Exhibit 10.7

 

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LOAN AGREEMENT

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Dated November 26, 2002

 

 

 

By and between

 

 

 

DOTHAN-HOUSTON COUNTY AIRPORT AUTHORITY

 

 

 

and

 

 

 

PEMCO AVIATION GROUP, INC.

 

 

 

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The interest of the Dothan-Houston County Airport Authority in any payments,
revenues and receipts derived by it under this Loan Agreement has been assigned
to SouthTrust Bank, as Trustee under Trust Indenture dated October 1, 2002 from
the Dothan-Houston County Airport Authority.

 

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This Loan Agreement was prepared by Heyward C. Hosch of Walston, Wells, Anderson
& Bains, LLP, Financial Center, 505 North 20th Street, Suite 500, Birmingham,
Alabama 35203             

 

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LOAN AGREEMENT

 

This LOAN AGREEMENT dated October 1, 2002 is made and entered into by the
DOTHAN-HOUSTON COUNTY AIRPORT AUTHORITY, a public corporation and
instrumentality under the laws of the State of Alabama and its successors and
assigns (the “Issuer”), and PEMCO AVIATION GROUP, INC., a Delaware corporation
and its successors and assigns (the “User”).

 

Recitals

 

Pursuant to and for the purposes expressed in Article 1 of Chapter 3 of Title 4
of the Code of Alabama 1975 (the “Enabling Law”), the Issuer and the User have
duly authorized, executed and delivered this Loan Agreement simultaneously with
the issuance and sale by the Issuer of $2,500,000 Variable/Fixed Rate Revenue
Bonds (Pemco Aviation Group, Inc. Project) under and pursuant to Trust Indenture
dated October 1, 2002 (the “Indenture”) from the Issuer to SouthTrust Bank, as
trustee, in order to finance “airport facilities” under the aforesaid law and
more particularly described herein.

 

NOW THEREFORE, for and in consideration of the premises and the mutual covenants
and agreements herein contained, the Issuer and the User hereby covenant, agree
and bind themselves as follows:

 

ARTICLE I

 

DEFINITIONS AND REPRESENTATIONS

 

SECTION 1.01    Definitions and Rules of Construction

 

For all purposes of this Loan Agreement, except as otherwise expressly provided
or unless the context otherwise requires:

 

(1)    All references in this instrument to designated “Articles”, “Sections”
and other subdivisions are to the designated Articles, Sections and subdivisions
of this instrument as originally executed.

 

(2)    The terms “herein”, “hereof” and “hereunder” and other words of similar
import refer to this Loan Agreement as a whole and not to any particular
Article, Section or other subdivision.

 

(3)    Capitalized terms used herein without definition shall have the
respective meanings set forth therefor in the Indenture or the Enabling Law as
such terms are defined in the recitals hereto.

 

SECTION 1.02    Representations by the Issuer

 

The Issuer makes the following representations

 

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(a)    The Issuer is duly incorporated under the provisions of the Enabling Law
and has the power to enter into the transactions contemplated by this Loan
Agreement and to carry out its obligations hereunder. The Issuer is not in
default under any of the provisions contained in its Certificate of
Incorporation, its by-laws, or in the laws of the State. By proper corporate
action the Issuer has duly authorized the execution and delivery of the Bonds
and the Financing Documents to which it is a party, intending to be legally
bound thereby.

 

(b)    The Issuer has determined that the issuance of the Bonds, the advance of
the proceeds thereof to the User as provided in the Indenture and this Loan
Agreement for the acquisition of the Project, and the operation of the Project
by the User, will accomplish the purposes of the Enabling Law.

 

(c)    The Bonds will be issued and delivered contemporaneously with the
delivery of this Loan Agreement.

 

SECTION 1.03    Representations by the User

 

The User makes the following representations:

 

(a)    The User is a Delaware corporation and is duly qualified to do business
in the State, is not in violation of any provisions of its articles of
incorporation, its bylaws or the laws of the State of Delaware, has power to
enter into this Loan Agreement, and by proper corporate action has duly
authorized the execution and delivery of this Loan Agreement.

 

(b)    The Project is located wholly within the State and will be used and
operated by the User in accordance with the purposes of the Enabling Law.

 

ARTICLE II

 

ACQUISITION OF THE PROJECT

 

SECTION 2.01    Advance of Bond Proceeds; Agreement to Acquire Project

 

(a) Simultaneously with the delivery of this Loan Agreement the Issuer shall
cause the Bond Proceeds to be deposited in the Construction Fund. The Issuer
shall cause the Bond Proceeds to be advanced to the User by withdrawals from the
Construction Fund, in accordance with the requirements of the Indenture, for the
payment of Project Costs (including reimbursement to the User for Project Costs)
at such times and in such amounts as shall be directed by the User. The Bond
Proceeds shall be used solely for the payment of Project Costs as provided in
the Indenture.

 

(b) The User shall acquire, construct, equip, and install the Project in
accordance with the Enabling Law with due diligence and shall cause the Project
to be placed in service as soon as practicable.

 

(c) In the event the Bond Proceeds are insufficient to pay in full all Project
Costs and to complete the Project, the User shall be obligated to complete the
acquisition and construction of the Project

 

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at its own expense and the User shall pay any such deficiency and shall save the
Issuer whole and harmless from any obligation to pay such deficiency. The User
shall not by reason of the payment of such deficiency from its own funds be
entitled to any abatement of or diminution in User Agreement Payments.

 

SECTION 2.02            No Warranty by Issuer

 

THE USER RECOGNIZES THAT SINCE THE PLANS AND SPECIFICATIONS FOR ACQUIRING AND
CONSTRUCTING THE PROJECT ARE FURNISHED BY IT, THE ISSUER MAKES NO WARRANTY,
EITHER EXPRESS OR IMPLIED, NOR OFFERS ANY ASSURANCES THAT THE PROJECT WILL BE
SUITABLE FOR THE USER’S PURPOSES OR NEEDS OR THAT THE BOND PROCEEDS WILL BE
SUFFICIENT TO PAY IN FULL ALL PROJECT COSTS.

 

SECTION 2.03            Certificate of Completion of the Project

 

(a)    The completion of the Project shall be evidenced to the Trustee by a
certificate signed by an Authorized User Representative on behalf of the User
stating that all Project Costs have been paid, and all facilities and
improvements necessary in connection with the Project have been acquired and
installed and all costs and expenses incurred in connection therewith have been
paid. Notwithstanding the foregoing, such certificate shall state that it is
given without prejudice to any rights against any vendor, contractor,
subcontractor or other person not a party to this Loan Agreement which exist at
the date of such certificate or which may subsequently come into being.

 

(b)    After the delivery of the aforesaid certificate to the Trustee, any
moneys then remaining in the Construction Fund shall be transferred to the Bond
Fund and applied as provided in the Indenture.

 

ARTICLE III

 

TERM AND PAYMENT PROVISIONS

 

SECTION 3.01            Term of Loan Agreement

 

This Loan Agreement shall be effective upon delivery and shall remain in full
force and effect until the Indenture Indebtedness is paid in full except as
otherwise provided herein with respect to any specific covenant which by its
terms survives the termination of this Loan Agreement.

 

SECTION 3.02            User Bond Payments; Draws Under Letter of Credit

 

(a)    The User shall make User Bond Payments to the Trustee, for the account of
the Issuer, at times and in amounts as follows:

 

(1)    On or before 10:00 a.m. (Birmingham, Alabama time), on each Bond Payment
Date, the User shall pay to the Trustee, for the account of the Issuer, an
amount equal to the Debt Service on the Bonds due on such Bond Payment Date;
provided, however, that (i) any amount already on deposit in the Bond Fund on
the due date of such User Bond Payment and available for

 

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the payment of Debt Service on such Bond Payment Date shall be credited against
the amount of such User Bond Payment, and (ii) any amount drawn by the Trustee
pursuant to the Letter of Credit for the payment of such Debt Service shall be
credited against such User Bond Payment; and

 

(2)    On or before 10:00 a.m. (Birmingham, Alabama time), on each Tender Date,
the User shall pay to the Trustee, for the account of the Issuer, an amount
equal to the purchase price of Bonds tendered (or deemed tendered) for purchase
on such Tender Date; provided, however, that (i) any amount already on deposit
in the Bond Purchase Fund on such Tender Date that is available for the payment
of the purchase price of such Tendered Bonds shall be credited against the
amount of such User Bond Payment, and (ii) any amount drawn by the Trustee
pursuant to the Letter of Credit for the payment of the purchase price of such
Tendered Bonds shall be credited against such User Bond Payment.

 

(b)    On each Bond Payment Date the Trustee shall, without making any prior
claim or demand on the User for the payment of User Bond Payments with respect
to Bonds other than Pledged Bonds, make a draw on the Letter of Credit in an
amount equal to the amount of Debt Service due on such Bond Payment Date on
Bonds other than Pledged Bonds. The User shall receive a credit against User
Bond Payments for the amount so drawn. No draw shall be made under the Letter of
Credit with respect to Debt Service on Pledged Bonds and the User shall receive
no credit against User Bond Payments with respect to Pledged Bonds for any
amounts drawn under the Letter of Credit.

 

(c)    On each Tender Date the Trustee shall, without making any prior claim or
demand on the User for User Bond Payments with respect to the purchase price of
Tendered Bonds, and without taking into account any proceeds anticipated from
the remarketing of Bonds by the Remarketing Agent, make a draw under the Letter
of Credit in an amount equal to the purchase price of all Bonds to be purchased
on such Tender Date. The User shall receive a credit against User Bond Payments
for the amount so drawn.

 

(d)    The User hereby authorizes and directs the Trustee to draw moneys under
the Letter of Credit in accordance with the provisions of the Indenture and this
Loan Agreement to the extent necessary to pay the Debt Service on the Bonds or
to pay the purchase price of Tendered Bonds if and when due pursuant to the
Indenture and the Letter of Credit.

 

(e)    All User Bond Payments shall be made in funds immediately available to
the Trustee at its Principal Office on the related Bond Payment Date or Tender
Date, as the case may be.

 

(f)    If any User Bond Payment is due on a day which is not a Business Day,
such payment may be made on the first succeeding day which is a Business Day
with the same effect as if made on the day such payment was due.

 

(g)    The User acknowledges, covenants, and agrees that:

 

(1)    the amounts of the User Bond Payments shall be determined on the basis of
the amounts due to the Bondholders as Debt Service on the Bonds and not on the
amount of Bond Proceeds deposited in the Construction Fund; and

 

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(2)    until the Indenture Indebtedness is paid in full the User shall make User
Bond Payments in such amounts and at such times as shall be necessary to enable
the Trustee to pay in full in accordance with the Indenture (i) all Debt Service
on the Bonds when and as the same becomes due and payable, whether at stated
maturity and due dates, by call for acceleration pursuant to Section 6.02
hereof, by optional or mandatory redemption, or otherwise, and (ii) the purchase
prices of all Tendered Bonds when and as the same become due and payable.

 

SECTION 3.03        Administrative Expense Payments

 

(a)    The User shall make Administrative Expense Payments to the Issuer or to
the Trustee, as the case may be, as follows:

 

(1)    the acceptance fee of the Trustee and the annual (or other regular) fees,
charges and expenses of the Trustee, Tender Agent and Remarketing Agent;

 

(2)    any amount to which the Trustee may be entitled under Section 13.07 of
the Indenture; and

 

(3)    the reasonable expenses of the Issuer incurred at the request of the
User, or in the performance of its duties under any of the Financing Documents,
or in connection with any litigation which may at any time be instituted
involving the Project, the Financing Documents, or in the pursuit of any
remedies under the Financing Documents.

 

(b)    All Administrative Expense Payments shall be due and payable within 10
days after receipt by the User of an invoice therefor.

 

SECTION 3.04        Overdue User Agreement Payments

 

Any overdue User Bond Payment shall bear interest from the related Bond Payment
Date until paid at the Post-Default Rate for overdue User Bond Payments. Any
overdue Administrative Expense Payment shall bear interest from the date due
until paid at the Post-Default Rate for such Administrative Expense Payments
specified in the Indenture.

 

SECTION 3.05        Advances by Issuer or Trustee

 

If the User shall fail to perform any of its covenants in this Loan Agreement,
the Issuer or the Trustee may, at any time and from time to time, after written
notice to the User if no User Agreement Default exists, make advances to effect
performance of any such covenant on behalf of the User. Any money so advanced by
the Issuer or the Trustee, together with interest at the base or prime rate of
the Trustee plus 2%, shall be paid upon demand.

 

SECTION 3.06        Indemnity of Issuer and Trustee

 

(a)    The User agrees to pay, and to indemnify and hold the Issuer and the
Trustee and the Credit Obligor harmless against, any and all liabilities,
losses, damages, claims or actions (including all

 

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reasonable attorneys’ fees and expenses of the Issuer and Trustee and the Credit
Obligor), of any nature whatsoever incurred by the Issuer and the Trustee and
the Credit Obligor without willful misconduct on their part arising from or in
connection with their performance or observance of any covenant or condition on
their part to be observed or performed under the Financing Documents, including
without limitation, (1) any injury to, or the death of, any person or any damage
to property at the Project, or in any manner growing out of or connected with
the use, nonuse, condition or occupation of the Project or any part thereof, (2)
any damage, injury, loss or destruction of the Project, (3) any other act or
event occurring upon, or affecting, any part of the Project, (4) violation by
the User of any contract, agreement or restriction affecting the Project or the
use thereof of which the User has notice and which shall have existed at the
commencement of the term hereof or shall have been approved by the User, or of
any law, ordinance or regulation affecting the Project or any part thereof or
the ownership, occupancy or use thereof, (5) the presence, as a result of the
action or inaction of the User, of any pollutants, contaminants, toxic or
hazardous wastes, and/or other substances regulated by law or which might create
a hazard to health and safety, hereafter on, under or included in the Project
Site, and any clean up or other remedial action with respect to any thereof, and
User’s violation of any law, rule, regulation, order, ruling, notice or decree
of any Governmental Authority relating to pollution or the protection of human
health or the environment, and (6) liabilities, losses, damages, claims or
actions arising out of or relating to (i) any errors or omissions of any nature
whatsoever contained in any legal proceedings or official representation
pertaining to the Bonds and (ii) any fraud or misrepresentations or omissions
contained in the proceedings of the Issuer relating to the issuance of the Bonds
which, if known to the purchasers of the Bonds, might be considered a material
factor in their decision to purchase the Bonds, unless the same resulted from a
representation or warranty of the Issuer or the Trustee or the Credit Obligor in
the Financing Documents or any certificate delivered by the Issuer or the
Trustee or the Credit Obligor pursuant thereto being false or misleading in a
material respect and such representation or warranty was not based upon a
similar representation or warranty of the User furnished to the Issuer or the
Trustee or the Credit Obligor in connection therewith.

 

(b)    The User hereby agrees that the Issuer and the Trustee and the Credit
Obligor shall not incur any liability to the User, and shall be indemnified
against all liabilities, in exercising or refraining from asserting, maintaining
or exercising any right, privilege or power of the Issuer or the Trustee under
the Financing Documents if the Issuer or the Trustee as the case may be is
acting in good faith and without willful misconduct or in reliance upon a
written request by the User.

 

(c)    If any indemnifiable party shall be obligated to pay any claim, liability
or loss, and if in accordance with all applicable provisions of this Section the
User shall be obligated to indemnify and hold such indemnifiable party harmless
against such claim, liability or loss, then, in such case, the User shall have a
primary obligation to pay such claim, liability or loss on behalf of such
indemnifiable party and may not defer discharge of its indemnity obligation
hereunder until such indemnifiable party shall have first paid such claim,
liability or loss and thereby incurred actual loss.

 

(d)    Nothing in this Loan Agreement shall be deemed to provide indemnification
to any indemnifiable party with respect to liabilities arising from the fraud,
negligence, reckless or willful misconduct of any of the indemnifiable party, to
provide indemnification to any attorneys of any indemnifiable party with respect
to liabilities arising from any negligence, mistake, error or omission in any
legal opinion provided by such party in its professional capacity, nor to
provide indemnification to any accountants or financial advisors of any
indemnifiable party with respect to liabilities arising from any opinion, audit,
report or other document provided by such party in its professional capacity.

 

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(e)    In case any claim shall be made or any action shall be brought against
one or more of the indemnifiable party, in respect of which indemnity is sought
under this Section 3.06, then each indemnifiable party against whom a claim has
been made or an action has been brought shall promptly notify the User in
writing, and the User shall promptly assume the defense of such claim or action,
including the employment of counsel and the payment of all expenses. Any
indemnifiable party shall have the right to employ separate counsel in any such
action and to participate in the defense or such action, but the fees and
expenses of such counsel shall be at the expense or such indemnifiable party
unless (a) the employment of such counsel has been specifically authorized by
the User in writing, or (b) the User has failed to assume the defense of such
action and employ counsel within 20 Business Days after receiving the notice
referred to herein, or (c) the named parties to any such action (including any
impleaded parties) include both such indemnifiable party and the User or an
affiliate of the User, and such indemnifiable party shall have been advised by
counsel chosen by the User that representation of such indemnifiable party and
the User or an affiliate of the User by the same counsel would be inappropriate
under applicable standards of professional conduct due to actual or potential
differing interests between them (in which case, if such indemnifiable party
notifies the User in writing that it elects to employ separate counsel at the
expense of the User, the User shall not have the right to assume the defense of
such action on behalf of such indemnifiable party). It is understood that the
User shall, in connection with any one such action or separate but substantially
similar or related actions in the same jurisdiction arising out of the same
general allegations or circumstances, be liable for the reasonable fees and
expenses of only one separate firm of attorneys at any time for all such
indemnifiable party not having actual or potential differing interests among
themselves, which firm shall be designated in writing by the User. The User
shall be liable for any settlement of any such action effected without its
written consent, but if settled with its written consent or if there be a final
judgment for the plaintiff in any such action, the User agrees to indemnify and
hold harmless any indemnifiable party from and against any loss, liability,
damage or expense by reason of such settlement or judgment.

 

(f)    Any provision of this Loan Agreement or any other Financing Document to
the contrary notwithstanding, the Issuer retains the right to (i) enforce any
applicable federal or state law or regulation or resolution of the Issuer and
(ii) enforce any rights accorded Issuer by federal or state law or regulation or
resolution of the Issuer, and nothing in this Loan Agreement shall be construed
as an express or implied waiver thereof.

 

(g)    The covenants of indemnity contained in this Section shall survive the
termination of this Loan Agreement with respect to events or occurrences
happening prior to or upon the termination of this Loan Agreement and shall
remain in full force and effect until the commencement of an action with respect
to any such event or occurrence shall be prohibited by law.

 

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SECTION 3.07        Obligations of User Unconditional

 

The obligation of the User to make all User Agreement Payments and all other
payments provided for herein and to perform and observe the other agreements and
covenants on its part herein contained shall be absolute and unconditional,
irrespective of any rights of set-off, recoupment or counterclaim it might
otherwise have against the Issuer. The User will not suspend or discontinue any
such payment or fail to perform and observe any of its other agreements and
covenants contained herein or terminate this Loan Agreement for any cause
whatsoever, including, without limiting the generality of the foregoing, any
acts or circumstances that may constitute an eviction or constructive eviction,
failure of consideration or commercial frustration of purpose, the invalidity or
unenforceability of the Bonds or any of the Financing Documents or any provision
thereof, the invalidity or unconstitutionality of the Enabling Law or any
provision thereof, any damage to or destruction of the Project or any part
thereof, the taking by eminent domain of title to or the right to temporary use
of all or any part of the Project, any failure of the Credit Obligor to make a
payment pursuant to the Letter of Credit or to reinstate the appropriate amount
thereof, any change in the tax or other laws or administrative rulings, actions
or regulations of the United States of America or of the State or any political
or taxing subdivision of either thereof, or any failure of the Issuer to perform
and observe any agreement or covenant, whether express or implied, any duty,
liability or obligation arising out of or in connection with this Loan
Agreement. Notwithstanding the foregoing, the User may, at its own cost and
expense and in its own name or in the name of the Issuer, prosecute or defend
any action or proceeding, or take any other action involving third persons which
the User deems reasonably necessary in order to secure or protect its rights
hereunder.

 

ARTICLE IV

 

ASSIGNMENT OF LOAN AGREEMENT

 

SECTION 4.01        Assignment by User

 

The User may assign this Loan Agreement and its obligations hereunder with the
consent of the Credit Obligor and without the consent of Issuer or the Trustee
or the Holders, subject to the following conditions:

 

(1)    The User will not assign this Loan Agreement to any person unless the
operations of such person are consistent with, and in furtherance of, the
purpose of the Enabling Law. The User shall, prior to any such assignment,
deliver to the Trustee and the Credit Obligor an Opinion of Bond Counsel
acceptable to the Trustee to the effect that such assignment will not cause the
interest on the Bonds to be Taxable.

 

(2)    The User shall, within 30 days after the delivery thereof, furnish to the
Trustee a true and complete copy of each such assignment.

 

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SECTION 4.02        Assignment by Issuer

 

The Issuer has, simultaneously with the delivery of this Loan Agreement,
assigned its interest in and pledged any money receivable under this Loan
Agreement (other than certain rights to indemnification and reimbursement) to
the Trustee as security for payment of the Bonds, and the User hereby consents
to such assignment and pledge. The Issuer has in the Indenture obligated itself
to follow the instructions of the Trustee or the Bondholders or a certain
percentage thereof in the election or pursuit of any remedies herein vested in
it. The Trustee shall have all rights and remedies herein accorded to the Issuer
and any reference herein to the Issuer shall be deemed, with the necessary
changes in detail, to include the Trustee, and the Trustee and the Bondholders
are deemed to be third party beneficiaries of the covenants, agreements and
representations of the User herein contained. Neither the Issuer nor the User
will unreasonably withhold any consent herein or in the Indenture required of
either of them. The User shall not be deemed to be a party to the Indenture or
the Bonds and reference in this Loan Agreement to the Indenture and the Bonds
shall not impose any liability or obligation upon the User other than its
specific obligations and liabilities undertaken in this Loan Agreement.

 

ARTICLE V

 

COVENANTS AND REPRESENTATIONS OF THE USER

 

Until the Indenture Indebtedness is paid in full:

 

(a)    Except as otherwise permitted by the Credit Documents, the User will
maintain and preserve its existence as a Delaware corporation and will not
voluntarily dissolve or merge or consolidate with, or transfer substantially all
of its assets to another Person without first discharging its obligations under
this Loan Agreement.

 

(b)    The User will do, execute, acknowledge and deliver such further acts,
conveyances, mortgages, financing statements and assurances as the Issuer or the
Trustee shall require for accomplishing the purposes of the Financing Documents.
The User will cause this Loan Agreement, any amendments to this Loan Agreement
and other instruments of further assurance, including financing statements and
continuation statements, to be promptly recorded, registered and filed, and at
all times to be kept recorded, registered and filed in such places as may be
required by law fully to preserve and protect the rights of the Issuer and the
Trustee to all property comprising the Trust Estate.

 

ARTICLE VI

 

EVENTS OF DEFAULT AND REMEDIES

 

SECTION 6.01        Events of Default

 

Any one or more of the following shall constitute an event of default (a “User
Agreement Default”) under this Loan Agreement (whatever the reason for such
event and whether it shall be voluntary or

 

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involuntary or be effected by operation of law or pursuant to any judgment,
decree or order of any court or any order, rule or regulation of any
administrative or governmental body):

 

(1)    default in the payment of any User Bond Payment when such User Bond
Payment becomes due and payable; or

 

(2)    default in the performance, or breach, of any covenant or warranty of the
User in this Loan Agreement (other than a covenant or warranty, a default in the
performance or breach of which is elsewhere in this Section specifically
described), and the continuance of such default or breach for a period of 30
days after there has been given, by registered or certified mail, to the User
and the Credit Obligor by the Issuer or by the Trustee a written notice
specifying such default or breach and requiring it to be remedied and stating
that such notice is a “notice of default” hereunder; or

 

(3)    the occurrence of an Act of Insolvency with respect to the User; or

 

(4)    The occurrence of an event of default under the Indenture.

 

SECTION 6.02        Remedies on Default

 

Whenever any such User Agreement Default shall have happened and be continuing,
the Issuer or the Trustee may, with the consent of the Credit Obligor, take any
of the following remedial steps:

 

(1)    Declare a User Bond Payment to be immediately due and payable in the
amount required to pay in full all Indenture Indebtedness, whereupon said User
Bond Payment in said amount shall become immediately due and payable;

 

(2)    Take whatever proceedings may appear necessary or desirable at law or in
equity to collect the User Bond Payments then due, whether by declaration or
otherwise, or to enforce any obligation or covenant or agreement of the User
under this Loan Agreement or by law.

 

SECTION 6.03        Availability of Remedies

 

(a)    No remedy herein conferred upon or reserved to the Issuer or the Trustee
is intended to be exclusive of any other available remedy or remedies, but each
and every such remedy shall be cumulative and shall be in addition to every
other remedy given under this Loan Agreement or now or hereafter existing at law
or in equity or by statute. No delay or omission to exercise any right or power
accruing upon any default shall impair any such right or power or shall be
construed to be a waiver thereof but any such right or power may be exercised
from time to time and as often as may be deemed expedient.

 

(b)    In the event any agreement contained in this Loan Agreement should be
breached by either party and thereafter waived by the other party, such waiver
shall be limited to the particular breach so waived and shall not be deemed to
waive any other breach hereunder.

 

(c)    All rights, remedies and powers provided by this Article may be exercised
only to the extent the exercise thereof does not violate any applicable
provision of law in the premises, and all the

 

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provisions of this Article are intended to be subject to all applicable
mandatory provisions of law which may be controlling in the premises and to be
limited to the extent necessary so that they will not render this Loan Agreement
invalid or unenforceable.

 

SECTION 6.04        Agreement to Pay Attorneys’ Fees and Expenses

 

In the event the User should default under any of the provisions of this Loan
Agreement and the Issuer or the Trustee (in its own name or in the name and on
behalf of the Issuer) should employ attorneys or incur other expenses for the
collection of rent or the enforcement of performance or observance of any
obligation or agreement on the part of the User herein contained, the User will
on demand therefor pay to the Issuer or the Trustee (as the case may be) the
reasonable fee of such attorneys and such other reasonable expenses so incurred.

 

ARTICLE VII

 

INTERNAL REVENUE CODE

 

SECTION 7.01        Covenants Regarding Section 103 and Sections 141-150 of the
Code

 

(a)    The Issuer and the User do each hereby covenant and agree for the benefit
of the Owners that neither the Issuer nor the User will take any action, omit to
take any action, permit any action to be taken or fail to require any action to
be taken, which would cause the interest payable with respect to the Bonds to be
or become Taxable. Without limiting the generality of the foregoing, the User
covenants and agrees that (a) the proceeds of the Bonds shall not be used or
applied in such manner as to cause any Bond to be or become an “arbitrage bond”
as that term is defined in Section 148 of the Code, (b) ninety-five percent
(95%) or more of the net proceeds will be used for the acquisition of “airports”
(within the meaning of Treas. Reg. ‘1.103-8(e)), (c) the net proceeds of the
Bonds shall not be used for the acquisition, construction, reconstruction or
improvement of any property which would cause the average maturity of the Bonds
to exceed one hundred twenty percent (120%) of the average reasonably expected
economic life of the facilities financed with the net proceeds of the Bonds,
within the meaning of Section 147(b) of the Code, (d) none of the net proceeds
shall be used to acquire (directly or indirectly) any land (or any interest
therein) to be used for farming purposes; (e) less than twenty-five percent
(25%) of the net proceeds shall be used to acquire (directly or indirectly) the
Project Site or any other land (or any interest therein), (f) none of the net
proceeds shall be used to acquire any property or any interest therein
(including, without limitation, buildings, structures, facilities, improvements,
equipment, machinery or other personal property) the first use of which property
was not pursuant to such acquisition with the proceeds, if such property is
personal property, and if such property is a building (and the equipment
therefor), unless “rehabilitation expenditures” are made with respect to such
property in an amount not less than fifteen percent (15%) of the cost of such
property financed with the proceeds of the Bonds within two years after the date
such property was acquired, all within the meaning of Section 147(d) of the
Code; (g) neither the Bonds nor any proceeds therefrom shall ever be federally
guaranteed, as such term is defined in Section 149(b) of the Code, except as
expressly permitted by said Section 149(b), and (h) no more than two percent of
the face amount of the Bonds shall be used to pay issuance costs.

 

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(b)    The User, acting on behalf of the Issuer, shall, in a timely manner, make
all determinations and calculations, file all reports, forms, and returns, remit
all moneys and take all other action necessary for compliance with the
provisions of Section 148(f) (or any successor provision) of the Internal
Revenue Code with respect to rebate payments to the United States of America.

 

(c)    The Issuer and the User hereby agree that the Bond Proceeds shall be
applied solely to Project Costs and the Project shall be located on real
property owned by the Issuer and leased to the User, acting through Pemco World
Air Services, Inc. as a subsidiary and Affiliate thereof, pursuant to the Lease
Agreement.

 

(d)    Pursuant to Section 142(b)(1)(B) of the Internal Revenue Code the User,
for itself and all Affiliates thereof and all successors in interest under the
Lease Agreement, does hereby:

 

(1)    make an irrevocable election (binding on the User and all all Affiliates
thereof and successors in interests under the Lease Agreement) not to claim
depreciation or an investment credit with respect to the Project,

 

(2)    represent and warrant that the term of the Lease Agreement (32 years) is
not more than 80% of the reasonably expected economic life of the Project (40
years), and

 

(3)    agree that the User (and all Affiliates thereof and all successors in
interest under the Lease Agreement) shall have no option to purchase the Project
other than at fair market value as of the time such option is exercised.

 

(e)    The User, for itself and all Affiliates thereof and all successors in
interest under the Lease Agreement, does hereby represent, warrant, certify and
declare that:

 

(1)    the Project shall be operated as a hanger for the repair, maintenance and
overhaul of aircraft and the Project will directly serve the general public
within the meaning of Treas. Reg. Section 1.103-8(a)(2),

 

(2)    the Project must be located at, or in close proximity to, the take off
and landing area in order to perform its function,

 

(3)    the Project shall be used solely for servicing aircraft and enabling
aircraft to take off and land.

 

SECTION 7.02        User’s Obligation Upon Determination of Taxability

 

(a)    Upon the occurrence of a Determination of Taxability, the Trustee shall
notify the User in writing that all Outstanding Bonds shall be subject to
mandatory redemption in accordance with the terms thereof on the date specified
by the Trustee, which date shall be within 90 days after such Determination of
Taxability irrespective of whether the User has violated any covenant or
representation in this Loan Agreement. Within seven days after the receipt of
such notice the User shall pay to the Trustee the amount required to pay in full
all Indenture Indebtedness.

 

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(b)    There shall be credited against such payment otherwise required by this
Section all amounts which shall have been paid to the Trustee pursuant to the
Letter of Credit with respect to such payment of Debt Service on the Outstanding
Bonds.

 

(c)    Upon payment by the User of the amount specified in subsection (c) of
this Section or upon a draw by the Trustee on the Letter of Credit which shall
be made by the Trustee in a timely manner so as to effect the redemption within
the number of days specified in Section 7.02(a) hereof, the Bonds shall be
redeemed as provided therein and the Issuer and the Trustee shall take any and
all action required to effect such redemption.

 

ARTICLE VIII

 

SPECIAL COVENANTS OF ISSUER AND

PROVISIONS OF GENERAL APPLICATION

 

SECTION 8.01        Corporate Existence of Issuer

 

The Issuer shall not consolidate with or merge into any other corporation or
transfer its property substantially as an entirety except as provided in the
Indenture.

 

SECTION 8.02        Redemption of Bonds by Issuer

 

(a)    The Issuer will redeem any or all of the Bonds in accordance with any
scheduled mandatory redemption provisions of the Bonds and the Indenture and
upon the occurrence of any event or contingency requiring the mandatory
redemption of Bonds, all in accordance with the applicable provisions of the
Bonds and the Indenture.

 

(b)    If no User Agreement Default exists, the Issuer will exercise any right
of optional redemption with respect to the Bonds only upon the written request
of the User and in accordance with the Indenture.

 

SECTION 8.03        Investment of Funds

 

The Issuer shall cause any money held as a part of the Special Funds which may
by the terms of the Indenture be invested to be so invested or reinvested by the
Trustee in Qualified Investments solely at the request of, and solely as
directed by, the User. The Issuer and the Trustee shall have no liability or
responsibility for any loss resulting from investments made pursuant to this
Section.

 

SECTION 8.04        Issuer’s Liabilities Limited

 

(a)    The covenants and agreements contained in this Loan Agreement shall never
constitute or give rise to a personal or pecuniary liability or charge against
the general credit of the Issuer, and in the event of a breach of any such
covenant or agreement, no personal or pecuniary liability or charge payable
directly or indirectly from the general assets or revenues of the Issuer shall
arise therefrom. Nothing

 

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contained in this Section, however, shall relieve the Issuer from the observance
and performance of the covenants and agreements on its part contained herein.

 

(b)    No recourse under or upon any covenant or agreement of this Loan
Agreement shall be had against any past, present or future incorporator, officer
or member of the Board of Directors of the Issuer, or of any successor
corporation, either directly or through the Issuer, whether by virtue of any
constitution, statute or rule of law, or by the enforcement of any assessment or
penalty or otherwise; it being expressly understood that this Loan Agreement is
solely a corporate obligation, and that no personal liability whatever shall
attach to, or is or shall be incurred by, any incorporator, officer or member of
the Board of Directors of the Issuer or any successor corporation, or any of
them, under or by reason of the covenants or agreements contained in this Loan
Agreement.

 

SECTION 8.05        Prior Agreements

 

This Loan Agreement shall completely and fully supersede all prior agreements,
both written and oral, between the Issuer and the User relating to the issuance
of the Bonds and the acquisition of the Project. Neither the Issuer nor the User
shall hereafter have any rights under such prior agreements, except as otherwise
herein provided, but shall look solely to this Loan Agreement for definition and
determination of all of their respective rights, liabilities and
responsibilities relating to the Project.

 

SECTION 8.06        Execution Counterparts

 

This Loan Agreement may be executed in several counterparts, each of which shall
be an original and all of which shall constitute but one and the same
instrument.

 

SECTION 8.07        Binding Effect; Governing Law

 

This Loan Agreement shall inure to the benefit of, and shall be binding upon,
the Issuer, the User and their respective successors and assigns. This Loan
Agreement shall be governed exclusively by the applicable laws of the State.

 

SECTION 8.08        Severability

 

In the event any provision of this Loan Agreement shall be held invalid or
unenforceable by any court of competent jurisdiction, such holding shall not
invalidate or render unenforceable any other provision hereof.

 

SECTION 8.09        Article and Section Captions

 

The Article and Section headings and captions contained herein are included for
convenience only and shall not be considered a part hereof or affect in any
manner the construction or interpretation hereof.

 

SECTION 8.10        Notices

 

(a)    Any request, demand, authorization, direction, notice, consent, or other
document provided or permitted by this Loan Agreement to be made upon, given or
furnished to, or filed with, the Issuer, the

 

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User, the Trustee or the Credit Obligor shall be sufficient for every purpose
hereunder if in writing and (except as otherwise provided in this Loan
Agreement) either (i) delivered personally to the party or, if such party is not
an individual, to an officer, or other legal representative of the party to whom
the same is directed (provided that any document delivered personally to the
Trustee must be delivered to a corporate trust officer at its Principal Office
during normal business hours) at the address specified in Section 1.10 of the
Indenture or (ii) mailed by first-class, registered or certified mail, postage
prepaid, addressed as specified in Section 1.10 of the Indenture. Any of such
parties may change the address for receiving any such notice or other document
by giving notice of the change to the other parties as provided in this Section.

 

(b)    Any such notice or other document shall be deemed delivered when actually
received by the party to whom directed (or, if such party is not an individual,
to an officer, or other legal representative of the party) at the address
specified pursuant to this Section, or, if sent by mail, three days after such
notice or document is deposited in the United States mail, proper postage
prepaid, addressed as provided above.

 

SECTION 8.11    Amendment of Indenture and this Loan Agreement

 

(a)    The Issuer will not cause or permit the amendment of the Indenture or the
execution of any amendment or supplement to the Indenture without the prior
written consent of the User. Prior to the termination of the Credit Documents
the Issuer and the User shall have no power to modify, alter, amend or terminate
this Loan Agreement without the prior written consent of the Credit Obligor.
Prior to the payment in full of the Indenture Indebtedness, the Issuer and the
User shall have no power to modify, alter, amend or terminate this Loan
Agreement without the prior written consent of the Trustee and then only as
provided in the Indenture. The Issuer will not amend the Indenture or any
indenture supplemental thereto without the prior written consent of the User.

 

(b)    This Loan Agreement may not be amended unless there has first been
delivered to the Trustee, the Credit Obligor, the User and the Remarketing Agent
an Opinion of Bond Counsel that such action will not, whether solely or in
conjunction with any other fact or circumstance, cause the interest on the Bonds
to be or to become Taxable.

 

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IN WITNESS WHEREOF, the Issuer and the User have caused this Loan Agreement to
be executed, sealed and attested in their respective names by officers thereof
duly authorized thereunto.

 

DOTHAN-HOUSTON COUNTY AIRPORT AUTHORITY

 

By:                     /s/Dick Bell                    

 

    Chair

 

S E A L

 

Attest:                                         

                    Secretary

 

PEMCO AVIATION GROUP, INC.

 

By:                     /s/John R. Lee                    

 

    Its

 

S E A L        

 

Attest:                                         

 

            Its                                         

 

 

 

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