exv10w1



 





Exhibit 10.1









LETTER OF CREDIT AND

REIMBURSEMENT AGREEMENT




Dated as of November 1, 2004




between



MERCURY AIR GROUP, INC.,



a Delaware corporation,




as Borrower,




and




BANK OF AMERICA, N.A.




relating to




$19,000,000

California Economic Development Financing Authority

Variable Rate Demand Airport Facilities

Revenue Bonds,

Series 1998

(Mercury Air Group, Inc. Project)










 









 








	 	 	 	 	 	 	 	 	 
	ARTICLE I DEFINITIONS	 	 	1	 
	

	 	Section 1.01.
	 	Certain Defined Terms
	 	 	8	 
	

	 	Section 1.02.
	 	Computation of Time Periods
	 	 	8	 
	

	 	Section 1.03.
	 	Accounting Terms
	 	 	8	 
	

	 	Section 1.04.
	 	Other Terms
	 	 	8	 
	ARTICLE II AMOUNT AND TERMS OF THE LETTER OF CREDIT; PLEDGE OF BONDS	 	 	8	 
	

	 	Section 2.01.
	 	The Letter of Credit
	 	 	8	 
	

	 	Section 2.02.
	 	Issuing the Letter of Credit
	 	 	9	 
	

	 	Section 2.03.
	 	Fees and Expenses.
	 	 	9	 
	

	 	Section 2.04.
	 	Reimbursement and Semi-Annual Bond Redemptions.
	 	 	9	 
	

	 	Section 2.05.
	 	Tender Advance
	 	 	10	 
	

	 	Section 2.06.
	 	Interest on Tender Advances
	 	 	10	 
	

	 	Section 2.07.
	 	Payments; Reinstatement of Letter of Credit Amounts.
	 	 	10	 
	

	 	Section 2.08.
	 	Increased Costs
	 	 	12	 
	

	 	Section 2.09.
	 	Payments and Computations
	 	 	13	 
	

	 	Section 2.10.
	 	Evidence of Debt
	 	 	13	 
	

	 	Section 2.11.
	 	Obligations Absolute
	 	 	13	 
	

	 	Section 2.12.
	 	[Reserved]
	 	 	14	 
	

	 	Section 2.13.
	 	Extension of the Stated Termination Date
	 	 	14	 
	

	 	Section 2.14.
	 	Pledge of Bonds
	 	 	14	 
	

	 	Section 2.15.
	 	Direct Debit
	 	 	16	 
	

	 	Section 2.16.
	 	Collateral and Other Support
	 	 	16	 
	ARTICLE III CONDITIONS OF ISSUANCE	 	 	16	 
	

	 	Section 3.01.
	 	Condition Precedent to Issuance of the Letter of Credit
	 	 	16	 
	

	 	Section 3.02.
	 	Additional Conditions Precedent to Issuance of the Letter of Credit
	 	 	17	 
	ARTICLE IV REPRESENTATIONS AND WARRANTIES	 	 	18	 
	

	 	Section 4.01.
	 	Representations and Warranties of the Borrower
	 	 	18	 
	ARTICLE V COVENANTS OF THE BORROWER	 	 	19	 
	

	 	Section 5.01.
	 	Affirmative Covenants
	 	 	19	 
	

	 	Section 5.02.
	 	Negative Covenants
	 	 	21	 
	ARTICLE VI HAZARDOUS SUBSTANCES	 	 	22	 
	

	 	Section 6.01.
	 	Indemnity Regarding Hazardous Substances
	 	 	22	 
	

	 	Section 6.02.
	 	Site Visits, Observations and Testing.
	 	 	22	 
	

	 	Section 6.03.
	 	Definition of Hazardous Substances.
	 	 	22	 
	ARTICLE VII EVENTS OF DEFAULT	 	 	23	 
	

	 	Section 7.01.
	 	Events of Default
	 	 	23	 
	

	 	Section 7.02.
	 	Rights Upon an Event of Default
	 	 	25	 
	

	 	Section 7.03.
	 	No Remedy Exclusive
	 	 	25	 
	

	 	Section 7.04.
	 	Subrogation
	 	 	25	 
	ARTICLE VIII MISCELLANEOUS	 	 	25	 
	

	 	Section 8.01.
	 	Amendments, Etc
	 	 	25	 
	

	 	Section 8.02.
	 	Notices, Etc
	 	 	25	 
	

	 	Section 8.03.
	 	No Waiver
	 	 	25	 
	

	 	Section 8.04.
	 	Right of Set-off.
	 	 	26	 
	

	 	Section 8.05.
	 	Indemnification
	 	 	26	 







i









 





	 	 	 	 	 	 	 	 	 
	

	 	Section 8.06.
	 	Liability of the Bank
	 	 	27	 
	

	 	Section 8.07.
	 	Costs, Expenses and Taxes
	 	 	27	 
	

	 	Section 8.08.
	 	Binding Effect
	 	 	28	 
	

	 	Section 8.09.
	 	Severability
	 	 	28	 
	

	 	Section 8.10.
	 	Headings
	 	 	28	 
	

	 	Section 8.11.
	 	Prior Reimbursement Agreements Superseded
	 	 	28	 
	

	 	Section 8.12.
	 	Counterparts
	 	 	29	 
	

	 	Section 8.13.
	 	Governing Law.
	 	 	29	 
	

	 	Section 8.14.
	 	Arbitration and Waiver of Jury Trial.
	 	 	29	 
	

	 	Section 8.15.
	 	Electronic Transmission of Data
	 	 	30	 







	 	 	 
	EXHIBIT A

	 	Form of Letter of Credit
	EXHIBIT B

	 	Guaranty
	

	 	

	Schedule 1

	 	Bank Collateral Documents
	Schedule 2

	 	Date Down to the Date of Issuance of the Schedules of the Credit Agreement







ii









 





LETTER OF CREDIT AND REIMBURSEMENT AGREEMENT




     LETTER OF CREDIT AND REIMBURSEMENT AGREEMENT, dated as of November 1, 2004
between MERCURY AIR GROUP, INC., a Delaware corporation (the “Borrower”), and
BANK OF AMERICA, N.A. a national banking association (the “Bank”).



PRELIMINARY STATEMENTS:




     (1) On April 3, 1998, the California Economic Development Financing
Authority (the “Issuer”) issued $19,000,000 aggregate principal amount of its
Variable Rate Demand Airport Facilities Revenue Bonds, Series 1998 (Mercury Air
Group, Inc. Project) (the “Bonds”) pursuant to the provisions of an Indenture
of Trust dated as April 1, 1998 (as amended, the “Indenture”), between the
Issuer and U.S. Bank Trust National Association, as predecessor in interest to
the current trustee, U.S. Bank National Association (the “Trustee”). There are
currently outstanding Bonds in an aggregate principal amount of $14,000,000.



     (2) The proceeds of the Bonds were loaned by the Issuer to the Borrower
pursuant to a Loan Agreement dated as of April 1, 1998 (as amended, the “Loan
Agreement”) between the Issuer and the Borrower.



     (3) The payment of principal, purchase or redemption price of, and
interest on the Bonds is currently supported by an irrevocable direct-pay
letter of credit issued by Wells Fargo Bank, National Association (“Prior
Letter of Credit”).



     (4) The Borrower has requested that the Bank issue its irrevocable direct
pay letter of credit (“Letter of Credit”) in substitution of the Prior Letter
of Credit as a substitute Credit Facility (as defined in the Indenture).



     (5) To induce the Bank to issue the Letter of Credit, the Guarantors (as
herein defined) will guaranty all obligations of the Borrower to the Bank
arising under this Reimbursement Agreement.



     NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, including the covenants, terms and conditions
hereinafter appearing and in order to induce the Bank to issue the Letter of
Credit, the parties hereto agree as follows:



ARTICLE I

DEFINITIONS




          Section 1.01. Certain Defined Terms. As used in this Reimbursement Agreement, the following terms shall have the
following meanings (such meanings to be equally applicable to both the singular
and plural forms of the terms defined):



1









 





          “Affiliate” means any trade or business (whether or not incorporated)
which is a member of a group of which the Borrower is a member and which is
under common control within the meaning of the regulations promulgated under
Section 414 of the Internal Revenue Code of 1986, as amended.



          “Amortization Expense” means amortization on intangible assets as computed
in accordance with GAAP.



          “Bank” means Bank of America, N.A., a national banking association.



          “Bank Collateral Documents” means, collectively, the security agreements
and other documents set forth on Schedule 1 hereto.



          “Bank Loan Documents” means this Reimbursement Agreement, the Credit
Agreement, the Bank Collateral Documents, the Guaranty and any other agreement
or instrument relating thereto.



          “Base Rate” means a fluctuating rate of interest per annum equal to the
Prime Rate. Each change in the Base Rate shall take effect simultaneously with
the corresponding change or changes in the Prime Rate.



          “Basic Fixed Charge Coverage Ratio” means the ratio of (a) the sum of
EBITDA plus lease expense and rent expense, minus income tax, minus dividends,
withdrawals, and other distributions, to (b) the sum of interest expense
(excluding capitalized debt costs classified as interest expense and already
paid), lease expense, rent expense, the current portion of long term debt,
excluding any amounts due under the Credit Agreement, and the current portion
of capitalized lease obligations.



          “Bonds” has the meaning assigned to that term in paragraph (1) of the
Preliminary Statements hereof.



          “Borrower” means Mercury Air Group, Inc., a Delaware corporation.



          “Business Day” means any day other than a Saturday, Sunday, legal holiday
or a day on which banking institutions in California are authorized or required
by law to close.



          “Capital Leases” means all leases which have been or should be capitalized
in accordance with Generally Accepted Accounting Principles as in effect from
time to time, including Statement No. 13 of the Financial Accounting Standards
Board and any successor thereof.



          “Credit Agreement” means that certain Loan Agreement dated as of July 29,
2004 between the Bank, the Borrower, Maytag Aircraft Corporation, Mercury Air
Cargo, Inc., MercFuel, Inc., Hermes Aviation, Inc. and Mercury Air Center -
Long Beach, Inc., as the same may be amended, modified, renewed, extended



2









 




and restated from time to time and shall refer to any successor agreement which
restates and supersedes the Credit Agreement in its entirety.




          “Date of Issuance” has the meaning assigned to that term in Section 2.02
of this Reimbursement Agreement.



          “Default Rate” means a fluctuating interest rate equal to 4% per annum
above the Base Rate in effect from time to time.



          “EBITDA” means net income, less income or plus loss from discontinued
operations and extraordinary items, plus income taxes, plus interest expense,
plus depreciation, depletion and amortization, plus the write-down of goodwill,
plus or minus the cumulative effect of change in accounting principles, plus
non-cash compensation.



          “Environmental Laws” means and includes the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, the Resource Conservation and
Recovery Act, the Superfund Amendments and Reauthorization Act of 1986, any
other “Superfund” or “Superlien” law, or any other federal, state or local
statute, law, ordinance, code, rule, regulation, order or decree regulating,
relating to, or imposing liability or standards of conduct concerning any
Hazardous Materials, as now or at any time hereafter in effect.



          “ERISA” means the Employee Retirement Income Security Act of 1974, as
amended from time to time, including any rules and regulations promulgated
thereunder.



          “Event of Default” has the meaning assigned to that term in Section 7.01
of this Reimbursement Agreement.



          “Final Drawing” means any drawing on the Letter of Credit accompanied by a
certification in the form attached as Annex D to the Letter of Credit in order
to pay principal and interest on the Bonds on account of maturity, acceleration
or redemption of all of the outstanding Bonds.



          “Final Tender Drawing” means any Liquidity Drawing on the Letter of Credit
in order to pay the purchase price of Bonds tendered in connection with a
mandatory tender of the Bonds (i) pursuant to Section 4.07(a) of the Indenture;
or (ii) pursuant to a redemption in whole pursuant to Section 4.01(a) of the
Indenture.



          “Generally Accepted Accounting Principles” or “GAAP” means accounting
principles generally accepted in the United States of America set forth in the
opinions and pronouncements of the Accounting Principles Board and the
American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or such other
principles as may be approved by a significant segment of the accounting



3









 




profession in the United States of America, that are applicable to the
circumstances as of the date of determination, consistently applied.




          “Governmental Authority” means any government, foreign or domestic, and
any political subdivision thereof, any court or any foreign or domestic,
federal, state, municipal or other department, commission, board, bureau,
agency, public authority or instrumentality.



          “Governmental Requirement” means any law, ordinance, order, rule or
regulation of a Governmental Authority.



          “Guarantors” means, collectively, Maytag Aircraft Corporation, a Colorado
corporation; Mercury Air Cargo, Inc., a California corporation; MercFuel, Inc.,
a Delaware corporation; Hermes Aviation, Inc., a California corporation;
Mercury Air Center — Long Beach, Inc., a California corporation; Mercury
Acceptance Corporation, a California corporation; Jupiter Airline Automation
Services, Inc., a Florida corporation; AEG Finance Corporation, a Delaware
corporation, Excel Cargo, Inc., a California corporation; Vulcan Aviation,
Inc., a California corporation; and any other Person from time to time
executing a Guaranty in favor of the Bank.



          “Guaranty” means the Limited Guaranty made by the Guarantors in favor of
the Bank, substantially in the form of Exhibit B hereto.



          “Hazardous Materials” means and includes any hazardous, toxic or dangerous
waste, substance or material (including without limitation any materials
containing asbestos) defined as such in (or for purposes of) or subject to
regulation under any Environmental Laws.



          “Indebtedness” means all items which would, in conformity with Generally
Accepted Accounting Principles, be classified as liabilities on a balance sheet
of the Borrower as of the date such determination of indebtedness is made and
in any event including (without duplication): (a) all indebtedness of the
Borrower for money borrowed; (b) all liabilities guaranteed or assumed,
directly or indirectly, by the Borrower in any manner, or endorsed (otherwise
than for collection or deposit in the ordinary course of business) or
discounted thereby with recourse; (c) the face amount of all letters of credit
issued for the account of a Borrower and, without duplication, all unreimbursed
drafts drawn thereunder; (d) all indebtedness guaranteed by the Borrower,
directly or indirectly, whether through an agreement, contingent or otherwise,
to purchase or repurchase such indebtedness or to purchase, sell or lease (as
lessee or lessor) any property or 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 advance or supply funds to or to invest in any other manner in the
debtor, whether through purchasing stock, making a loan, advance or capital
contribution or by means of agreeing to maintain or cause such debtor to



4









 




maintain a minimum working capital or net worth, or otherwise (but excluding
endorsements for collection or deposit in the ordinary course of business); (e)
all liabilities secured by any lien on any property owned by the Borrower, to
the extent attributable to such Person’s interest in such property, even though
the Borrower has not assumed or become liable for the payment thereof; and (f)
obligations of the Borrower under Capital Leases.




          “Indenture” has the meaning assigned to that term in paragraph (1) of the
Preliminary Statements hereof.



          “Interest Expense” means interest on Indebtedness during the period for
which computation is being made, excluding (a) the amortization of fees and
costs incurred with respect to the closing of loans which have been capitalized
as transaction costs, and (b) interest paid in kind.



          “Interest Payment Date” means each date on which interest is payable on
the Bonds pursuant to the Bonds and the Indenture.



          “Interest Rate Protection Agreement” means any and all interest rate swap
agreements, interest cap agreements, interest rate collar agreements, exchange
agreements, forward currency exchange agreements, forward rate currency or
interest rate options, foreign currency hedge, or any similar agreements or
arrangements entered into by Borrower in connection with the transaction
contemplated herein to hedge the risk of a variable interest rate volatility or
fluctuation of interest rates, as such agreements or arrangements may be
modified, supplemented, and in effect from time to time, and any and all
cancellations, buy backs, reversals, terminations or assignment of any of the
foregoing.



          “Issuer” means the California Economic Development Financing Authority, or
its successor, the California Infrastructure and Economic Development Bank, as
the context may require.



          “Letter of Credit” has the meaning assigned to that term in paragraph (4)
of the Preliminary Statements hereof.



          “Letter of Credit Fee Calculation Amount” in effect at any time means the
maximum amount available to be drawn at such time under the Letter of Credit,
the determination of such maximum amount to assume compliance with all
conditions for drawing and no reduction for (i) any amount drawn by any drawing
referred to in the Letter of Credit, the amount of which, in whole or in part,
is subject to reinstatement (unless such amount is not reinstated under the
Letter of Credit), or (ii) any amount not available to be drawn because Bonds are
held by or for the account of the Borrower or are Bank Bonds (as defined in
Section 2.14 hereof).



5









 





          “Liquidity Drawing” means any drawing on the Letter of Credit accompanied
by a certification in the form attached as Annex C to the Letter of Credit in
order to pay the purchase price of Bonds tendered for purchase pursuant to
Sections 4.06 and 4.07 of the Indenture.



          “Loan Agreement” has the meaning assigned to that term in paragraph (2) of
the Preliminary Statements hereof.



          “Material Adverse Effect” means (a) a material adverse change in, or a
material adverse effect upon, the operations, business, properties, liabilities
(actual and contingent), condition (financial or otherwise) or prospects of the
Borrower, the Guarantors and their respective Subsidiaries taken as a whole;
(b) a material impairment of the ability of the Borrower or any Guarantor to
perform its obligations under any Bank Loan Document to which it is a party; or
(c) a material adverse effect upon the legality, validity, binding effect or
enforceability against the Borrower or any Guarantor of any Bank Loan Document.



          “Multiemployer Plan” means a “multiemployer plan” as defined in Section
4001(a)(3) of ERISA.



          “Official Statement” means the Official Statement, relating to the Bonds,
together with any documents incorporated therein by reference, and any
supplements issued pursuant thereto.



          “Optional Tender Drawing” means any drawing made upon the Letter of Credit
in order to effect an optional tender of Bonds pursuant to Section 4.06(a) of
the Indenture.



          “Outstanding” when used as of any particular time with reference to the
Bonds, shall have the meaning set forth in the Indenture.



          “PBGC” means the Pension Benefit Guaranty Corporation or any successor
thereto.



          “Permitted Encumbrances” means and includes (i) liens for taxes,
assessments and other governmental charges due but not yet payable; (ii)
landlord’s, warehouseman’s, carrier’s, worker’s, vendor’s, mechanic’s and
materialmen’s liens and similar liens incurred in the ordinary course of
business remaining undischarged for not longer than 60 days from the filing
thereof; (iii) attachments remaining undischarged for not longer than 60 days
from the making thereof; (iv) liens in respect of pledges or deposits under
worker’s compensation laws, unemployment insurance or similar legislation and
in respect of pledges or deposits to secure bids, tenders, contracts (other
than contracts for the payment of money), leases or statutory obligations, or in connection
with surety, appeal and similar bonds incidental to the conduct of litigation;
(v) Capital Leases with respect to property (A) not previously owned by the
Borrower or an



6









 




Affiliate and (B) not otherwise acquired in whole or in part
with the proceeds of the Bonds; and (vi) purchase money security interests in
property of the Borrower which property was not acquired in whole or in part
with the proceeds of the Bonds.




          “Person” means any individual, joint venture, corporation, company,
voluntary association, partnership, limited liability company, trust, joint
stock company, unincorporated organization, association, government, or any
agency, instrumentality, or political subdivision thereof, or any other form of
entity.



          “Plan” means an employee benefit plan (other than a Multiemployer Plan)
maintained for employees of the Borrower, or any Affiliate and covered by Title
IV of ERISA.



          “Plan Termination Event” means (i) a Reportable Event described in Section
4043 of ERISA and the regulations issued thereunder (other than a Reportable
Event not subject to the provision for 30-day notice to the PBGC under such
regulations), or (ii) the withdrawal of the Borrower or any of its Affiliates
from a Plan during a plan year in which it was a “substantial employer” as
defined in Section 4001(a)(2) of ERISA, or (iii) the filing of a notice of
intent to terminate a Plan or the treatment of a Plan amendment as a
termination under Section 4041 of ERISA, or (iv) the institution of proceedings
to terminate a Plan by the PBGC, or (v) any other event or condition which
would constitute grounds under Section 4042 of ERISA for the termination of, or
the appointment of a trustee to administer, any Plan.



          “Prime Rate” means the interest rate announced by the Bank from time to
time as its prime rate. The Prime Rate is one of several rate indices used by
the Bank in calculating interest on loans to its customers and is not
necessarily the best or lowest rate of interest offered by the Bank.



          “Project” has the meaning assigned to that term in the Indenture.



          “Redemption Drawing” means any drawing on the Letter of Credit accompanied
by a certification in the form attached as Annex B to the Letter of Credit in
order to fund a partial redemption of the Bonds pursuant to Section 4.01(a) of
the Indenture.



          “Reimbursement Agreement” means this Letter of Credit and Reimbursement
Agreement and any amendments or supplements thereto.



          “Related Documents” has the meaning assigned to that term in Section 2.11
of this Reimbursement Agreement.



          “Scheduled Payment Drawing” means any drawing on the Letter of Credit
accompanied by a certification in the form attached as Annex A or Annex B to
the Letter of Credit in order to make a scheduled installment of Principal,




7










 




Interest, or to make a scheduled installment of Principal (on account of final
maturity or a mandatory sinking fund payment as set forth in Section 2.04(b)
hereof.)




     “Stated Termination Date” means the date on which the Letter of Credit
shall terminate in accordance with its terms, initially April 1, 2007, subject
to extension as provided in Section 2.13 hereof.



     “Subsidiary” of a Person means a corporation, partnership, joint venture,
limited liability company or other business entity of which a majority of the
shares of securities or other interest having ordinary voting power for the
election of directors or other governing body (other than securities having
such power only by reason of the happening of a contingency) are at the time
beneficially owned, or the management of which is otherwise controlled,
directly, or indirectly through one or more intermediaries, or both, by such
Person. Unless otherwise specified, all references herein to a “Subsidiary” or
the “Subsidiaries” shall refer to a Subsidiary or Subsidiaries of any Borrower.



     “Tender Advance” means any Liquidity Drawing that is not a Final Tender
Drawing, as described in Section 2.05 of this Reimbursement Agreement.



     “Trustee” means U.S. Bank National Association, as trustee under the
Indenture.



          Section 1.02. Computation of Time Periods. In this Reimbursement Agreement, in
the computation of a period of time from a specified date to a later specified
date, the word “from” means “from and including” and the words “to” and “until”
each mean “to but excluding”.



          Section 1.03. 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.



          Section 1.04. Other Terms. All other capitalized terms to the extent not
otherwise defined shall have the meanings given to them in the Letter of Credit
and the Indenture.



ARTICLE II

AMOUNT AND TERMS OF THE LETTER OF CREDIT; PLEDGE OF BONDS




          Section 2.01. The Letter of Credit. The Bank agrees, on the terms and
conditions hereinafter set forth, to issue and deliver the Letter of Credit in
favor of the Trustee on the Date of Issuance in the aggregate stated amount of
$14,161,096.00 and expiring on or before the Stated Termination Date, unless
extended pursuant to Section 2.13 of this Agreement.



8









 





          Section 2.02. Issuing the Letter of Credit. Upon fulfillment of the
applicable conditions set forth in Section 2.01 hereof, the Bank will issue and
deliver the Letter of Credit to the Trustee (the date of such issuance and
delivery being called the “Date of Issuance”). The Letter of Credit shall be
issued in substantially the form of Exhibit A hereto. The Bank agrees that any
and all payments made under the Letter of Credit will be made with the Bank’s
own funds.



          Section 2.03. Fees and Expenses.



          (a) The Borrower agrees to pay to the Bank a non-refundable Letter of
Credit fee equal to (i) 1.75% per annum of the Letter of Credit Fee Calculation
Amount when the Basic Fixed Charge Coverage Ratio is 1.0:10 through 1.249:1.0;
or (ii) 1.50% per annum of the Letter of Credit Fee Calculation Amount when the
Basic Fixed Coverage Ratio is equal to or greater than 1.25:10. The amount of
the fee will be determined on the basis of the most recent financial statements
received by the Bank and shall be calculated based on the Letter of Credit Fee
Calculation Amount as of the date such fee is due. The fee shall be payable
quarterly in arrears, on each March 31, June 30, September 30, and December 31,
commencing December 31, 2004.



          (b) The Borrower agrees to pay to the Bank, (i) upon issuance of the
Letter of Credit, a processing fee of $250.00, and (ii) upon each drawing under
the Letter of Credit, a fee of $150 per drawing.



          (c) The Borrower agrees to pay to the Bank, upon each transfer of the
Letter of Credit, a transfer commission equal to $1,000 together with all costs
and expenses of the Bank (including reasonable attorneys’ fees) incurred
related thereto.



          (d) The Borrower agrees to pay to the Bank, upon each amendment of the
Letter of Credit, a fee of $1,000 together with all costs and expenses of the
Bank (including reasonable attorneys’ fees) incurred related thereto.



          (e) The Borrower agrees to pay the Bank’s normal transaction charges,
including wire charges, and service charges on any account established with the
Bank in order to perform this Reimbursement Agreement.



          (f) Any amount of fees or expenses payable by the Borrower to the Bank
which is not paid when due shall bear interest, from the date such amount of
fees was due until the date of payment in full, at the Default Rate, payable on
the first to occur of the date of payment in full of such amount or demand by
the Bank.



          Section 2.04. Reimbursement and Semi-Annual Bond Redemptions.



          (a) The Borrower agrees to pay the Bank (i) an amount equal to any amount
drawn under the Letter of Credit pursuant to a Final Drawing, a Final Tender
Drawing, a Redemption Drawing or a Scheduled Payment Drawing immediately after
such drawing is honored and in any event before 5:00 p.m. (California time) on
the same



9









 







Business Day as such drawing is honored, plus (ii) interest at the
Default Rate, on any amount remaining unpaid by the Borrower to the Bank under
clause (i) above, from the date such amount becomes due and payable until
payment in full.



          (b) The Borrower agrees to call for redemption Bonds in the principal
amount of $500,000 on the Interest Payment Date on or next occurring after each
April 1 and October 1, commencing April 1, 2005.



          Section 2.05. Tender Advance. If the Bank shall make any payment of that
portion of the purchase price corresponding to principal and interest of the
Bonds from amounts drawn under the Letter of Credit that is a Liquidity
Drawing, other than a Liquidity Drawing which is a Final Tender Drawing, such
payment shall constitute a tender advance made by the Bank to the Borrower on
the date and in the amount of such payment, and each such tender advance shall
constitute a “Tender Advance.” Notwithstanding any other provision hereof, the
Borrower shall repay the unpaid amount of each Tender Advance (after the
application of any remarketing proceeds received by the Bank from the
Remarketing Agent), together with interest thereon computed at the rate set
forth in Section 2.06, on the earlier to occur of (i) such date as provided in
Section 2.07(b) hereof (i.e., resale of the Bonds), (ii) the date thirty (30)
days following such Tender Advance or (iii) the Stated Termination Date. The
Borrower may prepay any such amounts on an earlier date as provided in Section
2.07 hereof.



          Section 2.06. Interest on Tender Advances. The Borrower shall pay interest on
the unpaid amount of each Tender Advance (after the application of any
remarketing proceeds received by the Bank from the Remarketing Agent) from the
date of such Tender Advance until such amount is paid in full, payable monthly,
in arrears, on the first day of each month during the term of each Tender
Advance and on the date such amount is paid in full, at a fluctuating interest
rate per annum in effect from time to time equal to the Base Rate, provided
that the unpaid amount of any Tender Advance which is not paid when due
pursuant to Section 2.05
hereof shall thereafter bear interest at the Default Rate, payable on demand
and on the date such amount is paid in full.



          Section 2.07. Payments; Reinstatement of Letter of Credit Amounts.



          (a) The Borrower may prepay at any time the outstanding amount of any
Tender Advance in whole or in part, together with accrued interest to the date
of such prepayment on the amount prepaid. The Borrower shall notify the Bank
on the date of such prepayment of the amount to be prepaid, which notice shall
be given prior to such prepayment.



          (b) Prior to or simultaneously with the resale of Bonds acquired by the
Trustee, acting as the tender agent, with the proceeds of one or more draws
under the Letter of Credit by one or more drawings, the Borrower shall repay
the then outstanding advances (in the order in which they were made) by paying
to the Bank an amount equal to the sum of (i) the portion of the purchase price
corresponding to the aggregate principal



10









 







amount of the Bonds being resold or to
be resold, plus (ii) the portion of the purchase price corresponding to the
aggregate amount of accrued and unpaid interest on such Bonds, plus (iii) the
aggregate amount of accrued and unpaid interest on such advances, less the
amount paid pursuant to the immediately preceding clause (ii). Such payment
shall be applied by the Bank in reimbursement of such drawings (and as
prepayment of Tender Advances resulting from such drawings in the manner
described above), and, with respect to any Tender Advance, the Borrower
irrevocably authorizes the Bank to reinstate the Letter of Credit in accordance
therewith; provided, however, that if the Remarketing Agent shall have resold
the said Bonds, and the proceeds of such remarketing have been delivered by the
Remarketing Agent to the Bank, the Borrower shall be obligated to repay to the
Bank only the sum by which the amount due pursuant to subclauses (i), (ii), and
(iii) above exceeds said remarketing proceeds.



          (c) Bonds purchased with the proceeds of drawings on the Letter of Credit
which are held under a book entry system shall be held by the Trustee in the
name of the Bank with a notation that such Bonds are “Bank Bonds”. Bank Bonds
shall be held by the Trustee as fiduciary for the Bank and shall secure the
Borrower’s payment obligations hereunder. Upon receipt by the Bank of notice
from the Trustee in the form set forth on Annex G to the Letter of Credit, that
the Trustee holds proceeds representing a payment for Bank Bonds which have
been remarketed, which proceeds shall be in an amount necessary to reimburse
fully the Bank for all drawings under the Letter of Credit in respect of such
Bank Bonds, the Bank will automatically and immediately reinstate the Letter of
Credit with respect to Bonds purchased with proceeds of such drawings. No
interest shall accrue on any Bond during any period such Bond is a Bank Bond,
provided however, that the Borrower shall at all times be liable to the Bank to
reimburse all Tender Advances and interest thereon as provided herein.



          (d) Drawings by the Trustee in connection with the purchase of Bonds under
the Letter of Credit to the extent not otherwise repaid by the Borrower
pursuant to
Section 2.07(b) shall be repaid at the times specified in Sections 2.04
and 2.05, and may be prepaid at any time by or on behalf of the Borrower. In
addition, the Borrower shall, forthwith, prepay or cause to be prepaid any
amount owing to the Bank as a result of any Tender Advance for the purpose of
paying the purchase price of any Bond delivered to the Trustee, if the Trustee
failed, for any reason, to pay or tender payment of the purchase price of such
Bond when due to or for the account of the person entitled thereto and such
failure is continuing or any other person shall assert that such person has a
lien on or security interest in such Bond. Upon payment to the Bank of the
amount or amounts previously advanced by the Bank for the purchase of Bonds,
together with any accrued interest on such advance to the date of such
prepayment on the amount to be prepaid, the principal amount outstanding of the
advances shall be reduced by the amount of such prepayment and interest shall
cease to accrue on the amount prepaid. In accordance with the terms of the
Indenture, a principal amount of Bonds equal to the principal amount of such
payment then held as Bank Bonds shall thereafter constitute Borrower Bonds.



11









 





          Section 2.08. Increased Costs. If any law, regulation or change in any law or
regulation or in the interpretation thereof, or any ruling, decree, judgment,
guideline, directive or recommendation (whether or not having the force of law)
by any regulatory body, court, central bank or any administrative or
governmental authority charged or claiming to be charged with the
administration thereof (including, without limitation, a request or requirement
which affects the manner in which the Bank allocates capital resources to its
commitments including its obligations hereunder) shall either (i) impose upon,
modify, require, make or deem applicable to the Bank or any of its affiliates,
Subsidiaries or participants any reserve requirement, special deposit
requirement, insurance assessment or similar requirement against or affecting
the Letter of Credit issued hereunder, or (ii) subject the Bank or any of its
affiliates, Subsidiaries or participants to any tax, charge, fee, deduction or
withholding of any kind whatsoever in connection with the Letter of Credit or
change the basis of taxation of the Bank or any of its affiliates, Subsidiaries
or participants (other than a change in the rate of tax based on the overall
net income of the Bank or such participant), or (iii) impose any condition upon
or cause in any manner the addition of any supplement to or increase of any
kind to the Bank’s or an affiliate’s, Subsidiary’s or participant’s capital or
cost base for issuing or owning a participation in the Letter of Credit which
results in an increase in the capital requirement supporting the Letter of
Credit, or (iv) impose upon, modify, require, make or deem applicable to the
Bank or any of its affiliates, Subsidiaries or participants any capital
requirement, increased capital requirement or similar requirement, such as the
deeming of the Letter of Credit to be an asset held by the Bank or any of its
affiliates, Subsidiaries or participants for capital adequacy calculation or
other purposes (including, without limitation, a request or requirement which
affects the manner in which the Bank or any participant allocates capital
resources to its commitments including its obligations hereunder or under the
Letter of Credit), and the result of any events referred to in (i), (ii), (iii)
or (iv) above shall be to increase the costs in any way to the Bank or any
affiliate, Subsidiary or participant of issuing, maintaining or participating
in the Letter of Credit or reduce the amounts payable by the Borrower hereunder
or
reduce the rate of return on capital, as a consequence of the issuing,
maintaining or participating in the Letter of Credit, to a level below that
which the Bank, its affiliates, Subsidiaries or participants could have
achieved but for such events; then and in such event the Borrower shall,
promptly upon receipt of written notice to the Borrower by the Bank of such
increased costs and/or decreased benefits, pay within 30 days of demand
therefor to the Bank all such additional amounts which, in the Bank’s or
participant’s sole good faith calculation as allocated to the Letter of Credit,
shall be sufficient to compensate it for all such increased costs and/or
decreased benefits, all as certified by the Bank or such participants in said
written notice to the Borrower. Such certification shall be accompanied by
information in reasonable detail concerning the calculation of such increased
costs and/or decreased benefits and shall be conclusive and binding on the
parties hereto, absent manifest error. In determining such amount, the Bank or
any participant may use any reasonable averaging or attribution methods.




12










 





          Section 2.09. Payments and Computations. The Borrower shall make each payment
hereunder (a) representing reimbursement pursuant to Section 2.04 hereof to the
Bank of drawings made under the Letter of Credit and honored by the Bank not
later than 5:00 p.m. (California time), and (b) not later than 5:00 p.m.
(California time) for all other payments, on the day when due in lawful money
of the United States of America to the Bank at its address referred to in
Section 9.05 hereof in same day funds. The Borrower hereby authorizes the
Bank, if and to the extent payment is not made when due hereunder, to charge
from time to time against any of the Borrower’s accounts with the Bank any
amount so due. Computations of the Prime Rate, the Default Rate and of any
fees or commissions hereunder shall be made by the Bank on the basis of a 360
day year and the actual number of days elapsed. This results in more interest
or higher fee than if a 365-day year is used. Whenever any payment to be made
hereunder shall be stated to be due on a day which is not a Business Day, such
payment shall 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,
fee or commission, as the case may be.



          Section 2.10. Evidence of Debt. The Bank shall maintain in accordance with its
usual practice an account or accounts evidencing the indebtedness of the
Borrower resulting from each drawing under the Letter of Credit made from time
to time hereunder and the amounts of principal, interest and fees payable and
paid from time to time hereunder. In any legal action or proceeding in respect
of this Reimbursement Agreement, the entries made in such account or accounts
shall be conclusive evidence of the existence and amounts of the obligations of
the Borrower therein recorded, absent manifest error.



          Section 2.11. Obligations Absolute. The payment obligations of the Borrower under this Reimbursement Agreement
shall be paid strictly in accordance with the terms of this Reimbursement
Agreement under all circumstances, including, without limitation, the following
circumstances:



          (a) any lack of validity or enforceability of the Letter of Credit, the
Bonds, the Indenture, the Loan Agreement, the Guaranty or any other agreement
or instrument relating thereto (collectively, the “Related Documents”);



          (b) any amendment or waiver of or any consent to departure from all or any
of the Related Documents (unless consented to in writing by the Bank);



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



13









 





          (d) 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 being untrue or inaccurate in any respect;



          (e) payment by the Bank under the Letter of Credit against presentation of
a draft or certificate which does not comply with the terms of the Letter of
Credit; provided that such payment shall not have constituted gross negligence
or willful misconduct of the Bank.



          Section 2.12. [Reserved]



          Section 2.13. Extension of the Stated Termination Date. The initial Stated
Termination Date shall be automatically extended for an additional one year
period and for subsequent one year periods on each Stated Termination Date
thereafter unless the Bank gives written notice to the Borrower and the Trustee
at least 120 days prior to the then current Stated Termination Date of its
intention not to extend the Stated Termination Date beyond the current Stated
Termination Date; provided, however, in no event shall the Stated Termination
Date extend beyond April 1, 2013.



          Section 2.14. Pledge of Bonds. The Borrower hereby pledges, assigns,
hypothecates, transfers and delivers to the Bank all its right, title and
interest to, and hereby grants to the Bank a first lien on, and security
interest in, all right, title and interest of the Borrower in and to the
following (the “Bank Bonds Collateral”):



          (a) all Bonds which may from time to time have been purchased with
proceeds of drawings under the Letter of Credit (the “Bank Bonds”);



          (b) all income, earnings, profits, interest, premium or other payments in
whatever form in respect of the Bank Bonds;



          (c) in the event of default under the Reimbursement Agreement all proceeds
(cash and non-cash) arising out of the sale, exchange, collection, enforcement
or other disposition of all or any portion of the Bank Bonds;


as collateral security for the prompt and complete payment when due of all
amounts due in respect of the reimbursement obligations of the Borrower set
forth herein with respect to such Bank Bonds (the “Obligations”).




     Bank Bonds shall be held by the Tender Agent pursuant to the provisions of
Section 4.10(c) of the Indenture.



     In the event that the Borrower shall fail to pay any amount when due
hereunder, the Bank, without demand of performance or other demand,
advertisement or notice of any kind (except the notice specified below of time
and place of public or private sale) to or upon the Borrower or any other
person (all and each of which demands, advertisements and/or notices are hereby



14









 







expressly waived), may forthwith collect, receive, appropriate and realize upon
the Bank Bonds Collateral, or any part thereof, and/or may forthwith sell,
assign, give option or options to purchase, contract to sell or otherwise
dispose of and deliver said Bank Bonds Collateral, or any part thereof, in one
or more parcels at public or private sale or sales, at any exchange, broker’s
board or at any of the Bank’s offices or elsewhere upon such terms and
conditions as it may deem advisable and at such prices as it may deem best, for
cash or on credit or for future delivery without assumption of any credit risk,
with the right of the Bank upon any such sale or sales, public or private, to
purchase the whole or any part of said collateral so sold, free of any right or
equity of redemption in the Borrower, which right or equity is hereby expressly
waived or released. The Bank shall apply the net proceeds of any such
collection, recovery, receipt, appropriation, realization or sale, after
deducting all reasonable costs and expenses of every kind incurred therein or
incidental to the care, safekeeping or otherwise of any and all of the Bank
Bonds Collateral or in any way relating to the rights of the Bank hereunder,
including reasonable attorney’s fees and legal expenses, to the payment in
whole or in part of the Obligations in such order as the Bank may elect, the
Borrower remaining liable for any deficiency remaining unpaid after such
application, and only after so applying such net proceeds and after the payment
by the Bank of any other amount required by any provision of law, including,
without limitation, Section 9-610 of the Uniform Commercial Code, need the Bank
account for the surplus, if any, to the Borrower. The Borrower agrees that the
Bank need not give more than ten days’ notice of the time and place of any
public sale or of the time after which a private sale or other intended
disposition is to take place and that such notice is reasonable
notification of such matters. No notification need be given to the Borrower if
it has signed after default a statement renouncing or modifying any right to
notification of sale or other intended disposition. In addition to the rights
and remedies granted to it in this Reimbursement Agreement and in any other
instrument or agreement securing, evidencing or relating to any of the
Obligations, the Bank shall have all the rights and remedies of a secured party
under the Uniform Commercial Code of the State of California. It is hereby
acknowledged (and any purchaser of Bank Bonds shall acknowledge) that in the
event of the sale of any Bank Bonds without reinstatement of the Letter of
Credit by the Bank, such Bank Bonds shall not be rated by the Rating Agency
until reinstatement of the Letter of Credit.



     The Borrower covenants that the pledge, assignment and delivery of the
Bank Bonds Collateral hereunder will create a valid, perfected, first priority
security interest in all right, title or interest of the Borrower in or to such
collateral, and the proceeds thereof, subject to no prior pledge, lien,
mortgage, hypothecation, security interest, charge, option or encumbrance or to
any agreement purporting to grant to any third party a security interest in the
property or assets of the Borrower which would include the Bank Bonds
Collateral. The Borrower covenants and agrees that it will defend the Bank’s
right, title and security interest in and to the Bank Bonds Collateral and the
proceeds thereof against the claims and demands of all persons whomsoever.



15









 





     Bank Bonds shall be released from the security interest created hereunder
upon satisfaction of the Obligations with respect to such Bank Bonds, and
restoration of the Letter of Credit in the amount of any drawing thereunder to
satisfy the Obligations.



          Section 2.15. Direct Debit. The Borrower agrees that the Bank will debit
Borrower’s deposit account number 14593-24594 or such other of Borrower’s
accounts with the Bank as designated in writing by Borrower (the “Designated
Account”) on the date each payment of principal, interest and any fees from the
Borrower becomes due pursuant to the terms hereof (the “Due Date”). If the Due
Date is not a Business Day, the designated Account will be debited on the next
Business Day. If there are insufficient funds in the Designated Account on the
date the Bank enters any debit authorized by this Agreement, the debit will be
reversed. The Bank agrees that any and all payments made by the Bank under the
Letter of Credit will be made with the Bank’s own funds and not with any funds
in the Designated Account.



          Section 2.16. Collateral and Other Support. The Borrower’s obligations to the
Bank under this Reimbursement Agreement and the Guarantors’ obligations to the
Bank under the Guaranty shall be secured by a first priority
lien on all personal property collateral pledged to the Bank under the Bank
Collateral Documents.



ARTICLE III

CONDITIONS OF ISSUANCE




          Section 3.01. Condition Precedent to Issuance of the Letter of Credit. The
obligation of the Bank to issue the Letter of Credit is subject to the
condition precedent that the Bank shall have received on or before the Date of
Issuance the following, each dated such date, in form and substance
satisfactory to the Bank:



          (a) Borrower Documents: (i) A copy of the Articles of Incorporation, (ii)
a certificate of the Borrower evidencing authorization and approval of this
Reimbursement Agreement and any Related Document to which the Borrower is a
party and the transactions contemplated thereby, certified by the Borrower, and
(iii) a certificate dated no earlier than 30 days prior to the Date of Issuance
of the Secretary of State of California as to the good standing of Borrower in
California.



          (b) Guarantor Documents: A certificate of each Guarantor evidencing
authorization and approval of the Guaranty and the transactions contemplated
thereby, certified by such Guarantor.



          (c) Incumbency Certificates: Certificate(s) of the Secretary of the
Borrower and each Guarantor certifying the names and true signatures of the
officers of the Borrower and each Guarantor, authorized to sign the Bank Loan
Documents to which the Borrower or such Guarantor is a party, and the other
documents contemplated hereby and thereby.



16









 





          (d) Credit Documents: An executed original counterpart of this
Reimbursement Agreement, the Guaranty and all other Related Documents to be
delivered in connection therewith and such other documents as are necessary in
the opinion of counsel to the Bank.



          (e) Borrower and Guarantors Counsel Opinion: The opinion of counsel to the
Borrower and the Guarantors, in form and substance satisfactory to the Bank and
its counsel, and as to such other matters as the Bank may reasonably request.



          (f) Operative Documents: An executed copy of the Loan Agreement,
Indenture, Official Statement (including all supplements thereto), Remarketing
Agreement and all other Related Documents executed in connection therewith.



          (g) Fees Payable: Payment by the Borrower (i) to the Bank, of the fees
set forth in Section 2.03(a) hereof and such other costs and expenses pursuant
to Section 8.07 hereof, and (ii) to counsel to the Bank, of their fees
reasonably incurred in connection with this transaction, plus such counsel’s
reasonable out-of-pocket expenses.



          (h) Other Documents: Such other documents, instruments, approvals (and,
if requested by the Bank, certified duplicates of executed copies thereof) or
opinions as the Bank may reasonably request.



          Section 3.02. Additional Conditions Precedent to Issuance of the Letter of
Credit. The obligation of the Bank to issue the Letter of Credit shall be
subject to the further conditions precedent that:



          (a) On the Date of Issuance the following statements shall be true and the
Bank shall have received a certificate signed by an authorized officer of the
Borrower, dated the Date of Issuance, stating that:



               (i) The representations and warranties contained in Section 4.01 of this
Reimbursement Agreement are correct on and as of the Date of Issuance of the
Letter of Credit as though made on and as of such date; and



               (ii) No event has occurred or would result from the issuance of the Letter
of Credit, which constitutes an Event of Default or would constitute an Event
of Default but for the requirement that notice be given or lapse of time or
both; and



          (b) There shall have been no introduction of or change in or in the
interpretation of any law or regulation that would make it unlawful or unduly
burdensome for the Bank to issue the Letter of Credit, no outbreak or
escalation of hostilities or other calamity or crisis, no suspension of or
material limitation on trading on the New York Stock Exchange or any other
national securities exchange, no declaration of a general banking moratorium by
United States banking authorities, and no establishment of any new restrictions
on transactions in securities or on banks materially affecting the free market
for securities or the extension of credit by banks.



17









 





ARTICLE IV

REPRESENTATIONS AND WARRANTIES




          Section 4.01. Representations and Warranties of the Borrower. The Borrower
represents and warrants as follows (which representations and warranties shall
survive the issuance of the Letter of Credit):



          (a) The Borrower has all requisite power and authority to conduct its
business, to own its properties, and to execute and deliver and perform all of
its obligations under this Reimbursement Agreement and each of the Related
Documents to which it is a party.



          (b) The execution, delivery and performance by the Borrower of this
Reimbursement Agreement and the Related Documents to which it is a party are
within
the Borrower’s powers, have been duly authorized by all necessary action,
and do not contravene (i) any provision of the organization documents of the
Borrower, (ii) to the best of Borrower’s knowledge, any law, rule or regulation
applicable to the Borrower or its properties or (iii) any agreement or
contractual restriction binding on or affecting the Borrower or any of its
properties, and do not result in or require or cause the creation of any lien,
security interest or other charge or encumbrance (except as provided in or
contemplated by this Reimbursement Agreement or the Indenture) upon or with
respect to any of its properties.



          (c) No authorization or approval or other action by, and no notice to or
filing with, any Governmental Authority is required for the due execution,
delivery and performance by the Borrower of this Reimbursement Agreement or any
Related Document, except as have been duly obtained or made (including, without
limitation, filings and recordings with respect to the Indenture) and are in
full force and effect.



          (d) This Reimbursement Agreement is, and each of the other Related
Documents to which the Borrower is a party when delivered hereunder will be,
legal, valid and binding obligations of the Borrower enforceable against the
Borrower in accordance with their respective terms.



          (e) Except as disclosed on Schedule 2 attached hereto, all representations
and warranties set forth in Section 8 of the Credit Agreement and all schedules
attached thereto are true as of the date of this Reimbursement Agreement as if
made on the date of this Reimbursement Agreement.



          (f) To the Borrower’s knowledge, neither this Reimbursement Agreement nor
any Related Documents to which the Borrower is a party, nor any reports,
schedules, certificates, agreements or instruments heretofore or simultaneously
with the execution of this Reimbursement Agreement delivered to the Bank by or
on behalf of the Borrower in connection with the issuance of the Letter of
Credit, contains any misrepresentation or untrue statement of fact or omits to
state any material fact necessary



18









 







to make this Reimbursement Agreement or any
such other document, agreement, report, schedule, certificate or instrument not
misleading.



ARTICLE V

COVENANTS OF THE BORROWER




          Section 5.01. Affirmative Covenants. So long as a drawing is available under
the Letter of Credit, or the Borrower shall have any obligation to pay any
amount to the Bank hereunder, the Borrower, unless the Bank shall otherwise
consent in writing:



          (a) Preservation of Existence. Preserve and maintain its existence and
all rights, privileges and franchises necessary and desirable in the normal
conduct of its
business and in the performance of its obligations under the Related
Documents except where the failure to maintain or preserve such rights would
not have a Material Adverse Effect upon the Borrower.



          (b) Compliance with Laws, Etc. Comply with the requirements of all
applicable laws, rules, regulations and orders of any governmental or
regulatory authority, non-compliance with which would have a Material Adverse
Effect upon the Borrower and the Guarantors.



          (c) Payment of Taxes, Etc. Pay and discharge, before the same shall
become delinquent, (i) all taxes, assessments and governmental charges or
levies imposed upon it or upon its property, and (ii) all lawful claims which,
if unpaid, might by law become a lien upon its property; provided, however,
that the Borrower shall not be required to pay or discharge any such tax,
assessment, charge or claim that is being contested in good faith and by proper
proceedings, and, if requested by Bank, reserves with respect thereto
acceptable to the Bank shall be maintained; provided, further, that any such
tax, assessment, charge, levy or claim shall be paid forthwith upon the
commencement of proceedings to foreclose any lien securing the same.



          (d) Keeping of Books. Keep proper books of record and account, in which
full and correct entries shall be made of all financial transactions and the
assets and business of the Project, the Borrower in accordance with Generally
Accepted Accounting Principles consistently applied.



          (e) Maintenance of Properties, Etc. Maintain and preserve all of its
properties which are used or useful in the conduct of its business in good
working order and condition, ordinary wear and tear excepted.



          (f) Performance and Compliance with Other Covenants. Perform and comply
in all material respects with each of the covenants, as in effect on the Date
of Issuance or as such covenants may thereafter be amended or supplemented, set
forth in the Loan Agreement and the Indenture that are binding on it.



          (g) Reporting Requirements. Furnish to the Bank the following:



19









 





               (1) As soon as possible and in any event within fifteen (15) days after
the occurrence of each Event of Default or each event which, with the giving of
notice or lapse of time, or both, would constitute an Event of Default
continuing on the date of such statement, a statement of an executive officer
of the Borrower setting forth details of such Event of Default or event and the
action which the Borrower proposes to take with respect thereto;



               (2) Within 120 days of the Borrower’s fiscal year end, the Borrower’s
annual consolidated financial statements. These financial statements must be
audited by a Certified Public Accountant acceptable to the Bank.



               (3) Within 45 days of the period’s (excluding the last period in each
fiscal year) end, the Borrower’s quarterly financial statements. These
financial statements may be Borrower prepared and shall be prepared on a
consolidated basis.



               (4) Promptly upon becoming aware thereof, written notice of any material
adverse change in the business or operations of the Borrower;



               (5) Within 45 days of the end of each accounting period, written notice of
any contingent liabilities which, when combined with any other existing
contingent liabilities, exceed $1,000,000;



               (6) Promptly upon becoming aware thereof, written notice of the
commencement or existence of any proceeding against the Borrower by or before
any court or any governmental agency which exceeds $1,000,000;



               (7) Within the periods provided in (2) and (3) above, a compliance
certificate of the Borrower signed by an authorized financial officer of the
Borrower setting forth (i) the information and computations (in sufficient
detail) to establish that the Borrower is in compliance with all financial
covenants set forth in the Credit Agreement at the end of the period covered by
the financial statements there being furnished and (ii) whether there existed
as of the date of such financial statements and whether there exists as of the
date of the certificate, any default under this Agreement and, if any such
default exists, specifying the nature thereof and the action the Borrower is
taking and proposes to take with respect thereto; and



               (8) Such other information respecting the business, properties, condition
or operations, financial or otherwise, of the Borrower as the Bank may from
time to time reasonably request.



          (h) Payment of Obligations. Pay when due all of its obligations and
liabilities, except where the same (other than Indebtedness and judgments) are
being contested in good faith by appropriate proceedings diligently prosecuted
and appropriate reserve for the accrual of same satisfactory to the Bank are
maintained.



20









 





          (i) Registration of Bonds. Cause all Bonds which it acquires, or which it
has had acquired for its account, to be registered forthwith in accordance with
the provisions hereof and the Indenture in the name of the Borrower or, if
acquired with funds drawn under the Letter of Credit, in the name of the Bank,
or its designee, as pledgee of the Borrower.



          (j) Further Assurances. Upon the request of the Bank, duly execute and
deliver or cause to be duly executed and delivered to the Bank such further
instruments and do and cause to be done such further acts that may be
reasonably
necessary or proper in the opinion of the Bank to carry out more
effectively the provisions and purposes of this Reimbursement Agreement and the
Related Documents.



          (k) Interest Rate Protection Agreements. Perform all covenants, terms and
agreements expressed as binding upon the Borrower under any Interest Rate
Protection Agreements. The Borrower acknowledges and agrees that the
occurrence of any event of default or defaults under any Interest Rate
Protection Agreements shall be a default under this Reimbursement Agreement.



          (l) Credit Agreement Covenants. Borrower agrees to perform each and every
covenant contained in Paragraphs 9.3 through 9.24, inclusive, of the Credit
Agreement. The above referenced covenants are hereby incorporated by reference
into this Agreement as in effect on the date hereof and as such covenants may
be further amended, modified, waived, or in any way changed; provided, however,
if the Credit Agreement is terminated for any reason, Borrower will still
comply with the above-referenced covenants as they exist on the date of
termination, unless otherwise agreed to in writing by the Bank.



          Section 5.02. Negative Covenants. So long as a drawing is available under the
Letter of Credit, or the Borrower shall have any obligation to pay any amount
to the Bank hereunder, the Borrower will not, without the prior written consent
of the Bank (which consent shall not unreasonably be withheld):



          (a) Amendment of Any Related Document. Enter into or consent to any
amendment or modification of the Indenture, the Loan Agreement or any other
Related Document, as in effect on the Date of Issuance.



          (b) Change in Business. Engage in any business activities substantially
different from the business in which the Borrower is engaged on the Date of
Issuance.



          (c) Sale of Assets. Transfer, sell, assign or otherwise dispose of all or
any substantial part of Borrower’s business or its assets.



          (d) Tax Status. Take any action or suffer any action to be taken by
others that will impair the tax-exempt status of the Bonds.



21









 





ARTICLE VI

HAZARDOUS SUBSTANCES




          Section 6.01. Indemnity Regarding Hazardous Substances. The Borrowers will
indemnify and hold harmless the Bank from any loss or liability the Bank incurs
in connection with or as a result of this Agreement, which directly or
indirectly arises out of the use, generation, manufacture, production, storage,
release,
threatened release, discharge, disposal or presence of a hazardous substance.
This indemnity will apply whether the hazardous substance is on, under or about
any Borrower’s property or operations or property leased to any Borrower. The
indemnity includes but is not limited to attorneys’ fees (including the
reasonable estimate of the allocated cost of in-house counsel and staff). The
indemnity extends to the Bank, its parent, subsidiaries and all of their
directors, officers, employees, agents, successors, attorneys and assigns.



          Section 6.02. Site Visits, Observations and Testing. The Bank and its agents
and representatives will have the right at any reasonable time, after giving
reasonable notice to the Borrowers, to enter and visit any locations where the
collateral securing this Agreement (the “Collateral”) is located for the
purposes of observing the Collateral, taking and removing environmental
samples, and conducting tests. The Bank will make reasonable efforts during
any site visit, observation or testing conducted pursuant to this paragraph to
avoid interfering with the Borrowers’ use of the Collateral. The Bank is under
no duty to observe the Collateral or to conduct tests, and any such acts by the
Bank will be solely for the purposes of protecting the Bank’s security and
preserving the Bank’s rights under this Agreement. No site visit, observation
or testing or any report or findings made as a result thereof (“Environmental
Report”) (i) will result in a waiver of any default of the Borrowers; (ii)
impose any liability on the Bank; or (iii) be a representation or warranty of
any kind regarding the Collateral (including its condition or value or
compliance with any laws) or the Environmental Report (including its accuracy
or completeness). In the event the Bank has a duty or obligation under
applicable laws, regulations or other requirements to disclose an Environmental
Report to the Borrowers or any other party, the Borrowers authorize the Bank to
make such a disclosure. The Borrowers further understand and agree that any
Environmental Report or other information regarding a site visit, observation
or testing that is disclosed to the Borrowers by the Bank or its agents and
representatives is to be evaluated (including any reporting or other disclosure
obligations of the Borrowers) by the Borrowers without advice or assistance
from the Bank.



          Section 6.03. Definition of Hazardous Substances. “Hazardous substances” means
any substance, material or waste that is or becomes designated or regulated as
“toxic,” “hazardous,” “pollutant,” or “contaminant” or a similar designation or
regulation under any federal, state or local law (whether under common law,
statute, regulation or otherwise) or judicial or administrative interpretation
of such, including without limitation petroleum or natural gas. This indemnity
will survive repayment of the Borrowers’ obligations to the Bank.



22









 





ARTICLE VII

EVENTS OF DEFAULT




          Section 7.01. Events of Default. The occurrence of any of the following events shall be an “Event of Default”
hereunder:



          (a) The Borrower shall fail to pay any amount payable hereunder or under
any of the Related Documents on the date when due (after giving effect to
applicable grace periods); or



          (b) Any representation, warranty, certification or statement made by the
Borrower herein or by the Borrower in connection with this Reimbursement
Agreement, any of the Related Documents or in any writing furnished by or on
behalf of the Borrower shall prove to have been false, misleading or incomplete
in any material respect on the date as of which made; or



          (c) The Borrower shall fail to perform or observe the provisions of
Sections 5.01 or 5.02 of this Reimbursement Agreement; or



          (d) The Borrower shall fail to perform or observe any other material term,
covenant or agreement contained in this Reimbursement Agreement on its part to
be performed or observed and any such failure shall remain unremedied for a
period of 30 days after the date upon which written notice of such failure,
requiring the same to be remedied, shall have been given to the Borrower by the
Bank; or



          (e) Any default occurs under any agreement in connection with any credit
in excess of $300,000 that the Borrower or any Guarantor has obtained from
anyone else, or which the Borrower or any Guarantor has guarantied and such
default has not been cured within any applicable cure period; or



          (f) The Borrower or any Guarantors files a bankruptcy petition, a
bankruptcy petition is filed against the Borrower or any Guarantor or the
Borrower or any Guarantor makes a general assignment for the benefit of
creditors. The default will be deemed cured if any bankruptcy petition is
filed against the Borrower or any Guarantor is dismissed within a period of
forty-five (45) days; or



          (g) A receiver or similar official is appointed for a substantial portion
of the Borrower’s or any Guarantor’s business, or the business is terminated.



          (h) Any Governmental Authority takes action that the Bank in good faith
believes materially adversely affects the Borrower’s or any Guarantor’s
financial condition or ability to repay.



          (i) Any “event of default” by the Borrower under and as defined in the
Loan Agreement, the Indenture, the Credit Agreement or any other Related
Document shall have occurred and not been waived; or



23









 





          (j) The Bonds for any reason shall be determined to be invalid or any
Related Document shall for any reason cease to be in full force and effect; or



          (k) Any one or more of the following events occurs with respect to a Plan
of the Borrower subject to Title IV of ERISA, provided such event or events
could reasonably be expected, in the judgment of the Bank, to subject the
Borrower to any tax, penalty or liability (or any combination of the foregoing)
which, in the aggregate, could have a Material Adverse Effect on the financial
condition of the Borrower:



               (i) A reportable event shall occur under Section 4043(c) of ERISA with
respect to a Plan.



               (ii) Any Plan termination (or commencement of proceedings to terminate a
Plan) or the full or partial withdrawal from a Plan by the Borrower or any
ERISA Affiliate.



          (l) The Borrower or any Guarantor fails to meet the conditions of, or
fails to perform any material obligation under any other agreement the Borrower
or any Guarantor has with the Bank or any affiliate of the Bank, unless
remedied within any applicable cure period or waived by the Bank.



          (m) Any judgments or arbitration awards are entered against the Borrower
or any Guarantor in an aggregate amount of $750,000 or more in excess of any
insurance coverage and is not released, vacated or fully bonded within 60
calendar days.



          (n) A change occurs that has a Material Adverse Effect on the Borrower’s
(or Guarantor’s) business condition (financial or otherwise), operations,
properties or prospects or ability to repay the credit.



          Section 7.02. Rights Upon an Event of Default. Upon the occurrence of an Event
of Default, and at any time thereafter unless and until such Event of Default
has been waived by the Bank or cured to the satisfaction of the Bank, the Bank
shall be entitled to take any of the following actions without prejudice to the
rights of the Bank to enforce its claims against the Borrower except as
otherwise specifically provided for herein:



          (a) Acceleration of Obligations. Declare all unreimbursed drawings in
respect of the Letter of Credit and any and all other indebtedness or
obligations of any and every kind owing by the Borrower to the Bank hereunder
to be due, whereupon the same shall be immediately due and payable without
presentment, demand, protest or other notice of any kind, all of which are
hereby waived by the Borrower.



          (b) Enforcement of Rights. Enforce any and all rights and interests
created and existing hereunder or under any of the other Related Documents and
all rights of set-off.



24









 





          (c) Draw on Letter of Credit. The Bank may, at its option, direct the
Trustee to draw on the Letter of Credit in accordance with the provisions of
the Indenture and to accelerate the Bonds.



          Section 7.03. No Remedy Exclusive. No remedy herein conferred upon or reserved
to the Bank is intended to be exclusive of any other available remedy or
remedies, but each and every such remedy shall be cumulative and shall be in
addition to every other remedy given hereunder, under the Loan Agreement, the
Indenture or the other Related Documents, or now or hereafter existing at law
or in equity or by statute.



          Section 7.04. Subrogation. If an Event of Default shall have occurred and be
continuing and there shall be outstanding all or any part of any unreimbursed
Letter of Credit payment(s) or any other obligation hereunder, the Borrower
agrees that the Bank shall be subrogated to any and all rights of the Borrower
against the beneficiary of the Letter of Credit, and the Borrower agrees that,
upon request of the Bank, the Borrower will promptly do such further acts and
execute, acknowledge and deliver such documents as the Bank may reasonably
request in order to implement the assignment to the Bank of such rights of the
Borrower against the beneficiary of the Letter of Credit.



ARTICLE VIII

MISCELLANEOUS




          Section 8.01. Amendments, Etc. No amendment or waiver of any provision of this
Reimbursement Agreement, nor consent to any departure by the Borrower
therefrom, shall in any event be effective unless the same shall be in writing
and signed by the Bank and then such amendment, waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given.



          Section 8.02. Notices, Etc. All notices and other communications provided for
hereunder shall be in writing (including required copies) and sent by receipted
hand delivery (including Federal Express or other receipted courier service),
tested telex, confirmed telefax transmission, or regular mail, if to the
Borrower, at its address at 5456 McConnell Avenue, Los Angeles, CA 90066,
Attention: Robert Schlax; if to the Bank, at its address at 2049 Century Park
East, 2nd Floor, Los Angeles, California 90067, Attention: Frances R.
Martinez; if to the Trustee, at its address at One California Street, Suite
2550, San Francisco, California 94111, Attn: Corporate Trust Administration;
or, as to each party, at such other address as shall be designated by such
party in a written notice to other party. All such notices and communications
shall, when so delivered or telexed or
telefaxed, be effective when deposited with the courier or telexed or
telefaxed, respectively, addressed as aforesaid, except that notices to the
Bank pursuant to the provisions of Article II shall not be effective until
received by the Bank.



          Section 8.03. No Waiver. No failure on the part of the Bank to exercise, and
no delay in exercising, any right hereunder shall operate as a waiver thereof;
nor shall



25









 







any single or partial exercise of any right hereunder preclude any
other or further exercise thereof or the exercise of any other right.



          Section 8.04. Right of Set-off.



          (a) Upon the occurrence of any Event of Default, the 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 the Bank to or for the credit or the account of the Borrower
against any and all of the obligations of the Borrower now and hereafter
existing under this Reimbursement Agreement.



          (b) The Bank agrees promptly to notify the 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 the Bank under this Section 8.04 are in addition to
other rights and remedies (including, without limitation, other rights of
set-off) which the Bank may have.



          Section 8.05. Indemnification. The Borrower hereby indemnifies and holds the
Bank harmless from and against any and all claims, damages, losses,
liabilities, costs or expenses which the Bank may incur or which may be claimed
against the Bank by any person or entity:



          (a) by reason of any inaccuracy or alleged inaccuracy in any material
respect, or any untrue statement or alleged untrue statement of any material
fact, contained in the statements contained under the captions “The Borrower”
and “The Project and Application of Proceeds” in the Official Statement
(expressly, excluding, also, the statements contained in Appendix A and under
the caption “Tax Matters”) or any amendment or supplement thereto, or by reason
of the omission or alleged omission to state therein a material fact necessary
to make such statements, in light of the circumstances under which they were
made, not misleading; or



          (b) by reason of or in connection with the execution, delivery or
performance of this Reimbursement Agreement, the Bonds, the Indenture, the Loan
Agreement, or any Related Document, or any transaction contemplated thereby; or



          (c) by reason of or in connection with the execution and delivery or
transfer of, or payment or failure to make payment under, the Letter of Credit;
provided, however, that the Borrower shall not be required to indemnify the
Bank pursuant to this Section 8.05(c) for any claims, damages, losses,
liabilities, costs or expenses to the extent caused by the Bank’s gross
negligence or willful misconduct in failing to make lawful payment 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 8.05 is intended to limit the Borrower’s
obligations contained in Article II. Without prejudice to the survival of any
other obligation of



26









 







the Borrower hereunder, the indemnities and obligations of
the Borrower contained in this Section 8.05 shall survive the payment in full
of amounts payable pursuant to Article II and the termination of the Letter of
Credit.



          Section 8.06. Liability of the Bank. The Borrower assumes all risks of the
acts or omissions of the Trustee and any other beneficiary or transferee of the
Letter of Credit with respect to its use of the Letter of Credit. Neither the
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 other beneficiary or transferee in connection therewith;
(b) the validity, sufficiency or genuineness of documents, or of any
endorsement thereon, even if such document should prove to be in any or all
respects invalid, insufficient, fraudulent or forged; (c) payment by the 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; or (d) any other circumstances
whatsoever in making or failing to make payment under the Letter of Credit,
except that the Borrower shall have a claim against the Bank, and the Bank
shall be liable to the Borrower, to the extent of any direct, as opposed to
consequential, damages, suffered by the Borrower which the Borrower proves were
caused by the Bank’s (i) gross negligence or willful misconduct in determining
whether documents presented under the Letter of Credit complied with the terms
of the Letter of Credit or (ii) wrongful failure to make any lawful payment
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. In furtherance and not in limitation of the foregoing, the
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.



          Section 8.07. Costs, Expenses and Taxes. The Borrower agrees to pay
immediately when due all reasonable costs and expenses in connection with the
preparation, execution, delivery, filing, recording, and administration and
enforcement of or monitoring of compliance with this Reimbursement Agreement
and the Related Documents and any other documents which may be delivered in
connection with this Reimbursement Agreement or the transactions contemplated
hereby,
including, without limitation, the reasonable fees and out-of-pocket expenses
of the Bank and of counsel and any agents or consultants for the Bank, with
respect thereto and with respect to advising the Bank as to its rights and
responsibilities under this Reimbursement Agreement, and all reasonable costs
and expenses (including counsel fees and expenses) in connection with (i) the
preparation and enforcement of this Reimbursement Agreement, the Related
Documents and such other documents which may be delivered in connection
herewith or therewith or (ii) any action or proceeding relating to a court
order, injunction, or other process or decree restraining or seeking to
restrain the Bank from paying any amount under the Letter of Credit; provided,
however, in the event of a lawsuit between the parties hereto, the prevailing
party is entitled to recover costs and reasonable counsel fees incurred in
connection with the lawsuit, as determined by the Court. In the event that any
case is commenced by or against the Borrower under the Bankruptcy Code (Title
11,



27









 






United States Code) or any similar or successor statute, the Bank is
entitled to recover costs and reasonable counsel fees incurred by the Bank
related to the preservation, protection, or enforcement of any rights of the
Bank in such case. As used in this section, “counsel fees” includes allocated
costs of the Bank’s in-house counsel. In addition, the Borrower shall pay any
and all stamps and other taxes and fees payable or determined to be payable in
connection with the execution, delivery, filing and recording of this
Reimbursement Agreement, the Related Documents and such other documents, and
agrees to save the 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.



          Section 8.08. Binding Effect. This Reimbursement Agreement shall become
effective when it shall have been executed by the Borrower and the Bank and
thereafter shall be binding upon and inure to the benefit of the Borrower and
the Bank and their respective successors and assigns, except that the Borrower
shall not have the right to assign its rights hereunder or any interest herein
without the prior written consent of the Bank. The Bank may, without cost or
expense to the Borrower, assign or sell a participation in all or any part of,
or any interest (undivided or divided) in, the Bank’s rights and benefits under
this Reimbursement Agreement to any financial institution. Notwithstanding the
sale of any participation by the Bank of all or part of its obligations
hereunder, the Bank shall remain primarily obligated to honor all drawings
under the Letter of Credit with its own funds and not the funds of any
participant. To the extent of any assignment by the Bank, the assignee shall
have the same rights and benefits against the Borrower hereunder as it would
have had if such assignee were the Bank issuing or paying under the Letter of
Credit hereunder.



          Section 8.09. Severability. Any provision of this Reimbursement 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.



          Section 8.10. Headings. Section headings in this Reimbursement Agreement are
included herein for convenience of reference only and shall not constitute a
part of this Reimbursement Agreement for any other purpose.



          Section 8.11. Prior Reimbursement Agreements Superseded. This Reimbursement
Agreement shall completely and fully supersede all prior undertakings or
agreements, both written and oral, between the Borrower and the Bank relating
to the issuance of the Letter of Credit, including those contained in any
commitment letter between the Bank and the Borrower executed in anticipation of
the issuance of the Letter of Credit, except for any provisions in such
commitment letter which by their express terms survive issuance of the Letter
of Credit.



28









 





          Section 8.12. Counterparts. This Reimbursement Agreement may be executed in
several counterparts, each of which shall be an original and all of which shall
constitute but one and the same instrument.



          Section 8.13. Governing Law. THIS REIMBURSEMENT AGREEMENT IS BEING
DELIVERED AND IS INTENDED TO BE PERFORMED IN THE STATE OF CALIFORNIA AND SHALL
BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES
SHALL BE GOVERNED BY, THE INTERNAL LAWS OF SUCH STATE.



          Section 8.14. Arbitration and Waiver of Jury Trial.



          (a) This paragraph concerns the resolution of any controversies or claims
between the parties, whether arising in contract, tort or by statute, including
but not limited to controversies or claims that arise out of or relate to: (i)
this agreement (including any renewals, extensions or modifications); or (ii)
any document related to this agreement (collectively a “Claim”). For the
purposes of this arbitration provision only, the term “parties” shall include
any parent corporation, subsidiary or affiliate of the Bank involved in the
servicing, management or administration of any obligation described or
evidenced by this agreement.



          (b) At the request of any party to this agreement, any Claim shall be
resolved by binding arbitration in accordance with the Federal Arbitration Act
(Title 9,
U.S. Code) (the “Act”). The Act will apply even though this agreement
provides that it is governed by the law of a specified state.



          (c) Arbitration proceedings will be determined in accordance with the Act,
the applicable rules and procedures for the arbitration of disputes of JAMS or
any successor thereof (“JAMS”), and the terms of this paragraph. In the event
of any inconsistency, the terms of this paragraph shall control.



          (d) The arbitration shall be administered by JAMS and conducted, unless
otherwise required by law, in any U.S. state where real or tangible personal
property collateral for this credit is located or if there is no such
collateral, in the state specified in the governing law section of this
agreement. All Claims shall be determined by one arbitrator; however, if
Claims exceed Five Million Dollars ($5,000,000), upon the request of any party,
the Claims shall be decided by three arbitrators. All arbitration hearings
shall commence within ninety (90) days of the demand for arbitration and close
within ninety (90) days of commencement and the award of the arbitrator(s)
shall be issued within thirty (30) days of the close of the hearing. However,
the arbitrator(s), upon a showing of good cause, may extend the commencement of
the hearing for up to an additional sixty (60) days. The arbitrator(s) shall
provide a concise written statement of reasons for the award. The arbitration
award may be submitted to any court having jurisdiction to be confirmed,
judgment entered and enforced.



29









 





          (e) The arbitrator(s) will have the authority to decide whether any Claim
is barred by the statute of limitations and, if so, to dismiss the arbitration
on that basis. For purposes of the application of the statute of limitations,
the service on JAMS under applicable JAMS rules of a notice of Claim is the
equivalent of the filing of a lawsuit. Any dispute concerning this arbitration
provision or whether a Claim is arbitrable shall be determined by the
arbitrator(s). The arbitrator(s) shall have the power to award legal fees
pursuant to the terms of this agreement.



          (f) This paragraph does not limit the right of any party to: (i) exercise
self-help remedies, such as but not limited to, setoff; (ii) initiate judicial
or non-judicial foreclosure against any real or personal property collateral;
(iii) exercise any judicial or power of sale rights, or (iv) act in a court of
law to obtain an interim remedy, such as but not limited to, injunctive relief,
writ of possession or appointment of a receiver, or additional or supplementary
remedies.



          (g) The procedure described above will not apply if the Claim, at the time
of the proposed submission to arbitration, arises from or relates to an
obligation to the Bank secured by real property. In this case, all of the
parties to this agreement must consent to submission of the Claim to
arbitration. If both parties do not consent to arbitration, the Claim will be
resolved as follows: The parties will designate a referee (or a panel of
referees) selected under the auspices of JAMS in the same manner as arbitrators
are selected in JAMS administered proceedings. The designated referee(s) will
be appointed by a court as provided in California Code of Civil Procedure
Section 638
and the following related sections. The referee (or presiding referee of
the panel) will be an active attorney or a retired judge. The award that
results from the decision of the referee(s) will be entered as a judgment in
the court that appointed the referee, in accordance with the provisions of
California Code of Civil Procedure Sections 644 and 645.



          (h) The filing of a court action is not intended to constitute a waiver of
the right of any party, including the suing party, thereafter to require
submittal of the Claim to arbitration.



          (i) By agreeing to binding arbitration, the parties irrevocably and
voluntarily waive any right they may have to a trial by jury in respect of any
Claim. Furthermore, without intending in any way to limit this agreement to
arbitrate, to the extent any Claim is not arbitrated, the parties irrevocably
and voluntarily waive any right they may have to a trial by jury in respect of
such Claim. This provision is a material inducement for the parties entering
into this agreement.



          Section 8.15. Electronic Transmission of Data. Bank and Borrower agree that
certain information and data (including confidential information, documents,
applications and reports) may be transmitted electronically, including over the
Internet. This data may be transmitted to, received from or circulated among
agents and representatives of Borrower and/or Bank and their affiliates, and
other persons or entities



30









 







involved with the subject matter of this Agreement.
Borrower acknowledges and agrees that (a) there are risks associated with the
use of electronic transmission and that Bank does not control the method of
transmittal or service providers, (b) Bank has no obligation or responsibility
whatsoever and assumes no duty or obligation for the security, receipt or third
party interception of such transmissions, and (c) Borrower will release, hold
harmless and indemnify Bank from any claim, damage or loss, including that
arising in whole or part from Bank’s strict liability or sole, comparative or
contributory negligence which is related to the electronic transmittal of data.



[Signatures on Next Page]




31









 








     IN WITNESS WHEREOF, the parties hereto have caused this Reimbursement
Agreement to be duly executed and delivered by their respective officers
thereunto duly authorized as of the date first above written.


	 	 	 	 	 
	 	“BORROWER”





MERCURY AIR GROUP, INC.,

a Delaware corporation

 	 
	 	By:  	/s/ Joseph Czyzyk
 	 
	 	 	Name:  	Joseph A. Czyzyk 	 
	 	 	Title:  	Chief Executive Officer 	 
	 
	 	“BANK”





BANK OF AMERICA, N.A.

 	 
	 	By:  	/s/ Frances Martinez
 	 
	 	 	Name:  	Frances R. Martinez 	 
	 	 	Title:  	Vice President 	 
	 





32