Exhibit 10.4
SECURITY AGREEMENT
LAURUS MASTER FUND, LTD.
KITTY HAWK, INC.
KITTY HAWK CARGO, INC.
KITTY HAWK AIRCARGO, INC.
KITTY HAWK GROUND, INC.
and
KH GROUND, INC.
Dated: March 29, 2007

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TABLE OF CONTENTS

                      Page  
1.
  General Definitions and Terms; Rules of Construction     1  
 
           
2.
  Loan Facility     2  
 
           
3.
  Repayment of the Loans     3  
 
           
4.
  Procedure for Loans     4  
 
           
5.
  Interest and Payments     4  
 
           
6.
  Security Interest     5  
 
           
7.
  Representations, Warranties and Covenants Concerning the Collateral     6  
 
           
8.
  Payment of Accounts     9  
 
           
 
           
9.
  Collection and Maintenance of Collateral     10  
 
           
10.
  Inspections and Appraisals     10  
 
           
11.
  Financial Reporting     10  
 
           
12.
  Additional Representations and Warranties     12  
 
           
13.
  Covenants     23  
 
           
14.
  Further Assurances     31  
 
           
15.
  Closing Conditions     31  
 
           
16.
  Additional Borrowing Conditions     35  
 
           
17.
  Representations, Warranties and Covenants of Laurus     36  
 
           
18.
  Power of Attorney     38  
 
           
19.
  Term of Agreement     38  
 
           
20.
  Termination of Lien     38  
 
           
21.
  Events of Default     39  
 
           
22.
  Remedies     41  
 
           
23.
  Waivers     42  
 
           
24.
  Expenses     42  
 
           
25.
  Assignment     43  
 
           
26.
  No Waiver; Cumulative Remedies     43  
 
           
27.
  Application of Payments     44  
 
           
28.
  Indemnity     44  
 
           
29.
  Revival     44  
 
           
30.
  Borrowing Agency Provisions     44  
 
           
31.
  Cape Town Convention     45  
 
           
32.
  Notices     46  

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                      Page (5)  
33.
  Governing Law, Jurisdiction and Waiver of Jury Trial     47  
 
           
34.
  Limitation of Liability     48  
 
           
35.
  Miscellaneous     48  
 
           
36.
  Entire Understanding; Maximum Interest     48  
 
           
37.
  Severability     48  
 
           
38.
  Survival     48  
 
           
39.
  Captions     48  
 
           
40.
  Counterparts; Telecopier Signatures     49  
 
           
41.
  Construction     49  
 
           
42.
  Publicity     49  
 
           
43.
  Joinder     49  
 
           
44.
  Legends     49  

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SECURITY AGREEMENT
     This Security Agreement is made as of March 29, 2007 by and among LAURUS
MASTER FUND, LTD., a Cayman Islands company (“Laurus”), KITTY HAWK, INC., a
Delaware corporation (the “Parent”), and each party listed on Exhibit A attached
hereto (each an “Eligible Subsidiary” and collectively, the “Eligible
Subsidiaries”) the Parent and each Eligible Subsidiary, each a “Company” and
collectively, the “Companies”).
BACKGROUND
     The Companies have requested that Laurus make advances available to the
Companies; and
     Laurus has agreed to make such advances on the terms and conditions set
forth in this Agreement.
AGREEMENT
     NOW, THEREFORE, in consideration of the mutual covenants and undertakings
and the terms and conditions contained herein, the parties hereto agree as
follows:
     1. General Definitions and Terms; Rules of Construction.
     (a) General Definitions. Capitalized terms used in this Agreement shall
have the meanings assigned to them in Annex A or elsewhere in this Agreement.
     (b) Accounting Terms. Any accounting terms used in this Agreement, which
are not specifically defined, shall have the meanings customarily given them in
accordance with GAAP and all financial computations shall be computed, unless
specifically provided herein, in accordance with GAAP consistently applied.
     (c) Other Terms. All other terms used in this Agreement and defined in the
UCC, shall have the meaning given therein unless otherwise defined herein.
     (d) Rules of Construction. All Schedules, Addenda, Annexes and Exhibits
hereto or expressly identified to this Agreement are incorporated herein by
reference and taken together with this Agreement constitute but a single
agreement. The words “herein”, “hereof” and “hereunder” or other words of
similar import refer to this Agreement as a whole, including the Exhibits,
Addenda, Annexes and Schedules thereto, as the same may be from time to time
amended, modified, restated or supplemented, and not to any particular section,
subsection or clause contained in this Agreement. Wherever from the context it
appears appropriate, each term stated in either the singular or plural shall
include the singular and the plural, and pronouns stated in the masculine,
feminine or neuter gender shall include the masculine, the feminine and the
neuter. The term “or” is not exclusive, unless the context requires otherwise.
The term “including” (or any form thereof) shall not be limiting or exclusive.
All references to statutes and related regulations shall include any amendments
of same and any successor statutes and regulations. All references in this
Agreement or in the Schedules, Addenda, Annexes and Exhibits to this Agreement
to sections, schedules, disclosure schedules, exhibits, and attachments shall
refer to the corresponding sections, schedules, disclosure schedules, exhibits,
and attachments of or to this Agreement. All references to any

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instruments or agreements, including references to any of this Agreement or the
Ancillary Agreements shall include any and all modifications or amendments
thereto and any and all extensions or renewals thereof. If the due date for
performance under this Agreement is not a Business Day, the due date shall be
extended automatically to the next Business Day following the original due date.
     2. Loan Facility.
     (a) Loans.
          (i) Subject to the terms and conditions set forth herein and in the
Ancillary Agreements, Laurus may make loans (the “Loans”) to the Companies from
time to time during the Term which, in the aggregate at any time outstanding,
will not exceed the lesser of (x) the Capital Availability Amount and (y) an
amount equal to (I) the Accounts Availability minus (II) such reserves as Laurus
may reasonably in its good faith judgment deem proper and necessary from time to
time and of which Laurus gives the Companies five (5) Business Days prior
written notice (provided, if an Event of Default has occurred and is continuing,
no such prior notice shall be required) (the “Reserves”). The lesser of the
amounts derived at any time pursuant to clauses (x) and (y) of the preceding
sentence shall be referred to as the “Formula Amount.” The Companies shall,
jointly and severally, execute and deliver to Laurus on the Closing Date the
Note. The Companies hereby each acknowledge and agree that Laurus’ obligation to
purchase the Note from the Companies on the Closing Date shall be contingent
upon the satisfaction (or waiver by Laurus in its sole discretion) of the items
and matters set forth in the closing checklist provided by Laurus to the
Companies on or prior to the Closing Date. The Companies hereby each further
acknowledge and agree that, immediately prior to each borrowing hereunder and
immediately after giving effect thereto, the Companies shall be deemed to have
certified to Laurus that at the time of each such proposed borrowing and also
after giving effect thereto (i) there shall exist no Event of Default, (ii) all
representations, warranties and covenants made by the Companies in connection
with this Agreement and the Ancillary Agreements are true, correct and complete
and (iii) all of each Company’s and its respective Subsidiaries’ covenant
requirements under this Agreement and the Ancillary Agreements have been met.
The Companies hereby agree to provide a certificate confirming the foregoing
concurrently with each request for a borrowing hereunder.
          (ii) The Companies acknowledge that Laurus must exercise reasonable
discretion in all matters which may increase or decrease the advance percentages
used in determining Accounts Availability, based either on the Companies’ past
performance, or on its reasonable business prospects, and each of the Companies
hereby consent to any such increases or decreases which may limit or restrict
advances requested by the Companies.
          (iii) If any interest, fees, costs or charges payable to Laurus
hereunder are not paid when due, each of the Companies shall thereby be deemed
to have requested, and Laurus is hereby authorized at its discretion to make and
charge to the Companies’ account, a Loan as of such date in an amount equal to
such unpaid interest, fees, costs or charges.
          (iv) Reserved.
          (v) Laurus will account to Company Agent monthly with a statement of
all Loans and other advances, charges and payments made pursuant to this
Agreement, and such account rendered by Laurus shall be deemed final, binding
and conclusive unless Laurus is notified by

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Company Agent in writing to the contrary within thirty (30) days of the date
each account was rendered specifying the item or items to which objection is
made.
          (vi) During the Term, the Companies may borrow and prepay Loans in
accordance with the terms and conditions hereof.
          (vii) If any Eligible Account is not paid by the Account Debtor within
ninety (90) days after the date that such Eligible Account was invoiced (a
“Delinquent Account”), then, within three (3) Business Days after obtaining
knowledge thereof, (A) the Company Agent shall deliver to Laurus a certification
as to each Company’s Eligible Accounts prepared on a pro forma basis giving
effect to such Delinquent Account and setting forth the Formula Amount on such
Business Day and (B) if the outstanding principal amount of the Loans exceeds
the Formula Amount as reflected in such pro forma certificate, the Companies
shall jointly and severally immediately repay Loans in an amount equal to such
excess.
     3. Repayment of the Loans. The Companies (a) may prepay the Obligations
from time to time in accordance with the terms and provisions of the Note;
(b) shall jointly and severally repay on the expiration of the Term (i) the then
aggregate outstanding principal balance of the Loans together with accrued and
unpaid interest, fees and charges and; (ii) all other amounts owed Laurus under
this Agreement and the Ancillary Agreements; and (c) shall jointly and severally
repay on any day on which the then aggregate outstanding principal balance of
the Loans are in excess of the Formula Amount at such time, Loans in an amount
equal to such excess. Any payments of principal, interest, fees or any other
amounts payable hereunder or under any Ancillary Agreement shall be made prior
to 12:00 noon (New York time) on the due date thereof in immediately available
funds.
     4. Procedure for Loans. Company Agent may by written notice request a
borrowing of Loans prior to 11:30 a.m. (New York time) on the Business Day of
its request to incur, on such Business Day, a Loan. Together with each request
for a Loan (or at such other intervals as Laurus may request), Company Agent
shall deliver to Laurus a Borrowing Base Certificate in the form of Exhibit B
attached hereto, which shall be certified as true and correct by the Chief
Executive Officer, Chief Financial Officer, Chief Accounting Officer or
Treasurer of Company Agent together with all supporting documentation relating
thereto. All Loans shall be disbursed from whichever office or other place
Laurus may designate from time to time and shall be charged to the Companies’
account on Laurus’ books. The proceeds of each Loan made by Laurus shall be made
available to Company Agent on the Business Day following the Business Day so
requested in accordance with the terms of this Section 4 by way of credit to the
applicable Company’s operating account maintained with such bank as Company
Agent designated to Laurus. Any and all Obligations due and owing hereunder may
be charged to the Companies’ account and shall constitute Loans.
     5. Interest and Payments.
     (a) Interest.
          (i) Except as modified by Section 5(a)(iii) below, the Companies shall
jointly and severally pay interest at the Contract Rate on the unpaid principal
balance of each Loan until such time as such Loan is collected in full in good
funds in dollars of the United States of America.

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          (ii) Interest and payments shall be computed on the basis of actual
days elapsed in a year of 360 days. At Laurus’ option, Laurus may charge the
Companies’ account for said interest.
          (iii) Effective upon the occurrence of any Event of Default and for so
long as any Event of Default shall be continuing, the Contract Rate shall
automatically be increased as set forth in the Note (such increased rate, the
“Default Rate”), and all outstanding Obligations, including unpaid interest,
shall continue to accrue interest from the date of such Event of Default at the
Default Rate applicable to such Obligations.
          (iv) In no event shall the aggregate interest payable hereunder or
under the Note exceed the maximum rate permitted under any applicable law or
regulation, as in effect from time to time (the “Maximum Legal Rate”), and if
any provision of this Agreement or any Ancillary Agreement is in contravention
of any such law or regulation, interest payable under this Agreement and each
Ancillary Agreement shall be computed on the basis of the Maximum Legal Rate (so
that such interest will not exceed the Maximum Legal Rate).
          (v) The Companies shall jointly and severally pay principal, interest
and all other amounts payable hereunder, or under any Ancillary Agreement,
without any deduction whatsoever, including any deduction for any set-off or
counterclaim.
     (b) Payment; Certain Closing Conditions.
          (i) Payment. Upon execution of this Agreement by each Company and
Laurus, the Companies shall jointly and severally pay to Laurus Capital
Management, LLC, the investment advisor of Laurus (“LCM”), a non-refundable
payment in an amount equal to three and one-half percent (3.50%) of the Capital
Availability Amount. The foregoing payment is referred to herein as the “LCM
Payment.” Such payment shall be deemed fully earned on the Closing Date and
shall not be subject to rebate or proration for any reason.
          (ii) Overadvance Payment. Without affecting Laurus’ rights hereunder
in the event the Loans exceed the Formula Amount (each such event, an
“Overadvance”), all such Overadvances shall bear additional interest at a rate
equal to two percent (2%) per month of the amount of such Overadvances for all
times such amounts shall be in excess of the Formula Amount. All amounts that
are incurred pursuant to this Section 5(b)(ii) shall be due and payable by the
Companies monthly, in arrears, on the first business day of each calendar month
and upon expiration of the Term.
          (iii) Expenses. The Companies shall jointly and severally reimburse
Laurus for its expenses (including reasonable legal fees and expenses and
expenses of Laurus’ due diligence review of each Company) incurred in connection
with the Transactions, including, without limitation, the preparation and
negotiation of this Agreement and the Ancillary Agreements. The Companies have
previously made a non-refundable deposit of $25,000 to Laurus and such amount
shall be credited against the expenses referred to this Section 5(b)(iii). Such
expense reimbursement shall be in addition to, and not in lieu of, due diligence
fees of $30,000, which the Companies shall jointly and severally pay to Laurus
in connection with the Transactions. The Companies shall also jointly and
severally pay to Laurus a structuring fee of $50,000. Amounts required to be
paid under this Section 5(b)(iii), including, without limitation, legal fees and
expenses of Laurus incurred in connection with the Transactions, will be paid on
the Closing Date.

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          (iv) Financial Information Default. Without affecting Laurus’ other
rights and remedies, in the event any Company fails to deliver the financial
information required by Section 11 on or before the date required by this
Agreement, the Companies shall jointly and severally pay Laurus an aggregate fee
in the amount of $500.00 per week (or portion thereof) for each such failure
until such failure is cured to Laurus’ satisfaction or waived in writing by
Laurus. All amounts that are incurred pursuant to this Section 5(b)(iv) shall be
due and payable by the Companies monthly, in arrears, on the first business of
each calendar month and upon expiration of the Term.
     6. Security Interest.
     (a) To secure the prompt payment to Laurus of the Obligations, in addition
to and not in lieu of the Aircraft Security Documents, each Company hereby
assigns, pledges and grants to Laurus a continuing security interest in and Lien
upon all of the Collateral. All of each Company’s Books and Records relating to
the Collateral shall, until delivered to or removed by Laurus, be kept by such
Company in trust for Laurus until all Obligations have been paid in full. Each
confirmatory assignment schedule or other form of assignment hereafter executed
by each Company shall be deemed to include the foregoing grant, whether or not
the same appears therein.
     (b) In addition to the rights of Laurus under the Aircraft Security
Documents, each Company hereby (i) authorizes Laurus to file any financing
statements, continuation statements or amendments thereto that (x) indicate the
Collateral (1) as all assets and personal property of such Company or words of
similar effect, regardless of whether any particular asset comprised in the
Collateral falls within the scope of Article 9 of the UCC of such jurisdiction,
or (2) as being of an equal or lesser scope or with greater detail, and
(y) contain any other information required by Part 5 of Article 9 of the UCC for
the sufficiency or filing office acceptance of any financing statement,
continuation statement or amendment and (ii) ratifies its authorization for
Laurus to have filed any initial financial statements, or amendments thereto if
filed prior to the date hereof. Each Company acknowledges that it is not
authorized to file any financing statement or amendment or termination statement
with respect to any financing statement without the prior written consent of
Laurus and agrees that it will not do so without the prior written consent of
Laurus, subject to such Company’s rights under Section 9-509(d)(2) of the UCC.
     (c) Each Company hereby grants to Laurus an irrevocable, non-exclusive
license (exercisable upon the termination of this Agreement due to an occurrence
and during the continuance of an Event of Default without payment of royalty or
other compensation to such Company) to use, transfer, license or sublicense any
Intellectual Property now owned, licensed to, or hereafter acquired by such
Company, and wherever the same may be located, and including in such license
access to all media in which any of the licensed items may be recorded or stored
and to all computer and automatic machinery software and programs used for the
compilation or printout thereof, and represents, promises and agrees that any
such license or sublicense is not and will not be in conflict with the
contractual or commercial rights of any third Person; provided, that such
license will terminate on the termination of this Agreement and the payment in
full of all Obligations.
     7. Representations, Warranties and Covenants Concerning the Collateral. In
addition to, and not in lieu of, any representations, warranties and covenants
made by any Company in the Ancillary Documents, including, without limitation,
the Aircraft Security Documents, each Company represents, warrants (each of
which such representations and warranties shall be deemed repeated upon the
making of each request for a Loan and made as of the time of each and every Loan
hereunder) and covenants with Laurus that:

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     (a) all of the Collateral (i) is owned by it free and clear of all Liens
(including any claims of infringement) except those in Laurus’ favor and
Permitted Liens and (ii) is not subject to any agreement prohibiting the
granting of a Lien or requiring notice of or consent to the granting of a Lien.
     (b) it shall not encumber, mortgage, pledge, assign or grant any Lien in
any Collateral or any other assets to anyone other than Laurus and except for
Permitted Liens.
     (c) the Liens granted pursuant to this Agreement, upon due completion of
all necessary actions constitute valid perfected security interests in all of
the Collateral in favor of Laurus as security for the prompt and complete
payment and performance of the Obligations, enforceable in accordance with the
terms hereof against any and all of its creditors and purchasers and such
security interest is prior to all other Liens in existence on the date hereof.
     (d) no effective security agreement, mortgage, deed of trust, financing
statement, equivalent security or Lien instrument or continuation statement
covering all or any part of the Collateral is or will be on file or of record in
any public office, except those relating to Permitted Liens.
     (e) it shall not dispose of any of its properties or assets, or any of the
properties or assets of its Subsidiaries, whether by sale, lease or otherwise
except for:
          (i) the sale or other transfer (including, without limitation,
installation on leased Aircraft, trucks and trailers) of Equipment consisting of
Spare Parts, Tooling Equipment and Ground Equipment (as each such term is
defined in the Aircraft Mortgage);
          (ii) Equipment consisting of Engines (as defined in the Aircraft
Mortgage) and Aircraft so long as (x) such Equipment is obsolete, is worn-out or
is, or will soon be, in need of repairs or servicing that the Company does not
believe, in its reasonable business judgment, are in the economic best interest
of the Company to make, (y) for the 30 (thirty) days prior to such sale or other
disposition the Companies’ Excess Availability exceeds $1,500,000 and (z) at no
time during the thirty (30)-day period prior to such sale or other disposition
did the Formula Amount exceed the outstanding balance of the Loans by less than
$1,000,000, and then only to the extent that (1) the proceeds of any such
disposition are used to acquire replacement Equipment which is subject to
Laurus’ first priority security interest or are used to repay Loans or to pay
general corporate expenses, or (2) following the occurrence of an Event of
Default which continues to exist the proceeds of which are remitted to Laurus to
be held as cash collateral for the Obligations;
          (iii) the transfer of possession of Equipment pursuant to Civil
Reserve Air Fleet Program administered under Executive Order No. 12056, as
amended, or any similar or substitute programs of the United States government,
so long as (A) the Companies promptly notify Laurus of such transfer of
possession and provide Laurus with the name and address of the contracting
officer or representative of the Military Aircraft Command of the United States
Air Force to whom notice must be given in respect of such Equipment and (B) the
Companies use their best efforts to assist Laurus with the assignment of any
proceeds thereof;

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          (iv) the consummation of a wet lease, cargo services agreement,
charter or similar agreement in the ordinary course of business (individually
and collectively, “Cargo Services Agreements”), provided, however, the Companies
shall promptly notify Laurus of any such Cargo Services Agreement with a term
longer than ninety (90) days; and
          (v) delivery of possession of Equipment to its manufacturer or a
certified maintenance provider for testing, service, repair, maintenance or
overhaul work or for alterations or modifications for a period not to exceed six
(6) months (individually and collectively, “Maintenance Events”), and each
Company may temporarily use Equipment loaned from such manufacturer or certified
maintenance provider on an Aircraft while any Equipment is in the possession of
such manufacturer or maintenance provider.
     (f) it shall defend the right, title and interest of Laurus in and to the
Collateral against the claims and demands of all Persons whomsoever, and take
such actions, including (i) all actions necessary to grant Laurus “control” of
any Investment Property, Deposit Accounts, Letter-of-Credit Rights or electronic
Chattel Paper owned by it, with any agreements establishing control to be in
form and substance satisfactory to Laurus, (ii) the prompt (but in no event
later than five (5) Business Days following Laurus’ request therefor) delivery
to Laurus of all original Instruments, Chattel Paper, negotiable Documents and
certificated Stock owned by it (in each case, accompanied by stock powers,
allonges or other instruments of transfer executed in blank), (iii) notification
of Laurus’ interest in Collateral at Laurus’ request, and (iv) the institution
of litigation against third parties as shall be prudent in order to protect and
preserve its and/or Laurus’ respective and several interests in the Collateral.
     (g) it shall promptly, and in any event within five (5) Business Days after
the same is acquired by it, notify Laurus of any commercial tort claim (as
defined in the UCC) acquired by it and unless otherwise consented by Laurus, it
shall enter into a supplement to this Agreement granting to Laurus a Lien in
such commercial tort claim.
     (h) it shall place notations upon its Books and Records and any of its
financial statements to disclose Laurus’ Lien in the Collateral.
     (i) if it retains possession of any Chattel Paper or Instrument with
Laurus’ consent, upon Laurus’ request such Chattel Paper and Instruments shall
be marked with the following legend: “This writing and obligations evidenced or
secured hereby are subject to the security interest of Laurus Master Fund, Ltd.”
Notwithstanding the foregoing, upon the reasonable request of Laurus, such
Chattel Paper and Instruments shall be delivered to Laurus.
     (j) it shall perform in a reasonable time all other steps requested by
Laurus to create and maintain in Laurus’ favor a valid perfected first Lien in
all Collateral subject only to Permitted Liens.
     (k) it shall notify Laurus promptly and in any event within three
(3) Business Days after obtaining knowledge thereof (i) of any event or
circumstance that, to its knowledge, would cause Laurus to consider $100,000 or
greater, in the aggregate, of any then existing Accounts as no longer
constituting Eligible Accounts (other than Accounts which have been collected)
since the date of the most recently delivered Borrowing Base Certificate;
(ii) of any material delay in its performance of any of its obligations to any
Account Debtor; (iii) of any assertion by any Account Debtor of any material
claims, offsets or counterclaims; (iv) of any material allowances, credits

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and/or monies granted by it to any Account Debtor; (v) of all material adverse
information relating to the financial condition of an Account Debtor; (vi) of
any material return of goods; and (vii) of any loss, damage or destruction of
any of the Collateral.
     (l) all Eligible Accounts (i) represent complete bona fide transactions
which require no further act under any circumstances on its part to make such
Accounts payable by the Account Debtors, (ii) are not subject to any present or
future contingent offsets or counterclaims, and (iii) do not represent bill and
hold sales, consignment sales, guaranteed sales, sale or return or other similar
understandings or obligations of any Affiliate or Subsidiary of such Company. It
has not made, nor will it make, any agreement with any Account Debtor for any
extension of time for the payment of any Account, any compromise or settlement
for less than the full amount thereof, any release of any Account Debtor from
liability therefor, or any deduction therefrom except in the ordinary course of
its business consistent with historical practice and as previously disclosed to
Laurus in writing.
     (m) it shall not permit any of its Equipment to become a Fixture to real
estate or accessions to other personal property.
     (n) it shall maintain and keep all of its Books and Records concerning the
Collateral at its executive offices listed in Schedule 12(dd).
     (o) it shall maintain and keep the tangible Collateral at the addresses
listed in Schedule 12(dd), and will not change such locations (except in
connection with Maintenance Events, with respect to the movement of the
Aircraft, trucks, tractors and trailers in the ordinary course of business or
Collateral disposed of as permitted pursuant to Section 7(e) hereof) or open a
new location, without at least thirty (30) days prior written notice to Laurus
of such changes or new location and (ii) prior to such change or opening of a
new location where Collateral having a value of more than $50,000 will be
located, it executes and delivers to Laurus such agreements deemed reasonably
necessary or prudent by Laurus, including landlord agreements, mortgagee
agreements and warehouse agreements, each in form and substance satisfactory to
Laurus, to adequately protect and maintain Laurus’ security interest in such
Collateral.
     (p) Schedule 7(p) lists all banks and other financial institutions at which
it maintains deposits and/or other accounts, and such Schedule correctly
identifies the name, address and telephone number of each such depository, the
name in which the account is held, a description of the purpose of the account,
and the complete account number. It shall not establish any depository or other
bank account with any financial institution (other than the accounts set forth
on Schedule 7(p)) without Laurus’ prior written consent.
     (q) All Inventory manufactured by it in the United States of America shall
be produced in accordance with the requirements of the Federal Fair Labor
Standards Act of 1938, as amended and all rules, regulations and orders related
thereto or promulgated thereunder.
     8. Payment of Accounts.
     (a) Each Company will irrevocably direct all of its present and future
Account Debtors and other Persons obligated to make payments constituting
Collateral to make such payments directly to the lockboxes maintained by such
Company (the “Lockboxes”) with PNC Bank, National Association or such other
financial institution accepted by Laurus in writing as may be

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selected by such Company (the “Lockbox Bank”) pursuant to the terms of the
certain agreements among one or more Companies, Laurus and/or the Lockbox Bank
dated as of March 28, 2007. On or prior to the Closing Date, each Company shall
and shall cause the Lockbox Bank to enter into all such documentation acceptable
to Laurus pursuant to which, among other things, the Lockbox Bank agrees to:
(a) sweep the Lockbox on a daily basis and deposit all checks received therein
to an account designated by Laurus in writing and (b) comply only with the
instructions or other directions of Laurus concerning the Lockbox. All of each
Company’s invoices, account statements and other written or oral communications
directing, instructing, demanding or requesting payment of any Account of any
Company or any other amount constituting Collateral shall conspicuously direct
that all payments be made to the Lockbox or such other address as Laurus may
direct in writing. If, notwithstanding the instructions to Account Debtors, any
Company receives any payments, such Company shall immediately remit such
payments to Laurus in their original form with all necessary endorsements. Until
so remitted, such Company shall hold all such payments in trust for and as the
property of Laurus and shall not commingle such payments with any of its other
funds or property.
     (b) At Laurus’ election, following the occurrence of an Event of Default
which is continuing, Laurus may notify each Company’s Account Debtors of Laurus’
security interest in the Accounts, collect them directly and charge the
collection costs and expenses thereof to each Company’s and the Eligible
Subsidiaries’ joint and several account.
     9. Collection and Maintenance of Collateral.
     (a) Upon five (5) Business Days prior written notice (provided, if an Event
of Default has occurred and is continuing no such prior notice shall be
required), Laurus may verify each Company’s Accounts from time to time, but not
more often than once every three (3) months, unless an Event of Default has
occurred and is continuing or Laurus believes that such verification is
necessary to preserve or protect the Collateral, utilizing an audit control
company or any other agent of Laurus.
     (b) Proceeds of Accounts received by Laurus will be deemed received on the
Business Day after Laurus’ receipt of such proceeds in good funds in dollars of
the United States of America to an account designated by Laurus. Any amount
received by Laurus after 12:00 noon (New York time) on any Business Day shall be
deemed received on the next Business Day.
     (c) As Laurus receives the proceeds of Accounts of any Company, it shall
(i) apply such proceeds, as required, to amounts outstanding under the Note, and
(ii) remit all such remaining proceeds (net of interest, fees and other amounts
then due and owing to Laurus hereunder) to Company Agent (for the benefit of the
applicable Companies) upon request. Notwithstanding the foregoing, following the
occurrence and during the continuance of an Event of Default, Laurus, at its
option, may (a) apply such proceeds to the Obligations in such order as Laurus
shall elect, (b) hold all such proceeds as cash collateral for the Obligations
and each Company hereby grants to Laurus a security interest in such cash
collateral amounts as security for the Obligations and/or (c) do any combination
of the foregoing.
     10. Inspections and Appraisals. At all times during normal business hours,
and upon reasonable prior notice, Laurus, and/or any agent of Laurus shall have
the right to (a) have access to, visit, inspect, review, evaluate and make
physical verification and appraisals of each Company’s properties and the
Collateral, (b) inspect, audit and copy (or take originals if necessary) and
make extracts from each Company’s Books and Records, including management
letters prepared

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by the Accountants, and (c) discuss with each Company’s directors, principal
officers, and independent accountants, each Company’s business, assets,
liabilities, financial condition, results of operations and business prospects.
Each Company will deliver to Laurus any instrument necessary for Laurus to
obtain records from any service bureau maintaining records for such Company. If
an Event of Default has occurred and is continuing and any internally prepared
financial information, including that required under this Section is
unsatisfactory in any manner to Laurus, Laurus may request that the Accountants
review the same.
     11. Financial Reporting. Company Agent will deliver, or cause to be
delivered, to Laurus each of the following, which shall be in form and detail
acceptable to Laurus:
     (a) As soon as available, and in any event within ninety (90) days after
the end of each fiscal year of the Parent (or one hundred five (105) days after
the end of any fiscal year for which the Parent has filed a Form 12b-25 (or
successor form) with the SEC extending the filing date for its Annual Report on
Form 10-K for such fiscal year), the Parent’s audited financial statements and
each Company’s unaudited financial statements with a report of independent
certified public accountants of recognized standing selected by the Parent and
acceptable to Laurus (the “Accountants”), which annual financial statements of
the Parent shall be without qualification and without limitation as to the scope
of audit and shall include each of the Parent’s and each of its Subsidiaries’
balance sheet as at the end of such fiscal year and the related statements of
each of the Parent’s and each of its Subsidiaries’ income, retained earnings and
cash flows for the fiscal year then ended, prepared on a consolidating and
consolidated basis to include the Parent and each Subsidiary of the Parent, all
in reasonable detail and prepared in accordance with GAAP, together with (i) if
and when available, copies of any management letters prepared by the
Accountants; and (ii) a certificate of the Parent’s President, Chief Executive
Officer or Chief Financial Officer stating that such financial statements have
been prepared in accordance with GAAP and whether or not such officer has
knowledge of the occurrence of any Default or Event of Default hereunder and, if
so, stating in reasonable detail the facts with respect thereto;
     (b) As soon as available and in any event within forty five (45) days after
the end of each fiscal quarter of the Parent (or fifty (50) days after the end
of any fiscal quarter for which the Parent has filed a Form 12b-25 (or successor
form) with the SEC extending the filing date for its Quarterly Report on Form
10-Q for such fiscal quarter), an unaudited/internal balance sheet and
statements of income, retained earnings and cash flows of each of the Parent and
each of its Subsidiaries as at the end of and for such quarter and for the year
to date period then ended, prepared on a consolidating and consolidated basis to
include the Parent and each Subsidiary of the Parent, in reasonable detail and
stating in comparative form the figures for the corresponding date and periods
in the previous year, all prepared in accordance with GAAP, subject to year-end
adjustments and accompanied by a certificate of the Parent’s President, Chief
Executive Officer or Chief Financial Officer, stating (i) that such financial
statements have been prepared in accordance with GAAP, subject to year-end audit
adjustments, and (ii) whether or not such officer has knowledge of the
occurrence of any Default or Event of Default hereunder not theretofore reported
and remedied and, if so, stating in reasonable detail the facts with respect
thereto;
     (c) As soon as available and in any event within thirty (30) days after the
end of each calendar month, an unaudited/internal balance sheet and statements
of income, retained earnings and cash flows of each of the Parent and its
Subsidiaries as at the end of and for such month and for the year to date period
then ended, prepared on a consolidating and consolidated basis to include the
Parent and each Subsidiary of the Parent, in reasonable detail and stating in
comparative form the

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figures for the corresponding date and periods in the previous year, all
prepared in accordance with GAAP, subject to year-end adjustments and
accompanied by a certificate of the Parent’s President, Chief Executive Officer
or Chief Financial Officer, stating (i) that such financial statements have been
prepared in accordance with GAAP, subject to year-end audit adjustments, and
(ii) whether or not such officer has knowledge of the occurrence of any Default
or Event of Default hereunder not theretofore reported and remedied and, if so,
stating in reasonable detail the facts with respect thereto;
     (d) Within fifteen (15) days after the end of each month (or more
frequently if an Event of Default has occurred and is continuing), agings of
each Company’s Accounts, unaudited trial balances and their accounts payable and
a calculation of each Company’s Accounts and Eligible Accounts, provided,
however, that if Laurus shall request the foregoing information more often than
as set forth in the immediately preceding clause, each Company shall have
fifteen (15) days from each such request to comply with Laurus’ demand;
     (e) Promptly after (i) the filing thereof, copies of the Parent’s most
recent registration statements and annual, quarterly, monthly or other regular
reports which the Parent files with the Securities and Exchange Commission (the
“SEC”), unless such information is available to Parent on the SEC’s EDGAR
system, and (ii) the issuance thereof, copies of such financial statements,
reports and proxy statements as the Parent shall send to its stockholders,
unless such information is available to Parent on the SEC’s EDGAR system.
     (f) The Parent shall deliver, or cause the applicable Subsidiary of the
Parent to deliver, such other information, as Laurus shall reasonably request.
     12. Additional Representations and Warranties. Each Company hereby
represents and warrants to Laurus as follows:
     (a) Organization, Good Standing and Qualification. It and each of its
Subsidiaries is a corporation, partnership or limited liability company, as the
case may be, duly organized, validly existing and in good standing under the
laws of its jurisdiction of organization. It and each of its Subsidiaries has
the corporate, limited liability company or partnership, as the case may be,
power and authority to own and operate its properties and assets and, insofar as
it is or shall be a party thereto, to (i) execute and deliver this Agreement and
the Ancillary Agreements, (ii) to issue and sell the Note, (iii) to issue and
sell the Warrants and the shares of Common Stock issuable upon exercise of the
Warrants (the “Warrant Shares”), and to (iv) carry out the provisions of this
Agreement and the Ancillary Agreements and to carry on its business as presently
conducted. It and each of its Subsidiaries is duly qualified and is authorized
to do business and is in good standing as a foreign corporation, partnership or
limited liability company, as the case may be, in all jurisdictions in which the
nature or location of its activities and of its properties (both owned and
leased) makes such qualification necessary, except for those jurisdictions in
which failure to do so has not had, or could not reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect.
     (b) Subsidiaries. Each of its direct and indirect Subsidiaries, the direct
owner of each such Subsidiary and its percentage ownership thereof, is set forth
on Schedule 12(b).

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     (c) Capitalization; Voting Rights.
          (i) The authorized capital stock of the Parent, as of the date hereof
consists of 110,000,000 shares, of which 100,000,000 are shares of Common Stock,
par value $0.000001 per share, 52,925,896 shares of which are issued and
outstanding, and 10,000,000 are shares of preferred stock, par value $0.01 per
share of which 15,000 shares have been designated as Series B redeemable
Preferred Stock and 14,550 shares of such series are issued and outstanding. The
authorized, issued and outstanding capital stock of each Subsidiary of each
Company is set forth on Schedule 12(c).
          (ii) Except as disclosed on Schedule 12(c), other than: (i) the shares
reserved for issuance under the Parent’s stock option plans; and (ii) shares
which may be issued pursuant to this Agreement and the Ancillary Agreements,
there are no outstanding options, warrants, rights (including conversion or
preemptive rights and rights of first refusal), proxy or stockholder agreements,
or arrangements or agreements of any kind for the purchase or acquisition from
the Parent of any of its securities. Except as disclosed on Schedule 12(c),
neither the offer, issuance or sale of any of the Note or the Warrants, or the
issuance of any of the Warrant Shares, nor the consummation of any transaction
contemplated hereby will result in a change in the price or number of any
securities of the Parent outstanding, under anti-dilution or other similar
provisions contained in or affecting any such securities.
          (iii) All issued and outstanding shares of the Parent’s Common Stock:
(i) have been duly authorized and validly issued and are fully paid and
nonassessable; and (ii) were issued in material compliance with all applicable
state and federal laws concerning the issuance of securities.
          (iv) The rights, preferences, privileges and restrictions of the
shares of the Common Stock are as stated in the Parent’s Certificate of
Incorporation, as amended (the “Charter”). The Warrant Shares have been duly and
validly reserved for issuance. When issued in compliance with the provisions of
this Agreement and the Parent’s Charter, the Securities will be validly issued,
fully paid and nonassessable, and will be free of any liens or encumbrances
(other than those granted by Laurus); provided, however, that the Securities may
be subject to restrictions on transfer under state and/or federal securities
laws and all other law applicable to Certified Air Carriers as set forth herein
or as otherwise required by such laws at the time a transfer is proposed. Except
as set forth in Schedule 12(c), no Company is presently under any obligation,
and has not granted any rights to register any of its presently outstanding
securities or any of its securities that may hereafter be issued. Except as set
forth in Schedule 12(c), to knowledge of the Companies, none of their
stockholders have entered into any agreement with respect to its voting of
equity securities.
     (d) Authorization; Binding Obligations. All corporate, partnership or
limited liability company, as the case may be, action on its and its
Subsidiaries’ part (including their respective officers and directors) necessary
for the authorization of this Agreement and the Ancillary Agreements, the
performance of all of its and its Subsidiaries’ obligations hereunder and under
the Ancillary Agreements on the Closing Date and, the authorization, issuance
and delivery of the Note and the Warrant has been taken or will be taken prior
to the Closing Date. This Agreement and the Ancillary Agreements, when executed
and delivered and to the extent it is a party thereto, will be its and its
Subsidiaries’ valid and binding obligations enforceable against each such Person
in accordance with their terms, except:

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          (i) as limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other laws of general application affecting enforcement of
creditors’ rights; and
          (ii) general principles of equity that restrict the availability of
equitable or legal remedies.
     The issuance of the Note is not and will not be subject to any preemptive
rights or rights of first refusal that have not been properly waived or complied
with. The issuance of the Warrants and the subsequent exercise of the Warrants
for Warrant Shares are not and will not be subject to any preemptive rights or
rights of first refusal that have not been properly waived or complied with.
     (e) Citizenship of Stockholders. As of the Closing Date, each of the
stockholders of record of Kitty Hawk Aircargo, Inc. is a Citizen of the United
States.
     (f) Voting Trust. Except as set forth on Schedule 12(f), to the Parent’s
knowledge, there are no voting trusts, proxies, or agreements relating to the
voting of the Parent’s Common Stock by or among the Parent or any of its
stockholders.
     (g) Air Carrier. Kitty Hawk Aircargo, Inc. is a Certificated Air Carrier.
     (h) Liabilities; Solvency. (i) Neither it nor any of its Subsidiaries has
any liabilities, except current liabilities incurred in the ordinary course of
business and liabilities disclosed in any Exchange Act Filings.
          (ii) Both before and after giving effect to (a) the Loans incurred on
the Closing Date or such other date as Loans requested hereunder are made or
incurred, (b) the disbursement of the proceeds of, or the assumption of the
liability in respect of, such Loans pursuant to the instructions or agreement of
any Company and (c) the payment and accrual of all transaction costs in
connection with the foregoing, each Company and each Subsidiary of each Company,
is and will be, Solvent.
     (i) Agreements; Action. Except as set forth on Schedule 12(i) or as
disclosed in any Exchange Act Filings:
          (i) There are no agreements, understandings, instruments, contracts,
judgments, orders, writs or decrees to which it or any of its Subsidiaries is a
party or to its knowledge by which it is bound which may involve:
(i) obligations (contingent or otherwise) of, or payments to, it or any of its
Subsidiaries in excess of $500,000 per annum (other than ordinary course
obligations); or (ii) the transfer or license of any patent, copyright, trade
secret or other proprietary right to or from it (other than any commercial
“off-the-shelf” software license such as certain “shrink-wrap” licenses and any
other intellectual property licenses which are nonexclusive, terminable and
available to businesses at a market price); or (iii) contractual provisions
restricting the development, manufacture or distribution of its or any of its
Subsidiaries’ products or services; or (iv) indemnification by it or any of its
Subsidiaries with respect to infringements of proprietary rights (other than any
commercial “off-the-shelf” software license such as certain “shrink-wrap”
licenses and any other intellectual property licenses which are nonexclusive,
terminable and available to businesses at a market price).
          (ii) Since December 31, 2005 (the “Balance Sheet Date”), neither it
nor any of its Subsidiaries has: (i) declared or paid any dividends, or
authorized or made any distribution

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upon or with respect to any class or series of its capital stock, except
dividends in the amount of approximately $407,044.67 paid to holders of the
Series B Preferred Stock on June 30, 2006; (ii) incurred any Indebtedness or any
other liabilities (other than ordinary course obligations and obligations with
regard to Equipment, Inventory and Aircraft) individually in excess of $50,000
or, in the case of Indebtedness and/or liabilities individually less than
$50,000, in excess of $100,000 in the aggregate; (iii) made any loans or
advances to any Person not in excess, individually or in the aggregate, of
$100,000, other than ordinary advances for travel expenses; or (iv) sold,
exchanged or otherwise disposed of any of its assets or rights, other than the
sale of its Inventory and Equipment in the ordinary course of business.
     (iii) For the purposes of subsections (i) and (ii) of this Section 12(i),
all Indebtedness, liabilities, agreements, understandings, instruments,
contracts and proposed transactions involving the same Person (including Persons
it or any of its applicable Subsidiaries has reason to believe are affiliated
therewith or with any Subsidiary thereof) shall be aggregated for the purpose of
meeting the individual minimum dollar amounts of such subsections.
     (iv) The Parent has established and maintains disclosure controls and
procedures (the “Disclosure Controls”) (as defined in Rule 13a-15 under the
Exchange Act). Such disclosure controls and procedures are designed to ensure
that material information relating to the Parent, including its Subsidiaries, is
made known to the Parent’s principal executive officer and its principal
financial officer by others within those entities, particularly during the
periods in which the periodic reports required under the Exchange Act are being
prepared. Based on the Parent’s evaluation of internal controls as of the end of
the period covered by the Parent’s most recent quarterly report on Form 10-Q
(the “Evaluation Time”), such Disclosure Controls were effective at the
Evaluation Time in timely alerting the Parent’s principal executive officer and
principal financial officer to material information required to be included in
the Parent’s periodic reports required under the Exchange Act. No event,
circumstance or event has occurred since the Evaluation Time that would cause
the Parent to believe that the Parent’s Disclosure Controls are not currently
effective in any material respect.
     (v) The Parent makes and keeps books, records, and accounts that, in
reasonable detail, accurately and fairly reflect the transactions and
dispositions of its assets. It maintains internal control over financial
reporting (“Financial Reporting Controls”) designed by, or under the supervision
of, its principal executive and principal financial officers, and effected by
its board of directors, management, and other personnel, to provide reasonable
assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with GAAP, including
those policies and procedures that:
          (1) pertain to the maintenance of records that in reasonable detail
accurately and fairly reflect the transactions and dispositions of its assets;
          (2) provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance with GAAP,
and that its receipts and expenditures are being made only in accordance with
authorizations of its management and directors; and
          (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use or disposition of its assets that
could have a material effect on the financial statements.

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          (vi) The Parent has established and maintains a system of internal
control over financial reporting (as defined in Rule 13a-15 under the Exchange
Act). Based on the evaluation of the Parent’s internal control over financial
reporting at the Evaluation Time by the Parent’s Chief Executive Officer and
Chief Financial Officer, such internal control over financial reporting was, at
the Evaluation Time, sufficient to provide reasonable assurance regarding the
reliability of the Parent’s financial reporting and the preparation of Parent
financial statements for external purposes in accordance with GAAP. No event,
circumstance or event has occurred since the Evaluation Time that would cause
the Parent to believe that the Parent’s internal controls are not currently
effective in any material respect.
     (j) Obligations to Related Parties. Except as set forth on Schedule 12(j),
neither it nor any of its Subsidiaries has any obligations to their respective
officers, directors, stockholders or employees other than:
          (i) for payment of salary for services rendered and for bonus
payments;
          (ii) reimbursement for reasonable expenses incurred on its or its
Subsidiaries’ behalf;
          (iii) for other standard employee benefits made generally available to
all employees (including stock option agreements outstanding under any stock
option plan approved by its and its Subsidiaries’ Board of Directors, as
applicable); and
          (iv) obligations listed in its and each of its Subsidiary’s financial
statements or disclosed in any of the Parent’s Exchange Act Filings.
Except as described above or set forth on Schedule 12(j), none of its executive
officers, directors or, to the best of its knowledge, key employees, any of its
Subsidiaries or any members of their immediate families, are indebted to it or
any of its Subsidiaries, individually or in the aggregate, in excess of $50,000
or have any direct or indirect ownership interest in any Person with which it or
any of its Subsidiaries is affiliated (other than Parent and its Subsidiaries)
or with which it or any of its Subsidiaries has a material business
relationship, or any Person which competes with it or any of its Subsidiaries,
other than passive investments in publicly traded companies (representing less
than one percent (1%) of such company) which may compete with it or any of its
Subsidiaries. Except as described above, as disclosed in the Parent’s Exchange
Act Filings or as set forth in Schedule 12(j), none of its executive officers or
directors, or any member of their immediate families, is, directly or
indirectly, interested in any material contract with it or any of its
Subsidiaries and no material agreements, understandings or proposed transactions
are contemplated between it or any of its Subsidiaries and any such Person.
Except as set forth on Schedule 12(j), neither it nor any of its Subsidiaries is
a guarantor or indemnitor of any Indebtedness of any other Person (other than
Parent and its Subsidiaries).
     (k) Changes. Except as set forth on Schedule 12(k), since the Balance Sheet
Date, except as disclosed in any Exchange Act Filing or in any Schedule to this
Agreement or to any of the Ancillary Agreements, there has not been:
          (i) any change in its or any of its Subsidiaries’ business, assets,
liabilities, condition (financial or otherwise), properties, operations or
prospects, which, individually or in the aggregate, has had, or could reasonably
be expected to have, a Material Adverse Effect;

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          (ii) any resignation or termination of any of its or its Subsidiaries’
executive officers, key employees or groups of employees;
          (iii) any material change, except in the ordinary course of business,
in its or any of its Subsidiaries’ contingent obligations by way of guaranty,
endorsement, indemnity, warranty or otherwise;
          (iv) any damage, destruction or loss, whether or not covered by
insurance, which has had, or could reasonably be expected to have, individually
or in the aggregate, a Material Adverse Effect;
          (v) any waiver by it or any of its Subsidiaries of a valuable right or
of a material debt owed to it;
          (vi) any direct or indirect material loans made by it or any of its
Subsidiaries to any of its or any of its Subsidiaries’ stockholders, employees,
executive officers or directors, other than advances made in the ordinary course
of business;
          (vii) any material change in any compensation arrangement or agreement
with it or any of its Subsidiaries and any key employee, executive officer,
director or stockholder;
          (viii) any declaration or payment of any dividend (other than as set
forth in Section 7(i)(ii) as to dividends in respect of shares of Series B
Preferred Stock) or other distribution of its or any of its Subsidiaries’
assets;
          (ix) any labor organization activity related to it or any of its
Subsidiaries;
          (x) any debt, obligation or liability incurred, assumed or guaranteed
by it or any of its Subsidiaries, except those for immaterial amounts and for
current liabilities incurred in the ordinary course of business;
          (xi) any sale, assignment or transfer of any Intellectual Property or
other intangible assets;
          (xii) any change in any material agreement to which it or any of its
Subsidiaries is a party or by which either it or any of its Subsidiaries is
bound which, either individually or in the aggregate, has had, or could
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect;
          (xiii) any other event or condition of any character that, either
individually or in the aggregate, has had, or could reasonably be expected to
have, individually or in the aggregate, a Material Adverse Effect; or
          (xiv) any arrangement or commitment by it or any of its Subsidiaries
to do any of the acts described in subsection (i) through (xiii) of this
Section 12(k).
     (l) Title to Properties and Assets; Liens, Etc. Except as set forth on
Schedule 12(l), it and each of its Subsidiaries has good and marketable title to
their respective properties and assets, and good title to its leasehold
interests, in each case subject to no Lien, other than Permitted Liens. All
material facilities, Equipment, Fixtures, vehicles and other properties

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owned or leased by it or any of its Subsidiaries are in good operating condition
and repair (other than the Parked Aircraft) and are reasonably fit and usable
for the purposes for which they are being used. Except as set forth on
Schedule 12(l), it and each of its Subsidiaries is in compliance with all
material terms of each lease to which it is a party or is otherwise bound.
Without limiting any provisions of the foregoing Section 12(l), the Aircraft
(other than the Parked Aircraft) are in such condition so as to enable the
airworthiness certificate of such Aircraft to be in good standing under the
regulations of the FAA and DOT and have been certified by the FAA as to type and
airworthiness, there is in effect with respect to such Aircraft a current and
valid airworthiness certificate issued by the FAA and there is no fact known to
the Companies that materially adversely affect the value, utility or condition
of such Aircraft when compared to the carrying value of such Aircraft on the
Company’s balance sheet or that has not been disclosed to Laurus.
     (m) Intellectual Property.
          (i) It and each of its Subsidiaries owns or possesses sufficient legal
rights to all Intellectual Property necessary for their respective businesses as
now conducted and, to its knowledge as presently proposed to be conducted,
without any known infringement of the rights of others. There are no outstanding
options, licenses or agreements of any kind relating to its or any of its
Subsidiary’s owned Intellectual Property, nor is it or any of its Subsidiaries
bound by or a party to any options, licenses or agreements of any kind with
respect to the Intellectual Property of any other Person (other than any
commercial “off-the-shelf” software license such as certain “shrink-wrap”
licenses and any other intellectual property licenses which are nonexclusive,
terminable and available to businesses at a market price).
          (ii) Since December 31, 2005, neither it nor any of its Subsidiaries
has received any communications alleging that it or any of its Subsidiaries has
violated any of the Intellectual Property or other proprietary rights of any
other Person, nor is it or any of its Subsidiaries aware of any basis therefor.
          (iii) Neither it nor any of its Subsidiaries believes it is or will be
necessary to utilize any inventions, trade secrets or proprietary information of
any of its employees made prior to their employment by it or any of its
Subsidiaries, except for inventions, trade secrets or proprietary information
that have been rightfully assigned to it or any of its Subsidiaries.
     (n) Compliance with Other Instruments. Neither it nor any of its
Subsidiaries is in violation or default of (x) any term of its Charter or
bylaws, or (y) any provision of any Indebtedness, mortgage, indenture, contract,
agreement or instrument to which it is party or by which it is bound or of any
judgment, decree, order or writ, which violation or default, in the case of this
clause (y), has had, or could reasonably be expected to have, either
individually or in the aggregate, a Material Adverse Effect. The execution,
delivery and performance of and compliance with this Agreement and the Ancillary
Agreements to which it is a party, and the issuance of the Note and the other
Securities each pursuant hereto and thereto, will not, with or without the
passage of time or giving of notice, result in any such violation or be in
conflict with any term of its Charter or bylaws or result in any such material
violation, or be in material conflict with or constitute a material default
under any such provision, or result in the creation of any Lien upon any of its
or any of its Subsidiary’s properties or assets or the suspension, revocation,
impairment, forfeiture or nonrenewal of any permit, license, authorization or
approval applicable to it or any of its Subsidiaries, their businesses or
operations or any of their assets or properties.

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     (o) Litigation. Except as set forth on Schedule 12(o), there is no action,
suit, proceeding or investigation pending or, to its knowledge, currently
threatened against it or any of its Subsidiaries that prevents it or any of its
Subsidiaries from entering into this Agreement or the Ancillary Agreements, or
from consummating the transactions contemplated hereby or thereby, or which has
had, or could reasonably be expected to have, either individually or in the
aggregate, a Material Adverse Effect, or could result in any change in its or
any of its Subsidiaries’ current equity ownership, nor is it aware that there is
any basis to assert any of the foregoing. Neither it nor any of its Subsidiaries
is a party to or subject to the provisions of any order, writ, injunction,
judgment or decree of any court or government agency or instrumentality which
has had, or could reasonably be expected to have, either individually or in the
aggregate, a Material Adverse Effect. There is no action, suit, proceeding or
investigation by it or any of its Subsidiaries currently pending or which it or
any of its Subsidiaries intends to initiate which has had, or could reasonably
be expected to have, either individually or in the aggregate, a Material Adverse
Effect. Except as set forth on Schedule 12 (o), no Company is a party to or, to
its knowledge, target of or subject to any DOT, FAA or TSA investigation, cease
and desist order, civil penalty notice or action, notice of proposed certificate
action, orders suspending, revoking, or modifying or seeking to suspend, revoke
or modify its DOT or FAA authority to engage in air transportation or any
similar enforcement action, which could reasonably be expected to have either
individually or in the aggregate a Material Adverse Effect. Except as set forth
on Schedule 12 (o), no Company is aware of any facts, circumstances, conditions
or events that such Company reasonably believes would result in any such action
that would have a Material Adverse Effect upon such Company.
     (p) Tax Returns and Payments. It and each of its Subsidiaries has timely
filed all tax returns (federal, state and local) required to be filed by it or
have timely filed for extensions thereof. All taxes shown to be due and payable
on such returns, any assessments imposed, and all other taxes due and payable by
it and each of its Subsidiaries on or before the Closing Date, have been paid or
will be paid prior to the time they become delinquent, other than those being
contested in good faith. Except as set forth on Schedule 12(p), neither it nor
any of its Subsidiaries has been advised:
          (i) that any of its returns, federal, state or other, have, since the
Balance Sheet Date, been or are being audited as of the date hereof; or
          (ii) of any adjustment, deficiency, assessment or court decision in
respect of its federal, state or other taxes.
Neither it nor any of its Subsidiaries has any knowledge of any liability of any
tax to be imposed upon its properties or assets as of the date of this Agreement
that is not adequately provided for.
     (q) Employees. Except as set forth on Schedule 12(q), neither it nor any of
its Subsidiaries has any collective bargaining agreements with any of its
employees. Except as disclosed in the Exchange Act Filings, there is no labor
union organizing activity pending or, to its knowledge, threatened with respect
to it or any of its Subsidiaries. Except as disclosed in the Exchange Act
Filings or on Schedule 12(q), neither it nor any of its Subsidiaries is a party
to or bound by any currently effective employment contract, deferred
compensation arrangement, bonus plan, incentive plan, profit sharing plan,
retirement agreement or other employee compensation plan or agreement. To its
knowledge, none of its or any of its Subsidiaries’ employees, nor any consultant
with whom it or any of its Subsidiaries has contracted, is in violation of any
term of any employment contract, proprietary information agreement or any other
agreement relating to the right of any such

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individual to be employed by, or to contract with, it or any of its Subsidiaries
because of the nature of the business to be conducted by it or any of its
Subsidiaries; and to its knowledge the continued employment by it and its
Subsidiaries of their present employees, and the performance of its and its
Subsidiaries contracts with its independent contractors, will not result in any
such violation. To its knowledge, neither it nor any of its Subsidiaries is
aware that any of its or any of its Subsidiaries’ employees is obligated under
any contract (including licenses, covenants or commitments of any nature) or
other agreement, or subject to any judgment, decree or order of any court or
administrative agency that would interfere with their duties to it or any of its
Subsidiaries. Neither it nor any of its Subsidiaries has received any notice
alleging that any such violation has occurred. Except for employees who have a
current effective employment agreement with it or any of its Subsidiaries, none
of its or any of its Subsidiaries’ employees has been granted the right to
continued employment by it or any of its Subsidiaries or to any material
compensation following termination of employment with it or any of its
Subsidiaries. Except as set forth on Schedule 12(q), neither it nor any of its
Subsidiaries is aware that any executive officer, key employee or group of
employees intends to terminate his, her or their employment with it or any of
its Subsidiaries, as applicable, nor does it or any of its Subsidiaries have a
present intention to terminate the employment of any executive officer, key
employee or group of employees.
     (r) Registration Rights and Voting Rights. Except as set forth on Schedule
12(r) and except as disclosed in Exchange Act Filings, neither it nor any of its
Subsidiaries is presently under any obligation, and neither it nor any of its
Subsidiaries has granted any rights, to register any of its or any of its
Subsidiaries’ presently outstanding securities or any of its securities that may
hereafter be issued.
     (s) Compliance with Laws; Permits. Neither it nor any of its Subsidiaries
is in violation of the Sarbanes-Oxley Act of 2002 or any SEC related regulation
or rule or any rule of the Principal Market promulgated thereunder or any other
applicable statute, rule, regulation, order or restriction of any domestic or
foreign government or any instrumentality or agency thereof in respect of the
conduct of its business or the ownership of its properties which has had, or
could reasonably be expected to have, either individually or in the aggregate, a
Material Adverse Effect. No governmental orders, permissions, consents,
approvals or authorizations are required to be obtained and no registrations or
declarations are required to be filed in connection with the execution and
delivery of this Agreement or any Ancillary Agreement and the issuance of any of
the Securities, except (i) those required under the Registration Rights
Agreement and (ii) such as have been duly and validly obtained or filed, or with
respect to any filings that must be made after the Closing Date, as will be
filed in a timely manner. It and each of its Subsidiaries has all FAA and DOT
permits and licenses and similar authority necessary for the conduct of its
business. It and each of its Subsidiaries has all other material franchises,
permits, licenses and any similar authority necessary for the conduct of its
business as now being conducted by it, the lack of which could, either
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect.
     (t) Environmental and Safety Laws. Neither it nor any of its Subsidiaries
is in material violation of any applicable local, state, federal, or foreign
statute, regulation or rule, ordinance, order or other law relating to the
environment or to the protection of public health and welfare or occupational
health and safety (collectively, “E&S Law”), and to its knowledge, no material
expenditures are or will be required in order to comply with any such E&S Law or
to satisfy any reasonably anticipated liability arising under any E&S Law or the
common law. Except (i) for use in the ordinary course of business in compliance
with E&S Law and in a manner that is not reasonably likely to give rise to
material liability or responsibility under any E&S Law or the

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common law or (ii) as set forth on Schedule 12(t), no Hazardous Materials (as
defined below) are used or have been used, stored, or disposed of by it or any
of its Subsidiaries or, to its knowledge, by any other Person on any property
presently or formerly owned, leased or used by it or any of its Subsidiaries.
For the purposes of the preceding sentence, “Hazardous Materials” shall mean:
materials that are listed or defined as “hazardous” or “toxic” or “pollutants or
contaminants” under any E&S Law, including those laws that govern the existence
and/or remedy of contamination on property, the protection of the environment
from contamination, the control of hazardous or other wastes, or other
activities involving those types of materials, including, without limitation,
building materials, any petroleum and petroleum products and byproducts, nuclear
materials, asbestos, and polychlorinated biphenyls.
     (u) Valid Offering. Assuming the accuracy of the representations and
warranties of Laurus contained in this Agreement, the offer and issuance of the
Securities will be exempt from the registration requirements of the Securities
Act of 1933, as amended (the “Securities Act”), and will have been registered or
qualified (or are exempt from registration and qualification) under the
registration, permit or qualification requirements of all applicable state
securities laws.
     (v) Full Disclosure. As of the date of this Agreement, it and each of its
Subsidiaries has provided Laurus with substantially all information requested by
Laurus in connection with Laurus’ decision to enter into this Agreement. Neither
this Agreement, the Ancillary Agreements nor the exhibits and schedules hereto
and thereto nor any other document delivered by it or any of its Subsidiaries to
Laurus or its attorneys or agents in connection herewith or therewith or with
the transactions contemplated hereby or thereby, contain any untrue statement of
a material fact nor omit to state a material fact necessary in order to make the
statements contained herein or therein, in light of the circumstances in which
they are made, not misleading, in each case as of their respective dates. Any
financial projections and other estimates provided to Laurus by it or any of its
Subsidiaries were based on its and its Subsidiaries’ experience in the industry
and on assumptions of fact and opinion as to future events which it or any of
its Subsidiaries, at the date of the issuance of such projections or estimates,
believed to be reasonable.
     (w) Insurance. It and each of its Subsidiaries has general commercial,
product liability, fire and casualty insurance policies with coverages, which it
believes are customary for companies similarly situated to it and its
Subsidiaries in the same or similar business.
     (x) SEC Reports and Financial Statements. Since the Balance Sheet Date,
except as set forth on Schedule 12(x) and excluding filings on Form 8-K, Form 3,
Form 4 and Form 5, it and each of its Subsidiaries has filed all proxy
statements, reports and other documents required to be filed by it under the
Exchange Act. The Parent has made available to Laurus: (i) its Annual Report on
Form 10-K for its fiscal years ended December 31, 2005; and (ii) its Quarterly
Reports on Form 10-Q for its fiscal quarters ended March 31, 2006, June 30, 2006
and September 30, 2006, and the Form 8-K filings which it has made during its
fiscal years ending December 31, 2006 and 2007 to date (collectively, the “SEC
Reports”). Except as set forth on Schedule 12(x), each SEC Report was, at the
time of its filing, in substantial compliance with the requirements of its
respective form and none of the SEC Reports, nor the financial statements (and
the notes thereto) included in the SEC Reports, as of their respective filing
dates, contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading. Such financial statements have been prepared in accordance with GAAP
applied on a consistent basis during the periods involved (except (i) as may be
otherwise indicated in such financial statements or the notes

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thereto or (ii) in the case of unaudited interim statements, to the extent they
may not include footnotes or may be condensed) and fairly present in all
material respects the financial condition, the results of operations and cash
flows of the Parent and its Subsidiaries, on a consolidated basis, as of, and
for, the periods presented in each such SEC Report.
     (y) Listing. The Parent’s Common Stock is listed or quoted, as applicable,
on the Principal Market and satisfies all requirements for the continuation of
such listing or quotation, as applicable, and the Parent shall do all things
necessary for the continuation of such listing or quotation, as applicable. The
Parent has not received any notice that its Common Stock will be delisted from,
or no longer quoted on, as applicable, the Principal Market or that its Common
Stock does not meet all requirements for such listing or quotation, as
applicable.
     (z) No Integrated Offering. Neither it, nor any of its Subsidiaries nor any
of its Affiliates, nor any Person acting on its or their behalf, has directly or
indirectly made any offers or sales of any security or solicited any offers to
buy any security under circumstances that would cause the offering of the
Securities pursuant to this Agreement or any Ancillary Agreement to be
integrated with prior offerings by it for purposes of the Securities Act which
would prevent it from issuing the Securities pursuant to Rule 506 under the
Securities Act, or any applicable exchange-related stockholder approval
provisions, nor will it or any of its Affiliates or Subsidiaries take any action
or steps that would cause the offering of the Securities to be integrated with
other offerings.
     (aa) Reserved.
     (bb) Dilution. It specifically acknowledges that the Parent’s obligation to
issue the shares of Common Stock upon exercise of the Warrants is binding upon
the Parent and enforceable regardless of the dilution such issuance may have on
the ownership interests of other stockholders of the Parent.
     (cc) Patriot Act. It certifies that, to the best of its knowledge, neither
it nor any of its Subsidiaries has been designated, nor is or shall be owned or
controlled, by a “suspected terrorist” as defined in Executive Order 13224. It
hereby acknowledges that Laurus seeks to comply with all applicable laws
concerning money laundering and related activities. In furtherance of those
efforts, it hereby represents, warrants and covenants that: (i) none of the cash
or property that it or any of its Subsidiaries will pay or will contribute to
Laurus has been or shall be derived from, or related to, any activity that is
deemed criminal under United States law; and (ii) no contribution or payment by
it or any of its Subsidiaries to Laurus, to the extent that they are within its
or any such Subsidiary’s control shall cause Laurus to be in violation of the
United States Bank Secrecy Act, the United States International Money Laundering
Control Act of 1986 or the United States International Money Laundering
Abatement and Anti-Terrorist Financing Act of 2001. It shall promptly notify
Laurus if any of these representations, warranties and covenants ceases to be
true and accurate regarding it or any of its Subsidiaries. It shall provide
Laurus with any additional information regarding it and each Subsidiary thereof
that Laurus deems necessary or convenient to ensure compliance with all
applicable laws concerning money laundering and similar activities. It
understands and agrees that if at any time it is discovered that any of the
foregoing representations, warranties and covenants are incorrect, or if
otherwise required by applicable law or regulation related to money laundering
or similar activities, Laurus may undertake appropriate actions to ensure
compliance with applicable law or regulation, including but not limited to
segregation and/or redemption of Laurus’ investment in it. It further
understands that Laurus may release confidential information about it and its
Subsidiaries and, if applicable, any underlying beneficial owners, to proper
authorities if Laurus, in

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its sole discretion, determines that it is in the best interests of Laurus in
light of relevant rules and regulations under the laws set forth in subsection
(ii) above.
     (dd) Company Name; Locations of Offices, Records and Collateral. Schedule
12(dd) sets forth each Company’s name as it appears in official filings in the
state of its organization, the type of entity of each Company, the
organizational identification number issued by each Company’s state of
organization or a statement that no such number has been issued, each Company’s
state of organization, and the location of each Company’s chief executive
office, corporate offices, warehouses, other locations of Collateral and
locations where records with respect to Collateral are kept (including in each
case the county of such locations) and, except as set forth in such
Schedule 12(dd), such locations have not changed during the preceding twelve
months. As of the Closing Date, during the prior five years, except as set forth
in Schedule 12(dd), no Company has been known as or conducted business in any
other name (including trade names). Each Company has only one state of
organization.
     (ee) ERISA. Based upon the Employee Retirement Income Security Act of 1974
(“ERISA”), and the regulations and published interpretations thereunder:
(i) neither it nor any of its Subsidiaries has engaged in any Prohibited
Transactions (as defined in Section 406 of ERISA and Section 4975 of the Code);
(ii) it and each of its Subsidiaries has met all applicable minimum funding
requirements under Section 302 of ERISA in respect of its plans; (iii) neither
it nor any of its Subsidiaries has any knowledge of any event or occurrence
which would cause the Pension Benefit Guaranty Corporation to institute
proceedings under Title IV of ERISA to terminate any employee benefit plan(s);
(iv) neither it nor any of its Subsidiaries has any fiduciary responsibility for
investments with respect to any plan existing for the benefit of persons other
than its or such Subsidiary’s employees; and (v) neither it nor any of its
Subsidiaries has withdrawn, completely or partially, from any multi-employer
pension plan so as to incur liability under the Multiemployer Pension Plan
Amendments Act of 1980.
     13. Covenants. Each Company, as applicable, covenants and agrees with
Laurus (which covenants and agreements shall be binding upon any Subsidiary, if
any, as if made by such Subsidiary as applicable to Subsidiary as well as such
Company) that:
     (a) Stop-Orders. Neither the Parent nor any of its Subsidiaries will issue
any stop order or other order impeding the sale and delivery of any of the
Securities at such time as the Securities are registered for public sale or an
exemption from such registration is available, except as required by state and
federal securities laws or as permitted by Section 7(d) of the Registration
Rights Agreement. The Parent shall advise Laurus, promptly after it receives
notice of issuance by the SEC, any state securities commission or any other
regulatory authority of any stop order or of any order preventing or suspending
any offering of any securities of the Parent, or of the suspension of the
qualification of the Common Stock of the Parent for offering or sale in any
jurisdiction, or the initiation of any proceeding for any such purpose.
     (b) Listing. Within thirty (30) days of the Closing Date, the Parent shall
file a Listing of Additional Shares Application to secure the listing or
quotation, as applicable, of the shares of Common Stock issuable upon exercise
of the Warrants on the Principal Market upon which shares of Common Stock are
listed or quoted, as applicable, (subject to official notice of issuance) and
shall maintain such listing or quotation, as applicable, so long as any other
shares of Common Stock shall be so listed or quoted, as applicable. The Parent
shall maintain the listing or quotation, as applicable, of its Common Stock on
the Principal Market, and will comply in all material respects

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with the Parent’s reporting, filing and other obligations under the bylaws or
rules of the National Association of Securities Dealers (“NASD”) and such
exchanges, as applicable.
     (c) Market Regulations. To the extent required by law, the Parent shall
notify the SEC, NASD and applicable state authorities of the transactions
contemplated by this Agreement, and shall take all other necessary action and
proceedings as may be required and permitted by applicable law, rule and
regulation, for the legal and valid issuance of the Securities to Laurus and
promptly provide copies thereof to Laurus.
     (d) Reporting Requirements. The Parent shall timely file with the SEC all
reports required to be filed by it pursuant to the Exchange Act and refrain from
terminating its status as an issuer required by the Exchange Act to file reports
thereunder even if the Exchange Act or the rules or regulations thereunder would
permit such termination.
     (e) Use of Funds. It shall use the proceeds of the Loans (i) to repay in
full the Existing Indebtedness, (ii) so long as no Event of Default has occurred
and is continuing or would result therefrom, to pay dividends to the holders of
the Series B Preferred Stock and (iii) for general working capital purposes
only.
     (f) Access to Facilities. It shall, and shall cause each of its
Subsidiaries to, permit any representatives designated by Laurus (or any
successor of Laurus), upon reasonable notice and during normal business hours,
at Company’s expense and accompanied by a representative of Company Agent
(provided that no such prior notice shall be required to be given and no such
representative shall be required to accompany Laurus in the event Laurus
believes such access is necessary to preserve or protect the Collateral or
following the occurrence and during the continuance of an Event of Default), to:
          (i) visit and inspect any of its or any such Subsidiary’s properties;
          (ii) examine its or any such Subsidiary’s corporate and financial
records (unless such examination is not permitted by federal, state or local law
or by contract) and make copies thereof or extracts therefrom; and
          (iii) discuss its or any such Subsidiary’s affairs, finances and
accounts with its or any such Subsidiary’s directors, officers and Accountants.
Notwithstanding the foregoing, neither it nor any of its Subsidiaries shall
provide any material, non-public information to Laurus unless Laurus signs a
confidentiality agreement and otherwise complies with Regulation FD, under the
federal securities laws.
     (g) Taxes. It shall, and shall cause each of its Subsidiaries to, promptly
pay and discharge, or cause to be paid and discharged, when due and payable, all
lawful taxes, assessments and governmental charges or levies imposed upon it and
its Subsidiaries’ income, profits, property or business, as the case may be;
provided, however, that any such tax, assessment, charge or levy need not be
paid currently if (i) the validity thereof shall currently and diligently be
contested in good faith by appropriate proceedings, (ii) such tax, assessment,
charge or levy shall have no effect on the Lien priority of Laurus in the
Collateral, and (iii) if it and/or such Subsidiary, as applicable, shall have
set aside on its and/or such Subsidiary’s books adequate reserves with respect
thereto in accordance with GAAP; and provided, further, that it shall, and shall
cause each of its Subsidiaries to, pay all such

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taxes, assessments, charges or levies forthwith upon the commencement of
proceedings to foreclose any lien which may have attached as security therefor.
          (h) Insurance. It shall keep its assets which are of an insurable
character insured by financially sound and reputable insurers against loss or
damage by fire, explosion and other risks customarily insured against by
companies in similar business similarly situated as it; and it shall maintain,
with financially sound and reputable insurers, insurance against other hazards
and risks and liability to persons and property to the extent and in the manner
which it reasonably believes is customary for companies in similar business
similarly situated as it and to the extent available on commercially reasonable
terms. It will bear the full risk of loss from any loss of any nature whatsoever
with respect to the assets pledged to Laurus as security for the Obligations. At
its own cost and expense in amounts and with carriers reasonably acceptable to
Laurus, it shall (i) keep all its insurable properties and properties in which
it has an interest insured against the hazards of fire, flood, sprinkler
leakage, those hazards covered by extended coverage insurance and such other
hazards, and for such amounts, as is customary in the case of companies engaged
in businesses similar to it including business interruption insurance;
(ii) maintain insurance or a bond in such amounts as is customary in the case of
companies engaged in businesses similar to it insuring against larceny,
embezzlement or other criminal misappropriation of insured’s officers and
employees who may either singly or jointly with others at any time have access
to its assets or funds either directly or through governmental authority to draw
upon such funds or to direct generally the disposition of such assets;
(iii) maintain public liability insurance against claims for personal injury,
death or property damage suffered by others; (iv) maintain all such worker’s
compensation or similar insurance as may be required under the laws of any state
or jurisdiction in which it is engaged in business; and (v) furnish Laurus with
(x) copies of all policies and evidence of the maintenance of such policies,
which policies shall include the provision that Laurus shall be notified in
writing of any proposed cancellation or material change in such policy at least
thirty (30) days in advance of such proposed cancellation or change (ten
(10) days with respect to nonpayment of premiums and seven (7) days with respect
to war risk and allied perils coverage) and will have sufficient time and the
right to correct any deficiencies justifying such proposed cancellation or
change, (y) excepting its workers’ compensation policy, endorsements to such
policies, in form and substance satisfactory to Laurus, naming Laurus as
additional insured, loss payee, and mortgagee (as its interests may appear)
pursuant to a so-called “standard mortgagee clause”, and (z) evidence that as to
Laurus the insurance coverage shall not be impaired or invalidated by any act or
neglect of any company or any tenant or subtenant.
     Notwithstanding anything to the contrary in this Section 13(h), each
Company shall at all times keep the Aircraft (other than the Parked Aircraft)
insured with “all risk” hull insurance in an amount in an amount reasonably
satisfactory to Laurus. Furthermore, notwithstanding the foregoing, in addition,
each Company will carry or cause to be carried at its expense (A) aircraft
public liability (including, without limitation, passenger legal liability) (and
including aircraft war risk and hijacking insurance, if and to the extent the
same is maintained by such Company with respect to other aircraft owned or
leased, and operated by such Company on the same routes), insurance and property
damage insurance (exclusive of manufacturer’s product liability insurance) with
respect to the Aircraft, in an amount not less than the greater of (x) the
amount of public liability and property damage insurance from time to time
applicable to aircraft owned or operated by such Company of the same type as the
Aircraft and (y) $500,000,000 per occurrence (or in amounts acceptable with
industry standards), and (B) cargo liability insurance, in the case of both
clause (i) and clause (ii), (1) of the type and covering the same risks as from
time to time applicable to aircraft operated by such Company of the same type as
the Aircraft and (2) which is maintained in effect with insurers of recognized
responsibility. Any

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policies of insurance carried in accordance with this paragraph and any policies
taken out in substitution or replacement for any of such policies (A) shall be
amended to name Laurus as additional insured as its respective interests may
appear, (B) shall provide that in respect of the interest of Laurus in such
policies, the insurance shall not be invalidated by any action or inaction of
the any Company, regardless of any breach or violation of any warranty,
declaration or condition contained in such policies by such Company, and
(C) shall provide that if the insurers cancel such insurance for any reason
whatever or if any material change is made in such insurance which adversely
affects the interest of Laurus, or such insurance shall lapse for non-payment of
premium, such cancellation , lapse or change shall not be effective as to Laurus
for thirty (30) days (seven (7) days in the case of war risk and allied perils
coverage and ten (10) days with respect to nonpayment of premiums) after
issuance to Laurus of written notice by such insurers of cancellation, lapse or
change; provided, however, that if any notice period specified above is not
reasonably obtainable, such policies shall provide for as long a period of prior
notice as shall then be reasonably obtainable. Each liability policy shall waive
any right of the insurers to any set-off or counterclaim or any other deduction,
whether by attachment or otherwise, in respect of any liability of Laurus to the
extent of any moneys due to Laurus.
     Each Company shall instruct the insurance carriers that in the event of any
total loss of an Aircraft or if an Event of Default has occurred and is
continuing, the carriers shall make payment for such loss to Laurus and not to
the order of such Company and Laurus jointly. With respect to a loss other than
a total loss of an Aircraft at a time when no Event of Default has occurred and
is continuing, if such loss, when aggregated with all other losses occurring
during such fiscal year, does not exceed $500,000, such Company may adjust and
compromise claims with the insurance carrier and the insurance carrier may make
payment directly to such Company. Such Company may elect to apply such payment
toward the repair, replacement or restoration of any property in respect of
which such payment was made by the insurance carrier no later than 150 days
following the date of receipt of such payment; provided, all property purchased
with such payment shall made be subject to the first priority Lien of this
Agreement or the Aircraft Security Documents. Any such payment not applied
within the 150-day period set forth in the previous sentence (or earlier, at the
option of such Company) to so repair, replace or restore in accordance with such
sentence shall be paid to Laurus by such Company as a prepayment of the Loans
and as a permanent reduction of the Capital Availability Amount.
     In the event of a total loss of an Aircraft, if an Event of Default has
occurred and is continuing or if such loss when aggregated with all other losses
occurring during such fiscal year exceed $500,000, (i) if any insurance losses
are paid by check, draft or other instrument payable to a Company and Laurus
jointly, Laurus may endorse such Company’s name thereon and do such other things
as Laurus may deem in its sole discretion advisable to reduce the same to cash
and in such event, (ii) Laurus is hereby authorized to adjust and compromise
claims.
     All loss recoveries received by Laurus upon any such insurance may be
applied to the Obligations, in such order as Laurus in its sole discretion shall
determine or shall otherwise be delivered to the Parent. Any surplus shall be
paid by Laurus to the Parent, or applied as may be otherwise required by law. If
an Event of Default has occurred and is continuing, any deficiency thereon shall
be paid, jointly and severally, as applicable, by the Companies to Laurus, on
demand.
          (i) Intellectual Property. It shall, and shall cause each of its
Subsidiaries to, maintain in full force and effect its corporate existence,
rights and franchises and all licenses and

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other rights to use Intellectual Property owned or possessed by it and
reasonably deemed to be necessary to the conduct of its business.
     (j) Properties. Except as otherwise set forth in this Agreement as to
Parked Aircraft or in the ordinary course of business, it shall, and shall cause
each of its Subsidiaries to, keep its properties in good repair, working order
and condition, reasonable wear and tear excepted, and from time to time make all
needful and proper repairs, renewals, replacements, additions and improvements
thereto; and it shall, and shall cause each of its Subsidiaries to, at all times
comply with each provision of all leases to which it is a party or under which
it occupies or utilizes such property if the breach of such provision could
reasonably be expected to have a Material Adverse Effect.
     (k) Confidentiality. It shall not, and shall not permit any of its
Subsidiaries to, disclose, and will not include in any public announcement, the
name of Laurus, unless expressly agreed to by Laurus or unless and until such
disclosure is required by law or applicable regulation, and then only to the
extent of such requirement. Notwithstanding the foregoing, each Company and its
Subsidiaries may disclose Laurus’ identity and the terms of this Agreement and
the Ancillary Agreements to its current and prospective debt and equity
financing sources. Laurus shall be permitted to discuss, distribute or otherwise
transfer any non-public information of the Companies and their respective
Subsidiaries in Laurus’ possession now or in the future to potential or actual
(i) direct or indirect investors in Laurus and (ii) third party assignees or
transferees of all or a portion of the obligations of any Company and/or any of
its respective Subsidiaries hereunder and under the Ancillary Agreement, to the
extent that such investor or assignee or transferee enters into a
confidentiality agreement for the benefit of the Parent in such form as may be
necessary to addresses the Parent’s Regulation FD requirements. Laurus
acknowledges that, promptly following execution and delivery of this Agreement,
conformed copies of this Agreement and the Ancillary Agreements and all
amendments thereto may (notwithstanding the foregoing) be filed by the Parent as
material agreements with the SEC.
     (l) Required Approvals. It shall not, and shall not permit any of its
Subsidiaries to, without the prior written consent of Laurus:
          (i) create, incur, assume or suffer to exist any Indebtedness
(exclusive of Permitted Indebtedness) whether secured or unsecured other than
(A) each Company’s Indebtedness to Laurus, (B) each Company’s Indebtedness as
set forth on Schedule 13(l)(i) attached hereto and made a part hereof and
(C) any Indebtedness that is subordinated in right of payment, priority,
structure and otherwise to the Obligations on terms and conditions reasonably
and mutually acceptable to the Companies and Laurus and the provider of such
subordinated Indebtedness;
          (ii) cancel any Indebtedness owing to it in excess of $50,000 in the
aggregate during any twelve (12) month period (other than in exchange for which
cancelled Indebtedness, it receives reasonably equivalent consideration and fair
value), provided, however, the foregoing shall not authorize or permit the
cancellation of any Indebtedness or obligation in any amount owed by any of any
Company’s officers, directors, stockholders or employees;
          (iii) assume, guarantee, endorse or otherwise become directly or
contingently liable in connection with any obligations of any other Person,
except the endorsement of negotiable instruments by it or its Subsidiaries for
deposit or collection or similar transactions in the

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ordinary course of business or any guarantees and indemnifications respecting
Indebtedness otherwise permitted to be outstanding pursuant to this clause;
     (iv) directly or indirectly declare, pay or make any cash dividend or cash
distribution on any class of its Stock or apply any of its funds, property or
assets to the purchase, redemption or other retirement of any of its or its
Subsidiaries’ Stock; provided, however, that so long as (i) no Event of Default
has occurred and is continuing or would result therefrom and (ii) the aggregate
amount of such dividends in any twelve-month (12) period does not exceed
$1,700,000, the Parent may pay quarterly dividends on the Series B Preferred
Stock;
     (v) purchase or hold beneficially any Stock or other securities or
evidences of Indebtedness of, make or permit to exist any loans or advances to,
or make any investment or acquire any interest whatsoever in, any other Person,
including any partnership or joint venture, except (w) travel advances, (x) the
extension of commercial trade credit in connection with the performance of
services and sale of Equipment in the ordinary course of business, (y) loans to
its and its Subsidiaries’ officers and employees not exceeding at any one time
an aggregate of $10,000, other than advancement of expenses in the ordinary
course of business, and (z) loans to its existing Subsidiaries so long as such
Subsidiaries are designated as either a co-borrower hereunder or has entered
into such guaranty and security documentation required by Laurus, including,
without limitation, to grant to Laurus a first priority perfected security
interest in substantially all of such Subsidiary’s assets to secure the
Obligations;
     (vi) create or permit to exist any Subsidiary, other than any Subsidiary in
existence on the date hereof and listed in Schedule 12(b) unless such new
Subsidiary is a wholly-owned Subsidiary and is designated by Laurus as either a
co-borrower or guarantor hereunder and such Subsidiary shall have entered into
all such documentation required by Laurus, including, without limitation, to
grant to Laurus a first priority perfected security interest in substantially
all of such Subsidiary’s assets to secure the Obligations;
     (vii) directly or indirectly, prepay any Indebtedness (other than to Laurus
and in the ordinary course of business), or repurchase, redeem, retire or
otherwise acquire any Indebtedness (other than to Laurus and in the ordinary
course of business) except to make scheduled payments of principal and interest
thereof;
     (viii) enter into any merger, consolidation or other reorganization with or
into any other Person or acquire all or a portion of the assets or Stock of any
Person or permit any other Person to consolidate with or merge with it, unless
(1) such Company is the surviving entity of such merger or consolidation, (2) no
Event of Default shall exist immediately prior to and after giving effect to
such merger or consolidation, (3) such Company shall have provided Laurus copies
of all documentation relating to such merger or consolidation and (4) such
Company shall have provided Laurus with at least thirty (30) days’ prior written
notice of such merger or consolidation;
     (ix) materially change the nature of the business in which it is presently
engaged;
     (x) become subject to (including, without limitation, by way of amendment
to or modification of) any agreement or instrument which by its terms would
(under any circumstances) restrict its or any of its Subsidiaries’ right to
perform the provisions of this Agreement or any of the Ancillary Agreements;

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          (xi) change its fiscal year or make any changes in accounting
treatment and reporting practices without prior written notice to Laurus except
as required by GAAP or in the tax reporting treatment or except as required by
law;
          (xii) enter into any transaction with any executive officer, director
or Affiliate, except (A) in the ordinary course or (B) on arms-length terms; or
          (xiii) bill Accounts under any name except the present name of such
Company or its trade names.
     (m) Reissuance of Securities. The Parent shall reissue certificates
representing the Securities without the legends set forth in Section 44 below at
such time as:
          (i) the holder thereof is permitted to dispose of such Securities
pursuant to Rule 144(k) under the Securities Act; or
          (ii) upon resale subject to an effective registration statement after
such Securities are registered under the Securities Act.
The Parent agrees to cooperate with Laurus in connection with all resales
pursuant to Rule 144(d) and Rule 144(k) and provide legal opinions necessary to
allow such resales provided the Parent and its counsel receive reasonably
requested representations from Laurus and broker, if any.
     (n) Opinion. On the Closing Date, it shall deliver to Laurus an opinion
acceptable to Laurus from each Company’s legal counsel. Each Company will
provide, at the Companies’ joint and several expense, such other legal opinions
in the future as are reasonably necessary for the exercise of the Warrants.
     (o) Legal Name, etc. It shall not, without providing Laurus with 30 days
prior written notice, change (i) its name as it appears in the official filings
in the state of its organization, (ii) the type of legal entity it is, (iii) its
organization identification number, if any, issued by its state of organization,
(iv) its state of organization or (v) amend its certificate of incorporation,
by-laws or other organizational document if such amendment would have an adverse
impact on the rights, remedies or interests of Laurus under this Agreement or
any of the Ancillary Agreements.
     (p) Compliance with Laws. The operation of each of its and each of its
Subsidiaries’ business is and shall continue to be in compliance in all material
respects with all applicable federal, state and local laws, rules and
ordinances, including to all laws, rules, regulations and orders relating to
taxes, payment and withholding of payroll taxes, employer and employee
contributions and similar items, securities, employee retirement and welfare
benefits, employee health and safety and environmental matters.
     (q) Notices. It and each of its Subsidiaries shall promptly inform Laurus
in writing of: (i) the commencement of all proceedings and investigations by or
before and/or the receipt of any notices from, any governmental or
nongovernmental body and all actions and proceedings in any court or before any
arbitrator against or in any way concerning any event which could reasonably be
expected to have singly or in the aggregate, a Material Adverse Effect; (ii) any
change which has had, or could reasonably be expected to have, a Material
Adverse Effect; (iii) any Event of Default or Default; and (iv) any default or
any event which with the passage of time or

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giving of notice or both would constitute a default under any agreement for the
payment of money to which it or any of its Subsidiaries is a party or by which
it or any of its Subsidiaries or any of its or any such Subsidiary’s properties
may be bound the breach of which would have a Material Adverse Effect.
     (r) Margin Stock. It shall not permit any of the proceeds of the Loans made
hereunder to be used directly or indirectly to “purchase” or “carry” “margin
stock” or to repay Indebtedness incurred to “purchase” or “carry” “margin stock”
within the respective meanings of each of the quoted terms under Regulation U of
the Board of Governors of the Federal Reserve System as now and from time to
time hereafter in effect.
     (s) Offering Restrictions. Except as previously disclosed in the SEC
Reports or in the Exchange Act Filings, or stock or stock options granted to its
employees or directors, neither it nor any of its Subsidiaries shall, prior to
the full exercise by Laurus of the Warrants, (x) enter into any equity line of
credit agreement or similar agreement with a floorless pricing feature or
(y) issue, or enter into any agreement to issue, any securities with a floorless
variable/floating conversion and/or pricing feature which are or could be (by
conversion or registration) free-trading securities (i.e. common stock subject
to a registration statement).
     (t) Authorization and Reservation of Shares. The Parent shall at all times
have authorized and reserved a sufficient number of shares of Common Stock to
provide for the exercise of the Warrants.
     (u) FIRPTA. Neither it, nor any of its Subsidiaries, is a “United States
real property holding corporation” as such term is defined in Section 897(c)(2)
of the Code and Treasury Regulation Section 1.897-2 promulgated thereunder and
it and each of its Subsidiaries shall at no time take any action or otherwise
acquire any interest in any asset or property to the extent the effect of which
shall cause it and/or such Subsidiary, as the case may be, to be a “United
States real property holding corporation” as such term is defined in
Section 897(c)(2) of the Code and Treasury Regulation Section 1.897-2
promulgated thereunder.
     (v) FAA Filings. Upon the execution and delivery of this Agreement, the
Aircraft Security Documents shall be filed for recording with the Federal
Aviation Administration.
     (w) Future Stockholders. No Company (other than the Parent) shall issue any
shares of Common Stock to any Person (other than Laurus) which is not a Citizen
of the United States, nor shall any Company (other than the Parent) recognize
the sale, transfer or assignment of any of the currently outstanding shares of
the Common Stock of such Company to any Person (other than Laurus) which is not
a Citizen of the United States.
     14. Further Assurances. At any time and from time to time, upon the written
request of Laurus and at the sole expense of Companies, each Company shall
promptly and duly execute and deliver any and all such further instruments and
documents and take such further action as Laurus may reasonably request (a) to
obtain the full benefits of this Agreement and the Ancillary Agreements, (b) to
protect, preserve and maintain Laurus’ rights in the Collateral and under this
Agreement or any Ancillary Agreement, and/or (c) to enable Laurus to exercise
all or any of the rights and powers herein granted or any Ancillary Agreement.

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     15. Closing Conditions. The obligations of Laurus to make the Loans shall
not become effective until the date on which each of the following conditions is
satisfied or waived in accordance with Section 26.
     (a) Counterparts of Agreement. Laurus shall have received from each party
hereto either (i) a counterpart of this Agreement signed on behalf of such party
or (ii) written evidence satisfactory to Laurus (which may include telecopy
transmission of a signed signature page of this Agreement) that such party has
signed a counterpart of this Agreement.
     (b) Notes. Laurus shall have received the duly completed and executed
(i) Note and (ii) Warrant from the Parent.
     (c) Organizational Structure. The organizational structure, capitalization
and ownership of the Companies, both before and after giving effect to the
Transactions, shall be as set forth on Schedules 12(b) and (c) annexed hereto.
Laurus shall have had the opportunity to review, and shall be satisfied with,
the Parent’s business plan, state and federal tax assumptions and the ownership,
capital, organization and structure of the Companies, both before and after
giving effect to the Transactions.
     (d) Existence and Good Standing. Laurus shall have received such documents
and certificates as the Laurus or its special counsel may reasonably request
relating to the organization, existence and good standing of each Company, the
authorization of the Transactions and any other legal matters relating to the
Companies, this Agreement, the other Ancillary Agreements or the Transactions,
all in form and substance reasonably satisfactory to Laurus and its counsel.
     (e) Security Interests in Personal and Mixed Property. To the extent not
otherwise satisfied pursuant to Section 6, Laurus shall have received evidence
satisfactory to it that the Companies shall have taken or caused to be taken all
such actions, executed and delivered or caused to be executed and delivered all
such agreements, documents and instruments, and made or caused to be made all
such filings and recordings (other than the filing of the UCC termination
statements described in clause (iii) below) that may be necessary or, in the
opinion of Laurus, desirable in order to create in favor of Laurus a valid and
(upon such filing and recording) perfected first priority security interest in
the Collateral; provided, however, that to the extent that Laurus in its sole
discretion shall determine that the costs of obtaining a security interest in
any item of Collateral is excessive in relation to the value of the security to
be afforded thereby, Laurus may waive such requirement with respect to such
item. Such actions shall include the following:
     (i) Security Documents. Delivery to Laurus of all the Security Documents,
duly executed by the applicable Company, together with accurate and complete
schedules to all such Security Documents;
     (ii) Lien Searches and UCC Termination Statements. Delivery to Laurus of
(A) the results of recent searches, by one or more Persons satisfactory to
Laurus, of all effective Liens filed with the FAA, UCC financing statements and
fixture filings and all judgment and tax lien filings which may have been made
with respect to any personal or mixed property of the Companies, together with
copies of all such filings disclosed by such search, and (B) terminations of
Liens filed with the FAA duly executed by all applicable Persons for filing with
the FAA and UCC termination statements duly executed by all applicable Persons
for filing in all applicable jurisdictions as may be

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necessary to terminate any effective UCC financing statements or fixture filings
disclosed in such search (other than any such financing statements or fixture
filings in respect of Liens permitted to remain outstanding pursuant to the
terms of this Agreement);
          (iii) UCC Financing Statements and Fixture Filings. Delivery to Laurus
of UCC financing statements and, where appropriate, fixture filings, duly
authorized by the Companies with respect to all the Collateral of each Company,
for filing in all jurisdictions as may be necessary or, in the opinion of
Laurus, desirable to perfect the security interests created in such Collateral
pursuant to the Security Documents;
          (iv) PTO Cover Sheets, Etc. Delivery to Laurus of all cover sheets or
other documents or instruments required to be filed with the PTO in order to
create or perfect Liens in respect of any Intellectual Property; and
          (v) Stock of Subsidiaries. Delivery to Laurus of certificates
evidencing one hundred percent (100%) of the Stock of all Subsidiaries of the
Parent, accompanied by stock powers executed in blank.
     (f) Evidence of Insurance. Laurus shall have received a certificate from
the Parent’s insurance broker or other evidence satisfactory to it that all
insurance required to be maintained pursuant to Section 13(h) is in full force
and effect and that Laurus has been named as additional insured and loss payee
and mortgagee thereunder to the extent required under Section 13(h).
     (g) Litigation. No litigation by any entity (private or governmental) shall
be pending or, to the best knowledge of the Parent, threatened, nor shall there
exist, in the judgment of Laurus any action by any governmental authority which
restrains, prevents or imposes materially adverse conditions, with respect to
this Agreement, any Ancillary Agreement, the Notes or any documentation executed
in connection herewith or the transactions contemplated hereby (including,
without limitation, the Transactions), or which Laurus shall determine, in its
sole discretion, to have a Material Adverse Effect.
     (h) ERISA and Taxes. Each Company shall have fulfilled all of its
obligations under the minimum funding standards of ERISA and the Code with
respect to each employee pension or other benefit plan and shall be in
compliance, in all material respects, with the applicable provisions of ERISA
and the Code, and shall not have incurred any material liability to the Pension
Benefit Guaranty Corporation or any employee pension or other benefit plan under
Title IV of ERISA, all to the reasonable satisfaction of Laurus.
     (i) Registration Rights Agreement. The Parent and Laurus shall have entered
into an agreement on terms reasonably satisfactory to Laurus in the form
attached hereto as Exhibit C regarding certain rights of Laurus.
     (j) Bank Deposit Account. The Companies and the Lockbox Bank shall have
executed and delivered to Laurus the documentation required under Section 8(a)
and Laurus shall be satisfied that Laurus has a perfected first priority
security interest in the Lockbox.
     (k) Necessary Governmental Authorizations and Consents; Expiration of
Waiting Periods, Etc. The Companies shall have obtained all Licenses and all
consents of other Persons with

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respect to Liens and agreements listed on Schedule 12(l) (and so identified
thereon) annexed hereto, in each case that are necessary or advisable in
connection with the Transactions contemplated by this Agreement and the
Ancillary Agreements, and each of the foregoing shall be in full force and
effect, in each case other than those the failure to obtain or maintain which,
either individually or in the aggregate, would not reasonably be expected to
have a Material Adverse Effect. Except as expressly provided above, all
applicable waiting periods shall have expired or been terminated without any
action being taken or threatened by any competent authority which would
restrain, prevent or otherwise impose adverse conditions on the Transactions.
     (l) Existing Debt. Laurus shall have received evidence that all principal,
interest and other amounts owing in respect of all Existing Indebtedness of the
Companies as of the Closing Date (other than Indebtedness permitted to remain
outstanding in accordance with Section 13(l)(i) hereof) will be repaid in full.
     (m) Financial Statements; Pro Forma Balance Sheet. Laurus shall have
received from the Parent the certified financial statements and pro forma
balance sheet referred to in Section 11 hereof and the same shall not be
materially inconsistent with the information previously provided to Laurus.
     (n) Aircraft Certificate. On the Closing Date, Laurus shall have received a
certificate signed by an authorized officer of each Company to the effect that
each Operating Aircraft has been duly certified by the FAA as to type and each
such Aircraft has a current certificate of airworthiness, and the applicable
Company had good title to the Aircraft free and clear of Liens other than
Permitted Liens not of record. To the extent reasonably available, Laurus shall
have received copies of the certificates of airworthiness for the Aircraft
issued by the FAA.
     (o) Financial Officer Certificate. Laurus shall have received a
certificate, dated the Closing Date and signed by the President, a Vice
President or a Financial Officer of each Company, confirming compliance with the
conditions set forth in paragraphs (a) and (b) of Section 15 on such date.
     (p) Opinions. Laurus shall have received favorable written opinions
(addressed to Laurus and dated the Closing Date) of (i) Haynes & Boone, LLP,
counsel to the Companies, substantially in the form of Exhibit D annexed hereto
and covering such matters relating to the Companies, this Agreement, the other
Ancillary Agreements or the Transactions as Laurus shall request, including the
perfection of security interests as Laurus and that Laurus is entitled to the
benefits of 11 U.S.C. Section 1110 with respect to the Aircraft, and
(ii) Daugherty Fowler Peregrin Haught & Jenson, special FAA counsel to Laurus,
covering such matters that the Companies own the Aircraft, subject to no Liens
other than Liens in favor of Laurus, that the Liens in favor of Laurus are first
priority perfected Liens and such other matters as Laurus shall request.
     (q) Fees and Expenses. Laurus shall have received all reasonable fees and
other amounts due and payable to such Persons and Laurus’ special counsel at or
prior to the Closing Date, including, to the extent invoiced, reimbursement or
payment of all out-of-pocket expenses required to be reimbursed or paid by the
Companies hereunder.
     16. Additional Borrowing Conditions. The obligation of Laurus to make the
Loans at any time (including on the Closing Date) is subject to the satisfaction
of the following conditions:

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     (a) Representations and Warranties. The representations and warranties of
the Companies set forth in this Agreement and the other Ancillary Agreements
shall be true and correct in all material respects on and as of the date of such
Loan, both before and after giving effect thereto and to the use of the proceeds
thereof (or, if any such representation or warranty is expressly stated to have
been made as of a specific date, such representation or warranty shall be or
have been true and correct as of such specific date and except to the extent the
matters set forth in such representation or warranty has been modified by
actions or events that are (i) specifically permitted or authorized by this
Agreement or (ii) not prohibited by this Agreement; provided, however, that such
action or event referred to in the foregoing clauses (i) and (ii) has not
resulted in a Material Adverse Effect); provided, however, nothing in this
Section 16(a) shall require that any Company update or supplement any Schedules.
     (b) Covenants. All of each Company’s and its respective Subsidiaries’
covenant requirements under this Agreement and the Ancillary Agreements have
been met on and as of the date of such Loan, both before and after giving effect
thereto; and
     (c) No Defaults. At the time of and immediately after giving effect to such
Loan, no Default shall have occurred and be continuing.
     17. Representations, Warranties and Covenants of Laurus. Laurus hereby
represents, warrants and covenants to each Company as follows:
     (a) Requisite Power and Authority. Laurus has all necessary power and
authority under all applicable provisions of law to execute and deliver this
Agreement and the Ancillary Agreements and to carry out their provisions. All
corporate action on Laurus’ part required for the lawful execution and delivery
of this Agreement and the Ancillary Agreements have been or will be effectively
taken prior to the Closing Date. Upon their execution and delivery, this
Agreement and the Ancillary Agreements shall be valid and binding obligations of
Laurus, enforceable in accordance with their terms, except (a) as limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other laws of
general application affecting enforcement of creditors’ rights, and (b) as
limited by general principles of equity that restrict the availability of
equitable and legal remedies.
     (b) Investment Representations. Laurus understands that the Securities are
being offered pursuant to an exemption from registration contained in the
Securities Act based in part upon Laurus’ representations contained in this
Agreement, including, without limitation, that Laurus is an “accredited
investor” within the meaning of Regulation D under the Securities Act. Laurus
has received or has had full access to all the information it considers
necessary or appropriate to make an informed investment decision with respect to
the Note to be issued to it under this Agreement and the Securities acquired by
it upon the exercise of the Warrants.
     (c) Laurus Bears Economic Risk. Laurus has substantial experience in
evaluating and investing in private placement transactions of securities in
companies similar to the Parent so that it is capable of evaluating the merits
and risks of its investment in the Parent and has the capacity to protect its
own interests. Laurus must bear the economic risk of this investment until the
Securities are sold pursuant to (i) an effective registration statement under
the Securities Act, or (ii) an exemption from registration is available.

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     (d) Investment for Own Account. The Securities are being issued to Laurus
for its own account for investment only, and not as a nominee or agent and not
with a view towards or for resale in connection with their distribution.
     (e) Laurus Can Protect Its Interest. Laurus represents that by reason of
its, or of its management’s, business and financial experience, Laurus has the
capacity to evaluate the merits and risks of its investment in the Note, and the
Securities and to protect its own interests in connection with the transactions
contemplated in this Agreement, and the Ancillary Agreements. Further, Laurus is
aware of no publication of any advertisement in connection with the transactions
contemplated in the Agreement or the Ancillary Agreements.
     (f) Accredited Investor. Laurus represents that it is an accredited
investor within the meaning of Regulation D under the Securities Act.
     (g) Shorting. Neither Laurus nor any of its Affiliates or investment
partners has, will, or will cause any Person, to directly engage in “short
sales” of the Parent’s Common Stock during the Term.
     (h) Patriot Act. Laurus certifies that, to the best of Laurus’ knowledge,
Laurus has not been designated, and is not owned or controlled, by a “suspected
terrorist” as defined in Executive Order 13224. Laurus seeks to comply with all
applicable laws concerning money laundering and related activities. In
furtherance of those efforts, Laurus hereby represents, warrants and covenants
that: (i) none of the cash or property that Laurus will use to make the Loans
has been or shall be derived from, or related to, any activity that is deemed
criminal under United States law; and (ii) no disbursement by Laurus to any
Company to the extent within Laurus’ control, shall cause Laurus to be in
violation of the United States Bank Secrecy Act, the United States International
Money Laundering Control Act of 1986 or the United States International Money
Laundering Abatement and Anti-Terrorist Financing Act of 2001. Laurus shall
promptly notify the Company Agent if any of these representations ceases to be
true and accurate regarding Laurus. Laurus agrees to provide the Company any
additional information regarding Laurus that the Company deems necessary or
convenient to ensure compliance with all applicable laws concerning money
laundering and similar activities. Laurus understands and agrees that if at any
time it is discovered that any of the foregoing representations are incorrect,
or if otherwise required by applicable law or regulation related to money
laundering similar activities, Laurus may undertake appropriate actions to
ensure compliance with applicable law or regulation, including but not limited
to segregation and/or redemption of Laurus’ investment in the Parent. Laurus
further understands that the Parent may release information about Laurus and, if
applicable, any underlying beneficial owners, to proper authorities if the
Parent, in its sole discretion, determines that it is in the best interests of
the Parent in light of relevant rules and regulations under the laws set forth
in subsection (ii) above.
     (i) Limitation on Acquisition of Common Stock. Notwithstanding anything to
the contrary contained in this Agreement, any Ancillary Agreement, or any
document, instrument or agreement entered into in connection with any other
transaction entered into by and between Laurus and any Company (and/or
Subsidiaries or Affiliates of any Company), Laurus shall not acquire stock in
the Parent (including, without limitation, pursuant to a contract to purchase,
by exercising an option or warrant, by converting any other security or
instrument, by acquiring or exercising any other right to acquire, shares of
stock or other security convertible into shares of stock in the Parent, or
otherwise, and such options, warrants, conversion or other rights shall not be
exercisable) to the extent (i) such stock acquisition would cause any interest
(including any original issue discount)

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payable by any Company to Laurus not to qualify as portfolio interest, within
the meaning of Section 881(c)(2) of the Internal Revenue Code of 1986, as
amended (the “Code”) by reason of Section 881(c)(3) of the Code, taking into
account the constructive ownership rules under Section 871(h)(3)(C) of the Code
or (ii) that such stock acquisition by Laurus or its assignee or right to
exercise any such options, warrants, conversions or other rights would result in
Kitty Hawk Aircargo, Inc. failing to qualify as a Citizen of the United States.
     18. Reserved.
     19. Term of Agreement. Laurus’ agreement to make Loans and extend financial
accommodations under and in accordance with the terms of this Agreement or any
Ancillary Agreement shall continue in full force and effect until the expiration
of the Term. At Laurus’ election following the occurrence of an Event of
Default, Laurus may terminate this Agreement. The termination of the Agreement
shall not affect any of Laurus’ rights hereunder or any Ancillary Agreement and
the provisions hereof and thereof shall continue to be fully operative until all
transactions entered into, rights or interests created and the Obligations have
been irrevocably disposed of, concluded or liquidated. Notwithstanding the
foregoing, Laurus shall release its security interests at any time after payment
to it in immediately available funds of all Obligations if each Company shall
have provided Laurus with an executed release of any and all claims which such
Company may have or thereafter have under this Agreement and all Ancillary
Agreements.
     20. Termination of Lien. The Liens and rights granted to Laurus hereunder
and any Ancillary Agreements and the financing statements filed in connection
herewith or therewith shall continue in full force and effect, notwithstanding
the termination of this Agreement or the fact that any Company’s account may
from time to time be temporarily in a zero or credit position, until all of the
Obligations have been paid in immediately available funds or performed in full
and this Agreement has been terminated in accordance with the terms of this
Agreement. Laurus shall not be required to send termination statements to any
Company, or to file them with any filing office, unless and until this Agreement
and the Ancillary Agreements shall have been terminated in accordance with their
terms and all Obligations paid in full in immediately available funds.
     21. Events of Default. The occurrence of any of the following shall
constitute an “Event of Default”:
     (a) failure to make payment of any of the Obligations when required
hereunder, and, in any such case, such failure shall continue for a period of
five (5) days following the date upon which any such payment was due;
     (b) failure by any Company or any of its Subsidiaries to pay any taxes when
due unless such taxes are being contested in good faith by appropriate
proceedings and with respect to which adequate reserves have been provided on
such Company’s and/or such Subsidiary’s books;
     (c) failure to perform under, and/or committing any breach of, in any
material respect, this Agreement or any covenant contained herein, which failure
or breach shall continue without remedy for a period of thirty (30) days after
the occurrence thereof;
     (d) any representation, warranty or statement made by any Company or any of
its Subsidiaries hereunder, in any Ancillary Agreement, any certificate,
statement or document delivered pursuant to the terms hereof, or in connection
with the transactions contemplated by this Agreement

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should prove to be false or misleading in any material respect on the date as of
which made or deemed made;
     (e) the occurrence of any default (or similar term) in the observance or
performance of any other agreement or condition relating to any Indebtedness in
the outstanding principal amount of $1,000,000 or more beyond the period of
grace (if any), the effect of which default is to cause, or permit the holder or
holders of such Indebtedness to cause, such Indebtedness to become due prior to
its stated maturity;
     (f) attachments or levies in excess of $250,000 in the aggregate are made
upon any Company’s assets or a judgment is rendered against any Company’s
property involving a liability of more than $250,000 which shall not have been
vacated, discharged, stayed or bonded within thirty (30) days from the entry
thereof;
     (g) except as otherwise permitted hereunder, any Lien on any assets having
an aggregate fair market value of $250,000 or more created hereunder or under
any Ancillary Agreement for any reason ceases to be or is not a valid and
perfected Lien having a first priority interest (subject to Permitted Liens);
     (h) any Lien created hereunder or under any Ancillary Agreement for any
reason ceases to be or is not a valid and perfected Lien having a first priority
interest;
     (i) any Company or any of its Subsidiaries shall (i) apply for, consent to
or suffer to exist the appointment of, or the taking of possession by, a
receiver, custodian, trustee or liquidator of itself or of all or a substantial
part of its property, (ii) make a general assignment for the benefit of
creditors, (iii) commence a voluntary case under the federal bankruptcy laws (as
now or hereafter in effect), (iv) be adjudicated a bankrupt or insolvent,
(v) file a petition seeking to take advantage of any other law providing for the
relief of debtors, (vi) acquiesce to without challenge within ten (10) days of
the filing thereof, or failure to have dismissed within thirty (30) days, any
petition filed against it in any involuntary case under such bankruptcy laws, or
(vii) take any action for the purpose of effecting any of the foregoing;
     (j) any Company or any of its Subsidiaries shall admit in writing its
inability, or be generally unable, to pay its debts as they become due or cease
operations of its present business;
     (k) any Company or any of its Subsidiaries directly or indirectly sells,
assigns, transfers, conveys, or suffers or permits to occur any sale,
assignment, transfer or conveyance of any assets of such Company or any interest
therein, except as permitted herein;
     (l) any “Person” or “group” (as such terms are defined in Sections 13(d)
and 14(d) of the Exchange Act, as in effect on the date hereof), other than the
holders of the Series B Preferred Stock as of the date of this Agreement, is or
becomes the “beneficial owner” (as defined in Rules 13(d)-3 and 13(d)-5 under
the Exchange Act), directly or indirectly, of 35% or more on a fully diluted
basis of the then outstanding voting equity interest of the Parent, (ii) the
Board of Directors of the Parent shall cease to consist of a majority of the
Board of Directors of the Parent on the date hereof (or directors appointed by a
majority of the board of directors in effect immediately prior to such
appointment) or (iii) the Parent or any of its Subsidiaries merges or
consolidates with, or sells all or substantially all of its assets to, any other
person or entity;

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     (m) the indictment of any Company or any of its Subsidiaries or any
executive officer of any Company or any of its Subsidiaries under any criminal
statute, or commencement of criminal or civil proceeding against any Company or
any of its Subsidiaries or any executive officer of any Company or any of its
Subsidiaries pursuant to which statute or proceeding penalties or remedies
sought or available include forfeiture of any of the property of any Company or
any of its Subsidiaries;
     (n) an Event of Default shall occur under and as defined in the Note or in
any other Ancillary Agreement;
     (o) any Company or any of its Subsidiaries shall breach any term or
provision of any Ancillary Agreement to which it is a party (including, without
limitation, Section 7(e) of the Registration Rights Agreement), in any material
respect which breach is not cured within any applicable cure or grace period
provided in respect thereof (if any);
     (p) any Company or any of its Subsidiaries attempts to terminate,
challenges the validity of, or its liability under this Agreement or any
Ancillary Agreement, or any proceeding shall be brought to challenge the
validity, binding effect of any Ancillary Agreement or any Ancillary Agreement
ceases to be a valid, binding and enforceable obligation of such Company or any
of its Subsidiaries (to the extent such Persons are a party thereto);
     (q) an SEC stop trade order or Principal Market trading suspension of the
Common Stock shall be in effect for five (5) consecutive days or five (5) days
during a period of ten (10) consecutive days, excluding in all cases a
suspension of all trading on a Principal Market, provided that the Parent shall
not have been able to cure such trading suspension within thirty (30) days of
the notice thereof or list the Common Stock on another Principal Market within
sixty (60) days of such notice;
     (r) The Parent’s failure to deliver Common Stock to Laurus pursuant to and
in the form required by the Warrants and this Agreement, if such failure to
deliver Common Stock shall not be cured within two (2) Business Days or any
Company is required to issue a replacement Note to Laurus and such Company shall
fail to deliver such replacement Note within seven (7) Business Days;
     (s) The DOT determines that Kitty Hawk Aircargo, Inc. is no longer fit to
engage in air transportation; or
     (t) Kitty Hawk Aircargo, Inc. is no longer a Certificated Air Carrier; or
the issuance of a show cause order by DOT proposing to revoke, suspend or cancel
the authority of Kitty Hawk Aircargo, Inc. to operate as a Certificated Air
Carrier or the issuance of a letter or other formal communication from the
Office of the Aviation Enforcement and Proceedings Division of DOT alleging that
Kitty Hawk Aircargo, Inc. is no longer a Citizen of the United States.
     22. Remedies. Following the occurrence of an Event of Default, Laurus shall
have the right to demand repayment in full of all Obligations, whether or not
otherwise due. Until all Obligations have been paid in full in immediately
available funds, Laurus shall retain its Lien in all Collateral. Laurus shall
have, in addition to all other rights provided herein and in each Ancillary
Agreement, the rights and remedies of a secured party under the UCC, and under
other applicable law, all other legal and equitable rights to which Laurus may
be entitled, including the right to take

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immediate possession of the Collateral, to require each Company to assemble the
Collateral (other than the Parked Aircraft), at Companies’ joint and several
expense, and to make it available to Laurus at a place designated by Laurus
which is reasonably convenient to both parties and to enter any of the premises
of any Company or wherever the Collateral shall be located, with or without
force or process of law, and to keep and store the same on said premises until
sold (and if said premises be the property of any Company, such Company agrees
not to charge Laurus for storage thereof), and the right to apply for the
appointment of a receiver for such Company’s property. Further, Laurus may, at
any time or times after the occurrence of an Event of Default, sell and deliver
all Collateral held by or for Laurus at public or private sale for cash, upon
credit or otherwise, at such prices and upon such terms as Laurus, in Laurus’
sole discretion, deems advisable or Laurus may otherwise recover upon the
Collateral in any commercially reasonable manner as Laurus, in its sole
discretion, deems advisable. The requirement of reasonable notice shall be met
if such notice is mailed postage prepaid to Company Agent at Company Agent’s
address as shown in Laurus’ records, at least ten (10) days before the time of
the event of which notice is being given. Laurus may be the purchaser at any
sale, if it is public. Laurus may, further, at any time after the occurrence of
an Event of Default, but need not, perform or observe any of the covenants
contained in this Agreement or any Ancillary Agreement on behalf and in the
name, place and stead of a Company (or, at the option of Laurus, in Laurus’
name) and may, but need not, take any and all other actions which Laurus may
deem necessary to cure or correct such failure (including the payment of taxes,
satisfaction of Liens, the performance of obligations owed to Account Debtors,
lessors or other obligors, the procurement and maintenance of insurance, the
execution of assignments, security agreements and financing statements, and the
endorsement of instruments). The amount of all monies expended and all costs and
expenses (including attorneys’ fees and legal expenses) incurred by Laurus in
connection with or as a result of such performance or observance shall be
charged to the Company’s account as a Loan and added to the Obligations. In
connection with the exercise of the foregoing remedies, Laurus is granted
permission to use all of each Company’s Intellectual Property. The proceeds of
sale shall be applied first to all costs and expenses of sale, including
attorneys’ fees, and second to the payment (in whatever order Laurus elects) of
all Obligations. After the payment in full in immediately available funds of all
of the Obligations, and after the payment by Laurus of any other amount required
by any provision of law, including Section 9-608(a)(1) of the UCC (but only
after Laurus has received what Laurus considers reasonable proof of a
subordinate party’s security interest), the surplus, if any, shall be paid to
Company Agent (for the benefit of the applicable Companies) or its
representatives or to whosoever may be lawfully entitled to receive the same, or
as a court of competent jurisdiction may direct. The Companies shall remain
jointly and severally liable to Laurus for any deficiency. The parties hereto
each hereby agree that the exercise by any party hereto of any right granted to
it or the exercise by any party hereto of any remedy available to it (including,
without limitation, the issuance of a notice of redemption, a borrowing request
and/or a notice of default), in each case, hereunder or under any Ancillary
Agreement shall not constitute confidential information and no party shall have
any duty to the other party to maintain such information as confidential.
     23. Waivers. To the full extent permitted by applicable law, each Company
hereby waives (a) presentment, demand and protest, and notice of presentment,
dishonor, intent to accelerate, acceleration, protest, default, nonpayment,
maturity, release, compromise, settlement, extension or renewal of any or all of
this Agreement and the Ancillary Agreements or any other notes, commercial
paper, Accounts, contracts, Documents, Instruments, Chattel Paper and guaranties
at any time held by Laurus on which such Company may in any way be liable, and
hereby ratifies and confirms whatever Laurus may do in this regard; (b) all
rights to notice and a hearing prior to Laurus’ taking possession or control of,
or to Laurus’ replevy, attachment or levy upon, any Collateral or any bond or
security that might be required by any court prior to allowing Laurus to

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exercise any of its remedies; and (c) the benefit of all valuation, appraisal
and exemption laws. Each Company acknowledges that it has been advised by
counsel of its choices and decisions with respect to this Agreement, the
Ancillary Agreements and the transactions evidenced hereby and thereby.
     24. Expenses. The Companies shall jointly and severally pay all of Laurus’
out-of-pocket costs and expenses, including reasonable fees and disbursements of
in-house or outside counsel and appraisers, in connection with (x) subject to
the limitations set forth in Section 5(b)(iii), the preparation, execution and
delivery of this Agreement and the Ancillary Agreements, and (y) in connection
with the prosecution or defense of any action, contest, dispute, suit or
proceeding concerning any matter in any way arising out of, related to or
connected with this Agreement or any Ancillary Agreement. The Companies shall
also jointly and severally pay all of Laurus’ reasonable fees, charges,
out-of-pocket costs and expenses, including fees and disbursements of counsel
and appraisers, in connection with (a) the preparation, execution and delivery
of any waiver, any amendment thereto or consent proposed or executed in
connection with the transactions contemplated by this Agreement or the Ancillary
Agreements, (b) Laurus’ obtaining performance of the Obligations under this
Agreement and any Ancillary Agreements, including, but not limited to, the
enforcement or defense of Laurus’ security interests, assignments of rights and
Liens hereunder as valid perfected security interests, (c) any attempt to
inspect, verify, protect, collect, sell, liquidate or otherwise dispose of any
Collateral, (d) any appraisals or re-appraisals of any property (real or
personal) pledged to Laurus by any Company or any of its Subsidiaries as
Collateral for, or any other Person as security for, the Obligations hereunder
and (e) any consultations in connection with any of the foregoing. The Companies
shall also jointly and severally pay Laurus’ customary bank charges for all bank
services (including wire transfers) performed or caused to be performed by
Laurus for any Company or any of its Subsidiaries at any Company’s or such
Subsidiary’s request or in connection with any Company’s loan account with
Laurus. All such costs and expenses together with all filing, recording and
search fees, taxes and interest payable by the Companies to Laurus shall be
payable on demand and shall be secured by the Collateral. If any tax by any
Governmental Authority is or may be imposed on or as a result of any transaction
between any Company and/or any Subsidiary thereof, on the one hand, and Laurus
on the other hand, which Laurus is or may be required to withhold or pay
(including, without limitation, as a result of a breach by any Company or any of
its Subsidiaries of Section 13(u) herein), each of the Companies hereby jointly
and severally indemnifies and holds Laurus harmless in respect of such taxes,
and the Companies will repay to Laurus the amount of any such taxes which shall
be charged to the Companies’ account; and until the Companies shall furnish
Laurus with indemnity therefor (or supply Laurus with evidence satisfactory to
it that due provision for the payment thereof has been made), Laurus may hold
without interest any balance standing to each Company’s credit and Laurus shall
retain its Liens in any and all Collateral.
     25. Assignment. Laurus may assign any or all of the Obligations (other than
the Warrant, which the Companies acknowledge has its own assignment provisions),
together with any or all of the security therefor, to any Person and any such
assignee shall succeed to all of Laurus’ rights with respect thereto; provided
that Laurus shall not be permitted to effect any such assignment to a competitor
of any Company or to any other Person which is not an institutional investor or
financial institution which Laurus reasonably believes can fully perform the
obligations of Laurus under this Agreement unless an Event of Default has
occurred and is continuing. Upon such assignment, Laurus shall be released from
all responsibility for the Collateral to the extent same is assigned to any
transferee. Laurus may from time to time sell or otherwise grant participations
in any of the Obligations and the holder of any such participation shall,
subject to the terms of any agreement between Laurus and such holder, be
entitled to the same benefits as Laurus with respect to any security for the
Obligations in which such holder is a participant. Each Company agrees that

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each such holder may exercise any and all rights of banker’s lien, set-off and
counterclaim with respect to its participation in the Obligations as fully as
though such Company were directly indebted to such holder in the amount of such
participation. No Company may assign any of its rights or obligations hereunder
without the prior written consent of Laurus. All of the terms, conditions,
promises, covenants, provisions and warranties of this Agreement shall inure to
the benefit of each of the undersigned, and shall bind the representatives,
successors and permitted assigns of each Company.
     26. No Waiver; Cumulative Remedies. Failure by Laurus to exercise any
right, remedy or option under this Agreement, any Ancillary Agreement or any
supplement hereto or thereto or any other agreement between or among any Company
and Laurus or delay by Laurus in exercising the same, will not operate as a
waiver; no waiver by Laurus will be effective unless it is in writing and then
only to the extent specifically stated. Laurus’ rights and remedies under this
Agreement and the Ancillary Agreements will be cumulative and not exclusive of
any other right or remedy which Laurus may have.
     27. Application of Payments. Each Company irrevocably waives the right to
direct the application of any and all payments at any time or times hereafter
received by Laurus from or on such Company’s behalf and each Company hereby
irrevocably agrees that Laurus shall have the continuing exclusive right to
apply and reapply any and all payments received at any time or times hereafter
against the Obligations hereunder in such manner as Laurus may deem advisable
notwithstanding any entry by Laurus upon any of Laurus’ books and records.
     28. Indemnity. Each Company hereby jointly and severally indemnifies and
holds Laurus, and its respective affiliates, employees, attorneys and agents
(each, an “Indemnified Person”), harmless from and against any and all suits,
actions, proceedings, claims, damages, losses, liabilities and expenses of any
kind or nature whatsoever (including attorneys’ fees and disbursements and other
costs of investigation or defense, including those incurred upon any appeal)
which may be instituted or asserted against or incurred by any such Indemnified
Person as the result of credit having been extended, suspended or terminated
under this Agreement or any of the Ancillary Agreements or with respect to the
execution, delivery, enforcement, performance and administration of, or in any
other way arising out of or relating to, this Agreement, the Ancillary
Agreements or any other documents or transactions contemplated by or referred to
herein or therein and any actions or failures to act with respect to any of the
foregoing, except to the extent that any such indemnified liability is finally
determined by a court of competent jurisdiction to have resulted solely from
such Indemnified Person’s gross negligence or willful misconduct. NO INDEMNIFIED
PERSON SHALL BE RESPONSIBLE OR LIABLE TO ANY COMPANY OR TO ANY OTHER PARTY OR TO
ANY SUCCESSOR, ASSIGNEE OR THIRD PARTY BENEFICIARY OR ANY OTHER PERSON ASSERTING
CLAIMS DERIVATIVELY THROUGH SUCH PARTY, FOR INDIRECT, PUNITIVE, EXEMPLARY OR
CONSEQUENTIAL DAMAGES WHICH MAY BE ALLEGED AS A RESULT OF CREDIT HAVING BEEN
EXTENDED, SUSPENDED OR TERMINATED UNDER THIS AGREEMENT OR ANY ANCILLARY
AGREEMENT OR AS A RESULT OF ANY OTHER TRANSACTION CONTEMPLATED HEREUNDER OR
THEREUNDER.
     29. Revival. The Companies further agree that to the extent any Company
makes a payment or payments to Laurus, which payment or payments or any part
thereof are subsequently invalidated, declared to be fraudulent or preferential,
set aside and/or required to be repaid to a trustee, receiver or any other party
under any bankruptcy act, state or federal law, common law or

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equitable cause, then, to the extent of such payment or repayment, the
obligation or part thereof intended to be satisfied shall be revived and
continued in full force and effect as if said payment had not been made.
     30. Borrowing Agency Provisions.
     (a) Each Company hereby irrevocably designates Company Agent to be its
attorney and agent and in such capacity to borrow, sign and endorse notes, and
execute and deliver all instruments, documents, writings and further assurances
now or hereafter required hereunder, on behalf of such Company, and hereby
authorizes Laurus to pay over or credit all loan proceeds hereunder in
accordance with the request of Company Agent.
     (b) The handling of this credit facility as a co-borrowing facility with a
borrowing agent in the manner set forth in this Agreement is solely as an
accommodation to the Companies and at their request. Laurus shall not incur any
liability to any Company as a result thereof. To induce Laurus to do so and in
consideration thereof, each Company hereby indemnifies Laurus and holds Laurus
harmless from and against any and all liabilities, expenses, losses, damages and
claims of damage or injury asserted against Laurus by any Person arising from or
incurred by reason of the handling of the financing arrangements of the
Companies as provided herein, reliance by Laurus on any request or instruction
from Company Agent or any other action taken by Laurus with respect to this
Paragraph 30.
     (c) All Obligations shall be joint and several, and the Companies shall
make payment upon the maturity of the Obligations by acceleration or otherwise,
and such obligation and liability on the part of the Companies shall in no way
be affected by any extensions, renewals and forbearance granted by Laurus to any
Company, failure of Laurus to give any Company notice of borrowing or any other
notice, any failure of Laurus to pursue to preserve its rights against any
Company, the release by Laurus of any Collateral now or thereafter acquired from
any Company, and such agreement by any Company to pay upon any notice issued
pursuant thereto is unconditional and unaffected by prior recourse by Laurus to
any Company or any Collateral for such Company’s Obligations or the lack
thereof.
     (d) Each Company expressly waives any and all rights of subrogation,
reimbursement, indemnity, exoneration, contribution or any other claim which
such Company may now or hereafter have against the other or other Person
directly or contingently liable for the Obligations, or against or with respect
to any other’s property (including, without limitation, any property which is
Collateral for the Obligations), arising from the existence or performance of
this Agreement, until all Obligations have been indefeasibly paid in full and
this Agreement has been irrevocably terminated.
     (e) Each Company represents and warrants to Laurus that (i) Companies have
one or more common stockholders, directors and officers, (ii) the businesses and
corporate activities of Companies are closely related to, and substantially
benefit, the business and corporate activities of Companies, (iii) the financial
and other operations of Companies are performed on a combined basis as if
Companies constituted a consolidated corporate group, (iv) Companies will
receive a substantial economic benefit from entering into this Agreement and
will receive a substantial economic benefit from the application of each Loan
hereunder, in each case, whether or not such amount is used directly by any
Company and (v) all requests for Loans hereunder by the Company Agent are for
the

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exclusive and indivisible benefit of the Companies as though, for purposes of
this Agreement, the Companies constituted a single entity.
     31. Cape Town Convention. The Companies jointly and severally agree to
facilitate any registration of an International Interest required by Laurus. If
requested by Laurus, the Company shall initiate and consent to the filing of a
prospective Contract of Sale. The Companies shall be a “Registry User Entity” no
less than ten (10) days before the Closing Date and, if different, on a date of
acceptance and delivery of any aircraft.
     32. Notices. Any notice or request hereunder may be given to any Company,
Company Agent or Laurus at the respective addresses set forth below or as may
hereafter be specified in a notice designated as a change of address under this
Section. Any notice or request hereunder shall be given by registered or
certified mail, return receipt requested, hand delivery, overnight mail or
telecopy (confirmed by mail). Notices and requests shall be, in the case of
those by hand delivery, deemed to have been given when delivered to any officer
of the party to whom it is addressed, in the case of those by mail or overnight
mail, deemed to have been given five (5) Business Days after the date when
deposited in the mail or with the overnight mail carrier, and, in the case of a
telecopy, when confirmed.
Notices shall be provided as follows:

         
 
  If to Laurus:   Laurus Master Fund, Ltd.
 
      c/o M&C Corporate Services Limited
 
      P.O. Box 309 GT
 
      Ugland House
 
      George Town
 
      South Church Street
 
      Grand Cayman, Cayman Islands
 
      Facsimile: 345-949-8080
 
       
 
  With a copy to:   Laurus Capital Management, LLC
 
      335 Madison Avenue, 10th Floor
 
      New York, New York 10017
 
      Attention: Portfolio Services
 
      Telephone: (212) 541-5800
 
      Telecopier: (212) 541-4410
 
       
 
  If to any Company, or Company Agent:   Kitty Hawk, Inc.
 
      1515 West 20th Street
 
      DFW Airport, Texas 75261
 
      Attention: James Kupferschmid
 
      Telephone: (972) 456-2000
 
      Facsimile: (972) 456-2350

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  With a copy to:   Haynes and Boone, LLP
 
      901 Main Street, Suite 3100
 
      Dallas, Texas 75202
 
      Attention: Garrett DeVries
 
      Telephone: (214) 651-5614
 
      Facsimile: (214) 200-0428

or such other address as may be designated in writing hereafter in accordance
with this Section 32 by such Person.
          33. Governing Law, Jurisdiction and Waiver of Jury Trial.
          (a) THIS AGREEMENT AND THE ANCILLARY AGREEMENTS SHALL BE GOVERNED BY
AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK
APPLICABLE TO CONTRACTS MADE AND PERFORMED IN SUCH STATE, WITHOUT REGARD TO
PRINCIPLES OF CONFLICTS OF LAW.
          (b) EACH COMPANY HEREBY CONSENTS AND AGREES THAT THE STATE OR FEDERAL
COURTS LOCATED IN THE COUNTY OF NEW YORK, STATE OF NEW YORK SHALL HAVE EXCLUSIVE
JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES BETWEEN ANY COMPANY,
ON THE ONE HAND, AND LAURUS, ON THE OTHER HAND, PERTAINING TO THIS AGREEMENT OR
ANY OF THE ANCILLARY AGREEMENTS OR TO ANY MATTER ARISING OUT OF OR RELATED TO
THIS AGREEMENT OR ANY OF THE ANCILLARY AGREEMENTS; PROVIDED, THAT LAURUS AND
EACH COMPANY ACKNOWLEDGE THAT ANY APPEALS FROM THOSE COURTS MAY HAVE TO BE HEARD
BY A COURT LOCATED OUTSIDE OF THE COUNTY OF NEW YORK, STATE OF NEW YORK; AND
FURTHER PROVIDED, THAT NOTHING IN THIS AGREEMENT SHALL BE DEEMED OR OPERATE TO
PRECLUDE LAURUS FROM BRINGING SUIT OR TAKING OTHER LEGAL ACTION IN ANY OTHER
JURISDICTION TO COLLECT THE OBLIGATIONS, TO REALIZE ON THE COLLATERAL OR ANY
OTHER SECURITY FOR THE OBLIGATIONS, OR TO ENFORCE A JUDGMENT OR OTHER COURT
ORDER IN FAVOR OF LAURUS. EACH COMPANY EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE
TO SUCH JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT, AND EACH
COMPANY HEREBY WAIVES ANY OBJECTION THAT IT MAY HAVE BASED UPON LACK OF PERSONAL
JURISDICTION, IMPROPER VENUE OR FORUM NON CONVENIENS. EACH COMPANY HEREBY WAIVES
PERSONAL SERVICE OF THE SUMMONS, COMPLAINT AND OTHER PROCESS ISSUED IN ANY SUCH
ACTION OR SUIT AND AGREES THAT SERVICE OF SUCH SUMMONS, COMPLAINT AND OTHER
PROCESS MAY BE MADE BY REGISTERED OR CERTIFIED MAIL ADDRESSED TO COMPANY AGENT
AT THE ADDRESS SET FORTH IN SECTION 29 AND THAT SERVICE SO MADE SHALL BE DEEMED
COMPLETED UPON THE EARLIER OF COMPANY AGENT’S ACTUAL RECEIPT THEREOF OR THREE
(3) DAYS AFTER DEPOSIT IN THE U.S. MAILS, PROPER POSTAGE PREPAID.
          (c) THE PARTIES DESIRE THAT THEIR DISPUTES BE RESOLVED BY A JUDGE
APPLYING SUCH APPLICABLE LAWS. THEREFORE, TO ACHIEVE THE BEST COMBINATION OF THE
BENEFITS OF THE JUDICIAL SYSTEM AND OF ARBITRATION, THE PARTIES HERETO WAIVE ALL
RIGHTS TO TRIAL BY JURY IN ANY ACTION, SUIT, OR PROCEEDING BROUGHT TO RESOLVE
ANY DISPUTE, WHETHER ARISING IN

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CONTRACT, TORT, OR OTHERWISE BETWEEN LAURUS, AND/OR ANY COMPANY ARISING OUT OF,
CONNECTED WITH, RELATED OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED BETWEEN
THEM IN CONNECTION WITH THIS AGREEMENT, ANY ANCILLARY AGREEMENT OR THE
TRANSACTIONS RELATED HERETO OR THERETO.
     34. Limitation of Liability. Each Company acknowledges and understands that
in order to assure repayment of the Obligations hereunder Laurus may be required
to exercise any and all of Laurus’ rights and remedies hereunder and agrees
that, except as limited by applicable law, neither Laurus nor any of Laurus’
agents shall be liable for acts taken or omissions made in connection herewith
or therewith except for actual bad faith.
     35. Miscellaneous. It is the intention of the parties hereto that Laurus
will be entitled to the benefits of 11 U.S.C. Section 1110 in the event of any
reorganization of each Company under Chapter 11 of the Bankruptcy Code.
     36. Entire Understanding; Maximum Interest. This Agreement and the
Ancillary Agreements contain the entire understanding among each Company and
Laurus as to the subject matter hereof and thereof and any promises,
representations, warranties or guarantees not herein contained shall have no
force and effect unless in writing, signed by each Company’s and Laurus’
respective officers. Neither this Agreement, the Ancillary Agreements, nor any
portion or provisions thereof may be changed, modified, amended, waived,
supplemented, discharged, cancelled or terminated orally or by any course of
dealing, or in any manner other than by an agreement in writing, signed by the
party to be charged. Nothing contained in this Agreement, any Ancillary
Agreement or in any document referred to herein or delivered in connection
herewith shall be deemed to establish or require the payment of a rate of
interest or other charges in excess of the maximum rate permitted by applicable
law. In the event that the rate of interest or dividends required to be paid or
other charges hereunder exceed the maximum rate permitted by such law, any
payments in excess of such maximum shall be credited against amounts owed by the
Companies to Laurus and thus refunded to the Companies.
     37. Severability. Wherever possible each provision of this Agreement or the
Ancillary Agreements shall be interpreted in such manner as to be effective and
valid under applicable law, but if any provision of this Agreement or the
Ancillary Agreements shall be prohibited by or invalid under applicable law such
provision shall be ineffective to the extent of such prohibition or invalidity,
without invalidating the remainder of such provision or the remaining provisions
thereof.
     38. Survival. The representations, warranties, covenants and agreements
made herein shall survive any investigation made by Laurus and the closing of
the transactions contemplated hereby to the extent provided therein. All
statements as to factual matters contained in any certificate or other
instrument delivered by or on behalf of the Companies pursuant hereto in
connection with the transactions contemplated hereby shall be deemed to be
representations and warranties by the Companies hereunder solely as of the date
of such certificate or instrument. All indemnities set forth herein shall
survive the execution, delivery and termination of this Agreement and the
Ancillary Agreements and the making and repaying of the Obligations.
     39. Captions. All captions are and shall be without substantive meaning or
content of any kind whatsoever.

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     40. Counterparts; Telecopier Signatures. This Agreement may be executed in
one or more counterparts, each of which shall constitute an original and all of
which taken together shall constitute one and the same agreement. Any signature
delivered by a party via telecopier transmission shall be deemed to be any
original signature hereto.
     41. Construction. The parties acknowledge that each party and its counsel
have reviewed this Agreement and that the normal rule of construction to the
effect that any ambiguities are to be resolved against the drafting party shall
not be employed in the interpretation of this Agreement or any amendments,
schedules or exhibits thereto.
     42. Publicity. Each Company hereby authorizes Laurus to make appropriate
announcements of the financial arrangement entered into by and among each
Company and Laurus, including, without limitation, announcements which are
commonly known as tombstones, in such publications and to such selected parties
as Laurus shall in its sole and absolute discretion deem appropriate, or as
required by applicable law.
     43. Joinder. It is understood and agreed that any Person that desires to
become a Company hereunder, or is required to execute a counterpart of this
Agreement after the date hereof pursuant to the requirements of this Agreement
or any Ancillary Agreement, shall become a Company hereunder by (a) executing a
Joinder Agreement in form and substance satisfactory to Laurus, (b) delivering
supplements to such exhibits and annexes to this Agreement and the Ancillary
Agreements as Laurus shall reasonably request and (c) taking all actions as
specified in this Agreement as would have been taken by such Company had it been
an original party to this Agreement, in each case with all documents required
above to be delivered to Laurus and with all documents and actions required
above to be taken to the reasonable satisfaction of Laurus.
     44. Legends. The Securities shall bear legends as follows;
     (a) The Note shall bear substantially the following legend:
“THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR ANY APPLICABLE, STATE SECURITIES LAWS. THIS NOTE MAY NOT BE SOLD, OFFERED FOR
SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT AS TO THIS NOTE UNDER SAID ACT AND APPLICABLE STATE SECURITIES LAWS OR
AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO KITTY HAWK, INC. THAT SUCH
REGISTRATION IS NOT REQUIRED.”
     (b) Any shares of Common Stock issued pursuant to exercise of the Warrants,
shall bear a legend which shall be in substantially the following form until
such shares are covered by an effective registration statement filed with the
SEC:
“THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE, STATE SECURITIES LAWS.
THESE SHARES MAY NOT BE SOLD,

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OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT UNDER SUCH SECURITIES ACT AND APPLICABLE STATE SECURITIES
LAWS OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO KITTY HAWK, INC. THAT
SUCH REGISTRATION IS NOT REQUIRED.”
     (c) The Warrants shall bear substantially the following legend:
     “THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY
APPLICABLE STATE SECURITIES LAWS. THIS WARRANT AND THE COMMON SHARES ISSUABLE
UPON EXERCISE OF THIS WARRANT MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS
WARRANT OR THE UNDERLYING SHARES OF COMMON STOCK UNDER SAID ACT AND APPLICABLE
STATE SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO KITTY
HAWK, INC. THAT SUCH REGISTRATION IS NOT REQUIRED.”
[Balance of page intentionally left blank; signature page follows.]

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     IN WITNESS WHEREOF, the parties have executed this Security Agreement as of
the date first written above.

                  KITTY HAWK, INC.    
 
           
 
  By:   /s/ James Kupferschmid     
 
           
 
  Name:   James Kupferschmid     
 
           
 
  Title:   Chief Financial Officer     
 
           
 
                KITTY HAWK AIRCARGO, INC.    
 
           
 
  By:   /s/ James Kupferschmid     
 
           
 
  Name:   James Kupferschmid     
 
           
 
  Title:   Treasurer     
 
           
 
                KITTY HAWK CARGO, INC.    
 
           
 
  By:   /s/ James Kupferschmid     
 
           
 
  Name:   James Kupferschmid     
 
           
 
  Title:   Treasurer     
 
           
 
                KITTY HAWK GROUND, INC.    
 
           
 
  By:   /s/ James Kupferschmid     
 
           
 
  Name:   James Kupferschmid     
 
           
 
  Title:   Treasurer     
 
           
 
                KH GROUND, INC.    
 
           
 
  By:   /s/ James Kupferschmid     
 
           
 
  Name:   James Kupferschmid     
 
           
 
  Title:   Treasurer     
 
           
 
                LAURUS MASTER FUND, LTD.    
 
           
 
  By:   /s/ David Grin     
 
           
 
  Name:   David Grin     
 
           
 
  Title:   Director     
 
           
 
           

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Annex A — Definitions
     “Account Debtor” means any Person who is or may be obligated with respect
to, or on account of, an Account.
     “Accountants” has the meaning given to such term in Section 11(a).
     “Accounts” means all “accounts”, as such term is defined in the UCC, now
owned or hereafter acquired by any Person, including: (a) all accounts
receivable, other receivables, book debts and other forms of obligations (other
than forms of obligations evidenced by Chattel Paper or Instruments) (including
any such obligations that may be characterized as an account or contract right
under the UCC); (b) all of such Person’s rights in, to and under all purchase
orders or receipts for goods or services; (c) all of such Person’s rights to any
goods represented by any of the foregoing (including unpaid sellers’ rights of
rescission, replevin, reclamation and stoppage in transit and rights to
returned, reclaimed or repossessed goods); (d) all rights to payment due to such
Person for Goods or other property sold, leased, licensed, assigned or otherwise
disposed of, for a policy of insurance issued or to be issued, for a secondary
obligation incurred or to be incurred, for energy provided or to be provided,
for the use or hire of a vessel under a charter or other contract, arising out
of the use of a credit card or charge card, or for services rendered or to be
rendered by such Person or in connection with any other transaction (whether or
not yet earned by performance on the part of such Person); and (e) all
collateral security of any kind given by any Account Debtor or any other Person
with respect to any of the foregoing.
     “Accounts Availability” means ninety percent (90%) of the net face amount
of Eligible Accounts.
     “Affiliate” means, with respect to any Person, (a) any other Person (other
than a Subsidiary) which, directly or indirectly, is in control of, is
controlled by, or is under common control with such Person, (b) any other Person
that, directly or indirectly, owns or controls, whether beneficially, or as
trustee, guardian or other fiduciary, 25% or more of the Stock having ordinary
voting power in the election of directors of such Person, (c) any other Person
who is a director, officer, joint venturer or partner (i) of such Person,
(ii) of any Subsidiary of such Person or (iii) of any Person described in clause
(a) above or (d) in the case of the Companies, the immediate family members,
spouses and lineal descendants of individuals who are Affiliates of such
Companies. For the purposes of this definition, control of a Person shall mean
the power (direct or indirect) to direct or cause the direction of the
management and policies of such Person whether by contract or otherwise;
provided however, that the term “Affiliate” shall specifically exclude Laurus.
     “Aircraft” means the Aircraft identified on Schedule A-1 hereto and
includes aircraft, airframes, engines and related parts that the Parent and/or
the Subsidiaries own.
     “Aircraft Mortgage” has the meaning given such term on Schedule A-2 annexed
hereto.
     “Aircraft Protocol” means the official English language text of the
Protocol to the Convention on International Interests in Mobile Equipment on
Matters Specific to Aircraft Equipment, adopted on 16 November 2001 at a
diplomatic conference held in Cape Town, as the same may be amended or modified
from time to time.

 

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     “Aircraft Security Documents” means the documents described and set forth
on Schedule A-2 annexed hereto, including without limitation, the Aircraft
Mortgage.
     “Ancillary Agreements” means the Note, the Warrants, the Registration
Rights Agreements, each Security Document and all other agreements, instruments,
documents, mortgages, pledges, powers of attorney, consents, assignments,
contracts, notices, security agreements, trust agreements and guarantees whether
heretofore, concurrently, or hereafter executed by or on behalf of any Company,
any of its Subsidiaries or any other Person or delivered to Laurus, relating to
this Agreement or to the transactions contemplated by this Agreement or
otherwise relating to the relationship between or among any Company and Laurus,
as each of the same may be amended, supplemented, restated or otherwise modified
from time to time.
     “Balance Sheet Date” has the meaning given such term in Section 12(f)(ii).
     “Books and Records” means all books, records, board minutes, contracts,
licenses, insurance policies, environmental audits, business plans, files,
computer files, computer discs and other data and software storage and media
devices, accounting books and records, financial statements (actual and pro
forma), filings with Governmental Authorities and any and all records and
instruments relating to the Collateral or otherwise necessary or helpful in the
collection thereof or the realization thereupon.
     “Business Day” means a day on which Laurus is open for business and that is
not a Saturday, a Sunday or other day on which banks are required or permitted
to be closed in the State of New York.
     “Cape Town Convention” means, collectively, the Aircraft Protocol, the
Convention, the International Registry Procedures and the International Registry
Regulations.
     “Capital Availability Amount” means $25,000,000.
     “Certificated Air Carrier” has the meaning given that term in the Aircraft
Mortgage.
     “Charter” has the meaning given such term in Section 12(c)(iv).
     “Chattel Paper” means all “chattel paper,” as such term is defined in the
UCC, including electronic chattel paper, now owned or hereafter acquired by any
Person.
     “Citizen of the United States” has the meaning specified in
Section 40102(a)(15) of Title 49 of the United States Code or any legislation of
the United States of America enacted in substitution or replacement therefore,
as amended from time to time and as then interpreted and applied by the DOT
and/or the FAA, as the case may be.
     “Closing Date” means the date on which any Company shall first receive
proceeds of the initial Loans or the date hereof, if no Loan is made under the
facility on the date hereof.
     “Code” has the meaning given such term in Section 17(i).
     “Collateral” means all of each Company’s property and assets, whether real
or personal, tangible or intangible, and whether now owned or hereafter
acquired, or in which it now

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has or at any time in the future may acquire any right, title or interests
including all of the following property in which it now has or at any time in
the future may acquire any right, title or interest:
          (a) all Inventory;
          (b) all Equipment;
          (c) all Fixtures;
          (d) all Goods;
          (e) all General Intangibles;
          (f) all Accounts;
          (g) all Deposit Accounts, other bank accounts and all funds on deposit
therein;
          (h) all Investment Property;
          (i) all Stock;
          (j) all Chattel Paper;
          (k) all Letter-of-Credit Rights;
          (l) all Instruments;
          (m) all Commercial Tort Claims set forth on Schedule A-3;
          (n) all Books and Records;
          (o) all Intellectual Property;
          (p) all Supporting Obligations including letters of credit and
guarantees issued in support of Accounts, Chattel Paper, General Intangibles and
Investment Property;
          (q) the Aircraft;
          (r) (i) all money, cash and cash equivalents and (ii) all cash held as
cash collateral to the extent not otherwise constituting Collateral, all other
cash or property at any time on deposit with or held by Laurus for the account
of any Company (whether for safekeeping, custody, pledge, transmission or
otherwise); and
          (s) all products and Proceeds of all or any of the foregoing, tort
claims and all claims and other rights to payment including (i) insurance claims
against third parties for loss of, damage to, or destruction of, the foregoing
Collateral and (ii) payments due or to become due under leases, rentals and
hires of any or all of the foregoing and Proceeds payable under, or unearned
premiums with respect to policies of insurance in whatever form.

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     “Commercial Tort Claims” means the claims described and set forth on
Schedule A-3 annexed hereto.
     “Common Stock” means the shares of stock representing the Parent’s common
equity interests.
     “Company Agent” means Kitty Hawk, Inc.
     “Contract Rate” has the meaning given such term in the Note.
     “Convention” means, the official English language text of the Convention on
International Interests in Mobile Equipment, adopted on 16 November 2001 at a
diplomatic conference held in Cape Town, South Africa, as the same may be
amended or modified from time to time.
     “Default” means an Event of Default or any act or event that, with the
giving of notice or passage of time or both, would constitute an Event of
Default.
     “Department of Transportation” and “DOT” means the Office of the Secretary
of the United States Department of Transportation and any agent or
instrumentality of the United States government succeeding to its functions.
     “Deposit Accounts” means all “deposit accounts” as such term is defined in
the UCC, now or hereafter held in the name of any Person, including, without
limitation, the Lockboxes.
     “Disclosure Controls” has the meaning given such term in Section 12(f)(iv).
     “Documents” means all “documents”, as such term is defined in the UCC, now
owned or hereafter acquired by any Person, wherever located, including all bills
of lading, dock warrants, dock receipts, warehouse receipts, and other documents
of title, whether negotiable or non-negotiable.
     “Eligible Accounts” means each Account of each Company which conforms to
the following criteria: (a) shipment of the merchandise or the rendition of
services has been completed; (b) no return, rejection or repossession of the
merchandise has occurred; (c) merchandise or services shall not have been
rejected or disputed by the Account Debtor and there shall not have been
asserted any offset, defense or counterclaim; (d) continues to be in full
conformity with the representations and warranties made by such Company to
Laurus with respect thereto; (e) Laurus is, and continues to be, satisfied with
the credit standing of the Account Debtor in relation to the amount of credit
extended; (f) there are no facts existing or threatened which are likely to
result in any adverse change in an Account Debtor’s financial condition and such
Account has been classified as doubtful by the Parent; (g) is documented by an
invoice in a form approved by Laurus and shall not be unpaid more than ninety
(90) days from invoice date; (h) not more than twenty-five percent (25%) of the
unpaid amount of invoices due from such Account Debtor remains unpaid more than
ninety (90) days from invoice date; (i) is not evidenced by chattel paper or an
instrument of any kind with respect to or in payment of the Account unless such
instrument is duly endorsed to and in possession of Laurus or represents a check
in payment of an Account; (j) the Account Debtor is located in the United
States; provided, however, Laurus may, from time to time, in the exercise of its
sole discretion and based upon satisfaction of certain conditions to be
determined at such time by Laurus, deem certain

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Accounts as Eligible Accounts notwithstanding that such Account is due from an
Account Debtor located outside of the United States; (k) Laurus has a first
priority perfected Lien in such Account and such Account is not subject to any
Lien other than Permitted Liens; (l) does not arise out of transactions with any
employee, officer, director, stockholder or Affiliate of any Company; (m) is
payable to such Company; (n) does not arise out of a bill and hold sale prior to
shipment and does not arise out of a sale to any Person to which such Company is
indebted, but only to the extent of such indebtedness; (o) is net of any
returns, discounts, claims, credits and allowances; (p) if the Account arises
out of contracts between such Company, on the one hand, and the United States,
on the other hand, any state, or any department, agency or instrumentality of
any of them, such Company has so notified Laurus, in writing, prior to the
creation of such Account, and there has been compliance with any governmental
notice or approval requirements, including compliance with the Federal
Assignment of Claims Act; (q) is a good and valid account representing an
undisputed bona fide indebtedness incurred by the Account Debtor therein named,
for a fixed sum as set forth in the invoice relating thereto with respect to an
unconditional sale and delivery upon the stated terms of goods sold by such
Company or work, labor and/or services rendered by such Company; (r) does not
arise out of progress billings prior to completion of the order; (s) such
Account, when aggregated with all other Accounts of such Account Debtor does not
exceed twenty-five percent (25%) of all Eligible Accounts; provided, however, so
long as the USPS has acknowledged the security interest of Laurus pursuant to
the Federal Assignment of Claims Act, as to USPS, such percentage shall be forty
percent (40%); (t) such Company’s right to payment is absolute and not
contingent upon the fulfillment of any condition whatsoever; (u) such Company is
able to bring suit and enforce its remedies against the Account Debtor through
judicial process; (v) does not represent interest payments, late or finance
charges owing to such Company, and (w) is otherwise satisfactory to Laurus as
determined by Laurus in the exercise of its reasonable business discretion. In
the event any Company requests that Laurus include within Eligible Accounts
certain Accounts of one or more of such Company’s acquisition targets, Laurus
shall at the time of such request consider such inclusion, but any such
inclusion shall be at the sole option of Laurus and shall at all times be
subject to the execution and delivery to Laurus of all such documentation
(including, without limitation, guaranty and security documentation) as Laurus
may require in its sole discretion.
     “Eligible Subsidiary” means each Subsidiary of the Parent set forth on
Exhibit A hereto, as the same may be updated from time to time with Laurus’
written consent.
     “Equipment” means all “equipment” as such term is defined in the UCC, now
owned or hereafter acquired by any Person, wherever located, including any and
all machinery, apparatus, equipment, fittings, furniture, Fixtures, motor
vehicles and other tangible personal property (other than Inventory) of every
kind and description that may be now or hereafter used in such Person’s
operations or that are owned by such Person or in which such Person may have an
interest, and all parts, accessories and accessions thereto and substitutions
and replacements therefor.
     “ERISA” has the meaning given such term in Section 12(bb).
     “Event of Default” means the occurrence of any of the events set forth in
Section 21.
     “Excess Availability” means, for the thirty (30)- days prior to any
proposed sale or other disposition of Collateral pursuant to Section 7(e)(ii),
the average amount by which the Formula Amount exceeds the average outstanding
balance of the Loans.
     “Exchange Act” means the Securities Exchange Act of 1934, as amended.

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     “Exchange Act Filings” means the Parent’s filings under the Exchange Act
made prior to the date of this Agreement.
     “Existing Indebtedness” means the indebtedness described on Exhibit E.
     “Federal Aviation Act” means that portion of the United States Code
comprising those provisions formerly referred to as the Federal Aviation Act of
1958, as amended, or any subsequent legislation that amends, supplements or
supersedes such provisions.
     “Federal Aviation Administration” and “FAA” means the United States Federal
Aviation Administration and any agent or instrumentality of the United States
government succeeding to its functions.
     “Financial Reporting Controls” has the meaning given such term in
Section 12(i)(v).
     “Fixtures” means all “fixtures” as such term is defined in the UCC, now
owned or hereafter acquired by any Person.
     “Formula Amount” has the meaning given such term in Section 2(a)(i).
     “GAAP” means generally accepted accounting principles, practices and
procedures in effect from time to time in the United States of America.
     “General Intangibles” means all “general intangibles” as such term is
defined in the UCC, now owned or hereafter acquired by any Person including all
right, title and interest that such Person may now or hereafter have in or under
any contract, all Payment Intangibles, customer lists, Licenses, Intellectual
Property, interests in partnerships, joint ventures and other business
associations, permits, proprietary or confidential information, inventions
(whether or not patented or patentable), technical information, procedures,
designs, knowledge, know-how, Software, data bases, data, skill, expertise,
experience, processes, models, drawings, materials, Books and Records, Goodwill
(including the Goodwill associated with any Intellectual Property), all rights
and claims in or under insurance policies (including insurance for fire, damage,
loss, and casualty, whether covering personal property, real property, tangible
rights or intangible rights, all liability, life, key-person, and business
interruption insurance, and all unearned premiums), uncertificated securities,
choses in action, deposit accounts, rights to receive tax refunds and other
payments, rights to received dividends, distributions, cash, Instruments and
other property in respect of or in exchange for pledged Stock and Investment
Property, and rights of indemnification.
     “Goods” means all “goods”, as such term is defined in the UCC, now owned or
hereafter acquired by any Person, wherever located, including embedded software
to the extent included in “goods” as defined in the UCC, manufactured homes,
fixtures, standing timber that is cut and removed for sale and unborn young of
animals.
     “Goodwill” means all goodwill, trade secrets, proprietary or confidential
information, technical information, procedures, formulae, quality control
standards, designs, operating and training manuals, customer lists, and
distribution agreements now owned or hereafter acquired by any Person.

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     “Governmental Authority” means any nation or government, any state or other
political subdivision thereof, and any agency, department or other entity
exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government.
     “Indebtedness” of a Person at a particular date means all obligations of
such Person for borrowed money (including the Obligations hereunder) and all
obligations evidenced by bonds, debentures, notes, loan agreements or other
similar instruments, and all purchase money indebtedness which in accordance
with GAAP would be classified upon a balance sheet as liabilities (except
capital stock and surplus earned or otherwise) and in any event, without
limitation by reason of enumeration and without duplication, shall include all
indebtedness, debt and other similar monetary obligations for borrowed money of
such Person whether direct or guaranteed, and all premiums, if any, due at the
required prepayment dates of such indebtedness, and all indebtedness secured by
a Lien on assets owned by such Person, whether or not such indebtedness actually
shall have been created, assumed or incurred by such Person, but shall exclude,
all monetary obligations of such Person due under any operating lease and
accounts payable in the ordinary course of business. Any indebtedness of such
Person resulting from the acquisition by such Person of any assets subject to
any Lien shall be deemed, for the purposes hereof, to be the equivalent of the
creation, assumption and incurring of the indebtedness secured thereby, whether
or not actually so created, assumed or incurred. Notwithstanding anything to the
contrary contained herein, the Series B Preferred Stock shall not constitute
Indebtedness.
     “Instruments” means all “instruments”, as such term is defined in the UCC,
now owned or hereafter acquired by any Person, wherever located, including all
certificated securities and all promissory notes and other evidences of
indebtedness, other than instruments that constitute, or are a part of a group
of writings that constitute, Chattel Paper.
     “Intellectual Property” means any and all patents, trademarks, service
marks, trade names, copyrights, trade secrets, Licenses, information and other
proprietary rights and processes.
     “International Interest” shall have the meaning ascribed thereto in the
Cape Town Convention.
     “International Registry” means the International Registry of Mobile Assets
located in Dublin, Ireland and established pursuant to the Cape Town Convention,
along with any successor registry thereto.
     “International Registry Procedures” means the official English language
text of the procedures for the International Registry issued by the supervisory
authority thereof pursuant to the Convention and the Aircraft Protocol, as the
same may be amended or modified from time to time.
     “International Registry Regulations” means the official English language
text of the regulations for the International Registry issued by the supervisory
authority thereof pursuant to the Convention and the Aircraft Protocol, as the
same may be amended or modified from time to time.
     “Inventory” means all “inventory”, as such term is defined in the UCC, now
owned or hereafter acquired by any Person, wherever located, including all
inventory, merchandise, goods and other personal property that are held by or on
behalf of such Person for sale or lease or are furnished or are to be furnished
under a contract of service or that constitute raw materials, work in process,
finished goods, returned goods, or materials or supplies of any kind, nature or
description

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used or consumed or to be used or consumed in such Person’s business or in the
processing, production, packaging, promotion, delivery or shipping of the same,
including all supplies and embedded software.
     “Investment Property” means all “investment property”, as such term is
defined in the UCC, now owned or hereafter acquired by any Person, wherever
located.
     “Letter-of-Credit Rights” means “letter-of-credit rights” as such term is
defined in the UCC, now owned or hereafter acquired by any Person, including
rights to payment or performance under a letter of credit, whether or not such
Person, as beneficiary, has demanded or is entitled to demand payment or
performance.
     “License” means any rights under any written agreement now or hereafter
acquired by any Person to use any trademark, trademark registration, copyright,
copyright registration or invention for which a patent is in existence or other
license of rights or interests now held or hereafter acquired by any Person.
     “Lien” means any mortgage, security deed, deed of trust, pledge,
hypothecation, assignment, security interest, lien (whether statutory or
otherwise), charge, claim or encumbrance, or preference, priority or other
security agreement or preferential arrangement held or asserted in respect of
any asset of any kind or nature whatsoever including any conditional sale or
other title retention agreement, any lease having substantially the same
economic effect as any of the foregoing, and the filing of, or agreement to
give, any financing statement under the UCC or comparable law of any
jurisdiction.
     “Loans” has the meaning given such term in Section 2(a)(i) and shall
include all other extensions of credit hereunder and under any Ancillary
Agreement.
     “Lockboxes” has the meaning given such term in Section 8(a).
     “Material Adverse Effect” means a material adverse effect on (a) the
business, assets, liabilities, condition (financial or otherwise), properties,
operations or prospects of the Companies and their Subsidiaries (taken as a
whole), (b) the Companies’ ability to pay or perform the Obligations in
accordance with the terms hereof or any Ancillary Agreement, (c) the sufficiency
and/or value of the Collateral, the Liens on the Collateral or the priority of
any such Lien or (d) the practical realization of the benefits of Laurus’ rights
and remedies under this Agreement and the Ancillary Agreements.
     “NASD” has the meaning given such term in Section 13(b).
     “Note” means the Secured Revolving Note.
     “Obligations” means all Loans, all advances, debts, liabilities,
obligations, covenants and duties owing by each Company and each of its
Subsidiaries to Laurus (or any corporation that directly or indirectly controls
or is controlled by or is under common control with Laurus) of every kind and
description (whether or not evidenced by any note or other instrument and
whether or not for the payment of money or the performance or non-performance of
any act), direct or indirect, absolute or contingent, due or to become due,
contractual or tortious, liquidated or unliquidated, whether existing by
operation of law or otherwise now existing or hereafter arising including any

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debt, liability or obligation owing from any Company and/or each of its
Subsidiaries to others which Laurus may have obtained by assignment or otherwise
and further including all interest (including interest accruing at the then
applicable rate provided in this Agreement after the maturity of the Loans and
interest accruing at the then applicable rate provided in this Agreement after
the filing of any petition in bankruptcy, or the commencement of any insolvency,
reorganization or like proceeding, whether or not a claim for post-filing or
post-petition interest is allowed or allowable in such proceeding), charges or
any other payments each Company and each of its Subsidiaries is required to make
by law or otherwise arising under or as a result of this Agreement, the
Ancillary Agreements or otherwise, together with all reasonable expenses and
reasonable attorneys’ fees chargeable to the Companies’ or any of their
Subsidiaries’ accounts or incurred by Laurus in connection therewith.
     “Operating Aircraft” shall have the meaning assigned thereto in the
Aircraft Mortgage and Security Agreement dated the date hereof between Kitty
Hawk Aircargo, Inc. and Laurus.
     “Parked Aircraft” has the meaning given such term in the Aircraft Mortgage.
     “Payment Intangibles” means all “payment intangibles” as such term is
defined in the UCC, now owned or hereafter acquired by any Person, including, a
General Intangible under which the Account Debtor’s principal obligation is a
monetary obligation.
     “Permitted Indebtedness” means (a) any Purchase Money Indebtedness not in
excess of $2,000,000 in the aggregate outstanding at any one time,
(b) intercompany loans and advances among the Parent and the Subsidiaries and
(c) financing of insurance premiums not in excess of $1,000,000 in the aggregate
outstanding at any one time.
     “Permitted Liens” means (a) Liens of carriers, warehousemen, artisans,
bailees, mechanics and materialmen incurred in the ordinary course of business
securing sums not overdue; (b) Liens incurred in the ordinary course of business
in connection with worker’s compensation, unemployment insurance or other forms
of governmental insurance or benefits, relating to employees, securing sums
(i) not overdue or (ii) being diligently contested in good faith provided that
adequate reserves with respect thereto are maintained on the books of the
Companies and their Subsidiaries, as applicable, in conformity with GAAP;
(c) Liens in favor of Laurus; (d) Liens for taxes (i) not yet due or (ii) being
diligently contested in good faith by appropriate proceedings, provided that
adequate reserves with respect thereto are maintained on the books of the
Companies and their Subsidiaries, as applicable, in conformity with GAAP; and
which have no effect on the priority of Liens in favor of Laurus or the value of
the assets in which Laurus has a Lien; (e) Purchase Money Liens securing
Purchase Money Indebtedness to the extent permitted in this Agreement and
(f) Liens specified on Schedule 12(l) hereto.
     “Person” means any individual, sole proprietorship, partnership, limited
liability partnership, joint venture, trust, unincorporated organization,
association, corporation, limited liability company, institution, public benefit
corporation, entity or government (whether federal, state, county, city,
municipal or otherwise, including any instrumentality, division, agency, body or
department thereof), and shall include such Person’s successors and assigns.
     “Principal Market” means the NASD Over The Counter Bulletin Board, NASDAQ
Capital Market, NASDAQ National Market System, American Stock Exchange or New
York Stock

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Exchange (whichever of the foregoing is at the time the principal trading
exchange or market for the Common Stock).
     “Proceeds” means “proceeds”, as such term is defined in the UCC and, in any
event, shall include: (a) any and all proceeds of any insurance, indemnity,
warranty or guaranty payable to any Company or any other Person from time to
time with respect to any Collateral; (b) any and all payments (in any form
whatsoever) made or due and payable to any Company from time to time in
connection with any requisition, confiscation, condemnation, seizure or
forfeiture of any Collateral by any governmental body, governmental authority,
bureau or agency (or any person acting under color of governmental authority);
(c) any claim of any Company against third parties (i) for past, present or
future infringement of any Intellectual Property or (ii) for past, present or
future infringement or dilution of any trademark or trademark license or for
injury to the goodwill associated with any trademark, trademark registration or
trademark licensed under any trademark License; (d) any recoveries by any
Company against third parties with respect to any litigation or dispute
concerning any Collateral, including claims arising out of the loss or
nonconformity of, interference with the use of, defects in, or infringement of
rights in, or damage to, Collateral; (e) all amounts collected on, or
distributed on account of, other Collateral, including dividends, interest,
distributions and Instruments with respect to Investment Property and pledged
Stock; and (f) any and all other amounts, rights to payment or other property
acquired upon the sale, lease, license, exchange or other disposition of
Collateral and all rights arising out of Collateral.
     “Purchase Money Indebtedness” means (a) any Indebtedness incurred for the
payment of all or any part of the purchase price of any fixed asset, including
indebtedness under capitalized leases, (b) any indebtedness incurred for the
sole purpose of financing or refinancing all or any part of the purchase price
of any fixed asset, and (c) any renewals, extensions or refinancings thereof
(but not any increases in the principal amounts thereof outstanding at that
time).
     “Purchase Money Lien” means any Lien upon any fixed assets that secures the
Purchase Money Indebtedness related thereto but only if such Lien shall at all
times be confined solely to the asset the purchase price of which was financed
or refinanced through the incurrence of the Purchase Money Indebtedness secured
by such Lien and only if such Lien secures only such Purchase Money
Indebtedness.
     “Registration Rights Agreements” means that certain Registration Rights
Agreement dated as of the Closing Date by and between the Parent and Laurus and
each other registration rights agreement by and between the Parent and Laurus,
as each of the same may be amended, modified and supplemented from time to time.
     “Registry User Entity” shall have the meaning ascribed thereto in the Cape
Town Convention.
     “SEC” means the Securities and Exchange Commission.
     “SEC Reports” has the meaning given such term in Section 12(x).
     “Secured Revolving Note” means that certain Secured Revolving Note dated as
of the Closing Date made by the Companies in favor of Laurus in the original
face amount of $25,000,000, as the same may be amended, supplemented, restated
and/or otherwise modified from time to time.

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     “Securities” means the Note and the Warrants and the shares of Common
Stock, which may be issued pursuant to exercise of such Warrants.
     “Securities Act” has the meaning given such term in Section 12(u).
     “Security Documents” means the Aircraft Security Documents, all other
security agreements, mortgages, lockbox agreements, cash collateral deposit
letters, pledges and other agreements which are executed by any Company or any
of its Subsidiaries in favor of Laurus.
     “Series B Preferred Stock” means the 15,000 shares of the Parent’s
preferred stock, $0.01 par value, which have been designated as Series B
redeemable preferred stock.
     “Software” means all “software” as such term is defined in the UCC, now
owned or hereafter acquired by any Person, including all computer programs and
all supporting information provided in connection with a transaction related to
any program.
     “Solvent” means, with respect to any Person on a particular date, that on
such date (a) the fair value of the property of such Person is greater than the
total amount of liabilities, including contingent liabilities, of such Person;
(b) the present fair salable value of the assets of such Person is not less than
the amount that will be required to pay the probable liability of such Person on
its debts as they become absolute and matured; (c) such Person does not intend
to, and does not believe that it will, incur debts or liabilities beyond such
Person’s ability to pay as such debts and liabilities mature; and (d) such
Person is not engaged in a business or transaction, and is not about to engage
in a business or transaction, for which such Person’s property would constitute
and unreasonably small capital. The amount of contingent liabilities (such as
litigation, guaranties and pension plan liabilities) at any time shall be
computed as the amount that, in light of all the facts and circumstances
existing at the time, represents the amount that can reasonably be expected to
become an actual or matured liability.
     “Stock” means all certificated and uncertificated shares, options,
warrants, membership interests, general or limited partnership interests,
participation or other equivalents (regardless of how designated) of or in a
corporation, partnership, limited liability company or equivalent entity 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 Securities Exchange Act of
1934).
     “Subsidiary” means, with respect to any Person, (i) any other Person whose
shares of stock or other ownership interests having ordinary voting power (other
than stock or other ownership interests having such power only by reason of the
happening of a contingency) to elect a majority of the directors or other
governing body of such other Person, are owned, directly or indirectly, by such
Person or (ii) any other Person in which such Person owns, directly or
indirectly, more than 50% of the equity interests at such time.
     “Supporting Obligations” means all “supporting obligations” as such term is
defined in the UCC.
     “Term” means the Closing Date through September 30, 2010, subject to
acceleration at the option of Laurus upon the occurrence of an Event of Default
hereunder or other termination hereunder.

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     “Transactions” means, with respect to the Companies, the execution,
delivery and performance by the Companies of this Agreement and the Ancillary
Agreements to which such Company is a party to such documents, and all
transactions contemplated by the foregoing documents.
     “Transportation Security Administration” and “TSA” means the United States
Transportation Security Administration and any agent or instrumentality of the
United States government succeeding to its functions.
     “UCC” means the Uniform Commercial Code as the same may, from time to time
be in effect in the State of New York; provided, that in the event that, by
reason of mandatory provisions of law, any or all of the attachment, perfection
or priority of, or remedies with respect to, Laurus’ Lien on any Collateral is
governed by the Uniform Commercial Code as in effect in a jurisdiction other
than the State of New York, the term “UCC” shall mean the Uniform Commercial
Code as in effect in such other jurisdiction for purposes of the provisions of
this Agreement relating to such attachment, perfection, priority or remedies and
for purposes of definitions related to such provisions; provided further, that
to the extent that UCC is used to define any term herein or in any Ancillary
Agreement and such term is defined differently in different Articles or
Divisions of the UCC, the definition of such term contained in Article or
Division 9 shall govern.
     “USPS” means the United States Postal Service, or any agency or subsidiary
thereof, or any successor thereto.
     “Warrant Shares” has the meaning given such term in Section 12(a).
     “Warrants” means that certain Common Stock Purchase Warrant dated as of the
Closing Date made by the Parent in favor of Laurus and each other warrant made
by the Parent in favor Laurus, as each of the same may be amended, restated,
modified and/or supplemented from time to time.

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