e) Headings..................................................................................... 15 (f) Attorneys' Fees; Etc......................................................................... 15 (g) Severability................................................................................. 15 (h) Entire Agreement............................................................................. 15 (i) Notice....................................................................................... 15 (j) Rules of Construction........................................................................ 16 18. Agreement by Obligors................................................................................. 17

-ii- EX-99.1 9 a87201exv99w1.txt EXHIBIT 99.1 Exhibit 99.1 Contact: Bob Schlax, Mercury Air Group (310 827 2737, Ext. 104) David Herbst, The MWW Group (213 486 6560, Ext. 314) MERCURY AIR GROUP COMPLETES REFINANCING OF CREDIT FACILITIES WITH DIVISION OF WELLS FARGO BANK & J.H. WHITNEY CO. COMPANY CONTINUES TO FOCUS ON REDUCING LONG-TERM DEBT LOS ANGELES, CA (JANUARY 2, 2003) - Mercury Air Group (AMEX/PCX: MAX) today announced the refinancing of its senior secured credit facilities with Foothill Financial Corporation, a division of Wells Fargo Bank (NYSE:WFC), for a five-year term. In addition, Mercury and J. H. Whitney Co. Mezzanine Fund revised the terms of their subordinated loan facility, which will mature on December 31, 2005. Both agreements were executed on December 30th with funding occurring on December 31, 2002. The Foothill facility provides a $42.5 million revolving and term loan secured by Mercury's assets and the revised agreement on Whitney's existing $24 million loan provides incentives for full debt retirement by the end of 2004, a year in advance of its scheduled maturity. "Mercury Air Group has a laser like focus on reducing long-term debt and strengthening our balance sheet while enhancing our core businesses and profitability," said Joseph A. Czyzyk, President & CEO of Mercury Air Group, Inc. "Mercury has reduced long term debt by over $25 million since 2000 and we look forward to our new and expanded banking relationships to continue enhancing and protecting shareholder value and position our company to take advantage of growth opportunities in the future. These new agreements provide a more flexible senior revolving facility with Foothill and a continued business relationship with Whitney as our lender, which we have enjoyed since 1998." ABOUT MERCURY AIR GROUP Los Angeles-based Mercury Air Group (AMEX/PCX:MAX) provides aviation petroleum products, air cargo services and transportation, and support services for international and domestic commercial airlines, general and government aircraft and specialized contract services for the United States government. Mercury Air Group operates four business segments worldwide: Mercury Air Centers, Inc., MercFuel, Inc., Maytag Aircraft Corporation and Mercury Air Cargo, Inc. For more information, please visit www.mercuryairgroup.com. Statements contained in this news release which are not historical facts are forward looking statements as that item is defined in the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from estimated results. Such risks and uncertainties are detailed in The Company's filings with the Securities and Exchange Commission. -----END PRIVACY-ENHANCED MESSAGE-----

EX-10.1

                                                                    Exhibit 10.1

- --------------------------------------------------------------------------------

                           LOAN AND SECURITY AGREEMENT

                                  BY AND AMONG

                             MERCURY AIR GROUP, INC.

                                       AND

              EACH OF ITS SUBSIDIARIES THAT ARE SIGNATORIES HERETO

                                  AS BORROWERS,

                     THE LENDERS THAT ARE SIGNATORIES HERETO

                                 AS THE LENDERS,

                                       AND

                          FOOTHILL CAPITAL CORPORATION

                    AS THE ARRANGER AND ADMINISTRATIVE AGENT

                          DATED AS OF DECEMBER 30, 2002

- --------------------------------------------------------------------------------

                           LOAN AND SECURITY AGREEMENT

            THIS LOAN AND SECURITY AGREEMENT (this "Agreement"), is entered into
as of December 30, 2002, by and among, on the one hand, the lenders identified
on the signature pages hereof (such lenders, together with their respective
successors and assigns, are referred to hereinafter each individually as a
"Lender" and collectively as the "Lenders"), FOOTHILL CAPITAL CORPORATION, a
California corporation, as the arranger and administrative agent for the Lenders
("Agent"), and, on the other hand, MERCURY AIR GROUP, INC., a Delaware
corporation ("Parent") and each of Parent's Subsidiaries identified on the
signature pages hereof (such Subsidiaries, together with Parent, are referred to
hereinafter each individually as a "Borrower", and individually and
collectively, jointly and severally, as the "Borrowers").

      The parties agree as follows:

1.    DEFINITIONS AND CONSTRUCTION.

      1.1 DEFINITIONS. As used in this Agreement, the following terms shall have
the following definitions:

            "Ableco" means Ableco Finance LLC, a Delaware limited liability
company.

            "Account Debtor" means any Person who is or who may become obligated
under, with respect to, or on account of, an Account, chattel paper, or a
General Intangible.

            "Accounts" means all of Borrowers' now owned or hereafter acquired
right, title, and interest with respect to "accounts" (as that term is defined
in the Code), and any and all supporting obligations in respect thereof.

            "ACH Transactions" means any cash management or relates services
(including the Automated Clearing House processing of electronic funds transfers
through the direct Federal Reserve Fedline system) provided by Wells Fargo or
its Affiliates for the account of Administrative Borrower or its Subsidiaries.

            "Additional Documents" has the meaning set forth in Section 4.4.

            "Administrative Borrower" has the meaning set forth in Section 17.9.

            "Advances" has the meaning set forth in Section 2.1.

            "Affiliate" means, as applied to any Person, any other Person who,
directly or indirectly, controls, is controlled by, or is under common control
with, such Person. For purposes of this definition, "control" means the
possession, directly or indirectly, of the power to direct the management and
policies of a Person, whether through the ownership of Stock, by contract, or
otherwise; provided, however, that, for purposes of the definition of Eligible
Accounts and Section 7.13 hereof: (a) any Person which owns directly or
indirectly 10% or more of the securities having ordinary voting power for the
election of directors or other members of the


                                       1

governing body of a Person or 10% or more of the partnership or other ownership
interests of a Person (other than as a limited partner of such Person) shall be
deemed to control such Person; (b) each director (or comparable manager) of a
Person shall be deemed to be an Affiliate of such Person; and (c) each
partnership or joint venture in which a Person is a partner or joint venturer
shall be deemed to be an Affiliate of such Person.

            "Agent" means Foothill, solely in its capacity as agent for the
Lenders hereunder, and any successor thereto.

            "Agent's Account" means the account identified on Schedule A-1.

            "Agent Advances" has the meaning set forth in Section 2.3(e)(i).

            "Agent's Liens" means the Liens granted by Borrowers to Agent for
the benefit of the Lender Group under this Agreement or the other Loan
Documents.

            "Agent-Related Persons" means Agent together with its Affiliates,
officers, directors, employees, and agents.

            "Agreement" has the meaning set forth in the preamble hereto.

            "Applicable Prepayment Premium" means, as of any date of
determination, an amount equal to (a) during the period of time from and after
the date of the execution and delivery of this Agreement up to the date that is
the first anniversary of the Closing Date, 5.0% times the Maximum Revolver
Amount, (b) during the period of time from and including the date that is the
first anniversary of the Closing Date up to the date that is the second
anniversary of the Closing Date, 4.0% times the Maximum Revolver Amount, (c)
during the period of time from and including the date that is the second
anniversary of the Closing Date up to the date that is the third anniversary of
the Closing Date, 3.0% times the Maximum Revolver Amount, (d) during the period
of time from and including the date that is the third anniversary of the Closing
Date up to the date that is the fourth anniversary of the Closing Date, 2.0%
times the Maximum Revolver Amount, and (e) during the period of time from and
including the date that is the fourth anniversary of the Closing Date up to the
Maturity Date, 1.0% times the Maximum Revolver Amount. Notwithstanding the
foregoing, the Applicable Prepayment Premium shall be zero if the funds used to
prepay the Obligations are obtained from, and this Agreement is terminated in
connection with, a transaction between Wells Fargo or one of its Affiliates on
the one hand and Parent and/or its Subsidiaries, or any one of them, on the
other hand.

            "Asset Sale Reserve" means, as of any date of determination, a
reserve in an amount equal to the lesser of (a) 50% of the aggregate amount of
Net Cash Proceeds received by Borrowers (or any of them) prior to January 1,
2004 which exceed $19,500,000 and (b) the Target Amount.

            "Assignee" has the meaning set forth in Section 14.1.

            "Assignment and Acceptance" means an Assignment and Acceptance in
the form of Exhibit A-1.


                                       2

            "Assignment of Claims" means an Assignment of Claims Under
Government Contract, in form and substance acceptable to Agent, with respect to
each contract under which Maytag or any other Borrower provides services or
goods to an Account Debtor which is the United States or any department, agency,
or instrumentality of the United States.

            "Authorized Person" means any officer or other employee of
Administrative Borrower.

            "Availability" means, as of any date of determination, if such date
is a Business Day, and determined at the close of business on the immediately
preceding Business Day, if such date of determination is not a Business Day, the
amount that Borrowers are entitled to borrow as Advances under Section 2.1
(after giving effect to all then outstanding Obligations (other than Bank
Product Obligations) and all sublimits and reserves applicable hereunder).

            "Availability Block" means a reserve from Availability accruing on
the first day of each month, beginning February 1, 2003, at a rate of $125,000
per month until such reserved amount equals $1,500,000.

            "Bank Product Agreements" means those certain cash management
service agreements entered into from time to time by Administrative Borrower or
its Subsidiaries in connection with any of the Bank Products.

            "Bank Product Obligations" means all obligations, liabilities,
contingent reimbursement obligations, fees and expenses owing by Administrative
Borrower or its Subsidiaries to Wells Fargo or its Affiliates pursuant to or
evidenced by the Bank Product Agreements and irrespective of whether for the
payment of money, whether direct or indirect, absolute or contingent, due or to
become due, now existing or hereafter arising, and including all such amounts
that a Borrower is obligated to reimburse to Agent or any member of the Lender
Group as a result of Agent or such member of the Lender Group purchasing
participations or executing indemnities or reimbursement obligations with
respect to the Bank Products provided to Administrative Borrower or its
Subsidiaries pursuant to the Bank Product Agreements.

            "Bank Product Reserves" means, as of any date of determination, the
amount of reserves that Agent has established (based upon Wells Fargo's or its
Affiliate's reasonable determination of the credit exposure in respect of then
extant Bank Products) for Bank Products then provided or outstanding.

            "Bank Products" means any service or facility extended to
Administrative Borrower or its Subsidiaries by Wells Fargo or any Affiliate of
Wells Fargo including: (a) credit cards, (b) credit card processing services,
(c) debit cards, (d) purchase cards, (e) ACH Transactions, (f) cash management,
including controlled disbursement, accounts or services, or (g) Hedge
Agreements.

            "Bankruptcy Code" means the United States Bankruptcy Code, as in
effect from time to time.


                                       3

            "Base LIBOR Rate" means the rate per annum, determined by Agent in
accordance with its customary procedures, and utilizing such electronic or other
quotation sources as it considers appropriate (rounded upwards, if necessary, to
the next 1/16%), on the basis of the rates at which Dollar deposits are offered
to major banks in the London interbank market on or about 11:00 a.m. (California
time) 2 Business Days prior to the commencement of the applicable Interest
Period, for a term and in amounts comparable to the Interest Period and amount
of the LIBOR Rate Loan requested by Administrative Borrower in accordance with
this Agreement, which determination shall be conclusive in the absence of
manifest error.

            "Base Rate" means, the rate of interest announced within Wells Fargo
at its principal office in San Francisco as its "prime rate", with the
understanding that the "prime rate" is one of Wells Fargo's base rates (not
necessarily the lowest of such rates) and serves as the basis upon which
effective rates of interest are calculated for those loans making reference
thereto and is evidenced by the recording thereof after its announcement in such
internal publication or publications as Wells Fargo may designate.

            "Base Rate Loan" means each portion of an Advance or the Term Loan
that bears interest at a rate determined by reference to the Base Rate.

            "Base Rate Margin" means three-quarters of one (0.75) percentage
point.

            "Base Year EBITDA" means, for any given FBO, the projected monthly
EBITDA for the fiscal year ended June 30, 2003 for such FBO as set forth in the
Closing Date Business Plan.

            "Benefit Plan" means a "defined benefit plan" (as defined in Section
3(35) of ERISA) for which any Borrower or any Subsidiary or ERISA Affiliate of
any Borrower has been an "employer" (as defined in Section 3(5) of ERISA) within
the past six years.

            "Board of Directors" means the board of directors (or comparable
managers) of Parent or any committee thereof duly authorized to act on behalf
thereof.

            "Books" means all of each Borrower's and its Subsidiaries' now owned
or hereafter acquired books and records (including all of its Records
indicating, summarizing, or evidencing its assets (including the Collateral) or
liabilities, all of each Borrower's or its Subsidiaries' Records relating to its
or their business operations or financial condition, and all of its or their
goods or General Intangibles related to such information).

            "Borrower" and "Borrowers" have the respective meanings set forth in
the preamble to this Agreement.

            "Borrowing" means a borrowing hereunder consisting of Advances (or
term loans, in the case of the Term Loan) made on the same day by the Lenders
(or Agent on behalf thereof), or by Swing Lender in the case of a Swing Loan, or
by Agent in the case of an Agent Advance, in each case, to Administrative
Borrower.

            "Borrowing Base" has the meaning set forth in Section 2.1.


                                       4

            "Business Day" means any day that is not a Saturday, Sunday, or
other day on which national banks are authorized or required to close, except
that, if a determination of a Business Day shall relate to a LIBOR Rate Loan,
the term "Business Day" also shall exclude any day on which banks are closed for
dealings in Dollar deposits in the London interbank market.

            "Capital Expenditures" means the expenditures made for the
acquisition or additions of any equipment or other fixed assets or improvements,
replacements, substitutions or additions thereto which are set forth as capital
expenditures on the consolidated financial statements of Parent and its
Subsidiaries prepared in accordance with GAAP, but shall exclude the amount of
any casualty insurance proceeds used to repair or replace damaged or destroyed
fixed assets.

            "Capital Lease" means a lease that is required to be capitalized for
financial reporting purposes in accordance with GAAP.

            "Capitalized Lease Obligation" means any Indebtedness represented by
obligations under a Capital Lease.

            "Cargo" means Mercury Air Cargo, Inc., a California corporation.

            "Cash Equivalents" means (a) marketable direct obligations issued or
unconditionally guaranteed by the United States or issued by any agency thereof
and backed by the full faith and credit of the United States, in each case
maturing within 1 year from the date of acquisition thereof, (b) marketable
direct obligations issued by any state of the United States or any political
subdivision of any such state or any public instrumentality thereof maturing
within 1 year from the date of acquisition thereof and, at the time of
acquisition, having the highest rating obtainable from either S&P or Moody's,
(c) commercial paper maturing no more than 270 days from the date of acquisition
thereof and, at the time of acquisition, having a rating of A-1 or P-1, or
better, from S&P or Moody's, and (d) certificates of deposit or bankers'
acceptances maturing within 1 year from the date of acquisition thereof that are
either (i) issued by any bank organized under the laws of the United States or
any state thereof which bank has a rating of A or A2, or better, from S&P or
Moody's, or (ii) in an amount less than or equal to $100,000 in the aggregate
issued by any other bank insured by the Federal Deposit Insurance Corporation.

            "Cash Management Bank" has the meaning set forth in Section 2.7(a).

            "Cash Management Account" has the meaning set forth in Section
2.7(a).

            "Cash Management Agreements" means those certain cash management
service agreements, in form and substance satisfactory to Agent, each of which
is among a Borrower or a Guarantor, Agent, and one of the Cash Management Banks.

            "CEDFA" means the California Economic Development Financing
Authority, a public instrumentality and political subdivision of the State of
California.

            "Change of Control" means (a) any "person" or "group" (within the
meaning of Sections 13(d) and 14(d) of the Exchange Act), other than a Permitted
Holder, becomes the beneficial owner (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of


                                       5

25%, or more, of the Stock of Parent having the right to vote for the election
of members of the Board of Directors, or (b) a majority of the members of the
Board of Directors do not constitute Continuing Directors, (c) any Borrower
ceases to directly own and control 100% of the outstanding capital Stock of each
of its Subsidiaries extant as of the Closing Date other than in connection with
a Permitted Financing Transaction; or (d) a Change of Control (as defined in the
Whitney Note).

            "ChevronTexaco Letter" means a letter agreement as to such matters
as Agent may require, in form and substance satisfactory to Agent, among
ChevronTexaco, Borrower and Agent.

            "Closing Date" means the date of the making of the initial Advance
or Term Loan (or other extension of credit) hereunder.

            "Closing Date Business Plan" means the set of Projections of
Borrowers for the 12-quarter period following the Closing Date (on a quarter by
quarter basis), in form and substance (including as to scope and underlying
assumptions) satisfactory to Agent.

            "Code" means the New York Uniform Commercial Code, as in effect from
time to time.

            "Collateral" means all of each Borrower's now owned or hereafter
acquired right, title, and interest in and to each of the following:

            (a) Accounts,

            (b) Books,

            (c) Equipment,

            (d) General Intangibles,

            (e) Inventory,

            (f) Investment Property,

            (g) Negotiable Collateral,

            (h) Real Property Collateral,

            (i) money or other assets of each such Borrower that now or
hereafter come into the possession, custody, or control of any member of the
Lender Group, and

            (j) the proceeds and products, whether tangible or intangible, of
any of the foregoing, including proceeds of insurance covering any or all of the
foregoing, and any and all Accounts, Books, Equipment, General Intangibles,
Inventory, Investment Property, Negotiable Collateral, Real Property, money,
deposit accounts, or other tangible or intangible property


                                       6

resulting from the sale, exchange, collection, or other disposition of any of
the foregoing, or any portion thereof or interest therein, and the proceeds
thereof.

            "Collateral Access Agreement" means a landlord waiver, bailee
letter, or acknowledgement agreement of any lessor, warehouseman, processor,
consignee, or other Person in possession of, having a Lien upon, or having
rights or interests in the Equipment or Inventory, in each case, in form and
substance satisfactory to Agent.

            "Collections" means all cash, checks, notes, instruments, and other
items of payment (including insurance proceeds, proceeds of cash sales, rental
proceeds, and tax refunds) of Borrowers or Guarantors.

            "Commitment" means, with respect to each Lender, its Revolver
Commitment, as of any date of determination, its Term Loan Commitment or its
Total Commitment, as the context requires, and, with respect to all Lenders,
their Revolver Commitments, their Term Loan Commitments or their Total
Commitments, as the context requires, in each case as such Dollar amounts are
set forth beside such Lender's name under the applicable heading on Schedule C-1
or on the signature page of the Assignment and Acceptance pursuant to which such
Lender became a Lender hereunder in accordance with the provisions of Section
14.1.

            "Compliance Certificate" means a certificate substantially in the
form of Exhibit C-1 delivered by the chief financial officer of Parent to Agent.

            "Continuing Director" means (a) any member of the Board of Directors
who was a director (or comparable manager) of Parent on the Closing Date, and
(b) any individual who becomes a member of the Board of Directors after the
Closing Date if such individual was appointed or nominated for election to the
Board of Directors by a majority of the Continuing Directors, but excluding any
such individual originally proposed for election in opposition to the Board of
Directors in office at the Closing Date in an actual or threatened election
contest relating to the election of the directors (or comparable managers) of
Parent (as such terms are used in Rule 14a-11 under the Exchange Act) and whose
initial assumption of office resulted from such contest or the settlement
thereof.

            "Control Agreement" means a control agreement, in form and substance
satisfactory to Agent, executed and delivered by the applicable Borrower or
Guarantor, Agent, and the applicable securities intermediary with respect to a
Securities Account or a bank with respect to a deposit account.

            "Daily Balance" means, with respect to each day during the term of
this Agreement, the amount of an Obligation owed at the end of such day.

            "DDA" means any checking or other demand deposit account maintained
by any Borrower.

            "Default" means an event, condition, or default that, with the
giving of notice, the passage of time, or both, would be an Event of Default.


                                       7

            "Defaulting Lender" means any Lender that fails to make any Advance
(or other extension of credit) that it is required to make hereunder on the date
that it is required to do so hereunder.

            "Defaulting Lender Rate" means (a) the Base Rate for the first 3
days from and after the date the relevant payment is due, and (b) thereafter, at
the interest rate then applicable to Advances that are Base Rate Loans
(inclusive of the Base Rate Margin applicable thereto).

            "Designated Account" means that certain DDA of Administrative
Borrower identified on Schedule D-1.

            "Dilution" means, as of any date of determination, a percentage,
based upon the experience of the immediately prior 90 days, that is the result
of dividing the Dollar (or Dollar equivalent) amount of (a) bad debt
write-downs, discounts, advertising allowances, credits, or other dilutive items
with respect to the Accounts during such period, by (b) Borrowers' gross
billings with respect to Accounts during such period (excluding extraordinary
items).

            "Dilution Reserve" means, as of any date of determination, an amount
sufficient to reduce the advance rate against Eligible Accounts and Eligible
Foreign Accounts by one percentage point for each percentage point by which
Dilution is in excess of 5%.

            "Disbursement Letter" means an instructional letter executed and
delivered by Administrative Borrower to Agent regarding the extensions of credit
to be made on the Closing Date, the form and substance of which is satisfactory
to Agent.

            "Disqualified Capital Stock" means that portion of any equity
security which, by its terms (or by the terms of any security into which it is
convertible or for which it is exchangeable at the option of the holder
thereof), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or is redeemable
at the sole option of the holder thereof (except, in each case, upon the
occurrence of a Change of Control) on or prior to the Maturity Date.

            "Dollars" or "$" means United States dollars.

            "Due Diligence Letter" means the due diligence letter sent by
Agent's counsel to Administrative Borrower, together with Administrative
Borrower's completed responses to the inquiries set forth therein, the form and
substance of such responses to be satisfactory to Agent.

            "EBITDA" means, for any period as determined in accordance with
GAAP, Parent's and Subsidiaries consolidated (a) net earnings for such period,
plus (b) the sum of the following, without duplication, in each case to the
extent included in the determination of such net earnings: (i) income and
franchise taxes, (ii) Interest Expense, (iii) amortization, depreciation and
other non-cash charges for stock compensation expenses, expenses incurred in
connection with any employee stock ownership plan of any Borrower, and
impairment write-downs of goodwill and other intangible assets, (iv) non-cash
asset impairment charges, (v) cumulative effect of changes in accounting
principles, (vi) Whitney's contingent fee associated with the Additional
Warrants (as defined in the Whitney Agreement) and Additional Notes (as defined
in


                                       8

the Whitney Agreement) to the extent such fee is earned by Whitney, (vii)
professional and transaction fees associated with the closing of the
transactions contemplated by this Agreement, the closing of the transactions
contemplated by the amendments effected on or about the date hereof with respect
to the Whitney Documentation and any Permitted Financing Transactions, and
(viii) professional and transaction fees associated with unconsummated Permitted
Financing Transactions, not to exceed $500,000 in any fiscal year or $1,000,000
in the aggregate during the term of this Agreement, plus (or minus) (c) losses
(or gains) attributable to any sale of equipment which constitutes a Permitted
Disposition, to the extent included in the determination of net earnings, plus
(or minus) (d) losses (or gains) attributable to any Permitted Financing
Transaction, to the extent included in the determination of net earnings, less
(e) any item classified as extraordinary income, to the extent included in the
determination of net earnings.

            "Eligible Accounts" means those Accounts created by one of Borrowers
in the ordinary course of its business, that arise out of its sale of goods or
rendition of services, that comply with each of the representations and
warranties respecting Eligible Accounts made by Borrowers under the Loan
Documents, and that are not excluded as ineligible by virtue of one or more of
the criteria set forth below; provided, however, that such criteria may be fixed
and revised from time to time by Agent in Agent's Permitted Discretion to
address the results of any audit performed by Agent from time to time after the
Closing Date. In determining the amount to be included, Eligible Accounts shall
be calculated net of customer deposits and unapplied cash remitted to Borrowers.
Eligible Accounts shall not include the following:

            (a) Accounts that the Account Debtor has failed to pay within 60
days of the due date therefor or 90 days of the original invoice date therefor,

            (b) Accounts owed by an Account Debtor (or its Affiliates) where 50%
or more of all Accounts owed by that Account Debtor (or its Affiliates) are
deemed ineligible under clause (a) above,

            (c) Accounts with respect to which the Account Debtor is an
employee, Affiliate, or agent of any Borrower,

            (d) Accounts arising in a transaction wherein goods are placed on
consignment or are sold pursuant to a guaranteed sale, a sale or return, a sale
on approval, a bill and hold, or any other terms by reason of which the payment
by the Account Debtor may be conditional,

            (e) Accounts that are not payable in Dollars,

            (f) Accounts with respect to which the Account Debtor either (i)
does not maintain its chief executive office in the United States or Canada, or
(ii) is not organized under the laws of the United States or any state thereof
or Canada or any province thereof, or (iii) is the government of any foreign
country or sovereign state, or of any state, province, municipality, or other
political subdivision thereof, or of any department, agency, public corporation,
or other instrumentality thereof, unless (x) the Account is billed to an address
in the United States and paid in Dollars drawn on an account at a federal or
state chartered banking institution in the United States, (y) the Account is
supported by an irrevocable letter of credit satisfactory to Agent


                                       9

(as to form, substance, and issuer or domestic confirming bank) that has been
delivered to Agent and is directly drawable by Agent, or (z) the Account is
covered by credit insurance in form, substance, and amount, and by an insurer,
satisfactory to Agent,

            (g) Accounts with respect to which the Account Debtor is either (i)
the United States or any department, agency, or instrumentality of the United
States (exclusive, however, of Accounts with respect to which the applicable
Borrower has filed, by the dates required in this Agreement, a Notice of
Assignment of Claims), or (ii) any state of the United States (exclusive,
however, of (A) Accounts owed by any state that does not have a statutory
counterpart to the Assignment of Claims Act or (B) Accounts owed by any state
that does have a statutory counterpart to the Assignment of Claims Act as to
which the applicable Borrower has complied to Agent's satisfaction),

            (h) Accounts with respect to which the Account Debtor is a creditor
of any Borrower, has or has asserted a right of setoff, has disputed its
liability, or has made any claim with respect to its obligation to pay the
Account, to the extent of such claim, right of setoff, or dispute,

            (i) Accounts with respect to an Account Debtor whose total
obligations owing to Borrowers exceed 10% (such percentage as applied to a
particular Account Debtor being subject to reduction by Agent in its Permitted
Discretion if the creditworthiness of such Account Debtor deteriorates) of all
Eligible Accounts, to the extent of the obligations owing by such Account Debtor
in excess of such percentage,

            (j) Accounts with respect to which the Account Debtor is subject to
an Insolvency Proceeding, is not Solvent, has gone out of business, or as to
which a Borrower has received notice of an imminent Insolvency Proceeding or a
material impairment of the financial condition of such Account Debtor,

            (k) Accounts with respect to which the Account Debtor is located in
the states of New Jersey, Minnesota, or West Virginia (or any other state that
requires a creditor to file a business activity report or similar document in
order to bring suit or otherwise enforce its remedies against such Account
Debtor in the courts or through any judicial process of such state), unless the
applicable Borrower has qualified to do business in New Jersey, Minnesota, West
Virginia, or such other states, or has filed a business activities report with
the applicable division of taxation, the department of revenue, or with such
other state offices, as appropriate, for the then-current year, or is exempt
from such filing requirement,

            (l) Accounts, the collection of which, Agent, in its Permitted
Discretion, believes to be doubtful by reason of the Account Debtor's financial
condition,

            (m) Accounts that are not subject to a valid and perfected first
priority Agent's Lien,

            (n) Accounts with respect to which (i) the goods giving rise to such
Account have not been shipped and billed to the Account Debtor, or (ii) the
services giving rise to such Account have not been performed and billed to the
Account Debtor,


                                       10

            (o) Accounts that represent the right to receive progress payments
or other advance billings that are due prior to the completion of performance by
the applicable Borrower of the subject contract for goods or services,

            (p) Accounts that are not billed to an address in the United States
and paid in Dollars drawn on an account at a federal or state chartered banking
institution in the United States, or

            (q) Accounts due from Airtran, Inc. or any of its Affiliates until
such time as Agent deems otherwise.

            "Eligible Foreign Accounts" means Accounts which otherwise
constitute Eligible Accounts, but which are owed by China Eastern Airlines or
China Southern Airlines; provided, however Agent, in its Permitted Discretion,
may revise the definition of "Eligible Foreign Accounts," from time to time, as
Agent, in its Permitted Discretion deems necessary or appropriate.

            "Eligible Transferee" means (a) a commercial bank organized under
the laws of the United States, or any state thereof, and having total assets in
excess of $250,000,000, (b) a commercial bank organized under the laws of any
other country which is a member of the Organization for Economic Cooperation and
Development or a political subdivision of any such country and which has total
assets in excess of $250,000,000, provided that such bank is acting through a
branch or agency located in the United States, (c) a finance company, insurance
company, or other financial institution or fund that is engaged in making,
purchasing, or otherwise investing in commercial loans in the ordinary course of
its business and having (together with its Affiliates) total assets in excess of
$250,000,000, (d) any Affiliate (other than individuals) of a Lender that was
party hereto as of the Closing Date or any Related Fund, (e) so long as no Event
of Default has occurred and is continuing, any other Person approved by Agent
and Administrative Borrower, and (f) during the continuation of an Event of
Default, any other Person approved by Agent.

            "Environmental Actions" means any complaint, summons, citation,
notice, directive, order, claim, litigation, investigation, judicial or
administrative proceeding, judgment, letter, or other communication from any
Governmental Authority, or any third party involving violations of Environmental
Laws or releases of Hazardous Materials from (a) any assets, properties, or
businesses of any Borrower or any predecessor in interest, (b) from adjoining
properties or businesses, or (c) from or onto any facilities which received
Hazardous Materials generated by any Borrower or any predecessor in interest.

            "Environmental Law" means any applicable federal, state, provincial,
foreign or local statute, law, rule, regulation, ordinance, code, binding and
enforceable guideline, binding and enforceable written policy or rule of common
law now or hereafter in effect and in each case as amended, or any judicial or
administrative interpretation thereof, including any judicial or administrative
order, consent decree or judgment, to the extent binding on Borrowers, relating
to the environment, employee health and safety, or Hazardous Materials,
including CERCLA; RCRA; the Federal Water Pollution Control Act, 33 USC Section
1251 et seq; the Toxic Substances Control Act, 15 USC, Section 2601 et seq; the
Clean Air Act, 42 USC Section 7401 et seq.; the Safe Drinking


                                       11

Water Act, 42 USC. Section 3803 et seq.; the Oil Pollution Act of 1990, 33 USC.
Section 2701 et seq.; the Emergency Planning and the Community Right-to-Know Act
of 1986, 42 USC. Section 11001 et seq.; the Hazardous Material Transportation
Act, 49 USC Section 1801 et seq.; and the Occupational Safety and Health Act, 29
USC. Section 651 et seq. (to the extent it regulates occupational exposure to
Hazardous Materials); any state and local or foreign counterparts or
equivalents, in each case as amended from time to time.

            "Environmental Liabilities and Costs" means all liabilities,
monetary obligations, Remedial Actions, losses, damages, punitive damages,
consequential damages, treble damages, costs and expenses (including all
reasonable fees, disbursements and expenses of counsel, experts, or consultants,
and costs of investigation and feasibility studies), fines, penalties,
sanctions, and interest incurred as a result of any claim or demand by any
Governmental Authority or any third party, and which relate to any Environmental
Action.

            "Environmental Lien" means any Lien in favor of any Governmental
Authority for Environmental Liabilities and Costs.

            "Equipment" means all of Borrowers' now owned or hereafter acquired
right, title, and interest with respect to equipment, machinery, machine tools,
motors, furniture, furnishings, fixtures, vehicles (including motor vehicles),
tools, parts, goods (other than consumer goods, farm products, or Inventory),
wherever located, including all attachments, accessories, accessions,
replacements, substitutions, additions, and improvements to any of the
foregoing.

            "ERISA" means the Employee Retirement Income Security Act of 1974,
as amended, and any successor statute thereto.

            "ERISA Affiliate" means (a) any Person subject to ERISA whose
employees are treated as employed by the same employer as the employees of a
Borrower under IRC Section 414(b), (b) any trade or business subject to ERISA
whose employees are treated as employed by the same employer as the employees of
a Borrower under IRC Section 414(c), (c) solely for purposes of Section 302 of
ERISA and Section 412 of the IRC, any organization subject to ERISA that is a
member of an affiliated service group of which a Borrower is a member under IRC
Section 414(m), or (d) solely for purposes of Section 302 of ERISA and Section
412 of the IRC, any Person subject to ERISA that is a party to an arrangement
with a Borrower and whose employees are aggregated with the employees of a
Borrower under IRC Section 414(o).

            "Event of Default" has the meaning set forth in Section 8.

            "Excess Availability" means the amount, as of the date any
determination thereof is to be made, equal to Availability minus the aggregate
amount, if any, of all trade payables of Borrowers aged in excess of 60 days
from the due date therefor and all book overdrafts in excess of their historical
practices with respect thereto, in each case as determined by Agent in its
Permitted Discretion.

            "Exchange Act" means the Securities Exchange Act of 1934, as in
effect from time to time.


                                       12

            "Excluded FBOs" means the FBOs owned by Mercury Air Center-Los
Angeles, Inc., Mercury Air Center-Santa Barbara, Inc. and Mercury Air
Center-Hartsfield, LLC to the extent (a) any Person holds a Lien (other than a
Permitted Lien) with respect to such FBOs, related Real Property or other assets
that is senior to the Lien of Agent with respect to such FBOs, related Real
Property or other assets or (b) such FBOs are not subject to leases with a term
reasonably satisfactory to Agent.

            "Existing Lender" means Fleet National Bank.

            "Existing Operations Capital Expenditures" means Capital
Expenditures used to acquire, add or replace equipment or other fixed assets at
a location or facility operated by a Borrower and which are not financed with
Indebtedness.

            "Expansion Capital Expenditures" means all Capital Expenditures,
other than Existing Operations Capital Expenditures, which are financed with
Indebtedness.

            "Extraordinary Receipts" means any cash received by the Parent or
any of its Subsidiaries not in the ordinary course of business and other than
from the disposition of assets, including (a) foreign, United States, state or
local tax refunds, (b) pension plan reversions, (c) proceeds of insurance, (d)
judgments, proceeds of settlements or other consideration of any kind in
connection with any cause of action, (e) condemnation awards (and payments in
lieu thereof), (f) indemnity payments and (g) any purchase price adjustments
received in connection with any purchase agreement.

            "FBO" means a fixed base operator lease or similar agreement,
identified on Schedule F-1 (as the same may be amended or modified from time to
time), entered into by any Borrower with a municipality or other public agency
owning or operating an airport located in the United States of America whereby
such Borrower leases real property located at such airport for the purpose of
providing services thereat.

            "FBO Borrowers" means Mercury Air Center-Birmingham, LLC, Mercury
Air Center-Bakersfield, Inc., Mercury Air Center-Burbank, Inc., Mercury Air
Center-Fresno, Inc., Mercury Air Center-Los Angeles, Inc., Mercury Air
Center-Ontario, Inc., Mercury Air Center-Santa Barbara, Inc., Mercury Air
Center-Hartsfield, LLC, Mercury Air Center-Peachtree-Dekalb, LLC, Mercury Air
Center- Ft. Wayne, LLC., Mercury Air Center-Jackson, LLC., Mercury Air
Center-Reno, LLC, Mercury Air Center-Tulsa, LLC., Mercury Air Center-Charleston,
LLC., Mercury Air Center-Johns Island, LLC., Mercury Air Center-Nashville, LLC.,
Mercury Air Center-Addison, Inc. and Mercury Air Center - Corpus Christi, Inc.

            "FBO Documentation" means, collectively, with respect to each FBO
listed on Schedule F-1 hereto (a) evidence, in form and substance satisfactory
to Agent, that such FBO has been assigned or otherwise transferred to the
applicable FBO Borrower, (b) a duly executed consent, in form and substance
satisfactory to Agent, from the appropriate leasing authority of such FBO,
consenting to the transfer of such FBO and such other matters as Agent may
require, and (c) such other documentation with respect to the transfer of such
FBO as Agent may reasonably require.


                                       13

            "FBO Enterprise Value" means the value of the FBOs other than the
Excluded FBOs, as determined by Agent in its sole discretion, exercised in good
faith (with a reference point being an appraisal by an independent appraiser
acceptable to Agent), determined by assessing the value of stockholders' equity
plus the stated value of interest bearing debt, when sold in a 6 to 12 month
time frame, and includes discounts to reflect a sale in less than optimal time.

            "FBO Operations" means business operations of the applicable
Borrower directly related to or arising from any FBO.

            "Fee Letter" means that certain fee letter, dated as of even date
herewith, between Borrowers, the Lenders and Agent, in form and substance
satisfactory to Agent.

            "FEIN" means Federal Employer Identification Number.

            "Fixed Charge Coverage Ratio" means, with respect to Parent and its
Subsidiaries for any period, the ratio of (a) EBITDA for such period less cash
payments with respect to Existing Operations Capital Expenditures of Parent and
its Subsidiaries on a consolidated basis for such period, to (b) Fixed Charges
for such period.

            "Fixed Charges" means, with respect to Parent and its Subsidiaries,
for any period, the sum, without duplication, of (a) cash Interest Expense, (b)
scheduled principal payments required to be made during such period with respect
to Indebtedness (specifically excluding mandatory prepayments made under Section
2.4(c) or under Section 3 of the Whitney Note), and (c) the amount paid in cash
to satisfy such entities' federal, state and local income tax obligations, other
than, in the case of this clause (c), those incurred in connection with (i) a
Permitted Financing Transaction, (ii) Permitted Dispositions and (iii)
extraordinary income not included in calculating EBITDA.

            "Foothill" means Foothill Capital Corporation, a California
corporation.

            "Funding Date" means the date on which a Borrowing occurs.

            "Funding Losses" has the meaning set forth in Section 2.13(b)(ii).

            "GAAP" means generally accepted accounting principles as in effect
from time to time in the United States, consistently applied.

            "General Intangibles" means all of Borrowers' now owned or hereafter
acquired right, title, and interest with respect to general intangibles
(including payment intangibles, contract rights, rights to payment, rights
arising under common law, statutes, or regulations, choses or things in action,
goodwill, patents, trade names, trademarks, servicemarks, copyrights,
blueprints, drawings, purchase orders, customer lists, monies due or recoverable
from pension funds, route lists, rights to payment and other rights under any
royalty or licensing agreements, infringement claims, computer programs,
information contained on computer disks or tapes, software, literature, reports,
catalogs, money, deposit accounts, insurance premium rebates, tax refunds, and
tax refund claims), and any and all supporting obligations in respect thereof,
and


                                       14

any other personal property other than goods, Accounts, Investment Property, and
Negotiable Collateral.

            "Governing Documents" means, with respect to any Person, the
certificate or articles of incorporation, by-laws, or other organizational
documents of such Person.

            "Governmental Authority" means any federal, state, local, or other
governmental or administrative body, instrumentality, department, or agency or
any court, tribunal, administrative hearing body, arbitration panel, commission,
or other similar dispute-resolving panel or body.

            "Guarantors" mean, collectively, Hermes Aviation, Inc., a California
corporation, Vulcan Aviation, Inc., a California corporation, Excel Cargo, Inc.,
a California corporation, Mercury Acceptance Corporation, a California
corporation, Jupiter Airline Automation Services, Inc., a Florida corporation,
AEG Finance Corporation, a Delaware corporation, and any other Person from time
to time executing a Guaranty or similar agreement in favor of Agent, for the
benefit of the Lender Group; sometimes referred to individually as a
"Guarantor."

            "Guaranties" means, collectively, those certain Guaranty and
Security Agreements, or similar agreements, executed and delivered by the
applicable Guarantor in favor of Agent, for the benefit of the Lender Group,
each in form and substance satisfactory to Agent; sometimes referred to
individually as a "Guaranty."

            "Hazardous Materials" means (a) substances that are defined or
listed in, or otherwise classified pursuant to, any applicable laws or
regulations as "hazardous substances," "hazardous materials," "hazardous
wastes," "toxic substances," or any other formulation intended to define, list,
or classify substances by reason of deleterious properties such as ignitability,
corrosivity, reactivity, carcinogenicity, reproductive toxicity, or "EP
toxicity", (b) oil, petroleum, or petroleum derived substances, natural gas,
natural gas liquids, synthetic gas, drilling fluids, produced waters, and other
wastes associated with the exploration, development, or production of crude oil,
natural gas, or geothermal resources, (c) any flammable substances or explosives
or any radioactive materials, and (d) asbestos in any form or electrical
equipment that contains any oil or dielectric fluid containing levels of
polychlorinated biphenyls in excess of 50 parts per million.

            "Hedge Agreement" means any and all transactions, agreements, or
documents now existing or hereafter entered into between Administrative Borrower
or its Subsidiaries and Wells Fargo or its Affiliates, which provide for an
interest rate, credit, commodity or equity swap, cap, floor, collar, forward
foreign exchange transaction, currency swap, cross currency rate swap, currency
option, or any combination of, or option with respect to, these or similar
transactions, for the purpose of hedging Administrative Borrower's or its
Subsidiaries' exposure to fluctuations in interest or exchange rates, loan,
credit exchange, security or currency valuations or commodity prices.

            "Indebtedness" means (a) all obligations for borrowed money, (b) all
obligations evidenced by bonds, debentures, notes, or other similar instruments
and all reimbursement or other obligations in respect of letters of credit,
bankers acceptances, interest rate swaps, or other


                                       15

financial products, (c) the capitalized amount of all obligations under Capital
Leases, determined in accordance with GAAP, (d) all obligations or liabilities
of others secured by a Lien on any asset of Administrative Borrower or its
Subsidiaries, irrespective of whether such obligation or liability is assumed,
(e) all obligations for the deferred purchase price of assets (other than trade
debt incurred in the ordinary course of business and repayable in accordance
with customary trade practices), and (f) any obligation guaranteeing or intended
to guarantee (whether directly or indirectly guaranteed, endorsed, co-made,
discounted, or sold with recourse) any obligation of any other Person,
including, without limitation, IRB Obligations.

            "Indemnified Liabilities" has the meaning set forth in Section 11.3.

            "Indemnified Person" has the meaning set forth in Section 11.3.

            "Insolvency Proceeding" means any proceeding commenced by or against
any Person under any provision of the Bankruptcy Code or under any other state
or federal bankruptcy or insolvency law, assignments for the benefit of
creditors, formal or informal moratoria, compositions, extensions generally with
creditors, or proceedings seeking reorganization, arrangement, or other similar
relief.

            "Intangible Assets" means, with respect to any Person, that portion
of the book value of all of such Person's assets that would be treated as
intangibles under GAAP.

            "Interest Expense" means the aggregate interest expense of Parent
and its Subsidiaries for a given period, on a consolidated basis, as determined
in accordance with GAAP, and including the interest component of Capitalized
Lease Obligations paid (to the extent not accrued in a prior period), accrued or
scheduled to be paid or accrued by Parent and its Subsidiaries during such
period.

            "Interest Period" means, with respect to each LIBOR Rate Loan, a
period commencing on the date of the making of such LIBOR Rate Loan and ending
1, 2, or 3 months thereafter; provided, however, that (a) if any Interest Period
would end on a day that is not a Business Day, such Interest Period shall be
extended (subject to clauses (c)-(e) below) to the next succeeding Business Day,
(b) interest shall accrue at the applicable rate based upon the LIBOR Rate from
and including the first day of each Interest Period to, but excluding, the day
on which any Interest Period expires, (c) any Interest Period that would end on
a day that is not a Business Day shall be extended to the next succeeding
Business Day unless such Business Day falls in another calendar month, in which
case such Interest Period shall end on the next preceding Business Day, (d) with
respect to an Interest Period that begins on the last Business Day of a calendar
month (or on a day for which there is no numerically corresponding day in the
calendar month at the end of such Interest Period), the Interest Period shall
end on the last Business Day of the calendar month that is 1, 2, or 3 months
after the date on which the Interest Period began, as applicable, and (e)
Borrowers (or Administrative Borrower on behalf thereof) may not elect an
Interest Period which will end after the Maturity Date.

            "Inventory" means all Borrowers' now owned or hereafter acquired
right, title, and interest with respect to inventory, including goods held for
sale or lease or to be furnished under a contract of service, goods that are
leased by a Borrower as lessor, goods that are


                                       16

furnished by a Borrower under a contract of service, and raw materials, work in
process, or materials used or consumed in a Borrower's business.

            "Investment" means, with respect to any Person, any investment by
such Person in any other Person (including Affiliates) in the form of loans,
guarantees, advances, or capital contributions (excluding (a) commission,
travel, and similar advances to officers and employees of such Person made in
the ordinary course of business, and (b) bona fide Accounts arising in the
ordinary course of business consistent with past practices), purchases or other
acquisitions for consideration of Indebtedness or Stock, and any other items
that are or would be classified as investments on a balance sheet prepared in
accordance with GAAP.

            "Investment Property" means all of Borrowers' now owned or hereafter
acquired right, title, and interest with respect to "investment property" as
that term is defined in the Code, and any and all supporting obligations in
respect thereof.

            "IRB Obligations" means Indebtedness incurred with respect to
revenue bonds issued by a Governmental Authority for purposes of financing
improvements to or construction of facilities of substantially the same type or
for substantially the same use as are currently operated by any Borrower at any
airport where an FBO is located.

            "IRC" means the Internal Revenue Code of 1986, as in effect from
time to time.

            "Issuing Lender" means Foothill or any other Lender that, at the
request of Administrative Borrower and with the consent of Agent agrees, in such
Lender's sole discretion, to become an Issuing Lender for the purpose of issuing
L/Cs or L/C Undertakings pursuant to Section 2.12.

            "L/C" has the meaning set forth in Section 2.12(a).

            "L/C Disbursement" means a payment made by the Issuing Lender
pursuant to a Letter of Credit.

            "L/C Undertaking" has the meaning set forth in Section 2.12(a).

            "Lender" and "Lenders" have the respective meanings set forth in the
preamble to this Agreement, and shall include any other Person made a party to
this Agreement in accordance with the provisions of Section 14.1.

            "Lender Group" means, individually and collectively, each of the
Lenders (including the Issuing Lender) and Agent.

            "Lender Group Expenses" means all (a) costs or expenses (including
taxes, and insurance premiums) required to be paid by a Borrower under any of
the Loan Documents that are paid or incurred by the Lender Group, (b) fees or
charges paid or incurred by Agent in connection with the Lender Group's
transactions with Borrowers, including, fees or charges for photocopying,
notarization, couriers and messengers, telecommunication, public record searches
(including tax lien, litigation, and UCC searches and including searches with
the patent and trademark office, the copyright office, or the department of
motor vehicles), filing, recording,


                                       17

publication, appraisal (including periodic Collateral appraisals or business
valuations to the extent of the fees and charges (and up to the amount of any
limitation) contained in this Agreement, real estate surveys, real estate title
policies and endorsements, and environmental audits, (c) costs and expenses
incurred by Agent in the disbursement of funds to or for the account of
Borrowers (by wire transfer or otherwise), (d) charges paid or incurred by Agent
resulting from the dishonor of checks, (e) reasonable costs and expenses paid or
incurred by the Lender Group to correct any default or enforce any provision of
the Loan Documents, or in gaining possession of, maintaining, handling,
preserving, storing, shipping, selling, preparing for sale, or advertising to
sell the Collateral, or any portion thereof, irrespective of whether a sale is
consummated, (f) audit fees and expenses of Agent related to audit examinations
of the Books to the extent of the fees and charges (and up to the amount of any
limitation) contained in this Agreement, (g) reasonable costs and expenses of
third party claims or any other suit paid or incurred by the Lender Group in
enforcing or defending the Loan Documents or in connection with the transactions
contemplated by the Loan Documents or the Lender Group's relationship with any
Borrower or any guarantor of the Obligations, (h) Agent's and Ableco's
reasonable fees and expenses (including reasonable attorneys fees) incurred in
advising, structuring, drafting, reviewing, administering, syndicating or
amending the Loan Documents, and (i) Agent's and each Lender's reasonable fees
and expenses (including attorneys fees) incurred in terminating, enforcing
(including reasonable attorneys fees and expenses incurred in connection with a
"workout," a "restructuring," or an Insolvency Proceeding concerning any
Borrower or in exercising rights or remedies under the Loan Documents), or
defending the Loan Documents, irrespective of whether suit is brought, or in
taking any Remedial Action concerning the Collateral.

            "Lender-Related Person" means, with respect to any Lender, such
Lender, together with such Lender's Affiliates, and the officers, directors,
employees, and agents of such Lender.

            "Letter of Credit" means an L/C or an L/C Undertaking, as the
context requires.

            "Letter of Credit Usage" means, as of any date of determination, the
aggregate undrawn amount of all outstanding Letters of Credit plus 100% of the
amount of outstanding time drafts accepted by an Underlying Issuer as a result
of drawings under Underlying Letters of Credit.

            "Liabilities" has the meaning set forth in Section 2.16.

            "LIBOR Deadline" has the meaning set forth in Section 2.13(b)(i).

            "LIBOR Notice" means a written notice in the form of Exhibit L-1.

            "LIBOR Rate" means, for each Interest Period for each LIBOR Rate
Loan, the rate per annum determined by Agent (rounded upwards, if necessary, to
the next 1/16%) by dividing (a) the Base LIBOR Rate for such Interest Period, by
(b) 100% minus the Reserve Percentage. The LIBOR Rate shall be adjusted on and
as of the effective day of any change in the Reserve Percentage.


                                       18

            "LIBOR Rate Loan" means each portion of an Advance that bears
interest at a rate determined by reference to the LIBOR Rate.

            "LIBOR Rate Margin" means three and one-half (3.5) percentage
points.

            "Lien" means any interest in an asset securing an obligation owed
to, or a claim by, any Person other than the owner of the asset, whether such
interest shall be based on the common law, statute, or contract, whether such
interest shall be recorded or perfected, and whether such interest shall be
contingent upon the occurrence of some future event or events or the existence
of some future circumstance or circumstances, including the lien or security
interest arising from a mortgage, deed of trust, encumbrance, pledge,
hypothecation, assignment, deposit arrangement, security agreement, conditional
sale or trust receipt, or from a lease, consignment, or bailment for security
purposes and also including reservations, exceptions, encroachments, easements,
rights-of-way, covenants, conditions, restrictions, leases, and other title
exceptions and encumbrances affecting Real Property.

            "Liens to be Released" means, collectively, the Liens set forth on
Schedule L-1.

            "Loan Account" has the meaning set forth in Section 2.10.

            "Loan Documents" means this Agreement, the Assignments of Claims,
the Cash Management Agreements, the Control Agreements, the Disbursement Letter,
the Due Diligence Letter, the Stock Pledge Documentation, the Fee Letter, the
Guaranties, the Validity Agreement, the Mortgages, the Notices of Assignment of
Claims, the Officers' Certificate, the Trademark Security Agreement, the Whitney
Subordination, the ChevronTexaco Letter, any note or notes executed by a
Borrower in connection with this Agreement and payable to a member of the Lender
Group, and any other agreement entered into, now or in the future, by any
Borrower and the Lender Group in connection with this Agreement.

            "MAC" means Mercury Air Centers, Inc., a California corporation.

            "Material Adverse Change" means (a) a material adverse change in the
business, prospects, operations, results of operations, assets, liabilities or
condition (financial or otherwise) of Borrowers taken as a whole, (b) a material
impairment of a Borrower's ability to perform its obligations under the Loan
Documents to which it is a party or of the Lender Group's ability to enforce the
Obligations or realize upon the Collateral, or (c) a material impairment of the
enforceability or priority of the Agent's Liens with respect to the Collateral
as a result of an action or failure to act on the part of a Borrower.

            "Maturity Date" has the meaning set forth in Section 3.4.

            "Maximum Revolver Amount" means $42,500,000.

            "Maytag" means Maytag Aircraft Corporation, a Colorado corporation.

            "MercFuel" means MercFuel, Inc. a Delaware corporation.


                                       19

            "Mortgage Policy" means a mortgagee title insurance policy (or
marked commitments to issue the same) with respect to any Mortgage, issued by a
title insurance company satisfactory to Agent, in an amount satisfactory to
Agent, assuring Agent that such Mortgage is a valid and enforceable first
priority mortgage Lien on the Real Property Collateral subject thereto, free and
clear of all defects and encumbrances except Permitted Liens, and otherwise in
form and substance satisfactory to Agent.

            "Mortgages" means, individually and collectively, one or more
mortgages, deeds of trust, or deeds to secure debt, at any time executed and
delivered by a Borrower or Guarantor in favor of Agent, for the benefit of the
Lender Group, in form and substance satisfactory to Agent, that encumbers any
portion of the Real Property Collateral.

            "Negotiable Collateral" means all of Borrowers' now owned and
hereafter acquired right, title, and interest with respect to letters of credit,
letter of credit rights, instruments, promissory notes, drafts, documents, and
chattel paper (including electronic chattel paper and tangible chattel paper),
and any and all supporting obligations in respect thereof.

            "Net Cash Proceeds" means the gross proceeds of any Permitted
Financing Transaction less (i) the Taxes paid or payable as a result of such
Permitted Financing Transaction, as evidenced to Agent, (ii) the actual
transaction costs and expenses (including fees of brokers or financial advisors)
incurred in connection with such Permitted Financing Transaction and necessary
to conclude such Permitted Financing Transaction and (iii) the amount required
to repay in full any Advances made against any assets sold or otherwise disposed
of in connection with such Permitted Financing Transaction which had previously
constituted a portion of the Borrowing Base, as determined by Agent.

            "Net Liquidation Percentage" means the percentage of the book value
of Borrowers' Inventory that is estimated to be recoverable in an orderly
liquidation of such Inventory, such percentage to be as determined from time to
time by a qualified appraisal company selected by Agent.

            "Notices of Assignment of Claims" means, collectively, the Notices
of Assignment of Claims, executed by Agent, Maytag and/or such other Borrower as
may be required by Agent, and addressed to the contracting officer and
disbursing officer with respect to each contract subject to an Assignment of
Claims.

            "Obligations" means (a) all loans (including the Term Loan),
Advances, debts, principal, interest (including any interest that, but for the
provisions of the Bankruptcy Code, would have accrued), contingent reimbursement
obligations with respect to outstanding Letters of Credit, premiums, liabilities
(including all amounts charged to Borrowers' Loan Account pursuant hereto),
obligations, fees (including the fees provided for in the Fee Letter), charges,
costs, Lender Group Expenses (including any fees or expenses that, but for the
provisions of the Bankruptcy Code, would have accrued), lease payments,
guaranties, covenants, and duties of any kind and description owing by Borrowers
to the Lender Group pursuant to or evidenced by the Loan Documents and
irrespective of whether for the payment of money, whether direct or indirect,
absolute or contingent, due or to become due, now existing or hereafter arising,
and including all interest not paid when due and all Lender Group Expenses that
Borrowers are


                                       20

required to pay or reimburse by the Loan Documents, by law, or otherwise and (b)
all Bank Product Obligations. Any reference in this Agreement or in the Loan
Documents to the Obligations shall include all amendments, changes, extensions,
modifications, renewals replacements, substitutions, and supplements, thereto
and thereof, as applicable, both prior and subsequent to any Insolvency
Proceeding.

            "Officers' Certificate" means the representations and warranties of
officers form submitted by Agent to Administrative Borrower, together with
Borrowers' completed responses to the inquiries set forth therein, the form and
substance of such responses to be satisfactory to Agent.

            "Originating Lender" has the meaning set forth in Section 14.1(e).

            "Overadvance" has the meaning set forth in Section 2.5.

            "Parent" has the meaning set forth in the preamble to this
Agreement.

            "Participant" has the meaning set forth in Section 14.1(e).

            "Participant Register" has the meaning set forth in Section 14.1(i).

            "Pay-Off Letter" means a letter, in form and substance satisfactory
to Agent, from Existing Lender to Agent respecting the amount necessary to repay
in full all of the obligations of Borrowers and Guarantors owing to Existing
Lender and obtain a release of all of the Liens existing in favor of Existing
Lender in and to the assets of Borrowers and Guarantors.

            "Permitted Construction Indebtedness" means all Indebtedness created
or incurred in connection with the construction of improvements to Real Property
(including, without limitation, IRB Obligations) if such Indebtedness is secured
only by a Lien on such improvements and fixtures and appurtenances thereto on
terms reasonably satisfactory to the Required Lenders, plus Capital Lease
Obligations or other Purchase Money Indebtedness (in each case to the extent
permitted hereunder) incurred in connection with Expansion Capital Expenditures
reasonably required to commence operations at such location.

            "Permitted Discretion" means a determination made in good faith and
in the exercise of reasonable (from the perspective of a secured asset-based
lender) business judgment.

            "Permitted Dispositions" means (a) sales or other dispositions by
Administrative Borrower or its Subsidiaries of Equipment that is substantially
worn, damaged, or obsolete in the ordinary course of business, (b) sales by
Administrative Borrower or its Subsidiaries of Inventory to buyers in the
ordinary course of business, (c) the use or transfer of money or Cash
Equivalents by Administrative Borrower or its Subsidiaries in a manner that is
not prohibited by the terms of this Agreement or the other Loan Documents, and
(d) the licensing by Administrative Borrower or its Subsidiaries, on a
non-exclusive basis, of patents, trademarks, copyrights, and other intellectual
property rights in the ordinary course of business.

            "Permitted Financing Transactions" means transactions consented to
by the Required Lenders consisting of:



                                       21

            (a) sales of assets constituting FBOs or FBO Operations or any other
assets, other than Permitted Dispositions;

            (b) transactions involving the sale to a third party of improvements
to Real Property where such third party then leases such improvements to a
Borrower, whether or not such lease is classified as an operating lease in
accordance with GAAP;

            (c) sales of stock of FBO Borrowers in connection with the sale of
an FBO;

            (d) a Public Offering or other sale or issuance by a Borrower of
equity securities (other than Disqualified Capital Stock) with respect to which
(i) Agent has received at least 30 days prior written notice of such
transaction, (ii) no Default or Event of Default shall then exist or would occur
as a result thereof and (iii) no Change of Control would occur as a result
thereof.

            "Permitted Holders" means CFK Partners and its Affiliates and
Whitney and its Affiliates.

            "Permitted Investments" means (a) investments in Cash Equivalents,
(b) investments in negotiable instruments for collection, (c) advances made in
connection with purchases of goods or services in the ordinary course of
business, and (d) investments by any Borrower in any other Borrower provided
that if any such investment is in the form of Indebtedness, such Indebtedness
investment shall be subordinated in right of payment to the prior payment in
full of the Obligations in a manner satisfactory to Required Lenders, in their
sole discretion.

            "Permitted Liens" means (a) Liens held by Agent for the benefit of
Agent and the Lenders, (b) Liens for unpaid taxes that either (i) are not yet
delinquent, or (ii) do not constitute an Event of Default hereunder and are the
subject of Permitted Protests, (c) Liens set forth on Schedule P-1, (d) Liens
granted to Whitney as of the date hereof under the Whitney Documentation, (e)
the interests of lessors under operating leases, (f) purchase money Liens or the
interests of lessors under Capital Leases to the extent that such Liens or
interests secure Permitted Purchase Money Indebtedness and so long as such Lien
attaches only to the asset purchased or acquired and the proceeds thereof, (g)
Liens arising by operation of law in favor of warehousemen, landlords, carriers,
mechanics, materialmen, laborers, or suppliers, incurred in the ordinary course
of business and not in connection with the borrowing of money, and which Liens
either (i) are for sums not yet delinquent, or (ii) are the subject of Permitted
Protests, (h) Liens arising from deposits made in connection with obtaining
worker's compensation or other unemployment insurance, (i) Liens or deposits to
secure performance of bids, tenders, or leases incurred in the ordinary course
of business and not in connection with the borrowing of money, (j) Liens granted
as security for surety or appeal bonds in connection with obtaining such bonds
in the ordinary course of business, (k) Liens resulting from any judgment or
award that is not an Event of Default hereunder, (l) Liens with respect to the
Real Property Collateral that are exceptions to the Mortgage Policies issued in
connection with the Mortgages, as reasonably accepted by Agent, (m) with respect
to any Real Property that is not part of the Real Property Collateral,
easements, rights of way, and zoning restrictions that do not materially
interfere with or impair the use or operation thereof; and (n) Liens granted in
connection with Permitted


                                       22

Construction Indebtedness that do not attach to the Collateral, as reasonably
determined by Agent.

            "Permitted Protest" means the right of Administrative Borrower or
any of its Subsidiaries, as applicable, to protest any Lien (other than any such
Lien that secures the Obligations), taxes (other than payroll taxes or taxes
that are the subject of a United States federal tax lien), or rental payment,
provided that (a) a reserve with respect to such obligation is established on
the Books in such amount as is required under GAAP, (b) any such protest is
instituted promptly and prosecuted diligently by Administrative Borrower or any
of its Subsidiaries, as applicable, in good faith, and (c) Agent is satisfied
that, while any such protest is pending, there will be no impairment of the
enforceability, validity, or priority of any of the Agent's Liens.

            "Permitted Purchase Money Indebtedness" means, as of any date of
determination, Purchase Money Indebtedness incurred after the Closing Date not
to exceed (a) $2,000,000 in any one fiscal year or (b) $5,000,000 in the
aggregate outstanding at any one time.

            "Person" means natural persons, corporations, limited liability
companies, limited partnerships, general partnerships, limited liability
partnerships, joint ventures, trusts, land trusts, business trusts, or other
organizations, irrespective of whether they are legal entities, and governments
and agencies and political subdivisions thereof.

            "Personal Property Collateral" means all Collateral other than Real
Property.

            "Projections" means Parent's forecasted (a) balance sheets, (b)
profit and loss statements, and (c) cash flow statements, all prepared on a
consistent basis with Parent's historical financial statements, together with
appropriate supporting details and a statement of underlying assumptions.

            "Pro Rata Share" means, as of any date of determination:

            (a) with respect to a Lender's obligation to make Advances and
receive payments of principal, interest, fees, costs, and expenses with respect
thereto, (i) prior to the Revolver Commitment being terminated or reduced to
zero, the percentage obtained by dividing (A) such Lender's Revolver Commitment
by (B) the aggregate Revolver Commitments of all Lenders, and (ii) from and
after the time that the Revolver Commitment has been terminated or reduced to
zero, the percentage obtained by dividing (A) the aggregate principal amount of
such Lender's Advances, by (B) the aggregate principal amount of all Advances,

            (b) with respect to a Lender's obligation to participate in Letters
of Credit, to reimburse the Issuing Lender, and to receive payments of fees with
respect thereto, (i) prior to the Revolver Commitment being terminated or
reduced to zero, the percentage obtained by dividing (A) such Lender's Revolver
Commitment by (B) the aggregate Revolver Commitments of all Lenders, and (ii)
from and after the time that the Revolver Commitment has been terminated or
reduced to zero, the percentage obtained by dividing (A) the aggregate principal
amount of such Lender's Advances by (B) the aggregate principal amount of all
Advances,



                                       23

            (c) with respect to a Lender's obligation to make the Term Loan and
to receive payments of interest, fees and principal with respect thereto, (i)
prior to the making of the Term Loan, the percentage obtained by dividing (A)
such Lender's Term Loan Commitment by (B) the aggregate amount of all Lenders'
Term Loan Commitments, and (ii) from and after the making of the Term Loan, the
percentage obtained by dividing (A) the principal amount of such Lender's
portion of the Term Loan by (B) the principal amount of the Term Loan,

            (d) with respect to a Lender's indemnification obligations arising
under Section 16.7, (i) the percentage obtained by dividing (A) such Lender's
Revolver Commitment plus the unpaid principal amount of such Lender's portion of
the Term Loan by (B) the aggregate amount of Revolver Commitments of all Lenders
plus the unpaid principal amount of the Term Loan or (ii) in the event the
Revolver Commitments have been terminated or reduced to zero, the percentage
obtained by dividing (A) the principal amount of such Lender's Advances plus
such Lender's Risk Participation Liability with respect to outstanding Letter of
Credit plus the unpaid principal amount of such Lender's portion of the Term
Loan by (B) the principal amount of all outstanding Advances plus all Lenders'
Risk Participation Liability with respect to outstanding Letters of Credit plus
the unpaid principal amount of the Term Loan; and

            (e) with respect to all other matters as to a particular Lender, the
percentage obtained by dividing (i) such Lender's Revolver Commitment,
notwithstanding any termination of such Revolver Commitment as a result of an
Event of Default, plus such Lender's Term Loan Commitment, notwithstanding any
termination of such Term Loan Commitment as a result of an Event of Default, by
(ii) the aggregate amount of Revolver Commitments of all Lenders,
notwithstanding any termination of any Revolver Commitment as a result of an
Event of Default, plus the aggregate amount of Term Loan Commitments of all
Lenders, notwithstanding any termination of any Term Loan Commitments as a
result of an Event of Default.

            "Public Offering" has the meaning set forth in the Whitney Note.

            "Purchase Money Indebtedness" means Indebtedness (other than the
Obligations, but including Capitalized Lease Obligations), incurred at the time
of, or within 20 days after, the acquisition of any fixed assets or equipment
(but specifically excluding improvements to Real Property) for the purpose of
financing all or any part of the acquisition cost thereof.

            "Rating Agencies" has the meaning set forth in Section 2.16.

            "Real Property" means any estates or interests in real property now
owned or hereafter acquired by any Borrower or Guarantor and the improvements
thereto.

            "Real Property Collateral" means any Real Property other than that
described on Schedule R-1.

            "Register" has the meaning set forth in Section 14.1(h).

            "Registered Loan" has the meaning set forth in Section 14.1(h).

            "Registered Note" has the meaning set forth in Section 14.1(h).



                                       24

            "Record" means information that is inscribed on a tangible medium or
which is stored in an electronic or other medium and is retrievable in
perceivable form.

            "Related Fund" means any fund, money market account, investment
account or other account managed by a Lender or an Affiliate of such Lender or
its investment manager.

            "Remedial Action" means all actions taken to (a) clean up, remove,
remediate, contain, treat, monitor, assess, evaluate, or in any way address
Hazardous Materials in the indoor or outdoor environment, (b) prevent or
minimize a release or threatened release of Hazardous Materials so they do not
migrate or endanger or threaten to endanger public health or welfare or the
indoor or outdoor environment, (c) perform any pre-remedial studies,
investigations, or post-remedial operation and maintenance activities, or (d)
conduct any other actions authorized by 42 USC Section 9601.

            "Replacement Lender" has the meaning set forth in Section 15.2.

            "Report" has the meaning set forth in Section 16.17.

            "Required Availability" means Excess Availability and unrestricted
cash and Cash Equivalents in an amount of not less than $4,000,000.

            "Required Lenders" means, at any time, Lenders whose Pro Rata
Shares, as determined pursuant to clause (e) of the definition of "Pro Rata
Share," aggregate 66 2/3% of the Total Commitments.

            "Reserve Percentage" means, on any day, for any Lender, the maximum
percentage prescribed by the Board of Governors of the Federal Reserve System
(or any successor Governmental Authority) for determining the reserve
requirements (including any basic, supplemental, marginal, or emergency
reserves) that are in effect on such date with respect to eurocurrency funding
(currently referred to as "eurocurrency liabilities") of that Lender, but so
long as such Lender is not required or directed under applicable regulations to
maintain such reserves, the Reserve Percentage shall be zero.

            "Revenue Bond Letter of Credit" means a Letter of Credit, or any
replacement thereof, issued pursuant to the terms of this Agreement for the
account of Borrowers and with respect to an Underlying Letter of Credit issued
for the benefit of the California Economic Development Financing Authority in
the maximum aggregate face amount of $15,000,000 less amortization of the
underlying obligations to and including the Closing Date.

            "Revolver Commitment" means, with respect to each Lender, its
Revolver Commitment, and, with respect to all Lenders, their Revolver
Commitments, in each case (a) as such Dollar amounts are set forth beside such
Lender's name under the applicable heading on Schedule C-1 or (b) on the
signature page of the Assignment and Acceptance pursuant to which such Lender
became a Lender hereunder in accordance with the provisions of Section 14.1.

            "Revolver Usage" means, as of any date of determination, the sum of
(a) the then extant amount of outstanding Advances, plus (b) the then extant
amount of the Letter of Credit Usage.



                                       25

            "Risk Participation Liability" means, as to each Letter of Credit,
all reimbursement obligations of Borrowers to the Issuing Lender with respect to
an L/C Undertaking, consisting of (a) the amount available to be drawn or which
may become available to be drawn, (b) all amounts that have been paid by the
Issuing Lender to the Underlying Issuer to the extent not reimbursed by
Borrowers, whether by the making of an Advance or otherwise, and (c) all accrued
and unpaid interest, fees, and expenses payable with respect thereto.

            "SEC" means the United States Securities and Exchange Commission and
any successor thereto.

            "Securities Account" means a "securities account" as that term is
defined in the Code.

            "Securitization" has the meaning set forth in Section 2.16.

            "Securitization Parties" has the meaning set forth in Section 2.16.

            "Settlement" has the meaning set forth in Section 2.3(f)(i).

            "Settlement Date" has the meaning set forth in Section 2.3(f)(i).

            "Solvent" means, with respect to any Person on a particular date,
that such Person is not insolvent (as such term is defined in the Uniform
Fraudulent Transfer Act).

            "Stock" means all shares, options, warrants, interests,
participations, or other equivalents (regardless of how designated) of or in a
Person, whether voting or nonvoting, including common stock, preferred stock, or
any other "equity security" (as such term is defined in Rule 3a11-1 of the
General Rules and Regulations promulgated by the SEC under the Exchange Act).

            "Stock Pledge Agreement" means a stock pledge agreement, in form and
substance satisfactory to Agent, executed and delivered by a Borrower with
respect to the Stock of a Subsidiary of such Borrower; referred to collectively
as the "Stock Pledge Agreements."

            "Stock Pledge Documentation" means Stock Pledge Agreements, together
with all certificates representing the shares of Stock pledged thereunder and
Stock powers with respect thereto executed in blank.

            "Subsidiary" of a Person means a corporation, partnership, limited
liability company, or other entity in which that Person directly or indirectly
owns or controls the shares of Stock having ordinary voting power to elect a
majority of the board of directors (or appoint other comparable managers) of
such corporation, partnership, limited liability company, or other entity.

            "Swing Lender" means Foothill or any other Lender that, at the
request of Administrative Borrower and with the consent of Agent agrees, in such
Lender's sole discretion, to become the Swing Lender hereunder.


                                       26

            "Swing Loan" has the meaning set forth in Section 2.3(d)(i).

            "Target Amount" means, as of any date of determination, (a)
$3,000,000 less (b) the amount of regularly scheduled principal payments which
have been paid by Borrowers with respect to the Term Loan during the period
between January 1, 2003 and December 31, 2003 less (c) $125,000 times the number
of full months that have elapsed between February 1, 2003 and such date of
determination.

            "Target FBOs" means the FBOs of which a sale is contemplated in the
Closing Date Business Plan.

            "Taxes" has the meaning set forth in Section 16.11(e).

            "Term Loan" has the meaning set forth in Section 2.2.

            "Term Loan Amount" means $12,500,000.

            "Term Loan Commitment" means, with respect to each Lender, its Term
Loan Commitment, and, with respect to all Lenders, their Term Loan Commitments,
in each case as such Dollar amounts are set forth beside such Lender's name
under the applicable heading on Schedule C-1, or on the signature page of the
Assignment and Acceptance pursuant to which such Lender became a Lender
hereunder in accordance with the provisions of Section 14.1.

            "Term Loan Margin" means two and one-half (2.5) percentage points.

            "Total Commitment" means, with respect to each Lender, its Total
Commitment, and, with respect to all Lenders, their Total Commitments, in each
case as such Dollar amounts are set forth beside such Lender's name under the
applicable heading on Schedule C-1 or on the signature page of the Assignment
and Acceptance pursuant to which such Lender became a Lender hereunder in
accordance with the provisions of Section 14.1.

            "Trademark Security Agreement" means a trademark security agreement
executed and delivered by the applicable Borrower with respect to any trademark
applications made by such Borrower, in form and substance satisfactory to Agent.

            "Underlying Issuer" means a third Person which is the beneficiary of
an L/C Undertaking and which has issued a letter of credit at the request of the
Issuing Lender for the benefit of Borrowers.

            "Underlying Letter of Credit" means a letter of credit that has been
issued by an Underlying Issuer.

            "Validity Agreement" means that certain Validity Agreement, dated as
of the date hereof, executed and delivered by Joseph Czyzyk, in his capacity as
an individual and in his capacity as Chief Executive Officer of Parent, in favor
of Agent, for the benefit of the Lender Group, in form and substance
satisfactory to Agent.

            "Voidable Transfer" has the meaning set forth in Section 17.7.



                                       27

            "Wells Fargo" means Wells Fargo Bank, National Association, a
national banking association.

            "Whitney" means J. H. Whitney Mezzanine Fund, L.P., a Delaware
limited partnership.

            "Whitney Agreement" means that certain Securities Purchase
Agreement, dated September 10, 1999, between Whitney and Parent, as amended
through and including the Closing Date.

            "Whitney Debt" means the Indebtedness owing to Whitney by Parent
under the Whitney Documentation.

            "Whitney Documentation" means the Whitney Agreement, the Whitney
Note and any other agreements, notes or other documents related thereto,
together with any amendments or supplements thereto or modifications or
replacements thereof.

            "Whitney Note" means that certain Amended and Restated WMF Senior
Subordinated Promissory Note, dated September 10, 1999, issued by Parent to
Whitney in the original principal amount of $24,000,000.

            "Whitney Subordination" means that certain Subordination Agreement,
dated as of the date hereof, by and between Whitney and Agent.

      1.2 ACCOUNTING TERMS. All accounting terms not specifically defined herein
shall be construed in accordance with GAAP. When used herein, the term
"financial statements" shall include the notes and schedules thereto. Whenever
the term "Borrowers" or the term "Parent" is used in respect of a financial
covenant or a related definition, it shall be understood to mean Parent and its
Subsidiaries on a consolidated basis unless the context clearly requires
otherwise.

      1.3 CODE. Any terms used in this Agreement that are defined in the Code
shall be construed and defined as set forth in the Code unless otherwise defined
herein.

      1.4 CONSTRUCTION. Unless the context of this Agreement or any other Loan
Document clearly requires otherwise, references to the plural include the
singular, references to the singular include the plural, the term "including" is
not limiting, and the term "or" has, except where otherwise indicated, the
inclusive meaning represented by the phrase "and/or." The words "hereof,"
"herein," "hereby," "hereunder," and similar terms in this Agreement or any
other Loan Document refer to this Agreement or such other Loan Document, as the
case may be, as a whole and not to any particular provision of this Agreement or
such other Loan Document, as the case may be. Section, subsection, clause,
schedule, and exhibit references herein are to this Agreement unless otherwise
specified. Any reference in this Agreement or in the other Loan Documents to any
agreement, instrument, or document shall include all alterations, amendments,
changes, extensions, modifications, renewals, replacements, substitutions,
joinders, and supplements, thereto and thereof, as applicable (subject to any
restrictions on such alterations, amendments, changes, extensions,
modifications, renewals, replacements, substitutions, joinders, and supplements
set forth herein). Any reference herein to any Person shall be construed to


                                       28

include such Person's successors and assigns. Any requirement of a writing
contained herein or in the other Loan Documents shall be satisfied by the
transmission of a Record and any Record transmitted shall constitute a
representation and warranty as to the accuracy and completeness of the
information contained therein.

      1.5 SCHEDULES AND EXHIBITS. All of the schedules and exhibits attached to
this Agreement shall be deemed incorporated herein by reference.

2. LOAN AND TERMS OF PAYMENT.

      2.1 REVOLVER ADVANCES.

            (a) Subject to the terms and conditions of this Agreement, and
during the term of this Agreement, each Lender with a Revolver Commitment agrees
(severally, not jointly or jointly and severally) to make advances ("Advances")
to Borrowers in an amount at any one time outstanding not to exceed such
Lender's Pro Rata Share of an amount equal to the lesser of (i) the Maximum
Revolver Amount (as in effect at the time of determination) less the then
outstanding balance of the Term Loan less the Letter of Credit Usage, or (ii)
the Borrowing Base less the Letter of Credit Usage. For purposes of this
Agreement, "Borrowing Base," as of any date of determination, shall mean the
result of:

                  (x) the lesser of

                              (i) the sum of: (A) 85% of the amount of Eligible
                        Accounts plus (B) the lesser of (1) 85% of Eligible
                        Foreign Accounts or (2) $2,000,000; less the amount, if
                        any, of the Dilution Reserve, and

                              (ii) an amount equal to Borrowers' Collections
                        with respect to Accounts for the immediately preceding
                        45 day period, minus

                  (y) the sum of the Bank Product Reserve, the Availability
            Block, the Asset Sale Reserve and the aggregate amount of all other
            reserves, if any, established by Agent under Section 2.1(b).

            (b) Anything to the contrary in this Section 2.1 notwithstanding,
Agent shall have the right to establish reserves in such amounts, and with
respect to such matters, as Agent in its Permitted Discretion shall deem
necessary or appropriate, against the Borrowing Base, including, without
limitation, reserves with respect to (i) sums that Borrowers are required to pay
(such as taxes, assessments, insurance premiums, or, in the case of leased
assets, rents or other amounts payable under such leases) and has failed to pay
under any Section of this Agreement or any other Loan Document, (ii) amounts
owing by Borrowers to any Person to the extent secured by a Lien on, or trust
over, any of the Collateral (other than any existing Permitted Lien set forth on
Schedule P-1 which is specifically identified thereon as entitled to have
priority over the Agent's Liens), which Lien or trust, in the Permitted
Discretion of Agent likely would have a priority superior to the Agent's Liens
(such as Liens or trusts in favor of landlords, warehousemen, carriers,
mechanics, materialmen, laborers, or suppliers, or Liens or trusts for ad
valorem, excise, sales, or other taxes where given priority under applicable
law) in and to such


                                       29

item of the Collateral and (iii) mortgage, rent or other such payments with
respect to any leased location of any Borrower at which Books and Records of
such Borrower pertaining to Accounts and/or Inventory are located and for which
Agent has not received a Collateral Access Agreement.

            (c) The Lenders with Revolver Commitments shall have no obligation
to make additional Advances hereunder to the extent such additional Advances
would cause the Revolver Usage to exceed the Maximum Revolver Amount.

            (d) Amounts borrowed pursuant to this Section may be repaid and,
subject to the terms and conditions of this Agreement, reborrowed at any time
during the term of this Agreement.

      2.2 TERM LOAN. Subject to the terms and conditions of this Agreement, on
the Closing Date each Lender with a Term Loan Commitment agrees (severally, not
jointly or jointly and severally) to make term loans (collectively, the "Term
Loan") to Borrowers in an amount equal to such Lender's Pro Rata Share of the
Term Loan Amount. The Term Loan shall be repaid by Borrowers, beginning on April
1, 2003, on the following dates and in the following amounts:



                    Date                          Installment Amount
                    ----                          ------------------
                                               
                Each April 1                          $1,000,000
                 Each July 1                           $500,000
               Each October 1                         $1,000,000
              Each December 31                         $500,000


until paid in full. Notwithstanding the foregoing, the outstanding unpaid
principal balance and all accrued and unpaid interest under the Term Loan shall
be due and payable on the date of termination of this Agreement, whether by its
terms, by prepayment or by acceleration. All amounts outstanding under the Term
Loan shall constitute Obligations.

      2.3 BORROWING PROCEDURES AND SETTLEMENTS.

            (a) PROCEDURE FOR BORROWING. Each Borrowing shall be made by an
irrevocable written request by an Authorized Person delivered to Agent (which
notice must be received by Agent no later than 10:00 a.m. (California time) on
the Business Day prior to the date that is the requested Funding Date in the
case of a request for an Advance specifying (i) the amount of such Borrowing,
and (ii) the requested Funding Date, which shall be a Business Day; provided,
however, that in the case of a request for Swing Loan in an amount of
$5,000,000, or less, such notice will be timely received if it is received by
Agent no later than 10:00 a.m. (California time) on the Business Day that is the
requested Funding Date) specifying (i) the amount of such Borrowing, and (ii)
the requested Funding Date, which shall be a Business Day. At Agent's election,
in lieu of delivering the above-described written request, any Authorized


                                       30

Person may give Agent telephonic or electronic notice of such request by the
required time, with such telephonic notice to be confirmed in writing within 24
hours of the giving of such notice.

            (b) AGENT'S ELECTION. Promptly after receipt of a request for a
Borrowing pursuant to Section 2.3(a), Agent shall elect, in its discretion, (i)
to have the terms of Section 2.3(c) apply to such requested Borrowing, or (ii)
if the Borrowing is for an Advance, to request Swing Lender to make a Swing Loan
pursuant to the terms of Section 2.3(d) in the amount of the requested
Borrowing; provided, however, that if Swing Lender declines in its sole
discretion to make a Swing Loan pursuant to Section 2.3(d), Agent shall elect to
have the terms of Section 2.3(c) apply to such requested Borrowing.

            (c) MAKING OF ADVANCES.

                  (i) In the event that Agent shall elect to have the terms of
            this Section 2.3(c) apply to a requested Borrowing as described in
            Section 2.3(b), then promptly after receipt of a request for a
            Borrowing pursuant to Section 2.3(a), Agent shall notify the
            Lenders, not later than 1:00 p.m. (California time) on the Business
            Day immediately preceding the Funding Date applicable thereto, by
            telecopy, telephone, or other similar form of transmission, of the
            requested Borrowing. Each Lender shall make the amount of such
            Lender's Pro Rata Share of the requested Borrowing available to
            Agent in immediately available funds, to Agent's Account, not later
            than 10:00 a.m. (California time) on the Funding Date applicable
            thereto. After Agent's receipt of the proceeds of such Advances,
            upon satisfaction of the applicable conditions precedent set forth
            in Section 3 hereof, Agent shall make the proceeds thereof available
            to Administrative Borrower on the applicable Funding Date by
            transferring immediately available funds equal to such proceeds
            received by Agent to Administrative Borrower's Designated Account;
            provided, however, that, subject to the provisions of Section
            2.3(i), Agent shall not request any Lender to make, and no Lender
            shall have the obligation to make, any Advance (or its portion of
            any Term Loan) if Agent shall have actual knowledge that (1) one or
            more of the applicable conditions precedent set forth in Section 3
            will not be satisfied on the requested Funding Date for the
            applicable Borrowing unless such condition has been waived, or (2)
            the requested Borrowing would exceed the Availability on such
            Funding Date.

                  (ii) Unless Agent receives notice from a Lender on or prior to
            the Closing Date or, with respect to any Borrowing after the Closing
            Date, at least 1 Business Day prior to the date of such Borrowing,
            that such Lender will not make available as and when required
            hereunder to Agent for the account of Borrowers the amount of that
            Lender's Pro Rata Share of the Borrowing, Agent may assume that each
            Lender has made or will make such amount available to Agent in
            immediately available funds on the Funding Date and Agent may (but
            shall not be so required), in reliance upon such assumption, make
            available to Borrowers on such date a corresponding amount. If and
            to the extent any Lender shall not have made its full amount
            available to Agent in immediately available funds and Agent in such
            circumstances has made available to Borrowers such amount, that
            Lender shall on the Business Day following such Funding Date make
            such amount


                                       31

            available to Agent, together with interest at the Defaulting Lender
            Rate for each day during such period. A notice submitted by Agent to
            any Lender with respect to amounts owing under this subsection shall
            be conclusive, absent manifest error. If such amount is so made
            available, such payment to Agent shall constitute such Lender's
            Advance on the date of Borrowing for all purposes of this Agreement.
            If such amount is not made available to Agent on the Business Day
            following the Funding Date, Agent will notify Administrative
            Borrower of such failure to fund and, upon demand by Agent,
            Borrowers shall pay such amount to Agent for Agent's account,
            together with interest thereon for each day elapsed since the date
            of such Borrowing, at a rate per annum equal to the interest rate
            applicable at the time to the Advances composing such Borrowing. The
            failure of any Lender to make any Advance on any Funding Date shall
            not relieve any other Lender of any obligation hereunder to make an
            Advance on such Funding Date, but no Lender shall be responsible for
            the failure of any other Lender to make the Advance to be made by
            such other Lender on any Funding Date.

                  (iii) Agent shall not be obligated to transfer to a Defaulting
            Lender any payments made by Borrowers to Agent for the Defaulting
            Lender's benefit, and, in the absence of such transfer to the
            Defaulting Lender, Agent shall transfer any such payments to each
            other non-Defaulting Lender member of the Lender Group ratably in
            accordance with their Commitments (but only to the extent that such
            Defaulting Lender's Advance was funded by the other members of the
            Lender Group) or, if so directed by Administrative Borrower and if
            no Default or Event of Default had occurred and is continuing (and
            to the extent such Defaulting Lender's Advance was not funded by the
            Lender Group), retain same to be re-advanced to Borrowers as if such
            Defaulting Lender had made Advances to Borrowers. Subject to the
            foregoing, Agent may hold and, in its Permitted Discretion, re-lend
            to Borrowers for the account of such Defaulting Lender the amount of
            all such payments received and retained by it for the account of
            such Defaulting Lender. Solely for the purposes of voting or
            consenting to matters with respect to the Loan Documents, such
            Defaulting Lender shall be deemed not to be a "Lender" and such
            Lender's Commitment shall be deemed to be zero. This Section shall
            remain effective with respect to such Lender until (x) the
            Obligations under this Agreement shall have been declared or shall
            have become immediately due and payable, (y) the non-Defaulting
            Lenders, Agent, and Administrative Borrower shall have waived such
            Defaulting Lender's default in writing, or (z) the Defaulting Lender
            makes its Pro Rata Share of the applicable Advance and pays to Agent
            all amounts owing by Defaulting Lender in respect thereof. The
            operation of this Section shall not be construed to increase or
            otherwise affect the Commitment of any Lender, to relieve or excuse
            the performance by such Defaulting Lender or any other Lender of its
            duties and obligations hereunder, or to relieve or excuse the
            performance by Borrowers of their duties and obligations hereunder
            to Agent or to the Lenders other than such Defaulting Lender. Any
            such failure to fund by any Defaulting Lender shall constitute a
            material breach by such Defaulting Lender of this Agreement and
            shall entitle Administrative Borrower at its option, upon written
            notice to Agent,


                                       32

            to arrange for a substitute Lender to assume the Commitment of such
            Defaulting Lender, such substitute Lender to be acceptable to Agent.
            In connection with the arrangement of such a substitute Lender, the
            Defaulting Lender shall have no right to refuse to be replaced
            hereunder, and agrees to execute and deliver a completed form of
            Assignment and Acceptance Agreement in favor of the substitute
            Lender (and agrees that it shall be deemed to have executed and
            delivered such document if it fails to do so) subject only to being
            repaid its share of the outstanding Obligations (other than Bank
            Product Obligations, but including an assumption of its Pro Rata
            Share of the Risk Participation Liability), without any premium or
            penalty of any kind whatsoever; provided further, however, that any
            such assumption of the Commitment of such Defaulting Lender shall
            not be deemed to constitute a waiver of any of the Lender Groups' or
            Borrowers' rights or remedies against any such Defaulting Lender
            arising out of or in relation to such failure to fund.

            (d) MAKING OF SWING LOANS.

                  (i) In the event Agent shall elect, with the consent of Swing
            Lender, as a Lender, to have the terms of this Section 2.3(d) apply
            to a requested Borrowing as described in Section 2.3(b), Swing
            Lender as a Lender shall make such Advance in the amount of such
            Borrowing (any such Advance made solely by Swing Lender as a Lender
            pursuant to this Section 2.3(d) being referred to as a "Swing Loan"
            and such Advances being referred to collectively as "Swing Loans")
            available to Borrowers on the Funding Date applicable thereto by
            transferring immediately available funds to Administrative
            Borrower's Designated Account. Each Swing Loan is an Advance
            hereunder and shall be subject to all the terms and conditions
            applicable to other Advances, except that no such Swing Loan shall
            be eligible for the LIBOR Option and all payments on any Swing Loan
            shall be payable to Swing Lender as a Lender solely for its own
            account (and for the account of the holder of any participation
            interest with respect to such Swing Loan). Subject to the provisions
            of Section 2.3(i), Agent shall not request Swing Lender as a Lender
            to make, and Swing Lender as a Lender shall not make, any Swing Loan
            if Agent has actual knowledge that (i) one or more of the applicable
            conditions precedent set forth in Section 3 will not be satisfied on
            the requested Funding Date for the applicable Borrowing unless such
            condition has been waived, or (ii) the requested Borrowing would
            exceed the Availability on such Funding Date. Swing Lender as a
            Lender shall not otherwise be required to determine whether the
            applicable conditions precedent set forth in Section 3 have been
            satisfied on the Funding Date applicable thereto prior to making, in
            its sole discretion, any Swing Loan.

                  (ii) The Swing Loans shall be secured by the Agent's Liens,
            shall constitute Advances and Obligations hereunder, and shall bear
            interest at the rate applicable from time to time to Advances that
            are Base Rate Loans.



                                       33

            (e) AGENT ADVANCES.

                  (i) Agent hereby is authorized by Borrowers and the Lenders,
            from time to time in Agent's sole discretion, (1) after the
            occurrence and during the continuance of a Default or an Event of
            Default, or (2) at any time that any of the other applicable
            conditions precedent set forth in Section 3 have not been satisfied,
            to make Advances to Borrowers on behalf of the Lenders that Agent,
            in its Permitted Discretion deems necessary or desirable (A) to
            preserve or protect the Collateral, or any portion thereof, (B) to
            enhance the likelihood of repayment of the Obligations (other than
            Bank Product Obligations), or (C) to pay any other amount chargeable
            to Borrowers pursuant to the terms of this Agreement, including
            Lender Group Expenses and the costs, fees, and expenses described in
            Section 10 (any of the Advances described in this Section 2.3(e)
            shall be referred to as "Agent Advances"). Each Agent Advance is an
            Advance hereunder and shall be subject to all the terms and
            conditions applicable to other Advances, except that no such Agent
            Advance shall be eligible for the LIBOR Option and all payments
            thereon shall be payable to Agent solely for its own account (and
            for the account of the holder of any participation interest with
            respect to such Agent Advance).

                  (ii) The Agent Advances shall be repayable on demand and
            secured by the Agent's Liens granted to Agent under the Loan
            Documents, shall constitute Advances and Obligations hereunder, and
            shall bear interest at the rate applicable from time to time to
            Advances that are Base Rate Loans.

            (f) SETTLEMENT. It is agreed that each Lender's funded portion of
the Advances is intended by the Lenders to equal, at all times, such Lender's
Pro Rata Share of the outstanding Advances. Such agreement notwithstanding,
Agent, Swing Lender, and the other Lenders agree (which agreement shall not be
for the benefit of or enforceable by Borrowers) that in order to facilitate the
administration of this Agreement and the other Loan Documents, settlement among
them as to the Advances, the Swing Loans, and the Agent Advances shall take
place on a periodic basis in accordance with the following provisions:

                  (i) Agent shall request settlement ("Settlement") with the
            Lenders on a weekly basis, or on a more frequent basis if so
            determined by Agent, (1) on behalf of Swing Lender, with respect to
            each outstanding Swing Loan, (2) for itself, with respect to each
            Agent Advance, and (3) with respect to Collections received, as to
            each by notifying the Lenders by telecopy, telephone, or other
            similar form of transmission, of such requested Settlement, no later
            than 2:00 p.m. (California time) on the Business Day immediately
            prior to the date of such requested Settlement (the date of such
            requested Settlement being the "Settlement Date"). Such notice of a
            Settlement Date shall include a summary statement of the amount of
            outstanding Advances, Swing Loans, and Agent Advances for the period
            since the prior Settlement Date. Subject to the terms and conditions
            contained herein (including Section 2.3(c)(iii)): (y) if a Lender's
            balance of the Advances, Swing Loans, and Agent Advances exceeds
            such Lender's Pro Rata Share of the Advances, Swing Loans, and Agent
            Advances as of a Settlement



                                       34

            Date, then Agent shall, by no later than 12:00 p.m. (California
            time) on the Settlement Date, transfer in immediately available
            funds to the account of such Lender as such Lender may designate, an
            amount such that each such Lender shall, upon receipt of such
            amount, have as of the Settlement Date, its Pro Rata Share of the
            Advances, Swing Loans, and Agent Advances, and (z) if a Lender's
            balance of the Advances, Swing Loans, and Agent Advances is less
            than such Lender's Pro Rata Share of the Advances, Swing Loans, and
            Agent Advances as of a Settlement Date, such Lender shall no later
            than 12:00 p.m. (California time) on the Settlement Date transfer in
            immediately available funds to the Agent's Account, an amount such
            that each such Lender shall, upon transfer of such amount, have as
            of the Settlement Date, its Pro Rata Share of the Advances, Swing
            Loans, and Agent Advances. Such amounts made available to Agent
            under clause (z) of the immediately preceding sentence shall be
            applied against the amounts of the applicable Swing Loan or Agent
            Advance and, together with the portion of such Swing Loan or Agent
            Advance representing Swing Lender's Pro Rata Share thereof, shall
            constitute Advances of such Lenders. If any such amount is not made
            available to Agent by any Lender on the Settlement Date applicable
            thereto to the extent required by the terms hereof, Agent shall be
            entitled to recover for its account such amount on demand from such
            Lender together with interest thereon at the Defaulting Lender Rate.

                  (ii) In determining whether a Lender's balance of the
            Advances, Swing Loans, and Agent Advances is less than, equal to, or
            greater than such Lender's Pro Rata Share of the Advances, Swing
            Loans, and Agent Advances as of a Settlement Date, Agent shall, as
            part of the relevant Settlement, apply to such balance the portion
            of payments actually received in good funds by Agent with respect to
            principal, interest, fees payable by Borrowers and allocable to the
            Lenders hereunder, and proceeds of Collateral. To the extent that a
            net amount is owed to any such Lender after such application, such
            net amount shall be distributed by Agent to that Lender as part of
            such next Settlement.

                  (iii) Between Settlement Dates, Agent, to the extent no Agent
            Advances or Swing Loans are outstanding, may pay over to Swing
            Lender any payments received by Agent, that in accordance with the
            terms of this Agreement would be applied to the reduction of the
            Advances, for application to Swing Lender's Pro Rata Share of the
            Advances. If, as of any Settlement Date, Collections received since
            the then immediately preceding Settlement Date have been applied to
            Swing Lender's Pro Rata Share of the Advances other than to Swing
            Loans, as provided for in the previous sentence, Swing Lender shall
            pay to Agent for the accounts of the Lenders, and Agent shall pay to
            the Lenders, to be applied to the outstanding Advances of such
            Lenders, an amount such that each Lender shall, upon receipt of such
            amount, have, as of such Settlement Date, its Pro Rata Share of the
            Advances. During the period between Settlement Dates, Swing Lender
            with respect to Swing Loans, Agent with respect to Agent Advances,
            and each Lender (subject to the effect of letter agreements between
            Agent and individual Lenders) with respect to the Advances other
            than Swing Loans and Agent Advances, shall be entitled to interest
            at the applicable rate or


                                       35

            rates payable under this Agreement on the daily amount of funds
            employed by Swing Lender, Agent, or the Lenders, as applicable.

            (g) NOTATION. Agent shall record on its books the principal amount
of the Advances owing to each Lender, including the Swing Loans owing to Swing
Lender, and Agent Advances owing to Agent, and the interests therein of each
Lender, from time to time. In addition, each Lender is authorized, at such
Lender's option, to note the date and amount of each payment or prepayment of
principal of such Lender's Advances in its books and records, including computer
records, such books and records constituting conclusive evidence, absent
manifest error, of the accuracy of the information contained therein.

            (h) LENDERS' FAILURE TO PERFORM. All Advances (other than Swing
Loans and Agent Advances) shall be made by the Lenders contemporaneously and in
accordance with their Pro Rata Shares. It is understood that (i) no Lender shall
be responsible for any failure by any other Lender to perform its obligation to
make any Advance (or other extension of credit) hereunder, nor shall any
Commitment of any Lender be increased or decreased as a result of any failure by
any other Lender to perform its obligations hereunder, and (ii) no failure by
any Lender to perform its obligations hereunder shall excuse any other Lender
from its obligations hereunder.

            (i) OPTIONAL OVERADVANCES. Any contrary provision of this Agreement
notwithstanding, the Lenders hereby authorize Agent or Swing Lender, as
applicable, and Agent or Swing Lender, as applicable, may, but is not obligated
to, knowingly and intentionally, continue to make Advances (including Swing
Loans) to Borrowers notwithstanding that an Overadvance exists or thereby would
be created, so long as (i) after giving effect to such Advances (including a
Swing Loan), the Revolver Usage does not exceed the Borrowing Base by more than
$4,000,000, (ii) after giving effect to such Advances (including a Swing Loan)
the outstanding Revolver Usage (except for and excluding amounts charged to the
Loan Account for interest, fees, or Lender Group Expenses) does not exceed the
Maximum Revolver Amount, and (iii) at the time of the making of any such Advance
(including a Swing Loan), Agent does not believe, in good faith, that the
Overadvance created by such Advance will be outstanding for more than 90 days.
The foregoing provisions are for the exclusive benefit of Agent, Swing Lender,
and the Lenders and are not intended to benefit Borrowers in any way. The
Advances and Swing Loans, as applicable, that are made pursuant to this Section
2.3(i) shall be subject to the same terms and conditions as any other Advance or
Swing Loan, as applicable, except that they shall not be eligible for the LIBOR
Option and the rate of interest applicable thereto shall be the rate applicable
to Advances that are Base Rate Loans under Section 2.6(c) hereof without regard
to the presence or absence of a Default or Event of Default.

                  (i) In the event Agent obtains actual knowledge that the
            Revolver Usage exceeds the amounts permitted by the preceding
            paragraph, regardless of the amount of, or reason for, such excess,
            Agent shall notify Lenders as soon as practicable (and prior to
            making any (or any additional) intentional Overadvances (except for
            and excluding amounts charged to the Loan Account for interest,
            fees, or Lender Group Expenses) unless Agent determines that prior
            notice would result in imminent harm to the Collateral or its
            value), and the Lenders with Revolver Commitments thereupon shall,
            together with Agent, jointly determine


                                       36

            the terms of arrangements that shall be implemented with Borrowers
            and intended to reduce, within a reasonable time, the outstanding
            principal amount of the Advances to Borrowers to an amount permitted
            by the preceding paragraph. In the event Agent or any Lender
            disagrees over the terms of reduction or repayment of any
            Overadvance, the terms of reduction or repayment thereof shall be
            implemented according to the determination of the Required Lenders.

                  (ii) Each Lender with a Revolver Commitment shall be obligated
            to settle with Agent as provided in Section 2.3(f) for the amount of
            such Lender's Pro Rata Share of any unintentional Overadvances by
            Agent reported to such Lender, any intentional Overadvances made as
            permitted under this Section 2.3(i), and any Overadvances resulting
            from the charging to the Loan Account of interest, fees, or Lender
            Group Expenses.

2.4 PAYMENTS.

            (a) PAYMENTS BY BORROWERS.

                  (i) Except as otherwise expressly provided herein, all
            payments by Borrowers shall be made to Agent's Account for the
            account of the Lender Group and shall be made in immediately
            available funds, no later than 11:00 a.m. (California time) on the
            date specified herein. Any payment received by Agent later than
            11:00 a.m. (California time), shall be deemed to have been received
            on the following Business Day and any applicable interest or fee
            shall continue to accrue until such following Business Day.

                  (ii) Unless Agent receives notice from Administrative Borrower
            prior to the date on which any payment is due to the Lenders that
            Borrowers will not make such payment in full as and when required,
            Agent may assume that Borrowers have made (or will make) such
            payment in full to Agent on such date in immediately available funds
            and Agent may (but shall not be so required), in reliance upon such
            assumption, distribute to each Lender on such due date an amount
            equal to the amount then due such Lender. If and to the extent
            Borrowers do not make such payment in full to Agent on the date when
            due, each Lender severally shall repay to Agent on demand such
            amount distributed to such Lender, together with interest thereon at
            the Defaulting Lender Rate for each day from the date such amount is
            distributed to such Lender until the date repaid.

            (b) APPORTIONMENT AND APPLICATION.

                  (i) Except as otherwise provided with respect to Defaulting
            Lenders and except as otherwise provided in the Loan Documents
            (including letter agreements between Agent and individual Lenders),
            aggregate principal and interest payments shall be apportioned
            ratably among the Lenders (according to the unpaid principal balance
            of the Obligations to which such payments relate held by each
            Lender) and payments of fees and expenses (other than fees or
            expenses that are for Agent's separate account, after giving effect
            to any letter


                                       37

            agreements between Agent and individual Lenders) shall be
            apportioned ratably among the Lenders having a Pro Rata Share of the
            type of Commitment or Obligation to which a particular fee relates.
            All payments shall be remitted to Agent and all such payments (other
            than payments received while no Default or Event of Default has
            occurred and is continuing and which relate to the payment of
            principal or interest of specific Obligations or which relate to the
            payment of specific fees, which shall be applied to such Obligations
            or fees), and all proceeds of Accounts or other Collateral received
            by Agent, shall be applied as follows:

                        (A) first, so long as no Event of Default has occurred
                  and is continuing, to pay any Lender Group Expenses then due
                  to Agent under the Loan Documents, until paid in full,

                        (B) second, so long as no Event of Default has occurred
                  and is continuing, to pay any Lender Group Expenses then due
                  to the Lenders under the Loan Documents, on a ratable basis,
                  until paid in full,

                        (C) third, so long as no Event of Default has occurred
                  and is continuing, to pay any fees then due to Agent (for its
                  separate account, after giving effect to any letter agreements
                  between Agent and the individual Lenders) under the Loan
                  Documents until paid in full,

                        (D) fourth, so long as no Event of Default has occurred
                  and is continuing, to pay any fees then due to any or all of
                  the Lenders (after giving effect to any letter agreements
                  between Agent and individual Lenders) under the Loan
                  Documents, on a ratable basis, until paid in full,

                        (E) fifth, so long as no Event of Default has occurred
                  and is continuing, to pay interest due in respect of all Agent
                  Advances, until paid in full,

                        (F) sixth, so long as no Event of Default has occurred
                  and is continuing, ratably to pay interest due in respect of
                  the Advances (other than Agent Advances), the Swing Loans, and
                  the Term Loan until paid in full,

                        (G) seventh, so long as no Event of Default has occurred
                  and is continuing, to pay the principal of all Agent Advances
                  until paid in full,

                        (H) eighth, so long as no Event of Default has occurred
                  and is continuing, ratably to pay all principal amounts then
                  due and payable with respect to the Term Loan until paid in
                  full,

                        (I) ninth, so long as no Event of Default has occurred
                  and is continuing, to pay the principal of all Swing Loans
                  until paid in full,

                        (J) tenth, so long as no Event of Default has occurred
                  and is continuing, and at Agent's election (which election
                  Agent agrees will not


                                       38

                  be made if an Overadvance would be created thereby), to pay
                  amounts then due and owing by Administrative Borrower or its
                  Subsidiaries in respect of Bank Products, until paid in full,

                        (K) eleventh, so long as no Event of Default has
                  occurred and is continuing, to pay the principal of all other
                  Advances until paid in full,

                        (L) twelfth, so long as no Event of Default has occurred
                  and is continuing, to Borrowers to be wired to the Designated
                  Account or such other Person entitled thereto under applicable
                  law,

                        (M) thirteenth, if an Event of Default has occurred and
                  is continuing, to pay any Lender Group Expenses and fees due
                  to Agent (for its separate account, after giving effect to any
                  letter agreements between Agent and the individual Lenders)
                  under the Loan Documents until paid in full,

                        (N) fourteenth, if an Event of Default has occurred and
                  is continuing, to pay any Lender Group Expenses and fees
                  (other than the Applicable Prepayment Premium) due to any or
                  all of the Lenders (after giving effect to any letter
                  agreements between Agent and individual Lenders), under the
                  Loan Documents, on a ratable basis until paid in full,

                        (O) fifteenth, if an Event of Default has occurred and
                  is continuing, ratably to pay interest due in respect of all
                  Agent Advances, Advances and Swing Loans until paid in full,

                        (P) sixteenth, if an Event of Default has occurred and
                  is continuing, ratably to pay the principal of all Agent
                  Advances, Advances and Swing Loans until paid in full,

                        (Q) seventeenth, if an Event of Default has occurred and
                  is continuing, to Agent, to be held by Agent, for the benefit
                  of Wells Fargo or its Affiliates, as applicable, as cash
                  collateral in an amount up to the amount of the Bank Product
                  Reserve established prior to the occurrence of, and not in
                  contemplation of, the subject Event of Default until
                  Administrative Borrower's and its Subsidiaries' obligations in
                  respect of the then extant Bank Products have been paid in
                  full or the cash collateral amount has been exhausted,

                        (R) eighteenth, if an Event of Default has occurred and
                  is continuing, ratably to pay interest due in respect of the
                  Term Loan until paid in full,

                        (S) nineteenth, if an Event of Default has occurred and
                  is continuing, ratably to pay the outstanding principal
                  balance of the Term


                                       39

                  Loan (in the inverse order of the maturity of the installments
                  due thereunder) until the Term Loan is paid in full,

                        (T) twentieth, if an Event of Default has occurred and
                  is continuing, to Agent, to be held by Agent for the ratable
                  benefit of Issuing Lender and those Lenders having a Revolver
                  Commitment, as cash collateral in an amount up to 105% of the
                  then extant Letter of Credit Usage until paid in full,

                        (U) twenty-first, if an Event of Default has occurred
                  and is continuing, ratably to pay the Applicable Prepayment
                  Premium until paid in full,

                        (V) twenty-second, if an Event of Default has occurred
                  and is continuing, to pay any other Obligations (including
                  Bank Product Obligations) until paid in full, and

                        (W) twenty-third, if an Event of Default has occurred
                  and is continuing, to Borrowers (to be wired to the Designated
                  Account) or such other Person entitled thereto under
                  applicable law.

                  (ii) Agent promptly shall distribute to each Lender, pursuant
            to the applicable wire instructions received from each Lender in
            writing, such funds as it may be entitled to receive, subject to a
            Settlement delay as provided in Section 2.3.

                  (iii) In each instance, so long as no Event of Default has
            occurred and is continuing, Section 2.4(b) shall not be deemed to
            apply to any payment by Borrowers specified by Borrowers to be for
            the payment of specific Obligations then due and payable (or
            prepayable) under any provision of this Agreement.

                  (iv) For purposes of the foregoing, "paid in full" means
            payment of all amounts owing under the Loan Documents according to
            the terms thereof, including loan fees, service fees, professional
            fees, interest (and specifically including interest accrued after
            the commencement of any Insolvency Proceeding), default interest,
            interest on interest, and expense reimbursements, whether or not the
            same would be or is allowed or disallowed in whole or in part in any
            Insolvency Proceeding.

                  (v) In the event of a direct conflict between the priority
            provisions of this Section 2.4 and other provisions contained in any
            other Loan Document, it is the intention of the parties hereto that
            such priority provisions in such documents shall be read together
            and construed, to the fullest extent possible, to be in concert with
            each other. In the event of any actual, irreconcilable conflict that
            cannot be resolved as aforesaid, the terms and provisions of this
            Section 2.4 shall control and govern.



                                       40

            (c) MANDATORY PREPAYMENTS.

                  (i) Immediately upon the consummation of any Permitted
            Financing Transaction, Borrowers shall repay in full from the
            proceeds thereof any Advances made against any assets sold or
            otherwise disposed of in connection with such Permitted Financing
            Transaction which had previously constituted a portion of the
            Borrowing Base.

                  (ii) Immediately upon Borrower's receipt of any Net Cash
            Proceeds:

                        (A) if (1) no Default or Event of Default shall exist,
                  (2) Excess Availability is and after giving effect to the
                  following payment, shall be, $4,000,000 or more, (3) both
                  before and after giving effect to the following payments and
                  the transactions giving rise to them, Borrowers maintain FBO
                  Operations at FBOs having an aggregate FBO Enterprise Value of
                  at least $10,000,000 and (4) such Net Cash Proceeds exceed
                  $500,000, then Borrowers shall prepay the outstanding
                  principal amount of the Term Loan, in inverse order of
                  maturity (or, if indicated below, the Advances or
                  Obligations), and the outstanding principal amount of the
                  Whitney Debt as follows:

                              first, until the aggregate amount of $15,000,000
                              of Net Cash Proceeds have been so applied, equally
                              to Agent for application to the Term Loan and to
                              Whitney for application to the principal amount of
                              the Whitney Debt;

                              second, until an additional aggregate amount of
                              $4,500,000 of Net Cash Proceeds have been so
                              applied, to Whitney for application to the
                              principal amount of the Whitney Debt;

                              third, if such Net Cash Proceeds are received (I)
                              prior to January 1, 2004 and the Asset Sale
                              Reserve is then less than the Target Amount,
                              equally to Whitney for application to the
                              principal amount of the Whitney Debt and to Agent
                              for application to the Advances, (II) prior to
                              January 1, 2004 and the Asset Sale Reserve is then
                              equal to the Target Amount, to Whitney for
                              application to the principal amount of the Whitney
                              Debt until the principal amount of the Whitney
                              Debt has been repaid in the amount of $24,000,000,
                              or (III) on or after January 1, 2004, to Whitney
                              for application to the principal amount of the
                              Whitney Debt until the principal amount of the
                              Whitney Debt has been repaid in the amount of
                              $24,000,000;

                              fourth, to Whitney for application to the
                              principal amount of the Whitney Debt until the
                              principal amount of the


                                       41

                              Whitney Debt has been repaid in the amount of
                              $24,000,000; and

                              fifth, to Agent for application to any outstanding
                              Obligations;

                  provided, however, if at any time such payments are to be made
                  the only condition provided above not satisfied is that set
                  forth in Section 2.4(c)(ii)(A)(2), then, such Net Cash
                  Proceeds shall be applied to the Advances until Excess
                  Availability is $4,000,000 and any remaining Net Cash Proceeds
                  applied as set forth above;

                        (B) if a Default or Event of Default shall then exist,
                  then 100% of such Net Cash Proceeds shall be applied to the
                  Obligations as set forth in Section 2.4(b)(i);

                        (C) if (1) no Default or Event of Default shall then
                  exist and (2) prior to or after giving effect to the following
                  payment and the transaction giving rise to it, Borrowers do
                  not maintain FBO Operations at FBOs having an aggregate FBO
                  Enterprise Value of at least $10,000,000, then 100% of such
                  Net Cash Proceeds shall be applied to the outstanding
                  principal amount of the Term Loan, in inverse order of
                  maturity, until paid in full and thereafter, the Advances; or

                        (D) if such Net Cash Proceeds do not exceed $500,000,
                  then 100% of such Net Cash Proceeds shall be applied to the
                  outstanding principal amount of the Term Loan, in inverse
                  order of maturity, until paid in full and thereafter, the
                  Advances.

            Nothing contained in this Section 2.4(c)(i) shall be deemed to
            permit any Borrower or Subsidiary of any Borrower to make a
            disposition of any assets other than in accordance with the terms of
            this Agreement. In no event shall the Applicable Prepayment Premium
            apply to such prepayments unless Borrowers request that the Lender
            Group terminate this Agreement.

                  (iii) Upon the issuance or incurrence by any Borrower or any
            Subsidiary of any Borrower of any Indebtedness (other than Permitted
            Construction Indebtedness or Permitted Purchase Money Indebtedness)
            or the sale or issuance by any Borrower or any Subsidiary of any
            Borrower of any shares of its Stock (other than the issuance of
            shares of Stock for consideration other than cash or a Permitted
            Financing Transaction), Borrowers shall prepay the outstanding
            principal amount of the Term Loan in inverse order of maturity (or,
            if the Term Loan has been paid in full, the Advances), in an amount
            equal to 100% of the net cash proceeds received by such Person in
            connection therewith. Nothing contained in this Section 2.4(c)(iii)
            shall be deemed to permit any such issuance, incurrence or sale
            otherwise prohibited by the terms and conditions of this Agreement.
            Any payments required to be made under this Section 2.4(c)(iii)


                                       42

            shall be applied to the Term Loan, in inverse order of maturity (or,
            if applicable, the Advances), as set forth in Section 2.4(b)(i);
            provided, however, if an Event of Default has occurred and is
            continuing, such payments shall be applied to the Obligations as set
            forth in Section 2.4(b)(i). In no event shall the Applicable
            Prepayment Premium apply to such prepayments unless Borrowers
            request that the Lender Group terminate this Agreement.

                  (iv) Upon the receipt by any Borrower or any Subsidiary of any
            Borrower of any Extraordinary Receipts, Borrowers shall prepay the
            outstanding principal amount of the Term Loan, in inverse order of
            maturity (or, if the Term Loan has been paid in full, the Advances),
            in an amount equal to 100% of such Extraordinary Receipts. Any
            payments required to be made under this Section 2.4(c)(iv) shall be
            applied to the Term Loan, in inverse order of maturity (or, if
            applicable, the Advances), as set forth in Section 2.4(b)(i);
            provided, however, if an Event of Default has occurred and is
            continuing, such payments shall be applied to the Obligations as set
            forth in Section 2.4(b)(i). In no event shall the Applicable
            Prepayment Premium apply to such prepayments unless Borrowers
            request that the Lender Group terminate this Agreement.

      2.5 OVERADVANCES. If, at any time or for any reason, the amount of
Obligations (other than Bank Product Obligations) owed by Borrowers to the
Lender Group pursuant to Section 2.1 and Section 2.12 is greater than either the
Dollar or percentage limitations set forth in Section 2.1 or Section 2.12, (an
"Overadvance"), Borrowers immediately shall pay to Agent, in cash, the amount of
such excess, which amount shall be used by Agent to reduce the Obligations in
accordance with the priorities set forth in Section 2.4(b). In addition,
Borrowers hereby promise to pay the Obligations (including principal, interest,
fees, costs, and expenses) in Dollars in full to the Lender Group as and when
due and payable under the terms of this Agreement and the other Loan Documents.

      2.6 INTEREST RATES AND LETTER OF CREDIT FEE: RATES, PAYMENTS, AND
CALCULATIONS.

            (a) INTEREST RATES. Except as provided in clause (c) below, all
Obligations (except for undrawn Letters of Credit and except for Bank Product
Obligations) that have been charged to the Loan Account pursuant to the terms
hereof shall bear interest on the Daily Balance thereof as follows:

                  (i) if the relevant Obligation is an Advance that is a Base
            Rate Loan (or interest thereon or fees charged in connection
            therewith), at a per annum rate equal to the Base Rate plus the Base
            Rate Margin;

                  (ii) if the relevant Obligation is an Advance that is a LIBOR
            Rate Loan (or interest thereon or fees charged in connection
            therewith), at a per annum rate equal to the LIBOR Rate plus the
            LIBOR Rate Margin;

                  (iii) if the relevant Obligation is a portion of the Term Loan
            (or interest thereon or fees charged in connection therewith), at a
            per annum rate equal to the Base Rate plus the Term Loan Margin;



                                       43

                  (iv) otherwise, at a per annum rate equal to the Base Rate
            plus the Term Loan Margin.

The foregoing notwithstanding, at no time shall any portion of the Obligations
(other than Bank Product Obligations) bear interest on the Daily Balance thereof
at a per annum rate less than 5.00%. To the extent that interest accrued
hereunder at the rate set forth herein would be less than the foregoing minimum
daily rate, the interest rate chargeable hereunder for such day automatically
shall be deemed increased to the minimum rate.

            (b) LETTER OF CREDIT FEES. Borrowers shall pay Agent (for the
ratable benefit of the Lenders with a Revolver Commitment, subject to any letter
agreement between Agent and individual Lenders), a Letter of Credit fee (in
addition to the charges, commissions, fees, and costs set forth in Section
2.12(e)) which shall accrue at a rate equal to 3.00% per annum times the Daily
Balance of the aggregate undrawn amount of all outstanding Letters of Credit.

            (c) DEFAULT RATE. Upon the occurrence and during the continuation of
an Event of Default (and at the election of Agent or the Required Lenders),

                  (i) all Obligations (except for undrawn Letters of Credit and
            except for Bank Product Obligations) that have been charged to the
            Loan Account pursuant to the terms hereof shall bear interest on the
            Daily Balance thereof at a per annum rate equal to 4 percentage
            points above the per annum rate otherwise applicable hereunder, and

                  (ii) the Letter of Credit fee provided for above shall be
            increased to 4 percentage points above the per annum rate otherwise
            applicable hereunder.

            (d) PAYMENT. Interest, Letter of Credit fees, and all other fees
payable hereunder shall be due and payable, in arrears, on the first day of each
month at any time that Obligations or Commitments are outstanding. Borrowers
hereby authorize Agent, from time to time, without prior notice to Borrowers, to
charge such interest and fees, all Lender Group Expenses (as and when incurred),
the charges, commissions, fees, and costs provided for in Section 2.12(e) (as
and when accrued or incurred), the fees and costs provided for in Section 2.11
(as and when accrued or incurred), and all other payments as and when due and
payable under any Loan Document (including the installments due and payable with
respect to the Term Loan and including any amounts due and payable to Wells
Fargo or its Affiliates in respect of Bank Products up to the amount of the then
extant Bank Product Reserve) to Borrowers' Loan Account, which amounts shall
thereafter constitute Advances hereunder and shall accrue interest at the rates
set forth in Section 2.6(a) or, if applicable, Section 2.6(c). Any interest not
paid when due shall be compounded by being charged to Borrowers' Loan Account
and shall thereafter constitute Advances hereunder and shall accrue interest at
the rates set forth in Section 2.6(a) or, if applicable, Section 2.6(a).

            (e) COMPUTATION. All interest and fees chargeable under the Loan
Documents shall be computed on the basis of a 360 day year for the actual number
of days elapsed. In the event the Base Rate is changed from time to time
hereafter, the rates of interest


                                       44

hereunder based upon the Base Rate automatically and immediately shall be
increased or decreased by an amount equal to such change in the Base Rate.

            (f) INTENT TO LIMIT CHARGES TO MAXIMUM LAWFUL RATE. In no event
shall the interest rate or rates payable under this Agreement, plus any other
amounts paid in connection herewith, exceed the highest rate permissible under
any law that a court of competent jurisdiction shall, in a final determination,
deem applicable. Borrowers and the Lender Group, in executing and delivering
this Agreement, intend legally to agree upon the rate or rates of interest and
manner of payment stated within it; provided, however, that, anything contained
herein to the contrary notwithstanding, if said rate or rates of interest or
manner of payment exceeds the maximum allowable under applicable law, then, ipso
facto, as of the date of this Agreement, Borrowers are and shall be liable only
for the payment of such maximum as allowed by law, and payment received from
Borrowers in excess of such legal maximum, whenever received, shall be applied
to reduce the principal balance of the Obligations to the extent of such excess.

      2.7 CASH MANAGEMENT.

            (a) Borrowers shall (i) establish and maintain cash management
services of a type and on terms satisfactory to Agent at one or more of the
banks set forth on Schedule 2.7(a) (each a "Cash Management Bank"), and shall
request in writing and otherwise take such reasonable steps to ensure that all
of its Account Debtors forward payment of the amounts owed by them directly to
such Cash Management Bank, and (ii) deposit or cause to be deposited promptly,
and in any event no later than the first Business Day after the date of receipt
thereof, all Collections (including those sent directly by Account Debtors to a
Cash Management Bank) into a bank account in Agent's name (a "Cash Management
Account") at one of the Cash Management Banks; provided, however, to the extent
such Collections do not at any one time exceed $50,000, Collections from FBO
Operations received at an FBO may be deposited to a Cash Management Account no
less frequently than twice per week.

            (b) Each Cash Management Bank shall establish and maintain, within
the time frame specified in Section 3.2(a), Cash Management Agreements with
Agent and Borrowers, in form and substance acceptable to Agent. Each such Cash
Management Agreement shall provide, among other things, that (i) all items of
payment deposited in such Cash Management Account and proceeds thereof are held
by such Cash Management Bank as agent or bailee-in-possession for Agent, (ii)
the Cash Management Bank has no rights of setoff or recoupment or any other
claim against the applicable Cash Management Account, other than for payment of
its service fees and other charges directly related to the administration of
such Cash Management Account and for returned checks or other items of payment,
and (iii) it immediately will forward by daily sweep all amounts in the
applicable Cash Management Account to the Agent's Account.

            (c) So long as no Default or Event of Default has occurred and is
continuing, Administrative Borrower may amend Schedule 2.7(a) to add or replace
a Cash Management Account Bank or Cash Management Account; provided, however,
that (i) such prospective Cash Management Bank shall be satisfactory to Agent
and Agent shall have consented in writing in advance to the opening of such Cash
Management Account with the prospective Cash Management Bank, and (ii) prior to
the time of the opening of such Cash Management Account, Borrowers and such
prospective Cash Management Bank shall have executed and delivered to


                                       45

Agent a Cash Management Agreement. Borrowers shall close any of their Cash
Management Accounts (and establish replacement cash management accounts in
accordance with the foregoing sentence) promptly and in any event within 30 days
of notice from Agent that the creditworthiness of any Cash Management Bank is no
longer acceptable in Agent's reasonable judgment, or as promptly as practicable
and in any event within 60 days of notice from Agent that the operating
performance, funds transfer, or availability procedures or performance of the
Cash Management Bank with respect to Cash Management Accounts or Agent's
liability under any Cash Management Agreement with such Cash Management Bank is
no longer acceptable in Agent's reasonable judgment.

            (d) The Cash Management Accounts shall be cash collateral accounts,
with all cash, checks and similar items of payment in such accounts securing
payment of the Obligations, and in which Borrowers are hereby deemed to have
granted a Lien to Agent.

      2.8 CREDITING PAYMENTS; FLOAT CHARGE. The receipt of any payment item by
Agent (whether from transfers to Agent by the Cash Management Banks pursuant to
the Cash Management Agreements or otherwise) shall not be considered a payment
on account unless such payment item is a wire transfer of immediately available
federal funds made to the Agent's Account or unless and until such payment item
is honored when presented for payment. Should any payment item not be honored
when presented for payment, then Borrowers shall be deemed not to have made such
payment and interest shall be calculated accordingly. Anything to the contrary
contained herein notwithstanding, any payment item shall be deemed received by
Agent only if it is received into the Agent's Account on a Business Day on or
before 11:00 a.m. (California time). If any payment item is received into the
Agent's Account on a non-Business Day or after 11:00 a.m. (California time) on a
Business Day, it shall be deemed to have been received by Agent as of the
opening of business on the immediately following Business Day. From and after
the Closing Date, Agent shall be entitled to charge Borrowers for 1 Business Day
of `clearance' or `float' at the rate applicable to Base Rate Loans under
Section 2.6 on all Collections that are received by Borrowers (regardless of
whether forwarded by the Cash Management Banks to Agent). This across-the-board
1 Business Day clearance or float charge on all Collections is acknowledged by
the parties to constitute an integral aspect of the pricing of the financing of
Borrowers and shall apply irrespective of whether or not there are any
outstanding monetary Obligations; the effect of such clearance or float charge
being the equivalent of charging 1 Business Day of interest on such Collections.
The parties acknowledge and agree that the economic benefit of the foregoing
provisions of this Section 2.8 shall be for the exclusive benefit of Agent.

      2.9 DESIGNATED ACCOUNT. Agent is authorized to make the Advances and the
Term Loan, and Issuing Lender is authorized to issue the Letters of Credit,
under this Agreement based upon telephonic or other instructions received from
anyone purporting to be an Authorized Person, or without instructions if
pursuant to Section 2.6(d). Administrative Borrower agrees to establish and
maintain the Designated Account with the Designated Account Bank for the purpose
of receiving the proceeds of the Advances requested by Borrowers and made by
Agent or the Lenders hereunder. Unless otherwise agreed by Agent and
Administrative Borrower, any Advance, Agent Advance, or Swing Loan requested by
Borrowers and made by Agent or the Lenders hereunder shall be made to the
Designated Account.



                                       46

      2.10 MAINTENANCE OF LOAN ACCOUNT; STATEMENTS OF OBLIGATIONS. Agent shall
maintain an account on its books in the name of Borrowers (the "Loan Account")
on which Borrowers will be charged with the Term Loan, all Advances (including
Agent Advances and Swing Loans) made by Agent, Swing Lender, or the Lenders to
Borrowers or for Borrowers' account, the Letters of Credit issued by Issuing
Lender for Borrowers' account, and with all other payment Obligations hereunder
or under the other Loan Documents (except for Bank Product Obligations),
including, accrued interest, fees and expenses, and Lender Group Expenses. In
accordance with Section 2.8, the Loan Account will be credited with all payments
received by Agent from Borrowers or for Borrowers' account, including all
amounts received in the Agent's Account from any Cash Management Bank. Agent
shall render statements regarding the Loan Account to Administrative Borrower,
including principal, interest, fees, and including an itemization of all charges
and expenses constituting Lender Group Expenses owing, and such statements shall
be conclusively presumed to be correct and accurate and constitute an account
stated between Borrowers and the Lender Group unless, within 30 days after
receipt thereof by Administrative Borrower, Administrative Borrower shall
deliver to Agent written objection thereto describing the error or errors
contained in any such statements.

      2.11 FEES. Borrowers shall pay to Agent the following fees and charges,
which fees and charges shall be non-refundable when paid (irrespective of
whether this Agreement is terminated thereafter) and shall be apportioned among
the Lenders in accordance with the terms of letter agreements between Agent and
individual Lenders:

            (a) UNUSED LINE FEE. On the first day of each month during the term
of this Agreement, an unused line fee in the amount equal to 0.375% per annum
times the result of (a) the Maximum Revolver Amount, less (b) the sum of (i) the
average Daily Balance of Advances that were outstanding during the immediately
preceding month, plus (ii) the average Daily Balance of the Letter of Credit
Usage during the immediately preceding month, plus (iii) the Availability Block,
plus (iv) the average Daily Balance of the Term Loan outstanding during the
immediately preceding month.

            (b) FEE LETTER FEES. As and when due and payable under the terms of
the Fee Letter, Borrowers shall pay to Agent the fees set forth in the Fee
Letter, and

            (c) AUDIT, APPRAISAL, AND VALUATION CHARGES. For the separate
account of Agent, audit, appraisal, and valuation fees and charges as follows,
(i) a fee of $850 pay day, per auditor, plus out-of-pocket expenses for each
financial audit of a Borrower performed by personnel employed by Agent, and (ii)
the actual charges paid or incurred by Agent to perform financial audits of
Borrowers, to appraise the Collateral, or any portion thereof, or to assess a
Borrower's business valuation; provided, however, Borrowers shall only be
required to pay such charges and expenses with respect to four (4) audits
performed per year unless an Event of Default has occurred in which case
Borrowers shall be required to pay such charges and expenses with respect to as
many audits as are performed.

      2.12 LETTERS OF CREDIT.

            (a) Subject to the terms and conditions of this Agreement, the
Issuing Lender agrees to issue letters of credit for the account of Borrowers
(each, an "L/C") or to purchase


                                       47

participations or execute indemnities or reimbursement obligations (each such
undertaking, an "L/C Undertaking") with respect to letters of credit issued by
an Underlying Issuer (as of the Closing Date, the prospective Underlying Issuer
is to be Wells Fargo) for the account of Borrowers. To request the issuance of
an L/C or an L/C Undertaking (or the amendment, renewal, or extension of an
outstanding L/C or L/C Undertaking), Administrative Borrower shall hand deliver
or telecopy (or transmit by electronic communication, if arrangements for doing
so have been approved by the Issuing Lender) to the Issuing Lender and Agent
(reasonably in advance of the requested date of issuance, amendment, renewal, or
extension) a notice requesting the issuance of an L/C or L/C Undertaking, or
identifying the L/C or L/C Undertaking to be amended, renewed, or extended, the
date of issuance, amendment, renewal, or extension, the date on which such L/C
or L/C Undertaking is to expire, the amount of such L/C or L/C Undertaking, the
name and address of the beneficiary thereof (or of the Underlying Letter of
Credit, as applicable), and such other information as shall be necessary to
prepare, amend, renew, or extend such L/C or L/C Undertaking. If requested by
the Issuing Lender, Borrowers also shall be an applicant under the application
with respect to any Underlying Letter of Credit that is to be the subject of an
L/C Undertaking. The Issuing Lender shall have no obligation to issue a Letter
of Credit if any of the following would result after giving effect to the
requested Letter of Credit:

                  (i) the Letter of Credit Usage would exceed the Borrowing Base
            less the amount of outstanding Advances, or

                  (ii) the Letter of Credit Usage would exceed $20,000,000,

                  (iii) the Letter of Credit Usage, with respect to the Revenue
            Bond Letter of Credit only, would exceed $15,000,000, or

                  (iv) the Letter of Credit Usage would exceed the Maximum
            Revolver Amount less the then extant amount of outstanding Advances.

            Borrowers and the Lender Group acknowledge and agree that certain
Underlying Letters of Credit may be issued to support letters of credit that
already are outstanding as of the Closing Date. Each Letter of Credit (and
corresponding Underlying Letter of Credit) shall be in form and substance
acceptable to the Issuing Lender (in the exercise of its Permitted Discretion),
including the requirement that the amounts payable thereunder must be payable in
Dollars. If Issuing Lender is obligated to advance funds under a Letter of
Credit, Borrowers immediately shall reimburse such L/C Disbursement to Issuing
Lender by paying to Agent an amount equal to such L/C Disbursement not later
than 11:00 a.m., California time, on the date that such L/C Disbursement is
made, if Administrative Borrower shall have received written or telephonic
notice of such L/C Disbursement prior to 10:00 a.m., California time, on such
date, or, if such notice has not been received by Administrative Borrower prior
to such time on such date, then not later than 11:00 a.m., California time, on
(i) the Business Day that Administrative Borrower receives such notice, if such
notice is received prior to 10:00 a.m., California time, on the date of receipt,
and, in the absence of such reimbursement, the L/C Disbursement immediately and
automatically shall be deemed to be an Advance hereunder and, thereafter, shall
bear interest at the rate then applicable to Advances that are Base Rate Loans
under Section 2.6. To the extent an L/C Disbursement is deemed to be an Advance
hereunder, Borrowers' obligation to reimburse such L/C Disbursement shall be
discharged and replaced by the resulting Advance. Promptly


                                       48

following receipt by Agent of any payment from Borrowers pursuant to this
paragraph, Agent shall distribute such payment to the Issuing Lender or, to the
extent that Lenders have made payments pursuant to Section 2.12(c) to reimburse
the Issuing Lender, then to such Lenders and the Issuing Lender as their
interest may appear.

            (b) Promptly following receipt of a notice of L/C Disbursement
pursuant to Section 2.12(a), each Lender with a Revolver Commitment agrees to
fund its Pro Rata Share of any Advance deemed made pursuant to the foregoing
subsection on the same terms and conditions as if Borrowers had requested such
Advance and Agent shall promptly pay to Issuing Lender the amounts so received
by it from the Lenders. By the issuance of a Letter of Credit (or an amendment
to a Letter of Credit increasing the amount thereof) and without any further
action on the part of the Issuing Lender or the Lenders with Revolver
Commitment, the Issuing Lender shall be deemed to have granted to each Lender
with a Revolver Commitment, and each Lender with a Revolver Commitment shall be
deemed to have purchased, a participation in each Letter of Credit, in an amount
equal to its Pro Rata Share of the Risk Participation Liability of such Letter
of Credit, and each such Lender agrees to pay to Agent, for the account of the
Issuing Lender, such Lender's Pro Rata Share of any payments made by the Issuing
Lender under such Letter of Credit. In consideration and in furtherance of the
foregoing, each Lender with a Revolver Commitment hereby absolutely and
unconditionally agrees to pay to Agent, for the account of the Issuing Lender,
such Lender's Pro Rata Share of each L/C Disbursement made by the Issuing Lender
and not reimbursed by Borrowers on the date due as provided in clause (a) of
this Section, or of any reimbursement payment required to be refunded to
Borrowers for any reason. Each Lender with a Revolver Commitment acknowledges
and agrees that its obligation to deliver to Agent, for the account of the
Issuing Lender, an amount equal to its respective Pro Rata Share pursuant to
this Section 2.12(b) shall be absolute and unconditional and such remittance
shall be made notwithstanding the occurrence or continuation of an Event of
Default or Default or the failure to satisfy any condition set forth in Section
3 hereof. If any such Lender fails to make available to Agent the amount of such
Lender's Pro Rata Share of any payments made by the Issuing Lender in respect of
such Letter of Credit as provided in this Section, Agent (for the account of the
Issuing Lender) shall be entitled to recover such amount on demand from such
Lender together with interest thereon at the Defaulting Lender Rate until paid
in full.

            (c) Each Borrower hereby agrees to indemnify, save, defend, and hold
the Lender Group harmless from any loss, cost, expense, or liability, and
reasonable attorneys fees incurred by the Lender Group arising out of or in
connection with any Letter of Credit; provided, however, that no Borrower shall
be obligated hereunder to indemnify for any loss, cost, expense, or liability
that is caused by the gross negligence or willful misconduct of the Issuing
Lender or any other member of the Lender Group. Each Borrower agrees to be bound
by the Underlying Issuer's regulations and interpretations of any Underlying
Letter of Credit or by Issuing Lender's interpretations of any L/C issued by
Issuing Lender to or for such Borrower's account, even though this
interpretation may be different from such Borrower's own, and each Borrower
understands and agrees that the Lender Group shall not be liable for any error,
negligence, or mistake, whether of omission or commission, in following
Borrowers' instructions or those contained in the Letter of Credit or any
modifications, amendments, or supplements thereto. Each Borrower understands
that the L/C Undertakings may require Issuing Lender to indemnify the Underlying
Issuer for certain costs or liabilities arising out of claims by Borrowers
against such Underlying Issuer. Each Borrower hereby agrees to indemnify, save,
defend, and hold the


                                       49

Lender Group harmless with respect to any loss, cost, expense (including
reasonable attorneys fees), or liability incurred by the Lender Group under any
L/C Undertaking as a result of the Lender Group's indemnification of any
Underlying Issuer; provided, however, that no Borrower shall be obligated
hereunder to indemnify for any loss, cost, expense, or liability that is caused
by the gross negligence or willful misconduct of the Issuing Lender, Underlying
Issuer or any other member of the Lender Group.

            (d) Each Borrower hereby authorizes and directs any Underlying
Issuer to deliver to the Issuing Lender all instruments, documents, and other
writings and property received by such Underlying Issuer pursuant to such
Underlying Letter of Credit and to accept and rely upon the Issuing Lender's
instructions with respect to all matters arising in connection with such
Underlying Letter of Credit and the related application.

            (e) Any and all charges, commissions, fees, and costs incurred by
the Issuing Lender relating to Underlying Letters of Credit shall be Lender
Group Expenses for purposes of this Agreement and immediately shall be
reimbursable by Borrowers to Agent for the account of the Issuing Lender; it
being acknowledged and agreed by each Borrower that, as of the Closing Date, the
issuance charge imposed by the prospective Underlying Issuer is .825% per annum
times the face amount of each Underlying Letter of Credit, that such issuance
charge may be changed from time to time, and that the Underlying Issuer also
imposes a schedule of charges for amendments, extensions, drawings, and
renewals.

            (f) If by reason of (i) any change in any applicable law, treaty,
rule, or regulation or any change in the interpretation or application thereof
by any Governmental Authority, or (ii) compliance by the Underlying Issuer or
the Lender Group with any direction, request, or requirement (irrespective of
whether having the force of law) of any Governmental Authority or monetary
authority including, Regulation D of the Federal Reserve Board as from time to
time in effect (and any successor thereto):

                  (i) any reserve, deposit, or similar requirement is or shall
            be imposed or modified in respect of any Letter of Credit issued
            hereunder, or

                  (ii) there shall be imposed on the Underlying Issuer or the
            Lender Group any other condition regarding any Underlying Letter of
            Credit or any Letter of Credit issued pursuant hereto;

and the result of the foregoing is to increase, directly or indirectly, the cost
to the Lender Group of issuing, making, guaranteeing, or maintaining any Letter
of Credit or to reduce the amount receivable in respect thereof by the Lender
Group, then, and in any such case, Agent may, at any time within a reasonable
period after the additional cost is incurred or the amount received is reduced,
notify Administrative Borrower, and Borrowers shall pay on demand such amounts
as Agent may specify to be necessary to compensate the Lender Group for such
additional cost or reduced receipt, together with interest on such amount from
the date of such demand until payment in full thereof at the rate then
applicable to Base Rate Loans hereunder. The determination by Agent of any
amount due pursuant to this Section, as set forth in a certificate setting forth
the calculation thereof in reasonable detail, shall, in the absence of manifest
or demonstrable error, be final and conclusive and binding on all of the parties
hereto.



                                       50

2.13 LIBOR OPTION.

            (a) INTEREST AND INTEREST PAYMENT DATES. In lieu of having interest
charged at the rate based upon the Base Rate, Borrowers shall have the option
(the "LIBOR Option") to have interest on all or a portion of the Advances be
charged at a rate of interest based upon the LIBOR Rate. Interest on LIBOR Rate
Loans shall be payable on the earliest of (i) the last day of the Interest
Period applicable thereto, (ii) the occurrence of an Event of Default in
consequence of which the Required Lenders or Agent on behalf thereof elect to
accelerate the maturity of all or any portion of the Obligations, or (iii)
termination of this Agreement pursuant to the terms hereof. On the last day of
each applicable Interest Period, unless Administrative Borrower properly has
exercised the LIBOR Option with respect thereto, the interest rate applicable to
such LIBOR Rate Loan automatically shall convert to the rate of interest then
applicable to Base Rate Loans of the same type hereunder. At any time that an
Event of Default has occurred and is continuing, Borrowers no longer shall have
the option to request that Advances bear interest at the LIBOR Rate and Agent
shall have the right to convert the interest rate on all outstanding LIBOR Rate
Loans to the rate then applicable to Base Rate Loans hereunder.

            (b) LIBOR ELECTION.

                  (i) Administrative Borrower may, at any time and from time to
            time, so long as no Event of Default has occurred and is continuing,
            elect to exercise the LIBOR Option by notifying Agent prior to 11:00
            a.m. (California time) at least 3 Business Days prior to the
            commencement of the proposed Interest Period (the "LIBOR Deadline").
            Notice of Administrative Borrower's election of the LIBOR Option for
            a permitted portion of the Advances and an Interest Period pursuant
            to this Section shall be made by delivery to Agent of a LIBOR Notice
            received by Agent before the LIBOR Deadline, or by telephonic notice
            received by Agent before the LIBOR Deadline (to be confirmed by
            delivery to Agent of a LIBOR Notice received by Agent prior to 5:00
            p.m. (California time) on the same day. Promptly upon its receipt of
            each such LIBOR Notice, Agent shall provide a copy thereof to each
            of the Lenders having a Revolver Commitment.

                  (ii) Each LIBOR Notice shall be irrevocable and binding on
            Borrowers. In connection with each LIBOR Rate Loan, each Borrower
            shall indemnify, defend, and hold Agent and the Lenders harmless
            against any loss, cost, or expense incurred by Agent or any Lender
            as a result of (a) the payment of any principal of any LIBOR Rate
            Loan other than on the last day of an Interest Period applicable
            thereto (including as a result of an Event of Default), (b) the
            conversion of any LIBOR Rate Loan other than on the last day of the
            Interest Period applicable thereto, or (c) the failure to borrow,
            convert, continue or prepay any LIBOR Rate Loan on the date
            specified in any LIBOR Notice delivered pursuant hereto (such
            losses, costs, and expenses, collectively, "Funding Losses").
            Funding Losses shall, with respect to Agent or any Lender, be deemed
            to equal the amount determined by Agent or such Lender to be the
            excess, if any, of (i) the amount of interest that would have
            accrued on the principal amount of such LIBOR Rate Loan had such
            event not occurred, at the LIBOR Rate that would have been
            applicable thereto, for the period from the date of such event to
            the last


                                       51

            day of the then current Interest Period therefor (or, in the case of
            a failure to borrow, convert or continue, for the period that would
            have been the Interest Period therefor), minus (ii) the amount of
            interest that would accrue on such principal amount for such period
            at the interest rate which Agent or such Lender would be offered
            were it to be offered, at the commencement of such period, Dollar
            deposits of a comparable amount and period in the London interbank
            market. A certificate of Agent or a Lender delivered to
            Administrative Borrower setting forth any amount or amounts that
            Agent or such Lender is entitled to receive pursuant to this Section
            shall be conclusive absent manifest error.

                  (iii) Borrowers shall have not more than 5 LIBOR Rate Loans in
            effect at any given time. Borrowers only may exercise the LIBOR
            Option for LIBOR Rate Loans of at least $1,000,000 and integral
            multiples of $500,000 in excess thereof.

            (c) PREPAYMENTS. Borrowers may prepay LIBOR Rate Loans at any time;
provided, however, that in the event that LIBOR Rate Loans are prepaid on any
date that is not the last day of the Interest Period applicable thereto,
including as a result of any automatic prepayment through the required
application by Agent of proceeds of Collections in accordance with Section
2.4(b) or for any other reason, including early termination of the term of this
Agreement or acceleration of all or any portion of the Obligations pursuant to
the terms hereof, each Borrower shall indemnify, defend, and hold Agent and the
Lenders and their Participants harmless against any and all Funding Losses in
accordance with clause (b) above.

            (d) SPECIAL PROVISIONS APPLICABLE TO LIBOR RATE.

                  (i) The LIBOR Rate may be adjusted by Agent with respect to
            any Lender on a prospective basis to take into account any
            additional or increased costs to such Lender of maintaining or
            obtaining any eurodollar deposits or increased costs due to changes
            in applicable law occurring subsequent to the commencement of the
            then applicable Interest Period, including changes in tax laws
            (except changes of general applicability in corporate income tax
            laws) and changes in the reserve requirements imposed by the Board
            of Governors of the Federal Reserve System (or any successor),
            excluding the Reserve Percentage, which additional or increased
            costs would increase the cost of funding loans bearing interest at
            the LIBOR Rate. In any such event, the affected Lender shall give
            Administrative Borrower and Agent notice of such a determination and
            adjustment and Agent promptly shall transmit the notice to each
            other Lender and, upon its receipt of the notice from the affected
            Lender, Administrative Borrower may, by notice to such affected
            Lender (y) require such Lender to furnish to Administrative Borrower
            a statement setting forth the basis for adjusting such LIBOR Rate
            and the method for determining the amount of such adjustment, or (z)
            repay the LIBOR Rate Loans with respect to which such adjustment is
            made (together with any amounts due under clause (b)(ii) above).

                  (ii) In the event that any change in market conditions or any
            law, regulation, treaty, or directive, or any change therein or in
            the interpretation of


                                       52

            application thereof, shall at any time after the date hereof, in the
            reasonable opinion of any Lender, make it unlawful or impractical
            for such Lender to fund or maintain LIBOR Advances or to continue
            such funding or maintaining, or to determine or charge interest
            rates at the LIBOR Rate, such Lender shall give notice of such
            changed circumstances to Agent and Administrative Borrower and Agent
            promptly shall transmit the notice to each other Lender and (A) in
            the case of any LIBOR Rate Loans of such Lender that are
            outstanding, the date specified in such Lender's notice shall be
            deemed to be the last day of the Interest Period of such LIBOR Rate
            Loans, and interest upon the LIBOR Rate Loans of such Lender
            thereafter shall accrue interest at the rate then applicable to Base
            Rate Loans, and (B) Borrowers shall not be entitled to elect the
            LIBOR Option until such Lender determines that it would no longer be
            unlawful or impractical to do so.

            (e) NO REQUIREMENT OF MATCHED FUNDING. Anything to the contrary
contained herein notwithstanding, neither Agent, nor any Lender, nor any of
their Participants, is required actually to acquire eurodollar deposits to fund
or otherwise match fund any Obligation as to which interest accrues at the LIBOR
Rate. The provisions of this Section shall apply as if each Lender or its
Participants had match funded any Obligation as to which interest is accruing at
the LIBOR Rate by acquiring eurodollar deposits for each Interest Period in the
amount of the LIBOR Rate Loans.

      2.14 CAPITAL REQUIREMENTS. If, after the date hereof, any Lender
determines that (i) the adoption of or change in any law, rule, regulation or
guideline regarding capital requirements for banks or bank holding companies, or
any change in the interpretation or application thereof by any Governmental
Authority charged with the administration thereof, or (ii) compliance by such
Lender or its parent bank holding company with any guideline, request or
directive of any such entity regarding capital adequacy (whether or not having
the force of law), has the effect of reducing the return on such Lender's or
such holding company's capital as a consequence of such Lender's Commitments
hereunder to a level below that which such Lender or such holding company could
have achieved but for such adoption, change, or compliance (taking into
consideration such Lender's or such holding company's then existing policies
with respect to capital adequacy and assuming the full utilization of such
entity's capital) by any amount deemed by such Lender to be material, then such
Lender may notify Administrative Borrower and Agent thereof. Following receipt
of such notice, Borrowers agree to pay such Lender on demand the amount of such
reduction of return of capital as and when such reduction is determined, payable
within 90 days after presentation by such Lender of a statement in the amount
and setting forth in reasonable detail such Lender's calculation thereof and the
assumptions upon which such calculation was based (which statement shall be
deemed true and correct absent manifest error). In determining such amount, such
Lender may use any reasonable averaging and attribution methods.

      2.15 JOINT AND SEVERAL LIABILITY OF BORROWERS.

            (a) Each of Borrowers is accepting joint and several liability
hereunder and under the other Loan Documents in consideration of the financial
accommodations to be provided by the Agent and the Lenders under this Agreement,
for the mutual benefit, directly and


                                       53

indirectly, of each of Borrowers and in consideration of the undertakings of the
other Borrowers to accept joint and several liability for the Obligations.

            (b) Each of Borrowers, jointly and severally, hereby irrevocably and
unconditionally accepts, not merely as a surety but also as a co-debtor, joint
and several liability with the other Borrowers, with respect to the payment and
performance of all of the Obligations (including, without limitation, any
Obligations arising under this Section 2.15), it being the intention of the
parties hereto that all the Obligations shall be the joint and several
obligations of each Person composing Borrowers without preferences or
distinction among them.

            (c) If and to the extent that any of Borrowers shall fail to make
any payment with respect to any of the Obligations as and when due or to perform
any of the Obligations in accordance with the terms thereof, then in each such
event the other Persons composing Borrowers will make such payment with respect
to, or perform, such Obligation.

            (d) The Obligations of each Person composing Borrowers under the
provisions of this Section 2.15 constitute the absolute and unconditional, full
recourse Obligations of each Person composing Borrowers enforceable against each
such Borrower to the full extent of its properties and assets, irrespective of
the validity, regularity or enforceability of this Agreement or any other
circumstances whatsoever.

            (e) Except as otherwise expressly provided in this Agreement, each
Person composing Borrowers hereby waives notice of acceptance of its joint and
several liability, notice of any Advances or Letters of Credit issued under or
pursuant to this Agreement, notice of the occurrence of any Default, Event of
Default, or of any demand for any payment under this Agreement, notice of any
action at any time taken or omitted by Agent or Lenders under or in respect of
any of the Obligations, any requirement of diligence or to mitigate damages and,
generally, to the extent permitted by applicable law, all demands, notices and
other formalities of every kind in connection with this Agreement (except as
otherwise provided in this Agreement). Each Person composing Borrowers hereby
assents to, and waives notice of, any extension or postponement of the time for
the payment of any of the Obligations, the acceptance of any payment of any of
the Obligations, the acceptance of any partial payment thereon, any waiver,
consent or other action or acquiescence by Agent or Lenders at any time or times
in respect of any default by any Person composing Borrowers in the performance
or satisfaction of any term, covenant, condition or provision of this Agreement,
any and all other indulgences whatsoever by Agent or Lenders in respect of any
of the Obligations, and the taking, addition, substitution or release, in whole
or in part, at any time or times, of any security for any of the Obligations or
the addition, substitution or release, in whole or in part, of any Person
composing Borrowers. Without limiting the generality of the foregoing, each of
Borrowers assents to any other action or delay in acting or failure to act on
the part of any Agent or Lender with respect to the failure by any Person
composing Borrowers to comply with any of its respective Obligations, including,
without limitation, any failure strictly or diligently to assert any right or to
pursue any remedy or to comply fully with applicable laws or regulations
thereunder, which might, but for the provisions of this Section 2.15 afford
grounds for terminating, discharging or relieving any Person composing
Borrowers, in whole or in part, from any of its Obligations under this Section
2.15, it being the intention of each Person composing Borrowers that, so long as
any of the Obligations hereunder remain unsatisfied, the Obligations of such
Person composing Borrowers


                                       54

under this Section 2.15 shall not be discharged except by performance and then
only to the extent of such performance. The Obligations of each Person composing
Borrowers under this Section 2.15 shall not be diminished or rendered
unenforceable by any winding up, reorganization, arrangement, liquidation,
reconstruction or similar proceeding with respect to any Person composing
Borrowers or any Agent or Lender. The joint and several liability of the Persons
composing Borrowers hereunder shall continue in full force and effect
notwithstanding any absorption, merger, amalgamation or any other change
whatsoever in the name, constitution or place of formation of any of the Persons
composing Borrowers or any Agent or Lender.

            (f) Each Person composing Borrowers represents and warrants to Agent
and Lenders that such Borrower is currently informed of the financial condition
of Borrowers and of all other circumstances which a diligent inquiry would
reveal and which bear upon the risk of nonpayment of the Obligations. Each
Person composing Borrowers further represents and warrants to Agent and Lenders
that such Borrower has read and understands the terms and conditions of the Loan
Documents. Each Person composing Borrowers hereby covenants that such Borrower
will continue to keep informed of Borrowers' financial condition, the financial
condition of other guarantors, if any, and of all other circumstances which bear
upon the risk of nonpayment or nonperformance of the Obligations.

            (g) Each Borrower waives all rights and defenses arising out of an
election of remedies by the Agent or any Lender, even though that election of
remedies, such as a nonjudicial foreclosure with respect to security for a
guaranteed obligation, has destroyed the Agent's or such Lender's rights of
subrogation and reimbursement against such Borrower by the operation of Section
580(d) of the California Code of Civil Procedure or otherwise.

            (h) Each of the Persons composing Borrowers waives all rights and
defenses that such Borrower may have because the Obligations are secured by Real
Property. This means, among other things:

                  (i) Agent and Lenders may collect from such Borrower without
            first foreclosing on any Real or Personal Property Collateral
            pledged by Borrowers.

                  (ii) If Agent or any Lender forecloses on any Real Property
            Collateral pledged by Borrowers:

                        (A) The amount of the Obligations may be reduced only by
                  the price for which that collateral is sold at the foreclosure
                  sale, even if the collateral is worth more than the sale
                  price.

                        (B) Agent and Lenders may collect from such Borrower
                  even if Agent or Lenders, by foreclosing on the Real Property
                  Collateral, has destroyed any right such Borrower may have to
                  collect from the other Borrowers.

This is an unconditional and irrevocable waiver of any rights and defenses such
Borrower may have because the Obligations are secured by Real Property. These
rights and defenses include,


                                       55

but are not limited to, any rights or defenses based upon Section 580a, 580b,
580d or 726 of the California Code of Civil Procedure.

            (i) The provisions of this Section 2.15 are made for the benefit of
the Agent, the Lenders and their respective successors and assigns, and may be
enforced by it or them from time to time against any or all of the Persons
composing Borrowers as often as occasion therefor may arise and without
requirement on the part of any such Agent, Lender, successor or assign first to
marshal any of its or their claims or to exercise any of its or their rights
against any of the other Persons composing Borrowers or to exhaust any remedies
available to it or them against any of the other Persons composing Borrowers or
to resort to any other source or means of obtaining payment of any of the
Obligations hereunder or to elect any other remedy. The provisions of this
Section 2.15 shall remain in effect until all of the Obligations shall have been
paid in full or otherwise fully satisfied. If at any time, any payment, or any
part thereof, made in respect of any of the Obligations, is rescinded or must
otherwise be restored or returned by any Agent or Lender upon the insolvency,
bankruptcy or reorganization of any of the Persons composing Borrowers, or
otherwise, the provisions of this Section 2.15 will forthwith be reinstated in
effect, as though such payment had not been made.

            (j) Each of the Persons composing Borrowers hereby agrees that it
will not enforce any of its rights of contribution or subrogation against the
other Persons composing Borrowers with respect to any liability incurred by it
hereunder or under any of the other Loan Documents, any payments made by it to
the Agent or the Lenders with respect to any of the Obligations or any
collateral security therefor until such time as all of the Obligations have been
paid in full in cash. Any claim which any Borrower may have against any other
Borrower with respect to any payments to any Agent or Lender hereunder or under
any other Loan Documents are hereby expressly made subordinate and junior in
right of payment, without limitation as to any increases in the Obligations
arising hereunder or thereunder, to the prior payment in full in cash of the
Obligations and, in the event of any insolvency, bankruptcy, receivership,
liquidation, reorganization or other similar proceeding under the laws of any
jurisdiction relating to any Borrower, its debts or its assets, whether
voluntary or involuntary, all such Obligations shall be paid in full in cash
before any payment or distribution of any character, whether in cash, securities
or other property, shall be made to any other Borrower therefor.

            (k) Each of the Persons composing Borrowers hereby agrees that,
after the occurrence and during the continuance of any Default or Event of
Default, the payment of any amounts due with respect to the indebtedness owing
by any Borrower to any other Borrower is hereby subordinated to the prior
payment in full in cash of the Obligations. Each Borrower hereby agrees that
after the occurrence and during the continuance of any Default or Event of
Default, such Borrower will not demand, sue for or otherwise attempt to collect
any indebtedness of any other Borrower owing to such Borrower until the
Obligations shall have been paid in full in cash. If, notwithstanding the
foregoing sentence, such Borrower shall collect, enforce or receive any amounts
in respect of such indebtedness, such amounts shall be collected, enforced and
received by such Borrower as trustee for the Agent, and the Agent shall deliver
any such amounts to the Administrative Agent for application to the Obligations
in accordance with Section 2.4(b).



                                       56

      2.16 SECURITIZATION. Each Borrower hereby acknowledges that the Lenders
and each of their Affiliates may sell or securitize the Borrowings (a
"Securitization") through the pledge of the Borrowings as collateral security
for loans to such Lenders or their Affiliates or through the sale of the
Borrowings or the issuance of direct or indirect interests in the Borrowings,
which loans to such Lenders or their Affiliate or direct or indirect interests
will be rated by Moody's, Standard & Poor's or one or more other rating agencies
(the "Rating Agencies"). Each Borrower shall cooperate with such Lenders and
their Affiliates to effect the Securitization including, without limitation, by
(a) amending this Agreement and the other Loan Documents, and executing such
additional documents, as reasonably requested by such Lenders in connection with
the Securitization, provided that (i) any such amendment or additional
documentation does not impose costs on Borrowers and the Lender that elects to
securitize its Borrowings shall pay for costs and expenses associated therewith,
and (ii) any such amendment or additional documentation does not materially
adversely affect the rights, or materially increase the obligations, of
Borrowers under the Loan Documents or change or affect in a manner adverse to
Borrowers the financial terms of the Borrowings, (b) providing such information
as may be reasonably requested by such Lenders in connection with the rating of
the Borrowings or the Securitization, and (c) providing in connection with any
rating of the Borrowings a certificate (i) agreeing to indemnify such Lenders
and any of their Affiliates, any of the Rating Agencies, or any party providing
credit support or otherwise participating in the Securitization (collectively,
the "Securitization Parties") for any losses, claims, damages or liabilities
(the "Liabilities") to which such Lenders, their Affiliates or such
Securitization Parties may become subject insofar as the Liabilities arise out
of or are based upon any untrue statement or alleged untrue statement of any
material fact contained in any Loan Document or in any writing delivered by or
on behalf of Borrowers or its Affiliates to the Lender Group in connection with
any Loan Document or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein, or
necessary in order to make the statements therein, in light of the circumstances
under which they were made not misleading, and such indemnity shall survive any
transfer by any Lender or its successors or assigns of the Borrowings, and (ii)
agreeing to reimburse such Lenders and any of their Affiliates for any legal or
other expenses reasonably incurred by such Persons in connection with defending
the Liabilities.

3. CONDITIONS; TERM OF AGREEMENT.

      3.1 CONDITIONS PRECEDENT TO THE INITIAL EXTENSION OF CREDIT. The
obligation of the Lender Group (or any member thereof) to make the initial
Advance (or otherwise to extend any credit provided for hereunder), is subject
to the fulfillment, to the satisfaction of Agent, of each of the conditions
precedent set forth below:

            (a) the Closing Date shall occur on or before December 31, 2002;

            (b) Agent shall have received all financing statements required by
Agent, duly executed by the applicable Borrowers, and Agent shall have received
searches reflecting the filing of all such financing statements;

            (c) Agent shall have received each of the following documents, in
form and substance satisfactory to Agent, duly executed, and each such document
shall be in full force and effect:



                                       57

                  (i) the Assignments of Claims,

                  (ii) the Control Agreements,

                  (iii) the Disbursement Letter,

                  (iv) the Due Diligence Letter,

                  (v) the Fee Letter,

                  (vi) the Guaranties,

                  (vii) the Validity Agreement,

                  (viii) the Officers' Certificate,

                  (ix) the Pay-Off Letter,

                  (x) Stock Pledge Documentation with respect to all
            Subsidiaries of any Borrower or Guarantor in existence on the date
            hereof, and

                  (xi) the Whitney Subordination.

            (d) Agent shall have received, in form and substance satisfactory to
Agent, the Notices of Assignment of Claims, duly executed by the applicable
Borrowers;

            (e) Agent shall have received a certificate from the Secretary of
each Borrower attesting to the resolutions of such Borrower's board of directors
authorizing its execution, delivery, and performance of this Agreement and the
other Loan Documents to which such Borrower is a party and authorizing specific
officers of such Borrower to execute the same;

            (f) Agent shall have received copies of each Borrower's Governing
Documents, as amended, modified, or supplemented to the Closing Date, certified
by the Secretary of such Borrower;

            (g) Agent shall have received a certificate of status with respect
to each Borrower, issued by the appropriate officer of the jurisdiction of
organization of such Borrower, which certificate shall indicate that such
Borrower is in good standing in such jurisdiction;

            (h) Agent shall have received certificates of status with respect to
each Borrower, issued by the appropriate officer of the jurisdictions (other
than the jurisdiction of organization of such Borrower) in which its failure to
be duly qualified or licensed would constitute a Material Adverse Change, which
certificates shall indicate that such Borrower is in good standing in such
jurisdictions;

            (i) Agent shall have received a certificate from the Secretary of
each Guarantor attesting to the resolutions of such Guarantor's board of
directors authorizing its


                                       58

execution, delivery, and performance of the Loan Documents to which such
Guarantor is a party and authorizing specific officers of such Guarantor to
execute the same;

            (j) Agent shall have received copies of each Guarantor's Governing
Documents, as amended, modified, or supplemented to the Closing Date, certified
by the Secretary of such Guarantor;

            (k) Agent shall have received a certificate of status with respect
to each Guarantor, issued by the appropriate officer of the jurisdiction of
organization of such Guarantor, which certificate shall indicate that such
Guarantor is in good standing in such jurisdiction;

            (l) Agent shall have received certificates of status with respect to
each Guarantor, issued by the appropriate officer of the jurisdictions (other
than the jurisdiction of organization of such Guarantor) in which its failure to
be duly qualified or licensed would constitute a Material Adverse Change, which
certificates shall indicate that such Guarantor is in good standing in such
jurisdictions;

            (m) Agent shall have received a certificate of insurance, together
with the endorsements thereto, as are required by Section 6.8, the form and
substance of which shall be satisfactory to Agent;

            (n) Agent shall have received a Collateral Access Agreement with
respect to 5456 McConnell Avenue, Los Angeles, California 90066;

            (o) Agent shall have received opinions of Borrowers' and Guarantors'
counsel in form and substance satisfactory to Agent;

            (p) Agent shall have received satisfactory evidence (including a
certificate of the chief financial officer of Parent) that all tax returns
required to be filed by Borrowers or Guarantors have been timely filed and all
taxes upon Borrowers, Guarantors or their respective properties, assets, income,
and franchises (including Real Property taxes and payroll taxes) have been paid
prior to delinquency, except such taxes that are the subject of a Permitted
Protest or taxes subject to any Liens to be Released;

            (q) Borrowers shall have the Required Availability after giving
effect to the initial extensions of credit hereunder;

            (r) Agent shall have completed its business, legal, and collateral
due diligence, including (i) a collateral audit and review of Borrowers' books
and records and verification of Borrowers' representations and warranties to the
Lender Group, the results of which shall be satisfactory to Agent, and (ii) an
inspection of each of the locations where Inventory is located, the results of
which shall be satisfactory to Agent;

            (s) Agent's counsel shall have reviewed Borrowers' legal structure
and Agent shall have been satisfied with the results of such review;

            (t) Agent's counsel shall have reviewed all material purchase and
supply agreements of all Borrowers and Agent shall have been satisfied with the
results of such review;



                                       59

            (u) Agent's counsel shall have reviewed all contracts entered into
by Maytag with any Governmental Authority and Agent shall have been satisfied
with the results of such review;

            (v) Agent's counsel shall have reviewed the FBO Documentation and
Agent shall have been satisfied with the results of such review;

            (w) Agent's counsel shall have reviewed the Whitney Documentation
and Agent shall have been satisfied with the results of such review;

            (x) Agent's counsel shall have received and reviewed all
documentation requested by them from Borrowers with respect to the shareholder
lawsuits filed against Borrowers or any of them and Agent shall have been
satisfied with the results of such review;

            (y) Agent shall have received completed reference checks with
respect to Borrowers' senior management, the results of which are satisfactory
to Agent in its sole discretion;

            (z) Agent shall have received the Closing Date Business Plan;

            (aa) Borrowers shall pay all Lender Group Expenses incurred in
connection with the transactions evidenced by this Agreement;

            (bb) Borrowers shall have received all licenses, approvals or
evidence of other actions required by any Governmental Authority in connection
with the execution and delivery by Borrowers of this Agreement or any other Loan
Document or with the consummation of the transactions contemplated hereby and
thereby;

            (cc) Agent shall have performed, with results satisfactory to Agent,
a takeover audit of Borrowers operations and the Collateral which includes
additional analysis on (i) FBO reporting, (ii) past due accounts payable of
MercFuel and (iii) payment history, creditworthiness and other credit analysis
with respect to China Eastern Airlines and China Southern Airlines; and

            (dd) all other documents and legal matters in connection with the
transactions contemplated by this Agreement shall have been delivered, executed,
or recorded and shall be in form and substance satisfactory to Agent.

      3.2 CONDITIONS SUBSEQUENT TO THE INITIAL EXTENSION OF CREDIT. The
obligation of the Lender Group (or any member thereof) to continue to make
Advances (or otherwise extend credit hereunder) is subject to the fulfillment by
Borrowers, on or before the date applicable thereto, of each of the conditions
subsequent set forth below (the failure by Borrowers to so perform or cause to
be performed constituting an Event of Default):

            (a) within 15 Business Days after the Closing Date, deliver to Agent
the Cash Management Agreements, in form and substance satisfactory to Agent,
duly executed by the parties thereto and effective as of the dates thereof;



                                       60

            (b) within 15 Business Days after the Closing Date, deliver to Agent
certified copies of resolutions of each Borrower's and each Guarantor's board of
directors authorizing the transactions contemplated by the Loan Documents to
which such entities are party, any amendments or modifications thereto and such
other matters as Agent may reasonably require;

            (c) within 30 days after the Closing Date, deliver to Agent an
opinion of counsel to Maytag, Mercury Air Center-Hartsfield, LLC, Mercury Air
Center-Peachtree-Dekalb, LLC, Mercury Air Center-Jackson, LLC., Mercury Air
Center-Reno, LLC, Mercury Air Center-Charleston, LLC. and Mercury Air
Center-Johns Island, LLC., each in form and substance satisfactory to Agent;

            (d) within 30 days after the Closing Date, deliver to Agent a
certificate of insurance with respect to its business interruption insurance,
together with a lenders loss payable endorsement thereto, all in form and
substance satisfactory to Agent;

            (e) within 30 days after the Closing Date, deliver to Agent
certified copies of the policies of insurance, together with the endorsements
thereto, as are required by Section 6.8, the form and substance of which shall
be satisfactory to Agent and its counsel;

            (f) within 30 days after the Closing Date, deliver to Agent a
Collateral Access Agreement with respect to 6145 Lehman Drive, Suite 300,
Colorado Springs, Colorado, 80918;

            (g) within 30 days after the Closing Date, deliver to Agent a
deposit account control agreement, in form and substance satisfactory to Agent,
with respect to each of the DDAs;

            (h) within 30 days after the Closing Date, deliver to Agent
evidence, in form and substance satisfactory to Agent, of the satisfaction and
release, as of record, of the Liens to be Released;

            (i) within 30 days after the Closing Date, deliver to Agent
certificates of status, other than those received by Agent prior to the Closing
Date, with respect to each Borrower, issued by the appropriate officer of the
jurisdictions (other than the jurisdiction of organization of such Borrower) in
which the nature of such Borrower's business operations require such Borrower to
be duly qualified or licensed to do business in such jurisdiction, which
certificates shall indicate that such Borrower is in good standing in such
jurisdictions;

            (j) within 60 days after the Closing Date, deliver to Agent, all
original motor vehicle title certificates with respect to all motor vehicles
owned by any Borrower and registered with any state's department of motor
vehicles, executed by the appropriate Borrower and, if necessary, the Existing
Lender, so as to permit Agent to record a first priority Lien with respect
thereto;

            (k) within 60 days after the Closing Date, deliver to Agent the
ChevronTexaco Letter, in form and substance satisfactory to Agent;

            (l) within 90 days after the Closing Date, deliver to Agent all
Notices of Assignment of Claims, duly executed by or on behalf of the parties
addressed thereon; and



                                       61

            (m) within 6 months after the Closing Date, demonstrate to the
satisfaction of Agent, their ability to report sales journals, collection
journals and credit registers, by division.

      3.3 CONDITIONS PRECEDENT TO ALL EXTENSIONS OF CREDIT. The obligation of
the Lender Group (or any member thereof) to make all Advances (or to extend any
other credit hereunder) shall be subject to the following conditions precedent:

            (a) the representations and warranties contained in this Agreement
and the other Loan Documents shall be true and correct in all material respects
on and as of the date of such extension of credit, as though made on and as of
such date (except to the extent that such representations and warranties relate
solely to an earlier date);

            (b) no Default or Event of Default shall have occurred and be
continuing on the date of such extension of credit, nor shall either result from
the making thereof;

            (c) no injunction, writ, restraining order, or other order of any
nature prohibiting, directly or indirectly, the extending of such credit shall
have been issued and remain in force by any Governmental Authority against any
Borrower, Agent, any Lender, or any of their Affiliates; and

            (d) no Material Adverse Change shall have occurred.

      3.4 TERM. This Agreement shall continue in full force and effect for a
term ending on the earlier to occur of December 30, 2007 or (b) if the Whitney
Debt has not been refinanced on terms acceptable to Agent in its sole discretion
or repaid in full prior to October 3, 2005, then December 23, 2005 (such earlier
date referred to herein as the "Maturity Date"). The foregoing notwithstanding,
the Lender Group, upon the election of the Required Lenders, shall have the
right to terminate its obligations under this Agreement immediately and without
notice upon the occurrence and during the continuation of an Event of Default.

      3.5 EFFECT OF TERMINATION. On the date of termination of this Agreement,
all Obligations (including contingent reimbursement obligations of Borrowers
with respect to any outstanding Letters of Credit and including all Bank Product
Obligations) immediately shall become due and payable without notice or demand
(including (a) either (i) providing cash collateral to be held by Agent for the
benefit of those Lenders with a Revolver Commitment in an amount equal to 105%
of the then extant Letter of Credit Usage, or (ii) causing the original Letters
of Credit to be returned to the Issuing Lender and (b) providing cash collateral
to be held by Agent for the benefit of Wells Fargo or its Affiliates with
respect to the then extant Bank Product Obligations). No termination of this
Agreement, however, shall relieve or discharge Borrowers of their duties,
Obligations, or covenants hereunder and the Agent's Liens in the Collateral
shall remain in effect until all Obligations have been fully and finally
discharged and the Lender Group's obligations to provide additional credit
hereunder have been terminated. When this Agreement has been terminated and all
of the Obligations have been fully and finally discharged and the Lender Group's
obligations to provide additional credit under the Loan Documents have been
terminated irrevocably, Agent will, at Borrowers' sole expense, execute and
deliver any UCC termination statements, lien releases, mortgage releases,
re-assignments of trademarks, discharges of security interests, and other
similar discharge or release documents


                                       62

(and, if applicable, in recordable form) as are reasonably necessary to release,
as of record, the Agent's Liens and all notices of security interests and liens
previously filed by Agent with respect to the Obligations.

      3.6 EARLY TERMINATION BY BORROWERS. Borrowers have the option, at any time
upon 90 days prior written notice by Administrative Borrower to Agent, to
terminate this Agreement by paying to Agent, for the benefit of the Lender
Group, in cash, the Obligations (including (a) either (i) providing cash
collateral to be held by Agent for the benefit of those Lenders with a Revolver
Commitment in an amount equal to 105% of the then extant Letter of Credit Usage,
or (ii) causing the original Letters of Credit to be returned to the Issuing
Lender and (b) providing cash collateral to be held by Agent for the benefit of
Wells Fargo or its Affiliates with respect to the then extant Bank Product
Obligations), in full, together with the Applicable Prepayment Premium (to be
allocated based upon letter agreements between Agent and individual Lenders). If
Administrative Borrower has sent a notice of termination pursuant to the
provisions of this Section, then the Commitments shall terminate and Borrowers
shall be obligated to repay the Obligations (including (a) either (i) providing
cash collateral to be held by Agent for the benefit of those Lenders with a
Revolver Commitment in an amount equal to 105% of the then extant Letter of
Credit Usage, or (ii) causing the original Letters of Credit to be returned to
the Issuing Lender and (b) providing cash collateral to be held by Agent for the
benefit of Wells Fargo or its Affiliates with respect to the then extant Bank
Product Obligations), in full, together with the Applicable Prepayment Premium,
on the date set forth as the date of termination of this Agreement in such
notice. In the event of the termination of this Agreement and repayment of the
Obligations at any time prior to the Maturity Date, for any other reason,
including (w) termination upon the election of the Required Lenders to terminate
after the occurrence of an Event of Default, (x) foreclosure and sale of
Collateral, (y) sale of the Collateral in any Insolvency Proceeding, or (z)
restructure, reorganization or compromise of the Obligations by the confirmation
of a plan of reorganization, or any other plan of compromise, restructure, or
arrangement in any Insolvency Proceeding, then, in view of the impracticability
and extreme difficulty of ascertaining the actual amount of damages to the
Lender Group or profits lost by the Lender Group as a result of such early
termination, and by mutual agreement of the parties as to a reasonable
estimation and calculation of the lost profits or damages of the Lender Group,
Borrowers shall pay the Applicable Prepayment Premium to Agent (to be allocated
based upon letter agreements between Agent and individual Lenders), measured as
of the date of such termination.

4. CREATION OF SECURITY INTEREST.

      4.1 GRANT OF SECURITY INTEREST. Each Borrower hereby grants to Agent, for
the benefit of the Lender Group, a continuing security interest in all of its
right, title, and interest in all currently existing and hereafter acquired or
arising Personal Property Collateral in order to secure prompt repayment of any
and all of the Obligations in accordance with the terms and conditions of the
Loan Documents and in order to secure prompt performance by Borrowers of each of
their covenants and duties under the Loan Documents. The Agent's Liens in and to
the Personal Property Collateral shall attach to all Personal Property
Collateral without further act on the part of Agent or Borrowers. Anything
contained in this Agreement or any other Loan Document to the contrary
notwithstanding, except for Permitted Dispositions, Borrowers have no authority,
express or implied, to dispose of any item or portion of the Collateral.



                                       63

      4.2 NEGOTIABLE COLLATERAL. In the event that any Collateral, including
proceeds, is evidenced by or consists of Negotiable Collateral, and if and to
the extent that perfection or priority of Agent's security interest is dependent
on or enhanced by possession, the applicable Borrower, immediately upon the
request of Agent, shall endorse and deliver physical possession of such
Negotiable Collateral to Agent.

      4.3 COLLECTION OF ACCOUNTS, GENERAL INTANGIBLES, AND NEGOTIABLE
COLLATERAL. At any time after the occurrence and during the continuation of an
Event of Default, Agent or Agent's designee may (a) notify Account Debtors of
Borrowers that the Accounts, chattel paper, or General Intangibles have been
assigned to Agent or that Agent has a security interest therein, or (b) collect
the Accounts, chattel paper, or General Intangibles directly and charge the
collection costs and expenses to the Loan Account. Each Borrower agrees that it
will hold in trust for the Lender Group, as the Lender Group's trustee, any
Collections that it receives and immediately will deliver said Collections to
Agent or a Cash Management Bank in their original form as received by the
applicable Borrower.

      4.4 DELIVERY OF ADDITIONAL DOCUMENTATION REQUIRED. At any time upon the
request of Agent, Borrowers shall execute and deliver to Agent, any and all
financing statements, original financing statements in lieu of continuation
statements, fixture filings, security agreements, pledges, assignments,
endorsements of certificates of title, and all other documents (the "Additional
Documents") that Agent may request in its Permitted Discretion, in form and
substance satisfactory to Agent, to perfect and continue perfected or better
perfect the Agent's Liens in the Collateral (whether now owned or hereafter
arising or acquired), to create and perfect Liens in favor of Agent in any Real
Property acquired after the Closing Date, and in order to fully consummate all
of the transactions contemplated hereby and under the other Loan Documents.
Without limiting the generality of the foregoing, Borrowers agree to deliver to
Agent a Trademark Security Agreement with respect to any trademark applications
within 5 Business Days after the date such trademark applications are filed and
application numbers assigned thereto by the U.S. Patent and Trademark Officer.
To the maximum extent permitted by applicable law, each Borrower authorizes
Agent to execute any such Additional Documents in the applicable Borrower's name
and authorize Agent to file such executed Additional Documents in any
appropriate filing office. In addition, on such periodic basis as Agent shall
require, Borrowers shall (a) provide Agent with a report of all new patentable,
copyrightable, or trademarkable materials acquired or generated by Borrowers
during the prior period, (b) cause all patents, copyrights, and trademarks
acquired or generated by Borrowers that are not already the subject of a
registration with the appropriate filing office (or an application therefor
diligently prosecuted) to be registered with such appropriate filing office in a
manner sufficient to impart constructive notice of Borrowers' ownership thereof,
and (c) cause to be prepared, executed, and delivered to Agent supplemental
schedules to the applicable Loan Documents to identify such patents, copyrights,
and trademarks as being subject to the security interests created thereunder.

      4.5 POWER OF ATTORNEY. Each Borrower hereby irrevocably makes,
constitutes, and appoints Agent (and any of Agent's officers, employees, or
agents designated by Agent) as such Borrower's true and lawful attorney, with
power to (a) if such Borrower refuses to, or fails timely to execute and deliver
any of the documents described in Section 4.4, sign the name of such Borrower on
any of the documents described in Section 4.4, (b) at any time that an Event of
Default has occurred and is continuing, sign such Borrower's name on any invoice
or bill of


                                       64

lading relating to the Collateral, drafts against Account Debtors, or notices to
Account Debtors, (c) send requests for verification of Accounts, (d) endorse
such Borrower's name on any Collection item that may come into the Lender
Group's possession, (e) at any time that an Event of Default has occurred and is
continuing, make, settle, and adjust all claims under such Borrower's policies
of insurance and make all determinations and decisions with respect to such
policies of insurance, and (f) at any time that an Event of Default has occurred
and is continuing, settle and adjust disputes and claims respecting the
Accounts, chattel paper, or General Intangibles directly with Account Debtors,
for amounts and upon terms that Agent determines to be reasonable, and Agent may
cause to be executed and delivered any documents and releases that Agent
determines to be necessary. The appointment of Agent as each Borrower's
attorney, and each and every one of its rights and powers, being coupled with an
interest, is irrevocable until all of the Obligations have been fully and
finally repaid and performed and the Lender Group's obligations to extend credit
hereunder are terminated.

      4.6 RIGHT TO INSPECT. Agent and each Lender (through any of their
respective officers, employees, or agents) shall have the right, from time to
time hereafter to inspect the Books and to check, test, and appraise the
Collateral in order to verify Borrowers' financial condition or the amount,
quality, value, condition of, or any other matter relating to, the Collateral.

      4.7 CONTROL AGREEMENTS. Each Borrower agrees that it will not transfer
assets out of any Securities Accounts other than as permitted under Section 7.18
and, if to another securities intermediary, unless each of the applicable
Borrower, Agent, and the substitute securities intermediary have entered into a
Control Agreement. No arrangement contemplated hereby or by any Control
Agreement in respect of any Securities Accounts or other Investment Property
shall be modified by Borrowers without the prior written consent of Agent. Upon
the occurrence and during the continuance of a Default or Event of Default,
Agent may notify any securities intermediary to liquidate the applicable
Securities Account or any related Investment Property maintained or held thereby
and remit the proceeds thereof to the Agent's Account.

5. REPRESENTATIONS AND WARRANTIES.

            In order to induce the Lender Group to enter into this Agreement,
each Borrower makes the following representations and warranties to the Lender
Group which shall be true, correct, and complete, in all material respects, as
of the date hereof, and shall be true, correct, and complete, in all material
respects, as of the Closing Date, and at and as of the date of the making of
each Advance (or other extension of credit) made thereafter, as though made on
and as of the date of such Advance (or other extension of credit) (except to the
extent that such representations and warranties relate solely to an earlier
date) and such representations and warranties shall survive the execution and
delivery of this Agreement:

      5.1 NO ENCUMBRANCES. Each Borrower has good and indefeasible title to its
Collateral and the Real Property, free and clear of Liens except for Permitted
Liens.

      5.2 ELIGIBLE ACCOUNTS AND ELIGIBLE FOREIGN ACCOUNTS. The Eligible Accounts
and Eligible Foreign Accounts are bona fide existing payment obligations of
Account Debtors created by the sale and delivery of Inventory or the rendition
of services to such Account Debtors


                                       65

in the ordinary course of each Borrower's business, owed directly (and not
through a third-party billing intermediary) to each Borrower without defenses,
disputes, offsets, counterclaims, or rights of return or cancellation. As to
each Account that is identified by Administrative Borrower as an Eligible
Account or an Eligible Foreign Account in a borrowing base report submitted to
Agent, such Account is not excluded as ineligible by virtue of one or more of
the excluding criteria set fort in the definition of Eligible Accounts or the
definition of Eligible Foreign Accounts.

      5.3 EQUIPMENT. All of the Equipment is used or held for use in Borrowers'
business and is fit for such purposes.

      5.4 LOCATION OF INVENTORY AND EQUIPMENT; FBOs. The Inventory and Equipment
are not stored with a bailee, warehouseman, or similar party and are located
only at the locations identified on Schedule 5.4. No Borrower is the holder of
any FBO except for those identified on Schedule F-1. Each FBO Borrower holds a
valid leasehold interest with respect to all Real Property necessary to enable
it or another Borrower to operate the FBO's identified on Schedule F-1 which
generate any portion of such Borrower's revenues.

      5.5 INVENTORY RECORDS. Each Borrower keeps correct and accurate records
itemizing and describing the type, quality, and quantity of its Inventory and
the book value thereof.

      5.6 LOCATION OF CHIEF EXECUTIVE OFFICE; FEIN. The chief executive office
of each Borrower is located at the address indicated in Schedule 5.6 and each
Borrower's FEIN is identified in Schedule 5.6.

      5.7 DUE ORGANIZATION AND QUALIFICATION; SUBSIDIARIES

            (a) Each Borrower is duly organized and existing and in good
standing under the laws of the jurisdiction of its organization and qualified to
do business in any state where the failure to be so qualified reasonably could
be expected to have a Material Adverse Change.

            (b) Set forth on Schedule 5.7(b), is a complete and accurate
description of the authorized capital Stock of each Borrower other than Parent,
by class, and, as of the Closing Date, a description of the number of shares of
each such class that are issued and outstanding. Other than as described on
Schedule 5.7(b), there are no subscriptions, options, warrants, or calls
relating to any shares of each Borrower's capital Stock, including any right of
conversion or exchange under any outstanding security or other instrument. No
Borrower is subject to any obligation (contingent or otherwise) to repurchase or
otherwise acquire or retire any shares of its capital Stock or any security
convertible into or exchangeable for any of its capital Stock.

            (c) Set forth on Schedule 5.7(c), is a complete and accurate list of
each Borrower's direct and indirect Subsidiaries, showing: (i) the jurisdiction
of their organization; (ii) the number of shares of each class of common and
preferred Stock authorized for each of such Subsidiaries; and (iii) the number
and the percentage of the outstanding shares of each such class owned directly
or indirectly by the applicable Borrower. All of the outstanding capital Stock
of each such Subsidiary has been validly issued and is fully paid and
non-assessable.


                                       66

                  (d) Except as set forth on Schedule 5.7(c), there are no
subscriptions, options, warrants, or calls relating to any shares of any
Borrower's Subsidiaries' capital Stock, including any right of conversion or
exchange under any outstanding security or other instrument. No Borrower or any
of its respective Subsidiaries is subject to any obligation (contingent or
otherwise) to repurchase or otherwise acquire or retire any shares of any
Borrower's Subsidiaries' capital Stock or any security convertible into or
exchangeable for any such capital Stock.

         5.8      DUE AUTHORIZATION; NO CONFLICT.

                  (a) As to each Borrower, the execution, delivery, and
performance by such Borrower of this Agreement and the Loan Documents to which
it is a party have been duly authorized by all necessary action on the part of
such Borrower.

                  (b) As to each Borrower, the execution, delivery, and
performance by such Borrower of this Agreement and the Loan Documents to which
it is a party do not and will not (i) violate any provision of federal, state,
or local law or regulation applicable to any Borrower, the Governing Documents
of any Borrower, or any order, judgment, or decree of any court or other
Governmental Authority binding on any Borrower, (ii) conflict with, result in a
breach of, or constitute (with due notice or lapse of time or both) a default
under any material contractual obligation of any Borrower, (iii) result in or
require the creation or imposition of any Lien of any nature whatsoever upon any
properties or assets of Borrower, other than Permitted Liens, or (iv) require
any approval of any Borrower's interestholders or any approval or consent of any
Person under any material contractual obligation of any Borrower.

                  (c) Other than the filing of financing statements, fixture
filings, and Mortgages, the execution, delivery, and performance by each
Borrower of this Agreement and the Loan Documents to which such Borrower is a
party do not and will not require any registration with, consent, or approval
of, or notice to, or other action with or by, any Governmental Authority or
other Person.

                  (d) As to each Borrower, this Agreement and the other Loan
Documents to which such Borrower is a party, and all other documents
contemplated hereby and thereby, when executed and delivered by such Borrower
will be the legally valid and binding obligations of such Borrower, enforceable
against such Borrower in accordance with their respective terms, except as
enforcement may be limited by equitable principles or by bankruptcy, insolvency,
reorganization, moratorium, or similar laws relating to or limiting creditors'
rights generally and except to the extent that availability of the remedy of
specific performance or injunctive relief is subject to the discretion of the
court before which any proceeding therefor may be brought.

                  (e) The Agent's Liens are validly created, perfected, and
first priority Liens, subject only to Permitted Liens

                  (f) The execution, delivery, and performance by each Guarantor
of the Loan Documents to which it is a party have been duly authorized by all
necessary action on the part of such Guarantor.

                                       67

                  (g) The execution, delivery, and performance by each Guarantor
of the Loan Documents to which it is a party do not and will not (i) violate any
provision of federal, state, or local law or regulation applicable to such
Guarantor, the Governing Documents of such Guarantor, or any order, judgment, or
decree of any court or other Governmental Authority binding on such Guarantor,
(ii) conflict with, result in a breach of, or constitute (with due notice or
lapse of time or both) a default under any material contractual obligation of
such Guarantor, (iii) result in or require the creation or imposition of any
Lien of any nature whatsoever upon any properties or assets of such Guarantor,
other than Permitted Liens, or (iv) require any approval of such Guarantor's
interestholders or any approval or consent of any Person under any material
contractual obligation of such Guarantor.

                  (h) Other than the filing of financing statements, fixture
filings and Mortgages, the execution, delivery, and performance by each
Guarantor of the Loan Documents to which such Guarantor is a party do not and
will not require any registration with, consent, or approval of, or notice to,
or other action with or by, any Governmental Authority or other Person.

                  (i) The Loan Documents to which each Guarantor is a party, and
all other documents contemplated hereby and thereby, when executed and delivered
by such Guarantor will be legally valid and binding obligations of such
Guarantor, enforceable against such Guarantor in accordance with their
respective terms, except as enforcement may be limited by equitable principles
or by bankruptcy, insolvency, reorganization, moratorium, or similar laws
relating to or limiting creditors' rights generally and except to the extent
that availability of the remedy of specific performance or injunctive relief is
subject to the discretion of the court before which any proceeding therefor may
be brought.

         5.9 LITIGATION. Other than those matters disclosed on Schedule 5.9,
there are no actions, suits, or proceedings pending or, to the best knowledge of
Borrowers, threatened against Borrowers, or any of their Subsidiaries, as
applicable, except for (a) matters that are fully covered by insurance (subject
to customary deductibles), and (b) matters arising after the Closing Date that,
if decided adversely to Borrowers, or any of their Subsidiaries, as applicable,
reasonably could not be expected to result in a Material Adverse Change.

         5.10 NO MATERIAL ADVERSE CHANGE. All financial statements relating to
Borrowers or Guarantors that have been delivered by Borrowers or Guarantors to
the Lender Group have been prepared in accordance with GAAP (except, in the case
of unaudited financial statements, for the lack of footnotes and being subject
to year-end audit adjustments) and present fairly in all material respects,
Borrowers' (or Guarantors', as applicable) financial condition as of the date
thereof and results of operations for the period then ended. There has not been
a Material Adverse Change with respect to Borrowers (or Guarantors, as
applicable) since the date of the latest financial statements submitted to the
Lender Group on or before the Closing Date.

         5.11     FRAUDULENT TRANSFER.

                  (a)      each Borrower and each Guarantor is Solvent.

                  (b) No transfer of property is being made by any Borrower or
Guarantor and no obligation is being incurred by any Borrower or Guarantor in
connection with the transactions

                                       68

contemplated by this Agreement or the other Loan Documents with the intent to
hinder, delay, or defraud either present or future creditors of Borrowers or
Guarantors.

         5.12 EMPLOYEE BENEFITS. Except as set forth on Schedule 5.12, none of
Borrowers, any of their Subsidiaries, or any of their ERISA Affiliates maintains
or contributes to any Benefit Plan.

         5.13 ENVIRONMENTAL CONDITION. Except as set forth on Schedule 5.13, (a)
to Borrowers' knowledge, none of Borrowers' properties or assets has ever been
used by Borrowers or by previous owners or operators in the disposal of, or to
produce, store, handle, treat, release, or transport, any Hazardous Materials,
where such production, storage, handling, treatment, release or transport was in
violation of applicable Environmental Law except for violations that could not
reasonably be expected to result in a Material Adverse Change, (b) to Borrowers'
knowledge, none of Borrowers' properties or assets has ever been designated or
identified in any manner pursuant to any environmental protection statute as a
Hazardous Materials disposal site, (c) none of Borrowers have received notice
that a Lien arising under any Environmental Law has attached to any revenues or
to any Real Property owned or operated by Borrowers, and (d) none of Borrowers
have received a summons, citation, notice, or directive from the Environmental
Protection Agency or any other federal or state governmental agency concerning
any action or omission by any Borrower resulting in the releasing or disposing
of Hazardous Materials into the environment, other than such notices that are
not material to Borrowers in the aggregate.

         5.14 BROKERAGE FEES. Except as set forth on Schedule 5.14, Borrowers
have not utilized the services of any broker or finder in connection with
Borrowers' obtaining financing from the Lender Group under this Agreement and no
brokerage commission or finders fee is payable by Borrowers in connection
herewith.

         5.15 INTELLECTUAL PROPERTY. Each Borrower owns, or holds licenses in,
all trademarks, trade names, copyrights, patents, patent rights, and licenses
that are necessary to the conduct of its business as currently conducted.
Attached hereto as Schedule 5.15 is a true, correct, and complete listing of all
material patents, patent applications, trademarks, trademark applications,
copyrights, and copyright registrations as to which each Borrower is the owner
or is an exclusive licensee.

         5.16 LEASES. Borrowers enjoy peaceful and undisturbed possession under
all leases material to the business of Borrowers and to which Borrowers are a
party or under which Borrowers are operating. All of such leases are valid and
subsisting and no material default by Borrowers exists under any of them.

         5.17 DDAS. Set forth on Schedule 5.17 are all of the DDAs of each
Borrower, including, with respect to each depository (a) the name and address of
that depository, and (b) the account numbers of the accounts maintained with
such depository.

         5.18 COMPLETE DISCLOSURE. All factual information (taken as a whole)
furnished by or on behalf of Borrowers in writing to Agent or any Lender
(including all information contained in the Schedules hereto or in the other
Loan Documents) for purposes of or in connection with this Agreement, the other
Loan Documents or any transaction contemplated herein or therein is, and

                                       69

all other such factual information (taken as a whole) hereafter furnished by or
on behalf of Borrowers in writing to the Agent or any Lender will be, true and
accurate in all material respects on the date as of which such information is
dated or certified and not incomplete by omitting to state any fact necessary to
make such information (taken as a whole) not misleading in any material respect
at such time in light of the circumstances under which such information was
provided. The Projections provided on the Closing Date, or provided on any other
date, represent Borrowers' good faith best estimate on such date of their future
performance for the periods covered thereby.

         5.19 INDEBTEDNESS. Set forth on Schedule 5.19 is a true and complete
list of all Indebtedness of each Borrower outstanding immediately prior to the
Closing Date that is to remain outstanding after the Closing Date and such
Schedule accurately reflects the aggregate principal amount of such Indebtedness
and the principal terms thereof.

         5.20 CORPORATE ORGANIZATION. Set forth on Schedule 5.20 is a true and
complete organizational chart listing Parent and all of its direct and indirect
Subsidiaries.

6.       AFFIRMATIVE COVENANTS.

                  Each Borrower covenants and agrees that, so long as any credit
hereunder shall be available and until full and final payment of the
Obligations, Borrowers shall and shall cause each of their respective
Subsidiaries to do all of the following:

         6.1 ACCOUNTING SYSTEM. Maintain a system of accounting that enables
Borrowers to produce financial statements in accordance with GAAP and maintain
records pertaining to the Collateral that contain information as from time to
time reasonably may be requested by Agent. Borrowers also shall keep an
inventory reporting system that shows all additions, sales, claims, returns, and
allowances with respect to the Inventory.

         6.2 COLLATERAL REPORTING. Provide Agent (and if so requested by Agent,
with copies for each Lender) with the following documents at the following times
in form satisfactory to Agent:

                        
Daily                      (a) with respect to MercFuel, a sales journal,
                           collection journal, and credit register since the last
                           such schedule.

                           (b) a detailed aging, by total, of the Accounts of
                           the other Borrowers .

At least once weekly
(the first such report
not later than Monday
of each week)



                                       70

                        
Monthly (not later than     with respect to all Borrowers other than Maytag:
the 15th day of each
month)

                           (c) a sales journal, collection journal, and credit
                           register since the last such schedule and a
                           calculation of the Borrowing Base as of such date,

                           (d) notice of all returns, disputes, or claims,

                           (e) a detailed calculation of the Borrowing Base
                           (including detail regarding those Accounts that are
                           not Eligible Accounts or Eligible Foreign Accounts),

                           (f) a detailed aging, by total, of the Accounts,
                           together with a reconciliation to the detailed
                           calculation of the Borrowing Base previously provided
                           to Agent,

                           (g) a summary aging, by vendor, of Borrowers'
                           accounts payable and any book overdraft, together
                           with a reconciliation to Borrower's general ledger,
                           and

                           (h) a calculation of Dilution for the prior month.

Monthly (not later than    with respect to Maytag:
the 20th day of each
month)

                           (i) a sales journal, collection journal, and credit
                           register since the last such schedule and a
                           calculation of the Borrowing Base as of such date,

                           (j) notice of all returns, disputes, or claims,

                           (k) a detailed calculation of the Borrowing Base
                           (including detail regarding those Accounts that are
                           not Eligible Accounts or Eligible Foreign Accounts),

                           (l) a detailed aging, by total, of the Accounts,
                           together with a reconciliation to the detailed
                           calculation of the Borrowing Base previously provided
                           to Agent,

                           (m) a summary aging, by vendor, of Borrowers'
                           accounts payable and any book overdraft, together
                           with a reconciliation to Borrower's general ledger,
                           and

                           (n) a calculation of Dilution for the prior month.


Monthly (not later         (o) a report as to sales, excise and fuel taxes
than the 45th day          payable by any Borrower, in form satisfactory to
after the end of           Agent.
each month)

Quarterly                  (p) a detailed list of each Borrower's customers, and

                           (q) a report regarding each Borrower's accrued, but
                           unpaid, ad valorem taxes.



                                       71

                        
Upon request by Agent      (r) copies of invoices in connection with the
                           Accounts, credit memos, remittance advices, deposit
                           slips, shipping and delivery documents in connection
                           with the Accounts and, for Inventory and Equipment
                           acquired by Borrowers, purchase orders and invoices,
                           and

                           (s) such other reports as to the Collateral, or the
                           financial condition of Borrowers as Agent may
                           request.



                  In addition, each Borrower agrees to cooperate fully with
Agent to facilitate and implement a system of electronic collateral reporting in
order to provide electronic reporting of each of the items set forth above.

         6.3 FINANCIAL STATEMENTS, REPORTS, CERTIFICATES. Deliver to Agent, with
copies to each Lender:

                  (a) as soon as available, but in any event within 30 days (45
days in the case of a month that is the end of one of the first 3 fiscal
quarters in a fiscal year) after the end of each month during each of Parent's
fiscal years:

                           (i) a company prepared consolidated balance sheet and
                  income statement covering Parent's and its Subsidiaries'
                  operations during such period;

                           (ii) a schedule of principal debt payments and a
                  schedule of Capital Expenditures detailed as to financed and
                  non-financed Capital Expenditures for Parent and its
                  Subsidiaries during such period;

                           (iii) a certificate signed by the chief financial
                  officer of Parent to the effect that:

                                    (A) the financial statements delivered
                           hereunder have been prepared consistent with past
                           practices in accordance with GAAP (except for the
                           lack of footnotes and being subject to year-end audit
                           adjustments) and fairly present in all material
                           respects the financial condition of Parent and its
                           Subsidiaries,

                                    (B) the representations and warranties of
                           Borrowers contained in this Agreement and the other
                           Loan Documents are true and correct in all material
                           respects on and as of the date of such certificate,
                           as though made on and as of such date (except to the
                           extent that such representations and warranties
                           relate solely to an earlier date) and

                                    (C) there does not exist any condition or
                           event that constitutes a Default or Event of Default
                           (or, to the extent of any non-compliance, describing
                           such non-compliance as to which he or she may have
                           knowledge and what action Borrowers have taken, are
                           taking, or propose to take with respect thereto);

                                       72

                           (iv) for each month that is the date on which a
                  financial covenant in Section 7.19 is to be tested, a
                  Compliance Certificate demonstrating, in reasonable detail,
                  compliance at the end of such period with the applicable
                  financial covenants contained in Section 7.19;

                  (b) as soon as available, but in any event within 45 days
after the end of each fiscal quarter (other than the last fiscal quarter in a
fiscal year), a company prepared statement of cash flow covering Parent's and
its Subsidiaries' operations during such fiscal quarter;

                  (c) as soon as available, but in any event within 90 days
after the end of each of Parent's fiscal years:

                           (i) financial statements of Parent and its
                  Subsidiaries for each such fiscal year, audited by independent
                  certified public accountants reasonably acceptable to Agent
                  and certified, without any qualifications, by such accountants
                  to have been prepared in accordance with GAAP (such audited
                  financial statements to include a balance sheet, income
                  statement, and statement of cash flow and, if prepared, such
                  accountants' letter to management), and

                           (ii) a certificate of such accountants addressed to
                  Agent and the Lenders stating that such accountants do not
                  have knowledge of the existence of any Default or Event of
                  Default under Section 7.19;

                  (d) as soon as available, but in any event within 30 days
prior to the start of each fiscal year of Parent, copies of Borrowers'
Projections, in form and substance (including as to scope and underlying
assumptions) satisfactory to Agent, in its sole discretion, for the forthcoming
3 years, year by year, and for the forthcoming fiscal year, quarter by quarter,
certified by the chief financial officer of Parent as being such officer's good
faith best estimate of the financial performance of Parent and its Subsidiaries
during the period covered thereby;

                  (e)      if and when filed by any Borrower:

                           (i) 10-Q quarterly reports, Form 10-K annual reports,
                  and Form 8-K current reports,

                           (ii) any other filings made by any Borrower with the
                  SEC,

                           (iii) copies of (A) Parent's federal income tax
                  returns, and any amendments thereto, filed with the Internal
                  Revenue Service and (B) upon request by Agent, such of the
                  other Borrowers' federal income tax returns, and any
                  amendments thereto, filed with the Internal Revenue Service as
                  Agent may request, and

                           (iv) any other information that is provided by Parent
                  to its shareholders generally;

                  (f) if and when filed by any Borrower and as requested by
Agent, satisfactory evidence of payment of applicable excise taxes in each
jurisdictions in which (i) any Borrower

                                       73

conducts business or is required to pay any such excise tax, (ii) where any
Borrower's failure to pay any such applicable excise tax would result in a Lien
on the properties or assets of any Borrower, or (iii) where any Borrower's
failure to pay any such applicable excise tax reasonably could be expected to
result in a Material Adverse Change;

                  (g) as soon as a Borrower has knowledge of any event or
condition that constitutes a Default or an Event of Default, notice thereof and
a statement of the curative action that Borrowers propose to take with respect
thereto;

                  (h) as and when delivered by Parent or any Borrower to
Whitney: (i) the "Compliance Certificate" required to be delivered under the
terms of Section 8.1(c) of the Whitney Agreement and (ii) the projections
required to be delivered under the terms of Section 8.1(f) of the Whitney
Agreement; and

                  (i) upon the request of Agent, any other report reasonably
requested relating to the financial condition of Borrowers.

                  In addition to the financial statements referred to above,
Borrowers agree to deliver to Agent with copies for each Lender, as and when set
forth above, annual financial statements prepared on both a consolidated and
consolidating basis. Borrowers agree that no Borrower, or any Subsidiary of a
Borrower, will have a fiscal year different from that of Parent. Borrowers agree
that their independent certified public accountants are authorized to
communicate with Agent and to release to Agent whatever financial information
concerning Borrowers that Agent reasonably may request. Each Borrower waives the
right to assert a confidential relationship, if any, it may have with any
accounting firm or service bureau in connection with any information requested
by Agent pursuant to or in accordance with this Agreement, and agree that Agent
may contact directly any such accounting firm or service bureau in order to
obtain such information.

         6.4 GUARANTOR REPORTS. Cause each Guarantor to deliver its annual
financial statements at the time when Parent provides its audited financial
statements to Agent, with copies for each Lender, and copies of all federal
income tax returns as soon as the same are available and in any event no later
than 30 days after the same are required to be filed by law.

         6.5 RETURN. Cause returns and allowances as between Borrowers and their
Account Debtors, to be on the same basis and in accordance with the usual
customary practices of the applicable Borrower, as they exist at the time of the
execution and delivery of this Agreement. If, at a time when no Event of Default
has occurred and is continuing, any Account Debtor returns any Inventory to any
Borrower, the applicable Borrower promptly shall determine the reason for such
return and, if the applicable Borrower accepts such return, issue a credit
memorandum (with a copy to be sent to Agent) in the appropriate amount to such
Account Debtor. If, at a time when an Event of Default has occurred and is
continuing, any Account Debtor returns any Inventory to any Borrower, the
applicable Borrower promptly shall determine the reason for such return and, if
Agent consents (which consent shall not be unreasonably withheld), issue a
credit memorandum (with a copy to be sent to Agent) in the appropriate amount to
such Account Debtor.

                                       74

         6.6 MAINTENANCE OF PROPERTIES. Maintain and preserve all of its
properties which are necessary or useful in the proper conduct to its business
in good working order and condition, ordinary wear and tear excepted, and comply
at all times with the provisions of all leases to which it is a party as lessee,
so as to prevent any loss or forfeiture thereof or thereunder.

         6.7 TAXES. Cause all assessments and taxes, whether real, personal, or
otherwise, due or payable by, or imposed, levied, or assessed against Borrowers
or any of their assets to be paid in full, before delinquency or before the
expiration of any extension period, except to the extent that the validity of
such assessment or tax shall be the subject of a Permitted Protest. Borrowers
will make timely payment or deposit of all tax payments and withholding taxes
required of it by applicable laws, including those laws concerning F.I.C.A.,
F.U.T.A., state disability, and local, state, and federal income taxes, and
will, upon request, furnish Agent with proof satisfactory to Agent indicating
that the applicable Borrower has made such payments or deposits. Borrowers shall
deliver satisfactory evidence of payment of applicable excise taxes in each
jurisdictions in which any Borrower is required to pay any such excise tax.

         6.8 INSURANCE.

                  (a) At Borrowers' expense, maintain insurance respecting its
property and assets wherever located, covering loss or damage by fire, theft,
explosion, and all other hazards and risks as ordinarily are insured against by
other Persons engaged in the same or similar businesses. Borrowers also shall
maintain business interruption, public liability, and product liability
insurance, as well as insurance against larceny, embezzlement, and criminal
misappropriation. All such policies of insurance shall be in such amounts and
with such insurance companies as are reasonably satisfactory to Agent. To the
extent, and only to the extent, permitted by Borrowers' agreements with airports
or other lessors, Borrowers shall deliver copies of all such policies, other
than those policies insuring Borrowers' operations at airports, or affected by
other agreements prohibiting the assignment of proceeds to a Person other than
such airport or lessor, to Agent with a satisfactory lender's loss payable
endorsement naming Agent as sole loss payee or additional insured, as
appropriate (such policies referred to herein as the "Included Policies"). Each
Included Policy or endorsement thereto shall contain a clause requiring the
insurer to give not less than 30 days prior written notice to Agent in the event
of cancellation of the policy for any reason whatsoever.

                  (b) Administrative Borrower shall give Agent prompt notice of
any loss covered by any insurance policy covering any Borrower, including,
without limitation, the Included Policies. Agent shall have the exclusive right
to adjust any losses payable under any Included Policy in excess of $50,000,
without any liability to Borrowers whatsoever in respect of such adjustments.
Any monies received as payment for any loss under any Included Policy (other
than liability insurance policies) or as payment of any award or compensation
for condemnation or taking by eminent domain, shall be paid over to Agent to be
applied at the option of the Required Lenders either to the prepayment of the
Obligations or shall be disbursed to Administrative Borrower under staged
payment terms reasonably satisfactory to the Required Lenders for application to
the cost of repairs, replacements, or restorations. Any such repairs,
replacements, or restorations shall be effected with reasonable promptness and
shall be of a value at least equal to the value of the items or property
destroyed prior to such damage or destruction.

                                       75

                  (c) Borrowers shall not take out separate insurance concurrent
in form or contributing in the event of loss with that required to be maintained
under this Section 6.8, unless, subject to the restrictions set forth in this
Section, Agent is included thereon as named insured with the loss payable to
Agent under a lender's loss payable endorsement or its equivalent (in which case
such policy shall also constitute an Included Policy). Administrative Borrower
immediately shall notify Agent whenever such separate insurance is taken out,
specifying the insurer thereunder and full particulars as to the policies
evidencing the same, and copies of such policies promptly shall be provided to
Agent.

         6.9 LOCATION OF INVENTORY AND EQUIPMENT. Keep the Inventory and
Equipment only at the locations identified on Schedule 5.4; provided, however,
that Administrative Borrower may amend Schedule 5.4 so long as such amendment
occurs by written notice to Agent not less than 30 days prior to the date on
which the Inventory or Equipment is moved to such new location, so long as such
new location is within the continental United States, and so long as, at the
time of such written notification, the applicable Borrower provides any
financing statements or fixture filings necessary to perfect and continue
perfected the Agent's Liens on such assets and also provides to Agent a
Collateral Access Agreement.

         6.10 COMPLIANCE WITH LAWS.

                  (a) Comply with the requirements of all applicable laws,
rules, regulations, and orders of any Governmental Authority (including without
limitation, the Federal Aviation Administration, the Environmental Protection
Agency, Air Quality Management Districts, the Occupational Safety and Health
Administration and local fire departments), including the Fair Labor Standards
Act and the Americans With Disabilities Act, other than laws, rules,
regulations, and orders the non-compliance with which, individually or in the
aggregate, would not result in and reasonably could not be expected to result in
a Material Adverse Change.

                  (b) Deliver to Agent every four (4) months, with the first
such analysis completed and report delivered on or before March 31, 2003, a risk
management analysis in customary form by an auditor selected by Administrative
Borrower but satisfactory to Agent in its Permitted Discretion, with respect to
Borrowers' methods and procedures to maintain compliance with the terms of
Section 6.10(a), such that in the twelve (12) month period immediately following
the Closing Date, such methods and procedures with respect to all FBOs have been
analyzed, such analysis to be detailed in a report by such auditor, satisfactory
to Agent as to scope, methodology, format and substance, upon which Agent is
expressly permitted to rely.

         6.11 LEASES. Pay when due all rents and other amounts payable under any
leases to which any Borrower is a party or by which any Borrower's properties
and assets are bound, unless such payments are the subject of a Permitted
Protest.

         6.12 BROKERAGE COMMISSIONS. Pay any and all brokerage commission or
finders fees incurred in connection with or as a result of Borrowers' obtaining
financing from the Lender Group under this Agreement. Borrowers agree and
acknowledge that payment of all such brokerage commissions or finders fees shall
be the sole responsibility of Borrowers, and each Borrower agrees to indemnify,
defend, and hold Agent and the Lender Group harmless from and

                                       76

against any claim of any broker or finder arising out of Borrowers' obtaining
financing from the Lender Group under this Agreement.

         6.13 EXISTENCE. At all times preserve and keep in full force and effect
each Borrower's valid existence and good standing and any rights and franchises
material to Borrowers' businesses.

         6.14     ENVIRONMENTAL.

                  (a) Keep any property either owned or operated by any Borrower
free of any Environmental Liens or post bonds or other financial assurances
sufficient to satisfy the obligations or liability evidenced by such
Environmental Liens, (b) comply, in all material respects, with Environmental
Laws and provide to Agent documentation of such compliance which Agent
reasonably requests, (c) promptly notify Agent of any release of a Hazardous
Material of any reportable quantity from or onto property owned or operated by
any Borrower and take any Remedial Actions required to abate said release or
otherwise to come into compliance with applicable Environmental Law, and (d)
promptly provide Agent with written notice within 10 days of the receipt of any
of the following: (i) notice that an Environmental Lien has been filed against
any of the real or personal property of any Borrower, (ii) commencement of any
Environmental Action or notice that an Environmental Action will be filed
against any Borrower, and (iii) notice of a violation, citation, or other
administrative order which reasonably could be expected to result in a Material
Adverse Change.

         6.15 DISCLOSURE UPDATES. Promptly and in no event later than 5 Business
Days after obtaining knowledge thereof, (a) notify Agent if any written
information, exhibit, or report furnished to the Lender Group contained any
untrue statement of a material fact or omitted to state any material fact
necessary to make the statements contained therein not misleading in light of
the circumstances in which made, and (b) correct any defect or error that may be
discovered therein or in any Loan Document or in the execution, acknowledgement,
filing, or recordation thereof.

7.       NEGATIVE COVENANTS.

                  Each Borrower covenants and agrees that, so long as any credit
hereunder shall be available and until full and final payment of the
Obligations, Borrowers will not and will not permit any of their respective
Subsidiaries to do any of the following:

         7.1 INDEBTEDNESS. Create, incur, assume, permit, guarantee, or
otherwise become or remain, directly or indirectly, liable with respect to any
Indebtedness, except:

                  (a) Indebtedness evidenced by this Agreement and the other
Loan Documents, together with Indebtedness owed to Underlying Issuers with
respect to Underlying Letters of Credit;

                  (b)      the Indebtedness set forth on Schedule 5.19;

                  (c)      Permitted Purchase Money Indebtedness;

                                       77

                  (d) Permitted Construction Indebtedness in the amounts set
forth on Schedule 7.1(d) to the extent incurred in connection with construction
at the FBOs identified thereon opposite such amounts;

                  (e) refinancings, renewals, or extensions of Indebtedness
permitted under clauses (b) (other than the Indebtedness identified as items 6
and 7 on Schedule 5.19, the "CEDFA" IRB Obligations identified on Schedule 5.19
and the Whitney Debt), (c) and (d) of this Section 7.1 (and continuance or
renewal of any Permitted Liens associated therewith) so long as: (i) the terms
and conditions of such refinancings, renewals, or extensions do not, in the
Agent's judgment, materially impair the prospects of repayment of the
Obligations by Borrowers or materially impair Borrowers' creditworthiness, (ii)
such refinancings, renewals, or extensions do not result in an increase in the
principal amount of, or interest rate with respect to, the Indebtedness so
refinanced, renewed, or extended, (iii) such refinancings, renewals, or
extensions do not result in a shortening of the average weighted maturity of the
Indebtedness so refinanced, renewed, or extended, nor are they on terms or
conditions, that, taken as a whole, are materially more burdensome or
restrictive to the applicable Borrower, and (iv) if the Indebtedness that is
refinanced, renewed, or extended was subordinated in right of payment to the
Obligations, then the terms and conditions of the refinancing, renewal, or
extension Indebtedness must include subordination terms and conditions that are
at least as favorable to the Lender Group as those that were applicable to the
refinanced, renewed, or extended Indebtedness;

                  (f)      Indebtedness composing Permitted Investments; and

                  (g) to the extent subject to the Whitney Subordination, the
Whitney Debt; provided, that, no payments of any kind may be made by any
Borrower with respect to the Whitney Debt except as permitted by the Whitney
Subordination Agreement.

Without in any way limiting the generality of any provision of this Agreement,
at any time that any Indebtedness is to be incurred, at the request of Agent,
Borrower shall provide such information and documentation with respect thereto
as Agent may require in order to determine that the incurrence of such
Indebtedness (i) complies with the terms of this Section 7.1 and (ii) will not
immediately or prospectively cause a Default or Event of Default.

         7.2 LIENS. Create, incur, assume, or permit to exist, directly or
indirectly, any Lien on or with respect to any of its assets, of any kind,
whether now owned or hereafter acquired, or any income or profits therefrom,
except for Permitted Liens (including Liens that are replacements of Permitted
Liens to the extent that the original Indebtedness is refinanced, renewed, or
extended under Section 7.1(e) and so long as the replacement Liens only encumber
those assets that secured the refinanced, renewed, or extended Indebtedness).

         7.3      RESTRICTIONS ON FUNDAMENTAL CHANGES.

                  (a) Enter into any merger, consolidation, reorganization, or
recapitalization, or reclassify its Stock (it being understood that the
conversion of preferred stock into common stock or the exchange of common stock
for preferred stock that is not Disqualified Capital Stock is not prohibited by
this covenant).

                                       78

                  (b) Liquidate, wind up, or dissolve itself (or suffer any
liquidation or dissolution).

                  (c) Convey, sell, lease, license, assign, transfer, or
otherwise dispose of, in one transaction or a series of transactions, any of its
assets other than Permitted Dispositions or Permitted Financing Transactions.

         7.4 CHANGE NAME. Change any Borrower's name, FEIN, corporate structure
or identity, or add any new fictitious name; provided, however, that a Borrower
may change its name upon at least 30 days prior written notice by Administrative
Borrower to Agent of such change and so long as, at the time of such written
notification, such Borrower provides any financing statements or fixture filings
necessary to perfect and continue perfected Agent's Liens.

         7.5 GUARANTEE. Guarantee or otherwise become in any way liable with
respect to the obligations of any third Person except (a) by endorsement of
instruments or items of payment for deposit to the account of Borrowers or which
are transmitted or turned over to Agent, (b) for guaranties in favor of Whitney
with respect to the Indebtedness owed to Whitney set forth on Schedule 5.19
hereto, to the extent the obligations under such guaranties are subordinated, in
a manner satisfactory to Lenders, to the prior payment in full of all
Obligations or (c) guaranties by one Borrower (other than an FBO Borrower) of
obligations of another Borrower incurred in the ordinary course of business.

         7.6 NATURE OF BUSINESS. Make any change in the principal nature of
Borrowers' business.

         7.7      PREPAYMENTS AND AMENDMENTS.

                  (a) Except in connection with a refinancing permitted by
Section 7.1(e), prepay, redeem, defease, purchase, or otherwise acquire any
Indebtedness of any Borrower, other than the Obligations in accordance with this
Agreement, and

                  (b) Except in connection with a refinancing permitted by
Section 7.1(e), directly or indirectly, amend, modify, alter, increase, or
change any of the terms or conditions of any agreement, instrument, document,
indenture, or other writing evidencing or concerning Indebtedness permitted
under Section 7.1(b) or Section 7.1(c).

         7.8 CHANGE OF CONTROL. Cause, permit, or suffer, directly or
indirectly, any Change of Control.

         7.9 CONSIGNMENTS. Consign any Inventory or sell any Inventory on bill
and hold, sale or return, sale on approval, or other conditional terms of sale.

         7.10 DISTRIBUTIONS. Other than distributions or declaration and payment
of dividends by a Borrower to another Borrower, make any distribution or declare
or pay any dividends (in cash or other property, other than common Stock or
preferred Stock that is not Disqualified Capital Stock) on, or purchase,
acquire, redeem, or retire any of any Borrower's Stock, of any class, whether
now or hereafter outstanding.

                                       79

         7.11 ACCOUNTING METHODS. Modify or change its method of accounting
(other than as may be required to conform to GAAP) or enter into, modify, or
terminate any agreement currently existing, or at any time hereafter entered
into with any third party accounting firm or service bureau for the preparation
or storage of Borrowers' accounting records without said accounting firm or
service bureau agreeing to provide Agent information regarding the Collateral or
Borrowers' financial condition.

         7.12     INVESTMENTS; ACQUISITIONS; SUBSIDIARIES.

                  (a) Except for Permitted Investments, directly or indirectly,
make or acquire any Investment, or incur any liabilities (including contingent
obligations) for or in connection with any Investment; provided, however, that
Administrative Borrower and its Subsidiaries shall not have Permitted
Investments (other than in the Cash Management Accounts) in deposit accounts or
Securities Accounts in excess of $25,000 outstanding at any one time unless the
Administrative Borrower or any of its Subsidiaries, as applicable, and the
applicable securities intermediary or bank have entered into Control Agreements
or similar arrangements governing such Permitted Investments, as Agent shall
determine in its Permitted Discretion, to perfect (and further establish) the
Agent's Liens in such Permitted Investments.

                  (b) Directly or indirectly purchase or otherwise acquire all
or any substantial part of the business or assets of any Person.

                  (c)      Form or acquire any Subsidiaries.

         7.13 TRANSACTIONS WITH AFFILIATES. Except as set forth on Schedule 7.13
directly or indirectly enter into or permit to exist any transaction with any
Affiliate of any Borrower (other than for services as employees, officers or
directors) except for transactions that are in the ordinary course of Borrowers'
business consistent with past practices known to Agent, upon fair and reasonable
terms, that are fully disclosed to Agent, and that are no less favorable to
Borrowers than would be obtained in an arm's length transaction with a
non-Affiliate.

         7.14 SUSPENSION. Suspend or go out of a substantial portion of its
business.

         7.15 COMPENSATION. (a) Increase the annual fee or per-meeting fees paid
to the members of its Board of Directors during any year by more than (i) the
greater of (A) 15% over the prior year or (B) the percentage increase in the
market rate for similarly situated companies' (as reported in sources reasonably
acceptable to Agent) outside or independent directors' fees or (ii) 15% over the
prior year for any other similarly situated companies' (as reported in sources
reasonably acceptable to Agent) directors' fees; (b) pay or accrue total cash
compensation, during any year, to its officers and senior management employees
in an aggregate amount in excess of 115% of that paid or accrued in the prior
year except for profit participation bonuses payable in accordance with such
officers' and senior management employees' employment or similar agreements with
a Borrower which are set forth on Schedule 7.15; provided, however, no increase
in directors' fees or compensation to officers and senior management employees
may be effected if an Event of Default has occurred and is continuing.

                                       80

         7.16 USE OF PROCEEDS. Use the proceeds of the Advances and the Term
Loan for any purpose other than (a) on the Closing Date, (i) to repay in full
the outstanding principal, accrued interest, and accrued fees and expenses owing
to Existing Lender, and (ii) to pay transactional fees, costs, and expenses
incurred in connection with this Agreement, the other Loan Documents, and the
transactions contemplated hereby and thereby, and (b) thereafter, consistent
with the terms and conditions hereof, for its lawful and permitted purposes.

         7.17 CHANGE IN LOCATION OF CHIEF EXECUTIVE OFFICE; INVENTORY AND
EQUIPMENT WITH BAILEES. Relocate its chief executive office to a new location
without Administrative Borrower providing 30 days prior written notification
thereof to Agent and so long as, at the time of such written notification, the
applicable Borrower provides any financing statements or fixture filings
necessary to perfect and continue perfected the Agent's Liens and also provides
to Agent a Collateral Access Agreement with respect to such new location. The
Inventory and Equipment shall not at any time now or hereafter be stored with a
bailee, warehouseman, or similar party without Agent's prior written consent.

         7.18 SECURITIES ACCOUNTS. Establish or maintain any Securities Account
unless Agent shall have received a Control Agreement in respect of such
Securities Account. Borrowers agree to not transfer assets out of any Securities
Account; provided, however, that, so long as no Event of Default has occurred
and is continuing or would result therefrom, Borrowers may use such assets (and
the proceeds thereof) to the extent not prohibited by this Agreement.

         7.19     FINANCIAL COVENANTS.

                  (a) MINIMUM EBITDA. Fail to maintain EBITDA, when measured as
of the end of the periods set forth below, of not less than the amount set forth
opposite thereto (the "Applicable EBITDA Amount"):



                         Applicable Amount                          Applicable Period
                         -----------------                          -----------------
                                                       
                               $6,500,000                    For the 6-month period
                                                             ending March 31, 2003
                              $10,700,000                    For the 9-month period
                                                             ending June 30, 2003
                              $13,600,000                    For the 12-month period
                                                             ending September 30, 2003
                              $14,200,000                    For the 12-month period
                                                             ending December 31, 2003
                              $13,500,000                    For the 12-month period
                                                             ending March 31, 2004 and each 12-month
                                                             period ending on the last day of each
                                                             fiscal quarter thereafter


                                       81

                  (b) MINIMUM FIXED CHARGE COVERAGE RATIO. Fail to maintain a
Fixed Charge Coverage Ratio, when measured as of the end of the periods set
forth below, of not less than the ratio set forth opposite thereto:



                          Applicable Ratio                          Applicable Period
                          ----------------                          -----------------
                                                       
                               1.0 to 1.0                    For the 6-month period
                                                             ending March 31, 2003
                               1.0 to 1.0                    For the 9-month period
                                                             ending June 30, 2003
                               1.0 to 1.0                    For the 12-month period
                                                             ending September 30, 2003
                               1.0 to 1.0                    For the 12 month period
                                                             ending on the last day of
                                                             each fiscal quarter thereafter


                  (c) MINIMUM EXCESS AVAILABILITY. Fail to maintain Excess
Availability of $2,500,000 at all times.

                  (d) CAPITAL EXPENDITURES. Make:

                           (i) Capital Expenditures of more than $750,000 in any
                  one instance without Agent's prior written consent if such
                  expenditure is not wholly-financed with proceeds of a loan not
                  made by the Lenders under the terms of this Agreement and the
                  incurrence of such Indebtedness is otherwise permitted under
                  the terms of this Agreement.

                           (ii) Expansion Operations Capital Expenditures in any
                  fiscal year in excess of the amount set forth in the following
                  table for the applicable period:



                           Fiscal Year                          Amount
                                                          
                           2003                                 $7,300,000
                           2004                                 $11,900,000
                           2005                                 $6,300,000
                           2006                                 $0
                           2007                                 $0


                  ; provided, however, the amount of any permitted Expansion
                  Operations Capital Expenditures not made in any year set forth
                  above shall be added to the amount set forth in the following
                  year; provided further, however, such Expansion

                                       82

                  Operations Capital Expenditures may only be made with respect
                  to the FBOs set forth on Schedule R-1.

                           (iii) Existing Operations Capital Expenditures in any
                  fiscal year in excess of the amount set forth in the following
                  table for the applicable period:



                           Fiscal Year                          Amount
                           -----------                          ------
                                                          
                           2003                                 $4,000,000
                           2004                                 $5,500,000
                           2005                                 $5,500,000
                           2006                                 $5,500,000
                           2007                                 $5,500,000


                  (e) Notwithstanding the foregoing, the Applicable EBITDA
Amounts set forth in Section 7.19(a) above shall be adjusted as follows:

                           (i) after any sale of a Target FBO consummated prior
                  to March 1, 2003, the Applicable EBITDA Amount for all periods
                  through March 31, 2003 shall be reduced by 75% of the Base
                  Year EBITDA attributed to such Target FBO times the number of
                  months then remaining until March 31, 2003;

                           (ii) after any sale of a Target FBO consummated prior
                  to May 1, 2003, the Applicable EBITDA Amount for all periods
                  through June 30, 2003 shall be reduced by 80% of Base Year
                  EBITDA attributed to such Target FBO times the number of
                  months then remaining until May 31, 2003;

                           (iii) if any Target FBOs have not been sold by June
                  30, 2003, then the Applicable EBITDA Amounts for all periods
                  thereafter until the Target FBOs are sold shall increase by
                  80% of Base Year EBITDA for such Target FBOs times the number
                  of months remaining in any period for which such covenant is
                  to be tested; and

                           (iv) after the consummation of any sale of an FBO
                  other than a Target FBO, the Applicable EBITDA Amount shall be
                  reduced by (A) 75% of the Base Year EBITDA of such FBO times
                  the number of months then remaining until March 31, 2003 if
                  the sale of such FBO is consummated prior to March 31, 2003
                  for the covenant period ending March 31, 2003; (B) 80% of the
                  Base Year EBITDA of such FBO times the number of months then
                  remaining until June 30, 2003 if the sale of such FBO is
                  consummated prior to June 30, 2003, for the covenant period
                  ending June 30, 2003, (C) 88.68% of the Base Year EBITDA of
                  such FBO times the number of months then remaining to the end
                  of the

                                       83

                  measurement period during the fiscal year ending June 30, 2004
                  if the sale of such FBO is consummated during such fiscal
                  year, (D) 99.89% of the Base Year EBITDA of such FBO times the
                  number of months then remaining to the end of the measurement
                  period during the fiscal year ending June 30, 2005 if the sale
                  of such FBO is consummated during such fiscal year, (E)
                  101.39% of the Base Year EBITDA of such FBO times the number
                  of months then remaining to the end of the measurement period
                  during the fiscal year ending June 30, 2006 if the sale of
                  such FBO is consummated during such fiscal year, and (F)
                  102.91% of the Base Year EBITDA of such FBO times the number
                  of months then remaining to the end of the measurement period
                  during the fiscal year ending June 30, 2007 if the sale of
                  such FBO is consummated during such fiscal year.

         7.20 SPECIAL PURPOSE ENTITIES. Each of FBO Borrower (a) shall,
beginning six months after the Closing Date, at all times have a member of its
board of directors or managers who is not also a member of the board of
directors of its parent corporation and (b) is prohibited from incurring or
acquiring liabilities other than liabilities arising in the ordinary course of
the ownership and operation of its FBO.

8.       EVENTS OF DEFAULT.

                  Any one or more of the following events shall constitute an
event of default (each, an "Event of Default") under this Agreement:

         8.1 If Borrowers fail to pay when due and payable or when declared due
and payable, all or any portion of the Obligations (whether of principal,
interest (including any interest which, but for the provisions of the Bankruptcy
Code, would have accrued on such amounts), fees and charges due the Lender
Group, reimbursement of Lender Group Expenses, or other amounts constituting
Obligations);

         8.2 If (a) any Borrower fails or neglects to perform, keep, or observe
any term, provision, condition, covenant, or agreement contained in Section 6.2,
Section 6.3 (other than Section 6.3(g)), to the extent such failure could not
result in a Material Adverse Change, Section 6.8(a), Section 6.11 or Section
6.15 hereof and such failure or neglect continues for a period of 5 Business
Days after the date on which such failure first occurs, or (b) if any Borrower
fails to perform, keep, or observe any covenant or other provision contained in
Section 6.1 or Section 6.7 hereof and such failure or neglect continues for a
period of 15 Business Days after the date on which such failure first occurs, or
(c) if any Borrower or Guarantor fails or neglects to perform, keep, or observe
any other covenant or other provision contained in any Section of this Agreement
(other than a Section that is expressly dealt with elsewhere in this Section 8)
or the other Loan Documents (other than a Section of such other Loan Document
dealt with elsewhere in this Section 8); provided, that, during any period of
time that any such failure referred to in this Section 8.2 exists, even if such
failure is not yet an Event of Default by virtue of the existence of a grace or
cure period, Lender shall be relieved of its obligation to extend credit
hereunder;

                                       84

         8.3 If any material portion of any Borrower's or any of its
Subsidiaries' assets is attached, seized, subjected to a writ or distress
warrant, levied upon, or comes into the possession of any third Person;

         8.4 If an Insolvency Proceeding is commenced by any Borrower or any of
its Subsidiaries;

         8.5 If an Insolvency Proceeding is commenced against any Borrower, or
any of its Subsidiaries, and any of the following events occur: (a) the
applicable Borrower or the Subsidiary consents to the institution of the
Insolvency Proceeding against it, (b) the petition commencing the Insolvency
Proceeding is not timely controverted, (c) the petition commencing the
Insolvency Proceeding is not dismissed within 45 calendar days of the date of
the filing thereof; provided, however, that, during the pendency of such period,
Agent (including any successor agent) and each other member of the Lender Group
shall be relieved of their obligations to extend credit hereunder, (d) an
interim trustee is appointed to take possession of all or any substantial
portion of the properties or assets of, or to operate all or any substantial
portion of the business of, any Borrower or any of its Subsidiaries, or (e) an
order for relief shall have been entered therein;

         8.6 If any Borrower or any of its Subsidiaries is enjoined, restrained,
or in any way prevented by court order from continuing to conduct all or any
material part of its business affairs;

         8.7 If a notice of Lien, levy, or assessment is filed of record with
respect to any Borrower's or any of its Subsidiaries' assets by the United
States, or any department, agency, or instrumentality thereof, or by any state,
county, municipal, or governmental agency, or if any taxes or debts owing at any
time hereafter to any one or more of such entities becomes a Lien, whether
choate or otherwise, upon any Borrower's or any of its Subsidiaries' assets and
the same is not paid on the payment date thereof;

         8.8 If a judgment or other claim becomes a Lien or encumbrance upon any
material portion of any Borrower's or any of its Subsidiaries' properties or
assets;

         8.9 If there is a default in (a) any material agreement to which any
Borrower or any of its Subsidiaries is a party and such default (i) occurs at
the final maturity of the obligations thereunder, or (ii) results in a right by
the other party thereto, irrespective of whether exercised, to accelerate the
maturity of the applicable Borrower's or its Subsidiaries' obligations
thereunder, to terminate such agreement, or to refuse to renew such agreement
pursuant to an automatic renewal right therein, (b) that certain Loan Agreement,
dated April 1, 1998, between CEDFA and Parent, or any agreement referenced
therein or related thereto or (c) the Whitney Documentation; provided, however,
with respect to a default under Section 8.7 of the Whitney Agreement, such
default shall not be considered an Event of Default hereunder so long as such
default does not give Whitney the right to accelerate the Whitney Debt or any
portion thereof;

         8.10 If any Borrower or any of its Subsidiaries makes any payment on
account of Indebtedness that has been contractually subordinated in right of
payment to the payment of the

                                       85

Obligations, except to the extent such payment is permitted by the terms of the
subordination provisions applicable to such Indebtedness;

         8.11 If any material misstatement or misrepresentation exists now or
hereafter in any warranty, representation, statement, or Record made to the
Lender Group by any Borrower, its Subsidiaries, or any officer, employee, agent,
or director of any Borrower or any of its Subsidiaries;

         8.12 If the obligation of any Guarantor under its Guaranty is limited
or terminated by operation of law or by such Guarantor thereunder;

         8.13 If this Agreement or any other Loan Document that purports to
create a Lien, shall, for any reason, fail or cease to create a valid and
perfected and, except to the extent permitted by the terms hereof or thereof,
first priority Lien on or security interest in the Collateral covered hereby or
thereby;

         8.14 Any provision of any Loan Document shall at any time for any
reason be declared to be null and void, or the validity or enforceability
thereof shall be contested by any Borrower, or a proceeding shall be commenced
by any Borrower, or by any Governmental Authority having jurisdiction over any
Borrower, seeking to establish the invalidity or unenforceability thereof, or
any Borrower shall deny that any Borrower has any liability or obligation
purported to be created under any Loan Document; or

         8.15 If Parent or any Borrower shall be required to make any mandatory
prepayment of the loans made to Parent by CEDFA.

9.       THE LENDER GROUP'S RIGHTS AND REMEDIES.

         9.1 RIGHTS AND REMEDIES. Upon the occurrence, and during the
continuation, of an Event of Default, the Required Lenders (at their election
but without notice of their election and without demand) may authorize and
instruct Agent to do any one or more of the following on behalf of the Lender
Group (and Agent, acting upon the instructions of the Required Lenders, shall do
the same on behalf of the Lender Group), all of which are authorized by
Borrowers:

                  (a) Declare all Obligations, whether evidenced by this
Agreement, by any of the other Loan Documents, or otherwise, immediately due and
payable;

                  (b) Cease advancing money or extending credit to or for the
benefit of Borrowers under this Agreement, under any of the Loan Documents, or
under any other agreement between Borrowers and the Lender Group;

                  (c) Terminate this Agreement and any of the other Loan
Documents as to any future liability or obligation of the Lender Group, but
without affecting any of the Agent's Liens in the Collateral and without
affecting the Obligations;

                  (d) Settle or adjust disputes and claims directly with Account
Debtors for amounts and upon terms which Agent considers advisable, and in such
cases, Agent will credit the Loan Account with only the net amounts received by
Agent in payment of such disputed

                                       86

Accounts after deducting all Lender Group Expenses incurred or expended in
connection therewith;

                  (e) Cause Borrowers to hold all returned Inventory in trust
for the Lender Group, segregate all returned Inventory from all other assets of
Borrowers or in Borrowers' possession and conspicuously label said returned
Inventory as the property of the Lender Group;

                  (f) Without notice to or demand upon any Borrower or any
Guarantor, make such payments and do such acts as Agent considers necessary or
reasonable to protect its security interests in the Collateral. Each Borrower
agrees to assemble the Personal Property Collateral if Agent so requires, and to
make the Personal Property Collateral available to Agent at a place that Agent
may designate which is reasonably convenient to both parties. Each Borrower
authorizes Agent to enter the premises where the Personal Property Collateral is
located, to take and maintain possession of the Personal Property Collateral, or
any part of it, and to pay, purchase, contest, or compromise any Lien that in
Agent's determination appears to conflict with the Agent's Liens and to pay all
expenses incurred in connection therewith and to charge Borrowers' Loan Account
therefor. With respect to any of Borrowers' owned or leased premises, each
Borrower hereby grants Agent a license to enter into possession of such premises
and to occupy the same, without charge, in order to exercise any of the Lender
Group's rights or remedies provided herein, at law, in equity, or otherwise;

                  (g) Without notice to any Borrower (such notice being
expressly waived), and without constituting a retention of any collateral in
satisfaction of an obligation (within the meaning of the Code), set off and
apply to the Obligations any and all (i) balances and deposits of any Borrower
held by the Lender Group (including any amounts received in the Cash Management
Accounts), or (ii) Indebtedness at any time owing to or for the credit or the
account of any Borrower held by the Lender Group;

                  (h) Hold, as cash collateral, any and all balances and
deposits of any Borrower held by the Lender Group, and any amounts received in
the Cash Management Accounts, to secure the full and final repayment of all of
the Obligations;

                  (i) Ship, reclaim, recover, store, finish, maintain, repair,
prepare for sale, advertise for sale, and sell (in the manner provided for
herein) the Personal Property Collateral. Each Borrower hereby grants to Agent a
license or other right to use, without charge, such Borrower's labels, patents,
copyrights, trade secrets, trade names, trademarks, service marks, and
advertising matter, or any property of a similar nature, as it pertains to the
Personal Property Collateral, in completing production of, advertising for sale,
and selling any Personal Property Collateral and such Borrower's rights under
all licenses and all franchise agreements shall inure to the Lender Group's
benefit;

                  (j) Sell the Personal Property Collateral at either a public
or private sale, or both, by way of one or more contracts or transactions, for
cash or on terms, in such manner and at such places (including Borrowers'
premises) as Agent determines is commercially reasonable. It is not necessary
that the Personal Property Collateral be present at any such sale;

                                       87

                  (k) Agent shall give notice of the disposition of the Personal
Property Collateral as follows:

                           (i) Agent shall give Administrative Borrower (for the
                  benefit of the applicable Borrower) a notice in writing of the
                  time and place of public sale, or, if the sale is a private
                  sale or some other disposition other than a public sale is to
                  be made of the Personal Property Collateral, the time on or
                  after which the private sale or other disposition is to be
                  made; and

                           (ii) The notice shall be personally delivered or
                  mailed, postage prepaid, to Administrative Borrower as
                  provided in Section 12, at least 10 days before the earliest
                  time of disposition set forth in the notice; no notice needs
                  to be given prior to the disposition of any portion of the
                  Personal Property Collateral that is perishable or threatens
                  to decline speedily in value or that is of a type customarily
                  sold on a recognized market;

                  (l) Agent, on behalf of the Lender Group may credit bid and
purchase at any public sale;

                  (m) Agent may seek the appointment of a receiver or keeper to
take possession of all or any portion of the Collateral or to operate same and,
to the maximum extent permitted by law, may seek the appointment of such a
receiver without the requirement of prior notice or a hearing;

                  (n) The Lender Group shall have all other rights and remedies
available to it at law or in equity pursuant to any other Loan Documents;

                  (o) Any deficiency that exists after disposition of the
Personal Property Collateral as provided above will be paid immediately by
Borrowers. Any excess will be returned, without interest and subject to the
rights of third Persons, by Agent to Administrative Borrower (for the benefit of
the applicable Borrower); and

                  (p) Agent may limit the amount of Borrowings available to each
Borrower to an amount based solely on such Borrower's contribution to the
Borrowing Base and otherwise allocate the Borrowings hereunder among the
individual Borrowers.

         9.2 REMEDIES CUMULATIVE. The rights and remedies of the Lender Group
under this Agreement, the other Loan Documents, and all other agreements shall
be cumulative. The Lender Group shall have all other rights and remedies not
inconsistent herewith as provided under the Code, by law, or in equity. No
exercise by the Lender Group of one right or remedy shall be deemed an election,
and no waiver by the Lender Group of any Event of Default shall be deemed a
continuing waiver. No delay by the Lender Group shall constitute a waiver,
election, or acquiescence by it.

10.      TAXES AND EXPENSES.

                  If any Borrower fails to pay any monies (whether taxes,
assessments, insurance premiums, or, in the case of leased properties or assets,
rents or other amounts payable under

                                       88

such leases) due to third Persons, or fails to make any deposits or furnish any
required proof of payment or deposit, all as required under the terms of this
Agreement, then, Agent, in its sole discretion and without prior notice to any
Borrower, may do any or all of the following: (a) make payment of the same or
any part thereof, (b) set up such reserves in Borrowers' Loan Account as Agent
deems necessary to protect the Lender Group from the exposure created by such
failure, or (c) in the case of the failure to comply with Section 6.8 hereof,
obtain and maintain insurance policies of the type described in Section 6.8 and
take any action with respect to such policies as Agent deems prudent. Any such
amounts paid by Agent shall constitute Lender Group Expenses and any such
payments shall not constitute an agreement by the Lender Group to make similar
payments in the future or a waiver by the Lender Group of any Event of Default
under this Agreement. Agent need not inquire as to, or contest the validity of,
any such expense, tax, or Lien and the receipt of the usual official notice for
the payment thereof shall be conclusive evidence that the same was validly due
and owing.

11.      WAIVERS; INDEMNIFICATION.

         11.1 DEMAND; PROTEST; ETC. Each Borrower waives demand, protest, notice
of protest, notice of default or dishonor, notice of payment and nonpayment,
nonpayment at maturity, release, compromise, settlement, extension, or renewal
of documents, instruments, chattel paper, and guarantees at any time held by the
Lender Group on which any such Borrower may in any way be liable.

         11.2 THE LENDER GROUP'S LIABILITY FOR COLLATERAL. Each Borrower hereby
agrees that: (a) so long as the Lender Group complies with its obligations, if
any, under the Code, Agent shall not in any way or manner be liable or
responsible for: (i) the safekeeping of the Collateral, (ii) any loss or damage
thereto occurring or arising in any manner or fashion from any cause, (iii) any
diminution in the value thereof, or (iv) any act or default of any carrier,
warehouseman, bailee, forwarding agency, or other Person, and (b) all risk of
loss, damage, or destruction of the Collateral shall be borne by Borrowers.

         11.3 INDEMNIFICATION. Each Borrower shall pay, indemnify, defend, and
hold the Agent-Related Persons, the Lender-Related Persons with respect to each
Lender, each Participant, and each of their respective officers, directors,
employees, agents, and attorneys-in-fact (each, an "Indemnified Person")
harmless (to the fullest extent permitted by law) from and against any and all
claims, demands, suits, actions, investigations, proceedings, and damages, and
all reasonable attorneys fees and disbursements and other costs and expenses
actually incurred in connection therewith (as and when they are incurred and
irrespective of whether suit is brought), at any time asserted against, imposed
upon, or incurred by any of them (a) in connection with or as a result of or
related to the execution, delivery, enforcement, performance, or administration
of this Agreement, any of the other Loan Documents, or the transactions
contemplated hereby or thereby, and (b) with respect to any investigation,
litigation, or proceeding related to this Agreement, any other Loan Document, or
the use of the proceeds of the credit provided hereunder (irrespective of
whether any Indemnified Person is a party thereto), or any act, omission, event,
or circumstance in any manner related thereto (all the foregoing, collectively,
the "Indemnified Liabilities"). The foregoing to the contrary notwithstanding,
Borrowers shall have no obligation to any Indemnified Person under this Section
11.3 with respect to any Indemnified Liability that a court of competent
jurisdiction finally determines to

                                       89

have resulted from the gross negligence or willful misconduct of such
Indemnified Person. This provision shall survive the termination of this
Agreement and the repayment of the Obligations. If any Indemnified Person makes
any payment to any other Indemnified Person with respect to an Indemnified
Liability as to which Borrowers were required to indemnify the Indemnified
Person receiving such payment, the Indemnified Person making such payment is
entitled to be indemnified and reimbursed by Borrowers with respect thereto.
WITHOUT LIMITATION, THE FOREGOING INDEMNITY SHALL APPLY TO EACH INDEMNIFIED
PERSON WITH RESPECT TO INDEMNIFIED LIABILITIES WHICH IN WHOLE OR IN PART CAUSED
BY OR ARISE OUT OF ANY NEGLIGENT ACT OR OMISSION OF SUCH INDEMNIFIED PERSON OR
OF ANY OTHER PERSON.

12.      NOTICES.

                  Unless otherwise provided in this Agreement, all notices or
demands by Borrowers or Agent to the other relating to this Agreement or any
other Loan Document shall be in writing and (except for financial statements and
other informational documents which may be sent by first-class mail, postage
prepaid) shall be personally delivered or sent by registered or certified mail
(postage prepaid, return receipt requested), overnight courier, electronic mail
(at such email addresses as Administrative Borrower or Agent, as applicable, may
designate to each other in accordance herewith), or telefacsimile to Borrowers
in care of Administrative Borrower or to Agent, as the case may be, at its
address set forth below:

                  If to Administrative
                  Borrower:                 MERCURY AIR GROUP, INC.
                                            5456 McConnell Avenue
                                            Los Angeles, California 90066
                                            Attn:  Chief Executive Officer
                                            Fax No. 310.827.6897

                  with copies to:           MERCURY AIR GROUP, INC.
                                            Legal Department
                                            5456 McConnell Avenue
                                            Los Angeles, California 90066
                                            Attn:  Wayne J. Lovett, Esq.
                                            Fax No. 310.827.0650

                  and to:                   MCBREEN, MCBREEN & KOPKO
                                            20 North Wacker Drive, Suite 2520
                                            Chicago, Illinois 60606
                                            Attn:  Frederick Kopko, Esq.
                                            Fax No. 312.332.2657

                  and to:                   RIORDAN & MCKINZIE
                                            300 South Grand Avenue, 29th Floor
                                            Los Angeles, California 90071
                                            Attn:  Thomas A. Waldman, Esq.
                                            Fax No. 213.830.8608

                                       90

                  If to Agent:              FOOTHILL CAPITAL CORPORATION
                                            2450 Colorado Avenue
                                            Suite 3000 West
                                            Santa Monica, California  90404
                                            Attn: Business Finance Division
                                            Manager
                                            Fax No. 310.453.7413

                  with copies to:           MAYER, BROWN, ROWE & MAW
                                            350 South Grand Avenue, 25th Floor
                                            Los Angeles, California 90071
                                            Attn:  Marshall C. Stoddard, Jr.,
                                            Esq.
                                            Fax No. 213.625.0248

                 If to any Lender at its    ABLECO FINANCE LLC
                 address as follows:        450 Park Avenue, 28th Floor
                                            New York, New York 10022
                                            Attention:  Kevin Genda
                                            Fax No.: 212.891.1541

                                            FOOTHILL CAPITAL CORPORATION
                                            2450 Colorado Avenue
                                            Suite 3000 West
                                            Santa Monica, California  90404
                                            Attn: Business Finance Division
                                            Manager
                                            Fax No. 310.453.7413

Agent and Borrowers may change the address at which they are to receive notices
hereunder, by notice in writing in the foregoing manner given to the other
party. All notices or demands sent in accordance with this Section 12, other
than notices by Agent in connection with enforcement rights against the
Collateral under the provisions of the Code, shall be deemed received on the
earlier of the date of actual receipt or 3 Business Days after the deposit
thereof in the mail. Each Borrower acknowledges and agrees that notices sent by
the Lender Group in connection with the exercise of enforcement rights against
Collateral under the provisions of the Code shall be deemed sent when deposited
in the mail or personally delivered, or, where permitted by law, transmitted by
telefacsimile or any other method set forth above.

13.      CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER.

                  (a) THE VALIDITY OF THIS AGREEMENT AND THE OTHER LOAN
DOCUMENTS (UNLESS EXPRESSLY PROVIDED TO THE CONTRARY IN ANOTHER LOAN DOCUMENT IN
RESPECT OF SUCH OTHER LOAN DOCUMENT), THE CONSTRUCTION, INTERPRETATION, AND
ENFORCEMENT HEREOF AND THEREOF, AND THE RIGHTS OF THE PARTIES HERETO AND THERETO
WITH RESPECT TO ALL MATTERS ARISING HEREUNDER OR THEREUNDER OR RELATED HERETO OR
THERETO SHALL BE DETERMINED UNDER, GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF NEW YORK.

                                       91

                  (b) THE PARTIES AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING
IN CONNECTION WITH THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS SHALL BE TRIED
AND LITIGATED ONLY IN THE STATE AND FEDERAL COURTS LOCATED IN THE BOROUGH OF
MANHATTAN, COUNTY OF NEW YORK, STATE OF NEW YORK, PROVIDED, HOWEVER, THAT ANY
SUIT SEEKING ENFORCEMENT AGAINST ANY COLLATERAL OR OTHER PROPERTY MAY BE
BROUGHT, AT AGENT'S OPTION, IN THE COURTS OF ANY JURISDICTION WHERE AGENT ELECTS
TO BRING SUCH ACTION OR WHERE SUCH COLLATERAL OR OTHER PROPERTY MAY BE FOUND.
BORROWERS AND THE LENDER GROUP WAIVE, TO THE EXTENT PERMITTED UNDER APPLICABLE
LAW, ANY RIGHT EACH MAY HAVE TO ASSERT THE DOCTRINE OF FORUM NON CONVENIENS OR
TO OBJECT TO VENUE TO THE EXTENT ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH
THIS SECTION 13(b).

                  BORROWERS AND THE LENDER GROUP HEREBY WAIVE THEIR RESPECTIVE
RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT
OF ANY OF THE LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREIN,
INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER
COMMON LAW OR STATUTORY CLAIMS. BORROWERS AND THE LENDER GROUP REPRESENT THAT
EACH HAS REVIEWED THIS WAIVER AND EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY
TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF
LITIGATION, A COPY OF THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A
TRIAL BY THE COURT.

14.      ASSIGNMENTS AND PARTICIPATIONS; SUCCESSORS.

         14.1     ASSIGNMENTS AND PARTICIPATIONS.

                  (a) Any Lender may, with the written consent of Agent
(provided that no written consent of Agent shall be required in connection with
any assignment and delegation by a Lender to an Eligible Transferee), assign and
delegate to one or more assignees (each an "Assignee") all, or any ratable part
of all, of the Obligations, the Commitments and the other rights and obligations
of such Lender hereunder and under the other Loan Documents, in a minimum amount
of $5,000,000 (except such minimum amount shall not apply to any Affiliate of a
Lender or to a Related Fund or account managed by a Lender) provided that if the
minimum amount is not met Borrowers and Agent may continue to deal solely and
direction with such Lender in connection with the interest so assigned to an
Assignee; provided, however, that Borrowers and Agent may continue to deal
solely and directly with such Lender in connection with the interest so assigned
to an Assignee until (i) written notice of such assignment, together with
payment instructions, addresses, and related information with respect to the
Assignee, have been given to Administrative Borrower and Agent by such Lender
and the Assignee, (ii) such Lender and its Assignee have delivered to
Administrative Borrower and Agent an Assignment and Acceptance in form and
substance satisfactory to Agent, and (iii) the assignor Lender or Assignee has
paid to Agent for Agent's separate account a processing fee in the amount of
$5,000. Anything contained herein to the contrary notwithstanding, the consent
of Agent shall

                                       92

not be required (and payment of any fees shall not be required) if such
assignment is in connection with any merger, consolidation, sale, transfer, or
other disposition of all or any substantial portion of the business or loan
portfolio of such Lender or the assignee is an Affiliate (other than
individuals) of a Lender or a Related Fund.

                  (b) From and after the date that Agent notifies the assignor
Lender (with a copy to Administrative Borrower) that it has received an executed
Assignment and Acceptance and payment of the above-referenced processing fee,
(i) the Assignee thereunder shall be a party hereto and, to the extent that
rights and obligations hereunder have been assigned to it pursuant to such
Assignment and Acceptance, shall have the rights and obligations of a Lender
under the Loan Documents, and (ii) the assignor Lender shall, to the extent that
rights and obligations hereunder and under the other Loan Documents have been
assigned by it pursuant to such Assignment and Acceptance, relinquish its rights
(except with respect to Section 11.3 hereof) and be released from its
obligations under this Agreement (and in the case of an Assignment and
Acceptance covering all or the remaining portion of an assigning Lender's rights
and obligations under this Agreement and the other Loan Documents, such Lender
shall cease to be a party hereto and thereto), and such assignment shall affect
a novation between Borrowers and the Assignee.

                  (c) By executing and delivering an Assignment and Acceptance,
the assigning Lender thereunder and the Assignee thereunder confirm to and agree
with each other and the other parties hereto as follows: (1) other than as
provided in such Assignment and Acceptance, such assigning Lender makes no
representation or warranty and assumes no responsibility with respect to any
statements, warranties or representations made in or in connection with this
Agreement or the execution, legality, validity, enforceability, genuineness,
sufficiency or value of this Agreement or any other Loan Document furnished
pursuant hereto, (2) such assigning Lender makes no representation or warranty
and assumes no responsibility with respect to the financial condition of
Borrowers or the performance or observance by Borrowers of any of their
obligations under this Agreement or any other Loan Document furnished pursuant
hereto, (3) such Assignee confirms that it has received a copy of this
Agreement, together with such other documents and information as it has deemed
appropriate to make its own credit analysis and decision to enter into such
Assignment and Acceptance, (4) such Assignee will, independently and without
reliance upon Agent, such assigning Lender or any other Lender, and based on
such documents and information as it shall deem appropriate at the time,
continue to make its own credit decisions in taking or not taking action under
this Agreement, (5) such Assignee appoints and authorizes Agent to take such
actions and to exercise such powers under this Agreement as are delegated to
Agent, by the terms hereof, together with such powers as are reasonably
incidental thereto, and (6) such Assignee agrees that it will perform all of the
obligations which by the terms of this Agreement are required to be performed by
it as a Lender.

                  (d) Immediately upon each Assignee's making its processing fee
payment under the Assignment and Acceptance and receipt and acknowledgment by
Agent of such fully executed Assignment and Acceptance, this Agreement shall be
deemed to be amended to the extent, but only to the extent, necessary to reflect
the addition of the Assignee and the resulting adjustment of the Commitments
arising therefrom. The Commitment allocated to each Assignee shall reduce such
Commitments of the assigning Lender pro tanto.

                                       93

                  (e) Any Lender may at any time, with the written consent of
Agent, sell to one or more commercial banks, financial institutions, or other
Persons not Affiliates of such Lender (a "Participant") participating interests
in its Obligations, the Commitment, and the other rights and interests of that
Lender (the "Originating Lender") hereunder and under the other Loan Documents
(provided that no written consent of Agent shall be required in connection with
any sale of any such participating interests by a Lender to an Eligible
Transferee); provided, however, that (i) the Originating Lender shall remain a
"Lender" for all purposes of this Agreement and the other Loan Documents and the
Participant receiving the participating interest in the Obligations, the
Commitments, and the other rights and interests of the Originating Lender
hereunder shall not constitute a "Lender" hereunder or under the other Loan
Documents and the Originating Lender's obligations under this Agreement shall
remain unchanged, (ii) the Originating Lender shall remain solely responsible
for the performance of such obligations, (iii) Borrowers, Agent, and the Lenders
shall continue to deal solely and directly with the Originating Lender in
connection with the Originating Lender's rights and obligations under this
Agreement and the other Loan Documents, (iv) no Lender shall transfer or grant
any participating interest under which the Participant has the right to approve
any amendment to, or any consent or waiver with respect to, this Agreement or
any other Loan Document, except to the extent such amendment to, or consent or
waiver with respect to this Agreement or of any other Loan Document would (A)
extend the final maturity date of the Obligations hereunder in which such
Participant is participating, (B) reduce the interest rate applicable to the
Obligations hereunder in which such Participant is participating, (C) release
all or a material portion of the Collateral or guaranties (except to the extent
expressly provided herein or in any of the Loan Documents) supporting the
Obligations hereunder in which such Participant is participating, (D) postpone
the payment of, or reduce the amount of, the interest or fees payable to such
Participant through such Lender, or (E) change the amount or due dates of
scheduled principal repayments or prepayments or premiums; and (v) all amounts
payable by Borrowers hereunder shall be determined as if such Lender had not
sold such participation; except that, if amounts outstanding under this
Agreement are due and unpaid, or shall have been declared or shall have become
due and payable upon the occurrence of an Event of Default, each Participant
shall be deemed to have the right of set-off in respect of its participating
interest in amounts owing under this Agreement to the same extent as if the
amount of its participating interest were owing directly to it as a Lender under
this Agreement. The rights of any Participant only shall be derivative through
the Originating Lender with whom such Participant participates and no
Participant shall have any rights under this Agreement or the other Loan
Documents or any direct rights as to the other Lenders, Agent, Borrowers, the
Collections, the Collateral, or otherwise in respect of the Obligations. No
Participant shall have the right to participate directly in the making of
decisions by the Lenders among themselves.

                  (f) In connection with any such assignment or participation or
proposed assignment or participation, a Lender may disclose all documents and
information which it now or hereafter may have relating to Borrowers or
Borrowers' business.

                  (g) Any other provision in this Agreement notwithstanding, any
Lender may at any time create a security interest in, or pledge, all or any
portion of its rights under and interest in this Agreement in favor of any
Federal Reserve Bank in accordance with Regulation A of the Federal Reserve Bank
or U.S. Treasury Regulation 31 CFR Section 203.14, and such Federal

                                       94

Reserve Bank may enforce such pledge or security interest in any manner
permitted under applicable law.

                  (h) Administrative Borrower shall maintain, or cause to be
maintained, a register (the "Register") on which it enters the name of a Lender
as the registered owner of the Term Loan held by such Lender. A loan so
registered (a "Registered Loan"),and the note if any, evidencing the same (a
"Registered Note") may be assigned or sold in whole or in part only by
registration of such assignment or sale on the Register (and each Registered
Note shall expressly so provide). Any assignment or sale of all or part of such
Registered Loan (and the Registered Note, if any) may be effected only by
registration of such assignment or sale on the Register, together with the
surrender of the Registered Note, if any, duly endorsed by (or accompanied by a
written instrument of assignment or sale duly executed by) the holder of such
Registered Note, whereupon, at the request of the designated assignee(s) or
transferee(s), one or more new Registered Notes in the same aggregate principal
amount shall be issued to the designated assignee(s) or transferee(s). Prior to
the registration of assignment or sale of any Registered Loan (and the
Registered Note, if any), Administrative Borrower shall treat the Person in
whose name such Registered Loan (and the Registered Note, if any) is registered
as the owner thereof for the purpose of receiving all payments thereon and for
all other purposes, notwithstanding notice to the contrary. In the case of an
assignment or delegation covered by Section 14.1(a), the Lender that is the
assignee shall maintain a comparable Register on behalf of Borrowers.

                  (i) In the event that a Lender sells participations in the
Registered Loan, such Lender shall maintain a register on which it enters the
name of all participants in the Registered Loans held by it (the "Participant
Register"). A Registered Loan (and the Registered Note, if any) may be
participated in whole or in part only by registration of such participation on
the Participant Register (and each Registered Note shall expressly so provide).
Any participation of such Registered Loan (and the Registered Note, if any) may
be effected only by the registration of such participation on the Participant
Register.

         14.2 SUCCESSORS. This Agreement shall bind and inure to the benefit of
the respective successors and assigns of each of the parties; provided, however,
that Borrowers may not assign this Agreement or any rights or duties hereunder
without the Lenders' prior written consent and any prohibited assignment shall
be absolutely void ab initio. No consent to assignment by the Lenders shall
release any Borrower from its Obligations. A Lender may assign this Agreement
and the other Loan Documents and its rights and duties hereunder and thereunder
pursuant to Section 14.1 hereof and, except as expressly required pursuant to
Section 14.1 hereof, no consent or approval by any Borrower is required in
connection with any such assignment.

15.      AMENDMENTS; WAIVERS.

         15.1 AMENDMENTS AND WAIVERS. No amendment or waiver of any provision of
this Agreement or any other Loan Document, and no consent with respect to any
departure by Borrowers therefrom, shall be effective unless the same shall be in
writing and signed by the Required Lenders (or by Agent at the written request
of the Required Lenders) and Administrative Borrower (on behalf of all
Borrowers) and then any such waiver or consent shall be effective only in the
specific instance and for the specific purpose for which given; provided,
however, that no such waiver, amendment, or consent shall, unless in writing and
signed by all of

                                       95

the Lenders affected thereby and Administrative Borrower (on behalf of all
Borrowers) and acknowledged by Agent, do any of the following:

                  (a)      increase or extend any Commitment of any Lender,

                  (b) postpone or delay any date fixed by this Agreement or any
other Loan Document for any payment of principal, interest, fees, or other
amounts due hereunder or under any other Loan Document,

                  (c) reduce the principal of, or the rate of interest on, any
loan or other extension of credit hereunder, or reduce any fees or other amounts
payable hereunder or under any other Loan Document,

                  (d) change the percentage of the Commitments that is required
to take any action hereunder,

                  (e) amend or modify this Section or any provision of the
Agreement providing for consent or other action by all Lenders,

                  (f) release Collateral other than as permitted by Section
16.12,

                  (g) change the definition of "Required Lenders" or "Pro Rata
Share",

                  (h) contractually subordinate any of the Agent's Liens,

                  (i) release any Borrower or any Guarantor from any obligation
for the payment of money, or

                  (j) change the definitions of Borrowing Base, Eligible
Accounts or Maximum Revolver Amount or change Section 2.1(b); or

                  (k) amend any of the provisions of Section 16.

and, provided further, however, that no amendment, waiver or consent shall,
unless in writing and signed by Agent, Issuing Lender, or Swing Lender, affect
the rights or duties of Agent, Issuing Lender, or Swing Lender, as applicable,
under this Agreement or any other Loan Document. The foregoing notwithstanding,
any amendment, modification, waiver, consent, termination, or release of, or
with respect to, any provision of this Agreement or any other Loan Document that
relates only to the relationship of the Lender Group among themselves, and that
does not affect the rights or obligations of Borrowers, shall not require
consent by or the agreement of Borrowers.

         15.2 REPLACEMENT OF HOLDOUT LENDER. If any action to be taken by the
Lender Group or Agent hereunder requires the unanimous consent, authorization,
or agreement of all Lenders, and a Lender ("Holdout Lender") fails to give its
consent, authorization, or agreement, then Agent, upon at least 5 Business Days
prior irrevocable notice to the Holdout Lender, may permanently replace the
Holdout Lender with one or more substitute Lenders (each, a "Replacement
Lender"), and the Holdout Lender shall have not right to refuse to be replaced

                                       96

hereunder. Such notice to replace the Holdout Lender shall specify an effective
date for such replacement, which date shall not be later than 15 Business Days
after the date such notice is given.

                  Prior to the effective date of such replacement, the Holdout
Lender and each Replacement Lender shall execute and deliver an Assignment and
Acceptance Agreement, subject only to the Holdout Lender being repaid its share
of the outstanding Obligations (including an assumption of its Pro Rata Share of
the Risk Participation Liability) without any premium or penalty of any kind
whatsoever. If the Holdout Lender shall refuse or fail to execute and deliver
any such Assignment and Acceptance Agreement prior to the effective date of such
replacement, the Holdout Lender shall be deemed to have executed and delivered
such Assignment and Acceptance Agreement. The replacement of any Holdout Lender
shall be made in accordance with the terms of Section 14.1. Until such time as
the Replacement Lenders shall have acquired all of the Obligations, the
Commitments, and the other rights and obligations of the Holdout Lender
hereunder and under the other Loan Documents, the Holdout Lender shall remain
obligated to make the Holdout Lender's Pro Rata Share of Advances and to
purchase a participation in each Letter of Credit, in an amount equal to its Pro
Rata Share of the Risk Participation Liability of such Letter of Credit.

         15.3 NO WAIVERS; CUMULATIVE REMEDIES. No failure by Agent or any Lender
to exercise any right, remedy, or option under this Agreement or, any other Loan
Document, or delay by Agent or any Lender in exercising the same, will operate
as a waiver thereof. No waiver by Agent or any Lender will be effective unless
it is in writing, and then only to the extent specifically stated. No waiver by
Agent or any Lender on any occasion shall affect or diminish Agent's and each
Lender's rights thereafter to require strict performance by Borrowers of any
provision of this Agreement. Agent's and each Lender's rights under this
Agreement and the other Loan Documents will be cumulative and not exclusive of
any other right or remedy that Agent or any Lender may have.

16.      AGENT; THE LENDER GROUP.

         16.1 APPOINTMENT AND AUTHORIZATION OF AGENT. Each Lender hereby
designates and appoints Foothill as its representative under this Agreement and
the other Loan Documents and each Lender hereby irrevocably authorizes Agent to
execute and deliver each of the other Loan Documents on its behalf and to take
such other action on its behalf under the provisions of this Agreement and each
other Loan Document and to exercise such powers and perform such duties as are
expressly delegated to Agent by the terms of this Agreement or any other Loan
Document, together with such powers as are reasonably incidental thereto. Agent
agrees to act as such on the express conditions contained in this Section 16.
The provisions of this Section 16 are solely for the benefit of Agent, and the
Lenders, and Borrowers shall have no rights as a third party beneficiary of any
of the provisions contained herein. Any provision to the contrary contained
elsewhere in this Agreement or in any other Loan Document notwithstanding, Agent
shall not have any duties or responsibilities, except those expressly set forth
herein, nor shall Agent have or be deemed to have any fiduciary relationship
with any Lender, and no implied covenants, functions, responsibilities, duties,
obligations or liabilities shall be read into this Agreement or any other Loan
Document or otherwise exist against Agent; it being expressly understood and
agreed that the use of the word "Agent" is for convenience only, that Foothill
is merely the

                                       97

representative of the Lenders, and only has the contractual duties set forth
herein. Except as expressly otherwise provided in this Agreement, Agent shall
have and may use its sole discretion with respect to exercising or refraining
from exercising any discretionary rights or taking or refraining from taking any
actions that Agent expressly is entitled to take or assert under or pursuant to
this Agreement and the other Loan Documents. Without limiting the generality of
the foregoing, or of any other provision of the Loan Documents that provides
rights or powers to Agent, Lenders agree that Agent shall have the right to
exercise the following powers as long as this Agreement remains in effect: (a)
maintain, in accordance with its customary business practices, ledgers and
records reflecting the status of the Obligations, the Collateral, the
Collections, and related matters, (b) execute or file any and all financing or
similar statements or notices, amendments, renewals, supplements, documents,
instruments, proofs of claim, notices and other written agreements with respect
to the Loan Documents, (c) make Advances, for itself or on behalf of Lenders as
provided in the Loan Documents, (d) exclusively receive, apply, and distribute
the Collections as provided in the Loan Documents, (e) open and maintain such
bank accounts and cash management arrangements as Agent deems necessary and
appropriate in accordance with the Loan Documents for the foregoing purposes
with respect to the Collateral and the Collections, (f) perform, exercise, and
enforce any and all other rights and remedies of the Lender Group with respect
to Borrowers, the Obligations, the Collateral, the Collections, or otherwise
related to any of same as provided in the Loan Documents, and (g) incur and pay
such Lender Group Expenses as Agent may deem necessary or appropriate for the
performance and fulfillment of its functions and powers pursuant to the Loan
Documents.

         16.2 DELEGATION OF DUTIES. Agent may execute any of its duties under
this Agreement or any other Loan Document by or through agents, employees or
attorneys-in-fact and shall be entitled to advice of counsel concerning all
matters pertaining to such duties. Agent shall not be responsible for the
negligence or misconduct of any agent or attorney-in-fact that it selects as
long as such selection was made without gross negligence or willful misconduct.

         16.3 LIABILITY OF AGENT. None of the Agent-Related Persons shall (i) be
liable for any action taken or omitted to be taken by any of them under or in
connection with this Agreement or any other Loan Document or the transactions
contemplated hereby (except for its own gross negligence or willful misconduct),
or (ii) be responsible in any manner to any of the Lenders for any recital,
statement, representation or warranty made by any Borrower or any Subsidiary or
Affiliate of any Borrower, or any officer or director thereof, contained in this
Agreement or in any other Loan Document, or in any certificate, report,
statement or other document referred to or provided for in, or received by Agent
under or in connection with, this Agreement or any other Loan Document, or the
validity, effectiveness, genuineness, enforceability or sufficiency of this
Agreement or any other Loan Document, or for any failure of any Borrower or any
other party to any Loan Document to perform its obligations hereunder or
thereunder. No Agent-Related Person shall be under any obligation to any Lender
to ascertain or to inquire as to the observance or performance of any of the
agreements contained in, or conditions of, this Agreement or any other Loan
Document, or to inspect the Books or properties of Borrowers or the books or
records or properties of any of Borrowers' Subsidiaries or Affiliates.

         16.4 RELIANCE BY AGENT. Agent shall be entitled to rely, and shall be
fully protected in relying, upon any writing, resolution, notice, consent,
certificate, affidavit, letter, telegram, facsimile, telex or telephone message,
statement or other document or conversation believed by

                                       98

it to be genuine and correct and to have been signed, sent, or made by the
proper Person or Persons, and upon advice and statements of legal counsel
(including counsel to Borrowers or counsel to any Lender), independent
accountants and other experts selected by Agent. Agent shall be fully justified
in failing or refusing to take any action under this Agreement or any other Loan
Document unless Agent shall first receive such advice or concurrence of the
Lenders as it deems appropriate and until such instructions are received, Agent
shall act, or refrain from acting, as it deems advisable. If Agent so requests,
it shall first be indemnified to its reasonable satisfaction by Lenders against
any and all liability and expense that may be incurred by it by reason of taking
or continuing to take any such action. Agent shall in all cases be fully
protected in acting, or in refraining from acting, under this Agreement or any
other Loan Document in accordance with a request or consent of the Lenders and
such request and any action taken or failure to act pursuant thereto shall be
binding upon all of the Lenders.

         16.5 NOTICE OF DEFAULT OR EVENT OF DEFAULT. Agent shall not be deemed
to have knowledge or notice of the occurrence of any Default or Event of
Default, except with respect to defaults in the payment of principal, interest,
fees, and expenses required to be paid to Agent for the account of the Lenders,
except with respect to Events of Default of which Agent has actual knowledge,
unless Agent shall have received written notice from a Lender or Administrative
Borrower referring to this Agreement, describing such Default or Event of
Default, and stating that such notice is a "notice of default." Agent promptly
will notify the Lenders of its receipt of any such notice or of any Event of
Default of which Agent has actual knowledge. If any Lender obtains actual
knowledge of any Event of Default, such Lender promptly shall notify the other
Lenders and Agent of such Event of Default. Each Lender shall be solely
responsible for giving any notices to its Participants, if any. Subject to
Section 16.4, Agent shall take such action with respect to such Default or Event
of Default as may be requested by the Required Lenders in accordance with
Section 9; provided, however, that unless and until Agent has received any such
request, Agent may (but shall not be obligated to) take such action, or refrain
from taking such action, with respect to such Default or Event of Default as it
shall deem advisable.

         16.6 CREDIT DECISION. Each Lender acknowledges that none of the
Agent-Related Persons has made any representation or warranty to it, and that no
act by Agent hereinafter taken, including any review of the affairs of Borrowers
and their Subsidiaries or Affiliates, shall be deemed to constitute any
representation or warranty by any Agent-Related Person to any Lender. Each
Lender represents to Agent that it has, independently and without reliance upon
any Agent-Related Person and based on such documents and information as it has
deemed appropriate, made its own appraisal of and investigation into the
business, prospects, operations, property, financial and other condition and
creditworthiness of Borrowers and any other Person (other than the Lender Group)
party to a Loan Document, and all applicable bank regulatory laws relating to
the transactions contemplated hereby, and made its own decision to enter into
this Agreement and to extend credit to Borrowers. Each Lender also represents
that it will, independently and without reliance upon any Agent-Related Person
and based on such documents and information as it shall deem appropriate at the
time, continue to make its own credit analysis, appraisals and decisions in
taking or not taking action under this Agreement and the other Loan Documents,
and to make such investigations as it deems necessary to inform itself as to the
business, prospects, operations, property, financial and other condition and
creditworthiness of Borrowers and any other Person (other than the Lender Group)
party to a Loan Document. Except for notices, reports, and other documents
expressly herein required to be furnished to the Lenders by Agent,

                                       99

Agent shall not have any duty or responsibility to provide any Lender with any
credit or other information concerning the business, prospects, operations,
property, financial and other condition or creditworthiness of Borrowers and any
other Person party to a Loan Document that may come into the possession of any
of the Agent-Related Persons.

         16.7 COSTS AND EXPENSES; INDEMNIFICATION. Agent may incur and pay
Lender Group Expenses to the extent Agent reasonably deems necessary or
appropriate for the performance and fulfillment of its functions, powers, and
obligations pursuant to the Loan Documents, including court costs, reasonable
attorneys fees and expenses, costs of collection by outside collection agencies
and auctioneer fees and costs of security guards or insurance premiums paid to
maintain the Collateral, whether or not Borrowers are obligated to reimburse
Agent or Lenders for such expenses pursuant to the Loan Agreement or otherwise.
Agent is authorized and directed to deduct and retain sufficient amounts from
Collections received by Agent to reimburse Agent for such out-of-pocket costs
and expenses prior to the distribution of any amounts to Lenders. In the event
Agent is not reimbursed for such costs and expenses from Collections received by
Agent, each Lender hereby agrees that it is and shall be obligated to pay to or
reimburse Agent for the amount of such Lender's Pro Rata Share thereof. Whether
or not the transactions contemplated hereby are consummated, the Lenders shall
indemnify upon demand the Agent-Related Persons (to the extent not reimbursed by
or on behalf of Borrowers and without limiting the obligation of Borrowers to do
so), according to their Pro Rata Shares, from and against any and all
Indemnified Liabilities; provided, however, that no Lender shall be liable for
the payment to any Agent-Related Person of any portion of such Indemnified
Liabilities resulting solely from such Person's gross negligence or willful
misconduct nor shall any Lender be liable for the obligations of any Defaulting
Lender in failing to make an Advance or other extension of credit hereunder.
Without limitation of the foregoing, each Lender shall reimburse Agent upon
demand for such Lender's ratable share of any costs or out-of-pocket expenses
(including attorneys fees and expenses) incurred by Agent in connection with the
preparation, execution, delivery, administration, modification, amendment, or
enforcement (whether through negotiations, legal proceedings or otherwise) of,
or legal advice in respect of rights or responsibilities under, this Agreement,
any other Loan Document, or any document contemplated by or referred to herein,
to the extent that Agent is not reimbursed for such expenses by or on behalf of
Borrowers. The undertaking in this Section shall survive the payment of all
Obligations hereunder and the resignation or replacement of Agent.

         16.8 AGENT IN INDIVIDUAL CAPACITY. Foothill and its Affiliates may make
loans to, issue letters of credit for the account of, accept deposits from,
acquire equity interests in, and generally engage in any kind of banking, trust,
financial advisory, underwriting, or other business with Borrowers and their
Subsidiaries and Affiliates and any other Person (other than the Lender Group)
party to any Loan Documents as though Foothill were not Agent hereunder, and, in
each case, without notice to or consent of the other members of the Lender
Group. The other members of the Lender Group acknowledge that, pursuant to such
activities, Foothill or its Affiliates may receive information regarding
Borrowers or their Affiliates and any other Person (other than the Lender Group)
party to any Loan Documents that is subject to confidentiality obligations in
favor of Borrowers or such other Person and that prohibit the disclosure of such
information to the Lenders, and the Lenders acknowledge that, in such
circumstances (and in the absence of a waiver of such confidentiality
obligations, which waiver Agent will use its reasonable best efforts to obtain),
Agent shall not be under any obligation to provide such

                                      100

information to them. The terms "Lender" and "Lenders" include Foothill in its
individual capacity.

         16.9 SUCCESSOR AGENT. Agent may resign as Agent upon 45 days notice to
the Lenders. If Agent resigns under this Agreement, the Required Lenders shall
appoint a successor Agent for the Lenders. If no successor Agent is appointed
prior to the effective date of the resignation of Agent, Agent may appoint,
after consulting with the Lenders, a successor Agent. If Agent has materially
breached or failed to perform any material provision of this Agreement or of
applicable law, the Required Lenders may agree in writing to remove and replace
Agent with a successor Agent from among the Lenders. In any such event, upon the
acceptance of its appointment as successor Agent hereunder, such successor Agent
shall succeed to all the rights, powers, and duties of the retiring Agent and
the term "Agent" shall mean such successor Agent and the retiring Agent's
appointment, powers, and duties as Agent shall be terminated. After any retiring
Agent's resignation hereunder as Agent, the provisions of this Section 16 shall
inure to its benefit as to any actions taken or omitted to be taken by it while
it was Agent under this Agreement. If no successor Agent has accepted
appointment as Agent by the date which is 45 days following a retiring Agent's
notice of resignation, the retiring Agent's resignation shall nevertheless
thereupon become effective and the Lenders shall perform all of the duties of
Agent hereunder until such time, if any, as the Lenders appoint a successor
Agent as provided for above.

         16.10 LENDER IN INDIVIDUAL CAPACITY. Any Lender and its respective
Affiliates may make loans to, issue letters of credit for the account of, accept
deposits from, acquire equity interests in and generally engage in any kind of
banking, trust, financial advisory, underwriting or other business with
Borrowers and their Subsidiaries and Affiliates and any other Person (other than
the Lender Group) party to any Loan Documents as though such Lender were not a
Lender hereunder without notice to or consent of the other members of the Lender
Group. The other members of the Lender Group acknowledge that, pursuant to such
activities, such Lender and its respective Affiliates may receive information
regarding Borrowers or their Affiliates and any other Person (other than the
Lender Group) party to any Loan Documents that is subject to confidentiality
obligations in favor of Borrowers or such other Person and that prohibit the
disclosure of such information to the Lenders, and the Lenders acknowledge that,
in such circumstances (and in the absence of a waiver of such confidentiality
obligations, which waiver such Lender will use its reasonable best efforts to
obtain), such Lender not shall be under any obligation to provide such
information to them. With respect to the Swing Loans and Agent Advances, Swing
Lender shall have the same rights and powers under this Agreement as any other
Lender and may exercise the same as though it were not the sub-agent of the
Agent.

         16.11    WITHHOLDING TAXES.

                  (a) If any Lender is a "foreign corporation, partnership or
trust" within the meaning of the IRC and such Lender claims exemption from, or a
reduction of, U.S. withholding tax under Sections 1441 or 1442 of the IRC, such
Lender agrees with and in favor of Agent and Borrowers, to deliver to Agent and
Administrative Borrower:

                           (i) if such Lender claims an exemption from
                  withholding tax pursuant to its portfolio interest exception,
                  (a) a statement of the Lender, signed under

                                      101

                  penalty of perjury, that it is not a (I) a "bank" as described
                  in Section 881(c)(3)(A) of the IRC, (II) a 10% shareholder
                  (within the meaning of Section 881(c)(3)(B) of the IRC), or
                  (III) a controlled foreign corporation described in Section
                  881(c)(3)(C) of the IRC, and (B) a properly completed IRS Form
                  W-8BEN, before the first payment of any interest under this
                  Agreement and at any other time reasonably requested by Agent
                  or Administrative Borrower;

                           (ii) if such Lender claims an exemption from, or a
                  reduction of, withholding tax under a United States tax
                  treaty, properly completed IRS Form W-8BEN before the first
                  payment of any interest under this Agreement and at any other
                  time reasonably requested by Agent or Administrative Borrower;

                           (iii) if such Lender claims that interest paid under
                  this Agreement is exempt from United States withholding tax
                  because it is effectively connected with a United States trade
                  or business of such Lender, two properly completed and
                  executed copies of IRS Form W-8ECI before the first payment of
                  any interest is due under this Agreement and at any other time
                  reasonably requested by Agent or Administrative Borrower;

                           (iv) such other form or forms as may be required
                  under the IRC or other laws of the United States as a
                  condition to exemption from, or reduction of, United States
                  withholding tax.

Such Lender agrees promptly to notify Agent and Administrative Borrower of any
change in circumstances which would modify or render invalid any claimed
exemption or reduction.

                  (b) If any Lender claims exemption from, or reduction of,
withholding tax under a United States tax treaty by providing IRS Form W-8BEN
and such Lender sells, assigns, grants a participation in, or otherwise
transfers all or part of the Obligations of Borrowers to such Lender, such
Lender agrees to notify Agent of the percentage amount in which it is no longer
the beneficial owner of Obligations of Borrowers to such Lender. To the extent
of such percentage amount, Agent will treat such Lender's IRS Form W-8BEN as no
longer valid.

                  (c) If any Lender is entitled to a reduction in the applicable
withholding tax, Agent may withhold from any interest payment to such Lender an
amount equivalent to the applicable withholding tax after taking into account
such reduction. If the forms or other documentation required by clause 0 of this
Section are not delivered to Agent, then Agent may withhold from any interest
payment to such Lender not providing such forms or other documentation an amount
equivalent to the applicable withholding tax.

                  (d) If the IRS or any other Governmental Authority of the
United States or other jurisdiction asserts a claim that Agent did not properly
withhold tax from amounts paid to or for the account of any Lender (because the
appropriate form was not delivered, was not properly executed, or because such
Lender failed to notify Agent of a change in circumstances which rendered the
exemption from, or reduction of, withholding tax ineffective, or for any other
reason) such Lender shall indemnify and hold Agent harmless for all amounts
paid, directly or indirectly, by Agent as tax or otherwise, including penalties
and interest, and including any taxes

                                      102

imposed by any jurisdiction on the amounts payable to Agent under this Section,
together with all costs and expenses (including attorneys fees and expenses).
The obligation of the Lenders under this subsection shall survive the payment of
all Obligations and the resignation or replacement of Agent.

                  (e) All payments made by Borrowers hereunder or under any note
or other Loan Document will be made without setoff, counterclaim, or other
defense, except as required by applicable law other than for Taxes (as defined
below). All such payments will be made free and clear of, and without deduction
or withholding for, any present or future taxes, levies, imposts, duties, fees,
assessments or other charges of whatever nature now or hereafter imposed by any
jurisdiction (other than the United States) or by any political subdivision or
taxing authority thereof or therein (other than of the United States) with
respect to such payments (but excluding, any tax imposed by any jurisdiction or
by any political subdivision or taxing authority thereof or therein (i) measured
by or based on the net income or net profits of a Lender, or (ii) to the extent
that such tax results from a change in the circumstances of the Lender,
including a change in the residence, place of organization, or principal place
of business of the Lender, or a change in the branch or lending office of the
Lender participating in the transactions set forth herein) and all interest,
penalties or similar liabilities with respect thereto (all such non-excluded
taxes, levies, imposts, duties, fees, assessments or other charges being
referred to collectively as "Taxes"). If any Taxes are so levied or imposed,
each Borrower agrees to pay the full amount of such Taxes, and such additional
amounts as may be necessary so that every payment of all amounts due under this
Agreement or under any note, including any amount paid pursuant to this Section
16.11(e) after withholding or deduction for or on account of any Taxes, will not
be less than the amount provided for herein; provided, however, that Borrowers
shall not be required to increase any such amounts payable to Agent or any
Lender (i) that is not organized under the laws of the United States, if such
Person fails to comply with the other requirements of this Section 16.11, or
(ii) if the increase in such amount payable results from Agent's or such
Lender's own willful misconduct or gross negligence. Borrowers will furnish to
Agent as promptly as possible after the date the payment of any Taxes is due
pursuant to applicable law certified copies of tax receipts evidencing such
payment by Borrowers.

         16.12    COLLATERAL MATTERS.

                  (a) The Lenders hereby irrevocably authorize Agent, at its
option and in its sole discretion, to release any Lien on any Collateral (i)
upon the termination of the Commitments and payment and satisfaction in full by
Borrowers of all Obligations, (ii) constituting property being sold or disposed
of if a release is required or desirable in connection therewith and if
Administrative Borrower certifies to Agent that the sale or disposition is
permitted under Section 7.3(c) of this Agreement or the other Loan Documents
(and Agent may rely conclusively on any such certificate, without further
inquiry), (iii) constituting property in which no Borrower owned any interest at
the time the security interest was granted or at any time thereafter, or (iv)
constituting property leased to a Borrower under a lease that has expired or is
terminated in a transaction permitted under this Agreement. Except as provided
above, Agent will not execute and deliver a release of any Lien on any
Collateral without the prior written authorization of (y) if the release is of
all or substantially all of the Collateral, all of the Lenders, or (z)
otherwise, the Required Lenders. Upon request by Agent or Administrative
Borrower at any time, the Lenders will confirm in writing Agent's

                                      103

authority to release any such Liens on particular types or items of Collateral
pursuant to this Section 16.12; provided, however, that (1) Agent shall not be
required to execute any document necessary to evidence such release on terms
that, in Agent's opinion, would expose Agent to liability or create any
obligation or entail any consequence other than the release of such Lien without
recourse, representation, or warranty, and (2) such release shall not in any
manner discharge, affect, or impair the Obligations or any Liens (other than
those expressly being released) upon (or obligations of Borrowers in respect of)
all interests retained by Borrowers, including, the proceeds of any sale, all of
which shall continue to constitute part of the Collateral.

                  (b) Agent shall have no obligation whatsoever to any of the
Lenders to assure that the Collateral exists or is owned by Borrowers or is
cared for, protected, or insured or has been encumbered, or that the Agent's
Liens have been properly or sufficiently or lawfully created, perfected,
protected, or enforced or are entitled to any particular priority, or to
exercise at all or in any particular manner or under any duty of care,
disclosure or fidelity, or to continue exercising, any of the rights,
authorities and powers granted or available to Agent pursuant to any of the Loan
Documents, it being understood and agreed that in respect of the Collateral, or
any act, omission, or event related thereto, subject to the terms and conditions
contained herein, Agent may act in any manner it may deem appropriate, in its
sole discretion given Agent's own interest in the Collateral in its capacity as
one of the Lenders and that Agent shall have no other duty or liability
whatsoever to any Lender as to any of the foregoing, except as otherwise
provided herein.

         16.13    RESTRICTIONS ON ACTIONS BY LENDERS; SHARING OF PAYMENTS.

                  (a) Each of the Lenders agrees that it shall not, without the
express consent of Agent, and that it shall, to the extent it is lawfully
entitled to do so, upon the request of Agent, set off against the Obligations,
any amounts owing by such Lender to Borrowers or any deposit accounts of
Borrowers now or hereafter maintained with such Lender. Each of the Lenders
further agrees that it shall not, unless specifically requested to do so by
Agent, take or cause to be taken any action, including, the commencement of any
legal or equitable proceedings, to foreclose any Lien on, or otherwise enforce
any security interest in, any of the Collateral the purpose of which is, or
could be, to give such Lender any preference or priority against the other
Lenders with respect to the Collateral.

                  (b) If, at any time or times any Lender shall receive (i) by
payment, foreclosure, setoff, or otherwise, any proceeds of Collateral or any
payments with respect to the Obligations arising under, or relating to, this
Agreement or the other Loan Documents, except for any such proceeds or payments
received by such Lender from Agent pursuant to the terms of this Agreement, or
(ii) payments from Agent in excess of such Lender's ratable portion of all such
distributions by Agent, such Lender promptly shall (1) turn the same over to
Agent, in kind, and with such endorsements as may be required to negotiate the
same to Agent, or in immediately available funds, as applicable, for the account
of all of the Lenders and for application to the Obligations in accordance with
the applicable provisions of this Agreement, or (2) purchase, without recourse
or warranty, an undivided interest and participation in the Obligations owed to
the other Lenders so that such excess payment received shall be applied ratably
as among the Lenders in accordance with their Pro Rata Shares; provided,
however, that if all or part of such excess payment received by the purchasing
party is thereafter recovered from it, those purchases

                                      104

of participations shall be rescinded in whole or in part, as applicable, and the
applicable portion of the purchase price paid [ ]utates[ ]e shall be returned to
such purchasing party, but without interest except to the extent that such
purchasing party is required to pay interest in connection with the recovery of
the excess payment.

         16.14 AGENCY FOR PERFECTION. Agent hereby appoints each other Lender as
its agent (and each Lender hereby accepts such appointment) for the purpose of
perfecting the Agent's Liens in assets which, in accordance with Article 9 of
the Code can be perfected only by possession. Should any Lender obtain
possession or control of any such Collateral, such Lender shall notify Agent
thereof, and, promptly upon Agent's request therefor shall deliver possession or
control of such Collateral to Agent or in accordance with Agent's instructions.

         16.15 PAYMENTS BY AGENT TO THE LENDERS. All payments to be made by
Agent to the Lenders shall be made by bank wire transfer or internal transfer of
immediately available funds pursuant to such wire transfer instructions as each
party may designate for itself by written notice to Agent. Concurrently with
each such payment, Agent shall identify whether such payment (or any portion
thereof) represents principal, premium, or interest of the Obligations.

         16.16 CONCERNING THE COLLATERAL AND RELATED LOAN DOCUMENTS. Each member
of the Lender Group authorizes and directs Agent to enter into this Agreement
and the other Loan Documents relating to the Collateral, for the benefit of the
Lender Group. Each member of the Lender Group agrees that any action taken by
Agent in accordance with the terms of this Agreement or the other Loan Documents
relating to the Collateral and the exercise by Agent of its powers set forth
therein or herein, together with such other powers that are reasonably
incidental thereto, shall be binding upon all of the Lenders.

         16.17 FIELD AUDITS AND EXAMINATION REPORTS; CONFIDENTIALITY;
DISCLAIMERS BY LENDERS; OTHER REPORTS AND INFORMATION. By becoming a party to
this Agreement, each Lender:

                  (a) is deemed to have requested that Agent furnish such
Lender, promptly after it becomes available, a copy of each field audit or
examination report (each a "Report" and collectively, "Reports") prepared by
Agent, and Agent shall so furnish each Lender with such Reports,

                  (b) expressly agrees and acknowledges that Agent does not (i)
make any representation or warranty as to the accuracy of any Report, and (ii)
shall not be liable for any information contained in any Report,

                  (c) expressly agrees and acknowledges that the Reports are not
comprehensive audits or examinations, that Agent or any other party performing
any audit or examination will inspect only specific information regarding
Borrowers and will rely significantly upon the Books, as well as on
representations of Borrowers' personnel,

                  (d) agrees to keep all Reports and other material, non-public
information regarding Borrowers and their Subsidiaries and their operations,
assets, and existing and contemplated business plans in a confidential manner;
it being understood and agreed by

                                      105

Borrowers that in any event such Lender may make disclosures (a) to counsel for
and other advisors, accountants, and auditors to such Lender, (b) reasonably
required by any bona fide potential or actual Assignee or Participant in
connection with any contemplated or actual assignment or transfer by such Lender
of an interest herein or any participation interest in such Lender's rights
hereunder, (c) of information that has become public by disclosures made by
Persons other than such Lender, its Affiliates, assignees, transferees, or
Participants, or (d) as required or requested by any court, governmental or
administrative agency, pursuant to any subpoena or other legal process, or by
any law, statute, regulation, or court order; provided, however, that, unless
prohibited by applicable law, statute, regulation, or court order, such Lender
shall notify Administrative Borrower of any request by any court, governmental
or administrative agency, or pursuant to any subpoena or other legal process for
disclosure of any such non-public material information concurrent with, or where
practicable, prior to the disclosure thereof, and

                  (e) without limiting the generality of any other
indemnification provision contained in this Agreement, agrees: (i) to hold Agent
and any such other Lender preparing a Report harmless from any action the
indemnifying Lender may take or conclusion the indemnifying Lender may reach or
draw from any Report in connection with any loans or other credit accommodations
that the indemnifying Lender has made or may make to Borrowers, or the
indemnifying Lender's participation in, or the indemnifying Lender's purchase
of, a loan or loans of Borrowers; and (ii) to pay and protect, and indemnify,
defend and hold Agent, and any such other Lender preparing a Report harmless
from and against, the claims, actions, proceedings, damages, costs, expenses,
and other amounts (including, attorneys fees and costs) incurred by Agent and
any such other Lender preparing a Report as the direct or indirect result of any
third parties who might obtain all or part of any Report through the
indemnifying Lender.

In addition to the foregoing: (x) any Lender may from time to time request of
Agent in writing that Agent provide to such Lender a copy of any report or
document provided by Borrowers to Agent that has not been contemporaneously
provided by Borrowers to such Lender, and, upon receipt of such request, Agent
shall provide a copy of same to such Lender, (y) to the extent that Agent is
entitled, under any provision of the Loan Documents, to request additional
reports or information from Borrowers, any Lender may, from time to time,
reasonably request Agent to exercise such right as specified in such Lender's
notice to Agent, whereupon Agent promptly shall request of Administrative
Borrower the additional reports or information reasonably specified by such
Lender, and, upon receipt thereof from Administrative Borrower, Agent promptly
shall provide a copy of same to such Lender, and (z) any time that Agent renders
to Administrative Borrower a statement regarding the Loan Account, Agent shall
send a copy of such statement to each Lender.

         16.18 SEVERAL OBLIGATIONS; NO LIABILITY. Notwithstanding that certain
of the Loan Documents now or hereafter may have been or will be executed only by
or in favor of Agent in its capacity as such, and not by or in favor of the
Lenders, any and all obligations on the part of Agent (if any) to make any
credit available hereunder shall constitute the several (and not joint)
obligations of the respective Lenders on a ratable basis, according to their
respective Commitments, to make an amount of such credit not to exceed, in
principal amount, at any one time outstanding, the amount of their respective
Commitments. Nothing contained herein shall confer upon any Lender any interest
in, or subject any Lender to any liability for, or in respect of,

                                      106

the business, assets, profits, losses, or liabilities of any other Lender. Each
Lender shall be solely responsible for notifying its Participants of any matters
relating to the Loan Documents to the extent any such notice may be required,
and no Lender shall have any obligation, duty, or liability to any Participant
of any other Lender. Except as provided in Section 16.7, no member of the Lender
Group shall have any liability for the acts or any other member of the Lender
Group. No Lender shall be responsible to any Borrower or any other Person for
any failure by any other Lender to fulfill its obligations to make credit
available hereunder, nor to advance for it or on its behalf in connection with
its Commitment, nor to take any other action on its behalf hereunder or in
connection with the financing contemplated herein.

         16.19 LEGAL REPRESENTATION OF AGENT. In connection with the
negotiation, drafting, and execution of this Agreement and the other Loan
Documents, or in connection with future legal representation relating to loan
administration, amendments, modifications, waivers, or enforcement of remedies,
Mayer, Brown, Rowe & Maw ("MBR&M") only has represented and only shall represent
Foothill in its capacity as Agent and as a Lender. Each other Lender hereby
acknowledges that MBR&M does not represent it in connection with any such
matters.

17.      GENERAL PROVISIONS.

         17.1 EFFECTIVENESS. This Agreement shall be binding and deemed
effective when executed by Borrowers, Agent, and each Lender whose signature is
provided for on the signature pages hereof.

         17.2 SECTION HEADINGS. Headings and numbers have been set forth herein
for convenience only. Unless the contrary is compelled by the context,
everything contained in each Section applies equally to this entire Agreement.

         17.3 INTERPRETATION. Neither this Agreement nor any uncertainty or
ambiguity herein shall be construed or resolved against the Lender Group or
Borrowers, whether under any rule of construction or otherwise. On the contrary,
this Agreement has been reviewed by all parties and shall be construed and
interpreted according to the ordinary meaning of the words used so as to
accomplish fairly the purposes and intentions of all parties hereto.

         17.4 SEVERABILITY OF PROVISIONS. Each provision of this Agreement shall
be severable from every other provision of this Agreement for the purpose of
determining the legal enforceability of any specific provision.

         17.5 AMENDMENTS IN WRITING. This Agreement only can be amended by a
writing in accordance with Section 15.1.

         17.6 COUNTERPARTS; TELEFACSIMILE EXECUTION. This Agreement may be
executed in any number of counterparts and by different parties on separate
counterparts, each of which, when executed and delivered, shall be deemed to be
an original, and all of which, when taken together, shall constitute but one and
the same Agreement. Delivery of an executed counterpart of this Agreement by
telefacsimile shall be equally as effective as delivery of an original executed
counterpart of this Agreement. Any party delivering an executed counterpart of
this Agreement by telefacsimile also shall deliver an original executed
counterpart of this Agreement

                                      107

but the failure to deliver an original executed counterpart shall not affect the
validity, enforceability, and binding effect of this Agreement. The foregoing
shall apply to each other Loan Document mutatis mutandis.

         17.7 REVIVAL AND REINSTATEMENT OF OBLIGATIONS. If the incurrence or
payment of the Obligations by any Borrower or any Guarantor or the transfer to
the Lender Group of any property should for any reason subsequently be declared
to be void or voidable under any state or federal law relating to creditors'
rights, including provisions of the Bankruptcy Code relating to fraudulent
conveyances, preferences, or other voidable or recoverable payments of money or
transfers of property (collectively, a "Voidable Transfer"), and if the Lender
Group is required to repay or restore, in whole or in part, any such Voidable
Transfer, or elects to do so upon the reasonable advice of its counsel, then, as
to any such Voidable Transfer, or the amount thereof that the Lender Group is
required or elects to repay or restore, and as to all reasonable costs,
expenses, and attorneys fees of the Lender Group related thereto, the liability
of Borrowers or Guarantors automatically shall be revived, reinstated, and
restored and shall exist as though such Voidable Transfer had never been made.

         17.8 INTEGRATION. This Agreement, together with the other Loan
Documents, reflects the entire understanding of the parties with respect to the
transactions contemplated hereby and shall not be contradicted or qualified by
any other agreement, oral or written, before the date hereof.

         17.9 PARENT AS AGENT FOR BORROWERS. Each Borrower hereby irrevocably
appoints Parent as the borrowing agent and attorney-in-fact for all Borrowers
(the "Administrative Borrower") which appointment shall remain in full force and
effect unless and until Agent shall have received prior written notice signed by
each Borrower that such appointment has been revoked and that another Borrower
has been appointed Administrative Borrower. Each Borrower hereby irrevocably
appoints and authorizes the Administrative Borrower (i) to provide Agent with
all notices with respect to Advances and Letters of Credit obtained for the
benefit of any Borrower and all other notices and instructions under this
Agreement and (ii) to take such action as the Administrative Borrower deems
appropriate on its behalf to obtain Advances and Letters of Credit and to
exercise such other powers as are reasonably incidental thereto to carry out the
purposes of this Agreement. It is understood that the handling of the Loan
Account and Collateral of Borrowers in a combined fashion, as more fully set
forth herein, is done solely as an accommodation to Borrowers in order to
utilize the collective borrowing powers of Borrowers in the most efficient and
economical manner and at their request, and that Lender Group shall not incur
liability to any Borrower as a result hereof. Each Borrower expects to derive
benefit, directly or indirectly, from the handling of the Loan Account and the
Collateral in a combined fashion since the successful operation of each Borrower
is dependent on the continued successful performance of the integrated group. To
induce the Lender Group to do so, and in consideration thereof, each Borrower
hereby jointly and severally agrees to indemnify each member of the Lender Group
and hold each member of the Lender Group harmless against any and all liability,
expense, loss or claim of damage or injury, made against the Lender Group by any
Borrower or by any third party whosoever, arising from or incurred by reason of
(a) the handling of the Loan Account and Collateral of Borrowers as herein
provided, (b) the Lender Group's relying on any instructions of the
Administrative Borrower, or (c) any other action taken by the Lender Group
hereunder or under the other Loan Documents, except that Borrowers will have no
liability to the


                                      108

 relevant Agent-Related Person or Lender-Related Person under this Section 17.9
with respect to any liability that has been finally determined by a court of
competent jurisdiction to have resulted solely from the gross negligence or
willful misconduct of such Agent-Related Person or Lender-Related Person, as the
case may be.

                           [Signature page to follow.]






                                      109

            IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed and delivered as of the date first above written.

                                    MERCURY AIR GROUP, INC.,
                                    a Delaware corporation

                                    By:
                                        --------------------------------------
                                    Title:
                                          ------------------------------------



                                    MERCURY AIR CENTERS, INC.,
                                    a California corporation

                                    By:
                                        --------------------------------------
                                    Title:
                                          ------------------------------------



                                    MERCURY AIR CARGO, INC.,
                                    a California corporation

                                    By:
                                        --------------------------------------
                                    Title:
                                          ------------------------------------



                                    MERCFUEL, INC.,
                                    a Delaware corporation

                                    By:
                                        --------------------------------------
                                    Title:
                                          ------------------------------------



                                    MAYTAG AIRCRAFT CORPORATION,
                                    a Colorado corporation

                                    By:
                                        --------------------------------------
                                    Title:
                                          ------------------------------------








                                    MERCURY AIR CENTER-BIRMINGHAM, LLC,
                                    an Alabama limited liability company


                                    By:
                                        --------------------------------------
                                    Title:
                                          ------------------------------------


                                    MERCURY AIR CENTER-BAKERSFIELD, INC.,
                                    a California corporation

                                    By:
                                        --------------------------------------
                                    Title:
                                          ------------------------------------



                                    MERCURY AIR CENTER-BURBANK, INC.,
                                    a California corporation

                                    By:
                                        --------------------------------------
                                    Title:
                                          ------------------------------------



                                    MERCURY AIR CENTER-FRESNO, INC.,
                                    a California corporation

                                    By:
                                        --------------------------------------
                                    Title:
                                          ------------------------------------



                                    MERCURY AIR CENTER-LOS ANGELES, INC.,
                                    a California corporation

                                    By:
                                        --------------------------------------
                                    Title:
                                          ------------------------------------








                                    MERCURY AIR CENTER-ONTARIO, INC.,
                                    a California corporation

                                    By:
                                        --------------------------------------
                                    Title:
                                          ------------------------------------



                                    MERCURY AIR CENTER-SANTA BARBARA, INC.,
                                    a California corporation

                                    By:
                                        --------------------------------------
                                    Title:
                                          ------------------------------------



                                    MERCURY AIR CENTER-HARTSFIELD, LLC,
                                    a Georgia limited liability company


                                    By:
                                        --------------------------------------
                                    Title:
                                          ------------------------------------



                                    MERCURY AIR CENTER-PEACHTREE-DEKALB, LLC,
                                    a Georgia limited liability company


                                    By:
                                        --------------------------------------
                                    Title:
                                          ------------------------------------



                                    MERCURY AIR CENTER- FT. WAYNE, LLC.,
                                    an Indiana limited liability company


                                    By:
                                        --------------------------------------
                                    Title:
                                          ------------------------------------








                                    MERCURY AIR CENTER-JACKSON, LLC.,
                                    a Mississippi limited liability company



                                    By:
                                        --------------------------------------
                                    Title:
                                          ------------------------------------



                                    MERCURY AIR CENTER-RENO, LLC,
                                    a Nevada limited liability company


                                    By:
                                        --------------------------------------
                                    Title:
                                          ------------------------------------



                                    MERCURY AIR CENTER-TULSA, LLC.,
                                    an Oklahoma limited liability company


                                    By:
                                        --------------------------------------
                                    Title:
                                          ------------------------------------



                                    MERCURY AIR CENTER-CHARLESTON, LLC.,
                                    a South Carolina limited liability company


                                    By:
                                        --------------------------------------
                                    Title:
                                          ------------------------------------








                                    MERCURY AIR CENTER-JOHNS ISLAND, LLC.,
                                    a South Carolina limited liability company


                                    By:
                                        --------------------------------------
                                    Title:
                                          ------------------------------------



                                    MERCURY AIR CENTER-NASHVILLE, LLC.,
                                    a Delaware limited liability company


                                    By:
                                        --------------------------------------
                                    Title:
                                          ------------------------------------



                                    MERCURY AIR CENTER-ADDISON, INC.,
                                    a Texas corporation

                                    By:
                                        --------------------------------------
                                    Title:
                                          ------------------------------------



                                    MERCURY AIR CENTER - CORPUS CHRISTI, INC.,
                                    a Texas corporation

                                    By:
                                        --------------------------------------
                                    Title:
                                          ------------------------------------



                                    FOOTHILL CAPITAL CORPORATION,
                                    a California corporation,
                                    as Agent and as a Lender


                                    By:
                                        --------------------------------------
                                    Title:
                                          ------------------------------------






                                    ABLECO FINANCE LLC,

                                    a Delaware limited liability company,
                                    as a Lender

                                    By:
                                        --------------------------------------
                                    Title:
                                          ------------------------------------








                               TABLE OF CONTENTS



                                                                            PAGE
                                                                         
1.    DEFINITIONS AND CONSTRUCTION...........................................1

      1.1   Definitions......................................................1

      1.2   Accounting Terms................................................28

      1.3   Code............................................................28

      1.4   Construction....................................................28

      1.5   Schedules and Exhibits..........................................29

2.    LOAN AND TERMS OF PAYMENT.............................................29

      2.1   Revolver Advances...............................................29

      2.2   Term Loan.......................................................30

      2.3   Borrowing Procedures and Settlements............................30

      2.4   Payments........................................................37

      2.5   Overadvances....................................................43

      2.6   Interest Rates and Letter of Credit Fee:  Rates, Payments,
            and Calculations................................................43

      2.7   Cash Management.................................................45

      2.8   Crediting Payments; Float Charge................................46

      2.9   Designated Account..............................................46

      2.10  Maintenance of Loan Account; Statements of Obligations..........46

      2.11  Fees............................................................47

      2.12  Letters of Credit...............................................47

      2.13  LIBOR Option....................................................50

      2.14  Capital Requirements............................................53

      2.15  Joint and Several Liability of Borrowers........................53

      2.16  Securitization..................................................56

3.    CONDITIONS; TERM OF AGREEMENT.........................................57

      3.1   Conditions Precedent to the Initial Extension of Credit.........57

      3.2   Conditions Subsequent to the Initial Extension of Credit........60

      3.3   Conditions Precedent to all Extensions of Credit................61

      3.4   Term............................................................62

      3.5   Effect of Termination...........................................62

      3.6   Early Termination by Borrowers..................................62



                                      -i-




                               TABLE OF CONTENTS
                                  (continued)
                                                                        
4.    CREATION OF SECURITY INTEREST.........................................63

      4.1   Grant of Security Interest......................................63

      4.2   Negotiable Collateral...........................................63

      4.3   Collection of Accounts, General Intangibles, and Negotiable
            Collateral......................................................63

      4.4   Delivery of Additional Documentation Required...................64

      4.5   Power of Attorney...............................................64

      4.6   Right to Inspect................................................65

      4.7   Control Agreements..............................................65

5.    REPRESENTATIONS AND WARRANTIES........................................65

      5.1   No Encumbrances.................................................65

      5.2   Eligible Accounts and Eligible Foreign Accounts.................65

      5.3   Equipment.......................................................66

      5.4   Location of Inventory and Equipment; FBOs.......................66

      5.5   Inventory Records...............................................66

      5.6   Location of Chief Executive Office; FEIN........................66

      5.7   Due Organization and Qualification; Subsidiaries................66

      5.8   Due Authorization; No Conflict..................................67

      5.9   Litigation......................................................68

      5.10  No Material Adverse Change......................................68

      5.11  Fraudulent Transfer.............................................68

      5.12  Employee Benefits...............................................68

      5.13  Environmental Condition.........................................68

      5.14  Brokerage Fees..................................................69

      5.15  Intellectual Property...........................................69

      5.16  Leases..........................................................69

      5.17  DDAs............................................................69

      5.18  Complete Disclosure.............................................69

      5.19  Indebtedness....................................................70

      5.20  Corporate Organization..........................................70

6.    AFFIRMATIVE COVENANTS.................................................70



                                      -ii-




                               TABLE OF CONTENTS
                                  (continued)
                                                                        
      6.1   Accounting System...............................................70

      6.2   Collateral Reporting............................................70

      6.3   Financial Statements, Reports, Certificates.....................72

      6.4   Guarantor Reports...............................................74

      6.5   Return..........................................................74

      6.6   Maintenance of Properties.......................................75

      6.7   Taxes...........................................................75

      6.8   Insurance.......................................................75

      6.9   Location of Inventory and Equipment.............................76

      6.10  Compliance with Laws............................................76

      6.11  Leases..........................................................76

      6.12  Brokerage Commissions...........................................76

      6.13  Existence.......................................................77

      6.14  Environmental...................................................77

      6.15  Disclosure Updates..............................................77

7.    NEGATIVE COVENANTS....................................................77

      7.1   Indebtedness....................................................77

      7.2   Liens...........................................................78

      7.3   Restrictions on Fundamental Changes.............................78

      7.4   Change Name.....................................................79

      7.5   Guarantee.......................................................79

      7.6   Nature of Business..............................................79

      7.7   Prepayments and Amendments......................................79

      7.8   Change of Control...............................................79

      7.9   Consignments....................................................79

      7.10  Distributions...................................................79

      7.11  Accounting Methods..............................................80

      7.12  Investments; Acquisitions; Subsidiaries.........................80

      7.13  Transactions with Affiliates....................................80

      7.14  Suspension......................................................80



                                      -iii-




                               TABLE OF CONTENTS
                                  (continued)
                                                                        
      7.15  Compensation....................................................80

      7.16  Use of Proceeds.................................................80

      7.17  Change in Location of Chief Executive Office; Inventory and
            Equipment with Bailees..........................................81

      7.18  Securities Accounts.............................................81

      7.19  Financial Covenants.............................................81

      7.20  Special Purpose Entities........................................84

8.    EVENTS OF DEFAULT.....................................................84

9.    THE LENDER GROUP'S RIGHTS AND REMEDIES................................86

      9.1   Rights and Remedies.............................................86

      9.2   Remedies Cumulative.............................................88

10.   TAXES AND EXPENSES....................................................88

11.   WAIVERS; INDEMNIFICATION..............................................89

      11.1  Demand; Protest; etc............................................89

      11.2  The Lender Group's Liability for Collateral.....................89

      11.3  Indemnification.................................................89

12.   NOTICES...............................................................90

13.   CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER............................91

14.   ASSIGNMENTS AND PARTICIPATIONS; SUCCESSORS............................92

      14.1  Assignments and Participations..................................92

      14.2  Successors......................................................95

15.   AMENDMENTS; WAIVERS...................................................95

      15.1  Amendments and Waivers..........................................95

      15.2  Replacement of Holdout Lender...................................96

      15.3  No Waivers; Cumulative Remedies.................................97

16.   AGENT; THE LENDER GROUP...............................................97

      16.1  Appointment and Authorization of Agent..........................97

      16.2  Delegation of Duties............................................98

      16.3  Liability of Agent..............................................98

      16.4  Reliance by Agent...............................................98



                                      -iv-




                               TABLE OF CONTENTS
                                  (continued)
                                                                          Page
                                                                        
      16.5  Notice of Default or Event of Default...........................99

      16.6  Credit Decision.................................................99

      16.7  Costs and Expenses; Indemnification............................100

      16.8  Agent in Individual Capacity...................................100

      16.9  Successor Agent................................................100

      16.10 Lender in Individual Capacity..................................101

      16.11 Withholding Taxes..............................................101

      16.12 Collateral Matters.............................................103

      16.13 Restrictions on Actions by Lenders; Sharing of Payments........104

      16.14 Agency for Perfection..........................................105

      16.15 Payments by Agent to the Lenders...............................105

      16.16 Concerning the Collateral and Related Loan Documents...........105

      16.17 Field Audits and Examination Reports; Confidentiality;
            Disclaimers by Lenders; Other Reports and Information..........105

      16.18 Several Obligations; No Liability..............................106

      16.19 Legal Representation of Agent..................................107

17.   GENERAL PROVISIONS...................................................107

      17.1  Effectiveness..................................................107

      17.2  Section Headings...............................................107

      17.3  Interpretation.................................................107

      17.4  Severability of Provisions.....................................107

      17.5  Amendments in Writing..........................................107

      17.6  Counterparts; Telefacsimile Execution..........................107

      17.7  Revival and Reinstatement of Obligations.......................107

      17.8  Integration....................................................108

      17.9  Parent as Agent for Borrowers..................................108



                                      -v-


                            EXHIBITS AND SCHEDULES

Exhibit A-1                    Form of Assignment and Acceptance
Exhibit C-1                    Form of Compliance Certificate
Exhibit L-1                    Form of LIBOR Notice
Exhibit R-1                    Representations and Warranties of Officers
Schedule A-1                   Agent's Account
Schedule C-1                   Commitments
Schedule D-1                   Designated Account
Schedule F-1                   FBOs
Schedule L-1                   Liens to be Released
Schedule P-1                   Permitted Liens
Schedule R-1                   Real Property Excluded from Collateral
Schedule 2.7(a)                Cash Management Banks
Schedule 5.4                   Locations of Inventory and Equipment
Schedule 5.6                   Chief Executive Office; FEIN
Schedule 5.7(b)                Capitalization of Borrowers
Schedule 5.7(c)                Capitalization of Borrowers'
                               Subsidiaries; Options, Warrants, etc.
Schedule 5.9                   Litigation
Schedule 5.12                  Benefit Plans
Schedule 5.13                  Environmental Matters
Schedule 5.14                  Brokerage Fees
Schedule 5.15                  Intellectual Property
Schedule 5.17                  Demand Deposit Accounts
Schedule 5.19                  Permitted Indebtedness
Schedule 5.20                  Corporate Organization
Schedule 7.1(d)                Permitted Constructions Indebtedness
Schedule 7.13                  Transactions with Affiliates
Schedule 7.15                  Profit Participation Bonuses


                                      -vi-


                                 SCHEDULE A-1

                               AGENT'S ACCOUNT

      An account at a bank designated by Agent from time to time as the account
into which Borrowers shall make all payments to Agent for the benefit of the
Lender Group and into which the Lender Group shall make all payments to Agent
under this Agreement and the other Loan Documents; unless and until Agent
notifies Administrative Borrower and the Lender Group to the contrary, Agent's
Account shall be that certain deposit account bearing account number 323-266193
and maintained by Agent with JPMorgan Chase Bank, 4 New York Plaza, 15th Floor,
New York, New York 10004, ABA #021000021.




                                 SCHEDULE C-1

                                 COMMITMENTS



         LENDER             REVOLVER           TERM LOAN        TOTAL COMMITMENT
                          COMMITMENT(1)       COMMITMENT
                                                       
Foothill Capital
Corporation               $25,000,000       $ 7,352,941.18       $25,000,000.00

Ableco Finance LLC        $17,500,000       $ 5,147,058.82       $17,500,000.00

All Lenders               $42,500,000       $12,500,000.00       $42,500,000.00


- -----------------
(1)   As of any date of calculation, amounts set forth are to be calculated less
      the then outstanding balance of the Term Loan.




                                 SCHEDULE L-1

                             LIENS TO BE RELEASED



DEBTOR       JURISDICTION    LIENHOLDER    FILE NUMBER/  TYPE OF LIEN/
             OF FILING                     FILING DATE   ORIGINAL AMOUNT
                                             
Parent       Los Angeles     Familian       98-1108276/  Mechanics Lien in
             County Recorder Corp dba        06/30/98    the amount of
                             Familian                    $2,838.93, plus
                             Pipe and                    $29.36 service
                             Supply Co.                  charge (plus
                                                         interest at 1.5% per
                                                         month from 5/26/98)

Parent       Los Angeles     Labor          98-0346774/  Mechanics Lien in
             County Recorder Connection S    03/03/99    the amount of
                             F S                         $14,374.79, plus
                                                         $100 service charge
                                                         (plus interest at
                                                         18% per annum for
                                                         the period from
                                                         12/21/98 - 2/19/99)

Parent       Los Angeles     Robertson's    99-0719229/  Mechanics Lien in
             County Recorder                 04/23/99    the amount of
                                                                       $7,566.68

Parent       Barrow County   Bank of         01-12239/   Possible blanket
             Clerk, Georgia  America, N.A.   11/08/01    filing

Parent       Barrow County   Wells Fargo     02-01675/   Possible blanket
             Clerk, Georgia  Bank,           02/13/02    filing
                             Minnesota

Parent       Rockdale        Marine           96-816/    Blanket filing
             County Clerk,   Midland Bank    05/24/96
             Georgia

Parent       Allen County    The State of     Notice     State tax lien (for
             Recorder,       Indiana       #02003117357, unpaid sales tax) in
             Indiana                          Warrant    the amount of
                                            #03682383,   $1,606.81
                                            Docket 02,
                                            Page 7066/
                                             03/19/02

Parent       Allen County    The State of     Notice     State tax lien (for
             Recorder,       Indiana       #02001645913, unpaid withholding
             Indiana                          Warrant    tax) in the amount
                                            #04013170,   of $613.42
                                            Docket 02,
                                            Page 26786/
                                             07/26/02







DEBTOR       JURISDICTION    LIENHOLDER    FILE NUMBER/  TYPE OF LIEN/
             OF FILING                     FILING DATE   ORIGINAL AMOUNT
                                             
Parent       Texas           Compass Bank     093103/    Blanket filing
             Secretary of                    05/05/97
             State

Parent       Texas           Compass Bank     094390/    Blanket filing
             Secretary of                    05/06/97
             State

Parent       Texas           Compass Bank     112977     Blanket filing
             Secretary of                    06/02/97
             State

MAC          Los Angeles     California     97-477075/   State tax lien in
             County          State Board     03/28/97    the amount of
             Recorder, CA    of                          $376.31, additional
                             Equalization                interest accrues
                                                         after 2/28/97

Cargo.       Los Angeles     California     97-1230993/  State tax lien in
             County Recorder Employment      08/11/97    the amount of
                             Development                 $1,193.45
                             Department

Cargo        Los Angeles     California     02-0036685/  State tax lien in
             County Recorder Employment      01/07/02    the amount of
                             Development                 $1,851.84
                             Department

Maytag       Niagara         New York       001339617/   State tax lien in
             County, New     State           11/06/00    the amount of
             York            Commissioner                $__________
                             of Tax &
                             Finance

Maytag       Niagara         New York       001458377/   State tax lien in
             County, New     State           09/10/01    the amount of
             York            Commissioner                $__________
                             of Tax &
                             Finance

Maytag       New York        New York        01-6704/    State tax lien in
             Secretary of    State           03/09/01    the amount $1,711.44
             State           Commissioner
                             of Tax &
                             Finance

Maytag       New York        New York        01-26312/   State tax lien in
             Secretary of    State           12/04/01    the amount $404.97
             State           Commissioner
                             of Tax &
                             Finance







DEBTOR       JURISDICTION    LIENHOLDER    FILE NUMBER/  TYPE OF LIEN/
             OF FILING                     FILING DATE   ORIGINAL AMOUNT
                                             
Maytag       New York        New York        01-26313/   State tax lien in
             Secretary of    State           12/04/01    the amount $3,263.24
             State           Commissioner
                             of Tax &
                             Finance

Maytag       Niagara County  New York        4540227/    State tax lien in
             Clerk, New York State           04/03/01    the amount $1,711.44
                             Commissioner
                             of Tax &
                             Finance

Hermes       Los Angeles     California     97-1655211/  State tax lien in
Aviation,    County          Employment      10/21/97    the amount of $97.48
Inc.         Recorder, CA    Development
                             Department






                                  SCHEDULE P-1

                                 PERMITTED LIENS



      DEBTOR              JURISDICTION     SECURED PARTY        FILE NO./
                                                                FILE DATE
                                                       
      Mercury Air Group,  Alabama          The Independent      2000-38994/
      Inc.                Secretary of     Bankers Bank           09/27/00
                          State

      Mercury Air Group,  Alabama          CCA Financial,       2001-09104/
      Inc.                Secretary of     inc.                   03/08/01
                          State

      Mercury Air Group,  Alabama          BSFS Equipment       2001-25232/
      Inc.                Secretary of     Leasing                06/28/01
                          State

      Mercury Air Group,  California       Pitney Bowes         9600260020/
      Inc.                Secretary of     Credit                 12/27/95
                          State            Corporation

      Mercury Air Group,  California       Oce-USA, Inc.        9719161065/
      Inc.                Secretary of                            07/09/97
                          State

      Mercury Air Group,  California       Oce-USA, Inc.        9719161071/
      Inc.                Secretary of                            07/09/97
                          State

      Mercury Air Group,  California       Tennant              9908360553/
      Inc.                Secretary of     Financial              03/23/99
                          State            Services

      Mercury Air Group,  California       Amsouth Bank of      0027860541/
      Inc.                Secretary of     Alabama                09/25/00
                          State

      Mercury Air Group,  California       Winthrop             0106560301/
      Inc.                Secretary of     Resources              03/01/01
                          State            Corporation

      Mercury Air Group,  California       Winthrop             0123960727/
      Inc.                Secretary of     Resources              08/27/01
                          State            Corporation

      Mercury Air Group,  Delaware         Winthrop              10910153/
      Inc.                Secretary of     Resources              08/13/01
                          State            Corporation

      Mercury Air Group,  Delaware         Winthrop              11581920/
      Inc.                Secretary of     Resources              11/02/01
                          State            Corporation

      Mercury Air Group,  Delaware         Winthrop              20166607/
      Inc.                Secretary of     Resources              12/19/01
                          State            Corporation







      DEBTOR              JURISDICTION     SECURED PARTY        FILE NO./
                                                                FILE DATE
                                                       
      Mercury Air Group,  Delaware         Citicorp Vendor       20692776/
      Inc.                Secretary of     Finance, Ltd -         02/26/02
                          State            Canada

      Mercury Air Group,  Delaware         US Bancorp            20943823/
      Inc.                Secretary of     Equipment              04/16/02
                          State            Finance, Inc.

      Mercury Air Group,  Delaware         US Bancorp            20943849/
      Inc.                Secretary of     Equipment              04/16/02
                          State            Finance, Inc.

      Mercury Air Group,  Delaware         US Bancorp            20943856/
      Inc.                Secretary of     Equipment              04/16/02
                          State            Finance, Inc.

      Mercury Air Group,  Delaware         US Bancorp            20943864/
      Inc.                Secretary of     Equipment              04/16/02
                          State            Finance, Inc.

      Mercury Air Group,  Delaware         US Bancorp            20943872/
      Inc.                Secretary of     Equipment              04/16/02
                          State            Finance, Inc.

      Mercury Air Group,  Delaware         US Bancorp            20943880/
      Inc.                Secretary of     Equipment              04/16/02
                          State            Finance, Inc.

      Mercury Air Group,  Delaware         US Bancorp            20943914/
      Inc.                Secretary of     Equipment              04/16/02
                          State            Finance, Inc.

      Mercury Air Group,  Delaware         Winthrop              21186489/
      Inc.                Secretary of     Resources              04/24/02
                          State            Corporation

      Mercury Air Group,  Delaware         Winthrop              21458656/
      Inc.                Secretary of     Resources              05/20/02
                          State            Corporation

      Mercury Air Group,  Delaware         Aviation              21662216/
      Inc.                Secretary of     Equipment Co.,         06/06/02
                          State            L.P.

      Mercury Air Group,  Delaware         Aviation              21662398/
      Inc.                Secretary of     Equipment Co.,         06/06/02
                          State            L.P.







      DEBTOR              JURISDICTION     SECURED PARTY        FILE NO./
                                                                FILE DATE
                                                       
      Mercury Air Group,  Delaware         Aviation              21662448/
      Inc.                Secretary of     Equipment Co.,         06/06/02
                          State            L.P.

      Mercury Air Group,  Delaware         Aviation              21662489/
      Inc.                Secretary of     Equipment Co.,         06/06/02
                          State            L.P.

      Mercury Air Group,  Delaware         Aviation              21662620/
      Inc.                Secretary of     Equipment Co.,         06/06/02
                          State            L.P.

      Mercury Air Group,  Delaware         Aviation              21662778/
      Inc.                Secretary of     Equipment Co.,         06/06/02
                          State            L.P.

      Mercury Air Group,  Delaware         Aviation              21662786/
      Inc.                Secretary of     Equipment Co.,         06/06/02
                          State            L.P.

      Mercury Air Group,  Delaware         Aviation              21662927/
      Inc.                Secretary of     Equipment Co.,         06/06/02
                          State            L.P.

      Mercury Air Group,  Delaware         Aviation              21663016/
      Inc.                Secretary of     Equipment Co.,         06/06/02
                          State            L.P.

      Mercury Air Group,  Delaware         Aviation              21663206/
      Inc.                Secretary of     Equipment Co.,         06/06/02
                          State            L.P.

      Mercury Air Group,  Delaware         Aviation              21663289/
      Inc.                Secretary of     Equipment Co.,         06/06/02
                          State            L.P.

      Mercury Air Group,  Delaware         Aviation              21663446/
      Inc.                Secretary of     Equipment Co.,         06/06/02
                          State            L.P.

      Mercury Air Group,  Delaware         Aviation              21663453/
      Inc.                Secretary of     Equipment Co.,         06/06/02
                          State            L.P.

      Mercury Air Group,  Delaware         Aviation              21663503/
      Inc.                Secretary of     Equipment Co.,         06/06/02
                          State            L.P.








      DEBTOR              JURISDICTION     SECURED PARTY        FILE NO./
                                                                FILE DATE
                                                       
      Mercury Air Group,  Delaware         Aviation              21663578/
      Inc.                Secretary of     Equipment Co.,         06/06/02
                          State            L.P.

      Mercury Air Group,  Delaware         Aviation              21663636/
      Inc.                Secretary of     Equipment Co.,         06/06/02
                          State            L.P.

      Mercury Air Group,  Delaware         Aviation              21663677/
      Inc.                Secretary of     Equipment Co.,         06/06/02
                          State            L.P.

      Mercury Air Group,  Delaware         Aviation              21663826/
      Inc.                Secretary of     Equipment Co.,         06/06/02
                          State            L.P.

      Mercury Air Group,  Delaware         Aviation              21663842/
      Inc.                Secretary of     Equipment Co.,         06/06/02
                          State            L.P.

      Mercury Air Group,  Delaware         Aviation              21663891/
      Inc.                Secretary of     Equipment Co.,         06/06/02
                          State            L.P.

      Mercury Air Group,  Delaware         Aviation              21663909/
      Inc.                Secretary of     Equipment Co.,         06/06/02
                          State            L.P.

      Mercury Air Group,  Delaware         Aviation              21663974/
      Inc.                Secretary of     Equipment Co.,         06/06/02
                          State            L.P.

      Mercury Air Group,  Delaware         Aviation              21664048/
      Inc.                Secretary of     Equipment Co.,         06/06/02
                          State            L.P.

      Mercury Air Group,  Delaware         Aviation              21664097/
      Inc.                Secretary of     Equipment Co.,         06/06/02
                          State            L.P.

      Mercury Air Group,  Delaware         Aviation              21664246/
      Inc.                Secretary of     Equipment Co.,         06/06/02
                          State            L.P.

      Mercury Air Group,  Delaware         Aviation              21664253/
      Inc.                Secretary of     Equipment Co.,         06/06/02
                          State            L.P.







      DEBTOR              JURISDICTION     SECURED PARTY        FILE NO./
                                                                FILE DATE
                                                       
      Mercury Air Group,  Delaware         Aviation              21664295/
      Inc.                Secretary of     Equipment Co.,         06/06/02
                          State            L.P.

      Mercury Air Group,  Delaware         Aviation              21664337/
      Inc.                Secretary of     Equipment Co.,         06/06/02
                          State            L.P.

      Mercury Air Group,  Delaware         Aviation              21664345/
      Inc.                Secretary of     Equipment Co.,         06/06/02
                          State            L.P.

      Mercury Air Group,  Delaware         Aviation              21664428/
      Inc.                Secretary of     Equipment Co.,         06/06/02
                          State            L.P.

      Mercury Air Group,  Delaware         Aviation              21664436/
      Inc.                Secretary of     Equipment Co.,         06/06/02
                          State            L.P.

      Mercury Air Group,  Delaware         Aviation              21664493/
      Inc.                Secretary of     Equipment Co.,         06/06/02
                          State            L.P.

      Mercury Air Group,  Delaware         Aviation              21664501/
      Inc.                Secretary of     Equipment Co.,         06/06/02
                          State            L.P.

      Mercury Air Group,  Delaware         Aviation              21664519/
      Inc.                Secretary of     Equipment Co.,         06/06/02
                          State            L.P.

      Mercury Air Group,  Delaware         Aviation              21664550/
      Inc.                Secretary of     Equipment Co.,         06/06/02
                          State            L.P.

      Mercury Air Group,  Delaware         Aviation              21664576/
      Inc.                Secretary of     Equipment Co.,         06/06/02
                          State            L.P.

      Mercury Air Group,  Delaware         Aviation              21664584/
      Inc.                Secretary of     Equipment Co.,         06/06/02
                          State            L.P.

      Mercury Air Group,  Delaware         Aviation              21664592/
      Inc.                Secretary of     Equipment Co.,         06/06/02
                          State            L.P.








      DEBTOR              JURISDICTION     SECURED PARTY        FILE NO./
                                                                FILE DATE
                                                       
      Mercury Air Group,  Delaware         Aviation              21664600/
      Inc.                Secretary of     Equipment Co.,         06/06/02
                          State            L.P.

      Mercury Air Group,  Delaware         Aviation              21664618/
      Inc.                Secretary of     Equipment Co.,         06/06/02
                          State            L.P.

      Mercury Air Group,  Delaware         Aviation              21664626/
      Inc.                Secretary of     Equipment Co.,         06/06/02
                          State            L.P.

      Mercury Air Group,  Delaware         Aviation              21664634/
      Inc.                Secretary of     Equipment Co.,         06/06/02
                          State            L.P.

      Mercury Air Group,  Delaware         Aviation              21664659/
      Inc.                Secretary of     Equipment Co.,         06/06/02
                          State            L.P.

      Mercury Air Group,  Delaware         Aviation              21664667/
      Inc.                Secretary of     Equipment Co.,         06/06/02
                          State            L.P.

      Mercury Air Group,  Delaware         Aviation              21664675/
      Inc.                Secretary of     Equipment Co.,         06/06/02
                          State            L.P.

      Mercury Air Group,  Delaware         Aviation              21664683/
      Inc.                Secretary of     Equipment Co.,         06/06/02
                          State            L.P.

      Mercury Air Group,  Delaware         Aviation              21664709/
      Inc.                Secretary of     Equipment Co.,         06/06/02
                          State            L.P.

      Mercury Air Group,  Delaware         Aviation              21664725/
      Inc.                Secretary of     Equipment Co.,         06/06/02
                          State            L.P.

      Mercury Air Group,  Delaware         Aviation              21664741/
      Inc.                Secretary of     Equipment Co.,         06/06/02
                          State            L.P.

      Mercury Air Group,  Delaware         Aviation              21664774/
      Inc.                Secretary of     Equipment Co.,         06/06/02
                          State            L.P.







      DEBTOR              JURISDICTION     SECURED PARTY        FILE NO./
                                                                FILE DATE
                                                       
      Mercury Air Group,  Delaware         Aviation              21664782/
      Inc.                Secretary of     Equipment Co.,         06/06/02
                          State            L.P.

      Mercury Air Group,  Delaware         Aviation              21664840/
      Inc.                Secretary of     Equipment Co.,         06/06/02
                          State            L.P.

      Mercury Air Group,  Delaware         Aviation              21664915/
      Inc.                Secretary of     Equipment Co.,         06/06/02
                          State            L.P.

      Mercury Air Group,  Delaware         Aviation              21664949/
      Inc.                Secretary of     Equipment Co.,         06/06/02
                          State            L.P.

      Mercury Air Group,  Delaware         Aviation              21664956/
      Inc.                Secretary of     Equipment Co.,         06/06/02
                          State            L.P.

      Mercury Air Group,  Delaware         Aviation              21664964/
      Inc.                Secretary of     Equipment Co.,         06/06/02
                          State            L.P.

      Mercury Air Group,  Delaware         Aviation              21664972/
      Inc.                Secretary of     Equipment Co.,         06/06/02
                          State            L.P.

      Mercury Air Group,  Delaware         Aviation              21664998/
      Inc.                Secretary of     Equipment Co.,         06/06/02
                          State            L.P.

      Mercury Air Group,  Delaware         Aviation              21665003/
      Inc.                Secretary of     Equipment Co.,         06/06/02
                          State            L.P.

      Mercury Air Group,  Delaware         Aviation              21667264/
      Inc.                Secretary of     Equipment Co.,         06/06/02
                          State            L.P.

      Mercury Air Group,  Delaware         Aviation              21667298/
      Inc.                Secretary of     Equipment Co.,         06/06/02
                          State            L.P.

      Mercury Air Group,  Delaware         Aviation              21667348/
      Inc.                Secretary of     Equipment Co.,         06/06/02
                          State            L.P.









      DEBTOR              JURISDICTION     SECURED PARTY        FILE NO./
                                                                FILE DATE
                                                       
      Mercury Air Group,  Delaware         Aviation              21667397/
      Inc.                Secretary of     Equipment Co.,         06/06/02
                          State            L.P.

      Mercury Air Group,  Delaware         Aviation              21667405/
      Inc.                Secretary of     Equipment Co.,         06/06/02
                          State            L.P.

      Mercury Air Group,  Delaware         Aviation              21667447/
      Inc.                Secretary of     Equipment Co.,         06/06/02
                          State            L.P.

      Mercury Air Group,  Delaware         Aviation              216667454/
      Inc.                Secretary of     Equipment Co.,         06/06/02
                          State            L.P.

      Mercury Air Group,  Delaware         Aviation              21667488/
      Inc.                Secretary of     Equipment Co.,         06/06/02
                          State            L.P.

      Mercury Air Group,  Delaware         Aviation              21667512/
      Inc.                Secretary of     Equipment Co.,         06/06/02
                          State            L.P.

      Mercury Air Group,  Delaware         Aviation              21667694/
      Inc.                Secretary of     Equipment Co.,         06/06/02
                          State            L.P.

      Mercury Air Group,  Delaware         Aviation              21667702/
      Inc.                Secretary of     Equipment Co.,         06/06/02
                          State            L.P.

      Mercury Air Group,  Delaware         Aviation              21667744/
      Inc.                Secretary of     Equipment Co.,         06/06/02
                          State            L.P.

      Mercury Air Group,  Delaware         Aviation              21667769/
      Inc.                Secretary of     Equipment Co.,         06/06/02
                          State            L.P.

      Mercury Air Group,  Delaware         Aviation              21667801/
      Inc.                Secretary of     Equipment Co.,         06/06/02
                          State            L.P.

      Mercury Air Group,  Delaware         Aviation              21667835/
      Inc.                Secretary of     Equipment Co.,         06/06/02
                          State            L.P.








      DEBTOR              JURISDICTION     SECURED PARTY        FILE NO./
                                                                FILE DATE
                                                       
      Mercury Air Group,  Delaware         Aviation              21667934/
      Inc.                Secretary of     Equipment Co.,         06/06/02
                          State            L.P.

      Mercury Air Group,  Delaware         The Equipment         21686165/
      Inc.                Secretary of     Leasing Company        06/10/02
                          State

      Mercury Air Group,  Indiana          Verizon Credit     200100003151407/
      Inc.                Secretary of     Inc.                   06/07/01
                          State

      Mercury Air Group,  Nevada           Wells Fargo            0015160/
      Inc.                Secretary of     Equipment              10/11/00
                          State            Finance Inc.

      Mercury Air Group,  Tennessee        American Lease       301-065844/
      Inc.                Secretary of     Plans, Inc.            01/26/01
                          State

      Mercury Air Cargo,  Florida          Ikon Office         980000257582/
      Inc.                Secretary of     Solutions, Inc.        11/19/98
                          State

      Maytag Aircraft     California       Banc of America      0034160895/
      Corporation         Secretary of     Leasing &              12/04/00
                          State            Capital, LLC

      Maytag Aircraft     California       Banc of America      0100960871/
      Corporation         Secretary of     Leasing &              01/04/01
                          State            Capital, LLC

      Maytag Aircraft     California       Banc of America      0105860132/
      Corporation         Secretary of     Leasing &              02/23/01
                          State            Capital, LLC

      Maytag Aircraft     California       Banc of America      0105860225/
      Corporation         Secretary of     Leasing &              02/23/01
                          State            Capital, LLC

      Maytag Aircraft     Colorado         Textron               922082642/
      Corporation         Secretary of     Financial              11/17/92
                          State            Corporation

      Maytag Aircraft     Colorado         Textron               932004540/
      Corporation         Secretary of     Financial              01/19/93
                          State            Corporation

      Maytag Aircraft     Mississippi      Banc of America       01501551/
      Corporation         Secretary of     Leasing &              02/23/01
                          State            Capital, LLC







      DEBTOR              JURISDICTION     SECURED PARTY        FILE NO./
                                                                FILE DATE
                                                       
      Maytag Aircraft     Mississippi      Banc of America       01501553/
      Corporation         Secretary of     Leasing &              02/23/01
                          State            Capital, LLC

      Maytag Aircraft     Lauderdale       Banc of America         01090/
      Corporation         County Clerk,    Leasing &              02/23/01
                          Mississippi      Capital, LLC

      Maytag Aircraft     Lauderdale       Banc of America         01091/
      Corporation         County Clerk,    Leasing &              02/23/01
                          Mississippi      Capital, LLC

      Maytag Aircraft     New Jersey       Banc of America        2011036/
      Corporation         Secretary of     Leasing &              12/04/00
                          State            Capital, LLC

      Maytag Aircraft     Virginia         Banc of America      010104-7237/
      Corporation         Corporation      Leasing &               1/4/01
                          Commission       Capital, LLC

      Maytag Aircraft     Norfolk City     Banc of America        01-0023/
      Corporation         Clerk, Virginia  Leasing &              01/04/01
                                           Capital, LLC

EX-10.2

                                                                    EXHIBIT 10.2


                                 AMENDMENT NO. 3

                                       TO

                          SECURITIES PURCHASE AGREEMENT

                                 BY AND BETWEEN

                            MERCURY AIR GROUP, INC.,

                                       AND

                       J. H. WHITNEY MEZZANINE FUND, L.P.


                          DATED AS OF DECEMBER 30, 2002



                                TABLE OF CONTENTS

                                                                             
ARTICLE I DEFINITIONS...........................................................     2
         1.1      Definitions...................................................     2

Article II WAIVER...............................................................     6

         2.1      Waiver........................................................     6

ARTICLE III AGREEMENT TO ISSUE AMENDED AND RESTATED SECURITIES..................     6
         3.1      Issuance of Amended Note......................................     6
         3.2      Issuance of Amended Warrant...................................     6
         3.3      Fees at Closing...............................................     6
         3.4      Effectiveness.................................................     7

Article IV AMENDMENTS TO PURCHASE AGREEMENT.....................................     7

         4.1      Amendments to Article 8.......................................     7
         4.2      Amendments to Article 9.......................................     8
         4.3      Additional Covenants..........................................    12

ARTICLE V REPRESENTATIONS AND WARRANTIES........................................    14
         5.1      Representations and Warranties in the Purchase Agreement......    14
         5.2      Authority, Etc................................................    14
         5.3      Enforceability of Obligations.................................    14
         5.4      No Default....................................................    14
         5.5      Collateral Documents; Security Interests......................    14

Article VI AFFIRMATION OF GUARANTY..............................................    15

         6.1      Affirmation of Guaranty.......................................    15

Article VII CONDITIONS TO EFFECTIVENESS.........................................    15
         7.1      Representations and Warranties................................    15
         7.2      Compliance with this Amendment and the Purchase Agreement.....    15
         7.3      Secretary's Certificates......................................    15
         7.4      Documents.....................................................    16
         7.5      Purchase of Securities Permitted by Applicable Laws...........    16
         7.6      Opinion of Counsel............................................    16
         7.7      Approval of Counsel to the Purchaser..........................    16
         7.8      Consents and Approvals........................................    16
         7.9      Registration Rights Agreement.................................    16
         7.10     Preemptive Rights Agreement...................................    17
         7.11     No Material Judgment or Order.................................    17
         7.12     Pro Forma Balance Sheet.......................................    17
         7.13     Good Standing Certificates....................................    17
         7.14     No Litigation.................................................    17
         7.15     Receipt of Additional Documents...............................    17
         7.16     No Defaults...................................................    17


                                       i

                                                                             
         7.17     Senior Credit Agreement.......................................    18

ARTICLE VIII MISCELLANEOUS......................................................    18
         8.1      Continued Effectiveness.......................................    18
         8.2      Notices.......................................................    18
         8.3      Successors and Assigns; Third Party Beneficiaries.............    19
         8.4      References....................................................    19
         8.5      Signatures; Counterparts......................................    19
         8.6      Headings......................................................    20
         8.7      GOVERNING LAW.................................................    20
         8.8      Severabilily..................................................    20
         8.9      Certain Expenses..............................................    20




                                       ii

                                 AMENDMENT NO. 3

      AMENDMENT NO. 3 (this "AMENDMENT"), dated as of December 30, 2002, between
J.H. Whitney Mezzanine Fund, L.P. (the "PURCHASER"), a Delaware limited
partnership, and Mercury Air Group, Inc., a Delaware corporation (the
"COMPANY"), to the Securities Purchase Agreement (the "PURCHASE AGREEMENT"),
dated as of September 10, 1999, between the Purchaser and the Company, as
amended by Amendment No. 1 dated as of September 30, 2000 and Amendment No. 2
dated as of September 30, 2001.

                              W I T N E S S E T H:

      WHEREAS, the Purchaser and the Company entered into the Purchase Agreement
(the Purchase Agreement, as amended by this Amendment, is hereinafter referred
to as the "AGREEMENT"), pursuant to which, among other things, the Purchaser
purchased from the Company (i) a subordinated promissory note due September 9,
2006 in the principal amount of $24,000,000 (the "NOTE"), and (ii) a warrant to
purchase 503,126 shares of common stock, $.01 par value per share, of the
Company (the "WARRANT"); and

      WHEREAS, the Company is party to a senior credit facility with Fleet
National Bank, N.A., ("FLEET") that provides for Fleet to make revolving loans
to the Company thereunder;

      WHEREAS, the Company has informed WMF that Fleet has determined to cease
making revolving loans to the Company;

      WHEREAS, Fleet has indicated its intention to prohibit the Company from
making regularly scheduled interest payments on the Note, and therefore WMF will
have the right, subject to the subordination provisions of the Note, to cause
the Note to be accelerated and declared immediately payable;

      WHEREAS, Fleet's failure to make revolving loans has materially and
adversely impaired the Company's working capital and financial condition and as
a direct result thereof the Company is or may be unable to comply with certain
covenants in the Agreement;

      WHEREAS, Foothill Capital Corporation ("FOOTHILL') and Ableco Finance LLC
(together with Foothill, the "SENIOR LENDERS") have agreed to provide a senior
secured loan to the Company, whereby the Company's obligations to Fleet will be
refinanced and terminated;

      WHEREAS, The Senior Lenders have requested that WMF enter into a
subordination agreement in form acceptable to the Senior Lenders, and WMF is
willing to enter into such subordination agreement contingent upon the Company's
willingness to execute and deliver this Amendment and to resume regularly
scheduled interest payments to WMF upon the closing of the senior loan
transaction, as permitted by such subordination agreement;

      WHEREAS, as a result of these or other conditions or events one or more
Events of Default have occurred and are continuing under the Note and the
Company has requested that WMF not exercise its rights to, among other things,
declare all outstanding principal and accrued interest on the Note to be
immediately due and payable

      WHEREAS, the Company has requested that WMF provide the waiver and enter
into the amendments provided for herein, and WMF has agreed to provide such
waiver and amend the Purchase Agreement on the terms and conditions set forth
herein;

      WHEREAS, as a condition to WMF agreeing to amend the Purchase Agreement as
provided for herein, the Company has agreed to grant a security interest in
certain of its assets to WMF;

      WHEREAS, WMF and the Company have agreed to set the exercise price of the
Warrant at the current fair market value of the Company's Common Stock;

      WHEREAS, the Purchaser and the Company desire to amend the Purchase
Agreement, the Note and the Warrant.

      NOW THEREFORE, in consideration of the premises set forth herein and for
other good and valuable consideration, the sufficiency and receipt of which is
hereby acknowledged, the Purchaser and the Company agree as follows:

                                   ARTICLE I

                                   DEFINITIONS

1.1   DEFINITIONS.


      1.1.1 As used in this Amendment, and unless the context requires a
different meaning, the following terms shall have the meanings indicated:

      "ADDITIONAL NOTE" means a Note in the principal amount of $5,000,000,
substantially in the form of Exhibit A, to be issued in accordance with Section
8.7 of the Purchase Agreement as amended hereby, which Additional Note shall for
all purposes be deemed to be a "Note" from and after its date of issuance.

      "ADDITIONAL WARRANT" means a Warrant substantially in the form of Exhibit
B, to be issued in accordance with Section 8.7 of the Purchase Agreement as
amended hereby, which Additional Warrant shall for all purposes be deemed to be
a "Warrant" from and after its date of issuance.

      "AMENDED NOTE" means the Amended and Restated Note of the Company issued
in favor of WMF, dated the Effective Date, in the principal amount of
$24,000,000, substantially in the form of Exhibit A, which shall for all
purposes under the Purchase Agreement be deemed to be a Note from and after the
Effective Date.

      "AMENDED WARRANT" means the Amended and Restated Warrant to purchase
503,126 shares of Common Stock for a price of $3.742 per share, issued to WMF,
dated the Effective Date, substantially in the form of Exhibit B, which shall
for all purposes under the Purchase Agreement be deemed to be a Warrant from and
after the Effective Date.


                                       2

      "BASE YEAR EBITDA" has the meaning given to such term in the Senior Credit
Agreement.

      "CAPITAL EXPENDITURES" has the meaning given to such term in the Senior
Credit Agreement.

      "COLLATERAL" has the meaning given to such term in the Senior Credit
Agreement.

      "DISQUALIFIED CAPITAL STOCK" has the meaning given to such term in the
Senior Credit Agreement, except that it shall be interpreted with reference to
the maturity date of the Note.

      "EBITDA" has the meaning given to such term in the Senior Credit
Agreement.

      "EXCESS AVAILABILITY" has the meaning given to such term in the Senior
Credit Agreement.

      "EXISTING IRB INDEBTEDNESS" means all indebtedness currently outstanding
under the Loan Agreement between California Economic Development Financing
Authority and the Company dated as of April 1, 1998 and all letters of credit
supporting such indebtedness, all as set forth on Schedule 1.1.1.

      "EXISTING OPERATIONS CAPITAL EXPENDITURES" has the meaning given to such
term in the Senior Credit Agreement.

      "EXPANSION CAPITAL EXPENDITURES" has the meaning given to such term in the
Senior Credit Agreement.

      "FIXED CHARGE COVERAGE RATIO" has the meaning given to such term in the
Senior Credit Agreement.

      "FBO" has the meaning given to such term in the Senior Credit Agreement.

      "FBO ENTERPRISE VALUE" has the meaning given to such term in the Senior
Credit Agreement.

      "FBO OPERATIONS" has the meaning given to such term in the Senior Credit
Agreement.

      "FOOTHILL" means Foothill Capital Corporation.

      "FULLY DILUTED BASIS" means the number of shares of Common Stock, plus the
number of in-the-money warrants and options of the Company, all issued and
outstanding as of January 1, 2004, including the Additional Warrants to be
issued under Section 4.1.2 of this Amendment. For purposes of this definition,
whether an option or warrant is "in-the-money" shall be measured with respect to
the last sale price on for the common stock on the trading day immediately prior
to January 1, 2004.


                                       3

      "NET CASH PROCEEDS" has the meaning given to such term in the Senior
Credit Agreement.

      "PERMITTED ASSET SALE" means any sale or other disposition of assets,
businesses or business lines of the Company or any of its Subsidiaries, other
than a Permitted Disposition, sale-leaseback transaction or disposition of
equity interests; provided that (i) the cash sale price is at least equal to the
fair market value of such assets; (ii) both before and after giving effect to
such transaction, the Company maintains FBO Operations at FBOs having an
aggregate FBO Enterprise Value of at least $10,000,000, (iii) no Affiliate is an
interested party in such transaction and (iv) at least 15 days prior to
consummating such transaction, the Company advises the Purchaser in writing of
its intention to do so and presents the Purchaser with such information as is
reasonably required for the Purchaser to conclude that such transaction complies
with clauses (i), (ii) and (iii) of this proviso.

      "PERMITTED CONSTRUCTION INDEBTEDNESS" has the meaning given to such term
in the Senior Credit Agreement.; provided, that any Permitted Construction
Indebtedness hereunder, as to which there is recourse against the assets of the
Company or its Subsidiaries other than the improvements constructed and related
equipment, must be expressly subordinated to the obligations of the Company and
its Subsidiaries (other than the Subsidiary that is the primary obligor of such
Permitted Construction Indebtedness).

      "PERMITTED DISPOSITION" has the meaning given to such term in the Senior
Credit Agreement.

      "PERMITTED SALE-LEASEBACK" means a transaction in which the Company or a
Subsidiary of the Company sells improvements to Real Property to a third party
who then leases such improvements to a Subsidiary of the Company; provided that
(i) such lease is solely an obligation of the Subsidiary the asset of which is
sold and is non-recourse to the Company or any other Subsidiaries of the
Company, (ii) the cash sale price is at least equal to the fair market value of
such improvements, (iii) no Affiliate is an interested party in such Asset
Disposition and (iv) at least 15 days prior to consummating such transaction,
the Company advises the Purchaser in writing of its intention to do so and
presents the Purchaser with such information as is reasonably required for the
Purchaser to conclude that such transaction complies with clauses (i), (ii) and
(iii) of this proviso.

      "PERMITTED FINANCING TRANSACTIONS" shall mean

      (a) Permitted Asset Sales;

      (b) Permitted Sale-Leasebacks,

      (c) Sales by the Company of Common Stock or preferred stock of the Company
for cash in an amount at least equal to the fair market value thereof;

      (d) Any other transaction for which the Purchaser provides its consent in
its sole discretion;


                                       4

provided, in the case of clauses (a) through (d), that (i) no Event of Default
shall have occurred and be continuing, or would exist as a result of giving
effect to such Permitted Financing Transaction, that (i) would reasonably be
expected to have a material adverse impact on the Company or Company's ability
to comply with Section 8.7 of the Agreement or Section 4.3.2 of this Amendment
or (ii) are caused by the failure to comply with Sections 9.1, 9.2, 9.4, 9.5,
9.6, 9.7, 9.11 (in the case of Investments made with cash), 9.13, 9.16 or 9.18
of this Agreement; (ii) after giving effect to the transaction, the Company
would be in compliance on a pro forma basis with the covenants set forth in
Section 9.8 of the Purchase Agreement, giving effect to any adjustments pursuant
to Section 9.8(e), computed for the most recently ended month for which
information is available and is in compliance with all other terms and
conditions of the Purchase Agreement; (iii) the Company has complied with all
requirements under the Senior Credit Agreement applicable to the transaction;
and (iv) the Net Cash Proceeds obtained as a result of such Permitted Financing
Transaction are first applied to repay the Senior Indebtedness and the Note in
the manner set forth in the Subordination Agreement.

      "QUALIFIED ASSET SALE" means a Permitted Asset Sale that constitutes a
Permitted Financing Transaction.

      "REAL PROPERTY" has the meaning given to such term in the Senior Credit
Agreement.

      "SECURITY AGREEMENT" means the Security Agreement, dated as of the date
hereof, by and among the Company, each subsidiary that are signatories thereto
and the Purchaser.

      "SENIOR CREDIT AGREEMENT" means the Senior Credit Agreement, as in effect
on the date hereof, by and among the Company, certain of its subsidiaries and
the Senior Lenders.

      "SENIOR INDEBTEDNESS" means, without duplication, (i) up to $49,000,000
principal amount of Indebtedness of the Company and its Subsidiaries currently
outstanding or incurred in the future under, and in compliance with, the Senior
Credit Agreement, as such agreement may be amended from time to time in
compliance with the Subordination Agreement; (ii) up to $40,000,000 of
obligations under leases entered into in connection with Permitted
Sale-Leasebacks to the extent such leases are required by GAAP to be categorized
as senior indebtedness; (iii) Permitted Construction Indebtedness in the amounts
listed on Schedule 1.1.2 to the extent incurred in connection with construction
at the FBOs identified thereupon opposite such amounts; and (v) Existing IRB
Indebtedness.

      "SUBORDINATION AGREEMENT" means the Subordination Agreement dated the date
hereof by and among Foothill Capital Corporation, as agent, WMF and the Company.

      "TARGET FBOS" has the meaning given to such term in the Senior Credit
Agreement.

      "WHITNEY MANAGEMENT" means Whitney Mezzanine Management Co., LLC

       1.1.2 All capitalized terms used in this Amendment but not defined shall
have the meanings given to them in the Purchase Agreement. In the event of a
conflict between the


                                       5

definitions contained in this Amendment and those contained in the Purchase
Agreement, the definitions contained herein shall prevail.

                                   ARTICLE II

                               WAIVER AND CONSENT

      2.1 WAIVER AND CONSENT. Schedule 2.1 sets forth all defaults and Events of
Default known by the Company to have occurred or, as a result of actions
contemplated by the Company, may occur under the Purchase Agreement or the Note.
Subject to the terms and provisions of this Amendment and in consideration of
the fee paid pursuant to Section 3.3 and other valuable consideration, WMF
hereby waives compliance by the Company and its Subsidiaries with the covenants
set forth in Sections 8.1(h), 9.8(d) and (f), 9.7 and 9.11 with respect to the
specific occurrences set forth on Schedule 2.1 and not to any further
occurrences, and agrees to consent to the specific transactions listed on
Schedule 2.1. This waiver is limited as specified and shall not constitute (i)
an endorsement of any action or inaction of the Company or (ii) a modification,
acceptance or waiver of any other provision of the Purchase Agreement or any of
the other Transaction Documents.

                                  ARTICLE III

               AGREEMENT TO ISSUE AMENDED AND RESTATED SECURITIES

      3.1 ISSUANCE OF AMENDED NOTE. Subject to the terms and conditions herein
set forth, the Company agrees that it will issue to WMF on the Effective Date
the Amended Note substantially in the form attached hereto as Exhibit A,
appropriately completed in conformity herewith. The parties hereto acknowledge
that no additional purchase price shall be payable in respect of the Amended
Note.

      3.2 ISSUANCE OF AMENDED WARRANT. Subject to the terms and conditions
herein set forth, the Company agrees that it will issue to WMF on the Effective
Date the Amended Warrant substantially in the form attached hereto as Exhibit B,
appropriately completed in conformity herewith. The parties hereto acknowledge
that no additional purchase price shall be payable in respect of the Amended
Warrant.

      3.3 FEES AT CLOSING. On the Effective Date, the Company shall (a) pay to
Whitney Management a placement fee equal to one percent (1%) of the principal
amount of the Amended Note, and (b) reimburse all of Whitney Management's and
the Purchaser's reasonable out-of-pocket expenses (including, without
limitation, fees, charges and disbursements of counsel and consultants) incurred
in connection with (i) the negotiation and execution and delivery of this
Amendment and the documents related to this Amendment (including, without
limitation the Senior Credit Agreement) and Whitney Management's and the
Purchaser's due diligence investigation, and (ii) the transactions contemplated
by this Amendment and those documents, which payments shall be made by wire
transfer of immediately available funds to an account or accounts designated by
the Purchaser.


                                       6

      3.4 EFFECTIVENESS. The issuance of the Amended Note and the Amended
Warrant shall take place at the closing (the "AMENDMENT CLOSING") to be held at
the offices of Kirkland & Ellis, 153 East 53rd Street, New York, New York 10022
at 10:00 a.m., Local Time, on December 30, 2002 (the "EFFECTIVE DATE"). At the
Amendment Closing, the Company shall deliver the Amended Note, the Amended
Warrant and the amounts referred to in Section 3.3 to WMF, and WMF shall deliver
the WMF Note and the WMF Warrant to the Company for cancellation.

                                   Article IV

                        AMENDMENTS TO PURCHASE AGREEMENT

      4.1   AMENDMENTS TO ARTICLE 8.

            4.1.1 The Purchase Agreement is hereby amended to add a new
subsection (n) to Section 8.1 to read as follows:

            "(n) The Company shall, concurrently with the delivery of any
            information to the lenders under the Senior Credit Agreement,
            deliver such information to WMF."

            4.1.2 The Purchase Agreement is hereby amended to add the following
to the end of Section 8.7:

            "In addition, the Company shall prepay (i) $12,000,000 principal
            amount of the Note on or before December 31, 2003 and (ii) all
            outstanding principal of the Note and any Additional Note on or
            before December 31, 2004. Any prepayments made pursuant to this
            Section shall be made in accordance with the provisions set forth in
            Section 3 of the Amended Note. If any amount of principal is
            outstanding after December 31, 2003, the Company shall within five
            (5) business days after December 31, 2003, effective as of January
            1, 2004, issue Additional Warrants to WMF to purchase the number of
            shares of Common Stock that would, on such date, represent 5% of the
            outstanding Common Stock on a Fully Diluted Basis, for an exercise
            price of $.0001 per share. If the outstanding principal amount of
            the Note is greater than $12,000,000 after December 31, 2003, the
            Company shall within five (5) business days after December 31, 2003,
            effective as of January 1, 2004, issue to WMF (i) the Additional
            Note in the principal amount of $5,000,000; and (ii) Additional
            Warrants to WMF to purchase the number of shares of Common Stock
            that would, on such date, represent 5% of the outstanding Common
            Stock on a Fully Diluted Basis, for an exercise price of $.0001 per
            share (such Additional Warrants to be in addition to those issued
            pursuant to the preceding sentence)."


                                       7

      4.2   AMENDMENTS TO ARTICLE 9.

            4.2.1 Subsection (b) of Section 9.4 of the Purchase Agreement is
hereby amended and restated in its entirety to read as follows:

            "(b) (i) Senior Indebtedness, the permitted amount to be permanently
            reduced by the amount of (A) any prepayments or scheduled repayments
            of Permitted Construction Indebtedness or term debt (other than term
            debt under the Senior Credit Agreement, the repayment of which
            increases revolving facility availability), (B) any permanent
            repayments of, or reductions in commitments with respect to,
            revolving debt and (C) any payments made under leases entered into
            in connection with Permitted Sale-Leasebacks; and (ii) existing
            Indebtedness set forth on Schedule 5.27."

            4.2.2

            (a) Subsection (j) of Section 9.5 of the Purchase Agreement is
hereby amended and restated in its entirety to read as follows:

            "(j) Liens securing Senior Indebtedness; and"

            (b) Subsection (e)(iii) of Section 9.5 of the Purchase Agreement is
hereby amended and restated in its entirety to read as follows:

            (iii) the Indebtedness secured by all such Liens, shall not exceed
            $2,000,000 incurred in any one fiscal year or $5,000,000 in the
            aggregate outstanding at any time; and

            4.2.3 Subsection (b) of Section 9.6 of the Purchase Agreement is
hereby amended and restated in its entirety to read as follows:

            "(b) Asset Dispositions that constitute Permitted Financing
            Transactions."

            4.2.4 Section 9.13 of the Purchase Agreement is amended and restated
in its entirety to read as follows:

            "9.13 MANAGEMENT AND CONSULTING ARRANGEMENTS; DIRECTOR AND OFFICER
            COMPENSATION.

            (a) The Company shall not, nor shall it permit any of its
            Subsidiaries, directly or indirectly, to pay any management,
            consulting or similar fees to any Affiliate or to any director,
            officer or employee of the Company or any of its Subsidiaries except
            reasonable director's fees and expenses (including reasonable fees
            and expenses payable in connection with services provided with


                                       8

            respect to Permitted Financing Transactions) and except as set forth
            on Schedule 9.13. Notwithstanding the foregoing, no payments may be
            made with respect to any items set forth on Schedule 9.13 upon the
            occurrence and during the continuation of an Event of Default of the
            type described in clause (i) of definition of such term.

            (b) The Company shall not, nor shall it permit any of its
            Subsidiaries, directly or indirectly, to pay any professional,
            consulting, investment banking, advisory or management fees in
            excess of $2,000,000 per annum in the aggregate, except for (i) fees
            and expenses related to the preparation and negotiation of the
            Senior Credit Agreement and Amendment No. 3 to this Agreement, each
            set forth on Schedule 9.13, and (ii) reasonable fees and expenses in
            connection with Permitted Financing Transactions consummated in
            compliance with Section 4.3.2 of Amendment No. 3 to this Agreement.

            (c) The Company shall not, nor shall it permit any of its
            Subsidiaries, directly or indirectly, to increase or agree to
            increase the compensation or fringe benefits to any director or
            executive officer (within the meaning of the Securities Exchange Act
            of 1934) of the Company, other than as set forth on Schedule 9.13."

            4.2.5 Section 9.8 of the Purchase Agreement is amended and restated
in its entirety to read as follows:

            "9.8  FINANCIAL COVENANTS.

            (a) Minimum EBITDA. Fail to maintain EBITDA, when measured as of the
            end of the periods set forth below, of not less than the amount set
            forth opposite thereto (the "Applicable EBITDA Amount"):



            Applicable Amount                       Applicable Period
            -----------------                       -----------------
                                            
                 $5,850,000                    For the 6-month period
                                               ending March 31, 2003
                 $9,630,000                    For the 9-month period
                                               ending June 30, 2003
                $12,240,000                    For the 12-month period
                                               ending September 30, 2003
                $12,780,000                    For the 12-month period
                                               ending December 31, 2003
                $12,150,000                    For the 12-month period
                                               ending March 31, 2004 and each 12-month
                                               period ending on the last day of each
                                               fiscal quarter thereafter



                                       9

            (b) Minimum Fixed Charge Coverage Ratio. Fail to maintain a Fixed
            Charge Coverage Ratio, when measured as of the end of the periods
            set forth below, of not less than the ratio set forth opposite
            thereto:



            Applicable Ratio                           Applicable Period
            ----------------                           -----------------
                                            
                 0.9 to 1.0                    For the 6-month period
                                               ending March 31, 2003
                 0.9 to 1.0                    For the 9-month period
                                               ending June 30, 2003
                 0.9 to 1.0                    For the 12-month period
                                               ending September 30, 2003
                 0.9 to 1.0                    For the 12 month period
                                               ending on the last day of
                                               each fiscal quarter thereafter



            (c) Minimum Excess Availability. Fail to maintain Excess
            Availability (as defined in the Senior Credit Agreement) of
            $2,250,000 at all times.

            (d) Capital Expenditures. Make:

                  (i) Capital Expenditures of more than $825,000 in any one
            instance without Agent's prior written consent if such expenditure
            is not wholly-financed with proceeds of a loan not made by the
            Lenders under the terms of this Agreement and the incurrence of such
            Indebtedness is otherwise permitted under the terms of this
            Agreement.

                  (ii) Expansion Operations Capital Expenditures in any fiscal
            year in excess of the amount set forth in the following table for
            the applicable period:



                           Fiscal Year                          Amount
                           -----------                          ------
                                                             
                           2003                                 $8,030,000

                           2004                                 $13,090,000

                           2005                                 $6,930,000




            provided, however, the amount of any permitted Expansion Operations
            Capital Expenditures not made in any year set forth above shall be
            added to the amount set forth in the following year;


                                       10

            provided, further, however, such Expansion Operations Capital
            Expenditures may only be made with respect to the FBOs set forth on
            Schedule R-1 to the Senior Credit Agreement.

                  (iii) Existing Operations Capital Expenditures in any fiscal
            year in excess of the amount set forth in the following table for
            the applicable period:



                           Fiscal Year                          Amount
                           -----------                          ------
                                                             
                           2003                                 $4,400,000

                           2004                                 $6,050,000

                           2005                                 $6,050,000

                           2006                                 $6,050,000

                           2007                                 $6,050,000



            (e) Notwithstanding the foregoing, the Applicable EBITDA Amounts set
            forth in Section 9.8(a) above shall be adjusted as follows:

                  (i) after any sale of a Target FBO consummated prior to March
            1, 2003, the Applicable EBITDA Amount for all periods through March
            31, 2003 shall be reduced by 75% of the Base Year EBITDA attributed
            to such Target FBO times the number of months then remaining until
            March 31, 2003;

                  (ii) after any sale of a Target FBO consummated prior to May
            1, 2003, the Applicable EBITDA Amount for all periods through June
            30, 2003 shall be reduced by 80% of Base Year EBITDA attributed to
            such Target FBO times the number of months then remaining until May
            31, 2003;

                  (iii) if any Target FBOs have not been sold by June 30, 2003,
            then the Applicable EBITDA Amounts for all periods thereafter until
            the Target FBOs are sold shall increase by 80% of Base Year EBITDA
            for such Target FBOs times the number of months remaining in any
            period for which such covenant is to be tested; and

                  (iv) after the consummation of any sale of an FBO other than a
            Target FBO, the Applicable EBITDA Amount shall be reduced by (A) 75%
            of the Base Year EBITDA of such FBO times the number of months then
            remaining until March 31, 2003 if the sale of such FBO is
            consummated prior to March 31, 2003 for the covenant period ending
            March 31, 2003; (B) 80% of the Base Year


                                       11

            EBITDA of such FBO times the number of months then remaining until
            June 30, 2003 if the sale of such FBO is consummated prior to June
            30, 2003, (C) 88.68% of the Base Year EBITDA of such FBO times the
            number of months then remaining to the end of the emasurement period
            during the fiscal year ending June 30, 2004 if the sale of such FBO
            is consummated during such fiscal year, (D) 99.89% of the Base Year
            EBITDA of such FBO times the number of months then remaining to the
            end of the measurement period during the fiscal year ending June 30,
            2005 if the sale of such FBO is consummated during such fiscal year,
            (E) 101.39% of the Base Year EBITDA of such FBO times the number of
            months then remaining to the end of the measurement period during
            the fiscal year ending June 30, 2006 if the sale of such FBO is
            consummated during such fiscal year, and (F) 102.91% of the Base
            Year EBITDA of such FBO times the number of months then remaining to
            the end of the measurement period during the fiscal year ending June
            30, 2007 if the sale of such FBO is consummated during such fiscal
            year."

      4.3   ADDITIONAL COVENANTS.

            4.3.1 SECURITY. As security for the full and timely payment of all
obligations under the Amended Note and any Additional Note, and the performance
of all obligations contained in this Amendment, the Purchase Agreement or any
document related hereto or thereto in connection with the Amended Note or
Additional Note, the Company covenants that it will, on and after the date
hereof, do or cause to be done, all things necessary in the reasonable opinion
of WMF and its counsel, to grant to WMF a duly perfected priority purchase
security interest in all of the Collateral, second in priority solely to the
security interest granted to Foothill, as agent, under the Senior Credit
Agreement. At the request of WMF, the Company will cause its duly authorized
officers to execute on its behalf, any certificate, instrument, statement or
document, or to procure any such certificate, instrument, statement or document,
or to take such other action which WMF counsel reasonably deems necessary, from
time to time, to create, continue or preserve WMF's security interest in and to
the Collateral (and the perfection and priority thereof) as contemplated hereby.

            4.3.2 CERTAIN OBLIGATIONS RELATED TO PERMITTED FINANCING
TRANSACTIONS.

            (a) The Company shall, and shall cause its Subsidiaries to,
immediately commence an active process to engage in Qualified Asset Sales and
other Permitted Financing Transaction and to continue to actively seek to engage
in Qualified Asset Sales so long as any amounts are outstanding under the Note.
The Company or the relevant Subsidiary shall promptly consummate any proposed
Qualified Asset Sale or other Permitted Financing Transaction upon receiving any
consents required under the Senior Credit Agreement. The Company shall
immediately apply the Net Cash Proceeds of any Permitted Financing Transaction
to prepay advances under the Senior Credit Agreement or to prepay outstanding
amounts under the Amended Note or Additional Note, in each case as set forth in
the Subordination Agreement.


                                       12

            (b) On the date hereof, the Company shall cause its by-laws to be
amended to establish two new standing committees of its Board of Directors (the
"SPECIAL COMMITTEES") to advise the Board of Directors as to the advisability of
specific Permitted Financing Transactions. One such committee shall advise the
Board of Directors as to the merits of all Permitted Financing Transactions
available to the Company, other than Asset Dispositions. The second such
committee (the "ASSET SALE COMMITTEE") shall advise the Board as to Qualified
Asset Sales. The Purchaser shall at all times have the rights granted to it in
Section 8.11 of the Purchase Agreement with respect to the Special Committees.
In addition, the Company shall promptly inform the Purchaser as to the substance
of any reports or advice given by the Special Committees to the Board of
Directors as to any proposed transaction, together with details regarding such
proposed transaction. The Company shall cause the Special Committees to exist
and to meet regularly to conduct their duties, in each case so long as any
amounts are outstanding under the Amended Note or the Additional Note. The Asset
Sale Committee shall consist at all times solely of directors who are (i)
"disinterested," within the meaning of Delaware law, in Qualified Asset Sales,
(ii) neither "executive officers" of the Company, as defined under the
Securities Exchange Act of 1934, nor affiliated with any such executive officers
and (iii) "independent" within the meaning of Section 301 of the Sarbanes-Oxley
Act of 2002; provided, however, in no case shall any of Joseph A. Czyzyk, Philip
J. Fagan, Jr., M.D. or Frederick H. Kopko, Jr. serve on the Asset Sale
Committee.

            (c) In furtherance of its obligations under paragraph (a) hereof, as
promptly as practicable following the date hereof, the Company shall at all
times retain a nationally recognized investment banking firm or firms acceptable
to the Company and the Purchaser to engage in an active process to present
suitable Asset Dispositions to the Company and to advise the Company with
respect to Asset Dispositions. The Company agrees that such process shall
include the actions specified on Schedule 4.3.2. The Company, the Asset Sale
Committee and the Board of Directors of the Company shall consider in good faith
the advice of such firm in proposing Qualified Asset Sales to WMF and Foothill.

            4.3.3 REGISTRATION OF COMMON STOCK. Within 90 days after (i) the
Effective Date with respect to the Amended Warrant and (ii) January 1, 2004 with
respect to any Additional Warrant, the Company shall prepare and file with the
Securities and Exchange Commission a registration statement on Form S-3 for an
offering to be made on a delayed or continuous basis pursuant to Rule 415 under
the Securities Act of 1933 registering the resale from time to time by WMF of
the shares of Common Stock issuable upon exercise of such Warrant (each, a
"SHELF REGISTRATION STATEMENT"). Each Shelf Registration Statement shall permit
the resale by WMF in accordance with the methods of distribution set forth in
such Shelf Registration Statement (such methods of distribution to include
underwritten offerings and other methods designated in writing by the Holders).
The Company shall use commercially reasonable efforts to cause each Shelf
Registration Statement to be declared effective under the Securities Act as soon
as reasonably practicable after the date it is filed. The Company shall use
commercially reasonable efforts to keep each Shelf Registration Statement
continuously effective under the Securities Act of 1933 the sale of all of the
Common Stock included in such Shelf Registration Statement. To the extent any
provision in this Section 4.3.3 is inconsistent with the Registration Rights
Agreement, this Section shall control. The parties hereby amend the Registration
Rights Agreement so that (i) the definition of "WMF Note" in the Registration


                                       13

Rights Agreement shall include the Amended Note and (ii) the definitions of "WMF
Warrant" and "Warrant" shall include the Amended Warrant.

                                   ARTICLE V

                         REPRESENTATIONS AND WARRANTIES

      The Company represents and warrants to the Purchaser as follows:

      5.1 REPRESENTATIONS AND WARRANTIES IN THE PURCHASE AGREEMENT. The
representations and warranties of the Company contained in the Article 5 of the
Purchase Agreement were true, correct and complete as and when made and are
true, correct and complete on the date hereof; provided that for purposes of
determining whether a representation is true, correct and complete on the date
hereof, and for no other purpose, any Schedule delivered pursuant to Section
8.1(k) of the Purchase Agreement as of the Effective Date with respect to a
particular representation or warranty shall be deemed to have amended such
representation and warranty.

      5.2 AUTHORITY, ETC. The execution and delivery by the Company of this
Amendment and the performance by the Company of all of its agreements and
obligations under this Amendment, the Purchase Agreement and the Collateral
Documents (i) are within the corporate authority of the Company, (ii) have been
duly authorized by all necessary corporate proceedings by the Company, (iii) do
not conflict with or result in any breach or contravention of any provision of
law, statute, rule or regulation to which the Company is subject or any
judgment, order, writ, injunction, license or permit applicable to the Company,
and (iv) do not conflict with any provision of the corporate charter or by-laws
of, or any agreement or other instrument binding upon, the Company.

      5.3 ENFORCEABILITY OF OBLIGATIONS. This Amendment, the Purchase Agreement,
the Collateral Documents, the Amended Note and the Amended Warrant constitute
the legal, valid and binding obligations of the Company, enforceable against it
in accordance with their respective terms.

      5.4 NO DEFAULT. After giving effect to this Amendment and transactions
contemplated by the Senior Credit Agreement, no default or Event of Default
exists under the Agreement or the Note.

      5.5 COLLATERAL DOCUMENTS; SECURITY INTERESTS. All filings and other
actions necessary to perfect and protect the security interest in the Collateral
created in favor of WMF under the Collateral Documents have been duly made or
taken, and are in full force and effect, and the Collateral Documents create in
favor of the WMF a valid and, together with such filings and other actions,
perfected second priority security interest in the Collateral, securing the
payment of the Company's obligations under this Amendment, the Purchase
Agreement and under the Amended Note. The Company is the legal and beneficial
owner of the Collateral free and clear of any Lien, except for the liens and
security interests created or permitted under the Purchase Agreement, as amended
by this Amendment.


                                       14

                                   ARTICLE VI

                             AFFIRMATION OF GUARANTY

      6.1 AFFIRMATION OF GUARANTY. For purposes of the Guaranty, by their
respective signatures below, each Guarantor hereby consents and agrees to the
entering into of this Amendment and acknowledges and affirms that the Guaranty
(as amended, modified or supplemented prior to the date hereof) remains in full
force and effect in accordance with its terms on the date hereof and after
giving effect to this Amendment.

                                  ARTICLE VII

                           CONDITIONS TO EFFECTIVENESS

         The effectiveness of this Amendment is conditioned upon the following:

      7.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties of
the Company contained in Article V hereof shall be true and correct at and as of
the date hereof and the Effective Date as if made at and as of such date, and
the Purchaser shall have received a certificate to the foregoing effect, dated
the Effective Date, and executed by the Chief Executive Officer of the Company.

      7.2 COMPLIANCE WITH THIS AMENDMENT AND THE PURCHASE AGREEMENT. The Company
shall have performed and complied with all of its agreements and conditions set
forth or contemplated herein or in the Purchase Agreement that are required to
be performed or complied with by the Company on or before the Effective Date,
and the Purchaser shall have received a certificate to the foregoing effect,
dated the Effective Date, and executed by the Chief Executive Officer of the
Company.

      7.3 SECRETARY'S CERTIFICATES.

            7.3.1 The Purchaser shall have received a certificate from the
Company, dated the Closing Date and signed by the Secretary or an Assistant
Secretary of the Company, certifying (i) that the attached copies of the
Certificate of Incorporation and By-laws of the Company, and resolutions of the
Board of Directors of the Company approving this Amendment and the transactions
contemplated hereby and establishing the Asset Sale Committee are all true,
complete and correct and remain unamended and in full force and effect, and (ii)
the incumbency and specimen signature of each officer of the Company executing
any Transaction Document to which it is a party or any other document delivered
in connection herewith and therewith on behalf of the Company.

            7.3.2 The Purchaser shall have received a certificate from each
Subsidiary of the Company that is a Guarantor, certifying (i) that the attached
copies of the Certificate of Incorporation and By-laws of such Subsidiary, and
the resolutions of the Board of Directors of such Subsidiary approving this
Amendment and the transactions contemplated hereby are all true, complete and
correct and remain unamended and in full force and effect, and (ii) the


                                       15

incumbency and specimen signatures of each officer of such Subsidiary executing
this Amendment or any other document delivered in connection herewith on behalf
of the Subsidiary.

      7.4 DOCUMENTS. The Purchaser shall have received true, complete and
correct copies of (i) the SEC Reports of the Company and (ii) such agreements,
schedules, exhibits, certificates, documents, financial information and filings
as they may request in connection with or relating to the transactions
contemplated hereby, all in form and substance satisfactory to the Purchaser.

      7.5 PURCHASE OF SECURITIES PERMITTED BY APPLICABLE LAWS. The consummation
of the transactions contemplated hereby:

            7.5.1 shall not be prohibited by any Requirement of Law,

            7.5.2 shall not subject the Purchaser to any penalty or other
onerous condition under or pursuant to any Requirement of Law, and

            7.5.3 shall be permitted by all Requirements of Law to which
Purchaser or the transactions contemplated by or referred to herein are subject;
and the Purchaser shall have received such certificates or other evidence as it
may reasonably request to establish compliance with this condition.

      7.6 OPINION OF COUNSEL. The Purchaser shall have received an opinion of
outside counsel to the Company and its Subsidiaries, dated as of the Effective
Date, relating to the transactions contemplated by or referred to herein, in
form and substance acceptable to the Purchaser.

      7.7 APPROVAL OF COUNSEL TO THE PURCHASER. All actions and proceedings
hereunder and all agreements, schedules, exhibits, certificates, financial
information, filings and other documents required to be delivered by the Company
and each of its Subsidiaries hereunder or in connection with the consummation of
the transactions contemplated hereby, and all other related matters, shall have
been in form and substance acceptable to Kirkland & Ellis, counsel to the
Purchaser, in its reasonable judgment (including, without limitation, the
opinion of counsel referred to in Section 7.6 hereof).

      7.8 CONSENTS AND APPROVALS. All consents, exemptions, authorizations, or
other actions by, or notices to, or filings with, Governmental Authorities and
other Persons in respect of all Requirements of Law and with respect to those
Contractual Obligations of the Company and each of its Subsidiaries necessary,
desirable, or required in connection with the execution, delivery or performance
(including, without limitation, the payment of interest on the Notes and the
issuance of Common Stock upon the exercise of the Warrants) by the Company, or
enforcement against the Company, of the Transaction Documents to which it is a
party shall have been obtained and be in full force and effect, and the
Purchaser shall have been furnished with appropriate evidence thereof, and all
waiting periods shall have lapsed without extension or the imposition of any
conditions or restrictions.

      7.9 REGISTRATION RIGHTS AGREEMENT. The Registration Rights Agreement shall
be in full force and effect.


                                       16

      7.10 PREEMPTIVE RIGHTS AGREEMENT. The Preemptive Rights Agreement shall be
in full force and effect.

      7.11 NO MATERIAL JUDGMENT OR ORDER. There shall not be on the Effective
Date any judgment or order of a court of competent jurisdiction or any ruling of
any Governmental Authority or any condition imposed under any Requirement of Law
which, in the judgment of the Purchaser, would prohibit the purchase of the
Securities hereunder or subject the Purchaser to any penalty or other onerous
condition under or pursuant to any Requirement of Law if the Securities were to
be purchased hereunder.

      7.12 PRO FORMA BALANCE SHEET. The Company shall have delivered to the
Purchaser as of the Closing Date a pro forma consolidated balance sheet of the
Company and its Subsidiaries, certified by the chief financial officer of the
Company that it fairly presents the pro forma adjustments reflecting the
consummation of the transactions contemplated by hereby and by the Senior Credit
Agreement, including all material fees and expenses in connection therewith.

      7.13 GOOD STANDING CERTIFICATES. The Company shall have delivered to the
Purchaser as of the Closing Date, good standing certificates for the Company and
each of its Subsidiaries for each of their respective jurisdictions of
incorporation and all other jurisdictions where they do business.

      7.14 NO LITIGATION. Except as set forth on Schedule 7.14, no action, suit
or proceeding before any court or any Governmental Authority shall have been
commenced or threatened, no investigation by any Governmental Authority shall
have been commenced and no action, suit or proceeding by any Governmental
Authority shall have been threatened against the Purchaser, the Company or any
Subsidiary (i) seeking to restrain, prevent or change the transactions
contemplated hereby or questioning the validity or legality of any of such
transactions, or (ii) which would, if resolved adversely to the Purchaser,
Company or any Subsidiary, severally or in the aggregate, materially and
adversely affect the Condition of the Company.

      7.15 RECEIPT OF ADDITIONAL DOCUMENTS.

            (a) The Purchaser shall have received a Guaranty duly executed and
delivered by each Subsidiary of the Company organized under the laws of any
state or the District of Columbia of the United States of America, other than
such Subsidiaries that have previously executed the Guaranty; and

            (b) The Purchaser shall have received manually signed copies of the
Senior Credit Agreement, the Subordination Agreement and the Security Agreement,
each executed by the Company and all other parties thereto, which agreements
shall be in full force and effect.

            (c) The Purchaser shall have received a Validity Agreement from
Joseph A. Czyzyk in favor of the Purchaser.

      7.16 NO DEFAULTS. The Purchaser shall be satisfied that, after giving
effect to this Amendment and the transactions contemplated by the Senior Credit
Agreement, no default or Event of Default shall then exist.


                                       17

      7.17 SENIOR CREDIT AGREEMENT. All conditions for the benefit of the
lenders to the effectiveness and first borrowing under the Senior Credit
Agreement shall have been satisfied and not waived.

                                  ARTICLE VIII

                                  MISCELLANEOUS

      8.1 CONTINUED EFFECTIVENESS. Notwithstanding anything contained herein,
the terms of this Amendment are not intended to and do not serve to effect a
novation as to the Purchase Agreement. The parties hereto expressly do not
intend to extinguish the Purchase Agreement. Instead, it is the express
intention of the parties hereto to reaffirm the indebtedness created under the
Purchase Agreement (including, without limitation, the Note) and the other
documents contemplated thereby and to reaffirm the rights and obligations
contained therein. The Purchase Agreement as amended hereby and each of the
other documents contemplated thereby shall remain in full force and effect.
Except as herein amended, the Purchase Agreement shall remain unchanged and in
full force and effect, and is hereby ratified in all respects. All of the
representations, warranties and covenants contained in the Purchase Agreement
and this Amendment shall survive the execution and delivery of this Amendment.

      8.2 NOTICES. All notices, demands and other communications provided for or
permitted hereunder shall be made in writing and shall be by registered or
certified first-class mail, return receipt requested, telecopier, courier
service or personal delivery:

      (a)   if to the Purchaser:

            J.H. Whitney Mezzanine Fund, L.P.
            177 Broad Street
            Stamford, Connecticut  06901
            Telecopier No.: (203) 973-1422
            Attention:     Mr. Daniel J. O'Brien
                           Mr. David Kroin
                           Kevin Curley, Esq.

            with a copy to:

            Kirkland & Ellis
            153 East 53rd Street
            New York, New York  10022
            Telecopier No.: (212) 446-4900
            Attention:     Frederick Tanne, Esq.
                           Andrew E. Nagel, Esq.


                                       18

      (b)   if to the Company:

            Mercury Air Group, Inc.
            5456 McConnel Avenue
            Los Angeles, CA 90066
            Telecopier No.: (310) 827-0650
            Attention:       Mr. Joseph A. Czyzyk
                             Wayne J. Lovett, Esq.

            with a copy to:

            McBreen, McBreen & Kopko
            20 North Wacker Drive
            Suite 2520
            Chicago, IL  60606
            Attn:  Fred Kopko
            Fax No. 312.332.2657

            Riordan & McKinzie
            300 South Grand Avenue, 29th Floor
            Los Angeles, CA  90071
            Attn: Thomas A. Waldman
            Fax No. 213.830.8608

            All such notices and communications shall be deemed to have been
duly given: when delivered by hand, if personally delivered; when delivered by
courier, if delivered by commercial overnight courier service; if mailed, five
Business Days after being deposited in the mail, postage prepaid; and if
telecopied, when receipt is acknowledged.

      8.3 SUCCESSORS AND ASSIGNS; THIRD PARTY BENEFICIARIES. This Amendment
shall inure to the benefit of and be binding upon the successors and permitted
assigns of the parties hereto.

      8.4 REFERENCES. Any reference to the Purchase Agreement contained in any
notice, requisite, certificate, or other document executed concurrently with or
after the execution and delivery of this Amendment shall be deemed to include
the amendments contained in this Amendment unless the context shall otherwise
require.

      8.5 SIGNATURES; COUNTERPARTS. Telefacsimile transmissions of any executed
original document and/or retransmission of any executed telefacsimile
transmission shall be deemed to be the same as the delivery of an executed
original. At the request of any party hereto, the other parties hereto shall
confirm telefacsimile transmissions by executing duplicate original documents
and delivering the same to the requesting party or parties. This Amendment may
be executed in any number of counterparts and by the parties hereto in separate
counterparts, each


                                       19

of which when so executed shall be deemed to be an original and all of which
taken together shall constitute one and the same agreement.

      8.6 HEADINGS. The headings in this Amendment are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.

      8.7 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, CONSTRUED IN
ACCORDANCE WITH, AND ENFORCED UNDER, THE LAW OF THE STATE OF NEW YORK, WITHOUT
REGARD TO THE PRINCIPLES OF CONFLICTS OF LAW OF SUCH STATE (INCLUDING GIVING
EFFECT TO GOL SECTION 5-1401).

      8.8 SEVERABILITY. If any one or more of the provisions contained herein,
or the application thereof in any circumstance, is held invalid, illegal or
unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions hereof shall not be in any way impaired, unless the provisions held
invalid, illegal or unenforceable shall substantially impair the benefits of the
remaining provisions hereof.

      8.9 CERTAIN EXPENSES. The Company will pay all expenses of the Purchaser
(including fees, charges and disbursements of counsel and consultants) in
connection with this Amendment.


                                       20

      IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed and delivered by their respective officers hereunto duly authorized as
of the date first above written.

                                        MERCURY AIR GROUP, INC.

                                        By:     ________________________________
                                                Name:
                                                Title:





                                        J.H. WHITNEY MEZZANINE FUND, L.P.
                                        By:      Whitney GP, L.L.C.


                                        By:     ________________________________
                                                Name:
                                                Title:   A Managing Member


                  [SIGNATURE PAGE TO AMENDMENT NO. 3 AGREEMENT]

                                   GUARANTORS:

MERCFUEL, INC.

By:    ______________________________
Name:
Title:

MAYTAG AIRCRAFT CORPORATION

By:    ______________________________
Name:  ______________________________
Title: ______________________________

MERCURY AIR CARGO, INC.

By:    ______________________________
Name:  ______________________________
Title: ______________________________

AEG FINANCE CORPORATION

By:    ______________________________
Name:  ______________________________
Title: ______________________________

MERCURY AIR CENTERS, INC.
(F/K/A WOFFORD FLYING SERVICES, INC.)

By:    ______________________________
Name:  ______________________________
Title: ______________________________

HERMES AVIATION, INC.

By:    ______________________________
Name:  ______________________________
Title: ______________________________

VULCAN AVIATION, INC.

By:    ______________________________
Name:  ______________________________
Title: ______________________________

                  [SIGNATURE PAGE TO AMENDMENT NO. 3 AGREEMENT]

RPA AIRLINE AUTOMATION SERVICES, INC.
(F/K/A RENE PEREZ AND ASSOCIATES, INC.)

By:    ______________________________
Name:  ______________________________
Title: ______________________________

MERCURY ACCEPTANCE CORPORATION

By:    ______________________________
Name:  ______________________________
Title: ______________________________

EXCEL CARGO, INC.

By:    ______________________________
Name:  ______________________________
Title: ______________________________

MERCURY AIR CENTER-BIRMINGHAM, LLC

By:    ______________________________
Name:  ______________________________
Title: ______________________________

MERCURY AIR CENTER-BAKERSFIELD, INC.

By:    ______________________________
Name:  ______________________________
Title: ______________________________

MERCURY AIR CENTER-BURBANK, INC.

By:    ______________________________
Name:  ______________________________
Title: ______________________________

MERCURY AIR CENTER-FRESNO, INC.

By:    ______________________________
Name:  ______________________________
Title: ______________________________

MERCURY AIR CENTER-LOS ANGELES, INC.

By:    ______________________________
Name:  ______________________________
Title: ______________________________



                  [SIGNATURE PAGE TO AMENDMENT NO. 3 AGREEMENT]

MERCURY AIR CENTER-ONTARIO, INC.

By:    ______________________________
Name:  ______________________________
Title: ______________________________

MERCURY AIR CENTER-SANTA BARBARA

By:    ______________________________
Name:  ______________________________
Title: ______________________________

MERCURY AIR CENTER-HARTSFIELD, LLC
By:    ______________________________
Name:  ______________________________
Title: ______________________________

MERCURY AIR CENTER-PEACHTREE-DEKALB, LLC

By:    ______________________________
Name:  ______________________________
Title: ______________________________

MERCURY AIR CENTER- FT. WAYNE, LLC

By:    ______________________________
Name:  ______________________________
Title: ______________________________

MERCURY AIR CENTER-JACKSON, L.L.C.

By:    ______________________________
Name:  ______________________________
Title: ______________________________

MERCURY AIR CENTER-RENO, LLC

By:    ______________________________
Name:  ______________________________
Title: ______________________________

MERCURY AIR CENTER-TULSA, LLC

By:    ______________________________
Name:  ______________________________
Title: ______________________________

MERCURY AIR CENTER-CHARLESTON, LLC


                  [SIGNATURE PAGE TO AMENDMENT NO. 3 AGREEMENT]

By:    ______________________________
Name:  ______________________________
Title: ______________________________

MERCURY AIR CENTER-JOHNS ISLAND, LLC

By:    ______________________________
Name:  ______________________________
Title: ______________________________

MERCURY AIR CENTER-NASHVILLE, LLC

By:    ______________________________
Name:  ______________________________
Title: ______________________________

MERCURY AIR CENTER-ADDISON, INC.

By:    ______________________________
Name:  ______________________________
Title: ______________________________

MERCURY AIR CENTER - CORPUS CHRISTI, INC.

By:    ______________________________
Name:  ______________________________
Title: ______________________________


                  [SIGNATURE PAGE TO AMENDMENT NO. 3 AGREEMENT]

EX-10.3

                                                                    EXHIBIT 10.3


                        AMENDED AND RESTATED WMF WARRANT

                               September 10, 1999

      THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
      SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAW OF ANY STATE AND
      MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO
      AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE STATE
      SECURITIES LAWS OR PURSUANT TO AN APPLICABLE EXEMPTION FROM THE
      REGISTRATION REQUIREMENTS OF SUCH ACT AND SUCH LAWS.

                                                    Warrant to Purchase 503,126
                                                    Shares of Common Stock

                             MERCURY AIR GROUP, INC.

                          COMMON STOCK PURCHASE WARRANT

                          Void after September 9, 2006

      Mercury Air Group, Inc. (the "Company" ), a Delaware corporation,
hereby certifies that for value received, J. H. Whitney Mezzanine Debt Fund,
L.P. ("WMF"), a Delaware limited partnership, or its successors or assigns
(the "Holder"), is entitled to purchase, subject to the terms and conditions
hereinafter set forth, an aggregate of 503,126 fully paid and nonassessable
shares of Common Stock (as hereinafter defined) of the Company, at an
exercise price of $3.742 per share (the "Purchase Price"), subject to
adjustment as provided herein, at any time or from time to time beginning on
the date hereof and prior to 5:00 P.M., New York City time, on September 9,
2006 (the "Expiration Date").

      This Amended and Restated WMF Warrant amends and restates the Warrant
issued pursuant to the Securities Purchase Agreement (the "PURCHASE Agreement"),
dated as of the date hereof, between Mercury Air Group, Inc. and WMF, as
amended, and is subject to the terms thereof. Capitalized terms used herein and
not otherwise defined shall have the respective meanings assigned to such terms
in the Purchase Agreement. The Holder is entitled to the rights and subject to
the obligations contained in the Purchase Agreement, the Stockholders' Agreement
and the Registration Rights Agreement relating to this Warrant and the shares of
Common Stock issuable upon exercise of this Warrant.

      1. Definitions. For the purposes of this Warrant, the following terms
shall have the meanings indicated:

      "Applicable Price" shall mean the higher of (a) the Current Market Price
per share of Common Stock on the applicable record or other relevant date and
(b) the Dilution Price.

      "Business Day" shall mean any day other than a Saturday, Sunday or other
day on which commercial banks in the City of New York are authorized or required
by law or executive order to close.

      "Closing Price" shall mean, with respect to each share of Common Stock for
any day, (a) the last reported sale price regular way or, in case no such sale
takes place on such day, the average of the closing bid and asked prices regular
way, in either case as reported on the principal national securities exchange on
which the Common Stock is listed or admitted for trading or (b) if the Common
Stock is not listed or admitted for trading on any national securities exchange,
the last reported sale price or, in case no such sale takes place on such day,
the average of the highest reported bid and the lowest reported asked quotation
for the Common Stock, in either case as reported on the NASDAQ or a similar
service if NASDAQ is no longer reporting such information.

      "Common Stock" means the common stock, par value $.01 per share, of the
Company, and any class of stock resulting from successive changes or
reclassification of such Common Stock.

      "Company" has the meaning ascribed to such term in the first paragraph of
this Warrant.

      "Current Market Price" shall be determined in accordance with Subsection
3(e).

      "Dilution Price" shall mean, with respect to each share of Common Stock,
$3.742, subject to appropriate adjustment for events described in Subsection
3(a).

      "Exercise Date" has the meaning ascribed to such term in Subsection 2(d).

      "Expiration Date" has the meaning ascribed to such term in the first
paragraph of this Warrant.

      "Holder" has the meaning ascribed to such term in the first paragraph and
Section 9 of this Warrant.

      "Issued Warrant Shares" means any shares of Common Stock issued upon
exercise of the Warrant.

      "NASDAQ" shall mean the Automatic Quotation System of the National
Association of Securities Dealers, Inc.

      "Person" shall mean any individual, firm, corporation, limited liability
company, partnership, trust, incorporated or unincorporated association, joint
venture, joint stock company, government (or an agency or political subdivision
thereof) or other entity of any kind, and shall include any successor (by merger
or otherwise) of such entity.

      "Purchase Agreement" has the meaning ascribed to such term in the second
paragraph of this Warrant.


                                       2

      "Purchase Price" has the meaning ascribed to such term in the first
paragraph of this Warrant.

      "Stockholders' Agreement" means the Stockholders' Agreement substantially
in the form attached to the Purchase Agreement as Exhibit E.

      "Warrant" shall mean this Warrant and any subsequent Warrant issued
pursuant to the terms of this Warrant.

      "Warrant Register" has the meaning ascribed to such term in Subsection
9(c).

      2. Exercise of Warrant.

            (a) Exercise. This Warrant may be exercised, in whole or in part, at
any time or from time to time during the period beginning on the date hereof and
ending on the Expiration Date, by surrendering to the Company at its principal
office this Warrant, with the form of Election to Purchase Shares (the "Election
to Purchase Shares") attached hereto as Exhibit A duly executed by the Holder
and accompanied by payment of the Purchase Price for the number of shares of
Common Stock specified in such form.

            (b) Delivery of Shares; Payment of Purchase Price. As soon as
practicable after surrender of this Warrant and receipt of payment, the Company
shall promptly issue and deliver to the Holder a certificate or certificates for
the number of shares of Common Stock set forth in the Election to Purchase
Shares, in such name or names as may be designated by such Holder, along with a
check for the amount of cash to be paid in lieu of issuance of fractional
shares, if any. Payment of the Purchase Price may be made as follows (or by any
combination of the following): (i) in United States currency by cash or delivery
of a certified check, bank draft or postal or express money order payable to the
order of the Company, (ii) by assigning to the Company all or any part of the
unpaid principal amount of the WMF Note held by the Holder in a principal amount
equal to the Purchase Price, (iii) by surrender of a number of shares of Common
Stock held by the Holder equal to the quotient obtained by dividing (A) the
Purchase Price payable with respect to the portion of this Warrant then being
exercised by (B) the Current Market Price per share of Common Stock on the
Exercise Date, or (iv) by cancellation of any portion of this Warrant with
respect to the number of shares of Common Stock equal to the quotient obtained
by dividing (A) the aggregate Purchase Price payable with respect to the portion
of this Warrant then being exercised by (B) the difference between (1) Current
Market Price per share of Common Stock on the Exercise Date, and (2) the
Purchase Price per share of Common Stock.

            (c) Partial Exercise. If this Warrant is exercised for less than all
of the shares of Common Stock purchasable under this Warrant, the Company shall
cancel this Warrant upon surrender hereof and shall execute and deliver to the
Holder a new Warrant of like tenor for the balance of the shares of Common Stock
purchasable hereunder.

            (d) When Exercise Effective. The exercise of this Warrant shall be
deemed to have been effective immediately prior to the close of business on the
Business Day on which this Warrant is surrendered to and the Purchase Price is
received by the Company as provided in this Section 2 (the "Exercise Date") and
the Person in whose name any certificate for shares of


                                       3

Common Stock shall be issuable upon such exercise, as provided in Subsection
2(b), shall be deemed to be the record holder of such shares of Common Stock for
all purposes on the Exercise Date.

            (e) Issued Warrant Shares Fully Paid, Nonassessable. The Company
shall take all actions necessary to ensure that following exercise of this
Warrant in accordance with the provisions of this Section 2, the Issued Warrant
Shares issued hereunder shall, without further action by the Holder, be fully
paid and nonassessable.

            (f) Continued Validity. A Holder of shares of Common Stock issued
upon the exercise of this Warrant, in whole or in part, shall continue to be
entitled to all of the rights and subject to all of the obligations set forth in
Section 9.

      3. Adjustment of Purchase Price and Number of Shares. The Purchase Price
and the number of shares of Common Stock issuable upon exercise of this Warrant
shall be adjusted from time to time upon the occurrence of the following events:

            (a) Dividend, Subdivision, Combination or Reclassification of Common
Stock. If the Company shall, at any time or from time to time, (i) declare a
dividend on the Common Stock payable in shares of its capital stock (including
Common Stock), (ii) subdivide the outstanding Common Stock into a larger number
of shares of Common Stock, (iii) combine the outstanding Common Stock into a
smaller number of shares of its Common Stock, or (iv) issue any shares of its
capital stock in a reclassification of the Common Stock (including any such
reclassification in connection with a consolidation or merger in which the
Company is the continuing corporation), then in each such case, the Purchase
Price in effect at the time of the record date for such dividend or of the
effective date of such subdivision, combination or reclassification, and the
number and kind of shares of capital stock issuable on such date shall be
proportionately adjusted so that the Holder of any Warrant exercised after such
date shall be entitled to receive, upon payment of the same aggregate amount as
would have been payable before such date, the aggregate number and kind of
shares of capital stock which, if such Warrant had been exercised immediately
prior to such date, such Holder would have owned upon such exercise and been
entitled to receive by virtue of such dividend, subdivision, combination or
reclassification. Any such adjustment shall become effective immediately after
the record date of such dividend or the effective date of such subdivision,
combination or reclassification. Such adjustment shall be made successively
whenever any event listed above shall occur. If a dividend is declared and such
dividend is not paid, the Purchase Price shall again be adjusted to be the
Purchase Price in effect immediately prior to such record date (giving effect to
all adjustments that otherwise would be required to be made pursuant to this
Section 3 from and after such record date).

            (b) Issuance of Rights to Purchase Common Stock Below Current Market
Price or Dilution Price. If the Company shall, at any time or from time to time,
fix a record date for the issuance of rights, options or warrants to all holders
of Common Stock entitling them to subscribe for or purchase Common Stock, or
securities convertible into Common Stock at a price per share of Common Stock or
having a conversion price per share of Common Stock if a security is convertible
into Common Stock (determined in either such case by dividing (x) the total
consideration payable to the Company upon exercise, conversion or exchange of
such


                                       4

rights, options, warrants or other securities convertible into Common Stock by
(y) the total number of shares of Common Stock covered by such rights, options,
warrants or other securities convertible into Common Stock) which is lower than
either the Current Market Price per share of Common Stock on such record date
(or, if an ex-dividend date has been established for such record date, on the
day next preceding such ex-dividend date) or the Dilution Price, then, the
Purchase Price shall be reduced to the price determined by multiplying the
Purchase Price in effect immediately prior to such record date by a fraction,
the numerator of which shall be the sum of the number of shares of Common Stock
outstanding on such record date plus the number of additional shares of Common
Stock which the aggregate offering price of the total number of shares of Common
Stock so to be offered (or the aggregate initial conversion price of the
convertible securities so to be offered) would purchase at the Applicable Price
and the denominator of which shall be the number of shares of Common Stock
outstanding on such record date plus the number of additional shares of Common
Stock to be offered for subscription or purchase (or into which the convertible
securities so to be offered are initially convertible). In case such price for
subscription or purchase may be paid in a consideration part or all of which
shall be in a form other than cash, the value of such consideration shall be
determined in good faith by the Board of Directors of the Company. Any such
adjustment shall become effective immediately after the record date for such
rights or warrants. Such adjustment shall be made successively whenever such a
record date is fixed. If such rights, options or warrants are not so issued, the
Purchase Price shall be adjusted to the Purchase Price that otherwise would be
in effect but for the fact such record date was fixed (giving effect to all
adjustments that otherwise would be required to be made pursuant to this Section
3 from and after such record date).

            (c) Certain Distributions. If the Company shall, at any time or from
time to time, fix a record date for the distribution to all holders of Common
Stock (including any such distribution made in connection with a consolidation
or merger in which the Company is the continuing corporation) of evidences of
indebtedness, assets or other property (other than regularly scheduled cash
dividends or cash distributions payable out of consolidated earnings or earned
surplus or dividends payable in capital stock for which adjustment is made under
Subsection 3(a)) or subscription rights, options or warrants (excluding those
referred to in Subsection 3(b)), then the Purchase Price shall be reduced to the
price determined by multiplying the Purchase Price in effect immediately prior
to such record date by a fraction (which shall in no event be less than zero),
the numerator of which shall be the Current Market Price per share of Common
Stock on such record date (or, if an ex-dividend date has been established for
such record date, on the next day preceding such ex-dividend date), less the
fair market value (as determined in good faith by the Board of Directors of the
Company) of the portion of the assets, evidences of indebtedness, other
property, subscription rights or warrants so to be distributed applicable to one
share of Common Stock and the denominator of which shall be such Current Market
Price per share of Common Stock. Any such adjustment shall become effective
immediately after the record date for such distribution. Such adjustments shall
be made successively whenever such a record date is fixed. In the event that
such distribution is not so made, the Purchase Price shall be adjusted to the
Purchase Price in effect immediately prior to such record date (giving effect to
all adjustments that otherwise would be required to be made pursuant to this
Section 3 from and after such record date).

            (d) Issuance of Common Stock Below Current Market Price or Dilution
Price. (i) If the Company shall, at any time and from time to time, after the
date hereof, directly or


                                       5

indirectly, sell or issue shares of Common Stock (regardless of whether
originally issued or from the Company's treasury), or rights, options, warrants
or convertible or exchangeable securities containing the right to subscribe for
or purchase shares of Common Stock) at a price per share of Common Stock
(determined, in the case of rights, options, warrants or convertible or
exchangeable securities, by dividing (x) the total consideration received or
receivable by the Company in consideration of the sale or issuance of such
rights, options, warrants or convertible or exchangeable securities, plus the
total consideration payable to the Company upon exercise or conversion or
exchange thereof, by (y) the total number of shares of Common Stock covered by
such rights, options, warrants or convertible or exchangeable securities) which
is lower than either the Current Market Price per share of Common Stock or the
Dilution Price immediately prior to such sale or issuance, then, subject to
clause 3(d)(ii), the Purchase Price shall be reduced to a price determined by
multiplying the Purchase Price in effect immediately prior thereto by a
fraction, the numerator of which shall be the sum of the number of shares of
Common Stock outstanding immediately prior to such sale or issuance plus the
number of shares of Common Stock which the aggregate consideration received
(determined as provided below) for such sale or issuance would purchase at the
Applicable Price and the denominator of which shall be the total number of
shares of Common Stock outstanding immediately after such sale or issuance. Such
adjustment shall be made successively whenever such sale or issuance is made.
For the purposes of such adjustments, the shares of Common Stock which the
holder of any such rights, options, warrants, or convertible or exchangeable
securities shall be entitled to subscribe for or purchase shall be deemed to be
issued and outstanding as of the date of such sale or issuance and the
consideration "received" by the Company therefor shall be deemed to be the
consideration actually received or receivable by the Company (plus any
underwriting discounts or commissions in connection therewith) for such rights,
options, warrants or convertible or exchangeable securities, plus the
consideration stated in such rights, options, warrants or convertible or
exchangeable securities to be payable to the Company for the shares of Common
Stock covered thereby. If the Company shall sell or issue shares of Common Stock
for a consideration consisting, in whole or in part, of property other than cash
or its equivalent, then in determining the "price per share of Common Stock" and
the "consideration" received or receivable by or payable to the Company for
purposes of the first sentence and the immediately preceding sentence of this
Subsection 3(d), the fair value of such property shall be determined in good
faith by the Board of Directors of the Company. The determination of whether any
adjustment is required under this Subsection 3(d) by reason of the sale and
issuance of rights, options, warrants or convertible or exchangeable securities
and the amount of such adjustment, if any, shall be made only at the time of
such issuance or sale and not at the subsequent time of issuance of shares of
Common Stock upon the exercise of such rights to subscribe or purchase.

                  (ii) No adjustment shall be made to the Purchase Price
pursuant to clause 3(d)(i) in connection with the issuance of (A) shares issued
upon exercise of this Warrant; or (B) options to purchase an aggregate of
141,693 shares of Common Stock granted on or after December 30, 2002, if such
shares would otherwise be included in clause 3(d)(i).

                  (iii) Notwithstanding any provision in Section 3 to the
contrary and without limitation to any other provision contained in Section 3,
in the event any securities of the Company (other than this Warrant), including,
without limitation, those securities set forth as exceptions in Subsection
3(d)(ii) (for purposes of this Subsection, collectively, the "SUBJECT
SECURITIES"), are amended or otherwise modified by operation of its terms or
otherwise


                                       6

(including, without limitation, by operation of such Subject Securities'
anti-dilution provisions, other than anti-dilution provisions substantially
similar to those set forth in Subsection 3(d)(i)) in any manner whatsoever that
results in (i) the reduction of the exercise, conversion or exchange price of
such Subject Securities payable upon the exercise for, or conversion or exchange
into, Common Stock or other securities exercisable for, or convertible or
exchangeable into, Common Stock and/or (ii) such Subject Securities becoming
exercisable for, or convertible or exchangeable into (A) more shares or dollar
amount of such Subject Securities which are, in turn exercisable for, or
convertible or exchangeable into, Common Stock, or (B) more shares of Common
Stock, then such amendment or modification shall be treated for purposes of
Section 3 as if the Subject Securities which have been amended or modified have
been terminated and new securities have been issued with the amended or modified
terms. The Company shall make all necessary adjustments (including successive
adjustments if required) to the Purchase Price in accordance with Section 3, but
in no event shall the Purchase Price be greater than it was immediately prior to
the application of this Subsection to the transaction in question. On the
expiration or termination of any such amended or modified Subject Securities for
which adjustment has been made pursuant to the operation of the provisions of
this Subsection under Section 3(b) or 3(d), as the case may be, without such
Subject Securities having been exercised, converted or exchanged in full
pursuant to their terms, the adjusted Purchase Price shall be appropriately
readjusted in the manner specified in such Section.

            (e) Determination of Current Market Price. For the purpose of any
computation under Subsections (b), (c) or (d) of this Section 3 or any other
provision of this Warrant, the Current Market Price per share of Common Stock on
any date shall be deemed to be the average of the daily Closing Prices per share
of Common Stock for the 10 consecutive trading days commencing 15 trading days
before such date. If on any such date the shares of Common Stock are not listed
or admitted for trading on any national securities exchange or quoted by NASDAQ
or a similar service, then the Company, on the one hand, and WMF on the other
hand, shall each promptly appoint as an appraiser an individual who shall be a
member of a nationally recognized investment banking firm. Each appraiser shall
be instructed to, within 30 days of appointment, determine the Current Market
Price per share of Common Stock which shall be deemed to be equal to the fair
market value per share of Common Stock as of such date. If the two appraisers
are unable to agree on the Current Market Price per share of Common Stock within
such 30 day period, then the two appraisers, within 10 days after the end of
such 30 day period shall jointly select a third appraiser. The third appraiser
shall, within 30 days of its appointment, determine, in good faith, the Current
Market Price per share of Common Stock and such determination shall be
controlling. If any party fails to appoint an appraiser or if one of the two
initial appraisers fails after appointment to submit its appraisal within the
required period, the appraisal submitted by the remaining appraiser shall be
controlling. The cost of the foregoing appraisals shall be shared one-half by
the Company and one-half by WMF, provided, however, in the event a third
appraiser is utilized and one of the two initial appraisals (but not the other
initial appraisal) is greater than or less than the appraisal by such third
appraiser by 10% or more, then the cost of all of the foregoing appraisals shall
be borne by the party who appointed the appraiser who made such initial
appraisal.

            (f) De Minimis Adjustments. No adjustment in the Purchase Price
shall be made if the amount of such adjustment would result in a change in the
Purchase Price per share of less than $0.05, but in such case any adjustment
that would otherwise be required to be made


                                       7

shall be carried forward and shall be made at the time of and together with the
next subsequent adjustment, which together with any adjustment so carried
forward, would result in a change in the Purchase Price of $0.05 per share or
more. If the Company shall, at any time or from time to time, issue Common Stock
by way of dividends on any stock of the Company or subdivide or combine the
outstanding shares of the Common Stock, such amount of $0.05 (as theretofore
increased or decreased, if such amounts shall have been adjusted in accordance
with the provisions of this clause) shall forthwith be proportionately increased
in the case of a combination or decreased in the case of a subdivision or stock
dividend so as appropriately to reflect the same. Notwithstanding the provisions
of the first sentence of this Subsection 3(f), any adjustment postponed pursuant
to this Subsection 3(f) shall be made no later than the earlier of (i) three
years from the date of the transaction that would, but for the provisions of the
first sentence of this Section 3(f), have required such adjustment, (ii) an
Exercise Date or (iii) the Expiration Date.

            (g) Adjustments to Other Shares. In the event that at any time, as a
result of an adjustment made pursuant to Subsection 3(a), the Holder shall
become entitled to receive, upon exercise of this Warrant, any shares of capital
stock of the Company other than shares of Common Stock, the number of such other
shares so receivable upon exercise of this Warrant shall be subject to
adjustment from time to time in a manner and on terms as nearly equivalent as
practicable to the provisions with respect to the shares of Common Stock
contained in Subsections 3(a), (b), (c) and (d), inclusive, and the provisions
of Sections 2, 5, 6 and 7 with respect to the shares of Common Stock shall apply
on like terms to any such other shares.

            (h) Adjustment of Number of Shares Issuable Upon Exercise. Upon each
adjustment of the Purchase Price as a result of the calculations made in
Subsections 3(a), (b), (c) or (d), this Warrant shall thereafter evidence the
right to receive, at the adjusted Purchase Price, that number of shares of
Common Stock (calculated to the nearest one-hundredth) obtained by dividing (x)
the product of the aggregate number of shares of Common Stock covered by this
Warrant immediately prior to such adjustment and the Purchase Price in effect
immediately prior to such adjustment of the Purchase Price by (y) the Purchase
Price in effect immediately after such adjustment of the Purchase Price.

            (i) Reorganization, Reclassification, Merger and Sale of Assets. If
there occurs any capital reorganization or any reclassification of the Common
Stock of the Company, the consolidation or merger of the Company with or into
another Person (other than a merger or consolidation of the Company in which the
Company is the continuing corporation and which does not result in any
reclassification or change of outstanding shares of its Common Stock) or the
sale or conveyance of all or substantially all of the assets of the Company to
another Person, then the Holder will thereafter be entitled to receive, upon the
exercise of this Warrant in accordance with the terms hereof, the same kind and
amounts of securities (including shares of stock) or other assets, or both,
which were issuable or distributable to the holders of outstanding Common Stock
of the Company upon such reorganization, reclassification, consolidation,
merger, sale or conveyance, in respect of that number of shares of Common Stock
then deliverable upon the exercise of this Warrant if this Warrant had been
exercised immediately prior to such reorganization, reclassification,
consolidation, merger, sale or conveyance; and, in any such case, appropriate
adjustments (as determined in good faith by the Board of Directors of the
Company) shall be made to assure that the provisions hereof (including
provisions with


                                       8

respect to changes in, and other adjustments of, the Purchase Price) shall
thereafter be applicable, as nearly as reasonably may be practicable, in
relation to any securities or other assets thereafter deliverable upon exercise
of this Warrant.

      4. Certificate as to Adjustments. Whenever the Purchase Price and the
number of shares of Common Stock issuable, or the securities or other property
deliverable, upon the exercise of this Warrant shall be adjusted pursuant to the
provisions hereof, the Company shall promptly give written notice thereof to the
Holder, in accordance with Section 13, in the form of a certificate signed by
the Chairman of the Board, President or one of the Vice Presidents of the
Company, and by the Chief Financial Officer, Treasurer or one of the Assistant
Treasurers of the Company, stating the adjusted Purchase Price, the number of
shares of Common Stock issuable, or the securities or other property
deliverable, upon exercise of the Warrant and setting forth in reasonable detail
the method of calculation and the facts requiring such adjustment and upon which
such calculation is based. Each adjustment shall remain in effect until a
subsequent adjustment is required.

      5. Fractional Shares. Notwithstanding an adjustment pursuant to Section
3(h) in the number of shares of Common Stock covered by this Warrant or any
other provision of this Warrant, the Company shall not be required to issue
fractions of shares upon exercise of this Warrant or to distribute certificates
which evidence fractional shares. In lieu of fractional shares, the Company may
make payment to the Holder, at the time of exercise of this Warrant as herein
provided, of an amount in cash equal to such fraction multiplied by the greater
of the Current Market Price of a share of Common Stock on the Exercise Date and
the Dilution Price.

      6. Notice of Proposed Actions. In case the Company shall propose at any
time or from time to time (a) to declare or pay any dividend payable in stock of
any class to the holders of Common Stock or to make any other distribution to
the holders of Common Stock (other than a regularly scheduled cash dividend),
(b) to offer to the holders of Common Stock rights or warrants to subscribe for
or to purchase any additional shares of Common Stock or shares of stock of any
class or any other securities, rights or options, (c) to effect any
reclassification of its Common Stock, (d) to effect any consolidation, merger or
sale, transfer or other disposition of all or substantially all of the property,
assets or business of the Company which would, if consummated, adjust the
Purchase Price or the securities issuable upon exercise of the Warrants, (e) to
effect the liquidation, dissolution or winding up of the Company, or (f) to take
any other action that would require a vote of the Company's stockholders, then,
in each such case, the Company shall give to the Holder, in accordance with
Section 13, a written notice of such proposed action, which shall specify (i)
the record date for the purposes of such stock dividend, distribution of rights
or warrants or vote of the stockholders of the Company, or if a record is not to
be taken, the date as of which the holders of shares of Common Stock of record
to be entitled to such dividend, distribution of rights or warrants, or vote is
to be determined, or (ii) the date on which such reclassification,
consolidation, merger, sale, transfer, disposition, liquidation, dissolution or
winding up is expected to become effective, and such notice shall be so given as
promptly as possible but in any event at least ten (10) Business Days prior to
the applicable record, determination or effective date specified in such notice.

      7. No Dilution or Impairment. The Company will not, by amendment of its
Certificate of Incorporation or through any reorganization, transfer of assets,
consolidation,


                                       9

merger, dissolution, issue or sale of securities or any other action, avoid or
seek to avoid the observance or performance of any of the terms of this Warrant,
but will at all times in good faith assist in the carrying out of all such terms
and in the taking of all such action as may be necessary or appropriate in order
to protect the rights of the Holder of this Warrant against dilution or other
impairment. Without limiting the generality of the foregoing, the Company (a)
will not increase the par value of any shares of stock receivable on the
exercise of this Warrant above the amount payable therefor on such exercise, (b)
will at all times reserve and keep available the maximum number of its
authorized shares of Common Stock, free from all preemptive rights therein,
which will be sufficient to permit the full exercise of this Warrant, and (c)
will take all such action as may be necessary or appropriate in order that all
shares of Common Stock as may be issued pursuant to the exercise of this Warrant
will, upon issuance, be duly and validly issued, fully paid and nonassessable,
and free from all taxes, liens and charges with respect to the issue thereof.

      8. Replacement of Warrants. On receipt by the Company of an affidavit of
an authorized representative of the Holder stating the circumstances of the
loss, theft, destruction or mutilation of this Warrant (and in the case of any
such mutilation, on surrender and cancellation of such Warrant), the Company at
its expense will promptly execute and deliver, in lieu thereof, a new Warrant of
like tenor which shall be exercisable for a like number of shares of Common
Stock. If required by the Company, such Holder must provide an indemnity bond or
other indemnity sufficient in the judgment of the Company to protect the Company
from any loss which it may suffer if a lost, stolen or destroyed Warrant is
replaced.

      9. Restrictions on Transfer.

            (a) Subject to the provisions of this Section 9, this Warrant may be
transferred or assigned, in whole or in part, by the Holder at any time, and
from time to time. The term "Holder" as used herein shall also include any
transferee of this Warrant whose name has been recorded by the Company in the
Warrant Register (as hereinafter defined). Each transferee of the Warrant or the
Common Stock issuable upon the exercise of the Warrant acknowledges that the
Warrant or the Common Stock issuable upon the exercise of the Warrant has not
been registered under the Securities Act and may be transferred only pursuant to
an effective registration under the Securities Act or pursuant to an applicable
exemption from the registration requirements of the Securities Act.

            (b) With respect to a transfer that should occur prior to the time
that the Warrant or the Common Stock issuable upon the exercise thereof is
registered under the Securities Act, such Holder shall request an opinion of
counsel (which shall be rendered by counsel reasonably acceptable to the
Company) that the proposed transfer may be effected without registration or
qualification under any Federal or state securities or blue sky law. Counsel
shall, as promptly as practicable, notify the Company and the Holder of such
opinion and of the terms and conditions, if any, to be observed in such
transfer, whereupon the Holder shall be entitled to transfer this Warrant or
such shares of Common Stock (or portion thereof), subject to any other
provisions and limitations of this Warrant. In the event this Warrant shall be
exercised as an incident to such transfer, such exercise shall relate back and
for all purposes of this Warrant be deemed to have occurred as of the date of
such notice regardless of delays


                                       10

incurred by reason of the provisions of this Section 9 which may result in the
actual exercise on any later date.

            (c) The Company shall maintain a register (the "Warrant Register")
in its principal office for the purpose of registering the Warrant and any
transfer thereof, which register shall reflect and identify, at all times, the
ownership of any interest in the Warrant. Upon the issuance of this Warrant, the
Company shall record the name of the initial purchaser of this Warrant in the
Warrant Register as the first Holder. Upon surrender for registration of
transfer or exchange of this Warrant together with a properly executed Form of
Assignment attached hereto as Exhibit B at the principal office of the Company,
the Company shall, at its expense, execute and deliver one or more new Warrants
of like tenor which shall be exercisable for a like aggregate number of shares
of Common Stock, registered in the name of the Holder or a transferee or
transferees.

            (d) Notwithstanding any provision in this Warrant to the contrary,
the Holder shall not sell, assign, or otherwise transfer to any Person (a
"Transferee") any Issued Warrant Shares prior to the Expiration Date unless such
Transferee agrees in writing to be bound in the same manner as the Holder by the
provisions of this Section 9.

      10. No Rights or Liability as a Stockholder. This Warrant does not entitle
the Holder hereof to any voting rights or other rights as a stockholder of the
Company. No provisions hereof, in the absence of affirmative action by the
Holder hereof to purchase Common Stock, and no enumeration herein of the rights
or privileges of the Holder shall give rise to any liability of such Holder as a
stockholder of the Company.

      11. Charges, Taxes and Expenses. Issuance of certificates for shares of
Common Stock upon the exercise of this Warrant shall be made without charge to
the Holder hereof for any issue or transfer tax, or other incidental expense, in
respect of the issuance or delivery of such certificates or the securities
represented thereby, all of which taxes and expenses shall be paid by the
Company.

      12. Amendment or Waiver. This Warrant and any term hereof may be amended,
waived, discharged or terminated only by and with the written consent of the
Company and the Holder.

      13. Notices. Any notice or other communication (or delivery) required or
permitted hereunder shall be made in writing and shall be by registered mail,
return receipt requested, telecopier, courier service or personal delivery to
the Company at its principal office as specified in Section 11.2 of the Purchase
Agreement and to the Holder at its address as it appears in the Warrant
Register. All such notices and communications (and deliveries) shall be deemed
to have been duly given: when delivered by hand, if personally delivered; when
delivered by courier, if delivered by commercial overnight courier service; five
Business Days after being deposited in the mail, postage prepaid, if mailed; and
when receipt is acknowledged, if telecopied.

      14. Certain Remedies. The Holder shall be entitled to an injunction or
injunctions to prevent breaches of the provisions of this Warrant and to enforce
specifically the terms and provisions of this Warrant in any court of the United
States or any state thereof having


                                       11

jurisdiction, this being in addition to any other remedy to which such Holder
may be entitled at law or in equity.

      15. Governing Law. This Warrant shall be governed by and construed in
accordance with the laws of the State of New York, without regard to the
principles of conflicts of law of such State (including giving effect to GOL
Section 5-1401).

      16. Headings. The headings in this Warrant are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.

                                          MERCURY AIR GROUP, INC.


                                          By:  _______________________________
                                               Name:
                                               Title:


                                       12

                                                      EXHIBIT A TO COMMON STOCK
                                                               PURCHASE WARRANT

                           ELECTION TO PURCHASE SHARES


      The undersigned hereby irrevocably elects to exercise the Warrant to
purchase _____ shares of Common Stock, par value $.01 per share ("Common
Stock"), of Mercury Air Group, Inc. (the "Company") and hereby [makes payment of
$_______ therefor] [or] [makes payment therefor by assignment to the Company
pursuant to Section 2(b)(ii) of the Warrant of $_____________ aggregate
principal amount of WMF Note (as defined in the Warrant)] [or] [makes payment
therefore by surrendering pursuant to Section 2(b)(iii) _____ shares of Common
Stock of the Company] [or] [makes payment therefor by cancellation pursuant to
Section 2(b)(iv) of a portion of the Warrant with respect to _________ shares of
Common Stock]. The undersigned hereby requests that certificates for such shares
be issued and delivered as follows:


ISSUE TO:______________________________________________________________________
                                     (NAME)

_______________________________________________________________________________
                        (ADDRESS, INCLUDING ZIP CODE)

_______________________________________________________________________________
                (SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER)

DELIVER TO:____________________________________________________________________
                                     (NAME)

_______________________________________________________________________________
                        (ADDRESS, INCLUDING ZIP CODE)

      If the number of shares of Common Stock purchased hereby is less than the
number of shares of Common Stock covered by the Warrant, the undersigned
requests that a new Warrant representing the number of shares of Common Stock
not purchased be issued and delivered as follows:

ISSUE TO:______________________________________________________________________
                                     (NAME)

_______________________________________________________________________________
                        (ADDRESS, INCLUDING ZIP CODE)

_______________________________________________________________________________
                (SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER)

DELIVER TO:____________________________________________________________________
                                     (NAME)


                                      A-1

_______________________________________________________________________________
                        (ADDRESS, INCLUDING ZIP CODE)

Dated:                                     [NAME OF HOLDER(1)]



                                           By: ________________________________
                                               Name:
                                               Title:


- --------

1  Name of Holder must conform in all respects to name of Holder as specified on
   the face of the Warrant.


                                      A-2

                                                      EXHIBIT B TO COMMON STOCK
                                                               PURCHASE WARRANT

                                   ASSIGNMENT


      FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and transfers
unto the Assignee named below all of the rights of the undersigned to purchase
Common Stock, par value $0.01 per share ("Common Stock"), of Mercury Air Group,
Inc. represented by the Warrant, with respect to the number of shares of Common
Stock set forth below:

Name of Assignee           Address        No. of Shares
- ----------------           -------        -------------

and does hereby irrevocably constitute and appoint
____________________________ Attorney to make such transfer on the books of
Mercury Air Group, Inc. maintained for that purpose, with full power of
substitution in the premises.

Dated:                                     [NAME OF HOLDER(1)]



                                            By:  _____________________________
                                                 Name:
                                                 Title:


- ----------------

1  Name of Holder must conform in all respects to name of Holder as specified on
   the face of the Warrant.


                                      B-1

EX-10.4

                                                                    EXHIBIT 10.4


                              AMENDED AND RESTATED

                     WMF SENIOR SUBORDINATED PROMISSORY NOTE


            THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES
            ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY
            STATE AND MAY NOT BE SOLD, TRANSFERRED, OR OTHERWISE
            DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
            STATEMENT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES
            LAWS OR PURSUANT TO AN APPLICABLE EXEMPTION FROM THE
            REGISTRATION REQUIREMENTS OF SUCH ACT AND SUCH LAWS.


            THIS NOTE AND THE INDEBTEDNESS EVIDENCED HEREBY IS
            SUBORDINATE IN THE MANNER AND TO THE EXTENT SET FORTH IN
            THAT CERTAIN SUBORDINATION AGREEMENT, DATED AS OF
            DECEMBER 30, 2002, BY AND AMONG THE MAKER HEREOF, THE
            PAYEE NAMED HEREIN, AND FOOTHILL CAPITAL CORPORATION, AS
            SUCH AGREEMENT MAY BE AMENDED FROM TIME TO TIME, AND
            EACH HOLDER OF THIS NOTE, BY ITS ACCEPTANCE HEREOF,
            SHALL BE BOUND BY THE PROVISIONS OF SUCH SUBORDINATION
            AGREEMENT.

                             MERCURY AIR GROUP, INC.

                     12% SENIOR SUBORDINATED PROMISSORY NOTE
                              DUE December 31, 2005

$24,000,000                                                 New York, New York
                                                            September 10, 1999

            FOR VALUE RECEIVED, the undersigned, MERCURY AIR GROUP, INC., a
corporation organized under the laws of Delaware (the "Borrower"), hereby
promises to pay to the order of J.H. WHITNEY MEZZANINE FUND, L.P. ("WMF"), a
Delaware limited partnership, or its registered assigns (the "Holder"), the
principal sum of Twenty Four Million Dollars ($24,000,000) on December 31, 2005
(the "Maturity Date"), with interest thereon from time to time as provided
herein.

            1. Purchase Agreement. This Senior Subordinated Promissory Note (the
"Note") is issued by the Borrower, on the date hereof, pursuant to the
Securities Purchase Agreement (the "Purchase Agreement"), dated as of September
10, 1999, as amended to date, by

and between the Borrower and WMF, and is subject to the terms thereof. This
Note, together with all other promissory notes issued under the Purchase
Agreement, and all promissory notes issued pursuant to paragraph 12 hereof or
any provision of the Purchase Agreement are hereinafter referred to as the
"Notes." The Holder is entitled to the benefits of this Note and the Purchase
Agreement, as it relates to the Note, and may enforce the agreements of the
Borrower contained herein and therein and exercise the remedies provided for
hereby and thereby or otherwise available in respect hereto and thereto.
Capitalized terms used herein without definition are used herein with the
meanings ascribed to such terms in the Purchase Agreement.

            2. Interest. (a) Basic Interest. The Borrower promises to pay
interest on the principal amount of this Note at the rate of 12% per annum. The
Borrower shall pay accrued interest quarterly on each March 31, June 30,
September 30 and December 31 of each year or, if any such date shall not be a
Business Day, on the next succeeding Business Day to occur after such date (each
date upon which interest shall be so payable, an "Interest Payment Date"),
beginning on September 30, 1999. Interest on this Note shall be paid by wire
transfer of immediately available funds to an account at a bank designated in
writing by the Holder. In the absence of any such written designation, any such
Interest payment shall be deemed made on the date a check in the applicable
amount payable to the order of Holder is received by the Holder at its last
address as reflected in Borrower's note register; if no such address appears,
then to such Holder in care of the last address in such note register of any
predecessor holder of this Note (or its predecessor). In addition to cash
interest, during the period beginning on January 1, 2004 and ending on June 30,
2004, the interest rate on this Note shall increase by a rate of 1% per annum
for each month Interest in excess of 12% per annum shall accrue and be added to
principal, and shall not be payable in cash. This increase in interest rate
shall take effect on the last day of each month from January 31, 2004 through
June 30, 2004, inclusive. Interest on this Note shall accrue from and including
the date of issuance through and until repayment of the principal and payment of
all accrued interest in full. Interest shall accrue and be computed on the basis
of a 360-day year of twelve 30-day months.

                  (b) Default Rate of Interest. Notwithstanding the foregoing
provisions of this Section 2, but subject to applicable law, any overdue
principal of and overdue interest on this Note shall bear interest, payable on
demand in immediately available funds, for each day from the date payment
thereof was due to the date of actual payment, at a rate equal to the rate of
interest otherwise in effect pursuant to the first sentence of this Section 2
plus 2% per annum, and, upon and during the occurrence of an Event of Default
(as hereinafter defined), this Note shall bear interest, from the date of the
occurrence of such Event of Default until such Event of Default is cured or
waived, payable on demand in immediately available funds, at a rate equal to the
rate of interest otherwise in effect pursuant to the first sentence of this
Section 2 plus 2% per annum. Subject to applicable law, any interest that shall
accrue on overdue interest on this Note as provided in the preceding sentence
and shall not have been paid in full on or before the next Interest Payment Date
to occur after the Interest Payment Date on which the overdue interest became
due and payable shall itself be deemed to be overdue interest on this Note to
which the preceding sentence shall apply.

                  (c) Maximum Interest. The maximum interest payable on this
Note pursuant to paragraphs (a) and (b) above is 18% per annum.


                                     - 2 -

                  (d) No Usurious Interest. In the event that any interest rate
provided for herein shall be determined to be unlawful, such interest rate shall
be computed at the highest rate permitted by applicable law. Any payment by the
Borrower of any interest amount in excess of that permitted by law shall be
considered a mistake, with the excess being applied to the principal of this
Note without prepayment premium or penalty; if no such principal amount is
outstanding, such excess shall be returned to Borrower.

            3. Mandatory Prepayment.

                  (a) Public Offerings. Subject to the subordination provisions
of Section 7 hereof and the Subordination Agreement (as hereinafter defined),
upon the consummation of a Public Offering (as hereinafter defined), the
Borrower shall, at the election of the Holder, prepay the outstanding principal
amount of this Note at the redemption prices (the "Mandatory Redemption Price"),
set forth below (together with interest accrued thereon), immediately following
receipt by any of the Borrower, or any of its Subsidiaries of the proceeds of
such Public Offering. For the purposes hereof, "Public Offering" means the sale
by any of the Borrower, or any of its Subsidiaries of its equity securities
(other than (i) stock options or warrants to acquire Common Stock awarded to
employees and directors pursuant to incentive compensation plans or agreements
with such Persons in an aggregate amount for all such options and warrants not
to exceed $250,000 per annum, and (ii) stock issued to a seller party to, and as
consideration for a Permitted Acquisition) pursuant to a registration statement
(other than on Form S-4 or S-8) or otherwise under the Securities Act, including
without limitation any offering which contemplates resale of the securities
issued under Rule144A under the Securities Act, in which the issuer receives any
Net Cash Proceeds. For the purposes hereof, "Net Cash Proceeds" means (x) the
cash proceeds in respect of a Public Offering minus (y) all costs of sale,
underwriting or brokerage costs and taxes paid or payable as a result thereof by
the Borrower or any of its Subsidiaries. The foregoing notwithstanding, until
all Senior Indebtedness to which this Note is subordinated shall be paid in
full, the amount of Net Proceeds which the Borrower shall be obligated to pay
under this Section 3(a) to the Holder as a prepayment of this Note at the
election of the Holder, shall be limited as set forth in the Subordination
Agreement. No penalty or premium shall apply to a prepayment made in accordance
with this paragraph




                  (b) Change of Control. Subject to the subordination provisions
of Section 7 hereof and the Subordination Agreement, upon the occurrence of a
Change of Control (as hereinafter defined), the Borrower shall, at the election
of the Holder, prepay the outstanding principal amount of this Note in
accordance with the Mandatory Redemption Prices set forth in Section 3(a) above
(together with interest accrued thereon), within 5 Business Days after the


                                     - 3 -

occurrence of such Change of Control. For the purposes hereof, "Change of
Control" means (i) any transaction or series of transactions in which any Person
or group, other than WMF, CFK Partners or any of their respective affiliates
becomes the beneficial owner of 35% or more of the then outstanding capital
stock of the Borrower or of any of its Subsidiaries, the operations of which
would constitute a material part of the business or operations of the Borrower
and all of its Subsidiaries, taken as a whole, (ii) the sale of all or
substantially all of the assets of the Borrower or of any of its Subsidiaries,
the operations of which would constitute a material part of the business or
operations of the Borrower and all of its Subsidiaries, taken as a whole, (iii)
the liquidation of the Borrower or any of its Subsidiaries, the operations of
which would constitute a material part of the business or operations of the
Borrower and all of its Subsidiaries, taken as a whole, other than transactions
defined as Permitted Financing Transactions in, and entered into in compliance
with, the Purchase Agreement, and/or (iv) the combination of the Borrower or of
any of its Subsidiaries, the operations of which would constitute a material
part of the business or operations of the Borrower and all of its Subsidiaries,
taken as a whole, with another entity, as a result of which (A) any Person or
group, other WMF, CFK Partners or any of their respective affiliates becomes the
beneficial owner of 35% or more of the then outstanding capital stock of the
combined entity or (B) the directors of the Borrower or such Subsidiary, as the
case may be, constitute less than a majority of the Board of Directors of the
combined entity.

                  (c) Notice. The Borrower shall give written notice to the
Holder of any mandatory prepayment pursuant to this Section 3 at least five (5)
Business Days prior to the date of such prepayment. Such notice shall be given
in the manner specified in Section 11.2 of the Purchase Agreement.

            4. Optional Prepayment.

                  (a) Upon notice given to the Holder as provided in Section
4(b), the Borrower, at its option, may, at any time prepay all or any portion of
the principal amount of this Note at any time, by paying to the Holder an amount
equal to the principal amount to be repaid together with interest accrued and
unpaid thereon to the date fixed for such prepayment, and reasonable
out-of-pocket costs and expenses (including, without limitation, reasonable
fees, charges and disbursements of counsel), if any, associated with such
prepayment; provided, however, each prepayment of less than the full outstanding
balance of the principal amount of this Note shall be in an aggregate principal
amount of this Note of $1,000,000 or integral multiples of $100,000 in excess
thereof, and provided, further, that unless this Note and all Notes shall be
paid in full, the aggregate principal balance of the Notes outstanding at any
time shall be at least $500,000. No prepayment penalty or premium shall apply in
respect of any optional prepayment made in accordance with this paragraph.(b)
The Borrower may give written notice of prepayment of this Note or any portion
thereof not less than 10 nor more than 60 days prior to the date fixed for such
prepayment. Such notice of prepayment shall be given in the manner specified in
Section 11.2 of the Purchase Agreement. Upon notice of prepayment being given by
the Borrower, the Borrower covenants and agrees that it will prepay, on the date
therein fixed for prepayment, this Note or the portion hereof so called for
prepayment, at the outstanding principal amount thereof or the portion thereof
so called for prepayment, together with interest accrued and unpaid thereon to
the date fixed for such prepayment, together with the costs and expenses
referred to in Section 4(a).


                                     - 4 -

                  (c) All optional prepayments under this Section 4 shall
include payment of accrued interest on the principal amount so prepaid and shall
be applied first to all costs, expenses and indemnities payable under the
Purchase Agreement, then to payment of default interest, if any, then to payment
of accrued interest, and thereafter to principal.

            5. Amendment. Amendments and modifications of this Note may be made
only in the manner provided in Section 11.4 of the Purchase Agreement.

            6. Defaults and Remedies.

                  (a) Events of Default. An "Event of Default" shall occur if:

            (i)   the Borrower shall default in the payment of the principal of
                  this Note, when and as the same shall become due and payable,
                  whether at maturity or at a date fixed for prepayment or by
                  acceleration or otherwise; or

            (ii)  the Borrower shall default in the payment of any installment
                  of interest on this Note according to its terms, when and as
                  the same shall become due and payable and such default shall
                  continue for a period of 5 days; or

            (iii) the Borrower shall default in the due observance or
                  performance of any covenant to be observed or performed
                  pursuant to Sections 8.1, 8.2(a), 8.3, 8.7, 8.8, 8.10, 8.11 or
                  Article 9 of the Purchase Agreement, and provided, however,
                  that a default under Article 9 which does not or is not likely
                  to have a material adverse effect on the Condition of the
                  Company shall become an Event of Default only if such default
                  shall continue for a period of 10 days; or

            (iv)  the Borrower or any of its Subsidiaries shall default in the
                  due observance or performance of any other covenant, condition
                  or agreement on the part of the Borrower or any of its
                  Subsidiaries to be observed or performed pursuant to the terms
                  hereof or pursuant to the terms of the Purchase Agreement or
                  any of the Transaction Documents (other than those referred to
                  in clauses (i), (ii) or (iii) of this Section 6(a)), and such
                  default shall continue for 30 days after the earliest of (A)
                  the date the Borrower is required pursuant to the Transaction
                  Documents or otherwise to give notice thereof to the Holder
                  (whether or not such notice is actually given) or (B) the date
                  of written notice thereof, specifying such default and, if
                  such default is capable of being remedied, requesting that the
                  same be remedied, shall have been given to the Borrower by the
                  Holder; or

            (v)   any representation, warranty or certification made by or on
                  behalf of the Borrower or any of its Subsidiaries in the
                  Purchase Agreement, this Note, the Transaction Documents or in
                  any certificate or other document delivered pursuant hereto or
                  thereto shall have been incorrect when made; or


                                     - 5 -

            (vi)  any event or condition shall occur that results in the
                  acceleration of the maturity of any Indebtedness of the
                  Borrower or any of its Subsidiaries, in a principal amount
                  aggregating $100,000 or more; or

            (vii) an involuntary proceeding shall be commenced or an involuntary
                  petition shall be filed in a court of competent jurisdiction
                  seeking (a) relief in respect of the Borrower or any of its
                  Subsidiaries, or of a substantial part of its property or
                  assets, under Title 11 of the United States Code, as now
                  constituted or hereafter amended, or any other Federal or
                  state bankruptcy, insolvency, receivership or similar law, (b)
                  the appointment of a receiver, trustee, custodian,
                  sequestrator, conservator or similar official for the Borrower
                  or any of its Subsidiaries, or for a substantial part of its
                  property or assets, or (c) the winding up or liquidation of
                  the Borrower or any Subsidiary; and such proceeding or
                  petition shall continue undismissed for 60 days, or an order
                  or decree approving or ordering any of the foregoing shall be
                  entered; or

            (viii) the Borrower or any of its Subsidiaries shall (a) voluntarily
                  commence any proceeding or file any petition seeking relief
                  under Title 11 of the United States Code, as now constituted
                  or hereafter amended, or any other Federal or state
                  bankruptcy, insolvency, receivership or similar law, (b)
                  consent to the institution of, or fail to contest in a timely
                  and appropriate manner, any proceeding or the filing of any
                  petition described in paragraph (vii) of this Section 6(a),
                  (c) apply for or consent to the appointment of a receiver,
                  trustee, custodian, sequestrator, conservator or similar
                  official for the Borrower or any of its Subsidiaries, or for a
                  substantial part of their property or assets, (d) file an
                  answer admitting the material allegations of a petition filed
                  against it in any such proceeding, (e) make a general
                  assignment for the benefit of creditors, (f) become unable,
                  admit in writing its inability or fail generally to pay its
                  debts as they become due or (g) take any action for the
                  purpose of effecting any of the foregoing; or

            (ix)  one or more judgments for the payment of money in an aggregate
                  amount in excess of $500,000 (to the extent not covered by
                  insurance) shall be rendered against the Borrower or any of
                  its Subsidiaries and the same shall remain undischarged for a
                  period of 30 days during which execution shall not be
                  effectively stayed, or any action shall be legally taken by a
                  judgment creditor to levy upon assets or properties of the
                  Borrower or any of its Subsidiaries to enforce any such
                  judgment.

      (b)   Acceleration. If an Event of Default occurs under Section 6(a)(vii)
            or (viii), then the outstanding principal of and all accrued
            interest on this Note shall automatically become immediately due and
            payable, without presentment, demand, protest or notice of any kind,
            all of which are hereby expressly waived. If any other Event of
            Default occurs and is continuing, other than a default under Section
            8.7 of the Purchase Agreement, the Holder, by written notice to the


                                     - 6 -

            Borrower, may declare the principal of and accrued interest on this
            Note to be immediately due and payable. Upon such declaration, such
            principal and interest shall become immediately due and payable. The
            Holder may rescind an acceleration and its consequences if all
            existing Events of Default have been cured or waived, except
            nonpayment of principal or interest that has become due solely
            because of the acceleration, and if the rescission would not
            conflict with any judgment or decree. Any notice or rescission shall
            be given in the manner specified in Section 11.2 of the Purchase
            Agreement. If any Event of Default occurs under Section 8.7 of the
            Purchase Agreement related to the failure to prepay amounts required
            on or prior to December 31, 2003, then, unless Borrower fails to
            take the remedial action set forth in such Section 8.7, Holder may
            not accelerate this Note or declare the full amount of principal
            then due and payable. Nothing in the preceding sentence shall impair
            any other remedy available to Holder as a result of such Event of
            Default (including the right to charge interest at the Default Rate,
            or the right to accelerate this Note upon Borrower's failure to
            issue Additional Notes or Additional Warrants or to prepay principal
            as agreed on or before December 31, 2004).

7. Subordination. Subject to the limitations set forth in Section 7(p) below,
this Note shall at all times be wholly subordinate and junior in right of
payment to all Senior Indebtedness to the extent and in the manner provided in
this Section 7.

      (a)   Definitions. As used in this Section 7, the following terms shall
            have the following meanings:

            "Indebtedness" shall have the meaning assigned to that term in the
Purchase Agreement.

            "Senior Covenant Default" shall mean any event of default as defined
under any agreement pertaining to Senior Indebtedness, other than a Senior
Payment Default.

            "Senior Credit Agreement" means the Senior Credit Agreement, as in
effect on the date hereof, by and among the Company, certain of its subsidiaries
and Foothill Capital Corporation.

            "Senior Indebtedness" has the meaning given to such term in the
Purchase Agreement.

            "Senior Default" shall mean a Senior Payment Default or a Senior
Covenant Default.

            "Senior Payment Default" shall mean any default in the payment of
any Senior Indebtedness.

            "Subordinated Indebtedness" shall mean (i) the principal of and
interest on this Note; (ii) any other obligations of the Borrower arising out of
or in connection with the Purchase Agreement, this Note or the other Transaction
Documents and (iii) any obligations of any of


                                     - 7 -

Borrower's Subsidiaries arising out of or in connection with the Guaranties or
the other Transaction Documents.

      (b)   General. Upon the maturity of any Senior Indebtedness by lapse of
            time, acceleration, required prepayment or otherwise, all Senior
            Indebtedness shall first be paid in full, or such payment duly
            provided for in cash or in a manner satisfactory to the holders of
            such Senior Indebtedness, before any payment is made on account of
            the Subordinated Indebtedness or by the Borrower or Affiliates of
            the Borrower to acquire this Note. Notwithstanding any provision in
            Section 7 of this Note to the contrary, (i) for so long as no Senior
            Default has occurred and is continuing, or would occur as a result
            of such a payment, the Borrower may pay and the Holder may receive
            (A) all regularly scheduled payments of interest under this Note,
            and (B) all amounts due to the Holder or its Affiliates pursuant to
            either Section 2.4 or Section 7.1 of the Purchase Agreement, (ii)
            for so long as no Senior Default has occurred and is continuing or
            would occur as a result of any such prepayment, Borrower may prepay
            this Note in accordance with the provisions of Section 3 hereof, and
            the Holder may receive such prepayments, (iii) for so long as no
            Senior Default has occurred and is continuing, or would occur as a
            result of such a payment, the Borrower may prepay this Note in
            accordance with the provisions of Section 4 hereof and the Holder
            may receive such prepayments, and (iv) the Holder may receive any
            distributions provided for in Section 7(e)(ii) or 7(e)(iv) hereof.

      (c)   Limitation on Payment.

            (i)   Upon receipt by the Borrower and the Holder of a Blockage
                  Notice (as defined below), then unless and until (1) all
                  Senior Defaults that gave rise to the Blockage Notice shall
                  have been remedied or effectively waived or shall have ceased
                  to exist, or (2) the Senior Indebtedness in respect of which
                  such Senior Defaults shall have occurred shall have been paid
                  in full, no direct or indirect payment (in cash, property,
                  securities or by set-off or otherwise) of or on account of the
                  principal of or interest on this Note or as a sinking fund for
                  this Note or in respect of any redemption, retirement,
                  purchase or other acquisition of this Note shall be made
                  during any period prior to the expiration of the Blockage
                  Period (as defined below). Notwithstanding the foregoing, all
                  interest paid with respect to this Note prior to the receipt
                  of the Blockage Notice in question by the Holder hereof may be
                  kept by such Holder.

            (ii)  For purposes of this Section 7, a "Blockage Notice" is a
                  notice of a Senior Default that in fact has occurred and is
                  continuing, given to the Borrower and the Holder by the
                  holders of a majority in principal amount of the Senior
                  Indebtedness then outstanding (or their authorized agent);
                  provided, however, that no such notice shall be effective as a
                  Blockage Notice if an effective Blockage Notice shall have
                  been given within 360 days prior thereto.


                                     - 8 -

            (iii) For purposes of this Section 7, a "Blockage Period" with
                  respect to a Blockage Notice is the period commencing upon the
                  Borrower's receipt of such Blockage Notice and having a
                  duration as follows:

                        (1)   180 days if the Senior Default to which the
            Blockage Notice refers is a Senior Payment Default; or

                        (2)   90 days if the Senior Default to which the
            Blockage Notice refers is a Senior Covenant Default.

Notwithstanding any provision contained herein to the contrary: (A) the Borrower
shall not be prohibited from making, and the Holder shall not be prohibited from
receiving, payments under this Note pursuant to Section 7(c)(iii)(2) hereof for
more than an aggregate of 180 days within any 360 day period, (B) there shall
not be more than two Blockage Notices given in any 365 day period; (C) no Senior
Covenant Default existing on the date any Blockage Notice is given to the Holder
shall be used as a basis for any subsequent such notice, unless such Senior
Covenant Default shall have ceased to exist for a period of at least 180
consecutive days; and (D) once all Senior Defaults which gave rise to the
Blockage Notice in question shall have been remedied or effectively waived or
shall have ceased to exist, or the Senior Indebtedness in respect of which such
Senior Defaults shall have occurred shall have been paid in full, thereafter
(unless another Blockage Period shall then be in effect) all amounts which would
have been payable hereunder but for the existence of the Blockage Period
effected by the Blockage Notice delivered with respect to the Senior Default in
question shall be payable in their entirety.

      (d)   Limitation on Remedies. As long as any Senior Indebtedness remains
            outstanding, upon the occurrence of an Event of Default under this
            Note, the Holder shall not, unless the holders of any Senior
            Indebtedness shall have caused such Senior Indebtedness to become
            due prior to its stated maturity or any Event of Default pursuant to
            Section 6(a)(vii) or (viii) of this Note shall have commenced,
            declare or join in any declaration of this Note to be due and
            payable by reason of such Event of Default or otherwise take any
            action against the Borrower (including, without limitation,
            commencing any legal action against the Borrower or filing or
            joining in the filing of any insolvency petition against the
            Borrower) prior to the expiration of 30 days after the written
            notice of the Holder's ability to accelerate on account of the
            occurrence of such Event of Default (a "Remedy Notice") shall have
            been given by the Holder to the Borrower and the holders of the
            Senior Indebtedness (a "Remedy Standstill Period"), provided, that
            such Remedy Standstill Period shall be extended to (i) 60 days from
            the date of such Remedy Notice if, at the time the Remedy Standstill
            Period would otherwise expire, there exists any Senior Covenant
            Default, or (ii) 90 days from the date of such Remedy Notice if, at
            the time the Remedy Standstill Period would otherwise expire, there
            exists any Senior Payment Default.

            Notwithstanding the foregoing, the Remedy Standstill Period shall be
inapplicable or cease to be effective if the holders of any Senior Indebtedness
shall have caused such Senior Indebtedness to become due prior to its stated
maturity or an Event of Default pursuant to Section 6(a)(vii) or (viii) shall
have occurred. In addition, any Remedy Standstill Period shall


                                     - 9 -

cease to be effective if at any time during such period: (i) (A) substantial
assets of Borrower or any of its Subsidiaries are sold or otherwise disposed of
(other than to a Person which is either wholly owned by Borrower or a wholly
owned Subsidiary thereof) outside of the ordinary course of business, (B) an
agreement or other arrangement for such sale or disposition is entered into, or
(C) the Board of Directors of the Borrower or such subsidiary authorizes or
approves such agreement, arrangement, sale or disposition or (ii)(A) payment or
any distribution of any character, whether in cash, securities or other property
of Borrower or any of its Subsidiaries shall be made to or received by any
creditor outside the ordinary course of business on any Indebtedness which is on
the same level of priority with or junior and subordinate in right of payment to
this Note, (B) an agreement or other arrangement for such payment or
distribution is entered into, or (C) the Board of Directors of the Borrower or
such Subsidiary authorizes or approves such agreement, arrangement, payment or
distribution.

            Upon the expiration or termination of any Remedy Standstill Period,
the Holder shall be entitled to exercise any of its rights with respect to this
Note other than any right to accelerate the maturity date of this Note based
upon the occurrence of any Event of Default in respect thereto which has been
cured or otherwise remedied during the Remedy Period.

      (e)   Subordination Upon Certain Events. Upon the occurrence of any Event
            of Default with respect to under Sections 6(a)(vii) or (viii) of
            this Note:

            (i)   Upon any payment or distribution of assets of the Borrower to
                  creditors of the Borrower, holders of Senior Indebtedness
                  shall be entitled to receive indefeasible payment in full of
                  all obligations with respect to the Senior Indebtedness before
                  the Holder shall be entitled to receive any payment in respect
                  of the Subordinated Indebtedness.

            (ii)  Until all Senior Indebtedness is paid in full, any
                  distribution to which the Holder would be entitled but for
                  this Section 7 shall be made to the holders of Senior
                  Indebtedness, as their interests may appear, except that the
                  Holder may, pursuant to a plan of reorganization under Chapter
                  11 of the Bankruptcy Code of 1978, as amended, or any similar
                  provision of any successor legislation thereto, receive
                  securities that are subordinate to the Senior Indebtedness to
                  at least the same extent as this Note if pursuant to such plan
                  the distributions to the holders of the Senior Indebtedness in
                  the form of cash, securities or other property, by set-off or
                  otherwise, provide for payment of the full amount of the
                  allowed claim of the holders of the Senior Indebtedness.

            (iii) For purposes of this Section 7, a distribution may consist of
                  cash, securities or other property, by set-off or otherwise.

            (iv)  Notwithstanding the foregoing provisions of Section 7(b),(c)
                  or (e), if payment or delivery by the Borrower of cash,
                  securities or other property to the Holder is authorized by an
                  order or decree giving effect, and stating in such order or
                  decree that effect is given, to the subordination of this Note
                  to the Senior Indebtedness, and made by a court of competent


                                     - 10 -

                  jurisdiction in a proceeding under any applicable bankruptcy
                  or reorganization law, payment or delivery by such Borrower of
                  such cash, securities or other property shall be made to the
                  Holder in accordance with such order or decree.

      (f)   Payments and Distributions Received. If the Holder shall have
            received any payment from or distribution of assets of the Borrower
            in respect of the Subordinated Indebtedness in contravention of the
            terms of this Section 7 before all Senior Indebtedness is paid in
            full, then and in such event such payment or distribution shall be
            received and held in trust for and shall be promptly paid over or
            delivered to the holders of Senior Indebtedness to the extent
            necessary to pay all such Senior Indebtedness in full.

      (g)   Proofs of Claim. If, while any Senior Indebtedness is outstanding,
            any Event of Default under Section 6(a)(vii) or (viii) of this Note
            occurs with respect to the Borrower, the Holder shall duly and
            promptly take such action as any holder of Senior Indebtedness may
            reasonably request to collect any payment with respect to this Note
            for the account of the holders of the Senior Indebtedness and to
            file appropriate claims or proofs of claim in respect of this Note.
            Upon the failure of the Holder to take any such action, each holder
            of Senior Indebtedness is hereby irrevocably authorized and
            empowered (in its own name or otherwise), but shall have no
            obligation, to demand, sue for, collect and receive every payment or
            distribution referred to in respect of this Note and to file claims
            and proofs of claim and take such other action as it may deem
            necessary or advisable for the exercise or enforcement of any of the
            rights or interests of the Holder with respect to this Note.

      (h)   Subrogation. After all amounts payable under or in respect of Senior
            Indebtedness are paid in full, the Holder shall be subrogated to the
            rights of holders of Senior Indebtedness to receive payments or
            distributions applicable to Senior Indebtedness to the extent that
            distributions otherwise payable to the Holder have been applied to
            the payment of Senior Indebtedness. A distribution made under this
            Section 7 to a holder of Senior Indebtedness which otherwise would
            have been made to the Holder is not, as between the Borrower and the
            Holder, a payment by the Borrower on Senior Indebtedness.

      (i)   Relative Rights. This Section defines the relative rights of the
            Holder and the holders of Senior Indebtedness. Nothing in this
            Section shall: (1) impair, as between the Borrower and the Holder,
            the obligations of the Borrower, which are absolute and
            unconditional, to pay principal of and interest (including default
            interest) on this Note in accordance with its terms; (2) affect the
            relative rights of the Holder and creditors of the Borrower other
            than holders of Senior Indebtedness or (3) prevent the Holder from
            exercising its available remedies upon a default or Event of
            Default, subject to the rights, if any, under this Section 7 of
            holders of Senior Indebtedness.


                                     - 11 -

      (j)   Subordination May Not Be Impaired by the Borrower. No right of any
            holder of any Senior Indebtedness to enforce the subordination of
            the Indebtedness evidenced by this Note shall be impaired by any
            failure to act by the Borrower or such holder of Senior Indebtedness
            or by the failure of the Borrower or such holder to comply with this
            Note. The provisions of this Section 7 shall continue to be
            effective or be reinstated, as the case may be, if at any time any
            payment of any of the Senior Indebtedness is rescinded or must
            otherwise be returned by any holder of Senior Indebtedness as a
            result of the insolvency, bankruptcy or reorganization of the
            Borrower or any of its Subsidiaries or otherwise, all as though such
            payment had not been made.

      (k)   Payments. A payment with respect to principal of or interest on the
            Subordinated Indebtedness shall include, without limitation, payment
            of principal of, and interest on this Note, any depositing of funds
            for the defeasance of the Subordinated Indebtedness, any sinking
            fund and any payment on account of mandatory prepayment or optional
            prepayment provisions.

      (l)   Section Not to Prevent Events of Default. The failure to make a
            payment on account of principal of or interest on or other amounts
            constituting Subordinated Indebtedness by reason of any provision of
            this Section 7 shall not be construed as preventing the occurrence
            of an Event of Default under Section 6.

      (m)   Subordination Not Impaired: Benefit of Subordination. The Holder
            agrees and consents that without notice to or assent by such Holder,
            and without affecting the liabilities and obligations of the
            Borrower and the rights and benefits of the holders of the Senior
            Indebtedness set forth in this Section 7:

            (i)   The obligations and liabilities of the Borrower and any other
                  party or parties for or upon the Senior Indebtedness may, from
                  time to time, be increased, renewed, refinanced, extended,
                  modified, amended, restated, compromised, supplemented,
                  terminated, waived or released, except as prohibited by
                  Sections 9.3 and 9.4 of the Purchase Agreement;

            (ii)  The holders of Senior Indebtedness, and any representative or
                  representatives acting on behalf thereof, may exercise or
                  refrain from exercising any right, remedy or power granted by
                  or in connection with any agreements relating to the Senior
                  Indebtedness; and

            (iii) Any balance or balances of funds with any holder of Senior
                  Indebtedness at any time outstanding to the credit of the
                  Borrower may, from time to time, in whole or in part, be
                  surrendered or released;

all as the holders of the Senior Indebtedness, and any representative or
representatives acting on behalf thereof, may deem advisable, and all without
impairing, abridging, diminishing, releasing or affecting the subordination of
the Subordinated Indebtedness to the Senior Indebtedness provided for herein.


                                     - 12 -

      (n)   Modification of Section 7. The provisions of this Section 7 are for
            the benefit of the holders from time to time of Senior Indebtedness
            and, so long as any Senior Indebtedness remains unpaid, may not be
            modified, rescinded or canceled in whole or in part without the
            prior written consent thereto of all holders of Senior Indebtedness.

      (o)   Covenants of Holder. Until all of the Senior Indebtedness has been
            fully paid:

            (i)   The Holder shall not hereafter give any subordination in
                  respect of this Note.

            (ii)  Upon the occurrence and during the continuance of a Senior
                  Default, the Holder shall not release, exchange, extend the
                  time of payment of, compromise, set off or otherwise discharge
                  any part of this Note or modify or amend this Note; provided,
                  however, that at such time or times as the actions referred to
                  in this Section 7(o)(ii) may be taken by the Holder, such
                  Holder shall give the holders of Senior Indebtedness five
                  Business Days prior written notice before taking any of such
                  actions.

            (iii) The Holder hereby undertakes and agrees for the benefit of the
                  holders of Senior Indebtedness that, upon the occurrence and
                  during the continuance of a Senior Default, it shall take any
                  actions reasonably requested by any holder of Senior
                  Indebtedness to effectuate the full benefit of the
                  subordination contained herein.

      (p)   Covenant of the Borrower, Limitation on Indebtedness. Until all
            Subordinated Indebtedness shall have been paid in full, the Borrower
            shall not, and shall not cause, suffer or permit any of its
            Subsidiaries to, directly or indirectly, collectively and in the
            aggregate, issue, assume or otherwise incur Senior Indebtedness or
            other Indebtedness except as permitted under Section 9.4 of the
            Purchase Agreement, as it now exists or may be amended or modified.

      (q)   Miscellaneous.

            (i)   To the extent permitted by applicable law, the Holder and the
                  Borrower hereby waive (1) notice of acceptance hereof by the
                  holders of the Senior Indebtedness, and (2) all diligence in
                  the collection or protection of or realization upon the Senior
                  Indebtedness.

            (ii)  The Borrower and the Holder hereby expressly agree that the
                  holders of Senior Indebtedness may enforce any and all rights
                  derived herein by suit, either in equity or law, for specific
                  performance of any agreement contained in this Section 7 or
                  for judgment at law and any other relief whatsoever
                  appropriate to such action or procedure.

            (iii) The Holder acknowledges and agrees that the foregoing
                  subordination provisions are, and are intended to be, an
                  inducement and a consideration to each holder of Senior
                  Indebtedness, whether such Senior Indebtedness


                                     - 13 -

                  was created or acquired before or after the issuance of this
                  Agreement, and each holder of Senior Indebtedness shall be
                  deemed conclusively to have relied upon such subordination
                  provisions in acquiring and continuing to hold such Senior
                  Indebtedness.

      (r)   Subordination Agreement. Notwithstanding anything to the contrary
            contained in this Section 7, the terms and conditions of the
            Subordination Agreement dated the date hereof among WMF, the
            Borrower and Foothill Capital Corporation (the "Subordination
            Agreement") shall govern the subordination of the Subordinated
            Indebtedness as long as the Subordination Agreement remains in full
            force and effect.

8. Use of Proceeds. The Borrower shall use the principal amount of this Note in
accordance with the permitted uses described in Section 8.10 of the Purchase
Agreement.

9. Suits for Enforcement.

      (a)   Subject to Section 7, upon the occurrence of any one or more Events
            of Default, the Holder of this Note may proceed to protect and
            enforce its rights hereunder by suit in equity, action at law or by
            other appropriate proceeding, whether for the specific performance
            of any covenant or agreement contained in the Purchase Agreement or
            this Note or in aid of the exercise of any power granted in the
            Purchase Agreement or this Note, or may proceed to enforce the
            payment of this Note, or to enforce any other legal or equitable
            right of the Holders of this Note.

      (b)   In case of any default under this Note, the Borrower will pay to the
            Holder such amounts as shall be sufficient to cover the costs and
            expenses of such Holder due to such default, as provided in Article
            7 of the Purchase Agreement.

10. Remedies Cumulative. No remedy herein conferred upon the Holder is intended
to be exclusive of any other remedy and each and every such remedy shall be
cumulative and shall be in addition to every other remedy given hereunder or now
or hereafter existing at law or in equity or by statute or otherwise.

11. Remedies Not Waived. No course of dealing between the Borrower and the
Holder or any delay on the part of the Holder in exercising any rights hereunder
shall operate as a waiver of any right.

12. Transfer.

      (a)   The term "Holder" as used herein shall also include any transferee
            of this Note whose name has been recorded by the Borrower in the
            Note Register. Each transferee of this Note acknowledges that this
            Note has not been registered under the Securities Act, and may be
            transferred only pursuant to an effective registration under the
            Securities Act or pursuant to an applicable exemption from the
            registration requirements of the Securities Act.


                                     - 14 -

      (b)   The Borrower shall maintain a register (the "Note Register") in its
            principal offices for the purpose of registering the Note and any
            transfer or partial transfer thereof, which register shall reflect
            and identify, at all times, the ownership of record of any interest
            in the Note. Upon the issuance of this Note, the Borrower shall
            record the name and address of the initial purchaser of this Note in
            the Note Register as the first Holder. Upon surrender for
            registration of transfer or exchange of this Note at the principal
            offices of the Borrower, the Borrower shall, at its expense, execute
            and deliver one or more new Notes of like tenor and of denominations
            of at least $500,000 (except as may be necessary to reflect any
            principal amount not evenly divisible by $500,000 of a like
            aggregate principal amount, registered in the name of the Holder or
            a transferee or transferees. Every Note surrendered for registration
            of transfer or exchange shall be duly endorsed, or be accompanied by
            written instrument of transfer duly executed by the Holder of such
            Note or such holder's attorney duly authorized in writing.

      (c)   This Note may be transferred or assigned, in whole or in part, by
            the Holder at any time.

13. Replacement of Note. On receipt by the Borrower of an affidavit of an
authorized representative of the Holder stating the circumstances of the loss,
theft, destruction or mutilation of this Note (and in the case of any such
mutilation, on surrender and cancellation of such Note), the Borrower, at its
expense, will promptly execute and deliver, in lieu thereof, a new Note of like
tenor. If required by the Borrower, such Holder must provide indemnity
sufficient in the reasonable judgment of the Borrower to protect the Borrower
from any loss which they may suffer if a lost, stolen or destroyed Note is
replaced.

14. Covenants Bind Successors and Assigns. All the covenants, stipulations,
promises and agreements in this Note contained by or on behalf of the Borrower
shall bind its successors and assigns, whether so expressed or not.

15. Notices. All notices, demands and other communications provided for or
permitted hereunder shall be made in writing and shall be by registered or
certified first-class mail, return receipt requested, telecopier (with receipt
confirmed), courier service or personal delivery at the addresses specified in
Section 11.2 of the Purchase Agreement. All such notices and communications
shall be deemed to have been duly given when: delivered by hand, if personally
delivered; when delivered by courier, if delivered by commercial overnight
courier service; if mailed, five Business Days after being deposited in the
mail, postage prepaid; or if telecopied, when receipt is acknowledged.

16. GOVERNING LAW. THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO THE PRINCIPLES OF
CONFLICTS OF LAW OF SUCH STATE (INCLUDING GIVING EFFECT TO GOL SECTION 5-1401).

17. Severability. If any one or more of the provisions contained herein, or the
application thereof in any circumstance, is held invalid, illegal or
unenforceable in any respect for any


                                     - 15 -

reason, the validity, legality and enforceability of any such provision in every
other respect and of the remaining provisions hereof shall not be in any way
impaired, unless the provisions held







                                     - 16 -

invalid, illegal or unenforceable shall substantially impair the benefits of
the remaining provisions hereof

18. Headings. The headings in this Note are for convenience of reference only
and shall not limit or otherwise affect the meaning hereof

                                    MERCURY AIR GROUP, INC.

                                    By: ____________________________
                                        Name:
                                        Title:



                                     - 17 -

EX-10.5

                                                                    EXHIBIT 10.5


                               SECURITY AGREEMENT

                                 BY AND BETWEEN

                            MERCURY AIR GROUP, INC.,

                                       AND

              EACH OF ITS SUBSIDIARIES THAT ARE SIGNATORIES HERETO

                                   AS OBLIGORS

                                       AND

                       J. H. WHITNEY MEZZANINE FUND, L.P.

                                 AS THE LENDERS,

                          DATED AS OF DECEMBER 30, 2002

                  THIS AGREEMENT AND THE INDEBTEDNESS EVIDENCED HEREBY IS
                  SUBORDINATE IN THE MANNER AND TO THE EXTENT SET FORTH IN THAT
                  CERTAIN SUBORDINATION AGREEMENT, DATED AS OF DECEMBER 30,
                  2002, BY AND AMONG THE PARTIES HERETO AND FOOTHILL CAPITAL
                  CORPORATION, AS SUCH AGREEMENT MAY BE AMENDED FROM TIME TO
                  TIME.

                                                                    Exhibit 10.5

                                TABLE OF CONTENTS

                                                                                                               
1.       DEFINITIONS AND CONSTRUCTION............................................................................      1
         1.1.     Definitions....................................................................................      1
         1.2.     Accounting Terms...............................................................................      8
         1.3.     Code...........................................................................................      8
         1.4.     Construction...................................................................................      9
         1.5.     Schedules and Exhibits.........................................................................      9

2.       APPLICATION OF PROCEEDS.................................................................................      9
         2.1.     Application....................................................................................      9
         2.2.     Paid in Full...................................................................................     10
         2.3.     Conflict.......................................................................................     10

3.       CONDITIONS PRECEDENT....................................................................................     10

4.       CREATION OF SECURITY INTEREST...........................................................................     10
         4.1.     Grant of Security Interest.....................................................................     10
         4.2.     Negotiable Collateral..........................................................................     11
         4.3.     Collection of Accounts, General Intangibles, and Negotiable Collateral.........................     11
         4.4.     Delivery of Additional Documentation Required..................................................     11
         4.5.     Power of Attorney..............................................................................     12
         4.6.     Right to Inspect...............................................................................     12
         4.7.     Control Agreements.............................................................................     12

5.       REPRESENTATIONS AND WARRANTIES..........................................................................     12
         5.1.     No Encumbrances................................................................................     12
         5.2.     Equipment......................................................................................     13
         5.3.     Location of Inventory and Equipment; FBOs......................................................     13
         5.4.     Inventory Records..............................................................................     13
         5.5.     Location of Chief Executive Office; FEIN.......................................................     13
         5.6.     Stock and Subsidiaries.........................................................................     13
         5.7.     Due Authorization; No Conflict.................................................................     13
         5.8.     Fraudulent Transfer............................................................................     14
         5.9.     Intellectual Property..........................................................................     14
         5.10.    DDAs     ......................................................................................     14

6.       AFFIRMATIVE COVENANTS...................................................................................     14
         6.1.     Post Closing Conditions........................................................................     14
         6.2.     Accounting System..............................................................................     15
         6.3.     Collateral Reporting...........................................................................     15
         6.4.     Maintenance of Properties......................................................................     15
         6.5.     Insurance......................................................................................     15
         6.6.     Location of Inventory and Equipment............................................................     16



                                                                                                               
         6.7.     Leases.........................................................................................     16
         6.8.     Existence......................................................................................     16
         6.9.     Environmental..................................................................................     16

7.       NEGATIVE COVENANTS......................................................................................     17
         7.1.     Change Name....................................................................................     17
         7.2.     Change in Location of Chief Executive Office; Inventory and Equipment with Bailees.............     17
         7.3.     Securities Accounts............................................................................     17

8.       SUBORDINATION AGREEMENT.................................................................................     17

9.       THE LENDER'S RIGHTS AND REMEDIES........................................................................     17
         9.1.     Rights and Remedies............................................................................     17
         9.2.     Remedies Cumulative............................................................................     19

10.      TAXES AND EXPENSES......................................................................................     19

11.      WAIVERS; INDEMNIFICATION................................................................................     19
         11.1.    Demand; Protest; etc...........................................................................     19
         11.2.    Lender's Liability for Collateral..............................................................     20
         11.3.    Indemnification................................................................................     20

12.      NOTICES.................................................................................................     20

13.      CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER..............................................................     20
         13.1.    GOVERNING LAW..................................................................................     20
         13.2.    NEW YORK COURTS................................................................................     20
         13.3.    WAIVER OF JURY TRIAL...........................................................................     20

14.      ASSIGNMENTS AND SUCCESSORS..............................................................................     21

15.      AMENDMENTS; WAIVERS.....................................................................................     21
         15.1.    Amendments and Waivers.........................................................................     21
         15.2.    No Waivers; Cumulative Remedies................................................................     21

16.      GENERAL PROVISIONS......................................................................................     21
         16.1.    Effectiveness..................................................................................     21
         16.2.    Section Headings...............................................................................     21
         16.3.    Interpretation.................................................................................     21
         16.4.    Severability of Provisions.....................................................................     22
         16.5.    Amendments in Writing..........................................................................     22
         16.6.    Counterparts; Telefacsimile Execution..........................................................     22
         16.7.    Revival and Reinstatement of Obligations.......................................................     22
         16.8.    Integration....................................................................................     22
         16.9.    Parent as Agent for Obligors...................................................................     22




                                       ii

EXHIBITS AND SCHEDULES

Schedule D-1      Designated Account

Schedule F-1      FBOs

Schedule L-1      Liens to be Released

Schedule R-1      Real Property Excluded from Collateral

Schedule 5.3      Locations of Inventory and Equipment

Schedule 5.5      Location of Chief Executive Office; FEIN

Schedule 5.6      Stock and Subsidiaries

Schedule 5.9      Intellectual Property

Schedule 5.10     DDAs



                                      iii


                                                                    EXHIBIT 10.5

                               SECURITY AGREEMENT

         THIS SECURITY AGREEMENT (this "Agreement"), is entered into as of
December 30, 2002, between J.H. Whitney Mezzanine Fund, L.P. ("Lender"), a
Delaware limited partnership, and Mercury Air Group, Inc., a Delaware
corporation ("Parent") and each of Parent's Subsidiaries identified on the
signature pages hereof (such Subsidiaries, are referred to hereinafter each
individually as a "Guarantor", and the Guarantors, together with Parent, are
individually and collectively, jointly and severally, referred to as the
"Obligors").

         WHEREAS, Lender and Parent entered into a Securities Purchase
Agreement, dated as of September 10, 1999, as amended by Amendment No. 1 dated
as of September 30, 2000 and Amendment No. 2 dated as of September 30, 2001 (as
so amended, the "Original Purchase Agreement"), pursuant to which, among other
things, Lender purchased from Parent (a) a subordinated promissory note due
September 9, 2006 in the principal amount of $24,000,000 (the "Note"), and (b) a
warrant to purchase 503,126 shares of common stock, $.01 par value per share, of
Parent (the "Warrant");

         WHEREAS, one or more Events of Default have occurred and are continuing
under the Note and Parent has requested that Lender not exercise its rights to,
among other things, declare all outstanding principal and accrued interest on
the Note to be immediately due and payable;

         WHEREAS, Parent has requested that Lender provide the waiver and enter
into the amendments to the Original Purchase Agreement provided for Amendment
No. 3, dated as of December 30, 2002, between Lender and Parent ("Amendment No.
3"), and Lender has agreed to provide such waiver and amend the Original
Purchase Agreement on the terms and conditions set forth in Amendment No. 3; and

         WHEREAS, as a condition to Lender agreeing to enter into Amendment No.
3 and to amend the Original Purchase Agreement as provided for therein, Parent
has agreed to grant, and to procure that each Guarantor grants, a security
interest in certain of its assets to Lender.

         The parties agree as follows:

1. DEFINITIONS AND CONSTRUCTION.

1.1. Definitions. As used in this Agreement, the following terms shall have the
following definitions:

         "Account Debtor" means any Person who is or who may become obligated
under, with respect to, or on account of, an Account, chattel paper, or a
General Intangible.

         "Accounts" means all of Obligor's now owned or hereafter acquired
right, title, and interest with respect to "accounts" (as that term is defined
in the Code), and any and all supporting obligations in respect thereof.

         "Additional Documents" has the meaning set forth in Section 4.4.

         "Affiliate" means, as applied to any Person, any other Person who,
directly or indirectly, controls, is controlled by, or is under common control
with, such Person. For purposes of this definition, "control" means the
possession, directly or indirectly, of the power to direct the management and
policies of a Person, whether through the ownership of Stock, by contract, or
otherwise.

         "Agreement" has the meaning set forth in the preamble hereto.

         "Additional Note" has the meaning set forth in Amendment No. 3.

         "Additional Warrant" has the meaning set forth in Amendment No. 3.

         "Amended Note" has the meaning set forth in Amendment No. 3.

         "Amended Warrant" has the meaning set forth in Amendment No. 3.

         "Amendment No. 3" has the meaning set forth in the recitals hereto.

         "Assignment of Claims" means an Assignment of Claims Under Government
Contract, in form and substance acceptable to Lender, with respect to each
contract under which Maytag or any other Obligor provides services or goods to
an Account Debtor which is the United States or any department, agency, or
instrumentality of the United States.

         "Bankruptcy Code" means the United States Bankruptcy Code, as in effect
from time to time.

         "Board of Directors" means the board of directors (or comparable
managers) of Parent or any committee thereof duly authorized to act on behalf
thereof.

         "Books" means all of each Obligor's and its Subsidiaries' now owned or
hereafter acquired books and records (including all of its Records indicating,
summarizing, or evidencing its assets (including the Collateral) or liabilities,
all of each Obligor's or its Subsidiaries' Records relating to its or their
business operations or financial condition, and all of its or their goods or
General Intangibles related to such information).

         "Business Day" means any day that is not a Saturday, Sunday, or other
day on which national banks are authorized or required to close.

         "Capital Lease" means a lease that is required to be capitalized for
financial reporting purposes in accordance with GAAP.

         "Closing Date" means the date hereof.

         "Code" means the New York Uniform Commercial Code, as in effect from
time to time.

         "Collateral" means all of each Obligor's now owned or hereafter
acquired right, title, and interest in and to each of the following:


                                       2

         (a) Accounts,

         (b) Books,

         (c) Equipment,

         (d) General Intangibles,

         (e) Inventory,

         (f) Investment Property,

         (g) Negotiable Collateral,

         (h) Real Property Collateral,

         (i) money or other assets of each such Obligor that now or hereafter
come into the possession, custody, or control of any member of the Lender Group,
and

         (j) the proceeds and products, whether tangible or intangible, of any
of the foregoing, including proceeds of insurance covering any or all of the
foregoing, and any and all Accounts, Books, Equipment, General Intangibles,
Inventory, Investment Property, Negotiable Collateral, Real Property, money,
deposit accounts, or other tangible or intangible property resulting from the
sale, exchange, collection, or other disposition of any of the foregoing, or any
portion thereof or interest therein, and the proceeds thereof.

         "Collateral Access Agreement" means a landlord waiver, bailee letter,
or acknowledgement agreement of any lessor, warehouseman, processor, consignee,
or other Person in possession of, having a Lien upon, or having rights or
interests in the Equipment or Inventory, in each case, in form and substance
satisfactory to Lender.

         "Collections" means all cash, checks, notes, instruments, and other
items of payment (including insurance proceeds, proceeds of cash sales, rental
proceeds, and tax refunds) of Obligors.

         "Control Agreement" means a control agreement, in form and substance
satisfactory to Lender, executed and delivered by the applicable Obligor,
Lender, and the applicable securities intermediary with respect to a Securities
Account or a bank with respect to a deposit account.

         "DDA" means any checking or other demand deposit account maintained by
any Obligor.

         "Default" means an event, condition, or default that, with the giving
of notice, the passage of time, or both, would be an Event of Default.

         "Designated Account" means that certain DDA of Parent identified on
Schedule D-1.

         "Dollars" or "$" means United States dollars.


                                       3

         "Environmental Action" means any complaint, summons, citation, notice,
directive, order, claim, litigation, investigation, judicial or administrative
proceeding, judgment, letter, or other communication from any Governmental
Authority, or any third party involving violations of Environmental Laws or
releases of Hazardous Materials from (a) any assets, properties, or businesses
of any Obligor or any predecessor in interest, (b) from adjoining properties or
businesses, or (c) from or onto any facilities which received Hazardous
Materials generated by any Obligor or any predecessor in interest.

         "Environmental Liabilities and Costs" means all liabilities, monetary
obligations, Remedial Actions, losses, damages, punitive damages, consequential
damages, treble damages, costs and expenses (including all reasonable fees,
disbursements and expenses of counsel, experts, or consultants, and costs of
investigation and feasibility studies), fines, penalties, sanctions, and
interest incurred as a result of any claim or demand by any Governmental
Authority or any third party, and which relate to any Environmental Action.

         "Environmental Lien" means any Lien in favor of any Governmental
Authority for Environmental Liabilities and Costs.

         "Equipment" means all of Obligors' now owned or hereafter acquired
right, title, and interest with respect to equipment, machinery, machine tools,
motors, furniture, furnishings, fixtures, vehicles (including motor vehicles),
tools, parts, goods (other than consumer goods, farm products, or Inventory),
wherever located, including all attachments, accessories, accessions,
replacements, substitutions, additions, and improvements to any of the
foregoing.

         "Event of Default" has the meaning given to it in section 6 of the
Note.

         "FBO" means a fixed base operator lease or similar agreement,
identified on Schedule F-1 (as the same may be amended or modified from time to
time), entered into by any Obligor with a municipality or other public agency
owning or operating an airport located in the United States of America whereby
such Obligor leases real property located at such airport for the purpose of
providing services thereat.

         "FBO Obligors" means Mercury Air Center-Birmingham, LLC, Mercury Air
Center-Bakersfield, Inc., Mercury Air Center-Burbank, Inc., Mercury Air
Center-Fresno, Inc., Mercury Air Center-Los Angeles, Inc., Mercury Air
Center-Ontario, Inc., Mercury Air Center-Santa Barbara, Inc., Mercury Air
Center-Hartsfield, LLC, Mercury Air Center-Peachtree-Dekalb, LLC, Mercury Air
Center- Ft. Wayne, LLC., Mercury Air Center-Jackson, L.L.C., Mercury Air
Center-Reno, LLC, Mercury Air Center-Tulsa, LLC., Mercury Air Center-Charleston,
LLC., Mercury Air Center-Johns Island, LLC., Mercury Air Center-Nashville, LLC.,
Mercury Air Center-Addison, Inc. and Mercury Air Center - Corpus Christi, Inc.

         "FEIN" means Federal Employer Identification Number.

         "General Intangibles" means all of Obligors' now owned or hereafter
acquired right, title, and interest with respect to general intangibles
(including payment intangibles, contract rights, rights to payment, rights
arising under common law, statutes, or regulations, choses or things in action,
goodwill, patents, trade names, trademarks, servicemarks, copyrights,
blueprints,


                                       4

drawings, purchase orders, customer lists, monies due or recoverable from
pension funds, route lists, rights to payment and other rights under any royalty
or licensing agreements, infringement claims, computer programs, information
contained on computer disks or tapes, software, literature, reports, catalogs,
money, deposit accounts, insurance premium rebates, tax refunds, and tax refund
claims), and any and all supporting obligations in respect thereof, and any
other personal property other than goods, Accounts, Investment Property, and
Negotiable Collateral.

         "Governing Documents" means, with respect to any Person, the
certificate or articles of incorporation, by-laws, or other organizational
documents of such Person.

         "Guarantors" has the meaning given the term in the preamble of this
Agreement, and includes any other Person executing a Guaranty in favor of
Purchaser under the Purchase Agreement.

         "Insolvency Proceeding" means any proceeding commenced by or against
any Person under any provision of the Bankruptcy Code or under any other state
or federal bankruptcy or insolvency law, assignments for the benefit of
creditors, formal or informal moratoria, compositions, extensions generally with
creditors, or proceedings seeking reorganization, arrangement, or other similar
relief.

         "Inventory" means all Obligors' now owned or hereafter acquired right,
title, and interest with respect to inventory, including goods held for sale or
lease or to be furnished under a contract of service, goods that are leased by a
Obligor as lessor, goods that are furnished by a Obligor under a contract of
service, and raw materials, work in process, or materials used or consumed in a
Obligor's business.

         "Investment Property" means all of Obligors' now owned or hereafter
acquired right, title, and interest with respect to "investment property" as
that term is defined in the Code, and any and all supporting obligations in
respect thereof.

         "Lender Expenses" means all (a) expenses of the Lender due under
Section 11.13 of the Purchase Agreement, including fees or charges paid or
incurred by Lender for public record searches (including tax lien, litigation,
and UCC searches and including searches with the patent and trademark office,
the copyright office, or the department of motor vehicles), filing, recording,
publication, real estate surveys, real estate title policies and endorsements,
(b) reasonable costs and expenses paid or incurred by Lender to correct any
default or enforce any provision of this Agreement, or in gaining possession of,
maintaining, handling, preserving, storing, shipping, selling, preparing for
sale, or advertising to sell the Collateral, or any portion thereof,
irrespective of whether a sale is consummated, (c) reasonable costs and expenses
of third party claims or any other suit paid or incurred by Lender in enforcing
or defending this Agreement, and (d) Lender's reasonable fees and expenses
(including attorneys fees) incurred in terminating, enforcing (including
reasonable attorneys fees and expenses incurred in connection with a "workout,"
a "restructuring," or an Insolvency Proceeding concerning any Obligor or in
exercising rights or remedies under this Agreement), or defending this
Agreement, irrespective of whether suit is brought, or in taking any Remedial
Action concerning the Collateral.


                                       5

         "Lender's Liens" means the Liens granted by Obligors to Lender for the
benefit of Lender under this Agreement or the other Loan Documents.

         "Lender-Related Persons" means Lender together with its Affiliates,
officers, directors, employees, and agents.

         "Liens to be Released" means, collectively, the Liens set forth on
Schedule L-1.

         "Loan Documents" means this Agreement, the Purchase Agreement, the
Amended Note, the Amended Warrant, the Guaranties, the Mortgages, the Trademark
Security Agreement, the Subordination Agreement, any Additional Note, any
Additional Warrant, and any other agreement entered into, now or in the future,
by any Obligor and Lender in connection with this Agreement.

         "Maytag" means Maytag Aircraft Corporation, a Colorado corporation.

         "Mortgage Policy" means a mortgagee title insurance policy (or marked
commitments to issue the same) with respect to any Mortgage, issued by a title
insurance company satisfactory to Lender, in an amount satisfactory to Lender,
assuring Lender that such Mortgage is a valid and enforceable mortgage Lien on
the Real Property Collateral subject thereto, free and clear of all defects and
encumbrances except Permitted Encumbrances, and otherwise in form and substance
satisfactory to Lender.

         "Mortgages" means, individually and collectively, one or more
mortgages, deeds of trust, or deeds to secure debt, at any time executed and
delivered by an Obligor in favor of Lender, in form and substance satisfactory
to Lender, that encumbers any portion of the Real Property Collateral.

         "Negotiable Collateral" means all of Obligors' now owned and hereafter
acquired right, title, and interest with respect to letters of credit, letter of
credit rights, instruments, promissory notes, drafts, documents, and chattel
paper (including electronic chattel paper and tangible chattel paper), and any
and all supporting obligations in respect thereof.

         "Note" has the meaning set forth in the recitals hereto.

         "Notices of Assignment of Claims" means, collectively, the Notices of
Assignment of Claims, executed by Lender, Maytag and/or such other Obligor as
may be required by Lender, and addressed to the contracting officer and
disbursing officer with respect to each contract subject to an Assignment of
Claims.

         "Obligations" means all loans, advances, debts, principal, interest
(including any interest that, but for the provisions of the Bankruptcy Code,
would have accrued), premiums, liabilities, obligations, fees, charges, costs,
Lender Expenses (including any fees or expenses that, but for the provisions of
the Bankruptcy Code, would have accrued), lease payments, guaranties, covenants,
and duties of any kind and description owing by Obligors to Lender pursuant to
or evidenced by the Loan Documents and irrespective of whether for the payment
of money, whether direct or indirect, absolute or contingent, due or to become
due, now existing or


                                       6

hereafter arising, and including all interest not paid when due and all Lender
Expenses that Obligors are required to pay or reimburse by the Loan Documents,
by law, or otherwise. Any reference in this Agreement or in the Loan Documents
to the Obligations shall include all amendments, changes, extensions,
modifications, renewals replacements, substitutions, and supplements, thereto
and thereof, as applicable, both prior and subsequent to any Insolvency
Proceeding.

         "Obligor" have the respective meanings set forth in the preamble to
this Agreement.

         "Original Purchase Agreement" has the meaning set forth in the recitals
hereto.

         "Parent" has the meaning set forth in the preamble to this Agreement.

         "Permitted Discretion" means a determination made in good faith and in
the exercise of reasonable (from the perspective of a secured lender) business
judgment.

         "Permitted Dispositions" means (a) sales or other dispositions by
Obligors of Equipment that is substantially worn, damaged, or obsolete in the
ordinary course of business, (b) sales by Obligors of Inventory to buyers in the
ordinary course of business, (c) the use or transfer of money or Cash
Equivalents by Obligors in a manner that is not prohibited by the terms of this
Agreement or the other Loan Documents, and (d) the licensing by Obligors, on a
non-exclusive basis, of patents, trademarks, copyrights, and other intellectual
property rights in the ordinary course of business.

         "Permitted Protest" means the right of Parent or any of its
Subsidiaries, as applicable, to protest any Lien (other than any such Lien that
secures the Obligations), taxes (other than payroll taxes or taxes that are the
subject of a United States federal tax lien), or rental payment, provided that
(a) a reserve with respect to such obligation is established on the Books in
such amount as is required under GAAP, (b) any such protest is instituted
promptly and prosecuted diligently by Parent or any of its Subsidiaries, as
applicable, in good faith, and (c) Lender is satisfied that, while any such
protest is pending, there will be no impairment of the enforceability, validity,
or priority of any of the Lender's Liens.

         "Personal Property Collateral" means all Collateral other than Real
Property.

         "Purchase Agreement" means the Original Purchase Agreement as amended
by Amendment No. 3.

         "Real Property" means any estates or interests in real property now
owned or hereafter acquired by any Obligor or Guarantor and the improvements
thereto.

         "Real Property Collateral" means any Real Property other than that
described on Schedule R-1.

         "Record" means information that is inscribed on a tangible medium or
which is stored in an electronic or other medium and is retrievable in
perceivable form.


                                       7

         "Remedial Action" means all actions taken to (a) clean up, remove,
remediate, contain, treat, monitor, assess, evaluate, or in any way address
Hazardous Materials in the indoor or outdoor environment, (b) prevent or
minimize a release or threatened release of Hazardous Materials so they do not
migrate or endanger or threaten to endanger public health or welfare or the
indoor or outdoor environment, (c) perform any pre-remedial studies,
investigations, or post-remedial operation and maintenance activities, or (d)
conduct any other actions authorized by 42 USC Section 9601.

         "SEC" means the United States Securities and Exchange Commission and
any successor thereto.

         "Senior Agent" means the "Agent" as defined in the Senior Credit
Agreement.

         "Senior Credit Agreement" has the meaning set forth in Amendment No. 3.

         "Senior Loan Documents" means the "Loan Documents" as set forth in the
Senior Credit Agreement.

         "Stock" means all shares, options, warrants, interests, participations,
or other equivalents (regardless of how designated) of or in a Person, whether
voting or nonvoting, including common stock, preferred stock, or any other
"equity security" (as such term is defined in Rule 3a11-1 of the General Rules
and Regulations promulgated by the SEC under the Exchange Act).

         "Stock Pledge Agreement" means a stock pledge agreement, in form and
substance satisfactory to Agent, executed and delivered by a Obligor with
respect to the Stock of a Subsidiary of such Obligor; referred to collectively
as the "Stock Pledge Agreements."

         "Stock Pledge Documentation" means Stock Pledge Agreements, together
with all certificates representing the shares of Stock pledged thereunder and
Stock powers with respect thereto executed in blank."Subordination Agreement"
has the meaning set forth in Amendment No. 3.

         "Trademark Security Agreement" means a trademark security agreement
executed and delivered by the applicable Obligor with respect to any trademark
applications made by such Obligor, in form and substance satisfactory to Lender.

         "Voidable Transfer" has the meaning set forth in Section 16.7.

         "Warrant" has the meaning set forth in the recitals hereto.

1.2. Accounting Terms. All accounting terms not specifically defined herein
shall be construed in accordance with GAAP. When used herein, the term
"financial statements" shall include the notes and schedules thereto. Whenever
the term "Obligor" or the term "Parent" is used in respect of a financial
covenant or a related definition, it shall be understood to mean Parent and its
Subsidiaries on a consolidated basis unless the context clearly requires
otherwise.

1.3. Code. Any terms used in this Agreement that are defined in the Code shall
be construed and defined as set forth in the Code unless otherwise defined
herein.


                                       8

1.4. Construction.

         (a) Unless the context of this Agreement or any other Loan Document
clearly requires otherwise, references to the plural include the singular,
references to the singular include the plural, the term "including" is not
limiting, and the term "or" has, except where otherwise indicated, the inclusive
meaning represented by the phrase "and/or."

         (b) The words "hereof," "herein," "hereby," "hereunder," and similar
terms in this Agreement or any other Loan Document refer to this Agreement or
such other Loan Document, as the case may be, as a whole and not to any
particular provision of this Agreement or such other Loan Document, as the case
may be.

         (c) Section, subsection, clause, schedule, and exhibit references
herein are to this Agreement unless otherwise specified.

         (d) Any reference in this Agreement or in the other Loan Documents to
any agreement, instrument, or document shall include all alterations,
amendments, changes, extensions, modifications, renewals, replacements,
substitutions, joinders, and supplements, thereto and thereof, as applicable
(subject to any restrictions on such alterations, amendments, changes,
extensions, modifications, renewals, replacements, substitutions, joinders, and
supplements set forth herein).

         (e) Any reference herein to any Person shall be construed to include
such Person's successors and assigns.

         (f) Any requirement of a writing contained herein or in the other Loan
Documents shall be satisfied by the transmission of a Record and any Record
transmitted shall constitute a representation and warranty as to the accuracy
and completeness of the information contained therein.

         (g) Words and expressions defined in the Purchase Agreement shall,
unless otherwise defined herein, have the same meanings when used herein.

1.5. Schedules and Exhibits. All of the schedules and exhibits attached to this
Agreement shall be deemed incorporated herein by reference.

2. APPLICATION OF PROCEEDS.

2.1. Application. All proceeds of Accounts or other Collateral received by
Lender shall be applied as follows:

         (a) first, to pay any Lender Expenses due under the Loan Documents
until paid in full,

         (b) secondly, to pay interest due in respect of all outstanding amounts
until paid in full,

         (c) thirdly, to pay outstanding principal until paid in full, and


                                       9

         (d) fourth, to Parent (to be wired to the Designated Account) or such
other Person entitled thereto under applicable law.

2.2. Paid in Full. For purposes of the foregoing, "paid in full" means payment
of all amounts owing under the Loan Documents according to the terms thereof,
including loan fees, service fees, professional fees, interest (and specifically
including interest accrued after the commencement of any Insolvency Proceeding),
default interest, interest on interest, and expense reimbursements, whether or
not the same would be or is allowed or disallowed in whole or in part in any
Insolvency Proceeding.

2.3. Conflict. In the event of a direct conflict between the priority provisions
of this Section 2.3 and other provisions contained in any other Loan Document,
it is the intention of the parties hereto that such priority provisions in such
documents shall be read together and construed, to the fullest extent possible,
to be in concert with each other. In the event of any actual, irreconcilable
conflict that cannot be resolved as aforesaid, the terms and provisions of this
Section 2.3 shall control and govern.

3. CONDITIONS PRECEDENT.

         The effectiveness of Amendment No. 3 is conditioned upon the
fulfillment, to the satisfaction of Lender, of each of the conditions precedent
set forth below:

         (a) Lender shall have received all financing statements required by
Lender, duly executed (if required) by the applicable Obligors, and Lender shall
have received searches reflecting the filing of all such financing statements;

         (b) Lender shall have received the Subordination Agreement, in form and
substance satisfactory to Lender, duly executed, and each such document shall be
in full force and effect; and

         (c) Lender shall have received a certificate of insurance, together
with the endorsements thereto, as are required by Section 6.5, the form and
substance of which shall be satisfactory to Lender.

4. CREATION OF SECURITY INTEREST.

4.1. Grant of Security Interest. Each Obligor hereby grants to Lender a
continuing security interest in all of its right, title, and interest in all
currently existing and hereafter acquired or arising Personal Property
Collateral in order to secure prompt repayment of any and all of the Obligations
in accordance with the terms and conditions of the Loan Documents and in order
to secure prompt performance by Obligors of each of their covenants and duties
under the Loan Documents. The Lender's Liens in and to the Personal Property
Collateral shall attach to all Personal Property Collateral without further act
on the part of Lender or Obligors. Anything contained in this Agreement or any
other Loan Document to the contrary notwithstanding, except for Permitted
Dispositions, Obligors have no authority, express or implied, to dispose of any
item or portion of the Collateral.


                                       10

4.2. Negotiable Collateral. In the event that any Collateral, including
proceeds, is evidenced by or consists of Negotiable Collateral, and if and to
the extent that perfection or priority of Lender's security interest is
dependent on or enhanced by possession, the applicable Obligor, immediately upon
the request of Lender, shall endorse and deliver physical possession of such
Negotiable Collateral to Lender provided that, if and for so long as required by
the terms of the Senior Loan Documents, such Negotiable Collateral shall, be
endorsed and physically delivered to the Senior Agent.

4.3. Collection of Accounts, General Intangibles, and Negotiable Collateral. At
any time after the occurrence and during the continuation of an Event of
Default, Lender or Lender's designee may (a) notify Account Debtors of Obligors
that the Accounts, chattel paper, or General Intangibles have been assigned to
Lender or that Lender has a security interest therein, or (b) collect the
Accounts, chattel paper, or General Intangibles directly and charge the
collection costs and expenses to the Obligors. Each Obligor agrees that it will
hold in trust for the Lender, as the Lender's trustee, any Collections that it
receives and immediately will deliver said Collections to Lender in their
original form as received by the applicable Obligor.

4.4. Delivery of Additional Documentation Required. At any time upon the request
of Lender, Obligors shall execute and deliver to Lender, any and all financing
statements, original financing statements in lieu of continuation statements,
fixture filings, security agreements, pledges, assignments, endorsements of
certificates of title, and all other documents (the "Additional Documents") that
Lender may request in its Permitted Discretion, in form and substance
satisfactory to Lender, to perfect and continue perfected or better perfect the
Lender's Liens in the Collateral (whether now owned or hereafter arising or
acquired), to create and perfect Liens in favor of Lender in any Real Property
acquired after the Closing Date, and in order to fully consummate all of the
transactions contemplated hereby and under the other Loan Documents, including,
without limitation, (a) promptly upon termination of the security interests
created under the Senior Loan Documents, Assignments of Claims and Notices of
Assignment of Claims and (b) all original motor vehicle title certificates with
respect to all motor vehicles owned by any Obligor and registered with any
state's department of motor vehicles, executed by the appropriate Obligor and,
if necessary, any other Person, so as to permit Lender to record a Lien with
respect thereto. Without limiting the generality of the foregoing, Obligors
agree to deliver to Lender a Trademark Security Agreement with respect to any
trademark applications within 5 Business Days after the date such trademark
applications are filed and application numbers assigned thereto by the U.S.
Patent and Trademark Officer. To the maximum extent permitted by applicable law,
each Obligor authorizes Lender to execute any such Additional Documents in the
applicable Obligor's name and authorize Lender to file such executed Additional
Documents in any appropriate filing office. In addition, on such periodic basis
as Lender shall require, Obligors shall (i) provide Lender with a report of all
new patentable, copyrightable, or trademarkable materials acquired or generated
by Obligors during the prior period, (ii) cause all patents, copyrights, and
trademarks acquired or generated by Obligors that are not already the subject of
a registration with the appropriate filing office (or an application therefor
diligently prosecuted) to be registered with such appropriate filing office in a
manner sufficient to impart constructive notice of Obligor's ownership thereof,
and (iii) cause to be prepared, executed, and delivered to Lender supplemental
schedules to the applicable Loan


                                       11

Documents to identify such patents, copyrights, and trademarks as being subject
to the security interests created thereunder.

4.5. Power of Attorney. Each Obligor hereby irrevocably makes, constitutes, and
appoints Lender (and any of Lender's officers, employees, or agents designated
by Lender) as such Obligor's true and lawful attorney, with power to (a) if such
Obligor refuses to, or fails timely to execute and deliver any of the documents
described in Section 4.4, sign the name of such Obligor on any of the documents
described in Section 4.4, (b) at any time that an Event of Default has occurred
and is continuing, sign such Obligor's name on any invoice or bill of lading
relating to the Collateral, drafts against Account Debtors, or notices to
Account Debtors, (c) send requests for verification of Accounts, (d) endorse
such Obligor name on any Collection item that may come into the Lender's
possession, (e) at any time that an Event of Default has occurred and is
continuing, make, settle, and adjust all claims under such Obligor's policies of
insurance and make all determinations and decisions with respect to such
policies of insurance, and (f) at any time that an Event of Default has occurred
and is continuing, settle and adjust disputes and claims respecting the
Accounts, chattel paper, or General Intangibles directly with Account Debtors,
for amounts and upon terms that Lender determines to be reasonable, and Lender
may cause to be executed and delivered any documents and releases that Lender
determines to be necessary. The appointment of Lender as each Obligor's
attorney, and each and every one of its rights and powers, being coupled with an
interest, is irrevocable until all of the Obligations have been fully and
finally repaid and performed.

4.6. Right to Inspect. Lender (through any of its respective officers,
employees, or agents) shall have the right, from time to time hereafter to
inspect the Books and to check, test, and appraise the Collateral in order to
verify Obligors' financial condition or the amount, quality, value, condition
of, or any other matter relating to, the Collateral.

4.7. Control Agreements. Each Obligor agrees that it will not transfer assets
out of any Securities Accounts other than as permitted under Section 7.3 and, if
to another securities intermediary, unless each of the applicable Obligor,
Lender, and the substitute securities intermediary have entered into a Control
Agreement. No arrangement contemplated hereby or by any Control Agreement in
respect of any Securities Accounts or other Investment Property shall be
modified by Obligors without the prior written consent of Lender. Upon the
occurrence and during the continuance of a Default or Event of Default, Lender
may notify any securities intermediary to liquidate the applicable Securities
Account or any related Investment Property maintained or held thereby and remit
the proceeds thereof to such account of the Lender as Lender may specify.

5. REPRESENTATIONS AND WARRANTIES.

         Each Obligor makes the following representations and warranties to
Lender which shall be true, correct, and complete, in all material respects, as
of the date hereof, and such representations and warranties shall survive the
execution and delivery of this Agreement:

5.1. No Encumbrances. Each Obligor has good and indefeasible title to its
Collateral and the Real Property, free and clear of Liens except for Permitted
Encumbrances.


                                       12

5.2. Equipment. All of the Equipment is used or held for use in Obligors'
business and is fit for such purposes.

5.3. Location of Inventory and Equipment; FBOs. The Inventory and Equipment are
not stored with a bailee, warehouseman, or similar party and are located only at
the locations identified on Schedule 5.3.

5.4. Inventory Records. Each Obligor keeps correct and accurate records
itemizing and describing the type, quality, and quantity of its Inventory and
the book value thereof.

5.5. Location of Chief Executive Office; FEIN. The chief executive office of
each Obligor is located at the address indicated in Schedule 5.5 and each
Obligor's FEIN is identified in Schedule 5.5.

5.6. Stock and Subsidiaries.

         (a) Set forth on Schedule 5.6(a), is a complete and accurate
description of the authorized capital Stock of each Obligor other than Parent,
by class, and, as of the Closing Date, a description of the number of shares of
each such class that are issued and outstanding. Other than as described on
Schedule 5.6(a), there are no subscriptions, options, warrants, or calls
relating to any shares of each Obligor's capital Stock, including any right of
conversion or exchange under any outstanding security or other instrument. No
Obligor is subject to any obligation (contingent or otherwise) to repurchase or
otherwise acquire or retire any shares of its capital Stock or any security
convertible into or exchangeable for any of its capital Stock.

         (b) Set forth on Schedule 5.6(b), is a complete and accurate list of
each Obligor's direct and indirect Subsidiaries, showing: (i) the jurisdiction
of their organization; (ii) the number of shares of each class of common and
preferred Stock authorized for each of such Subsidiaries; and (iii) the number
and the percentage of the outstanding shares of each such class owned directly
or indirectly by the applicable Obligor. All of the outstanding capital Stock of
each such Subsidiary has been validly issued and is fully paid and
non-assessable.

         (c) Except as set forth on Schedule 5.6(b), there are no subscriptions,
options, warrants, or calls relating to any shares of any Obligor's
Subsidiaries' capital Stock, including any right of conversion or exchange under
any outstanding security or other instrument. No Obligor or any of its
respective Subsidiaries is subject to any obligation (contingent or otherwise)
to repurchase or otherwise acquire or retire any shares of any Obligor's
Subsidiaries' capital Stock or any security convertible into or exchangeable for
any such capital Stock.

5.7. Due Authorization; No Conflict.

         (a) As to each Obligor, the execution, delivery, and performance by
such Obligor of this Agreement have been duly authorized by all necessary action
on the part of such Obligor.

         (b) As to each Obligor, the execution, delivery, and performance by
such Obligor of this Agreement do not and will not (i) violate any provision of
federal, state, or local law or regulation applicable to any Obligor, the
Governing Documents of any Obligor, or any order,


                                       13

judgment, or decree of any court or other Governmental Authority binding on any
Obligor, (ii) conflict with, result in a breach of, or constitute (with due
notice or lapse of time or both) a default under any material contractual
obligation of any Obligor, (iii) result in or require the creation or imposition
of any Lien of any nature whatsoever upon any properties or assets of Obligor,
other than Permitted Encumbrances, or (iv) require any approval of any Obligor's
interestholders or any approval or consent of any Person under any material
contractual obligation of any Obligor.

         (c) Other than the filing of financing statements, fixture filings, and
Mortgages, the execution, delivery, and performance by each Obligor of this
Agreement do not and will not require any registration with, consent, or
approval of, or notice to, or other action with or by, any Governmental
Authority or other Person.

         (d) As to each Obligor, this Agreement and all other documents
contemplated hereby, when executed and delivered by such Obligor will be the
legally valid and binding obligations of such Obligor, enforceable against such
Obligor in accordance with their respective terms, except as enforcement may be
limited by equitable principles or by bankruptcy, insolvency, reorganization,
moratorium, or similar laws relating to or limiting creditors' rights generally
and except to the extent that availability of the remedy of specific performance
or injunctive relief is subject to the discretion of the court before which any
proceeding therefor may be brought.

         (e) The Lender's Liens are validly created, perfected Liens, subject
only to Permitted Encumbrances.

5.8. Fraudulent Transfer. No transfer of property is being made by any Obligor
and no obligation is being incurred by any Obligor in connection with the
transactions contemplated by this Agreement with the intent to hinder, delay, or
defraud either present or future creditors of Obligors.

5.9. Intellectual Property. Each Obligor owns, or holds licenses in, all
trademarks, trade names, copyrights, patents, patent rights, and licenses that
are necessary to the conduct of its business as currently conducted. Attached
hereto as Schedule 5.9 is a true, correct, and complete listing of all material
patents, patent applications, trademarks, trademark applications, copyrights,
and copyright registrations as to which each Obligor is the owner or is an
exclusive licensee.

5.10. DDAs. Set forth on Schedule 5.10 are all of the DDAs of each Obligor,
including, with respect to each depository (a) the name and address of that
depository, and (b) the account numbers of the accounts maintained with such
depository.

6. AFFIRMATIVE COVENANTS.

         Each Obligor covenants and agrees that, so long as until full and final
payment of the Obligations, Obligors shall and shall cause each of their
respective Subsidiaries to do all of the following:

6.1. Post Closing Conditions.


                                       14

         (a) within 5 days after the Closing Date, deliver to Lender (or to such
other Person as Lender may instruct) the Stock Pledge Documentation, the form
and substance of which shall be satisfactory to Lender and such documentation
shall be in full force and effect;

         (b) within 30 days after the Closing Date, deliver to Lender
certificates of insurance and certified copies of the policies of insurance, as
are required by Section 6.5, together with the endorsements thereto, the form
and substance of which shall be satisfactory to Lender and its counsel;

         (c) within 30 days after the Closing Date, deliver to Lender a Control
Agreement, in form and substance satisfactory to Lender, with respect to each of
the DDAs;

         (d) within 30 days after the Closing Date, deliver to Lender evidence,
in form and substance satisfactory to Lender, of the satisfaction and release,
as of record, of the Liens to be Released; and

         (e) within 30 days after the Closing Date, deliver to Lender a
Collateral Access Agreement with respect to locations where Books are kept with
respect to Accounts and Inventory.

6.2. Accounting System. Maintain records pertaining to the Collateral that
contain information as from time to time reasonably may be requested by Lender.
Obligors also shall keep an inventory reporting system that shows all additions,
sales, claims, returns, and allowances with respect to the Inventory.

6.3. Collateral Reporting. Provide Lender with the following documents upon
request by Lender in form satisfactory to Lender:

         (a) copies of invoices in connection with the Accounts, credit memos,
remittance advices, deposit slips, shipping and delivery documents in connection
with the Accounts and, for Inventory and Equipment acquired by Obligors,
purchase orders and invoices, and;

         (b) such other reports as to the Collateral, or the financial condition
of Obligors as Lender may request.

         In addition, each Obligor agrees to cooperate fully with Lender to
facilitate and implement a system of electronic collateral reporting in order to
provide electronic reporting of each of the items set forth above.

6.4. Maintenance of Properties. Maintain and preserve all of its properties
which are necessary or useful in the proper conduct to its business in good
working order and condition, ordinary wear and tear excepted, and comply at all
times with the provisions of all leases to which it is a party as lessee, so as
to prevent any loss or forfeiture thereof or thereunder.

6.5. Insurance.

         (a) At Obligors' expense, maintain insurance respecting its property
and assets in accordance with section 8.8 of the Purchase Agreement. To the
extent, and only to the extent,


                                       15

permitted by Obligors' agreements with airports or other lessors, Obligors shall
deliver copies of all such policies, other than those policies insuring
Obligors' operations at airports, or affected by other agreements prohibiting
the assignment of proceeds to a Person other than such airport or lessor, to
Lender with a satisfactory lender's loss payable endorsement naming Agent as
sole loss payee or additional insured, as appropriate (such policies referred to
herein as the "Included Policies").

         (b) Parent shall give Lender prompt notice of any loss covered by any
insurance policy covering any Obligor, including, without limitation, the
Included Policies. Lender shall have the exclusive right (subject to the Senior
Agent's rights under the Senior Loan Documents) to adjust any losses payable
under any Included Policy in excess of $50,000, without any liability to
Obligors whatsoever in respect of such adjustments. Any monies received as
payment for any loss under any Included Policy (other than liability insurance
policies) or as payment of any award or compensation for condemnation or taking
by eminent domain, shall, to the extent not required to be paid to the Senior
Agent under the Senior Loan Documents, be paid over to Lender or shall be
disbursed to Parent under staged payment terms reasonably satisfactory to Lender
for application to the cost of repairs, replacements, or restorations. Any such
repairs, replacements, or restorations shall be effected with reasonable
promptness and shall be of a value at least equal to the value of the items or
property destroyed prior to such damage or destruction.

         (c) Obligors shall not take out separate insurance concurrent in form
or contributing in the event of loss with that required to be maintained under
this Section 6.5, unless, subject to the restrictions set forth in this Section,
Lender is included thereon as named insured with the loss payable to Lender
under a lender's loss payable endorsement or its equivalent (in which case such
policy shall also constitute an Included Policy). Parent immediately shall
notify Lender whenever such separate insurance is taken out, specifying the
insurer thereunder and full particulars as to the policies evidencing the same,
and copies of such policies promptly shall be provided to Lender.

6.6. Location of Inventory and Equipment. Keep the Inventory and Equipment only
at the locations identified on Schedule 5.3; provided, however, that Parent may
amend Schedule 5.3 so long as such amendment occurs by written notice to Lender
not less than 30 days prior to the date on which the Inventory or Equipment is
moved to such new location, so long as such new location is within the
continental United States, and so long as, at the time of such written
notification, the applicable Obligor provides any financing statements or
fixture filings necessary to perfect and continue perfected the Lender's Liens
on such assets and also provides to Lender a Collateral Access Agreement.

6.7. Leases. Pay when due all rents and other amounts payable under any leases
to which any Obligor is a party or by which any Obligor's properties and assets
are bound, unless such payments are the subject of a Permitted Protest.

6.8. Existence. At all times preserve and keep in full force and effect each
Obligor's valid existence and good standing and any rights and franchises
material to Obligors' businesses.

6.9. Environmental. Promptly provide Lender with written notice within 10 days
of the receipt of any of the following: (a) notice that an Environmental Lien
has been filed against any


                                       16

of the real or personal property of any Obligor and (b) commencement of any
Environmental Action or notice that an Environmental Action will be filed
against any Obligor.

7. NEGATIVE COVENANTS.

         Each Obligor covenants and agrees that, so long and until full and
final payment of the Obligations, Obligors will not and will not permit any of
their respective Subsidiaries to do any of the following:

7.1. Change Name. Change any Obligor's name, FEIN, corporate structure or
identity, or add any new fictitious name; provided, however, that a Obligor may
change its name upon at least 30 days prior written notice by Parent to Lender
of such change and so long as, at the time of such written notification, such
Obligor provides any financing statements or fixture filings necessary to
perfect and continue perfected Lender's Liens.

7.2. Change in Location of Chief Executive Office; Inventory and Equipment with
Bailees. Relocate its chief executive office to a new location without Parent
providing 30 days prior written notification thereof to Lender and so long as,
at the time of such written notification, the applicable Obligor provides any
financing statements or fixture filings necessary to perfect and continue
perfected the Lender's Liens and also provides to Lender a Collateral Access
Agreement with respect to such new location. The Inventory and Equipment shall
not at any time now or hereafter be stored with a bailee, warehouseman, or
similar party without Lender's prior written consent.

7.3. Securities Accounts. Establish or maintain any Securities Account unless
Lender shall have received a Control Agreement in respect of such Securities
Account (in the case of the DDAs, within the time period referred to in Section
6.1(c)). Obligors agree to not transfer assets out of any Securities Account;
provided, however, that, so long as no Event of Default has occurred and is
continuing or would result therefrom, Obligors may use such assets (and the
proceeds thereof) to the extent not prohibited by this Agreement or the other
Loan Documents.

8. SUBORDINATION AGREEMENT.

         The rights and obligations of the Lender and each Obligor under this
Agreement are subject in all respects to the provisions of the Subordination
Agreement.

9. THE LENDER'S RIGHTS AND REMEDIES.

9.1. Rights and Remedies. Subject to the provisions of the Subordination
Agreement, upon the occurrence, and during the continuation, of an Event of
Default, Lender (at its election but without notice of its election and without
demand) may do any one or more of the following, all of which are authorized by
Obligors:

         (a) Cause Obligors to hold all returned Inventory in trust for Lender,
segregate all returned Inventory from all other assets of Obligors or in
Obligors' possession and conspicuously label said returned Inventory as the
property of Lender;


                                       17

         (b) Without notice to or demand upon any Obligor make such payments and
do such acts as Lender considers necessary or reasonable to protect its security
interests in the Collateral. Each Obligor agrees to assemble the Personal
Property Collateral if Lender so requires, and to make the Personal Property
Collateral available to Lender at a place that Lender may designate which is
reasonably convenient to both parties. Each Obligor authorizes Lender to enter
the premises where the Personal Property Collateral is located, to take and
maintain possession of the Personal Property Collateral, or any part of it, and
to pay, purchase, contest, or compromise any Lien that in Lender's determination
appears to conflict with the Lender's Liens and to pay all expenses incurred in
connection therewith. With respect to any of Obligors' owned or leased premises,
each Obligor hereby grants Lender a license to enter into possession of such
premises and to occupy the same, without charge, in order to exercise any of the
Lender's rights or remedies provided herein, at law, in equity, or otherwise;

         (c) Without notice to any Obligor (such notice being expressly waived),
and without constituting a retention of any collateral in satisfaction of an
obligation (within the meaning of the Code), set off and apply to the
Obligations any and all (i) balances and deposits of any Obligor held by Lender
or (ii) Indebtedness at any time owing to or for the credit or the account of
any Obligor held by Lender;

         (d) Hold, as cash collateral, any and all balances and deposits of any
Obligor held the Lender to secure the full and final repayment of all of the
Obligations;

         (e) Ship, reclaim, recover, store, finish, maintain, repair, prepare
for sale, advertise for sale, and sell (in the manner provided for herein) the
Personal Property Collateral. Each Obligor hereby grants to Lender a license or
other right to use, without charge, such Obligor's labels, patents, copyrights,
trade secrets, trade names, trademarks, service marks, and advertising matter,
or any property of a similar nature, as it pertains to the Personal Property
Collateral, in completing production of, advertising for sale, and selling any
Personal Property Collateral and such Obligor's rights under all licenses and
all franchise agreements shall inure to Lender's benefit;

         (f) Sell the Personal Property Collateral at either a public or private
sale, or both, by way of one or more contracts or transactions, for cash or on
terms, in such manner and at such places (including Obligors' premises) as
Lender determines is commercially reasonable. It is not necessary that the
Personal Property Collateral be present at any such sale;

         (g) Lender shall give notice of the disposition of the Personal
Property Collateral as follows:

                           (i) Lender shall give Parent (for the benefit of the
         applicable Obligor) a notice in writing of the time and place of public
         sale, or, if the sale is a private sale or some other disposition other
         than a public sale is to be made of the Personal Property Collateral,
         the time on or after which the private sale or other disposition is to
         be made; and

                           (ii) The notice shall be personally delivered or
         mailed, postage prepaid, to Parent as provided in section 8.2 of
         Amendment No. 3, at least 10 days before


                                       18

         the earliest time of disposition set forth in the notice; no notice
         needs to be given prior to the disposition of any portion of the
         Personal Property Collateral that is perishable or threatens to decline
         speedily in value or that is of a type customarily sold on a recognized
         market;

         (h) Lender may credit bid and purchase at any public sale;

         (i) Lender may seek the appointment of a receiver or keeper to take
possession of all or any portion of the Collateral or to operate same and, to
the maximum extent permitted by law, may seek the appointment of such a receiver
without the requirement of prior notice or a hearing;

         (j) Lender shall have all other rights and remedies available to it at
law or in equity pursuant to any other Loan Documents; and

         (k) Any deficiency that exists after disposition of the Personal
Property Collateral as provided above will be paid immediately by Obligors. Any
excess will be returned, without interest and subject to the rights of third
Persons, by Lender to Parent (for the benefit of the applicable Obligor).

9.2. Remedies Cumulative. The rights and remedies of Lender under this
Agreement, the other Loan Documents, and all other agreements shall be
cumulative. Lender shall have all other rights and remedies not inconsistent
herewith as provided under the Code, by law, or in equity. No exercise by Lender
of one right or remedy shall be deemed an election, and no waiver by Lender of
any Event of Default shall be deemed a continuing waiver. No delay by Lender
shall constitute a waiver, election, or acquiescence by it.

10. TAXES AND EXPENSES.

         If any Obligor fails to pay any monies (whether taxes, assessments,
insurance premiums, or, in the case of leased properties or assets, rents or
other amounts payable under such leases) due to third Persons, or fails to make
any deposits or furnish any required proof of payment or deposit, all as
required under the terms of this Agreement, then, Lender, in its sole discretion
and without prior notice to any Obligor, may do any or all of the following: (a)
make payment of the same or any part thereof, (b) or in the case of the failure
to comply with Section 6.5 hereof, obtain and maintain insurance policies of the
type referred to in Section 6.5 and take any action with respect to such
policies as Lender deems prudent. Any such amounts paid by Lender shall
constitute Lender Expenses and any such payments shall not constitute an
agreement by Lender to make similar payments in the future or a waiver by Lender
of any Event of Default. Lender need not inquire as to, or contest the validity
of, any such expense, tax, or Lien and the receipt of the usual official notice
for the payment thereof shall be conclusive evidence that the same was validly
due and owing.

11. WAIVERS; INDEMNIFICATION.

11.1. Demand; Protest; etc. Each Obligor waives demand, protest, notice of
protest, notice of default or dishonor, notice of payment and nonpayment,
nonpayment at maturity, release,


                                       19

compromise, settlement, extension, or renewal of documents, instruments, chattel
paper, and guarantees at any time held by Lender on which any such Obligor may
in any way be liable.

11.2. Lender's Liability for Collateral. Each Obligor hereby agrees that: (a) so
long as Lender complies with its obligations, if any, under the Code, Lender
shall not in any way or manner be liable or responsible for: (i) the safekeeping
of the Collateral, (ii) any loss or damage thereto occurring or arising in any
manner or fashion from any cause, (iii) any diminution in the value thereof, or
(iv) any act or default of any carrier, warehouseman, bailee, forwarding agency,
or other Person, and (b) all risk of loss, damage, or destruction of the
Collateral shall be borne by Obligors.

11.3. Indemnification. The provisions of article 7 of the Purchase Agreement
shall apply to this Agreement as if this Agreement has been executed
contemporaneously with the Purchase Agreement, and references therein to a
"Transaction Document" shall include a reference to this Agreement.

12. NOTICES.

Unless otherwise provided in this Agreement, all notices or demands by Obligors
or Lender to the other relating to this Agreement or any other Loan Document
shall be given in accordance with section 8.2 of Amendment No. 3.

13. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER.

13.1. GOVERNING LAW. THE VALIDITY OF THIS AGREEMENT, THE CONSTRUCTION,
INTERPRETATION, AND ENFORCEMENT HEREOF, AND THE RIGHTS OF THE PARTIES HERETO
WITH RESPECT TO ALL MATTERS ARISING HEREUNDER OR RELATED HERETO SHALL BE
DETERMINED UNDER, GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF NEW YORK.

13.2. NEW YORK COURTS. THE PARTIES AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING
IN CONNECTION WITH THIS AGREEMENT SHALL BE TRIED AND LITIGATED ONLY IN THE STATE
AND FEDERAL COURTS LOCATED IN THE BOROUGH OF MANHATTAN, COUNTY OF NEW YORK,
STATE OF NEW YORK, PROVIDED, HOWEVER, THAT ANY SUIT SEEKING ENFORCEMENT AGAINST
ANY COLLATERAL OR OTHER PROPERTY MAY BE BROUGHT, AT LENDER'S OPTION, IN THE
COURTS OF ANY JURISDICTION WHERE LENDER ELECTS TO BRING SUCH ACTION OR WHERE
SUCH COLLATERAL OR OTHER PROPERTY MAY BE FOUND. OBLIGORS AND LENDER WAIVE, TO
THE EXTENT PERMITTED UNDER APPLICABLE LAW, ANY RIGHT EACH MAY HAVE TO ASSERT THE
DOCTRINE OF FORUM NON CONVENIENS OR TO OBJECT TO VENUE TO THE EXTENT ANY
PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS SECTION 13.2.

13.3. WAIVER OF JURY TRIAL. OBLIGORS AND LENDER HEREBY WAIVE THEIR RESPECTIVE
RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT
OF THIS AGREEMENT OR ANY OF THE


                                       20

TRANSACTIONS CONTEMPLATED HEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH
OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS. OBLIGORS AND
LENDER REPRESENT THAT EACH HAS REVIEWED THIS WAIVER AND EACH KNOWINGLY AND
VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL
COUNSEL. IN THE EVENT OF LITIGATION, A COPY OF THIS AGREEMENT MAY BE FILED AS A
WRITTEN CONSENT TO A TRIAL BY THE COURT.

14. ASSIGNMENTS AND SUCCESSORS.

         This Agreement shall bind and inure to the benefit of the respective
successors and assigns of each of the parties; provided, however, that Obligors
may not assign this Agreement or any rights or duties hereunder without the
Lender's prior written consent and any prohibited assignment shall be absolutely
void ab initio. No consent to assignment by the Lender shall release any Obligor
from its Obligations. Lender may assign this Agreement and the other Loan
Documents and its rights and duties hereunder and thereunder in accordance with
the Purchase Agreement and, except as expressly required pursuant to the
Purchase Agreement, no consent or approval by any Obligor is required in
connection with any such assignment.

15. AMENDMENTS; WAIVERS.

15.1. Amendments and Waivers. No amendment or waiver of any provision of this
Agreement, and no consent with respect to any departure by Obligors therefrom,
shall be effective unless the same shall be in writing and signed by Lender and
Parent (on behalf of all Obligors) and then any such waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given.

15.2. No Waivers; Cumulative Remedies. No failure by Lender to exercise any
right, remedy, or option under this Agreement, or delay by Lender in exercising
the same, will operate as a waiver thereof. No waiver by Lender will be
effective unless it is in writing, and then only to the extent specifically
stated. No waiver by Lender on any occasion shall affect or diminish Lender's
rights thereafter to require strict performance by Obligors of any provision of
this Agreement. Lender's rights under this Agreement will be cumulative and not
exclusive of any other right or remedy that Lender may have.

16. GENERAL PROVISIONS.

16.1. Effectiveness. This Agreement shall be binding and deemed effective when
executed by Obligors and Lender whose signature is provided for on the signature
pages hereof.

16.2. Section Headings. Headings and numbers have been set forth herein for
convenience only. Unless the contrary is compelled by the context, everything
contained in each Section applies equally to this entire Agreement.

16.3. Interpretation. Neither this Agreement nor any uncertainty or ambiguity
herein shall be construed or resolved against Lender or Obligors, whether under
any rule of construction or otherwise. On the contrary, this Agreement has been
reviewed by all parties and shall be


                                       21

construed and interpreted according to the ordinary meaning of the words used so
as to accomplish fairly the purposes and intentions of all parties hereto.

16.4. Severability of Provisions. Each provision of this Agreement shall be
severable from every other provision of this Agreement for the purpose of
determining the legal enforceability of any specific provision.

16.5. Amendments in Writing. This Agreement only can be amended by a writing in
accordance with Section 15.1.

16.6. Counterparts; Telefacsimile Execution. This Agreement may be executed in
any number of counterparts and by different parties on separate counterparts,
each of which, when executed and delivered, shall be deemed to be an original,
and all of which, when taken together, shall constitute but one and the same
Agreement. Delivery of an executed counterpart of this Agreement by
telefacsimile shall be equally as effective as delivery of an original executed
counterpart of this Agreement. Any party delivering an executed counterpart of
this Agreement by telefacsimile also shall deliver an original executed
counterpart of this Agreement but the failure to deliver an original executed
counterpart shall not affect the validity, enforceability, and binding effect of
this Agreement. The foregoing shall apply to each other Loan Document mutatis
mutandis.

16.7. Revival and Reinstatement of Obligations. If the incurrence or payment of
the Obligations by any Obligor or the transfer to Lender of any property should
for any reason subsequently be declared to be void or voidable under any state
or federal law relating to creditors' rights, including provisions of the
Bankruptcy Code relating to fraudulent conveyances, preferences, or other
voidable or recoverable payments of money or transfers of property
(collectively, a "Voidable Transfer"), and if Lender is required to repay or
restore, in whole or in part, any such Voidable Transfer, or elects to do so
upon the reasonable advice of its counsel, then, as to any such Voidable
Transfer, or the amount thereof that Lender is required or elects to repay or
restore, and as to all reasonable costs, expenses, and attorneys fees of Lender
related thereto, the liability of Obligors automatically shall be revived,
reinstated, and restored and shall exist as though such Voidable Transfer had
never been made.

16.8. Integration. This Agreement, together with the other Loan Documents,
reflects the entire understanding of the parties with respect to the
transactions contemplated hereby and shall not be contradicted or qualified by
any other agreement, oral or written, before the date hereof.

16.9. Parent as Agent for Obligors. Each Obligor hereby irrevocably appoints
Parent as the borrowing agent and attorney-in-fact for all Obligors which
appointment shall remain in full force and effect unless and until prior written
notice signed by each Obligor that such appointment has been revoked and that
another Obligor has been appointed Parent.

                           [Signature page to follow.]


                                       22

         IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered as of the date first above written.

                                      MERCURY AIR GROUP, INC.,

                                      By:
                                         --------------------------------------
                                      Name:
                                      Title:




                                      J.H. WHITNEY MEZZANINE FUND, L.P.
                                      By: Whitney GP, L.L.C.
                                      By:
                                         --------------------------------------
                                      Name:
                                      Title: A Managing Member


                                       23

                                   GUARANTORS:

MERCFUEL, INC.

By:
   -------------------------------------
Name:
Title:

MAYTAG AIRCRAFT CORPORATION

By:
   -------------------------------------
Name:
     -----------------------------------
Title:
      ----------------------------------

MERCURY AIR CARGO, INC.

By:
   -------------------------------------
Name:
     -----------------------------------
Title:
      ----------------------------------

AEG FINANCE CORPORATION

By:
   -------------------------------------
Name:
     -----------------------------------
Title:
      ----------------------------------

MERCURY AIR CENTERS, INC.

(F/K/A WOFFORD FLYING SERVICES, INC.)

By:
   -------------------------------------
Name:
     -----------------------------------
Title:
      ----------------------------------

HERMES AVIATION, INC.

By:
   -------------------------------------
Name:
     -----------------------------------
Title:
      ----------------------------------

VULCAN AVIATION, INC.

By:
   -------------------------------------
Name:
     -----------------------------------
Title:
      ----------------------------------


                                       24

RPA AIRLINE AUTOMATION SERVICES, INC.

(F/K/A RENE PEREZ AND ASSOCIATES, INC.)

By:
   -------------------------------------
Name:
     -----------------------------------
Title:
      ----------------------------------

MERCURY ACCEPTANCE CORPORATION

By:
   -------------------------------------
Name:
     -----------------------------------
Title:
      ----------------------------------

EXCEL CARGO, INC.

By:
   -------------------------------------
Name:
     -----------------------------------
Title:
      ----------------------------------

MERCURY AIR CENTER-BIRMINGHAM, LLC

By:
   -------------------------------------
Name:
     -----------------------------------
Title:
      ----------------------------------

MERCURY AIR CENTER-BAKERSFIELD, INC.

By:
   -------------------------------------
Name:
     -----------------------------------
Title:
      ----------------------------------

MERCURY AIR CENTER-BURBANK, INC.

By:
   -------------------------------------
Name:
     -----------------------------------
Title:
      ----------------------------------

MERCURY AIR CENTER-FRESNO, INC.

By:
   -------------------------------------
Name:
     -----------------------------------
Title:
      ----------------------------------


                                       25

MERCURY AIR CENTER-LOS ANGELES, INC.

By:
   -------------------------------------
Name:
     -----------------------------------
Title:
      ----------------------------------

MERCURY AIR CENTER-ONTARIO, INC.

By:
   -------------------------------------
Name:
     -----------------------------------
Title:
      ----------------------------------

MERCURY AIR CENTER-SANTA BARBARA

By:
   -------------------------------------
Name:
     -----------------------------------
Title:
      ----------------------------------

MERCURY AIR CENTER-HARTSFIELD, LLC

By:
   -------------------------------------
Name:
     -----------------------------------
Title:
      ----------------------------------

MERCURY AIR CENTER-PEACHTREE-DEKALB, LLC

By:
   -------------------------------------
Name:
     -----------------------------------
Title:
      ----------------------------------

MERCURY AIR CENTER- FT. WAYNE, LLC

By:
   -------------------------------------
Name:
     -----------------------------------
Title:
      ----------------------------------

MERCURY AIR CENTER-JACKSON, L.L.C.

By:
   -------------------------------------
Name:
     -----------------------------------
Title:
      ----------------------------------


                                       26

MERCURY AIR CENTER-RENO, LLC

By:
   -------------------------------------
Name:
     -----------------------------------
Title:
      ----------------------------------

MERCURY AIR CENTER-TULSA, LLC

By:
   -------------------------------------
Name:
     -----------------------------------
Title:
      ----------------------------------

MERCURY AIR CENTER-CHARLESTON, LLC

By:
   -------------------------------------
Name:
     -----------------------------------
Title:
      ----------------------------------

MERCURY AIR CENTER-JOHNS ISLAND, LLC

By:
   -------------------------------------
Name:
     -----------------------------------
Title:
      ----------------------------------

MERCURY AIR CENTER-NASHVILLE, LLC

By:
   -------------------------------------
Name:
     -----------------------------------
Title:
      ----------------------------------

MERCURY AIR CENTER-ADDISON, INC.

By:
   -------------------------------------
Name:
     -----------------------------------
Title:
      ----------------------------------

MERCURY AIR CENTER - CORPUS CHRISTI, INC.

By:
   -------------------------------------
Name:
     -----------------------------------
Title:
      ----------------------------------


                                       27

EX-10.6

                                                                    EXHIBIT 10.6


                             SUBORDINATION AGREEMENT

                                      AMONG

                       J.H. WHITNEY MEZZANINE FUND, L.P.,

                          FOOTHILL CAPITAL CORPORATION,
                                    as Agent

                                       AND

                             MERCURY AIR GROUP, INC.
                and certain of its subsidiaries signatory hereto



                                December 30, 2002

                             SUBORDINATION AGREEMENT

      THIS SUBORDINATION AGREEMENT (this "Agreement"), dated as of December 30,
2002 is entered into by and among J.H. WHITNEY MEZZANINE FUND, L.P.
("Subordinating Lender"), FOOTHILL CAPITAL CORPORATION, as agent (in such
capacity, "Agent") for the Senior Lenders (defined below)) and MERCURY AIR
GROUP, INC. and certain of its subsidiaries signatory hereto (each an "Obligor"
and collectively, "Obligors"), with reference to the following facts:

                                    RECITALS

      A. Certain of the Obligors have entered into the Junior Debt Documents (as
defined below) with Subordinating Lender.

      B. Obligors have requested that Agent and the lenders signatory thereto
(the "Senior Lenders") enter into various agreements with Obligors, including
that certain Loan and Security Agreement dated as of the date hereof (as in
effect from time to time, the "Loan Agreement"), the Loan Documents (as defined
in the Loan Agreement) and other related supplements, agreements, documents and
instruments, as amended or modified from time to time (collectively, the "Senior
Debt Documents"), pursuant to which the Senior Lenders would extend certain
loans and other financial accommodations to certain of the Obligors.

      C. Agent and the Senior Lenders are unwilling to enter into the Senior
Debt Documents with Obligors and to extend to the applicable Obligors the loans
and other financial accommodations contemplated thereunder unless Subordinating
Lender enters into this Agreement.

      D. Subordinating Lender is interested in the financial success of Obligors
and will benefit by the loans which the Senior Lenders propose to extend to the
applicable Obligors under the Senior Debt Documents.

      E. Accordingly, to induce Agent and the Senior Lenders to enter into the
Senior Debt Documents with Obligors and to extend to the applicable Obligors the
loans contemplated thereunder, Subordinating Lender is willing to enter into
this Agreement with Agent.

                                    AGREEMENT

      NOW, THEREFORE, the parties agree as follows:

      1. Certain Defined Terms.

            (a) General. When used in this Agreement, the following terms have
the following respective meanings:

                  "Agent" has the meaning set forth in the introduction hereto,
            and in addition, includes any Senior Lender with respect to rights
            and interests of the Agent hereunder and under the Senior Debt
            Documents.


                                       2

                  "Agreement" has the meaning set forth in the introduction
            hereto.

                  "Amended Note" means the Amended and Restated WMF Senior
            Subordinated Promissory Note issued to the Subordinating Lender by
            Mercury Air Group, Inc. dated September 10, 1999.

                  "Asset Sale Reserve" has the meaning set forth in the Loan
            Agreement as in effect on the date hereof.

                  "Cure Period" has the meaning set forth in Section 3(c).

                  "FBO Enterprise Value" has the meaning set forth in the Loan
            Agreement as in effect on the date hereof.

                  "Insolvency Proceeding" means (i) any insolvency, bankruptcy,
            receivership, liquidation, reorganization, readjustment,
            custodianship, composition or other proceeding or case relating to
            Obligors, any of their subsidiaries, or any of their respective
            assets, (ii) any dissolution or winding up of Obligors or any of
            their subsidiaries, whether voluntary or involuntary and whether or
            not involving an insolvency or bankruptcy case or (iii) any
            assignment for the benefit of creditors or any other marshalling of
            any assets of Obligors or any of their subsidiaries.

                  "Junior Debt" means all present and future indebtedness and
            other obligations (direct or indirect) owing by Obligors to
            Subordinating Lender under the Junior Debt Documents. "Junior Debt"
            includes (without limitation) indebtedness owed under the Junior
            Debt Documents, together with any other debts, demands, monies,
            indebtedness, liabilities, and obligations now or hereafter owed by
            Obligors to Subordinating Lender, including interest, principal,
            costs, and other charges, together with all claims, rights, causes
            of action, judgments, decrees and other obligations (whether or not
            incurred prior to or after any Insolvency Proceeding).

                  "Junior Debt Documents" means that Securities Purchase
            Agreement, dated as of September 10, 1999, between Borrower and the
            Subordinating Lender, as amended, and the Amended Note, copies of
            which are attached hereto as Exhibit A and incorporated herein by
            this reference, together with all other documents related thereto.

                  "Junior Default Notice" means a notice delivered by
            Subordinating Lender to Agent and Obligors in accordance with
            Section 17(i) and stating that an event of default has occurred and
            is continuing under the Junior Debt Documents.

                  "Net Cash Proceeds" has the meaning set forth in the Loan
            Agreement as in effect on the date hereof.

                  "Obligors" has the meaning set forth in the recitals of this
            Agreement.


                                       3

                  "Senior Debt" has the meaning set forth in Section 3(a) of
            this Agreement.

                  "Senior Debt Documents" has the meaning set forth in the
            recitals of this Agreement.

                  "Senior Default Notice" means a notice delivered by Agent to
            Subordinating Lender and Obligors in accordance with Section 17(i)
            and stating that an Event of Default has occurred and is continuing
            under the Senior Debt Documents.

                  "Senior Lenders" has the meaning set forth in the introduction
            of this Agreement.

                  "Subordinating Lender" has the meaning set forth in the
            introduction of this Agreement.

                  "Target Amount" has the meaning set forth in the Loan
            Agreement as in effect on the date hereof.

                  "Voided Payment" has the meaning set forth in Section 13(b).

            (b) Other Terms. Unless otherwise defined in this Agreement, any and
all initially capitalized terms set forth in this Agreement shall have the
meaning ascribed thereto in the Senior Debt Documents.

      2. Representations, Warranties, Waivers and Covenants.

            (a) Amount of Junior Debt. Subordinating Lender and Obligors
represent and warrant that as of the date of this Agreement, the aggregate
outstanding balance (principal plus interest) of the Junior Debt is Twenty-Four
Million Dollars ($24,000,000).

            (b) Junior Debt Documents. Subordinating Lender and Obligors
covenant to Agent that the Amended Note shall be marked with the following
legend and, upon Agent's request, to be given by notice to Obligors and
Subordinating Lender: (i) a copy of all Junior Debt Documents other than the
Amended Note shall be delivered to Agent; and/or (ii) all Junior Debt Documents
shall be conspicuously marked with substantially the following legend, modified
as may be necessary to reflect proper references to such Junior Debt Document:

      "THIS NOTE AND THE INDEBTEDNESS EVIDENCED HEREBY IS SUBORDINATE IN THE
      MANNER AND TO THE EXTENT SET FORTH IN THAT CERTAIN SUBORDINATION
      AGREEMENT, DATED AS OF DECEMBER 30, 2002, BY AND AMONG THE MAKER HEREOF,
      THE PAYEE NAMED HEREIN, AND FOOTHILL CAPITAL CORPORATION, AS SUCH
      AGREEMENT MAY BE AMENDED FROM TIME TO TIME, AND EACH HOLDER OF THIS NOTE,
      BY ITS ACCEPTANCE HEREOF, SHALL BE BOUND BY THE PROVISIONS OF SUCH
      SUBORDINATION AGREEMENT."


                                       4

and after being so marked, the originals of the Junior Debt Documents shall be
exhibited to Agent and a copy of the marked Junior Debt Documents shall be
delivered to Agent.

            (c) No Default. Obligors represent and warrant that Schedule A sets
forth a complete list of past and existing defaults under the Junior Debt
Documents. Subordinating Lender hereby represents and warrants that it is not
aware of any past or existing default under the Junior Debt Documents that is
not set forth on Schedule A and hereby waives the defaults listed on Schedule A.

            (d) Ownership of Junior Debt. The Subordinating Lender represents
and warrants that it owns the Junior Debt, free and clear of any lien, charge or
other adverse claim or encumbrance.

            (e) Further Action. Upon the reasonable request of another party,
each party covenants that it will promptly take all actions which are necessary
to carry out the purposes of this Agreement.

      3. Subordination. This Section supercedes Section 7 of the Amended Note.

            (a) General. To the extent provided in the remainder of this Section
3, the Junior Debt is hereby subordinated and made junior to all obligations now
or hereafter owing to Agent and/or the Senior Lenders under the Loan Documents
by Obligors. The obligations referred to in the preceding sentence as being
owing to Agent and/or the Senior Lenders are referred to in this Agreement as
the "Senior Debt," and include the Obligations, all present and future
representations, warranties, covenants, agreements, indemnities, all principal
incurred (including debtor-in-possession loans or advances), all interest and
all fees and expenses incurred after the commencement of an Insolvency
Proceeding or any other federal or state bankruptcy, insolvency or
reorganization act regardless of whether Agent's claim therefor or the security
interests asserted are valid, binding, enforceable, void, voidable, voided,
subordinated, reduced, disallowed or allowable in the Insolvency Proceeding.

            (b) Payments to Subordinating Lender.

                  (i) Unless a Default or Event of Default resulting from the
failure of Obligors to make any payment when due with respect to the Senior Debt
has occurred or a Senior Default Notice has been delivered to Obligors, in which
case the provisions of Section 3(b)(iii) and 3(b)(iv) hereof shall apply,
Obligors may, subject to the other provisions of this Agreement, pay to
Subordinating Lender quarterly interest payments at the non-default rate
therefor not to exceed 12% per annum.

                  (ii) Provided:

                        A.    no Default or Event of Default under the Senior
                              Debt Documents shall have occurred,

                        B.    so long as Obligors, after giving effect to any
                              such payments, have at least $4,000,000 of Excess
                              Availability, and


                                       5

                        C.    at all times both before and after giving effect
                              to any such payments and the transactions relating
                              to them, Obligors maintain FBO Operations at FBO's
                              having an aggregate FBO Enterprise Value of at
                              least $10,000,000,

                        Obligors shall pay the following payments:

                              (1)   from Net Cash Proceeds which exceed
                                    $500,000, which payments shall be made as
                                    follows:

                                    (I)   First, until the aggregate amount of
                                          $15,000,000 of Net Cash Proceeds have
                                          been so applied, equally to Agent for
                                          application to the Term Loan and to
                                          Subordinating Lender for application
                                          to the principal amount of the Junior
                                          Debt;

                                    (II)  Second, until an additional aggregate
                                          amount of $4,500,000 of Net Cash
                                          Proceeds have been so applied, to
                                          Subordinating Lender for application
                                          to the principal amount of the Junior
                                          Debt;

                                    (III) Third, if such Net Cash Proceeds are
                                          received (a) prior to January 1, 2004
                                          and the Asset Sale Reserve is then
                                          less than the Target Amount, equally
                                          to Subordinating Lender for
                                          application to the principal amount of
                                          the Junior Debt and to Agent for
                                          application to the Advances, (b) prior
                                          to January 1, 2004 and the Asset Sale
                                          Reserve is then equal to the Target
                                          Amount, to Subordinating Lender for
                                          application to the principal amount of
                                          the Junior Debt until the principal
                                          amount of the Junior Debt has been
                                          repaid in the amount of $24,000,000,
                                          or (c) on or after January 1, 2004, to
                                          Subordinating Lender for application
                                          to the principal amount of the Junior
                                          Debt until the principal amount of the
                                          Junior Debt has been repaid in the
                                          amount of $24,000,000;

                                    (IV)  Fourth, to Subordinating Lender for
                                          application to the principal amount
                                          of the Junior Debt until the principal
                                          amount of the Junior Debt has been
                                          repaid in the amount of $24,000,000;
                                          and

                                    (V)   Fifth, to any Senior Debt;


                                       6

                              provided, however, if at any time such payments
                              are to be made the only condition provided above
                              not satisfied is Obligors' failure to maintain
                              Excess Availability of at least $4,000,000 as
                              provided above, to the extent there are Net Cash
                              Proceeds remaining after such Net Cash Proceeds
                              are remitted to Agent and applied against the
                              Advances (which Agent agrees to do) so as to cause
                              the amount of Excess Availability to be $4,000,000
                              or greater, then any such remaining Net Cash
                              Proceeds shall be applied as provided above; and

                              (2)   to Subordinating Lender for application to
                                    the principal amount of the Junior Debt on
                                    the first day of each fiscal quarter
                                    occurring prior to January 1, 2004 and on
                                    January 1, 2004, if the amount by which the
                                    Asset Sale Reserve is (I) greater than or
                                    equal to the previous fiscal quarter's
                                    Target Amount, an amount equal to the
                                    reduction in the Target Amount from the
                                    previous fiscal quarter and such fiscal
                                    quarter or (II) less than the previous
                                    quarter's Target Amount and greater than
                                    such fiscal quarter's Target Amount, an
                                    amount equal to the Asset Sale Reserve less
                                    such fiscal quarter's Target Amount, or
                                    (III) less than such fiscal quarter's Target
                                    Amount, none.

                        Except as otherwise expressly provided above, Agent may
                        apply the proceeds of any such asset sales or any other
                        amounts to any portion of the Senior Debt in its sole
                        discretion. Any reductions in the Term Loan shall be
                        made in the inverse order of maturity of payments.

                  (iii) Subsequent to the occurrence of a Default or Event of
Default resulting from the failure of Obligors to make any payment when due with
respect to the Senior Debt, Obligors may not pay, nor may Subordinating Lender
receive and retain, any payment with respect to the Junior Debt, until such time
as (A) such Default or Event of Default has been cured or waived or has ceased
to exist (all in accordance with the terms of the Loan Agreement), (B) the
Senior Debt has been indefeasibly paid in full, in cash and the Senior Lenders'
commitments to provide financing to any Obligors have been terminated or (C)
three hundred sixty-five (365) days have elapsed since the occurrence of such
Default or Event of Default; provided, however, no payments may be made or
received if Agent exercises its default rights and remedies or has accelerated
the Senior Debt. There shall be no limit on the number of times that payments to
Subordinating Lender may be prohibited pursuant to this Section 3(b)(iii) nor of
the time period that such prohibition is in effect.

                  (iv) Subsequent to the delivery of a Senior Default Notice
other than resulting from the failure of Obligors to make any payment when due
with respect to the Senior Debt, Obligors may not pay, nor subsequent to
Subordinating Lender's receipt of a Senior


                                       7

Default Notice, may Subordinating Lender receive and retain, any payment with
respect to the Junior Debt; provided, however, on the earliest to occur of (A)
one hundred eighty (180) days after the delivery of such Senior Default Notice,
(B) the events set forth in the Senior Default Notice having been waived or
cured or having ceased to exist (all in accordance with the terms of the Loan
Agreement) or (C) the indefeasible payment of the Senior Debt, in full, in cash
and the Senior Lenders' commitments to provide financing to any Obligors have
been terminated; and provided that Agent has not subsequently delivered a Senior
Default Notice pursuant to Section 3(b)(iii) above, such Senior Default Notice
shall thereupon not be in effect for the current applicable period and
Subordinating Lender may receive and retain (X) regularly scheduled payments of
interest at the non-default rate therefor not to exceed 12% per annum and (Y) so
long as both immediately before and immediately after giving effect to such
payment Obligors have at least $4,000,000 of Excess Availability, interest
payments which were prevented from being made as provided herein, but not any
principal payments which were prevented from being made as provided herein;
provided, further, however, that after giving effect to any such payment to
Subordinating Lender, no default, event of default or unmatured event of default
by Obligors under any present or future instrument or agreement (including an
Event of Default under the Senior Debt Documents) will have occurred as a result
therefrom. Agent may deliver a Senior Default Notice pursuant to this Section
3(b)(iv) each time there is a separate default or Event of Default under the
Senior Debt Documents; provided, however, the aggregate number of days in any
three hundred sixty (360) day period for which a Senior Default Notice (other
than resulting from the failure of Obligors to make any payment when due or
deemed by Agent to be due with respect to the Senior Debt) may be in effect
shall not exceed one hundred eighty (180) days.

                  (v) Notwithstanding anything in this Agreement to the
contrary, the failure of Obligors to make a payment with respect to the Junior
Debt by reason of the operation of this Section 3 shall not be construed as
preventing or delaying the occurrence of a default under the Amended Note or the
other Junior Debt Documents.

            (c) Actions by Subordinating Lender. Subordinating Lender hereby
agrees that it shall deliver a Junior Default Notice to Obligors and Agent upon
any default or event of default under the Junior Debt Documents and that,
notwithstanding anything to the contrary in the Amended Note or the other Junior
Debt Documents, Obligors shall have thirty (30) days (in addition to any
applicable cure or grace periods, if any, set forth in the Junior Debt
Documents) after receipt of such Junior Default Notice in which to cure the
defaults or events of defaults set forth in such Junior Default Notice (the
"Cure Period"). If after such Cure Period the events described in such Junior
Default Notice have not been cured or waived by Subordinating Lender, then on
the earliest to occur of (i) the ninetieth (90th) day following the expiration
of such Cure Period, (ii) the acceleration of the Senior Debt, (iii) the
occurrence of an Insolvency Proceeding or (iv) the indefeasible payment of the
Senior Debt, in full, in cash, and the termination of the Senior Lenders'
commitments to provide financing to any Obligors, Subordinating Lender may
(subject to the provisions of this Agreement including, without limitation,
Section 3(b) and Section 13 hereof), if Agent has not delivered a Senior Default
Notice due to the failure of Obligors to make a payment to Agent when due with
respect to the Senior Debt, exercise its rights as a general, unsecured creditor
of Obligors to commence judicial action on the Junior Debt and otherwise seek a
judgment on the Junior Debt but in no event shall Subordinating Lender exercise
any default rights or remedies with respect to the Collateral whether as a
secured


                                       8

party, a judgment lienholder or otherwise, which limitation includes
prohibitions on judicial or non-judicial foreclosure, possession of the
Collateral, collection actions and other such activities. Notwithstanding the
foregoing, Subordinating Lender shall be entitled, to the extent necessary, to
commence any action required in order to toll the running of any applicable
statute of limitation that might otherwise prevent Subordinating Lender from
making claims in respect of the Junior Debt. Subordinating Lender shall not
issue more than one Junior Default Notice after the date hereof in any three
hundred sixty (360) day period. Subordinating Lender may not, except in
accordance with the terms of this Section 3(c) exercise its rights as a general
unsecured creditor of Obligors to commence judicial action on the Junior Debt or
otherwise seek a judgment on the Junior Debt.

            (d) Priority of Interests in Collateral. Subordinating Lender's
security interest, lien, judgment lien, claim in an Insolvency Proceeding or
other right or interest in the Collateral shall at all times be junior,
subordinate and subject to any security interest, lien or other right or
interest Agent may now have or may hereafter acquire in the Collateral. The
subordination provided in this Section 3 shall apply irrespective of the time or
order of attachment or perfection of any security interest, irrespective of the
time or order of filing of any financing statement or other document, and
irrespective of any statute, rule, law, or court decision to the contrary.
Subordinating Lender confirms that the Senior Debt and the liens securing the
Senior Debt are in all respects senior to the Junior Debt and the liens securing
the Junior Debt, and that this Agreement shall govern as between Agent and
Subordinating Lender irrespective of whether the Senior Debt or the liens
securing the Senior Debt, are held to be unperfected, deficient, invalid, void,
voidable, voided, unenforceable, subordinated, reduced, discharged or are set
aside by a court of competent jurisdiction, including, without limitation,
pursuant to any Insolvency Proceeding. Subordinating Lender agrees to release,
terminate, reconvey and extinguish any security interest, lien or other right or
interest it may have in any Collateral at the request of Agent taking such
identical action. Agent agrees that, solely with respect to any Collateral as to
which Agent has perfected its security interest therein by possession and as to
which Subordinating Lender has also been granted a security interest by
Obligors, Agent will also hold such Collateral on behalf of Subordinating Lender
for purposes of perfecting its junior security interest therein, provided that,
Agent's only duties to Subordinating Lender with respect to such Collateral
shall be to take commercially reasonable care of such Collateral and to deliver
such Collateral, to the extent not disposed of as a result of Agent exercising
its security interest with respect thereto, after the indefeasible payment in
full in cash of the Senior Debt and the termination of the Senior Lenders'
commitments to provide financing to any Obligors. Subordinating Lender agrees
that, solely with respect to any Collateral as to which Subordinating Lender has
perfected its security interest therein by possession and as to which Agent has
also been granted a security interest by Obligors, Subordinating Lender will
also hold such Collateral on behalf of Agent for purposes of perfecting its
senior security interest therein, provided that, Subordinating Lender's only
duties to Agent with respect to such Collateral shall be to take commercially
reasonable care of such Collateral and to deliver such Collateral to Agent upon
its request.

            (e) Subordination of Guaranties. In the event Subordinating Lender
acquires any guaranty with respect to the Junior Debt, whether secured or
unsecured, from any affiliate of Obligors, Subordinating Lender agrees that its
rights with respect to such guaranty shall at all times be junior, subordinate
and subject to the rights of Agent with respect to any guaranties


                                       9

Agent may receive from such affiliates with respect to the Senior Debt on terms
substantially the same as those set forth herein as if such affiliates were
Obligors.

      4. Restrictions On Subordinating Lender's Actions. Except as permitted in
Section 3(c) hereof and unless it shall have obtained the Agent's prior written
consent, until the Senior Debt has been paid in full, in cash, and the Senior
Lenders' commitments to provide financing to any Obligors have been terminated,
Subordinating Lender will not:

            (a) Demand or accept any payment upon the Junior Debt, except as may
be permitted by this Agreement;

            (b) Foreclose, collect or realize upon any collateral hereafter
securing the Junior Debt (whether such collateral constitutes part of the
Collateral or consists of other assets of Obligors), or otherwise enforce any
security agreement, mortgage, lien instrument, or other encumbrance hereafter
securing the Junior Debt.

      5. Remedies. If any Obligor or Subordinating Lender attempts to violate
Section 3 or Section 4(a), or if Subordinating Lender in any other manner
receives any funds which by virtue of this Agreement it is precluded from
receiving, Subordinating Lender shall be deemed to hold any payment or
distribution it receives in trust for the Agent's benefit. In such case,
Subordinating Lender shall immediately remit such payment or distribution to the
Agent. If Subordinating Lender attempts to violate Section 4(b), the Agent (in
its or Obligors' name), or Obligors may seek injunctive or other equitable
relief to prevent or stop Subordinating Lender's actions, it being agreed that
legal remedies may be inadequate. The remedies provided in this Section 5 are
not exclusive; the parties hereto shall be entitled to all other remedies
available at law or in equity. The parties hereto shall not in any event be
liable for any impairment or nonpayment of the Junior Debt that results,
directly or indirectly, from the exercise by the other parties hereto of any of
their rights or remedies under this Agreement, the any other agreement or under
applicable law.

      6. No Action to Violate Senior Debt Documents. Subordinating Lender shall
not take any action which is reasonably likely to cause Obligors to violate the
Senior Debt Documents or any other agreement between Obligors on the one hand
and Agent and/or the Senior Lenders on the other hand.

      7. No Amendment of Junior Debt Documents. Unless the Agent's prior written
consent shall have been obtained, no Junior Debt Document may be amended or
modified to: (a) increase the maximum principal amount of the Junior Debt or the
rate of interest with respect to any of the Junior Debt, (b) accelerate the
dates (including maturity dates) upon which payments of principal or interest
with respect to the Junior Debt are due, (c) make more restrictive or add any
event of default or any covenant with respect to the Junior Debt, (d) change the
redemption or prepayment provisions with respect to the Junior Debt, (e) alter
the subordination provisions with respect to the Junior Debt, including, without
limitation, subordinating the Junior Debt to any other debt, (f) grant any
additional liens or security interest in any assets of any Obligor or any other
assets securing the Senior Debt or (g) if such modification or amendment would
(i) materially increase the obligations of any Obligor, (ii) confer additional
material rights upon


                                       10

Subordinating Lender or any other holder of Junior Debt, or (iii) otherwise
adversely affect any Obligor, Agent or any Senior Lender.

      8. Extensions, Compromises, Etc. Without having to obtain either Obligors
or Subordinating Lender's consent, the Agent may grant to Obligors extensions of
the time of payment or performance, and may enter into compromises (including
releases of collateral and settlements) with Obligors with respect to the Senior
Debt.

      9. Waiver. Subordinating Lender waives any right it may now or hereafter
have to require the Agent to marshall assets, to exercise rights or remedies in
a particular manner, or to forbear from exercising such rights and remedies in
any particular manner or order.

      10. No Constraint on Agent and the Senior Lenders. Nothing contained in
this Agreement shall preclude Agent and the Senior Lenders from discontinuing
their extension of credit to Obligors (whether under the Senior Debt Documents
or otherwise) or from taking (without notice to Subordinating Lender, Obligors,
or any other individual or entity) any other action in respect of the Senior
Debt or the Collateral which Agent and/or the Senior Lenders are otherwise
entitled to take with respect to the Senior Debt or the Collateral. Among the
actions which Agent and the Senior Lenders may take in accordance with this
Section 10 are: renewing, extending, and increasing the amount of the Senior
Debt; otherwise changing the terms of the Senior Debt; settling, releasing,
compromising, and collecting on the Senior Debt; making (and refraining from
making) other secured and unsecured loans and advances to Obligors; amending any
present or future agreement between Agent and/or the Senior Lenders on the one
hand and Obligors on the other hand; and all other actions which Agent and/or
the Senior Lenders deem advisable. Notwithstanding the foregoing, Agent agrees
that it shall not, without the prior written consent of Subordinating Lender,
amend or otherwise modify the Senior Debt Documents so as to: (a) increase the
maximum principal amount available for borrowing thereunder to an amount in
excess of $49,000,000, (b) increase the rate of interest set forth therein by
more than two (2) percentage points or (c) except after an Event of Default,
increase the frequency or amount of regularly scheduled principal payments with
respect to the Term Loan.

      11. Continuing Agreement. This Agreement (a) shall automatically terminate
upon the indefeasible payment and satisfaction in full, in cash, of all Senior
Debt and the termination of the Senior Debt Documents and the obligation of the
Senior Lenders to make loans, advances and/or extensions of credit thereunder,
(b) is a continuing agreement of subordination, (c) shall be binding upon
Subordinating Lender, Obligors, any holder of Junior Debt and their respective
successors, transferees and assigns, (d) shall inure to the benefit of and be
enforceable by the parties hereto, any holders of Senior Debt, any holders of
Junior Debt and their respective successors, transferees and assigns and (e)
shall inure to the benefit of any lenders which provide replacement or other
subsequent financing of Obligors. It is expressly intended that any successor,
transferee, assignee, replacement or subsequent lender be a third party
beneficiary of this Agreement without any further action required. Subordinating
Lender agrees to take all actions reasonably necessary to amend and ratify this
Agreement as to such lender. Without limiting the generality of the foregoing,
the Agent and Senior Lenders may assign or otherwise transfer the Senior Debt to
any other person or entity, such transferee shall thereupon become vested with
all the rights and benefits in respect thereof granted to the Agent and/or
Senior


                                       11

Lenders herein or otherwise. This Agreement shall continue to be effective or be
reinstated, as the case may be, if at any time any payment of any of the Senior
Debt is rescinded or must otherwise be returned by Agent or any Senior Lender in
connection with any Insolvency Proceeding or otherwise, all as though such
payment had not been made.

      12. Rights in Insolvency Proceedings.

            (a) Subordinating Lender hereby irrevocably authorizes and empowers
the Agent, in any Insolvency Proceeding to file a proof of claim on behalf of
Subordinating Lender with respect to the Junior Debt if Subordinating Lender
fails to file such proof of claim prior to ten (10) days before the expiration
of the time period during which such claims must be submitted; provided,
however, that any failure of the Agent to file such proof of claim shall not be
deemed to be a waiver by the Agent of any of the rights and benefits granted
herein by Subordinating Lender. Subordinating Lender hereby covenants and agrees
promptly to provide the Agent with a copy of any proof of claim filed by
Subordinating Lender in any Insolvency Proceeding.

            (b) Subordinating Lender hereby irrevocably grants to the Agent, the
sole and exclusive authority and power in any Insolvency Proceeding, unless and
until this Agreement is terminated in accordance with its terms to accept and
receive any payment or distribution which may be payable or deliverable at any
time upon or in respect of the Junior Debt. Subordinating Lender shall provide
to the Agent all information and documents reasonably necessary to present
claims or seek enforcement as described in the immediately preceding sentence.

            (c) Subordinating Lender hereby agrees that, while it shall retain
the right to vote its claims and, except as otherwise provided in this
Agreement, otherwise act in any Insolvency Proceeding relative to the Obligors
or any of their subsidiaries (including, without limitation, the right to vote
to accept or reject any plan of partial or complete liquidation, reorganization,
arrangement, composition, or extension), Subordinating Lender shall not: (i)
take any action or vote in any way so as to directly or indirectly challenge or
contest (A) the validity or the enforceability of the Senior Debt Documents or
the liens and security interests granted to the Agent, with respect to the
Senior Debt, (B) the rights and duties of Agent and/or the Senior Lenders
established in the Senior Debt Documents, or (C) the validity or enforceability
of this Agreement; (ii) seek, or acquiesce in any request, to convert an
Insolvency Proceeding under chapter 11 of Title 11 of the United States Code to
a case under chapter 7 of Title 11 of the United States Code; (iii) seek the
appointment of a trustee or examiner with expanded powers for the Obligors or
any of their subsidiaries; or (iv) take any other actions or exercise any voting
rights which may impair timely repayment of the Senior Debt or otherwise impair
or impede any rights of Agent or any Senior Lender.

      13. Junior Debt Subordinated to Prior Payment of all Senior Debt in
Insolvency.

            (a) Upon any payment or distribution of assets of Obligors or any of
their subsidiaries of any kind, whether in cash, property or securities
(including, without limitation, any issuance of securities by Obligors or any of
their subsidiaries), in connection with any Insolvency Proceeding:


                                       12

                  (i) Agent, for the benefit of the Senior Lenders, shall first
be entitled to receive indefeasible payment in full in cash of all Senior Debt
and the Senior Lenders' commitments to provide financing to any Obligors have
been terminated before Subordinating Lender shall be entitled to receive any
payment or other distribution of assets in respect of the Junior Debt;

                  (ii) any payment or distribution of assets of Obligors or any
of their subsidiaries of any kind or character, whether in cash, property or
securities (including, without limitation, any issuance of securities by
Obligors or any of their subsidiaries) to which Subordinating Lender would be
entitled except for the provisions of this Agreement will be paid by Obligors or
any of their subsidiaries, the liquidating trustee or agent or such other person
or entity making such a payment or distribution directly to Agent for the
benefit of the Senior Lenders, until all Senior Debt is indefeasibly paid in
full, in cash; and

                  (iii) if, notwithstanding the foregoing, any payment or
distribution of assets of Obligors or any of their subsidiaries of any kind or
character, whether in cash, property or securities (including, without
limitation, any issuance of securities by Obligors or any of their
subsidiaries), is received by Subordinating Lender as payment in respect of the
Junior Debt before all Senior Debt is indefeasibly paid in full in cash (or in
such other consideration as Agent and the Senior Lenders may, in their sole
discretion, expressly agree to in a signed writing), such payment or
distribution shall be received and held for and shall be paid over to Agent, or
its representative, for application to the payment of the Senior Debt until all
Senior Debt has been indefeasibly paid in full in cash.

            (b) To the extent that the Obligors or other provider of Collateral
makes a payment on the Senior Debt that is subsequently invalidated, declared to
be fraudulent or preferential or set aside or is required to be repaid to a
trustee, receiver or any other party under any bankruptcy, insolvency or
reorganization act, state of federal law, common law or equitable cause,
including without limitation any Insolvency Proceeding (such payment being
hereinafter referred to as a "Voided Payment"), then to the extent of such
Voided Payment, that portion of the Senior Debt that had previously been
satisfied by such Voided Payment shall be revived and continue in full force and
effect as if such Voided Payment had never been made. In the event that a Voided
Payment is recovered from Agent or any Senior Lender, an Event of Default shall
be deemed to have existed and to be continuing under the Senior Debt Documents
from the date of Agent or such Senior Lender's initial receipt of such Voided
Payment until the full amount of such Voided Payment is restored to Agent or
such Senior Lender. During any continuance of any such Event of Default, this
Agreement shall be in full force and effect with respect to the Junior Debt. To
the extent that Subordinating Lender has received any payments with respect to
the Junior Debt subsequent to the date of Agent's or any Senior Lender's initial
receipt of such Voided Payment and such payments have not been invalidated,
declared to be fraudulent or preferential or set aside or are required to be
repaid to a trustee, receiver, or any other party under any bankruptcy act,
state of federal law, common law or equitable cause, Subordinating Lender shall
be obligated and hereby agrees that any such payment so made or received shall
be deemed to have been received in trust for the benefit Agent and the Senior
Lenders, and Subordinating Lender hereby agrees to pay to Agent, for the benefit
of the Senior Lenders, upon demand, the full amount so received by Subordinating
Lender to the extent necessary to fully restore to Agent and the Senior Lenders
the amount of such Voided Payment. In the event that the Subordinating


                                       13

Lender makes any such payment to Agent, that portion of the Junior Debt that had
been satisfied but, by reason of such payment to Agent, has ceased to be
satisfied, shall be revived and continue in full force and effect as if the
underlying payment with respect to that Junior Debt had never been made.

      14. Subordination Rights Not Impaired by Acts or Omissions of Obligors,
Agent or the Senior Lenders. No right of Agent or any Senior Lender to enforce
subordination as provided in this Agreement will at any time in any way be
prejudiced or impaired by any act or failure to act on the part of Obligors, or
any of their subsidiaries, or by any act or failure to act by Agent or any
Senior Lender, or by any noncompliance by Obligors, any of their subsidiaries,
or any agent thereof with the terms of this Agreement, regardless of any
knowledge thereof with which any such Person may have or otherwise by charged.
Except as expressly provided to the contrary herein, Agent and the Senior
Lenders may extend, renew, modify or amend any terms of the Senior Debt or any
security therefore or guaranty thereof and grant any waiver, release or consent
in respect of, or release, sell or exchange such security or Collateral and
otherwise deal freely with Obligors, any of Obligors' subsidiaries, and their
respective affiliates, all without notice to or consent from Subordinating
Lender and without in any way impairing or affecting this Agreement.

      15. Lien Related Bankruptcy Provisions. The provisions of this Agreement
shall continue in full force and effect notwithstanding the occurrence of any
Insolvency Proceeding. To the extent that Subordinating Lender has or acquires
any rights under Section 362, 363 or 364 of the Bankruptcy Code with respect to
the Collateral, Subordinating Lender hereby agrees not to assert such rights
without the prior written consent of Agent; provided that, if requested by
Agent, Subordinating Lender shall seek to exercise such rights in the manner
requested by Agent, including the rights in payments in respect of such rights.
Without limiting the generality of the foregoing sentence, to the extent that
Agent consents to any Obligor's use of cash collateral under Section 363 of the
Bankruptcy Code or Agent or any of the Senior Lenders agree to provide financing
to any Obligor under Section 364 of the Bankruptcy Code, Subordinating Lender
hereby agrees not to impede, object to (on grounds of lack of adequate
protection, or otherwise), or otherwise interfere with such use of cash
collateral or financing. Subordinating Lender specifically agrees that in
connection with such cash collateral usage or such financing, Obligors (or a
trustee appointed for the estate of Obligors) may grant to Agent liens and
security interests upon all or any part of the assets of the Obligors, which
liens and security interests: (i) shall secure payments of all Senior
Obligations (whether such Senior Obligations arose prior to the filing of the
bankruptcy petition or thereafter); and (ii) shall be superior in priority to
the liens on and security interests in the assets of Obligors held by
Subordinating Lenders. Subordinating Lender (both in its capacity as a
Subordinating Lender and in its capacity (if any) as a party which may be
obligated to Obligors or its Affiliates with respect to contracts which are part
of Agent's Collateral) agrees not to initiate or prosecute or encourage any
other Person to initiate or prosecute any claim, action, objection or other
proceeding (A) challenging the enforceability of the claim of Agent or any
Senior Lender, (B) challenging the enforceability of any liens or security
interests in any assets securing the Senior Obligations, or (C) asserting any
claims which any Obligor may hold with respect to Agent or any Senior Lender.
Subordinating Lender agrees that it will not object to or oppose a sale or other
disposition of any assets securing the Senior Obligations (or any portion
thereof) free and clear of its security interests, liens or other claims under
Section 363 of the Bankruptcy Code or any other provision of the Bankruptcy Code
if


                                       14

Agent has consented to such sale or disposition of such assets. Subordinating
Lender agrees not to assert any right it may have to "adequate protection" of
its interest in the Collateral in any Bankruptcy Proceeding and agrees that it
will not seek to have the automatic stay lifted with respect to such security,
without the prior written consent of Agent. Subordinating Lender waives any
claim it may now or hereafter have against Agent arising out of the election of
Agent, in any case instituted under the Bankruptcy Code, of the application of
Section 1111(b)(2) of the Bankruptcy Code, and/or out of any cash collateral
arrangement, or financing arrangement, or out of any grant of a security
interest, under Section 363 or 364 of the Bankruptcy Code, with or by Obligors,
as debtor in possession (or with or by any trustee for Obligors). Subordinating
Lender agrees that it will not, in its capacity as a secured creditor: (a)
propose, vote to accept, or otherwise support confirmation of, a plan of
reorganization opposed by Agent, or (b) vote to reject, object to confirmation
of, or otherwise oppose confirmation of, a plan of reorganization supported by
Agent. The subordination and other provisions of this Agreement shall be
enforceable under Section 510 of the Bankruptcy Code.

      16. Releases of Collateral. If Agent releases, terminates or subordinates
its security interest in any Collateral, the Subordinating Lender agrees to
similarly release, terminate or subordinate its security interest in such
Collateral.

      17. Miscellaneous.

            (a) Amendment. No amendment or waiver of this Agreement shall be
effective unless in a writing signed by each party hereto.

            (b) Governing Law; Venue. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York (applicable to
contracts made and performed in such State). All actions and proceedings arising
in connection with this Agreement shall be tried and litigated only in state or
federal courts located in the Borough of Manhattan, County of New York, State of
New York, or (at Agent's sole option) in any other court in which Agent may
initiate legal or equitable proceedings, so long as such court has subject
matter jurisdiction. Subordinating Lender and Obligors each waive any right it
may have to plead forum non-conveniens or otherwise to object to venue, and
hereby consents to any court-ordered relief.

            (c) WAIVER OF RIGHT TO JURY TRIAL. THE PARTIES HERETO EACH HEREBY
WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF
ACTION (i) ARISING UNDER THIS AGREEMENT OR (ii) IN ANY WAY CONNECTED WITH OR
RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO IN RESPECT OF THIS
AGREEMENT OR THE TRANSACTIONS RELATED HERETO IN EACH CASE WHETHER NOW EXISTING
OR HEREAFTER ARISING, AND WHETHER IN CONTRACT, TORT, EQUITY OR OTHERWISE. THE
PARTIES HERETO EACH HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND,
ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY AND
THAT ANY PARTY HERETO MAY FILE AN ORIGINAL COUNTERPART OF A COPY OF THIS
AGREEMENT WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE PARTIES
HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.


                                       15

            (d) Counterparts, etc. This Agreement may be executed in any number
of counterparts, each of which shall be an original, but all of which taken
together shall constitute one and the same agreement. Delivery of an executed
counterpart of this Agreement by telefacsimile shall have the same force and
effect as the delivery of an original executed counterpart of this Agreement.
Any party delivering an executed counterpart of any such agreement by
telefacsimile shall also deliver an original executed counterpart, but the
failure to do so shall not affect the validity, enforceability or binding effect
of such agreement.

            (e) Headings. The headings contained in this Agreement are for
convenience only. They shall not affect the interpretation of this Agreement.

            (f) Attorneys' Fees; Etc. In any suit or action brought to enforce
this Agreement or to obtain an adjudication (declaratory or otherwise) of rights
or obligations hereunder, the losing party shall pay to the prevailing party
reasonable attorneys' fees and other costs and expenses incurred by the
prevailing party.

            (g) Severability. Any provision of this Agreement that is prohibited
by law or unenforceable in any jurisdiction shall be ineffective in that
jurisdiction to the extent of such prohibition or unenforceability, without
invalidating the remaining provisions hereof or affecting the validity or
enforceability of such provision in any other jurisdiction. To the extent
permissible, the parties waive any law that renders this Agreement prohibited or
unenforceable.

            (h) Entire Agreement. This Agreement constitutes the entire
agreement between and among the parties regarding the subject matter hereof.
This Agreement supersedes all prior and contemporaneous agreements between or
among the parties with respect to the subject matter hereof.

            (i) Notice. All notices or demands by any party hereunder must be in
writing and shall be deemed to have been given or made: if delivered in person,
immediately upon delivery; if by telex, telegram or facsimile transmission,
immediately upon sending and upon confirmation of receipt; if by nationally
recognized overnight courier service with instructions to deliver the next
Business Day, one (1) Business Day after sending; and if by certified mail,
return receipt requested, five (5) days after mailing. All such notices or
demands are to be given as follows:

      Agent:                        FOOTHILL CAPITAL CORPORATION
                                    2450 Colorado Avenue
                                    Suite 3000 West
                                    Santa Monica, California 90404-3576
                                    Attn:  Business Finance Division Manager
                                    Fax No.:  310.453.7413


                                       16

      with a copy to:               MAYER, BROWN, ROWE & MAW
                                    350 South Grand Avenue
                                    25th Floor
                                    Los Angeles, California 90071-1503
                                    Attn:  Marshall C. Stoddard, Jr., Esq.
                                    Fax No.: 213.625.0248

      and a copy to:                ABLECO FINANCE LLC
                                    450 Park Avenue, 28th Floor
                                    New York, New York 10022
                                    Attention: Kevin Genda
                                    Fax No.: 212.891.1541

      Subordinating Lender:         J.H. WHITNEY MEZZANINE FUND, L.P.
                                    177 Broad Street
                                    Stamford, Connecticut 06901
                                    Attn: Mr. Daniel J. O'Brien
                                    Mr. David Kroin
                                    Kevin Curley, Esq.
                                    Fax No.: 203.973.1422

      with a copy to:               KIRKLAND & ELLIS
                                    153 East 53rd Street
                                    New York, New York 10022
                                    Attn:  Andrew E. Nagel, Esq.
                                    Fax No.: 212.446.4900

      Obligors:                     MERCURY AIR GROUP, INC.
                                    5456 McConnell Avenue
                                    Los Angeles, California 90066
                                    Attn:  Chief Executive Officer
                                    Fax No.: 310.827.6897

      with a copy to:               MERCURY AIR GROUP, INC.
                                    Legal Department
                                    5456 McConnell Avenue
                                    Los Angeles, California 90066
                                    Attn:  Wayne J. Lovett, Esq.
                                    Fax No. 310.827.0650

The parties may change the address at which they receive notice by giving notice
to each other in the foregoing manner.

            (j) Rules of Construction. As used in this Agreement, the singular
includes the plural; the plural includes the singular. References to one gender
include all genders. Unless otherwise specified, references to Sections,
Exhibits, and parties refer to Sections, Exhibits, and


                                       17

parties of or to this Agreement. The words "include," "including," and similar
words are not intended to be limiting.

      18. Agreement by Obligors. Each Obligor hereby approves of, consents to
and agrees to be bound by the terms of this Agreement. Each Obligor further
agrees that this Agreement may be amended by the Agent and Subordinating Lender
without notice to, or the consent of, Obligors.

                        [Signatures follow on next page.]


                                       18

            IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their respective duly authorized officers, as of the date first
above written.

                                    J.H. WHITNEY MEZZANINE FUND, L.P.


                                    By:
                                       -----------------------------------------
                                    Title:
                                          --------------------------------------


                                    FOOTHILL CAPITAL CORPORATION,
                                    as Agent

                                    By:
                                       -----------------------------------------
                                    Title: Vice President


                                    MERCURY AIR GROUP, INC.

                                    By:
                                        ----------------------------------------
                                    Title:
                                          --------------------------------------


                                    MERCURY AIR CENTERS, INC.

                                    By:
                                        ----------------------------------------
                                    Title:
                                          --------------------------------------


                                    MERCURY AIR CARGO, INC.

                                    By:
                                        ----------------------------------------
                                    Title:
                                          --------------------------------------


                                    MERCFUEL, INC.

                                    By:
                                        ----------------------------------------
                                    Title:
                                          --------------------------------------


                                       19

                                    MAYTAG AIRCRAFT CORPORATION

                                    By:
                                        ----------------------------------------
                                    Title:
                                          --------------------------------------


                                    MERCURY AIR CENTER-BIRMINGHAM, LLC

                                    By:
                                        ----------------------------------------
                                    Title:
                                          --------------------------------------


                                    MERCURY AIR CENTER-BAKERSFIELD, INC.

                                    By:
                                        ----------------------------------------
                                    Title:
                                          --------------------------------------


                                    MERCURY AIR CENTER-BURBANK, INC.

                                    By:
                                        ----------------------------------------
                                    Title:
                                          --------------------------------------


                                    MERCURY AIR CENTER-FRESNO, INC.

                                    By:
                                        ----------------------------------------
                                    Title:
                                          --------------------------------------


                                    MERCURY AIR CENTER-LOS ANGELES, INC.

                                    By:
                                        ----------------------------------------
                                    Title:
                                          --------------------------------------


                                    MERCURY AIR CENTER-ONTARIO, INC.

                                    By:
                                        ----------------------------------------
                                    Title:
                                          --------------------------------------


                                       20

                                    MERCURY AIR CENTER-SANTA BARBARA, INC.

                                    By:
                                        ----------------------------------------
                                    Title:
                                          --------------------------------------


                                    MERCURY AIR CENTER-HARTSFIELD, LLC

                                    By:
                                        ----------------------------------------
                                    Title:
                                          --------------------------------------


                                    MERCURY AIR CENTER-PEACHTREE-DEKALB, LLC

                                    By:
                                        ----------------------------------------
                                    Title:
                                          --------------------------------------


                                    MERCURY AIR CENTER- FT. WAYNE, LLC.


                                    By:
                                        ----------------------------------------
                                    Title:
                                          --------------------------------------


                                    MERCURY AIR CENTER-JACKSON, LLC.

                                    By:
                                        ----------------------------------------
                                    Title:
                                          --------------------------------------


                                    MERCURY AIR CENTER-RENO, LLC

                                    By:
                                        ----------------------------------------
                                    Title:
                                          --------------------------------------


                                       21

                                    MERCURY AIR CENTER-TULSA, LLC.

                                    By:
                                        ----------------------------------------
                                    Title:
                                          --------------------------------------


                                    MERCURY AIR CENTER-CHARLESTON, LLC.

                                    By:
                                        ----------------------------------------
                                    Title:
                                          --------------------------------------


                                    MERCURY AIR CENTER-JOHNS ISLAND, LLC.

                                    By:
                                        ----------------------------------------
                                    Title:
                                          --------------------------------------


                                    MERCURY AIR CENTER-NASHVILLE, LLC.

                                    By:
                                        ----------------------------------------
                                    Title:
                                          --------------------------------------


                                    MERCURY AIR CENTER-ADDISON, INC.

                                    By:
                                        ----------------------------------------
                                    Title:
                                          --------------------------------------


                                    MERCURY AIR CENTER - CORPUS CHRISTI, INC.


                                    By:
                                        ----------------------------------------
                                    Title:
                                          --------------------------------------


                                    HERMES AVIATION, INC.

                                    By:
                                        ----------------------------------------
                                    Title:
                                          --------------------------------------


                                       22

                                    VULCAN AVIATION, INC.

                                    By:
                                        ----------------------------------------
                                    Title:
                                          --------------------------------------


                                    EXCEL CARGO, INC.

                                    By:
                                        ----------------------------------------
                                    Title:
                                          --------------------------------------


                                    MERCURY ACCEPTANCE CORPORATION

                                    By:
                                        ----------------------------------------
                                    Title:
                                          --------------------------------------


                                    JUPITER AIRLINE AUTOMATION SERVICES, INC.


                                    By:
                                        ----------------------------------------
                                    Title:
                                          --------------------------------------


                                    AEG FINANCE CORPORATION

                                    By:
                                        ----------------------------------------
                                    Title:
                                          --------------------------------------


                                       23

                                    EXHIBIT A

                         Copies of Junior Debt Documents

                                   SCHEDULE A

                              Junior Debt Defaults

                                TABLE OF CONTENTS



                                                                                                               PAGE
                                                                                                      
1.       Certain Defined Terms.................................................................................  2

         (a)      General......................................................................................  2

         (b)      Other Terms..................................................................................  4

2.       Representations, Warranties, Waivers and Covenants....................................................  4

         (a)      Amount of Junior Debt........................................................................  4

         (b)      Junior Debt Documents........................................................................  5

         (c)      No Default...................................................................................  5

         (d)      Further Action...............................................................................  5

3.       Subordination.........................................................................................  5

         (a)      General......................................................................................  5

         (b)      Payments to Subordinating Lender.............................................................  5

         (c)      Actions by Subordinating Lender..............................................................  8

         (d)      Priority of Interests in Collateral..........................................................  8

4.       Restrictions On Subordinating Lender's Actions........................................................  9

5.       Remedies..............................................................................................  9

6.       No Action to Violate Senior Debt Documents............................................................  9

7.       No Amendment of Junior Debt Documents................................................................. 10

8.       Extensions, Compromises, Etc.......................................................................... 10

9.       Waiver................................................................................................ 10

10.      No Constraint on Agent and the Senior Lenders......................................................... 10

11.      Continuing Agreement.................................................................................. 10

12.      Rights in Insolvency Proceedings...................................................................... 11

13.      Junior Debt Subordinated to Prior Payment of all Senior Debt in Insolvency............................ 12

14.      Subordination Rights Not Impaired by Acts or Omissions of Obligors, Agent or the Senior Lenders....... 13

15.      Lien Related Bankruptcy Provisions.................................................................... 13

16.      Releases of Collateral................................................................................ 14

17.      Miscellaneous......................................................................................... 14

         (a)      Amendment.................................................................................... 14

         (b)      Governing Law; Venue......................................................................... 14



                                       -i-


                               TABLE OF CONTENTS
                                  (continued)





                                                                                                               PAGE
                                                                                                      
         (c)      Waiver of Right to Jury Trial................................................................ 15

         (d)      Counterparts, etc............................................................................ 15

         (e)      Headings..................................................................................... 15

         (f)      Attorneys' Fees; Etc......................................................................... 15

         (g)      Severability................................................................................. 15

         (h)      Entire Agreement............................................................................. 15

         (i)      Notice....................................................................................... 15

         (j)      Rules of Construction........................................................................ 16

18.      Agreement by Obligors................................................................................. 17



                                      -ii-

EX-99.1

                                                                    Exhibit 99.1

Contact:    Bob Schlax, Mercury Air Group (310 827 2737, Ext. 104)
            David Herbst, The MWW Group (213 486 6560, Ext. 314)

          MERCURY AIR GROUP COMPLETES REFINANCING OF CREDIT FACILITIES
              WITH DIVISION OF WELLS FARGO BANK & J.H. WHITNEY CO.

              COMPANY CONTINUES TO FOCUS ON REDUCING LONG-TERM DEBT

LOS ANGELES, CA (JANUARY 2, 2003) - Mercury Air Group (AMEX/PCX: MAX) today
announced the refinancing of its senior secured credit facilities with Foothill
Financial Corporation, a division of Wells Fargo Bank (NYSE:WFC), for a
five-year term. In addition, Mercury and J. H. Whitney Co. Mezzanine Fund
revised the terms of their subordinated loan facility, which will mature on
December 31, 2005. Both agreements were executed on December 30th with funding
occurring on December 31, 2002.

The Foothill facility provides a $42.5 million revolving and term loan secured
by Mercury's assets and the revised agreement on Whitney's existing $24 million
loan provides incentives for full debt retirement by the end of 2004, a year in
advance of its scheduled maturity.

"Mercury Air Group has a laser like focus on reducing long-term debt and
strengthening our balance sheet while enhancing our core businesses and
profitability," said Joseph A. Czyzyk, President & CEO of Mercury Air Group,
Inc. "Mercury has reduced long term debt by over $25 million since 2000 and we
look forward to our new and expanded banking relationships to continue enhancing
and protecting shareholder value and position our company to take advantage of
growth opportunities in the future. These new agreements provide a more flexible
senior revolving facility with Foothill and a continued business relationship
with Whitney as our lender, which we have enjoyed since 1998."

ABOUT MERCURY AIR GROUP

Los Angeles-based Mercury Air Group (AMEX/PCX:MAX) provides aviation petroleum
products, air cargo services and transportation, and support services for
international and domestic commercial airlines, general and government aircraft
and specialized contract services for the United States government. Mercury Air
Group operates four business segments worldwide: Mercury Air Centers, Inc.,
MercFuel, Inc., Maytag Aircraft Corporation and Mercury Air Cargo, Inc. For more
information, please visit www.mercuryairgroup.com.

Statements contained in this news release which are not historical facts are
forward looking statements as that item is defined in the Private Securities
Litigation Reform Act of 1995. Such forward-looking statements are subject to
risks and uncertainties that could cause actual results to differ materially
from estimated results. Such risks and uncertainties are detailed in The
Company's filings with the Securities and Exchange Commission.