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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):

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          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

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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.
 

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