Exhibit 10.10

 

LETTER OF CREDIT APPLICATION AND

REIMBURSEMENT AGREEMENT

 

BETWEEN

PEMCO AVIATION GROUP, INC.

and

SOUTHTRUST BANK

 

Dated as of November 26, 2002

 

 

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Table of Contents

 

                   

Page

Article I

  

1

    

1.

  

DEFINITIONS

  

1

         

1.1

  

Defined Terms

  

1

Article II.

  

8

    

2.

  

AMOUNT AND TERMS OF THE LETTER OF CREDIT

  

8

         

2.1

  

The Letter of Credit

  

8

         

2.2

  

Issuing the Letter of Credit

  

8

         

2.3

  

Reimbursement and Other Payments

  

9

         

2.4

  

Payments and Computations

  

10

         

2.5

  

Payment on Non-Business Days

  

10

         

2.6

  

Obligations Absolute

  

10

         

2.7

  

Security

  

11

Article III

  

11

    

3.

  

CONDITIONS OF ISSUANCE

  

11

         

3.1

  

Conditions Precedent to Issuance of the Letter of Credit

  

11

         

3.2

  

Additional Conditions Precedent to Issuance of the Letter of Credit

  

12

Article IV

  

12

    

4.

  

REPRESENTATIONS AND WARRANTIES

  

12

         

4.1

  

Existence

  

12

         

4.2

  

Authority

  

13

         

4.3

  

Consents or Approvals

  

13

         

4.4

  

Violations or Actions Pending

  

13

         

4.5

  

Subsidiaries

  

13

         

4.6

  

Existing Indebtedness

  

13

         

4.7

  

Tax Returns

  

13

         

4.8

  

Financial Statements

  

13

         

4.9

  

Good and Marketable Title

  

14

         

4.10

  

Solvency

  

14

         

4.11

  

ERISA Compliance

  

14

         

4.12

  

Priority of Liens

  

14

         

4.13

  

Accuracy of Documents

  

14

         

4.14

  

Restrictions and Covenants Affecting the Mortgaged Property

  

14

         

4.15

  

Condemnation

  

14

         

4.16

  

Official Statement

  

14

         

4.17

  

Representations and Warranties of Related Documents

  

14

 

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Article V

  

14

    

5.

  

BORROWER’S COVENANTS

  

14

         

5.1

  

Affirmative Covenants

  

15

         

5.2

  

Negative Covenants

  

17

         

5.3

  

Financial Covenants

  

17

         

5.4

  

Mandatory Bond Retirement

  

17

         

5.5

  

Fixed Rate Election

  

18

Article VI

  

18

    

6.

  

EVENTS OF DEFAULT

  

18

         

6.1

  

Events of Default

  

18

         

6.2

  

Acceleration

  

19

         

6.3

  

Special Remedies as to Letter of Credit

  

19

         

6.4

  

General Remedies

  

21

         

6.5

  

Right of Set-Off

  

21

         

6.6

  

No Limitation on Rights and Remedies

  

21

Article VII

  

21

    

7.

  

MISCELLANEOUS

  

21

         

7.1

  

Amendments, Etc

  

21

         

7.2

  

Notices, Etc

  

21

         

7.3

  

Accounting Terms

  

22

         

7.4

  

Indemnification

  

22

         

7.5

  

Liability of Bank

  

22

         

7.6

  

Costs, Expenses and Taxes

  

22

         

7.7

  

Approval of Disbursements by Trustee

  

23

         

7.8

  

Further Assurances

  

23

         

7.9

  

Survival of Representations and Warranties

  

23

         

7.10

  

Counterparts

  

23

         

7.11

  

Binding Effect

  

23

         

7.12

  

Severability

  

24

         

7.13

  

Jurisdiction, Etc

  

24

         

7.14

  

Governing Law

  

24

         

7.15

  

Headings

  

24

    

EXHIBIT A     LETTER OF CREDIT

  

26

 

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LETTER OF CREDIT APPLICATION AND REIMBURSEMENT AGREEMENT

 

THIS LETTER OF CREDIT APPLICATION AND REIMBURSEMENT AGREEMENT is dated as of
October 1, 2002, between PEMCO AVIATION GROUP, INC., a Delaware corporation (the
“Borrower”), and SOUTHTRUST BANK, an Alabama banking corporation (the “Bank”).

 

WHEREAS, Borrower has requested the Dothan-Houston County Airport Authority (the
“Issuer”) to finance a portion of the cost of the construction of buildings,
structures, facilities, improvements at the Dothan Regional Airport and the
installation of equipment, machinery and related property and facilities therein
(the “Project”) with the proceeds of $2,500,000.00 in aggregate principal amount
of the Issuer’s Variable/Fixed Rate Revenue Bonds (Pemco Aviation Group, Inc.
Project) (the “Bonds”), all as more specifically set forth in that certain Loan
Agreement dated as of October 1, 2002 (the “Loan Agreement”) between the Issuer
and Borrower and that certain Trust Indenture dated as of October 1, 2002 (the
“Trust Indenture”) between the Issuer and SouthTrust Bank (the “Trustee”); and

 

WHEREAS, Borrower has requested that Bank issue to the Trustee, for the account
of Borrower, that certain Letter of Credit naming the Trustee as beneficiary, in
substantially the form of Exhibit “A” hereto (the “Letter of Credit”), to
provide a liquidity facility for payment of the purchase price of the Bonds upon
the mandatory or optional tender thereof and to provide a credit facility for
payment of the principal of and interest on the Bonds on the scheduled due dates
and upon redemption or acceleration.

 

NOW, THEREFORE, in consideration of the premises and in order to induce Bank to
issue the Letter of Credit, the parties hereto agree as follows:

 

DEFINITIONS.

Defined Terms.    As used herein:

 

For the purposes of this Agreement:

 

“Adjusted Funded Debt” means, for any applicable Person as of an applicable
date, Funded Debt less Long-Term Unfunded Pension Liability.

 

“Adjusted Liabilities” means, for any applicable Person as of an applicable
date, Liabilities less Long-Term Unfunded Pension Liability and Subordinated
Debt.

 

“Adjusted Tangible Net Worth” means, for any applicable Person as of an
applicable date, (a) the total stockholder’s (or equivalent owner’s) equity of
such Person (adjusted to take into account the Unfunded Pension Liability
Adjustment), plus (b) the Subordinated Debt of such Person, and (c) excluding,
without duplication (to the extent reflected in determining stockholders’ (or
equivalent owner’s) equity of such Person) (i) accumulated depreciation and
amortization; and (ii) the aggregate amount of Intangible Assets of such Person
and the aggregate amount of Affiliate Assets of such Person (other than
Intangible Assets taken into account with respect to the Unfunded Pension
Liability Adjustment).

 

“Affiliate” means, with respect to any applicable Person, (a) any officers or
directors of such Person, or (b) any other Person that has a relationship with
the applicable Person whereby either of such Persons directly or indirectly
controls or is controlled by or is under common control with

 

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the other of such Persons. The term “control” means the possession, directly or
indirectly, of the power, whether or not exercised to direct or cause the
direction of the management or policies of any Person, whether through ownership
of voting securities, by contract or otherwise.

 

“Affiliate Assets” means, for any applicable Person as of an applicable date,
the total amount of all assets of the applicable Person arising out of contracts
or agreements with Affiliates, including, but not limited to, any notes
receivable.

 

“Amortization Expense” means the amortization expense of Borrower for the
applicable period (to the extent included in the computation of Net Income
(Loss)), determined in accordance with Generally Accepted Accounting Principles.

 

“Annualized Rolling Period” means the period from the date one year prior to the
applicable date through the applicable date.

 

“Bank” means SouthTrust Bank, an Alabama banking corporation.

 

“Base Rate” means the rate of interest periodically designated by Bank as its
Base Rate. The Base Rate is not necessarily the lowest interest rate charged by
Bank.

 

“Bond Documents” means the Loan Agreement, the Trust Indenture, and any other
document relating to the issuance of the Bonds.

 

“Bonds” means the $2,500,000.00 in aggregate principal amount of the Issuer’s
Variable/Fixed Rate Revenue Bonds (Pemco Aviation Group, Inc. Project).

 

“Borrower” means Pemco Aviation Group, Inc., a Delaware corporation.

 

“Borrower Parties” means, collectively, Borrower and PWAS; and “Borrower Party”
means any one of the Borrower Parties, singularly.

 

“Code” means the Internal Revenue Code of 1986, as amended.

 

“Commitment Letter” means that certain commitment letter dated March 18, 2002,
from Bank to Borrower.

 

“Consolidated Basis” means the consolidation of the assets, liabilities, income
and losses, as applicable, of Borrower and its Consolidated Subsidiaries,
together with a separate statement of each of the foregoing for each Person
whose assets, liabilities, income and losses are the subject of the
consolidation.

 

“Consolidated Subsidiaries” means, with respect to an applicable Person, any
subsidiary of such Person the accounts of which are required to be consolidated
with those of such Person in its consolidated financial statements in accordance
with generally accepted accounting principles.

 

“Default” means the occurrence of an event described in Article VI hereof
regardless of whether there shall have occurred any passage of time or giving of
notice that would be necessary in order to constitute such event as an Event of
Default.

 

“Depreciation Expense” means the depreciation expense of Borrower for the
applicable period (to the extent included in the computation of Net Income
(Loss)), determined in accordance with Generally Accepted Accounting Principles.

 

“EBITDA” means, for any applicable Person for any applicable period, the Net
Income (Loss) of such Person for such period, plus (a) the sum of the following
amounts of such Person for such period to the extent included in the
determination of such Net Income (Loss): (i) Depreciation Expense, (ii)
Amortization Expense and other noncash charges, (iii) Interest Expense, (iv)
Income Tax Expense, and (v) non-cash losses on asset sales for such Person; less
(b) Extraordinary Receipts (and other gains on asset sales not otherwise
included in Extraordinary Receipts) for such Person.

 

“Environmental Laws” means all Laws of any Jurisdiction relating to the
governance or protection of the environment, including without limitation, the
Comprehensive Environmental Response Compensation and Liability Act of 1980
(“CERCLA”), as amended (42 U.S.C. Sections 9601, et seq.), the Hazardous
Materials Transportation Act, as amended (49 U.S.C. Sections 1801, et

 

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seq.), the Resource Conservation and Recovery Act (“RCRA”), as amended (42
U.S.C. Sections 6901, et seq.), the Clean Water Act, as amended (42 U.S.C.
Sections 7401, et seq.), the Toxic Substances Control Act, as amended (15 U.S.C.
Sections 2601, et seq.).

 

“Equity Interests” means any and all ownership or other equitable interests in
the applicable Person, including any interest represented by any capital stock,
membership interest, partnership interest, or similar interest, but specifically
excluding any interest of any Person solely as a creditor of the applicable
Person.

 

“Equity Owner” means any Person owning an Equity Interest.

 

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended
and in effect from time to time, and the regulations and published
interpretations thereof.

 

“Event of Default” means the occurrence of an event described in Article VI
hereof provided that there shall have occurred any passage of time or giving of
notice that would be necessary in order to constitute such event as an Event of
Default under Article VI.

 

“Existing Indebtedness” means Indebtedness of Borrower owing as of the date of
this Agreement.

 

“Expiration Date” means the Expiration Date under and as defined in the Letter
of Credit.

 

“Extraordinary Receipt” means any cash received by or paid to or for the account
of any Person not in the Ordinary Course of Business, including, without
limitation, tax refunds, pension plan reversions, proceeds of insurance (other
than proceeds of business interruption insurance to the extent such proceeds
constitute compensation for lost earnings), condemnation awards (and payments in
lieu thereof) and indemnity payments.

 

“Financial Statements” means the audited balance sheet and income statement of
Borrower dated as of December 31, 2001, as supplemented by the Form 10-Q as of
each Quarter-End through the Quarter-End of March 31, 2002.

 

“Financing Statements” means the UCC-1 financing statements (including any
amendments and continuations) and UCC-3 financing statements required hereunder.

 

“Fixed Charge Coverage Ratio” means, for any applicable Person for any
applicable period, the ratio of (a) the Operating Income of such Person, to (b)
the Fixed Charges incurred by such Person.

 

“Fixed Charges” means, for any applicable Person for any applicable period, the
sum of (without duplication) (a) Interest Expense and Lease Expense for such
period; plus (b) regularly scheduled principal payments on Indebtedness of such
Person during such period, including, without limitation, the principal
component of all payments made in respect of capitalized lease obligations, but
excluding any scheduled balloon, bullet or similar principal payment which
repays such Indebtedness in full; plus (c) all payments made in respect of any
Unfunded Pension Liability.

 

“Funded Debt” means, for any applicable Person as of an applicable date, all
indebtedness of such Person, other than indebtedness that is accounts payable,
accrued expenses or other current liabilities not incurred through the borrowing
of money.

 

“Generally Accepted Accounting Principles” means generally accepted principles
of accounting in effect from time to time in the United States applied in a
manner consistent with those used in preparing such financial statements as have
theretofore been furnished to Bank by the applicable Person.

 

“Governing Body” means the board of directors of a Person (or any Person or
group of Persons exercising similar authority).

 

“Governmental Approvals” means all authorizations, consents, approvals, licenses
and exemptions of, registrations and filings with, and reports to, all
governmental bodies.

 

“Governmental Authority” means any nation or government and any political
subdivision thereof, and any entity exercising executive, legislative, judicial,
regulatory, or administrative functions of or pertaining thereto, which has or
asserts jurisdiction over Bank, any Borrower Party, or any

 

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property of any of them.

 

“Guaranty”, “Guaranteed” or to “Guarantee” as applied to any obligation means
and includes:

a guaranty (other than by endorsement of negotiable instruments for collection
in the ordinary course of business), directly or indirectly, in any manner, of
any part of all of such obligation, or an agreement, direct or indirect,
contingent or otherwise, and whether or not constituting a guaranty, the
practical effect of which is to assure the payment or performance (or payment of
damages in the event of nonperformance) of any part or all of such obligation
whether by the purchase of securities or obligations, the purchase, sale or
lease (as lessee or lessor) of property or the purchase or sale of services
primarily for the purpose of enabling the obligor with respect to such
obligation to make any payment or performance (or payment of damages in the
event of nonperformance) of or on account of any part or all of such obligation,
or to assure the owner of such obligation against loss, the supplying of funds
to or in any other manner investing in the obligor with respect to such
obligation, repayment of amounts drawn down by beneficiaries of letters of
credit, or the supplying of funds to or investing in a Person on account of all
or any part of such Person’s obligation under a Guaranty of any obligation or
indemnifying or holding harmless, in any way, such Person against any part or
all of such obligation.

 

“Hazardous Materials” and “Hazardous Substances” means “hazardous materials” and
“hazardous substances” as defined under any applicable Environmental Law.

 

“Income Tax Expense” means the income tax expense of Borrower for the applicable
period (to the extent included in the computation of Net Income (Loss)),
determined in accordance with Generally Accepted Accounting Principles.

 

“Indebtedness” means all items of indebtedness, obligation or liability, whether
matured or unmatured, liquidated or unliquidated, direct or contingent, joint or
several, including, but without limitation or duplication:

 

  (A)   All indebtedness guaranteed, directly or indirectly, in any manner, or
endorsed (other than for collection or deposit in the Ordinary Course of
Business) or discounted with recourse;

 

All indebtedness in effect guaranteed, directly or indirectly, through
agreements, contingent or otherwise:

 

to purchase such indebtedness; or

 

to purchase, sell or lease (as lessee or lessor) property, products, materials
or supplies or

 

to purchase or sell services, primarily for the purpose of enabling the debtor
to make payment of such indebtedness or

 

to assure the owner of the indebtedness against loss; or

 

to supply funds to or

 

in any other manner invest in the debtor;

 

All indebtedness secured by (or which the holder of such indebtedness has a
right, contingent or otherwise, to be secured by) any Lien upon property owned
or acquired subject thereto, whether or not the liabilities secured thereby have
been assumed; and

 

All indebtedness incurred as the lessee of goods or services under leases that,
in accordance with Generally Accepted Accounting Principles, should not be
reflected on the lessee’s balance sheet.

 

“Intangible Assets” means, for any applicable Person as of an applicable date,
the total amount of all assets of such Person consisting of goodwill patents,
trade names, trademarks, copyrights, franchises, experimental expense,
organization expense, unamortized debt discount and expense, deferred assets
(other than prepaid insurance and prepaid taxes), the excess of cost of shares
acquired over book value of related assets and such other assets as are properly
classified as “intangible assets” in accordance with generally accepted
accounting principles.

 

4

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“Interest Expense” means the interest expense of Borrower for the applicable
period (to the extent included in the computation of Net Income (Loss)),
determined in accordance with Generally Accepted Accounting Principles.

 

“Laws” means each and all laws, treaties, ordinances, statutes, rules,
regulations, orders, injunctions, writs or decrees of any Governmental
Authority, or any court or similar entity established by any thereof, whether
now in effect or hereafter enacted.

 

“Lease Expense” means the lease expense of Borrower with respect to operating
leases for the applicable period (to the extent included in the computation of
Net Income (Loss)), determined in accordance with Generally Accepted Accounting
Principles (and specifically excluding any capitalized lease obligations).

 

“Letter of Credit” means that certain Letter of Credit to be issued by Bank, for
the account of Borrower, naming the Trustee as beneficiary, in substantially the
form of Exhibit “A” hereto, as it may be amended, modified or supplemented from
time to time.

 

“Liabilities” means, for any applicable Person as of an applicable date, all
indebtedness of such Person that should be classified as liabilities on a
balance sheet according to generally accepted accounting principles.

 

“Lien” means any mortgage, pledge, encumbrance, charge, security interest,
assignment or other preferential arrangement of any nature whatsoever, including
any conditional sale agreement or other title retention agreement.

 

“Loan Agreement” means that certain Loan Agreement dated as of October 1, 2002,
between Issuer and Borrower, as amended from time to time.

 

“Long-Term Unfunded Pension Liability” means, for any applicable Person as of an
applicable date, any Unfunded Pension Liability with respect to which no payment
is required to be made within one (1) year of the applicable date.

 

“Material Adverse Change” means the occurrence of an event giving rise to a
Material Adverse Effect.

 

“Material Adverse Effect” means a material adverse effect on (a) the business,
condition (financial or otherwise), operations, performance, properties or
prospects of any Borrower Party, (b) the rights and remedies of Bank under this
Agreement or any Related Document or (c) the ability of any Borrower Party to
perform its Obligations under this Agreement or any Related Document to which it
is or is to be a party.

 

“Mortgage” means that certain Leasehold Mortgage/Mortgage and Security Agreement
dated of even date herewith from Borrower Parties to Bank, together with any and
all extensions, revisions, modifications or amendments at any time made thereto.

 

“Mortgaged Property” means the “Mortgaged Property” as defined in the Mortgage.

 

“Net Income (Loss)” means the net income (loss) of Borrower for the applicable
period as determined in accordance with Generally Accepted Accounting
Principles, but excluding for purposes of determining any financial ratios under
this Agreement, all Extraordinary Receipts and any Income Tax Expense on such
Extraordinary Receipts and any tax deductions or credits on account of such
Extraordinary Receipts.

 

“Obligations” means the obligations (including obligations of performance) and
liabilities of any Person to Bank of every kind and description whatsoever,
direct or indirect, absolute or contingent, due or to become due, now existing
or hereafter incurred, contracted or arising, or acquired by Bank from any
source, joint or several, liquidated or unliquidated, whether incurred as maker,
endorser, surety, guarantor, general partner, drawer, tort-feasor, indemnitor,
account party with respect to a letter of credit or otherwise, and arising
under, pursuant to, and/or in connection with this Agreement, the Letter of
Credit, and any of the other Related Documents, and any and all extensions and
renewals of any of the same, including but not limited to the

 

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obligation:

 

  (B)   To repay to Bank all amounts paid by Bank under the Letter of Credit or
advanced by Bank under this Agreement, under any of the Related Documents or
otherwise on behalf of any Borrower Party;

 

To pay, repay or reimburse to Bank all obligations under any agreements designed
to provide protection for fluctuations in interest rates, exchange rates, or
forward rates, including, without limitation, interest rate exchange agreements,
foreign currency exchange agreements, foreign rate currency or interest rate
options, puts, warrants, and those commonly known as interest rate “swap”
agreements, and any interest rate cap or collar protection agreements; and

 

To reimburse Bank, on demand, for all of Bank’s expenses and costs, including
the fees and expenses of its counsel, in connection with the preparation,
administration, amendment, modification, or enforcement of this Agreement and
the documents required hereunder, including, without limitation, any proceeding
brought or threatened to enforce payment of any of the obligations referred to
in the foregoing paragraphs (A) and (B).

 

“Official Statement” means that certain Official Statement to be dated as of the
date of issuance of the Bonds.

 

“Operating Income” means, for any applicable Person for any applicable period,
EBITDA of such Person for such period, less Income Tax Expense (to the extent
included in the determination of Net Income (Loss) of such Person), plus Lease
Expense (to the extent included in the determination of Net Income (Loss) of
such Person).

 

“Ordinary Course of Business” means an action taken by a Person only if:

 

  (C)   Such action is consistent with the past practices of such Person and is
taken in the ordinary course of the normal day-to-day operations of such Person;

 

Such action is not required to be authorized by the Governing Body of such
Person; and

 

Such action is similar in nature and magnitude to actions customarily taken,
without any authorization by any Governing Body, in the ordinary course of the
normal day-to-day operations of other Persons that are in the same line of
business as such Person.

 

“Permitted Liens” means:

 

  (D)   Liens granted to Bank pursuant to the Mortgage;

 

Liens for ad valorem taxes not yet due and payable;

 

Liens granted by Borrower to (i) Wells Fargo Business Credit, Inc. as reflected
by a financing statement filed with the Alabama Secretary of State, number
B2000-39301, and (ii) General Electric Capital Corporation as reflected by two
financing statements filed with the Alabama Secretary of State, numbers
B2001-40438 and B2001-40439;

 

Liens granted by PWAS to (i) Wells Fargo Business Credit, Inc. as reflected by
two financing statements filed with the Alabama Secretary of State, numbers
B2000-41281 and B2001-04142, and (ii) Green Tree Vendor Services Group (as
assigned to Wells Fargo Financial Leasing, Inc.) as reflected by a financing
statement filed with the Alabama Secretary of State, number B1999-14747;

 

The following Liens, if the granting of such Lien or the attachment of such Lien
to the Mortgaged Property (i) does not otherwise constitute a Default under the
terms of this Agreement, and (ii) does not give rise to a Material Adverse
Change:

 

if the validity or amount thereof is being contested in good faith by
appropriate and lawful proceedings, so long as levy and execution thereon have
been stayed and continue to be stayed:

 

Liens for taxes, assessments or charges due and payable and subject to interest
or penalty;

 

Liens upon, and defects of title to, real or personal property, including any
attachment of personal or real property or other legal process prior to
adjudication of a dispute on the merits;

 

Liens of mechanics, materialmen, warehousemen, carriers, or other like Liens;
and

 

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Adverse judgments on appeal;

 

Pledges or deposits made in the Ordinary Course of Business to secure payment of
workmen’s compensation, or to participate in any fund in connection with
workmen’s compensation, unemployment insurance, old-age pensions or other social
security programs;

 

Good faith pledges or deposits made in the Ordinary Course of Business to secure
performance of bids, tenders, Contracts (other than for the repayment of
borrowed money) or leases, not in excess of ten percent (10%) of the aggregate
amount due thereunder, or to secure statutory obligations, or surety, appeal,
indemnity, performance or other similar bonds required in the Ordinary Course of
Business; and

 

Purchase money security interests granted in the Ordinary Course of Business to
secure not more than one hundred percent (100%) of the purchase price of assets.

 

“Person” means any individual, corporation, partnership, association,
joint-stock company, trust, unincorporated organization, joint venture, court or
Governmental Authority.

 

“Plans” means, collectively, all Borrower’s Single Employer Plans and Multiple
Employer Plans, both as defined in ERISA, and “Plan” means any one of the Plans,
singularly.

 

“Project” means construction of buildings, structures, facilities, improvements
at the Dothan Regional Airport and the installation of equipment, machinery and
related property and facilities therein.

 

“PWAS” means Pemco World Air Services, Inc., a Delaware corporation.

 

“Quarter” means a period of time of three consecutive calendar months.

 

“Quarter-End” means the last day of each of March, June, September, and
December.

 

“Records” means correspondence, memoranda, tapes, discs, microfilm, microfiche,
papers, books and other documents, or transcribed information of any type,
whether expressed in ordinary or machine language, and all filing cabinets and
other containers in which any of the foregoing is stored or maintained.

 

“Related Documents” means the Letter of Credit, the Mortgage, the Financing
Statements, and any other agreement or instrument relating thereto.

 

“Solvent” and “Solvency” mean, 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, without limitation, 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 such debts and
liabilities as they mature and (d) such Person is not engaged in business or a
transaction, and is not about to engage in business or a transaction, for which
such Person’s property would constitute an unreasonably small capital. The
amount of contingent liabilities at any time shall be computed as the amount
that, in the light of all the facts and circumstances existing at such time,
represents the amount that can reasonably be expected to become an actual or
matured liability.

 

“Stockholders’ Equity” means, at any time, the sum of the following accounts set
forth in a balance sheet of a Person, adjusted to U.S. Dollars by means of
applicable foreign currency exchange rates and prepared in accordance with
Generally Accepted Accounting Principles consistently applied:

 

  (E)   The par or stated value of all outstanding Equity Interests;

 

Capital surplus; and

 

Retained earnings.

 

“Subordinated Debt” means any Indebtedness if and to the extent the same is the
subject of a Subordination Agreement.

 

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“Subordination Agreement” means any Subordination Agreement at any time entered
into and approved by Bank as a Subordination Agreement under this Agreement.

 

“Subsidiary” means any Person of which more than fifty percent (50%) of the
outstanding Equity Interests shall, at the time of determination, be owned by
Borrower, directly or indirectly, through one or more intermediaries.

 

“Tangible Net Worth” means, at any time, Stockholders’ Equity, plus Subordinated
Debt, less the sum of:

 

  (F)   Any surplus resulting from any write-up of assets subsequent to the date
of Closing;

 

Goodwill, including any amounts, however designated on a balance sheet of
Borrower, representing the excess of the purchase price paid for assets or stock
acquired over the value assigned thereto on the books of Borrower;

 

Patents, trademarks, trade names and copyrights;

 

Any amount at which shares of Equity Interests of Borrower appear as an asset on
Borrower’s balance sheet;

 

Loans and advances to Affiliates, stockholders, directors, officers or
employees;

 

Deferred expenses;

 

Equity investment(s) in Affiliates of any nature; and

 

Any other amount in respect of an intangible that, in accordance with Generally
Accepted Accounting Principles, should be classified as an asset on a balance
sheet of Borrower.

 

“Third Party” means a Person not a party to this Agreement.

 

“Trustee” means SouthTrust Bank, as Trustee under the Trust Indenture.

 

“Trust Indenture” means that certain Trust Indenture, dated as of October 1,
2002, between the Issuer and the Trustee.

 

“Unfunded Pension Liability” means, with respect to any plan or multiemployer
plan of any applicable Person as of an applicable date, the excess of its
benefit liabilities under ERISA over the current value of its assets, determined
in accordance with the applicable assumptions used for funding under the
Internal Revenue Code for the applicable plan year.

 

“Unfunded Pension Liability Adjustment” means the amount by which the balance
sheet of the Borrower is affected on account of Borrower’s Unfunded Pension
Liability arising under Borrower’s Defined Benefit Pension Plan, including
balance sheet entries for long-term pension benefit liability, comprehensive
loss, intangible pension asset, and deferred tax.

 

“Uniform Commercial Code” means the Uniform Commercial Code as in effect from
time to time in any applicable jurisdiction.

 

“Voting Power” means, with respect to any Person, the right to vote for the
election of the Governing Body of such Person under ordinary circumstances.

 

“Without Notice” means without demand of performance or other demand,
advertisement, or notice of any kind to or upon the applicable Person.

 

AMOUNT AND TERMS OF THE LETTER OF CREDIT.

The Letter of Credit.    Borrower hereby requests and instructs Bank to issue
the Letter of Credit on the terms and conditions herein set forth.

 

Issuing the Letter of Credit.    Bank agrees to issue the Letter of Credit on
the date of the delivery of the Bonds to the original purchaser or purchasers
thereof, subject to the terms and conditions herein set forth.

 

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Reimbursement and Other Payments.

 

Subject to the following provisions of this Section 2.3, Borrower hereby agrees
to pay to Bank, but only after Bank honors any draft presented under the Letter
of Credit, (i) no later than the end of the first Business Day following the day
on which Bank shall pay any draft presented under the Letter of Credit a sum
equal to the amount so paid under the Letter of Credit, plus (ii) interest on
any amount remaining unpaid by Borrower to Bank under clause (i) above from and
including the date such amount becomes payable until payment in full, at such
fluctuating interest rate per annum as shall be in effect from time to time,
which rate per annum shall at all times be equal to the Base Rate plus three
percent (3.0%), the rate of interest payable hereunder to change concurrently
with each change in the Base Rate, but in no event shall such fluctuating
interest rate be higher than the maximum rate permitted by applicable Laws.

 

Notwithstanding the foregoing, if no Event of Default exists hereunder, and if
Bank honors any draft presented under the Letter of Credit to pay the Purchase
Price of Tendered Bonds (a “Purchase Drawing”), Borrower shall not be obligated
to pay the amounts set forth in paragraph (A) immediately preceding and instead
such amount shall be paid as follows:

 

On the first day of each month following the date of the Purchase Drawing, and
on the first day of each month thereafter until the entire Purchase Drawing is
paid in full, Borrower shall pay to Bank all accrued and unpaid interest on the
outstanding balance of the Purchase Drawing, interest to accrue at the Base
Rate.

 

On the first day of each of January, April, July and October, Borrower shall pay
to Bank a principal payment in an amount equal to the quotient obtained by
dividing the principal amount of the Purchase Drawing by the number of quarterly
payment dates from the date of the Purchase Drawing through October 1, 2017.

 

If not earlier demanded pursuant to Article VI hereof, the outstanding principal
balance of the Purchase Drawing, together with all accrued and unpaid interest
thereon, shall be due and payable to Bank on the earlier of (i) the Expiration
Date, or (ii) September 30, 2017.

 

Any Purchase Drawing may be prepaid by Borrower on any date without premium or
penalty.

 

If Debt Service (as defined in the Indenture) is received by Bank with respect
to Pledged Bonds (as defined in the Indenture) the amount so received shall be
credited first against interest payable on the unreimbursed amount of the
related Purchase Drawing, and the balance shall be credited against the amount
of such Purchase Drawing.

 

Borrower hereby agrees to pay to Bank an annual letter of credit commission with
respect to the amount available to be drawn under the Letter of Credit, computed
at the rate of one percent (1.0%) per annum of the Stated Amount (as defined in
the Letter of Credit) of the Letter of Credit, as reduced from time to time;
until the Expiration Date, the first such annual commission to be payable in
advance on the date of issuance of the Letter of Credit, and each other such
annual commission to be payable on or before October 1 of each year thereafter
until the Expiration Date. Upon termination of the Letter of Credit and the
return of the original thereof to Bank, within ten (10) days thereof Bank shall
pay to Borrower a refund of any annual letter of credit commission equal to the
product of (i) the amount of the annual letter of credit commission theretofore
paid, multiplied by (ii) the number of days remaining through October 1 of the
applicable year from the date the Letter of Credit is terminated and returned,
divided by 365 days.

 

If any change in any Law or regulation or in the interpretation thereof by any
court or Governmental Authority charged with the administration thereof or any
compliance by Bank with any guideline or request from any central bank or
Governmental Authority (whether or not having the force of law) shall either (i)
affect, impose, modify or deem applicable any reserve, special deposit, capital
maintenance or similar requirement against letters of credit (or similar
contingent obligations) issued by, or amount of capital required or expected to
be maintained by, or assets

 

 

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held by, or deposits in or for the account of, Bank or any corporation
controlling Bank or (ii) impose on Bank or any corporation controlling Bank any
other condition regarding this Agreement or the Letter of Credit, and the result
of any event referred to in the preceding clause (i) or (ii) shall be to
increase the cost to Bank or any corporation controlling Bank of issuing or
maintaining the Letter of Credit (which increase in cost shall be determined by
Bank’s reasonable allocation of the aggregate of such cost increases resulting
from any such event), then, upon demand by Bank, Borrower shall immediately pay
to Bank, from time to time as specified by Bank, additional amounts which shall
be sufficient to compensate Bank or any corporation controlling Bank for such
increased cost. A certificate as to such increased cost incurred by Bank as a
result of any event mentioned in clause (i) or (ii) above, submitted by Bank to
Borrower, shall, in the absence of manifest error, be conclusive and binding for
all purposes.

 

Borrower hereby agrees to pay to Bank, on demand, sums equal to any and all
reasonable charges and expenses which Bank may pay or incur, and all other
customary charges of Bank, relative to the issuance of the Letter of Credit or
to any payment by Bank thereunder.

 

Payments and Computations.    Borrower shall make each payment hereunder not
later than 12:00 p.m. (Central Time) on the day when due in lawful money of the
United States of America to Bank at its address referred to in Section 7.2
hereof in same day funds. Borrower hereby authorizes Bank, if and to the extent
payment is not made when due hereunder, to charge from time to time against
Borrower’s account with Bank any amount so due. Computations of interest and
letter of credit commission due hereunder shall be made by Bank on the basis of
a year of 365 days for the actual number of days (including the first day but
excluding the last day) elapsed.

 

Payment on Non-Business Days.    Whenever any payment to be made hereunder shall
be stated to be due on a day which is not a Business Day, such payment may be
made on the next succeeding Business Day, and such extension of time shall in
such case be included in the computation of payment of interest or letter of
credit commission, as the case may be.

 

Obligations Absolute.    The obligations of Borrower under this Agreement shall
be unconditional and irrevocable, and shall be paid strictly in accordance with
the terms of this Agreement under all circumstances, including, without
limitation, the following circumstances:

 

any lack of validity or enforceability of any of the Related Documents;

 

any amendment or waiver of or any consent to departure from all or any of the
Related Documents;

 

the existence of any claim, set-off, defense or other right which Borrower may
have at any time against the Trustee, any beneficiary or any transferee of the
Letter of Credit (or any Persons for whom the Trustee, any such beneficiary or
any such transferee may be acting), Bank or any other Person, whether in
connection with this Agreement, the transactions contemplated herein or in the
Related Documents or any unrelated transaction;

 

any statement or any other document presented under the Letter of Credit proving
to be forged, fraudulent, invalid or insufficient in any respect or any
statement therein or made in connection therewith being untrue or inaccurate in
any respect;

 

any non-application or misapplication by the Trustee or otherwise of the
proceeds of any drawing under the Letter of Credit;

 

payment by Bank under the Letter of Credit against presentation of a draft or
certificate which does not strictly comply with the terms of the Letter of
Credit, provided the same shall not have constituted gross negligence or wilful
misconduct by Bank;

 

the failure by Bank to honor any drawing under the Letter of Credit, provided
the same shall not

 

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have constituted gross negligence or wilful misconduct by Bank; and

 

any other circumstance or happening whatsoever, whether or not similar to any of
the foregoing, provided the same shall not have constituted gross negligence or
wilful misconduct by Bank.

 

Security.    As security for the Obligations, Borrower Parties have agreed to
execute and deliver the Mortgage.

 

CONDITIONS OF ISSUANCE.

 

Conditions Precedent to Issuance of the Letter of Credit.    Except as may be
waived by Bank in its discretion, the obligation of Bank to issue the Letter of
Credit is subject to the condition precedent that Bank shall have received on or
before the day of issuance of the Letter of Credit the following, in form and
substance satisfactory to Bank:

 

This Agreement;

 

The Mortgage, together with the following:

 

evidence that the Mortgage has been duly recorded in all filing or recording
offices that Bank may deem necessary or desirable in order to create a valid
Lien on the Mortgaged Property in favor of Bank and that all filing and
recording taxes and fees have been paid,

 

a standard American Land Title Association form title insurance policy with
respect to the Mortgaged Property and acceptable to Bank in its discretion, with
endorsements and in an amount acceptable to Bank, issued by a title insurance
company acceptable to Bank, insuring the Mortgage to be a valid Lien on the
Mortgaged Property, free and clear of all Liens (including, but not limited to,
mechanics’ and materialmen’s liens), excepting only Liens approved by Bank in
its discretion, and providing for such other affirmative insurance (including
endorsements for future advances and for mechanics’ and materialmen’s liens),

 

such consents and agreements of lessors, lessees, and other third parties, and
such estoppel letters and other confirmations, as Bank may deem necessary or
desirable,

 

evidence of the insurance required by the terms of this Agreement and/or the
Mortgage, and

 

evidence that all other action that Bank may deem necessary or desirable in
order to create a valid Lien on the Mortgaged Property has been taken;

 

The Financing Statements;

 

Certified copies of (i) the resolutions of the Board of Directors of the
Borrower Parties approving, as applicable, the execution, delivery and
performance of this Agreement and the Related Documents and the other matters
contemplated hereby and of all other documents evidencing any other necessary
corporate action; and (ii) the Articles of Incorporation and By-Laws of each
Borrower Party;

 

A certificate of the Secretary or an Assistant Secretary of each Borrower Party,
certifying the names and true signatures of the officers of the applicable
Borrower Party authorized to sign this Agreement, the Related Documents and the
other documents to be delivered by the applicable Borrower Party hereunder, upon
which Bank may conclusively rely until a replacement certificate is provided
therefor.

 

A certificate, as of the most recent date practicable, of the secretary of state
(or similar appropriate governmental authority) and department of revenue or
taxation (or similar appropriate governmental authority) of each jurisdiction in
which each Borrower Party is organized as to the existence and good standing of
each such Borrower Party within such jurisdiction, and a certificate, as of the
most recent date practicable, of the secretary of state (or similar appropriate
governmental authority) of each state where any of the Mortgaged Property is
located as to the qualification and good standing of each Borrower Party as a
foreign entity doing

 

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business in each such state;

 

Letters and/or certificates, in form and substance satisfactory to Bank,
attesting to the Solvency of each Borrower Party after giving effect to the
transactions contemplated hereby, from its chief financial officer or vice
president of finance;

 

UCC-11 reports showing no Liens superior to the Lien granted by Borrower Parties
under the Mortgage;

 

A survey of the Mortgaged Property by a land surveyor duly registered and
licensed in the state in which the Mortgaged Property is located and acceptable
to Bank, and either (i) evidence satisfactory to Bank that none of the Mortgaged
Property is located in a flood hazard area, or (ii) a flood insurance policy
satisfactory to Bank;

 

An environmental/hazardous substances survey and report with respect to the
Mortgaged Property, and acceptable to Bank;

 

Certified copies of all Governmental Approvals (including approvals or orders of
the Issuer) necessary with respect to this Agreement and the transactions
contemplated hereby, including, but not limited to, certified copies of the
resolutions of the Board of Directors of the Issuer authorizing the execution,
delivery, and performance of the Bond Documents, the Bonds and all documents
evidencing any other corporate action on behalf of Issuer;

 

An opinion of counsel for the Borrower Parties, in form and substance
satisfactory to Bank, which shall include advice from such counsel to Bank that
Bank may rely on such opinion;

 

An opinion of Walston, Wells, Anderson & Bains, LLP, Bond Counsel, in form and
substance satisfactory to Bank, which shall include advice from such Bond
Counsel to Bank that Bank may rely on such opinion;

 

An executed copy of each of the Bond Documents and specimens of the Bonds;

 

A certificate from the Issuer stating that the Issuer has duly executed and
delivered the Bonds to the Trustee; and

 

Evidence of payment of all fees owing by the Borrower Parties to Bank including
the fees of Bank’s counsel.

 

Additional Conditions Precedent to Issuance of the Letter of Credit.    The
obligation of Bank to issue the Letter of Credit shall be subject to the further
conditions precedent that on the date of the issuance of the Letter of Credit:

 

the following statements shall be true and Bank shall have received a
certificate signed by Borrower, dated the date of such issuance, stating that:

 

The representations and warranties contained in Article IV are correct on and as
of the date of the issuance of the Letter of Credit as though made on and as of
such date,

 

No event has occurred and is continuing, or would result from the issuance of
the Letter of Credit, which constitutes a Default, and

 

No Material Adverse Change has occurred since the last date that the Borrower
Parties delivered financial information to Bank.

 

Bank shall have received such other approvals, opinions or documents as Bank may
reasonably request.

 

REPRESENTATIONS AND WARRANTIES.

 

Borrower represents and warrants as follows:

 

Existence.    Borrower is a duly organized and existing Delaware corporation in
good standing, and has full power and authority to consummate the transactions
contemplated by this Agreement.

 

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Authority.    The execution, delivery and performance of this Agreement and the
Related Documents have been duly authorized by all requisite action by each
Borrower Party a party thereto. This Agreement and the Related Documents have
been duly executed and delivered by each Borrower Party a party thereto, and
constitute valid and binding obligations of each Borrower Party a party thereto,
enforceable in accordance with their respective terms, and Bank will be entitled
to the benefits of this Agreement and the Related Documents.

 

Consents or Approvals.    Except for consents and approvals already obtained, no
consent of any Third Party and no authorization, approval or other action by,
and no notice to or filing with, any Governmental Authority or other Third Party
is required either (i) for the due execution, delivery, recordation, filing or
performance by any Borrower Party of this Agreement or any Related Document or
for the consummation of the transaction contemplated hereby, (ii) for the
mortgage, pledge, assignment, or grant by Borrower Parties of the Lien granted
pursuant to the Mortgage, (iii) for the perfection or maintenance of the Lien
created by the Mortgage, except for the recording of the Mortgage and the
Financing Statements, (iv) for the exercise by Bank of its rights or remedies
provided for in this Agreement or in any Related Document, except as may be
required by applicable Laws in connection with the foreclosure and disposition
of the Mortgaged Property, or (v) for the operation of any Borrower Party’s
business. All applicable waiting periods, if any, in connection with the
transactions contemplated hereby have expired without any action having been
taken by any Person restraining, preventing or imposing materially adverse
conditions upon the rights of Borrower to enter into and perform its obligations
under this Agreement.

 

Violations or Actions Pending.    There are no actions, suits, or proceedings
pending or, to the best of Borrower’s knowledge, threatened, which might have a
Material Adverse Effect or which might impair the value of the Mortgaged
Property. No Borrower Party is in violation of any agreement the violation of
which will or might reasonably be expected to have a Material Adverse Effect,
and no Borrower Party is in violation of any order, judgment, or decree of any
court, or any statute or governmental regulation to which Borrower Party is
subject. The execution and performance of this Agreement by Borrower will not
result in any breach of any mortgage, lease, credit or loan agreement or any
other instrument which may bind or affect Borrower.

 

Subsidiaries.    Borrower has no Subsidiaries, except as disclosed in the
Financial Statements.

 

Existing Indebtedness.    Borrower is not in default with respect to any of the
Existing Indebtedness.

 

Tax Returns.    Except as may otherwise be permitted herein, all federal, state,
local and other tax returns and reports of each Borrower Party required by Laws
have been completed in full and have been duly filed, and all taxes, assessments
and withholdings shown on such returns or billed to such Borrower Party have
been paid, and each Borrower Party maintains adequate provisions and accruals in
respect of all such federal, state, local and other taxes, assessments and
withholdings. There are no unpaid assessments pending against any Borrower Party
for any taxes or withholdings, and Borrower knows of no basis therefor.

 

Financial Statements.    All financial statements of the Borrower Parties
heretofore given and hereafter to be given to Bank are and will be true and
complete in all material respects as of their respective dates and prepared in
accordance with Generally Accepted Accounting Principles, and fairly represent
and will fairly represent the financial conditions of the Persons to which they

 

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pertain, and no Material Adverse Change has or will have occurred in the
financial conditions reflected therein after the respective date thereof upon
delivery to Bank, except as may be disclosed in writing to Bank.

 

Good and Marketable Title.    Borrower Parties have good and marketable title to
the Mortgaged Property, subject to no Liens, except for Permitted Liens.

 

Solvency.    Each Borrower Party is Solvent.

 

ERISA Compliance.    The Plans meet, as of the date hereof, the minimum funding
standards of Section 302 of ERISA and no reportable event or prohibited
transaction as defined in ERISA has occurred.

 

Priority of Liens.    The Lien granted by the Mortgage constitutes a first Lien
against the Mortgaged Property, prior to all other Liens and encumbrances,
including those which may hereafter accrue, except for the Permitted Liens.

 

Accuracy of Documents.    All documents furnished to Bank by or on behalf of any
Borrower Party as part of or in support of the application for the Letter of
Credit, the Commitment Letter or this Agreement are true, correct, complete in
all material respects and accurately represent the matters to which they
pertain.

 

Restrictions and Covenants Affecting the Mortgaged Property.    No Borrower
Party nor the Mortgaged Property is in violation of any easements, covenants or
restrictions affecting the Mortgaged Property, which violation would give rise
to a Material Adverse Change.

 

Condemnation.    There are no proceedings pending, or, to the best of Borrower’s
knowledge, threatened, to exercise any power of condemnation or eminent domain,
with respect to the Mortgaged Property, or any interest therein, or to enjoin or
similarly prevent the use of the Mortgaged Property, the result of which would
give rise to a Material Adverse Change.

 

Official Statement.    Except for information contained therein describing Bank,
the Issuer or Federal Tax Matters, as to which no representation is made, the
Official Statement is, and any supplement or amendment thereof shall be,
accurate in all material respects for the purposes for which its use is, was, or
shall be, authorized as it relates to Borrower; and the Official Statement does
not, and any such supplement or amendment shall not, contain any untrue
statement of a material fact or omit to state any material fact necessary to
make the statements made therein, in the light of the circumstances under which
they are or were made, not misleading.

 

Representations and Warranties of Related Documents.    None of the
representations or warranties made by any Borrower Party in any Related Document
or in any financial statement, exhibit or document furnished in connection with
this Agreement or any other Related Document as of the respective dates of such
representations and warranties, contains any untrue statement of a material fact
or omits any material fact necessary to make the statements made not misleading.

 

BORROWER’S COVENANTS.

 

Borrower does hereby covenant and agree with Bank that, so long as the Letter of
Credit is outstanding and/or any of the Obligations remain unsatisfied or any
commitments hereunder

 

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remain outstanding, Borrower at all times will comply or cause to be complied
with the following covenants:

 

Affirmative Covenants.

 

Borrower will duly and promptly pay and perform all of Borrower’s Obligations
according to the terms of this Agreement and the Related Documents.

 

Borrower will use the proceeds from the sale of the Bonds only for the purposes
as permitted under the Bond Documents; and Borrower will furnish Bank such
evidence as it may reasonably require with respect to such uses.

 

Borrower shall (and shall cause each other Borrower Party to) comply with all
the obligations required on its part to be performed under the Loan Agreement
and the other Related Documents. In the event that any Borrower Party fails or
refuses to perform any of its obligations under the Loan Agreement or any other
Related Document, Bank may, but shall not be obligated to, perform any and all
of such obligations of such Borrower Party under the Loan Agreement or such
other Related Document, including, but not limited to, the payment of any or all
rent and other sums due from such Borrower Party thereunder. Any costs or
expenses incurred by Bank in performing the obligations of any Borrower Party
under the Loan Agreement and the other Related Documents, including any rent or
other sums paid by Bank, shall constitute part of the Obligations.

 

Borrower will furnish or cause to be furnished to Bank:

 

Within ninety (90) days after each Quarter-End, (a) an unaudited
(management-prepared) income statement of Borrower for such Quarter, and (b) an
unaudited (management-prepared) balance sheet of Borrower for such Quarter, all
in reasonable detail with Bank having full access to all supporting schedules
and comments, and certified by Borrower’s president, principal financial officer
or vice president of finance to have been prepared in accordance with Generally
Accepted Accounting Principles consistently applied by Borrower, except for any
inconsistencies explained in such certificate;

 

Within ninety (90) days after each Fiscal Year-End (a) an income statement of
Borrower for such Fiscal Year, and (b) a balance sheet of Borrower as of the end
of such Fiscal Year, all in reasonable detail, including all supporting
schedules and comments; the statements and balance sheets to be audited by an
independent certified public accountant selected by Borrower and acceptable to
Bank, and certified by such accountants to have been prepared in accordance with
Generally Accepted Accounting Principles consistently applied by Borrower,
except for any inconsistencies explained in such certificate; in addition,
Borrower will obtain from such independent certified public accountants and
deliver to Bank, within ninety (90) days after the close of each Fiscal Year,
their written statement that in making the examination necessary to their
certification they have obtained no knowledge of any Default, or disclosing all
Defaults of which they have obtained knowledge; provided, however, that in
making their examination such accountants shall not be required to go beyond the
bounds of generally accepted auditing procedures for the purpose of certifying
financial statements; and Bank shall have the right, from time to time, to
discuss Borrower’s affairs directly with Borrower’s accountants, and any such
accountants are authorized and directed to give Bank any information Bank may
request at any time regarding the financial affairs of Borrower and are
authorized and directed to furnish Bank with copies of any documents in their
possession related thereto.

 

Contemporaneously with each quarterly and year-end financial report required by
the foregoing paragraphs, a certificate of the president, principal financial
officer or vice president of finance of Borrower stating that he or she has
individually reviewed the provisions of this Agreement and that a review of the
activities of Borrower during such year or monthly period, as the case may

 

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be, has been made by or under the supervision of the signers of such certificate
with a view to determining whether Borrower has kept, observed, performed and
fulfilled all of its obligations under this Agreement, and that, to the best of
his or her knowledge, Borrower has observed and performed each and every
undertaking contained in this Agreement and is not at the time in default in the
observance or performance of any of the terms and conditions hereof or, if
Borrower shall be so in default, specifying all such defaults and events of
which he or she may have knowledge and setting forth financial data and
computation evidencing Borrower’s compliance with the financial covenants set
forth in this Agreement; and

 

Promptly after sending or making available or filing of the same, copies of all
reports, proxy statements and financial statements that Borrower sends or makes
available to its Governing Body and all registration statements and reports that
Borrower files with the Securities and Exchange Commission (or any other similar
Governmental Authority) or any successor Person.

 

Borrower will pay or cause to be paid all loan fees when due; all expenses
involved in perfecting the Lien or priority of the Lien granted in the Mortgage
and all other out-of pocket expenses of Bank related to the Letter of Credit, or
the protection and preservation of the Mortgaged Property, or the enforcement of
any provision of this Agreement, or the preparation of this Agreement, any of
the other Related Documents, or amendments to any of them, including, without
limitation, recording fees and taxes, tax, title and lien search charges, title
insurance charges, and attorneys’ fees (including attorneys’ fees at trial and
on any appeal by any Borrower Party or Bank), real property taxes and insurance
premiums.

 

Borrower will permit (and will cause each other Borrower Party to permit) Bank
and its agents to have access to the Mortgaged Property at reasonable times.

 

Borrower will certify to Bank upon request by Bank that:

 

Borrower has complied with and is in compliance with all terms, covenants and
conditions of this Agreement and the Related Documents which are binding upon
it;

 

there exists no Default; or, if such is not the case, that one or more specified
Defaults have occurred; and

 

the representations and warranties contained in this Agreement are true with the
same effect as though made on the date of such certificate.

 

Borrower will (and will cause each other Borrower Party to), when requested so
to do, make available for inspection and audit by duly authorized
representatives of Bank any of Borrower Party’s Records, and will furnish Bank
any information regarding Borrower Party’s business affairs and financial
condition within a reasonable time after written request therefor. Borrower
shall reimburse Bank for all costs associated with such audit if the audit
reveals a material discrepancy in any financial report, statement or other
document provided to Bank pursuant to this Agreement.

 

Borrower will (and will cause each other Borrower Party to) keep accurate and
complete Records, consistent with sound business practices.

 

Borrower will (and will cause each other Borrower Party to) notify Bank thirty
(30) days in advance of any change in the location of any place of business of
Borrower Party or of the establishment of any new place of business, or the
discontinuance of any existing place of business.

 

Borrower will (and will cause each other Borrower Party to) notify Bank
immediately if Borrower Party becomes aware of the occurrence of any Default, or
if Borrower Party becomes aware of any Material Adverse Change or the occurrence
of any event that might have or give rise to a Material Adverse Effect.

 

Borrower will:

 

Fund all its Plans in accordance with no less than the minimum funding standards
of Section 302

 

16

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of ERISA; and

 

Promptly advise Bank of the occurrence of any Reportable Event or Prohibited
Transaction with respect to any such Plan.

 

Upon completion of the Project, Borrower shall provide to Bank an appraisal of
the Improvements complying with the requirements of the Federal Financial
Institutions Reform, Recovery and Enforcement Act of 1989 which appraisal shall
be from a Person acceptable to Bank and otherwise in form and substance
satisfactory to Bank. In the event the appraisal reflects an appraised value of
(i) less than $2,500,000.00, or (ii) a loan to value ratio of greater than 80%,
Borrower shall deposit with Bank cash collateral in the amount of such
difference to be held in accordance with the provisions of Section 6.3 of this
Agreement.

 

Negative Covenants.

 

Borrower will not (and will not permit any other Borrower Party to), without
Bank’s prior written consent (such consent not to be unreasonably withheld or
delayed), change Borrower Party’s name, enter into any merger, consolidation,
liquidation, reorganization or recapitalization, or dissolve.

 

Except in Borrower Party’s Ordinary Course of Business, Borrower will not (and
will not permit any other Borrower Party to), without Bank’s prior written
consent, sell, transfer, lease or otherwise dispose of, or enter into any
agreement to sell, lease, transfer, assign or otherwise dispose of, the
Mortgaged Property or all or any substantial part of Borrower Party’s other
assets.

 

Borrower will not (and will not permit any other Borrower Party to) furnish Bank
any certificate or other document that will contain any untrue statement of
material fact or that will omit to state a material fact necessary to make it
not misleading in light of the circumstances under which it was furnished.

 

Financial Covenants.

 

During the term of this Agreement, Borrower will maintain or cause to be
maintained:

 

a Fixed Charge Coverage of not less than 1.2 to 1.0;

 

Adjusted Tangible Net Worth of not less than $24,300,000.00, plus 60% of the Net
Income as of each Quarter-End beginning March 31, 2003; and

 

a ratio of Adjusted Liabilities to Adjusted Tangible Net Worth of not more than
2.5 to 1.0.

 

For purposes of computation of the foregoing financial covenants, such
computation (i) shall be determined by Bank as of each Quarter-End, based on the
compliance certificate most recently delivered by Borrower, and (ii) shall be
determined on a Consolidated Basis and based on an Annualized Rolling Period, if
applicable.

 

Borrower will not declare or pay any dividends, or make any other payment or
distribution on account of its Equity Interests in an amount such that such
payment or other distribution shall cause the violation of any other covenant or
agreement of Borrower set forth herein; provided, however, that Borrower may
incur and make payments of Subordinated Debt if and to the extent that the same
does not otherwise give rise to a Default under this Agreement.

 

Mandatory Bond Retirement.    Borrower shall cause Bonds to be redeemed pursuant
to the terms and conditions of the Bond Documents, in the principal amounts as
set forth below.

 

Redemption Period

  

Minimum Principal Payment Amount

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

October 1, 2003-September 30, 2004

  

$

178,000

October 1, 2004-September 30, 2005

  

$

178,000

October 1, 2005-September 30, 2006

  

$

178,000

October 1, 2006-September 30, 2007

  

$

178,000

 

17

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

 

October 1, 2007-September 30, 2008

  

$

178,000

October 1, 2008-September 30, 2009

  

$

178,000

October 1, 2009-September 30, 2010

  

$

178,000

October 1, 2010-September 30, 2011

  

$

178,000

October 1, 2011-September 30, 2012

  

$

178,000

October 1, 2012-September 30, 2013

  

$

178,000

October 1, 2013-September 30, 2014

  

$

178,000

October 1, 2014-September 30, 2015

  

$

178,000

October 1, 2015-September 30, 2016

  

$

178,000

October 1, 2016-September 30, 2017

  

$

186,000

 

In all events, the principal amount of all the Bonds will be paid no later than
September 30, 2017.

 

Fixed Rate Election.    So long as a drawing is available under the Letter of
Credit or Bank shall have any commitment hereunder or Borrower shall have any
obligation to pay any amount to Bank hereunder, Borrower shall not exercise its
right to convert the interest calculation on the Bonds to the Fixed Rate (as
defined in and provided for in the Trust Indenture).

 

EVENTS OF DEFAULT.

 

Events of Default.    The occurrence of any one or more of the following events
shall constitute an Event of Default hereunder:

 

Borrower shall fail to pay any amount payable under any provision of Section 2.3
when due.

 

Any representation or warranty made by any Borrower Party in this Agreement or
any Related Document shall prove to have been incorrect in any material respect
when made or shall cease to be true.

 

Any Borrower Party shall fail to perform or observe any other term, covenant or
agreement contained in this Agreement or any Related Document on its part to be
performed or observed and any such failure shall remain unremedied for 30 days
after written notice thereof shall have been given to Borrower by Bank.

 

There shall occur any default or event of default as defined and provided under
any Related Document or any Bond Document (after the expiration of any
applicable grace and cure period provided therein).

 

The validity or enforceability of this Agreement or any other Related Document
shall be contested by any Borrower Party, and/or any Borrower Party shall deny
that it has any or further liability or obligation hereunder or thereunder.

 

Assignment or attempted assignment by any Borrower Party of this Agreement or
any rights hereunder, or the conveyance, lease, mortgage, or any other
alienation or encumbrance of the Mortgaged Property or any interest therein
without the prior written consent of Bank, except for transfers permitted
hereunder or under any other Related Document.

 

The institution of a foreclosure or other possessory action against the
Mortgaged Property or any part thereof.

 

Any financial statement, representation, warranty or certificate made or
furnished by any Borrower Party to Bank in connection with this Agreement, or as
inducement to Bank to enter into this Agreement, or in any separate statement or
document to be delivered hereunder to Bank, shall be materially false,
incorrect, or incomplete when made.

 

18

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Any Material Adverse Change.

 

Any Borrower Party shall admit its inability to pay its debts as they mature, or
shall make an assignment for the benefit of itself or any of its creditors.

 

Proceedings in Bankruptcy, or for reorganization of any Borrower Party, or for
the readjustment of any of its debts, under the Bankruptcy Code, as amended, or
any part thereof, or under any other Laws, whether state or federal, for the
relief of debtors, now or hereafter existing, shall be commenced by any Borrower
Party, or shall be commenced against any Borrower Party and shall not be
discharged within sixty (60) days of commencement.

 

A receiver or trustee shall be appointed for any Borrower Party or for any
substantial part of its assets, or any proceedings shall be instituted for the
dissolution or the full or partial liquidation of any Borrower Party, and such
receiver or trustee shall not be discharged within thirty (30) days of his
appointment, or such proceedings shall not be discharged within sixty (60) days
of its commencement, or any Borrower Party shall discontinue business or
materially change the nature of its business.

 

Any Borrower Party shall suffer final judgments for payment of money aggregating
in excess of $250,000 and shall not discharge the same within a period of thirty
(30) days unless, pending further proceedings, execution has not been commenced
or if commenced has been effectively stayed.

 

A judgment creditor of any Borrower Party shall obtain possession of any of the
Mortgaged Property by any means, including, without limitation, levy, distraint,
replevin or self-help.

 

Acceleration.    All Obligations shall, at the option of Bank, become
immediately due and payable the occurrence of an Event of Default without
further action of any kind.

 

Special Remedies as to Letter of Credit.    In addition to any rights and
remedies Bank may otherwise have under this Agreement, if any Event of Default
shall have occurred:

 

Bank may in its sole discretion (i) if the Letter of Credit shall not have been
issued, by notice to Borrower, declare the obligation of Bank to issue the
Letter of Credit to be terminated, whereupon the obligation of Bank to issue the
Letter of Credit shall forthwith terminate; or (ii) if the Letter of Credit
shall have been issued, (x) give notice to the Trustee that an Event of Default
has occurred hereunder and request that the Trustee declare the principal of all
Bonds then outstanding and all interest accrued and unpaid thereon to be due and
payable and direct that the Bonds be purchased pursuant to the Indenture, (y)
give notice to the Trustee that an Event of Default has occurred hereunder and
direct that the Bonds be purchased pursuant to the Indenture, and/or (z) make
demand upon Borrower to, and forthwith upon such demand Borrower will, pay to
Bank in same day funds at Bank’s office designated in such demand, for deposit
in a special cash collateral account (the “Cash Collateral Account”) to be
maintained at such office of Bank, an amount equal to the maximum amount then
available to be drawn under the Letter of Credit. The Cash Collateral Account
shall be in the name of Borrower (as cash collateral account), but under the
sole dominion and control of Bank and subject to the terms of this Agreement.

 

Subject to the right of Bank to withdraw funds from the Cash Collateral Account
as provided below to reimburse funds expended by Bank to honor drafts presented
under the Letter of Credit, Bank may from time to time invest funds on deposit
in the Cash Collateral Account, reinvest proceeds of any such investments which
may mature or be sold, and invest interest or other income received from any
such investments, and all such investments and reinvestments shall, for purposes
of this Agreement, constitute part of the funds held in the Cash Collateral
Account. Borrower and Bank shall not invest or fail to invest any funds on
deposit in the Cash Collateral Account, or fail to pay any required rebate to
the United States of America, if such investment or

 

19

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

failure to invest or such failure to pay any required rebate, would cause the
Bonds to be or become “arbitrage bonds” within the meaning of Section 148 of the
Internal Revenue Code of 1986, as amended, and any applicable regulations
thereunder; provided further that in determining its obligations under the
preceding provisions of this paragraph (B), Borrower and Bank may rely upon an
opinion of counsel acceptable to them.

 

If at any time Bank determines that any funds held in the Cash Collateral
Account are subject to any right or claim of any Person other than Bank and/or
that the total amount of such funds is less than the maximum amount at such time
available to be drawn under the Letter of Credit, Borrower will, forthwith upon
demand by Bank, pay to Bank, as additional funds to be deposited and held in the
Cash Collateral Account, an amount equal to the excess of (i) such maximum
amount at such time available to be drawn under the Letter of Credit over (ii)
the total amount of funds, if any, then held in the Cash Collateral Account
which Bank determines to be free and clear of any such right and claim.

 

Borrower hereby pledges, and grants to Bank a security interest in, all funds
held in the Cash Collateral Account from time to time and all proceeds thereof,
as security for the payment of all amounts due and to become due from Borrower
to Bank under this Agreement. Nothing in this Section 6.3, however, shall either
obligate Bank to require any funds to be deposited in the Cash Collateral
Account or limit the right of Bank, which it may exercise at any time and from
time to time, to release to Borrower any funds held in the Cash Collateral
Account pursuant to the other provisions of this Section 6.3.

 

Bank may, at any time or from time to time, apply funds from time to time held
in the Cash Collateral Account to the payment of any amounts, in such order as
Bank may elect, as shall have become or shall become due and payable by Borrower
to Bank under this Agreement. Borrower agrees that, to the extent notice of sale
of any securities shall be required by Law, at least five Business Days’ Notice
to Borrower of the time and place of any public sale or the time after which any
private sale is to be made shall constitute reasonable notification. Bank may
adjourn any public or private sale from time to time by announcement at the time
and place fixed therefor, and such sale may, without further notice, be made at
the time and place to which it will so adjourned.

 

Neither Borrower nor any Person claiming on behalf of or through Borrower shall
have any right to withdraw any of the funds held in the Cash Collateral Account,
except as otherwise provided in subsection (G) below and except that upon (i)
the payment in full of the principal of and interest on the Bonds and the
release by all Persons who may claim rights in and to the Cash Collateral
Account, and (ii) the termination of the Letter of Credit in accordance with its
terms and the payment of all amounts payable by Borrower to Bank under this
Agreement, any funds remaining in the Cash Collateral Account shall be returned
by Bank to Borrower or paid to whomever may be legally entitled thereto.

 

Subject to the rights and remedies otherwise provided to Bank in this Agreement
and under applicable Law, so long as no Default shall have occurred and be
continuing, Bank will release to Borrower, at the written request of Borrower,
funds held in the Cash Collateral Account in an amount up to but not exceeding
the excess, if any (immediately prior to the release of any such funds), of (x)
the total amount of funds held in the Cash Collateral Account over (y) the
maximum amount available to be drawn under the Letter of Credit.

 

Borrower agrees that it will not (i) sell or otherwise dispose of any interest
in the Cash Collateral Account or any funds held therein, or (ii) create or
permit to exist any lien, security interest or other charge or encumbrance upon
or with respect to the Cash Collateral Account or any funds held therein, except
as may be expressly provided in this Agreement.

 

Bank shall exercise reasonable care in the custody and preservation of any funds
held in the Cash Collateral Account and shall be deemed to have exercised such
care if such funds are accorded

 

20

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

treatment substantially equivalent to that which Bank accords its own property,
it being understood that Bank shall not have any responsibility for taking any
necessary steps to preserve rights against any parties with respect to any such
funds.

 

General Remedies.    Upon the occurrence and during the continuance of any Event
of Default, Bank shall have, in addition to the rights and remedies given it by
this Agreement and the other Related Documents, all those allowed by all
applicable Laws, all of which rights and remedies may be exercised jointly and
severally.

 

Right of Set-Off.

 

Upon the occurrence of any Event of Default, Bank is hereby authorized at any
time and from time to time, to the fullest extent permitted by Law, to set off
and apply any and all deposits (general or special, time or demand, provisional
or final) at any time held and other indebtedness at any time owing by Bank to
or the credit or the account of Borrower against any and all of the Obligations,
irrespective of whether or not Bank shall have made any demand hereunder and
although the Obligations may be contingent or unmatured.

 

Bank agrees to notify Borrower after any such set-off and application referred
to in subsection (a) above, provided that the failure to give such notice shall
not affect the validity of such set-off and application. The rights of Bank
under this Section are in addition to other rights and remedies (including,
without limitation, other rights of set-off) which Bank may have.

 

No Limitation on Rights and Remedies.    he enumeration of the powers, rights
and remedies in this Article shall not be construed to limit the exercise
thereof to such time as an Event of Default occurs if, under applicable Law or
any other provision of this Agreement or any other Related Document, Bank has
any of such powers, rights and remedies regardless of whether an Event of
Default has occurred, and any limitation contained herein or in any of the other
Related Documents as to Bank’s exercise of any power, right or remedy for a
period of time only during the continuance of an Event of Default shall only be
applicable at such time as Bank shall have actual knowledge that such Event of
Default is no longer continuing and for a reasonable time thereafter as may be
necessary for Bank to cease the exercise of such powers, rights and remedies (it
being expressly understood and agreed that until such time as Bank shall obtain
such knowledge and after the expiration of such reasonable time, Bank shall have
no liability whatsoever for the commencement of or continuing exercise of any
such power, right or remedy).

 

MISCELLANEOUS.

 

Amendments, Etc.    No amendment or waiver of any provision of this Agreement,
nor consent to any departure by Borrower therefrom, shall in any event be
effective unless the same shall be in writing and signed by Bank and then such
waiver or consent shall be effective only in the specified instance and for the
specified purpose for which given.

 

Notices, Etc.    All notices and other communications provided for hereunder
shall be in writing (including telegraphic communication) and mailed or
telegraphed or delivered, if to Borrower, at its address at 1943 50th Street
North, Birmingham, Alabama 35212, Attention: Chief Financial Officer; if to
PWAS, at its address at Pemco World Air Services, Inc., Dothan Regional Airport,
100 Pemco Drive, Dothan, Alabama 36303, Attention: President and General
Manager; and if to Bank, at its address at P. O. Box 2554, Birmingham, Alabama
35290, Attention: Corporate Banking Department, with copy to SouthTrust Bank, P.
O. Box 2554, Birmingham, Alabama 35290, Attention: Corporate Trust Department,
and with a copy to Ray D. Gibbons, Esq., Burr & Forman LLP, 3100 SouthTrust
Tower, Birmingham, Alabama 35203; or as to each party, at such

 

21

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

other address as shall be designated by such party in a written notice to the
other party. All such notices and communications shall, when mailed or
telegraphed, be effective when deposited in the mails or delivered to the
telegraph Borrower, respectively, addressed as aforesaid.

 

Accounting Terms.    All accounting terms not specifically defined herein shall
be construed in accordance with generally accepted accounting principles
consistently applied, except as otherwise stated herein.

 

Indemnification.    Borrower hereby indemnifies and holds Bank harmless from and
against any and all claims, damages, losses, liabilities, costs or expenses
which Bank may incur or which may be claimed against Bank by any Person by
reason of or in connection with the execution and delivery or transfer of, or
payment or failure to pay under, the Letter of Credit, or in connection with the
issuance and sale and subsequent remarketing of the Bonds; provided, however,
that Borrower shall not be required to indemnify Bank for any of the foregoing
to the extent (but only to the extent) caused by reason of (i) the wilful
misconduct or gross negligence of Bank in determining whether a draft or
certificate presented under the Letter of Credit complied with the terms of the
Letter of Credit, or (ii) the wilful misconduct or gross negligence of Bank in
failing to pay under the Letter of Credit after the presentation to it by the
Trustee of a draft and certificate strictly complying with the terms and
conditions of the Letter of Credit.

 

Nothing in this Section 7.4 is intended to limit Borrower’s obligations
contained in Section 2.3.

Without prejudice to the survival of any other obligation of Borrower hereunder,
the

indemnities and obligations of Borrower contained in this Section 7.4 shall
survive the

payment in full of amounts payable pursuant to Section 2.3 and the termination
of the

Letter of Credit.

 

Liability of Bank.    As between Bank and Borrower, Borrower assumes all risks
of the acts or omissions of the Trustee and any beneficiary or transferee of the
Letter of Credit with respect to its use of the Letter of Credit. Neither Bank
nor any of its officers or directors shall be liable or responsible for: (a) the
use which may be made of the Letter of Credit or any acts or omissions of the
Trustee and any beneficiary or transferee in connection therewith; (b) the
validity, sufficiency or genuineness of documents, or of any endorsement
thereon, even if such documents should prove to be in any or all respects
invalid, insufficient, fraudulent or forged; (c) payment by Bank against
presentation of documents which do not comply with the terms of the Letter of
Credit, including failure of any documents to bear any reference or adequate
reference to the Letter of Credit; (d) errors, omissions, interruptions or
delays in transmission or delivery of any messages, by mail, telecopier, telex
or otherwise; (e) any loss or delay in the transmission or otherwise of any
document or draft required in order to make a drawing under the Letter of
Credit; or (f) any other circumstances whatsoever in making or failing to make
payment under the Letter of Credit, except that Borrower shall have a claim
against Bank, and Bank shall be liable to Borrower, to the extent of any direct,
as opposed to consequential, damages suffered by Borrower which Borrower proves
were caused by Bank’s wilful misconduct or gross negligence in determining
whether documents presented under the Letter of Credit comply with the terms of
the Letter of Credit or by Bank’s gross negligence or wilful misconduct in
failing to make lawful payment under the Letter of Credit. In furtherance and
not in limitation of the foregoing, Bank may accept documents that appear on
their face to be in order, without responsibility for further investigation,
regardless of any notice or information to the contrary.

 

Costs, Expenses and Taxes.    Borrower agrees to pay on demand all costs and
expenses in

 

22

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

connection with the preparation, execution, delivery, filing, recording, and
administration of this Agreement and any other documents which may be delivered
in connection with this Agreement, and any amendments or supplements thereto,
including, without limitation, the fees and out-of-pocket expenses of counsel
for Bank, and local counsel who may be retained by said counsel, with respect
thereto and with respect to advising Bank as to its rights and responsibilities
under this Agreement and all costs and expenses in connection with (i) the
enforcement of this Agreement and such other documents which may be delivered in
connection with this Agreement or (ii) any action or proceeding relating to a
court order, injunction, or other process or decree restraining or seeking to
restrain Bank from paying any amount under the Letter of Credit. In addition,
Borrower shall pay any and all stamp and other taxes and fees payable or
determined to be payable in connection with the execution, delivery, filing and
recording of this Agreement and such other documents, and agrees to save Bank
harmless from and against any and all liabilities with respect to or resulting
from any delay in paying or omission to pay such taxes and fees.

 

Approval of Disbursements by Trustee.    Section 7.02 of the Trust Indenture
provides for disbursements by the Trustee from the Construction Fund upon
receipt of a requisition or payment request and such disbursements are subject
to the approval of Bank. Accordingly, Borrower shall provide the duly executed
requisition or payment request required by Section 7.02 of the Trust Indenture,
along with all required information and documentation, to Bank for approval and
transmission to the Trustee at least five (5) business days prior to the date
upon which said disbursement is scheduled to be made by the Trustee. Upon
approval of the request by Bank, Bank will submit the request to the Trustee for
processing and disbursement.

 

Further Assurances.    Borrower will, at any and all times, execute and deliver
all such further documents, resolutions, assignments, recordings, filings,
transfers and assurances as may be necessary or desirable for the better
assuring and confirming of all of the rights, revenues and other funds pledged
or assigned to or mortgaged for the payment of the Obligations, or intended so
to be. Borrower hereby authorizes and empowers Bank to file Financing Statements
with respect to any security pledged or assigned to Bank in accordance with the
Uniform Commercial Code.

 

Survival of Representations and Warranties.    All representations and
warranties of Borrower contained in this Agreement shall survive the execution
and delivery of this Agreement, regardless of any investigation made by Bank or
on its behalf.

 

Counterparts.    This Agreement may be executed simultaneously in counterparts,
each of which shall be deemed an original, and all of which together shall
constitute one and the same document.

 

Binding Effect.    This Agreement shall become effective when it shall have been
executed by Borrower and Bank and thereafter shall be binding upon and inure to
the benefit of Borrower and Bank and their respective successors and assigns,
except that Borrower shall not have the right to assign its rights hereunder or
any interest herein without the prior written consent of Bank. No such
assignment (whether or not consented to by Bank) shall in itself relieve or
release Borrower from its obligations hereunder unless Bank shall agree in
writing to release Borrower from its rights or obligations hereunder. Bank may
assign to any financial institution all or any part of, or any interest
(undivided or divided) in, Bank’s rights and benefits under this Agreement, and
to the extent of that assignment such assignee shall have the same rights and
benefits against Borrower hereunder as it would have had if such assignee were
Bank issuing or paying under the Letter of

 

23

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

 

Credit hereunder.

 

Severability.    Any provision of this Agreement which is prohibited,
unenforceable or not authorized in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition, unenforceability
or non-authorization without invalidating the remaining provisions hereof or
affecting the validity, enforceability or legality of such provision in any
other jurisdiction.

 

Jurisdiction, Etc.    Borrower hereby waives trial by jury in any action or
proceeding of any kind or nature in any court in which an action may be
commenced by or against Borrower arising out of this Agreement, the collateral
or any assignment thereof or by reason of any other cause or dispute whatsoever
between Borrower and Bank of any kind or nature. Borrower and Bank hereby agree
that the United States Court for the Northern District of Alabama or, at the
option of Bank, any state court located in the State of Alabama, shall have
exclusive jurisdiction to hear and determine any claims or disputes between
Borrower and Bank, pertaining directly or indirectly to this Agreement, the
Letter of Credit, the Bonds or any other Related Documents or to any matter
arising therefrom. Borrower expressly submits and consents in advance to such
courts, hereby waiving personal service of the summons and complaint, or other
process or papers issued therein, and agreeing that service of such summons and
complaint, or other process or papers may be made by registered or certified
mail addressed to Borrower at the address of Borrower set forth in Section 7.2.
Should Borrower fail to appear or answer any summons, complaint, process or
papers so served within thirty days after the mailing thereof, it shall be
deemed in default and an order and/or judgment may be entered against it as
demanded or prayed for in such summons, complaint, process or papers. The
submission of jurisdiction set forth in this section shall not be deemed to
preclude the enforcement of any judgment obtained in such forum or the taking of
any action under this Agreement to enforce same in any appropriate jurisdiction.

 

Governing Law.    This Agreement shall be governed by, and construed in
accordance with, the Laws of the State of Alabama.

 

Headings.    Section headings in this Agreement are included herein for
convenience of reference only and shall not constitute a part of this Agreement
for any other purpose.

 

[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]

 

24

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed and delivered under seal as of the date first above written.

 

PEMCO AVIATION GROUP, INC.

By:

 

/s/    John R. Lee

 

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

Its:

     

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

 

 

SOUTHTRUST BANK

By:

 

/s/    Hilda M. Sullens

 

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

Its:

     

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

 

25

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EXHIBIT A

LETTER OF CREDIT

 

26

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

 

CERTIFICATE

 

I,                 , as                  of Pemco Aviation Group, Inc., hereby
represents, warrants and certifies that as of the date of issuance of the Letter
of Credit the following statements are true and correct:

 

  (i)   The representations and warranties contained in Article IV of the Letter
of Credit Application and Reimbursement Agreement are correct on and as of the
date of the issuance of the Letter of Credit as though made on and as of such
date,

 

  (ii)   No event has occurred and is continuing, or would result from the
issuance of the Letter of Credit, which constitutes a Default, and

 

  (iii)   No Material Adverse Change has occurred since the date of the last
financial information delivered to Bank.

 

DONE and DATED as of the 1st day of October, 2002.

 

Print Name:                                                     

 

27