-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Uf2vd+U4EZJrYQM5RgiH/cBIRCQOSuPqpyx7b4/5cspjwyqA9OVt6AHKNQJCWwM/ yLAfrc8ho2tUc/ALRnpXlg== 0000950115-97-000775.txt : 19970520 0000950115-97-000775.hdr.sgml : 19970520 ACCESSION NUMBER: 0000950115-97-000775 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 19 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970515 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: NEOSE TECHNOLOGIES INC CENTRAL INDEX KEY: 0000877902 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMMERCIAL PHYSICAL & BIOLOGICAL RESEARCH [8731] IRS NUMBER: 133549286 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-27718 FILM NUMBER: 97606191 BUSINESS ADDRESS: STREET 1: 102 WITMER ROAD CITY: HORSHAM STATE: PA ZIP: 19044 BUSINESS PHONE: 2154415890 MAIL ADDRESS: STREET 1: 102 WITMER ROAD CITY: HORSHAM STATE: PA ZIP: 19044 10-Q 1 QUARTERLY REPORT SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------- FORM 10-Q (Mark One) /X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1997. OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ---------------- ------------------- Commission file number: 0-27718 NEOSE TECHNOLOGIES, INC. ------------------------------------------------------ (Exact name of registrant as specified in its charter) Delaware 13-3549286 - ------------------------------- ------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 102 Witmer Road, Horsham, Pennsylvania 19044 ----------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (215) 441-5890 ---------------------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No -------- ------- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: 9,495,290 shares of common stock, $.01 par value, were outstanding as of April 30, 1997. NEOSE TECHNOLOGIES, INC. (a development-stage company) INDEX
Page ---- PART I. FINANCIAL INFORMATION: Item 1. Financial Statements Balance Sheets (unaudited) at December 31, 1996 and March 31, 1997...... 3 Statements of Operations (unaudited) for the three months ended March 31, 1996 and 1997, and from the period of inception through March 31, 1997.................................................. 4 Statements of Cash Flows (unaudited) for the three months ended March 31, 1996 and 1997, and from the period of inception through March 31, 1997.................................................. 5 Notes to Unaudited Financial Statements................................. 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations........................................... 9 PART II. OTHER INFORMATION: Item 1. Legal Proceedings....................................................... 14 Item 2. Changes in Securities................................................... 14 Item 3. Defaults Upon Senior Securities......................................... 14 Item 4. Submission of Matters to a Vote of Security Holders..................... 14 Item 5. Other Information....................................................... 14 Item 6. Exhibits and Reports on Form 8-K........................................ 14 SIGNATURES.............................................................................. 16
2 PART I. FINANCIAL INFORMATION Item 1. Financial Statements NEOSE TECHNOLOGIES, INC. (a development-stage company) BALANCE SHEETS (unaudited)
ASSETS December 31, 1996 March 31, 1997 ----------------- -------------- CURRENT ASSETS: Cash and cash equivalents $ 32,845,025 $ 51,378,170 Restricted funds 73,828 3,091,474 Prepaid expenses and other 210,122 482,098 ------------ ------------ Total current assets 33,128,975 54,951,742 PROPERTY AND EQUIPMENT, net 3,973,619 10,187,973 OTHER ASSETS 15,049 3,400 ------------ ------------ $ 37,117,643 $ 65,143,115 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Current portion of long-term debt $ 678,122 $ 577,168 Accounts payable 217,283 441,998 Accrued compensation 264,440 103,000 Other accrued expenses 161,130 144,637 Deferred revenue 41,667 229,167 ------------ ------------ Total current liabilities 1,362,642 1,495,970 OTHER LIABILITIES 78,806 -- LONG-TERM DEBT 556,405 9,837,090 STOCKHOLDERS' EQUITY: Preferred stock, $.01 par value; 5,000,000 shares authorized; none issued -- -- Common stock, $.01 par value; 30,000,000 shares authorized; 8,214,624 and 9,495,290 shares issued and outstanding 82,146 94,953 Additional paid-in capital 60,830,513 81,313,952 Deferred compensation (269,925) (247,431) Deficit accumulated during the development stage (25,522,944) (27,351,419 ------------ ------------ Total stockholders' equity $ 35,119,790 $ 53,810,055 ------------ ------------ $ 37,117,643 $ 65,143,115 ============ ============
The accompanying notes are an integral part of these statements. 3 NEOSE TECHNOLOGIES, INC. (a development-stage company) STATEMENTS OF OPERATIONS (unaudited)
Three Months Ended Period March 31, From Inception ------------------------------- (January 17, 1989) 1996 1997 to March 1997 ------------ ------------- ------------------ REVENUES FROM COLLABORATIVE AGREEMENTS: $ 337,500 $ 312,500 $ 5,542,213 OPERATING EXPENSES: Research and development 1,649,635 1,768,895 24,747,453 General and administrative 560,528 913,411 10,107,097 ------------ ------------- ------------- Total operating expenses 2,210,163 2,682,306 34,854,550 ------------ ------------- ------------- Operating loss (1,872,663) (2,369,806) (29,312,337) ------------ ------------- ------------- INTEREST INCOME 298,476 584,402 3,130,332 INTEREST EXPENSE (72,358) (43,071) 1,169,414 ------------ ------------- ------------- NET LOSS $ (1,646,545) $ (1,828,475) $ (27,351,419) ============ ============= ============= PRO FORMA NET LOSS PER SHARE $ (0.24) $ (0.20) ============ ============= WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 6,808,000 9,092,000 ============ =============
The accompanying notes are an integral part of these statements 4 NEOSE TECHNOLOGIES, INC. (a development-stage company) STATEMENTS OF CASH FLOWS (unaudited)
Three Months Ended March 31, Period from Inception ------------------------------- (January 17, 1989) 1996 1997 to March 31, 1997 ------------- ------------- ------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (1,646,545) $ (1,828,475) $ (27,351,419) Adjustments to reconcile net loss to cash used in operating activities-- Depreciation and amortization 153,712 191,467 2,130,265 Common stock issued for non-cash charges -- -- 34,961 Changes in operating assets and liabilities- Restricted funds 37,070 (3,017,646) (3,091,474) Prepaid expenses and other (241,410) (271,976) (482,098) Other assets -- 11,649 (3,400) Accounts payable 164,634 224,715 441,998 Accrued compensation (103,318) (161,440) 147,473 Other accrued expenses (24,463) (16,493) 144,637 Deferred revenue 187,500 187,500 229,167 Other liabilities 3,973 (78,806) -- ------------ ------------ ------------- Net cash used in operating activities (1,468,847) (4,759,505) (27,799,890) ------------ ------------ ------------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment (241,227) (6,383,327) (11,343,415) Proceeds from sale-leaseback of equipment -- -- 1,382,027 ------------ ------------ ------------- Net cash used in investing activities (241,227) (6,383,327) (9,961,388) ------------ ------------ -------------
(Continued) 5 NEOSE TECHNOLOGIES, INC. (a development-stage company) STATEMENTS OF CASH FLOWS (unaudited) (continued)
Three Months Ended March 31, Period from Inception ------------------------------- (January 17, 1989) 1996 1997 to March 31, 1997 ------------- ------------- ------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from the issuance of notes $ -- $ -- $ 1,225,000 Repayment of notes payable -- -- (565,250) Proceeds from issuance of short-term debt -- -- 290,000 Repayment of short-term debt -- -- (290,000) Proceeds from issuance of long-term debt -- 9,400,000 10,510,869 Repayment of long-term debt (180,672) (220,268) (1,983,087) Proceeds from issuance of preferred stock, net -- -- 29,497,297 Proceeds from issuance of common stock, net -- 87,041 467,706 Proceeds from public offering, net 29,536,164 20,339,013 49,466,174 Proceeds from exercise of warrants -- -- 333,920 Proceeds from exercise of stock options 104,998 70,191 295,221 Dividends paid (18,000) -- (72,000) Issuance costs resulting from conversion of notes to common stock -- -- (36,402) ------------ ----------- ------------- Net cash provided by financing activities 29,442,490 29,675,977 89,139,448 ------------ ----------- ------------- NET INCREASE IN CASH AND CASH EQUIVALENTS 27,732,416 18,533,145 51,378,170 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 11,189,001 32,845,025 -- ------------ ----------- ------------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 38,921,417 $51,378,170 $ 51,378,170 ============ =========== ============= SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid for interest $ 74,595 $ 45,768 $ 1,095,479 ============ =========== ============= Non-cash financing activities-- Issuance of common stock for dividends $ -- $ -- $ 90,000 ============ =========== ============= Issuance of common stock to employees in lieu of cash compensation $ -- $ -- $ 44,473 ============ =========== =============
The accompanying notes are an integral part of these statements 6 NEOSE TECHNOLOGIES, INC. (a development-stage company) NOTES TO UNAUDITED FINANCIAL STATEMENTS 1. Basis of Presentation The unaudited financial statements at March 31, 1997, for the three months ended March 31, 1996 and 1997, and for the period from inception (January 17, 1989) to March 31, 1997, contained herein have been prepared in accordance with generally accepted accounting principles for interim financial information. They do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In management's opinion, the unaudited information includes all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of the financial position, results of operations and cash flows for the periods presented. The results of operations for the interim periods shown in this report are not necessarily indicative of results expected for the full year. The financial statements should be read in conjunction with the financial statements and notes for the year ended December 31, 1996, included in Neose Technologies, Inc. ("Neose" or the "Company") Form 10-K and the Company's 1996 Annual Report. 2. Sale of Common Stock On January 29, 1997, the Company sold 1,250,000 shares of Common Stock in a public offering at a price of $17.50 per share (the "Follow-on Offering"). The net proceeds to the Company after the payment of placement fees and offering expenses were approximately $20,339,000. The Company's initial public offering of Common Stock (the "Offering") closed on February 22, 1996. The company offered and sold 2,250,000 shares of Common Stock at a public offering price of $12.50 per share. The net proceeds to the Company from the Offering were approximately $25,204,000. Pursuant to the underwriters' over-allotment option, an additional 337,500 shares of Common Stock were offered and sold by the Company on March 4, 1996, resulting in additional net proceeds to the Company of approximately $3,923,000. 3. Acquisition of Facility and Issuance of Long-term Debt On March 20, 1997, the Company purchased its previously leased facility for a total of approximately $3.8 million. In connection with the purchase of its facility and its planned GMP manufacturing expansion, on March 20, 1997, the Company issued, through the Montgomery County (Pennsylvania) Industrial Development Authority, the aggregate amount of $9.4 million of taxable and tax-exempt bonds. The bonds are supported by a AA-rated letter of credit, and a reimbursement agreement between the 7 Company's bank and the letter of credit issuer. The interest rate on the bonds will vary weekly, depending on market rates for AA-rated taxable and tax-exempt obligations, respectively. To provide credit support for this arrangement, the Company has given a first mortgage on the land, building, improvements, and certain machinery and equipment to its bank. In addition, the Company has agreed to certain covenants for the maintenance of minimum cash and short-term investment balances, and for minimum working capital requirements. 4. Net Loss Per Share For the three months ended March 31, 1996, pro forma net loss per share was computed using the weighted-average number of common shares outstanding during the period, and includes all Convertible Preferred Stock which converted into shares of Common Stock immediately prior to the closing of the Offering as if they were converted into Common Stock on their original dates of issuance. For the three months ended March 31, 1997, net loss per share was computed using the weighted-average number of common shares outstanding during the period. Common stock equivalents were excluded for all periods presented because they are antidilutive. 5. New Accounting Pronouncements Statement of Financial Accounting Standards No. 128 ("SFAS 128"), "Earnings per Share," which supersedes APB Opinion No. 15, "Earnings per Share," was issued in February 1997. SFAS 128 requires dual presentation of basic and diluted earnings per share ("EPS") for complex capital structures on the face of the income statement. Basic EPS is computed by dividing income by the weighted-average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution from the exercise or conversion of securities into common stock, such as stock options. SFAS 128 is required to be adopted for year-end 1997; earlier application is not permitted. The Company does not expect the basic or diluted EPS measured under SFAS 128 to be materially different than its primary or fully-diluted EPS measured under APB No. 15. Statement of Financial Accounting Standards No. 129, "Disclosure of Information about Capital Structure," was issued in February 1997. The Company does not expect it to result in any substantive change in its disclosure. 8 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion of the financial condition and results of operations of the Company contains, in addition to historical information, forward-looking statements that involve risks and uncertainties. These forward-looking statements include statements regarding the Company's future plans, events, or performance. Such statements are based on management's current expectations and are subject to a number of uncertainties and risks that could cause actual results to differ materially from those described in the forward-looking statements. Factors that may cause such a difference include, but are not limited to, the early stage of development of the Company's products, technological uncertainties, dependence on collaborative partners, the need for regulatory approval and effects of government regulation, and dependence on patents and trade secrets, as well as those described under "Business--Factors Affecting the Company's Business, Operating Results and Financial Condition" in Part I of the Company's 1996 Annual Report on Form 10-K. The Management's Discussion and Analysis of Financial Condition and Results of Operations for the three months ended March 31, 1997, and as of March 31, 1997, should be read in conjunction with the Management's Discussion and Analysis of Financial Condition and Results of Operations for the year ended December 31, 1996, included in the Company's Form 10-K and the Company's 1996 Annual Report. Overview Neose, a development-stage company, commenced operations in 1990, and has devoted substantially all of its resources to the development of its enzymatic carbohydrate synthesis technology and to the discovery and development of complex carbohydrates for a variety of applications, including nutritional additives and pharmaceuticals. The Company anticipates that its primary sources of revenue for the next several years will be payments under its strategic alliance with Abbott Laboratories ("Abbott") and other collaborative arrangements, license fees, payments from future strategic alliances and collaborative arrangements, if any, and interest income. Payments under strategic alliances and collaborative arrangements will be subject to significant fluctuation in both timing and amount. Therefore, the Company's results of operations for any period may not be comparable to the results of operations for any other period. In December 1992, the Company entered into its strategic alliance with Abbott for the development of breast milk oligosaccharides as nutritional additives. The Company has received approximately $11.2 million in contract payments, license fees, milestone payments, and equity investments in connection with its strategic alliance with Abbott. The Company has not generated any revenues from operations, except for interest income and revenues from strategic alliances. The Company has incurred losses since its inception and, as of March 31, 1997, had a deficit accumulated during the development 9 stage of approximately $27.4 million. The Company anticipates incurring additional losses over at least the next several years. Such losses may fluctuate significantly from quarter to quarter and are expected to increase as the Company expands its research and development programs, including preclinical studies and clinical studies for its pharmaceutical product candidates under development, and as the Company expands its manufacturing capabilities. Results of Operations Revenues Revenues from collaborative agreements for the three months ended March 31, 1997, were $312,500, compared to $337,500 for the corresponding period in 1996. The decrease for the comparable three month period was due to non-recurring revenues received during the 1996 period. Operating Expenses Research and development expenses for the three months ended March 31, 1997, were $1,768,895, compared to $1,649,635 for the corresponding period in 1996. The increase was primarily attributable to the hiring of additional scientific personnel, increased purchases of laboratory supplies and services, increased clinical trial expenditures for NE-0080, and increased funding of external research. General and administrative expenses for the three months ended March 31, 1997, were $913,411, compared to $560,528 for the corresponding period in 1996. The increase was primarily attributable to increased patent and business development expenses, and expenses associated with being public company. Interest Income and Expense Interest income for the three months ended March 31, 1997, was $584,402, compared to $298,476 for the corresponding period in 1996. The increase was primarily attributable to higher average cash balances during the 1997 period resulting from the closing of the Company's Follow-on Offering in January 1997. Interest expense for the three months ended March 31, 1997, was $43,071, compared to $72,358 for the corresponding period in 1996. The decrease was due to lower average loan balances during the three months ended March 31, 1997, as compared to the corresponding period in 1996. 10 Net Loss The Company incurred a net loss of $1,828,475, or $0.20 per share, for the three months ended March 31, 1997, compared to a net loss of $1,646,545, or $0.24 per share, for the corresponding period in 1996. The decrease in the net loss per share for the three months ended March 31, 1997 was primarily attributable to an increase in the shares used in computing net loss per share subsequent to the issuance of Common Stock in the Follow-on Offering in January 1997, which offset the increased actual loss for the 1997 period. Liquidity and Capital Resources From inception through March 31, 1997, the Company has incurred a cumulative net loss of approximately $27.4 million, and has financed its operations through private and public offerings of its securities and revenues from its strategic alliances. The Company had $51.4 million in cash and cash equivalents at March 31, 1997, compared to $32.8 million at December 31, 1996. This increase is primarily attributable to the receipt of net proceeds from the Follow-on Offering in January 1997. In January 1997, the Company sold 1,250,000 shares of Common Stock to the public at a price per share of $17.50. The Company received proceeds of approximately $20.3 million after deducting placement fees and offering expenses. The Company and Abbott, have entered into collaborative agreements to develop breast milk oligosaccharides as additives to infant formula and other nutritional products. Under this strategic alliance, the Company has received approximately $11.2 million in contract payments, license fees, milestone payments, and equity investments. In addition, Abbott is required to make an additional payment of $5 million to Neose within 60 days of the first commercial sale, if any, of infant formula containing the Company's nutritional additive. Abbott may (i) at any time prior to the first commercial sale, if any, of infant formula containing the Company's nutritional additive, elect to make its license agreement non-exclusive, in which event the license fees payable by Abbott after commercialization would be reduced by 50%, and Abbott's obligations to make contract and milestone payments, including the $5 million milestone payment, would be terminated, or (ii) elect to terminate the license agreement and return the licensed technology to Neose upon 60 days' notice, in which event it would have no further funding obligation to the Company, including no obligation to make the $5 million milestone payment. In addition, under the terms of the Abbott agreement, if Abbott fails to make appropriate regulatory filings with the FDA for the addition of Neose's oligosaccharide to infant formula prior to December 1, 1997, Neose, at its option, may elect to convert the license of Neose technology to a non-exclusive license to Abbott, in which event the license fees payable by Abbott after commercialization would be reduced by 50%, and Abbott's obligations to make contract and milestone payments, including the $5 million milestone payment, would be terminated. 11 On March 20, 1997, the Company purchased its previously leased facility for a total of approximately $3.8 million. In addition, the Company expects to incur a total of approximately $7.5 million of capital expenditures, which began in the fourth quarter of 1996, to expand GMP manufacturing capabilities for NE-0080, and to establish GMP manufacturing capabilities for NE-1530 and NE-0501. In each case, the Company believes that the planned GMP capacity will be adequate to complete clinical trials for the respective compounds. In addition, the Company believes that the planned expansion will give it capacity to manufacture under GMP conditions certain amounts of these and other carbohydrates for third parties. In connection with the purchase of its facility and the planned GMP manufacturing expansion, on March 20, 1997, the Company issued, through the Montgomery County (Pennsylvania) Industrial Development Authority, the aggregate amount of $9.4 million of taxable and tax-exempt bonds. The bonds are supported by a AA-rated letter of credit, and a reimbursement agreement between the Company's bank and the letter of credit issuer. The interest rate on the bonds will vary weekly, depending on market rates for AA-rated taxable and tax-exempt obligations, respectively. The initial effective, blended interest rate at issuance was 6.7% per annum, including letter-of-credit and other fees. To provide credit support for this arrangement, the Company has given a first mortgage on the land, building, improvements, and certain machinery and equipment to its bank. In addition, the Company has agreed to certain covenants for the maintenance of minimum cash and short-term investment balances, and for minimum working capital requirements. During the three months ended March 31, 1997, the Company purchased approximately $241,000 of capital equipment and items previously characterized as leasehold improvements. The Company also has obligations to certain of its employees under employment agreements. The Company has incurred negative cash flows from operations since its inception, and has expended, and expects to continue to expend in the future, substantial funds to continue its research and development programs. The Company expects that its existing capital resources will be adequate to fund its capital requirements through 1999. No assurance can be given that there will be no change that would consume available resources significantly before such time. The Company's future capital requirements and the adequacy of available funds will depend on many factors, including progress in its research and development activities, including its pharmaceutical discovery and development programs, the magnitude and scope of these activities, progress with preclinical studies and clinical trials, the costs involved in preparing, filing, prosecuting, maintaining, and enforcing patent claims and other intellectual property rights, competing technological and market developments, changes in existing collaborative research relationships and strategic alliances, the ability of the Company to establish additional collaborative arrangements for product development, the cost of manufacturing scale-up, and developing effective marketing activities and arrangements. 12 To the extent that funds generated from the Company's operations, together with its existing capital resources, and the interest earned thereon, are insufficient to meet current or planned operating requirements, it is likely that the Company will seek to obtain additional funds through equity or debt financings, collaborative or other arrangements with corporate partners and others, and from other sources. The terms and prices of any such financings may be significantly more favorable than those obtained by present stockholders of the Company, which could have the effect of diluting or adversely affecting the holdings or the rights of existing stockholders of the Company. The Company does not currently have any committed sources of additional financing. There can be no assurance that additional financing will be available when needed, if at all, or on terms acceptable to the Company. If adequate additional funds are not available, for these purposes or otherwise, the Company's business, financial condition, and results of operations will be materially and adversely affected. In such circumstances, the Company may be required to delay, scale back, or eliminate certain of its research and product development activities or certain other aspects of its business or attempt to obtain funds through collaborative arrangements that may require the Company to relinquish some or all of its rights to certain of its intellectual property, product candidates, or products. 13 PART II. OTHER INFORMATION Item 1. Legal Proceedings. None Item 2. Changes in Securities. None Item 3. Defaults Upon Senior Securities. None Item 4. Submission of Matters to a Vote of Security Holders. None Item 5. Other Information. None Item 6. Exhibits and Reports on Form 8-K. A. Exhibits. The following is a list of exhibits filed as part of this Quarterly Report on Form 10-Q: 2.1 Agreement for Purchase and Sale of Real Property, dated March 14, 1997, by and between the Registrant and Pennsylvania Business Campus Delaware, Inc. 4.1 Representation of the Registrant pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K. 4.2 Trust Indenture, dated as of March 1, 1997, between Montgomery County Industrial Development Authority and Dauphin Deposit Bank and Trust Company. 4.3 Form of Montgomery County Industrial Development Authority Federally Taxable Variable Rate Demand Revenue Bond (Neose Technologies, Inc. Project) Series B of 1997. 10.1 Loan Agreement, dated as of March 1, 1997, between the Registrant and Montgomery County Industrial Development Authority. 10.2 Participation and Reimbursement Agreement, dated as of March 1, 1997, between Jefferson Bank and CoreStates Bank, N.A. 10.3 Form of CoreStates Bank, N.A. Irrevocable Letter of Credit. 14 10.4 Pledge, Security and Indemnification Agreement, dated as of March 1, 1997, by and among the Registrant, CoreStates Bank, N.A. and Jefferson Bank. 10.5 Reimbursement Agreement, dated as of March 1, 1997, between the Registrant and Jefferson Bank. 10.6 Specimen of Note from Registrant to Jefferson Bank. 10.7 Mortgage, Assignment and Security Agreement, dated March 20, 1997, between the Registrant and Jefferson Bank. 10.8 Security Agreement, dated as of March 1, 1997, by and between the Registrant and Jefferson Bank. 10.9 Assignment of Contract, dated as of March 20, 1997, between the Registrant and Jefferson Bank. 10.10 Custodial and Collateral Security Agreement, dated as of March 20, 1997, by and among the Registrant, Offitbank and Jefferson Bank. 10.11 Placement Agreement, dated March 20, 1997, among the Registrant, Montgomery County Industrial Development Authority and CoreStates Capital Markets. 10.12 Remarketing Agreement, dated as of March 1, 1997, between the Registrant and CoreStates Capital Markets 10.13 Amended and Restated 1995 Stock Option/Stock Issuance Plan. 27 Financial Data Schedule. B. Reports on Form 8-K. None 15 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. NEOSE TECHNOLOGIES, INC. Date: May 14, 1997 By: /s/ P. Sherrill Neff ------------------------------------ P. Sherrill Neff President and Chief Financial Officer 16 EXHIBIT INDEX
Exhibit Number Description - ------- ----------- 2.1 Agreement for Purchase and Sale of Real Property, dated March 14, 1997, by and between the Registrant and Pennsylvania Business Campus Delaware, Inc. 4.1 Representation of the Registrant pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K. 4.2 Trust Indenture, dated as of March 1, 1997, between Montgomery County Industrial Development Authority and Dauphin Deposit Bank and Trust Company. 4.3 Form of Montgomery County Industrial Development Authority Federally Taxable Variable Rate Demand Revenue Bond (Neose Technologies, Inc. Project) Series B of 1997. 10.1 Loan Agreement, dated as of March 1, 1997, between the Registrant and Montgomery County Industrial Development Authority. 10.2 Participation and Reimbursement Agreement, dated as of March 1, 1997, between Jefferson Bank and CoreStates Bank, N.A. 10.3 Form of CoreStates Bank, N.A. Irrevocable Letter of Credit. 10.4 Pledge, Security and Indemnification Agreement, dated as of March 1, 1997, by and among the Registrant, CoreStates Bank, N.A. and Jefferson Bank. 10.5 Reimbursement Agreement, dated as of March 1, 1997, between the Registrant and Jefferson Bank. 10.6 Specimen of Note from Registrant to Jefferson Bank. 10.7 Mortgage, Assignment and Security Agreement, dated March 20, 1997, between the Registrant and Jefferson Bank. 10.8 Security Agreement, dated as of March 1, 1997, by and between the Registrant and Jefferson Bank. 10.9 Assignment of Contract, dated as of March 20, 1997, between the Registrant and Jefferson Bank. 10.10 Custodial and Collateral Security Agreement, dated as of March 20, 1997, by and among the Registrant, Offitbank and Jefferson Bank. 10.11 Placement Agreement, dated March 20, 1997, among the Registrant, Montgomery County Industrial Development Authority and CoreStates Capital Markets. 10.12 Remarketing Agreement, dated as of March 1, 1997, between the Registrant and CoreStates Capital Markets. 10.13 Amended and Restated 1995 Stock Option/Stock Issuance Plan. 27 Financial Data Schedule.
EX-2.1 2 AGREEMENT FOR PURCHASE AND SALE Exhibit 2.1 AGREEMENT FOR PURCHASE AND SALE OF REAL PROPERTY By and Between PENNSYLVANIA BUSINESS CAMPUS DELAWARE, INC., a Delaware corporation, as Seller, and NEOSE TECHNOLOGIES, INC., a Delaware corporation, as Buyer March 14, 1997 Property Located At: 102 Witmer Road Horsham, Pennsylvania TABLE OF CONTENTS Page ---- ARTICLE 1. BASIC DEFINITIONS................................1 Section 1.1 Closing Date..........................................1 Section 1.2 Contract Period.......................................1 Section 1.3 Inspection Period.....................................1 Section 1.4 Intangible Property...................................1 Section 1.5 Lease.................................................1 Section 1.6 Personal Property.....................................2 Section 1.7 Title Report..........................................2 Section 1.8 Property..............................................2 Section 1.9 Real Property.........................................2 Section 1.10 Title Company........................................2 ARTICLE 2. PURCHASE AND SALE................................2 Section 2.1 Purchase and Sale.....................................2 Section 2.2 Purchase Price........................................2 Section 2.3 Buyer's Review and Seller's Disclaimer................3 Section 2.4 Condition of Title....................................5 ARTICLE 3. CONDITIONS PRECEDENT.............................6 Section 3.1 Conditions............................................6 Section 3.2 Failure or Waiver of Conditions Precedent.............7 ARTICLE 4. COVENANTS, WARRANTIES AND REPRESENTATIONS........8 Section 4.1 Seller's Warranties and Representations...............8 Section 4.2 Seller's Covenants....................................9 Section 4.3 Buyer's Warranties and Representations................9 Section 4.4 Limitations..........................................10 ARTICLE 5. ESCROW AND CLOSING..............................10 Section 5.1 Escrow Arrangements..................................10 Section 5.2 Title Company's Duties and Closing...................12 Section 5.3 Closing Costs........................................13 Section 5.4 Prorations...........................................13 Section 5.5 Closing Date.........................................13 Section 5.6 Insurance............................................14 Section 5.7 Delivery of Original Documents.......................14 Section 5.8 Filing of Reports....................................14 - i - ARTICLE 6. DEPOSIT.........................................14 ARTICLE 7. MISCELLANEOUS...................................15 Section 7.1 Damage or Destruction................................15 Section 7.2 Sales Brokerage Commissions and Finder's Fees........17 Section 7.3 Leasing Commissions..................................18 Section 7.4 Successors and Assigns...............................18 Section 7.5 Notices..............................................18 Section 7.6 Time.................................................19 Section 7.7 Possession...........................................19 Section 7.8 Incorporation by Reference...........................19 Section 7.9 No Deductions or Off-Sets............................19 Section 7.10 Attorneys' Fees.....................................19 Section 7.11 Construction........................................20 Section 7.12 No Merger...........................................20 Section 7.13 Governing Law.......................................20 Section 7.14 Claims Against Seller...............................20 Section 7.15 Termination Without Breach..........................21 Section 7.16 Counterparts........................................21 Section 7.17 Entire Agreement....................................21 Section 7.18 Limited Liability...................................22 Section 7.19 Confidentiality.....................................22 - ii - EXHIBITS (Omitted) Exhibit A - Title Report Exhibit A-1 - List of Exceptions Exhibit B - Legal Description Exhibit C - Form of Covenants and Restrictions Exhibit D - Form of Subordination Agreement Exhibit E - Disclosed Conditions Exhibit F - Buyer's Closing Certificate Exhibit G - Lease Termination Agreement Exhibit H - Form of Deed Exhibit I - Form of General Assignment Exhibit J - Form of Bill of Sale Exhibit K - Affidavit of Non-Foreign Status Exhibit L - Form of Affidavit The Registrant hereby agrees to furnish supplementally a copy of any omitted exhibit to the Securities and Exchange Commission upon request. - iii - AGREEMENT FOR PURCHASE AND SALE OF REAL PROPERTY THIS AGREEMENT FOR PURCHASE AND SALE OF REAL PROPERTY is made and entered into as of March 14, 1997, by and between PENNSYLVANIA BUSINESS CAMPUS DELAWARE, INC., a Delaware corporation ("Seller"), and NEOSE TECHNOLOGIES, INC., a Delaware corporation ("Buyer"). ARTICLE 1. BASIC DEFINITIONS Section 1.1 Closing Date. The term "Closing Date" shall mean the date upon which the escrow described in Article 5 closes, which date shall be no later than the date specified in Section 5.5 hereof. Section 1.2 Contract Period. The term "Contract Period" shall mean the period from the date of this Agreement through and including the Closing Date. Section 1.3 Inspection Period. The term "Inspection Period" shall mean the period commencing December 7, 1996, and ending February 7, 1997, at 5:00 p.m., Eastern Standard Time. Section 1.4 Intangible Property. The term "Intangible Property" shall mean Seller's rights and interests in the following: (i) any service contracts pertaining to the Real Property and set forth in Schedule 1 to Exhibit I attached hereto and made a part hereof, (ii) any governmental licenses, permits and approvals held by Seller relating to the occupancy or use of the Real Property, and (iii) any existing warranties held by Seller and given by third parties with respect to the Real Property. Section 1.5 Lease. The term "Lease" shall mean that certain Lease Agreement, dated January 9, 1992, by and between Seller, as "Landlord," and Buyer, as "Tenant," as such Lease has been subsequently amended by an undated First Amendment to Lease, a Second Amendment to Lease dated as of June 24, 1993, a Third Amendment of Lease, dated as of January 31, 1994, and a Fourth Amendment of Lease, dated as of April 20, 1994, respectively. -1- Section 1.6 Personal Property. The term "Personal Property" shall mean Seller's interest, if any, in all furniture, fixtures, machinery, appliances, equipment and other personal property located on the Real Property and utilized in connection with the ownership and operation of the Real Property by Seller. Section 1.7 Title Report. The term "Title Report" shall mean that certain commitment for title insurance with respect to the Real Property dated as of December 1, 1996, issued by Title Company under its Order No. 96-7934-M, a copy of which is attached to this Agreement as Exhibit A. Section 1.8 Property. The term "Property" shall mean the Real Property, as more particularly described in Exhibit B attached to this Agreement, the Personal Property and the Intangible Property. Section 1.9 Real Property. The term "Real Property" shall mean that certain real property (including, without limitation, any and all improvements), with a mailing address of 102 Witmer Road, Horsham, Pennsylvania. The land component of the Real Property is described with precision in Exhibit B. Section 1.10 Title Company. The term "Title Company" shall mean Lawyers Title Insurance Corporation, c/o Keystone Agency, Inc., whose address for this transaction is as follows: 1500 Walnut Street, Suite 301 Philadelphia, Pennsylvania 19102 Escrow No.: 96-7934-M Attn: Jerry Sokolow, President Fax No.: (215) 545-5329 Phone No.: (215) 732-3764 ARTICLE 2. PURCHASE AND SALE Section 2.1 Purchase and Sale. Seller agrees to sell the Property to Buyer, and Buyer agrees to purchase the Property from Seller upon all of the terms, covenants and conditions set forth in this Agreement. Section 2.2 Purchase Price. The purchase price for the Property (the "Purchase Price") shall be the sum of Three Million Seven Hundred Fifty-One Thousand Six Hundred and 00/100 Dollars ($3,751,600.00) payable as follows: -2- (a) Payment of the Deposit in accordance with Article 6; and (b) The balance of the Purchase Price shall be paid in cash through the escrow established pursuant to Section 5.1 on the Closing Date. Section 2.3 Buyer's Review and Seller's Disclaimer. (a) Prior to the expiration of the Inspection Period, Buyer shall have the right, at its sole cost and expense, to review whatever documents and other materials relating to the Property that Buyer desires to review, and to conduct whatever inspections, studies, tests and investigations Buyer desires to conduct relating to the Property with respect to the environmental and legal condition of the Property. Such reviews, inspections, studies, tests and investigations are collectively referred to herein as the "Inspections". Prior to expiration of the Inspection Period, Buyer shall complete the Inspections and notify Seller in writing of its approval or disapproval of the Property. Failure to timely disapprove the Property in writing shall be deemed to be approval by Buyer and constitute Buyer's waiver of the condition set forth in Section 3.1(a)(i) below. Buyer shall indemnify, reimburse, protect and defend Seller and Seller's agents against and hold Seller and Seller's agents harmless from any and all loss, cost, claim, liability and expense (including reasonable attorneys' fees) arising out of activities of Buyer and Buyer's agents, employees and contractors in entering upon or inspecting the Property prior to the Closing Date, whether such loss, cost, claim, liability or expense arises on the Property or elsewhere on the property (of which the Property is a part) commonly referred to as the "Pennsylvania Business Campus" (the "PBC"). Buyer shall promptly reimburse Seller for the cost of repairing any damage to the Property or the PBC arising out of such activities of Buyer and Buyer's agents, employees and contractors. Buyer shall use due care in entering upon the Property and the PBC and in carrying out the Inspections, and Buyer shall perform all Inspections in a professional manner and at reasonable times so as to minimize any disruption of the Property and the PBC. Buyer shall obtain Seller's approval, which approval shall not be unreasonably withheld, no less than forty-eight (48) hours in advance of any Inspections, other than Inspections which Tenant has the right to conduct pursuant to the terms of the Lease. Seller shall have the right to have a representative present during any and all Inspections for which Buyer must obtain Seller's prior approval. Except as expressly set forth to the contrary herein, Seller makes no representations or warranties, express or implied, as to the accuracy or completeness of any information given by Seller or its employees or agents to Buyer. Buyer's obligations under this Section 2.3(a) shall survive the Closing Date or, if the transaction contemplated by this Agreement is not consummated, the termination of this Agreement. (b) Buyer hereby acknowledges and agrees that the waiver or satisfaction of the conditions set forth in Section 3.1(a)(i) below shall constitute an -3- acknowledgment that Buyer (a) has concluded whatever studies, tests, and investigations Buyer desires to conduct relating to the Property including, without limitation, economic reviews and analyses, soils tests, engineering analyses, environmental analyses and analysis of any applicable records of the planning, building, public works or any other governmental or quasi-governmental entity having or asserting jurisdiction over the Property; (b) has reviewed and read (or has elected not to do so) and has understood all instruments affecting the Property and/or its value which Buyer deems relevant, including, without limiting the generality of the foregoing, all documents referred to in the Title Report and all leases, operating statements, demographic studies and market analyses; (c) and its consultants have made all such independent studies, analyses and investigations as Buyer deems necessary, including, without limitation, those relating to environmental matters and the leasing, occupancy and income of the Property; and (d) is relying solely on its own investigations as to the Property and its value and is assuming the risk that adverse physical, economic or other conditions (including, without limitation, adverse environmental conditions (including, without limitation, soils and groundwater conditions) and status of compliance with the requirements of the Americans With Disabilities Act of 1990) may not have been revealed by such investigation. Buyer further acknowledges and agrees that waiver or satisfaction of such conditions shall constitute an acknowledgment that Seller has given Buyer every opportunity to consider, inspect and review to its satisfaction the physical, environmental, economic and legal condition of the Property and all files and information in Seller's possession which Buyer deems material to the purchase of the Property. (c) Except as otherwise expressly provided in Section 4.1 below, Seller disclaims the making of any representations or warranties, express or implied, regarding the Property or its value or matters affecting the Property, including, without limitation, the physical condition of the Property, title to or the boundaries of the Real Property, pest control matters, soil condition, hazardous waste, toxic substance or other environmental matters, compliance with the Americans With Disabilities Act of 1990, or other building, health, safety, land use and zoning laws, regulations and orders, structural and other engineering characteristics, traffic patterns and all other information pertaining to the Property. Buyer, moreover, acknowledges (i) that Seller did not develop or construct the Real Property, (ii) that Buyer has entered into this Agreement with the intention of relying upon its own investigation of the physical, environmental, economic and legal condition of the Property and (iii) that Buyer is not relying upon any representations and warranties, other than those specifically set forth in Section 4.1 below, made by Seller or anyone acting or claiming to act on Seller's behalf concerning the Property or its value. Buyer further acknowledges that it has not received from Seller any accounting, tax, legal, architectural, engineering, property management or other advice with respect to this transaction and is relying solely upon the advice of its own accounting, tax, legal, architectural, engineering, property management and other advisors. Buyer agrees that, -4- except as otherwise expressly provided in Section 4.1 below, the Property is to be sold to and accepted by Buyer in its "AS IS" condition and WITH ALL FAULTS on the Closing Date and assumes the risk that adverse physical, environmental, economic or legal conditions may not have been revealed by its investigation. (d) Except with respect to any claims arising out of any breach of covenants, representations or warranties set forth in Sections 4.1 or 4.2 below, Buyer, for itself and its agents, affiliates, successors and assigns, hereby releases and forever discharges Seller, its agents, partners, affiliates, successors and assigns from any and all rights, claims and demands at law or in equity, whether known or unknown at the time of this Agreement, which Buyer has or may have in the future, arising out of the physical, environmental, economic or legal condition of the Property. Notwithstanding the foregoing to the contrary, in the event the transaction contemplated hereunder fails to close, Buyer and Seller shall retain all rights and remedies which they may have as tenant and landlord, respectively, under the Lease. Buyer hereby specifically acknowledges that Buyer has carefully reviewed this subsection and discussed its import with legal counsel and that the provisions of this subsection are a material part of this Agreement. Buyer's Initials: SN -- Section 2.4 Condition of Title. Fee simple title to the Property shall be conveyed to Buyer in good and marketable condition and insurable as such, as specified pursuant to the terms and provisions of this Agreement, at regular rates by the Title Company. All exceptions to title shown on Exhibit A-1 hereto are hereby deemed approved by Buyer, and any exceptions to title disclosed by the survey and not expressly disapproved by Buyer in writing prior to the expiration of the Inspection Period shall be deemed approved by Buyer, and Buyer agrees to purchase the Property subject to such exceptions. All such exceptions approved by Buyer shall be referred to as the "Exceptions." Seller shall not intentionally suffer, create or permit any further Exceptions during the Contract Period, other than those created or permitted by Buyer. Within five (5) days after any written notice from Title Company to Buyer and Buyer's counsel identifying the need to amend or add any exception to the Title Report, Buyer shall notify Seller of any objections Buyer may have to said amendment or addition; failure to disapprove such amendment or addition shall be deemed to be approval. Seller shall use reasonable efforts to remove as matters affecting title any disapproved exceptions prior to the Closing Date, but Seller shall not be required to institute any litigation or incur any cost in excess of $20,000 in the aggregate to do so; provided, however, that Seller shall be obligated to remove any such disapproved exceptions intentionally suffered, created or permitted by Seller, other than those created or permitted by Buyer (collectively, "Seller Exceptions"). If, prior to the Closing Date, Seller notifies Buyer that Seller will not, or will not be able to, remove any of the disapproved exceptions other than Seller Exceptions, then, within five (5) days -5- after the giving of such notice by Seller, or prior to the Closing Date, whichever is earlier, Buyer shall give Seller and Title Company written notice, either that Buyer (i) waives its prior disapproval of the disapproved exceptions and accepts such title as Seller is willing to convey (in which case such exceptions shall become Exceptions), or (ii) terminates this Agreement. Buyer acknowledges and agrees that in conjunction with the closing of this transaction, the parties shall execute and record that certain Declaration of Covenants and Restrictions in the form attached hereto as Exhibit C (the "Covenants and Restrictions"), which document contains certain covenants and restrictions more particularly described therein (collectively, the "Restrictions"). Buyer shall cause its lender, if any, to consent to the Covenants and Restrictions and to subordinate the lien of such lender's mortgage or deed of trust on the Property to the lien of the Covenants and Restrictions, which consent and subordination shall be in the form attached hereto as Exhibit D (the "Subordination Agreement"). Buyer further acknowledges and agrees that the Restrictions and the Subordination Agreement shall be deemed Exceptions, and that upon acquisition of the Property pursuant to this Agreement, Buyer, as the owner of the Real Property, shall comply with the Restrictions. ARTICLE 3. CONDITIONS PRECEDENT Section 3.1 Conditions. (a) Notwithstanding anything in this Agreement to the contrary, Buyer's obligation to purchase the Property shall be subject to and contingent upon the satisfaction or waiver by Buyer of the following conditions precedent: (i) Buyer's inspection and approval, within the Inspection Period, of all environmental, legal and title matters relating to the Property, pursuant to Sections 2.3 and 2.4 above. (ii) Notwithstanding anything to the contrary contained in this Agreement, the willingness of Title Company, or some other reputable title insurer of comparable size and reputation and with a rate schedule comparable to that of Title Company and approved by Buyer in Buyer's reasonable discretion (provided, however, that Buyer hereby approves Commonwealth Land Title Insurance Company), to issue its standard owner's form policy of title insurance ("Buyer's Title Policy"), insuring Buyer in the amount of the Purchase Price that title to the Real Property is vested of record in Buyer, in accordance with the terms and provisions of this Agreement, on the Closing Date, subject only to the printed -6- conditions and exceptions of such policy, the Exceptions and the lien(s) of any financing that Buyer may obtain. (iii) Buyer's determination, on or before the Closing Date, that Buyer will be able to obtain financing reasonably acceptable to Buyer, in an amount not to exceed the Purchase Price, with respect to Buyer's purchase of the Property. (b) Notwithstanding anything in this Agreement to the contrary, Seller's obligation to sell the Property shall be subject to and contingent upon the satisfaction or waiver by Seller of the following conditions precedent: (i) The willingness of Title Company to issue the Buyer's Title Policy in accordance with the terms and provisions of this Agreement, except to the extent such unwillingness results from a Seller Exception. (ii) Buyer's timely satisfaction or waiver of the conditions set forth in Section 3.1(a) above. (iii) Prior to the expiration of the Inspection Period, the deposit in escrow of the Deposit in accordance with Article 6 below. (iv) On or before the Closing Date, Buyer's delivery to Title Company of the items set forth in Section 5.1(a) below. (v) The absence of any material breach of the Lease by Buyer during the period prior to the Closing Date. Section 3.2 Failure or Waiver of Conditions Precedent. In the event any of the conditions set forth in Section 3.1 are not fulfilled or waived by the party intended to be benefited thereby, this Agreement shall terminate. Either party may, at its election, at any time or times on or before the date (and, if indicated, the time) specified for the satisfaction of the condition, waive in writing the benefit of any of the conditions set forth in Section 3.1(a) and 3.1(b) above. Buyer's failure to notify Seller in writing of the failure of any of the conditions set forth in Section 3.1(a) on or before the date specified for satisfaction shall constitute a waiver of such condition. In any event, Buyer's consent to the close of escrow pursuant to this Agreement shall waive any remaining unfulfilled conditions. -7- ARTICLE 4. COVENANTS, WARRANTIES AND REPRESENTATIONS Section 4.1 Seller's Warranties and Representations. Seller hereby represents and warrants to Buyer as follows: (a) Seller has full power and lawful authority to enter into and carry out the terms and provisions of this Agreement and to execute and deliver all documents which are contemplated by this Agreement, all actions of Seller necessary to confer such power and authority upon the persons executing this Agreement and all documents which are contemplated by this Agreement on behalf of Seller have been taken, and this Agreement and all documents which are contemplated by this Agreement are or will be, subject to bankruptcy, insolvency and similar laws affecting creditors' rights generally, legal, valid and binding obligations of Seller, are or will be, subject to bankruptcy, insolvency and similar laws affecting creditors' rights generally, enforceable in accordance with their respective terms, and do not and will not on the Closing Date violate any provisions of any agreement to which Seller is subject; (b) Guy Tcheau, Tia Miyamoto, Joseph S. Grubb, Jr., Mary Beth Pierson and T. Sanford Monaghan, the authorized agents of Seller, have no actual knowledge, as of the date hereof, except as specifically set forth in Exhibit E attached hereto and incorporated herein by reference, that: (i) Seller has received any notice from any governmental authorities that eminent domain proceedings for the condemnation of the Real Property are pending; (ii) Seller has received any written notice of any threatened, or any notice of any pending, litigation against Seller which would affect the Real Property. As used herein, the term "threatened" means an expression of intention to initiate a legal action or the announcement that a legal action may be commenced if a condition or request is not satisfied; (iii) Seller has received any written notice from any governmental authority that the improvements located on the Real Property are presently in violation of any applicable building codes; or (iv) Seller has received any written notice from any governmental authority, regulatory agency or other authority that Seller's use of the Real -8- Property is presently in violation of any applicable zoning, land use or other law, order, directive, ordinance, rule or regulation affecting the Real Property. (c) The Personal Property is owned by Seller free and clear of all liens, encumbrances, claims and demands; and (d) No tenant, occupant or other person or corporation (other than Buyer) has any option or other right to purchase the Property or any part of the Property. As used in this Section 4.1, "actual knowledge" shall not include implied, imputed or constructive knowledge, or a duty to inquire or investigate any facts or information with respect to the Property or the warranties of Seller contained herein. Notwithstanding any other provision hereof, the representations and warranties of Seller under this Agreement shall not extend to, and shall exclude, any information known to Buyer on or prior to the Closing Date and Seller shall have no liability with respect thereto. Section 4.2 Seller's Covenants. Seller hereby covenants and agrees that: (a) During the Contract Period, Seller will not enter into any service contracts binding upon Buyer other than in the ordinary course of business and on terms consistent with then current market conditions without Buyer's prior approval, which approval shall not be unreasonably withheld and shall be deemed given if Buyer should fail to approve or disapprove any proposed contract in writing within five (5) working days following Seller's request for such action. (b) Following the expiration of the Inspection Period, Seller will not enter into any leases for any portion of the Real Property without Buyer's prior written approval, which approval may be withheld in Buyer's sole discretion. The cost to landlord of any leasing commissions and/or tenant improvements payable in connection with the lease of any portion of the Real Property which becomes effective at any time during the Contract Period shall be prorated between Buyer and Seller, based on the initial term of the lease, as of the Closing Date. Buyer shall be responsible for all such costs for any leases commencing after the Closing Date. (c) Seller shall not knowingly undertake any activities during the Contract Period that would violate any applicable laws, ordinances or regulations or the directives of any lawful public authority with respect to the physical condition of the Property or the improvements thereon. (d) Seller shall not convey or encumber the Property or any interest therein during the Contract Period. -9- Section 4.3 Buyer's Warranties and Representations. Buyer hereby represents and warrants to Seller that (a) Buyer and any entity to which Buyer may assign this Agreement pursuant to Section 7.4 below have, and as of the Closing Date shall have, full power and lawful authority to enter into and carry out the terms and conditions of this Agreement and to execute and deliver all documents which are contemplated by this Agreement, (b) all actions necessary to confer such power and authority upon the persons executing this Agreement and all documents which are contemplated by this Agreement to be executed on behalf of Buyer or its assignee have been taken, and (c) this Agreement and all documents which are contemplated by this Agreement are or will be, subject to bankruptcy, insolvency and similar laws affecting creditors' right generally, legal, valid and binding obligations of Buyer, are or will be, subject to bankruptcy, insolvency and similar laws affecting creditors' rights generally, enforceable in accordance with their respective terms, and do not and will not on the Closing Date violate any provisions of any agreement to which Buyer is subject. Section 4.4 Limitations. The parties agree that (a) Seller's warranties and representations contained in this Agreement and in any document (including any certificate) executed by Seller pursuant to this Agreement shall survive Buyer's purchase of the Property only for a period of nine (9) months after the Closing Date (the "Limitation Period"), and (b) Buyer shall provide actual written notice to Seller of any breach of such warranties or representations and shall allow Seller thirty (30) days within which to cure such breach, or, if such breach cannot reasonably be cured within thirty (30) days, an additional reasonable time period, so long as such cure has been commenced within such thirty (30) days and diligently pursued, and so long as such breach is susceptible of cure. If Seller fails to cure such breach after actual written notice and within such cure period, Buyer's sole remedy shall be an action at law for damages as a consequence thereof, which must be commenced, if at all, within the Limitation Period; provided, however, that if within the Limitation Period Buyer gives Seller written notice of such a breach and Seller commences to cure and thereafter terminates such cure effort, Buyer shall have an additional thirty (30) days from the date of such termination within which to commence an action at law for damages as a consequence of Seller's failure to cure. The Limitation Period referred to herein shall apply to known as well as unknown breaches of such warranties or representations. -10- ARTICLE 5. ESCROW AND CLOSING Section 5.1 Escrow Arrangements. The parties acknowledge and agree that an escrow for the purchase and sale contemplated by this Agreement has been opened with the Title Company. On or before the Closing Date, Seller and Buyer shall each deliver escrow instructions to the Title Company consistent with this Article 5 and the parties shall deposit in escrow the funds and documents described below. (a) Buyer shall deposit or cause to be deposited: (i) the balance of the cash portion of the Purchase Price, plus sufficient cash to pay Buyer's share of all escrow costs, prorations and closing expenses as set forth in Sections 5.3 and 5.4 below; (ii) two (2) counterparts of the Covenants and Restrictions, duly executed and acknowledged by Buyer; (iii) the Subordination Agreement, duly executed and acknowledged by Buyer's lender; (iv) two (2) counterparts of the General Assignment (as defined in subparagraph (b)(iii) below), duly executed by Buyer; (v) a duly executed closing certificate in the form attached to this Agreement as Exhibit F (the "Closing Certificate"); and (vi) two (2) counterparts of a Lease Termination Agreement terminating the Lease in the form set forth as Exhibit G hereto (the "Lease Termination Agreement"), duly executed by Buyer. (b) Seller shall deposit: (i) a duly executed and acknowledged special warranty deed in the form attached to this Agreement as Exhibit H (the "Deed"); (ii) two (2) counterparts of the Covenants and Restrictions, duly executed and acknowledged by Seller; -11- (iii) two (2) counterparts of an assignment of Seller's interest in the Intangible Property in the form attached to this Agreement as Exhibit I (the "General Assignment"), duly executed by Seller; (iv) a duly executed bill of sale in the form attached to this Agreement as Exhibit J (the "Bill of Sale"); (v) a certificate from Seller certifying the information required by Section 1445 of the Internal Revenue Code and the regulations issued thereunder to establish, for the purposes of avoiding Buyer's tax withholding obligations, that Seller is not a "foreign person" as defined in Internal Revenue Code Section 1445(f)(3) in the form attached to this Agreement as Exhibit K (the "FIRPTA Certificate"); (vi) two (2) counterparts of the Lease Termination Agreement, duly executed by Seller; (vii) an affidavit required by the Title Company in the form attached to this Agreement as Exhibit L (the "Affidavit"); and (viii) if required by the municipality in which the Property is located, a zoning and/or building compliance certificate. Section 5.2 Title Company's Duties and Closing. Seller and Buyer shall instruct Title Company to close escrow on the Closing Date by: (a) Recording all documents as may be necessary to clear title in accordance with the requirements of this Agreement; (b) Recording the Deed, the Covenants and Restrictions and the Subordination Agreement, in that order, and instructing the Montgomery County Recorder not to affix the amount of any documentary or transfer taxes to the Deed but to attach a separate statement to the Deed; (c) Paying all closing costs and making all prorations in accordance with Sections 5.3 and 5.4 of this Agreement and a closing statement of adjustments and prorations prepared by Title Company and approved by Buyer and Seller prior to the Closing Date (the "Closing Statement"); (d) Delivering to Buyer Buyer's Title Policy; Title Company's certified Closing Statement; a conformed copy of each of the Deed, the Covenants and Restrictions -12- and the Subordination Agreement showing recording information, an original of each of the Bill of Sale, the General Assignment and the FIRPTA Certificate and copies of all other documents deposited into escrow; (e) Delivering to Seller the Purchase Price, plus or minus closing adjustments and prorations, Title Company's certified Closing Statement, a conformed copy of each of the Deed, the Covenants and Restrictions and the Subordination Agreement showing recording information, an original of each of the General Assignment and the Closing Certificate, and copies of all other documents deposited into escrow; and (f) recording or delivering to the appropriate parties documents evidencing the financing, if any, of Buyer's acquisition of the Property. Section 5.3 Closing Costs. All realty transfer taxes imposed on or in connection with this transaction and the escrow fee (if any) shall be shared equally by Seller and Buyer. Buyer shall pay (a) the cost of Buyer's Title Policy (including, without limitation, the cost of any and all endorsements and any related survey costs), and (b) all recording costs other than recording costs incurred in connection with the Covenants and Restrictions and the Subordination Agreement, the costs of which Seller shall pay. Each party shall pay its own attorneys' fees. Section 5.4 Prorations. (a) Subject to Buyer's obligations therefor pursuant to the Lease, real property taxes and assessments, personal property taxes (if any), rent (whether prepaid or applicable to the current rental period), utilities and all other items of income and expense with respect to the Property shall be prorated between Seller and Buyer as of the Closing Date. Seller shall receive a credit in escrow for any refundable deposits and/or bonds held by any utility, governmental agency or service contractor with respect to the Property, but only to the extent that such deposits and/or bonds are assignable and are in fact assigned to Buyer. Buyer shall receive a credit in escrow in an amount equal to (i) the security deposit held by Seller pursuant to Section 36 of the Lease (i.e., $11,648.84), and (ii) the balance of the escrow account established pursuant to Section 53 of the Lease (the "Escrowed Funds"), provided that the Escrowed Funds are released to Seller on or before the Closing Date. If either Buyer or Seller receives any revenues attributable to the period during which it is not the owner of the Property, said party shall promptly forward such amounts to the other party (if such revenues are only partially attributable to the period during which said party is not the owner of the Property, the amount paid to the other party shall be based upon proration as of the Closing Date as set forth above). -13- (b) Buyer and Seller shall cooperate to produce on or before the Closing Date a schedule of prorations which is as complete and accurate as reasonably possible. All prorations which can be reasonably estimated as of the Closing Date shall be made in escrow on the Closing Date. All other prorations and any adjustments to initial estimated prorations, shall be made by Buyer and Seller within thirty (30) days following the Closing Date or such later time as may be required, in the exercise of due diligence, to obtain the necessary information for proration. Any net credit due one party from the other as a result of such post-closing prorations and adjustments shall be paid to the other in cash immediately upon the parties' written agreement to a final schedule of post-closing adjustments and prorations. Section 5.5 Closing Date. The Closing Date shall occur on a date mutually agreed upon by Buyer and Seller, which shall be not later than March 24, 1997. Section 5.6 Insurance. Seller's existing liability and property insurance pertaining to the Property shall be canceled as of the Closing Date, and Seller shall receive any premium refund due thereon. Section 5.7 Delivery of Original Documents. Seller agrees to deliver to Buyer on or immediately following the Closing Date all unexpired original leases, unexpired service contracts, plans and specifications, plot plans, surveys and soils reports in Seller's possession pertaining solely to the Property. Section 5.8 Filing of Reports. Title Company shall be solely responsible for the timely filing of any reports or returns required pursuant to the provisions of Section 6045(e) of the Internal Revenue Code of 1986 (and any similar reports or returns required under any state or local laws) in connection with the closing of the transaction contemplated in this Agreement. ARTICLE 6. DEPOSIT Prior to the expiration of the Inspection Period, Buyer shall deposit in the escrow established with the Title Company for this transaction cash in the amount of Two Hundred Thousand and 00/100 Dollars ($200,000.00). The Title Company shall invest all funds so deposited in an interest-bearing cash-management account reasonably acceptable to Buyer and Seller. The funds so deposited and all interest thereon are referred to collectively as the "Deposit." In the event that (a) the conditions precedent set forth in Section 3.1 above shall have been satisfied or waived, (b) Seller shall have -14- performed fully or tendered performance of its obligations hereunder and (c) Buyer shall be unable or fail to consummate the purchase of the Property as contemplated by this Agreement, then the entire amount of the Deposit shall be retained by Seller. BUYER AND SELLER HEREBY ACKNOWLEDGE AND AGREE THAT SELLER'S DAMAGES IN THE EVENT OF SUCH A BREACH OF THIS AGREE MENT BY BUYER WOULD BE DIFFICULT OR IMPOSSIBLE TO DETERMINE, THAT THE AMOUNT OF THE DEPOSIT IS THE PARTIES' BEST AND MOST ACCURATE ESTIMATE OF THE DAMAGES SELLER WOULD SUFFER IN THE EVENT THE TRANSACTION PROVIDED FOR IN THIS AGREEMENT FAILS TO CLOSE, AND THAT SUCH ESTIMATE IS REASONABLE UNDER THE CIRCUM STANCES EXISTING ON THE DATE OF THIS AGREEMENT. IN ADDITION, BUYER DESIRES TO HAVE A LIMITATION PUT UPON ITS POTENTIAL LIA BILITY TO SELLER IN THE EVENT THAT THIS TRANSACTION SHALL SO FAIL TO CLOSE. BUYER AND SELLER AGREE THAT SELLER'S RIGHT TO RETAIN THE DEPOSIT SHALL BE THE SOLE REMEDY OF SELLER AT LAW IN THE EVENT BUYER SHALL BE UNABLE OR FAIL TO CONSUMMATE THE PUR CHASE OF THE PROPERTY AS CONTEMPLATED BY THIS AGREEMENT. SUCH RETENTION OF THE DEPOSIT IS NOT INTENDED AS A FORFEITURE OR PENALTY, BUT INSTEAD, IS INTENDED TO CONSTITUTE LIQUIDATED DAMAGES TO SELLER. IN THE EVENT OF SUCH A BREACH OF THIS AGREE MENT BY BUYER, SELLER SHALL HAVE THE RIGHT TO TERMINATE THIS AGREEMENT FORTHWITH AND WITHOUT FURTHER OBLIGATIONS TO BUYER AND TO OBTAIN IMMEDIATE DISBURSEMENT OF AND TO RETAIN THE DEPOSIT THEN HELD BY THE TITLE COMPANY. NOTHING IN THIS ARTICLE 6 SHALL LIMIT OR OTHERWISE AFFECT BUYER'S LIABILITY FOR ANY BREACH OF THIS AGREEMENT BY BUYER OTHER THAN THE INABILITY OR FAILURE BY BUYER TO CONSUMMATE THE PURCHASE OF THE PROPERTY AS CONTEMPLATED BY THIS AGREEMENT. ACCEPTED AND AGREED TO: /s/ Guy Tcheau /s/ P. Sherrill Neff ------------------------- ------------------------ Seller Buyer In the event that this transaction is consummated as contemplated by this Agreement, then the entire amount of the Deposit shall be credited against the Purchase Price. In the event that this transaction is not consummated as contemplated by this Agreement, for any reason other than Buyer's inability or failure to consummate the purchase of the Property as set forth herein, the entire amount of the Deposit shall be returned immediately to Buyer. -15- ARTICLE 7. MISCELLANEOUS Section 7.1 Damage or Destruction. (a) Subject to the provisions of subsection (b) below, Buyer shall be bound to purchase the Property for the Purchase Price as required by the terms of this Agreement without regard to the occurrence during the Contract Period of any damage to or destruction of the Property ("Contract Period Damage"). Buyer shall receive a credit in escrow in the amount of any insurance proceeds (net of reasonable costs incurred in securing such proceeds) collected by Seller prior to the Closing Date as a result of any Contract Period Damage and not expended by Seller on repair, replacement or restoration of the Property pursuant to subsection (c) below, and Seller shall assign to Buyer all rights to such insurance proceeds as shall not have been collected by Seller prior to the Closing Date. Seller shall regularly notify Buyer during the Contract Period regarding the status of discussions Seller may have with its insurer with respect to the amount of insurance proceeds to be received in connection with any Contract Period Damage. (b) Notwithstanding the foregoing, if the cost of repair, replacement or restoration of the Property attributable to any Contract Period Damage exceeds twenty percent (20%) of the Purchase Price, Buyer may elect to terminate this Agreement by written notice to Seller given not more than ten (10) days following the event of damage or destruction and not later than one day prior to the Closing Date; provided, however, that if the event of damage or destruction occurs within the ten (10) day period immediately preceding the Closing Date, the Closing Date shall be extended to that date which is eleven (11) days from the date of the damage or destruction. Upon termination of this Agreement pursuant to this subsection, Seller and Buyer shall instruct the Title Company to return the Deposit to Buyer. In the event Buyer does not timely elect to terminate this Agreement pursuant to this subsection, the provisions of subsection (a) above shall be applicable. (c) Upon the occurrence of any Contract Period Damage, Seller may, but shall not be obligated to, use any insurance proceeds collected with respect to such Contract Period Damage to repair, replace or restore the Property to the extent reasonably feasible prior to the Closing Date. Seller's election to commence the repair, replacement or restoration of the Property prior to the Closing Date shall in no way imply that Seller has made any representation or warranty with respect to any work performed in connection with such repair, replacement or restoration ("Seller's Repairs"). The plans, materials, choice of contractor and all other material aspects of the performance of Seller's Repairs shall be subject to Buyer's review and approval (which shall not be -16- unreasonably withheld) and to the general disclaimer set forth in Section 2.3 above. In the event that Buyer does not approve any aspect of Seller's Repairs in writing within five (5) days following Seller's request for such approval, Seller may, at its option, terminate this Agreement by written notice delivered to Buyer on or before the Closing Date. (d) Notwithstanding anything in this Agreement to the contrary, the insurance proceeds to be credited or assigned to Buyer pursuant to this Section 7.1 shall exclude business interruption or rental loss insurance proceeds, if any, allocable to the period through the Closing Date, which proceeds shall be retained by Seller. (e) In the event of any conflict between the terms of this Section 7.1 and the terms of the Lease relating to the same subject matter, the terms of this Section 7.1 shall prevail. (f) If condemnation proceedings that affect the Property ("Condemnation Proceedings") are commenced against the Property during the Contract Period, Seller shall promptly give written notice thereof to Buyer, and, provided that such Condemnation Proceedings adversely affect the operation of the Property, Buyer may elect to terminate this Agreement by written notice to Seller given not more than ten (10) days following receipt of Seller's notice and not later than one (1) day prior to the Closing Date; provided, however, that if Seller's notice of the Condemnation Proceedings is given within the ten (10) day period immediately preceding the Closing Date, the Closing Date shall be extended to that date which is eleven (11) days from the date of Seller's notice. Upon termination of this Agreement pursuant to this subsection, Seller and Buyer shall instruct the Title Company to return the Deposit to Buyer. In the event Buyer does not timely elect to terminate this Agreement pursuant to this subsection, Buyer shall be bound to purchase the Property for the Purchase Price as required by the terms of this Agreement without regard to the occurrence during the Contract Period of any Condemnation Proceedings. Buyer shall receive a credit in escrow in the amount of any condemnation award (net of reasonable costs incurred in securing such award) collected and retained by Seller prior to the Closing Date as a result of any such Condemnation Proceeding, and Seller shall assign to Buyer all rights to such condemnation award as shall not have been collected by Seller prior to the Closing Date. Seller shall regularly notify Buyer during the Contract Period regarding the status of discussions Seller may have with the condemning authority with respect to the amount of the award to be received in connection with any Condemnation Proceeding. Section 7.2 Sales Brokerage Commissions and Finder's Fees. Each party to this Agreement warrants to the other that, except for the commission mentioned below, no person or entity can properly claim a right to a real estate commission, real estate finder's fee, real estate acquisition fee or other real estate brokerage-type compensation -17- (collectively, "Real Estate Compensation") based upon the acts of that party with respect to the transaction contemplated by this Agreement. Each party hereby agrees to indemnify and defend the other against and to hold the other harmless from any and all loss, cost, liability or expense (including but not limited to attorneys' fees and returned commissions) resulting from any claim for Real Estate Compensation by any person or entity based upon such acts or from payment of Real Estate Compensation to any person by Buyer or by any entity affiliated with Buyer, or by Seller or by any entity affiliated with Seller. Buyer and Seller acknowledge that Seller shall pay Real Estate Compensation in an amount equal to five percent (5%) of the Purchase Price to CB Commercial Real Estate Group, Inc. ("Broker") pursuant to an agreement entered into, or to be entered into, by Seller, Broker and Tower Realty Management Corporation and acknowledged by Buyer, but only to the extent such Real Estate Compensation is ultimately due Broker under such agreement. The obligations under this Section 7.2 shall survive the Closing Date. Section 7.3 Leasing Commissions. Seller shall indemnify, protect, defend and hold Buyer harmless from and against any leasing commissions payable in connection with the current terms of the leases (if any) currently encumbering the Property (specifically excluding therefrom any commission for option periods, renewal periods, extension periods or waivers of termination rights or as otherwise provided in Section 4.2(b) above). Buyer shall indemnify and hold Seller harmless from and against any leasing commissions relating to the Property subsequent to the Closing Date. Section 7.4 Successors and Assigns. Buyer shall not assign any of Buyer's rights or duties hereunder without the prior written consent of Seller, which consent Seller may grant or withhold in Seller's sole and absolute discretion. Subject to the foregoing, this Agreement shall inure to the benefit of and be binding upon the parties hereto and their successors and assigns. Section 7.5 Notices. All written notices required to be given pursuant to the terms hereof shall be either (i) personally delivered, (ii) deposited in the United States mail, registered or certified return receipt requested, postage prepaid, (iii) sent by Federal Express or similar nationally recognized overnight courier service, or (iv) transmitted by facsimile with a hard copy sent within one (1) business day by any of the foregoing means, and addressed as follows: -18- To Seller: c/o GSIC Realty Corporation 255 Shoreline Drive, Suite 600 Redwood City, California 94065 Attn: P.B.C. Investment Manager Fax No: (415) 802-1212 Phone No: (415) 593-3100 with a copy to: Tower Realty Management Corporation 120 Gibraltar Road, Suite 210 Horsham, Pennsylvania 19044 Fax No: (215) 441-0573 Phone No: (215) 441-4570 with a copy to: Sheppard, Mullin, Richter & Hampton Four Embarcadero Center, 17th Floor San Francisco, California 94111 Attn: Robert A. Thompson, Esq. Fax No: (415) 434-3947 Phone No: (415) 434-9100 To Buyer: Neose Technologies, Inc. 102 Witmer Road Horsham, Pennsylvania 19044 Attn: Mr. P. Sherrill Neff Fax No: (215) 441-5896 Phone No: (215) 441-5890 with a copy to: Ballard Spahr Andrews & Ingersoll 1735 Market Street, 51st Floor Philadelphia, Pennsylvania 19103 Attn: Lynn R. Axelroth, Esq. Fax No: (215) 864-8999 Phone No: (215) 864-8707 The foregoing addresses may be changed from time to time by written notice. Notices shall be deemed received upon the earlier of actual receipt or delivery (or refusal to accept delivery) or three (3) working days following sending as provided above. Section 7.6 Time. Time is of the essence of every provision contained in this Agreement. -19- Section 7.7 Possession. Possession of the Property and all keys shall be delivered to Buyer on the Closing Date. Section 7.8 Incorporation by Reference. All of the exhibits attached to this Agreement or referred to herein and all documents in the nature of such exhibits, when executed, are by this reference incorporated in and made a part of this Agreement. Section 7.9 No Deductions or Off-Sets. Except with respect to closing costs and prorations as set forth above, Buyer acknowledges that the Purchase Price to be paid for the Property pursuant to this Agreement is a net amount and shall not be subject to any off-sets or deductions. Section 7.10 Attorneys' Fees. In the event any dispute between Buyer and Seller should result in litigation or arbitration, the prevailing party (or, in the case of a voluntary dismissal or similar proceeding, the party that does not initiate the dismissal or proceed ing) shall be reimbursed for all reasonable costs and attorneys' fees incurred in connection with such litigation or arbitration, including, without limitation, reasonable costs and attorneys' fees incurred in collecting the judgment(s) or arbitration award(s) resulting from such litigation or arbitration. Section 7.11 Construction. The parties acknowledge that each party and its counsel have reviewed and revised this Agreement and that the normal rule of construc tion to the effect that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of this Agreement or any amendments or exhibits hereto. Section 7.12 No Merger. The provisions of this Agreement shall not merge with the delivery of the Deed but shall, except as otherwise provided in this Agreement, survive the close of escrow. Section 7.13 Governing Law. This Agreement shall be construed and interpreted in accordance with and shall be governed and enforced in all respects according to the laws of the Commonwealth of Pennsylvania. Section 7.14 Claims Against Seller. (a) If Seller shall be unable or fail to convey the Property as herein provided, such refusal or failure shall constitute a default of Seller under this Agreement only if (i) the conditions precedent set forth in Section 3.1 above shall have been satisfied or waived, and (ii) Buyer shall have performed fully or tendered performance of its obligations hereunder. In the event of such a default, Buyer's sole remedy therefor shall -20- be the termination of this Agreement, the return of the Deposit, and the payment by Seller to Buyer of liquidated damages in the amount of Two Hundred Thousand and 00/100 Dollars ($200,000.00) ("Buyer's Damages"); provided that Seller shall have no obligation to pay such sum (and Buyer's Damages will be $0.00) unless Buyer executes and delivers to Seller within two (2) business days of request therefor a document in recordable form and reasonably acceptable to Seller releasing any interest Buyer may have in the Property under this Agreement. BUYER AND SELLER HEREBY ACKNOWLEDGE AND AGREE THAT BUYER'S DAMAGES IN THE EVENT OF SUCH A BREACH OF THIS AGREEMENT BY SELLER WOULD BE DIFFICULT OR IMPOSSIBLE TO DETERMINE, THAT THE AMOUNT OF BUYER'S DAMAGES IS THE PARTIES' BEST AND MOST ACCURATE ESTIMATE OF THE DAMAGES BUYER WOULD SUFFER IN THE EVENT THE TRANSACTION PROVIDED FOR IN THIS AGREEMENT FAILS TO CLOSE, AND THAT SUCH ESTIMATE IS REASONABLE UNDER THE CIRCUMSTANCES EXISTING ON THE DATE OF THIS AGREEMENT. IN ADDITION, SELLER DESIRES TO HAVE A LIMITATION PUT UPON ITS POTENTIAL LIABILITY TO BUYER IN THE EVENT THAT THIS TRANSACTION SHALL SO FAIL TO CLOSE. BUYER AND SELLER AGREE THAT BUYER'S RIGHT TO RETAIN BUYER'S DAMAGES SHALL BE THE SOLE REMEDY OF BUYER IN THE EVENT SELLER SHALL BE UNABLE OR FAIL TO CONSUMMATE THE SALE OF THE PROPERTY AS CONTEMPLATED BY THIS AGREEMENT. SUCH PAYMENT OF BUYER'S DAMAGES IS NOT INTENDED AS A FORFEITURE OR PENALTY, BUT INSTEAD, IS INTENDED TO CONSTITUTE LIQUIDATED DAMAGES TO BUYER. ACCEPTED AND AGREED TO: /s/ Guy Tcheau /s/ P. Sherrill Neff ------------------------- ------------------------ Seller Buyer (b) Buyer specifically waives any right to seek specific performance of Seller's obligations under this Agreement and acknowledges that its only remedy in the event of a breach of this Agreement by Seller shall be the right (as limited by this Section 7.14) to seek money damages at law. (c) With respect to any claim brought by Buyer against Seller for default under this Agreement other than inability or failure to convey the Property as herein provided, any liability of Seller shall be limited to Two Hundred Thousand and 00/100 Dollars ($200,000.00)]. -21- Section 7.15 Termination Without Breach. In the event either party desires to exercise any right expressly provided in this Agreement to terminate this Agreement, such party shall give written notice to the other party of such termination with reference to the Section of this Agreement expressly providing such right to terminate. Immediately thereafter, (a) all documents deposited into escrow shall be returned to the party which deposited them, (b) all documents delivered by Seller to Buyer relating to the Property shall be returned, (c) to the extent not subject to customary restrictions on dissemination to third parties, copies of all reports, studies, analyses and tests prepared by or for Buyer relating to the Property shall immediately be delivered to Seller, and (d) except in the event of a default by either party hereunder, (i) all monies deposited in escrow shall be returned to the party which deposited them, and (ii) after all of the actions described in this Section 7.15 have taken place, each party will then be released from its obligations hereunder; provided, however, that nothing herein shall limit the terms and conditions set forth in Sections 2.3(a) and 7.2 hereof. Section 7.16 Counterparts. This Agreement may be executed in one or more counterparts. All counterparts so executed shall constitute one contract, binding on all parties, even though all parties are not signatory to the same counterpart. Section 7.17 Entire Agreement. This Agreement and the attached exhibits, which are by this reference incorporated herein, and all documents in the nature of such exhibits, when executed, contain the entire understanding of the parties and supersede any and all other written or oral understanding, including, without limitation, any letter of intent entered into by the parties. Section 7.18 Limited Liability. Neither the shareholders nor the officers, employees or agents of Seller shall be liable under this Agreement and Buyer shall look solely to the assets of Seller for the payment of any claim or the performance of any obligation of Seller. Neither the shareholders nor the officers, employees or agents of Buyer shall be liable under this Agreement and Seller shall look solely to the assets of Buyer for the payment of any claim or the performance of any obligation of Buyer. Section 7.19 Confidentiality. Buyer agrees on its own behalf and on behalf of its agents, employees and contractors to hold in confidence (a) the terms of the proposed sale of the Property, and (b) other than information made available to the public generally or upon inquiry or to a significant number of third parties (other than by Buyer, its agents, employees, consultants or contractors), information obtained by Buyer relating to the Property, the PBC, Seller or any affiliate of Seller. The information described in clauses (a) and (b) of the immediately preceding sentence is collectively referred to herein as the "Information". Buyer further agrees on its own behalf and on behalf of its agents, employees and contractors not to disclose any Information to any person or entity without -22- Seller's prior written consent, which consent may be withheld in Seller's sole discretion, except (i) a person or entity with a right to the Information pursuant to statutory or common law (including, without limitation, any disclosures required in connection with Buyer's obligations as a public company), (ii) Buyer's consultants and attorneys on a need-to-know basis, and (iii) to the extent required by court order. Buyer shall take all necessary or desirable steps reasonable to ensure that its agents, employees and contractors comply with the terms of this Section 7.19. Buyer shall use the Information solely for the purpose of determining whether or not to purchase the Property. -23- IN WITNESS WHEREOF, Seller and Buyer have executed this Agreement as of the day and year first written above. SELLER: BUYER: - ------- ------ PENNSYLVANIA BUSINESS CAMPUS NEOSE TECHNOLOGIES, INC., DELAWARE, INC., a Delaware a Delaware corporation corporation By: /s/ Guy Tcheau By: /s/ P. Sherrill Neff ------------------------------- ------------------------------- Its: Vice President Its: President and CFO --------------------------- ---------------------------- By: /s/ Michael Carp By: ------------------------------- -------------------------------- Its: Treasurer Its: ---------------------------- --------------------------- -24- EX-4.1 3 REPRESENTATION Exhibit 4.1 Representation Pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K Pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K, the Registrant has not filed documents relating to the $1,000,000 Variable Rate Demand Revenue Bonds (Neose Technologies, Inc. Project), Series A of 1997, issued by the Montgomery County Industrial Development Authority. The Registrant hereby agrees to furnish supplementally copies of such documents to the Securities and Exchange Commission upon request. EX-4.2 4 TRUST INDENTURE Exhibit 4.2 =============================================================================== MONTGOMERY COUNTY INDUSTRIAL DEVELOPMENT AUTHORITY TO DAUPHIN DEPOSIT BANK AND TRUST COMPANY, AS TRUSTEE TRUST INDENTURE Dated as of March 1, 1997 Securing $8,400,000 MONTGOMERY COUNTY INDUSTRIAL DEVELOPMENT AUTHORITY Federally Taxable Variable Rate Demand Revenue Bonds (Neose Technologies, Inc. Project) Series B of 1997 =============================================================================== TABLE OF CONTENTS Page ---- Preambles................................................................... 1 Granting Clauses............................................................ 1 ARTICLE I DEFINITIONS SECTION 1.01. Definitions............................................... 4 SECTION 1.02. Interpretation; Time of Day...............................12 SECTION 1.03. Captions, Headings and Table of Contents..................12 ARTICLE II AUTHORIZATION AND TERMS OF BONDS SECTION 2.01. Amount, Form and Issuance of Bonds........................13 SECTION 2.02. Designation, Denominations, Maturity, Dated Dates, Interest Accrual and Tender.............................13 SECTION 2.03. Weekly Rate...............................................14 SECTION 2.04. Term Rate.................................................15 SECTION 2.05. Conversion at Option of Borrower..........................16 SECTION 2.06. Execution and Authentication of Bonds.....................17 SECTION 2.07. Source of Payment of Bonds................................17 SECTION 2.08. Payment and Ownership of Bonds............................17 SECTION 2.09. Registration, Transfer and Exchange of Bonds..............18 SECTION 2.10. Mutilated, Lost, Wrongfully Taken or Destroyed Bonds......19 SECTION 2.11. Cancellation of Bonds.....................................20 SECTION 2.12. Special Agreement with Holders............................20 SECTION 2.13. Book Entry System for the Bonds...........................21 ARTICLE III REDEMPTION OF BONDS SECTION 3.01. Terms of Redemption.......................................24 SECTION 3.02. Partial Redemption........................................24 SECTION 3.03. Issuer's Election to Redeem...............................25 SECTION 3.04. Notice of Redemption......................................25 SECTION 3.05. Payment of Redeemed Bonds.................................26 - i - Page ---- ARTICLE IV PURCHASE AND REMARKETING OF BONDS SECTION 4.01. Purchase on Demand of Holder During Weekly Mode...........28 SECTION 4.02. Mandatory Purchase on Conversion Date and at End of Term Rate Period; upon Expiration of Letter of Credit; and at Direction of Bank................................30 SECTION 4.03. Remarketing...............................................32 SECTION 4.04. Drawings on Letter of Credit for Purchase of Bonds........33 SECTION 4.05. Bonds Purchased with Proceeds of Letter of Credit.........34 SECTION 4.06. Borrower Bonds............................................35 SECTION 4.07. No Purchases After Acceleration; Inadequate Funds for Purchases..........................35 ARTICLE V FUNDS AND LETTER OF CREDIT SECTION 5.01. Creation of Project Fund..................................37 SECTION 5.02. Disbursements from and Records of Project Fund............37 SECTION 5.03. Disposition of Excess Bond Proceeds.......................37 SECTION 5.04. Bond Fund.................................................37 SECTION 5.05. Investment of Bond Fund and Project Fund..................39 SECTION 5.06. Bond Fund Moneys to be Held in Trust......................41 SECTION 5.07. Nonpresentment of Bonds...................................41 SECTION 5.08. Letter of Credit..........................................41 ARTICLE VI COVENANTS AND REPRESENTATIONS OF ISSUER SECTION 6.01. Corporate Existence; Compliance with Laws.................45 SECTION 6.02. Payment of Bond Service...................................45 SECTION 6.03. No Further Assignment of Revenues.........................45 SECTION 6.04. Filings...................................................45 SECTION 6.05. Rights and Enforcement of Agreement.......................45 SECTION 6.06. Further Assurances........................................46 SECTION 6.07. Observance and Performance Agreements.....................46 SECTION 6.08. Representations and Warranties............................46 - ii - Page ---- ARTICLE VII DEFAULT AND REMEDIES SECTION 7.01. Defaults; Events of Default...............................47 SECTION 7.02. Notice of Default.........................................48 SECTION 7.03. Acceleration..............................................48 SECTION 7.04. Other Remedies; Rights of Holders.........................50 SECTION 7.05. Right of Holders to Direct Proceedings....................51 SECTION 7.06. Application of Moneys.....................................51 SECTION 7.07. Remedies Vested in Trustee................................53 SECTION 7.08. Rights and Remedies of Holders............................53 SECTION 7.09. Termination of Proceedings................................54 SECTION 7.10. Waivers of Events of Default..............................54 SECTION 7.11. Certain Rights of Issuer..................................54 SECTION 7.12. Trustee's Right to Appointment of Receiver................55 SECTION 7.13. Trustee and Holders Entitled to All Benefits Under Act....55 SECTION 7.14. Trustee's Obligation to Banks Upon Payment of All Amounts Due Holders................................ 55 ARTICLE VIII TRUSTEE AND REMARKETING AGENT SECTION 8.01. Trustee's Acceptance and Responsibilities.................56 SECTION 8.02. Certain Rights and Obligations of Trustee.................57 SECTION 8.03. Fees, Charges and Expenses of Trustee.....................60 SECTION 8.04. Intervention by Trustee...................................60 SECTION 8.05. Successor Trustee.........................................60 SECTION 8.06. Resignation by Trustee....................................61 SECTION 8.07. Removal of Trustee........................................61 SECTION 8.08. Appointment of Successor Trustee..........................61 SECTION 8.09. Adoption of Authentication................................63 SECTION 8.10. Designation and Succession of Authenticating Agent, Bond Registrar, Transfer Agent, Tender Agent and Paying Agent....................................... 63 SECTION 8.11. Dealing in Bonds..........................................64 SECTION 8.12. Representations, Agreements and Covenants of Trustee......64 SECTION 8.13. Appointment of Remarketing Agent..........................64 SECTION 8.14. Qualifications of Remarketing Agent.......................65 SECTION 8.15. Compensation and Expenses of Remarketing Agent............65 ARTICLE IX SUPPLEMENTS AND AMENDMENTS SECTION 9.01. Supplemental Indentures Not Requiring Consent of Holders..66 SECTION 9.02. Supplemental Indentures Requiring Consent of Holders......67 - iii - Page ---- SECTION 9.03. Consent of Borrower and Participating Bank................67 SECTION 9.04. Authorization to Trustee; Effect of Supplement............67 SECTION 9.05. Modification by Unanimous Consent.........................68 SECTION 9.06. Amendment of Loan Agreement...............................68 SECTION 9.07. Amendment of Letter of Credit.............................68 SECTION 9.08. Trustee Authorized to Join in Supplements and Amendments; Reliance on Counsel.........................68 SECTION 9.09. Bank Consent..............................................68 SECTION 9.10. Notice to Rating Service..................................69 ARTICLE X DEFEASANCE SECTION 10.01. Defeasance................................................70 SECTION 10.02. Provision for Payment.....................................70 SECTION 10.03. Deposit of Funds for Payment of Bonds.....................71 SECTION 10.04. Survival of Certain Provisions............................72 ARTICLE XI MISCELLANEOUS SECTION 11.01. Limitation of Rights; No Personal Recourse................73 SECTION 11.02. Severability..............................................73 SECTION 11.03. Notices...................................................73 SECTION 11.04. Suspension of Mail........................................74 SECTION 11.05. Payments Due on Saturdays, Sundays and Holidays...........75 SECTION 11.06. Instruments of Holders....................................75 SECTION 11.07. Binding Effect............................................75 SECTION 11.08. Counterparts..............................................75 SECTION 11.09. Governing Law.............................................76 Execution...................................................................77 Exhibit A - Bond Form......................................................A-1 Exhibit omitted. The Registrant notes that the Bond has been filed separately as Exhibit 4.3 to this Quarterly Report on Form 10-Q. - iv - TRUST INDENTURE THIS TRUST INDENTURE, dated as of March 1, 1997 between MONTGOMERY COUNTY INDUSTRIAL DEVELOPMENT AUTHORITY (the "Issuer"), a public instrumentality and body corporate and politic of the Commonwealth of Pennsylvania, and DAUPHIN DEPOSIT BANK AND TRUST COMPANY, a Pennsylvania banking corporation, as Trustee (the "Trustee") (the capitalized terms used in the recitals and granting clauses hereof being used therein as defined in Article I of this Trust Indenture), WITNESSETH THAT: A. Pursuant to the Act, the Issuer has authorized and approved the Project and the financing thereof through the issuance of the Bonds and the loan of the proceeds thereof to the Borrower pursuant to the Loan Agreement to finance costs of the Project; B. The Bonds will be issued under and secured by this Indenture, and the Issuer is empowered and authorized to execute and deliver this Indenture and the Loan Agreement and to do or cause to be done all acts provided or required herein or therein to be performed on its part; C. All acts and conditions required to happen, exist and be performed precedent to and in the issuance of the Bonds and the execution and delivery of this Indenture have happened, exist and have been performed (i) to make the Bonds, when issued, delivered and authenticated, valid and binding legal obligations of the Issuer and (ii) to make this Indenture a valid, binding and legal trust agreement for the security of the Bonds; and D. The Trustee has accepted the trusts created by this Indenture, and in evidence thereof has joined in the execution hereof. NOW, THEREFORE, the Issuer, intending to be legally bound, in consideration of the acceptance by the Trustee of the trusts hereby created and of the purchase and acceptance of the Bonds by the Holders, and of the sum of One Dollar, lawful money of the United States of America, to it duly paid by the Trustee at or before the execution and delivery of these presents, and for other good and valuable consideration, the receipt of which is hereby acknowledged, in order to secure, in the following order of priority, first, the payment of the principal of, premium, if any, on and interest on the Bonds according to their tenor and effect and the performance and observance by the Issuer of all the covenants expressed or implied herein and in the Bonds, second, the payment to the Bank and performance of the reimbursement and other obligations of the Participating Bank under the Participating Bank Agreement, and, third, the payment to the Participating Bank and performance of the reimbursement and other obligations of the Borrower under the Reimbursement Agreement, does hereby assign, transfer and pledge to the Trustee and its successors in trust and its and their assigns forever and grant to the Trustee and its successors in trust and its and their assigns a security interest in: a. All right, title and interest (but not the obligations) of the Issuer under and pursuant to the terms of the Loan Agreement, all Loan Payments and all other payments, revenues and receipts receivable by the Issuer thereunder (except for the Unassigned Issuer's Rights); and b. All of the right, title and interest of the Issuer in and to all Funds and Accounts established under this Indenture and all moneys and investments now or hereafter held therein and all present and future Revenues. TO HAVE AND TO HOLD, the Loan Agreement, Funds, Accounts, Revenues and the other right, title and interest hereby assigned, transferred and pledged or agreed or intended so to be (collectively the "Trust Estate") to the Trustee and its successors in said trust and to its and their assigns forever; IN TRUST NEVERTHELESS, upon the terms herein set forth, first, for the equal and proportionate benefit, security and protection of all present and future Holders of the Bonds issued under and secured by this Indenture without privilege, priority or distinction as to the lien or otherwise of any of the Bonds over any other of the Bonds except as provided herein, second, for the benefit and security of the Bank with respect to the Participating Bank's obligations under the Participating Bank Agreement, and, third, for the benefit and security of the Participating Bank with respect to the Borrower's obligations under the Reimbursement Agreement; PROVIDED, HOWEVER, that if the Issuer, its successors or assigns, shall well and truly pay, or cause to be paid, the principal of the Bonds and the interest and premium, if any, due or to become due thereon, at the times and in the manner mentioned in the Bonds according to the true intent and meaning thereof, or shall provide, as permitted hereby, for the payment thereof by depositing with the Trustee the entire amount due or to become due thereon, and shall well and truly keep, perform and observe all the covenants and conditions pursuant to the terms of this Indenture to be kept, performed and observed by the Issuer, and shall pay or cause to be paid to the Trustee all sums due or to become due to it in accordance with the terms and provisions hereof, if the Participating Bank shall pay and perform or cause to be paid and performed all of its reimbursement and other obligations under the Participating Bank Agreement, and if the Borrower shall pay and perform or cause to be paid and performed all of its reimbursement and other obligations under the Reimbursement Agreement, then, upon such final payments and subject to the provisions of Article X, this Indenture and the rights hereby granted shall cease, determine and be void, and the Trustee shall forthwith release, surrender and otherwise cancel any interest it may have in the Trust Estate; otherwise this Indenture shall be and remain in full force and effect. THIS INDENTURE FURTHER WITNESSETH, and it is expressly declared, that all Bonds issued and secured hereunder are to be issued, authenticated and delivered and the Trust Estate, including all said payments, revenues and receipts hereby pledged, is to be dealt with and disposed of, under, upon and subject to the terms, conditions, stipulations, covenants, agreements, trusts, uses and 2 purposes as hereinafter expressed, and the Issuer has agreed and covenanted, and does hereby agree and covenant, with the Trustee and with the respective Holders, from time to time, of the Bonds, or any part thereof, as follows: (Balance of page intentionally left blank) 3 ARTICLE I DEFINITIONS SECTION 1.01. Definitions. In this Indenture, the following terms shall have the meanings specified in this Article, unless the context otherwise requires: "Act" means the Pennsylvania Economic Development Financing Law (Act No. 102, approved August 23, 1967, P.L. 251, as amended, including the amendments effected by Act No. 48, approved July 10, 1987, P.L. 273, and Act No. 74, approved December 17, 1993, P.L. 490). The Act is codified at 73 P.S. (section) 371 et seq. "Affiliate" means any Person directly or indirectly controlling, controlled by or under common control with the Borrower as certified to the Trustee and the Remarketing Agent by an Authorized Representative of the Borrower. In addition, the term "Affiliate" shall also include any Person who has guaranteed the payment of the Borrower's obligations under the Loan Agreement or the Reimbursement Agreement. "Alternate Letter of Credit" means an irrevocable letter of credit authorizing drawings thereunder by the Trustee, issued by a national banking association, a bank, a trust company or other financial institution, and satisfying the requirements of Section 5.08. "Authorized Representative" shall have the meaning assigned to such term in the Loan Agreement. "Available Moneys" means (i) proceeds of a drawing under the Letter of Credit and (ii) any moneys paid to the Trustee and with respect to which the Trustee has received an opinion of nationally recognized counsel experienced in bankruptcy matters and acceptable to the Trustee and the Rating Service to the effect that the use of such moneys to pay principal of, premium (if any) on or interest on the Bonds, as applicable, will not constitute an avoidable transfer under Section 547 of the United States Bankruptcy Code in the event of a bankruptcy case under the United States Bankruptcy Code by the Issuer or by or against the Borrower or any Affiliate, as debtor; provided that when used with respect to payment of amounts due in respect of any Pledged Bonds or Borrower Bonds, "Available Moneys" means any moneys held by the Trustee and available for such payment pursuant to the terms of this Indenture except for moneys drawn under the Letter of Credit. "Bank" means, initially, CoreStates Bank, N.A., a national banking association, as issuer of the Letter of Credit, and its successors and assigns in that capacity and, in the event an Alternate Letter of Credit is outstanding, the issuer of the Alternate Letter of Credit. "Bond Counsel" shall mean an attorney-at-law or a firm of attorneys of nationally recognized standing in matters pertaining to bonds issued by states and their political subdivisions, duly admitted to the practice of law before the highest court of any state of the United States of America. "Bond Fund" means the fund so designated and established pursuant to Section 5.04. 4 "Bond Pledge Agreement" means the Pledge, Security and Indemnification Agreement among the Borrower, the Bank and the Participating Bank relating to the Bonds, as amended or supplemented from time to time. "Bond Service" means, for any period or payable at any time, the principal of, premium, if any, on and interest on the Bonds for that period or payable at that time whether due at maturity or upon acceleration or redemption. "Bondholder Tender Notice" means a written notice meeting the requirements of Section 4.01. "Bonds" means the $8,400,000 Federally Taxable Variable Rate Demand Revenue Bonds (Neose Technologies, Inc. Project) Series B of 1997 of the Issuer issued, authenticated and delivered pursuant to Section 2.01. "Borrower" means Neose Technologies, Inc., a corporation duly organized and validly existing under the laws of the State of Delaware, and its successors and assigns. "Borrower Bonds" means any Bonds of which ownership is registered in the name of the Borrower or any Affiliate, other than Pledged Bonds. "Borrower Purchase Account" means the special trust account so designated and established by the Trustee pursuant to Section 4.04. "Business Day" means any day other than a Saturday or Sunday or a day on which banks located in Philadelphia, Pennsylvania, Pittsburgh, Pennsylvania, New York, New York or any other city in which the principal corporate trust office of the Trustee or the office of the Bank at which drawing documents are required to be presented under the Letter of Credit is located are required or authorized to close or on which The New York Stock Exchange is closed. "Conversion Date" means any Interest Payment Date on which the Rate Mode of the Bonds is converted to another Rate Mode pursuant to Section 2.05. "DTC" means The Depository Trust Company, New York, New York and its successors and assigns. "Eligible Investments" means (i) Government Obligations; the Trustee, in purchasing Government Obligations, (a) may make any such purchase subject to agreement with the seller for repurchase by the seller at a later date, and in such connection may accept the seller's agreement for the payment of interest in lieu of the right to receive the interest payable by the issuer of the securities purchased, provided that title to the Government Obligations so purchased by the Trustee shall vest in the Trustee, that the Trustee shall have actual or constructive possession of such Government Obligations, and that the current market value of such Government Obligations (or of cash or 5 additional Government Obligations pledged with the Trustee as collateral for the purpose) is at all times at least equal to the principal and interest thereafter to become payable by the seller under said agreement, or (b) may purchase shares of a fund whose sole assets are of a type described in this clause (i) and such repurchase agreements thereof; (ii) obligations issued or guaranteed by any state or political subdivision thereof and rated in the highest category, if rated as short-term obligations, or not lower than the third highest category, if rated as long term obligations, by Moody's Investors Service, Inc. ("Moody's") or by Standard & Poor's Ratings Services, a Division of The McGraw-Hill Companies, Inc. ("Standard & Poor's"), or their successors; the Trustee, in purchasing obligations of the type described in this clause (ii), may purchase shares of a fund whose sole assets are such obligations or obligations of the type described in clause (i) above; (iii) commercial or finance company paper which is rated in the highest rating category by either Moody's or Standard & Poor's; and (iv) deposit accounts, investment agreements, bankers' acceptances, certificates of deposit or bearer deposit notes in any bank, trust company or savings and loan association (including without limitation the Trustee or any bank affiliated with the Trustee) organized under the laws of the United States of America or any state thereof having a rating of its unsecured senior long-term debt obligations within one of the three highest rating categories by either Moody's or Standard & Poor's. "Event of Default" means any of the events described as an Event of Default in Section 7.01. "Expiration Date" means the stated expiration date of the Letter of Credit, as such date may be extended from time to time by the Bank. "Extraordinary Services" and "Extraordinary Expenses" mean all services rendered and all reasonable expenses properly incurred by the Trustee or any of its agents under this Indenture, other than Ordinary Services and Ordinary Expenses. "General Account" means the account so designated which is established pursuant to Section 5.04. "Government Obligations" means direct obligations of, or obligations the principal of and interest on which are unconditionally guaranteed by, the United States of America, including obligations issued or held in book-entry form on the books of the Department of the Treasury of the United States of America and including a receipt, certificate or any other evidence of an ownership interest in such obligations or in specified portions thereof (which may consist of specified portions of interest thereon). "Holder" means the Person in whose name a Bond is registered on the Register. 6 "Indenture" means this Trust Indenture, as amended or supplemented from time to time. "Interest Payment Date" means (i) with respect to Weekly Rate interest, the first Wednesday of each calendar month, or if any such Wednesday is not a Business Day, the immediately succeeding Business Day, and (ii) with respect to Term Rate interest, each Semiannual Date. "Interest Rate for Advances" means the rate per annum which is two percentage points in excess of that interest rate announced by the Trustee in its commercial lending capacity as its "prime rate". "Issuer" means Montgomery County Industrial Development Authority, a Pennsylvania body corporate and politic organized and existing under the Act. "Issuer's Fee" means the fee of the Issuer payable pursuant to Section 4.4 of the Loan Agreement. "Letter of Credit" means the irrevocable letter of credit issued by the Bank to the Trustee on the date of execution and delivery of this Indenture and any Alternate Letter of Credit, under which the Trustee is authorized, subject to the terms and conditions thereof, to draw up to (a) an amount equal to the principal amount of the outstanding Bonds (i) to enable the Trustee to pay the principal amount of the Bonds when due at maturity, upon redemption or upon acceleration and (ii) to enable the Trustee to pay the portion of the purchase price of Bonds tendered to it and not remarketed corresponding to the principal amount of such Bonds, plus (b) while the Bonds bear interest at a Weekly Rate, an amount equal to interest to accrue at the Maximum Rate on the outstanding Bonds for 46 days and, while the Bonds bear interest at a Term Rate, an amount equal to interest to accrue at a rate not less than the Term Rate then in effect on the outstanding Bonds for 195 days (i) to enable the Trustee to pay interest on the Bonds when due and (ii) to enable the Trustee to pay the portion of the purchase price of Bonds tendered to it and not remarketed corresponding to the accrued interest on such Bonds, as the same may be amended, transferred, reissued or extended in accordance with this Indenture, plus (c) while the Bonds bear interest at a Term Rate, an amount equal to the premium (if any) which would become payable on the Bonds upon mandatory redemption if such irrevocable letter of credit or Alternate Letter of Credit were not extended beyond the Expiration Date set forth therein. "Letter of Credit Debt Service Account" means the account so designated and established pursuant to Section 5.04 in the Bond Fund. "Letter of Credit Purchase Account" means the special trust account so designated and established pursuant to Section 4.04. "Loan" means the loan by the Issuer to the Borrower of the proceeds of the Bonds pursuant to Section 4.1 of the Loan Agreement in the original principal amount of $8,400,000. "Loan Agreement" means the Loan Agreement dated as of the date hereof between the Issuer and the Borrower, as amended and supplemented from time to time. 7 "Loan Payments" means the amounts required to be paid by the Borrower in repayment of the Loan pursuant to Section 4.2 of the Loan Agreement. "Maximum Rate" means (i) with respect to Weekly Rate interest, 17% per annum and (ii) with respect to Term Rate interest, 25% per annum. "Nominal Term Rate Period" means, with respect to a Term Mode, a period of two or more consecutive Semiannual Periods (expressed in years and half years) determined pursuant to Sections 2.04 and 2.05. "Ordinary Services" and "Ordinary Expenses" mean those services normally rendered, and those expenses normally incurred, by a trustee under instruments similar to this Indenture. "Outstanding Bonds", "Bonds outstanding" or "outstanding" as applied to Bonds mean, as of the applicable date, all Bonds which have been authenticated and delivered, or which are being delivered by the Trustee under this Indenture, except: (a) Bonds cancelled or required to be cancelled upon surrender, exchange or transfer, or cancelled or required to be cancelled because of payment or redemption on or prior to that date pursuant to Section 2.11; (b) On or after any purchase date for Bonds to be purchased pursuant to Article IV, all Undelivered Bonds (or portions of Bonds) which are purchased on such date, provided that funds sufficient for such purchase are on deposit with the Trustee; (c) Bonds which are deemed paid in accordance with Article X; and (d) Bonds in substitution for which others have been authenticated and delivered under Section 2.10. For purposes of approval or consent by the Holders, "outstanding Bonds," "Bonds outstanding" or "outstanding" as applied to Bonds shall not include Bonds owned by or on behalf of the Issuer, the Borrower or an Affiliate (unless all of the outstanding Bonds are so owned), the Bank (unless all of the outstanding Bonds are so owned), or the Participating Bank (unless all of the outstanding Bonds are so owned). "Participating Bank" means the bank, trust company, savings and loan association or other financial institution which has entered into the Reimbursement Agreement with the Borrower and the Participating Bank Agreement with the Bank, and its successors and assigns. The initial Participating Bank is Jefferson Bank. "Participating Bank Agreement" means the Participation and Reimbursement Agreement between the Participating Bank and the Bank relating to the Letter of Credit and the Bonds, as amended, supplemented or replaced from time to time. 8 "Person" or words importing persons means firms, associations, partnerships (including without limitation general and limited partnerships), joint ventures, societies, estates, trusts, corporations, public or governmental bodies, other legal entities and natural persons. "Pledged Bonds" shall have the meaning assigned to such term in Section 4.05. "Predecessor Bond" of any particular Bond means every previous Bond evidencing all or a portion of the same debt as that evidenced by the particular Bond. For purposes of this definition, any Bond authenticated and delivered under Section 2.10 in substitution for a lost, wrongfully taken or destroyed Bond shall, except as otherwise provided in Section 2.10, be deemed to evidence the same debt as the lost, wrongfully taken or destroyed Bond. "Project" means the acquisition, improvement and equipment of a facility which will be used for the development and pilot production of complex carbohydrates for research and development relating to a variety of healthcare applications to be owned and operated by the Borrower, and located in Horsham Township, Montgomery County, Pennsylvania, as more fully described in the Loan Agreement. "Project Costs" shall have the meaning assigned to such term in the Loan Agreement. "Project Fund" means the fund so designated and established pursuant to Section 5.01. "Purchase Date" means (a) with respect to any optional tender for purchase pursuant to Section 4.01 of Bonds in the Weekly Mode, any Business Day designated as the date of such purchase pursuant to such Section and (b) with respect to any mandatory purchase pursuant to Section 4.02 (1) in the case of Bonds which are to be purchased upon conversion from one Rate Mode to another Rate Mode, the Conversion Date, or if such Conversion Date is not a Business Day, the first Business Day succeeding such Conversion Date, (2) in the case of Bonds which are to be purchased upon expiration of a Term Rate Period, the first Business Day following the end of such Term Rate Period, (3) in the case of Bonds to be purchased in anticipation of the expiration of the Letter of Credit, the Interest Payment Date next preceding the Expiration Date of the Letter of Credit, and (4) in the case of Bonds to be purchased at the direction of the Bank or the Participating Bank, the purchase date stipulated by the Bank or the Participating Bank pursuant to Section 7.03. "Rate Mode" means the Weekly Mode or a Term Mode. "Rating Service" means Moody's Investors Service, Inc., if the Bonds are rated by such at the time, and Standard & Poor's Ratings Services, a Division of The McGraw-Hill Companies, Inc., if the Bonds are rated by such at the time, and their successors and assigns, or if either shall be dissolved or no longer assigning credit ratings to long term debt, then any other nationally recognized entity assigning credit ratings to long term debt designated by the Issuer and satisfactory to the Trustee. "Register" means the books kept and maintained by the Trustee for registration and transfer of Bonds pursuant to Section 2.08. 9 "Regular Record Date" means, while the Bonds are in the Weekly Mode, the close of business on the last Business Day preceding an Interest Payment Date and, while the Bonds are in the Term Mode, the close of business on the fifteenth day of the calendar month next preceding an Interest Payment Date. "Reimbursement Agreement" means the Reimbursement Agreement between the Borrower and the Participating Bank relating to the Participating Bank Agreement and the Bonds, as amended, supplemented or replaced from time to time. "Remarketing Agent" means, initially, CoreStates Capital Markets, a Division of CoreStates Bank, N.A. and any Person meeting the qualifications of, and designated from time to time to act as Remarketing Agent under, Section 8.14. "Principal Office" of the Remarketing Agent means the principal office of the Remarketing Agent at the address of the Remarketing Agent set forth in Section 11.03, or any other office so designated in writing by the Remarketing Agent to the Issuer, the Trustee, the Borrower, the Participating Bank and the Bank. "Remarketing Agreement" means the Remarketing Agreement between the Borrower and the Remarketing Agent relating to the Bonds, as amended, supplemented or replaced from time to time. "Remarketing Proceeds Purchase Account" means the special trust account so designated and established pursuant to Section 4.03. "Revenues" means (a) the Loan Payments, (b) all other moneys received or to be received by the Issuer or the Trustee in respect of repayment of the Loan, including without limitation, all moneys and investments in the Bond Fund, (c) any proceeds of Bonds originally deposited with the Trustee for the payment of interest accrued on the Bonds or otherwise paid to the Trustee by or on behalf of the Borrower or the Issuer for deposit in the Bond Fund or any excess moneys remaining in the Project Fund following completion of the Project, (d) investment income with respect to any moneys held by the Trustee under the Indenture, and (e) any moneys paid to the Trustee under the Letter of Credit; provided that the term "Revenues" does not include any moneys or investments in the Remarketing Proceeds Purchase Account, the Letter of Credit Purchase Account or the Borrower Purchase Account. "Semiannual Date" means each March 1 and each September 1. "Semiannual Period" means a six month period commencing on a Semiannual Date and ending on and including the day immediately preceding the next Semiannual Date. "Series Issue Date" means the date of original issuance and first authentication and delivery of the Bonds to the initial purchaser thereof against payment therefor. "Special Record Date" means, with respect to any Bond, the date established by the Trustee in connection with the payment of overdue interest on that Bond pursuant to Section 2.08. 10 "Supplemental Indenture" means any indenture supplemental to this Indenture entered into between the Issuer and the Trustee in accordance with Article IX. "Term Mode" means, with respect to the Bonds, the mode of accruing interest thereon at Term Rates based on a constant Nominal Term Rate Period. "Term Rate" means the rate of interest borne by the Bonds for a Term Rate Period determined pursuant to Section 2.04(a). "Term Rate Calculation Date" means a Business Day not more than 15 days and not less than one day prior to the first day of the corresponding Term Rate Period. "Term Rate Period" means a period of two or more consecutive Semiannual Periods equal to the applicable Nominal Term Rate Period determined pursuant to Section 2.05 commencing on the Semiannual Date immediately following the last day of the immediately preceding Term Rate Period and running through and ending on the day immediately preceding the Semiannual Date which follows such commencement date by a period equal to such Nominal Term Rate Period; except that the first Term Rate Period after conversion from a Weekly Rate to a Term Rate shall commence on the Conversion Date of such conversion and end on and include the day immediately preceding the Semiannual Date which follows the Semiannual Date occurring on or immediately preceding such Conversion Date by a period equal to such Nominal Term Rate Period. "Term Rate Period End Interest Payment Date" means the Semiannual Date immediately following the last day of a Term Rate Period. "Trustee" means Dauphin Deposit Bank and Trust Company, Harrisburg, Pennsylvania, until a successor Trustee shall have become such pursuant to the applicable provisions of this Indenture, and thereafter, "Trustee" shall mean the successor Trustee. "Principal Office" of the Trustee means the principal corporate trust office or other office of the Trustee at the address of the Trustee set forth in Section 11.03, or any other corporate trust office so designated in writing by the Trustee to the Issuer, the Remarketing Agent, the Borrower, the Participating Bank and the Bank. "Delivery Office" of the Trustee means the office, in addition to its Principal Office, at which Bondholder Tender Notices may be delivered and where Bonds surrendered for purchase may be delivered to the Trustee, which office may be the office of an agent of the Trustee for such purpose and shall be designated in Section 11.03 or in a separate writing by the Trustee to the Issuer, the Remarketing Agent, the Borrower, the Participating Bank and the Bank. "Trust Estate" shall have the meaning assigned to such term in the foregoing habendum clause of this Indenture. "Unassigned Issuer's Rights" shall have the meaning assigned to such in the Loan Agreement. "Undelivered Bonds" means any Bonds subject to purchase pursuant to Section 4.01 or 4.02 which the Holder thereof has failed to deliver as described in such Sections. 11 "Weekly Mode" means, with respect to the Bonds, the mode of bearing interest thereon at a Weekly Rate. "Weekly Rate" means a floating weekly interest rate on the Bonds established and adjusted in accordance with Section 2.03. "Weekly Rate Calculation Date" means Wednesday in each calendar week or, if any Wednesday is not a Business Day, the first Business Day preceding such Wednesday. "Weekly Rate Period" means the seven-day period commencing on the first Wednesday following the corresponding Weekly Rate Calculation Date and running through Tuesday of the following calendar week; except that (i) the first Weekly Rate Period shall commence on the Series Issue Date and end on and include the first Tuesday occurring after the Series Issue Date, (ii) the first Weekly Rate Period following a conversion from a Term Mode to the Weekly Mode shall commence on the Conversion Date for such conversion and end on and include the first Tuesday occurring after such date, and (iii) the last Weekly Rate Period prior to a conversion from the Weekly Mode to the Term Mode shall end on and include the last day immediately preceding the Conversion Date for such conversion. SECTION 1.02. Interpretation; Time of Day. Unless the context indicates otherwise, words importing the singular number include the plural number, and vice versa. The terms "hereof", "hereby", "herein", "hereto", "hereunder", "hereinafter" and similar terms refer to this Indenture; and the term "hereafter" means after, and the term "heretofore" means before, the Series Issue Date. Words of any gender include the correlative words of the other genders, unless the context indicates otherwise. In this Indenture, unless otherwise indicated, all references to particular Articles, Sections or Subsections are references to the Articles, Sections or Subsections of this Indenture. In this Indenture, all references to any time of the day shall refer to Eastern standard time or Eastern daylight saving time, as in effect in the City of Philadelphia, Pennsylvania on such day. SECTION 1.03. Captions, Headings and Table of Contents. The captions, headings and table of contents in this Indenture are solely for convenience of reference and in no way define, limit or describe the scope of any Articles, Sections, Subsections, paragraphs, subparagraphs or clauses hereof. (End of Article I) 12 ARTICLE II AUTHORIZATION AND TERMS OF BONDS SECTION 2.01. Amount, Form and Issuance of Bonds. The Bonds shall, except as provided in Section 2.10, be limited to $8,400,000 in aggregate principal amount and shall contain substantially the terms recited in the form of Bonds set forth in Exhibit A to this Indenture. No additional series of Bonds may be issued under this Indenture. All Bonds shall provide that Bond Service in respect thereof shall be payable only out of the Revenues. The Issuer may cause a copy of the text of the opinion of Bond Counsel delivered in connection with the issuance of the Bonds to be printed on, or attached to, the Bonds, and, upon request of the Issuer and deposit with the Trustee of an executed counterpart of such opinion, the Trustee shall certify by manual or facsimile signature that printed on, or attached to, the Bonds is the complete text of such opinion. Pursuant to recommendations promulgated by the Committee on Uniform Security Identification Procedures, "CUSIP" numbers may be printed on the Bonds. The Bonds may bear such endorsement or legend satisfactory to the Trustee as may be required to conform to usage or law with respect thereto. Upon the execution and delivery hereof, the Issuer shall execute the Bonds in the principal amount of $8,400,000 and deliver them to the Trustee for authentication. The Trustee shall authenticate the Bonds and deliver them to, or on the order, of the initial purchaser thereof upon receipt of a written request and authorization to the Trustee on behalf of the Issuer, signed by an Authorized Representative of the Issuer, and upon payment to the Trustee of the amount specified therein, which amount shall be deposited as provided in Section 5.01. SECTION 2.02. Designation, Denominations, Maturity, Dated Dates, Interest Accrual and Tender. (a) The Bonds shall be designated "Montgomery County Industrial Development Authority Federally Taxable Variable Rate Demand Revenue Bonds (Neose Technologies, Inc. Project) Series B of 1997" and shall be substantially in the form attached hereto as Exhibit A. (b) The Bonds shall be issuable in denominations of $100,000 or any whole multiple thereof. (c) The Bonds shall mature, subject to prior redemption as provided in the form thereof recited in this Indenture, on March 1, 2017. (d) The Series Issue Date shall be set forth on the face side of all Bonds authenticated by the Trustee. Each Bond shall bear the date of its authentication. (e) The Bonds shall bear interest from the Interest Payment Date to which interest has been paid next preceding the date of authentication, unless the date of authentication (i) is an Interest Payment Date to which interest has been paid, in which event the Bonds shall bear interest from the date of authentication, or (ii) is prior to the first Interest Payment Date for the Bonds, in which event such Bonds shall bear interest from the Series Issue Date. Interest on the Bonds shall be 13 paid on each Interest Payment Date. Each Bond shall bear interest on overdue principal at the rates borne by the Bonds during the period such principal is overdue. So long as the Bonds bear interest at a Weekly Rate, interest on the Bonds shall be computed on the basis of a year of 365 or 366 days, as applicable, for the number of days actually elapsed. Interest accruing on the Bonds at a Term Rate shall be computed on the basis of a 360-day year of twelve 30-day months. (f) Bonds authenticated and delivered while bearing interest in the Weekly Mode shall set forth on the face side thereof, in the place provided for designating the interest rate, the words "Weekly Rate". (g) Bonds authenticated and delivered while bearing interest in a Term Mode shall set forth on the face side thereof, in the place provided for designating the interest rate, the words "__% Term Rate for Term Rate Period ending __________". (h) All Bonds shall initially bear interest at a Weekly Rate from the Series Issue Date determined in accordance with Section 2.03. The Bonds may be converted from one Rate Mode to another Rate Mode as provided in Section 2.05. (i) The Bonds shall be subject to optional and mandatory tender for purchase as provided in Article IV. SECTION 2.03. Weekly Rate. A Weekly Rate shall be determined for each Weekly Rate Period as described below. For each Weekly Rate Period and so long as the Bonds are in the Weekly Mode, the interest rate on the Bonds shall be the current market rate determined by the Remarketing Agent on the applicable Weekly Rate Calculation Date, in accordance with this Section. On each Weekly Rate Calculation Date, the Remarketing Agent shall determine the Weekly Rate as the rate which if borne by the Bonds would, in the judgment of the Remarketing Agent, taking into account prevailing financial market conditions, be the lowest interest rate necessary to enable the Remarketing Agent to arrange for the sale of all of the outstanding Bonds at a price equal to the principal amount thereof plus accrued interest thereon. Notice of such Weekly Rate shall be given by the Remarketing Agent to the Trustee in writing by the close of business on the Weekly Rate Calculation Date. No notice of Weekly Rates will be given to the Issuer, the Borrower, the Bank, the Participating Bank or the Holders; however, the Issuer, the Borrower, the Bank, the Participating Bank and the Holders may obtain Weekly Rates from the Trustee or the Remarketing Agent upon request therefor. Anything herein to the contrary notwithstanding, in no event shall the Weekly Rate borne by the Bonds exceed the Maximum Rate. In determining each Weekly Rate to be effective pursuant to this Section, prevailing financial market conditions which the Remarketing Agent shall take into account shall include (i) existing short-term taxable market rates and indexes of such short-term rates, (ii) the existing market supply and demand for short-term taxable securities, (iii) existing yield curves for short-term taxable securities for obligations of credit quality comparable to the Bonds, (iv) general economic conditions, (v) industry, economic and financial conditions that may affect or be relevant to the Bonds, and (vi) such other facts, circumstances and conditions as the Remarketing Agent, in its sole discretion, shall determine to be relevant. 14 If for any reason the Remarketing Agent does not determine a Weekly Rate for any Weekly Rate Period as aforesaid, or if a court holds a rate for any Weekly Rate Period to be invalid or unenforceable, the Weekly Rate for that Weekly Rate Period shall be equal to the Weekly Rate in effect for the immediately preceding Weekly Rate Period. The Weekly Rate for any consecutive succeeding Weekly Rate Period for which the Remarketing Agent does not determine a Weekly Rate, or a court holds a rate to be invalid or unenforceable, shall be the rate per annum equal to 115% of the interest rate per annum for 30-day commercial paper having a rate of A-2/P-2 as reported in the Wall Street Journal on such Weekly Rate Calculation Date. The determination of the Weekly Rate by the Remarketing Agent pursuant to this Indenture shall be conclusive and binding upon the Issuer, the Trustee, the Borrower, the Remarketing Agent, the Bank, the Participating Bank and the Holders of the Bonds. SECTION 2.04. Term Rate. A Term Rate shall be determined for each Term Rate Period as described below. Upon conversion to a Term Mode, a Nominal Term Rate Period shall be fixed by the Borrower pursuant to Section 2.05 as a term of two or more consecutive Semiannual Periods constituting the nominal length of each Term Rate Period thereafter until the date of a conversion to another Rate Mode. A Term Mode based on one Nominal Term Rate Period and a Term Mode based on another Nominal Term Rate Period are different Rate Modes. Each Term Rate shall be determined by the Remarketing Agent, on the Term Rate Calculation Date, as the lowest rate of interest that, in the judgment of the Remarketing Agent, taking into account prevailing financial market conditions, would be necessary to enable the Remarketing Agent to arrange for the sale of the Bonds in the respective Term Mode in a secondary market sale at a price equal to the principal amount thereof, plus accrued interest, on the first Business Day of the respective Term Rate Period; provided that (1) if the Remarketing Agent fails for any reason to determine the Term Rate for any Term Rate Period, such Term Rate shall be equal to 120% of the average of the annual bond equivalent yield evaluations at par as of the first day of the corresponding Term Rate Period or, if such day is not a Business Day, the next preceding Business Day of United States Treasury obligations having a term to maturity similar to such Term Rate Period, and (2) no Term Rate shall exceed the lesser of (i) the maximum interest rate at which the Letter of Credit, if any, then in effect provides coverage for at least 195 days interest and (ii) 25% per annum. In determining a Term Rate pursuant to this Section, prevailing financial market conditions which the Remarketing Agent shall take into account shall include (i) existing long-term taxable market rates and indexes of such long-term rates, (ii) the existing market supply and demand for long-term taxable securities, (iii) existing yield curves for long-term taxable securities for obligations of credit quality comparable to the Bonds, (iv) general economic conditions, (v) industry, economic and financial conditions that may affect or be relevant to the Bonds, and (vi) such other facts, circumstances and conditions as the Remarketing Agent, in its sole discretion, shall determine to be relevant. Notice of each Term Rate shall promptly be given by telephone (promptly confirmed in writing) by the Remarketing Agent to the Trustee, the Issuer, the Borrower, the Bank and the Participating Bank. Determinations of Term Rates pursuant to this Section shall be conclusive and binding upon the Issuer, the Borrower, the Trustee, the Bank, the Participating Bank and the Holders. SECTION 2.05. Conversion at Option of Borrower. The Borrower shall have the option to convert the Bonds from one Rate Mode to another Rate Mode as herein provided on any 15 Conversion Date the Borrower shall select; provided that (i) each Conversion Date shall be an Interest Payment Date and (ii) Bonds in a Term Mode cannot be converted to another Rate Mode prior to the date on or after which the Bonds may first be redeemed at a redemption price of par, plus accrued interest, pursuant to their terms. The Borrower may exercise its option to convert the Bonds regardless of the number of times the Bonds have previously been converted pursuant to the exercise of its option to convert. The Borrower shall exercise such option by giving written notice from an Authorized Representative of the Borrower to the Issuer, the Trustee, the Remarketing Agent, the Bank and the Participating Bank, stating its election to convert the Rate Mode of the Bonds to another Rate Mode specified in such notice and stating the Conversion Date therefor, not less than 45 days (or such shorter period as shall be acceptable to the Trustee) prior to such Conversion Date. Upon receipt of such notice by the Trustee, the Trustee may conclusively assume that the Issuer, the Remarketing Agent, the Bank and the Participating Bank also received a copy of such notice and that such condition has been complied with. In connection with each conversion to a Term Mode, the Nominal Term Rate Period shall be selected by the Borrower and designated in such notice. Notice of the exercise of an option to convert shall not be effective unless, within 10 days (or such greater period as shall be acceptable to the Trustee) of the delivery of such notice, there shall have been delivered to the Trustee (1) an opinion of Bond Counsel addressed to the Trustee, the Issuer, the Borrower, the Bank, the Participating Bank and the Remarketing Agent to the effect that such conversion is authorized or permitted by this Indenture and the Act, which opinion shall be confirmed by such Bond Counsel on the Conversion Date, (2) written consent of the Bank and the Participating Bank to such conversion, (3) in the case of a conversion to a Term Mode after which a Letter of Credit will be in effect, an amendment to the Letter of Credit or an Alternate Letter of Credit which provides for (i) an Expiration Date not earlier than one year after the Conversion Date, (ii) on and after such Conversion Date, coverage of 195 days accrued interest on the Bonds at a rate not less than the interest rate at which the then current letter of credit provides coverage, subject to adjustment on the Conversion Date to the actual Term Rate as the same shall be fixed on the Conversion Date, and (iii) on and after such Conversion Date, coverage of premium (if any) on the Bonds in an amount equal to the optional redemption premium which would become payable on the Bonds upon mandatory purchase if the Letter of Credit (as amended by such amendment) or such Alternate Letter of Credit were not extended beyond the Expiration Date set forth therein, (4) in the case of a conversion from a Term Mode to the Weekly Mode an amendment to the Letter of Credit or an Alternate Letter of Credit which provides for (i) an Expiration Date not earlier than one year after the Conversion Date and (ii) on and after such Conversion Date, coverage for 46 days accrued interest on the Bonds at a maximum rate of 17% per annum, and (5) written notice from the Rating Service that such conversion and, if applicable, the related amendment to the Letter of Credit or delivery of an Alternate Letter of Credit will not result in a withdrawal or reduction of the then current rating or ratings on the Bonds or setting forth a new rating or ratings on the Bonds effective upon such conversion. In the case of a conversion from one Rate Mode to another Rate Mode, the Trustee shall give notice by first class mail (postage prepaid) to the Holders not less than 30 days prior to the proposed Conversion Date stating (i) that, in the case of a conversion to a Term Mode, the interest rate on the Bonds is scheduled to be converted to a Term Rate and stating the Nominal Term Rate Period on which such Term Rate will be based, or in the case of a conversion to the Weekly Mode, the interest rate on the Bonds is scheduled to be converted to a Weekly Rate, (ii) the proposed Conversion Date, (iii) that the Borrower, on or before the tenth day prior to the proposed Conversion Date, may determine not to convert the Bonds in which case the Trustee shall notify the Holders in writing to such effect, and (iv) that all outstanding Bonds will be subject to a mandatory purchase on the Conversion Date, or if such Conversion Date is not a Business Day, the first Business 16 Day following such Conversion Date at a price of par plus accrued interest, if any. The Issuer, the Borrower, the Trustee, the Bank, the Participating Bank and the Remarketing Agent shall not be liable to any Holders for failure to give any notice required above or for failure of any Holders to receive any such notice. Upon each conversion under this Section, the Bonds shall be subject to mandatory purchase pursuant to Section 4.02 on the Conversion Date or if such Conversion Date is not a Business Day, the first Business Day following such Conversion Date. SECTION 2.06. Execution and Authentication of Bonds. The Bonds shall be executed by the manual or facsimile signature of the Chairperson or Vice Chairperson of the Issuer, and the corporate seal of the Issuer or a facsimile thereof shall be affixed, imprinted, lithographed or reproduced thereon and attested by the manual or facsimile signature of the Secretary or Assistant Secretary of the Issuer. In case any officer whose signature or a facsimile of whose signature shall appear on any Bond shall cease to be that officer before the authentication of the Bond, the signature of such officer or the facsimile thereof nevertheless shall be valid and sufficient for all purposes, the same as if he had remained in office until that time. Any Bond may be executed on behalf of the Issuer by an officer who, on the date of execution is the proper officer, although on the date of authentication of the Bond that person was not the proper officer. No Bond shall be valid or become obligatory for any purpose or shall be entitled to any security or benefit under this Indenture unless and until a certificate of authentication, substantially in the form set forth in Exhibit A to this Indenture, has been signed by the Trustee. The authentication by the Trustee upon any Bond shall be conclusive evidence that the Bond so authenticated has been duly authenticated and delivered hereunder and is entitled to the security and benefit of this Indenture. The certificate of the Trustee may be executed by any person authorized by the Trustee, and it shall not be necessary that the same authorized person sign the certificates of authentication on all of the Bonds. SECTION 2.07. Source of Payment of Bonds. To the extent provided in and except as otherwise permitted by this Indenture, (i) the Bonds shall be limited obligations of the Issuer and the Bond Service thereon shall be payable equally and ratably solely from the Revenues and (ii) the payment of Bond Service on the Bonds shall be secured by the Trust Estate pursuant to the granting clauses of this Indenture. Neither the general credit nor the taxing power of the County of Montgomery, the Commonwealth of Pennsylvania or any political subdivision thereof is pledged to the payment of the Bonds, and the Bonds shall not be or be deemed obligations of the County of Montgomery, the Commonwealth of Pennsylvania or any political subdivision thereof. The Issuer has no taxing power. SECTION 2.08. Payment and Ownership of Bonds. Bond Service shall be payable in lawful money of the United States of America without deduction for the services of the Trustee. Subject to the provisions of the second paragraph of this Section and Sections 2.12 and 2.13, (i) the principal of and any premium on any Bond shall be payable when due to a Holder upon presentation and surrender of such Bond at the Principal Office of the Trustee, and (ii) interest on any Bond shall be paid on each Interest Payment Date by check which the Trustee shall cause to be mailed on that date to the Person in whose name the Bond (or one or more Predecessor Bonds) is registered at the close of business on the Regular Record Date applicable to that Interest Payment Date on the Register at the address appearing therein. If and to the extent, however, that the Issuer shall fail to make payment or provision for payment of interest on any Bond on any Interest Payment Date, that 17 interest shall cease to be payable to the Person who was the Holder of that Bond (or of one or more Predecessor Bonds) as of the applicable Regular Record Date. When moneys become available for payment of that interest, (x) the Trustee shall, pursuant to Subsection 7.06(d), establish a Special Record Date for the payment of that interest which shall be not more than 15 nor fewer than 10 days prior to the date of the proposed payment, and (y) the Trustee shall cause notice of the proposed payment and of the Special Record Date to be mailed by first class mail, postage prepaid, to each Holder at its address as it appears on the Register not fewer than 10 days prior to the Special Record Date and, thereafter, that interest shall be payable to the Persons who are the Holders of the Bonds (or their respective Predecessor Bonds) at the close of business on the Special Record Date. The interest and the principal or redemption price and purchase price becoming due with respect to the Bonds shall, at the written request of the Holder of at least $1,000,000 aggregate principal amount of such Bonds received by the Trustee at least two Business Days before the corresponding Regular Record Date or maturity, redemption or purchase date, be paid by wire transfer within the continental United States in immediately available funds to the bank account number of such Holder specified in such request and entered by the Trustee on the Register, but, in the case of principal or redemption price and purchase price, only upon presentation and surrender of such Bonds at the Principal Office of the Trustee. Subject to the foregoing, each Bond delivered under this Indenture upon transfer thereof, or in exchange for or in replacement of any other Bond, shall carry the rights to interest accrued and unpaid, and to accrue on that Bond, or which were carried by that Bond. Except as provided in this Section and in the first paragraph of Section 2.10, (i) the Holder of any Bond shall be deemed and regarded as the absolute owner thereof for all purposes of this Indenture, (ii) payment of or on account of the Bond Service on any Bond shall be made only to or upon the order of that Holder or its duly authorized attorney in the manner permitted by this Indenture, and (iii) neither the Issuer nor the Trustee shall, to the extent permitted by law, be affected by notice to the contrary. All of those payments shall be valid and effective to satisfy and discharge the liability upon that Bond, including without limitation the interest thereon to the extent of the amount or amounts so paid. SECTION 2.09. Registration, Transfer and Exchange of Bonds. All Bonds shall be issued in fully registered form. The Bonds shall be registered upon original issuance and upon subsequent transfer or exchange as provided in this Indenture. The Trustee shall act as registrar and transfer agent for the Bonds. So long as any of the Bonds remain outstanding, the Issuer will cause books for the registration and transfer of Bonds, as provided in this Indenture, to be maintained and kept at the Principal Office of the Trustee. Bonds may be exchanged, at the option of their Holder, for Bonds of any authorized denomination or denominations in an aggregate principal amount equal to the unmatured and unredeemed principal amount of, and bearing interest at the same rate and maturing on the same date or dates as, the Bonds being exchanged. The exchange shall be made upon presentation and surrender of the Bonds being exchanged at the Principal Office of the Trustee, together with an assignment duly executed by the Holder or its duly authorized attorney in form and with guarantee of signature satisfactory to the Trustee. 18 Any Bond may be transferred upon the Register, upon presentation and surrender thereof at the Principal Office of the Trustee, together with an assignment duly executed by the Holder or its duly authorized attorney in form and with guarantee of signature satisfactory to the Trustee. Upon transfer of any Bond, the Issuer shall execute in the name of the transferee, and the Trustee shall authenticate and deliver, a new Bond or Bonds of any authorized denomination or denominations in an aggregate principal amount equal to the unmatured and unredeemed principal amount of, and bearing interest at the same rate and maturing on the same date or dates as, the Bonds presented and surrendered for transfer. In all cases in which Bonds shall be exchanged or transferred hereunder, the Issuer shall execute, and the Trustee shall authenticate and deliver, Bonds in accordance with the provisions of this Indenture. The exchange or transfer shall be made without charge; provided that the Issuer or the Trustee may make a charge for every exchange or transfer of Bonds sufficient to reimburse them for any tax or excise required to be paid with respect to the exchange or transfer. The charge shall be paid before a new Bond is delivered. All Bonds issued upon any transfer or exchange of Bonds shall be the valid obligations of the Issuer, evidencing the same debt, and entitled to the same benefits under this Indenture, as the Bonds surrendered upon transfer or exchange. While the Bonds are in a Term Mode, the Trustee shall not be required to exchange or transfer (i) any Bond during a period beginning at the opening of business 15 days before the date of the mailing of a notice of redemption of Bonds and ending at the close of business on the day of such mailing, (ii) any Bond selected for redemption in whole or in part, or (iii) any Bond during the period of 15 days preceding any Interest Payment Date. In case any Bond is redeemed in part only, on or after the redemption date and upon presentation and surrender of the Bond, the Issuer, subject to the provisions of Sections 2.12 and 2.13, shall cause execution of, and the Trustee shall authenticate and deliver, a new Bond or Bonds in authorized denominations in an aggregate principal amount equal to the unmatured and unredeemed portion of, and bearing interest at the same rate and maturing on the same date or dates as, the Bond redeemed in part. SECTION 2.10. Mutilated, Lost, Wrongfully Taken or Destroyed Bonds. If any Bond is mutilated, lost, wrongfully taken or destroyed, in the absence of written notice to the Issuer or the Trustee that a lost, wrongfully taken or destroyed Bond has been acquired by a bona fide purchaser, the Issuer shall execute, and the Trustee shall authenticate and deliver, a new Bond of like date, maturity and denomination and of the same series as the Bond mutilated, lost, wrongfully taken or destroyed; provided that (i) in the case of any mutilated Bond, the mutilated Bond first shall be surrendered to the Trustee, and (ii) in the case of any lost, wrongfully taken or destroyed Bond, there first shall be furnished to the Issuer, the Borrower and the Trustee evidence of the loss, wrongful taking or destruction satisfactory to the Trustee, together with indemnity satisfactory to it and to the Authorized Representative of the Issuer. The Issuer and the Trustee may charge the Holder of a mutilated, lost, wrongfully taken or destroyed Bond their reasonable fees and expenses in connection with their actions pursuant to this Section. Notwithstanding the foregoing, the Trustee shall not be required to authenticate and deliver any substitute Bond for a Bond which has been called for redemption or which has matured or 19 is about to mature and, in any such case, the principal or redemption price and interest then due or becoming due shall be paid by the Trustee in accordance with the terms of the mutilated, lost, wrongfully taken or destroyed Bond without substitution therefor. Every substituted Bond issued pursuant to this Section shall constitute an additional contractual obligation of the Issuer and shall be entitled to all the benefits of this Indenture equally and proportionately with any and all other Bonds duly issued hereunder unless the Bond alleged to have been lost, wrongfully taken or destroyed shall be at any time enforceable by a bona fide purchaser for value without notice. In the event the Bond alleged to have been lost, wrongfully taken or destroyed shall be enforceable by anyone, the Issuer may recover the substitute Bond from the Bondholder to whom it was issued or from anyone taking under the Bondholder except a bona fide purchaser for value without notice. All Bonds shall be held and owned on the express condition that the foregoing provisions of this Section are exclusive with respect to the replacement or payment of mutilated, lost, wrongfully taken or destroyed Bonds and, to the extent permitted by law, shall preclude any and all other rights and remedies with respect to the replacement or payment of negotiable instruments or other investment securities without their surrender, notwithstanding any law or statute to the contrary now existing or hereafter enacted. SECTION 2.11. Cancellation of Bonds. Any Bond surrendered pursuant to this Article for the purpose of payment, redemption, retirement, exchange, replacement or transfer shall be cancelled upon presentation and surrender thereof to the Trustee. Bonds purchased pursuant to Section 4.01 or 4.02 shall not be surrendered Bonds and shall be outstanding Bonds, unless otherwise specifically provided in this Indenture. The Borrower may deliver at any time to the Trustee for cancellation any Bonds previously authenticated and delivered hereunder, which the Borrower may have purchased pursuant to the provisions of this Indenture. All Bonds so delivered shall be cancelled promptly by the Trustee. Certification of the surrender and cancellation of any Bond shall be made to the Issuer by the Trustee. Cancelled Bonds shall be destroyed by the Trustee by shredding or incineration immediately after their cancellation. The Trustee shall provide certificates describing the destruction of cancelled Bonds to the Issuer. SECTION 2.12. Special Agreement with Holders. Notwithstanding any provision of this Indenture or of any Bond to the contrary, the Trustee may enter into an agreement with any Holder providing for making all payments to that Holder of principal of and interest and any premium on that Bond or any part thereof at a place and by a method (including wire transfer of federal funds) other than as provided in this Indenture and in the Bond, without presentation or surrender of the Bond, upon any conditions which shall be satisfactory to the Trustee; provided that (i) except as otherwise provided in Section 2.13, payment of principal shall be made only upon presentation and surrender of the Bond and (ii) payment in any event shall be made to the Person in whose name a Bond shall be registered on the Register, with respect to payment of principal and premium, on the date such principal and premium is due, and, with respect to the payment of interest, as of the applicable Regular Record Date, Special Record Date or other date agreed upon, as the case may be. The Trustee will furnish a copy of each such agreement upon request, to the Issuer, the Bank, the Participating Bank and 20 the Borrower. Any payment of principal, premium or interest pursuant to such an agreement shall constitute payment thereof pursuant to, and for all purposes of, this Indenture. SECTION 2.13. Book Entry System for the Bonds. (a) Notwithstanding the foregoing provisions of this Article II, the Bonds shall initially be issued in the form of one fully-registered bond for the aggregate principal amount of the Bonds of each maturity, which Bonds shall be registered in the name of Cede & Co., as nominee of DTC. Except as provided in paragraph (g) below, all of the Bonds shall be registered in the Register in the name of Cede & Co., as nominee of DTC; provided that if DTC shall request that the Bonds be registered in the name of a different nominee, the Trustee shall exchange all or any portion of the Bonds for an equal aggregate principal amount of Bonds registered in the name of such nominee or nominees of DTC. No person other than DTC or its nominee shall be entitled to receive from the Issuer or the Trustee either a Bond or any other evidence of ownership of the Bonds, or any right to receive any payment in respect thereof unless DTC or its nominee shall transfer record ownership of all or any portion of the Bonds on the Register in connection with discontinuing the book entry system as provided in paragraph (g) below or otherwise. (b) So long as any Bonds are registered in the name of DTC or any nominee thereof, all payments of the principal or redemption price of or interest on such Bonds shall be made to DTC or its nominee in accordance with DTC's Operational Arrangements on the dates provided for such payments under this Indenture. Each such payment to DTC or its nominee shall be valid and effective to fully discharge all liability of the Issuer or the Trustee with respect to the principal or redemption price of or interest on the Bonds to the extent of the sum or sums so paid. In the event of the redemption of less than all of the Bonds outstanding of any maturity, the Trustee shall not require surrender by DTC or its nominee of the Bonds so redeemed, but DTC (or its nominee) may retain such Bonds and make an appropriate notation on the Bond certificate as to the amount of such partial redemption; provided that DTC shall deliver to the Trustee, upon request, a written confirmation of such partial redemption and thereafter the records maintained by the Trustee shall be conclusive as to the amount of the Bonds of such maturity which have been redeemed. (c) The Issuer and the Trustee may treat DTC (or its nominee) as the sole and exclusive owner of the Bonds registered in its name for the purposes of payment of the principal or redemption price of or interest on the Bonds, selecting the Bonds or portions thereof to be redeemed, giving any notice permitted or required to be given to Holders under this Indenture, registering the transfer of Bonds, obtaining any consent or other action to be taken by Holders and for all other purposes whatsoever; and neither the Issuer nor the Trustee shall be affected by any notice to the contrary. Neither the Issuer nor the Trustee shall have any responsibility or obligation to any participant in DTC, any person claiming a beneficial ownership interest in the Bonds under or through DTC or any such participant, or any other person which is not shown on the Register as being a Holder, with respect to (1) the Bonds, (2) the accuracy of any records maintained by DTC or any such participant, (3) the payment by DTC or any such participant of any amount in respect of the principal or redemption price of or interest on the Bonds, (4) any notice which is permitted or required to be given to Holders under this Indenture, (5) the selection by DTC or any such participant of any person to receive payment in the event of a partial redemption of the Bonds, and (6) any consent given or other action taken by DTC as Holder. 21 (d) So long as any Bonds are registered in the name of DTC or any nominee thereof, all notices required or permitted to be given to the Holders of such Bonds under this Indenture shall be given to DTC as provided in DTC's Operational Arrangements. (e) In connection with any notice or other communication to be provided to Holders pursuant to this Indenture by the Issuer or the Trustee with respect to any consent or other action to be taken by Holders, DTC shall consider the date of receipt of notice requesting such consent or other action as the record date for such consent or other action, provided that the Issuer or the Trustee may establish a special record date for such consent or other action. The Issuer or the Trustee shall give DTC notice of such special record date not less than 15 calendar days in advance of such special record date to the extent possible. (f) The Issuer has executed and delivered to DTC a Blanket Issuer Letter of Representations pursuant to which the Issuer has agreed to comply with the requirements stated in DTC's Operational Arrangements. The Trustee has also agreed to comply with the requirements stated in DTC's Operational Arrangements and any successor Trustee shall, prior to accepting duties under this Indenture, agree to comply with the requirements stated in DTC's Operational Arrangements. (g) The book-entry system for registration of the ownership of the Bonds may be discontinued at any time if either (1) after notice to the Issuer and the Trustee, DTC determines to resign as securities depository for the Bonds, or (2) after notice to DTC and the Trustee, the Issuer determines that continuation of the system of book-entry transfers through DTC (or through a successor securities depository) is not in the best interests of the Issuer. In either of such events (unless in the case described in clause (2) above, the Issuer appoints a successor securities depository), the Bonds shall be delivered in registered certificate form to such persons, and in such maturities and principal amounts, as may be designated by DTC, but without any liability on the part of the Issuer or the Trustee for the accuracy of such designation. Whenever DTC requests the Issuer and the Trustee to do so, the Issuer and the Trustee shall cooperate with DTC in taking appropriate action after reasonable notice to arrange for another securities depository to maintain custody of certificates evidencing the Bonds. (h) Anything herein to the contrary notwithstanding, so long as any Bonds are registered in the name of DTC or any nominee thereof, in connection with any optional tender of such Bonds bearing interest at a Weekly Rate, the beneficial owners of such Bonds are responsible for submitting the Bondholder Tender Notice to the Remarketing Agent only. (i) Upon remarketing of Bonds in accordance with Section 4.03 herein, payment of the purchase price thereof shall be made to DTC and no surrender of certificates is expected to be required. Such sales shall be made through DTC participants (which may include the Remarketing Agent) and the new beneficial owners of such Bonds shall not receive delivery of Bond certificates. DTC shall transmit payment to DTC participants, and DTC participants shall transmit payment to beneficial owners whose Bonds were purchased pursuant to a remarketing. Neither the Issuer, the Trustee nor the Remarketing Agent is responsible for transfers of payment to DTC participants or beneficial owners. 22 (j) The provisions of this Section 2.13 are subject to the provisions of Article IV relating to Pledged Bonds. (End of Article II) 23 ARTICLE III REDEMPTION OF BONDS SECTION 3.01. Terms of Redemption. The Bonds are subject to redemption prior to stated maturity as follows: (a) Extraordinary Optional Redemption. The Bonds are also subject to redemption prior to maturity by the Issuer in the event of the exercise by the Borrower of its option to direct that redemption upon occurrence of any of the events described in Section 6.2 of the Loan Agreement, at any time in whole or on any Interest Payment Date in part, in the event of damage, destruction or condemnation of part of the Project, in each case, at a redemption price of 100% of the principal amount redeemed plus accrued interest to the redemption date. (b) Optional Redemption During Weekly Mode. While the Bonds are in the Weekly Mode, the Bonds may be redeemed by the Issuer, at the direction of the Borrower, in whole at any time or in part on any Interest Payment Date, prior to maturity at a redemption price equal to 100% of the principal amount thereof plus accrued interest to the redemption date. (c) Optional Redemption During Term Mode. While the Bonds are in a Term Mode, the Bonds shall be subject to optional redemption prior to maturity by the Issuer, at the direction of the Borrower, on the dates and at the redemption prices as shall be set forth in a Supplemental Indenture delivered in connection with the conversion to a Term Mode. The Issuer may only call Bonds for optional redemption pursuant to this Subsection which would require a payment of a premium if (i) the Trustee can draw under the Letter of Credit moneys sufficient to pay such premium with respect to all Bonds other than any Pledged Bonds or Borrower Bonds and (ii) the Participating Bank has consented to such optional redemption. The Trustee shall only call Bonds for optional redemption if (i) it holds moneys in the Bond Fund available for payment of the Bonds to be redeemed pursuant to Section 5.04(c) or (ii) the Participating Bank has consented to such optional redemption. (d) Use of Certain Funds to Redeem Bonds. The Trustee shall draw on the Letter of Credit in the manner provided by Section 5.04 to pay the principal of and premium (if any) and interest on any Bonds called for redemption pursuant to this Section. Except as otherwise provided in this Section, the Trustee shall pay the redemption price on all Bonds redeemed under this Section in the manner and from the sources set forth in Section 5.04 with respect to the payment of Bond Service. SECTION 3.02. Partial Redemption. If fewer than all of the Bonds are to be redeemed, the selection of Bonds to be redeemed, or portions thereof in amounts of $100,000 or any whole multiple thereof, shall be made by lot or by such other method as the Trustee deems fair and appropriate; provided that any Pledged Bonds shall be redeemed first and any Borrower Bonds shall be redeemed second. In the case of a partial redemption of Bonds when Bonds of denominations greater than $100,000 are then outstanding, each $100,000 unit of face value of principal thereof shall be 24 treated as though it were a separate Bond of the denomination of $100,000. If it is determined that one or more, but not all, of the $100,000 units of face value represented by a Bond are to be called for redemption, then upon notice of redemption of a $100,000 unit or units, the Holder of that Bond shall, subject to Section 2.12, surrender the Bond to the Trustee (a) for payment of the redemption price of the $100,000 unit or units of face value called for redemption (including without limitation the interest accrued to the date fixed for redemption and any premium) and (b) for issuance, without charge to the Holder thereof, of a new Bond or Bonds of any authorized denomination or denominations in an aggregate principal amount equal to the unmatured and unredeemed portion of, and bearing interest at the same rate and maturing on the same date as, the Bond surrendered. SECTION 3.03. Issuer's Election to Redeem. Except in the case of redemption pursuant to any mandatory redemption provisions of this Indenture, Bonds shall be redeemed only by written notice from the Borrower on behalf of the Issuer to the Trustee, the Bank and the Participating Bank. Such notice shall specify the redemption date and the principal amount of Bonds to be redeemed, and shall be given at least 45 days prior to the redemption date or such shorter period as shall be acceptable to the Trustee. SECTION 3.04. Notice of Redemption. (a) When required to redeem Bonds under any provision of this Indenture, or when directed to do so by the Issuer or the Borrower pursuant to the provisions of this Indenture, the Trustee shall cause notice of the redemption to be given not more than 60 days and not less than 15 days (30 days if the Bonds are in a Term Mode) prior to the redemption date, by mailing copies of such notice of redemption by first class mail, postage prepaid, to all Holders of Bonds to be redeemed at their registered addresses, but failure to mail any such notice or defect in the mailing thereof in respect of any Bond shall not affect the validity of the redemption of any other Bond with respect to which notice was properly given. Each such notice shall be dated and shall be given in the name of the Issuer and shall state the following information: (i) the identification numbers, as established under this Indenture, and the CUSIP numbers, if any, of the Bonds being redeemed, provided that any such notice shall state that no representation is made as to the correctness of CUSIP numbers either as printed on such Bonds or as contained in the notice of redemption and that reliance may be placed only on the identification numbers contained in the notice or printed on such Bonds; (ii) any other descriptive information needed to identify accurately the Bonds being redeemed; (iii) in the case of partial redemption of any Bonds, the respective principal amounts thereof to be redeemed; (iv) the redemption date; (v) the redemption price; 25 (vi) that on the redemption date the redemption price will become due and payable upon each such Bond or portion thereof called for redemption, and that interest thereon shall cease to accrue from and after said date; and (vii) the place where such Bonds are to be surrendered for payment of the redemption price, which place of payment shall be the Principal Office of the Trustee. In addition, the Trustee shall at all reasonable times make available to any interested party complete information as to Bonds which have been redeemed or called for redemption. (b) In addition to the foregoing notice, further notice of any redemption of Bonds hereunder shall be given by the Trustee, at least two Business Days in advance of the mailed notice to Holders, by registered or certified mail or overnight delivery service to (i) the Rating Service and to The Bond Buyer, or their respective successors, if any, and to (ii) Financial Information, Inc.'s "Daily Called Bond Service", 30 Montgomery Street, 10th Floor, Jersey City, New Jersey 07302, Attention: Editor; Kenny Information Services' "Called Bond Service", 55 Bond Street, 28th Floor, New York, New York 10004; Moody's "Municipal and Government", 99 Church Street, 8th Floor, New York, New York 10007, Attention: Municipal News Report; and Standard and Poor's "Called Bond Record", 26 Broadway, 3rd Floor, New York, New York 10004; or, in accordance with then-current guidelines of the Securities and Exchange Commission, to such other addresses and/or such other services, as the Issuer may designate with respect to the Bonds, or no such services, as the Issuer may designate in a certificate of the Issuer delivered to the Trustee. So long as the Bonds or any portion thereof are held by DTC, the Trustee shall send each notice of redemption of the Bonds to DTC at 711 Stewart Avenue, Garden City, New York, 11530, Attention: Call Notification Department (FAX - (516) 227-4039)) or at such other address as may be provided in writing to the Trustee from time to time. The foregoing notice of redemption shall be sent to DTC at least 30 days prior to the redemption date by legible facsimile transmission, certified or registered mail, overnight delivery service or another secure method which enables the Trustee subsequently to verify the transmission of such notice. Such further notice shall contain the information required in Subsection 3.04(a). Failure to give all or any portion of such further notice shall not in any manner defeat the effectiveness of a call for redemption if notice thereof is given to the Holders as prescribed in Subsection 3.04(a). (c) If at the time of mailing of notice of any optional redemption there shall not have been deposited moneys in the Bond Fund available for payment pursuant to Subsection 5.04(c) sufficient to redeem all the Bonds called for redemption, such notice may state that it is conditional in that it is subject to the deposit of the redemption moneys in the Bond Fund available for payment pursuant to Section 5.04 not later than 12:00 noon on the redemption date, in which case such notice shall be of no effect unless moneys are so deposited. SECTION 3.05. Payment of Redeemed Bonds. If (a) unconditional notice of the redemption has been duly given or duly waived by the Holders of all Bonds called for redemption or (b) conditional notice of redemption has been so given or waived and Available Moneys for such redemption have been duly deposited with the Trustee, then in either such case the Bonds called for redemption shall be payable on the redemption date at the applicable redemption price. Payment of the redemption price together with accrued interest shall be made by the Trustee, out of Revenues or other 26 funds deposited for such purpose, to or upon the order of the Holders of the Bonds called for redemption upon surrender of such Bonds, except as otherwise provided in Section 2.13. Upon the payment of the redemption price of Bonds being redeemed, each check or other transfer of funds issued for such purpose shall bear the CUSIP number identifying, by issue and maturity, the Bonds being redeemed with the proceeds of such check or other transfer. All moneys deposited in the Bond Fund and held by the Trustee for the redemption of particular Bonds shall be held in trust for the account of the Holders thereof and shall be paid to them, respectively, upon presentation and surrender of those Bonds, except as otherwise provided in Section 2.13. (End of Article III) 27 ARTICLE IV PURCHASE AND REMARKETING OF BONDS SECTION 4.01. Purchase on Demand of Holder During Weekly Mode. While the Bonds are in the Weekly Mode, any Bond (or portion thereof in an authorized denomination) shall be purchased on the demand of the Holder thereof on any Business Day designated by such Holder in a Bondholder Tender Notice at a purchase price equal to 100% of the principal amount thereof plus accrued interest, if any, to the Purchase Date, if there is delivered to the Trustee at its Principal Office or Delivery Office, and to the Remarketing Agent at its Principal Office, a Bondholder Tender Notice which (i) states the principal amount (or portion thereof) of such Bond and (ii) states the Purchase Date on which such Bond (or portion thereof) shall be purchased pursuant to this Section, which date shall be a Business Day not prior to the seventh day next succeeding the date of the delivery of such notice to the Trustee and the Remarketing Agent. By delivering the Bondholder Tender Notice, the Holder irrevocably agrees to deliver such Bond, if not held in book-entry form, duly endorsed for transfer in blank and with guarantee of signature satisfactory to the Trustee, to the Principal Office or the Delivery Office of the Trustee or any other address designated by the Trustee at or prior to 12:00 noon on the Purchase Date specified in the Bondholder Tender Notice. The determination by the Trustee of a Holder's compliance with the Bondholder Tender Notice and Bond delivery requirements of this Section is in the sole discretion of the Trustee and binding on the Borrower, the Issuer, the Remarketing Agent, the Bank, the Participating Bank and the Holder of the Bonds. Any Bondholder Tender Notice which the Trustee determines is not in compliance with this Section shall be of no force or effect. So long as the Bonds are registered to, and held in book-entry form by, DTC or its nominee, the beneficial owner of Bonds is responsible for submitting the Bondholder Tender Notice and shall be treated as the Holder of such Bonds for such purpose, and such notice need only be submitted to the Remarketing Agent. Any election by a Holder to tender a Bond (or portion thereof) for purchase on a Business Day in accordance with this Section shall be irrevocable and shall be binding on the Holder making such election and on any transferee of such Holder. Each Bondholder Tender Notice shall automatically constitute (i) an irrevocable offer to sell the Bond (or portion thereof) to which such notice relates on the Purchase Date at a price equal to the purchase price of such Bond (or portion thereof), (ii) an irrevocable authorization and instruction to the Trustee to effect transfer of such Bond (or portion thereof) upon payment of the purchase price to the Trustee on the Purchase Date, (iii) with respect to a tender of a portion of a Bond, an irrevocable authorization and instruction to the Trustee to effect the exchange of such Bond in part for other Bonds in a principal amount equal to the retained portion so as to facilitate the sale of the tendered portion of such Bond, and (iv) an acknowledgment that such Holder will have no further rights with respect to such Bond (or portion thereof) upon payment of the purchase price thereof to the Trustee on the Purchase Date, except for the right of such Holder to receive such purchase price upon surrender of such Bond, if not held in book-entry form, to the Trustee endorsed for transfer in blank and with guarantee of signature satisfactory to the Trustee and that after the Purchase Date such Holder will hold such Bond as agent for the Trustee. If the Bonds are not held in book-entry form and after delivery to the Trustee and the Remarketing Agent of a 28 Bondholder Tender Notice in accordance with this Section, the Holder making such election shall fail to deliver such Bond or Bonds described in the Bondholder Tender Notice to the Trustee at its Principal Office or Delivery Office on or before 12:00 noon on the applicable Purchase Date as required by this Section, then the undelivered Bond or portion thereof (the "Undelivered Bond") described in such Bondholder Tender Notice shall be deemed to have been tendered for purchase to the Trustee and, to the extent that there shall be held by the Trustee on or before the applicable Purchase Date an amount sufficient to pay the purchase price thereof and available for such purpose pursuant to the terms of this Section, such Undelivered Bond shall on such Purchase Date cease to bear interest and no longer shall be considered to be outstanding. Moneys held by the Trustee for the purchase of the Undelivered Bonds in accordance with the provisions of this Section shall be held in a special separate trust account for the Holders of such Undelivered Bonds. Such moneys shall be held by the Trustee uninvested and without liability for interest pending delivery of such Undelivered Bonds to the Trustee. The Trustee shall, as to any Undelivered Bond, promptly place a stop transfer against an appropriate amount of Bonds registered in the name of the Holder thereof on the Register. The Trustee shall place such stop transfer commencing with the lowest serial number Bond registered in the name of such Holder (until stop transfers have been placed against an appropriate amount of Bonds) until the appropriate tendered Bonds are delivered to the Trustee. Upon such delivery, the Trustee shall make any necessary adjustments to the Register. If the Bonds are not held in book-entry form and if for any reason a Holder fails to deliver a tendered Bond to the Trustee on the Purchase Date, the Issuer shall execute and the Trustee shall authenticate and deliver in accordance with Section 4.03 a new Bond or Bonds in replacement of the Undelivered Bond. The replacement of any such Undelivered Bond shall not be deemed to create new indebtedness, but such Bond as is issued in replacement shall be deemed to evidence the indebtedness previously evidenced by the Undelivered Bond. A Holder who gives a Bondholder Tender Notice may repurchase the Bonds so tendered on the Purchase Date if the Remarketing Agent agrees to remarket such Bond to such Holder, and if the Remarketing Agent agrees to remarket the specified Bond to such Holder prior to delivery of such Bonds as set forth above, the delivery requirement set forth above shall be waived. Upon surrender of any Bond (which is not held in book-entry form) for purchase in part only, the Issuer shall execute and the Trustee shall authenticate and deliver to the Holder thereof a new Bond or Bonds of the same maturity, of authorized denominations, in an aggregate principal amount equal to the unpurchased portion of the Bond surrendered. On the date set for purchase of Bonds to be purchased pursuant to this Section and upon receipt by the Trustee of 100% of the aggregate purchase price of such Bonds, the Trustee shall pay the purchase price of such Bonds to the selling Holders thereof at its Principal Office or Delivery Office at or before 5:00 p.m.; provided that such Bond (if not held in book-entry form) shall have been surrendered to the Trustee properly endorsed for transfer on such date with all signatures guaranteed at or prior to 12:00 noon on such Purchase Date. Such payment shall be made in immediately available funds and shall be made only with the following funds in the following order of availability: 29 (1) moneys held in the Remarketing Proceeds Purchase Account representing proceeds from the remarketing of such Bonds by the Remarketing Agent to any Person other than the Issuer, the Borrower or any Affiliate, (2) moneys constituting Available Moneys held in the Bond Fund and available to make such payment pursuant to Section 10.02, and (3) proceeds from a drawing on the Letter of Credit deposited directly into the Letter of Credit Purchase Account (provided that such proceeds shall not be applied to purchase Pledged Bonds or Borrower Bonds). No purchase of Bonds pursuant to this Section shall be deemed to be a payment or a redemption of such Bonds or any portion thereof and such purchase will not operate to extinguish or discharge the indebtedness of such Bonds. SECTION 4.02. Mandatory Purchase on Conversion Date and at End of Term Rate Period; upon Expiration of Letter of Credit; and at Direction of Bank. The Bonds shall be subject to mandatory purchase at a purchase price equal to the principal amount thereof plus, in the case of purchases on a Purchase Date which is not an Interest Payment Date, accrued interest thereon, and, in the case of a mandatory purchase described in clause (b) below, a premium equal to the optional redemption premium, if any, that would be due if the Bonds were to be called for optional redemption pursuant to Section 3.01(c) on such purchase date, as follows: (a) on each Conversion Date, or if such Conversion Date is not a Business Day, the first Business Day succeeding such Conversion Date, and on the first Business Day immediately following the end of each Term Rate Period; (b) on the Interest Payment Date next preceding the Expiration Date of the Letter of Credit unless at least 45 days (or such shorter period as shall be acceptable to the Trustee) prior to such Interest Payment Date the Trustee has received notice that the Letter of Credit has been or will be extended or an Alternate Letter of Credit will be provided pursuant to Section 5.08; and (c) while the Bonds are in the Weekly Mode, on the Purchase Date stipulated by the Bank or the Participating Bank pursuant to Section 7.03 in the event the Bank or the Participating Bank directs the Trustee pursuant to Section 7.03 to call the Bonds for mandatory purchase pursuant to this clause. In the case of any mandatory purchase of the Bonds pursuant to clause (b) or (c) above, the Trustee shall cause notice of such mandatory purchase to be given not more than 45 and not less than 15 days prior to the Purchase Date, by mailing copies of such notice of mandatory purchase by first class mail, postage prepaid, to all Holders of Bonds to be purchased at their registered addresses, but failure to mail any such notice or defect in the mailing thereof in respect of any Bond shall not affect the validity of the mandatory purchase of any other Bond with respect to which notice was properly given. Each such notice shall be dated and shall be given in the name of the Issuer and shall state the following information: (i) the identification numbers, as established under this Indenture, and the CUSIP 30 numbers, if any, of the Bonds being purchased; (ii) any other descriptive information needed to identify accurately the Bonds; (iii) the Purchase Date; (iv) the purchase price; (v) that on the Purchase Date the purchase price will become due and payable upon each Bond; (vi) the place where the Bonds are to be delivered for payment of the purchase price, which place of payment shall be the Principal Office or Delivery Office of the Trustee; and (vii) the Holders of Bonds subject to mandatory purchase shall be required to deliver their Bonds for purchase to the Trustee at its Principal Office or Delivery Office prior to 12:00 noon on the corresponding Purchase Date, and any Bond not so delivered prior to 12:00 noon on the applicable Purchase Date (an "Undelivered Bond") shall be deemed to have been tendered to the Trustee as of such Purchase Date and, from and after such Purchase Date, shall cease to bear interest and no longer shall be considered to be outstanding. In the event of a failure by a Holder to deliver such Holder's Bond on or before the applicable Purchase Date, such Holder shall not be entitled to any payment (including any interest to accrue subsequent to such Purchase Date) other than the purchase price for such Undelivered Bond, such Undelivered Bond shall no longer be entitled to the benefits of this Indenture, except for the purpose of payment of the purchase price therefor, and such Holder shall thereafter hold such Undelivered Bond as agent for the Trustee. If for any reason a Holder fails to deliver to the Trustee on or before the applicable Purchase Date any Bond remarketed by the Remarketing Agent pursuant to Section 4.02, the Issuer shall execute and the Trustee shall authenticate and deliver to the Remarketing Agent for redelivery to the purchaser a new Bond or Bonds in replacement of the Undelivered Bond. The replacement of any such Undelivered Bond shall not be deemed to create new indebtedness, but such Bond as is issued in replacement shall be deemed to evidence the indebtedness previously evidenced by the Undelivered Bond. On the date set for purchase of Bonds to be purchased pursuant to this Section 4.02 and upon receipt by the Trustee of 100% of the aggregate purchase price of such Bonds, the Trustee shall pay the purchase price of such Bonds to the selling Holders thereof at its Principal Office or Delivery Office at or before 5:00 p.m.; provided that such Bonds shall have been surrendered to the Trustee properly endorsed for transfer on such date with all signatures guaranteed at or prior to 12:00 noon on such date. Such payment shall be made in immediately available funds and payment for Bonds purchased pursuant to this Section shall be made only with the following funds in the following order of availability: (1) moneys held in the Remarketing Proceeds Purchase Account representing proceeds from the remarketing of such Bonds by the Remarketing Agent to any Person other than the Issuer, the Borrower or any Affiliate; (2) moneys constituting Available Moneys held in the Bond Fund and available to make such payment pursuant to Section 10.02; and (3) proceeds from a drawing on the Letter of Credit deposited directly into the Letter of Credit Purchase Account (provided that such proceeds shall not be applied to purchase Pledged Bonds or Borrower Bonds). No purchase of Bonds pursuant to this Section shall be deemed to be a payment or a redemption of such Bonds or any portion thereof and such purchase will not operate to extinguish or discharge the indebtedness of such Bonds. 31 SECTION 4.03. Remarketing. Upon delivery of a Bondholder Tender Notice to the Trustee and the Remarketing Agent (or to the Remarketing Agent only in the case of Bonds held in book-entry form) pursuant to Section 4.01 and not later than the fifth day preceding the Purchase Date for each mandatory purchase pursuant to Section 4.02, the Remarketing Agent shall use its best efforts to find purchasers for and arrange for the sale of the Bonds identified in the Bondholder Tender Notice pursuant to Section 4.01 or all Bonds subject to mandatory purchase pursuant to Section 4.02 (other than any Bonds purchased in anticipation of the expiration of the Letter of Credit or at the direction of the Bank or the Participating Bank) at a price equal to the principal amount thereof plus, in the case of purchases on a Purchase Date which is not an Interest Payment Date, accrued interest thereon, for settlement in immediately available funds at or before 1:00 p.m. on the applicable Purchase Date. Except as otherwise expressly provided herein, the Remarketing Agent may not remarket to the Issuer, the Borrower or any Affiliate any Bonds to be purchased pursuant to Section 4.01 or 4.02. In its capacity as a registered broker-dealer, the Remarketing Agent may, but is not obligated to, acquire for its own account any Bonds to be so purchased, but not otherwise remarketed, in which case the Remarketing Agent shall have remarketed such Bonds to itself. The Remarketing Agent may purchase and sell Bonds for its own account at any time. At or before 2:00 p.m. on the Business Day preceding the Purchase Date of Bonds to be purchased pursuant to Section 4.01 or 4.02 and remarketed pursuant to this Section (or such other time as to which the Trustee and the Remarketing Agent may agree), the Remarketing Agent shall give notice by telegram, telex, telecopy or other similar communication to the Trustee of the names, addresses and taxpayer identification numbers of the purchasers and the denominations of Bonds to be delivered to each purchaser and, if available, the payment instructions for regularly scheduled interest payments. The Remarketing Agent shall, at or before 10:00 a.m. on the Purchase Date of Bonds to be purchased pursuant to Section 4.01 or 4.02 and remarketed pursuant to this Section, give telephonic notice, promptly confirmed in writing, to the Trustee, the Borrower, the Bank and the Participating Bank specifying the principal amount of Bonds remarketed and not remarketed, respectively, and the amount representing the purchase price of Bonds which the Remarketing Agent does not then hold in trust. The Remarketing Agent shall cause to be paid to the Trustee in immediately available funds by 1:00 p.m. on the Purchase Date of Bonds to be purchased pursuant to Section 4.01 or 4.02 and remarketed pursuant to this Section, all amounts (if any) then held by the Remarketing Agent representing proceeds of the remarketing of such Bonds. All such remarketing proceeds received by the Trustee shall be deposited by the Trustee in the special trust account designated as the Remarketing Proceeds Purchase Account which the Trustee shall establish and use as provided in this Article IV and shall not be commingled with other funds held by the Trustee. All moneys in the Remarketing Proceeds Purchase Account shall be held in trust, uninvested and without liability for interest thereon, pending application of such moneys by the Trustee pursuant to this Article. On the Purchase Date of Bonds to be purchased pursuant to Sections 4.01 or 4.02, the Trustee shall register (or hold) all Bonds purchased on such date as follows: 32 (a) Bonds remarketed by the Remarketing Agent shall be registered and made available (at the Principal Office or Delivery Office of the Trustee) to the Remarketing Agent or the purchasers thereof in accordance with the instructions of the Remarketing Agent delivered to the Trustee pursuant to this Section 4.03; and (b) Bonds purchased with proceeds of a drawing on the Letter of Credit which are Pledged Bonds shall be held as Pledged Bonds in accordance with Section 4.05. Any Bond (or portion thereof) with respect to which the Trustee receives a Bondholder Tender Notice pursuant to Section 4.01 on or after the date notice of a mandatory purchase pursuant to Section 4.02 or redemption pursuant to Section 3.04 is given and before the corresponding mandatory Purchase Date or redemption date, respectively, shall not be remarketed except to a buyer who receives and acknowledges the binding effect of such notice. Bonds purchased on or after the date notice of mandatory purchase is given and before the corresponding mandatory Purchase Date and not remarketed, shall not be subject to mandatory purchase, but shall remain outstanding. In addition, Bonds which are deemed paid pursuant to Article X shall not be remarketed but shall be canceled upon being purchased pursuant to Section 4.01 or 4.02 in accordance with the Bond cancellation provisions of Section 2.11. Anything in this Indenture to the contrary notwithstanding, the Remarketing Agent shall have no obligation (i) to remarket any Bonds which are not supported by the Letter of Credit or an Alternate Letter of Credit, or (ii) to determine Term Rates or to find purchasers for and arrange for the sale of the Bonds on or after a Conversion Date or to make any effort to such end, except to the extent the Remarketing Agent shall have expressly and specifically agreed in writing with the Borrower to perform such duties. SECTION 4.04. Drawings on Letter of Credit for Purchase of Bonds. As provided by Section 4.03, the Remarketing Agent shall advise the Trustee of the amounts not held by the Remarketing Agent which shall be drawn under the Letter of Credit in order for the Trustee to make timely payments of purchase price of Bonds from remarketing proceeds or moneys drawn under the Letter of Credit. In the absence of such notice, the Trustee shall be deemed to have received notice from the Remarketing Agent specifying that no portion of the purchase price of such Bonds is held by the Remarketing Agent, in which case the Trustee shall draw the entire amount thereof under the Letter of Credit. Prior to 11:00 a.m. on each Purchase Date, the Trustee shall take all action necessary to draw on the Letter of Credit in accordance with its terms, the amounts specified (or deemed specified) for receipt by the Trustee on such Purchase Date. The Trustee shall establish a special trust account designated as the Letter of Credit Purchase Account into which the Trustee shall deposit and hold in trust, uninvested and without liability for interest thereon, all such amounts (and only such amounts) received by the Trustee from drawings on the Letter of Credit for purchases of Bonds pending application of such amounts by the Trustee pursuant to this Article IV. Any remaining amounts in the Letter of Credit Purchase Account after any application required by this Article IV shall be paid over by the Trustee to the Bank as reimbursement for the drawing on the Letter of Credit from which such amounts were derived; provided that the Letter of Credit shall be reinstated to the extent of such reimbursement and the Trustee shall take all necessary action on its part pursuant to the Letter of Credit to effect such reinstatement. Anything herein to the contrary notwithstanding, no amounts drawn on the Letter of Credit shall be applied to the purchase of Pledged Bonds or Borrower Bonds. 33 Any moneys paid by the Borrower pursuant to Section 4.3 of the Loan Agreement for purchase of Bonds shall be deposited by the Trustee in a special trust account designated as the Borrower Purchase Account which the Trustee shall establish and use to reimburse (i) the Bank for drawings under the Letter of Credit for such purpose or (ii) the Participating Bank if it has reimbursed the Bank for moneys so drawn and the Trustee has received written notice from the Bank of such reimbursement. SECTION 4.05. Bonds Purchased with Proceeds of Letter of Credit. (a) Pledged Bonds. Bonds purchased with proceeds of a drawing on the Letter of Credit pursuant to this Article shall constitute "Pledged Bonds" and shall be held by the Trustee as agent for the Bank or the Participating Bank as pledgee pursuant to the Bond Pledge Agreement (and shall be shown as such on the Register and, if held in book-entry form, in the ownership records maintained by DTC and any applicable DTC participant) unless and until (1) the Trustee has confirmation from the Bank to the extent contemplated by the terms of the Letter of Credit that the Letter of Credit has been reinstated with respect to such drawing and (2) the Bank or the Participating Bank has notified the Trustee by telephone (thereafter promptly confirmed in writing) that such Bonds have been released from the pledge pursuant to the Bond Pledge Agreement and are no longer Pledged Bonds. Pending reinstatement of the Letter of Credit and release of such pledge as aforesaid, the Bank (or the Participating Bank, if it has reimbursed the Bank for the corresponding drawing on the Letter of Credit for the purchase price and the Trustee has received written notice from the Bank of such reimbursement) shall be entitled to receive all payments of principal of and interest on Pledged Bonds as pledgee of the Borrower and such Bonds shall not be transferable or deliverable to any party (including the Borrower) except the Bank or the Participating Bank pursuant to the Bond Pledge Agreement. (b) Remarketing of Pledged Bonds. The Remarketing Agent shall continue to use its best efforts to arrange for the sale of any Pledged Bonds required to be remarketed pursuant to Section 4.03, subject to full reinstatement of the Letter of Credit with respect to the drawings with which such Bonds were purchased, at a price equal to the principal amount thereof plus accrued interest. (c) Notice of Remarketing. At or prior to 2:00 p.m. on the Business Day preceding each day on which any Pledged Bonds that are successfully remarketed by the Remarketing Agent are to be purchased, the Remarketing Agent shall give telephonic notice, promptly confirmed in writing, to the Trustee, the Borrower, the Bank and the Participating Bank specifying: (1) the Business Day on which such purchase will take place and the principal amount of Pledged Bonds successfully remarketed by the Remarketing Agent, and (2) to the Trustee only, the names, addresses and tax identification numbers of the proposed purchasers thereof and the denominations of Bonds to be delivered to each purchaser and, if available, the payment instructions for regularly scheduled interest payments. 34 (d) Delivery of Remarketed Pledged Bonds and Proceeds Thereof. Contemporaneously with reinstatement of the Letter of Credit as described in Subsection 4.05(a) and the sale of Pledged Bonds arranged by the Remarketing Agent as described in Subsection 4.05(b), (i) such Bonds (if not held in book-entry form) shall be made available (at the Principal Office or Delivery Office of the Trustee) to the Remarketing Agent or the purchasers thereof in accordance with the instructions of the Remarketing Agent and (ii) the proceeds of such sale shall be delivered to the Bank or the Participating Bank, as appropriate, for the account of the Borrower to be applied to any unpaid reimbursement obligation under the Participating Bank Agreement or the Reimbursement Agreement with respect to the prior drawings made on the Letter of Credit in respect of the purchase of such Bonds. SECTION 4.06. Borrower Bonds. (a) Remarketing of Borrower Bonds. Subject to the provisions and limitations of the Remarketing Agreement and Section 4.03, the Remarketing Agent shall, if so directed by the Borrower, use its best efforts to arrange for the sale of any Borrower Bonds, at a price equal to the principal amount thereof, plus accrued interest. (b) Notice of Remarketing. On or prior to each Business Day on which any Borrower Bonds that are successfully remarketed by the Remarketing Agent pursuant to Section 4.06(a) are to be purchased, the Remarketing Agent shall give telephonic notice, promptly confirmed in writing, to the Trustee, the Borrower, the Bank and the Participating Bank specifying: (1) the Business Day on which such purchase will take place and the principal amount of Borrower Bonds successfully remarketed by the Remarketing Agent, and (2) to the Trustee only, the names, addresses and tax identification numbers of the proposed purchasers thereof, the denominations of Bonds to be delivered to each purchaser and, if available, the payment instructions for regularly scheduled interest payments. (c) Delivery of Remarketed Borrower Bonds and Proceeds Thereof. Upon the sale of Borrower Bonds arranged by the Remarketing Agent pursuant to Section 4.06(a), (i) such Bonds (if not held in book-entry form) shall be made available (at the Principal Office or Delivery Office of the Trustee) to the Remarketing Agent or the purchasers thereof in accordance with the instructions of the Remarketing Agent and (ii) the proceeds of such sale shall be delivered to the Borrower. SECTION 4.07. No Purchases After Acceleration; Inadequate Funds for Purchases. Anything in this Indenture to the contrary notwithstanding, there shall be no purchases of Bonds pursuant to this Article if the Bonds have been declared immediately due and payable pursuant to Section 7.03 and such declaration has not been annulled, stayed or otherwise suspended. If the funds available for purchases of Bonds are inadequate for the purchase of all Bonds tendered on any Purchase Date pursuant to this Article, the Trustee shall, after any applicable 35 grace period: (a) return all tendered Bonds to the Holders thereof; and (b) return all moneys received for the purchase of such Bonds (other than moneys provided by the Borrower and other than Letter of Credit proceeds, unless the Letter of Credit is reinstated with respect thereto) to the persons providing such moneys. (End of Article IV) 36 ARTICLE V FUNDS AND LETTER OF CREDIT SECTION 5.01. Creation of Project Fund. There is hereby established with the Trustee a trust fund designated "Project Fund" for the payment of Project Costs. There shall be deposited in the Project Fund all proceeds of the sale of the Bonds. The Trustee shall maintain a record of the income on investments and interest earned on amounts held in the Project Fund and on proceeds of Bonds held in respect of accrued or capitalized interest held by the Trustee as Revenues. Such income or interest may be expended at any time or from time to time to pay the Project Costs in the same manner as the proceeds of Bonds deposited in the Project Fund are expended. Pending disbursement pursuant to the Loan Agreement, the moneys and Eligible Investments to the credit of the Project Fund shall be held as security for the outstanding Bonds and for the Participating Bank's obligations under the Participating Bank Agreement and the Borrower's obligations under the Reimbursement Agreement. SECTION 5.02. Disbursements from and Records of Project Fund. Moneys in the Project Fund shall be disbursed in accordance with the provisions of the Loan Agreement. The Trustee shall cause to be kept and maintained adequate records pertaining to the Project Fund and all disbursements therefrom. The Trustee shall make such records available for inspection by, or shall provide copies thereof to, the Issuer, the Borrower, the Bank and/or the Participating Bank upon request. SECTION 5.03. Disposition of Excess Bond Proceeds. The completion of the Project and payment of all Project Costs payable out of the Project Fund (except for amounts, if any, retained by the Trustee as provided under the Loan Agreement for the payment of Project Costs not then due and payable) shall be evidenced by the filing with the Trustee of the certificate of the Authorized Representative of the Borrower required by Section 3.6 of the Loan Agreement. As soon as practicable after the filing with the Trustee of such certificate, any balance remaining in the Project Fund (other than the amounts retained by the Trustee as described in the preceding sentence) shall be deposited or applied in accordance with the direction of the Authorized Representative of the Borrower pursuant to Section 3.4 of the Loan Agreement. SECTION 5.04. Bond Fund. (a) Revenues to be Paid Over to the Trustee. The Issuer has caused the Revenues to be paid directly to the Trustee. If, notwithstanding these arrangements, the Issuer receives any payments pursuant to the Loan Agreement (other than payments to the Issuer in accordance with Section 4.4, 5.10 or 7.4 thereof), the Issuer shall immediately pay over the same to the Trustee to be held as Revenues or otherwise applied pursuant to this Indenture. Any moneys received by the Trustee with the written stipulation that they constitute payments by the Borrower under Section 4.3 of the Loan Agreement corresponding to payments of purchase price of Bonds shall be identified as such and deposited and applied pursuant to Article IV. Except as provided in the immediately preceding sentence and as otherwise specifically directed under the terms of this Indenture, all Revenues received by the Trustee shall be deposited into the General Account of the Bond Fund. 37 (b) Creation of Bond Fund and Accounts. There is hereby established with the Trustee a trust fund designated as the "Bond Fund", within which there shall be established a General Account and a Letter of Credit Debt Service Account. Moneys held by the Trustee in the General Account shall be applied in accordance with Section 5.04(c)(2) and the other provisions of this Indenture (i) to reimburse the Bank or the Participating Bank with respect to drawings on the Letter of Credit to pay the principal of, premium, if any, on or interest on Bonds or (ii) to make payments of principal of, premium, if any, on and interest on the Bonds. All moneys (and only those moneys) received by the Trustee from drawings under the Letter of Credit to pay principal of, premium, if any, on and interest on the Bonds shall be deposited in the Letter of Credit Debt Service Account and applied to such purpose. (c) Application of Bond Fund. Except as otherwise provided in Section 7.06, moneys in the Bond Fund shall be applied as follows: (1) Moneys in the Letter of Credit Debt Service Account shall be applied to the payment when due of principal of, premium, if any, on and interest on the Bonds (other than Pledged Bonds or Borrower Bonds, for which such moneys shall not be Available Moneys). (2) Moneys in the General Account shall be applied to the following in the order of priority indicated: (A) the reimbursement of (i) the Bank when due for moneys drawn under the Letter of Credit and deposited in the Letter of Credit Debt Service Account for payment of principal of, premium, if any, on and interest on the Bonds (in applying moneys pursuant to this clause, the Trustee shall transfer such moneys by wire transfer of immediately available funds) or (ii) the Participating Bank if it has reimbursed the Bank for moneys so drawn and the Trustee has received written notice from the Bank of such reimbursement; (B) when insufficient moneys have been received under the Letter of Credit for application pursuant to Subsection 5.04(c)(1), the payment when due of principal of, premium, if any, on and interest on the Bonds, other than Borrower Bonds or Pledged Bonds; (C) the payment when due of principal of, premium, if any, on and interest on Pledged Bonds; and (D) the payment when due of principal of, premium, if any, on and interest on Borrower Bonds, provided that if the Trustee shall have received written notice from the Bank or the Participating Bank that any amounts are due and owing to the Bank or the Participating Bank under the Participating Bank Agreement or the Reimbursement Agreement, respectively, such payments shall be made to the Bank or the Participating Bank for the account of the Participating Bank and/or the Borrower, as the case may be. 38 (d) Drawings on Letter of Credit. By 12:00 noon on the Business Day immediately preceding each Interest Payment Date, each redemption date and the maturity date of the Bonds, the Trustee shall present the requisite draft and certificate for a drawing on the Letter of Credit so as to comply with the provisions of the Letter of Credit for payment to be made in sufficient time for the Trustee to receive the proceeds of such drawing at or before 10:00 a.m. on such Interest Payment Date, redemption date or maturity date, as the case may be, to pay principal of, premium, if any, on and interest on the Bonds due on such date. In addition, the Trustee shall draw on the Letter of Credit pursuant to its terms in accordance with and in order to satisfy the requirements of Section 7.03. By 5:00 p.m. on each date it presents the requisite documents for a drawing on the Letter of Credit, the Trustee shall give notice to the Participating Bank and the Borrower by telephone, promptly confirmed in writing, of the amount so drawn. The Trustee shall promptly notify the Borrower and the Participating Bank by oral or telephonic communication confirmed in writing if the Bank fails to transfer funds in accordance with the Letter of Credit upon the presentment of the requisite draft and certificate. In calculating the amount to be drawn on the Letter of Credit for the payment of principal of and interest on the Bonds, whether on an Interest Payment Date, at maturity or upon redemption or acceleration, the Trustee shall not take into account the potential receipt of funds from the Borrower under the Loan Agreement on such Interest Payment Date, or the existence of any other moneys in the Bond Fund, but shall draw on the Letter of Credit for the full amount of principal and interest coming due on the Bonds. (e) Payment in Full. Whenever the amount in the Bond Fund available for the payment of principal or redemption price and interest in accordance with Subsection 5.04(c) is sufficient to redeem all of the outstanding Bonds and to pay interest accrued to the redemption date, the Issuer will, upon request of the Borrower, cause the Trustee to redeem all such Bonds on the redemption date specified by the Borrower pursuant to the Bonds and the Indenture. Any amounts remaining in the Bond Fund after payment in full of the principal of and premium, if any, and interest on the Bonds (or provision for payment thereof) and the fees, charges and expenses of the Issuer and the Trustee shall be paid to the person entitled thereto in accordance with Section 10.01. (f) Credits. If at any time the Trustee has funds, including funds received pursuant to the Letter of Credit, which under the provisions of this Indenture are to be applied to pay the principal of, premium, if any, on or interest on the Bonds, the Borrower, to the extent that such funds are to be so applied, shall be entitled to a credit, equal to the amount of such funds, against payments due from the Borrower under the Loan Agreement; provided that, with respect to funds received pursuant to one or more drawings on the Letter of Credit, the Bank and the Participating Bank have been reimbursed therefor. SECTION 5.05. Investment of Bond Fund and Project Fund. All moneys received by the Trustee under this Indenture shall be deposited with the Trustee, until or unless invested or deposited as provided in this Section. All deposits with the Trustee (whether original deposits or deposits or redeposits in time accounts) shall be secured as required by applicable law for such trust deposits. Moneys in the Bond Fund (except moneys in the Letter of Credit Debt Service Account and except any moneys representing principal of, or premium, if any, or interest on, any Bonds which are deemed paid under Section 10.02) and the Project Fund shall be invested and reinvested by the 39 Trustee in Eligible Investments at the written direction of an Authorized Representative of the Borrower. Except as otherwise provided in Section 10.02, moneys deposited in the Letter of Credit Debt Service Account, the Letter of Credit Purchase Account or the Remarketing Proceeds Purchase Account shall not be invested but shall be held in their respective accounts pending application pursuant to Section 5.04 or Article IV, as applicable. Moneys in the Bond Fund representing principal of, or premium, if any, or interest on, any Bonds which are deemed paid under Section 10.02 shall be invested only if and as provided in Section 10.02. Investments pursuant to this Section of moneys in the Bond Fund shall mature or be redeemable at the direction of the Borrower at the times and in the amounts necessary to provide moneys to make Bond Service payments as they become due on Interest Payment Dates, at stated maturity or by redemption, or to reimburse the Bank or the Participating Bank when due with respect to drawings on the Letter of Credit applied to make Bond Service payments. The Trustee shall sell or redeem investments credited to the Bond Fund to produce sufficient moneys available hereunder at the times required for the purpose of paying Bond Service (or reimbursing the Bank or the Participating Bank with respect to drawings on the Letter of Credit therefor) when due as aforesaid, and shall do so without necessity for any order by or on behalf of the Issuer or the Borrower and without restriction by reason of any order. Each investment of moneys in the Project Fund shall mature or be redeemable by the Trustee at the direction of the Borrower at such time as may be foreseeably necessary to make payments from the Project Fund. Subject to any directions from an Authorized Representative of the Borrower with respect thereto, the Trustee may, from time to time, sell investments in the Project Fund or the Bond Fund made pursuant to this Section and reinvest the proceeds therefrom in Eligible Investments maturing or redeemable as aforesaid. Any investment of moneys in any Fund established under this Indenture may be purchased from or through, or sold to, the Trustee or any affiliate of the Trustee; and any such investment made through the purchase of shares of a fund described in clause (i) or (ii) of the definition of Eligible Investments may be in a fund which is advised or administered by the Trustee or any affiliate of the Trustee (for which services the Trustee or such affiliate, as the case may be, may receive a fee). An investment made from moneys credited to the Bond Fund or the Project Fund shall constitute part of that respective Fund, and each respective Fund shall be credited with all proceeds of sale and income from investment of moneys credited thereto. For purposes of this Indenture, those investments shall be valued at face amount or market value, whichever is less. If the Borrower shall not give directions as to investments of moneys held by the Trustee in the Project Fund or the Bond Fund, or if an Event of Default has occurred and is continuing hereunder, the Trustee shall make such investments in Eligible Investments as described in this Section and as permitted under applicable law as it deems advisable; provided that in no event shall it invest in securities issued by or obligations of, or guaranteed by, the Issuer, the Borrower or any Affiliate. SECTION 5.06. Bond Fund Moneys to be Held in Trust. Revenues and investments thereof in the Bond Fund shall, until applied as provided in this Indenture, be held by the Trustee for the benefit of the Holders of all outstanding Bonds and the Bank and the Participating Bank in the order of priority set forth in the granting clauses of this Indenture, except that any portion of the 40 Revenues representing principal of, and premium, if any, and interest on, any Bonds which have matured or been called for redemption in accordance with Article III or which are otherwise deemed paid under Section 10.02, shall be held for the benefit of the Holders of such Bonds only. SECTION 5.07. Nonpresentment of Bonds. In the event that any Bond shall not be presented for payment when the principal thereof becomes due in whole or in part, either at stated maturity or by redemption, or a check for interest is uncashed, all liability of the Issuer to that Holder for such Bond or such check thereupon shall cease and be discharged completely; provided that moneys sufficient to pay the principal and accrued interest then due of that Bond or such check shall have been made available to the Trustee for the benefit of its Holder. Thereupon, it shall be the duty of the Trustee to hold those moneys subject to the provisions of Section 10.03. SECTION 5.08. Letter of Credit. (a) Expiration. The Letter of Credit may provide that it expires upon the earliest to occur of (i) the Expiration Date, (ii) the date when the Trustee surrenders the Letter of Credit to the Bank for cancellation, (iii) the date on which the Bank receives a certificate from the Trustee to the effect that there are no outstanding Bonds or that the Trustee has accepted an Alternate Letter of Credit, or (iv) the date on which the final drawing available under the Letter of Credit is honored by the Bank. (b) Extension or Replacement in Anticipation of Expiration. At least 45 days (or such shorter period as shall be acceptable to the Trustee) prior to the Interest Payment Date next preceding the Expiration Date of the current Letter of Credit, the Borrower may provide for the delivery to the Trustee of (1) an amendment to the Letter of Credit which extends the Expiration Date to a date that is not earlier than six months from its then current Expiration Date and that follows an Interest Payment Date by not less than two Business Days and not more than 15 calendar days or (2) an Alternate Letter of Credit issued by a national banking association, a bank, a trust company or other financial institution or credit provider, which shall have terms which are the same in all material respects (except Expiration Date and except any changes pursuant to this Indenture with respect to interest or premium coverage in connection with a concurrent interest rate reset or conversion) as the current Letter of Credit and which shall have an Expiration Date that is not earlier than one year from the Expiration Date of the Letter of Credit then in effect and that follows an Interest Payment Date by not less than two Business Days and not more than 15 calendar days. The Borrower shall be deemed to have provided for such amendment extending the Letter of Credit or for such Alternate Letter of Credit if the Borrower shall have delivered to the Trustee, in form satisfactory to the Trustee, a commitment from the Bank or the proposed provider of the Alternate Letter of Credit to deliver such amendment or Alternate Letter of Credit on or before the Interest Payment Date next preceding the current Expiration Date of the Letter of Credit; provided that if such amendment or Alternate Letter of Credit is not delivered to the Trustee on or before such Interest Payment Date, an Event of Default shall be deemed to have occurred under Subsection 7.01(h). Any such amended Letter of Credit or Alternate Letter of Credit shall provide for drawings to pay up to (i) while the Bonds are in the Weekly Mode, an amount equal to the principal amount of the outstanding Bonds, plus 46 days interest thereon computed at 17% per annum based on a 365-day year, and (ii) while the Bonds are in a Term Mode, an amount equal to the principal amount of the outstanding Bonds, plus 195 days interest thereon at a rate not less than the applicable Term Rate based on a 360-day year, plus an amount equal to the premium (if any) which 41 would become payable on the Bonds upon mandatory purchase if such amended Letter of Credit or Alternate Letter of Credit were not extended beyond the Expiration Date set forth therein. The institution issuing the Alternate Letter of Credit must be such as to maintain a rating on the Bonds equal to or higher than the then current rating on the Bonds given by the Rating Service, and the Trustee shall have received, on or before the date of delivery of the Alternate Letter of Credit, written notice from the Rating Service that the issuance of the Alternate Letter of Credit and substitution thereof for the then current Letter of Credit will result in a rating on the Bonds equal to or higher than the then current rating on the Bonds. The Trustee shall not accept an Alternate Letter of Credit under this Subsection unless there shall have been delivered to the Trustee (1) a written notice from the Rating Service as provided in the immediately preceding sentence and (2) an opinion of counsel to the Bank satisfactory to the Trustee with respect to the validity, binding effect and enforceability of such Alternate Letter of Credit. If the Letter of Credit is so extended or if an Alternate Letter of Credit complying with the requirements of this Subsection is so provided, the mandatory purchase pursuant to clause (b) of Section 4.02, shall not occur. Unless all of the conditions of this Subsection which are required to be met 45 days (or such shorter period as shall be acceptable to the Trustee) preceding the Interest Payment Date next preceding the Expiration Date of the Letter of Credit have been satisfied, the Trustee shall take all action necessary to call the Bonds for mandatory purchase pursuant to clause (b) of Section 4.02, on the Interest Payment Date next preceding such Expiration Date; provided that if the Borrower shall have notified the Trustee in writing that it expects to meet all the conditions for the delivery of an amendment extending the existing Letter of credit, or the delivery of an Alternate Letter of Credit from a bank identified in such notice, meeting all of the requirements of this Subsection on or before the Interest Payment Date next preceding the Expiration Date of the existing Letter of Credit, then the notice of mandatory purchase pursuant to clause (b) of Section 4.02, shall state that it is subject to rescission, and the Trustee shall rescind such notice, if such conditions are so met (in which case such mandatory purchase shall not occur). The provisions of this Subsection with respect to the substitution of an Alternate Letter of Credit in the event that the Expiration Date of the Letter of Credit is not extended shall apply equally to the substitution of another Alternate Letter of Credit in the event that the Expiration Date of an existing Alternate Letter of Credit is not extended. (c) Other Replacement. The delivery of an Alternate Letter of Credit in anticipation of the expiration of the current Letter of Credit shall be governed by Subsection 5.08(b). Otherwise, if at any time the Borrower shall provide for the delivery to the Trustee of (1) an Alternate Letter of Credit which shall have terms which are the same in all material respects (except as to Expiration Date and except any changes pursuant to this Indenture with respect to interest or premium coverage in connection with a concurrent interest rate reset or conversion) as the current Letter of Credit, which shall have an Expiration Date that is not less than one year from the date of its delivery and not sooner than the Expiration Date of the current Letter of Credit then in effect and that follows an Interest Payment Date by not less than two Business Days and not more than 15 calendar days and which shall be issued by a national banking association, a bank, a trust company or other financial institution or credit provider, and (2) an opinion of counsel to the Bank satisfactory to the Trustee with respect to the validity, binding effect and enforceability of such Alternate Letter of Credit, and if the requirements set forth in this Subsection are met, then the Trustee shall accept such Alternate Letter of Credit and promptly surrender for cancellation the previously held Letter of Credit to the issuer thereof in accordance with the terms of such Letter of Credit. Any Alternate Letter of Credit shall provide for drawings to pay up to (i) while the Bonds are in the Weekly Mode, an amount equal to the principal amount of the outstanding Bonds, plus 46 days interest thereon computed at 17% per annum based on a 42 365-day year, and (ii) while the Bonds are in a Term Mode, an amount equal to the principal amount of the outstanding Bonds, plus 195 days interest thereon at a rate not less than the applicable Term Rate based on a 360-day year, plus an amount equal to the premium (if any) which would become payable upon the Bonds upon mandatory purchase if such Alternate Letter of Credit were not extended beyond the Expiration Date set forth therein. The institution issuing the Alternate Letter of Credit must be such as to maintain a rating on the Bonds equal to or higher than the then current rating on the Bonds given by the Rating Service. The replacement of the Letter of Credit by the Alternate Letter of Credit must not, by itself, adversely affect the current rating or ratings on the Bonds, and the absence of such an adverse effect shall be evidenced in writing by the Rating Service to the Trustee at or prior to such replacement. (d) Notice to Holders. While the Bonds are in the Weekly Mode, the Trustee shall give notice to the Holders, in the name of the Issuer, of the proposed replacement of the current Letter of Credit with an Alternate Letter of Credit, which notice shall specify (i) the proposed replacement date and (ii) the last dates prior to such proposed replacement on which Bondholder Tender Notices must be delivered and Bonds must be delivered (if not held in book-entry form) for the purchase of Bonds pursuant to Section 4.01 and the places where such Bondholder Tender Notices and Bonds must be delivered for such purchase. Such notice shall be given by first class mail, postage prepaid, not less than 30 days prior to the Interest Payment Date next preceding the proposed replacement date. (e) Reduction. In each case that Bonds are redeemed or deemed to have been paid pursuant to Section 10.01, the Trustee shall take such action as may be permitted under the Letter of Credit to reduce the amount available thereunder to an amount equal to the principal amount of the outstanding Bonds, plus (i) while the Bonds are in the Weekly Mode, 46 days interest on such principal amount computed at 17% per annum based on a 365-day year, and (ii) while the Bonds are in Term Mode, 195 days interest on such principal amount computed at a rate not less than the applicable Term Rate based on a 360-day year; provided that such action by the Trustee shall not be required if the Letter of Credit so reduces automatically pursuant to its terms. (f) Substitution by Bank. Upon reduction of the amount available under the Letter of Credit pursuant to the terms of the Letter of Credit and Subsection 5.08(e) as a result of redemption of Bonds, the Bank shall have the right, at its option, to require the Trustee to promptly surrender the outstanding Letter of Credit to the Bank and to accept in substitution therefor a substitute Letter of Credit in the same form, dated the date of such substitution, for an amount equal to the amount available under the Letter of Credit as so reduced, but otherwise having terms identical to the then outstanding Letter of Credit. (g) Replacement of Participating Bank. Subject to the approval and consent of the Bank and the delivery of a replacement Participating Bank Agreement and related documentation satisfactory to the Bank, the Borrower shall have the right to replace the Participating Bank. The Borrower shall give at least 30 days notice to the Trustee, the Issuer and the Remarketing Agent of the Borrower's intent to replace the Participating Bank (which notice shall identify the proposed replacement Participating Bank), and shall provide to the Trustee and the Issuer, on or before the 43 effective date of such replacement, complete copies of the replacement Participating Bank Agreement, the replacement Reimbursement Agreement and such related documentation as the Trustee or the Issuer may reasonably request. The Trustee shall give prompt notice of any such replacement to the Holders. (h) Other Credit Enhancement; No Credit Enhancement. After a mandatory purchase of the Bonds pursuant to clause (b) or (c) of Section 4.02, nothing in this Section shall limit the Borrower's right to provide other credit enhancement (such as a letter of credit not meeting the requirements of this Section or bond insurance) or no credit enhancement as security for the Bonds; provided that any such credit enhancement shall have administrative provisions reasonably satisfactory to the Trustee. (End of Article V) 44 ARTICLE VI COVENANTS AND REPRESENTATIONS OF ISSUER SECTION 6.01. Corporate Existence; Compliance with Laws. The Issuer shall maintain its corporate existence; shall use its best efforts to maintain and renew all its rights, powers, privileges and franchises; and shall comply with all valid and applicable laws, rules, regulations, orders, requirements and directions of any legislative, executive, administrative or judicial body relating to the Issuer's participation in the Project or the issuance of the Bonds. SECTION 6.02. Payment of Bond Service. The Issuer will pay all Bond Service, or cause it to be paid, solely from the sources provided herein, on the dates, at the places and in the manner provided in this Indenture. SECTION 6.03. No Further Assignment of Revenues. The Issuer will not assign the Revenues or create any debt, lien or charge thereon, other than the assignment thereof under this Indenture. SECTION 6.04. Filings. The Issuer shall cause this Indenture or financing statements relating hereto to be filed, in such manner and at such places as may be required by law fully to protect the security of the Holders and the right, title and interest of the Trustee in and to the Trust Estate or any part thereof, all as may be reasonably requested by the Trustee. From time to time, the Trustee may, but shall not be required to, obtain an opinion of counsel setting forth what, if any, actions by the Issuer or Trustee should be taken to preserve such security. The Issuer shall execute or cause to be executed any and all further instruments as shall reasonably be requested by the Trustee for such protection of the interests of the Holders, and shall furnish satisfactory evidence to the Trustee of filing and refiling of such instruments and of every additional instrument which shall be necessary to preserve the lien of this Indenture upon the Trust Estate or any part thereof until the principal of and interest on the Bonds issued hereunder shall have been paid. The Trustee shall execute or join in the execution of any such further or additional instrument and file or join in the filing thereof at such time or times and in such place or places as it may be advised by an opinion of counsel will preserve the lien of this Indenture upon the Trust Estate or any part thereof until the aforesaid principal and interest shall have been paid. SECTION 6.05. Rights and Enforcement of Agreement. The Trustee may enforce, in its name or in the name of the Issuer, all rights of the Issuer for and on behalf of the Holders, except for Unassigned Issuer's Rights, and may enforce all covenants, agreements and obligations of the Borrower under and pursuant to the Loan Agreement, regardless of whether the Issuer is in default in the pursuit or enforcement of those rights, covenants, agreements or obligations. The Issuer will take all actions within its authority to keep the Loan Agreement in effect in accordance with the terms thereof. So long as no Event of Default hereunder shall have occurred and be continuing, the Issuer may exercise all its rights under the Loan Agreement, including the right to amend the same pursuant to the provisions thereof and hereof. The Issuer shall give prompt notice to the Trustee of any default known to the Issuer under the Loan Agreement. 45 SECTION 6.06. Further Assurances. Except to the extent otherwise provided in this Indenture, the Issuer shall not enter into any contract or take any action by which the rights of the Trustee or the Holders may be impaired and shall, from time to time, execute and deliver such further instruments and take such further action as may be required to carry out the purposes of this Indenture. SECTION 6.07. Observance and Performance Agreements. The Issuer will observe and perform faithfully at all times covenants, agreements, authority, actions, undertakings, stipulations and provisions to be observed or performed on its part under the Loan Agreement, this Indenture and the Bonds, and under all proceedings of the Issuer pertaining thereto. SECTION 6.08. Representations and Warranties. The Issuer represents and warrants that: (a) It is duly authorized by the laws of the Commonwealth of Pennsylvania, including the Act, to issue the Bonds, to execute and deliver this Indenture and the Loan Agreement and to provide the security for payment of the Bond Service in the manner and to the extent set forth in this Indenture. (b) All actions required on its part to be performed for the issuance, sale and delivery of the Bonds and for the execution and delivery of this Indenture and the Loan Agreement have been or will be taken duly and effectively. (c) The Bonds will be valid and binding limited obligations of the Issuer according to their terms. (End of Article VI) 46 ARTICLE VII DEFAULT AND REMEDIES SECTION 7.01. Defaults; Events of Default. The occurrence of any of the following events is defined as and declared to be and to constitute an Event of Default hereunder: (a) Failure to pay the principal of or any premium on any Bond when such principal or premium shall become due and payable, whether at stated maturity, by redemption, by acceleration or otherwise; (b) Failure to pay any interest on any Bond within three Business Days of when such interest shall become due and payable; (c) Failure to pay the purchase price due to the Holder of any Bond who has tendered such Bond for purchase pursuant to Article IV within three Business Days of when such purchase price shall have become due and payable; (d) Failure by the Issuer to comply with the provisions of the Act relating to the Bonds or the Project or to observe or perform any other covenant, agreement or obligation on its part to be observed or performed and which is contained in this Indenture or in the Bonds, which failure shall have continued for a period of 90 days after written notice, by registered or certified mail, to the Issuer, the Bank, the Participating Bank and the Borrower specifying the failure and requiring that it be remedied, which notice may be given by the Trustee in its discretion and shall be given by the Trustee at the written request of the Holders of not less than 25% in aggregate principal amount of Bonds outstanding; (e) The occurrence and continuance of an Event of Default as defined in Section 7.1 of the Loan Agreement; (f) Receipt by the Trustee of a written notice from the Bank stating that an event of default has occurred under the Participating Bank Agreement, or from the Participating Bank stating that an event of default has occurred under the Reimbursement Agreement, and directing the Trustee to call the Bonds for mandatory purchase or to declare the principal of the outstanding Bonds immediately due and payable (in the case of conflicting notices from the Bank and the Participating Bank under this Subsection, the notice from the Bank shall control); (g) Receipt by the Trustee of a written notice from the Bank, prior to the third Business Day following payment of a drawing under the Letter of Credit for interest on Bonds which remain outstanding after the application of the proceeds of such drawing, stating that the Letter of Credit will not be reinstated with respect to such interest; (h) Failure by the Borrower to cause an amendment extending the Expiration Date of the current Letter of Credit or an Alternate Letter of Credit to be delivered to the Trustee pursuant to Subsection 5.08(b) on or before the Interest Payment Date next 47 preceding such Expiration Date, unless the Bonds have been called for mandatory purchase on such Interest Payment Date pursuant to clause (b) of Section 4.02; (i) Wrongful dishonor by the Bank of a proper drawing under the Letter of Credit; or (j) A decree or order of a court or agency or supervisory authority, having jurisdiction in the premises, for the appointment of a conservator or receiver or liquidator in any insolvency, readjustment of debt, marshalling of assets and liabilities or similar proceedings of or with respect to the Bank, or for the winding-up or liquidation of its affairs, shall have been entered against the Bank, or the Bank shall have consented to the appointment of a conservator or receiver or liquidator in any insolvency, readjustment of debt, marshalling of assets and liabilities or similar proceedings of or with respect to the Bank or all or substantially all of its property. The term "default" or "failure" as used in this Article means a default or failure by the Issuer in the observance or performance of any of the covenants, agreements or obligations on its part to be observed or performed contained in this Indenture or in the Bonds or a default or failure by the Borrower under the Loan Agreement, exclusive of any period of grace or notice required to constitute an Event of Default as provided above or in the Loan Agreement. SECTION 7.02. Notice of Default. If an Event of Default shall occur, the Trustee shall give written notice of the Event of Default, by registered or certified mail, to the Issuer, the Borrower, the Bank, the Participating Bank and the Remarketing Agent within five (5) days after the Trustee acquires actual knowledge of the Event of Default. If an Event of Default occurs of which the Trustee has notice pursuant to this Indenture, the Trustee shall give written notice thereof, within 30 days after the Trustee's receipt of notice of its occurrence, to the Holders of all Bonds outstanding as shown by the Register at the close of business 15 days prior to the mailing of that notice; provided that except in the case of a default in the payment of the principal of or any premium or interest on any Bond, the Trustee shall be protected in withholding such notice if and so long as the board of directors, the executive committee or a trust committee of directors or responsible officers of the Trustee in good faith determine that the withholding of notice to the Holders is in the best interests of the Holders. SECTION 7.03. Acceleration. Upon the occurrence of any Event of Default under Subsection 7.01(d), (e) or (f), the Trustee shall, upon the written direction of the Bank or the Participating Bank (or, in the case of an Event of Default under Subsection 7.01(d), upon the written request of 100% of the Holders of the outstanding Bonds), declare, by a notice in writing delivered to the Issuer and the Borrower, the principal of all Bonds outstanding (if not then already due and payable), together with interest accrued thereon, to be due and payable immediately; provided that, if the Bonds are in the Weekly Mode and the Bank has not notified the Trustee that the Letter of Credit will not be reinstated with respect to an interest drawing thereunder, the Bank or the Participating Bank may, at its option, but subject to the following sentence, direct the Trustee in writing to call (in which case the Trustee shall call) the Bonds for mandatory purchase pursuant to clause (c) of Section 4.02 on a Business Day stipulated by the Bank or the Participating Bank in such direction, which Business Day shall not be earlier than 20 days (or such shorter period as shall be acceptable to the Trustee) after the date the Trustee receives such direction. Irrespective of whether an Event of Default has occurred 48 under Section 7.01(f) for which the Bank or the Participating Bank has directed the Trustee to call the Bonds for mandatory purchase, upon receipt by the Trustee of notice from the Bank that the Letter of Credit will not be reinstated with respect to an interest drawing thereunder as described in Subsection 7.01(g) or upon the occurrence of an Event of Default under Subsection 7.01(h), (i) or (j) the Trustee shall, and upon the occurrence of an Event of Default under Subsection 7.01(a), (b) or (c) the Trustee may, declare the principal of all Bonds outstanding (if not then already due and payable), and the interest accrued thereon, to be due and payable immediately, such declaration to be made by a notice in writing delivered to the Issuer and the Borrower. Upon any declaration that the principal of and interest on the Bonds are due and payable immediately, such principal and interest shall become and be due and payable immediately, and, in addition, in the case of any such declaration as a result of an Event of Default under Subsection 7.01(e), (f), (g) or (h) while the Bonds are in a Term Mode, there shall also become due and payable immediately a premium equal to the premium which would become payable with respect to the Bonds if they were purchased pursuant to a mandatory purchase under Subsection 4.02(b) on the Interest Payment Date next preceding the Expiration Date of the Letter of Credit. The exercise by the Bank or the Participating Bank of the option to direct a mandatory purchase of the Bonds as described in Section 7.01(f) shall not preclude the Bank from later delivering to the Trustee a notice of nonreinstatement of the Letter of Credit pursuant to Section 7.01(g). In the case of conflicting directions from the Bank and the Participating Bank with respect to the provisions of this Article, the directions from the Bank shall control. Written notice of any such declaration shall be given concurrently to the Bank, the Participating Bank and the Remarketing Agent. The Trustee immediately upon such declaration shall give notice thereof in the same manner as provided in Section 3.04 with respect to redemption of the Bonds, except that there shall be no minimum period of notice prior to the date of payment. Such notice shall specify the date on which payment of principal and interest shall be tendered to the Holders of the Bonds. Upon any such declaration hereunder, the Trustee shall (i) immediately exercise such rights as it may have under the Loan Agreement to declare all payments thereunder to be immediately due and payable and (ii) immediately draw upon the Letter of Credit to the full extent permitted by the terms thereof (such drawing to provide for payment by the Bank to be due at the earliest time which the Trustee may require under the Letter of Credit and in no case later than six days after the date of declaration of acceleration and to include amounts in respect of interest accruing on the Bonds through the date payment of such drawing by the Bank is due). Upon receipt by the Trustee of payment of the full amount drawn on the Letter of Credit and provided sufficient moneys are available in the Bond Fund to pay pursuant to Section 5.04 all sums due on the Bonds, (i) interest on the Bonds shall cease to accrue as provided in Section 10.03 and (ii) the Bank (or the Participating Bank if it has reimbursed the Bank for such drawing and the Trustee has received written notice from the Bank of such reimbursement) shall succeed to and be subrogated to the right, title and interest of the Trustee and the Holders in and to the Loan Agreement, all funds held under this Indenture (except any funds held in the Bond Fund or any account with respect to Undelivered Bonds which are identified for the payment of the Bonds or of the purchase price of Undelivered Bonds) and any other security held for the payment of the Bonds, all of which, upon payment of any fees and expenses due and payable to the Trustee pursuant to the Loan Agreement or this Indenture, shall be assigned by the Trustee to the Bank or the Participating Bank, as the case may be. 49 If, after the principal of the Bonds has been so declared to be due and payable, all arrears of principal of and interest on the Bonds outstanding are paid, and the Issuer and the Borrower also perform all other things in respect of which either of them may have been in default hereunder or under the Loan Agreement and pay the reasonable charges of the Trustee, the Holders and any trustee appointed under the Act, including reasonable attorney's fees, then, and in every such case, the Trustee or the Holders of a majority in principal amount of the Bonds then outstanding, by notice to the Issuer and the Borrower (and to the Holders or the Trustee, as the case may be), may annul such declaration and its consequences, and such annulment shall be binding upon the Trustee and all Holders; provided that there shall be no annulment of any declaration resulting from (1) any Event of Default specified in Subsection 7.01(f) or (g) without the prior written consent of the Bank and the Participating Bank (and, in the case of an Event of Default under Section 7.01(g), a corresponding reinstatement of the Letter of Credit), (2) any Event of Default specified in Section 7.01(h), or (3) any Event of Default which has resulted in a drawing under the Letter of Credit unless the Trustee has received written notice from the Bank that the Letter of Credit has been reinstated (i) while the Bonds are in the Weekly Mode, to an amount equal to the principal amount of the Bonds outstanding, plus 46 days interest thereon at the Maximum Rate, and (ii) while the Bonds are in a Term Mode, to an amount equal to the principal amount of the Bonds outstanding, plus 195 days interest thereon at a rate not less than the current Term Rate. No annulment shall extend to or affect any subsequent Event of Default or shall impair any rights consequent thereon. SECTION 7.04. Other Remedies; Rights of Holders. With or without taking action under Section 7.03, upon the occurrence and continuance of an Event of Default, the Trustee may pursue any available remedy to enforce the payment of Bond Service or the observance and performance of any other covenant, agreement or obligation under this Indenture, the Loan Agreement or the Letter of Credit or any other instrument providing security, directly or indirectly, for the Bonds; provided that, if the Borrower shall be in breach of Section 5.2 of the Loan Agreement, the Issuer, upon five (5) days written notice to the Borrower and the Trustee, in addition to any rights and remedies of the Trustee, may independently seek specific performance or otherwise enforce the covenants set forth in such Section; provided further that nothing herein shall be construed to diminish, impair or otherwise limit the rights of the Trustee to enforce the Loan Agreement. If any Event of Default has occurred and is continuing, the Trustee in its discretion may, and upon the written request of Holders of a majority in principal amount of all Bonds outstanding and receipt of indemnity to its satisfaction shall, in its own name: (a) By mandamus, or other suit, action or proceeding at law or in equity, enforce all rights of the Holders, including the right to require the Issuer to enforce any rights under the Loan Agreement and to require the Issuer to carry out any other provisions of this Indenture for the benefit of the Holders and to perform its duties under the Act; (b) Bring suit upon the Bonds; (c) By action or suit in equity require the Issuer to account as if it were the trustee of an express trust for the Holders; and 50 (d) By action or suit in equity enjoin any acts or things which may be unlawful or in violation of the rights of the Holders. If an Event of Default under Subsection 7.01(e) occurs and is continuing, the Trustee in its discretion may, and upon the written request of Holders of a majority in principal amount of all Bonds outstanding or of the Bank or the Participating Bank and receipt of indemnity to its satisfaction shall, enforce each and every right granted to it as assignee of the Loan Agreement. No remedy conferred upon or reserved to the Trustee (or to the Holders) by this Indenture is intended to be exclusive of any other remedy. Each remedy shall be cumulative and shall be in addition to every other remedy given hereunder or otherwise to the Trustee or to the Holders now or hereafter existing. No delay in exercising or omission to exercise any remedy, right or power accruing upon any default or Event of Default shall impair that remedy, right or power or shall be construed to be a waiver of any default or Event of Default or acquiescence therein. Every remedy, right and power may be exercised from time to time and as often as may be deemed to be expedient. No waiver of any default or Event of Default hereunder, whether by the Trustee or by the Holders, shall extend to or shall affect any subsequent default or Event of Default or shall impair any remedy, right or power consequent thereon. As the grantee of a security interest in the Loan Agreement (except for the Unassigned Issuer's Rights), the Trustee is empowered to enforce each remedy, right and power granted to the Issuer under the Loan Agreement. In exercising any remedy, right or power thereunder or hereunder, the Trustee shall take any action which would best serve the interests of the Holders in the judgment of the Trustee, applying the standards described in Sections 8.01 and 8.02. SECTION 7.05. Right of Holders to Direct Proceedings. The Holders of a majority in aggregate principal amount of Bonds outstanding shall have the right at any time to direct, by an instrument or document in writing executed and delivered to the Trustee, the method and place of conducting all remedial proceedings hereunder; provided that (i) any direction shall be in accordance with the provisions of law and of this Indenture, (ii) the Trustee shall be indemnified as provided in Sections 8.01 and 8.02, (iii) the Trustee may take any other action which it deems to be proper and which is not inconsistent with the direction, and (iv) if the Letter of Credit is in effect and no Event of Default has occurred and is continuing under Subsection 7.01(i) or (j), then the Bank (or, with the written consent of the Bank, the Participating Bank) shall have the right to give such direction in lieu of such Holders. SECTION 7.06. Application of Moneys. All moneys received by the Trustee pursuant to any drawing made upon the Letter of Credit pursuant to Section 7.03 shall be applied by the Trustee to and only to the payment of principal of or premium, if any, or interest on the Bonds (other than Borrower Bonds and Pledged Bonds). After payment of any fees, costs, expenses, liabilities and advances paid, incurred or made by the Trustee in the collection of moneys pursuant to any right given or action taken under the provisions of this Article or the provisions of the Loan Agreement or the Letter of Credit (including, without limitation, reasonable attorneys' fees and 51 expenses, except as limited by law or judicial order or decision entered in any action taken under this Article), all moneys so received by the Trustee, shall be applied as follows, subject to Sections 3.05, 5.06 and 5.07: (a) Unless the principal of all of the Bonds shall have become, or shall have been declared to be, due and payable, all of those moneys shall be deposited in the Bond Fund and shall be applied: First -- To the payment to the Holders entitled thereto of all installments of interest then due on the Bonds, in the order of the dates of maturity of the installments of that interest, beginning with the earliest date of maturity and, if the amount available is not sufficient to pay in full any particular installment, then to the payment thereof ratably, according to the amounts due on that installment, to the Holders entitled thereto, without any discrimination or privilege, except as to any difference in the respective rates of interest specified in the Bonds; and Second -- To the payment to the Holders entitled thereto of the unpaid principal of any of the Bonds which shall have become due (other than Bonds previously called for redemption for the payment of which moneys are held pursuant to the provisions of this Indenture), whether at stated maturity or by redemption, in the order of their due dates, beginning with the earliest due date, with interest on those Bonds from the respective dates upon which they became due at the rates specified in those Bonds, and if the amount available is not sufficient to pay in full all Bonds due on any particular date, together with that interest, then to the payment thereof ratably, according to the amounts of principal due on that date, to the Holders entitled thereto, without any discrimination or privilege. The surplus, if any, remaining after the application of the moneys as set forth above shall to the extent of any unreimbursed drawing under the Letter of Credit, or other obligations owing to the Bank under the Participating Bank Agreement, be paid to the Bank. Any remaining moneys shall be paid first, to the Participating Bank, to the extent of amounts owing under the Reimbursement Agreement, and second, to the Borrower or the person lawfully entitled to receive the same as a court of competent jurisdiction may direct. (b) If the principal of all of the Bonds shall have become due or shall have been declared to be due and payable pursuant to this Article, all of those moneys shall be deposited into the Bond Fund and shall be applied to the payment of the principal, premium (if any) and interest then due and unpaid upon the Bonds, without preference or priority of principal over interest, of interest over principal, of any installment of interest over any other installment of interest, or of any Bond over any other Bond, ratably, according to the amounts due respectively for principal and interest, to the Holders entitled thereto, without any discrimination or privilege, except as to any difference in the respective rates of interest specified in the Bonds. (c) If the principal of all of the Bonds shall have been declared to be due and payable pursuant to this Article, and if that declaration thereafter shall have been rescinded 52 and annulled under the provisions of Section 7.03 or 7.10, subject to the provisions of paragraph (b) of this Section in the event that the principal of all of the Bonds shall become due and payable later, the moneys shall be deposited in the Bond Fund and shall be applied in accordance with the provisions of Article V. (d) Whenever moneys are to be applied pursuant to the provisions of this Section, those moneys shall be applied at such times, and from time to time, as the Trustee shall determine, having due regard to the amount of moneys available for application and the likelihood of additional moneys becoming available for application in the future. Whenever the Trustee shall direct the application of those moneys, it shall fix the date upon which the application is to be made (and with respect to acceleration such date shall be fixed in accordance with Section 7.03), and upon that date, interest shall cease to accrue on the amounts of principal, if any, to be paid on that date, provided the moneys are available therefor. The Trustee shall give notice of the deposit with it of any moneys and of the fixing of that date, all consistent with the requirements of Section 2.08 for the establishment of, and for giving notice with respect to, a Special Record Date for the payment of overdue interest. Except as otherwise provided in Section 2.13, the Trustee shall not be required to make payment of principal of and any premium on a Bond to the Holder thereof, until the Bond shall be presented to the Trustee for appropriate endorsement or for cancellation if it is paid fully. SECTION 7.07. Remedies Vested in Trustee. All rights of action (including without limitation, the right to file proof of claims) under this Indenture or under any of the Bonds may be enforced by the Trustee without the possession of any of the Bonds or the production thereof in any trial or other proceeding relating thereto. Any suit or proceeding instituted by the Trustee shall be brought in its name as Trustee without the necessity of joining any Holders as plaintiffs or defendants. Any recovery of judgment shall be for the benefit of the Holders of the outstanding Bonds and the Bank and the Participating Bank, subject to the provisions of this Indenture. SECTION 7.08. Rights and Remedies of Holders. A Holder shall not have any right to institute any suit, action or proceeding for the enforcement of this Indenture, for the execution of any trust hereof, or for the exercise of any other remedy hereunder, unless: (a) there has occurred and is continuing an Event of Default of which the Trustee has been notified, as provided in Subsection 8.02(f), or of which it is deemed to have notice under that Subsection, (b) the Holders of at least a majority in aggregate principal amount of Bonds then outstanding shall have made written request to the Trustee and shall have afforded the Trustee reasonable opportunity to proceed to exercise the remedies, rights and powers granted herein or to institute the suit, action or proceeding in its own name, and shall have offered indemnity to the Trustee as provided in Sections 8.01 and 8.02, and (c) the Trustee thereafter shall have failed or refused to exercise the remedies, rights and powers granted herein or to institute the suit, action or proceeding in its own name. 53 At the option of the Trustee, such notification (or notice), request, opportunity and offer of indemnity are conditions precedent in every case, to the institution of any suit, action or proceeding described above. No one or more Holders shall have any right to affect, disturb or prejudice in any manner whatsoever the security or benefit of this Indenture by its or their action, or to enforce, except in the manner provided herein, any remedy, right or power hereunder. Any suit, action or proceedings shall be instituted, had and maintained in the manner provided herein for the benefit of the Holders of all Bonds outstanding. Notwithstanding the foregoing provisions of this Section or any other provision of this Indenture, the obligation of the Issuer shall be absolute and unconditional to pay hereunder, but solely from the Revenues and other funds pledged under this Indenture, the principal or redemption price of, and interest on, the Bonds to the respective Holders thereof on the respective due dates thereof, and nothing herein shall affect or impair the right of action, which is absolute and unconditional, of such Holders to enforce such payment; provided that no Holder shall have a right individually to draw upon the Letter of Credit. SECTION 7.09. Termination of Proceedings. In case the Trustee shall have proceeded to enforce any remedy, right or power under this Indenture in any suit, action or proceeding, and the suit, action or proceeding shall have been discontinued or abandoned for any reason, or shall have been determined adversely to the Trustee, the Issuer, the Trustee, the Bank, the Participating Bank and the Holders shall be restored to their former positions and rights hereunder, respectively, and all rights, remedies and powers of the Trustee shall continue as if no suit, action or proceeding had been taken. SECTION 7.10. Waivers of Events of Default. Except as hereinafter provided, at any time, in its discretion, the Trustee, but only with the express prior consent of the Bank and the Participating Bank, may (and, upon written request of the Holders of a majority in aggregate principal amount of all Bonds outstanding, shall) waive any Event of Default hereunder and its consequences and annul any corresponding acceleration of maturity of principal of the Bonds. There shall not be so waived, however, any Event of Default described in Subsection 7.01(a), (b), (c), (f), (g), (h), (i) or (j) nor shall any acceleration in connection therewith be annulled, except with written consent of the Bank and the Participating Bank and unless at the time of that waiver or annulment payments of the amounts and satisfaction of the other conditions provided in Section 7.03 for annulment have been made or provision has been made therefor; provided that the written consent of the Bank and the Participating Bank to any waiver shall not be required if there has occurred an Event of Default under Subsection 7.01(i) or (j). No waiver shall extend to any subsequent or other Event of Default or impair any right consequent thereon. SECTION 7.11. Certain Rights of Issuer. Notwithstanding any other provision hereof, upon the occurrence of an Event of Default described in Subsection 7.01(e) hereof resulting from an event of default described in Subsection 7.1(i) of the Loan Agreement, the Issuer reserves the right to exercise or refrain from exercising remedies under the Loan Agreement with respect to such Event of Default and such Event of Default may not be waived or annulled without the prior written consent of the Issuer. 54 SECTION 7.12. Trustee's Right to Appointment of Receiver. As provided by the Act, the Trustee shall be entitled as of right to the appointment of a receiver; and the Trustee, the Holders and any receiver so appointed shall have such rights and powers and be subject to such limitations and restrictions as are contained in the Act. SECTION 7.13. Trustee and Holders Entitled to All Benefits Under Act. It is the purpose of this Article to provide such remedies to the Trustee and the Holders as may be lawfully granted under the provisions of the Act, but should any remedy herein granted be held unlawful, the Trustee and the Holders shall nevertheless be entitled to every remedy provided by the Act. It is further intended that, insofar as lawfully possible, the provisions of this Article shall apply to and be binding upon any trustee or receiver appointed under the Act. SECTION 7.14. Trustee's Obligation to Banks Upon Payment of All Amounts Due Holders. Once the principal of and premium, if any, and interest on all Bonds issued hereunder have been paid, or provision has been made pursuant to Article X for payment of the same and any purchase price of Bonds that is payable pursuant to Article IV, together with the compensation and expenses of the Trustee and all other sums payable hereunder by the Issuer or the Borrower, the Trustee's sole obligation hereunder shall be to assign promptly and turn over to the Bank (or the Participating Bank if it has reimbursed the Bank for all drawings under the Letter of Credit and the Trustee has received written notice from the Bank of such reimbursement), as successor, subrogee or otherwise, (i) all of the Trustee's right, title and interest under this Indenture, (ii) all balances held hereunder not required for the payment of the Bonds and such other obligations and (iii) the Trustee's right, title and interest in, to and under the Loan Agreement. (End of Article VII) 55 ARTICLE VIII TRUSTEE AND REMARKETING AGENT SECTION 8.01. Trustee's Acceptance and Responsibilities. (a) The Trustee accepts the trusts imposed upon it by this Indenture, and agrees to observe and perform those trusts, but only upon and subject to the terms and conditions set forth in this Article, to all of which the parties hereto and the Holders agree. In its capacity as Trustee hereunder, the Trustee shall authenticate the Bonds and shall act as Bond registrar, transfer agent, tender agent and paying agent, all as provided herein. (b) Prior to the occurrence of a default or an Event of Default of which the Trustee has been notified, as provided in Subsection 8.02(f), or of which by that Subsection the Trustee is deemed to have notice, and after the cure or waiver of all defaults or Events of Default which may have occurred, (i) the Trustee undertakes to perform only those duties and obligations which are set forth specifically in this Indenture, and no duties or obligations shall be implied to the Trustee; and (ii) in the absence of bad faith on its part, the Trustee may rely conclusively, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture; but in the case of any such certificates or opinions which by any provision hereof are required specifically to be furnished to the Trustee, the Trustee shall be under a duty to examine the same to determine whether or not they conform to the requirements of this Indenture. (c) In case a default or an Event of Default has occurred and is continuing hereunder (of which the Trustee has been notified, or is deemed to have notice), the Trustee shall exercise those rights and powers vested in it by this Indenture and shall use the same degree of care and skill in their exercise as a prudent Person would exercise or use under the circumstances in the conduct of its own affairs. (d) No provision of this Indenture shall be construed to relieve the Trustee from liability for its own grossly negligent action, its own grossly negligent failure to act, or its own willful misconduct, except that (i) this Subsection shall not be construed to affect the limitation of the Trustee's duties and obligations provided in Subsection 8.01(b)(i) or the Trustee's right to rely on the truth of statements and the correctness of opinions as provided in Subsection 8.01(b)(ii); 56 (ii) the Trustee shall not be liable for any error of judgment made in good faith by any of its officers, unless it shall be established that the Trustee was grossly negligent in ascertaining the pertinent facts; (iii) the Trustee shall not be liable with respect to any action taken or omitted to be taken by it in good faith in accordance with the direction of the Holders of not less than a majority in principal amount of the Bonds then outstanding relating to the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred upon the Trustee, under this Indenture; and (iv) no provision of this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder, or in the exercise of any of its rights or powers if it shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it; provided that this clause (iv) shall not relieve the Trustee of its duties to take actions required to be taken under Section 7.03 and with respect to drawings to be made under the Letter of Credit and making payments on the Bonds when due. (e) Every provision of this Indenture relating to the conduct or affecting the liability of or affording protection to the Trustee shall be subject to the provisions of this Section. SECTION 8.02. Certain Rights and Obligations of Trustee. Except as otherwise provided in Section 8.01: (a) The Trustee (i) may execute any of the trusts or powers hereof and perform any of its duties by or through attorneys, agents, receivers or employees (but shall be answerable therefor only in accordance with the standard specified above), (ii) shall be entitled to the advice of counsel concerning all matters of trusts hereof and duties hereunder, and (iii) may pay reasonable compensation in all cases to all of those attorneys, agents, receivers and employees reasonably employed by it in connection with the trusts hereof. The Trustee may act upon the opinion or advice of any attorney (who may be the attorney or attorneys for the Issuer or the Borrower) approved by the Trustee in the exercise of reasonable care. The Trustee shall not be responsible for any loss or damage resulting from any action taken or omitted to be taken in good faith in reliance upon that opinion or advice. (b) Except for its certificate of authentication on the Bonds, the Trustee shall not be responsible for (i) any recital in this Indenture or in the Bonds, (ii) the validity, priority, recording, rerecording, filing or refiling of this Indenture or any Supplemental Indenture, (iii) any instrument or document of further assurance or collateral assignment, (iv) any financing statements, amendments thereto or continuation statements, (v) the validity of the execution by the Issuer of this Indenture, any Supplemental Indenture or instruments or documents of further assurance, (vi) the sufficiency of the security for the Bonds issued hereunder or intended to be secured hereby, (vii) the value of or title to the Project, or insurance of the Project or collection of insurance moneys, or (viii) the maintenance of the security hereof. The Trustee shall not be bound to ascertain or inquire as to the observance or performance of any covenants, agreements or obligations on the part of the Issuer or the Borrower under the Loan Agreement except as set forth hereinafter; but the Trustee may require of the Issuer or the Borrower full information and advice as to the observance or performance of those covenants, 57 agreements and obligations. Except as otherwise provided in Section 7.04, the Trustee shall have no obligation to observe or perform any of the duties of the Issuer under the Loan Agreement. (c) The Trustee shall not be accountable for the application by the Borrower or any other Person of the proceeds of any Bonds authenticated or delivered hereunder. (d) The Trustee may, in the absence of bad faith on its part, act upon any notice, request, consent, certificate, order, affidavit, letter, telegram or other paper or document reasonably believed by it to be genuine and correct and to have been signed or sent by the proper Person or Persons. Any action taken by the Trustee pursuant to this Indenture upon the request or authority or consent of any Person who is the Holder of any Bonds at the time of making the request or giving the authority or consent, shall be conclusive and binding upon all future Holders of the same Bond and of Bonds issued in exchange therefor or in place thereof. (e) As to the existence or nonexistence of any fact for which the Issuer, the Bank, the Participating Bank or the Borrower may be responsible or as to the sufficiency or validity of any instrument, document, report, paper or proceeding, the Trustee, in the absence of bad faith on its part, shall be entitled to rely upon a certificate signed on behalf of the Issuer, the Bank, the Participating Bank or the Borrower by an Authorized Representative or authorized officer thereof, as applicable, as sufficient evidence of the facts recited therein. Prior to the occurrence of a default or Event of Default hereunder of which the Trustee has been notified, as provided in Subsection 8.02(f), or of which by that Subsection the Trustee is deemed to have notice, the Trustee may accept a similar certificate to the effect that any particular dealing, transaction or action is necessary or expedient; provided that the Trustee in its discretion may require and obtain any further evidence which it deems to be necessary or advisable; and provided further that the Trustee shall not be bound to secure any further evidence. The Trustee may accept a certificate of the officer, or an assistant thereto, having charge of the appropriate records, to the effect that a resolution has been adopted by the Issuer in the form recited in that certificate, as conclusive evidence that the resolution has been duly adopted and is in full force and effect. (f) The Trustee shall not be required to take notice, and shall not be deemed to have notice, of any default or Event of Default hereunder, except Events of Default described in Subsections 7.01(a), (b), (c), (f), (g) and (h), unless the Trustee shall be notified specifically of the default or Event of Default in a written instrument or document delivered to it by the Issuer, the Bank, the Participating Bank or by the Holders of at least 10% of the aggregate principal amount of Bonds outstanding. In the absence of delivery of a notice satisfying those requirements, the Trustee may assume conclusively that there is no default or Event of Default, except as noted above. (g) At any reasonable time, the Trustee and its duly authorized agents, attorneys, experts, engineers, accountants and representatives (i) may inspect and copy fully all books, papers and records of the Issuer pertaining to the Project and the Bonds, and (ii) may make any memoranda from and in regard thereto as the Trustee may desire. (h) The Trustee shall not be required to give any bond or surety with respect to the execution of these trusts and powers or otherwise in respect of the premises. 58 (i) Notwithstanding anything contained elsewhere in this Indenture to the contrary, the Trustee may demand any showings, certificates, reports, opinions, appraisals and other information, and any corporate action and evidence thereof, in addition to that required by the terms hereof, as a condition to the authentication of any Bonds or the taking of any action whatsoever within the purview of this Indenture, if the Trustee deems it to be desirable for the purpose of establishing the right of the Issuer to the authentication of any Bonds or the right of any Person to the taking of any other action by the Trustee; provided that the Trustee shall not be required to make any such demand. (j) Before taking action hereunder pursuant to Section 8.04 or Article VII (with the exception of any action required to be taken under Section 7.03 and except with respect to drawings made under the Letter of Credit and with respect to payment on the Bonds when due), the Trustee may require that a satisfactory indemnity bond be furnished to it for the reimbursement of all expenses which it may incur and to protect it against all liability by reason of any action so taken, except liability which is adjudicated to have resulted from its gross negligence or willful misconduct; provided that no such bond shall be required from the Issuer. The Trustee may take action without that indemnity, and in that case, the Issuer shall cause the Borrower to reimburse the Trustee for all of the Trustee's expenses pursuant to Section 8.03. (k) Unless otherwise provided herein, all moneys received by the Trustee under this Indenture shall be held in trust for the purposes for which those moneys were received, until those moneys are used, applied or invested as provided herein; provided that those moneys need not be segregated from other moneys, except to the extent required by this Indenture or by law. The Trustee shall not have any liability for interest on any moneys received hereunder, except to the extent expressly provided herein or agreed with the Issuer or the Borrower. (l) Any resolution of the Issuer, and any opinions, certificates and other instruments and documents for which provision is made in this Indenture, may be accepted by the Trustee, in the absence of bad faith on its part, as conclusive evidence of the facts and conclusions stated therein and shall be full warrant, protection and authority to the Trustee for its actions taken hereunder. (m) The Trustee may construe any ambiguous or inconsistent provisions of this Indenture in such manner as it deems reasonable, and any such construction of such provisions by the Trustee shall be binding upon the Issuer, the Borrower, the Bank, the Participating Bank and the Holders. (n) At the written request of any Holder or beneficial owner of the Bonds, the Trustee shall (i) request the Borrower to provide the Trustee with copies of such financial statements and reports as the Trustee may be entitled to receive pursuant to Section 5.5 of the Loan Agreement and (ii) provide to such Holder or beneficial owner copies of any financial statements and reports received by the Trustee pursuant to Section 5.5 of the Loan Agreement and/or any notices of litigation received by the Trustee pursuant to Section 5.9 of the Loan Agreement. SECTION 8.03. Fees, Charges and Expenses of Trustee. The Trustee shall be entitled to payment or reimbursement by the Borrower, as provided in the Loan Agreement, for reasonable fees for the Ordinary Services of the Trustee and its agents rendered hereunder and for all 59 advances, counsel fees and other Ordinary Expenses reasonably and necessarily paid or incurred by it and its agents in connection with the provision of Ordinary Services. For purposes hereof, fees for Ordinary Services provided for by their respective standard fee schedule shall be considered reasonable. In the event that it should become necessary for any of them to perform Extraordinary Services, they shall be entitled to reasonable extra compensation therefor and to reimbursement for reasonable and necessary Extraordinary Expenses incurred in connection therewith. The Trustee shall not be entitled to compensation or reimbursement for Extraordinary Services or Extraordinary Expenses occasioned by its gross negligence or willful misconduct. The fees for the Trustee's Ordinary Services and Ordinary Expenses and Extraordinary Services and Extraordinary Expenses shall be entitled to payment and reimbursement only from (i) the Project Fund, (ii) the Additional Payments made by the Borrower pursuant to the Loan Agreement, or (iii) from other moneys available therefor; provided that in no event shall any such fees be paid from funds drawn on the Letter of Credit. Any amounts payable to the Trustee pursuant to this Section shall be payable upon demand and shall bear interest from five Business Days following the date of demand therefor at the Interest Rate for Advances. The initial or acceptance fees of the Trustee and the fees, charges and expenses of the Trustee and its agents described above, may be paid by the Trustee from the Project Fund as and when due to the extent that those fees, charges and expenses become due during the Construction Period (as defined in the Loan Agreement). SECTION 8.04. Intervention by Trustee. The Trustee may intervene on behalf of the Holders, and shall intervene if requested to do so in writing by the Holders of at least 25% of the aggregate principal amount of Bonds outstanding, in any judicial proceeding to which the Issuer or the Borrower is a party and which in the opinion of the Trustee and its counsel has a substantial bearing on the interests of Holders of the Bonds. The rights and obligations of the Trustee under this Section are subject to the approval of that intervention by a court of competent jurisdiction. The Trustee may require that a satisfactory indemnity bond be provided to it in accordance with Sections 8.01 and 8.02 before it takes action hereunder. SECTION 8.05. Successor Trustee. Anything herein to the contrary notwithstanding, (a) any corporation or association (i) into which the Trustee may be converted or merged, (ii) with which the Trustee or any successor to it may be consolidated, or (iii) to which the Trustee may sell or transfer its assets and trust business as a whole or substantially as a whole, or any corporation or association resulting from any such conversion, merger, consolidation, sale or transfer, ipso facto, shall be and become successor Trustee hereunder and shall be vested with all of the title to the whole property or trust estate hereunder; and (b) that corporation or association, as successor Trustee, shall be vested further, as was its predecessor, with each and every trust, property, remedy, power, right, duty, obligation, discretion, privilege, claim, demand, cause of action, immunity, estate, title, interest and lien expressed or intended by this Indenture to be exercised by, vested in or conveyed to the Trustee, without the execution or filing of any instrument or document or any further act on the part of any of the parties hereto. 60 Any successor Trustee, however, (i) shall be a trust company or a bank having the powers of a trust company, (ii) shall be in good standing within the Commonwealth of Pennsylvania, (iii) shall be duly authorized to exercise trust powers within the Commonwealth of Pennsylvania, and (iv) shall have a reported capital and surplus of not less than $50,000,000 and a rating assigned to its long-term unsecured debt by Moody's Investors Service, Inc. at least equal to "Baa3" (if the Bonds are then rated by Moody's Investors Service, Inc.) and by Standard & Poor's Ratings Services at least equal to "BBB-" (if the Bonds are then rated by Standard & Poor's Ratings Services) unless the Issuer receives written confirmation from the respective Rating Service that the appointment of a particular successor trustee not meeting such rating requirement will not result in a reduction or withdrawal of its rating of the Bonds. SECTION 8.06. Resignation by Trustee. The Trustee may resign at any time from the trusts created hereby by giving written notice of the resignation to the Issuer, the Borrower, the Bank, the Participating Bank and the Remarketing Agent and by mailing written notice of the resignation to the Holders as their names and addresses appear on the Register at the close of business 15 days prior to the mailing. The resignation shall take effect only upon the appointment of a successor Trustee. SECTION 8.07. Removal of Trustee. The Trustee may be removed at any time by an instrument or document or concurrent instruments or documents delivered to the Trustee at least five Business Days prior to the date of removal, with copies thereof mailed to the Issuer, the Borrower, the Bank, the Participating Bank and the Remarketing Agent, and signed by or on behalf of the Holders of not less than a majority in aggregate principal amount of the Bonds outstanding. The Trustee also may be removed at any time for any breach of trust or for acting or proceeding in violation of, or for failing to act or proceed in accordance with, any provision of this Indenture with respect to the duties and obligations of the Trustee by any court of competent jurisdiction upon the application of the Issuer or the Holders of not less than 25% in aggregate principal amount of the Bonds outstanding. The removal of the Trustee pursuant to this Section shall take effect only upon the appointment of a successor Trustee. SECTION 8.08. Appointment of Successor Trustee. If (i) the Trustee shall resign, shall be removed, shall be dissolved, or shall become otherwise incapable of acting hereunder, (ii) the Trustee shall be taken under the control of any public agency, or (iii) a receiver shall be appointed for the Trustee by a court, then a successor Trustee shall be appointed by the Issuer, with the written consent of the Borrower, the Bank and the Participating Bank; provided that if a successor Trustee is not so appointed within 10 days after (a) a notice of resignation or an instrument or document of removal is received by the Issuer, as provided in Sections 8.06 and 8.07, respectively, or (b) the Trustee is dissolved, taken under control, becomes otherwise incapable of acting or a receiver is appointed, in each case, as provided above, then, so long as the Issuer shall not have appointed a successor Trustee, the Holders of a majority in aggregate principal amount of Bonds outstanding may designate a successor Trustee by an instrument or document or concurrent instruments or documents in writing signed by or on behalf of those Holders. If no appointment of a successor Trustee shall be made pursuant to the foregoing provisions of this Section, the Holder of any Bond outstanding or any 61 retiring Trustee may apply to any court of competent jurisdiction to appoint a successor Trustee. Such court may thereupon, after such notice, if any, as such court may deem proper and prescribe, appoint a successor Trustee. Every successor Trustee appointed pursuant to this Section (i) shall be a trust company or a bank having the powers of a trust company, (ii) shall be in good standing within the Commonwealth of Pennsylvania, (iii) shall be duly authorized to exercise trust powers within the Commonwealth of Pennsylvania, (iv) shall have a reported capital and surplus of not less than $50,000,000 and a rating assigned to its long-term unsecured debt by Moody's Investors Service, Inc. at least equal to "Baa3" (if the Bonds are then rated by Moody's Investors Service, Inc.) and by Standard & Poor's Ratings Services at least equal to "BBB-" (if the Bonds are then rated by Standard & Poor's Ratings Services) unless the Issuer receives written confirmation from the Rating Service that the appointment of a particular successor trustee not meeting such rating requirement will not result in a reduction or withdrawal of its rating of the Bonds, and (v) shall be willing to accept the trusteeship under the terms and conditions of this Indenture. Every successor Trustee appointed hereunder shall execute and acknowledge, and shall deliver to its predecessor, the Issuer, the Borrower, the Bank, the Participating Bank and the Remarketing Agent, an instrument or document in writing accepting the appointment. Thereupon, without any further act, the successor shall become vested with all of the trusts, properties, claims, demands, causes of action, immunities, estates, titles, interests and liens of its predecessor. Upon the written request of its successor, the Issuer, the Borrower, the Bank, the Participating Bank or the Remarketing Agent, the predecessor Trustee (i) shall execute and deliver an instrument or document transferring to its successor all of the trusts, properties, remedies, powers, rights, duties, obligations, discretions, privileges, claims, demands, causes of action, immunities, estates, titles, interests and liens of the predecessor Trustee hereunder, and (ii) shall take any other action necessary to duly assign, transfer and deliver to its successor all property (including, without limitation, all securities and moneys and the Letter of Credit) held by it as Trustee. Should any instrument or document in writing from the Issuer be requested by any successor Trustee for vesting and conveying more fully and certainly in and to that successor the trusts, properties, remedies, powers, rights, duties, obligations, discretions, privileges, claims, demands, causes of action, immunities, estates, titles, interests and liens vested or conveyed or intended to be vested or conveyed hereby in or to the predecessor Trustee, the Issuer shall execute, acknowledge and deliver that instrument or document. In the event of a change in the Trustee, the predecessor Trustee shall cease to be custodian of any moneys which it may hold pursuant to this Indenture and shall cease to be Bond registrar, transfer agent, tender agent, authenticating agent and paying agent for the Bonds. The successor Trustee shall become custodian for moneys held under this Indenture and Bond registrar, transfer agent, tender agent, authenticating agent and paying agent as and to the extent provided herein. SECTION 8.09. Adoption of Authentication. In case any of the Bonds shall have been authenticated, but shall not have been delivered, any successor Trustee may adopt the certificate of authentication of any predecessor Trustee and may deliver those Bonds so authenticated as provided herein. In case any Bonds shall not have been authenticated, any successor Trustee may authenticate those Bonds either in the name of any predecessor or in its own name. In all cases, the 62 certificate of authentication shall have the same force and effect as provided in the Bonds or in this Indenture with respect to the certificate of authentication of the predecessor Trustee. SECTION 8.10. Designation and Succession of Authenticating Agent, Bond Registrar, Transfer Agent, Tender Agent and Paying Agent. The Trustee may, with the consent of the Issuer, appoint an agent or agents, with power to act on the Trustee's behalf and subject to the Trustee's direction in the authentication, registration, transfer and exchange and tender of Bonds and payment of Bond Service under the provisions of this Indenture; provided that any tender agent or paying agent so appointed shall have and maintain a rating assigned to its long-term unsecured debt by Moody's Investors Service, Inc. at least equal to "Baa3" (if the Bonds are then rated by Moody's Investors Service, Inc.) and by Standard & Poor's Ratings Services at least equal to "BBB-" (if the Bonds are then rated by Standard & Poor's Ratings Services) unless the Issuer receives written confirmation from the Rating Service that the appointment of a tender agent or paying agent not meeting such rating requirement will not result in a reduction or withdrawal of its rating of the Bonds. For all purposes of this Indenture, the authentication, registration and delivery of Bonds by any such agent pursuant to this Section shall be deemed to be authentication, registration and delivery of those Bonds by the Trustee. Any corporation or association with or into which any such agent may be merged or converted or with which it may be consolidated, or any corporation or association resulting from any merger, consolidation or conversion to which any such agent shall be a party, or any corporation or association succeeding to the trust business of any such agent, shall be the successor of that agent hereunder, if that successor corporation or association is otherwise eligible hereunder, without the execution or filing of any paper or any further act on the part of the parties hereto or the such agent or such successor corporation. Any such agent may at any time resign by giving written notice of resignation to the Trustee and to the Issuer, the Borrower and the Remarketing Agent. The Trustee may at any time terminate the agency of any such agent by giving written notice of termination to such agent and to the Issuer, the Borrower and the Remarketing Agent. Upon receiving such a notice of resignation or upon such a termination, or in the case at any time any such agent shall cease to be eligible under this Section, the Trustee may appoint a successor agent. The Trustee shall give written notice of appointment of a successor agent to the Issuer, the Borrower and the Remarketing Agent and shall mail, within 10 days after that appointment, notice thereof to all Holders as their names and addresses appear on the Register on the date of that appointment. The Trustee shall pay to any such agent from time to time reasonable compensation for its services, and the Trustee shall be entitled to be reimbursed for such payments as Ordinary Expenses, subject to Section 8.03. The pertinent provisions of Subsections 8.02(b), (c), (d), (h) and (i) shall be applicable to any such agent. SECTION 8.11. Dealing in Bonds. The Trustee, the Bank, the Participating Bank and the Remarketing Agent, their affiliates, and any directors, officers, employees or agents thereof, in good faith, may become the owners of Bonds secured hereby with the same rights which it 63 or they would have hereunder if the Trustee, the Bank, the Participating Bank or the Remarketing Agent did not serve in those capacities. The Trustee may be, or be affiliated with, the Remarketing Agent, the Bank or the Participating Bank. The Trustee may also engage in or be interested in any financial or other transaction with the Issuer, the Borrower or any related party. SECTION 8.12. Representations, Agreements and Covenants of Trustee. Dauphin Deposit Bank and Trust Company hereby represents and covenants that it is a Pennsylvania banking corporation duly organized and validly existing under the laws of, and duly authorized to exercise corporate trust powers in, the Commonwealth of Pennsylvania, that it will take such action, if any, as is necessary to remain in good standing and duly authorized to exercise corporate trust powers in the Commonwealth of Pennsylvania, and that it has a rating assigned to its long-term unsecured debt by Moody's Investors Service, Inc. at least equal to "Baa3" (if the Bonds are then rated by Moody's Investors Service, Inc.) and by Standard & Poor's Ratings Services at least equal to "BBB-" (if the Bonds are then rated by Standard & Poor's Ratings Services). SECTION 8.13. Appointment of Remarketing Agent. The Issuer shall, with notice to the Borrower, appoint the Remarketing Agent for the Bonds, subject to the conditions set forth in Section 8.14. The Remarketing Agent shall designate to the Trustee its Principal Office and signify its acceptance of the duties and obligations imposed upon it hereunder by a written instrument of acceptance delivered to the Issuer, the Borrower and the Trustee under which the Remarketing Agent will agree, particularly: (a) to hold all Bonds delivered to it by the Trustee for delivery to the Holders of such Bonds; (b) to hold all moneys delivered to it representing the purchase price of Bonds for the benefit of the Person or entity entitled to receive the payment of such purchase price; (c) to determine the Weekly Rate and the Term Rate in accordance with Sections 2.03 and 2.04 of this Indenture, and to give notice to the Trustee of the Weekly Rate, and to the Trustee, the Issuer, the Borrower, the Bank and the Participating Bank of the Term Rate, on the date of the determination thereof; and (d) to keep such books and records as shall be consistent with prudent industry practice and to make such books and records available for inspection by the Issuer, the Trustee, the Borrower, the Bank and the Participating Bank at all reasonable times. In addition, the Remarketing Agent will enter into the Remarketing Agreement with the Borrower in form and substance mutually satisfactory to them. The Remarketing Agent shall be entitled to advice of legal counsel on any matter relating to the Remarketing Agent's obligations hereunder and shall be entitled to act upon the opinion of such counsel in the exercise of reasonable care in fulfilling such obligations. SECTION 8.14. Qualifications of Remarketing Agent. The Remarketing Agent shall be a national banking association or a bank or trust company or a member of the National 64 Association of Securities Dealers, Inc., authorized by law to perform all the duties imposed upon it by this Indenture, and shall have a rating assigned to its long-term unsecured debt by Moody's Investors Service, Inc. at least equal to "Baa3" (if the Bonds are then rated by Moody's Investors Service, Inc.) and by Standard & Poor's Ratings Services at least equal to "BBB-" (if the Bonds are then rated by Standard & Poor's Ratings Services) unless the Issuer receives written confirmation from the Rating Service that the appointment of a particular Remarketing Agent not meeting such rating requirement will not result in a reduction or withdrawal of its rating of the Bonds. The Remarketing Agent may at any time resign and be discharged of the duties and obligations created by this Indenture by giving at least 30 days' prior written notice by registered or certified mail to the Trustee, the Issuer, the Borrower, the Bank and the Participating Bank. The Remarketing Agent may be removed at any time by the Issuer, with the consent of the Borrower (provided that the Borrower shall be deemed to have consented to the removal of a Remarketing Agent which has ceased to meet the foregoing qualifications), upon 30 days' notice which shall be in writing, signed by the Issuer and delivered to the Remarketing Agent, the Borrower, the Trustee, the Bank and the Participating Bank. In the event of the resignation or removal of the Remarketing Agent, the Issuer, with the consent of the Borrower, the Bank and the Participating Bank, shall appoint a successor Remarketing Agent meeting the qualifications set forth in this Section and the Remarketing Agent shall pay over, assign and deliver any moneys and Bonds held by it in such capacity to its successor or, if there be no successor, to the Trustee as hereinafter provided. In the event that the Remarketing Agent shall resign or be removed, or be dissolved, or if the property or affairs of the Remarketing Agent shall be taken under the control of any state or federal court or administrative body because of bankruptcy or insolvency, or for any other reason, and the Issuer shall not have appointed its successor as Remarketing Agent, the Trustee, notwithstanding the provisions of the first paragraph of this Section, shall ipso facto be deemed to be the Remarketing Agent for all purposes of this Indenture until the appointment by the Issuer of the successor Remarketing Agent; provided that the Trustee, in its capacity as Remarketing Agent, shall not be required to remarket Bonds nor to establish the Weekly Rate or the Term Rate. SECTION 8.15. Compensation and Expenses of Remarketing Agent. Pursuant to Section 4.4 of the Loan Agreement, the Borrower is obligated to pay directly reasonable compensation to and the reasonable expenses of the Remarketing Agent. The terms of such obligation may be set forth in the Remarketing Agreement. (End of Article VIII) 65 ARTICLE IX SUPPLEMENTS AND AMENDMENTS SECTION 9.01. Supplemental Indentures Not Requiring Consent of Holders. Without the consent of or notice to any Holders, the Issuer and the Trustee may enter into indentures supplemental to this Indenture for any one or more of the following purposes: (a) To cure any ambiguity, inconsistency or formal defect or omission in this Indenture; (b) To grant to or confer upon the Trustee for the benefit of the Holders any additional rights, remedies, powers or authority; (c) To confirm any pledge of or lien on the Revenues, to assign additional revenues under this Indenture or to accept additional security or instruments of further assurance; (d) To add to the covenants, agreements and obligations of the Issuer under this Indenture, other covenants, agreements and obligations to be observed for the protection of the Holders, or to surrender or limit any right, power or authority reserved to or conferred upon the Issuer in this Indenture; (e) To permit the use of a book entry system to identify the owner of an interest in an obligation issued by the Issuer under this Indenture, whether that obligation was formerly, or could be, evidenced by a tangible security; (f) To permit the Trustee to comply with any obligations imposed upon it by law; (g) To specify further the duties and responsibilities of, and to define further the relationship among, the Trustee and the Remarketing Agent; (h) To achieve compliance of this Indenture with any applicable federal securities or tax laws; (i) To evidence the appointment of a new Remarketing Agent; (j) To provide for an Alternate Letter of Credit any other credit enhancement, or no credit enhancement, all as permitted by the terms of this Indenture; (k) To make any amendments required to secure a rating on the Bonds from a Rating Service equal to the rating of the Bank's unsecured indebtedness; 66 (l) To implement a conversion to a Term Mode Rate; or (m) To permit any other amendment which is not materially adverse to the interests of the Trustee or the Holders. Before the Issuer and the Trustee shall enter into any Supplemental Indenture pursuant to this Section, there shall have been delivered to the Trustee and the Issuer an opinion of Bond Counsel to the effect that such Supplemental Indenture is authorized or permitted by this Indenture and the Act and will, upon the execution and delivery thereof, be valid and binding upon the Issuer in accordance with its terms. SECTION 9.02. Supplemental Indentures Requiring Consent of Holders. In addition to the Supplemental Indentures permitted by Section 9.01, this Indenture may be amended or supplemented from time to time by a Supplemental Indenture consented to by the Borrower and approved by Holders of a majority in aggregate principal amount of the Bonds then outstanding, except that, other than as permitted by Section 9.01, this Indenture may not be amended with respect to (1) the principal or redemption price or interest payable upon any Bonds, (2) the Interest Payment Dates, the dates of maturity or the redemption or purchase provisions of any Bonds, and (3) this Article. This Indenture may be amended with respect to the matters enumerated in clauses (1) to (3) of the preceding sentence only with the unanimous consent of all Holders. Before the Issuer and the Trustee may enter into such Supplemental Indenture, there shall have first been delivered to the Trustee (a) the required consents, in writing, of Holders and (b) an opinion of Bond Counsel to the effect that such Supplemental Indenture is authorized or permitted by this Indenture and the Act and will, upon the execution and delivery thereof, be valid and binding upon the Issuer in accordance with its terms. SECTION 9.03. Consent of Borrower and Participating Bank. Anything contained herein to the contrary notwithstanding, a Supplemental Indenture executed and delivered in accordance with this Article which affects any rights of the Borrower or the Participating Bank shall not become effective unless and until the Borrower or the Participating Bank (as appropriate) shall have consented in writing to the execution and delivery of that Supplemental Indenture. SECTION 9.04. Authorization to Trustee; Effect of Supplement. The Trustee is authorized to join with the Issuer in the execution and delivery of any Supplemental Indenture in accordance with this Article and to make the further agreements and stipulations which may be contained therein. Thereafter, (a) such Supplemental Indenture shall form a part of this Indenture; (b) all terms and conditions contained in that Supplemental Indenture as to any provision authorized to be contained therein shall be deemed to be a part of the terms and conditions of this Indenture for any and all purposes; (c) this Indenture shall be deemed to be modified and amended in accordance with the Supplemental Indenture; and (d) the respective rights, duties and obligations under this Indenture of the Issuer, the Borrower, the Trustee, the Paying Agents, the Remarketing Agent, the Bank, the Participating Bank and all Holders of Bonds outstanding shall be determined, exercised and enforced hereunder in a manner which is subject in all respects to those modifications and amendments made by the Supplemental Indenture. The Trustee shall not be required to execute any Supplemental Indenture containing provisions adverse to the Trustee. 67 SECTION 9.05. Modification by Unanimous Consent. Notwithstanding anything contained elsewhere in this Indenture, the rights and obligations of the Issuer and of the Holders, and the terms and provisions of the Bonds and this Indenture or any Supplemental Indenture, may be modified or altered in any respect with the consent of (i) the Issuer, (ii) the Holders of all of the Bonds outstanding, (iii) the Bank, (iv) the Participating Bank and (v) the Borrower. SECTION 9.06. Amendment of Loan Agreement. If the Issuer and the Borrower propose to amend the Loan Agreement, the Trustee may consent thereto; provided that if such proposal would amend the Loan Agreement in such a way as would materially adversely affect the interests of the Holders, the Trustee shall notify Holders of the proposed amendment and may consent thereto with the consent of Holders of a majority in aggregate principal amount of the Bonds then outstanding, except that no amendment materially adversely affecting the interests of the Holders shall be consented to by the Trustee without the unanimous consent of all Holders if such materially adverse amendment would (1) decrease the amounts payable under the Loan Agreement constituting Revenues, (2) change the date of payment or prepayment provisions under the Loan Agreement, or (3) change any provisions with respect to amendment. Before the Issuer shall enter into, and the Trustee shall consent to, any modification, alteration, amendment or supplement to the Loan Agreement pursuant to this Section, there shall have been delivered to the Issuer and the Trustee an opinion of Bond Counsel to the effect that such amendment is authorized or permitted by this Indenture and the Act. SECTION 9.07. Amendment of Letter of Credit. If the Bank proposes to amend the Letter of Credit, the Trustee may consent thereto, provided that (a) if such proposal would amend the Letter of Credit in such a way as would materially adversely affect the interests of the Holders, the Trustee shall notify the Holders and the Rating Service (if the Bonds are then rated by a Rating Service) of the proposed amendment and may consent thereto only with (i) the prior written consent of Holders of a majority in aggregate principal amount of the Bonds then outstanding and (ii) the confirmation by such Rating Service that such amendment will not result in a withdrawal or reduction of its rating of the Bonds, and (b) the Trustee shall not, without the unanimous consent of all Holders, consent to any amendment materially adversely affecting the interests of the Holders which would decrease or delay the amounts payable under the Letter of Credit in respect of outstanding Bonds on any Interest Payment Date or on any date of redemption, acceleration, payment at maturity or purchase of the Bonds, or advance the Expiration Date of the Letter of Credit to an earlier date. No consent of the Holders shall be required for amendments to the Letter of Credit which are provided for or contemplated by this Indenture. SECTION 9.08. Trustee Authorized to Join in Supplements and Amendments; Reliance on Counsel. The Trustee is authorized to join with the Issuer in the execution and delivery of any Supplemental Indenture or amendment permitted by this Article and in so doing shall be fully protected by an opinion of Counsel that such Supplemental Indenture or amendment is so permitted. SECTION 9.09. Bank Consent. Notwithstanding anything herein contained, so long as a Letter of Credit is held by the Trustee, no supplement or amendment shall be made to the Indenture or the Loan Agreement without the prior written consent of the Bank. 68 SECTION 9.10. Notice to Rating Service. The Trustee shall promptly notify the Rating Service (if the Bonds are then rated by a Rating Service) of any material supplement or amendment to this Indenture, the Loan Agreement, the Remarketing Agreement, the Letter of Credit, the Participating Bank Agreement or the Reimbursement Agreement. (End of Article IX) 69 ARTICLE X DEFEASANCE SECTION 10.01. Defeasance. When the principal of, and premium (if any) and interest on, all Bonds issued hereunder have been paid, or provision has been made for payment of the same and any tender purchase price which may become payable pursuant to Article IV, together with the compensation and expenses of the Trustee and all other sums payable hereunder by the Issuer or the Borrower, the right, title and interest of the Trustee in and to the Trust Estate shall thereupon cease and the Trustee, on demand of the Issuer or the Borrower, shall release this Indenture and shall execute such documents to evidence such release as may be reasonably required by the Issuer or the Borrower and shall turn over to the Borrower or to such person, body or authority as may be entitled to receive the same all balances then held by it hereunder not required for the payment of the Bonds and such other sums and shall surrender the Letter of Credit to the Bank; provided that (a) any proceeds of the Letter of Credit not required for payment of the Bonds shall be turned over to the Bank and (b) in the event there has been a drawing under the Letter of Credit for which the Bank has not been fully reimbursed pursuant to the Participating Bank Agreement or any other obligations are then due and owing to the Bank under the Participating Bank Agreement (or, in the event the Participating Bank has not been fully reimbursed pursuant to the Reimbursement Agreement or any other obligations are then due and owing to the Participating Bank under the Reimbursement Agreement), the Trustee shall assign and turn over to the Bank (or to the Participating Bank if the Trustee has received notice from the Bank that such obligations owing to it have been fully paid), as successor, subrogee or otherwise, all of the Trustee's right, title and interest under this Indenture, all balances held hereunder not required for the payment of the Bonds and such other sums and the Trustee's right, title and interest in, to and under the Loan Agreement and any other property comprising the Trust Estate. If payment or provision therefor is made with respect to less than all of the Bonds, the particular Bonds (or portions thereof) for which provision for payment shall have been considered made shall be selected by lot or by such other method as the Trustee deems fair and appropriate, and thereupon the Trustee shall take similar action for the release of this Indenture with respect to such Bonds. SECTION 10.02. Provision for Payment. (a) Provision for the payment of Bonds shall be deemed to have been made when the Trustee holds in the Bond Fund (1) cash in an amount sufficient to make all payments (including principal, premium, if any, interest and tender purchase price payments, if any) specified in Section 10.01 with respect to such Bonds, or (2) noncallable, direct obligations issued by the United States of America, maturing on or before the date or dates when the payments specified above shall become due, the principal amount of which and the interest thereon, when due, is or will be, in the aggregate, sufficient without reinvestment to make all such payments, or (3) any combination of cash and such obligations the amounts of which and interest thereon, when due, are or will be, in the aggregate, sufficient without reinvestment to make all such payments; provided that (i) such amount on deposit shall be deemed sufficient only if (A) while the Bonds bear interest at a Weekly Rate, it provides for payment of interest at the Maximum Rate and the Issuer shall have surrendered any power hereunder to thereafter change the Maximum Rate, or (B) while the Bonds bear interest at a Term Rate, it provides for payment of interest at such Term Rate and the Bonds have been irrevocably called or designated for 70 redemption in accordance with Subsection 10.02(c) on or before the Term Rate Period End Interest Payment Date of the Term Period for which such Term Rate has been set, and (ii) provision for payment of Bonds shall be deemed to be made only if (A) the Trustee holds in the Bond Fund cash constituting Available Moneys and/or such obligations purchased with Available Moneys for payment of such Bonds pursuant to Section 5.04 in amounts sufficient to make all payments specified above with respect to such Bonds, as verified by an accountant's certification in form and by an accountant acceptable to the Trustee and the Rating Service, and (B) in the case of Bonds in the Weekly Mode, the Bonds have been called for redemption on a date not more than 60 days from the date provision for payment is being made pursuant to this Section and, in determining the sufficiency of amounts held to make payments with respect to the Bonds, there shall be excluded any and all interest expected to be earned on obligations held by the Trustee. (b) Neither the moneys nor the obligations deposited with the Trustee pursuant to this Article shall be withdrawn or used for any purpose other than, and such obligations and moneys shall be segregated and held in trust for, the payment of the principal or redemption price of, premium, if any, on and interest on, the Bonds (or portions thereof), or for the payment of the purchase price of such Bonds in accordance with Article IV. While the Bonds are in the Weekly Mode, such moneys, if not then needed for such purpose, shall, but only to the extent practicable, be invested and reinvested in direct obligations issued by the United States of America maturing on or prior to the earlier of (i) the date moneys may be required for the purchase of Bonds pursuant to Article IV and (ii) the Interest Payment Date next succeeding the date of investment or reinvestment. (c) Whenever moneys or obligations shall be deposited with the Trustee for the payment or redemption of Bonds more than 60 days prior to the date that such Bonds are to mature or be redeemed, the Trustee shall mail a notice to the Holders of Bonds for the payment of which such moneys or obligations are being held at their registered addresses stating that such moneys or obligations have been deposited. Such notice shall also be sent by the Trustee to the Rating Service. Notwithstanding the foregoing, no delivery to the Trustee under this Section shall be deemed a payment of any Bonds which are to be redeemed prior to their stated maturity until such Bonds shall have been irrevocably called or designated for redemption on a date thereafter on which such Bonds may be redeemed in accordance with the provisions of this Indenture and proper notice of such redemption shall have been given in accordance with Article III or the Issuer shall have given the Trustee, in form satisfactory to the Trustee, irrevocable instructions to give, in the manner and at the times prescribed by Article III, notice of redemption. SECTION 10.03. Deposit of Funds for Payment of Bonds. If the principal or tender purchase price of any Bonds becoming due, either at maturity or by call for redemption or tender or otherwise, together with the premium (if any) thereon and all interest accruing thereon to the due date, has been paid or provision therefor made in accordance with Section 10.02, all interest on such Bonds shall cease to accrue on the due date and all liability of the Issuer with respect to such Bonds shall likewise cease, except as hereinafter provided. Thereafter, (a) any surplus balance held by the Trustee with respect to such Bonds over the principal of, premium (if any) on and actual interest accrued on such Bonds shall be paid to the Bank as a return of excess funds drawn under the Letter of Credit (or, if the Rating Service shall have confirmed its rating of the Bonds in connection with the provision for payment of the Bonds, such surplus shall be paid as may otherwise be approved by the Rating Service in connection with such confirmation) and (b) the Holders of such Bonds shall be 71 restricted exclusively to the funds so deposited for any claim of whatsoever nature with respect to such Bonds, and the Trustee shall hold such funds in trust for such Holders uninvested and without liability for interest thereon. Moneys so deposited with the Trustee which remain unclaimed five years after the date payment thereof becomes due shall, at the request of the Borrower (or the Bank or Participating Bank) and if neither the Issuer nor the Borrower is at the time to the knowledge of the Trustee in default with respect to any covenant contained in the Indenture, the Bonds or the Loan Agreement, be paid to the Borrower (or to the Bank or the Participating Bank as provided in Section 10.01 with respect to surplus balances), and the Holders of the Bonds for which the deposit was made shall thereafter be limited to a claim against the Borrower; provided that (i) such moneys shall not be remitted to the Borrower unless the Trustee shall have received an opinion of counsel experienced in matters pertaining to the United States Bankruptcy Code to the effect that the contemplated delivery of such moneys to the Borrower will not cause any other moneys paid to the Holders to be transfers of property voidable under Section 547 of the United States Bankruptcy Code should the Issuer or the Borrower become a debtor under the United States Bankruptcy Code, and (ii) the Trustee, before making payment to the Borrower, may, at the expense of the Borrower, cause a notice to be given to the Holders at their registered addresses, stating that the moneys remaining unclaimed will be returned to the Borrower after a specified date. SECTION 10.04. Survival of Certain Provisions. Notwithstanding the foregoing, any provisions of this Indenture which relate to the maturity of Bonds, interest payments and dates thereof, optional and mandatory redemption provisions, credit against mandatory sinking fund requirements, exchange, transfer and registration of Bonds, replacement of mutilated, lost, wrongfully taken or destroyed Bonds, safekeeping and cancellation of Bonds, nonpresentment of Bonds, holding of moneys in trust, payment of moneys to the Borrower, the Bank and the Participating Bank, and the duties of the Trustee in connection with all of the foregoing, shall remain in effect and be binding upon the Trustee and the Holders notwithstanding the release and discharge of this Indenture. The provisions of this Article shall survive the release, discharge and satisfaction of this Indenture. (End of Article X) 72 ARTICLE XI MISCELLANEOUS SECTION 11.01. Limitation of Rights; No Personal Recourse. With the exception of rights conferred expressly in this Indenture, nothing expressed or mentioned in or to be implied from this Indenture or the Bonds is intended or shall be construed to give to any Person other than the parties hereto, the Borrower, the Remarketing Agent, the Bank, the Participating Bank and the Holders any legal or equitable right, remedy, power or claim under or with respect to this Indenture or any covenants, agreements, conditions and provisions contained herein. This Indenture does not pledge the general credit nor the taxing power of the Commonwealth of Pennsylvania or any political subdivision thereof. The liability of the Issuer hereunder and under the Bonds and the Loan Agreement shall be limited to its interest in the Trust Estate. No covenant or agreement contained in this Indenture, the Bonds or the Loan Agreement shall be deemed to be the covenant or agreement of any member, director, officer, attorney, agent or employee of the Issuer in an individual capacity. No recourse shall be had for the payment of any claim based thereon against any member, director, officer, agent, attorney or employee of the Issuer past, present or future, or its successors or assigns, as such, either directly or through the Issuer, or any such successor corporation, whether by virtue of any constitutional provision, statute or rule of law, or by the enforcement of any assessment or penalty, or otherwise. SECTION 11.02. Severability. In case any section or provision of this Indenture, or any covenant, agreement, stipulation, obligation, act or action, or part thereof, made, assumed, entered into or taken under this Indenture, or any application thereof, is held to be illegal or invalid for any reason, or is inoperable at any time, such illegality, invalidity or inoperability shall not affect the remainder thereof or any other section or provision of this Indenture or any other covenant, agreement, stipulation, obligation, act or action, or part thereof, made, assumed, entered into or taken under this Indenture, all of which shall be construed and enforced at the time as if the illegal, invalid or inoperable portion were not contained therein. SECTION 11.03. Notices. Except as provided in Sections 3.04 and 7.02, it shall be sufficient service or giving of any notice, request, complaint, demand or other instrument or document, if it is duly mailed by first class mail. Notices to the Issuer, the Trustee, the Borrower, the Bank, the Participating Bank and the Remarketing Agent shall be addressed as follows: (a) If to the Issuer, at Montgomery County Industrial Development Authority, 3 Stoney Creek Office Center, 151 West Marshall Street, Norristown, Pennsylvania 19401, Attention: Gerald Birkelbach, Executive Director; (b) If to the Trustee, at Dauphin Deposit Bank and Trust Company, Trustee, 213 Market Street, Harrisburg, Pennsylvania 17101, Attention: Corporate Trust Services Department, M/C #001-01-02; 73 (c) If to the Borrower, at Neose Technologies, Inc., 102 Witmer Road, Horsham, Pennsylvania 19044, Attention: P. Sherrill Neff, President, with a copy to Ballard Spahr Andrews & Ingersoll, 1735 Market Street, Philadelphia, Pennsylvania 19103, Attention: Lynn Axelroth, Esquire; (d) If to the Bank, at CoreStates Bank, N.A., FC1-1-5-22, Broad and Chestnut Streets, Philadelphia, Pennsylvania 19101, Attention: Global Financial Institutions; (e) If to the Participating Bank, at Jefferson Bank, 1607 Walnut Street, Philadelphia, Pennsylvania 19103, Attention: Kenneth R. Frappier, Senior Vice President; and (f) If to the Remarketing Agent, at CoreStates Capital Markets, a Division of CoreStates Bank, N.A., 600 Penn Street, 2nd Floor, Reading, Pennsylvania 19602. The foregoing parties may designate, by notice given hereunder, any further or different addresses to which any subsequent notice, request, demand or other instrument or document shall be sent. The Trustee shall designate, by notice to the Issuer, the Borrower, the Bank, the Participating Bank and the Remarketing Agent addresses to which notices or copies thereof shall be sent to the Trustee's agents hereunder. In connection with any notice mailed pursuant to the provisions of this Indenture, a certificate of the Trustee, the Issuer, the Borrower, the Bank, the Participating Bank, the Remarketing Agent or the Holders, whichever mailed that notice, that the notice was so mailed shall be conclusive evidence of the proper mailing of the notice. The Trustee hereby agrees to send written notice to the Rating Service upon the occurrence of any of the following events: (1) any change in the Trustee or the Remarketing Agent or any tender agent or paying agent; (2) any amendment to the Indenture, the Loan Agreement, the Participating Bank Agreement or the Letter of Credit; (3) any termination, expiration or extension of the Letter of Credit; (4) each conversion of the interest rate on the Bonds; and (5) payment of all principal, interest and premium, if any, on all of the Bonds. The Delivery Office of the Trustee is 213 Market Street Harrisburg, Pennsylvania 17101, Attention: Corporate Trust Services Department, M/C #001-01-02. Such Delivery Office is subject to change as provided in this Indenture. SECTION 11.04. Suspension of Mail. If because of the suspension of delivery of first class mail or, for any other reason, the Trustee shall be unable to mail by first class of mail any notice required to be mailed by the provisions of this Indenture, the Trustee shall give such notice in such other manner as in the judgment of the Trustee shall most effectively approximate first class mailing thereof, and the giving of that notice in that manner for all purposes of this Indenture shall be deemed to be in compliance with the requirement for the mailing thereof. Except as otherwise provided herein, the mailing of any notice shall be deemed complete upon deposit of that notice in the mail and the giving of any notice by any other means of delivery shall be deemed complete upon receipt of the notice by the delivery service. 74 SECTION 11.05. Payments Due on Saturdays, Sundays and Holidays. If any Interest Payment Date, date of maturity of any Bonds or date fixed for redemption of any Bonds is a Saturday, Sunday or a day on which the Trustee or any paying agent is required, authorized or not prohibited, by law (including without limitation executive orders) to close and is closed, then payment of interest, principal and any redemption premium need not be made by the Trustee or any paying agent on that date, but that payment may be made on the next succeeding Business Day on which the Trustee or any paying agent is open for business with the same force and effect as if that payment were made on the Interest Payment Date, date of maturity or date fixed for redemption, and no interest shall accrue for the period after that date; provided that if the Trustee is open for business on the applicable Interest Payment Date, date of maturity or date fixed for redemption, it shall make any payment required hereunder with respect to payment of interest on outstanding Bonds and payment of principal of and premium on Bonds presented to it for payment, regardless of whether any paying agent shall be open for business or closed on the applicable Interest Payment Date, date of maturity or date fixed for redemption. SECTION 11.06. Instruments of Holders. Any writing, including without limitation any consent, request, direction, approval, objection or other instrument or document, required under this Indenture to be executed by any Holder may be in any number of concurrent writings of similar tenor and may be executed by that Holder in person or by an agent or attorney appointed in writing. Proof of (i) the execution of any such writing, (ii) the execution of any writing appointing any agent or attorney, and (iii) the ownership of Bonds, shall be sufficient for any of the purposes of this Indenture, if made in the following manner, and if so made, shall be conclusive in favor of the Trustee with regard to any action taken thereunder, namely: (a) The fact and date of the execution by any person of any writing may be proved by the certificate of any officer in any jurisdiction, who has power by law to take acknowledgments within that jurisdiction, that the person signing the writing acknowledged that execution before that officer, or by affidavit of any witness to that execution; and (b) The fact of ownership of Bonds shall be proved by the Register maintained by the Trustee. Nothing contained herein shall be construed to limit the Trustee to the foregoing proof, and the Trustee may accept any other evidence of the matters stated therein which it deems to be sufficient. Any writing, including without limitation any consent, request, direction, approval, objection or other instrument or document, of the Holder of any Bond shall bind every future Holder of the same Bond, with respect to anything done or suffered to be done by the Issuer, the Trustee or the Remarketing Agent pursuant to that writing. SECTION 11.07. Binding Effect. This Indenture shall inure to the benefit of and shall be binding upon the Issuer and the Trustee and their respective successors and assigns, subject, however, to the limitations contained herein. SECTION 11.08. Counterparts. This Indenture may be executed in any number of counterparts, each of which shall be regarded as an original and all of which shall constitute but one and the same instrument. 75 SECTION 11.09. Governing Law. This Indenture and the Bonds shall be deemed to be contracts made under the laws of the Commonwealth of Pennsylvania and for all purposes shall be governed by and construed in accordance with the laws of the Commonwealth of Pennsylvania. (End of Article XI) 76 IN WITNESS WHEREOF, the Issuer has caused this Indenture to be executed and delivered on its behalf by one of its duly authorized officers and its corporate seal to be hereunto affixed and attested by one of its duly authorized officers and the Trustee has caused this Indenture to be executed and delivered on its behalf by one of its duly authorized officers and its corporate seal to be hereunto affixed and attested by one of its duly authorized officers all as of the day and year first above written. [SEAL] MONTGOMERY COUNTY INDUSTRIAL DEVELOPMENT AUTHORITY Attest /s/ Gerald J. Birkelbach By /s/ Sherry Horowitz -------------------------- --------------------------- Assistant Secretary Chairperson [SEAL] DAUPHIN DEPOSIT BANK AND TRUST COMPANY, as Trustee Attest /s/ Rex. F. Hood By /s/ Bernard V. Kelly, Jr. ------------------------- --------------------------- Authorized Signer Authorized Signer This execution page is part of the Trust Indenture dated as of March 1, 1997 between Montgomery County Industrial Development Authority and Dauphin Deposit Bank and Trust Company, as Trustee, providing for the issuance of Federally Taxable Variable Rate Demand Revenue Bonds (Neose Technologies, Inc. Project) Series B of 1997. 77 EX-4.3 5 TAXABLE VARIABLE RATE DEMAND REVENUE BONDS Exhibit 4.3 [COPY] REGISTERED United States of America REGISTERED NO. R-1 Commonwealth of Pennsylvania $8,400,000 MONTGOMERY COUNTY INDUSTRIAL DEVELOPMENT AUTHORITY Federally Taxable Variable Rate Demand Revenue Bonds (Neose Technologies, Inc. Project) Series B of 1997 SERIES ISSUE DATE MATURITY DATE CUSIP March 20, 1997 March 1, 2017 613609 QH2 INTEREST RATE: WEEKLY RATE REGISTERED OWNER: CEDE & CO. PRINCIPAL AMOUNT: EIGHT MILLION FOUR HUNDRED THOUSAND DOLLARS The Montgomery County Industrial Development Authority (the "Issuer"), a public instrumentality and body corporate and politic of the Commonwealth of Pennsylvania organized and existing under the Pennsylvania Economic Development Financing Law, as amended (the "Act"), for value received, promises to pay to the registered owner specified above, or registered assigns, upon surrender hereof, but solely from the sources and in the manner referred to herein, the Principal Amount specified above on March 1, 2017, unless this Bond has been called for earlier redemption and payment of the redemption price shall have been duly made or provided for, and to pay from those sources interest thereon from the most recent Interest Payment Date (hereinafter defined) to which interest has been paid or duly provided for or from the Series Issue Date specified above if no interest has been paid, at the rates determined as provided herein, until the Principal Amount is paid or duly provided for, commencing on the first Interest Payment Date after the Date of Authentication hereof. So long as this Bond bears interest at a Weekly Rate (hereinafter defined) as specified above, this Bond shall be purchased on demand of the registered owner hereof as hereinafter described. The principal of and any premium on this Bond are payable upon presentation and surrender hereof at the principal corporate trust office of Dauphin Deposit Bank and Trust Company, Harrisburg, Pennsylvania (the "Trustee"), or at the duly designated office of any duly appointed alternate or successor trustee. Interest on this Bond is payable on each Interest Payment Date by check mailed to the registered owner of this Bond (the "Holder") in whose name ownership of this Bond is registered, at such Holder's address as it appears on the registration books (the "Register") for this issue maintained by the Trustee at the close of business on the Regular Record Date which shall be (i) while this Bond bears interest at a Weekly Rate, the last Business Day preceding an Interest Payment Date and (ii) while this Bond bears interest at a Term Rate (hereinafter defined), the fifteenth day of the calendar month next preceding the Interest Payment Date (the "Regular Record Date"). Any interest which is not timely paid or duly provided for shall cease to be payable to the Holder as of the Regular Record Date, and shall be payable to the Holder in whose name this Bond is registered at the close of business on a Special Record Date to be fixed by the Trustee for the payment of such overdue interest. Notice of the Special Record Date shall be mailed to Holders not less than ten days prior thereto. The interest and the principal or redemption price and purchase price becoming due with respect to the Bonds (hereinafter defined) shall, at the written request of the Holder of at least $1,000,000 aggregate principal amount of such Bonds, be paid by wire transfer within the continental United States in immediately available funds to the bank account number of such Holder appearing on the Register, but, in the case of principal or redemption price and purchase price, only upon presentation and surrender of such Bonds at the principal corporate trust office of the Trustee. The principal or purchase price of and interest and any premium on this Bond are payable in lawful money of the United States of America. This Bond is one of a duly authorized issue of Federally Taxable Variable Rate Demand Revenue Bonds (Neose Technologies, Inc. Project) Series B of 1997 (the "Bonds"), issued under and secured by a Trust Indenture dated as of March 1, 1997 (the "Indenture") between the Issuer and the Trustee, in the aggregate principal amount of $8,400,000. The Issuer has entered into a Loan Agreement dated as of March 1, 1997 (the "Loan Agreement") with Neose Technologies, Inc. (the "Borrower") providing for the loan of the proceeds of the Bonds to finance certain costs of the acquisition, improvement and equipment of a facility which will be used for the development and pilot production of complex carbohydrates for research and development relating to a variety of healthcare applications as more fully described in the Loan Agreement (the "Project") to be owned and operated by the Borrower, located in Horsham Township, Montgomery County, Pennsylvania, and providing for loan payments by the Borrower in amounts sufficient to pay, when due, the principal of, premium, if any, on and interest on the Bonds. The Bonds have been issued by the Issuer to aid in the financing of the Project to accomplish the public purposes of the Act. The Issuer has assigned to the Trustee as security for the Bonds under and pursuant to the Indenture all of the Issuer's right, title and interest in and to (i) the Loan Agreement and all amounts payable thereunder (except for payments with respect to certain expenses, indemnification and excess investment earnings) and (ii) all moneys and investments held by the Trustee from time to time in certain funds and accounts established under the Indenture. THIS BOND IS A LIMITED OBLIGATION OF THE ISSUER AND IS PAYABLE SOLELY FROM THE SOURCES REFERRED TO HEREIN. NEITHER THE COUNTY OF MONTGOMERY, NOR THE COMMONWEALTH OF PENNSYLVANIA NOR ANY POLITICAL SUBDIVISION THEREOF IS OR SHALL BE OBLIGATED TO PAY THE PRINCIPAL OF OR PREMIUM, IF ANY, OR INTEREST ON THIS BOND, AND THIS BOND SHALL NOT BE OR BE DEEMED AN OBLIGATION OF THE COUNTY OF MONTGOMERY, THE COMMONWEALTH OF PENNSYLVANIA OR ANY POLITICAL SUBDIVISION THEREOF. NEITHER THE FAITH AND CREDIT NOR THE TAXING POWER OF THE COUNTY OF MONTGOMERY, THE COMMONWEALTH OF PENNSYLVANIA OR ANY POLITICAL SUBDIVISION THEREOF IS PLEDGED TO THE PAYMENT OF THE PRINCIPAL OF OR PREMIUM, IF ANY, OR THE INTEREST ON THIS BOND. THE ISSUER HAS NO TAXING POWER. 2 No recourse shall be had for the payment of the principal of or interest or any premium on this Bond, or for any claim based hereon or on the Indenture, against any member, director, officer or employee, past, present or future, of the Issuer or of any successor body, as such, either directly or through the Issuer or any such successor body, under any constitutional provision, statute or rule of law, or by the enforcement of any assessment or by any legal or equitable proceeding or otherwise. The Bonds are payable solely from payments to be made by the Borrower to the Trustee pursuant to the Loan Agreement and from any other moneys pledged to or held by the Trustee under the Indenture for such purpose, and there shall be no other recourse against the Issuer or any other property now or hereafter owned by it. Except as otherwise specified in the Indenture, this Bond is entitled to the benefits of the Indenture equally and ratably as to principal, premium, if any, and interest with all other Bonds issued under the Indenture. No additional Bonds may be issued under the Indenture. Reference is made to the Indenture and the Loan Agreement for a description of the rights of the Holders of the Bonds; the rights and obligations of the Issuer and the Borrower; the rights, duties and obligations of the Trustee; and the provisions relating to amendments and modifications thereof. The acceptance of the terms and conditions of such documents and the Letter of Credit described below, copies of which are on file at the principal corporate trust office of the Trustee, is an explicit and material part of the consideration of the Issuer's issuance hereof, and each Holder by acceptance of this Bond accepts and assents to all such terms and conditions as if fully set forth herein. The Holder shall have no right to enforce the provisions of the Indenture, the Loan Agreement or the Letter of Credit or the rights and remedies thereunder, except as provided in the Indenture. Capitalized terms used in this Bond which are not defined herein but which are defined in the Indenture shall have the respective meanings set forth in the Indenture. The Borrower has caused to be issued and delivered to the Trustee by CoreStates Bank, N.A., Philadelphia, Pennsylvania, an irrevocable letter of credit pursuant to which the Trustee is authorized, subject to the terms and conditions thereof, to draw up to (a) an amount equal to the principal amount of the Bonds (i) to enable the Trustee to pay the principal amount of the Bonds when due at maturity or upon redemption or acceleration and (ii) to enable the Trustee to pay the portion of the purchase price of Bonds tendered to it and not remarketed corresponding to the principal amount of such Bonds, plus (b) an amount equal to 46 days accrued interest on the outstanding Bonds at 17% per annum while the Bonds bear interest at the Weekly Rate (i) to enable the Trustee to pay interest on the Bonds when due and (ii) to enable the Trustee to pay the portion of the purchase price of Bonds tendered to it and not remarketed corresponding to the accrued interest on such Bonds. Such irrevocable letter of credit or any alternate letter of credit delivered to the Trustee in accordance with the terms of the Indenture is herein called the "Letter of Credit". The Indenture provides that, if a Letter of Credit is to be in effect while the Bonds bear interest at a Term Rate, such Letter of Credit must provide for (i) 195 days accrued interest on the outstanding Bonds at a rate not less than the applicable Term Rate and (ii) coverage of premium in an amount equal to the premium (if any) which would become payable on the Bonds upon mandatory purchase if such Letter of Credit were not extended beyond the Expiration Date set forth therein. As used herein, the term "Bank" shall mean CoreStates Bank, N.A., as issuer of the Letter of Credit or the bank issuing any Alternate Letter of Credit. The Letter of Credit expires on March 20, 2002, unless terminated earlier pursuant to its terms or extended. Subject to the provisions of the Indenture, the Issuer may, but is not required to, cause the Letter of Credit to be extended or replaced with an Alternate Letter of Credit having substantially the same terms. The Bank is under no obligation to extend the Letter of Credit. Unless the Letter of 3 Credit is extended or replaced in accordance with the terms of the Indenture, this Bond will become subject to mandatory redemption, as described below. The Letter of Credit is being issued pursuant to a Participation and Reimbursement Agreement (as the same may be amended or replaced, the "Participating Bank Agreement") between the Bank and Jefferson Bank (including any replacement bank in such capacity, the "Participating Bank"). Pursuant to the Participating Bank Agreement, the Participating Bank is obligated to reimburse the Bank for all drawings made under the Letter of Credit. The Borrower and the Participating Bank have entered into a reimbursement agreement (as the same may be amended or replaced, the "Reimbursement Agreement") under which the Borrower is obligated, among other things, to reimburse the Participating Bank for all payments made by it to the Bank under the Participating Bank Agreement. INTEREST ON BONDS General. This Bond shall bear interest at a Weekly Rate or a Term Rate, as specified above and described below. The Bonds shall initially bear interest at a Weekly Rate, subject to conversion to a Term Rate, as described herein. A "Weekly Rate" is an interest rate for a Weekly Rate Period determined and adjusted weekly as described below. A "Term Rate" is an interest rate for a Term Rate Period determined as described below. The Bonds are in the "Weekly Mode" if they bear interest at a Weekly Rate and a "Term Mode" if they bear interest at a Term Rate. The Weekly Mode and each Term Mode are each a "Rate Mode". All computations of interest at a Weekly Rate shall be based on a year of 365 or 366 days, as appropriate; and all computations of interest at a Term Rate shall be based on a 360-day year of twelve 30-day months. As used in this Bond, the term "Interest Payment Date" means (i) with respect to Weekly Rate Interest, the first Wednesday of each calendar month commencing April 2, 1997, or if any such Wednesday is not a Business Day, the immediately succeeding Business Day, and (ii) with respect to Term Rate Interest, each March 1 and September 1. Weekly Rate. A Weekly Rate shall be determined for each Weekly Rate Period as described below. On each Weekly Rate Calculation Date, the Remarketing Agent under the Indenture (the "Remarketing Agent"), initially CoreStates Capital Markets, a Division of CoreStates Bank, N.A., shall determine the Weekly Rate (for the Weekly Rate Period commencing on such Weekly Rate Calculation Date) as the rate which if borne by the Bonds would, in the judgment of the Remarketing Agent, taking into account prevailing financial market conditions, be the lowest interest rate necessary to enable the Remarketing Agent to arrange for the sale of all of the outstanding Bonds at a price equal to the principal amount thereof plus accrued interest thereon. Anything herein to the contrary notwithstanding, in no event shall any Weekly Rate exceed 17% per annum. As used in this Bond, "Weekly Rate Calculation Date" means Wednesday in each calendar week or, if any Wednesday is not a Business Day, the first Business Day preceding such Wednesday , and "Weekly Rate Period" means the seven-day period commencing on the Weekly Rate Calculation Date and running through Tuesday of the following calendar week, except that (i) the first Weekly Rate Period shall commence on the Series Issue Date and end on and include the first Tuesday occurring after the Series Issue Date, (ii) the first Weekly Rate Period following a conversion from a Term Mode to the Weekly Mode shall commence on the date of such conversion and end on and include the first Tuesday occurring after such conversion date and (iii) the last Weekly Rate Period prior to a conversion from the Weekly Mode to a Term Mode shall end on and include the last day immediately preceding the date of such conversion. 4 If for any reason the Remarketing Agent does not determine a Weekly Rate for any Weekly Rate Period as aforesaid, or if a court holds a rate for any Weekly Rate Period to be invalid or unenforceable, the Weekly Rate for that Weekly Rate Period shall be equal to the Weekly Rate in effect for the immediately preceding Weekly Rate Period. The Weekly Rate for any consecutive Weekly Rate Period for which the Remarketing Agent does not determine a Weekly Rate, or a court holds a rate to be invalid or unenforceable, shall be the rate per annum equal to 115% of the interest rate per annum for 30-day commercial paper having a rating of A-2/P-2 as reported in the Wall Street Journal on such Weekly Rate Calculation Date. No notice of Weekly Rates will be given to the Holders of the Bonds; however, the Holders may obtain Weekly Rates from the Trustee or the Remarketing Agent. The determination of the Weekly Rate by the Remarketing Agent shall be conclusive and binding upon the Issuer, the Trustee, the Borrower, the Remarketing Agent, the Bank, the Participating Bank and the Holders. Term Rate. A Term Rate shall be determined for each Term Rate Period as described below. Upon conversion to a Term Mode, a Nominal Term Rate Period shall be fixed by the Borrower as a term of two or more consecutive Semiannual Periods constituting the nominal length of each Term Rate Period thereafter until the date of a conversion to another Rate Mode. A Term Mode based on one Nominal Term Rate Period and a Term Mode based on another Nominal Term Rate Period are different Term Modes. Each Term Rate shall be determined by the Remarketing Agent, on the Term Rate Calculation Date, as the lowest rate of interest that, in the judgment of the Remarketing Agent taking into account prevailing financial market conditions, would be necessary to enable the Remarketing Agent to arrange for the sale of the Bonds in the respective Term Mode in a secondary market sale at a price equal to the principal amount thereof on the first Business Day of the respective Term Rate Period; provided that (1) if the Remarketing Agent fails for any reason to determine the Term Rate for any Term Rate Period, such Term Rate shall be equal to 120% of the average of the annual bond equivalent yield evaluations at par as of the first day of the corresponding Term Rate Period or, if such day is not a Business Day, the next preceding Business Day of United States Treasury obligations having a term to maturity similar to such Term Rate Period, and (2) no Term Rate shall exceed the lesser of (i) the maximum interest rate at which the Letter of Credit then in effect, if any, provides coverage for at least 195 days interest and (ii) 25% per annum. Determinations of Term Rates shall be conclusive and binding upon the Issuer, the Borrower, the Trustee, the Bank, the Participating Bank and the Holders. As used in this Bond, "Nominal Term Rate Period" means, with respect to a Term Mode, a period of two or more consecutive Semiannual Periods (expressed in years and half years); "Semiannual Date" means each March 1 and each September 1; "Semiannual Period" means a six month period commencing on a Semiannual Date and ending on and including the day immediately preceding the next Semiannual Date; "Term Rate Calculation Date" means a Business Day not more than 15 days and not less than one day prior to the first day of the corresponding Term Rate Period; "Term Rate Period" means a period of two or more consecutive Semiannual Periods equal to the applicable Nominal Term Rate Period commencing on the Semiannual Date immediately following the last day of the immediately preceding Term Rate Period and running through and ending on the day immediately preceding the Semiannual Date which follows such commencement date by a period equal to such Nominal Term Rate Period, except that the first Term Rate Period after conversion from a Weekly Rate to a Term Rate shall commence on the date of conversion and end on and include the day immediately preceding the Semiannual Date which follows the Semiannual Date occurring on or immediately preceding such conversion date by a period equal to such Nominal Term Rate Period. 5 Conversion. The Indenture provides that the Borrower shall have the option to convert the Bonds from the Weekly Mode to a Term Mode, from a Term Mode to the Weekly Mode and from one Term Mode to another Term Mode on any Conversion Date the Borrower shall select; provided that (i) each Conversion Date shall be an Interest Payment Date and (ii) Bonds in a Term Mode cannot be converted to another Rate Mode prior to the date on or after which the Bonds may first be redeemed at a redemption price of par pursuant to their terms. The Borrower may exercise such option by giving written notice to the Issuer, the Trustee, the Remarketing Agent, the Bank and the Participating Bank, stating its election to convert the Rate Mode of the Bonds to another Rate Mode specified in such notice and stating the Conversion Date therefor, not less than 45 days (or such shorter period as shall be acceptable to the Trustee) prior to such Conversion Date. In connection with each conversion to a Term Mode, the Nominal Term Rate Period shall be selected by the Borrower and designated in such notice. Notice of the exercise of an option to convert from one Rate Mode to another Rate Mode shall not be effective unless certain conditions set forth in the Indenture are satisfied with respect to such conversion. In the case of a conversion from one Rate Mode to another Rate Mode, the Trustee shall give notice by first class mail to the Holders of the Bonds not less than 30 days prior to the proposed Conversion Date stating (i) that, in the case of a conversion to a Term Mode, the interest rate on the Bonds is scheduled to be converted to a Term Rate and the Nominal Term Rate Period on which such Term Rate will be based, or in the case of a conversion to the Weekly Mode, the interest rate on the Bonds is scheduled to be converted to a Weekly Rate, (ii) the proposed Conversion Date, (iii) that the Borrower may determine not to convert the Bonds in which case the Trustee shall notify the Holders in writing to such effect, and (iv) that all outstanding Bonds will be subject to a mandatory purchase on the Conversion Date, or if such Conversion Date is not a Business Day, the first Business Day immediately following such Conversion Date, at a price of par plus accrued interest. Upon each conversion the Bonds shall be subject to mandatory purchase on the Conversion Date, or if such Conversion Date is not a Business Day, the first Business Day immediately following such Conversion Date. As used in this Bond, "Conversion Date" means any Interest Payment Date on which the Rate Mode of the Bonds is converted to another Rate Mode. OPTIONAL AND MANDATORY TENDER Optional Tender for Purchase in Weekly Mode. While the Bonds bear interest at a Weekly Rate, any Bond shall be purchased on the demand of the Holder thereof on any Business Day designated by such Holder in a Bondholder Tender Notice (hereinafter defined) at a purchase price equal to 100% of the principal amount thereof plus accrued interest, if any, to the date of purchase, if there is delivered to the Trustee at its Principal Office or Delivery Office, and to the Remarketing Agent at its Principal Office, a written notice (the "Bondholder Tender Notice") which (i) states the principal amount (or portion thereof) of such Bond and (ii) states the date on which such Bond (or portion thereof) shall be purchased, which date shall be a Business Day not prior to the seventh day next succeeding the date of the delivery of such notice to the Trustee and the Remarketing Agent. By delivering the Bondholder Tender Notice, the Holder irrevocably agrees to deliver such Bond, if held in certificated form, duly endorsed for transfer in blank and with guarantee of signature satisfactory to the Trustee, to the Principal Office or the Delivery Office of the Trustee or any other address designated by the Trustee at or prior to 12:00 noon eastern time on the Business Day specified in the Bondholder Tender Notice. The determination by the Trustee of a Holder's compliance with such Bondholder Tender Notice and Bonds delivery requirements is in the sole discretion of the Trustee and 6 binding on the Borrower, the Issuer, the Remarketing Agent, the Bank, the Participating Bank and the Holder. Any Bondholder Tender Notice which the Trustee determines is not in compliance with the provisions of this paragraph shall be of no force or effect. Any election by a Holder to tender a Bond (or portion thereof) for purchase on a Business Day shall be irrevocable and shall be binding on the Holder making such election and on any transferee of such Holder. Each Bondholder Tender Notice shall automatically constitute (i) an irrevocable offer to sell the Bond (or portion thereof) to which such notice relates on the purchase date at a price equal to the purchase price of such Bond (or portion thereof) described above, (ii) an irrevocable authorization and instruction to the Trustee to effect transfer of such Bond (or portion thereof) upon payment of the purchase price to the Trustee on the purchase date, (iii) with respect to a tender of a portion of a Bond, an irrevocable authorization and instruction to the Trustee to effect the exchange of such Bond in part for other Bonds in a principal amount equal to the retained portion so as to facilitate the sale of the tendered portion of such Bond, and (iv) an acknowledgment that such Holder will have no further rights with respect to such Bond (or portion thereof) upon payment of the purchase price thereof to the Trustee on the purchase date, except for the right of such Holder to receive such purchase price upon surrender of such Bond, if held in certificated form, to the Trustee endorsed for transfer in blank and with guarantee of signature satisfactory to the Trustee and that after the purchase date such Holder will hold such Bond as agent for the Trustee. If the Bonds are not held in book-entry form and, after delivery to the Trustee and the Remarketing Agent of such Bondholder Tender Notice, the Holder making such election shall fail to deliver such Bond or Bonds described in the Bondholder Tender Notice to the Trustee on or before 12:00 noon eastern time on the applicable purchase date as described herein, then the undelivered Bond or portion thereof (the "Undelivered Bond") described in such Bondholder Tender Notice shall be deemed to have been tendered for purchase to the Trustee and, to the extent that there shall be held by the Trustee on or before the applicable purchase date an amount sufficient to pay the purchase price thereof and available for such purpose pursuant to the Indenture, such Undelivered Bond (or portion thereof) shall on such purchase date cease to bear interest and no longer shall be considered to be outstanding under the Indenture. Moneys held by the Trustee for the purchase of the Undelivered Bonds in accordance with the foregoing shall be held in a special separate trust account for the Holders of such Undelivered Bonds. Such moneys shall be held by the Trustee uninvested and without liability for interest pending delivery of such Undelivered Bonds to the Trustee. Mandatory Tender. This Bond is subject to mandatory tender for purchase, at a price equal to the principal amount hereof plus accrued interest, and, in the case of a mandatory purchase described in clause (b) below, a premium equal to the optional redemption premium, if any, that would be due if the Bonds were to be optionally redeemed on the purchase date, on (a) each Conversion Date, or if such Conversion Date is not a Business Day, the first Business Day immediately following such Conversion Date, in the event of a conversion of the Bonds from one Rate Mode to another Rate Mode, and the first Business Day immediately following the end of each Term Rate Period; (b) on the Interest Payment Date next preceding the Expiration Date of the Letter of Credit unless at least 45 days (or such shorter period as shall be acceptable to the Trustee) prior to such Interest Payment Date the Trustee has received notice that the Letter of Credit has been or will be extended or an Alternate Letter of Credit will be provided pursuant to the Indenture; and (c) while the Bonds are in the Weekly Mode, on the Purchase Date stipulated by the Bank or the Participating Bank pursuant to the Indenture in the event the Bank or the Participating Bank directs the Trustee pursuant to the Indenture to call the Bonds for mandatory purchase. Any Bond which is not delivered for purchase prior to 12:00 noon eastern 7 time on the applicable purchase date shall be deemed to have been tendered to the Trustee as of such purchase date and interest on such Undelivered Bond shall cease to accrue on such purchase date. Thereafter, the Holder of such Undelivered Bond shall not be entitled to any payment other than the purchase price for such Undelivered Bond upon surrender thereof to the Trustee endorsed for transfer in blank and with guaranty of signature satisfactory to the Trustee. Except for payment of such purchase price from moneys held by the Trustee for such purpose, such Undelivered Bond shall no longer be outstanding and entitled to the benefits of the Indenture. BY ACCEPTANCE OF THIS BOND, THE HOLDER HEREOF AGREES THAT THIS BOND WILL BE PURCHASED, WHETHER OR NOT SURRENDERED, ON ANY DATE SPECIFIED BY THE HOLDER HEREOF IN THE EXERCISE OF THE OPTIONAL TENDER FOR PURCHASE DESCRIBED ABOVE AND ON THE PURCHASE DATE IN CONNECTION WITH ANY MANDATORY TENDER FOR PURCHASE. IN SUCH EVENT, THE HOLDER OF THIS BOND SHALL NOT BE ENTITLED TO RECEIVE FURTHER INTEREST HEREON, SHALL HAVE NO FURTHER RIGHTS UNDER THIS BOND OR THE INDENTURE EXCEPT FOR PAYMENT OF THE PURCHASE PRICE HELD THEREFOR, AND, IF THIS BOND IS NOT SURRENDERED ON SUCH DATE, SHALL THEREAFTER HOLD THIS BOND AS AGENT FOR THE TRUSTEE. OPTIONAL REDEMPTIONS Weekly Rate Bonds. While the Bonds bear interest at a Weekly Rate, the Bonds are subject to redemption prior to maturity at the option of the Issuer, at the direction of the Borrower, in whole at any time or in part on any Interest Payment Date, at a redemption price equal to 100% of the principal amount thereof plus accrued interest to the redemption date. Extraordinary Optional Redemption. The Bonds are subject to extraordinary optional redemption by the Issuer, at the Borrower's option, upon the occurrence of certain events as provided in Section 6.2 of the Loan Agreement at any time in whole or on any Interest Payment Date in part, upon damage, destruction or condemnation of part of the Project, in each case, at a redemption price of 100% of the principal amount redeemed plus accrued interest to the redemption date. GENERAL PROVISIONS If less than all Bonds are to be redeemed at one time, the selection of the Bonds to be redeemed shall be made by lot or by such other method as the Trustee deems fair and appropriate; provided that any Bonds pledged to the Bank and Participating Bank shall be redeemed first and any Bonds owned by the Borrower shall be redeemed second. If Bonds or portions thereof are called for redemption and if on the redemption date moneys for the redemption thereof are held by the Trustee, thereafter those Bonds or portions thereof to be redeemed shall cease to bear interest, and shall cease to be secured by, and shall not be deemed to be outstanding under, the Indenture. 8 Any notice of redemption shall be given at least 15 days (30 days if the Bonds are in a Term Mode) prior to the date fixed for redemption, by mailing a copy of the redemption notice by first class mail, postage prepaid, to the Holder of each Bond to be redeemed in whole or in part at the address shown on the Register. Notice of optional redemption may be conditioned upon the deposit of moneys in the Bond Fund established under the Indenture, in an amount sufficient for such redemption not later than the close of business on the Business Day prior to the date fixed for redemption and such notice shall be of no effect and the redemption shall be deemed cancelled unless such moneys are so deposited. If an Event of Default as defined in the Indenture occurs, the principal of all Bonds issued under the Indenture may be declared due and payable upon the conditions and in the manner and with the effect provided in the Indenture. If at any time the Trustee holds moneys or securities as described in the Indenture sufficient to pay at redemption or maturity the principal or redemption price of and premium, if any, and interest on all Bonds outstanding under the Indenture and any purchase price payable pursuant to the Indenture in respect thereof, and if all other sums then payable by the Issuer under the Indenture have been paid, then subject to the provisions of the Indenture the lien of the Indenture and other security held by the Trustee for the benefit of the Holders will be discharged. After such discharge, Holders must look only to the deposited moneys and securities for payment. The Indenture permits certain amendments or supplements to the Loan Agreement and the Indenture not materially prejudicial to the Holders to be made without the consent of or notice to the Holders, and other amendments or supplements thereto to be made with the consent of the Holders of not less than a majority in aggregate principal amount of the Bonds outstanding. The Holder of each Bond has only those remedies provided in the Indenture. The Bonds are issuable only as fully registered bonds in the denominations of $100,000 and any integral multiple thereof and are exchangeable for Bonds of other authorized denominations in equal aggregate principal amounts at the Principal Office of the Trustee, but only in the manner and subject to the limitations provided in the Indenture. This Bond is transferable at the Principal Office of the Trustee, by the Holder in person or by his attorney, duly authorized in writing, upon presentation and surrender hereof to the Trustee. While the Bonds bear interest at a Term Rate, the Trustee is not required to transfer or exchange (i) any Bond during a period beginning at the opening of business 15 days before the day of the mailing of a notice of redemption of Bonds and ending at the close of business on the day of such mailing, (ii) any Bonds selected for redemption in whole or in part, or (iii) any Bond during the period of 15 days preceding any Interest Payment Date. This Bond shall not be entitled to any security or benefit under the Indenture or be valid or become obligatory for any purpose until the Certificate of Authentication hereon shall have been signed. Unless this Bond is presented by an authorized representative of The Depository Trust Company, a New York corporation ("DTC"), to the Trustee or its agent for registration of transfer, exchange or payment, and any bond issued is registered in the name of Cede & Co. or in such other 9 name as is requested by an authorized representative of DTC (and any payment is made to Cede & Co. or to such other entity as is requested by an authorized representative of DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner hereof, Cede & Co., has an interest herein. 10 IN WITNESS WHEREOF, the Issuer has caused this Bond to be executed in its name by the manual or facsimile signature of its Chairperson or Vice Chairperson and its corporate seal or a facsimile thereof to be affixed, imprinted, lithographed or reproduced hereon and attested by the manual or facsimile signature of its Secretary or Assistant Secretary. MONTGOMERY COUNTY INDUSTRIAL [Seal] DEVELOPMENT AUTHORITY Attest /s/ Gerald J. Birkelbach By /s/ Sherry F. Horowitz - -------------------------------- ----------------------------- Assistant Secretary Chairperson [COPY] [COPY] CERTIFICATE OF AUTHENTICATION This Bond is one of the Bonds described in the within-mentioned Indenture. Attached hereto is the complete text of the opinion of Ballard Spahr Andrews & Ingersoll, Philadelphia, Pennsylvania, Bond Counsel, dated the date of initial delivery of and payment for the Bonds, a signed original of which is on file with the Trustee. Date of Authentication: DAUPHIN DEPOSIT BANK AND TRUST COMPANY, as Trustee 3/20/97 By /s/ Bernard V. Kelly, Jr. --------------------------------- Authorized Signer [COPY] 11 [FORM OF ASSIGNMENT] Assignment For value received, the undersigned sells, assigns and transfers unto ____________________ the within Bond and irrevocably constitutes and appoints ____________________ attorney to transfer that Bond on the books kept for registration thereof, with full power of substitution in the premises. Assignor's Signature: ________________________________________________ Dated: ________________________________________________ Signature Guaranteed: ________________________________________________ Social Security Number or Other Identifying Number of Assignee: ________________________________________________ Notice: The assignor's signature to this assignment must correspond with the name as it appears upon the face of the within bond in every particular, without alteration or any change whatever. [FORM OF ABBREVIATIONS] The following abbreviations, when used in the inscription on the face of the within Bond, shall be construed as though they were written out in full according to applicable laws or regulations. TEN COM - as tenants in common TEN ENT - as tenants by the entireties JT TEN - as joint tenants with the right of survivorship and not as tenants in common UNIFORM TRANS MIN ACT - _____________________ Custodian _______________________ (Cust) (Minor) under Uniform Transfers to Minors Act _____________________________________ (State) Additional abbreviations may also be used though not in the above list. 12 EX-10.1 6 LOAN AGREEMENT Exhibit 10.1 ================================================================================ LOAN AGREEMENT between MONTGOMERY COUNTY INDUSTRIAL DEVELOPMENT AUTHORITY and NEOSE TECHNOLOGIES, INC. Dated as of March 1, 1997 -------------------------------- $8,400,000 Montgomery County Industrial Development Authority Federally Taxable Variable Rate Demand Revenue Bonds (Neose Technologies, Inc. Project) Series B of 1997 -------------------------------- ================================================================================ TABLE OF CONTENTS
Page ---- Preambles.......................................................................................... 1 ARTICLE I DEFINITIONS Section 1.1. Use of Terms Defined in Indenture.................................................... 2 Section 1.2. Definitions.......................................................................... 2 Section 1.3. Interpretation....................................................................... 4 Section 1.4. Captions, Headings and Table of Contents............................................. 4 ARTICLE II REPRESENTATIONS Section 2.1. Representations and Findings of Issuer............................................... 5 Section 2.2. Representations of Borrower.......................................................... 5 ARTICLE III ACQUISITION OF PROJECT; ISSUANCE OF BONDS; PROJECT FUND Section 3.1. Acquisition of Project............................................................... 7 Section 3.2. Additions and Changes to Project..................................................... 7 Section 3.3. Issuance of Bonds; Application of Proceeds........................................... 7 Section 3.4. Disbursements from Project Fund...................................................... 8 Section 3.5. Borrower Required to Pay Costs in Event Project Fund Insufficient.................... 8 Section 3.6. Completion........................................................................... 8 Section 3.7. Investment and Use of Fund Moneys.................................................... 9 ARTICLE IV LOAN BY ISSUER; LOAN PAYMENTS; OTHER PAYMENTS Section 4.1. Loan by Issuer....................................................................... 10 Section 4.2. Loan Payments........................................................................ 10 Section 4.3. Purchase Payments.................................................................... 11 Section 4.4. Additional Payments.................................................................. 11 Section 4.5. Obligations Unconditional............................................................ 11 Section 4.6. Assignment of Issuer's Rights........................................................ 11 Section 4.7. Letter of Credit..................................................................... 11
(i) ARTICLE V ADDITIONAL COVENANTS OF BORROWER
Page ---- Section 5.1. Maintenance of Existence............................................................. 13 Section 5.2. Compliance with Laws; Commencement and Continuation of Operations at Project; No Sale, Removal or Demolition of Project................................... 13 Section 5.3. Right of Inspection.................................................................. 13 Section 5.4. Lease by Borrower.................................................................... 13 Section 5.5. Financial Statements; Books and Records.............................................. 14 Section 5.6. Taxes, Other Governmental Charges and Utility Charges................................ 14 Section 5.7. Insurance............................................................................ 14 Section 5.8. Damage to or Condemnation of Project................................................. 14 Section 5.9. Litigation Notice.................................................................... 15 Section 5.10. Indemnification...................................................................... 15 Section 5.11. Nondiscrimination.................................................................... 16 ARTICLE VI REDEMPTION OF BONDS Section 6.1. Optional Redemption................................................................... 17 Section 6.2. Extraordinary Optional Redemption..................................................... 17 Section 6.3. Actions by Issuer..................................................................... 18 ARTICLE VII EVENTS OF DEFAULT AND REMEDIES Section 7.1. Events of Default..................................................................... 19 Section 7.2. Remedies on Default................................................................... 20 Section 7.3. Remedies Not Exclusive................................................................ 21 Section 7.4. Payment of Legal Fees and Expenses.................................................... 21 Section 7.5. No Waiver............................................................................. 21 Section 7.6. Notice of Default..................................................................... 22 ARTICLE VIII MISCELLANEOUS Section 8.1. Term of Agreement..................................................................... 23 Section 8.2. Notices............................................................................... 23 Section 8.3. Limitation of Liability; No Personal Liability........................................ 24 Section 8.4. Binding Effect........................................................................ 24 Section 8.5. Amendments............................................................................ 25 Section 8.6. Counterparts.......................................................................... 25
(ii)
Page ---- Section 8.7. Severability......................................................................... 25 Section 8.8. Governing Law........................................................................ 25 Section 8.9. Assignment........................................................................... 25 Section 8.10. Receipt of Indenture................................................................. 25 Execution.......................................................................................... 26 Exhibit A - PROJECT SITE.........................................................................A-1 Exhibit B - PROJECT DESCRIPTION..................................................................B-1 Exhibit C - FORM OF DISBURSEMENT REQUEST.........................................................C-1 Exhibit D - NONDISCRIMINATION CLAUSE.............................................................D-1
All exhibits omitted. The Registrant hereby agrees to furnish supplementally a copy of any omitted exhibit to the Securities and Exchange Commission upon request. (iii) LOAN AGREEMENT THIS LOAN AGREEMENT dated as of March 1, 1997 between MONTGOMERY COUNTY INDUSTRIAL DEVELOPMENT AUTHORITY (the "Issuer"), a public instrumentality and body corporate and politic of the Commonwealth of Pennsylvania organized and existing under the Pennsylvania Economic Development Financing Law, as amended, and NEOSE TECHNOLOGIES, INC. (the "Borrower"), a corporation duly organized and validly existing under the laws of the State of Delaware (the capitalized terms not defined in the recitals being used therein as defined or otherwise described in Article I of this Agreement), WITNESSETH THAT: A. The Issuer is a public instrumentality of the Commonwealth of Pennsylvania and a body corporate and politic organized and existing under the Act. Under the Act, the Issuer is authorized to enter into agreements providing for the financing of industrial facilities, commercial facilities, pollution control facilities, public facilities and other facilities and activities which promote any of the public purposes set forth in the Act. B. The Issuer has undertaken the financing of certain costs involving the acquisition, improvement and equipment of a facility located on certain real property more fully described in Exhibit A attached hereto (the "Project Site"). The Project Site and such facilities are herein collectively called the "Project". The Project is owned and operated by the Borrower. A more complete description of the Project and the estimated costs thereof is set forth in Exhibit B attached hereto. C. In order to finance the Project, the Issuer has duly authorized the issuance and sale of its Federally Taxable Variable Rate Demand Revenue Bonds (Neose Technologies, Inc. Project) Series B of 1997 (the "Bonds") to be issued under the terms of a Trust Indenture dated as of the date hereof (as the same may hereafter be amended or supplemented from time to time, the "Indenture") by and between the Issuer and Dauphin Deposit Bank and Trust Company, Harrisburg, Pennsylvania, as Trustee. D. The Issuer has entered into this Agreement with the Borrower for the purposes of providing for (i) the loan of the proceeds of the Bonds to the Borrower in order to finance the Project and (ii) the repayment of such loan by the Borrower in amounts sufficient to pay, when due, the principal of, premium, if any, on and interest on the Bonds. NOW, THEREFORE, intending to be legally bound, the Issuer and the Borrower hereby agree as follows: ARTICLE I DEFINITIONS Section 1.1. Use of Terms Defined in Indenture. Terms used in this Agreement which are defined in the Indenture and are not otherwise defined in this Agreement shall have the meanings set forth in the Indenture unless the context or use clearly indicates another meaning or intent. Section 1.2. Definitions. In addition to the terms defined in the recital clauses of this Agreement, as used herein: "Additional Payments" means the amounts required to be paid by the Borrower pursuant to Section 4.4. "Agreement" means this Loan Agreement, as amended or supplemented from time to time. "Authorized Representative" means, with respect to the Issuer, the Chairperson, Vice Chairperson or any other person at the time designated to act on behalf of the Issuer by written certificate furnished to the Trustee containing the specimen signature of such person and signed on behalf of the Issuer by its Chairperson or Vice Chairperson, and, with respect to the Borrower, the Chief Executive Officer, the President or any other person at the time designated to act on behalf of the Borrower by written certificate furnished to the Trustee containing the specimen signature of such person and signed on behalf of the Borrower by its Chief Executive Officer or President. "Bond Service" means, for any period or payable at any time, the principal of, premium, if any, on and interest on the Bonds for that period or payable at the time whether due on an Interest Payment Date, at maturity or upon acceleration or redemption. "Borrower's Agreements" means this Agreement, the Placement Agreement, the Remarketing Agreement, the Reimbursement Agreement and the Bond Pledge Agreement. "Completion Date" means the date of completion of the Project evidenced in accordance with the requirements of Section 3.6. "Event of Default" means any of the events described as an Event of Default in Section 7.1. "Issuer's Fee" means the amount of $21,000. "Loan" means the loan by the Issuer to the Borrower of the proceeds of the Bonds pursuant to Section 4.1 in the original principal amount of $8,400,000. "Loan Payments" means the amounts required to be paid by the Borrower in repayment of the Loan pursuant to Section 4.2. 2 "Participating Bank" means the commercial bank, trust company or other financial institution which has entered into the Participating Bank Agreement with the Bank and the Reimbursement Agreement with the Borrower, and its successors and assigns. The initial Participating Bank is Jefferson Bank. "Participating Bank Agreement" means the Participation and Reimbursement Agreement between the Participating Bank and the Bank relating to the Bonds, as amended, supplemented or replaced from time to time. "Placement Agreement" means the Placement Agreement among the Issuer, the Borrower and CoreStates Capital Markets, a Division of CoreStates Bank, N.A., as the Placement Agent, relating to the Bonds. "Project Costs" means costs of the Project permitted under the Act, including, but not limited to, the following: (a) Costs incurred in acquisition, construction, installation, equipment or improvement of the Project, including costs incurred in respect of the Project for preliminary planning and studies; architectural, engineering, accounting, consulting, legal and other professional fees and expenses; labor, services and materials; (b) Fees, charges and expenses incurred in connection with the authorization, sale, issuance and delivery of the Bonds, including without limitation bond discount, printing expense, title insurance, recording fees and the initial fees and expenses of the Trustee, Issuer, Remarketing Agent, Bank and Participating Bank; (c) Payment of interest on the Bonds and fees of the Bank, Participating Bank, Trustee and Remarketing Agent accruing during the period of acquisition, construction and/or equipping of the Project; and (d) Any other costs, expenses, fees and charges properly chargeable to the cost of acquisition, construction, installation, equipment or improvement of the Project. "Purchase Payments" means the amounts required to be paid by the Borrower pursuant to Section 4.3. "Reimbursement Agreement" means the Reimbursement Agreement between the Participating Bank and the Borrower relating to the Letter of Credit and the Bonds, as amended, supplemented or replaced from time to time. "Remarketing Agreement" means the Remarketing Agreement between the Borrower and the Remarketing Agent relating to the Bonds, as amended, supplemented or replaced from time to time. "Resolutions" means the resolution or resolutions of the Issuer approving and authorizing the Bonds, the Indenture and this Agreement. 3 "Unassigned Issuer's Rights" means all of the rights of the Issuer to receive Additional Payments under Section 4.4, to be held harmless and indemnified under Section 5.10, to be reimbursed for attorney's fees and expenses under Section 7.4, and to give or withhold consent to or approval of amendments, modifications, termination or assignment of this Agreement, or sale, transfer, assignment, lease (or assignment of lease) or other disposal of the Project, under Sections 5.1, 5.2, 5.4, 8.5 and 8.9. Section 1.3. Interpretation. In this Agreement, unless the context indicates otherwise, words importing the singular number include the plural number, and vice versa, the terms "hereof", "hereby", "herein", "hereto", "hereunder" and similar terms refer to this Agreement, and the term "hereafter" means after and the term "heretofore" means before the Series Issue Date, and words of any gender include the correlative words of the other genders. In this Agreement, unless otherwise indicated, all references to particular Articles, Sections, Subsections or paragraphs are references to the Articles, Sections, Subsections or paragraphs of this Agreement. Section 1.4. Captions, Headings and Table of Contents. The captions, headings and table of contents in this Agreement are solely for convenience of reference and in no way define, limit or describe the scope or intent of any Articles, Sections, Subsections or paragraphs hereof. (End of Article I) 4 ARTICLE II REPRESENTATIONS Section 2.1. Representations and Findings of Issuer. The Issuer hereby confirms its findings and represents that: (a) The Issuer is a public body corporate and politic established in the Commonwealth of Pennsylvania pursuant to the laws of the Commonwealth of Pennsylvania (including the Act). Under the Act, the Issuer has the power to enter into the Indenture, the Placement Agreement and this Agreement and to carry out its obligations thereunder and to issue the Bonds to finance the Project. (b) By adoption of the Resolutions at one or more duly convened meetings of the Issuer at which a quorum was present and acting throughout, the Issuer has duly authorized the execution and delivery of the Indenture, the Placement Agreement and this Agreement and performance of its obligations thereunder and the issuance of the Bonds. Simultaneously with the execution and delivery of this Agreement, the Issuer has duly executed and delivered the Indenture and issued and sold the Bonds. (c) Based on representations and information furnished to the Issuer by or on behalf of the Borrower, the Issuer has found that the Borrower is qualified to be a beneficiary of financing provided by the Issuer pursuant to the Act. (d) Based on representations and information furnished to the Issuer by or on behalf of the Borrower, the Issuer has found that the Project (i) will promote the public purposes of the Act, (ii) is located within the boundaries of the Commonwealth of Pennsylvania and within the boundaries of the county, city, town, borough or township which organized the Issuer, and (iii) will constitute a project within the meaning of the Act. (e) The Project has been approved (1) by the Pennsylvania Secretary of Commerce, as required by the Act, and (2) by the Issuer by adoption of the Resolutions, as required by the Act. (f) The Issuer has not and will not pledge the income and revenues derived from this Agreement other than pursuant to and as set forth in the Indenture. Section 2.2. Representations of Borrower. The Borrower hereby represents that: (a) The Borrower is a corporation duly organized and validly existing under the laws of the State of Delaware, qualified to do business in the Commonwealth of Pennsylvania, and has full power and authority to execute, deliver and perform its obligations under the Borrower's Agreements and to enter into and carry out the transactions contemplated thereby. 5 (b) The Borrower's Agreements have been duly authorized, executed and delivered by the Borrower and constitute valid and binding obligations of the Borrower. The execution, delivery and performance of the Borrower's Agreements by the Borrower do not violate the Borrower's articles of incorporation or bylaws or, to the knowledge of the Borrower, any provision of law applicable to the Borrower or any agreement or instrument to which the Borrower is a party or by which it or any of its properties is bound. (c) The Project will promote the public purposes of the Act and will not cause, directly or indirectly, the removal, either in whole or in part, of a plant, facility or establishment from one area of the Commonwealth of Pennsylvania to another. The Project is located within the boundaries of the county, city, town, borough or township which organized the Issuer. (d) The Borrower has acquired or will acquire before they are needed all permits and licenses, and has satisfied or will satisfy other requirements necessary, for the acquisition, construction, installation and/or operation of the Project. The Project is a project within the meaning of the Act and will be operated as such. (e) The Borrower presently intends to use or operate the Project in a manner consistent with the Act until the date on which the Bonds have been fully paid and knows of no reason why the Project will not be so used or operated. (f) The proceeds of the Bonds will not exceed the Project Costs. (End of Article II) 6 ARTICLE III ACQUISITION OF PROJECT; ISSUANCE OF BONDS; PROJECT FUND Section 3.1. Acquisition of Project. The Borrower (a) has acquired or shall acquire the Project Site and shall construct, install, equip and/or improve the Project on the Project Site with all reasonable dispatch and in accordance with the description thereof in Exhibit B attached hereto and applicable law, (b) shall procure or cause to be procured all permits and licenses necessary for the prosecution of any and all work on the Project, and (c) shall pay when due all costs and expenses incurred in connection with such acquisition, construction, installation, equipment and improvement from funds made available therefor in accordance with this Agreement or otherwise. It is understood that the Project is the property of the Borrower and that any contracts made by the Borrower with respect thereto and any work to be done by the Borrower on the Project are made or done by the Borrower in its own behalf and not as agent or contractor for the Issuer. The Borrower may cause legal title to the Project Site and buildings thereon to be conveyed to an industrial development corporation for the purpose of obtaining financing for the benefit of the Borrower through the Pennsylvania Industrial Development Authority of costs of the Project Site and buildings thereon not financed with proceeds of the Bonds. Section 3.2. Additions and Changes to Project. The Borrower may, at its option and at its own cost and expense, at any time and from time to time, revise the description of the Project in Exhibit B attached hereto and/or make such additions and changes to the Project as it may deem to be desirable for its uses and purposes, provided that (i) such additions and changes shall constitute part of the Project, (ii) the Borrower shall supplement the information contained in Exhibit B attached hereto by filing with the Issuer and the Trustee such supplemental information as is necessary to reflect such additions and changes so that the Issuer and the Trustee will be able to ascertain the nature and cost of the facilities included in the Project and covered by this Agreement and (iii) if an addition or change is substantial in relation to the Bonds, the Borrower shall have first obtained and filed with the Issuer and the Trustee an opinion of Bond Counsel to the effect that such addition or change is authorized or permitted under the Act. In any case, the Borrower shall obtain the Issuer's approval of the addition to the Project of any proposed facilities or any other changes not generally described in Exhibit B attached hereto on the date of delivery of this Agreement. Section 3.3. Issuance of Bonds; Application of Proceeds. To provide funds to make the Loan for purposes of paying Project Costs in accordance with Exhibit B attached hereto, the Issuer will issue the Bonds in the aggregate principal amount of $8,400,000. The Bonds will be issued pursuant to the Indenture and will bear interest, mature and be subject to redemption all as set forth therein. The Borrower hereby approves the terms and conditions of the Indenture and the Bonds, and the terms and conditions under which the Bonds will be issued, sold and delivered. The proceeds from the sale of the Bonds (including any bond discount) shall be loaned to the Borrower pursuant to Section 4.1 and such proceeds (net of any bond discount) shall be paid over to the Trustee for deposit in the Project Fund. Pending disbursement pursuant to Section 3.4, the proceeds of the Bonds so deposited in the Project Fund, together with any investment earnings thereon, shall constitute a part of the Trust Estate and shall be subject to the lien of the Indenture pursuant to the granting clauses therein as security for the obligations described in such granting clauses, and to such 7 end the Borrower hereby grants to the Trustee as security for such obligations a security interest in all of the Borrower's right, title and interest in and to the Project Fund. Section 3.4. Disbursements from Project Fund. Subject to the provisions below, disbursements from the Project Fund shall be made to reimburse or pay the Borrower, or any person designated by the Borrower, for Project Costs. The Borrower agrees that the sums so disbursed from the Project Fund will be used only for the payment of Project Costs, and will not be used for any other purpose. Any disbursements from the Project Fund for the payment of the Project Costs shall be made by the Trustee only upon the written order of an Authorized Representative of the Borrower, with the written approval of the Participating Bank, delivered to the Trustee; provided that disbursements made for costs described in clause (b) of the definition of Project Costs may be made by the Trustee upon delivery to the Trustee of a closing statement signed by the respective Authorized Representatives of the Issuer and the Borrower and approved by the Participating Bank. Each such written order shall be substantially in the form of the disbursement request attached hereto as Exhibit C and shall be consecutively numbered and accompanied by invoices or other appropriate documentation supporting the payments or reimbursements requested. In case any contract provides for the retention by the Borrower of a portion of the contract price, there shall be paid from the Project Fund only the net amount remaining after deduction of any such portion, and only when that retained amount is due and payable, may it be paid from the Project Fund. Any moneys in the Project Fund (including the earnings from investments therein) remaining after the Completion Date and payment, or provision for payment, in full of the Project Costs shall, at the direction of an Authorized Representative of the Borrower, be transferred to the General Account of the Bond Fund and applied as provided in Subsection 5.04(c) of the Indenture. Section 3.5. Borrower Required to Pay Costs in Event Project Fund Insufficient. If moneys in the Project Fund are not sufficient to pay all Project Costs, the Borrower nonetheless shall complete the Project in accordance with Exhibit B attached hereto and shall pay all such additional Project Costs. The Borrower shall not be entitled to any reimbursement for any such payments from the Issuer, the Trustee, the Bank, the Participating Bank or any Holder; nor shall it be entitled to any abatement, diminution or postponement of the Loan Payments. Section 3.6. Completion. Except to the extent otherwise approved by the Issuer, within three years of the date of original delivery and payment for the Bonds, the Borrower shall have completed the Project and caused all of the proceeds of the Bonds to be expended for Project Costs in accordance with Exhibit B attached hereto or otherwise applied as described in Section 3.4. The Borrower shall notify the Issuer and the Trustee of the Completion Date by a certificate signed by an Authorized Representative of the Borrower stating (a) the date on which the Project was substantially completed, (b) that all other facilities necessary in connection with the Project have been acquired, constructed, installed, equipped and/or improved, (c) that the acquisition, construction, installation, equipment and/or improvement of the Project and such other facilities have been accomplished in such a manner 8 as to conform with all applicable zoning, planning, building, environmental and other similar governmental regulations, (d) that except as provided in clause (e) below, all costs of the Project then or theretofore due and payable have been paid, and (e) the amounts which the Trustee shall retain in the Project Fund for the payment of Project Costs not yet due or for liabilities which the Borrower is contesting or which otherwise should be so retained and the reasons therefor. Such certificate may state that it is given without prejudice to any rights against third parties which then exist or subsequently may come into being. The Authorized Representative of the Borrower shall include with such certificate a statement specifically describing all items of personal property comprising a part of the Project. The certificate shall be delivered as promptly as practicable after the Borrower is in a position to certify as to the matters referred to in clauses (a) through (e) above. Section 3.7. Investment and Use of Fund Moneys. At the oral or written request of an Authorized Representative of the Borrower, any moneys held as part of the Bond Fund (except moneys in the Letter of Credit Debt Service Account created under Section 5.04 of the Indenture and except any moneys representing principal of, or premium, if any, or interest on, any Bonds which are deemed paid under Section 10.02 of the Indenture) or the Project Fund shall be invested or reinvested by the Trustee in Eligible Investments. (End of Article III) 9 ARTICLE IV LOAN BY ISSUER; LOAN PAYMENTS; OTHER PAYMENTS Section 4.1. Loan by Issuer. Upon the terms and conditions of this Agreement, the Issuer will make the Loan to the Borrower on the Series Issue Date in a principal amount equal to the aggregate principal amount of the Bonds. The Loan shall be deemed fully advanced upon deposit of the proceeds of the Bonds (net of any bond discount) in the Project Fund pursuant to Section 3.3. Section 4.2. Loan Payments. In consideration of and in repayment of the Loan, the Borrower shall make, as Loan Payments, payments which correspond, as to amounts and due dates, to the Bond Service on the Bonds; provided that, except to the extent that the Participating Bank shall otherwise stipulate by written notice delivered to the Issuer, the Trustee and the Bank, such payments shall be made in advance as set forth below in this Section. Amounts received upon a drawing by the Trustee under the Letter of Credit for the payment of Bond Service shall be credited against the Loan Payments otherwise payable by the Borrower corresponding to such Bond Service; provided that the Bank and, if applicable, the Participating Bank have been fully reimbursed for such drawing by the Borrower. To provide funds to pay the Bond Service as and when due as specified above, the Borrower shall make the Loan Payments on or before the Business Day next preceding the first Business Day of each month in an amount equal to the interest due on the Bonds on the Interest Payment Date for such month, while the Bonds bear interest at a Weekly Rate, or in an amount equal to 1/6 of the interest due on the Bonds on the next Interest Payment Date while the Bonds bear interest at a Term Rate, taking into account funds held in the General Account of the Bond Fund under the Indenture which would be available for such purposes. In addition, to provide funds to pay the principal of and premium, if any, and interest on the Bonds as and when due at any other time, the Borrower hereby agrees to make and shall make Loan Payments at least one Business Day (or earlier if required by the Indenture) prior to the date when such principal, premium, if any, and interest is due and payable. The foregoing requirement to make Loan Payments in advance of the corresponding dates for payment of the principal of and interest on the Bonds may be waived if and to the extent stipulated by the Participating Bank by written notice delivered to the Issuer, the Trustee and the Bank; provided that in no event shall Loan Payments be made later than such corresponding dates. It is the intention of the Issuer and the Borrower that, notwithstanding any other provision of this Agreement, the Trustee, as assignee of the Issuer, shall receive funds from or on behalf of the Borrower (taking into account such credits for amounts drawn on the Letter of Credit) in such amounts and at such times as will enable the Issuer to pay when due all of its Bond Service on the Bonds and any obligations arising under Section 4.3 and any such obligations surviving the payment of the Bonds. All Loan Payments shall be payable in lawful money of the United States of America and shall be made by, or on behalf of the Borrower, to the Trustee at its Principal Office for the account of the Issuer and deposited in the General Account of the Bond Fund created by the Indenture. Such Loan Payments shall be applied as provided in the Indenture. 10 The Borrower shall be entitled to credits against the Loan Payments as and to the extent provided in Subsection 5.04(f) of the Indenture. Section 4.3. Purchase Payments. To the extent that moneys on deposit in the Remarketing Proceeds Purchase Account or the Letter of Credit Purchase Account established under the Indenture are insufficient to pay the full purchase price of Bonds payable pursuant to Sections 4.01 and 4.02 of the Indenture on the applicable Purchase Date, the Borrower shall also pay to the Trustee as Purchase Payments for deposit in the Borrower Purchase Account established under the Indenture amounts sufficient to cover the shortfalls. Section 4.4. Additional Payments. The Borrower shall pay as Additional Payments hereunder: (a) to the Issuer, the Issuer's Fee on the Series Issue Date and any and all costs and expenses (including reasonable legal fees and expenses) incurred or to be paid by the Issuer in connection with the issuance and delivery of the Bonds or otherwise related to actions taken by the Issuer under this Agreement or the Indenture or any amendment thereof, supplement thereto or consent or waiver thereunder, including without limitation the Borrower's pro rata share of any annual charge made by a Rating Service to maintain a rating on the Bonds; (b) to the Remarketing Agent, the fees and expenses of the Remarketing Agent under the Indenture and the Remarketing Agreement for services rendered in connection with the Bonds; and (c) to the Trustee, the reasonable fees, charges and expenses of the Trustee and its agents for acting as such under the Indenture. Section 4.5. Obligations Unconditional. The obligations of the Borrower to make Loan Payments, Purchase Payments and Additional Payments shall be absolute and unconditional, and the Borrower shall make such payments without abatement, diminution or deduction regardless of any cause or circumstances whatsoever including without limitation any defense, set-off, recoupment or counterclaim which the Borrower may have or assert against the Issuer, the Trustee, the Remarketing Agent, the Bank, the Participating Bank or any other person, whether express or implied, or any duty, liability or obligation arising out of or connected with this Agreement, it being the intention of the parties that the payments required of the Borrower hereunder will be paid in full when due without any delay or diminution whatsoever. Loan Payments and Purchase Payments required to be paid by or on behalf of the Borrower hereunder shall be received by the Issuer or the Trustee as net sums and the Borrower agrees to pay or cause to be paid all charges against or which might diminish such net sums. Section 4.6. Assignment of Issuer's Rights. To secure the payment of, first, the Bond Service, second, the Participating Bank's obligations under the Participating Bank Agreement, and third, the Borrower's obligations under the Reimbursement Agreement, the Issuer shall pledge and assign to the Trustee all the Issuer's rights in, to and under this Agreement (except for the Unassigned Issuer's Rights), the Revenues and the other property comprising the Trust Estate. The Borrower consents to such pledge and assignment and agrees to make or cause to be made Loan Payments and Purchase Payments directly to the Trustee without defense or set-off by reason of any dispute between the Borrower and the Trustee. Whenever the Borrower is required to obtain the consent of the Issuer hereunder, the Borrower shall also obtain the consent of the Trustee; provided that, except as otherwise expressly stipulated herein or in the Indenture, the Borrower shall not be required to obtain the Trustee's consent with respect to the Unassigned Issuer's Rights. Section 4.7. Letter of Credit. Concurrently with the initial delivery of the Bonds pursuant to Section 2.01 of the Indenture, the Borrower shall cause the initial Letter of Credit to be issued by the Bank pursuant to the Participating Bank Agreement, which Letter of Credit (1) shall be substantially in the same form as the exhibit attached to the Participating Bank Agreement; (2) shall be 11 dated the date of delivery of the Bonds; (3) shall authorize the Trustee to draw on the Bank, subject to the terms and conditions thereof, up to (a) an amount equal to the principal amount of the Bonds (i) to enable the Trustee to pay the principal amount of the Bonds when due at maturity or upon redemption or acceleration and (ii) to enable the Trustee to pay the portion of the purchase price of Bonds tendered to it for purchase and not remarketed corresponding to the principal amount of such Bonds, plus (b) an amount equal to the 46 days interest on the Bonds at the Maximum Rate with respect to the Weekly Rate (i) to enable the Trustee to pay interest on the Bonds when due and (ii) to enable the Trustee to pay the portion of the purchase price of Bonds tendered to it for purchase and not remarketed corresponding to the accrued interest on such Bonds. The Letter of Credit may be extended, amended or replaced by an Alternate Letter of Credit complying with the provisions of Sections 2.05 and 5.08 of the Indenture. The Participating Bank, the Participating Bank Agreement and the Reimbursement Agreement may be replaced by complying with the provisions of Section 5.08(g) of the Indenture. Subject to the provisions of Section 5.09(h) of the Indenture, it is anticipated that all payments of principal of and interest on the Bonds, and all payments of purchase price of the Bonds payable upon optional or mandatory tender for purchase for the payment of which remarketing proceeds are not available pursuant to Article IV of the Indenture, will be funded from draws on the Letter of Credit. The Borrower shall take whatever action may be necessary to maintain the Letter of Credit in full force and effect during the period required by the Indenture, including the payment of any transfer fees required by the Bank upon any transfer of the Letter of Credit to any successor Trustee. (End of Article IV) 12 ARTICLE V ADDITIONAL COVENANTS OF BORROWER Section 5.1. Maintenance of Existence. The Borrower shall do all things necessary to preserve and keep in full force and effect its existence, rights, franchises and qualification to do business in Pennsylvania and shall not (a) dissolve or otherwise sell, transfer or dispose of all, or substantially all, of its assets or (b) consolidate with or merge into any other entity; provided that the preceding restrictions shall not apply if the transferee or the surviving or resulting entity, if other than the Borrower, by written instrument satisfactory to the Trustee, assumes and agrees to perform and observe the agreements and obligations of the Borrower under this Agreement and the provisions of Section 8.9 are satisfied. Section 5.2. Compliance with Laws; Commencement and Continuation of Operations at Project; No Sale, Removal or Demolition of Project. The Borrower will acquire, construct, install, operate and maintain the Project in such manner as to comply with the Act and all applicable requirements of federal, state and local laws and the regulations, rules and orders of any federal, state or local agency, board, commission or court having jurisdiction over the Project or the operation thereof, including without limitation applicable zoning, planning, building and environmental laws, regulations, rules and orders; provided that the Borrower shall be deemed in compliance with this Section so long as it is contesting in good faith any such requirement by appropriate legal proceedings. The Borrower (or its lessee) shall commence operations at the Project within three years from the Series Issue Date and shall continue such operations throughout the term of this Agreement. The Borrower shall not sell, assign or otherwise dispose of (whether in one transaction or in a series of transactions) its interest in the Project or any material portion thereof (other than as permitted by Section 5.1 and other than leases permitted under Section 5.4) or undertake or permit the demolition or removal of the Project or any material portion thereof without the prior written consent of the Issuer; provided that the Borrower shall be permitted (i) to sell, transfer, assign or otherwise dispose of or remove any portion of the Project which is retired or replaced in the ordinary course of business and (ii) to convey legal title to the Project Site and buildings thereon to an industrial development corporation for the purpose of obtaining financing for the benefit of the Borrower through the Pennsylvania Industrial Development Authority of costs of the Project Site and buildings thereon not financed with proceeds of the Bonds. Section 5.3. Right of Inspection. Subject to reasonable security and safety regulations and upon reasonable notice, the Issuer and the Trustee, and their respective agents, shall have the right during normal business hours to inspect the Project. Section 5.4. Lease by Borrower. The Borrower may lease the Project, in whole or in part, to one or more other Persons, provided that: (a) No such lease shall relieve the Borrower from its obligations under this Agreement, the Reimbursement Agreement, the Bond Pledge Agreement or the Remarketing Agreement; (b) In connection with any such lease the Borrower shall retain such rights and interests as will permit it to comply with its obligations under this Agreement, the 13 Reimbursement Agreement, the Bond Pledge Agreement and the Remarketing Agreement; (c) No such lease shall impair materially the accomplishment of the purposes of the Act to be accomplished by operation of the Project as herein provided; (d) Any such lease shall require the lessee to operate the Project as a "project" under the Act as long as the Bonds are outstanding; and (e) In the case of a lease to a new lessee or an assignment of an existing lease to a new lessee of substantially all of the Project, such new lessee shall have been approved by the Issuer (such approval not to be unreasonably withheld). Section 5.5. Financial Statements; Books and Records. The Borrower shall prepare or have prepared such financial statements and reports in such form as are required by the Participating Bank, and shall keep true and proper books of records and accounts in which full and correct entries are made of all its business transactions. Copies of such financial statements and reports shall be provided to the Issuer and the Trustee promptly upon request, and such books of records and accounts shall be made available for inspection during normal business hours upon request by the Issuer or the Trustee or their respective agents. Section 5.6. Taxes, Other Governmental Charges and Utility Charges. The Borrower shall pay, or cause to be paid before the same become delinquent, all taxes, assessments, whether general or special, and governmental charges of any kind whatsoever that may at any time be lawfully assessed or levied against or with respect to the Project, including any equipment or related property installed or brought by the Borrower therein or thereon, and all utility and other charges incurred in the operation, maintenance, use, occupancy and upkeep of the Project. With respect to special assessments or other governmental charges that lawfully may be paid in installments over a period of years, the Borrower shall be obligated to pay only such installments as are required to be paid during the term hereof. The Borrower may, at its expense, in good faith contest any such taxes, assessments and other charges and, in the event of any such contest, may permit the taxes, assessments or other charges so contested to remain unpaid during the period of such contest and any appeal therefrom, unless the Issuer or the Trustee shall notify the Borrower that, in the opinion of counsel selected by the Issuer or the Trustee, by nonpayment of any such items the Project or any part thereof will be subject to loss or forfeiture, in which event such taxes, assessments or charges shall be paid promptly. The Borrower shall also comply at its own cost and expense with all notices received from public authorities with respect to the Project. Section 5.7. Insurance. The Borrower shall at its own cost and expense obtain or cause to be obtained insurance policies against such risks, and in such amounts, as are customarily insured against by entities owning facilities of like size and type to the Project, paying, as the same become due and payable, all premiums in respect thereof. Section 5.8. Damage to or Condemnation of Project. In the event of damage, destruction or condemnation of part or all of the Project, the Borrower shall, subject to the provisions of the Reimbursement Agreement, either: (i) restore the Project or (ii) if permitted by the terms of the Bonds, direct the Issuer to call the Bonds for redemption as set forth in Section 6.2. Damage to, destruction of or condemnation of all or a portion of the Project shall not terminate this Agreement or 14 cause any abatement of or reduction in the payments to be made by the Borrower under this Agreement. Section 5.9. Litigation Notice. The Borrower shall give the Trustee, the Participating Bank, the Remarketing Agent and the Bank prompt notice of any action, suit or proceeding pending or threatened against it at law or in equity, or before any governmental instrumentality or agency, which, if adversely determined, would materially impair the right of the Borrower to carry on the business which is contemplated in connection with the Project or would materially and adversely affect its business, operations, properties, assets or condition. Section 5.10. Indemnification. The Borrower will indemnify and hold harmless the Issuer and each member, director, officer, employee, attorney and agent of the Issuer for and against any and all claims, losses, damages or liabilities (including the costs and expenses of defending against any such claims) to which the Issuer or any member, director, officer, employee or agent of the Issuer may become subject, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise directly or indirectly out of (a) any loss or damage to property or injury to or death of or loss by any person that may be occasioned by any cause whatsoever pertaining to the construction, maintenance, operation and use of the Project; (b) any breach or default on the part of the Borrower in the performance of any covenant or agreement of the Borrower under any of the Borrower's Agreements or any related document, or arising from any act or failure to act by the Borrower or any of its agents, contractors, servants, employees or licensees; (c) the authorization, issuance and sale of the Bonds; (d) any failure by the Borrower to comply with the provisions of the Act; and (e) any claim, action or proceeding brought with respect to any matter set forth in clause (a), (b), (c) or (d) above. The Borrower will indemnify and hold harmless the Trustee and the Remarketing Agent for and against all liabilities, claims, costs and expenses incurred without negligence or bad faith on the part of the Trustee or the Remarketing Agent on account of any action taken or omitted to be taken by the Trustee or the Remarketing Agent in accordance with the terms of this Agreement, the Bonds, the Bond Pledge Agreement, the Letter of Credit, the Remarketing Agreement or the Indenture or any action taken at the request of or with the consent of the Borrower, including the costs and expenses incurred by the Trustee and the Remarketing Agent in defending themselves against any such claims. In case any action or proceeding is brought against the Issuer, the Remarketing Agent or the Trustee in respect of which indemnity may be sought hereunder, the party seeking indemnity promptly shall give notice of that action or proceeding to the Borrower, and the Borrower upon receipt of that notice shall have the obligation and the right to assume the defense of the action or proceeding; provided that failure of a party to give that notice shall not relieve the Borrower from any of its obligations under this Section unless (and then only to the extent) that failure prejudices the defense of the action or proceeding by the Borrower. At its own expense, an indemnified party may employ separate counsel and participate in the defense. The Borrower shall not be liable for any settlement made without its consent, which shall not be unreasonably withheld. The indemnification set forth above is intended to and shall (i) include the indemnification of all affected directors, officers, agents and employees of the Issuer, the Remarketing Agent and the Trustee, respectively, and (ii) be enforceable by the Issuer, the Remarketing Agent and the Trustee, respectively, to the full extent permitted by law. 15 Section 5.11. Nondiscrimination. The Borrower hereby accepts and agrees to be bound by the nondiscrimination clause set forth in Exhibit D attached hereto. (End of Article V) 16 ARTICLE VI REDEMPTION OF BONDS Section 6.1. Optional Redemption. Provided no Event of Default shall have occurred and be subsisting, at any time and from time to time, the Borrower may deliver or cause to be delivered Loan Payments to the Trustee in addition to the scheduled Loan Payments required to be made under Section 4.2 and direct the Trustee to use the Loan Payments so delivered for the purpose of calling Bonds for optional redemption in accordance with the applicable provisions of the Indenture and redeeming such Bonds at the redemption price stated in the Indenture. Such Loan Payments shall be held and applied as provided in Section 5.04 of the Indenture and delivery thereof shall not operate to abate or postpone Loan Payments otherwise becoming due or to alter or suspend any other obligations of the Borrower under this Agreement. Whenever the Bonds are subject to optional redemption pursuant to the Indenture, the Issuer will, but only upon direction of the Borrower, direct the Trustee to call the same for redemption as provided in the Indenture. Section 6.2. Extraordinary Optional Redemption. The Borrower shall have, subject to the conditions hereinafter imposed, the option to direct the redemption of the Bonds in accordance with the applicable provisions of the Indenture upon the occurrence of any of the following events: (a) The Project shall have been damaged or destroyed to such an extent that (1) it cannot reasonably be expected by the Borrower to be restored, within a period of six months, to the condition thereof immediately preceding such damage or destruction or (2) its normal use and operation is reasonably expected by the Borrower to be prevented for a period of six consecutive months. (b) Title to, or the temporary use of, all or a significant part of the Project shall have been taken under the exercise of the power of eminent domain (1) to such extent that the Project cannot reasonably be expected by the Borrower to be restored within a period of six months to a condition of usefulness comparable to that existing prior to the taking or (2) as a result of the taking, normal use and operation of the Project is reasonably expected by the Borrower to be prevented for a period of six consecutive months. (c) As a result of any changes in state or federal laws or as a result of legislative or administrative action (whether state or federal) or by final decree, judgment or order of any court or administrative body (whether state or federal) entered after the contest thereof by the Issuer or the Borrower in good faith, this Agreement shall have become void or unenforceable or impossible of performance in accordance with the intent and purpose of the parties as expressed in this Agreement, or if unreasonable burden or excessive liability shall have been imposed with respect to the Project or the operation thereof, including without limitation federal, state or other ad valorem, property, income or other taxes not being imposed on the date of this Agreement other than ad valorem taxes presently generally levied upon privately owned property used for the same general purpose as the Project. (d) Changes in the economic availability of raw materials, operating supplies, energy sources or supplies, or facilities (including, but not limited to, facilities 17 in connection with the disposal of industrial wastes) necessary for the operation of the Project shall have occurred or technological or other changes shall have occurred which the Borrower cannot reasonably overcome or control and which in the Borrower's reasonable judgment render the Project uneconomic. To exercise such option, the Borrower shall, within 90 days following the event giving rise to the exercise of that option, or at any time during the continuation of the condition referred to in clause (d) above, give notice to the Issuer and the Trustee specifying the date on which the Borrower will deliver the funds required for such redemption, which date shall be not more than 90 days from the date such notice is mailed and shall make arrangements satisfactory to the Trustee for the giving of the required notice of redemption. The amount payable by the Borrower in the event of its exercise of the option granted in this Section shall be the sum of (i) an amount of money which, when added to the moneys and investments held to the credit of the Bond Fund, will be sufficient pursuant to Section 5.04 and Article X of the Indenture to pay, or provide for the payment of, the redemption price of Bonds on the redemption date and to fully reimburse the Bank and the Participating Bank with respect to all drawings on the Letter of Credit, such amount to be paid to the Trustee, plus (ii) an amount of money equal to the Additional Payments accrued and to accrue until actual final payment and redemption of the Bonds, such amount or applicable portions thereof to be paid to the Trustee or to the Persons to whom those Additional Payments are or will be due. The requirement of clause (ii) above with respect to Additional Payments to accrue may be met if provisions satisfactory to the Trustee and the Issuer are made for paying those amounts as they accrue. Section 6.3. Actions by Issuer. At the request of the Borrower or the Trustee, the Issuer shall take all steps required of it under the applicable provisions of the Indenture or the Bonds to effect the redemption of all or a portion of the Bonds pursuant to this Article. (End of Article VI) 18 ARTICLE VII EVENTS OF DEFAULT AND REMEDIES Section 7.1. Events of Default. Each of the following shall (unless waived by the Trustee) be an Event of Default: (a) Failure by the Borrower to make or cause to be made any Loan Payment or Purchase Payment on or prior to the date on which such payment is due and payable; (b) Failure by the Borrower to observe and perform any other agreement, term or condition contained in this Agreement and continuation of such failure for a period of 30 days after notice thereof shall have been given to the Borrower by the Issuer or the Trustee, or for such longer period as the Issuer and the Trustee may agree to in writing; provided that if the failure is other than the payment of money and is of such nature that it can be corrected but not within the applicable period, such failure shall not constitute an Event of Default so long as the Borrower institutes curative action within the applicable period and diligently pursues such action to completion; (c) The Borrower shall (i) apply for or consent to the appointment of a receiver, trustee, liquidator or custodian or the like of itself or of its property, or (ii) admit in writing its inability to pay its debts generally as they become due, or (iii) make a general assignment for the benefit of creditors, or (iv) be adjudicated a bankrupt or insolvent, or (v) commence a voluntary case under the United States Bankruptcy Code, or file a voluntary petition or answer seeking reorganization, an arrangement with creditors or an order for relief, or seeking to take advantage of any insolvency law or file an answer admitting the material allegations of a petition filed against it in any bankruptcy, reorganization, or insolvency proceeding, or action shall be taken by it for the purpose of effecting any of the foregoing, or (vi) have instituted against it, without the application, approval or consent of the Borrower, a proceeding in any court of competent jurisdiction, under any law relating to bankruptcy, insolvency, reorganization or relief of debtors, seeking in respect of the Borrower an order for relief or an adjudication in bankruptcy, reorganization, dissolution, winding up, liquidation, a composition or arrangement with creditors, a readjustment of debts, the appointment of a trustee, receiver, liquidator or custodian or the like of the Borrower or of all or any substantial part of its assets, or other like relief in respect thereof under any bankruptcy or insolvency law, and, if such proceeding is being contested by the Borrower in good faith, the same shall (A) result in the entry of an order for relief or any such adjudication or appointment or (B) remain unvacated, undismissed and undischarged for a period of 60 days; (d) Any representation or warranty made by the Borrower herein or any statement in any report, certificate, financial statement or other instrument furnished in connection with this Agreement or with the purchase of the Bonds shall at any time prove to have been false or misleading in any material respect when made or given; (e) For any reason the Bonds are declared due and payable by acceleration in accordance with Section 7.03 of the Indenture; 19 (f) The Trustee receives notice from the Participating Bank (i) stating that an Event of Default as defined in the Reimbursement Agreement has occurred and is continuing and (ii) directing the Trustee to call the Bonds for mandatory purchase or to declare the principal of the outstanding Bonds immediately due and payable; (g) The Trustee receives notice from the Bank (i) stating that an Event of Default as defined in the Participating Bank Agreement has occurred and is continuing and (ii) directing the Trustee to call the Bonds for mandatory purchase or to declare the principal of the outstanding Bonds immediately due and payable; or (h) The Trustee receives notice from the Bank prior to the third Business Day following payment of a drawing under the Letter of Credit for interest on Bonds which remain outstanding after the application of the proceeds of such drawing, stating that the Letter of Credit will not be reinstated with respect to such interest. The declaration of an Event of Default under paragraph (c) above, and the exercise of remedies upon any such declaration, shall be subject to any applicable limitations of federal bankruptcy law affecting or precluding that declaration or exercise during the pendency of or immediately following any bankruptcy, liquidation or reorganization proceedings. Section 7.2. Remedies on Default. (a) Whenever an Event of Default shall have happened and be subsisting, any one or more of the following remedial steps may be taken: (1) If acceleration of the principal amount of the Bonds has been declared pursuant to Section 7.03 of the Indenture, the Trustee shall declare all Loan Payments to be immediately due and payable, whereupon the same shall become immediately due and payable; and (2) The Issuer or the Trustee may pursue any and all remedies now or hereafter existing at law or in equity to collect all amounts then due and thereafter to become due under this Agreement or the Letter of Credit or to enforce the performance and observance of any other obligation or agreement of the Borrower under this Agreement. (b) The Borrower covenants that, in case it shall fail to pay or cause to be paid any Loan Payments or Purchase Payments as and when the same shall become due and payable whether at maturity or by acceleration or otherwise, then, upon demand of the Trustee, the Borrower will pay to the Trustee the whole amount that then shall have become due and payable hereunder; and, in addition thereto, such further amounts as shall be sufficient to cover the costs and expenses of collection, including a reasonable compensation to the Trustee, its agents and counsel, and any expenses or liabilities incurred by the Issuer or the Trustee. In case the Borrower shall fail forthwith to pay such amounts upon such demand, the Trustee shall be entitled and empowered to institute any actions or proceedings at law or in equity for the collection of the sums so due and unpaid. (c) In case there shall be pending proceedings for the bankruptcy or reorganization of the Borrower under the federal bankruptcy laws or any other applicable law, or in case a 20 receiver or trustee shall have been appointed for the benefit of the creditors or the property of the Borrower, the Trustee shall be entitled and empowered, by intervention in such proceedings or otherwise, to file and prove a claim or claims for the whole amount due hereunder, including interest owing and unpaid in respect thereof, and, in case of any judicial proceedings, to file such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Trustee allowed in such judicial proceedings relative to the Borrower, its creditors or its property, and to collect and receive any moneys or other property payable or deliverable on any such claims, and to distribute the same after the deduction of its charges and expenses. Any receiver, assignee or trustee in bankruptcy or reorganization is hereby authorized to make such payments to the Issuer or the Trustee, and to pay to the Issuer or the Trustee any amount due it for compensation and expenses, including counsel fees incurred by it up to the date of such distribution. Notwithstanding the foregoing, the Trustee shall not be obligated to take any step which in its opinion will or might cause it to expend money or otherwise incur liability unless and until a satisfactory indemnity bond has been furnished to the Trustee at no cost or expense to the Trustee. Any amounts collected as Loan Payments or applicable to Loan Payments and any other amounts which would be applicable to payment of Bond Service collected pursuant to action taken under this Section shall be paid into the Bond Fund and applied in accordance with the provisions of the Indenture or, if the outstanding Bonds have been paid and discharged in accordance with the provisions of the Indenture, shall be paid as provided in Article X of the Indenture for transfers of remaining amounts in the Bond Fund. The provisions of this Section are subject to the further limitation that the annulment by the Trustee of its declaration that all of the Bonds are immediately due and payable also shall constitute an annulment of any corresponding declaration made pursuant to Subsection 7.2(a)(1); provided that no such waiver or rescission shall extend to or affect any subsequent or other default or impair any right consequent thereon. Section 7.3. Remedies Not Exclusive. No remedy conferred upon or reserved to the Issuer or the Trustee by this Agreement is intended to be exclusive of any other available remedy or remedies, but each and every such remedy shall be cumulative and shall be in addition to every other remedy given under this Agreement or the Letter of Credit, or now or hereafter existing at law or in equity. No delay or omission to exercise any right or power accruing upon any default shall impair that right or power or shall be construed to be a waiver thereof, but any such right and power may be exercised from time to time and as often as may be deemed expedient. In order to entitle the Issuer or the Trustee to exercise any remedy reserved to it in this Article, it shall not be necessary to give any notice, other than any notice required by law or for which express provision is made herein. Section 7.4. Payment of Legal Fees and Expenses. If an Event of Default should occur and the Issuer or the Trustee should incur expenses, including attorneys' fees, in connection with the enforcement of this Agreement or the Letter of Credit or the collection of sums due thereunder, the Borrower shall reimburse the Issuer and the Trustee, as applicable, for the expenses so incurred, upon demand. Section 7.5. No Waiver. No failure by the Issuer or the Trustee to insist upon the strict performance by the Borrower of any provision hereof shall constitute a waiver of their right to strict performance and no express waiver shall be deemed to apply to any other existing or subsequent right to remedy the failure by the Borrower to observe or comply with any provision hereof. 21 The Issuer and the Trustee may waive any Event of Default hereunder only with the prior written consent of the Bank and the Participating Bank. Section 7.6. Notice of Default. The Borrower shall notify the Trustee, the Issuer, the Participating Bank and the Bank immediately if it becomes aware of the occurrence of any Event of Default hereunder or of any fact, condition or event which, with the giving of notice or passage of time or both, would become an Event of Default. (End of Article VII) 22 ARTICLE VIII MISCELLANEOUS Section 8.1. Term of Agreement. This Agreement shall be and remain in full force and effect from the Series Issue Date until such time as all of the Bonds shall have been fully paid (or provision made for such payment) pursuant to the Indenture, the Indenture shall have been released pursuant to Section 10.01 thereof, and all other sums payable by the Borrower under this Agreement and the Reimbursement Agreement shall have been paid, except for obligations of the Borrower under Section 5.10, which shall survive any termination of this Agreement. Section 8.2. Notices. All notices, certificates, requests or other communications hereunder shall be in writing and shall be deemed to be sufficiently given when mailed by registered or certified mail, postage prepaid, and addressed as follows: If to the Borrower: Neose Technologies, Inc. 102 Witmer Road Horsham, PA 19044 Attention: P. Sherrill Neff, President with a copy to: Ballard Spahr Andrews & Ingersoll 1735 Market Street Philadelphia, PA 19103 Attention: Lynn Axelroth, Esquire If to the Issuer: Montgomery County Industrial Development Authority 3 Stoney Creek Office Center 151 West Marshall Street Norristown, PA 19401 Attention: Gerald Birkelbach, Executive Director If to the Trustee: Dauphin Deposit Bank and Trust Company, Trustee 213 Market Street Harrisburg, PA 17101 Attention: Corporate Trust Services Department, M/C #001-01-02 If to the Remarketing Agent: CoreStates Capital Markets, a Division of CoreStates Bank, N.A. 600 Penn Street, 2nd Floor Reading, PA 19602 Attention: Ms. Angel Helm Senior Vice President 23 If to the Bank: CoreStates Bank, N.A. FC1-1-5-22 Broad & Chestnut Streets Philadelphia, PA 19107 Attention: Global Financial Institutions If to the Participating Bank: Jefferson Bank 1607 Walnut Street Philadelphia, PA 19103 Attention: _____________________ The Borrower, the Issuer, the Trustee, the Bank, the Participating Bank and the Remarketing Agent, by notice given hereunder to the Persons listed above, may designate any further or different addresses to which subsequent notices, certificates, requests or other communications shall be sent. Section 8.3. Limitation of Liability; No Personal Liability. In the exercise of the powers of the Issuer, the Trustee or the Remarketing Agent hereunder or under the Indenture, including without limitation the application of moneys and the investment of funds, neither the Issuer, the Trustee, the Remarketing Agent nor their members, directors, officers, employees or agents shall be accountable for any action taken or omitted by any of them in good faith and with the belief that it is authorized or within the discretion or rights or powers conferred. The Issuer, the Trustee, the Remarketing Agent and their members, directors, officers, employees and agents shall be protected in acting upon any paper or document believed to be genuine, and any of them may conclusively rely upon the advice of counsel and may (but need not) require further evidence of any fact or matter before taking any action. In the event of any default by the Issuer hereunder, the liability of the Issuer shall be enforceable only out of the Issuer's interest under this Agreement and there shall be no other recourse for damages against the Issuer, its members, directors, officers, attorneys, agents and employees, or any of the property now or hereafter owned by it or them. All covenants, obligations and agreements of the Issuer contained in this Agreement or the Indenture shall be effective to the extent authorized and permitted by applicable law. No such covenant, obligation or agreement shall be deemed to be a covenant, obligation or agreement of any present or future member, director, officer, agent or employee of the Issuer, and no official executing the Bonds shall be liable personally on the Bonds or be subject to any personal liability or accountability by reason of the issuance thereof or by reason of the covenants, obligations or agreements of the Issuer contained in this Agreement or the Indenture. Section 8.4. Binding Effect. This Agreement shall inure to the benefit of and shall be binding in accordance with its terms upon the Issuer, the Borrower and their respective successors and assigns; provided that this Agreement may not be assigned by the Borrower (except in connection with a sale or transfer of assets pursuant to Section 5.1 or in compliance with Section 8.9) and may not be assigned by the Issuer except to the Trustee pursuant to the Indenture or as otherwise may be necessary to enforce or secure payment of Bond Service. This Agreement may be enforced only by the parties, their assignees and others who may, by law, stand in their respective places. In addition, the Remarketing Agent, the Bank and Participating Bank are hereby explicitly recognized as third party beneficiaries of this Agreement. Section 8.5. Amendments. Except as otherwise expressly provided in this Agreement or the Indenture, subsequent to the issuance of the Bonds and unless and until all conditions provided 24 for in the Indenture for release of the Indenture having been met, this Agreement may not be effectively amended, modified or terminated except by an instrument in writing signed by the Borrower and the Issuer, consented to by the Trustee, and in accordance with the provisions of Article IX of the Indenture, as applicable. Section 8.6. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be regarded as an original and all of which shall constitute one and the same instrument. Section 8.7. Severability. If any provision of this Agreement is determined by a court to be invalid or unenforceable, such determination shall not affect any other provision hereof, each of which shall be construed and enforced as if the invalid or unenforceable portion were not contained herein. Such invalidity or unenforceability shall not affect any valid and enforceable application thereof, and each such provision shall be deemed to be effective, operative and entered into in the manner and to the full extent permitted by applicable law. Section 8.8. Governing Law. This Agreement shall be deemed to be a contract made under the laws of the Commonwealth of Pennsylvania and for all purposes shall be governed by and construed in accordance with the laws of the Commonwealth of Pennsylvania. Section 8.9. Assignment. The Borrower shall not assign this Agreement or any interest of the Borrower herein, either in whole or in part, without the prior written consent of the Trustee, which consent shall be given if the following conditions are fulfilled: (i) the assignee assumes in writing all of the obligations of the Borrower hereunder; (ii) neither the validity nor the enforceability of this Agreement shall be adversely affected by such assignment; (iii) the Project shall continue in the opinion of Bond Counsel to be a "project" as such term is defined in the Act after such assignment; and (iv) consent by the Issuer, which consent shall not be unreasonably withheld. For purposes of this Section, no foreclosure by the Participating Bank, or conveyance in lieu thereof, or other transfer to the Participating Bank or an affiliate of Participating Bank, shall, of itself, be deemed an assignment for purposes of this Section or a sale, transfer, assignment or other disposition for purposes of Section 5.2. Subject to the foregoing, the terms "Issuer", "Borrower", "Trustee" and "Remarketing Agent" shall, where the context requires, include the respective successors and assigns of such persons. No assignment pursuant to this Section shall release the Borrower from its obligations under this Agreement, unless the Participating Bank has consented to such release. Section 8.10. Receipt of Indenture. The Borrower hereby acknowledges that it has received an executed copy of the Indenture and is familiar with its provisions, and agrees that it is subject to and bound by the terms thereof and it will take all such actions as are required or contemplated of it under the Indenture to preserve and protect the rights of the Trustee and of the Holders and the Bank and the Participating Bank thereunder and that it will not take any action which would cause a default thereunder. Any redemption of Bonds prior to maturity shall be effected as provided in the Indenture. (End of Article VIII) 25 IN WITNESS WHEREOF, the Issuer and the Borrower, intending to be legally bound, have caused this Agreement to be duly executed in their respective names, all as of the date first above written. [SEAL] MONTGOMERY COUNTY INDUSTRIAL DEVELOPMENT AUTHORITY Attest /s/ Gerald J. Birkelbach By /s/ Sherry Horowitz --------------------------------- ---------------------------------- Secretary Chairperson [SEAL] NEOSE TECHNOLOGIES, INC. Attest /s/ A. Brian Davis By /s/ P. Sherrill Neff --------------------------------- ---------------------------------- Secretary President This execution page is part of the Loan Agreement dated as of March 1, 1997 between Montgomery County Industrial Development Authority and Neose Technologies, Inc. 26 EX-10.2 7 PARTICIPATION AND REIMBURSEMENT AGREEMENT Exhibit 10.2 =============================================================================== PARTICIPATION AND REIMBURSEMENT AGREEMENT Between JEFFERSON BANK and CORESTATES BANK, N.A. Dated as of March 1, 1997 Montgomery County Industrial Development Authority Federally Taxable Variable Rate Demand Revenue Bonds (Neose Technologies, Inc. Project) Series B of 1997 =============================================================================== -1- TABLE OF CONTENTS Page ---- ARTICLE I - DEFINITIONS..................................................... 2 Section 1.1. Definitions.......................................... 2 Section 1.2. Accounting Terms..................................... 4 Section 1.3. Interpretation....................................... 4 ARTICLE II - THE LETTER OF CREDIT........................................... 4 Section 2.1. Amount and Term of Letter of Credit.................. 4 Section 2.2. Reimbursement of Drawings............................ 4 Section 2.3. Interest............................................. 4 Section 2.4. Commitment Fees...................................... 5 Section 2.5. Charges and Expenses................................. 5 Section 2.6. Reduction of Letter of Credit Amount; Reinstatement of Letter of Credit Amount for Interest on the Bonds..................... 5 ARTICLE III - CONDITIONS PRECEDENT.......................................... 5 Section 3.1. Documentation........................................ 5 Section 3.2. Statements........................................... 6 Section 3.3. Related Documents; Issuance of Bonds................. 6 ARTICLE IV - PAYMENT PROVISIONS............................................. 7 Section 4.1. Place and Manner of Payment.......................... 7 Section 4.2. Computation of Interest and Fees..................... 7 Section 4.3. Evidence of Debt..................................... 7 Section 4.4. Increased Costs...................................... 7 Section 4.5. Overdue Payments..................................... 8 ARTICLE V - REPRESENTATIONS AND WARRANTIES.................................. 8 Section 5.1. Existence and Power.................................. 8 Section 5.2. Corporate and Governmental Authorization; No Contravention..................................... 8 Section 5.3. Binding Effect....................................... 9 Section 5.4. Governmental and Other Approvals..................... 9 Section 5.5. Financial Information................................ 9 Section 5.6. Litigation........................................... 9 Section 5.7. Taxes................................................10 ARTICLE VI - COVENANTS......................................................10 Section 6.1. Information..........................................10 Section 6.2. Consolidations, Mergers, Sales of Assets.............10 Section 6.3. Conduct of Business and Maintenance of Existence.....11 Section 6.4. Compliance with Laws.................................11 -i- Page ---- Section 6.5. Books and Records....................................11 Section 6.6. Payment of Obligations...............................11 Section 6.7. Notices..............................................11 Section 6.8. Related Documents....................................11 ARTICLE VII - DEFAULT AND REMEDIES..........................................12 Section 7.1. Events of Default....................................12 Section 7.2. Remedies.............................................13 ARTICLE VIII - CHARACTER OF OBLIGATIONS.....................................13 Section 8.1. Obligations Absolute.................................13 Section 8.2. Continuing Obligation................................13 Section 8.3. Limited Liability of the Bank........................14 Section 8.4. Indemnification......................................14 ARTICLE IX - MISCELLANEOUS..................................................15 Section 9.1. Benefit, Security and Subrogation....................15 Section 9.2. Set-Off..............................................15 Section 9.3. Costs, Expenses and Taxes............................16 Section 9.4. Notices..............................................16 Section 9.5. Amendment and Waivers................................16 Section 9.7. Severability.........................................17 Section 9.8. Headings.............................................17 Section 9.9. Satisfaction Required................................17 Section 9.10. Survival of Covenants................................17 Section 9.11. Counterparts.........................................17 Section 9.12. WAIVER OF JURY TRIAL.................................18 EXHIBIT A - Form of Letter of Credit EXHIBIT B - Form of Pledge, Security and Indemnification Agreement All exhibits omitted. The Registrant notes that the Letter of Credit and Pledge, Security and Indemnification Agreement have been filed as Exhibits 4.6 and 4.7 to this Quarterly Report on Form 10-Q. -ii- PARTICIPATION AND REIMBURSEMENT AGREEMENT THIS PARTICIPATION AND REIMBURSEMENT AGREEMENT ("this Agreement"), dated as of March 1, 1997, is made between JEFFERSON BANK, a Pennsylvania state bank (the "Participating Bank"), and CORESTATES BANK, N.A., a national banking association (the "Bank"). RECITALS: A. The Montgomery County Industrial Development Authority (the "Issuer") proposes to issue federally taxable variable rate demand revenue bonds (the "Bonds") in an aggregate principal amount of $8,400,000 for the benefit of Neose Technologies, Inc. (the "Borrower") pursuant to a Trust Indenture dated as of March 1, 1997 (the "Indenture") between the Issuer and Dauphin Deposit Bank and Trust Company, as Trustee (the "Trustee"), and to lend the proceeds of the sale of the Bonds to the Borrower pursuant to a Loan Agreement between Borrower and the Issuer dated as of March 1, 1997 (the "Loan Agreement") to provide funds to finance all or a portion of the costs of acquiring, constructing, installing and/or rehabilitating certain facilities, or to refund prior bonds issued for such purpose, as more fully described in the Loan Agreement (the "Project"). B. The Bonds are expected to be sold at substantially the same time as are certain other federally taxable variable demand revenue bonds of the Issuer being issued for the benefit of the Borrower. C. To support certain payments with respect to the Bonds, the Borrower has requested the Participating Bank to enter into this Agreement with the Bank in order to induce the Bank to issue its direct pay letter of credit, in favor of the Trustee, in the form of Exhibit A hereto (the "Letter of Credit") in the Letter of Credit Amount (as defined in the Letter of Credit) for the account of the Participating Bank. D. The Participating Bank will be responsible for amounts drawn under the Letter of Credit on behalf of the Participating Bank and for fees and other amounts due with respect to the Letter of Credit. NOW, THEREFORE, in consideration of the foregoing and the undertakings herein set forth and intending to be legally bound, the Participating Bank and the Bank hereby agree as follows: -1- ARTICLE I DEFINITIONS Section 1.1. Definitions. Terms defined in the introductory paragraph and the recitals to this Agreement have the respective meanings assigned to those terms in such paragraph and recitals. The following terms are used in this Agreement with the following respective meanings, unless the Bank and the Participating Bank otherwise agree in writing: "Audited Financial Statements" has the meaning set forth in Section 5.5. "Bond Pledge Agreement" means a Pledge, Security and Indemnification Agreement dated as of March 1, 1997 to be executed by the Borrower, the Participating Bank and the Bank, substantially in the form attached hereto as Exhibit B. "Business Day" means any day other than a Saturday, Sunday or a day on which banks in Philadelphia, Pennsylvania or in any other city in which the principal corporate trust office of the Trustee or the principal office of the Participating Bank or the office of the Bank at which drawing documents are required to be presented under the Letter of Credit is located are authorized or required by law to close or a day on which the New York Stock Exchange is closed. "Call Report" means the report of condition of financial institutions as required by The Depository Institutions Deregulation and Monetary Control Act of 1980, as amended, and in the form and prepared as required by the Federal Financial Institutions Examination Council and by the federal agency regulating the Participating Bank. "Date of Issuance" means the date on which the Letter of Credit is issued upon request of the Participating Bank pursuant to Section 2.1. "Default" means any event or condition which, with the giving of notice, the lapse of time or both, would become an Event of Default. "Drawing" has the meaning assigned to that term in the Letter of Credit. "Drawing Date" means the date on which the Bank has honored a Drawing. "Drawing Payment Date" has the meaning set forth in Section 2.2. "Event of Default" means any of the events specified in Section 7.1. "Expiration Date" has the meaning assigned to that term in the Letter of Credit. "GAAP" means generally accepted accounting principles consistently applied. -2- "Interest Drawing" has the meaning assigned to it in the Letter of Credit. "Letter of Credit Amount" has the meaning assigned to that term in the Letter of Credit. "Liquidity Drawing" has the meaning assigned to that term in the Letter of Credit. "Person" means an individual, a corporation, a partnership, an association, a trust, a government, a political subdivision, a governmental agency or instrumentality or any other entity or organization. "Placement Memorandum" means the final Placement Memorandum of the Issuer relating to the Bonds. "Pledged Bonds" means any Bonds delivered to or for the account of the Bank in connection with a Liquidity Drawing under the Letter of Credit. "Preliminary Placement Memorandum" means the Preliminary Placement Memorandum dated March 10, 1997 of the Issuer relating to the Bonds. "Prime Rate" means the rate of interest announced from time to time by the Bank as its Prime Rate. Such Prime Rate shall change as and when such announced Prime Rate changes effective as of the opening of business on the day announced. Such Prime Rate is determined by the Bank on the basis of a variety of economic and business factors as are in the judgment of the Bank relevant to that determination, and loans made by the Bank may bear rates below, at or above such Prime Rate. The Prime Rate is not intended to be the lowest rate of interest charged by the Bank in connection with extensions of credit to debtors. "Principal Drawing" has the meaning assigned to it in the Letter of Credit. "Reimbursement Agreement" means the Reimbursement Agreement, of even date herewith, between the Participating Bank and the Borrower with respect to the Bonds. "Related Documents" means the Bonds, the Indenture, the Loan Agreement, the Reimbursement Agreement, the Security Agreement between Borrower and Participating Bank in connection with the Bonds, the Mortgage, Assignment of Leases and Security Agreement of Borrower in favor of Participating Bank in connection with the Bonds and the Custodial and Collateral Security Agreement among Borrower, Participating Bank and Offitbank in connection with the Bonds. "Scheduled Expiration Date" has the meaning assigned to that term in the Letter of Credit. "State" means the Commonwealth of Pennsylvania. -3- Section 1.2. Accounting Terms. Unless otherwise specified in this Agreement, all accounting terms used in this Agreement shall be interpreted, all accounting determinations under this Agreement shall be made and all financial statements required to be delivered under this Agreement shall be prepared in accordance with GAAP, on a basis consistent with the most recent consolidated financial statements of the Participating Bank delivered to the Bank. Section 1.3. Interpretation. In this Agreement, unless the Bank and the Participating Bank otherwise agree in writing, the singular includes the plural and the plural the singular; words importing any gender include the other genders, references to statutes are to be construed as including all statutory provisions consolidating, amending or replacing the statute referred to; references to "writing" include printing, typing, lithography and other means of reproducing words in a tangible visible form; the words "including", "includes" and "include,, shall be deemed to be followed by the words "without limitation"; references to articles, sections (or subdivisions of sections) or exhibits are to those of this Agreement unless otherwise indicated; references to agreements and other contractual instruments shall be deemed to include all subsequent amendments and other modifications to such instruments, but only to the extent such amendments and other modifications are not prohibited by the terms of this Agreement; and references to Persons includes their respective permitted successors and assigns. ARTICLE II THE LETTER OF CREDIT Section 2.1. Amount and Term of Letter of Credit. The Participating Bank hereby requests the Bank to issue the Letter of Credit to the Trustee. Subject to satisfaction of the conditions precedent set forth in Article III, the Bank shall issue the Letter of Credit, in favor of the Trustee, in the Letter of Credit Amount, effective on the Date of Issuance and expiring on the Expiration Date. On or prior to the Scheduled Expiration Date and on each anniversary date thereafter, the Bank may, upon the written request of the Participating Bank given to the Bank not more than one (1) year nor less than ninety (90) days prior to such anniversary date, elect, at its sole option, to extend the Scheduled Expiration Date with respect to the Letter of Credit for one additional year, it being understood that the Bank shall have no obligation to grant any such extension. Any such extension shall be subject to the mutual agreement of the Participating Bank and the Bank as to any fees to be applicable to the period of extension. Section 2.2. Reimbursement of Drawings. Immediately after the Drawing Date for each Drawing (the "Drawing Payment Date"), the Participating Bank shall reimburse the Bank for all amounts advanced by the Bank in respect of such Drawing or shall cause such reimbursement to be paid by the Trustee to the Bank pursuant to the Indenture. The Bank agrees to give telephonic notice to the Participating Bank on the day that the Bank receives notice from the Trustee for each Drawing. Section 2.3. Interest. The Participating Bank agrees to pay interest on all Drawings advanced by the Bank from the relevant Drawing Payment Date until repaid in full, at a rate per annum equal to the Prime Rate plus one percent (1%). -4- Section 2.4. Commitment Fees. On the Date of Issuance and quarterly on each June 1, September 1, December 1 and March 1 thereafter, so long as any credit remains available to the Trustee under the Letter of Credit, the Participating Bank shall pay to the Bank a Letter of Credit commitment fee computed at the rate of one quarter of one percent (.25%) per annum (i.e., one sixteenth of one percent per quarter) on the Letter of Credit Amount on such date; provided that for purposes of computing such Letter of Credit Amount the Letter of Credit Amount shall be treated as having been reinstated with respect to each Interest Drawing and Liquidity Drawing on the day the Bank receives reimbursement therefor, unless the Bank has given written notice to the Trustee pursuant to paragraph 5 of the Letter of Credit that such reinstatement shall not occur. Computations of commitment fees to be paid to the Bank hereunder shall be for the actual number of days in the applicable period, based on a 360-day year. Except as set forth below, there shall be no reduction or refund of any portion of any such commitment fee in the event the Letter of Credit expires or is drawn upon, reduced (automatically or otherwise) or otherwise modified during the quarterly period in respect of which a commitment fee is computed. The Bank agrees to reimburse the Participating Bank a pro rata portion of the commitment fees paid by or on behalf of the Participating Bank in advance if, subsequent to any such quarterly payment but in the period for which the payment was made, the Letter of Credit is terminated by delivery of a notice in the form of Annex 7 to the Letter of Credit. Section 2.5. Charges and Expenses. The Participating Bank shall pay to the Bank within five (5) Business Days of submission to the Participating Bank of the Bank's bill therefor, any and all customary and reasonable administrative charges and expenses (including, for instance, an issuance fee of $100 and an amendment fee of $50) which the Bank may pay or incur relative to the Letter of Credit. The Participating Bank shall pay to the Bank upon each transfer of the Letter of Credit in accordance with its terms a transfer fee equal to the greater of $250,000 or one-eighth of one percent (1/8%) of the then outstanding Letter of Credit Amount, together with any and all costs and expenses of the Bank incurred in connection with such transfer. Section 2.6. Reduction of Letter of Credit Amount; Reinstatement of Letter of Credit Amount for Interest on the Bonds. The Letter of Credit Amount shall be reduced and reinstated as specified in the Letter of Credit; provided, however, the Bank shall not reinstate the Letter of Credit pursuant to paragraph 5(c) thereof without the prior written consent of the Participating Bank or if there exists an event of default under the Reimbursement Agreement and notice of such default is given to the Bank by the Participating Bank at least three (3) Business Days prior to the date reinstatement would otherwise occur under the Letter of Credit. ARTICLE III CONDITIONS PRECEDENT Section 3.1. Documentation. As conditions precedent to the Bank's issuance of the Letter of Credit, the Bank shall have received each of the following, dated the Date of Issuance, in form and substance satisfactory to the Bank: -5- (a) an executed copy of this Agreement, each of the Related Documents (other than the Bonds) and the Bond Pledge Agreement; (b) a certificate of an authorized officer of the Borrower as to the authority, incumbency and specimen signatures of all officers of the Borrower who have signed the Bond Pledge Agreement and who will be authorized to represent the Borrower in connection with the Bond Pledge Agreement, upon which the Bank may rely until it receives a new such certificate, as applicable; (c) a certified copy of the resolutions of the Board of the Directors of the Participating Bank authorizing the execution and delivery of, the performance under, and evidencing the authority of each person who has signed, or who will sign this Agreement and the Bond Pledge Agreement; (d) an incumbency certificate signed by an authorized officer of the Participating Bank certifying the names and the signatures of the officers of the Participating Bank authorized to sign this Agreement and the Bond Pledge Agreement; (e) opinions of (i) counsel to the Borrower acceptable to the Bank, (ii) Ballard Spahr Andrews & Ingersoll, as bond counsel, and (iii) counsel to the Participating Bank acceptable to the Bank, all dated the Date of Issuance, in form and substance satisfactory to the Bank, covering such matters as the Bank may reasonably request; and (f) such other documents, instruments or opinions as the Bank may reasonably request. Section 3.2. Statements. The following statements shall be correct on the Date of Issuance: (a) the representations and warranties contained in this Agreement or in any instrument delivered to the Bank pursuant to or in connection with this Agreement are correct on and as of the Date of Issuance (and after giving effect to the issuance of the Letter of Credit) as though made on and as of such date; (b) no Event of Default or Default has occurred and is continuing or would result from the issuance of the Letter of Credit; and (c) the issuance of the Letter of Credit for the account of the Participating Bank will not materially adversely change the Participating Bank's operations or conditions (financial or otherwise). Section 3.3. Related Documents; Issuance of Bonds. On or before the Date of Issuance, all of the Related Documents shall have been duly authorized, executed and delivered by the parties thereto, all conditions precedent to the issuance of the Bonds shall have been satisfied, and the Bonds shall have been duly issued. -6- ARTICLE IV PAYMENT PROVISIONS Section 4.1. Place and Manner of Payment. All payments by or on behalf of the Participating Bank to the Bank under this Agreement shall be made in lawful currency of the United States and in immediately available funds on the date due at the Bank's office at 530 Walnut Street, Seventh Floor, F.C. 1-9-7-1, Philadelphia, Pennsylvania 19106, or to an account maintained by the Bank and designated in a notice by the Bank to the Participating Bank. Any payment received after 3:15 P.M., Philadelphia time on the date due at the Bank's office will be deemed received on the next succeeding Business Day. Whenever any payment under this Agreement shall be due on a day which is not a Business Day, the date for payment shall be extended to the next succeeding Business Day, and any interest payable on such payment shall be payable for such extended time at the applicable rate. Section 4.2. Computation of Interest and Fees. Interest at the Prime Rate shall be computed on the basis of a year of 365 or 366 days (as the case may be). The commitment fee shall be computed on the basis of a year of 360 days and the actual number of days elapsed. Section 4.3. Evidence of Debt. The books and records of the Bank shall be conclusive evidence, absent demonstrable error, of all amounts of principal, interest, fees and other charges advanced, due, outstanding or paid pursuant to this Agreement. The Bank agrees to provide statements of such amounts to the Participating Bank; provided, however, that, in the event of any conflict between such statement and the Bank's books and records, the latter shall be controlling. Section 4.4. Increased Costs. (a) If any enactment, promulgation or adoption of any applicable law, regulation or rule or in the interpretation or administration thereof by any court, administrative or governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by the Bank with any guidelines, request or directive (whether or not having the force of law) of any such authority, central bank or comparable agency, shall either (i) impose, modify or deem applicable any reserve, special deposit or similar requirement (including without limitation a request or requirement which affects the manner in which the Bank allocates capital resources to its commitments, including its obligations under this Agreement and the Letter of Credit), (ii) subject the Bank to any tax or change the basis of taxation of the Bank (other than a change in a rate of tax based on overall net income of the Bank), or (iii) impose on the Bank any other condition regarding this Agreement or the Letter of Credit, and the result of any event referred to in clause (i), (ii) or (iii) of this sentence shall be to increase the direct or indirect cost to the Bank of issuing or maintaining the Letter of Credit or the Bank's obligations under this Agreement or to reduce the amounts receivable by the Bank hereunder (which increase in costs or reduction in amounts receivable shall be determined by the Bank's reasonable allocation of such cost increase or reduction in amounts receivable resulting from such event), then within 10 Business Days after demand by the Bank, the Participating -7- Bank shall pay to the Bank, from time to time as specified by the Bank, additional amounts that in the aggregate shall be sufficient to compensate the Bank for such increased cost or reduction in amounts receivable. A certificate as to such increased cost or reduction in amounts receivable by the Bank as a result of any event mentioned in clause (i), (ii) or (iii) of the immediately preceding sentence submitted by the Bank to the Participating Bank, shall in absence of manifest error, be conclusive and binding for all purposes. (b) If the Bank shall have determined that any enactment, promulgation or adoption of any applicable law, regulation, rule or guideline regarding capital adequacy, or in the interpretation or administration thereof, by any administrative or governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by the Bank (or any controlling affiliate or entity) with any guideline, request or directive regarding capital adequacy (whether or not having the force of law and whether or not failure to comply thereunder would be unlawful) of any such authority, central bank or comparable agency, affects or would affect the amount of capital required or expected to be maintained by the Bank (or any controlling affiliate or entity) and the Bank determines, on the basis of reasonable allocations, that the amount of such capital is increased by or is based on its issuance or maintenance of the Letter of Credit or the Bank's obligations under this Agreement, then, within 10 Business Days after demand by the Bank, the Participating Bank shall pay to the Bank, from time to time as specified by the Bank, additional amounts sufficient to compensate the Bank therefor. A certificate as to such additional amounts submitted to the Participating Bank by the Bank shall, in the absence of manifest error, be conclusive and binding for all purposes. Section 4.5. Overdue Payments. Overdue principal of, and (to the extent permitted by law) overdue interest in respect of, payments due under Section 2.2 and overdue payments of the commitment fee and amounts due under Articles IV, VIII and IX shall bear interest, payable on demand, at a rate per annum equal to the Prime Rate plus two percent (2%) until paid in full. ARTICLE V REPRESENTATIONS AND WARRANTIES The Participating Bank represents and warrants as follows: Section 5.1. Existence and Power. The Participating Bank is a state chartered banking corporation duly incorporated, validly existing and in good standing under the laws of the State, is qualified to do business in the State, and has all powers, corporate or otherwise, as applicable, and all material governmental licenses, authorizations, consents and approvals required to perform all of its obligations under this Agreement and, to the best of its knowledge, to carry on its business as now conducted. Section 5.2. Corporate and Governmental Authorization; No Contravention. The execution, delivery and performance by the Participating Bank of this Agreement, the Bond -8- Pledge Agreement and the Related Documents to which it is a party are within the Participating Bank's corporate power, have been duly authorized by all necessary corporate action, do not and will not require any consent or approval of the members of the Board of Directors of the Participating Bank which has not been obtained, and do not contravene, or constitute a default under, any material provision of applicable law or regulation or of the articles of incorporation or association or by-laws, of the Participating Bank or of any agreement, judgment, injunction, order, decree, or other instrument binding upon the Participating Bank. Section 5.3. Binding Effect. This Agreement and the Related Documents to which the Participating Bank is or is to be a party have been or will be duly executed and delivered and are, or upon execution will be, valid and binding obligations of the Participating Bank, enforceable against the Participating Bank in accordance with their respective terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or other laws or equitable principles relating to or limiting creditor's rights generally or the availability of equitable remedies. Section 5.4. Governmental and Other Approvals. No approval, consent or authorization of, notice to or filing or registration with, any governmental authority or body is required for the due execution, delivery or performance by the Participating Bank of this Agreement or, to the best of its knowledge, any Related Document to which it is or is to be a party, except as have been obtained and are in full force and effect. Section 5.5. Financial Information. The Call Reports of the Participating Bank, and the annual financial statements of the Participating Bank, or the consolidated annual financial statements of the Participating Bank and any controlling entity thereof, reported on by independent certified public accountants (the "Audited Financial Statements"), each for the previous two most recent fiscal years of the Participating Bank, copies of which have been furnished to the Bank, fairly present the financial position of the Participating Bank and any controlling entity thereof as of the date thereof and the results of operations of the Participating Bank and any controlling entity thereof for the periods reflected therein, all in accordance with the rules and regulations of the Federal Financial Institutions Examination Council with respect to Call Reports, and GAAP with respect to Audited Financial Statements, respectively, and governmental agencies, whether state or federal, having regulatory or supervisory authority over the Participating Bank. Since the date of the most recent Call Report or Audited Financial Statements, as the case may be, to the best of Participating Bank's knowledge, there has been no material adverse change in the business, financial position, results of operations or prospects of the Participating Bank and any controlling entity thereof. Section 5.6. Litigation. Except as disclosed to the Bank in writing, there is no action, suit or proceeding pending, or to the knowledge of the Participating Bank threatened, against or affecting the Participating Bank before any court or arbitrator or any governmental body, agency or official in which there is a reasonable possibility of an adverse decision which (a) could materially adversely affect the Participating Bank or the business, financial position or results of operations of the Participating Bank or (b) question the validity of this Agreement or any of the Related Documents to which it is or is to be a party. -9- Section 5.7. Taxes. The Participating Bank has filed all federal income tax returns and all other material tax returns which are required to be filed by it and has paid all taxes due pursuant to such returns or pursuant to any assessment received by the Participating Bank, except for those which the Participating Bank is contesting in good faith. The charges, accruals and reserves on the books of the Participating Bank in respect of taxes or other governmental charges are, in the opinion of the Participating Bank, adequate. ARTICLE VI COVENANTS So long as the Expiration Date has not occurred or any amount is due or owing to the Bank under this Agreement, the Participating Bank agrees as follows: Section 6.1. Information. The Participating Bank will deliver to the Bank: (a) as soon as available and in any event within one hundred twenty (120) days after the end of each fiscal year of the Participating Bank, the Audited Financial Statements reported on by certified public accountants of nationally recognized standing for such fiscal year, setting forth in each case in comparative form the figures for the previous fiscal year; (b) as soon as available, Participating Bank's interim financial statements which are made available to any governmental agency having regulatory or supervisory authority over the Participating Bank, or to any other Person; (c) as soon as available, and in no event later than forty-five (45) days after the end of each quarter-annual period of each fiscal year of the Participating Bank, the Call Report for the quarter then ended; (d) simultaneously with the delivery of each set of documents referred to in clause (a) above, a certificate of a senior officer of the Participating Bank stating whether there exists on the date of such certificate any Default and, if any Default then exists, setting forth the details of such Default and the action which the Participating Bank is taking or proposes to take with respect to such Default; and (e) from time to time such additional information regarding the financial position of the Participating Bank as the Bank may reasonably request. Section 6.2. Consolidations, Mergers, Sales of Assets. Except by operation of law, the Participating Bank will not (a) consolidate with or merge into any other Person or (b) sell, lease or otherwise transfer all or substantially all of its assets to any other Person, unless, (i) the Participating Bank notifies the Bank in writing of such consolidation or merger and confirming the surviving or transferee entity's assumption of all of the Participating Bank's obligations hereunder and (ii) at the request of the Bank, immediately following such -10- consolidation or merger the surviving or transferee entity shall expressly assume all obligations of the Participating Bank hereunder. Section 6.3. Conduct of Business and Maintenance of Existence. The Participating Bank will preserve, renew and keep in full force and effect its corporate existence, and the material rights, privileges and franchises necessary or desirable in the normal conduct of business as a state banking corporation or nationally chartered banking association, as the case may be. Section 6.4. Compliance with Laws. The Participating Bank will comply in all material respects with all material laws, ordinances, rules, regulations and requirements of governmental authorities the noncompliance with which would materially and adversely affect the Participating Bank's ability to perform its obligations hereunder, except where the necessity of compliance therewith is contested in good faith by appropriate proceedings. Section 6.5. Books and Records. The Participating Bank will keep proper books of record and Account in which true and correct entries in conformity with GAAP shall be made of all dealings and transactions in relation to its business and activities. Section 6.6. Payment of Obligations. The Participating Bank will pay and discharge, at or before maturity, all its material obligations and liabilities, including, without limitation, tax liabilities, except where the same may be contested in good faith by appropriate proceedings, and will maintain, in accordance with GAAP, appropriate reserves for the accrual of any of the same. Section 6.7. Notices. The Participating Bank will promptly give written notice to the Bank of the occurrence of any Default or Event of Default signed by a senior officer of the Participating Bank, setting forth the details of, and the actions which the Participating Bank proposes to take with respect to, such Default or Event of Default. The Participating Bank will also promptly give notice to the Bank of any pending or threatened action, suit or proceeding against the Participating Bank, an adverse decision in which could materially and adversely affect the operations or the conditions (financial or otherwise) of the Participating Bank or the ability of the Participating Bank to repay its obligations under this Agreement or which questions the validity of this Agreement, the Bond Pledge Agreement or any Related Document to which it is or is to be a party. Section 6.8. Related Documents. Neither the Participating Bank nor the Bank will amend, modify or terminate or agree to or consent to amend, modify or terminate any Related Documents to which it is or is to be a party without the prior written consent of the other party; provided, however, that the Participating Bank may amend the Reimbursement Agreement so long as such amendment shall not alter, in any manner, the rights and obligations of the parties hereto or otherwise conflict with the terms of this Agreement. -11- ARTICLE VII DEFAULT AND REMEDIES Section 7.1. Events of Default. The occurrence of any one or more of the following events shall constitute an Event of Default: (a) the Participating Bank shall fail to pay within three (3) Business Days when due any amount payable under any provision of this Agreement; (b) any materially adverse change in the financial condition of the Participating Bank shall occur; (c) the Participating Bank shall fail to observe or perform any material covenant or agreement contained in this Agreement or (other than those specified by clauses (a) and (b) above) for thirty (30) days after written notice of such failure has been given to the Participating Bank by the Bank; (d) any material representation or warranty made by the Participating Bank in this Agreement or in any instrument delivered pursuant to or in connection with this Agreement shall prove to have been incorrect or misleading in any material respect at the time made or deemed made; (e) any event of default, however defined, shall occur and be continuing under the Indenture or the Loan Agreement; (f) any material provision of this Agreement or any Related Document to which Participating Bank is party at any time for any reason shall cease to be valid and binding on the Participating Bank or shall be declared to be null and void, the validity or enforceability of any such provision shall be contested by the Participating Bank or the Participating Bank shall deny that it has any further liability or obligation under any such provision; (g) the Participating Bank shall (i) commence a voluntary case or other proceeding seeking receivership, liquidation, reorganization or other relief with respect to itself of its debts under any receivership, bankruptcy, insolvency or other similar law now or in the future in effect, (ii) seek the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, (iii) make a general assignment for the benefit of creditors, (iv) fail generally to pay its debts as they become due or (v) take any action to authorize any of the foregoing; or (h) an involuntary case or other proceeding shall be commenced against the Participating Bank seeking receivership, liquidation, reorganization or other relief with respect to it or its debts under any receivership, bankruptcy, insolvency or other similar law now or in the future in effect or seeking the appointment of a trustee, receiver, liquidator, custodian of other similar official of it or any substantial part of its property, and such -12- involuntary case or other proceeding shall remain undismissed and unstayed for a period of sixty (60) days; or an order for relief shall be entered against the Participating Bank under the federal or state receivership, bankruptcy or insolvency laws. Section 7.2. Remedies. Upon the occurrence of an Event of Default pursuant to Section 7.1(g) or (h) all amounts then due and payable by the Participating Bank under this Agreement shall become due and payable, automatically and immediately without any presentment, demand, protest or other notice or formality of any kind (all of which are expressly waived). Upon the occurrence of an Event of Default (other than pursuant to Section 7.1(g) or (h)), the Bank may, after thirty (30) days written notice to the Participating Bank (unless the Event of Default is cured in such 30-day period), declare all amounts then due and payable by the Participating Bank under this Agreement to be immediately due and payable (and the same shall upon such notice become immediately due and payable), in each case without any presentment, demand, protest or other notice or formality of any kind. Upon any such occurrence, the Bank may, in addition, (a) require the Participating Bank to provide the Bank additional collateral in form and amount acceptable to the Bank, (b) exercise all of its rights and remedies under this Agreement, any security agreement delivered pursuant to this Agreement or otherwise, the Bond Pledge Agreement, or any Related Document, (c) give written notice to the Trustee of such occurrence, with the effects contemplated by Section 7.01 of the Indenture, (d) require the Trustee to accelerate payment of all Bonds and interest accrued thereon as provided in Section 7.03 of the Indenture, (e) draw on the standby letter of credit, if any, delivered to the Bank pursuant to this Agreement or otherwise, (f) exercise any and all remedies available to the Bank at law or in equity, or (g) exercise all or any combination of the remedies provided for in this Section 7.2. ARTICLE VIII CHARACTER OF OBLIGATIONS Section 8.1. Obligations Absolute. The obligations of the Participating Bank under this Agreement shall be absolute, unconditional and irrevocable and shall be performed strictly in accordance with the terms of this Agreement under all circumstances whatsoever. If at any time all or any part of any payment previously applied by the Bank to any payment obligations hereunder of the Participating Bank or the proceeds of any enforcement of any security interest of the Bank or any exercise of the right of set-off by the Bank is invalidated, declared to be fraudulent or preferential, set aside, recovered from, disgorged by, or, is or must be rescinded or returned by the Bank for any reason whatsoever (including, without limitation, the insolvency, bankruptcy or reorganization of the Participating Bank) such obligations shall be deemed to have continued in existence for the purpose of this Agreement, and to the extent that such payment is or must be rescinded or returned, this Agreement shall continue in force or be reinstated, as the case may be, as though such application by the Bank had not been made. Section 8.2. Continuing Obligation. The obligations of the Participating Bank and the Bank under this Agreement shall (a) continue until the latter of (i) the Expiration Date or (ii) the date upon which all amounts due and owing to the Bank under this Agreement shall have -13- been paid in full, (b) be binding upon and inure to the benefit of, and be enforceable by, the Bank, the Participating Bank, and their respective successors, transferees and assigns; provided, however, that neither party may assign all or any part of this Agreement without the prior written consent of the other party. The Bank may not assign its obligations under the Letter of Credit without the prior written confirmation of the rating of the Bonds by the agency rating the Bonds. Section 8.3. Limited Liability of the Bank. The Participating Bank assumes all risks of the acts or omissions of the Trustee or any beneficiary of the Letter of Credit with respect to the use of the Letter of Credit or its proceeds. Neither the Bank nor any of its officers, directors, employees, or agents 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 or any beneficiary of the Letter of Credit in connection with the Letter of Credit; (b) the validity, sufficiency or genuineness of documents submitted in connection with the Letter of Credit or of any endorsement on such documents, even if such documents should in fact 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; or (d) any other circumstances whatsoever in making, delaying to make or failing to make payment under the Letter of Credit; provided, however, that the Participating Bank shall have a claim against the Bank, and the Bank shall be liable to the Participating Bank, to the extent, but only to the extent, of any direct, as opposed to consequential, damages suffered by the Participating Bank which the Participating Bank proves were proximately caused by (i) the Bank's willful misconduct or gross negligence in determining whether documents presented under the Letter of Credit comply with the terms of the Letter of Credit or (ii) the Bank's willful failure to pay under the Letter of Credit after the presentation to it by the Trustee of a draft and certificate strictly complying with the terms and conditions of the Letter of Credit. 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 8.4. Indemnification. In consideration for the Bank's issuance of the Letter of Credit, to the fullest extent permitted by law, the Participating Bank indemnifies and holds harmless the Bank and its officers, directors, employees and agents from and against any and all claims, damages, losses, liabilities, costs or expenses whatsoever which such indemnified party may incur (or which may be claimed against such indemnified party by any Person) by reason of (a) the issuance, sale or delivery of the Bonds; (b) the use of the proceeds of the Bonds or any Drawing; or (c) or in connection with the execution and delivery or transfer of, or payment or failure to pay under, the Letter of Credit; provided, however, that the Participating Bank shall not be required to indemnify the Bank for any claims, damages, losses, liabilities, costs or expenses to the extent, but only to the extent, (i) caused by the willful misconduct or gross negligence of the Bank in performing its obligations under this Agreement and the Letter of Credit or (ii) incurred by reason of any untrue or misleading statement contained, or any failure to state any material fact, in the Placement Memorandum or Preliminary Placement Memorandum. The Participating Bank, upon demand by any party indemnified or intended to be indemnified pursuant to this Section 8.4 at any time, shall reimburse such party for any reasonable legal or other expenses incurred in connection with investigating or defending against any of the foregoing. If any action, suit or proceeding arising from any of the foregoing is -14- brought against any party indemnified or intended to be indemnified pursuant to this Section 8.4, the Participating Bank, to the extent determined by such party as necessary or advisable in order to protect the rights of such party in connection with such action, suit or proceeding, will resist and defend such action, suit or proceeding or cause the same to be resisted and defended by counsel designated by the Participating Bank (which counsel shall be satisfactory to such party); provided, however, that the Participating Bank shall not be required to settle any such action without its consent, which consent shall not be unreasonably withheld. Nothing in this Section 8.4 is intended to limit the Participating Bank's payment obligations under this Agreement. ARTICLE IX MISCELLANEOUS Section 9.1. Benefit, Security and Subrogation. The Participating Bank and the Bank intend and agree that (a) the Bank shall have the benefit and security of the Reimbursement Agreement and the Security Documents (as defined in the Reimbursement Agreement) with respect to the amounts payable by the Borrower under the Reimbursement Agreement corresponding to the amounts payable by the Participating Bank to the Bank under this Agreement and (b) in the event of a draw under the Letter of Credit and failure of the Participating Bank to reimburse the Bank, with interest, in accordance with this Agreement, the Bank will be subrogated and succeed to the rights of the Participating Bank in, to and under the Reimbursement Agreement and the Security Documents with respect thereto, provided that the Bank will not exercise any such rights against the Borrower unless the Participating Bank is in default of this Agreement and the Bonds have been called for mandatory purchase or accelerated pursuant to the Indenture. The Participating Bank will execute and deliver to the Bank such further instruments and take such further actions as the Bank may require from time to time to confirm and effect such benefit, security and rights of subrogation and succession. In furtherance of the foregoing, the Participating Bank has caused the Borrower to agree in the Reimbursement Agreement that (i) the Bank shall have such benefit, security and rights of subrogation and succession, provided that the Participating Bank is not exercising its rights against the Borrower concurrently with the Bank and (ii) the Borrower will execute and deliver such instruments and take such further actions as the Bank may request from time to time to confirm and effect the same. Section 9.2. Set-Off. Upon the occurrence and during the continuance of any Event of Default, the Bank is hereby authorized at any time and from time to time without notice to the Participating Bank (any such notice being expressly waived by the Participating Bank) and, to the fullest extent permitted by law, to set off and to apply any and all balances, credits, deposits (general or special, time or demand, provisional or final), accounts or monies at any time held and other indebtedness at any time owing by the Bank to or for the account of the Participating Bank against any and all of the obligations of the Participating Bank now or hereafter existing under this Agreement or any other agreement or instrument delivered by the Participating Bank to the Bank in connection therewith, whether or not the Bank shall have made any demand hereunder or thereunder and although such obligations may be contingent or unmatured. Subject to the foregoing provision of this Section, the rights of the Bank under this -15- Section are in addition to other rights and remedies (including, without limitation, other rights of set-off) which the Bank may have. Section 9.3. Costs, Expenses and Taxes. The Participating Bank agrees to pay within five (5) Business Days of the submission of the Bank's bill therefor, all reasonable costs and expenses (including fees and expenses of counsel to the Bank) incurred by the Bank in connection with the enforcement of this Agreement. Section 9.4. Notices. All notices, requests and other communications to any party hereunder shall be in writing, unless otherwise specified, and shall be given to such party, addressed to it, at its address or facsimile number set forth below or such other address or facsimile number as such party may in the future specify for such purpose by notice to the other party. The Bank will send copies to the Borrower of all notices the Bank sends to the Participating Bank concerning Defaults or Events of Default hereunder. Each such notice, request or communication shall be effective (a) if given by facsimile, when such facsimile is transmitted to the facsimile number specified below, (b) if given by mail five (5) days after such communication is deposited in the mails with first class postage prepaid, addressed as aforesaid, or (c) if given by any other means, when delivered at the address specified below: Party Address Bank: CoreStates Bank, N.A. 1345 Chestnut Street PNB Building, 5th Floor F.C. 1-1-5-22 Philadelphia, PA 19101 Attn: Global Financial Institutions Facsimile: 215-973-8432 Participating Bank: Jefferson Bank 1607 Walnut Street Philadelphia, PA 19103 Attn: Kenneth R. Frappier, Senior Vice President Facsimile: 215-564-6820 Borrower: Neose Technologies, Inc. 102 Witner Road Horsham, PA 19044 Attn: P. Sherrill Neff, President Facsimile: 215-444-5896 Section 9.5. Amendment and Waivers. No amendments to any provision of this Agreement or the Letter of Credit shall in any event be effective unless the same shall be in writing and signed by the Bank and the Participating Bank. No waiver of any provision of this Agreement, nor consent to any departure by the Participating Bank of any such provision, shall -16- in any event be effective unless the same shall be in writing and signed by the Bank. Any such waiver or consent shall be effective only in the specific instance and posed for the specific purpose for which given. The Bank hereby agrees to not agree to any amendment to, or consent to any action taken under, any of the Related Documents without the prior written consent of the Participating Bank. Section 9.6. No Waiver; Remedies. No failure on the part of the Bank or the Participating Bank to exercise, and no delay in exercising, any right under this Agreement shall operate as a waiver of such right nor shall any single or partial exercise of any right under this Agreement preclude any other further exercise of such right or the exercise of any other right. The remedies provided in this Agreement are cumulative and not exclusive of any remedies provided by law. Section 9.7. Severability. Any provision of this Agreement which is prohibited, unenforceable or not authorized in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition, unenforceability or nonauthorization without invalidating the remaining provisions of this Agreement or affecting the validity, enforceability or authorization of such provision in any other jurisdiction. Section 9.8. Headings. Section headings in this Agreement are included for convenience of reference only and shall not constitute a part of this Agreement for any other purpose. Section 9.9. Satisfaction Required. If any agreement, certificate or other writing, or any action taken or to be taken, is by the terms of this Agreement required to be satisfactory to the Bank, the determination of such satisfaction shall be made by the Bank in its reasonable discretion. Section 9.10. Survival of Covenants. All covenants made herein and in any documents delivered pursuant hereto shall survive the execution and delivery of this Agreement and the Letter of Credit. Section 9.11. Counterparts. This Agreement may be signed in any number of counterpart copies, but all such copies shall constitute one and the same instrument. Section 9.12 Governing Law and Jurisdiction. This Agreement has been delivered to and accepted by the Bank and will be deemed to be made in the State. This Agreement will be interpreted and the rights and liabilities of the parties hereto determined in accordance with the laws of the State, excluding its conflict of laws rules. The Participating Bank hereby agrees to the jurisdiction of any state or federal court located within the county where the Bank's office indicated above is situated, or such other venue as the Bank chooses, and consents that all service of process be sent by nationally recognized overnight courier service directed to the Participating Bank at the Participating Bank's address set forth herein for notices and service so made will be deemed to be completed on the Business Day after deposit with such courier; provided that nothing contained in this Agreement will prevent the Bank from bringing -17- any action or exercising any rights against any security or against the Participating Bank individually, or against any property of the Participating Bank within any other state or nation to enforce any award or judgment obtained in the venue provided above, or such other venue as the Bank chooses. The Participating Bank waives any objection to venue and any objection based on a more convenient forum in any action instituted under this Agreement. Section 9.12. WAIVER OF JURY TRIAL. THE PARTICIPATING BANK IRREVOCABLY WAIVES ANY AND ALL RIGHT THE PARTICIPATING BANK MAY HAVE TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR CLAIM OF ANY NATURE RELATING TO THIS AGREEMENT, ANY DOCUMENTS EXECUTED IN CONNECTION WITH THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED IN ANY OF SUCH DOCUMENTS OR OTHERWISE AND THE PARTICIPATING BANK ACKNOWLEDGES THAT THE FOREGOING WAIVER IS KNOWING AND VOLUNTARY. WITNESS the due execution hereof on the day and year first above written. JEFFERSON BANK CORESTATES BANK, N.A. By /s/ Kenneth R. Frappier By /s/ Wade Johnson ------------------------------- --------------------------------- Print Name: Kenneth R. Frappier Print Name: Wade Johnson - ---------------------------------- ------------------------------------ Title Senior Vice President Title Vice President - ---------------------------------- ------------------------------------ -18- EX-10.3 8 LETTER OF CREDIT Exhibit 10.3 FORM OF CORESTATES BANK, N.A. IRREVOCABLE LETTER OF CREDIT March 20, 1997 Dauphin Deposit Bank and Trust Company 213 Market Street Harrisburg, PA 17101 Attn: Corporate Trust Group Mail Code No. 001-01-02 Re: $8,400,000 Montgomery County Industrial Development Authority Federally Taxable Variable Rate Demand Revenue Bonds, Series B of 1997 (Neose Technologies, Inc. Project) (the "Bonds") Ladies and Gentlemen: 1. At the request and for the account of Jefferson Bank (the "Participating Bank"), we (the "Bank") establish in your favor as Trustee under the Trust Indenture dated as of March 1, 1997 (as the same has been and may from time to time be supplemented or amended, the "Indenture") between the Montgomery County Industrial Development Authority (the "Issuer") and you pursuant to which the Bonds are being issued for the benefit of Neose Technologies, Inc. (the "Borrower"), this irrevocable letter of credit ("this Letter of Credit") in the aggregate amount of $8,579,967.12 (as from time to time reduced and reinstated as provided in this Letter of Credit, the "Letter of Credit Amount"). Such Letter of Credit Amount shall be available for drawing by you as set forth below in amounts not to exceed (a) $8,400,000 (as from time to time reduced and reinstated as provided in this Letter of Credit, the "Principal Component") with respect to unpaid principal of the Bonds and (b) $179,967.12 (as from time to time reduced and reinstated as provided in this Letter of Credit, the "Interest Component") with respect to accrued interest on the Bonds (but no more than the actual interest accrued on the Bonds up to 46 days through the date payment is due under this Letter of Credit). 2. This Letter of Credit shall expire at 5:00 p.m. local time in Philadelphia, Pennsylvania, on the date (the "Expiration Date") which is the earliest of: (a) March 20, 2002 unless extended by us (the "Scheduled Expiration Date") (it being understood that we shall be under no obligation herein to grant any such extension), (b) the date of payment of a Final Payment Drawing (as defined below), (c) the date on which we receive a certificate from you on the form of Annex 7 attached hereto, appropriately completed and executed, to the effect that there are no Bonds outstanding (as defined in the Indenture) other than Bonds secured by an Alternate Letter of Credit (as defined in the Indenture) or (d) the date when you surrender this Letter of Credit to the Bank for cancellation. You agree to surrender this Letter of Credit to us, and not to make any Drawing, after the Expiration Date. -1- 3. Subject to the provisions of this Letter of Credit, demands for payment under this Letter of Credit may be made by you from time to time prior to the Expiration Date by presentation of your certificate in the form of (a) Annex 1 hereto, appropriately completed and executed, in the case of a drawing for interest on the Bonds under Section 5.04 of the Indenture (an "Interest Drawing"), (b) Annex 2 hereto, appropriately completed and executed, in the case of a drawing for principal of the Bonds under Section 5.04 (if less than all of the Outstanding Bonds are being redeemed) of the Indenture (a "Principal Drawing"), (c) Annex 3 hereto, appropriately completed and executed, in the case of a drawing for the purchase price of any Bonds under Section 4.04 of the Indenture (a "Liquidity Drawing"), and (d) Annex 4 hereto, appropriately completed and executed, in the case of a final drawing for principal of or interest on all outstanding Bonds due upon purchase or redemption under Sections 4.04 or 5.04 (if all of the Outstanding Bonds are being purchased or redeemed) of the Indenture or upon acceleration of the Outstanding Bonds under Section 7.03 of the Indenture (the "Final Payment Drawing") (each such demand and presentation, a "Drawing"). Payment against conforming documents presented under this Letter of Credit prior to 12:00 noon on any Business Day shall be made by us at or before 10:00 a.m. on the next succeeding Business Day or, in the case of presentation after 12:00 noon, at or before 3:00 p.m. on the next succeeding Business Day; provided, however, that with respect to a Liquidity Drawing, payment against conforming documents presented under this Letter of Credit prior to 11:00 a.m. on any Business Day shall be made by us at or before 3:00 p.m. on the same Business Day. If requested by you, payment under this Letter of Credit may be made by deposit of immediately available funds into a designated account that you maintain with us, a wire transfer of immediately available funds or by our check, all in accordance with your instructions. Partial drawings are permitted under this Letter of Credit. All payments by us under this Letter of Credit will be made with our own funds. 4. As used in this Letter of Credit "Business Day" means on any day other than a Saturday, Sunday or a day on which banks in Philadelphia, Pennsylvania, New York, New York or the city in which your principal corporate trust office is located are authorized or required by law to close or a day on which the New York Stock Exchange is closed. References to any time of day shall refer to Eastern standard time or Eastern daylight savings time, as in effect in Philadelphia, Pennsylvania on such day. 5. Each Drawing honored by us under this Letter of Credit shall immediately reduce the Principal Component or the Interest Component (as the case may be) by the amount of such payment, and the Letter of Credit Amount available hereunder shall also be correspondingly reduced. Upon such honor, our obligations in respect of such Drawing shall be discharged, and we shall have no further obligation in respect of such Drawing. The Principal Component and the Interest Component (and correspondingly the Letter of Credit Amount) so reduced shall be reinstated only as follows: a. In the case of a reduction resulting from payment against an Interest Drawing, the Interest Component shall be reinstated automatically as of our opening of business in Philadelphia, Pennsylvania on the third (3rd) Business Day following the date of such payment by an amount equal to the amount of such Interest -2- Drawing, unless you shall have received notice from us by tested telex or in writing not later than the close of business on the second (2nd) Business Day following the date of such payment that such reinstatement shall not occur because either (i) an Event of Default has occurred under the Participation and Reimbursement Agreement dated as of March 1, 1997 between the Participating Bank and us, or (ii) we have received notice that an Event of Default has occurred under the Reimbursement Agreement dated as of March 1, 1997 between the Borrower and the Participating Bank, and in either case you shall declare the principal of the outstanding Bonds (as defined in the Indenture) due and payable. b. In the case of a reduction resulting from payment against a Liquidity Drawing with regard to any Bonds, the Principal Component and, if applicable, the Interest Component with respect to such Bonds shall be reinstated (i) automatically when and to the extent that both (A) we have received reimbursement for such drawing in immediately available funds and the Participating Bank has notified us that it has received reimbursement from the Borrower therefor (or you have received immediately available funds which, pursuant to Section 4.05 of the Indenture, you will immediately remit to us as reimbursement for such drawing, such funds to be remitted to the attention of our Letter of Credit Department stating that they are repayments for Liquidity Drawings drawn under CoreStates Bank, N.A. Irrevocable Letter of Credit No. LC#_______) and (B) you have delivered to us a certificate in respect of such reinstatement in the form of Annex 5 attached hereto, appropriately completed and executed, or (ii) when and to the extent that we, at our option, upon the Participating Bank's request, otherwise advise you in writing that such reinstatement shall occur, it being understood that we shall have no obligation to grant any such reinstatement except as provided in clause (i) of this sentence. We will give telephonic confirmation (to be further confirmed in writing) to you of each reinstatement pursuant to clause (i) of the preceding sentence. c. The Principal Component and the Interest Component shall otherwise be reinstated as we may from time to time notify you in writing. 6. The Letter of Credit Amount and the respective Principal and Interest Components thereof shall be reduced automatically, without notice to you, upon our receipt from you of a certificate in the form of Annex 6 attached hereto appropriately completed and executed, each such reduction to be (a) in the amounts necessary to reduce the Letter of Credit Amount and -3- the Principal and Interest Components thereof to the respective amounts specified by you in such certificate and (b) effective on the Business Day on which we receive such certificate from you. 7. All documents presented to us in connection with any Drawing, and all other communications and notices to us with respect to this Letter of Credit, shall be in writing, dated the date of presentation and delivered to us at the address set forth on the letterhead of this Letter of Credit and shall specifically refer to "CoreStates Bank, N.A. Irrevocable Letter of Credit No. LC#________." Any such documents, communications and indices may be made by tested telex at the number indicated above or by facsimile at 215-973-6352 (with transmission confirmed by call to telephone number 215-973-8157) stating that the originals of such documents, communications and notices have been mailed or delivered to us. 8. No person other than you as Trustee or a successor Trustee under the Indenture may make any demand for payment under this Letter of Credit. This Letter of Credit is transferable in its entirety only to any transferee who has succeeded you as Trustee under the Indenture and may successfully be transferred to any subsequent successor Trustee under the Indenture, in each case upon presentation to us of the original of this Letter of Credit. 9. This Letter of Credit sets forth in full the terms of our undertaking, and this undertaking shall not in any way be modified, amended, amplified or limited by reference to any document, instrument or agreement referred to herein or in which this Letter of Credit is referred to or to which this Letter of Credit relates, except only the certificates referred to herein; and any such reference shall not be deemed to incorporate herein by reference any document, instrument or agreement, except such certificates. All certificates referred to herein that are presented to us from time to time shall become an integral part of this Letter of Credit and shall be binding on any transferee permitted by the terms of this Letter of Credit. 10. This Letter of Credit is subject to the provisions of the Uniform Customs and Practice for Documentary Credits, 1993, Revision, International Chamber of Commerce Publication No. 500 (the "UCP") other than Article 48(g) thereof. This Letter of Credit shall be deemed a contract made under the laws of the Commonwealth of Pennsylvania and shall, as to matters not governed by the UCP, be governed and construed in accordance with the laws thereof, without regard to principles of conflicts of law. Very truly yours, CORESTATES BANK, N.A. By /s/ Cheryl Morton ---------------------------------- Authorized Officer -4- ANNEX 1 to CoreStates Bank, N.A. Irrevocable Letter of Credit No. LC# ______ CoreStates Bank, N.A. 530 Walnut Street, Seventh Floor Find Code 1-9-7-1 Philadelphia, PA 19106 Attention: Letter of Credit Department Certificate for Interest Drawing of Accrued Interest on Montgomery County Industrial Development Authority Federally Taxable Variable Rate Demand Revenue Bonds, Series B of 1997 (Neose Technologies, Inc. Project) The undersigned, a duly authorized officer of Dauphin Deposit Bank and Trust Company, as Trustee (the "Trustee") under the Trust Indenture dated as of March 1, 1997 between the Issuer and the Trustee (the "Indenture") under which the Bonds have been issued, hereby certifies, with reference to Irrevocable Letter of Credit No. LC#_______ (the "Letter of Credit") issued by CoreStates Bank, N.A. (the "Bank") in favor of the Trustee (the capitalized terms used herein and not defined herein shall have the meanings ascribed to them in the Letter of Credit), that: 1. The Trustee is the Trustee under the Indenture securing the Bonds and is entitled to present this certificate. 2. Pursuant to Section 5.04 of the Indenture, the Trustee is drawing on you in the amount of $_______. Such amount represents ______ days accrued interest on the Bonds. Such amount does not include any amount accrued on Pledged Bonds (as defined in the Indenture) or Bonds registered in the name of the Borrower, was computed in accordance with the terms and conditions of the Indenture and does not exceed the amount available to be drawn under the Letter of Credit in respect of interest on the Bonds. 3. The Trustee demands payment of the amount specified in Paragraph 2 above. IN WITNESS WHEREOF, the Trustee has executed and delivered this Certificate as of the ___ day of ___________, ____. DAUPHIN DEPOSIT BANK AND TRUST COMPANY, as Trustee By ------------------------------------ Name --------------------------------- Title --------------------------------- -5- ANNEX 2 to CoreStates Bank, N.A. Irrevocable Letter of Credit No. LC#______ CoreStates Bank, N.A. 530 Walnut Street, Seventh Floor Find Code 1-9-7-1 Philadelphia, PA 19106 Attention: Letter of Credit Department Certificate for Principal Drawing in Respect of Principal of on Montgomery County Industrial Development Authority Federally Taxable Variable Rate Demand Revenue Bonds, Series B of 1997 (Neose Technologies, Inc. Project) The undersigned, a duly authorized officer of Dauphin Deposit Bank and Trust Company, as Trustee (the "Trustee") under the Trust Indenture dated as of March 1, 1997 between the Issuer and the Trustee (the "Indenture") under which the Bonds have been issued, hereby certifies, with reference to Irrevocable Letter of Credit No. LC#________ (the "Letter of Credit") issued by CoreStates Bank, N.A. (the "Bank") in favor of the Trustee (the capitalized terms used herein and not defined herein shall have the meanings ascribed to them in the Letter of Credit), that: 1. The Trustee is the Trustee under the Indenture securing the Bonds and is entitled to present this certificate. 2. Pursuant to Section 5.04 of the Indenture, the Trustee is drawing on you in the amount of $________. Such amount represents payments of principal due with respect to the Bonds on _________, under Section _________ of the Indenture. Such amount does not include any amount in respect of Pledged Bonds (as defined in the Indenture) or any Bonds registered in the name of the Borrower, is equal to the amount of principal due on the Bonds on such date in accordance with the terms and conditions of the Indenture and does not exceed the amount available to be drawn under the Letter of Credit in respect of principal of the Bonds. 3. The Trustee demands payment of the amount specified in Paragraph 2 above. IN WITNESS WHEREOF, the Trustee has executed and delivered this certificate this ____ day of _________, ____. DAUPHIN DEPOSIT BANK AND TRUST COMPANY, as Trustee By ------------------------------------ Name --------------------------------- Title --------------------------------- -6- ANNEX 3 to CoreStates Bank, N.A. Irrevocable Letter of Credit No. LC#______ CoreStates Bank, N.A. 530 Walnut Street, Seventh Floor Find Code 1-9-7-1 Philadelphia, PA 19106 Attention: Letter of Credit Department Certificate for Liquidity Drawing in Respect of Principal and Accrued Interest on Montgomery County Industrial Development Authority Federally Taxable Variable Rate Demand Revenue Bonds, Series B of 1997 (Neose Technologies, Inc. Project) The undersigned, a duly authorized officer of Dauphin Deposit Bank and Trust Company, as Trustee (the "Trustee") under the Trust Indenture dated as of March 1, 1997 between the Issuer and the Trustee (the "Indenture") under which the Bonds have been issued, hereby certifies, with reference to Irrevocable Letter of Credit No. LC#_______ (the "Letter of Credit") issued by CoreStates Bank, N.A. (the "Bank") in favor of the Trustee (the capitalized terms used herein and not defined herein shall have the meanings ascribed to them in the Letter of Credit), that: 1. The Trustee is the Trustee under the Indenture securing the Bonds and is entitled to present this certificate. 2. Pursuant to Section 4.04 of the Indenture, the Trustee is drawing on you in the amount of $_______. Such amount represents the principal portion in the amount of $________ and the accrued interest portion in the amount of $________ of the purchase price of Bonds, tendered to the Trustee and not successfully remarketed by the Remarketing Agent (as defined in the Indenture) with the purchase price therefor having been received by the Trustee before 10:00 A.M. Such amount does not include any amount in respect of Pledged Bonds (as defined in the Indenture) or any Bonds registered in the name of the Borrower, was computed in accordance with the terms and conditions of the Indenture and does not exceed the amount available to be drawn under the Letter of Credit in respect of principal of, and interest on, such Bonds. 3. The Trustee is holding as agent for the Bank under the terms of the Pledge, Security and Indemnification Agreement dated as of March 1, 1997 among the Borrower, the Participating Bank and the Bank, Bonds in the principal amount of $_________ which amount represents the amount of the principal portion of the Bonds in respect of which a draw is being made on the Letter of Credit pursuant to this certificate. -7- 4. The Trustee demands payment of the amount specified in Paragraph 2 above. IN WITNESS WHEREOF, the Trustee has executed and delivered this Certificate this ____ day of _________, ____. DAUPHIN DEPOSIT BANK AND TRUST COMPANY, as Trustee By ------------------------------------ Name --------------------------------- Title --------------------------------- -8- ANNEX 4 to CoreStates Bank, N.A. Irrevocable Letter of Credit No. LC#______ CoreStates Bank, N.A. 530 Walnut Street, Seventh Floor Find Code 1-9-7-1 Philadelphia, PA 19106 Attention: Letter of Credit Department Certificate for Final Payment Drawing in Respect of Principal and Accrued Interest on Montgomery County Industrial Development Authority Federally Taxable Variable Rate Demand Revenue Bonds, Series B of 1997 (Neose Technologies, Inc. Project) The undersigned, a duly authorized officer of Dauphin Deposit Bank and Trust Company, as Trustee (the "Trustee") under the Trust Indenture dated as of March 1, 1997, between the Issuer and the Trustee (the "Indenture") under which the Bonds have been issued, hereby certifies, with reference to Irrevocable Letter of Credit No. LC#________ (the "Letter of Credit") issued by CoreStates Bank, N.A. (the "Bank") in favor of the Trustee (the capitalized terms used herein and not defined herein shall have the meanings ascribed to them in the Letter of Credit), that: 1. The Trustee is the Trustee under the Indenture securing the Bonds and is entitled to present this certificate. 2. Pursuant to Section 4.4 or 5.4 of the Indenture, the Trustee is drawing on you in the amount of $________. Such amount represents an unpaid principal amount of $_________ and/or ____ days, accrued interest in the amount of $_______ due upon purchase (pursuant to a mandatory tender) or redemption or payment at maturity under Section ____ of the Indenture or upon acceleration of the Bonds under Section 7.03 of the Indenture. Such amount does not include any amount in respect of Pledged Bonds (,as defined in the Indenture) or any Bonds registered in the name of the Borrower, was computed in accordance with the terms and conditions of the Indenture and does not exceed the amount available to be drawn under the Letter of Credit in respect of principal of, and interest on, the Bonds. 3. The Trustee demands payment of the amount specified in Paragraph 2 above. -9- 4. The Letter of Credit is concurrently being surrendered. IN WITNESS WHEREOF, the Trustee has executed and delivered this Certificate this ____ day of _________, ____. DAUPHIN DEPOSIT BANK AND TRUST COMPANY, as Trustee By ------------------------------------ Name --------------------------------- Title --------------------------------- -10- ANNEX 5 to CoreStates Bank, N.A. Irrevocable Letter of Credit No. LC#______ CoreStates Bank, N.A. 530 Walnut Street, Seventh Floor Find Code 1-9-7-1 Philadelphia, PA 19106 Attention: Letter of Credit Department Liquidity Drawing Reinstatement Certificate for CoreStates Bank, N.A.(the "Bank") Irrevocable Letter of Credit No. LC#______ (the "Letter of Credit") Supporting Montgomery County Industrial Development Authority Federally Taxable Variable Rate Demand Revenue Bonds, Series B of 1997 (Neose Technologies, Inc. Project) The undersigned, a duly authorized officer of Dauphin Deposit Bank and Trust Company, as Trustee (the "Trustee") under the Trust Indenture dated as of March 1, 1997 between the Issuer and the Trustee (the "Indenture") under which the Bonds have been issued, hereby certifies, with reference to the Letter of Credit issued by the Bank in favor of the Trustee (the capitalized terms used herein and not defined herein shall have the meanings ascribed to them in the Letter of Credit), that: 1. The Trustee is the Trustee under the Indenture securing the Bonds and is entitled to present this Certificate. 2. On the date of this Certificate $_______ aggregate principal amount of Bonds are being purchased upon a remarketing thereof by the Remarketing Agent (as defined in the Indenture). All of such Bonds were heretofore purchased (or anticipated to be purchased) with the proceeds of one or more Liquidity Drawings in the total drawing amount, with respect to such Bonds, of $_______ of which proceeds $_______ was drawn in respect of principal of such Bonds and $ was drawn in respect of accrued interest on such Bonds. Prior to the date of this Certificate there has been no reinstatement of the Letter of Credit Amount with respect to amounts drawn by such Liquidity Drawings to purchase such Bonds. 3. The Trustee has received for immediate payment (or repayment) to the Bank in respect of the Bonds described in Paragraph 2 of this Certificate the total amount of $________ consisting of $________ from the Remarketing Agent (as defined in the Indenture), $_______ from the Borrower and $_______ from the Bank. Such total amount is being paid to the Bank with reference to this Letter of Credit pursuant to Section 4.04 or 4.05 of the Indenture, as reimbursement for amounts drawn under the Letter of Credit by the Liquidity Drawings described in Paragraph 2 of this Certificate; provided that, unless such reimbursement is being made on the same day that payment of such Liquidity Drawings was received by the Trustee from the Bank, the Bonds described in Paragraph 2 of this Certificate will be released for remarketing -11- and such payment to the Bank will be made only upon receipt of telephonic confirmation by the Bank of the reinstatement described in Paragraph 6 below to the Trustee at (215) ___-____ (which confirmation shall thereafter be sent in writing to the Trustee at its address on file with you). 4. If the total amount referred to in Paragraph 3 of this Certificate, $_______ represents the aggregate principal amount of Bonds described in Paragraph 2 of this Certificate and $_______ represents accrued interest on such Bonds. 5. Payment of the total amount referred to in Paragraph 3 of this Certificate, together with other amounts heretofore paid to the Bank by or on behalf of the Participating Bank, represents reimbursement for the entire outstanding balance of all amounts drawn in respect of the Bonds described in Paragraph 2 of this Certificate. The foregoing certification is made in reliance upon representations by the Borrower, the Participating Bank or the Bank to the Trustee that, upon payment of such amounts, the Bank will be fully reimbursed for all Liquidity Drawings (or allocable portions thereof) made to purchase such Bonds. No certification is made by the Trustee as to the payment of interest accrued pursuant to the Participation and Reimbursement Agreement described in the Letter of Credit on the amounts drawn by such Liquidity Drawings. 6. Pursuant to Paragraph 5(b) of the Letter of Credit, the Letter of Credit Amount shall be automatically reinstated by an amount equal to $______ (which does not exceed the aggregate amount of the Liquidity Drawings, or allocable portions thereof, paid by the Bank to purchase such Bonds), of which $________ (which does not exceed the aggregate amount of such Liquidity Drawings, or allocable portions thereof, drawn against the Principal Component) shall be applied to the Principal Component and $________ (which does not exceed the aggregate amount of such Liquidity Drawings, or allocable portions thereof, drawn against the Interest Component) shall be applied to the Interest Component. IN WITNESS WHEREOF, the Trustee has executed and delivered this Certificate this ____ day of ___________, ____. DAUPHIN DEPOSIT BANK AND TRUST COMPANY, as Trustee By ------------------------------------ Name --------------------------------- Title --------------------------------- -12- ANNEX 6 to CoreStates Bank, N.A. Irrevocable Letter of Credit No. LC#______ CoreStates Bank, N.A. 530 Walnut Street, Seventh Floor Find Code 1-9-7-1 Philadelphia, PA 19106 Attention: Letter of Credit Department Certificate for Reducing CoreStates Bank, N.A. (the "Bank") irrevocable Letter of Credit No. LC#______ (the "Letter of Credit") Supporting Montgomery County Industrial Development Authority Federally Taxable Variable Rate Demand Revenue Bonds, Series B of 1997 (Neose Technologies, Inc. Project) The undersigned, a duly authorized officer of Dauphin Deposit Bank and Trust Company, as Trustee (the "Trustee") under the Trust Indenture dated as of March 1, 1997, between the Issuer and the Trustee (the "Indenture") under which the Bonds have been issued, hereby certifies (the capitalized terms used herein and not defined herein shall have the meanings ascribed to them in the Letter of Credit), that: 1. The Trustee is the Trustee under the Indenture securing the Bonds and is entitled to present this certificate. 2. The Trustee hereby notifies you that on or prior to the date of this certificate, $________ in principal amount of the Bonds have been redeemed, defeased or otherwise are no longer Outstanding pursuant to the Indenture. 3. Pursuant to the terms of the Letter of Credit, the Bank is hereby directed to reduce the Letter of Credit Amount and the Principal and Interest Components thereof, effective on the Business Day on which you receive this certificate, so that after such reduction, the Letter of Credit Amount shall be $_______ of which $_________ shall be the Principal Component and $_______ shall be the Interest Component, (calculated on the basis of 45 days accrued interest at a rate of 17% per annum), less the amount, if any, drawn with Liquidity Drawings to purchase Outstanding Bonds in respect of which the Letter of Credit has not been reinstated. -13- 4. The foregoing amounts were computed in accordance with the terms and conditions of the Indenture. IN WITNESS WHEREOF, the Trustee has executed and delivered this Certificate this ___ day of __________, ____. DAUPHIN DEPOSIT BANK AND TRUST COMPANY, as Trustee By ------------------------------------ Name --------------------------------- Title --------------------------------- -14- ANNEX 7 to CoreStates Bank, N.A. Irrevocable Letter of Credit No. LC#______ CoreStates Bank, N.A. 530 Walnut Street, Seventh Floor Find Code 1-9-7-1 Philadelphia, PA 19106 Attention: Letter of Credit Department Certificate for Terminating CoreStates Bank, N.A. (the "Bank") Irrevocable Letter of Credit No. LC#_______ (the "Letter of Credit") Supporting Montgomery County Industrial Development Authority Federally Taxable Variable Rate Demand Revenue Bonds, Series B of 1997 (Neose Technologies, Inc. Project) The undersigned, a duly authorized officer of Dauphin Deposit Bank and Trust Company, as Trustee (the "Trustee") under the Trust Indenture dated as of March 1, 1997 between the Issuer and the Trustee (the "Indenture") under which the Bonds have been issued, hereby certifies (the capitalized terms used herein and not defined herein shall have the meanings ascribed to them in the Letter of Credit) that: 1. The Trustee is the Trustee under the Indenture for the holders of the Bonds. 2. Pursuant to the Indenture and the Letter of Credit, the Letter of Credit shall be terminated on the date the Bank receives this Certificate, and the Trustee is herewith surrendering the Letter of Credit for cancellation, because no Bonds remain outstanding other than Bonds secured by an Alternate Letter of Credit. IN WITNESS WHEREOF, the Trustee has executed and delivered this Certificate this ____ day of _________, ____. DAUPHIN DEPOSIT BANK AND TRUST COMPANY, as Trustee By ------------------------------------ Name --------------------------------- Title --------------------------------- -15- ANNEX 8 to CoreStates Bank, N.A. Irrevocable Letter of Credit No. LC#______ CoreStates Bank, N.A. 530 Walnut Street, Seventh Floor Find Code 1-9-7-1 Philadelphia, PA 19106 Attention: Letter of Credit Department Re: CoreStates Bank, N.A. Irrevocable Letter of Credit No. LC#______ Ladies and Gentlemen: For value received, the undersigned beneficiary hereby irrevocably transfers to: (Name of Transferee) (Address) all rights of the undersigned beneficiary to draw under the above Letter of Credit in its entirety. Said transferee has succeeded to the undersigned as Trustee under the Trust Indenture dated as of March 1, 1997 between the Montgomery County Industrial Development Authority and Dauphin Deposit Bank and Trust Company, as Trustee. By this transfer, all rights of the undersigned beneficiary in such Letter of Credit are transferred to the transferee and the transferee shall have the sole rights as beneficiary thereof, including sole rights relating to any amendments whether increases or extensions or other amendments and whether now existing or hereafter made. All amendments are to be advised direct to the transferee without necessity of any consent of or notice to the undersigned beneficiary. The original of such Letter of Credit is returned herewith, and in accordance therewith we ask you to transfer the Letter of Credit to the transferee and forward it directly to the transferee with your customary notice of transfer, or that, at your option, you issue a new irrevocable letter of credit in favor of the transferee with provisions consistent with the Letter of Credit. Very truly yours, SIGNATURE AUTHENTICATED DAUPHIN DEPOSIT BANK AND TRUST COMPANY, as Trustee By - -------------------------------------- ------------------------------------ (Authorized Signature) Title -16- EX-10.4 9 PLEDGE, SECURITY AND INDEMNIFICATION AGREEMENT Exhibit 10.4 PLEDGE, SECURITY AND INDEMNIFICATION AGREEMENT THIS PLEDGE, SECURITY AND INDEMNIFICATION AGREEMENT ("this Agreement"), dated as of March 1, 1997, is made by and among NEOSE TECHNOLOGIES, INC. (the Borrower), CORESTATES BANK, N.A. (the "Bank"), and JEFFERSON BANK (the "Participating Bank"). RECITALS A. The Borrower has requested the Participating Bank to enter into a Participation and Reimbursement Agreement with the Bank, dated as of March 1, 1997 (the "Participating Bank Agreement"), pursuant to which the Bank has agreed to issue the Letter of Credit (as defined in the Participating Bank Agreement) to Dauphin Deposit Bank and Trust Company, as Trustee, for the account of the Participating Bank and for the benefit of the Borrower in order to support certain payments with respect to the Bonds described in the Participating Bank Agreement issued for the benefit of the Borrower (the "Bonds"). B. It is a condition precedent under the Participating Bank Agreement to the obligation of the Bank to issue the Letter of Credit and for the Participating Bank to enter into the Participating Bank Agreement that the Borrower shall have executed and delivered this Agreement. NOW, THEREFORE, in consideration of the premises and to induce the Bank to issue the Letter of Credit and to induce the Participating Bank to enter into the Participating Bank Agreement and for other good and valuable consideration, receipt of which is acknowledged, the parties hereto agree as follows: Section 1. Defined Terms. Terms defined in the Participating Bank Agreement shall have the same meanings when used in this Agreement, and the rules of interpretation set forth in Sections 1.1 and 1.3 of the Participating Bank Agreement shall apply to this Agreement. Section 2. Pledge. The Borrower pledges, assigns, transfers, hypothecates and delivers to the Bank and the Participating Bank, as their interests appear herein, all its right, title and interest in and to the Pledged Bonds and grants to the Bank a first priority lien upon and security interest in, and to the Participating Bank a second priority lien upon and security interest in, the Pledged Bonds as the same may be from time to time delivered to the Trustee as agent for the Bank and/or the Participating Bank and in all proceeds of such Pledged Bonds and, subject to the prior rights of the holders of the Bonds, all of the Borrower's rights, title and interest in and to all funds and investments thereof and all other property now or hereafter held by the Trustee under the Indenture (collectively, the "Collateral"), all as collateral security for the prompt and complete payment when due of all amounts due from the Participating Bank to the Bank under or in respect of the Participating Bank Agreement, and from the Borrower to the Participating Bank under the Reimbursement Agreement (collectively, the "Obligations"). The Borrower hereby consents to the Trustee acting as the agent of the Bank and/or the Participating Bank for the -1- purpose of perfecting the lien and security interest of this Agreement and of holding the Collateral for the benefit of the Bank and the Participating Bank pursuant to the Indenture. Section 3. Payments on the Bonds. If, while this Agreement is in effect, the Borrower shall become entitled to receive or shall receive any interest or other payment in respect of the Pledged Bonds, the Trustee will hold the same in trust on behalf of the Bank and the Participating Bank and deliver the same forthwith to the Bank or, upon notice from the Bank, which notice the Bank agrees to give so long as no event of default exists under the Participating Bank Agreement, to the Participating Bank. The Borrower hereby authorizes the Trustee to hold and receive on the Bank's and/or Participating Bank's behalf and to deliver forthwith to the Bank or upon such notice from the Bank, to the Participating Bank, any payment received by it in respect of the Pledged Bonds (including the proceeds of any remarketing of the Pledged Bonds). All such payments in respect of the Pledged Bonds which are paid to the Bank or the Participating Bank shall be credited against the Obligations in accordance with the terms of the Participating Bank Agreement and the Reimbursement Agreement. Section 4. Release of Pledged Bonds. Neither the Bank nor the Participating Bank, as the case may be, shall release from the lien and security interest of this Agreement any Pledged Bonds that are being remarketed pursuant to Section 4.05 of the Indenture or that are to be delivered to the Trustee, unless the Bank or the Participating Bank, as the case may be, by wire transfer, has been or is being reimbursed in respect of the principal and, if applicable, interest amounts of the Liquidity Drawing related to the purchase of such Pledged Bonds in a manner which will permit the reinstatement of the Principal Component and Interest Component in respect of such Pledged Bonds in accordance with the terms of the Letter of Credit. Section 5. Representations and Warranties. The Borrower represents and warrants that: (a) on the date of delivery of the Pledged Bonds to the Bank, no other Person (other than the Participating Bank which has a subordinated lien on the Pledged Bonds) shall have any right, title or interest in and to the Pledged Bonds, other than as securities depository or trustee; (b) the Borrower has, and on the date of delivery of any of the Pledged Bonds hereunder will have, full power, authority and legal right to pledge all of its right, title and interest in and to the Pledged Bonds pursuant to this Agreement; (c) in connection with the delivery of Pledged Bonds hereunder, Borrower shall take all steps reasonably required by Bank to ensure that the pledge, assignment and delivery of the Pledged Bonds pursuant to this Agreement will create a valid first lien and security interest on, and a first perfected security interest in, all right, title and interest of the Borrower in and to the Pledged Bonds and the proceeds thereof, subject to no prior lien and security interest on the property or assets of the Borrower which would include the Pledged Bonds; and (d) the Borrower makes each of the representations and warranties in the Loan Agreement and Related Documents to and for the benefit of the Bank and the Participating Bank as if the same were set forth in full herein. Unless the Borrower shall have previously advised the Bank and the Participating Bank in writing that one or more of the above statements is no longer true in all material respects, the Borrower shall be deemed to have represented and -2- warranted to the Bank and the Participating Bank on each Drawing Date that the statements contained herein are true and correct in all material respects. Section 6. Rights of the Bank and the Participating Bank. Neither the Bank nor the Participating Bank (in its capacity as pledgee hereunder) shall be liable for any failure to collect or realize upon all or any part of the Obligations or any collateral security (including the Collateral) or guarantee for the Obligations, or for any delay in so doing nor shall either the Bank or the Participating Bank be under any obligation to take any action whatsoever with regard to the Obligations or any such collateral security or guarantee. If an Event of Default has occurred and is continuing, the Bank may, or following payment to the Bank of all of the obligations due to the Bank under the Participating Bank Agreement the Participating Bank may, without notice, exercise all rights, privileges or options pertaining to any Pledged Bonds as if it were the absolute owner of such Pledged Bonds (except, however, sell Pledged Bonds if either (a) the Principal Component and the Interest Component of the Letter of Credit have not been reinstated in accordance with its terms, or (b) it has not secured an acknowledgment from the purchaser of such Pledged Bonds that such Pledged Bonds are not secured by the Letter of Credit), upon such terms and conditions as it may determine, all without liability except to account for property actually received by it, but neither the Bank nor the Participating Bank shall have any duty to exercise any of those rights, privileges or options nor shall they be responsible for any failure to do so or delay in so doing. Section 7. Remedies. In addition to their other rights and remedies under this Agreement, the Participating Bank Agreement, the Reimbursement Agreement and the Related Documents, the Bank and the Participating Bank shall have all of the rights and remedies of a secured party under the Pennsylvania Uniform Commercial Code or other applicable law with respect to the security interests created by this Agreement. Section 8. Further Assurances. The Borrower agrees that at any time and from time to time upon the written request of the Bank or the Participating Bank, the Borrower will execute and deliver such further documents and do such further acts and things as the Bank and/or the Participating Bank may reasonably request in order to effect the purposes of this Agreement. Section 9. Indemnification. In consideration for the Bank's issuance of the Letter of Credit and the Participating Bank's entering into the Participating Bank Agreement, to the fullest extent permitted by law, the Borrower agrees to indemnify and hold harmless the Bank and the Participating Bank and their respective officers, directors, employees and agents from and against any and all claims, damages, losses, liabilities, costs or expenses whatsoever which such indemnified party may incur (or which may be claimed against such indemnified party by any Person) by reason of (a) any untrue statement or alleged untrue statement of any material fact contained or incorporated by reference in the Placement Memorandum or the Preliminary Placement Memorandum or the omission or alleged omission to state in the Placement Memorandum or the Preliminary Placement Memorandum a material fact necessary to make -3- such statements, with respect to information furnished in writing by the Borrower expressly for use in the Placement Memorandum or the Preliminary Placement Memorandum, all in the light of the circumstances under which they are or were made, not misleading with respect to the Bonds, the Preliminary Placement Memorandum or the Placement Memorandum; (b) the issuance, sale or delivery of the Bonds; (c) the use of the proceeds of the Bonds or any Drawing; or (d) in connection with the execution and delivery or transfer of, or payment or failure to pay under, the Letter of Credit; provided, however, that the Borrower shall not be required to indemnify the Bank or the Participating Bank for any claims, damages, losses, liabilities, costs, or expenses to the extent, but only to the extent, (i) caused by the willful misconduct or gross negligence of the Bank or the Participating Bank in performing their respective obligations under this Agreement and the Letter of Credit or (ii) incurred by reason of any untrue or misleading statement contained, or any omission to state any material fact, in information furnished in writing by the Bank expressly for use in the Placement Memorandum or Preliminary Placement Memorandum. The Borrower, upon demand by any party indemnified or intended to be indemnified pursuant to this Section 9 at any time, shall reimburse such party for any reasonable legal or other expenses incurred in connection with investigating or defending against any of the foregoing. If any action, suit or proceeding arising from any of the foregoing is brought against any party indemnified or intended to be indemnified pursuant to this Section 9, the Borrower, to the extent determined by such party as necessary or advisable in order to protect the rights of such party in connection with such action, suit or proceeding, will resist and defend such action, suit or proceeding or cause the same to be resisted and defended by counsel designated by the Borrower (which counsel shall be satisfactory to such party); provided, however, that the Borrower shall not be required to settle any such action without its consent, which consent shall not be unreasonably withheld. Section 10. Notices. All notices, requests and other communications to any party hereunder shall be in writing, unless otherwise specified, and shall be given to such party, addressed to it, at its address or facsimile number set forth below or such other address or facsimile number as such party may specify for the purpose by notice to the other parties. Each such notice, request or communication shall be effective (a) if given by facsimile, when such facsimile is transmitted to the facsimile number specified below, (b) if given by mail five (5) days after such communication is deposited in the mails with first class postage prepaid, addressed as aforesaid or (c) if given by any other means, when delivered at the address specified below: Party Address ----- -------- Bank: CoreStates Bank, N.A. 1345 Chestnut Street PNB Building, 5th Floor F.C. 1-1-5-22 Philadelphia, PA 19101 Attn: Global Financial Institutions Facsimile: 215-973-8432 -4- Participating Bank: Jefferson Bank 1607 Walnut Street Philadelphia, PA 19103 Attn: Kenneth R. Frappier, Senior Vice President Facsimile: 215-564-6820 Borrower: Neose Technologies, Inc. 102 Witner Road Horsham, PA 19044 Attn: P. Sherrill Neff, President Facsimile: 215-444-5896 with copies to: Ballard Spahr Andrews & Ingersoll 1735 Market Street, 51st Floor Philadelphia, PA 19103 Attn: Lynn Axelroth, Esquire Facsimile: 215-864-8999 Trustee: Dauphin Deposit Bank and Trust Company 213 Market Street Harrisburg, PA 17107 Attn: Corporate Trust Group, Mail Code No. 001-01-02 Facsimile: 717-231-2615 Section 11. Amendments and Waivers. No amendment or waiver of any provision of this Agreement nor consent to any departure by the Borrower from any such provision shall in any event be effective unless the same shall be in writing and signed by the Bank and the Participating Bank. Any such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. Section 12. No Waiver; Remedies. No failure on the part of the Bank or the Participating Bank to exercise, and no delay in exercising, any right under this Agreement shall operate as a waiver of such right nor shall any single or partial exercise of any right under this Agreement preclude any other further exercise of such right or the exercise of any other right. The remedies provided in this Agreement are cumulative and not exclusive of any remedies provided by law or available in equity. -5- Section 13. Severability. Any provision of this Agreement which is prohibited, unenforceable or not authorized in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition, unenforceability or nonauthorization without invalidating the remaining provisions of this Agreement or affecting any validity, enforceability or legality of such provision in any other jurisdiction. Section 14. Headings. Section headings in this Agreement are included for convenience of reference only and shall not constitute a part of this Agreement for any other purpose. Section 15. Counterparts. This Agreement may be signed by any number of counterpart copies, but all such copies shall constitute one and the same instrument. Section 16. Governing Law and Jurisdiction. This Agreement has been delivered to and accepted by the Bank and will be deemed to be made in the State. This Agreement will be interpreted and the rights and liabilities of the parties hereto determined in accordance with the laws of the State, excluding its conflict of laws rules. The Borrower hereby agrees to the jurisdiction of any state or federal court located within the county where the Bank's office indicated above is situated, or such other venue as the Bank chooses, and consents that all service of process be sent by nationally recognized overnight courier service directed to the Borrower at the Borrower's address set forth herein for notices and service so made will be deemed to be completed on the Business Day after deposit with such courier; provided that nothing contained in this Agreement will prevent the Bank from bringing any action or exercising any rights against any security or against the Borrower individually, or against any property of the Borrower within any other state or nation to enforce any award or judgment obtained in the venue provided above, or such other venue as the Bank chooses. The Borrower waives any objection to venue and any objection based on a more convenient forum in any action instituted under this Agreement. Section 17. WAIVER OF JURY TRIAL. THE BORROWER IRREVOCABLY WAIVES ANY AND ALL RIGHT THE BORROWER MAY HAVE TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR CLAIM OF ANY NATURE RELATING TO THIS AGREEMENT, ANY DOCUMENTS EXECUTED IN CONNECTION WITH THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED IN ANY SUCH DOCUMENTS OR OTHERWISE AND THE BORROWER ACKNOWLEDGES THAT THE FOREGOING WAIVER IS KNOWING AND VOLUNTARY. -6- WITNESS the due execution hereof on the day and year first above written intending to be legally bound. ATTEST: NEOSE TECHNOLOGIES, INC. By /s/ Brian Davis By /s/ P. Sherrill Neff -------------------------------- --------------------------------- Title Secretary Title President and CFO ----------------------------- ------------------------------ JEFFERSON BANK CORESTATES BANK, N.A. By Kenneth R. Frappier By /s/ Wade Johnson -------------------------------- --------------------------------- Title Senior VP Title Vice President ----------------------------- ------------------------------ -7- EX-10.5 10 REIMBURSEMENT AGREEMENT Exhibit 10.5 REIMBURSEMENT AGREEMENT Dated as of March 1, 1997 Between NEOSE TECHNOLOGIES, INC. and JEFFERSON BANK Entered into with regard to Montgomery County Industrial Development Authority's $8,400,000 Federally Taxable Variable Rate Demand Revenue Bonds (Neose Technologies, Inc. Project), Series B of 1997 TABLE OF CONTENTS Page Recitals.................................................................... 1 ARTICLE I DEFINITIONS Section 1.01. Definitions.................................................. 2 Section 1.02. Accounting and Commercial Terms.............................. 7 Section 1.03. Rules of Construction; Time of Day.......................... 7 Section 1.04 Security Agreement........................................... 7 ARTICLE II CREDIT AND REIMBURSEMENT Section 2.01. Credit....................................................... 8 Section 2.02. Reimbursement and Other Payments to Bank..................... 8 Section 2.03. Payments Under Loan Agreement............................... 12 Section 2.04. Obligations Absolute........................................ 13 Section 2.05. Indemnification............................................. 13 Section 2.06. Liability of Bank........................................... 14 ARTICLE III SECURITY Section 3.01. Security and Subrogation under Indenture.................... 15 Section 3.02. Pledge of Rights to Certain Funds and Investments........... 15 Section 3.03. Pledged Bonds............................................... 15 Section 3.04. Mortgage; Security Agreement................................ 16 Section 3.05. Financing Statements........................................ 16 Section 3.06. Custodial Bank Agreement.................................... 16 Section 3.07. Benefit, Security and Subrogation Rights of Letter of Credit Bank....................... 16 ARTICLE IV CONDITIONS PRECEDENT Section 4.01. Closing Fee................................................. 17 Section 4.02. Documentation............................................... 17 Section 4.03. Issuance of Bonds........................................... 19 ARTICLE V REPRESENTATIONS AND WARRANTIES Section 5.01. Existence................................................... 20 Section 5.02. Power, Authorization and No Conflicts....................... 20 Section 5.03. Governmental Authorizations; Permits, Licenses and Other Approvals................... 20 Section 5.04. Validity and Binding Effect................................. 21 Section 5.05. No Litigation............................................... 21 Section 5.06. No Violations............................................... 21 Section 5.07. Project Compliance.......................................... 21 Section 5.08. No Liens.................................................... 22 Section 5.09. Utilities and Access........................................ 22 Section 5.10. Financial Information....................................... 22 Section 5.11. Taxes....................................................... 23 Section 5.12. ERISA Representations....................................... 23 Section 5.13. Environmental Representations............................... 24 Section 5.14. Representations in Other Documents.......................... 25 ARTICLE VI GENERAL COVENANTS Section 6.01. Maintenance of Existence; Mergers........................... 25 Section 6.02. Compliance with Laws........................................ 25 Section 6.03. Maintenance of Governmental Authorizations.................. 25 Section 6.04. Maintenance of Insurance.................................... 26 Section 6.05. Compliance with Bond Documents and Other Contracts...................................... 26 Section 6.06. Maintenance of Properties................................... 26 Section 6.07. Visitation Rights........................................... 26 Section 6.08. Keeping of Books............................................ 26 Section 6.09. Reporting Requirements...................................... 27 Section 6.10. Payment of Debt............................................. 28 Section 6.11. Payment of Taxes............................................ 28 Section 6.12. Consents Under Bond Documents............................... 28 Section 6.13. Amendments to Bond Documents................................ 28 Section 6.14. Limitation on Conversion to Term Rate....................... 28 Section 6.15. Limitation on Optional Calls................................ 28 Section 6.16. Leases...................................................... 29 Section 6.17. ERISA....................................................... 29 Section 6.18. Environmental Covenants..................................... 30 Section 6.19. Further Assurances.......................................... 31 Section 6.20. Financial Covenants......................................... 31 Section 6.21. Principal Prepayments....................................... 33 Section 6.22. Working Capital..............................................33 Section 6.23 Deposit Relationship.........................................33 ARTICLE VII PROJECT FUND AND CONSTRUCTION COVENANTS Section 7.01. Project Cost Schedule; Application of Project Fund....................................33 Section 7.02. Requisition Approvals........................................35 Section 7.03. Construction; Completion Date................................35 Section 7.04. Certain Contracts Prohibited.................................36 Section 7.05. Certain Notices..............................................36 Section 7.06. Releases.....................................................36 Section 7.07. Change Orders................................................36 Section 7.08. Builder's Risk, Liability and Workers' Compensation Insurance..........................37 ARTICLE VII DEFAULTS AND REMEDIES Section 8.01. Defaults.................................................... 37 Section 8.02. Remedies.................................................... 40 Section 8.03. Waivers; Consents........................................... 41 Section 8.04. No Waiver; Remedies Cumulative.............................. 42 ARTICLE IX MISCELLANEOUS Section 9.01. Notices..................................................... 42 Section 9.02. Successors and Assigns...................................... 43 Section 9.03. Survival of Representations, Warranties and Covenants.......................................43 Section 9.04. Counterparts................................................ 44 Section 9.05. Costs, Expenses and Taxes................................... 44 Section 9.06. Amendments...................................................44 Section 9.07. Severability.................................................44 Section 9.08. Conflicts....................................................44 Section 9.09. Complete Agreement...........................................45 Section 9.10. Governing Law................................................45 Section 9.11. Table of Contents and Headings...............................45 Section 9.12. Participation................................................45 Section 9.13. Judicial Proceedings.........................................46 EXECUTION...................................................................46 EXHIBIT A - Form of Note EXHIBIT B - Project Description and Cost Schedule EXHIBIT C - Environmental Matters EXHIBIT D - Optional Prepayment Schedule REIMBURSEMENT AGREEMENT THIS AGREEMENT, made as of March 1, 1997 between NEOSE TECHNOLOGIES, INC. (the "Borrower"), a corporation organized and existing under the laws of the State of Delaware, and JEFFERSON BANK (the "Bank"), a banking institution organized and existing under the laws of the Commonwealth of Pennsylvania, W I T N E S S E T H : A. Montgomery County Industrial Development Authority (the "Issuer") has issued its Federally Taxable Variable Rate Demand Revenue Bonds (Neose Technologies, Inc. Project) Series B of 1997, in the aggregate principal amount of $8,400,000 (the "Bonds") under a Trust Indenture, dated as of March 1, 1997 (the "Indenture") between the Issuer and Dauphin Deposit Bank and Trust Company, as Trustee (including any successor trustee, the "Trustee"). B. Pursuant to a Loan Agreement, dated as of March 1, 1997 between the Issuer and the Borrower (the "Loan Agreement"), the proceeds of the Bonds are being applied to finance the acquisition, improvement and equipping of a facility which will be used for the development of complex carbohydrates for research and development relating to a variety of health care applications. The facility consists of a one-story, 45,000 square foot building situated on approximately 4.0 acres of land, located at 102 Witmer Road, Horsham, Montgomery County, Pennsylvania (collectively, the "Project"), to be owned by the Borrower. Under the Loan Agreement, the Borrower is obligated to make loan payments to the Trustee in amounts and at times corresponding to the principal and interest debt service required in respect of the Bonds. C. In order to facilitate the issuance and sale of the Bonds and to enhance the marketability of the Bonds, the Issuer has asked CoreStates Bank, N.A. to issue its Irrevocable Letter of Credit (together with any amendment thereto and any substitute letter of credit issued by the Letter of Credit Bank therefor, the "Letter of Credit") to the Trustee authorizing the Trustee to make one or more draws on CoreStates Bank, N.A., the issuer of the Letter of Credit or on the issuer of any letter of credit issued in substitution therefor (the "Letter of Credit Bank") up to an aggregate of $8,579,967.12 (as reduced and reinstated from time to time in accordance with the provisions of the Letter of Credit, the "Letter of Credit Amount"), of which originally (i) $8,400,000 shall be in respect of principal of the Bonds and (ii) $179,967.12 shall be in respect of accrued interest on the Bonds. The purpose of the Letter of Credit is to provide funds for the payment of principal of and interest on the Bonds and purchase price of Bonds which have been tendered for purchase pursuant to the tender option provisions thereof and of the Indenture to the extent remarketing proceeds or other funds are not available therefor in accordance with the provisions of the Indenture. -1- D. The Letter of Credit Bank will only issue the Letter of Credit for the account of a banking institution acceptable to the Letter of Credit Bank. To such end and in order to achieve interest cost savings and other savings for the Borrower, the Borrower has asked the Bank to enter into a Participation and Reimbursement Agreement, dated as of March 1, 1997 with the Letter of Credit Bank (the "Participating Bank Agreement") under which the Bank will become primarily and unconditionally obligated to reimburse the Letter of Credit Bank for all drawings under the Letter of Credit and to make certain other payments to the Letter of Credit Bank. E. The Bank is willing to enter into the Participating Bank Agreement for the account of the Borrower upon the terms and conditions hereinafter set forth. NOW, THEREFORE, in consideration of the foregoing and the undertakings herein set forth and intending to be legally bound, the Borrower and the Bank hereby agree as follows: ARTICLE I DEFINITIONS Section 1.01. Definitions. The following terms shall have the meanings specified in the foregoing recitals: Bank Letter of Credit Amount Bonds Letter of Credit Bank Borrower Loan Agreement Indenture Participating Bank Agreement Issuer Project Letter of Credit Trustee In addition, the following terms shall have the meanings specified in this Article, unless the context otherwise requires: "Base Rate" means the rate of interest designated and established by the Bank, from time to time, with changes effective immediately. The Base Rate is determined from time to time by the Bank as a means of pricing some loans to its borrowers and is neither tied to any external rate of interest or index, nor necessarily reflects the lowest rate of interest actually charged by the Bank to any particular class or category of customers. "Bond Documents" means the Bonds, the Indenture, the Loan Agreement, the Remarketing Agreement and any other agreements or instruments relating thereto. -2- "Bond Pledge Agreement" means the Pledge, Security and Indemnification Agreement, dated as of March 1, 1997 among the Borrower, the Letter of Credit Bank and the Bank with respect to Pledged Bonds. "Business Day" means any day other than a Saturday or Sunday or a day on which banks located in Philadelphia, Pennsylvania, or any other city in which the principal corporate trust office of the Trustee or the principal office of the Bank or the office of the Letter of Credit Bank at which drawing documents are required to be presented under the Letter of Credit is located are required or authorized to close or a day on which The New York Stock Exchange is closed. "Change Order" shall have the meaning ascribed to such term in Section 7.07. "Closing Date" means the date of execution and delivery of this Agreement. "Code" means the Internal Revenue Code of 1986, as amended, and the rules and regulations thereunder, including any amendments and successor provisions thereto. "Completion Date" shall have the meaning ascribed to such term in Section 7.03. "Contamination" means the presence of Hazardous Substances at the Premises, or arising from the Premises or activities at the Premises, which may require remediation under any applicable law. "Custodial Bank" shall have the meaning ascribed to such phrase in Section 3.06 hereof. "Custodial Bank Agreement" shall have the meaning ascribed to such phrase in Section 3.06 hereof. "Debt" of any Person means: (a) all obligations of such Person for borrowed money; (b) all obligations of such Person evidenced by bonds, debentures, notes or similar instruments; (c) all obligations of such Person upon which interest charges are customarily paid; (d) all obligations of such Person under conditional sale or other title retention agreements relating to property or assets purchased by such Person; (e) all obligations of such Person issued or assumed as deferred construction price for completed work or deferred purchase price of property or services (other than trade payables incurred in the ordinary course of business but only if and so long as the same are payable on customary trade terms); (f) all Guarantees by such Person of Debt of others; (g) all capital lease obligations of such Person; (h) all obligations for unfunded pension liabilities to the extent that the projected benefit obligations of all employee pension plans maintained by such Person or any ERISA Affiliate exceeds the fair value of the plan assets of such plans, as determined in accordance with GAAP; and (i) all reimbursement obligations of such Person in respect of letters of credit and similar instruments. -3- "Default" means an event which, with the giving of notice or lapse of time or both, would constitute an Event of Default. "Environmental Laws" means all statutes, ordinances, regulations, orders, permits and requirements of common law concerning environmental matters and relating to: (i) activities at the Premises; (ii) repairs or construction of any improvements at the Premises; (iii) handling of any materials at the Premises; (iv) discharges to the air, soil, surface water or ground water from any facilities at the Premises; and (v) storage, treatment or disposal (on-site or off-site) of any waste at or connected with any activity at the Premises. "ERISA" shall have the meaning ascribed to such term in Section 5.12. "ERISA Affiliate" shall have the meaning ascribed to such term in Section 5.12. "Event of Default" shall have the meaning ascribed to such term in Section 8.01. "Expiration Date" shall have the meaning ascribed to such term in the Letter of Credit. "Final Payment Drawing" shall have the meaning ascribed to such term in the Letter of Credit. "Fiscal Year" means the annual accounting year of the Borrower, which currently begins on January 1 in each calendar year. "GAAP" means generally accepted accounting principles consistently applied. "General Contract" means the construction contract between the Borrower and the General Contractor for the construction of the Improvements. "General Contractor" means Irwin & Leighton, Inc., the general contractor for the construction of the Improvements pursuant to the General Contract. "Guarantee" of or by any Person shall mean any obligation, contingent or otherwise, of such Person guaranteeing or becoming surety for or having the economic effect of guaranteeing or becoming surety for any Debt of any other Person (the "primary obligor") in any manner, whether directly or indirectly, and including without limitation: (a) any obligation of such Person, direct or indirect: (i) to purchase or pay (or advance or supply funds for the purchase or payment of) such Debt or to purchase (or to advance or supply funds for the purchase of) any security for the payment of such Debt; (ii) to lease or purchase property or purchase services for the purpose of assuring the owner of such Debt of the payment of such Debt; or (iii) to maintain working capital, equity capital or other financial statement condition or liquidity of the primary obligor so as to enable the primary obligor to pay such Debt; and (b) any Lien (or existing right to be secured by a Lien) on property of such Person to secure Debt -4- of others, whether or not such Debt has been assumed by such Person; provided that the term Guarantee shall not include endorsements for collection or deposit, in either case, in the ordinary course of business. For purposes of this Agreement, the amount of a Guarantee shall be the amount of the Debt guaranteed thereby. "Hazardous Substances" means: (a) "hazardous substances" as defined in or pursuant to the Comprehensive Environmental Response, Compensation and Liability Act (42 U.S.C. (section)9601(14)), as amended from time to time, and the regulations promulgated thereunder; (b) "regulated substances" within the meaning of subtitle I of the Resource Conservation and Recovery Act (42 U.S. C. (section)6991(2)), as amended from time to time, and the regulations promulgated thereunder; (c) "contaminants" or "hazardous substances" as defined in or pursuant to the Pennsylvania Hazardous Sites Cleanup Act (35 P.S. (section)6020.101 et seq.), as amended from time to time, and the regulations promulgated thereunder; (d) "hazardous wastes" as defined pursuant to the Pennsylvania Solid Waste Management Act (35 P.S. (section)6018.101 et seq.), as amended from time to time, and the regulations promulgated thereunder; (e) any other substances which may be the subject of liability pursuant to Sections 316 or 401 of the Pennsylvania Clean Streams Law (35 P.S. (section)691.1 et seq.), as amended from time to time, and the regulations promulgated thereunder; (f) any "hazardous substances", "hazardous wastes", "hazardous materials", "medical wastes" or other substances as defined in or prohibited by or regulated pursuant to any federal, state or local law relating to environmental matters, as amended from time to time, and regulations promulgated thereunder; (g) any substance the presence of which on the applicable property is prohibited by or regulated pursuant to law similar to those set forth in this definition; and (h) any other substance which by law requires special handling in its collection, storage, treatment or disposal. "Improvements" means the building and the renovations and improvements thereto included in the Project. "Interest Component" shall have the meaning ascribed to such term in the Letter of Credit. "Interest Drawing" shall have the meaning ascribed to such term in the Letter of Credit. "Lien" means any lien (statutory or otherwise), security interest, mortgage, deed of trust, pledge, hypothecation, assignment (for the purpose of providing security), deposit arrangement, encumbrance, preference, priority or other security or preferential arrangement of any kind or nature whatsoever (including without limitation any conditional sale or other title retention agreement, any financing lease having substantially the same economic effect as any of the foregoing, and the filing of any financing statement under the Uniform Commercial Code or comparable law of any jurisdiction). -5- "Liquidity Drawing" shall have the meaning ascribed to such term in the Letter of Credit. "Mortgage" shall have the meaning ascribed to such term in Section 3.04. "Note" shall have the meaning ascribed to such term in Section 2.01(b). "Participating Banks" shall have the meaning ascribed to such term in Section 9.12. "PBGC" shall have the meaning ascribed to such term in Section 5.12. "Permitted Liens" shall have the meaning ascribed to such term in Section 5.08. "Person" means any individual, for-profit or nonprofit corporation, partnership, joint venture, association, joint-stock company, estate, trust, unincorporated organization, governmental body or any agency or political subdivision thereof, or other legal entity. "Plans" means the plans, drawings and specifications prepared for the General Contractor for the Improvements delivered to the Bank pursuant to Section 7.01(a), as modified by Change Orders effected in accordance with Section 7.07. "Pledged Bonds" shall have the meaning ascribed to such term in Section 3.03. "Premises" means the real estate located at 102 Witmer Road, Horsham, Pennsylvania, together with all improvements located thereon, now or in the future, all of which is more fully described in the Mortgage. "Principal Drawing" shall have the meaning ascribed to such term in the Letter of Credit. "Project Cost Schedule" shall have the meaning ascribed to such term in Section 7.01. "Project Fund" shall have the meaning ascribed to such term in the Indenture. "Remarketing Agent" means CoreStates Capital Markets, a division of CoreStates Bank, N.A. and its successors and assigns as Remarketing Agent under the Indenture. "Remarketing Agreement" means the Remarketing Agreement, dated as of March 1, 1997 between the Remarketing Agent and the Borrower relating to the Remarketing Agent's duties under the Indenture. "Security Agreement" shall have the meaning ascribed to such term in Section 3.04. -6- "Security Documents" means the Bond Pledge Agreement, the Mortgage, the Security Agreement, the financing statements and continuation statements delivered pursuant to Section 3.05, the Custodial Bank Agreement and any other instruments delivered to the Bank from time to time to guarantee and/or secure obligations of the Borrower under this Agreement or the Note. "Series A Bonds" shall have the meaning ascribed to such phrase in Section 6.20. "Series A Reimbursement Agreement" shall have the meaning ascribed to such phrase in Section 6.20. "Standby Letter of Credit", "Standby Bank" and "Standby Reimbursement Agreement" shall have the meanings ascribed to such terms in Section 2.02(d). "Term Rate" shall have the meaning ascribed to such term in the Indenture. "Unremarketed Tendered Bonds" means Bonds which: (a) have been tendered for purchase pursuant to the tender option provisions of the Bonds and the Indenture; and (b) have not been successfully remarketed by the Remarketing Agent prior to 10:00 a.m. on the date of purchase thereof pursuant to such tender. Section 1.02. Accounting and Commercial Terms. All accounting terms used but not otherwise defined herein, shall have the respective meanings generally accorded to them under GAAP. All terms used but not otherwise defined herein which are defined in the Uniform Commercial Code of any applicable state relating to secured transactions shall have the respective meanings assigned to them therein. Section 1.03. Rules of Construction; Time of Day. In this Agreement, unless otherwise indicated: (i) defined terms may be used in the singular or the plural and the use of any gender includes all genders; (ii) the words "hereof", "herein", "hereto", "hereby" and "hereunder" refer to this entire Agreement (including all Schedules and Exhibits hereto); and (iii) all references to particular Articles, Sections, Schedules or Exhibits are references to the Articles, Sections, Schedules or Exhibits of this Agreement unless otherwise specified. References to any time of the day in this Agreement shall, unless otherwise specified, refer to eastern standard time or eastern daylight saving time, as in effect in Philadelphia, Pennsylvania on such day. Section 1.04. Security Agreement. The Borrower agrees that with respect to personal property constituting security in this Agreement, including, but not limited to the personal property described in Sections 6.20 and 6.21 hereof, the Bank shall have all of the rights and remedies of a secured party under the Pennsylvania Uniform Commercial Code. -7- ARTICLE II CREDIT AND REIMBURSEMENT Section 2.01. Credit. (a) Participating Bank Agreement. The Borrower hereby requests the Bank to enter into the Participating Bank Agreement with the Letter of Credit Bank. At the request and for the account of the Borrower and subject to the conditions precedent hereinafter set forth, the Bank will enter into the Participating Bank Agreement with the Letter of Credit Bank on the Closing Date. The Borrower hereby acknowledges and agrees that: (i) the Borrower has received copies of the Participating Bank Agreement and the Letter of Credit and is familiar with their terms; (ii) the Borrower will be obligated under this Agreement to promptly reimburse the Bank for all advances made by the Bank to the Letter of Credit Bank under the Participating Bank Agreement in accordance with the terms of this Agreement; (iii) the Borrower will take all action required on its part to comply with the terms of the Participating Bank Agreement; and (iv) the Bank agrees not to consent to any amendments to the Participating Bank Agreement to the material detriment of the Borrower without the Borrower's prior written consent. (b) Note. Each drawing under the Letter of Credit for which the Bank is obligated to reimburse the Letter of Credit Bank shall constitute a principal loan advance in the amount of such drawing (regardless of the purpose of such drawing) by the Bank to the Borrower evidenced by this Agreement and by the Borrower's Note, dated as of the Closing Date in the stated principal amount of $8,579,967.12 (the "Note"), which the Borrower shall execute and deliver to the Bank in the form of Exhibit A. Each such loan advance shall be payable by the Borrower to the Bank, with interest, as described in Section 2.02(a). The principal of the Note may be advanced, repaid and readvanced on a revolving basis in accordance with this Agreement. The Note shall be retained by the Bank until such time as no further credit is available to the Trustee under the Letter of Credit and all amounts payable hereunder and under the Note have been paid in full with interest. Section 2.02. Reimbursement and Other Payments to Bank. (a) Reimbursement Payments and Interest. The Borrower hereby agrees to pay or cause to be paid to the Bank: (1) a sum equal to each commitment fee payable by the Bank to the Letter of Credit Bank under Section 2.5 of the Participating Bank Agreement, on the earlier of: (i) the day such commitment fee becomes due and payable by the Bank; or (ii) the day such commitment fee is actually paid by the Bank; (2) a sum equal to each amount drawn under the Letter of Credit by an Interest Drawing, a Principal Drawing or a Final Payment Drawing, on the -8- earlier of: (i) the day reimbursement for such amount becomes due and payable by the Bank to the Letter of Credit Bank under Section 2.2 of the Participating Bank Agreement or any other provision of the Participating Bank Agreement; or (ii) the day reimbursement for such amount is actually made by or on behalf of the Bank to the Letter of Credit Bank; (3) a sum equal to each amount drawn against the Interest Component of the Letter of Credit Amount by a Liquidity Drawing: (A) in the case of any such amount drawn on an Interest Payment Date (as defined in the Indenture) of the Bonds being purchased with the proceeds of such Liquidity Drawing, on the same Business Day that such amount is so drawn; and (B) in all other cases, on the first to occur of: (i) the first Business Day of the first calendar month following the calendar month in which said amount is so drawn; (ii) the date on which the Bonds purchased with the proceeds of such Liquidity Drawing are remarketed by the Remarketing Agent and the proceeds thereof delivered to the Trustee; (iii) the date on which the Bonds purchased with the proceeds of such Liquidity Drawing are redeemed or otherwise paid in full; or (iv) the Expiration Date; (4) a sum equal to each amount drawn against the Principal Component of the Letter of Credit Amount by a Liquidity Drawing, on the first to occur of: (i) the date on which the Bonds purchased with the proceeds of such Liquidity Drawing are remarketed by the Remarketing Agent and the proceeds thereof are delivered to the Trustee; (ii) the date on which the Bonds purchased with the proceeds of such Liquidity Drawing are redeemed or otherwise paid in full; or (iii) the Expiration Date; (5) a sum equal to each drawing fee and each transfer fee payable by the Bank to Letter of Credit Bank under Section 2.6 of the Participating Bank Agreement, on the day that such drawing fee or transfer fee becomes due and payable by the Bank; (6) a sum equal to each amount of costs, fees or expenses incurred by or imposed on the Letter of Credit Bank and payable by the Bank to the Letter of Credit Bank under Section 9.3 of the Participating Bank Agreement, on the day that such amount becomes due and payable by the Bank; (7) a sum equal to each other amount payable by the Bank to the Letter of Credit Bank under Section 4.4 or 8.4 or any other Section of the Participating Bank Agreement, on the day that such amount becomes due and payable by the Bank; and (8) a sum equal to each amount of interest payable by the Bank to the Letter of Credit Bank under Section 2.3 or 4.5 of the Participating Bank Agreement, on the earlier of: (i) the day such interest becomes due and payable by the Bank; or (ii) the day such interest is actually paid by the Bank. -9- Each sum payable to the Bank under this Section 2.02(a) shall bear interest, in the case of any sum payable under Section 2.02(a)(2), (3) or (4) from the date the corresponding amount is drawn under the Letter of Credit until such sum is paid in full and in the case of any sum payable under Section 2.02(a)(1), (5), (6), (7) or (8) from the date such sum is due until such sum is paid in full (it being understood and agreed that any sum paid after 3:00 p.m. on a Business Day shall bear interest as if it was paid at 9:00 a.m. on the next following Business Day), at a fluctuating rate per annum (computed for the actual number of days elapsed, based on a 360-day year) equal to one percent (1.0%) per annum above the Base Rate; provided that if any such sum or interest thereon or any other amount payable by the Borrower under this Agreement or the Note is not paid within 10 days of the date such sum, interest or other amount is due and payable to the Bank under this Agreement or the Note, after written notice has been sent by the Bank to the Borrower, then such sum shall thereafter bear interest at a fluctuating rate per annum (computed for the actual number of days elapsed, based on a 360-day year) equal to five percent (5.0%) per annum above the Base Rate until such sum or interest and all other amounts due and payable under this Agreement have been paid in full. All interest accruing on amounts payable under Section 2.02(a)(2) shall be payable on the date the respective amount is paid and otherwise on demand. All interest accruing on amounts payable under Section 2.02(a)(3) shall be payable on the first Business Day of each calendar month after the date of the corresponding drawing is honored under the Letter of Credit and on the date the respective amount is paid. All other interest accruing pursuant to this Section 2.02(a) shall be due and payable on demand. All payments under this Section 2.02(a) shall be applied first to the payment of interest due and payable under this Section 2.02(a) and then to the reduction of the principal balance of sums due and payable under this Section 2.02(a). (b) Intentionally Omitted. (c) Commitment Fees. On the Closing Date and quarterly on each June 1, September 1, December 1 and March 1 thereafter so long as any credit remains available to the Trustee under the Letter of Credit, the Borrower shall pay to the Bank a commitment fee computed in advance at the rate of one percent (1.0%) per annum (i.e. one quarter of one percent (.25%) per quarter) of the sum of: (i) the Letter of Credit Amount as of the first day of such period; plus (ii) the aggregate amount of any drawings theretofore honored by the Letter of Credit Bank in respect of which the Letter of Credit Bank may thereafter be required to reinstate the Letter of Credit pursuant to the terms thereof. Computations of commitment fees to be paid to the Bank under this Section shall be for the actual number of days in the applicable period, based on a 360-day year. There shall be no reduction or refund of any portion of any such commitment fee in the event the Letter of Credit expires or is drawn upon, reduced (automatically or otherwise), or otherwise modified during the quarterly period in respect of which a commitment fee is computed. -10- On the Closing Date and quarterly on each June 1, September 1, December 1 and March 1 thereafter so long as any credit remains available to the Trustee under the Letter of Credit, the Borrower shall pay to the Bank for the benefit of the Letter of Credit Bank a commitment fee computed in advance at the rate of one quarter percent (.25%) per annum (i.e. one sixteenth of one percent (1/16%) per quarter) of the sum of: (i) the Letter of Credit Amount as of the first day of such period; plus (ii) the aggregate amount of any drawings theretofore honored by the Letter of Credit Bank in respect of which the Letter of Credit Bank may thereafter be required to reinstate the Letter of Credit pursuant to the terms thereof. Computations of commitment fees to be paid to the Letter of Credit Bank under this Section shall be for the actual number of days in the applicable period, based on a 360-day year. Except as set forth below, there shall be no reduction or refund of any portion of any such commitment fee in the event the Letter of Credit expires or is drawn upon, reduced (automatically or otherwise) or otherwise modified during the quarterly period in respect of which a commitment fee is computed. The Bank and the Letter of Credit Bank agree to reimburse a pro rata portion of Commitment Fees paid by the Borrower in advance, if subsequent to any such quarterly payments, but in the period for which the payments were made, the Letter of Credit is terminated by deliverying of a notice in the form of Annex 7 to the Letter of Credit. (d) Standby Letter of Credit Costs. In the event that the Bank is required to cause a standby letter of credit (a "Standby Letter of Credit") of another bank (the "Standby Bank") to be delivered to the Letter of Credit Bank pursuant to Section 6.09 of the Participating Bank Agreement to secure the Bank's obligations thereunder, the Borrower shall reimburse the Bank on demand, from time to time, for any and all reimbursement payments, interest payments, commitment fees, charges and other costs (including reasonable fees and expenses of counsel for the Standby Bank) paid or incurred by the Bank under the related reimbursement agreement between the Bank and the Standby Bank (the "Standby Reimbursement Agreement") or otherwise in connection with the issuance or maintenance of or any drawing on the Standby Letter of Credit. (e) Increased Costs. If after the Closing Date any enactment, promulgation or adoption of or change in any applicable foreign or domestic law, regulation or rule or in the interpretation or administration thereof by any court, administrative or governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by the Bank (or any controlling affiliate) with any guideline, request or directive issued after the date hereof (whether or not having the force of law) of any such authority, central bank or comparable agency, shall either: (i) impose, modify or deem applicable any reserve, special deposit, insurance assessment or similar requirement (including without limitation a guideline, request or directive which affects the manner in which the Bank allocates capital resources to its commitments and/or risks, including its obligations and/or risks under the Participating Bank Agreement, this Agreement or the Note); (ii) affect the amount of capital required or expected to be maintained the Bank (or any controlling affiliate); (iii) subject the Bank to any tax, levy, impost, duty, deduction, withholding or other -11- charge or change the basis of taxation of the Bank (other than a change in a rate of tax based on income of the Bank); or (iv) impose on the Bank any other condition regarding this Agreement, the Note or the Security Documents and the result of any event referred to in clause (i), (ii), (iii) or (iv) of this sentence shall be to increase the direct or indirect cost to the Bank of entering into or maintaining the Participating Bank Agreement, of agreeing to make, making or maintaining the loans evidenced by the Note or of funding or maintaining the obligations and/or risks of the Bank under this Agreement or the Note or to reduce the amounts receivable by the Bank hereunder or under the Note or to reduce the rate of return on the capital of the Bank (or any controlling affiliate) in connection with the Participating Bank Agreement, this Agreement or the Note (which increase in cost, reduction in amounts receivable or reduction in rate of return shall be determined by the Bank's reasonable allocation of such cost increase, reduction in amounts receivable or reduction in rate of return resulting from such event), then within 15 Business Days after demand by the Bank accompanied by the related certificate described in the last sentence of this Section, the Borrower shall pay to the Bank, from time to time, as specified by the Bank, additional amounts that in the aggregate shall be sufficient to compensate the Bank for such increased cost, reduction in amounts receivable or reduction in rate of return. A certificate as to such increased cost, reduction in amounts receivable or reduction in rate of return submitted by the Bank to the Borrower containing an explanation of such increased cost, reduction in amounts receivable or reduction in rate of return and the manner of calculation thereof shall, in absence of manifest error, be conclusive and binding for all purposes. (f) General Interest Accrual. Except as otherwise provided in Section 2.02(a), all payments to the Bank under this Agreement (including without limitation all payments becoming due under Sections 2.02(c), 2.02(d) and 2.02(e)) shall be accompanied by interest thereon, from the date such payments become due until they are paid in full, at a fluctuating rate per annum (computed for the actual number of days elapsed, based on a 360-day year) equal to one percent (1.0%) per annum above the Base Rate; provided that if any amount that is not paid within 10 days of the date such amount is due and payable to the Bank under this Agreement after written notice has been sent by the Bank to the Borrower, then (except as otherwise provided in Section 2.02(a)) all amounts payable pursuant to this Agreement shall thereafter bear interest at a fluctuating rate per annum (computed for the actual number of days elapsed, based on a 360-day year) equal to five percent (5.0%) per annum above the Base Rate, until all amounts due and payable pursuant to this Agreement have been paid in full. (g) Place of Payment. All payments by the Borrower to the Bank under this Agreement shall be made in lawful currency of the United States at the Bank's office at 2 Jefferson Bank Center, Downingtown, Pennsylvania 19335-0901, Attention: Donald F. McGraw, or at such other address and to the attention of such other person as the Bank may stipulate by written notice to the Borrower. Section 2.03. Payments Under Loan Agreement. The Borrower shall make all Loan Payments, Purchase Payments and Additional Payments (as defined in the Loan Agreement) as and when due under the Loan Agreement. In furtherance of the foregoing, the Borrower shall make all Loan Payments to the Bank at least one Business Day prior to the corresponding due dates thereof under the Loan Agreement. -12- Section 2.04. Obligations Absolute. The obligations of the Borrower under this Article shall be absolute, unconditional and irrevocable, and shall be performed strictly in accordance with the terms of this Agreement, under all circumstances whatsoever, including without limitation the following circumstances: (i) any lack of validity or enforceability of the Letter of Credit, the Participating Bank Agreement, the Standby Letter of Credit, the Standby Reimbursement Agreement, the Bond Documents or any other agreement or document relating thereto; (ii) any amendment or waiver of or any consent to or departure from the Letter of Credit, the Participating Bank Agreement, the Standby Letter of Credit, the Standby Reimbursement Agreement, the Bond Documents or any document relating thereto; (iii) the existence of any claim, set-off, defense or other right which the Borrower may have at any time against the Letter of Credit Bank or the Trustee (or any persons or entities for whom the Letter of Credit Bank or the Trustee may be acting), the Remarketing Agent, the Bank or any other person or entity, whether in connection with this Agreement, the transactions described herein or any unrelated transaction; or (iv) any of the circumstances contemplated in clauses (1) through (7), inclusive, of Section 2.06(a). The Borrower understands and agrees that no payment by it under any other agreement (whether voluntary or otherwise) shall constitute a defense to its obligations hereunder, except to the extent that the Bank has been indefeasibly paid in full or indefeasibly credited for such payment. Section 2.05. Indemnification. In addition to any and all rights of the Bank to reimbursement, indemnification or subrogation or any other rights of the Bank at law or in equity, to the extent permitted by applicable law, the Borrower hereby indemnifies and holds harmless the Bank (and its directors, officers, employees and agents) from and against any and all claims, damages, losses, liabilities, costs or expenses (including interest, penalties and reasonable attorneys' fees for counsel of the Bank's choice) whatsoever which the Bank may incur (or which may be claimed against the Bank by any Person whatsoever) by reason of or in connection with: (a) the issuance or a transfer of, or payment or failure to pay under, the Letter of Credit; (b) the entering into, or payment or failure to pay under, the Participating Bank Agreement or the Standby Reimbursement Agreement; (c) any breach by the Borrower or the Issuer of any representation, warranty, covenant, term or condition in, or the occurrence of any default under, this Agreement, the Security Documents or the Bond Documents, including all reasonable fees or expenses resulting from the settlement or defense of any claims or liabilities arising as a result of any such breach or default; and (d) involvement of the Bank in any legal suit, investigation, proceeding, inquiry or action as a consequence, direct or indirect, of the Bank's entering into this Agreement, the Participating Bank Agreement, the Standby Reimbursement Agreement or any other event or transaction contemplated by any of the foregoing; provided the Borrower shall not be required to indemnify the Bank for any claims, damages, losses, liabilities, costs or expenses to the extent, but only to the extent, caused by the willful misconduct or negligence of the Bank. Nothing in this Section is intended to limit the Borrower's reimbursement and interest payment obligations contained in Section 2.02(a). The obligations of the Borrower under this Section shall survive the termination of this Agreement. -13- Section 2.06. Liability of Bank. (a) As between the Borrower and the Bank, the Borrower assumes all risks of the acts or omissions of the Trustee, the Letter of Credit Bank or the Standby Bank with respect to the Letter of Credit, the Participating Bank Agreement or the Standby Reimbursement Agreement. Neither the Bank nor any of its officers or directors shall be liable or responsible for: (1) the use which may be made of the Letter of Credit or the Standby Letter of Credit or for any acts or omissions of the Trustee or the Letter of Credit Bank in connection therewith or with the Participating Bank Agreement; (2) the form, validity, sufficiency, accuracy or genuineness of any documents (including without limitation any documents presented under the Letter of Credit, the Participating Bank Agreement or the Standby Letter of Credit), or of any statement therein or endorsement thereon, even if any such documents, statements or endorsements should in fact prove to be in any or all respects invalid, insufficient, fraudulent, forged, inaccurate or untrue; (3) the payment by the Letter of Credit Bank, the Bank or the Standby Bank against presentation of documents which do not comply with the terms of the Letter of Credit, the Participating Bank Agreement or the Standby Letter of Credit, including failure of any documents to bear any reference or adequate reference to the Letter of Credit, the Participating Bank Agreement or the Standby Letter of Credit, or any other failure by the Trustee, the Letter of Credit Bank or the Standby Bank to comply fully with conditions required in order to effect or honor a drawing under the Letter of Credit or the Standby Letter of Credit or in order to entitle the Letter of Credit Bank or the Standby Bank to payment under the Participating Bank Agreement or the Standby Reimbursement Agreement; (4) the validity or sufficiency of any instrument transferring or assigning or purporting to transfer or assign the Letter of Credit or the rights or benefit thereunder or proceeds thereof, in whole or in part, which may prove to be invalid or ineffective for any reason; (5) errors, omissions, interruptions, losses or delays in transmission or delivery of any messages by mail, cable, telegraph, telex, telephone or otherwise; (6) any loss or delay in the transmission or otherwise of any document or draft required in order to effect a drawing under the Letter of Credit or the Standby Letter of Credit or in order to entitle the Letter of Credit Bank or the Standby Bank to payment under the Participating Bank Agreement or the Standby Reimbursement Agreement; or (7) any other circumstances whatsoever in making or failing to make payment under the Letter of Credit, the Participating Bank Agreement, the Standby Letter of Credit or the Standby Reimbursement Agreement; except only that the Borrower shall have a claim against the Bank, and the Bank shall be liable to the Borrower, to the extent, but only to the extent, of any direct, as opposed to consequential, damages suffered by the Borrower which the Borrower proves were caused by: (i) the Bank's willful misconduct or gross negligence; or (ii) the Bank's willful failure to pay under the Participating Bank Agreement or the Standby Reimbursement Agreement after written demand by the Letter of Credit Bank or the Standby Bank to the Bank for payment of an amount due and payable under the Participating Bank Agreement or the Standby Reimbursement Agreement, unless the Bank in good faith believes that it is prohibited by law or other legal authority from making such payment. (b) Except for the Bank's payment obligations under the Participating Bank Agreement and the Standby Reimbursement Agreement, the Bank shall have no liability -14- to the Borrower or any other person as a result of any reduction of the credit rating of the Bank or any deterioration in the Bank's financial condition. No reduction of the credit rating of the Bank or any deterioration in the Bank's financial condition shall reduce or in any way diminish the obligations of the Borrower to the Bank under this Agreement, including without limitation the Borrower's obligation to pay commitment fees to the Bank and to reimburse the Bank for any amounts paid to the Letter of Credit Bank or the Standby Bank. ARTICLE III SECURITY Section 3.01. Security and Subrogation under Indenture. The Borrower and the Bank intend that: (i) the Bank will have the security and benefit of the Bond Documents as provided in the Indenture; and (ii) in the event of reimbursement of the Letter of Credit Bank by the Bank for one or more draws under the Letter of Credit and the application thereof to the payment of Bonds, the Bank will be subrogated pro tanto to the rights of the Trustee and the holders of such Bonds and the Letter of Credit Bank in and to all funds and security held by the Trustee under the Indenture for the payment of the principal of and interest on such Bonds, including, without limitation, all project funds, debt service funds and other funds and securities and other instruments comprising investments thereof. In addition, the Bank shall have any and all other subrogation rights available to the Bank at law or in equity. Section 3.02. Pledge of Rights to Certain Funds and Investments. To secure the Borrower's obligations to the Bank under this Agreement and the Note, the Borrower hereby pledges to the Bank, and grants to the Bank a security interest in, all of the Borrower's right, title and interest in and to all funds and investments thereof now or hereafter held by the Trustee under the Indenture as security for the payment of the Bonds, including without limitation any and all project funds, debt service funds and other funds and securities and other instruments comprising investments thereof and interest and other income derived therefrom held as security for the payment of the Bonds, such pledge, assignment and grant being under and subject only to the rights of the Trustee and the Letter of Credit Bank under the Indenture. The Borrower covenants and agrees that it will defend the Bank's rights and security interests created by this Section against the claims and demands of all persons. In addition to its other rights and remedies under this Agreement and the Bond Documents, the Bank shall have all the rights and remedies of a secured party under the Pennsylvania Uniform Commercial Code or other applicable law with respect to the security interests created by this Section. The Bank's rights under this Section are in addition to, and not in lieu of, its rights described in Section 3.01. Section 3.03. Pledged Bonds. To secure the Bank's reimbursement and interest payment obligations to the Letter of Credit Bank with respect to drawings on the Letter of Credit to purchase Bonds pursuant to the Indenture and to secure the Borrower's obligations to the Bank under this Agreement and the Note to reimburse the Bank therefor with interest, the Borrower shall enter into the Bond Pledge Agreement by which it pledges and assigns to the Letter of -15- Credit Bank and the Bank, and grants to the Letter of Credit Bank and the Bank a security interest in, all of the Borrower's right, title and interest, now owned or hereafter acquired, in and to any and all Unremarketed Tendered Bonds (together with all income therefrom and proceeds thereof) purchased pursuant to the Indenture with funds derived in whole or in part from a drawing under the Letter of Credit. Unremarketed Tendered Bonds shall be pledged to the Letter of Credit Bank and the Bank and delivered to and held by the Trustee as agent for the Letter of Credit Bank and the Bank under the Bond Pledge Agreement. Unremarketed Tendered Bonds which are so held by the Trustee as agent for the Letter of Credit Bank and the Bank are herein referred to as "Pledged Bonds". Any principal of, premium on and interest on Pledged Bonds which becomes due and payable shall be paid to the Letter of Credit Bank as provided in the Bond Pledge Agreement. All sums of money so paid to the Letter of Credit Bank in respect of Pledged Bonds shall be credited against the Bank's obligation to reimburse the Letter of Credit Bank and the Borrower's obligation to reimburse the Bank, with interest, in respect of the amount drawn to fund the purchase of such Pledged Bonds pursuant to the Indenture. Section 3.04. Mortgage; Security Agreement. To further secure the Borrower's obligations to the Bank under this Agreement and the Note, the Borrower shall execute and deliver to the Bank: (a) a Mortgage, Assignment of Lease and Security Agreement, dated March 20, 1997 covering the Premises (the "Mortgage"); and (b) a Security Agreement, dated as of March 1, 1997 covering the fixtures and equipment included in the Project (the "Security Agreement"). Section 3.05. Financing Statements. The Borrower will execute and deliver such financing statements and continuation statements under the Pennsylvania Uniform Commercial Code or other applicable law as the Bank may specify in order to perfect and maintain perfection of the Bank's security interests under this Agreement, and the Mortgage and the Security Agreement, and will pay the costs of filing the same in such public offices as the Bank may designate. Section 3.06. Custodial Bank Agreement. To further secure the Borrower's obligations to the Bank under this Agreement and the Note, the Borrower shall execute and deliver to the Bank a Custodial and Collateral Security Agreement, dated March 20, 1997 (the "Custodial Bank Agreement"). The Custodial Bank Agreement shall be entered into with a financial institution acceptable to the Bank in its sole discretion (the "Custodial Bank"). Section 3.07. Benefit, Security and Subrogation Rights of Letter of Credit Bank. The Bank and the Borrower hereby agree for the benefit of the Letter of Credit Bank that: (a) the Letter of Credit Bank shall have the benefit and security of this Agreement and the Security Documents with respect to the amounts payable by the Borrower under this Agreement corresponding to the amounts payable by the Bank to the Letter of Credit Bank under the Participating Bank Agreement, as if this Agreement and the Security Documents expressly named the Letter of Credit Bank as an obligee, grantee, secured party and/or other beneficiary hereunder and thereunder with respect to such amounts; and (b) in the event of a draw under the Letter of Credit and failure of the Bank to reimburse the Letter of Credit Bank, with interest, -16- in accordance with the Participating Bank Agreement, the Letter of Credit Bank will be subrogated and succeed to the rights of the Bank in, to and under this Agreement and the Security Documents with respect thereto; provided that in the Participating Bank Agreement, the Letter of Credit Bank has agreed not to exercise any such rights against the Borrower unless the Bank is in default of the Participating Bank Agreement and the Bonds have been called for mandatory purchase or accelerated pursuant to the Indenture. In furtherance of the foregoing, the Borrower agrees for the benefit of the Letter of Credit Bank to execute and deliver to the Letter of Credit Bank from time to time as requested by the Letter of Credit Bank such instruments and take such further actions as the Letter of Credit Bank may request from time to time to confirm and effect such benefit, security and rights of subrogation and succession. ARTICLE IV CONDITIONS PRECEDENT Section 4.01. Intentionally Omitted. Section 4.02. Documentation. As conditions precedent to the Bank's entering into the Bank Participation Agreement, the Bank shall have received each of the following in form and substance satisfactory to the Bank: (a) Executed copies of this Agreement, the Note, the Mortgage, the Bond Pledge Agreement, the Security Agreement and the Custodial Bank Agreement, and true and correct copies of the Bond Documents and all documentation delivered in connection therewith; (b) Such financing statements as the Bank may require pursuant to Section 3.05; (c) Certified copies of the articles of incorporation, the bylaws and authorizing resolutions of the Borrower; (d) A certificate of an officer of the Borrower as of the Closing Date stating that: (i) the representations and warranties contained in Article V are true and correct; and (ii) no Default or Event of Default has occurred and is continuing; (e) An opinion of Ballard Spahr Andrews & Ingersoll, counsel to the Borrower to the effect that: (1) the Borrower is a duly organized and validly existing corporation in good standing under the laws of the State of Delaware with all requisite power and authority to execute, deliver and perform its obligations under this Agreement, the Note, the Security Documents to which the Borrower is a party, the Loan Agreement and the Remarketing Agreement and to acquire, construct and/or equip the Project as contemplated by the Bond Documents and this Agreement; (2) the Borrower has obtained from the governmental -17- authorities, boards, agencies, courts, officers or commissions having jurisdiction over the Borrower all approvals, consents, authorizations, certifications, reviews and other orders that are necessary for the execution, delivery and performance by the Borrower of its obligations under this Agreement, the Note, the Security Documents to which the Borrower is a party, the Loan Agreement and the Remarketing Agreement and the acquisition, construction and/or equipping of the Project; (3) the form, terms, execution and delivery of this Agreement, the Note, Security Documents to which the Borrower is a party, the Loan Agreement and the Remarketing Agreement have been duly authorized, and all conditions precedent to the execution and delivery of this Agreement, the Note, the Security Documents to which the Borrower is a party, the Loan Agreement and the Remarketing Agreement by the Borrower have been fulfilled; (4) this Agreement, the Note, the Security Documents to which the Borrower is a party, the Loan Agreement and the Remarketing Agreement constitute legal, valid and binding obligations of the Borrower enforceable against the Borrower in accordance with their terms, except to the extent that the enforceability thereof may be limited by applicable bankruptcy, insolvency or other laws affecting the rights of creditors generally and by the application of general principles of equity; (5) the execution and delivery of and the performance by the Borrower of its obligations under, this Agreement, the Note, the Security Documents to which the Borrower is a party, the Loan Agreement and the Remarketing Agreement will not violate, conflict with or constitute a default under any provision of the Borrower's articles of incorporation or bylaws or any law, rule, regulation, order or judgment applicable to the Borrower or, to the best knowledge of such counsel, any agreement, indenture or other instrument to which the Borrower is a party or by which it or any of its properties may be bound; and (6) there is no pending or, to the best knowledge of such counsel, threatened action, suit, proceeding, inquiry or investigation before or by any court, governmental agency or arbitrator against or involving the Borrower which, in any case, might materially and adversely affect the financial condition or operations of the Borrower, the validity or enforceability of this Agreement, the Note, the Security Documents or the Bond Documents or the construction, acquisition or equipping of the Project as contemplated by the Bond Documents and this Agreement; (f) Intentionally Omitted; (g) Intentionally Omitted; (h) Audited financial statements of the Borrower for the Fiscal Year ended December 31, 1995; (i) A prepaid title insurance policy issued by a reputable carrier satisfactory to the Bank, insuring the Mortgage in an amount acceptable to the Bank, subject only to such liens and encumbrances as the Bank may approve, such policy to be on the American Land Title Association Standard Loan Policy - Revised Coverage, 1992 Form, without a pending disbursements clause, containing (i) an endorsement against unrecorded easements, discrepancies or conflicts in boundary lines, shortage in area and encroachments which an accurate and complete survey would disclose and against loss or damage by reason of encroachment other than by party walls and (ii) copies of any restrictions or easements affecting -18- the Premises and, with respect to any restrictions, an endorsement that they have not been violated and that future violation would not work a forfeiture or reversion of title to the Premises; (j) Evidence of the insurance required under Section 6.04 hereof and the Security Documents, including certificates of insurance, mortgagee or lender loss payee endorsements in favor of the Bank, and certified copies of insurance policies (if and as requested by the Bank); and evidence that the Premises is not located in a Special Flood Hazard area as defined by the United States Department of Housing and Urban Development; (k) A certified legal description and survey of the land included in the Premises by a surveyor approved by the Bank showing proposed locations of all present and contemplated improvements, driveways, easements and any encroachments; (l) A "Phase I" environmental audit of the Premises, which shall reveal no violations of any Environmental Laws and no other conditions which are unacceptable to the Bank in its sole discretion. The Phase I Environmental Site Audit, dated January 8, 1997, prepared by D.C.R. Environmental Securities, Inc. is acceptable to the Bank; (m) An appraisal in compliance with federal and state laws applicable to the Bank, valuing the Project in an amount satisfactory to the Bank in its sole discretion; (n) Intentionally Omitted; (o) Intentionally Omitted; (p) Intentionally Omitted; (q) Such other documents, certificates, approvals, assurances and opinions as are listed in the closing memorandum filed with the Trustee in connection with the issuance of the Bonds or as the Bank may reasonably request. Section 4.03. Issuance of Bonds. On the Closing Date all conditions precedent to the issuance and original sale of the Bonds shall have been satisfied, and the Bonds shall have been duly issued and delivered. -19- ARTICLE V REPRESENTATIONS AND WARRANTIES The Borrower represents and warrants as follows: Section 5.01. Existence. The Borrower is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and is qualified to do business in the Commonwealth of Pennsylvania. Section 5.02. Power, Authorization and No Conflicts. The Borrower has the power and authority and the legal right to own and operate its properties, to lease the properties it operates under lease, and to carry on its business as it is now being conducted, and is duly qualified to transact business as a foreign corporation (or partnership) in good standing under the laws of each state where its ownership, lease or operation of property or the conduct of its business requires such qualification, except to the extent that failure to qualify to transact business would not have a material adverse affect on the financial condition or operations of the Borrower and would not materially adversely affect the Borrower's ability to perform its obligations under this Agreement and the Note and the Security Documents and Bond Documents to which it is a party. The execution, delivery and performance by the Borrower of this Agreement and the Note and the Security Documents and the Bond Documents to which it is a party: (i) are within its power and authority; (ii) have been duly authorized by all necessary action of the Borrower, and (iii) do not conflict with, violate or constitute a default under the articles of incorporation or the bylaws of the Borrower or any law, rule, regulation, decree, order or judgment applicable to the Borrower or any indenture, mortgage, agreement, instrument, contract or other restriction binding on or affecting the Borrower or any of its properties, or result in the creation of any mortgage, pledge, lien or encumbrance upon any of its properties other than as provided by the terms thereof. Section 5.03. Governmental Authorizations; Permits, Licenses and Other Approvals. To the best of its knowledge, the Borrower has all licenses, permits, approvals, qualifications, consents and other authorizations necessary for the lawful conduct of its business and operations wherever now conducted, pursuant to all applicable statutes, laws, ordinances, rules and regulations of all governmental authorities having, asserting or claiming jurisdiction over the Borrower or over any part of its operations, except to the extent that failure to have the same would not have a material adverse effect on the financial condition or operations of the Borrower. Copies of all such licenses, permits, approvals, qualifications, consents and other authorizations shall be provided to the Bank, upon request. The Borrower is not in default under any of such license, permit, approval, consent, qualification or authorization and no event has occurred, and no condition exists, which, with the giving of notice or the passage of time or both, would constitute a default thereunder or would result in the suspension, revocation, impairment, forfeiture or non-renewal of any such license, permit, approval, qualification, consent or authorization, except to the extent that the same would not have a material adverse -20- effect on the financial condition or operations of the Borrower. The continuation, validity and effectiveness of all such licenses, permits, approvals, consents, qualifications and authorizations will not be adversely affected by the transactions contemplated in this Agreement. No authorization, approval or other action by, and no notice to or filing with, any governmental authority, regulatory body or court is required for the due execution, delivery and performance by the Borrower of this Agreement, the Note and the Security Documents and the Bond Documents to which the Borrower is a party, except such as have been obtained. Section 5.04. Validity and Binding Effect. To the best of the knowledge of the Borrower, this Agreement, the Note, the Security Documents and the Bond Documents to which the Borrower is a party are the legal, valid and binding obligations of the Borrower, enforceable against the Borrower in accordance with their terms, subject to the application by a court of general principles of equity and to the effect of any applicable bankruptcy, insolvency, reorganization, moratorium or similar law affecting creditors' rights generally. Section 5.05. No Litigation. Except as disclosed to the Bank in writing prior to the Closing Date, there is no pending action or proceeding before any court, governmental agency or arbitrator against or involving the Borrower and, to the best knowledge of the Borrower, there is no threatened action or proceeding affecting the Borrower before any court, governmental agency or arbitrator which, in any case, might materially and adversely affect the financial condition or operations of the Borrower, or the validity or enforceability of this Agreement, the Note, the Security Documents or the Bond Documents, or the construction, acquisition, equipping or operation of the Project. Section 5.06. No Violations. To the best of the knowledge of the Borrower, the Borrower is not in any material way in breach of or in default under: (a) any applicable law, rule or regulation of any local government, the Commonwealth of Pennsylvania or the United States or any applicable judgment or decree; or (b) any material loan agreement, indenture, lease, sublease, bond, note, resolution, agreement or other instrument to which it is a party or otherwise subject, and no event has occurred and is continuing which, with the passage of time or the giving of notice or both, would constitute a material event of default under any such instrument, except for violations, if any, which the Borrower has disclosed to the Bank in writing and is proceeding in good faith to remove or correct. The Borrower has no knowledge of any violation, nor has it received any notice or other record of any violation, of any zoning, subdivision, environmental, building, fire, safety, health or other statute, ordinance, regulation, restrictive covenant or other restriction applicable to the Premises, except for violations, if any, which the Borrower has disclosed to the Bank in writing and is proceeding in good faith to remove or correct. Section 5.07. Project Compliance. To the best of the knowledge of the Borrower, the acquisition, construction and/or equipping of the Project as contemplated by this Agreement, the use of the Project for the purpose contemplated hereby and the operation of the Project do and shall, in all material respects, comply with, and are lawful, permitted and conforming uses under, all applicable building, fire, safety, subdivision, zoning, sewer, -21- environmental, securities, health, insurance and other laws, ordinances, rules, regulations and plan approval conditions of any governmental or public body or authority, and the Borrower has obtained, or will obtain prior to commencement of acquisition, construction and/or equipping of the Project, all permits, licenses or approvals from such governmental or public bodies or authorities which are a necessary precondition to the acquisition, construction and/or equipping of the Project. Section 5.08. No Liens. There exist no recorded Liens against the Premises (including statutory and other liens of mechanics, workmen, contractors, subcontractors, suppliers, taxing authorities and others), except the Mortgage, the Security Agreement and those additional liens, encumbrances and charges disclosed in the Bank's title insurance policy insuring the Lien of the Mortgage and that certain Declaration of Covenants and Restrictions, dated March 20, 1997, between Pennsylvania Business Campus Delaware, Inc. and the Borrower (the "Permitted Liens"); and the Borrower has not made a contract or arrangement of any kind, the performance of which by the other party thereto could give rise to a Lien on the Premises by operation of law or otherwise except such as are adequately and fully covered by the Bank's title insurance insuring the lien of the Mortgage. The Borrower has no knowledge of any unrecorded Liens. Section 5.09. Utilities and Access. All utility services necessary for construction and/or operation of the Project, including water supply, storm and sanitary sewer facilities, gas, electricity and telephone facilities are, or prior to the Completion Date will be, available within the boundaries of the Premises; and all roads necessary for the full utilization of the Project for its intended purposes either have been completed or the necessary rights-of-way therefor have been acquired by the appropriate governmental authority or others or have been or will, prior to the Completion Date, be dedicated to public use and accepted by such governmental authority, and all necessary steps have been taken by the Borrower and all such governmental authority or others to assure complete construction and installation thereof by the Completion Date. Section 5.10. Financial Information. (a) The balance sheet of the Borrower as of December 31, 1995 and the related statements of income and changes in financial position of the Borrower for the Fiscal Year then ended: (i) have been prepared in accordance with GAAP; (ii) have been examined by Arthur Andersen, LLP, Certified Public Accountants; (iii) are true and complete and present fairly the financial condition and results of operations of the Borrower as of December 31, 1995 for the period covered thereby; and (iv) said balance sheet, together with the notes thereto, accurately reflects all liabilities, including contingent liabilities, of the Borrower as of the date thereof. (b) Intentionally Omitted. -22- (c) Since December 31, 1995 the Borrower has conducted its operations in the ordinary course, and there has been no material adverse change in the financial condition or operations of the Borrower. Section 5.11. Taxes. The Borrower has filed all tax returns which were required to be filed in any jurisdiction, and has paid all taxes shown thereon to be due or otherwise due upon the Borrower or any of its properties, income or franchises, including interest, assessments, fees and penalties, or has provided adequate reserves for the payment thereof. To the best knowledge of the Borrower, no claims are threatened, pending or being asserted with respect to, or in connection with, any return referred to in this Section, which, if adversely determined, would have a material adverse effect on the financial condition or operations of the Borrower, or would affect the Borrower's ability to perform its obligations under this Agreement, the Note, the Security Documents and the Bond Documents. Section 5.12. ERISA Representations. The fair value of the plan assets of all employee pension plans maintained by the Borrower or its ERISA Affiliates exceed the projected benefit obligations of such plans for service rendered to the close of the most recent complete plan year of such plans, as determined in accordance with GAAP. No employee pension plan maintained by the Borrower or any ERISA Affiliate which is subject to Part 3 of Title I of the Employee Retirement Income Security Act of 1974, as amended ("ERISA") has an accumulated funding deficiency (as defined in Section 302(a) of ERISA), no reportable event (as defined in Section 4043 of ERISA) has occurred with respect to any employee pension plan maintained for employees of the Borrower or any ERISA Affiliate and covered by Title IV of ERISA, no liability has been asserted against the Borrower or any ERISA Affiliate by the Pension Benefit Guaranty Corporation ("PBGC") or by a trustee appointed pursuant to Section 4042(b) or (c) of ERISA, and no lien has been attached and no Person has threatened to attach a lien to any of the Borrower's or any ERISA Affiliate's property as a result of failure to comply with ERISA or as a result of the termination of any employee pension plan covered by Title IV of ERISA. Each employee pension plan (as defined in Section 3(2) of ERISA) maintained for employees of the Borrower or any ERISA Affiliate which is intended to be qualified under Section 401(a) of the Code, including all amendments to such plan or to any trust agreement, group annuity or insurance contract or other governing instrument, is the subject of a favorable determination by the Internal Revenue Service with respect to its qualification under Section 401(a) of the Code or, as to those amendments not yet subject to such a determination, such amendments meet the requirements of Section 401(a) of the Code in all material respects or, if they do not, the Borrower will take all necessary action to conform such nonconforming amendments to the requirements of Section 401(a) of the Code and the Borrower will exercise its best efforts to obtain such a favorable determination letter within a reasonable period of time. With respect to any multiemployer pension plan (as defined in Section 3(37) of ERISA) to which the Borrower or any ERISA Affiliate is or has been required to contribute subsequent to September 25, 1980: (i) no material withdrawal liability (within the meaning of Section 4201 of ERISA) has been incurred by the Borrower or any ERISA Affiliate; (ii) no material withdrawal liability has been asserted against the Borrower or any ERISA Affiliate by a sponsor or an agent of a sponsor of any such multiemployer plan; (iii) no such multiemployer pension plan is in -23- reorganization (as defined in Section 4241(a) of ERISA); and (iv) neither the Borrower nor any ERISA Affiliate has any unfilled obligation to contribute to any such multiemployer pension plan. As used in this Agreement, "ERISA Affiliate" means: (i) any corporation included with the Borrower in a controlled group of corporations within the meaning of Section 414(b) of the Code; (ii) any trade or business (whether or not incorporated or for-profit) which is under common control with the Borrower within the meaning of Section 414(c) of the Code; (iii) any member of an affiliated service group of which the Borrower is a member within the meaning of Section 414(m) of the Code, and (iv) any other entity treated as being under common control with the Borrower under Section 414(o) of the Code. Section 5.13. Environmental Representations. The Borrower has conducted the inquiries described in Exhibit C, which is attached hereto and made a part hereof, and, except as set forth in Exhibit C, the Borrower has no knowledge of: (a) any activity at Premises, or any storage, treatment or disposal of any Hazardous Substance or solid waste connected with any activity at the Premises, which has been conducted, or is being conducted, in violation of any Environmental Law; (b) any of the following present at the Premises which could give rise to material liabilities, material costs for remediation or a material adverse change in the financial condition or operations of the Borrower: (i) Contamination; (ii) polychlorinated biphenyls; (iii) asbestos or materials containing asbestos; (iv) urea formaldehyde foam insulation; or (v) tanks presently or formerly used for the storage of any liquid or gas; (c) any investigation or findings pertaining to the Premises regarding the presence of radon gas or radioactive decay products of radon at the site of the Premises in a concentration materially in excess of either the concentrations disclosed in any investigation or the "acceptable level" as defined in Section 6.18; or (d) any tanks presently or formerly used for the storage of any liquid or gas below ground at the Premises. The Borrower has commissioned an expert in site contamination acceptable to the Bank to conduct a Phase I investigation for site contamination prior to the Closing Date, the scope of which, in the expert's professional opinion, would be reasonably likely to discover Contamination of sufficient severity to warrant inclusion of the Premises on the National Priorities List or contamination of parallel severity by a substance which does not constitute a "Hazardous Substance" for purposes of the Comprehensive Environmental Response, Compensation and Liability Act, and has provided a report of that investigation to the Bank. Except as set forth in Exhibit C: (1) all notices, permits, licenses or similar authorizations, if any, required to be obtained or filed by the Borrower relating to Hazardous Substances or solid waste in connection with the Premises, including without limitation past or present treatment, storage, disposal or release of any Hazardous Substances or solid waste into the environment, have been obtained or filed; (2) all Hazardous Substances and solid waste generated by the Borrower have in the past been, to the best of the Borrower's knowledge, transported, treated and disposed of only by carriers maintaining valid permits under all applicable Environmental Laws and only at treatment, storage and disposal facilities maintaining valid permits under applicable Environmental Laws, which carriers and facilities have been and are, to the best of the Borrower's knowledge, operating in compliance with such permits; and (3) the Borrower has no material contingent liability in connection with any release of any Hazardous Substance or solid waste into the environment. -24- Section 5.14. Representations in Other Documents. The Borrower hereby makes to and for the benefit of the Bank each of the representations and warranties of the Borrower contained in the Bond Documents and the other documents delivered by the Borrower in connection therewith. ARTICLE VI GENERAL COVENANTS So long as any amount is available under the Letter of Credit or any amount is due and owing to the Letter of Credit Bank under the Participating Bank Agreement or to the Standby Bank under the Standby Reimbursement Agreement or any amount is due and owing to the Bank hereunder, the Borrower covenants that, except to the extent the Bank shall otherwise consent in writing, each of the following covenants shall be performed and complied with by the Borrower as indicated: Section 6.01. Maintenance of Existence; Mergers. The Borrower will maintain its existence, rights and privileges and its qualification to do business in the Commonwealth of Pennsylvania, will not dissolve or otherwise dispose of all or substantially all of its assets and will not consolidate with or merge into another entity or permit one or more other entities to consolidate with or merge into it; except that the Borrower may consolidate with or merge into another corporation or permit another corporation to consolidate with or merge into it, provided that (a) the resulting or surviving corporation is qualified to do business in the Commonwealth of Pennsylvania and the resulting or surviving corporation, if other than the Borrower, delivers to the Bank at the time of such consolidation or merger a written instrument by which it assumes all of the obligations of the Borrower under this Agreement, the Note and the Security Documents to which the Borrower is a party and agrees to be bound by all of the terms hereof and (b) such consolidation or merger shall not result in an immediate or projected violation of any other provision of this Agreement, the Security Documents or the Bond Documents. Section 6.02. Compliance with Laws. The Borrower will comply in all material respects with all applicable laws, rules, regulations and orders of any governmental authority the noncompliance with which could materially and adversely affect its operations or financial condition, except for any such laws, rules, regulations and orders which the Borrower is contesting in good faith by appropriate proceedings and the noncompliance with which during such contest would not materially and adversely affect the Borrower's operations or financial condition if the result of such contest were adverse to the Borrower. Section 6.03. Maintenance of Governmental Authorizations. The Borrower will obtain and maintain in full force and effect all governmental and other authorizations, approvals, consents, permits, licenses, certifications and qualifications necessary for the ownership and operation of the Project. -25- Section 6.04. Maintenance of Insurance. The Borrower will maintain or cause to be maintained with respect to the Project: (i) hazard insurance (including builder's risk insurance with respect to the original construction of the Project and any other construction), with fire and extended coverage, vandalism and malicious mischief coverage; (ii) business interruption insurance; (iii) comprehensive general liability insurance and motor vehicle insurance for bodily injury and property damage; and (iv) worker's compensation insurance. Each of the policies described in the preceding sentence shall be in form, amounts and substance and with insurance companies reasonably satisfactory to the Bank, containing 30-day notification of cancellation or material change in coverage clauses in favor of the Bank. The Borrower will maintain such other insurance with responsible and reputable insurance companies in such amounts and covering such risks as are customarily maintained by entities similar to the Borrower or as the Bank may reasonably require by written notice to the Borrower. The Borrower shall furnish to the Bank, upon written request: (a) full information as to all insurance carried by it; (b) mortgagee or lender loss payee endorsements in favor of the Bank; and (c) certified copies of such insurance policies. Section 6.05. Compliance with Bond Documents and Other Contracts. The Borrower will comply with all of its covenants and agreements under the Bond Documents, in all material respects, as the same may hereafter be amended or supplemented from time to time, and comply with, or cause to be complied with, all material requirements and conditions of all contracts and insurance policies which relate to the Borrower or the Project. Section 6.06. Maintenance of Properties. The Borrower will maintain and preserve all of its properties (including the Premises) in good working order and condition, ordinary wear and tear excepted; not permit, commit or suffer any waste of any of its properties; not use or permit the use of any of its properties for any unlawful purpose or permit any nuisance to exist thereon; and not sell, lease, transfer or otherwise dispose of any substantial part of its properties, except in the ordinary course of its operations. Section 6.07. Visitation Rights. The Borrower will, at any reasonable time and from time to time, after its receipt of reasonable advance notice from the Bank, permit the Bank or its agents or representatives to examine and make copies of and abstracts from the records and books of account of, and visit the properties of, the Borrower, and to discuss the affairs, finances and accounts of the Borrower with the officers and accountants of the Borrower. The Bank agrees to comply with the Borrower's rules and regulations during any such visits. Section 6.08. Keeping of Books. The Borrower will keep proper books of record and account, in which full and correct entries shall be made of financial transactions and the assets and operations of the Borrower in accordance with GAAP, and have a complete audit of such books of record and account made by certified public accountants reasonably acceptable to the Bank for each Fiscal Year. -26- Section 6.09. Reporting Requirements. The Borrower will furnish or cause to be furnished to the Bank the following (in such number of copies as the Bank may reasonably request for itself and the Participating Banks): (a) As soon as available and in any event within 45 days after the close of each fiscal quarter of each Fiscal Year of the Borrower, unaudited financial statements for the Borrower, including a balance sheet and related statement of income as of the end of such fiscal quarter and for such fiscal quarter and the current Fiscal Year to the end of such fiscal quarter, which shall be internally prepared and presented on a consistent basis and in accordance with GAAP (subject to normal year-end adjustments); (b) As soon as available and in any event within 90 days after the close of each Fiscal Year of the Borrower: (1) financial statements for the Borrower, including a balance sheet and related statements of income and changes in financial position as of the end of such Fiscal Year and for such Fiscal Year, which shall be prepared and reported on without qualification by independent certified public accountants reasonably acceptable to the Bank in accordance with GAAP, and shall fairly present the financial condition of the Borrower as at the end of such Fiscal Year; and (2) a certificate signed by an officer of the Borrower stating that to the best of its knowledge: (i) during such Fiscal Year the Borrower has observed and performed all of its covenants and agreements set forth in this Agreement, the Security Documents and the Bond Documents, except as disclosed in such certificate; and (ii) no Default or Event of Default has occurred and is continuing, except as disclosed in such certificate; (c) Upon receipt thereof by the Borrower, copies of any letter or report with respect to the management, operations or properties of the Borrower submitted to the Borrower by its accountants in connection with any annual audit of the Borrower's accounts, and a copy of any written response of the Borrower to any such letter or report; (d) As soon as possible and in any event within 30 days after receipt of notice thereof: (1) notice of any pending or threatened litigation, investigation or other proceeding involving the Premises or the Borrower: (i) which could have a material adverse effect on the Project or the operations or financial condition of the Borrower; or (ii) wherein the potential damages, in the reasonable judgment of the Borrower based upon the advice of counsel experienced in such matters, are not fully covered by the insurance policies maintained by the Borrower (except for the deductible amounts applicable to such policies); and (2) any and all information with respect to such litigation, investigation or proceeding as the Bank may reasonably request; -27- (e) As soon as possible, notice of any material adverse change in the operations, financial condition or prospects of the Borrower; (f) As soon as possible and in any event within 15 days after the Borrower has knowledge of a Default and upon the occurrence of each Event of Default, a statement of an officer of the Borrower setting forth the details of such Default or Event of Default and the action which the Borrower proposes to take with respect thereto; (g) Concurrently with any filing made to the Securities Exchange Commission, by the Borrower, a copy of all such filings, including but not limited to the Borrower's Quarterly Reports on Form 10Q and Annual Reports on Form 10K, Current Reports on Form 8K, as well as proxy statements and other information. (h) Such other information respecting the operations and properties, financial or otherwise, of the Borrower as the Bank may from time to time reasonably request. Section 6.10. Payment of Debt. The Borrower will make full and timely payment of the principal of and interest on each outstanding Debt of the Borrower, whether now existing or hereafter arising, and comply in all material respects with all covenants and agreements set forth in instruments evidencing, securing or governing such Debt. Section 6.11. Payment of Taxes. The Borrower will file all required tax returns. The Borrower will pay before the same shall become delinquent and before penalties have accrued thereon, all taxes, assessments and governmental charges or levies imposed on the income, profits, franchises, property or business of the Borrower, as the case may be, except to the extent and so long as: (a) the same are being contested in good faith by appropriate proceedings; and (b) adequate reserves in conformity with GAAP with respect thereto have been provided on the books of the Borrower. Upon request, the Borrower will provide to the Bank copies of such returns and receipts for payment of such taxes. Section 6.12. Consents Under Bond Documents. The Borrower will obtain the consent of the Bank whenever the consent of the Issuer or the Trustee is required to be obtained under the Bond Documents. Section 6.13. Amendments to Bond Documents. The Borrower will not consent to or enter into any amendment of or supplement to the Bond Documents other than as may be required by law or as may be mandated by the terms thereof. Section 6.14. Limitation on Conversion to Term Rate. The Borrower will not exercise its rights under the Bond Documents to request the Issuer to establish a Term Rate for the Bonds. Section 6.15. Limitation on Optional Calls. The Borrower will not exercise its rights under the Bond Documents to direct the Issuer to call the Bonds for any optional -28- redemption thereof, unless the Borrower first demonstrates to the reasonable satisfaction of the Bank that at the time of such optional redemption the Letter of Credit Bank and the Bank will be fully reimbursed with respect to all drawings on the Letter of Credit in connection with such optional redemption. Section 6.16. Leases. The Borrower hereby represents that there are no leases or agreements to lease all or any part of the Premises now in effect except those leases, if any, approved in writing by the Bank. The Borrower agrees not to enter into any leases or agreements to lease all or any part of the Premises, unless: (i) the Borrower shall have obtained the prior written approval thereof and of the respective tenant by the Bank; and (ii) the Borrower shall have fully complied with the provisions of the Loan Agreement with respect thereto. Each such lease shall be on a form of lease approved by the Bank. All leases shall be net leases and shall include subordination and attornment provisions satisfactory to the Bank in its sole discretion. Section 6.17. ERISA. The Borrower will at all times maintain the fair value of the plan assets of all employee pension plans and life, accident and health plans maintained by the Borrower or any ERISA Affiliate at a level equal to or greater than the projected benefit obligations of such plans for service rendered to the close of the most recent complete plan year of such plans, as determined in accordance with GAAP. Neither the Borrower nor any ERISA Affiliate will: (i) voluntarily terminate any employee pension plan covered by Title IV of ERISA, so as to cause material liability of the Borrower to PBGC or to a trustee appointed pursuant to Section 4042(b) or (c) of ERISA; (ii) permit to exist any Prohibited Transaction (as defined in Section 4975 of the Code or in Section 406 of ERISA) involving an employee benefit plan within the meaning of Section 3(3) of ERISA for which there is no statutory or administrative exemption and which may result directly or indirectly in material liability of the Borrower to the Internal Revenue Service or the United States Department of Labor; (iii) cause the occurrence of any Reportable Event (as defined in Title IV of ERISA) which may result in material liability of the Borrower to the Internal Revenue Service or the United States Department of Labor; (iv) permit the occurrence of any event or the existence of any condition which may result in material withdrawal liability (within the meaning of Section 4201 of ERISA) of the Borrower or any ERISA Affiliate to any multiemployer pension plan (as defined in Section 3(37) of ERISA); or (v) allow or suffer to exist any other event or condition known to the Borrower or any ERISA Affiliate with respect to an employee benefit plan within the meaning of Section 3(3) of ERISA which may result in material liability of the Borrower to PBGC, the Internal Revenue Service or the United States Department of Labor. Upon obtaining direct knowledge of the occurrence of any event described in (1), (2) or (3) below, the Borrower will give prompt written notice to the Bank of: (1) each failure to comply with the provisions of this Section; (2) any notification of assessment of withdrawal liability (within the meaning of Section 4201 of ERISA) received by the Borrower or any ERISA Affiliate from any multiemployer pension plan (as defined in Section 3(37) of ERISA); and (3) any lien arising under Section 302(f) of ERISA in favor of any employee pension plan maintained for employees of the Borrower or any ERISA Affiliate which is subject to Part 3 of Title I of ERISA. -29- Section 6.18. Environmental Covenants. (a) The Borrower will cause all activities at the Premises, and all storage, transportation, treatment and disposal of any Hazardous Substances or solid waste connected with any activity at the Project, to be conducted in compliance with all Environmental Laws. The Borrower will cause all permits, licenses or approvals to be obtained, and will cause all notifications to be made, with respect to the Premises as required by Environmental Laws, and will, at all times, cause compliance with the terms and conditions of any such approvals or notifications. If requested by the Bank, the Borrower will provide to the Bank with respect to the Premises copies of: (i) applications or other materials submitted to any governmental agency in compliance with Environmental Laws; (ii) any notifications submitted to any Person pursuant to Environmental Laws; (iii) any permit, license, approval, amendment or modification thereto granted pursuant to Environmental Laws; (iv) any record or manifest required to be maintained pursuant to Environmental Laws; and (v) any correspondence, notice of violation, summons, order, complaint or other document received by the Borrower, its lessees, sublessees or assigns, pertaining to compliance with any Environmental Laws. (b) The Borrower will not cause, contribute to or permit any Contamination during the term of this Agreement. The Borrower will, at all times during the term of this Agreement, cause Hazardous Substances created, used or otherwise present at the Premises to be handled in a manner which will not cause an undue risk of Contamination. (c) The Borrower will cause all construction of new structures at the Premises during the term of this Agreement to use design features which safeguard against or mitigate the accumulation of radon or radon products in concentrations exceeding an acceptable level in any such new structure. At the earliest feasible time during or after construction of any new structure at the Premises, the Borrower will commission an investigation of such new structure for the presence of radon or radon products and shall provide a report of such investigation to the Bank. The presence of radon or radon products in any existing structure at the Premises in a concentration materially in excess of concentrations disclosed pursuant to Section 5.13 or in any new structure in excess of the acceptable level shall constitute a default hereunder. For purposes of this paragraph, "acceptable level" shall mean the lowest applicable maximum concentration established by any governmental agency with jurisdiction over the Premises. In the absence of a legally binding maximum concentration, the "acceptable level" shall be an air concentration of 4 picocuries per liter average annual concentration. (d) Upon the occurrence of an Event of Default, the Bank may, at its discretion, commission an investigation at the Borrower's expense of: (i) compliance at the site of the Premises with Environmental Laws; (ii) the presence of Hazardous Substances or Contamination at the Premises; (iii) the presence at the Premises of materials which are described in clause (b) of Section 5.13; (iv) the presence at the Premises of environmentally sensitive areas; (v) the presence at the Premises of radon products; or (vi) the presence at the Premises of tanks of the type described in clause (d) of Section 5.13. In connection with any investigation pursuant to this paragraph, the Borrower, and its lessees, sublessees and assigns, -30- will comply with any reasonable request for information made by the Bank or its agents in connection with any such investigation. Any response to any such request for information will be full and complete. The Borrower will assist the Bank and its agents to obtain any records pertaining to the Project or the Premises or to the Borrower and the lessees, sublessees or assigns of the Borrower in connection with an investigation pursuant to this paragraph. The Borrower will accord the Bank and its agents access to all areas of the Premises at reasonable times and in reasonable manners in connection with any investigation pursuant to this paragraph. No investigation commissioned pursuant to this paragraph shall relieve the Borrower from any responsibility for its representations and warranties under Section 5.13. (e) The Borrower hereby agrees to indemnify and to hold harmless the Bank of, from and against any and all expense, loss or liability suffered by the Bank by reason of the Borrower's breach of any of the provisions of Section 5.13 or this Section including, but not limited to: (1) any and all expenses that the Bank may incur in complying with any Environmental Laws; (2) any and all costs that the Bank may incur in studying or remedying any Contamination; (3) any and all fines, penalties or other sanctions (including a voiding of any transfer of the Project) assessed upon the Bank by reason of a failure of the Borrower to have complied with Environmental Laws; (4) any and all loss of value of the Project by reason of: (i) failure to comply with Environmental Laws; (ii) the presence at the Premises of any Hazardous Substances; (iii) the presence at the Premises of any materials which are described in clause (b) of Section 5.13; (iv) the presence at the Premises of any environmentally sensitive areas; (v) the presence at the Premises of radon or radon products in concentrations not disclosed pursuant to Section 5.12; or (vi) the presence at the Premises of any tank below ground undisclosed pursuant to Section 5.13; and (5) any and all reasonable legal and professional fees and costs incurred by the Bank in connection with the foregoing. Section 6.19. Further Assurances. The Borrower will execute and deliver from time to time such further instruments and take such further actions as may be required to carry out the purposes and provisions of this Agreement and to assure the Bank of the subrogation and security rights in favor of the Bank contemplated by Article III and by the Indenture. Section 6.20. Financial Covenants. (a) The Borrower shall maintain all of its investment accounts, up to a maximum aggregate amount of $50,000,000, with the Custodial Bank. The Borrower shall maintain in such investment accounts created with the Custodial Bank a combined total of its unencumbered cash and liquid short term investments (investments with a remaining maturity of less than three years) ("Unrestricted Cash") in an amount which shall have a fair market value equal to at least $20,000,000. If the value of the Unrestricted Cash held by the Custodial Bank, from time to time, shall fall below a fair market value equal to $20,000,000 (but not less than $15,000,000) the Custodial Bank, shall, in accordance with the Custodial Bank Agreement, immediately transfer an amount of the Unrestricted Cash, with a fair market value equal to fifty percent (50%) of the Letter of Credit Amount at that time, to the Bank, for deposit into the "Bank's Pledge Account B" which is hereby created. If the total fair market value of the Unrestricted Cash, together with the funds held in the Bank's Pledge Account B shall, from time to time, be valued at a fair market value equal to less than -31- $15,000,000, the Custodial Bank shall, in accordance with the Custodial Bank Agreement, immediately transfer an amount of Unrestricted Cash to the Bank for deposit into the Bank's Pledge Account B, so that the value of the total amount held in the Bank's Pledge Account B shall have a fair market value equal to one hundred percent (100%) of the Letter of Credit Amount at that time. (b) If, from time to time, after the transfer or transfers of Unrestricted Cash to the Bank's Pledge Account B described in (a) above, the Borrower is able to provide additional Unrestricted Cash to the Custodial Bank in: (i) an amount so that the fair market value of the Unrestricted Cash held by the Custodial Bank together with the funds held in the Bank's Pledge Account B shall have a fair market value equal to at least $15,000,000, but less than $20,000,000, the Bank shall transfer an amount of the funds held in the Bank's Pledge Account B to the Custodial Bank, in order that the funds remaining in the Bank's Pledge Account B shall have a fair market value equal to fifty percent (50%) of the Letter of Credit Amount at that time; or (ii) an amount so that the fair market value of the Unrestricted Cash held by the Custodial Bank together with the funds held in the Bank's Pledge Account B shall have a fair market value equal to at least $20,000,000, the Bank shall transfer the entire amount of funds held in the Bank's Pledge Account B to the Custodial Bank. (c) The Bank shall satisfy the lien of the Mortgage and release other collateral securing the Borrower's obligations hereunder, if Unrestricted Cash, with a fair market value equal to one hundred percent (100%) of the Letter of Credit Amount is held by the Bank in the Bank's Pledge Account B, and the Borrower delivers a written request to the Bank: (i) stating that the Borrower desires to continually maintain Unrestricted Cash in the Bank's Pledge Account B with a fair market value equal at all times to the Letter of Credit Amount for as long as any credit remains available to the Trustee under the Letter of Credit; (ii) requesting the Bank to satisfy the lien of the Mortgage and to release any other collateral securing the Borrower's obligations hereunder upon the deposit of the Unrestricted Cash in the Bank's Pledge Account B; and (iii) acknowledging that the Unrestricted Cash held in the Bank's Pledge Account B shall remain in the Bank's Pledge Account B for so long as any credit remains available to the Trustee under the Letter of Credit and notwithstanding the value of any funds held, if any, by the Custodial Bank pursuant to the Custodial Bank Agreement. (d) Upon the occurrence of an Event of Default hereunder, or upon the occurrence of an "Event of Default" under the Reimbursement Agreement, dated as of March 1, 1997 (the "Series A Reimbursement Agreement"), between the Borrower and the Bank, executed in connection with the issuance by the Issuer of its Variable Rate Demand Revenue Bonds (Neose Technologies, Inc. Project), Series A of 1997 (the "Series A Bonds"), the Custodial Bank shall, in accordance with the terms of the Custodial Bank Agreement, immediately and automatically transfer an amount of the investment securities held by the Custodial Bank for the Borrower into the Bank's Pledge Account B, so that the total amount held in the Bank's Pledge Account B shall be equal to the Letter of Credit Amount. Upon the occurrence of any such Event of Default and the funding of the Bank's Pledge Account B as set forth above, the Borrower will cooperate with the Bank and execute any and all documentation -32- necessary to provide the Bank with a perfected first lien security interest in the investment securities held in the Bank's Pledge Account B in accordance with the laws of the Commonwealth of Pennsylvania. Section 6.21. Principal Prepayments. The Borrower agrees to optionally redeem the Bonds in the amounts, on the dates and in accordance with the optional prepayment schedule set forth on Exhibit D which is attached hereto and made a part hereof. On April 15, 1997, and on the fifteenth day of each calendar month thereafter so long as any Bonds are outstanding under the Indenture, the Borrower shall pay to the Bank, for deposit by the Bank into the "Bond Prepayment Fund B" which is hereby created, an amount equal to 1/12 of the amount of the Bonds to be optionally redeemed by the Borrower on the following April 1. Funds held in the Bond Prepayment Fund B shall be immediately and automatically transferred to the Bank to reimburse the Letter of Credit Bank for draws made by the Trustee in accordance with the Letter of Credit to optionally redeem the principal of the Bonds on such dates. The Borrower agrees to take all steps necessary and required by the Indenture to require the Trustee to make the optional redemptions of the Bonds on such dates, in accordance with the terms and provisions of the Indenture. Section 6.22. Working Capital. The Borrower will at all times maintain a "working capital position", as defined in accordance with GAAP, of $20,000,000. Unrestricted Cash plus amounts held in the Bank's Pledge Account B may be included by the Borrower and its accountants in determining the Borrower's "working capital position". If the Borrower decides to comply with the provisions of Section 6.20(c) hereof, upon the Borrower's compliance thereof to the satisfaction of the Bank, this covenant shall no longer be operative. Section 6.23. Deposit Relationship. The Bank shall be the Borrower's primary bank of non-investment accounts. The Borrower agrees to consider using the Bank's asset management affiliates as investment managers for all short term investments, provided such affiliates deliver proposals which are competitive with those of non-affiliated asset managers. Any cash or investments held by the Bank (other than funds held in the Bank's Pledge Account B and in the Bond Prepayment Fund B) shall not be considered collateral for the Borrower's Obligations hereunder and under the Note, any more than if they were being held or managed by entities not affiliated with the Bank. -33- ARTICLE VII PROJECT FUND AND CONSTRUCTION COVENANTS Section 7.01. Project Cost Schedule; Application of Project Fund. The Project Costs and Sources of Funds Schedule (the "Project Cost Schedule") set forth in Exhibit B is an estimate of the capital requirements for the Project. The Borrower shall not submit any requisition to the Trustee for disbursement of funds from the Project Fund for Project costs which are materially inconsistent with the Project Cost Schedule, and the Borrower shall not apply any Bond proceeds in a manner materially inconsistent with the requisition therefor submitted to the Trustee. Any Project costs incurred in excess of the budgeted amounts set forth in the Project Cost Schedule will be paid for by the Borrower upon demand of the Bank. Notwithstanding the foregoing provisions, if the whole amount allocated to any component of Project cost as set forth in the Project Cost Schedule is not, or in the Bank's judgment will not be, expended for such component, then, with the Bank's approval, the Borrower may cause such excess to be reallocated and used for any other component of Project cost set forth on the Project Cost Schedule. The Borrower shall not submit to the Trustee under the Loan Agreement or the Indenture any requisition for hard construction costs with respect to the Improvements unless the Bank shall have first received each of the following in form and substance satisfactory to the Bank: (a) Copies of the Plans for the Improvements, approved by the General Contractor, the Borrower and any governmental authorities whose approvals of the Plans are required under applicable law; (b) Intentionally Omitted; (c) A certified copy of the General Contract, which shall provide for: (i) a fixed price or guaranteed maximum cost satisfactory to the Bank; (ii) advance requests to be on a form satisfactory to the Bank, supported by invoices for work completed; and (iii) 5% holdback until completion of all work thereunder of payments for the work under the General Contract; (d) Intentionally Omitted; (e) To the extent and at the time or times permitted by applicable law, general waivers or stipulations against mechanic's and materialman's liens by the General Contractor for the Project; (f) Copies of all building permits, licenses and special ordinances required for or relating to the construction and equipping of the Project; (g) Intentionally Omitted; -34- (h) An assignment by the Borrower to the Bank of the General Contract, with the consent of the General Contractor together with a letter from the General Contractor agreeing to perform the General Contract for the Bank's account if requested by the Bank upon the occurrence of an Event of Default; (i) Intentionally Omitted; (j) Intentionally Omitted; and (k) Evidence of the insurance required by Section 7.08. Section 7.02. Requisition Approvals. The Borrower shall submit to the Bank, for its approval prior to disbursement thereon, each requisition and related supporting materials required by the Loan Agreement or the Indenture, together with: (a) an itemization of the funds requisitioned against the Project Cost Schedule; (b) in the case of hard construction costs, a construction advance request on a form satisfactory to the Bank and an approval by the Bank's construction inspector (the fees and expenses of which construction inspector shall be paid by the Borrower); (c) supporting invoices; (d) if requested by the Bank, a title bringdown search showing no additional liens; (e) such other supporting documentation as the Bank may reasonably request; and (f) a request to the Bank for approval of such requisition certifying, among other things, that: (i) the funds to be advanced against the requisition will be fully applied in accordance with the Project Cost Schedule; (ii) the construction of the Improvements to date has been performed in a good and workmanlike manner; (iii) no Default or Event of Default has occurred and is continuing; (iv) the undisbursed balance of the Bond proceeds is sufficient to complete Project; and (v) reaffirming the representations and warranties of the Borrower in this Agreement. The Borrower will withdraw any requisition which the Bank does not approve. The Bank's review and approval of the requisitions and the acquisition, construction and/or equipping of the Project is solely for the protection of the Bank's interests under this Agreement, and the Bank shall not be deemed, by virtue of its inspection of the Project or approval of any requisition, to have made any representation to any person with respect to the acquisition, construction and/or equipping of the Project, the validity of any costs thereof, or the satisfaction of any conditions under the Loan Agreement or the Indenture with respect to the funding of requisitions (other than the Bank's consent thereto). All conditions to the obligation of the Bank to approve requisitions hereunder are imposed solely and exclusively for the benefit of the Bank and its assigns, and no other person shall have standing to require satisfaction of such conditions in accordance with their terms or be entitled to assume that the Bank will approve or not approve advances in the absence of strict compliance with any or all thereof, and no other person shall, under any circumstances, be deemed to be a beneficiary of such conditions, any or all of which may be freely waived in whole or in part by the Bank at any time if, in its sole discretion, it deems it advisable to do so. The Bank shall not in any way or for any purpose be deemed to be or to become a partner of or a joint venturer or a member of a joint enterprise with the Borrower in connection with the acquisition, construction and/or installation of the Improvements or the ownership, development or operation of the Project. -35- Section 7.03. Construction; Completion Date. The Borrower will proceed diligently to acquire, construct and/or and equip the Project, in accordance with the Project Cost Schedule and the Plans, without delay. The Project shall be completed on or before September 30, 1997 (the "Completion Date"), absent the occurrence of an unanticipated event or events which are beyond the control of the Borrower or the General Contractor and at completion the Premises shall be free of any and all private or governmental charges or claims (filed or not) of any nature, except for the Permitted Liens. The Borrower will deliver to the Bank certified copies of all use, occupancy or completion certificates in connection with the Project, immediately upon issuance. As used in this Agreement the terms "complete", "completed" and "completion" mean, with respect to the Project, that: (i) the Improvements are substantially physically complete in accordance with the Plans and equipped; (ii) the Borrower has received all permits, approvals and certificates required by law prior to the use and occupancy thereof and has furnished true copies of such permits, approvals and certificates to the Bank; (iii) the Bank has received from the Bank's inspector certificates of substantial completion of the Project in accordance with the Plans; (iv) the Premises is free of any and all private or governmental charges, claims or liens (filed or not) of any nature except the Permitted Liens; and (iv) the Borrower has obtained all general releases of mechanic's and materialman's liens required by Section 7.06 and delivered true copies thereof to the Bank. Section 7.04. Certain Contracts Prohibited. The Borrower will not, without first notifying the Bank: (i) execute any contract or purchase order or permit any subcontract or purchase order to be executed by any person or persons with whom it has contracted in connection with the Improvements (except for such contracts, subcontracts or purchase orders that have been executed prior to the Closing Date and that have been approved by the Bank), unless the amounts thereof are within the amounts budgeted therefor in the Project Cost Schedule and are Project Costs (as defined in the Loan Agreement); (ii) execute any material amendment or modification to any of the Plans, the General Contract or any other contract the effect of which would be either to increase or decrease the amount to be paid by or on behalf of the Borrower under any contract except as permitted by Section 7.07; or (iii) contract for any services, work or materials for the Project if such are not required by the Plans or if payment therefor is required to be made regardless of the nondelivery or nonfurnishing of such materials, services or work. Section 7.05. Certain Notices. The Borrower will forward to the Bank promptly after receipt, copies of all notices, permits or other documents (excepting only notices for nondelinquent taxes due) received by the Borrower from any governmental authority relating to the Improvements or from any person claiming a mechanic's or materialmen's lien against the Improvements or any other property of the Borrower. Section 7.06. Releases. Prior to making final payment under any contract relating to construction of the Improvements, the Borrower will, upon the Bank's written request and to the extent permitted by applicable law, make a good faith effort to require the contractor thereon to deliver to the Borrower, from such contractor and all of such contractor's subcontractors or materialmen, a general unconditional release of mechanic's and materialman's liens, and the Borrower will promptly deliver or cause to be delivered to the Bank true and correct copies of all such releases so obtained. -36- Section 7.07. Change Orders. The Borrower will not permit, without the prior written notice being sent to the Bank, the performance of any work pursuant to any amendment or modification of any of the Plans, the General Contract or any subcontract or purchase order (any such amendment or modification being herein called a "Change Order") which: (a) would result in an increase or decrease in excess of $100,000 of the contract prices for the construction of the Improvements as shown on the Project Cost Schedule; or (b) when aggregated with other Change Orders theretofore effected, would result in an increase or decrease in excess of $500,000 in the aggregate of the contract prices for the construction of the Improvements as shown in the Project Cost Schedule. Section 7.08. Builder's Risk, Liability and Workers' Compensation Insurance. The Borrower will maintain, or cause to be maintained, builders' risk (or equivalent coverage) insurance upon any work done or materials furnished under the General Contract and any construction subcontracts, except excavations, foundations and any other structures not customarily covered by such insurance. The policies for such insurance shall be issued by companies satisfactory to the Bank and shall be written in completed value form for 100% of the insurable value of the contract in the names of the Borrower and the General Contractor as their interests may appear and shall name the Bank as a loss payee as its interest may appear. The Borrower will also maintain, or cause to be maintained, workers' compensation insurance covering all employees of the General Contractor and all subcontractors in amounts required by law, and public liability and property damage insurance in such amounts as are customarily insured against by entities of like size similarly situated. ARTICLE VII DEFAULTS AND REMEDIES Section 8.01. Defaults. Each of the following, at the option of the Bank, shall constitute an event of default hereunder ("Event of Default"): (a) Failure by the Borrower to pay or cause to be paid when due any amount under Section 2.02(a)(2), Section 2.02(a)(3), Section 2.02(a)(4) or Section 2.02(a)(5) hereof or a failure of the Borrower or the Custodial Bank to comply with Section 6.20 hereof or of the Custodial Bank Agreement; (b) Failure by the Borrower to make any other payment within 10 days of the date when it is due under this Agreement or the Note after the receipt of written notice from the Bank to make such payment; -37- (c) Failure by the Borrower to perform or comply with any of the terms or conditions contained in Section 6.01 or 6.17 or 6.18 within 15 days of the receipt of written notice from the Bank to perform or comply with such terms or conditions; (d) Failure by the Borrower to perform or comply with any of the other terms or conditions contained in this Agreement, the Note or any Security Document and continuance of such failure for 30 days after written notice from the Bank to the Borrower, or such longer period to which Bank may agree in the case of a default not curable by the exercise of due diligence within such 30 day period, provided that the Borrower shall have commenced to cure such default within such 30 day period and shall complete such cure as quickly as reasonably possible with the exercise of due diligence; (e) Any of the representations, warranties or covenants of the Borrower set forth in this Agreement, the Note, the Security Documents, the Bond Documents or any other document furnished to the Bank pursuant to the terms hereof is false or misleading in any material respect and such false or misleading representation, warranty or covenant is not cured within 15 days of the receipt of written notice by the Borrower from the Bank; (f) Any material provision of this Agreement, the Note or the Security Documents to which the Borrower is a party shall at any time for any reason cease to be valid and binding on the Borrower, or shall be declared to be null and void, or shall be violative of any applicable law relating to a maximum amount of interest permitted to be contracted for, charged or received, or the validity or enforceability thereof shall be contested by the Borrower or any governmental agency, court or authority, or the Borrower shall deny that it has any or further liability or obligation under this Agreement, the Note or the Security Documents to which the Borrower is a party and any such occurrence or event is not cured by the Borrower within 3 days of the receipt by the Borrower of written notice from the Bank; (g) The occurrence of an Event of Default as defined in the Indenture, the Loan Agreement or any of the Security Documents; (h) The Borrower shall: (i) apply for or consent to the appointment of a receiver, trustee, liquidator or custodian or the like of the Borrower or of property of the Borrower; or (ii) admit in writing the inability of the Borrower to pay its debts generally as they become due; or (iii) make a general assignment for the benefit of creditors; or (iv) be adjudicated a bankrupt or insolvent; or (v) commence a voluntary case under the United States Bankruptcy Code or file a voluntary petition or answer seeking reorganization, an arrangement with creditors or an order for relief or seeking to take advantage of any insolvency law or file an answer admitting the material allegations of a petition filed against the Borrower in any bankruptcy, reorganization or insolvency proceeding, or action of the Borrower shall be taken for the purpose of effecting any of the foregoing; or (vi) have instituted against it, without the application, approval or consent of the Borrower, a proceeding in any court of competent jurisdiction, under any law relating to bankruptcy, insolvency, reorganization or relief of debtors, seeking in respect of the Borrower an order for relief or an adjudication in bankruptcy, reorganization, dissolution, winding up or liquidation, a composition or -38- arrangement with creditors, a readjustment of debts, the appointment of a trustee, receiver, liquidator or custodian or the like of the Borrower or of all or any substantial part of the assets of the Borrower or other like relief in respect thereof under any bankruptcy or insolvency law, and, if such proceeding is being contested by the Borrower in good faith, the same shall: (A) result in the entry of an order for relief or any such adjudication or appointment; or (B) remain undismissed and undischarged for a period of 60 days; (i) The Premises or any material portion thereof is subjected to a material condemnation proceeding and such a material condemnation proceeding is not terminated by the condemnor within 10 days of the receipt by the Borrower of written notice from the Bank; (j) The Borrower fails to maintain in full force and effect the hazard or other insurance required pursuant to this Agreement and continuance of such failure for 10 days after the receipt of written notice from the Bank to the Borrower; (k) The Premises suffers a material loss by fire or other casualty and such loss is not fully insured and any deficiency in the amount of insurance proceeds paid with respect to such loss is not posted with the Trustee or the Bank within 10 days of the determination of such deficiency; (l) Any litigation or administrative proceeding ensues, and is not dismissed within 30 days, involving the Borrower or any instrument, contract or document delivered to the Bank in compliance with this Agreement, and the adverse result of such litigation or proceeding would have in the Bank's reasonable opinion, a materially adverse effect on the Borrower's ability to pay its obligations and comply with the covenants under this Agreement, the Security Documents or the Bond Documents; provided, however, that if such litigation or administrative proceeding by its nature cannot be dismissed within such 30 day period, no Event of Default shall be deemed to have occurred so long as the Borrower provides written notice to the Bank and diligently and continuously proceeds to have such litigation or administrative proceeding dismissed. (m) Any one or more judgments or orders are entered against the Borrower and either: (1) continue unsatisfied and unstayed for 30 days; or (2) a judgment lien on any property of the Borrower is recorded in respect thereof and is not stayed pending appeal by a bond or other arrangement given or obtained by the Borrower on terms which do not violate any of the Borrower's covenants under this Agreement; (n) Failure by the Borrower in respect of any Debt or Debts to make any payment or payments when due (after the lapse of any applicable grace period) that results in the acceleration of such Debt or Debts or enables the holder or holders of such Debt or Debts or any person acting on behalf of such holder or holders to accelerate the maturity of such Debt or Debts; -39- (o) The occurrence of an "Event of Default" under the Series A Reimbursement Agreement or with respect to the Series A Bonds; or (p) The occurrence of a default or an event of default (after the lapse of any applicable grace period) with respect to any other credit arrangement under which the Borrower is indebted to the Bank that results in the acceleration of the Borrower's obligations under such credit arrangement. Section 8.02. Remedies. If an Event of Default has occurred and is continuing uncured, the Bank may: (a) Notify the Trustee and the Letter of Credit Bank of such Event of Default, direct the Trustee to declare an Event of Default, as defined in the Indenture, to call the Bonds for mandatory purchase or declare the principal of the Bonds immediately due and payable and to draw on the Letter of Credit, and direct the Trustee to exercise remedies under the Bond Documents; (b) Declare the Borrower's obligations hereunder and under the Note to be, whereupon the same shall become, immediately due and payable; and (c) Decline to approve any further disbursement of the Bond proceeds from the Project Fund to or for the benefit of the Borrower or any other person; (d) Order construction of the Improvements stopped; (e) Subject to the provisions of the Bond Documents: (i) enter upon or take possession of the Premises and call upon or employ contractors, subcontractors, materialmen, suppliers, agents, managers, maintenance personnel, security guards, architects, engineers and inspectors to complete, manage or operate the Premises or to protect the Premises from injury; (ii) make such additions, changes or corrections in the Plans as the Bank shall deem necessary or desirable; (iii) direct the Trustee to disburse moneys from the Project Fund, and pay out additional sums of the Bank (which sums shall be immediately due and payable by the Borrower to the Bank, shall bear interest from the date of payment by the Bank until the date of repayment at the rate specified in Section 2.02(f) for sums more than 10 days overdue, and shall be secured by the Security Documents) and use any property of the Borrower associated with the Project, or any property of the Borrower in which the Bank has or obtains an interest, including any funds which have not been disbursed from the Project Fund and any funds which may be transferred by the Trustee to the Bank (which funds the Borrower hereby assigns and quitclaims to the Bank), for application to or as a reserve for payment of any or all of the following with respect to the completion, protection, management, operation or maintenance of the Project or the protection of the Bank's interest therein, and in such connection deliver or disburse the same to such entities in such amounts and with such preferences and priorities as the Bank in its sole discretion shall determine, either with or without vouchers or orders executed by the Borrower: (A) all sums due from the Borrower to the Bank; (B) premiums and costs of title -40- and any other insurance; (C) leasing fees and brokerage or sales commissions; (D) fees, costs and expenses of the Bank and its counsel in connection with the preparation, enforcement, performance and filing of this Agreement, the Security Documents and the other documents contemplated hereby; (E) any taxes (including federal, state and local taxes) or other governmental charges; (F) any sums required to indemnify and hold the Bank harmless from any act or omission of the Bank (except such as are grossly negligent or due to its willful misconduct) under this Agreement or any other document; (G) architectural and engineering costs; (H) any sums due to contractors, subcontractors, mechanics or materialmen for work or services actually furnished on or for the Premises; (I) federal or state claims for any required withholding of taxes on wages; and (J) other costs and expenses which are required to complete, manage or operate the Project or to protect the Premises from injury or maintain the Bank's security position prior to the rights of all others; (iv) place additional encumbrances upon the Premises; (v) with the Borrower's consent, convey the Premises, subject to the Bank's rights, to any nominee of the Bank; and (vi) employ leasing and sales agents and negotiate and execute leases, sales contracts and financing undertakings in connection with all or any part of the Premises; and (f) Exercise, or cause to be exercised, any and all such remedies as it may have under this Agreement, the Note, the Security Documents or any other document or at law or in equity, including, but not limited to, the right to liquidate all investment securities held in the Bank's Pledge Account B created under Section 6.20 hereof and use such funds to reimburse itself for any amounts owed to the Bank by the Borrower. Section 8.03. Confession of Judgment. IF THE BORROWER OR THE CUSTODIAL BANK FAIL TO FULFILL OR CANNOT FULFILL ITS OBLIGATIONS UNDER THE CUSTODIAL BANK AGREEMENT AS SET FORTH IN SECTIONS 6.20(a), (b) OR (d) HEREOF, AND THE BORROWER OR THE CUSTODIAL BANK DO NOT CURE ANY SUCH UNFULFILLED OBLIGATIONS WITHIN ONE (1) BUSINESS DAY AFTER RECEIPT BY THE BORROWER OF WRITTEN NOTICE FROM THE BANK TO DO SO, THE BORROWER HEREBY IRREVOCABLY AUTHORIZES AND EMPOWERS THE BANK, BY ITS ATTORNEY, OR THE PROTHONOTARY OR THE CLERK OF ANY COURT OF RECORD IN THE COMMONWEALTH OR IN ANY JURISDICTION WHERE PERMITTED BY LAW, UPON THE OCCURRENCE OF AN EVENT OF DEFAULT AS DEFINED IN THIS AGREEMENT OR AT ANY TIME THEREAFTER, TO APPEAR FOR THE BORROWER AND CONFESS AND ENTER JUDGMENT AGAINST IT IN FAVOR OF THE BANK IN ANY JURISDICTION IN WHICH THE BORROWER OR ANY OF ITS PROPERTY IS LOCATED FOR THE AMOUNT OF ALL OBLIGATIONS, TOGETHER WITH COSTS OF SUIT AND WITH ACTUAL COLLECTION COSTS (INCLUDING REASONABLE ATTORNEYS' FEES), WITH OR WITHOUT DECLARATION, AND WITHOUT STAY OF EXECUTION, AND WITH RELEASE OF ERRORS AND THE RIGHT TO ISSUE EXECUTION FORTHWITH, AND FOR DOING SO THIS AGREEMENT OR A COPY VERIFIED BY AFFIDAVIT SHALL -41- BE A SUFFICIENT WARRANT. THE BORROWER HEREBY WAIVES AND RELEASES ALL RELIEF FROM ANY AND ALL APPRAISEMENT, STAY OR EXEMPTION LAW OF ANY STATE NOW IN FORCE OR HEREAFTER ENACTED. THIS AUTHORITY AND POWER SHALL NOT BE EXHAUSTED BY THE EXERCISE THEREOF AND SHALL CONTINUE UNTIL THE OBLIGATIONS ARE FULLY PAID, PERFORMED, DISCHARGED AND SATISFIED. BEING FULLY AWARE OF ITS RIGHTS TO PRIOR NOTICE AND HEARING ON THE VALIDITY OF ANY CLAIMS THAT MAY BE ASSERTED AGAINST IT BY THE BANK UNDER THIS AGREEMENT BEFORE JUDGMENT CAN BE ENTERED AND BEFORE ASSETS OF THE BORROWER CAN BE GARNISHED AND ATTACHED, THE BORROWER HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES THESE RIGHTS AND EXPRESSLY AGREES AND CONSENTS TO THE BANK, UPON THE OCCURRENCE OF AN EVENT OF DEFAULT, OR AT ANY TIME THEREAFTER, ENTERING JUDGMENT AGAINST THE BORROWER BY CONFESSION AND ATTACHING AND GARNISHING THE BANK ACCOUNTS AND OTHER ASSETS OF THE BORROWER, WITHOUT PRIOR NOTICE OR OPPORTUNITY FOR A HEARING. THE BORROWER ACKNOWLEDGES THAT IT HAS HAD THE ASSISTANCE OF COUNSEL IN THE REVIEW AND EXECUTION OF THIS AGREEMENT AND FURTHER ACKNOWLEDGES THAT THE MEANING AND EFFECT OF THE FOREGOING PROVISIONS CONCERNING CONFESSION OF JUDGMENT HAVE BEEN FULLY EXPLAINED TO THE BORROWER BY SUCH COUNSEL. Section 8.04. Waivers; Consents. No waiver of, or consent with respect to, any provision of this Agreement or the Note or the Security Documents shall in any event be effective unless the same shall be in writing and signed by the Bank, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which it was given. Section 8.05. No Waiver; Remedies Cumulative. No failure on the part of the Bank to exercise, and no delay in exercising, any right hereunder or under the Note or the Security Documents shall operate as a waiver thereof; and no single or partial exercise of any right hereunder shall preclude any other or further exercise thereof or the exercise of any other right. To the extent permitted by applicable law, the remedies herein and in the Note, the Security Documents and the Bond Documents provided are cumulative and not exclusive of any remedies available under any other document or at law or in equity. ARTICLE IX MISCELLANEOUS -42- Section 9.01. Notices. All notices and other communications provided for hereunder shall be in writing and sent by United States certified or registered mail, return receipt requested, or by telegraph, telex, telecopier or private delivery service, addressed as follows: If to the Bank: Jefferson Bank 1607 Walnut Street Philadelphia, PA 19103 Attention: Kenneth R. Frappier, Senior Vice President If to the Borrower: Neose Technologies, Inc. 102 Witmer Road Horsham, PA 19044 Attention: P. Sherrill Neff, President With a copy to: Ballard Spahr Andrews & Ingersoll 1735 Market Street Philadelphia, PA 19103 Attention: Lynn Axelroth, Esquire If to the Trustee: Dauphin Deposit Bank and Trust Company 213 Market Street Harrisburg, PA 17101 Attention: Corporate Trust Department Either party hereto and the Trustee may change the address to which notices to it are to be sent by written notice given to the other persons listed in this Section. All notices shall, when mailed as aforesaid, be effective on the date indicated on the return receipt, and all notices given by other means shall be effective when received. -43- Section 9.02. Successors and Assigns. This Agreement shall inure to the benefit of and shall be binding upon the parties hereto and their respective successors and assigns, including without limitation the Participating Banks. The Borrower may not assign its rights under this Agreement without the prior written consent of the Bank. The Borrower and the Bank intend that no other person shall have any claim or interest under this Agreement or right of action hereon or hereunder, except as provided with respect to the Letter of Credit Bank in Section 3.07. Section 9.03. Survival of Representations, Warranties and Covenants. All representations, warranties and covenants made by the Borrower herein and in any document delivered pursuant hereto shall survive the delivery of this Agreement and the Participating Bank Agreement and any advances under the Participating Bank Agreement. Section 9.04. Counterparts. The execution hereof by each party hereto shall constitute a contract between them for the uses and purposes herein set forth, and this Agreement may be executed in any number of counterparts, with each executed counterpart constituting an original and all counterparts together constituting one agreement. Section 9.05. Costs, Expenses and Taxes. The Borrower agrees to pay on demand all reasonable costs and expenses of the Bank in connection with the preparation, execution and delivery of this Agreement, the Participating Bank Agreement, the Note, the Security Documents, the Standby Letter of Credit, the Standby Reimbursement Agreement, the Bond Documents and any other documents that may be delivered in connection with this Agreement, the Participating Bank Agreement, the Note, the Security Documents, the Standby Letter of Credit, the Standby Reimbursement Agreement or the Bond Documents or any amendments thereto, including, without limitation, the reasonable fees and expenses of counsel for the Bank with respect thereto and with respect to advising the Bank and/or any one or more Participating Banks as to their rights and responsibilities under this Agreement, the Participating Bank Agreement, the Note, the Security Documents, the Standby Reimbursement Agreement, the Bond Documents and such other documents, and all costs and expenses, if any, including without limitation reasonable counsel fees and expenses of the Bank, in connection with the enforcement of this Agreement, the Participating Bank Agreement, the Note, the Security Documents, the Bond Documents and such other documents. In addition, the Borrower shall pay any and all stamp and other taxes and fees payable or determined to be payable in connection with the execution and delivery of this Agreement, the Participating Bank Agreement, the Note, the Security Documents and such other documents and agrees to indemnify and to hold 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; provided the Bank promptly notifies the Borrower of any such taxes and fees. Section 9.06. Amendments. This Agreement may be amended by an instrument in writing executed and delivered by the Borrower and the Bank. Section 9.07. Severability. If any provision hereof or of the Note is found by a court of competent jurisdiction to be prohibited or unenforceable in any jurisdiction, it shall be ineffective as to such -44- jurisdiction only to the extent of such prohibition or unenforceability, and such prohibition or unenforceability shall not invalidate the balance of such provision as to such jurisdiction to the extent it is not prohibited or unenforceable, nor invalidate such provision in any other jurisdiction, nor invalidate the other provisions hereof, all of which shall be liberally construed in favor of the Bank in order to effect the provisions of this Agreement and the Note. Section 9.08. Conflicts. Insofar as possible the provisions of this Agreement shall be deemed complementary to the terms of the Note and the Security Documents, but in the event of conflict the terms hereof shall control to the extent such are enforceable under applicable law. Section 9.09. Complete Agreement. Taken together with the Note, the Security Documents and the other instruments and documents delivered in compliance herewith, this Agreement is a complete memorandum of the agreement of the Borrower and the Bank. Waivers or modifications of any provision hereof must be in writing signed by the party to be charged with the effect thereof. Section 9.10. Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the Commonwealth of Pennsylvania without reference to its principles of conflicts of law. Section 9.11. Table of Contents and Headings. The table of contents and section headings in this Agreement are included herein for convenience of reference only and shall not constitute a part of this Agreement for any other purpose. Section 9.12. Participation. Notwithstanding any other provision of this Agreement, the Borrower understands that the Bank is or may be entering into a participation agreement with other banks and may at any time enter into other participation agreements with one or more additional participating banks ("Participating Banks") whereby the Bank will allocate to the Participating Banks certain percentages of the payment obligations of the Borrower under this Agreement and the Note and the funding obligations of the Bank under the Participating Bank Agreement. The Borrower acknowledges, that, for the convenience of all parties, this Agreement is being entered into with, and the Note and Security Documents are being delivered to, the Bank only and that the Borrower's obligations under this Agreement, the Note and the Security Documents are and will be undertaken for the benefit of, and as an inducement to, the Participating Banks as well as the Bank. Without limiting the foregoing, the Borrower acknowledges that Sections 2.02(e) and 2.05 and the indemnity of the Bank under Section 9.05 are also for the benefit of the Participating Banks as if such sections specifically referred to the Participating Banks and their participations in the payment obligations of the Borrower and the funding obligations of the Bank, and the Borrower agrees to make any payments required by such provisions for the account of any one or more Participating Banks to the Bank on demand of the Bank and, in the case of such payments under Section 2.02(e), submission by the Bank to the Borrower of the respective Participating Bank's certificate contemplated by such Section. The Bank agrees that it shall be the agent for the Participating Banks and that if any legal actions or claims are instituted by or to be instituted by a Participating Bank against the Borrower, the Bank shall act as agent to said Participating Bank with regard to any such legal actions or claims. Section 9.13. Judicial Proceedings. Each party to this Agreement agrees that any suit, action or proceeding, whether claim or counterclaim, brought or instituted by any party hereto or any successor or assign of any party, on or with respect to this Agreement or any of the other documents or the dealings of the parties with respect hereto, or thereto, shall be tried only by a court and not by a jury. EACH PARTY HEREBY KNOWINGLY, -45- VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY SUCH SUIT, ACTION OR PROCEEDING. Further, each party waives any right it may have to claim or recover, in any such suit, action or proceeding, any special, exemplary, punitive or consequential damages or any damages other than, or in addition to, actual damages. THE BORROWER ACKNOWLEDGES AND AGREES THAT THIS SECTION IS A SPECIFIC AND MATERIAL ASPECT OF THIS AGREEMENT AND THAT THE BANK WOULD NOT EXTEND CREDIT TO THE BORROWER IF THE WAIVERS SET FORTH IN THIS SECTION WERE NOT A PART OF THIS AGREEMENT. IN WITNESS WHEREOF, the Borrower and the Bank have caused this Agreement to be duly executed and delivered as of the date first above written. [Corporate Seal] NEOSE TECHNOLOGIES, INC. Attest: /s/ A. Brian Davis By: /s/ P. Sherrill Neff ------------------------------- ------------------------------ Secretary (Vice) President [Corporate Seal] JEFFERSON BANK Attest: /s/ Daniel O'Brien By: /s/ Kenneth R. Frappier ------------------------------- ------------------------------- (Assistant) Secretary Senior Vice President -46- EXHIBIT A NOTE March 20, 1997 $8,579,967.12 Philadelphia, Pennsylvania For value received and intending to be legally bound, NEOSE TECHNOLOGIES, INC. ("Maker"), a Delaware corporation promises to the order of JEFFERSON BANK ("Payee"), a Pennsylvania banking corporation at its offices at 1607 Walnut Street, Philadelphia, Pennsylvania 19103 or at such other place as Payee may designate in writing, on demand subject to the provisions of Section 2.02(a) of the Agreement described below, the principal sum of Eight Million Five Hundred Seventy Nine Thousand Nine Hundred Sixty-Seven Dollars and Twelve Cents ($8,579,967.12) lawful money of the United States of America, or so much thereof as may be outstanding from time to time, together with interest on the outstanding balance thereof at a fluctuating rate per annum (computed for the actual number of days elapsed, based on a 360-day year) equal to one percent (1.0%) per annum above the Base Rate (as such phrase is defined below); provided that if any portion of such sum or any other amount payable under the Agreement (defined below) or interest thereon is not paid within 10 days of the date such sum, amount or interest is due and payable to Payee under this Note or the Agreement, after written notice has been sent by the Payee to the Maker, then such sum shall thereafter bear interest at a fluctuating rate per annum (computed for the actual number of days elapsed, based on a 360-day year) equal to five percent (5.0%) per annum above the Base Rate until such sum, amount or interest and all other amounts due and payable under this Note or the Agreement have been paid in full. "Base Rate" means the rate of interest so designated and established by the Bank, from time to time, with changes effective immediately. The Base Rate of the Payee is determined from time to time by Payee as a means of pricing some loans to its borrowers and neither is tied to any external rate of interest or index, nor necessarily reflects the lowest rate of interest actually charged by Payee to any particular class or category of customers. The indebtedness evidenced by this Note represents advances to be made by Payee pursuant to and as described in a Reimbursement Agreement, dated as of March 1, 1997 (the "Agreement") between Maker and Payee. Terms and phrases used herein and not defined herein shall have the meanings ascribed to them in the Agreement. Each advance against this Note shall be due and payable, with interest, on the date required in Section 2.02(a) of the Agreement, on which date demand for such payment shall be deemed to have been made under this Note. Interest accruing pursuant to this Note shall be payable on demand and as otherwise provided in Section 2.02(a) of the Agreement. A-1 The principal of this Note may be advanced, repaid and readvanced on a revolving basis in accordance with the Agreement. This Note shall be retained by Payee until such time as no further advances are available under the terms of the Agreement and all principal due and payable under this Note and all other amounts payable under the Agreement have been paid in full with interest, and until such time, Payee shall not be required to produce this Note to Maker in connection with any demand hereon. Payment of this Note is secured as described in the Agreement. Such security includes, among other things, the Mortgage on the Premises. Should any default be made in the payment of any principal or interest due and payable under this Note, then payment of the same may be enforced and recovered in whole or in part at any time by one or more of the remedies provided to or for the benefit of Payee in this Note, the Agreement or the Security Documents or in any other instrument delivered to or for the benefit of Payee or otherwise available at law or in equity; and in such case Payee may also recover all costs of suit and other expenses in connection therewith, including reasonable attorneys' fees and expenses. SUBJECT TO THE PRECONDITIONS SET FORTH IN SECTION 8.03 OF THE AGREEMENT, THE MAKER HEREBY IRREVOCABLY AUTHORIZES AND EMPOWERS THE PAYEE, BY ITS ATTORNEY, OR THE PROTHONOTARY OR THE CLERK OF ANY COURT OF RECORD IN THE COMMONWEALTH OR IN ANY JURISDICTION WHERE PERMITTED BY LAW, UPON THE OCCURRENCE OF A DEFAULT IN PAYMENT HEREUNDER, OR AT ANY TIME THEREAFTER, TO APPEAR FOR THE MAKER AND CONFESS AND ENTER JUDGMENT AGAINST IT IN FAVOR OF THE PAYEE IN ANY JURISDICTION IN WHICH THE MAKER OR ANY OF ITS PROPERTY IS LOCATED FOR THE AMOUNT OF ALL OBLIGATIONS DUE HEREUNDER, TOGETHER WITH COSTS OF SUIT AND WITH ACTUAL COLLECTION COSTS (INCLUDING REASONABLE ATTORNEYS' FEES), WITH OR WITHOUT DECLARATION, AND WITHOUT STAY OF EXECUTION, AND WITH RELEASE OF ERRORS AND THE RIGHT TO ISSUE EXECUTION FORTHWITH, AND FOR DOING SO THIS NOTE OR A COPY VERIFIED BY AFFIDAVIT SHALL BE A SUFFICIENT WARRANT. THE MAKER HEREBY WAIVES AND RELEASES ALL RELIEF FROM ANY AND ALL APPRAISEMENT, STAY OR EXEMPTION LAW OF ANY STATE NOW IN FORCE OR HEREAFTER ENACTED. THIS AUTHORITY AND POWER SHALL NOT BE EXHAUSTED BY THE EXERCISE THEREOF AND SHALL CONTINUE UNTIL THE OBLIGATIONS ARE FULLY PAID, PERFORMED, DISCHARGED AND SATISFIED. BEING FULLY AWARE OF ITS RIGHTS TO PRIOR NOTICE AND HEARING ON THE VALIDITY OF ANY CLAIMS THAT MAY BE ASSERTED AGAINST IT BY THE PAYEE UNDER THIS NOTE BEFORE JUDGMENT CAN BE ENTERED AND BEFORE ASSETS OF THE MAKER CAN BE GARNISHED AND ATTACHED, THE MAKER HEREBY KNOWINGLY, VOLUNTARILY AND A-2 INTENTIONALLY WAIVES THESE RIGHTS AND EXPRESSLY AGREES AND CONSENTS TO THE PAYEE, UPON THE OCCURRENCE OF A DEFAULT IN PAYMENT HEREUNDER, OR AT ANY TIME THEREAFTER, ENTERING JUDGMENT AGAINST THE MAKER BY CONFESSION AND ATTACHING AND GARNISHING THE PAYEE ACCOUNTS AND OTHER ASSETS OF THE MAKER, WITHOUT PRIOR NOTICE OR OPPORTUNITY FOR A HEARING. THE MAKER ACKNOWLEDGES THAT IT HAS HAD THE ASSISTANCE OF COUNSEL IN THE REVIEW AND EXECUTION OF THIS NOTE AND FURTHER ACKNOWLEDGES THAT THE MEANING AND EFFECT OF THE FOREGOING PROVISIONS CONCERNING CONFESSION OF JUDGMENT HAVE BEEN FULLY EXPLAINED TO THE MAKER BY SUCH COUNSEL. The remedies of Payee as provided herein or in the Agreement or the Security Documents shall be cumulative and concurrent and may be pursued singly, successively or together against Maker and/or any other obligor under the Security Documents and/or against the property covered by the Security Documents and/or any other property mortgaged, pledged or assigned to Payee as security for this Note, at the sole discretion of Payee, and such remedies shall not be exhausted by any exercise thereof but may be exercised as often as occasion therefor shall occur. Payee shall not by any act of omission or commission be deemed to have waived any of its rights or remedies hereunder or under the Agreement or the Security Documents unless such waiver be in writing and signed by Payee, and then only to the extent specifically set forth therein; a waiver on one event shall not be construed as continuing or as a bar to or waiver of such right or remedy on a subsequent event. Maker hereby waives and releases all errors, defects and imperfections in any proceedings instituted by Payee under the terms of this Note, or of the Agreement or the Security Documents, as well as all benefit that might accrue to Maker by virtue of any present or future laws exempting any of the property covered by the Security Documents or any other property, real or personal, or any part of the proceeds arising from any sale of such property, from attachment, levy or sale under execution, or providing for any stay of execution, exemption from civil process or extension of time for payment, as well as the right of inquisition on any real estate that may be levied upon under a judgment obtained by virtue hereof, and Maker hereby voluntarily condemns the same and authorizes the entry of such voluntary condemnation on any writ of execution issued thereon, and agrees that such real estate may be sold upon any such writ in whole or in part in any order desired by Payee. Maker hereby waives presentment for payment, notice of nonpayment, notice of protest and protest of this Note, and all other notices in connection with the delivery, acceptance, performance, default or enforcement of the payment of this Note, and agrees that the liability of Maker shall be unconditional without regard to the liability of any other party and shall not be in any manner affected by any indulgence, extensions of time, renewal, waiver or modification granted or consented to by Payee; and Maker hereby consents to any and all A-3 extensions of time, renewals, waivers or modifications that may be granted by Payee with respect to the payment or other provisions of this Note, and to the release of the Security Documents, or any part thereof, with or without substitution, and agrees that makers, indorsers, guarantors or sureties may become parties hereto without notice to Maker or affecting Maker's liability hereunder. Maker shall pay the cost of any revenue, tax or other stamps now or hereafter required by law at any time to be affixed to this Note or the Mortgage or any other Security Document; and if any taxes be imposed with respect to debts secured by mortgages, or with respect to notes evidencing debts so secured, Maker agrees to pay to the holders hereof upon demand the amount of such taxes, and hereby waives any contrary provisions of any laws or rules of court now or hereafter in effect. If any provision hereof is found by a court of competent jurisdiction to be prohibited or unenforceable, it shall be ineffective only to the extent of such prohibition or unenforceability, and such prohibition or unenforceability shall not invalidate the balance of such provision to the extent it is not prohibited or unenforceable, nor invalidate the other provisions hereof, all of which shall be liberally construed in favor of Payee in order to effect the provisions of this Note. As used herein, the words "Payee" and "Maker" shall be deemed and construed to include the respective successors and assigns of Payee and Maker. This Note shall be construed according to and governed by the laws of the Commonwealth of Pennsylvania. IN WITNESS WHEREOF, Maker has duly executed this Note under seal as of the day and year first above written. [Corporate Seal] NEOSE TECHNOLOGIES, INC. Attest: By: -------------------------------- -------------------------------- Secretary (Vice) President A-4 EXHIBIT B PROJECT DESCRIPTION AND COST SCHEDULE Project Description The Project to be undertaken by the Borrower includes the acquisition, improvement and equipping of a facility located at 102 Witmer Road, Horsham, Pennsylvania, which will be used for the development and pilot production of complex carbohydrates for research and development relating to a variety of healthcare applications, to be owned and operated by the Borrower. Cost Schedule (TO FOLLOW) B-1 EXHIBIT C INQUIRIES CONDUCTED BY THE BORROWER WITH RESPECT TO ENVIRONMENTAL MATTERS 1) A Phase I Environmental Site Audit, dated January 8, 1997, prepared by D.C.R. Environmental Securities, Inc. 2) The subsurface soil investigation performed by Pennoni Associates Inc., the results of which were set forth in a letter report dated February 5, 1997 (including soil sample analytical results) from Richard C. Werner, C.P.G. to Robert L. Fleming, of the Borrower. C-1 EXHIBIT D OPTIONAL PREPAYMENT SCHEDULE Date of Optional Redemption Amount of Bonds to be - --------------------------- Optionally Redeemed ------------------- April 1, 1998 $ 500,000 April 1, 1999 600,000 April 1, 2000 1,000,000 April 1, 2001 1,100,000 April 1, 2002 1,100,000 April 1, 2003 1,200,000 April 1, 2004 1,200,000 April 1, 2005 100,000 April 1, 2006 200,000 April 1, 2007 100,000 April 1, 2008 200,000 April 1, 2009 200,000 April 1, 2010 200,000 April 1, 2011 200,000 April 1, 2012 300,000 April 1, 2013 200,000 April 1, 2014 0 April 1, 2015 0 April 1, 2016 0 April 1, 2017 0 ---------- $8,400,000 ========== D-1 EX-10.6 11 NOTE Exhibit 10.6 NOTE [SPECIMEN] March 20, 1997 $8,579,967.12 Philadelphia, Pennsylvania For value received and intending to be legally bound, NEOSE TECHNOLOGIES, INC. ("Maker"), a Delaware corporation promises to the order of JEFFERSON BANK ("Payee"), a Pennsylvania banking corporation at its offices at 1607 Walnut Street, Philadelphia, Pennsylvania 19103 or at such other place as Payee may designate in writing, on demand subject to the provisions of Section 2.02(a) of the Agreement described below, the principal sum of Eight Million Five Hundred Seventy Nine Thousand Nine Hundred Sixty-Seven Dollars and Twelve Cents ($8,579,967.12) lawful money of the United States of America, or so much thereof as may be outstanding from time to time, together with interest on the outstanding balance thereof at a fluctuating rate per annum (computed for the actual number of days elapsed, based on a 360-day year) equal to one percent (1.0%) per annum above the Base Rate (as such phrase is defined below); provided that if any portion of such sum or any other amount payable under the Agreement (defined below) or interest thereon is not paid within 10 days of the date such sum, amount or interest is due and payable to Payee under this Note or the Agreement, after written notice has been sent by the Payee to the Maker, then such sum shall thereafter bear interest at a fluctuating rate per annum (computed for the actual number of days elapsed, based on a 360-day year) equal to five percent (5.0%) per annum above the Base Rate until such sum, amount or interest and all other amounts due and payable under this Note or the Agreement have been paid in full. "Base Rate" means the rate of interest so designated and established by the Bank, from time to time, with changes effective immediately. The Base Rate of the Payee is determined from time to time by Payee as a means of pricing some loans to its borrowers and neither is tied to any external rate of interest or index, nor necessarily reflects the lowest rate of interest actually charged by Payee to any particular class or category of customers. The indebtedness evidenced by this Note represents advances to be made by Payee pursuant to and as described in a Reimbursement Agreement, dated as of March 1, 1997 (the "Agreement") between Maker and Payee. Terms and phrases used herein and not defined herein shall have the meanings ascribed to them in the Agreement. Each advance against this Note shall be due and payable, with interest, on the date required in Section 2.02(a) of the Agreement, on which date demand for such payment shall be deemed to have been made under this Note. Interest accruing pursuant to this Note shall be payable on demand and as otherwise provided in Section 2.02(a) of the Agreement. The principal of this Note may be advanced, repaid and readvanced on a revolving basis in accordance with the Agreement. This Note shall be retained by Payee until such time as no further advances are available under the terms of the Agreement and all principal due and -1- payable under this Note and all other amounts payable under the Agreement have been paid in full with interest, and until such time, Payee shall not be required to produce this Note to Maker in connection with any demand hereon. Payment of this Note is secured as described in the Agreement. Such security includes, among other things, the Mortgage on the Premises. Should any default be made in the payment of any principal or interest due and payable under this Note, then payment of the same may be enforced and recovered in whole or in part at any time by one or more of the remedies provided to or for the benefit of Payee in this Note, the Agreement or the Security Documents or in any other instrument delivered to or for the benefit of Payee or otherwise available at law or in equity; and in such case Payee may also recover all costs of suit and other expenses in connection therewith, including reasonable attorneys' fees and expenses. SUBJECT TO THE PRECONDITIONS SET FORTH IN SECTION 8.03 OF THE AGREEMENT, THE MAKER HEREBY IRREVOCABLY AUTHORIZES AND EMPOWERS THE PAYEE, BY ITS ATTORNEY, OR THE PROTHONOTARY OR THE CLERK OF ANY COURT OF RECORD IN THE COMMONWEALTH OR IN ANY JURISDICTION WHERE PERMITTED BY LAW, UPON THE OCCURRENCE OF A DEFAULT IN PAYMENT HEREUNDER, OR AT ANY TIME THEREAFTER, TO APPEAR FOR THE MAKER AND CONFESS AND ENTER JUDGMENT AGAINST IT IN FAVOR OF THE PAYEE IN ANY JURISDICTION IN WHICH THE MAKER OR ANY OF ITS PROPERTY IS LOCATED FOR THE AMOUNT OF ALL OBLIGATIONS DUE HEREUNDER, TOGETHER WITH COSTS OF SUIT AND WITH ACTUAL COLLECTION COSTS (INCLUDING REASONABLE ATTORNEYS' FEES), WITH OR WITHOUT DECLARATION, AND WITHOUT STAY OF EXECUTION, AND WITH RELEASE OF ERRORS AND THE RIGHT TO ISSUE EXECUTION FORTHWITH, AND FOR DOING SO THIS NOTE OR A COPY VERIFIED BY AFFIDAVIT SHALL BE A SUFFICIENT WARRANT. THE MAKER HEREBY WAIVES AND RELEASES ALL RELIEF FROM ANY AND ALL APPRAISEMENT, STAY OR EXEMPTION LAW OF ANY STATE NOW IN FORCE OR HEREAFTER ENACTED. THIS AUTHORITY AND POWER SHALL NOT BE EXHAUSTED BY THE EXERCISE THEREOF AND SHALL CONTINUE UNTIL THE OBLIGATIONS ARE FULLY PAID, PERFORMED, DISCHARGED AND SATISFIED. BEING FULLY AWARE OF ITS RIGHTS TO PRIOR NOTICE AND HEARING ON THE VALIDITY OF ANY CLAIMS THAT MAY BE ASSERTED AGAINST IT BY THE PAYEE UNDER THIS NOTE BEFORE JUDGMENT CAN BE ENTERED AND BEFORE ASSETS OF THE MAKER CAN BE GARNISHED AND ATTACHED, THE MAKER HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES THESE RIGHTS AND EXPRESSLY AGREES AND CONSENTS TO THE PAYEE, UPON THE OCCURRENCE OF A DEFAULT IN PAYMENT HEREUNDER, OR AT ANY TIME THEREAFTER, ENTERING JUDGMENT -2- AGAINST THE MAKER BY CONFESSION AND ATTACHING AND GARNISHING THE PAYEE ACCOUNTS AND OTHER ASSETS OF THE MAKER, WITHOUT PRIOR NOTICE OR OPPORTUNITY FOR A HEARING. THE MAKER ACKNOWLEDGES THAT IT HAS HAD THE ASSISTANCE OF COUNSEL IN THE REVIEW AND EXECUTION OF THIS NOTE AND FURTHER ACKNOWLEDGES THAT THE MEANING AND EFFECT OF THE FOREGOING PROVISIONS CONCERNING CONFESSION OF JUDGMENT HAVE BEEN FULLY EXPLAINED TO THE MAKER BY SUCH COUNSEL. The remedies of Payee as provided herein or in the Agreement or the Security Documents shall be cumulative and concurrent and may be pursued singly, successively or together against Maker and/or any other obligor under the Security Documents and/or against the property covered by the Security Documents and/or any other property mortgaged, pledged or assigned to Payee as security for this Note, at the sole discretion of Payee, and such remedies shall not be exhausted by any exercise thereof but may be exercised as often as occasion therefor shall occur. Payee shall not by any act of omission or commission be deemed to have waived any of its rights or remedies hereunder or under the Agreement or the Security Documents unless such waiver be in writing and signed by Payee, and then only to the extent specifically set forth therein; a waiver on one event shall not be construed as continuing or as a bar to or waiver of such right or remedy on a subsequent event. Maker hereby waives and releases all errors, defects and imperfections in any proceedings instituted by Payee under the terms of this Note, or of the Agreement or the Security Documents, as well as all benefit that might accrue to Maker by virtue of any present or future laws exempting any of the property covered by the Security Documents or any other property, real or personal, or any part of the proceeds arising from any sale of such property, from attachment, levy or sale under execution, or providing for any stay of execution, exemption from civil process or extension of time for payment, as well as the right of inquisition on any real estate that may be levied upon under a judgment obtained by virtue hereof, and Maker hereby voluntarily condemns the same and authorizes the entry of such voluntary condemnation on any writ of execution issued thereon, and agrees that such real estate may be sold upon any such writ in whole or in part in any order desired by Payee. Maker hereby waives presentment for payment, notice of nonpayment, notice of protest and protest of this Note, and all other notices in connection with the delivery, acceptance, performance, default or enforcement of the payment of this Note, and agrees that the liability of Maker shall be unconditional without regard to the liability of any other party and shall not be in any manner affected by any indulgence, extensions of time, renewal, waiver or modification granted or consented to by Payee; and Maker hereby consents to any and all extensions of time, renewals, waivers or modifications that may be granted by Payee with respect to the payment or other provisions of this Note, and to the release of the Security Documents, or any part thereof, -3- with or without substitution, and agrees that makers, indorsers, guarantors or sureties may become parties hereto without notice to Maker or affecting Maker's liability hereunder. Maker shall pay the cost of any revenue, tax or other stamps now or hereafter required by law at any time to be affixed to this Note or the Mortgage or any other Security Document; and if any taxes be imposed with respect to debts secured by mortgages, or with respect to notes evidencing debts so secured, Maker agrees to pay to the holders hereof upon demand the amount of such taxes, and hereby waives any contrary provisions of any laws or rules of court now or hereafter in effect. If any provision hereof is found by a court of competent jurisdiction to be prohibited or unenforceable, it shall be ineffective only to the extent of such prohibition or unenforceability, and such prohibition or unenforceability shall not invalidate the balance of such provision to the extent it is not prohibited or unenforceable, nor invalidate the other provisions hereof, all of which shall be liberally construed in favor of Payee in order to effect the provisions of this Note. As used herein, the words "Payee" and "Maker" shall be deemed and construed to include the respective successors and assigns of Payee and Maker. This Note shall be construed according to and governed by the laws of the Commonwealth of Pennsylvania. IN WITNESS WHEREOF, Maker has duly executed this Note under seal as of the day and year first above written. [Corporate Seal] NEOSE TECHNOLOGIES, INC. Attest: /s/ Brian Davis By: /s/ P. Sherrill Neff --------------------------------- ------------------------------ Secretary (Vice) President [SPECIMEN] -4- EX-10.7 12 MORTGAGE, LEASES AND SECURITY AGREEMENT Exhibit 10.7 THIS IS AN OPEN-END MORTGAGE SECURING FUTURE ADVANCES UP TO A MAXIMUM PRINCIPAL AMOUNT OF EIGHT MILLION FIVE HUNDRED SEVENTY-NINE THOUSAND NINE HUNDRED SIXTY-SEVEN DOLLARS AND TWELVE CENTS PLUS ACCRUED INTEREST AND OTHER INDEBTEDNESS AS DESCRIBED IN 42 PA.C.S.A. (section) 8143 MORTGAGE, ASSIGNMENT OF LEASES AND SECURITY AGREEMENT THIS MORTGAGE, ASSIGNMENT OF LEASES AND SECURITY AGREEMENT (this "Mortgage") dated March 20, 1997 is made by NEOSE TECHNOLOGIES, INC., a Delaware corporation, with an address of 102 Witmer Road, Horsham, Pennsylvania 19044 (the "Mortgagor"), in favor of JEFFERSON BANK, with an address of 1607 Walnut Street, Philadelphia, Pennsylvania 19103 (the "Mortgagee"). W I T N E S S E T H : A. Montgomery County Industrial Development Authority (the "Issuer") has issued its Federally Taxable Variable Rate Demand Revenue Bonds (Neose Technologies, Inc. Project), Series B of 1997, in the aggregate principal amount of $8,400,000 (the "Bonds") under a Trust Indenture, dated as of March 1, 1997 (the "Indenture") between the Issuer and Dauphin Deposit Bank and Trust Company, as trustee (including any successor trustee, the "Trustee"). B. Pursuant to a Loan Agreement, dated as of March 1, 1997 between the Issuer and the Mortgagor (the "Loan Agreement"), the proceeds of the Bonds are being applied to finance a project more fully described therein. Under the Loan Agreement, the Mortgagor is obligated to make loan payments to the Trustee in amounts and at times corresponding to the principal of and interest due in respect of the Bonds. C. In order to facilitate the issuance and sale of the Bonds and to enhance the marketability of the Bonds, the Issuer and the Borrower have asked CoreStates Bank, N.A. (the "Letter of Credit Bank") to issue its Irrevocable Letter of Credit (together with any amendment thereto and any substitute letter of credit issued by the Letter of Credit Bank therefor, the "Letter of Credit") to the Trustee authorizing the Trustee to make one or more draws on the Letter of Credit Bank up to an aggregate of $8,579,967.12 (as reduced and reinstated from time to time in accordance with the provisions of the Letter of Credit, the "Letter of Credit Amount"), of which originally: (i) $8,400,000 shall be in respect of principal of the Bonds; and (ii) $179,967.12 shall be in respect of accrued interest on the Bonds. The purpose of the Letter of Credit is to provide funds for the payment of principal of and interest on the Bonds and purchase price of Bonds which have been tendered for purchase pursuant to the tender option provisions thereof and of the Indenture to the extent remarketing proceeds or other funds are not available therefor in accordance with the provisions of the Indenture. -1- D. The Letter of Credit Bank will only issue the Letter of Credit if it will be reimbursed pursuant to the terms of an agreement to be entered into with another banking institution acceptable to the Letter of Credit Bank. To such end and in order to achieve interest cost savings and other savings for the Mortgagor, the Mortgagor has asked the Mortgagee to enter into a Participation and Reimbursement Agreement, dated as of March 1, 1997, with the Letter of Credit Bank (the "Participating Bank Agreement") under which the Mortgagee will become primarily and unconditionally obligated to reimburse the Letter of Credit Bank for all drawings under the Letter of Credit and to make certain other payments to the Letter of Credit Bank. E. The Mortgagee is willing to enter into the Participating Bank Agreement for the account of the Mortgagee upon the terms and conditions set forth in the Reimbursement Agreement, dated as of March 1, 1997, (the "Reimbursement Agreement"), between the Mortgagee and the Mortgagor. ARTICLE I OBLIGATIONS; SECURITY 1.1 Obligations; Loan Documents. This Mortgage is executed, acknowledged and delivered by the Mortgagor to secure and enforce the following obligations and liabilities (collectively, the "Obligations"): (a) The payment of: (i) the principal sum of Eight Million Five Hundred Seventy-Nine Thousand Nine Hundred Sixty-Seven Dollars and Twelve Cents ($8,579,967.12) in the aggregate to be paid with interest thereon, as the same may fluctuate, pursuant to the provisions of the Reimbursement Agreement, including all advances now or hereafter made by the Mortgagee pursuant to the Participating Bank Agreement, together with interest thereon, as more fully described in the Reimbursement Agreement; (ii) all sums now or in the future advanced or coming due or required to be paid under the Loan Documents (hereinafter defined) whether for principal, interest, fees, costs, charges, expenses, or other amounts owing under reimbursement or indemnification obligations under the Loan Documents, whether such advances are voluntary or obligatory, whether such obligations presently exist or come into existence at some future time, and whether such advances, costs and expenses were made or incurred at the request of the Mortgagor or any other obligor or guarantor under the Loan Documents or Mortgagee; (iii) any increases in the Letter of Credit Amount whether by amendment of the Reimbursement Agreement, the Participating Bank Agreement, replacement of the Letter of Credit or otherwise; and (iv) all sums which may hereafter be lent to the Mortgagor by the Mortgagee when evidenced by a promissory note or other obligation reciting that said note or obligation is intended to be secured by this Mortgage; and (b) The performance of all of the terms, covenants, conditions, agreements, obligations and liabilities of the Mortgagor or any other obligor or guarantor under: -2- (i) the Reimbursement Agreement, this Mortgage, all documents referred to as "Security Documents" in the Reimbursement Agreement and any other document now or hereafter given to evidence, secure or facilitate the payment and performance of any of the Obligations; (ii) all extensions, renewals, replacements or modifications of, or amendments or additions to any of the foregoing; and (iii) any note, document or instrument now or hereafter evidencing an obligation of the Mortgagor or to the Mortgagee which recites that it is intended to be secured by this Mortgage (all of the foregoing being collectively referred to in this Mortgage as the "Loan Documents"). The Mortgagor shall pay and perform the Obligations required in accordance with the provisions of the Loan Documents. 1.2 Grant of Mortgage; Mortgaged Property. For the purpose of securing payment and performance of all Obligations, the Mortgagor has granted, conveyed, bargained, sold, alienated, enfeoffed, released, confirmed, assigned to, granted a security interest in and mortgaged, and by these presents does hereby grant, convey, bargain, sell, alien, enfeoff, release, confirm, assign to, grant a security interest in and mortgage unto the Mortgagee all of the Mortgagor's right, title and interest in and to the following whether presently in existence or to come into existence at some future time (collectively, the "Mortgaged Property"): (a) The parcel of land situated generally at 102 Witmer Road, Horsham, located in the Township of Horsham, Montgomery County, Pennsylvania and more fully described in Exhibit "A" attached hereto and made a part hereof (the "Land"); (b) All buildings, structures and improvements of every kind erected on, under or over the Land (the "Improvements") (the Land and the Improvements being hereinafter referred to as, collectively, the "Real Estate"); (c) All building materials, fixtures, building machinery and building equipment delivered on site to the Real Estate during the course of, or in connection with, the construction of, or reconstruction of, or remodeling of, any of the Real Estate from time to time during the term hereof; (d) Subject to subparagraph (h) hereof, all fixtures, machinery, equipment and other articles of real, personal or mixed property attached to, situate or installed in or upon, or used in the operation or maintenance of, the Real Estate or any plant or business situated thereon, whether or not such real, personal or mixed property is or shall be affixed to the same, and all replacements, substitutions, accretions and proceeds of the foregoing (collectively, "Fixtures") including all building service fixtures, machinery and equipment of any kind whatsoever; all lighting, heating, ventilating, air conditioning, refrigerating, sprinkling, plumbing, security, cleaning, incinerating, waste disposal, communications, alarm, fire prevention and extinguishing systems, fixtures, apparatus, machinery and equipment; all elevators, escalators, lifts, cranes, hoists and platforms; all pipes, conduits, pumps, boilers, tanks, motors, engines, furnaces and compressors; all dynamos, transformers, generators; all parts, fittings, accessories, accessions, substitutions and replacements thereof; all floor and window coverings; all storm and screen windows, shutters and doors; and all trees and other plantings; -3- (e) All leases, licenses, occupancy agreements or agreements to lease all or any part of the Real Estate and all extensions, renewals, amendments, and modifications thereof, and any options, rights of first refusal, or guarantees relating thereto (collectively, "Leases"); all rents, income, receipts, revenues, security deposits, escrow accounts, reserves, issues, profits, awards, and payments of any kind payable under the Leases or otherwise arising from the Real Estate (collectively, the "Income"); all contract rights, accounts receivable and general intangibles relating to the Real Estate or the use, occupancy, maintenance, construction or repair thereof; all management agreements, franchise agreements, utility agreements and deposits, building service contracts, maintenance contracts, construction contracts, architect's agreements; all maps, plans, surveys and specifications; all warranties and guaranties; all permits, licenses and approvals; all insurance policies, books of account and other documents, of whatever kind or character, relating to the use, construction upon, occupancy, leasing, sale or operation of the Real Estate; (f) All estates, rights, tenements, hereditaments, privileges, easements, and appurtenances of any kind benefitting the Real Estate; all means of access to and from the Real Estate, whether public or private; all water and mineral rights; all rights of the Mortgagor as declarant or unit owner under any declaration of condominium or association applicable to the Real Estate; and all other claims or demands of the Mortgagor, either at law or in equity, in possession or expectancy, of, in, or to the Real Estate; (g) All "Proceeds" of any of the above-described property, which term shall have the meaning given to it in the Uniform Commercial Code of the state in which the Real Estate is located and shall additionally include whatever is received upon the use, lease, sale, exchange, collection, or other utilization or any disposition of any of the above-described property, voluntary or involuntary, whether cash or non-cash, including proceeds of insurance and condemnation awards, rental or lease payments, accounts, chattel paper, instruments, documents, contract rights, general intangibles, equipment and inventory; and (h) Notwithstanding anything to the contrary in the foregoing, the lien and security interest of the Mortgagee in and to the Fixtures is subject and subordinate to those liens and encumbrances in the Fixtures described in Exhibit "B", which is attached hereto and made a part hereof. The Mortgagee agrees to release its lien and security interest in the Fixtures described in Exhibit "B" upon the reasonable request of the Corporation, but only if such lien and security interest causes the Mortgagor to be in default under any of its Fixture financing agreements. The Mortgagor shall be permitted to finance any Fixtures it acquires in the future and in connection therewith to grant a lien and security interest in and to such Fixtures to a third party. The Mortgagee agrees that its lien and security interest in and to such Fixtures shall be subject and subordinate to the lien and security interest granted to such third party. The Mortgagee agrees to release the lien and security interest in any such future acquired Fixtures upon the reasonable request of the Mortgagor, but only if such lien and security interest causes the Mortgagor to be in default under any of such Fixture financing agreements. TO HAVE AND TO HOLD the Mortgaged Property unto the Mortgagee to and for the use of the Mortgagee forever. -4- PROVIDED, HOWEVER, that at such time as all Obligations have been fully satisfied, this Mortgage and the estate hereby granted shall terminate. 1.3 Security Agreement. This Mortgage is also a security agreement under the Uniform Commercial Code of the state in which the Real Estate is located. The Mortgagor grants, and the Mortgagee shall have and may enforce, a security interest in all those property interests included in the Mortgaged Property which may be "personal property" to secure payment and performance of all Obligations. This Mortgage is intended to be an industrial plant mortgage within the broadest interpretation of the "industrial plant mortgage doctrine" under the laws of the Commonwealth of Pennsylvania. The Mortgagor shall execute, deliver, file and refile any financing statements, continuation statements, or other security agreements the Mortgagee may require to confirm the lien of this Mortgage with respect to such property. The Mortgagor irrevocably appoints the Mortgagee attorney-in-fact for the Mortgagor to execute, deliver and file such instruments. 1.4 Assignment of Leases and Income. (a) This Mortgage is also an absolute and unconditional assignment to the Mortgagee of all Leases and Income, whether now in existence or hereafter arising, for the purpose of vesting in the Mortgagee a first priority, perfected security interest in the Leases and the Income. The Mortgagor hereby assigns, transfers and sets over to the Mortgagee all Leases, all Income and all rights of the Mortgagor to enforce the Leases and collect the Income. This assignment includes any award received or receivable by the Mortgagor in any legal proceeding involving any tenant under a Lease whether under the Bankruptcy Code or otherwise. (b) The Mortgagor irrevocably appoints the Mortgagee the attorney-in-fact of the Mortgagor to enforce the Leases and demand, receive and collect the Income and the sole and exclusive agent of the Mortgagor to agree to any modifications of the Leases. This power is coupled with an interest and is therefore irrevocable. The Mortgagor shall notify any person which the Mortgagee may from time to time specify that the Income should be paid directly to the Mortgagee and that any modification of the Leases must be approved by the Mortgagee. (c) So long as no event of default has occurred and is continuing under any of the Loan Documents, the Mortgagor shall have a license, revocable at the will of the Mortgagee, to enforce the Leases and collect the Income subject to any applicable provisions contained in the Loan Documents. Upon request of the Mortgagee, the Mortgagor shall execute and deliver to the Mortgagee: (i) a specific assignment, in recordable form, of any Lease now or hereafter affecting the Mortgaged Property or any portion thereof to further evidence the assignment hereby made; and (ii) such other instruments as the Mortgagee may deem necessary, convenient or appropriate in connection with the payment and delivery directly to the Mortgagee of all of the Income. (d) All security deposits, prepaid rent permitted to be collected by the Mortgagor, -5- if any (other than prepaid rent for the next succeeding calendar month), and similar payments under any Lease shall be deposited in a separate escrow account with an escrowee satisfactory to the Mortgagee which, if the Mortgagee is permitted to hold such accounts under applicable law, shall, at the Mortgagee's election, be the Mortgagee. The Mortgagor shall notify the Mortgagee of the identification of the escrow account. Such sums shall be disbursed only upon the prior written consent of the Mortgagee except such consent shall not be required when by law or by the terms of the Lease, the Mortgagor is required to, and does, return such sums to the party entitled to same under the Lease. (e) The Mortgagor shall not accept or permit the payment of rent in any medium other than lawful money of the United States of America, or anticipate, discount, compromise, forgive, encumber or further assign the Leases or the Income or any part thereof or any interest therein without the prior written consent of the Mortgagee. (f) The Mortgagor hereby authorizes and directs that upon the occurrence of an Event of Default under this Mortgage or the other Loan Documents all other parties now or hereafter owing or paying Income under any Lease or now or hereafter having in their possession or control any Income from or allocated to the Mortgaged Property, or any part thereof, or the Proceeds therefrom, shall, upon the request of the Mortgagee and until the Mortgagee directs otherwise, pay and deliver such Income directly to the Mortgagee at the Mortgagee's address set forth in the introduction to this Mortgage, or in such other manner as the Mortgagee may direct such parties in writing and this authorization shall continue until this Mortgage is released of record. No payor making payments to the Mortgagee at its request under the assignment contained in this Mortgage shall have any responsibility to see to the application of any of such funds, and any party paying or delivering Income to the Mortgagee under such assignment shall be released thereby from any and all liability to the Mortgagor to the full extent and amount of all such Income so delivered. The Mortgagor agrees to indemnify and hold harmless any and all parties making payments to the Mortgagee, at the Mortgagee's request under the assignment contained in this Mortgage, against any and all liabilities, actions, claims, judgments, costs, charges and attorneys' fees resulting from the delivery of such payments to the Mortgagee. (g) Notwithstanding any legal presumption to the contrary, the Mortgagee shall not be obligated by reason of its acceptance of this assignment to perform any obligation of the Mortgagor as lessor under any Lease. Neither the acceptance of this assignment nor the collection of Income under the Leases shall constitute a waiver of any rights of the Mortgagee under the Loan Documents or constitute a cure of any default by the Mortgagor thereunder. 1.5 Open-End Mortgage. This is an Open-End Mortgage and shall be entitled to all benefits as such under 42 Pa.C.S.A. (section) 8143 (the "Open-End Mortgage Statute"). (a) If the Mortgagee receives written notice pursuant to Section 8143(b) of the Open-End Mortgage Statute from a holder of a lien or encumbrance on the Mortgaged Property which is subordinate to the lien of the Mortgage, then and notwithstanding any provision to the -6- contrary contained in any Loan Document, the Mortgagor agrees that the Mortgagee shall not be responsible to make any further advances to the Mortgagor (and the Mortgagee is released from all liability for failure to make such advances) if the Mortgagee determines in its sole discretion that any such advance requested by the Mortgagor could be construed to be an unobligated advance under Section 8143(b) of the Open-End Mortgage Statute. (b) If the Mortgagee receives written notice pursuant to Section 8143(b) of the Open-End Mortgage Statute from a holder of a mechanic's lien for labor performed or to be performed or materials furnished or to be furnished for the erection, construction, alteration or repair of any part of the Mortgaged Property, then and notwithstanding any provision to the contrary contained in any Loan Document, the Mortgagor agrees that the Mortgagee shall have the right to suspend (until such time as the lien is fully released) any further advances to the Mortgagor (and the Mortgagee is released from all liability for failure to make such advances) except advances which the Mortgagee determines in its sole discretion are for the purpose of paying toward all or part of the cost of completing any erection, construction, alteration or repair of any part of the Mortgaged Property the financing of which, in whole or in part, the Mortgage was given to secure. (c) If the Mortgagor should at any time elect to limit the Obligations secured by this Mortgage pursuant to Section 8143(c) of the Open-End Mortgage Statute, the Mortgagor agrees that notice of such election shall: (i) not be effective unless and until it is served upon the Mortgagee in accordance with the requirements of Section 8143(d) of the Open-End Mortgage Statute and fully complies with the requirements for the giving of notices under any Loan Document; (ii) release the Mortgagee from all obligation to make any further advances under the Loan Documents notwithstanding anything to the contrary contained in such notice or the Loan Documents; (iii) constitute, at the election of the Mortgagee, an Event of Default under the Loan Documents; and (iv) not be effective to limit the Mortgagor's liability for payment and performance of all Obligations for which the Mortgagor is responsible under this Mortgage or the other Loan Documents (including all reimbursement and indemnification agreements) whether such Obligations arise prior or subsequent to the date of such notice. ARTICLE II TITLE MATTERS 2.1 Warranty of Title. Until the Obligations are fully satisfied, the Mortgagor represents, warrants and covenants that: (a) Mortgagor has good and marketable fee simple absolute title to the Mortgaged Property subject only to those exceptions to title more particularly described in marked-up title commitment no. 96-7934-M issued by Lawyers Title Insurance Corporation in connection with this transaction and that certain Declaration of Covenants and Restrictions, dated March 20, 1997, between Pennsylvania Business Campus Delaware, Inc. and the Mortgagor (the "Permitted Encumbrances") and the Mortgagor shall defend the validity, priority and enforceability of the lien -7- of this Mortgage against the claims of all persons excepting only those claiming under Permitted Encumbrances; (b) To the best of its knowledge, the Mortgagor has full power and lawful authority to subject the Mortgaged Property to the lien of this Mortgage; (c) To the best of its knowledge, the execution, delivery and performance of this Mortgage and the other Loan Documents will not contravene any Legal Requirements (hereinafter defined) presently in effect or any agreement, document or instrument to which the Mortgagor is a party or by which the Mortgagor or the Mortgaged Property is bound; (d) The Mortgagor shall make, execute, acknowledge and deliver all such further or other deeds, documents, instruments or assurances and cause to be done all such further acts and things as may at any time be reasonably required by the Mortgagee to confirm and fully protect the lien and priority of this Mortgage; and (e) The Mortgagor shall make such payments, all before the same shall become delinquent, and perform all obligations as are required under any Permitted Encumbrances affecting the Mortgaged Property. 2.2 No Transfer. Without the prior written consent of the Mortgagee in each instance, which consent may be given or withheld in the Mortgagee's sole discretion, the Mortgagor will abstain from, and will not cause or permit, any transfer of the Mortgaged Property or any portion thereof, whether voluntary, involuntary, by operation of law, or otherwise, nor shall the Mortgagor enter into any agreement or transaction to transfer, or accomplish in form or substance a transfer, of the Mortgaged Property. (a) A "transfer" of the Mortgaged Property includes: (i) the direct or indirect sale, agreement to sell, transfer or conveyance of the Mortgaged Property or any portion thereof or interest therein; (ii) the execution of any installment land sale contract or similar instrument affecting all or a portion of the Mortgaged Property; and, unless and only to the extent the Mortgagee has expressly consented to the following transfers in this Mortgage or the other Loan Documents, (iii) the lease or sublease of all or a portion of the Mortgaged Property; and (iv) the transfer of any stock, partnership or other ownership interests in the Mortgagor (if the Mortgagor is a partnership, joint venture or corporation) other than as may be permitted by the Reimbursement Agreement. (b) Consent to any such transfer shall not be deemed to be a waiver of the right to require consent to future or successive transfers. If consent should be given to a transfer and if this Mortgage is not released to the extent of the transferred portion of the Mortgaged Property by a writing executed by the Mortgagee and recorded in the appropriate office of public record, then any such transfer shall be subject to this Mortgage and any such transferee shall be deemed, by acceptance of the deed or other instrument of transfer, to have assumed all Obligations under this Mortgage and to have agreed to be bound by all provisions contained herein. Any such assumption -8- shall not, however, release the Mortgagor or any other obligor or guarantor of the Obligations from any liability under the Loan Documents. 2.3 No Other Financing or Liens. Without the prior written consent of the Mortgagee in each instance, which consent may be given or withheld in Mortgagee's sole discretion, the Mortgagor shall not create or cause or permit to exist any lien on the Mortgaged Property whether superior to or subject to the lien of this Mortgage except the Permitted Encumbrances and such other liens or security interests as are expressly and specifically agreed to be permitted upon the Mortgaged Property by the Mortgagee under the Loan Documents. 2.4 Leases. The Mortgagor represents and warrants that there are no Leases affecting the Mortgaged Property. The Mortgagor shall not enter into any Leases without the prior written consent of the Mortgagee being obtained in each instance. ARTICLE III OBLIGATIONS REGARDING MORTGAGED PROPERTY 3.1 Legal Requirements Generally. The Mortgagor represents and warrants to the Mortgagee that the Mortgaged Property is in substantial compliance with the material Legal Requirements (hereinafter defined). The Mortgagor shall promptly comply with, and cause the Mortgaged Property to be kept in substantial compliance with, all present and future laws, statutes, codes, ordinances, orders, judgments, decrees, injunctions, rules, regulations, restrictions and requirements (collectively the "Legal Requirements") of the United States of America, the state in which the Real Estate is located and any political subdivision thereof or any town, city, county or municipality in which the Real Estate is located or any agency, department, bureau, board, commission or instrumentality of any of the foregoing now existing or hereafter created (individually, a "Governmental Authority" and, collectively, the "Governmental Authorities") having jurisdiction over the Mortgagor or the Mortgaged Property or the construction, use, occupancy, operation, maintenance, or improvement of the Mortgaged Property, whether foreseen or unforeseen, ordinary or extraordinary. 3.2 Land Use Approvals. The Mortgagor represents and warrants to the Mortgagee that the Land is and shall remain one or more zoning lots separate and apart from all other premises. The Mortgagor shall not, by any act or omission, impair the integrity of the Land as such separate zoning lot or lots. The Mortgagor shall not, without the prior written consent of the Mortgagee, submit or cause to be submitted to any Governmental Authority an application for zoning, subdivision or development approval affecting the Real Estate if any of the following would result from such proposed zoning change, subdivision or development: (a) the separate transfer, use and ownership of the Real Estate is not permitted as a matter of right under applicable Legal Requirements; (b) the use of the Real Estate as of the date of this Mortgage is no longer permitted as a matter of right under applicable Legal Requirements; or (c) any portion of the Real Estate is used to fulfill a Legal Requirement of other property not subject to the lien of this Mortgage. -9- 3.3 Environmental Matters. (a) The Mortgagor represents and warrants that neither the Mortgagor nor, to the best of its knowledge, any other person has: (i) used, installed or disposed of any Hazardous Materials (hereinafter defined) on, from, or affecting the Mortgaged Property except in material compliance with Applicable Environmental Laws (hereinafter defined); or (ii) received any notice from any Governmental Authority with regard to Hazardous Materials on, from or affecting the Mortgaged Property. (b) The Mortgagor shall not use the Mortgaged Property, nor allow it to be used, to generate, manufacture, refine, transport, treat, store, handle, dispose, transfer, produce or process Hazardous Materials except in material compliance with Applicable Environmental Laws. The Mortgagor shall not cause or permit, as a result of any intentional or unintentional act or omission on the part of the Mortgagor or any other person, a release of Hazardous Materials onto, from or affecting the Mortgaged Property or any other use, installation, or disposition of Hazardous Materials in violation of Applicable Environmental Laws. The Mortgagor shall comply, and enforce compliance by all tenants and subtenants, with all Applicable Environmental Laws and shall keep the Mortgaged Property free and clear of any liens imposed pursuant to any Applicable Environmental Laws. (c) If the Mortgagor receives any notice from any Governmental Authority with regard to Hazardous Materials on, from or affecting the Mortgaged Property, or any notice of violation of Applicable Environmental Laws, the Mortgagor shall promptly notify the Mortgagee. The Mortgagor shall conduct and complete all investigations, studies, sampling, and testing, and all remedial, removal, and other actions necessary to clean up and remove all Hazardous Materials on, from or affecting the Mortgaged Property in accordance with all Applicable Environmental Laws and to the satisfaction of the Mortgagee. (d) The term "Applicable Environmental Laws" shall mean, without limitation, all of the Legal Requirements of any Governmental Authority pertaining to the preservation or enhancement of the quality of the environment or regulating or restricting the use, transfer, storage or remediation of Hazardous Materials including the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended (42 U.S.C. Sections 9601, et seq.), the Hazardous Materials Transportation Act, as amended (49 U.S.C. Sections 1801, et seq.), the Resource Conservation and Recovery Act, as amended (42 U.S.C. Sections 6901, et seq.), the Pennsylvania Hazardous Sites Cleanup Act (35 Pa.C.S.A. Sections 6020.101, et seq.), and the rules, regulations adopted and publications promulgated pursuant thereto at any time. The term "Hazardous Materials" shall mean, without limitation, any flammable explosives, radioactive materials, hazardous materials, hazardous wastes, hazardous or toxic substances, or related materials, asbestos or any material containing asbestos, or any other substance or material regulated under any Applicable Environmental Laws. -10- 3.4 General Obligations. Until the Obligations are fully satisfied, the Mortgagor shall: (a) Perform all maintenance, repair, restoration and rebuilding required to keep the Mortgaged Property in good repair, order and condition in full compliance with the requirements of the Loan Documents, any Leases affecting the Mortgaged Property and all Legal Requirements; (b) Pay all charges for water, sewer, gas, electric and other utility services provided to the Mortgaged Property promptly as and when due; (c) Complete any improvements to the Mortgaged Property required under the Loan Documents, any Leases affecting the Mortgaged Property, or required by any Governmental Authority or insurer insuring the Mortgaged Property, in a good and workmanlike manner and free of mechanics' liens; (d) Permit, and cause any lessee or occupant of the Mortgaged Property to permit, the Mortgagee and its agents and representatives, to enter upon the Mortgaged Property at any reasonable time after reasonable advance notice to appraise and photograph the Mortgaged Property and to inspect for compliance with Legal Requirements (including subsurface investigations to determine compliance with Applicable Environmental Laws), insurance requirements, and the Obligations of the Mortgagor under this Mortgage and the other Loan Documents (the Mortgagee agrees to abide by all regulations of the Corporation when making any such entries upon the Mortgaged Property); (e) Make the books and accounts relating to the Mortgaged Property available for inspection by the Mortgagee, or its representatives, upon request at any reasonable time; and (f) If the Mortgaged Property is, as of the date of this Mortgage or at any time hereafter, subject to Leases, deliver to the Mortgagee within ninety (90) days after the end of each fiscal year of the Mortgagor, or on a more frequent basis if requested by the Mortgagee, a schedule of Leases and Income as of the end of the preceding year, an income and expense statement for the Mortgaged Property as of the end of the preceding year, and a projected income and expense statement for the Mortgaged Property for the then-current fiscal year. 3.5 General Restrictions. Until the Obligations are fully satisfied, the Mortgagor shall not, without the prior written consent of the Mortgagee being obtained in each instance: (a) Abandon the Mortgaged Property or any portion thereof or allow the same to become vacant; (b) Commit or suffer waste with respect to the Mortgaged Property; (c) Impair or diminish the value or integrity of the Mortgaged Property or the priority or security of the lien of this Mortgage; -11- (d) Remove, demolish or materially alter any of the Mortgaged Property without the prior written consent of the Mortgagee in each instance, except that the Mortgagor shall have the right to remove and dispose of, free of the lien of this Mortgage, such Fixtures as may, from time to time, become worn out or obsolete, provided that, simultaneously with or prior to such removal, any such Fixtures shall be replaced with other Fixtures which shall have a value and utility at least equal to that of the replaced Fixtures and, by such removal and replacement, the Mortgagor shall be deemed to have subjected such replacement Fixtures to the lien and priority of this Mortgage; (e) Make, install or permit to be made or installed, any additions or improvements to the Mortgaged Property except in a good and workmanlike manner, free of mechanic's liens, in compliance with Legal Requirements, and in accordance with plans and specifications approved by Mortgagee; or (f) Make, suffer or permit any nuisance to exist on the Mortgaged Property or any portion thereof. 3.6 Required Notices. The Mortgagor shall notify the Mortgagee promptly after the Mortgagor becomes aware of the occurrence of any of the following: (a) A fire or other casualty causing damage to the Mortgaged Property; (b) A pending or threatened condemnation of the Mortgaged Property; (c) A violation of a Legal Requirement or other notice from or to a Governmental Authority relating to the Mortgaged Property; (d) Receipt or giving of any notice of default or cancellation under any Lease of all or a material portion of the Mortgaged Property; (e) Commencement of any litigation affecting the Mortgaged Property; (f) Discovery, discharge or release of any Hazardous Material for which the Mortgagor is or may be responsible under any Applicable Environmental Laws; (g) The existence of any event or condition which presents a risk of creating material liability in the Mortgagor under ERISA (Public Law 93-406, as amended); or (h) The occurrence of a default under, or the receipt or giving of any notice under, any Permitted Encumbrance. -12- ARTICLE IV TAXES AND INSURANCE 4.1 Real Estate Taxes and Assessments. (a) The Mortgagor shall pay when due and before interest or penalties commence to accrue thereon, all taxes, assessments, water and sewer rents, levies, encumbrances and all other charges or claims of any nature and kind, whether public or private, which may be assessed, levied, imposed, suffered, placed or filed at any time against the Mortgaged Property or any part thereof or which by any present or future law may have priority (either in lien or in distribution out of the proceeds of any sale) over the lien of this Mortgage (individually, an "Imposition" and, collectively, "Impositions"). (b) The Mortgagor shall produce to the Mortgagee, not later than the last date any such Imposition is due and payable without interest or penalty, official receipts evidencing payment of such Imposition. If the Mortgagor is not in default under this Mortgage or any Loan Document and in good faith and by appropriate legal action shall contest the validity or amount of any Imposition and shall have established a reserve for the payment thereof in such form and amount as the Mortgagee may require (including any interest and penalties which may be payable in connection therewith), then the Mortgagor shall not be required to pay the Imposition or to produce the receipts while the reserve is maintained and so long as the contest operates to prevent collection, is maintained and prosecuted with diligence, and shall not have been terminated or discontinued adversely to the Mortgagor. 4.2 Taxes on Mortgagee. If any Governmental Authority shall levy, assess or charge any tax, assessment or imposition upon this Mortgage or any other Loan Document (including any requirement to have affixed to this Mortgage any revenue, documentary or similar stamps) or upon the interest of the Mortgagee in the Mortgaged Property by reason of this Mortgage or any other Loan Document, the Mortgagor shall pay the same directly to such Governmental Authority as an Imposition. If the Mortgagor is not legally permitted to pay such Imposition or to reimburse Mortgagee for amounts advanced on account of such payment, then the Mortgagee may declare the entire amount of the Obligations immediately due and payable on demand. 4.3 Corporate or Partnership Mortgagor. If the Mortgagor (or any successor or transferee of Mortgagor) is a corporation or partnership, the Mortgagor shall at all times until the Obligations are satisfied in full: (a) Keep in effect and in good standing its existence and rights as a corporation or partnership, as the case may be, under the laws of the state of its incorporation or constitution and its right to own property and transact business in the state in which the Real Estate is situated; and (b) File returns for all federal, state and local taxes with the proper Governmental Authorities, and pay, when due and payable and before interest or penalties are due thereon, all taxes owing by the Mortgagor to any Governmental Authorities. -13- 4.4 Insurance Coverages. Until the Obligations are fully satisfied, the Mortgagor shall maintain and keep in force the following policies of insurance with respect to the Mortgaged Property: (a) Insurance against loss or damage to the Mortgaged Property by fire and any of the risks covered by insurance of the type commonly known as "all-risk coverage," in an amount not less than the full replacement value (evidenced by a "Replacement Cost Endorsement") of the Mortgaged Property; provided, however, that the amount of such "all-risk coverage" shall never be less than the amount of the Obligations; (b) During the course of any construction or repair of any improvements on the Mortgaged Property, builder's completed value risk insurance against "all risks of physical loss," including collapse and transit coverage, during construction of such improvements, in non-reporting form; (c) Boiler and machinery insurance (to the extent the Mortgaged Property includes items covered by such insurance), in such amounts as are reasonably satisfactory to the Mortgagee; (d) Coverage against sprinkler leakage; (e) Vandalism and malicious mischief insurance; (f) Commercial general liability insurance on an "occurrence basis" against claims for personal injury including bodily injury, death or property damage occurring on or about the Mortgaged Property and the adjoining streets, sidewalks and passageways, with minimum protection to a limit of not less than $2,000,000 (or such higher amounts as are required under any other Loan Document) with respect to personal injury or death to any one or more persons or damage to property; (g) Worker's compensation insurance (including employer's liability insurance) for all employees of the Mortgagor engaged on or with respect to the Mortgaged Property in such amount as is reasonably satisfactory to the Mortgagee, or, if such limits are established by law, in such amounts; (h) Flood insurance, in accordance with the National Flood Insurance Act of 1968, as amended by the Flood Disaster Protection Act of 1973, if any portion of the Real Estate lies within a flood hazard area designated by the Department of Housing and Urban Development, Federal Insurance Administration as a "Flood Hazard Area"; -14- (i) Business interruption and/or rental loss coverage for a period equal to the reasonable period of time required to rebuild and restore the Mortgaged Property upon the occurrence of a substantial destruction; and (j) Such other insurance, and in such amounts, as may from time to time be reasonably required by the Mortgagee. 4.5 Policy Requirements. The insurance coverages required above shall be insured under policies: (a) in form reasonably satisfactory to the Mortgagee; (b) issued by companies reasonably satisfactory to the Mortgagee; (c) endorsed with a standard mortgagee clause in favor of the Mortgagee providing not less than thirty days' notice to the Mortgagee of any cancellation or change in coverage; (d) endorsed to name the Mortgagee as additional insured and, subject only to Permitted Encumbrances (if any), as loss payee; and (e) not subject to contribution or co-insurance. Certificates of insurance, addressed to the Mortgagee, evidencing such insurance coverage, may be delivered to the Mortgagee in lieu of the policies therefor, but only if the Mortgagor provides to the Mortgagee copies of such policies. Certificates shall be delivered to the Mortgagee on or before the date of this Mortgage and, thereafter, at least thirty (30) days before expiration of the existing policies. If any insurance required under this Mortgage is canceled, expires, becomes void or voidable or otherwise becomes unsatisfactory to the Mortgagee pursuant to the terms hereof, the Mortgagor shall place or cause to be placed new insurance on the Mortgaged Property reasonably satisfactory to the Mortgagee. In the event of any loss, Mortgagee may make proof of loss if not made promptly by the Mortgagor. Each insurance company concerned is hereby authorized and directed to make payment under such insurance including return of unearned premiums, directly to the Mortgagee instead of to the Mortgagor and the Mortgagee jointly, and the Mortgagor appoints the Mortgagee, irrevocably, as the Mortgagor's attorney-in-fact to endorse any draft therefor. 4.6 Installments for Insurance, Taxes and Other Charges. Without limiting the effect of the other provisions of this Article, the Mortgagee reserves the right to require the Mortgagor to pay to the Mortgagee, monthly, an amount equal to one-twelfth (1/12) of the annual amount of all Impositions and premiums for insurance policies required under this Article plus any additional sums necessary to pay, or establish adequate reserves for the payment of, such premiums and Impositions as and when due. The amounts so paid shall be security for the premiums and Impositions and shall be used in payment thereof if the Mortgagor is not otherwise in default under this or any other Loan Document. No amount so paid shall be deemed to be trust funds but may be commingled with general funds of the Mortgagee and no interest shall be payable thereon. Upon the occurrence of an Event of Default under this Mortgage or any Loan Document, the Mortgagee shall have the right, at its election, to apply any amount so held against the Obligations. At the Mortgagee's option, the Mortgagee from time to time may waive, and after any such waiver may reinstate, the provisions of this section requiring installment payments. During the time periods when the Mortgagee has not required the Mortgagor to make such payments, the Mortgagor shall annually furnish evidence to the Mortgagee that all such annual Impositions have been paid by the Mortgagor. -15- ARTICLE V CASUALTY; CONDEMNATION 5.1 Casualty. If the Mortgaged Property is damaged by fire or other casualty, the Mortgagor shall promptly repair and restore the same to its condition prior to the damage. If, and only for so long as, the following terms and conditions are fully satisfied by the Mortgagor, the Mortgagee shall release insurance proceeds for repair and restoration of the Mortgaged Property; otherwise the Mortgagee shall have the right to apply the proceeds toward reduction of the Obligations, or if the Letter of Credit remains outstanding, shall be held as cash collateral for the Obligations under the provisions of Section 6.11 of this Mortgage; provided that Mortgagor shall be entitled to any amount in excess of the proceeds that would have been required for the repair and restoration of the Mortgaged Property: (a) No default under this or any other Loan Document shall have occurred and be continuing uncured; (b) The Mortgagor shall have delivered evidence satisfactory to the Mortgagee that: (i) the Mortgaged Property can be fully repaired and restored within a period of time during which all payments coming due under the Obligations are fully covered by the proceeds of business interruption or rental loss insurance applicable to the loss or damage to the Mortgaged Property or otherwise; and (ii) and that after the Mortgaged Property is fully repaired and restored, the Mortgagor will have the ongoing ability to meet all payments coming due on the Obligations; (c) No holder of a Permitted Encumbrance has a right to apply insurance proceeds to the obligations secured by such Permitted Encumbrance or, if it does, the holder has waived in writing its right to do so; (d) Intentionally omitted; (e) The work is performed by a reputable general contractor satisfactory to the Mortgagee under a fixed price or guaranteed maximum price contract satisfactory to the Mortgagee, in accordance with plans and specifications satisfactory to the Mortgagee and in compliance with all Legal Requirements, and no work shall commence until waivers of mechanics' liens have been filed by the general contractor and all those claiming by, through, or under the general contractor; (f) The Mortgagor shall have deposited with the Mortgagee for disbursement in connection with the restoration the greater of: (i) the applicable deductible under the insurance policies covering the loss; or (ii) the amount by which the cost of restoration is reasonably estimated by the Mortgagor and the Mortgagee to exceed the insurance proceeds available for restoration (the "Excess Amount"). In the event that the Mortgagor and the Mortgagee cannot agree upon Excess Amount, they shall choose an independent contractor licensed in the Commonwealth of Pennsylvania (the "Contractor") to determine the Excess Amount. The determination of the Contractor shall be final. If the Mortgagor and the Mortgagee cannot agree upon the identity of the -16- Contractor, then each of them shall choose a contractor licensed in the Commonwealth of Pennsylvania who shall chose a third contractor licensed in the Commonwealth of Pennsylvania who shall be the Contractor hereunder; (g) The insurance proceeds are held by the Mortgagee (or an escrowee satisfactory to the Mortgagee) for disbursement periodically as the work progresses in amounts not exceeding 90% of the value of labor and materials incorporated into the restoration. The remaining 10% will be released upon substantial completion of the work in accordance with the aforesaid plans and specifications, and upon a receipt of a release of liens from all contractors engaged in the restoration subject to receipt of final payment; and (h) The Mortgagor has paid as and when due all of the Mortgagee's reasonable costs and expenses incurred in connection with the collection of insurance proceeds, approval of plans, charges of the Mortgagee's inspection representative and such reasonable fee as may be charged by the Mortgagee to monitor the restoration and disburse the insurance proceeds. 5.2 Condemnation. (a) In the event of any condemnation or taking of any part of the Mortgaged Property by eminent domain, alteration of the grade of any street, or other injury to or decrease in the value of the Mortgaged Property by any public or quasi-public authority or corporation (a "Taking"), which Taking diminishes the value of the Mortgaged Property to a point below the Threshold Level (as hereinafter defined), then all Proceeds (including the award or agreed compensation for the damages sustained) allocable to the Mortgagor, after deducting therefrom all reasonable costs and expenses (regardless of the particular nature thereof and whether incurred with or without suit) including reasonable attorney's fees incurred by the Mortgagee in connection with the collection of such Proceeds, shall be paid to the Mortgagee and applied, at the Mortgagee's election: (i) toward restoration of the Mortgaged Property (in which case the terms and conditions applicable to restoration in the case of casualty shall apply); or (ii) to the Obligations. In the event a Taking does not diminish the value of the Mortgaged Property to a point below the Threshold Level, then all Proceeds shall be applied to the restoration of the Mortgaged Property (in which case the terms and conditions applicable to restoration in the case of a Casualty shall apply). No settlement for damages sustained because of a Taking shall be made by the Mortgagor without the Mortgagee's prior written approval. As used herein, the "Threshold Level" shall mean one hundred and ten percent (110%) of the then outstanding unsecured Obligations. In the event of a Taking, the Mortgagor and the Mortgagee shall choose an MAI appraiser (the "Appraiser") to determine whether the Taking has diminished the value of the Mortgaged Property to a point below the Threshold Level. The determination of such Appraiser shall be final. In the event that the Mortgagor and the Mortgagee cannot agree on the Appraiser, then each shall choose an MAI appraiser and the two appraisers so chosen shall choose a third MAI appraiser who shall be the Appraiser hereunder. -17- (b) If prior to the receipt of the Proceeds by the Mortgagee, the Mortgaged Property shall have been sold on foreclosure of this Mortgage, the Mortgagee shall have the right to receive the Proceeds to the extent of: (i) the full amount of all such Proceeds if the Mortgagee is the successful purchaser at the foreclosure sale, or (ii) if anyone other than the Mortgagee is the successful purchaser at the foreclosure sale, in addition to the net sale proceeds to be received by the Mortgagee in connection with the sale, any deficiency (as hereinafter defined) due to the Mortgagee in connection with the foreclosure sale, with legal interest thereon, and reasonable counsel fees, costs and disbursements incurred by the Mortgagee in connection with collection of such Proceeds of condemnation and the establishment of such deficiency. For purposes of this section, the word "deficiency" shall be deemed to mean the difference between: (A) the aggregate amount of all sums which the Mortgagee is entitled to collect under the Loan Documents; and (B) the net sale proceeds actually received by the Mortgagee as a result of such foreclosure sale less any costs and expenses incurred by the Mortgagee in connection with enforcement of its rights under the Loan Documents. (c) The Mortgagee shall have the right to prosecute to final determination, or settlement, an appeal or other appropriate proceedings in the name of the Mortgagee or the Mortgagor, for which the Mortgagee will then be appointed as attorney-in-fact for the Mortgagor, which appointment, being for security, is irrevocable. In that event, the expenses of the proceedings, including reasonable counsel fees, shall be paid first out of the Proceeds, and only the excess, if any, paid to the Mortgagee shall be applied to the Obligations, or if the Letter of Credit remains outstanding, shall be held as cash collateral for the Obligations under the provisions of Section 6.11 of this Mortgage. (d) Nothing herein shall limit the rights otherwise available to the Mortgagee, at law or in equity, including the right to intervene as a party to any condemnation proceeding. ARTICLE VI DEFAULTS; REMEDIES 6.1 Right to Make Advances. If the Mortgagor should fail to pay or perform any of its Obligations with respect to the Mortgaged Property as required under Article III and Article IV of this Mortgage, or otherwise fails to pay or perform any of its other Obligations under this or any other Loan Document, then the Mortgagee, at its election, shall have the right, but not the obligation, to make any payment or expenditure and to take any action which the Mortgagor should have made or taken or which the Mortgagee deems advisable to protect the security of this Mortgage or the Mortgaged Property. Such action shall be without prejudice to any of the Mortgagee's rights or -18- remedies available under this Mortgage or the other Loan Documents or otherwise at law or in equity. All such sums, as well as costs and expenses reasonably advanced by the Mortgagee shall be due immediately from the Mortgagor to the Mortgagee, shall become part of the Obligations secured by this Mortgage and the other Loan Documents, and shall bear interest (including any judgment obtained on account of any of the Obligations) at the applicable "post default rate of interest" provided in Section 10.1 of the Reimbursement Agreement in effect after maturity or default (the "Default Rate") until repayment in full to the Mortgagee. 6.2 Events of Default. The occurrence of any one or more of the following events shall, at the election of the Mortgagee, constitute an Event of Default under this Mortgage: (a) Any event of default under the Reimbursement Agreement; (b) Failure to pay any sum required to be paid under this Mortgage as and when due within ten (10) days of the receipt by the Mortgagor of written notice from the Mortgagee; (c) Any material breach of warranty or other material violation of any provision contained in Article II of this Mortgage and such is not cured within fifteen (15) days of the receipt by the Mortgagor of written notice from the Mortgagee; or (d) Material nonperformance of, or material noncompliance with, any of the agreements, covenants, conditions, warranties, representations or other provisions contained in this Mortgage (if and only to the extent not included in any of the occurrences listed above), which nonperformance or noncompliance is not cured and remedied within fifteen (15) days after notice thereof is given to the Mortgagor, or such longer period if such nonperformance or noncompliance is of such a nature that it cannot reasonably be cured within such fifteen (15) day period so long as the Mortgagor shall commence curative actions within such fifteen (15) day period and shall diligently and continuously proceed to full compliance. 6.3 Remedies; Execution. Upon the occurrence of an Event of Default, and at all times thereafter, the Mortgagee shall have the right to accelerate all Obligations (including interest thereon at the Default Rate) pursuant to the terms of the Loan Documents and to enforce its rights under this Mortgage and the other Loan Documents by exercising such remedies as are available to the Mortgagee under applicable law, either by suit in equity or action at law, or both, whether for specific performance of any provision contained in this Mortgage or any of the other Loan Documents or in aid of the exercise of any power granted in this Mortgage or the other Loan Documents. (a) The Mortgagee shall have the right to obtain judgment for the Obligations (including all amounts advanced or to be advanced by the Mortgagee under Section 6.1 above, all costs and expenses of collection and suit, including any bankruptcy or insolvency proceeding affecting the Mortgagor, and reasonable attorneys' fees incurred in connection with any of the foregoing) together with interest on such judgment at the Default Rate until payment in full is -19- received by the Mortgagee and the Mortgagee shall have the right to obtain execution upon the Mortgaged Property on account of such judgment. (b) The Mortgagee shall have the right to institute an action of mortgage foreclosure against the Mortgaged Property or take such other action for realization on the security intended to be provided under Article I of this Mortgage as applicable law or the provisions of the Loan Documents may allow. 6.4 Remedies; Collection of Income. Upon the occurrence of an Event of Default and at all times thereafter, the Mortgagee may, at any time without notice, either in person, by agent or by a receiver appointed by a court, and without regard to the adequacy of any security for the Obligations, enter upon the Mortgaged Property and, with or without taking possession of the Mortgaged Property, and with or without legal action, collect all Income (which term shall also include amounts determined by the Mortgagee as fair rental value for use and occupation of the Mortgaged Property by any person, including the Mortgagor) and, after deducting all costs of collection and administration expense including attorneys' fees and reasonable reserves, apply the net Income to any of the Obligations in such order and amounts as the Mortgagee in its sole discretion may determine, or any of the following in such order and amounts as the Mortgagee in its sole discretion may elect: the payment of any sums due, or accumulation of necessary reserves for, payment of all costs and expenses arising from or incurred in connection with (a) the preservation and protection of the validity and priority of the lien of this Mortgage; (b) the preservation and protection of the Mortgaged Property; (c) compliance with the Legal Requirements; and (d) fulfilling any obligations of the Mortgagor or any other obligor or guarantor under the Permitted Encumbrances, the Leases, this Mortgage or the Loan Documents. The Mortgagee shall not be accountable for more monies than it actually receives from the Mortgaged Property nor shall it be liable for failure to collect the Income. The Mortgagee shall have the right to determine the method of collection and the extent to which enforcement of collection of Income shall be prosecuted and the Mortgagee's judgment shall be deemed conclusive and reasonable. 6.5 Remedies; Possession. Upon the occurrence of an Event of Default and at all times thereafter, the Mortgagee may, with or without legal action, take possession and control of the Mortgaged Property to the exclusion of the Mortgagor and all others excepting only those claiming under Permitted Encumbrances. The Mortgagee shall have the authority while so in possession to insure (at the Mortgagor's expense) against all risks by reason of having taken such possession and the Mortgagor will transfer and deliver to the Mortgagee all policies of insurance upon the Mortgaged Property not theretofore transferred and delivered to the Mortgagee. SUBJECT TO THE PRECONDITIONS SET FORTH IN SECTION 8.03 OF THE REIMBURSEMENT AGREEMENT, FOR THE PURPOSE OF OBTAINING POSSESSION OF THE MORTGAGED PROPERTY UPON THE OCCURRENCE OF ANY EVENT OF DEFAULT, THE MORTGAGOR HEREBY AUTHORIZES AND EMPOWERS ANY ATTORNEY OF ANY COURT OF RECORD IN THE STATE IN WHICH THE REAL ESTATE IS LOCATED OR ELSEWHERE AS ATTORNEY FOR THE MORTGAGOR AND ALL PERSONS CLAIMING UNDER OR THROUGH THE MORTGAGOR, TO CONFESS JUDGMENT IN EJECTMENT AND CONFESS JUDGMENT -20- FOR RECOVERY OF POSSESSION OF THE MORTGAGED PROPERTY AND TO APPEAR FOR AND CONFESS JUDGMENT AGAINST THE MORTGAGOR, AND ALL PERSONS CLAIMING UNDER OR THROUGH THE MORTGAGOR IN FAVOR OF THE MORTGAGEE FOR RECOVERY BY THE MORTGAGEE OF POSSESSION THEREOF, FOR WHICH THIS MORTGAGE, OR A COPY THEREOF VERIFIED BY AFFIDAVIT, SHALL BE SUFFICIENT WARRANT; AND THEREUPON A WRIT OF POSSESSION MAY IMMEDIATELY ISSUE FOR POSSESSION OF THE MORTGAGED PROPERTY, WITHOUT ANY PRIOR WRIT OR PROCEEDING WHATSOEVER AND WITHOUT ANY STAY OF EXECUTION. IF FOR ANY REASON AFTER SUCH ACTION HAS BEEN COMMENCED IT SHALL BE DISCONTINUED, OR POSSESSION OF THE MORTGAGED PROPERTY SHALL REMAIN IN OR BE RESTORED TO THE MORTGAGOR, THE MORTGAGEE SHALL HAVE THE RIGHT FOR THE SAME DEFAULT OR ANY SUBSEQUENT DEFAULT TO BRING ONE OR MORE FURTHER ACTIONS TO CONFESS JUDGMENT IN EJECTMENT AND CONFESS JUDGMENT FOR RECOVERY OF POSSESSION OF THE MORTGAGED PROPERTY. THE MORTGAGEE MAY BRING AN ACTION TO CONFESS JUDGMENT IN EJECTMENT AND TO CONFESS JUDGMENT FOR RECOVERY OF POSSESSION OF THE MORTGAGED PROPERTY BEFORE OR AFTER THE INSTITUTION OF PROCEEDINGS TO FORECLOSE THIS MORTGAGE OR TO ENFORCE ANY LOAN DOCUMENT, OR AFTER ENTRY OF JUDGMENT THEREON OR ON ANY LOAN DOCUMENT, OR AFTER A SHERIFF'S SALE OF THE MORTGAGED PROPERTY IN WHICH THE MORTGAGEE IS THE SUCCESSFUL BIDDER, IT BEING THE UNDERSTANDING OF THE PARTIES THAT THE AUTHORIZATION TO PURSUE SUCH PROCEEDINGS FOR OBTAINING POSSESSION IS AN ESSENTIAL PART OF THE REMEDIES FOR ENFORCEMENT OF THIS MORTGAGE AND THE OTHER LOAN DOCUMENTS, AND SHALL SURVIVE ANY EXECUTION SALE TO THE MORTGAGEE. BY AGREEING THAT THE MORTGAGEE MAY CONFESS JUDGMENT HEREUNDER THE MORTGAGOR, FOR ITSELF AND ANY OTHER PERSONS OR ENTITIES NOW OR HEREAFTER IN POSSESSION OF ALL OR ANY PART OF THE MORTGAGED PROPERTY, WAIVES THE RIGHT TO NOTICE IN A PRIOR JUDICIAL PROCEEDING TO DETERMINE THEIR RIGHTS AND LIABILITIES AND THE OPPORTUNITY TO RAISE ANY DEFENSE, SET OFF, COUNTERCLAIM OR OTHER CLAIM AGAINST SUCH ACTION BY THE MORTGAGEE. 6.6 Remedies; Repossession. Upon the occurrence of an Event of Default and at all times thereafter, the Mortgagee shall have the right to take possession of any portion of the Mortgaged Property constituting fixtures or other personal property which is security for the Mortgagee's Obligations subject to the Uniform Commercial Code of the state in which the Real Estate is located, and any records pertaining thereto. The Mortgagee shall have the right to use, operate, manage, lease or otherwise control the Mortgaged Property in any lawful manner and, in its sole discretion but without any obligation to do so, insure, maintain, repair, renovate, alter or remove such Mortgaged Property; sell or otherwise dispose of all or any of such Mortgaged Property at any public or private sale at any time or times without advertisement or demand upon or notice -21- to the Mortgagor, all of which are expressly waived to the extent permitted by law, with the right of the Mortgagee or its nominee to become purchaser at any sale (unless prohibited by statute) free from any equity of redemption and from all other claims, and after deducting all legal and other expenses for maintaining or selling such Mortgaged Property, and all attorneys' fees, legal or other expenses for collection, sale and delivery, apply the remaining proceeds of any sale to pay (or hold as a reserve against) the Obligations and exercise all rights and remedies of a secured party under the Uniform Commercial Code of the state in which the Real Estate is located or any other applicable law. 6.7 Remedies; Appointment of Receiver. Upon the occurrence of an Event of Default and at all times thereafter, the Mortgagee may obtain appointment of a receiver for the Mortgaged Property without regard to the adequacy of any security for the Obligations. 6.8 Remedies; Actions Prior to Acceleration. The Mortgagee shall have the right, from time to time, to bring an appropriate action or actions to recover any sums required to be paid by the Mortgagor under the terms of this Mortgage, as they become due, without regard to whether or not the Obligations shall be due and payable in full, and without prejudice to the right of the Mortgagee thereafter to bring an action of mortgage foreclosure, or any other action, for any default by the Mortgagor existing at the time the earlier action was commenced. 6.9 No Marshalling. Any of the Mortgaged Property sold pursuant to any writ of execution issued on a judgment obtained on the Obligations or pursuant to any other judicial proceedings relating to the Loan Documents or this Mortgage, may be sold in one parcel, as an entirety, or in such parcels, and in such manner or order as the Mortgagee, in its sole discretion, may elect. 6.10 Rights and Remedies Cumulative. (a) All rights and remedies of the Mortgagee as provided in this Mortgage and the other Loan Documents shall be cumulative and concurrent, may be pursued separately, successively or together against the Mortgagor or the Mortgaged Property, or both, at the sole discretion of the Mortgagee and may be exercised as often as occasion therefor shall arise. The failure to exercise any such right or remedy shall in no event be construed as a waiver or release thereof. (b) Any failure by the Mortgagee to insist upon strict performance by the Mortgagor of any of the terms and provisions of this Mortgage or the other Loan Documents shall not be deemed to be a waiver of any of the terms or provisions of this Mortgage or the other Loan Documents and the Mortgagee shall have the right thereafter to insist upon strict performance by Mortgagor of any and all of them. 6.11 Receipt of Proceeds Prior to Expiration of Letter of Credit. If, and for so long as, the Letter of Credit remains outstanding and the Bonds (as that term is defined in the Reimbursement -22- Agreement) have not been paid in full, and: (i) an Event of Default occurs; or (ii) Proceeds of the Mortgaged Property are received by the Mortgagee pursuant to other provisions of this Mortgage directing the Mortgagee to hold and disburse same under this Section, then any cash Proceeds of the Mortgaged Property received by the Mortgagee upon exercise of its remedies under this Article VI or otherwise deposited with the Mortgagee pursuant to applicable provisions of this Mortgage, shall, after deduction of all advances and disbursements made or to be made by the Mortgagee pursuant to Section 6.1 hereof and all of the Mortgagee's costs and expenses described in Section 7.1 hereof, be held by the Mortgagee, pursuant to such documentation as the Mortgagee shall request, as cash collateral for payment and performance of the Obligations to the Mortgagee. ARTICLE VII MISCELLANEOUS 7.1 Costs and Expenses. If the Mortgagee becomes a party to any suit or proceeding affecting the Mortgaged Property, title thereto, the lien created by this Mortgage or the Mortgagee's interest therein, or in the event of the commencement of any bankruptcy or insolvency proceedings involving the Mortgagor, or if the Mortgagee engages counsel to collect or to enforce performance of the Obligations, or if the Mortgagee incurs any other costs and expenses in perfecting, protecting or enforcing its rights hereunder or in responding to any request of the Mortgagor for any consent, waiver, approval, modification or release in connection with this Mortgage or the Mortgaged Property, the Mortgagee's reasonable counsel fees, and all other costs and expenses paid or incurred by the Mortgagee, including reasonable fees of appraisers, accountants, consultants, and other professionals, title premiums, title report and work charges, filing fees, and mortgage, mortgage registration, transfer, stamp and other excise taxes, whether or not an Event of Default shall have occurred, shall be paid to the Mortgagee by the Mortgagor, on demand, with interest at the Default Rate and until paid they shall be deemed to be part of the Obligations secured by this Mortgage. 7.2 Indemnity. The Mortgagor shall indemnify, defend and hold the Mortgagee harmless from and against any claims, expenses, demands, losses, costs, fines or liabilities of any kind (including those involving death, personal injury or property damage and including reasonable attorneys' fees and costs) arising from or in any way related to the failure of the Mortgagor to comply with, or the failure of the Mortgaged Property to be kept in material compliance with, the Legal Requirements, Applicable Environmental Laws, the Leases and the Permitted Encumbrances. The indemnification of the Mortgagor under this section shall survive the release or termination of this Mortgage and shall remain effective notwithstanding any foreclosure of this Mortgage or other execution against the Mortgaged Property or acceptance of a deed in lieu of foreclosure. The indemnification agreement of the Mortgagor under this section is specifically excepted from any limitation of liability provision contained in this or any other Loan Document. 7.3 Intentionally omitted. -23- 7.4 Communications. All notices required under this Mortgage shall be in writing and shall be delivered in accordance with the applicable provisions contained in the Reimbursement Agreement. A party may change its address by giving written notice to the other party as specified therein. 7.5 Covenant Running with the Land. Any act or agreement specified herein to be done or performed by the Mortgagor shall be construed as a covenant running with the land and shall be binding upon the Mortgagor and its successors and assigns as if each had personally made such agreement. 7.6 Amendment. Any amendment, modification, consent or waiver which may be hereafter requested by the Mortgagor or otherwise required must be in writing and signed by both the Mortgagor and the Mortgagee. 7.7 Applicable Law. This Mortgage shall be governed by and construed in accordance with the laws of the Commonwealth of Pennsylvania. Nothing contained in this Mortgage or in any other Loan Document shall require the Mortgagor to pay, or the Mortgagee to accept, interest in an amount which would subject the Mortgagee to penalty under applicable law. 7.8 Construction. Whenever used in this Mortgage, unless the context clearly indicates a contrary intent: (a) The word "Mortgagor" shall mean the persons who execute this Mortgage and any subsequent fee owner of the Mortgaged Property and his respective heirs, executors, administrators, personal representatives, successors and assigns; (b) The word "Mortgagee" shall mean, collectively, all of the entities listed as Mortgagee hereinabove or any subsequent holder of this Mortgage or participant in the loan secured hereby; (c) The word "person" shall mean individual, corporation, partnership or unincorporated association; (d) The use of any gender shall include all genders; (e) The singular number shall include the plural and the plural the singular as the context may require; (f) The word "including" shall mean "including but not limited to" or "including without limitation" as the context may require. 7.9 Joint and Several Liability. If the Mortgagor, or any successor or grantee of the Mortgagor, shall be more than one person, all Obligations of the Mortgagor under this Mortgage shall be joint and several and shall bind and affect all persons who are defined as "Mortgagor" -24- as fully as though all of them were specifically named herein wherever the word "Mortgagor" is used. 7.10 Headings. The headings of sections have been included in this Mortgage for convenience of reference only and shall not be considered in interpreting this Mortgage. 7.11 Severability. If any provision of this Mortgage shall be held for any reason to be invalid, illegal or unenforceable, such impairment shall not affect any other provision of this Mortgage. 7.12 Receipt of Copy. The Mortgagor acknowledges receipt of conformed copies of the Loan Documents and this Mortgage. 7.13 Nonforeign Entity. (a) The Mortgagor hereby certifies, under penalty of perjury, that: (i) the Mortgagor is not a foreign corporation, foreign partnership, foreign trust or foreign estate, as those terms are defined in the Internal Revenue Code of 1986, as amended and regulations promulgated thereunder; (ii) the Mortgagor's U.S. employer identification number is 13-3549286; and (iii) the Mortgagor's principal place of business is set forth in the introduction paragraph of this Mortgage. (b) The Mortgagor warrants that withholding of tax will not be required in the event of any disposition of the Mortgaged Property, or any portion thereof, pursuant to the terms of this Mortgage. The Mortgagor covenants and agrees to execute such further certificates, which shall be signed under penalty of perjury, as the Mortgagee shall require. The provisions of this section shall survive the foreclosure or other execution upon the lien of this Mortgage or acceptance of a deed in lieu of foreclosure. IN WITNESS WHEREOF, the Mortgagor, intending to be legally bound hereby, has duly executed this Mortgage, under seal, as of the day and year first above written. NEOSE TECHNOLOGIES, INC. (Seal) Attest: /s/ A. Brian Davis By: /s/ P. Sherrill Neff --------------------------- ------------------------------- Secretary President I hereby certify that the address of the Mortgagee is: Jefferson Bank 1607 Walnut Street Philadelphia, PA 19103 /s/ Kenneth R. Frappier SVP - ---------------------------------- On behalf of the Mortgagee -25- COMMONWEALTH OF PENNSYLVANIA : SS. COUNTY OF PHILADELPHIA : On the 20th day of March, 1997, before me, a Notary Public in and for the State and County aforesaid, personally appeared P. SHERRILL NEFF, who acknowledged himself/herself to be the (Vice) President of NEOSE TECHNOLOGIES, INC., a Delaware corporation, and that he/she as such officer, being authorized to do so, executed the foregoing instrument for the purposes therein contained by signing the name of the corporation by himself/herself as such officer. IN WITNESS WHEREOF, I have hereunto set my hand and official seal. Notary Public My Commission expires: Notarial Seal Michael S. Baurer, Notary Public Philadelphia, Philadelphia County My Commission Expires January 16, 2000 Member, Pennsylvania Association of Notaries All exhibits omitted. Exhibit "A" - Legal Description of Mortgaged Property Exhibit "B" - Existing Liens and Encumbrances in the Fixtures The Registrant hereby agrees to furnish supplementally a copy of any omitted Exhibit to the Securities and Exchange Commission upon request. -26- EX-10.8 13 SECURITY AGREEMENT Exhibit 10.8 SECURITY AGREEMENT This SECURITY AGREEMENT is made and entered into as of March 1, 1997, by and between NEOSE TECHNOLOGIES, INC., a Delaware corporation (the "Corporation"), and JEFFERSON BANK, a Pennsylvania banking corporation organized and existing under the laws of the Commonwealth of Pennsylvania (the "Secured Party"). W I T N E S S E T H : WHEREAS, the Corporation has requested the Montgomery County Industrial Development Authority (the "Issuer") to issue its Federally Taxable Variable Rate Demand Revenue Bonds (Neose Technologies, Inc. Project), Series B of 1997 (the "Bonds") in the amount of $8,400,000 pursuant to a Trust Indenture, dated as of March 1, 1997 (the "Indenture"), by and between the Issuer and Dauphin Deposit Bank and Trust Company, as trustee (the "Trustee") in order to, among other things, finance the Project; WHEREAS, as security for the payment of the Bonds, the Corporation has requested the Secured Party to provide a credit accommodation to the Corporation, so that CoreStates Bank, N.A. (the "Bank") will issue a letter of credit as security for the Bonds; WHEREAS, the Corporation and the Secured Party shall enter into a Reimbursement Agreement, dated as of March 1, 1997 (the "Reimbursement Agreement"), pursuant to which the Corporation shall agree to, among other things, reimburse the Secured Party for any and all payments that the Secured Party is required to make to the Bank; and WHEREAS, all capitalized terms and phrases used herein without being defined herein shall have the meanings ascribed to them in the Reimbursement Agreement. NOW, THEREFORE, in consideration of the mutual promises contained herein and other valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: Section 1. Creation of Security Interest. Subject to subparagraph (d) below, the Corporation hereby grants to the Secured Party a lien and security interest in and to the property hereinafter described, whether now owned or hereafter acquired or arising and wherever located ("Collateral"): (a) all machinery, equipment, furniture, fixtures, tools, motor vehicles, and all accessories, parts and equipment now or hereafter attached thereto or used in connection therewith, whether or not the same shall be deemed affixed to real property ("Equipment"); (b) all additions, replacements, attachments, accretions, accessions, components and substitutions to or for any Equipment; -1- (c) all proceeds, which term shall have the meaning given to it in the Uniform Commercial Code and shall additionally include but not be limited to, whatever is received upon the use, lease, sale, exchange, collection or other utilization or any disposition of any of the collateral described in subparagraphs (a) and (b) above, whether cash or noncash, and including without limitation, rental or lease payments, accounts, chattel paper, instruments, documents, contract rights, general intangibles, equipment, inventory and insurance proceeds; and all such proceeds of the foregoing ("Proceeds"); and (d) Notwithstanding anything to the contrary in the foregoing, the lien and security interest of the Secured Party in and to the Equipment is subject and subordinate to those liens and encumbrances in the Equipment described in Exhibit B, which is attached hereto and made a part hereof. The Secured Party agrees to release its lien and security interest in the Equipment described in Exhibit B upon the reasonable request of the Corporation, but only if such lien and security interest causes the Corporation to be in default under any of its Equipment financing agreements. The Corporation shall be permitted to finance any Equipment it acquires in the future, and in connection therewith to grant a lien and security interest in and to such Equipment to a third party. The Secured Party agrees that its lien and security interest in and to such Equipment shall be subject and subordinate to the lien and security interest granted to such third party. The Secured Party agrees to release its lien and security interest in any such future acquired Equipment upon the reasonable request of the Corporation, but only if such lien and security interest causes the Corporation to be in default under any of such Equipment financing agreement. Section 2. Secured Obligations. This Security Agreement is executed, delivered and given by the Corporation as security for the prompt payment, performance, satisfaction and discharge of the following obligations of the Corporation ("Obligations"): (a) The payment of: (i) the "Letter of Credit Amount" as defined in the Reimbursement Agreement, including all advances now or hereafter made by the Secured Party to the Bank, pursuant to the Participating Bank Agreement, dated as of March 1, 1997, between the Bank and the Secured Party (the "Participating Bank Agreement") comprised of a principal component of up to Eight Million Four Hundred Thousand Dollars ($8,400,000) and an interest component of up to One Hundred Seventy-Nine Thousand Nine Hundred Sixty-Seven Dollars and Twelve Cents ($179,967.12), together with all interest accruing on such Letter of Credit Amount as more fully described in the Reimbursement Agreement; (ii) any increase in the Letter of Credit Amount under the Reimbursement Agreement whether by amendment of the Reimbursement Agreement or otherwise by mutual agreement of the parties; and (iii) all sums now or in the future advanced or coming due or required to be paid under the Security Documents (hereafter defined) whether for principal, interest, fees, costs, charges, expenses, or other amounts owing under reimbursement or indemnification obligations under the Security Documents; whether such advances are voluntary or obligatory; whether such obligations presently exist or come into existence at -2- some future time; and whether such advances, costs and expenses were made or incurred at the request of the Corporation, any other obligor or guarantor under the Security Documents, or the Secured Party; and (b) The performance of all of the terms, covenants, conditions, agreements, obligations and liabilities of the Corporation under: (i) the Reimbursement Agreement, this Security Agreement, the Mortgage, Assignment of Leases and Security Agreement, dated as of March 1, 1997, between the Corporation and the Secured Party, as mortgagee, and all other documents referred to as "Security Documents" in the Reimbursement Agreement and any other document now or hereafter given to evidence, secure or facilitate the payment and performance of any of the Obligations; and (ii) all extensions, renewals, replacements or modifications of, or amendments or additions to any of the foregoing (all of the foregoing being collectively referred to in this the Security Agreement as the "Security Documents"). The Corporation shall pay and perform the Obligations required in accordance with the provisions of the Security Documents; and (c) To reimburse the Secured Party, on demand, for all of the Secured Party's expenses and costs, including the reasonable fees and expenses of its counsel, in connection with the negotiation, preparation, administration, amendment, modification, or enforcement of any of the Security Documents. Section 3. Representations and Warranties. The Corporation, as of the date hereof and until all the Obligations have been fully paid and the Security Documents have been canceled, represents and warrants as follows: 3.01 Good Title to Collateral. The Corporation has good and marketable title to the Collateral free and clear of all liens and encumbrances other than the security interests granted to the Secured Party hereunder and those liens and encumbrances in the Collateral set forth in Exhibit B which is attached hereto and made a part hereof. 3.02 Location of Books and Records. The locations of the offices where the Corporation maintains its books and records concerning the Collateral are as set forth in Exhibit A or at the location(s) hereafter disclosed to the Secured Party pursuant to Section 5.05 hereof. 3.03 Chief Executive Office. The chief executive offices of the Corporation are at the address set forth in Exhibit A or at the location(s) hereafter disclosed to the Secured Party pursuant to Section 5.05 hereof. 3.04 Location of Equipment. All Equipment of the Corporation is located at one or more of the addresses set forth in Exhibit A or at the location(s) hereafter disclosed to the Secured Party pursuant to Section 5.05 hereof. 3.05 Other Representations. Each representation, warranty or other statement by the Corporation in, or in connection with, any of the Security Documents is true and correct and states all material facts necessary to make it not misleading. -3- Section 4. Use of Collateral. So long as there has been no default hereunder, the Corporation shall be permitted to use its Equipment in the ordinary course of its business. No sale, lease or other disposition of any item of equipment shall be permitted, except as set forth in the Reimbursement Agreement. Section 5. Covenants and Agreements of the Corporation. 5.01 Maintenance and Inspection of Books and Records. The Corporation shall maintain complete and accurate books and records and shall make all necessary entries therein to reflect the costs, values and locations of its Equipment and all adjustments thereto. The Corporation shall keep the Secured Party fully informed as to the location of all such books and records and shall permit the Secured Party and its authorized agents to have full, complete and unrestricted access thereto at any reasonable time and to inspect, audit and make copies of all books and records, data storage and processing media, software, printouts, journals, orders, receipts, invoices, correspondence and other documents and written or printed matter related to any of the Collateral. The Secured Party's rights hereunder shall be enforceable at law or in equity, and the Corporation consents to the entry of judicial orders or injunctions enforcing specific performance of such obligations hereunder. 5.02 Physical Inspection of Equipment. The Corporation shall permit the Secured Party and its authorized agents to inspect any or all of the Corporation's Equipment at all reasonable times upon reasonable advance notice from the Secured Party. The Secured Party agrees to abide by all regulations of the Corporation when making any such inspections. 5.03 Notice of the Secured Party's Interests. If requested by the Secured Party, the Corporation shall give notice of the Secured Party's security interests in the Collateral to any third person with whom the Corporation has any actual or prospective contractual relationship or other business dealings. 5.04 Insurance of Collateral. The Corporation shall keep the Collateral insured against such perils, in such amounts and with such insurance companies as set forth in the Reimbursement Agreement. 5.05 New Locations of Collateral and Books and Records. The Corporation shall immediately notify the Secured Party of any change in the location of its chief executive office, of any new or additional address where its books and records concerning the Collateral are located and of any new locations of Equipment not specified in Sections 3.02, 3.03 or 3.04 of this Security Agreement, and if any such location is on leased or mortgaged premises, promptly furnish the Secured Party with landlord's or mortgagee's waivers in form and substance satisfactory to the Secured Party. -4- 5.06 Perfection of the Secured Party's Interests. The Corporation agrees to cooperate and join, at its expense, with the Secured Party in taking such steps as are necessary, in the Secured Party's judgment, to perfect or continue the perfected status of the security interests granted hereunder, including, without limitation, the execution and delivery of any financing statements, amendments thereto and continuation statements, the delivery of chattel paper, documents or instruments to the Secured Party, the obtaining of landlords' and mortgagees' waivers required by the Secured Party, the notation of encumbrances in favor of the Secured Party on certificates of title, and the execution and filing of any collateral assignments and any other instruments requested by the Secured Party to perfect its security interest in any and all of the Corporation's patents, trademarks, service marks, tradenames, copyrights and other general intangibles. The Secured Party is expressly authorized to file financing statements without the Corporation's signature. 5.07 Maintenance of Equipment. The Corporation shall care for and preserve the Equipment in good condition and repair, and will pay the cost of all replacement parts, repairs to and maintenance of the Equipment. The Corporation will keep complete and accurate maintenance records with respect to its Equipment. 5.08 Notification of Adverse Change in Collateral. The Corporation agrees immediately to notify the Secured Party if any event occurs or is discovered which would cause any material diminution in the value of any significant item or type of Collateral. 5.09 Reimbursement and Indemnification. The Corporation agrees to reimburse the Secured Party on demand for reasonable out-of-pocket expenses incurred in connection with the Secured Party's exercise of its rights under this Security Agreement. The Corporation agrees to indemnify the Secured Party and hold it harmless against any costs, expenses, losses, damages and liabilities (including reasonable attorney's fees) incurred in connection with this Security Agreement, other than as a direct result of the Secured Party's gross negligence or willful misconduct. Section 6. Power of Attorney. The Corporation hereby appoints the Secured Party as its lawful attorney-in-fact to do, at the Secured Party's option, and at the Corporation's expense and liability, all acts and things which the Secured Party may deem necessary or desirable to effectuate its rights under this Security Agreement, including without limitation: (a) file financing statements and otherwise perfect any security interest granted hereby; (b) correspond and negotiate directly with insurance carriers; (c) upon the occurrence of a Default hereunder, receive, open and dispose of in any reasonable manner all mail addressed to the Corporation and notify Postal Service authorities to change the address for mail addressed to the Corporation to an address designated by the Secured Party; (d) upon the occurrence of a Default hereunder, communicate with account debtors and other third parties for the purpose of protecting or preserving the Collateral; and (e) upon the occurrence of a Default hereunder, in the Corporation's or the Secured Party's name, to demand, collect, receive, and receipt for, compound, compromise, settle and give acquittance for, and prosecute and discontinue or dismiss, with or without prejudice, any suit or proceeding respecting any of the Collateral. -5- Section 7. Default. The occurrence of any one or more of the following shall be a default ("Default") hereunder: 7.01 Default Under Security Documents. The occurrence of an Event of Default under the Reimbursement Agreement or any of the Security Documents. 7.02 Failure to Observe Covenants. The failure of the Corporation to keep, observe or perform any material provisions of this Security Agreement, which failure is not cured and remedied within ten (10) days after notice thereof is given to the Corporation; provided, however, that if such observance or performance is of such a nature that it cannot reasonably be done, taken or remedied, as appropriate, within such ten (10) day period, no Default shall be deemed to have occurred or to exist if, and so long as, the Corporation shall commence such observance or performance within such ten (10) day period and shall diligently and continuously proceed to full observance or performance of the such provision. 7.03 Representations, Warranties. If any representation, warranty or certificate furnished by the Corporation under or in connection with this Security Agreement shall, at any time, be materially false or incorrect. Section 8. Secured Party's Rights Upon Default. Upon the occurrence of a Default hereunder, or at any time thereafter, the Secured Party may immediately and without notice do any or all of the following, which rights and remedies are cumulative, may be exercised from time to time, and are in addition to any rights and remedies available to the Secured Party under the Reimbursement Agreement or any other Security Document: 8.01 Uniform Commercial Code Rights. Exercise any and all of the rights and remedies of a secured party under the Uniform Commercial Code, including the right to require the Corporation to assemble the Collateral and make it available to the Secured Party at a place reasonably convenient to the parties. 8.02 Operation of Collateral. Operate, utilize, recondition and/or refurbish (at the Secured Party's sole option and discretion and in any manner) any of the Collateral which is Equipment, for the purpose of enhancing or preserving the value thereof or the value of any other Collateral. 8.03 Sale of Collateral. Upon five (5) calendar days' prior written notice to the Corporation, which the Corporation hereby acknowledges to be sufficient, commercially reasonable and proper, sell, lease or otherwise dispose of any or all of the Collateral at any time and from time to time at public or private sale, with or without advertisement thereof and apply the proceeds of any such sale first to the Secured Party's expenses in preparing the Collateral for sale (including reasonable attorneys' fees) and second to the complete satisfaction of the Obligations. The Corporation waives the benefit of any marshalling doctrine with respect to the Secured Party's exercise of its rights hereunder. -6- Section 9. Notices. Every notice and communication under this Security Agreement shall be in writing and shall be given as set forth in Section 9.01 of the Reimbursement Agreement. Section 10. Miscellaneous. 10.01 No Waiver. No delay or omission by the Secured Party in exercising any right or remedy hereunder shall operate as a waiver thereof or of any other right or remedy, and no single or partial exercise thereof shall preclude any further exercise thereof or the exercise of any other right or remedy. 10.02 Successors. The provisions of this Security Agreement shall inure to the benefit of and be binding upon the Secured Party and the Corporation and their respective successors and assigns, provided that the Corporation's obligations hereunder may not be assigned without the written consent of the Secured Party. 10.03 Amendments. No modification, rescission, waiver, release or amendment of any provisions of this Security Agreement shall be effective unless set forth in a written agreement signed by the Corporation and an authorized officer of the Secured Party. 10.04 Governing Law. This Security Agreement shall be construed under the internal laws of the Commonwealth of Pennsylvania without reference to conflict of laws principles. 10.05 Severability. If any provision of this Security Agreement shall be held invalid or unenforceable under applicable law in any jurisdiction, such invalidity or unenforceability shall not affect the validity or enforceability of such provision in any other jurisdiction or the validity or enforceability of any other provision of this Security Agreement that can be given effect without such invalid or unenforceable provision. 10.06 Judicial Proceedings. Each party to this Agreement agrees that any suit, action or proceeding, whether claim or counterclaim, brought or instituted by any party hereto or any successor or assign of any party, on or with respect to this Agreement or the dealings of the parties with respect hereto, shall be tried only by a court and not by a jury. EACH PARTY HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY SUCH SUIT, ACTION OR PROCEEDING. Further, each party waives any right it may have to claim or recover, in any such suit, action or proceeding, any special, exemplary, punitive or consequential damages or any damages other than, or in addition to, actual damages. THE CORPORATION ACKNOWLEDGES AND AGREES THAT THIS PARAGRAPH IS A SPECIFIC AND MATERIAL ASPECT OF THIS AGREEMENT AND THAT THE SECURED PARTY WOULD NOT EXTEND CREDIT TO THE CORPORATION IF THE WAIVERS SET FORTH IN THIS PARAGRAPH WERE NOT A PART OF THIS AGREEMENT. -7- IN WITNESS WHEREOF, the parties hereto have caused this Security Agreement to be executed and delivered by their authorized officers the day and year first above written. NEOSE TECHNOLOGIES, INC. By: /s/ P. Sherrill Neff ------------------------------- (Vice) President (Seal) Attest: /s/ A. Brian Davis --------------------------- Secretary JEFFERSON BANK, as Secured Party Attest: /s/ Daniel O'Brien By: /s/ Kenneth R. Frappier -------------------------- ------------------------------- Secretary Senior Vice President -8- EXHIBIT A Location of books and records: 102 Witmer Road, Horsham, PA 19044 Location of chief executive office: 102 Witmer Road, Horsham, PA 19044 Location of Equipment: 102 Witmer Road, Horsham, PA 19044 A-1 EXHIBIT B Existing Liens and Encumbrances in the Collateral Equipment covered by the following Agreements: 1. Master Equipment Lease Agreement dated as of June 14, 1995 between Financing for Science International, Inc. and Neose Technologies, Inc.; 2. Security Agreement dated August 12, 1994 between Neose Pharmaceuticals, Inc. and Montgomery County Development Corporation; and 3. Master Lease Agreement dated June 28, 1993 between Aberlyn Capital Management Limited Partnership and Neose Pharmaceuticals, Inc. B-1 EX-10.9 14 ASSIGNMENT OF CONTRACT Exhibit 10.9 ASSIGNMENT OF CONTRACT THIS ASSIGNMENT OF CONTRACTS (this "Assignment"), dated as of March 20, 1997, made by NEOSE TECHNOLOGIES, INC., a Delaware corporation having an office at 102 Witmer Road, Horsham, Pennsylvania ("Assignor"), to JEFFERSON BANK, having an office at 1607 Walnut Street, Philadelphia, Pennsylvania ("Assignee"). WITNESSETH: WHEREAS, pursuant to two Reimbursement Agreements of even date herewith between Assignor and Assignee (as the same may be amended, modified or supplemented from time to time, the "Reimbursement Agreements"), Assignee has enabled Assignor to receive funds (the "Loan") to defray the cost of constructing certain improvements for the Project (capitalized terms used herein and not otherwise defined herein having the meanings assigned to them in the Reimbursement Agreements); and WHEREAS, Assignor has entered into a Construction Contract, dated August 30, 1996 (as the same may be amended, modified or supplemented from time to time in compliance with the provisions of the Reimbursement Agreement, the "General Construction Contract") between Assignor and Irwin & Leighton, Inc. (the "General Contractor"), for the design, planning and construction of the improvements; and WHEREAS, the General Contractor has caused an architect to prepare certain plans and specifications for the construction of the improvements (said plans and specifications, including all working drawings, models and samples related thereto, as amended, modified or supplemented from time to time in compliance with the provisions of the Reimbursement Agreement, being hereinafter called the "Plans"); and WHEREAS, the execution and delivery of this Assignment by Assignor is a condition to Assignees's obligation to make the Loan. NOW, THEREFORE, in consideration of the premises and other good and valuable consideration, the receipt of which is hereby acknowledged, Assignor hereby assigns and transfers to Assignee, and hereby creates in favor of Assignee a security interest under the Uniform Commercial Code in and to, all right, title and interest of Assignor in, to and under the General Contract and all proceeds thereof, AND, Assignor hereby agrees with Assignee as follows: 1. Representations and Warranties. Assignor hereby represents and warrants to Assignee that (a) Assignor has not assigned, transferred, mortgaged, pledged or otherwise encumbered any of its right, title and interest in, to and under the General Contract and the Plans, except in favor of Assignee, (b) the General Contract has not been amended, modified or supplemented and (c) Assignor has paid all sums required to be paid by it prior to the date hereof under the terms of the general Contract. 2. Negative Covenants. Assignor hereby covenants with Assignee that Assignor shall not assign, transfer, mortgage, pledge or otherwise encumber, or permit to accrue or suffer to exist any lien or other encumbrance on or in, any of the right, title and interest of Assignor in, to and under the General Contract and the Plans, except in favor of Assignee, or as otherwise expressly permitted in the Reimbursement Agreement. 3. Assignee Not Liable. Anything contained herein to the contrary notwithstanding, unless and until Assignee expressly assumes the obligations under the General Contract (a) Assignor shall at all times remain solely liable under the General Contract to perform the obligations of Assignor thereunder to the same extent as if this Assignment had not been executed, (b) Assignee shall not have any obligation or liability under the General Contract by reason of or arising out of this Assignment, nor shall Assignee be required or obligated in any manner to make any payment or perform any other obligation of Assignor under or pursuant to the General Contract. 4. Further Assurances. From time to time upon the request of Assignee, Assignor shall promptly and duly execute, acknowledge and deliver any and all such further instruments and documents as Assignee reasonably determines to be necessary to carry out the purpose and intent of this Assignment. 5. Amendments, Waivers, Etc. This Assignment cannot be amended, modified, waived, changed, discharged or terminated except by an instrument in writing signed by the party against whom enforcement of such amendment, modification, waiver, change, discharge or termination is sought. 6. Termination; Survival. Upon payment and performance in full of the indebtedness and obligations secured hereby and termination of the Reimbursement Agreement, this Assignment shall terminate. 7. Severability. If any term or provision of this Assignment or the application thereof to any person or circumstance shall to any extent be invalid or unenforceable, the remainder of this Assignment, or the application of such term or provision to persons or circumstances other than those as to which it is invalid or unenforceable, shall not be affected thereby, and each term and provision of this Assignment shall be valid and enforceable to the fullest extent permitted by law. 8. Governing Law. This Assignment shall be governed by, and construed in accordance with, the laws of the Commonwealth of Pennsylvania. 2 9. Successors and Assigns. This Assignment shall bind Assignor and its successors and assigns, and shall inure to the benefit of Assignee and its successors and assigns. IN WITNESS WHEREOF, Assignor has duly executed and delivered this Assignment as of the date first above written. (SEAL) NEOSE TECHNOLOGIES, INC. Witness: By: /s/ P. Sherrill Neff ---------------------- President /s/ A. Brian Davis - ------------------ Secretary 3 EX-10.10 15 SECURITY AGREEMENT Exhibit 10.10 CUSTODIAL AND COLLATERAL SECURITY AGREEMENT THIS CUSTODIAL AND COLLATERAL SECURITY AGREEMENT (the "Agreement"), dated as of March 20, 1997, is by and among OFFITBANK, a New York banking corporation ("Custodian"), JEFFERSON BANK, a Pennsylvania-chartered banking institution ("Bank") and NEOSE TECHNOLOGIES, INC., a Delaware corporation ("Borrower"). BACKGROUND In connection with the issuance by the Montgomery County Industrial Development Authority of its $8,400,000 Federally Taxable Variable Rate Demand Revenue Bonds (Neose Technologies, Inc. Project), Series B of 1997 (the "Series B Bonds"), Borrower and Bank entered into a Reimbursement Agreement dated as of March 1, 1997 (the "Borrower Reimbursement Agreement") and Borrower executed various other related documents, including, inter alia, a note (the "Note") to evidence its obligations to Bank (all such agreements and documents, collectively the "Loan Documents"). The term "Loan Documents" does not include the Series A Bonds or the documents executed in connection therewith. Borrower's obligations to Bank are secured by, inter alia, a mortgage, assignment of leases and security agreement (the "Mortgage") covering certain real property, equipment, fixtures, and improvements situate at 102 Witmer Road, Horsham, Pennsylvania. Pursuant to the terms of the Loan Documents, Borrower has agreed to certain financial covenants, including a requirement to maintain specific minimum levels of liquid investments in an Investment Account (defined below) and a Collateral Account (defined and set forth below) with a financial institution acceptable to Bank. In consideration of Borrower's opening and maintaining the Investment Account with Custodian, Custodian hereby agrees to provide certain other services, as described herein, to Borrower and Bank to facilitate the monitoring of the financial covenants between Borrower and Bank and to ensure proper control and funding of the Collateral Account pursuant to the terms of this Agreement. NOW THEREFORE, to ensure that Borrower remains in compliance with the aforementioned financial covenants and other requirements of the Loan Documents, the parties, intending to be legally bound, hereby agree as follows: 1) Investment Account Borrower hereby agrees to open and maintain an investment account (the "Investment Account") with Custodian, comprised of, inter alia, the Securities hereafter described. The term "Securities" means unencumbered cash (including money market funds and the like) any obligation of the United States Treasury, Federal Agency Securities and other investment grade securities and repurchase transactions of any of the foregoing types of Securities having a combined fair market value of at least $20,000,000, and includes Securities now owned and/or hereafter acquired by Borrower (and maintained in the Investment Account and/or the Collateral Account), as well as any and all proceeds of the foregoing. The Investment Account is identified in detail on Schedule "A" attached hereto and made a part hereof. 2) Collateral Account Borrower also agrees to establish with Custodian, a Collateral Account to be titled, "Jefferson Bank Collateral Account Re: Neose Technologies, Inc." (the "Collateral Account"). Borrower hereby assigns and pledges to Bank, and grants to Bank a first priority security interest in, all of Borrower's right, title and interest in, the Collateral Account and all Securities therein, whether now owned or hereafter acquired, and any and all proceeds thereof. Bank shall possess all right, title and interest in the Collateral Account and any and all Securities transferred or deposited therein, from time to time, and Bank shall be the "entitlement holder" (as such term is defined in ss.8102 of the Pennsylvania Uniform Commercial Code). Custodian shall: (i) transfer Borrower's position with respect to the Collateral Account to Bank on Custodian's books (such entry shall satisfy both ss.8106(d)(1) of the Pennsylvania Uniform Commercial Code and ss.8313(1)(d) of the Uniform Commercial Code in effect in the State of New York); (ii) comply with entitlement orders from Bank without the further consent of Borrower; and (iii) send Bank confirmation of all purchases of Securities placed in the Collateral Account. Custodian shall be Bank's agent for the purpose of holding any and all Securities in the Collateral Account and their proceeds. The Collateral Account is and shall be under the sole dominion and control of Bank, and neither Borrower, nor any person or entity claiming by, through or under Borrower, shall have any control over the use of, or any right to withdraw any amount of the Securities from the Collateral Account. The Collateral Account is identified in detail on Schedule "B" attached hereto and made a part hereof. The Collateral Account shall also constitute the "Bank's Pledge Account B", described in the Borrower Reimbursement Agreement. Notwithstanding anything to the contrary herein, Borrower may enforce the obligations of Custodian as set forth in paragraph 3(c) below, and may direct investments in the Collateral Account so long as no "Event of Default" exists and is continuing under the Note or any other Loan Document, as set forth in paragraph 4(a) below. 3) Securities For ease in facilitating the instructions set forth herein, the "$4,200,000" and "$8,400,000" amounts referenced below assume that Borrower's obligations to Bank pursuant to the Loan Documents are $8,400,000. If, at the close of any business day, Borrower's obligations under the Loan Documents are greater or less than $8,400,000, Bank will instruct Custodian, as needed, to transfer a proportionate share of Securities either from or to the Investment Account, to ensure that the remaining value of the Securities in the Collateral Account remains consistent with the amounts required pursuant to the Loan Documents. (a) Borrower shall maintain in the Investment Account and/or the Collateral Account, as applicable, Securities which shall have an aggregate fair market value not less than $20,000,000. If at any time the aggregate fair market value of the Securities in the Investment Account (based solely on Custodian's fair market valuation) falls below a fair market value of 2 $20,000,000 (but not less than $15,000,000), Custodian shall immediately and automatically, but in no event later than the next business day, transfer from the Investment Account to the Collateral Account, an amount of Securities such that the aggregate fair market value of the Securities in the Collateral Account is not less than $4,200,000. If, at any time, the sum of the aggregate fair market value of the Securities in the Investment Account and the aggregate fair market value of the Securities in the Collateral Account is less than $15,000,000, Custodian shall immediately and automatically transfer from the Investment Account to the Collateral Account, an amount of Securities such that the aggregate fair market value of the Securities in the Collateral Account is not less than $8,400,000. Bank hereby authorizes Custodian to accept instructions from Borrower with respect to the purchase, sale and distribution of Securities in the Investment Account, so long as the instructions from Borrower are not inconsistent with the terms and conditions of this Agreement. Failure of Custodian to transfer Securities from the Investment Account to the Collateral Account as set forth in this Agreement, within two (2) business days, shall constitute an event of default under this Agreement and the Loan Documents and shall result in Bank's option to make immediate demand for payment in full of all sums due under the Loan Documents, or to exercise any remedies available to Bank thereunder, or under any other Loan Document related thereto. (b) If, from time to time, after Custodian transfers Securities from the Investment Account to the Collateral Account as set forth in section 3(a) above, Borrower is able to provide additional Securities to Custodian in: (i) an amount so that the fair market value of the Securities in the Investment Account, together with the fair market value of the Securities in the Collateral Account shall have a fair market value equal to at least $15,000,000, but less than $20,000,000, Custodian shall transfer Securities from the Collateral Account to the Investment Account, in an amount such that the remaining fair market value of the Securities in the Collateral Account shall not be less than $4,200,000; or (ii) an amount so that the fair market value of the Securities in the Investment Account, together with the fair market value of the Securities in the Collateral Account shall have a fair market value equal to at least $20,000,000, Custodian shall transfer the entire balance of Securities in the Collateral Account to the Investment Account (unless Bank receives written notice from Borrower as set forth in section 5 below). (c) In the event Borrower's obligations pursuant to the Loan Documents are less than $8,400,000 and Bank fails to give the instruction to Custodian within three (3) days thereafter as provided for herein, Borrower may give such notice and Custodian shall be entitled to rely thereon, upon approval of the Bank. 4) Borrower's Ability to Trade: Notice of Event of Default (a) Bank hereby authorizes Custodian to accept instructions from Borrower with respect to the Collateral Account (so long as consistent with this Agreement) unless and until 3 Bank notifies Custodian that an "Event of Default" has occurred under the Note, or under any other Loan Document and is continuing (each, an "Event of Default"), and that Bank has curtailed such authority (such notice, a "Notice of Default"). The Notice of Default may be either written or oral from a duly authorized agent of Bank, however, if oral, such oral notice must be followed up in writing from a duly authorized agent of Bank. Upon receipt of a Notice of Default from Bank, with respect to the Collateral Account, Custodian shall rely only on instructions given to it by Bank. Prior to receiving a Notice of Default, Custodian may provide all services to Borrower upon which Borrower and Custodian may from time to time agree, so long as the provisions of paragraph 3 above and paragraph 6 below are met. (b) Upon receiving a Notice of Default from Bank, Custodian shall immediately and automatically, but in no event later than the next business day, transfer Securities from the Investment Account to the Collateral Account, such that the Securities in the Collateral Account shall have a fair market value (based solely on Custodian's fair market valuation) equal to $8,400,000. Upon the occurrence of an Event of Default and the funding of the Collateral Account as hereinbefore set forth, if necessary, Borrower shall cooperate with Bank and execute any and all additional documentation which may be necessary to ensure Bank has a first perfected lien security interest in the Securities in the Collateral Account, in accordance with the laws of the Commonwealth of Pennsylvania (and/or any other jurisdiction, if necessary). If Borrower cures, to Bank's reasonable satisfaction, all outstanding Events of Default, including without limitation the Event of Default which triggered Bank to send Custodian the Notice of Default, Custodian shall, after receipt of written notice from Bank to such effect, transfer Securities back to the Investment Account so that the fair market value of Securities in the Collateral Account remains consistent with the amounts required to be held therein in accordance with the terms hereof. 5) Requirements for Release of Other Collateral Upon written request from Borrower, Bank shall satisfy the lien of the Mortgage and release other collateral securing the Note if, and only if: (a) the Securities in the Collateral Account have a fair market value equal to or greater than $8,400,000; and (b) the Bank receives Borrower's written request to Bank for the release of the other collateral stating: "In consideration of Bank's agreement to release the lien of its Mortgage, Assignment of Leases and Security Agreement dated March 1, 1997, which was executed by Borrower in connection with, inter alia, the issuance of the Montgomery County Industrial Development Authority Federally Taxable Variable Rate Demand Revenue Bonds (Neose Technologies, Inc. Project) Series B of 1997, Borrower confirms that it currently has and will maintain Securities with a fair market value of $8,400,000.00 in the Collateral Account, for as long as Borrower has any obligations to Bank pursuant to the Loan Documents." 4 6) Duties of Custodian (a) The sum of the Securities in the Investment Account and the Collateral Account must at all times have a fair market value of at least $20,000,000. In addition, all Securities in the Investment Account must at all times consist of unencumbered cash (including money market funds and the like),any obligation of the United States Treasury, Federal Agency Securities and other investment grade securities and repurchase transactions of any of the foregoing types of Securities with a remaining maturity of less than three (3) years). Custodian agrees that any new Securities purchased from proceeds of the Collateral Account shall automatically be placed into the Collateral Account and become subject to this Agreement. (b) Custodian shall monitor the fair market value of the Securities on each business day that Custodian is open for business, so that Custodian may immediately and automatically transfer funds from the Investment Account to the Collateral Account if necessary, as set forth in section 3(a) above. (c) Custodian shall send Bank confirmation of all purchases of Securities into the Collateral Account or transfers from the Investment Account to the Collateral Account. Custodian shall also provide Bank and Borrower with copies of all ongoing regular reports and statements issued with respect to the Investment Account and Collateral Account, and such further information as Bank may reasonably request from time to time. (d) Custodian shall provide Bank and Borrower with immediate notice of any event which would create a requirement to transfer funds into or out of the Collateral Account. (e) Custodian shall cooperate with Bank and execute all documents required to perfect Bank's first lien security interest in the Collateral Account. (f) Custodian shall mark its records to show Bank's perfected first lien security interest in all Securities held in the Collateral Account. 7) Indemnity Borrower hereby agrees to pay, indemnify and hold Custodian harmless from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever (including, without limitation, legal fees) with respect to the performance of this Agreement by Custodian or any of Custodian's directors, officers, agents or employees, unless arising from its or their own gross negligence or willful misconduct. 8) Fees and Expenses (a) Borrower hereby agrees to pay any additional incremental fees and expenses of Custodian which are caused by reasonable instructions given to Custodian by Bank hereunder. 5 (b) Custodian will advise Bank and Borrower should Custodian believe that Borrower has failed to pay any fees and expenses assessed against Borrower hereunder. Failure to pay such fees or expenses shall not effect the validity or enforceability of this Agreement or terminate or modify Custodian's duties hereunder. 9) Limitations on Liability of Custodian Notwithstanding any other provision of this Agreement, it is agreed by the parties hereto that Custodian shall not be liable for any action taken by it or any of its directors, officers, agents or employees in accordance with this Agreement except for its or their own gross negligence or willful misconduct. 10) Irrevocable Instructions Borrower acknowledges that the agreements made by it and the authorizations granted by it herein are irrevocable and self-operative unless otherwise specifically agreed to in writing by Bank and that the authorizations granted in this Agreement are powers coupled with an interest. 11) Waiver of Right of Set-Off and Liens With respect to the Investment Account and the Collateral Account only, Custodian waives with respect to the Securities, for its own account and as agent for any Third Party Subcustodian (defined below), with respect to all of its existing and future claims against Borrower or any affiliate thereof, all existing and future rights of set-off and liens against the Collateral Account, the Investment Account and any proceeds therefrom, including but not limited to those rights granted to Custodian in Section 10 of the "U.S. Securities Custody Agreement" entered into between Borrower and Custodian and the "U.S. Securities Custody Agreement" entered into between Borrower and Custodian to establish the Collateral Account. This waiver is in effect for so long as Borrower is indebted to Bank pursuant to the Loan Documents; provided, however, that Custodian shall retain the right to charge the Investment Account for all compensation and expenses with respect to the Collateral Account and the Investment Account. At the time Borrower is no longer indebted to Bank pursuant to the Loan Documents, Bank will promptly notify Custodian. 12) Negative Pledge (a) Borrower shall not borrow any funds from Custodian or any person or entity performing subcustodial, safekeeping, clearing, settlement or other services or transactions in connection with the Collateral Account and/or the Investment Account, including without limitation, a branch of any United States bank or any entity that may be affiliated with a United States Bank (each, a "Third Party Subcustodian"). (b) Neither Borrower nor Custodian shall not enter into a control agreement with respect to the Securities, the Collateral Account or the Investment Account with any person or entity other than Bank. 6 13) Remedies (a) Upon the occurrence and continuance of an Event of Default under any Loan Document, in addition to any other remedies set forth herein, Bank may, at its option, exercise any or all rights and remedies available to Bank under the Pennsylvania Uniform Commercial Code or otherwise available to it. All costs and expenses including, without limitation, reasonable attorney's fees, agency fees and registration fees incurred or paid by Bank in exercising any right, remedy or power conferred hereunder and in the enforcement hereof, shall be paid by Borrower. (b) After the occurrence and during the continuation of an Event of Default, the proceeds of any Securities in the Collateral Account disposed of by Bank at any time, may be applied to or on account of payment of the Note and in such order as Bank may elect. In addition, Bank may, at its discretion, apply any such proceeds to or on account of the payment of any costs and expenses (including reasonable attorney's fees, legal expenses and registration costs) incurred by Bank in the custody, preservation, use, operation, preparation for sale, or in the enforcement of the Loan Documents or of the pledge and security interest created hereby. Borrower waives and releases any right to require Bank to collect any sums due under the Note from any other collateral securing the Note under any theory of marshalling of assets, or otherwise, and specifically authorizes Bank to apply any collateral against the Note in any manner Bank may determine. 14) Effectiveness; Integrations; Amendments This Agreement shall be effective as of the date first above written. This Agreement constitutes the entire agreement with respect to the subject hereof and is binding upon the parties hereto and their respective successors and assigns and shall inure to their benefit. Neither this Agreement nor any provision hereof may be changed, amended, modified or waived orally, but only by an instrument in writing signed by the parties hereto. Any provision of this Agreement which may prove unenforceable under any law or regulation shall not affect the validity of any other provision hereof. If any terms, conditions or provisions of any other agreement between Custodian and Borrower are inconsistent with the terms, conditions or provisions of this Agreement, the terms, conditions and provisions of this Agreement shall apply. 15) Termination This Agreement shall automatically terminate on the date on which the all sums due under the Loan Documents have been paid in full by the Borrower to the Bank and all commitments of Bank with respect thereto have been terminated and the Loan Documents have been released or canceled. Custodian shall be entitled to rely on a written certificate of Bank to such effect (which Bank will provide promptly upon termination of the Loan Documents), and upon receipt of such written certification of Bank, Custodian shall rely on instructions from Borrower as to the disposition of the Investment Account and the Collateral Account. 7 16) Notices With respect to this Agreement (unless otherwise specified herein), all notices, requests and demands to or upon the respective parties hereto to be effective shall be in writing (including by telecopy or nationally recognized courier service), and shall be deemed to have been duly made or given when delivered by hand, or, in the case of telecopy notice, when sent, or, in the case of a nationally recognized courier service, one business day after delivery to such courier service, addressed as follows, or to such other address as may be hereafter notified by the respective parties hereto: Bank: Jefferson Bank 1607 Walnut Street Philadelphia, PA 19103 Attn: Kenneth R. Frappier, Senior Vice President With a Copy to: Kassab, Archbold & O'Brien, L.L.P. 214 North Jackson Street P.O. Box 626 Media, Pa. 19063 Attn: Marc S. Stein, Esq. Custodian: OFFITBANK 520 Madison Avenue New York, NY 10022-4213 Attn: James C. Campbell, Director of Operations Borrower: Neose Technologies, Inc. 102 Witmer Road Horsham, PA 19044 Attn: P. Sherrill Neff, President With a Copy to: Ballard, Spahr, Andrews & Ingersoll 1735 Market Street, 51st Floor Philadelphia, Pa. 19103-7599 Attn: Lynn R. Axelroth, Esq. 17) Governing Law This Agreement shall be governed by, and interpreted in accordance with, the laws of the Commonwealth of Pennsylvania. The parties hereby irrevocably submit to the jurisdiction of, and agree to submit any claim or dispute to the adjudication of a State or Federal Court sitting in the County of Montgomery or the County of Philadelphia, Pennsylvania. Notwithstanding any provision of any other Agreement between Custodian and Bank and/or Custodian and Borrower (including without limitation, the "U.S. Securities Custody Agreements" executed in conjunction with establishing the Collateral Account and the 8 Investment Account) the laws of the Commonwealth of Pennsylvania shall apply to attachment and perfection of Bank's security interest in the Collateral Account and the Securities therein. 18) Counterparts This Agreement may be executed in any number of counterparts which together shall constitute one and the same instrument. 19) Borrower's Right to Substitute Custodian Upon request of Borrower and after written consent and approval of Bank, in its sole and absolute discretion, Borrower may substitute the financial institution serving as Custodian under this Agreement. The substitute Custodian must be willing to execute an agreement similar to this Agreement and to except the same responsibilities and duties as this Custodian. 20) Attachment and Perfection The parties hereto intend that this Agreement constitute "control" under Divisions 8 and 9 of the Pennsylvania Commercial Code and cause Bank to have a first perfected security interest in the Collateral Account and the Securities therein. The parties also intend that this Agreement constitute a valid transfer of a security interest under ss.8-313 of the Uniform Commercial Code in effect in the State of New York. 9 IN WITNESS WHEREOF, each of the parties hereto, intending to be legally bound, has caused this Agreement to be executed and delivered on the date first set forth above. CUSTODIAN: BANK: OFFITBANK JEFFERSON BANK By: /s/ Jack D. Burks (Seal) By: /s/ Kenneth R. Frappier ------------------------------ ------------------------- Senior Vice President Attest: /s/ Mary Bell Attest: /s/ Daniel O'Brien ------------------------- --------------------- Assistant Secretary BORROWER: Neose Technologies, Inc. By: /s/ P. Sherrill Neff --------------------- President (Seal) Attest: /s/ A. Brian Davis ------------------ Secretary 10 All Exhibits have been omitted. Exhibit A - Investment Account Exhibit B - Collateral Account The Registrant hereby agrees to furnish supplmentally a copy of any omitted exhibit to the Securities and Exchange Commission upon request. 11 NEOSE TECHNOLOGIES, INC. 102 Witmer Road Horsham, Pennsylvania 19044 March 20, 1997 Jefferson Bank 1607 Walnut Street Philadelphia, PA 19103 Attention: Mr. Kenneth R. Frappier Senior Vice President OFFITBANK 520 Madison Avenue New York, NY 10022-4213 Attention: Mr. James C. Campbell Director of Operations Re: $8,400,000 Federally Taxable Variable Rate Demand Revenue Bonds (Neose Technologies, Inc. Project), Series B of 1997 Gentlemen: This will confirm that, notwithstanding any provisions to the contrary in Section 6.20 of the Reimbursement Agreement between Jefferson Bank ("Bank") and Neose Technologies, Inc. ("Borrower") dated as of March 1, 1997, and the Custodial and Collateral Security Agreement among OFFITBANK, Bank and Borrower, dated March 20, 1997 (the "Custodial Agreement"), Borrower shall have until 4:00 p.m. eastern standard time on April 8, 1997 (the "Funding Date") to fund the amount required to be funded in the Investment Account. Borrower shall not be in default of any of its obligations under the Reimbursement Agreement and Custodial Agreement with respect to funding the Investment Account, nor shall OFFITBANK be required to provide Bank with any notices or to transfer any Securities into the Collateral Account, so long as Borrower funds its required contribution into the Investment Account on or before the Funding Date. In the event Borrower fails to fund the Investment Account in accordance with the terms of the Reimbursement Agreement, the Custodial Agreement and this letter, on or before the Funding Date, then, without any notice or opportunity to 12 cure, such failure shall be deemed an Event of Default under the Reimbursement Agreement (as defined therein) and the Custodial Agreement, and Bank shall be entitled to exercise any and all remedies provided for in the Reimbursement Agreement and the Custodial Agreement. (Capitalized terms and phrases not defined in this letter shall have the meanings given to them in the Custodial Agreement.) Please indicate your agreement by executing the enclosed extra copy of this letter in the space provided and returning it to me. Sincerely, NEOSE TECHNOLOGIES, INC. /s/ P. Sherrill Neff -------------------------- P. Sherrill Neff President AGREED TO AND ACCEPTED by an authorized officer of: JEFFERSON BANK By: /s/ Kenneth R. Frappier Name: Kenneth R. Frappier Title: Senior Vice President Date: March 20, 1997 OFFITBANK By: /s/ Jack D. Burks ----------------- Name:______________________ Title: _______________________ Date: March 20, 1997 13 EX-10.11 16 PLACEMENT AGREEMENT Exhibit 10.11 PLACEMENT AGREEMENT THIS PLACEMENT AGREEMENT dated March 20, 1997 among MONTGOMERY COUNTY INDUSTRIAL DEVELOPMENT AUTHORITY (the "Issuer"), NEOSE TECHNOLOGIES, INC. (the "Borrower") and CORESTATES CAPITAL MARKETS, A DIVISION OF CORESTATES BANK, N.A., as Placement Agent (the "Placement Agent"). A. The Issuer is issuing its Federally Taxable Variable Rate Demand Revenue Bonds (Neose Technologies, Inc. Project) Series B of 1997 in the aggregate principal amount of $8,400,000 (the "Bonds") pursuant to a Trust Indenture, dated as of March 1, 1997 (the "Indenture") between the Issuer and Dauphin Deposit Bank and Trust Company, as trustee (the "Trustee"). B. Pursuant to a Loan Agreement, dated as of March 1, 1997 between the Issuer and the Borrower (the "Loan Agreement"), the proceeds of the Bonds, together with other funds available for the purpose, are being applied to finance the costs of: (i) the acquisition, improvement and equipping of a facility which will be used for the development and pilot production of complex carbohydrates for research and development relating to a variety of health care applications located at 102 Witmer Road, Horsham, Pennsylvania; and (ii) payment of a portion of the costs of issuance of the Bonds (the "Project") to be owned by the Borrower. Under the Loan Agreement, the Borrower is obligated to make payments to the Trustee in amounts and at the times sufficient to pay, when due, the principal of, premium, if any, on and interest on the Bonds. C. The Bonds will initially be issued in the Weekly Mode and bear interest at a Weekly Rate as provided in the Indenture (such terms being used herein as defined in the Indenture). Subject to and upon compliance with the terms of the Bonds and the Indenture, the Bonds may be tendered for purchase upon demand of the owners thereof. The Bonds will also be subject to mandatory tender for purchase under certain circumstances as provided in the Indenture. The Issuer has appointed CoreStates Capital Markets, a division of CoreStates Bank, N.A. as remarketing agent (including any successor in such capacity, the "Remarketing Agent") under the Indenture for the purpose of remarketing Bonds which have been optionally tendered for purchase pursuant to the terms and conditions set forth in the Indenture. In connection with such appointment, the Borrower and the Remarketing Agent have entered into a Remarketing Agreement, dated as of March 1, 1997 (the "Remarketing Agreement"). D. The Bonds are being issued pursuant to one or more resolutions adopted by the Issuer on March 5, 1997 (the "Resolution") and are secured by an assignment by the Issuer under the Indenture of: (i) the Issuer's rights under the Loan Agreement to receive loan payments corresponding in time and amounts to the payments of principal of, premium, if any, on and interest on the Bonds; and (ii) the Issuer's rights to all moneys and investments held from time to time in the Project Fund and the Bond Fund created under the Indenture. E. In order to facilitate the placement of the Bonds, the Borrower will cause to be delivered to the Trustee an Irrevocable Letter of Credit (the "Letter of Credit") issued by CoreStates Bank, N.A. (as issuer of the Letter of Credit, the "Bank") under which the Trustee will be authorized to draw up to: (1) an amount equal to the principal of the Bonds outstanding: (i) to pay the principal of the Bonds when due at maturity or upon redemption or acceleration; or (ii) to pay the portion of the purchase price of Bonds tendered for purchase pursuant to the Indenture corresponding to the principal of such Bonds to the extent remarketing proceeds are not available for such purpose; plus (2) an amount equal to 46 days accrued interest on the Bonds at a maximum rate of 15% per annum: (i) to pay interest on the Bonds when due; or (ii) to pay the portion of the purchase price of Bonds tendered for purchase pursuant to the Indenture corresponding to the accrued interest, if any, on such Bonds to the extent remarketing proceeds are not available for such purpose. The Letter of Credit is being issued pursuant to a Participation and Reimbursement Agreement, dated as of March 1, 1997 (the "Participating Bank Agreement") between the Bank and Jefferson Bank (the "Participating Bank"), pursuant to which the Bank will be entitled, among other things, to reimbursement, with interest, for all draws under the Letter of Credit. F. To provide for the execution of the Participating Bank Agreement, the Borrower will enter into a Reimbursement Agreement, dated as of March 1, 1997 (the "Reimbursement Agreement") with the Participating Bank pursuant to which the Borrower will be obligated to reimburse the Participating Bank, with interest for all draws under the Letter of Credit and/or all advances made by the Participating Bank to the Bank under the Participating Bank Agreement. The Borrower's obligations to the Participating Bank under the Reimbursement Agreement will be evidenced by a Note, dated as of March 1, 1997 delivered by the Borrower to the Participating Bank (the "Note") and secured by: (i) a mortgage, assignment of leases and security agreement delivered by the Borrower to the Participating Bank covering the Project; (ii) an assignment of leases by the Borrower to the Participating Bank with respect to all leases of the Project; and (iii) a security agreement between the Borrower and the Participating Bank creating a first lien security interest in, among other things, the assets of the Borrower and the equipment included in the Project. The Participating Bank's obligations under the Participating Bank Agreement and the Borrower's obligations under the Reimbursement Agreement are secured by a Pledge, Security and Indemnification Agreement, dated as of March 1, 1997 (the "Pledge Agreement") between the Borrower, the Participating Bank and the Bank. G. The Bonds are limited obligations of the Issuer and are payable solely from payments made by the Borrower under the Loan Agreement, from drawings under the Letter of Credit and from other moneys available for such purpose under and in accordance with the Indenture. Neither the general credit nor the taxing power of the Issuer, the Commonwealth of Pennsylvania, the County of Montgomery, Pennsylvania or any political subdivision thereof is pledged to the payment of the Bonds, and the Bonds shall not be or be deemed to be a general obligation of the Issuer or an obligation of the Commonwealth of Pennsylvania, the County of Montgomery, Pennsylvania or any political subdivision thereof. The Issuer has no taxing power. -2- H. It is intended that, in reliance on the support of the Bonds by the Letter of Credit issued by the Bank, the Placement Agent may arrange for the placement and sale of the Bonds without registration under the Securities Act of 1933, as amended (the "Securities Act"). I. The Borrower acknowledges that the Issuer is selling the Bonds and the Placement Agent is arranging for the placement and sale of the Bonds to certain purchasers (the "Purchasers") in reliance on the representations, covenants and indemnities set forth herein. A Preliminary Placement Memorandum, dated March 10, 1997 (including the Appendices thereto, the "Preliminary Placement Memorandum") has been prepared for use in such placement and has been delivered to the parties to this Placement Agreement. The Preliminary Placement Memorandum as it may be amended or supplemented as of the Closing Date (hereinafter defined) is herein referred to as the "Final Placement Memorandum", and the Preliminary Placement Memorandum and the Final Placement Memorandum are herein referred to collectively as the "Placement Memorandum". J. The professional advisors referred to in this Placement Agreement are: Bond Counsel: Ballard Spahr Andrews & Ingersoll Philadelphia, Pennsylvania Issuer Counsel: McGrory Wentz Fernandez & O'Hara Norristown, Pennsylvania Borrower Ballard Spahr Andrews & Ingersoll Counsel: Philadelphia, Pennsylvania Bank Counsel: Pepper, Hamilton & Scheetz LLP Philadelphia, Pennsylvania Participating Kassab Archbold & O'Brien, L.L.P. Bank Counsel: Media, Pennsylvania 19063 Placement Kassab Archbold & O'Brien, L.L.P. Agent Counsel: Media, Pennsylvania 19063 K. The Issuer and the Borrower desire the Placement Agent to arrange for the sale of the Bonds to the Purchasers or other initial purchasers, according to the terms and subject to the conditions set forth or described herein. NOW, THEREFORE, in consideration of the covenants herein contained and intending to be legally bound, the Issuer, the Borrower and the Placement Agent hereby agree as follows: -3- Section 1. Definitions. Capitalized terms and phrases used and defined herein shall have the meanings set forth herein. Capitalized terms and phrases used and not defined herein shall have the respective meanings ascribed to such terms in the Indenture, unless different meanings clearly appear from the context. Section 2. Placement of Bonds. The Placement Agent will use its best efforts to arrange for the placement of the Bonds with the Purchasers, at a purchase price of 100% of the principal amount of the Bonds, payable in immediately available funds on the date (the "Closing Date") of closing ("Closing") of the original issuance and initial authentication of the Bonds. The Closing Date shall be March 20, 1997 or such other date as is mutually agreed upon by the Issuer, the Borrower, the Bank, the Participating Bank and the Placement Agent. Section 3. Fees. The Borrower shall pay to the Placement Agent on the Closing Date a fee equal to one percent (1.0%) of the principal amount of Bonds placed by it with the Purchasers, plus to or for the account of the Placement Agent any and all reasonable expenses of the Placement Agent. Section 4. Representations of Issuer. In consideration of the foregoing and to induce the Placement Agent to privately place the Bonds, the Issuer hereby represents to the Placement Agent and for the benefit of the Purchasers that: (a) The Issuer is a public instrumentality and a body corporate and politic of the Commonwealth of Pennsylvania organized and existing under the Pennsylvania Economic Development Financing Law, Act of August 23, 1967, P.L. 251, as amended and supplemented (the "Act"). Under the Act and by the Resolution, the Issuer has full power and authority to undertake the financing of the Project, to execute, deliver and perform its obligations under the Indenture, the Loan Agreement and this Placement Agreement, and to issue and deliver the Bonds. (b) The Issuer has duly adopted the Resolution and authorized the Indenture, the Loan Agreement and this Placement Agreement, the issuance of the Bonds, and all actions necessary or appropriate to carry out the same, and each such document, when executed and delivered by the Issuer, will constitute the legal, valid and binding obligation of the Issuer, enforceable against the Issuer in accordance with its terms, except to the extent that the enforceability thereof may be limited by bankruptcy, insolvency or other similar laws or equitable principles affecting the enforcement of creditors' rights generally. (c) The execution, delivery and performance by the Issuer of the Indenture, the Loan Agreement and this Placement Agreement, and the issuance and delivery of the Bonds, will not violate or conflict with any provision of the Constitution of the Commonwealth of Pennsylvania or any applicable statute (including the Act), or any rule, order, regulation, judgment or decree of any court, agency or other governmental or administrative board or body to which the Issuer is subject, or conflict with or constitute a -4- breach of or a default under any indenture, mortgage, deed of trust, agreement or other instrument to which the Issuer is a party or by which it is bound. (d) No additional or further approval, consent or authorization of any governmental or public body or agency not already obtained prior to the issuance of the Bonds is required to be obtained by the Issuer in connection with the entering into and performing of its obligations under the Indenture, the Loan Agreement and this Placement Agreement and the issuance and delivery of the Bonds. (e) There is no action, suit, proceeding, investigation or inquiry by or before any court, agency or other governmental or administrative board or body pending or, to the knowledge of the Issuer, threatened challenging or contesting the powers of the Issuer, the authorization of any members, directors or officers of the Issuer to act in their respective capacities, the issuance of the Bonds, the validity or enforceability of the Indenture, the Loan Agreement or this Placement Agreement, or the performance by the Issuer of any of its obligations thereunder. (f) The information under the caption "THE ISSUER" in the Placement Memorandum is correct and complete, and the Issuer has approved and authorized the use of the Placement Memorandum by the Placement Agent. The foregoing representations shall survive Closing. Section 5. Representations of Borrower. In consideration of the foregoing, to induce the Issuer to issue the Bonds and to induce the Placement Agent to arrange for the private placement of the Bonds, the Borrower hereby represents and warrants to the Issuer and the Placement Agent and for the benefit of the Purchasers that: (a) The Borrower is a corporation duly organized and validly existing under the laws of the State of Delaware, qualified to do business in the Commonwealth of Pennsylvania, with full power and authority to undertake the financing of the Project as contemplated by this Placement Agreement and the Placement Memorandum, to execute and deliver the Loan Agreement, the Reimbursement Agreement, the Note, the Pledge Agreement, the Remarketing Agreement, this Placement Agreement and all other documents delivered by the Borrower in connection with the financing of the Project and to perform its obligations thereunder. (b) The Borrower has duly executed and delivered the Loan Agreement, the Reimbursement Agreement, the Note, the Pledge Agreement, the Remarketing Agreement, this Placement Agreement and all other documents delivered by the Borrower in connection with the financing of the Project, and to the best of the Borrower's knowledge, no approval or other action by any governmental or administrative board or body is required -5- in connection with the execution, delivery or performance by the Borrower of the same, except such as have been obtained. (c) The execution and delivery by the Borrower of the Loan Agreement, the Reimbursement Agreement, the Note, the Pledge Agreement, the Remarketing Agreement, this Placement Agreement and all other documents delivered by the Borrower in connection with the financing of the Project, have been duly authorized by the Borrower, and each such document, when executed and delivered by the Borrower, to the best of the Borrower's knowledge, will constitute the legal, valid and binding obligation of the Borrower, enforceable against the Borrower in accordance with its terms, except to the extent that the enforceability thereof may be limited by bankruptcy, insolvency or other similar laws or equitable principles affecting the enforcement of creditors' rights generally and rights to indemnity may be limited by applicable law. (d) To the best of the Borrower's knowledge, neither the entering into nor the performance by the Borrower of the Loan Agreement, the Reimbursement Agreement, the Note, the Pledge Agreement, the Remarketing Agreement, this Placement Agreement or any other document delivered by the Borrower in connection with the financing of the Project will violate or conflict with any provision of any statute or any rule, order, regulation, judgment or decree of any court, agency or other governmental or administrative board or body to which the Borrower is subject, or violate, conflict with or constitute a breach of or default under any provision of any indenture, mortgage, deed of trust, agreement or other instrument to which the Borrower is a party or by which the Borrower or any of its properties is bound. (e) To the best of the Borrower's knowledge, all licenses, consents, approvals or authorizations of any federal, state or local governmental agency required on the part of the Borrower to be obtained in connection with the execution and delivery of the Loan Agreement, the Reimbursement Agreement, the Note, the Pledge Agreement, the Remarketing Agreement and this Placement Agreement, the performance by the Borrower of its obligations thereunder and the Borrower's consummation of the transactions contemplated thereby and by the Placement Memorandum, have been duly obtained, and the Borrower has complied with all applicable provisions of law requiring any designation, declaration, filing, registration or qualification with any governmental authority in connection therewith; it being understood that the Borrower has obtained, or prior to the commencement of acquisition, construction and/or equipping of each component of the Project will obtain, all licenses, consents, approvals and authorizations of any and all federal, state or local governmental authorities required on the part of the Borrower to be obtained in connection with the acquisition, construction and/or equipping of such component of the Project, and that the Borrower has no reason to believe that it will not be able to obtain, when required, all further governmental licenses, consents, approvals and authorizations necessary for the acquisition, construction, equipping and/or operation of the Project as contemplated -6- by the Loan Agreement and any and all other documents delivered by the Borrower in connection with the financing of the Project. (f) There is no action, suit, proceeding, inquiry or investigation, at law or in equity, before or by any court, public board or body, pending or, to the knowledge of the Borrower, threatened against the Borrower wherein an unfavorable decision, ruling or finding would have a material adverse effect on the financial condition of the Borrower, the acquisition, construction and/or equipping of the Project, the transactions contemplated by this Placement Agreement and the Placement Memorandum, the validity or enforceability of the Loan Agreement, the Reimbursement Agreement, the Note, the Pledge Agreement, the Remarketing Agreement, this Placement Agreement or any other document delivered by the Borrower in connection with the financing of the Project or the existence or powers of the Borrower. There is no existing violation by the Borrower of any applicable statute, rule, order or regulation of any governmental body which could materially and adversely affect the financial condition or operations of the Borrower or the Project. (g) The Preliminary Placement Memorandum is final as of its date except for the omission of the ratings, the placement fee and the issuance and delivery dates for the Bonds. The information set forth in the Placement Memorandum under the caption "THE BORROWER" does not contain an untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made not misleading. Furthermore, nothing has come to the Borrower's attention that leads it to believe that the Placement Memorandum (other than the information contained therein under the caption "THE ISSUER" and in Appendix A thereto with respect to which no representation is made) contains an untrue statement of a material fact or omits to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. The Borrower hereby approves and authorizes the use of the Preliminary Placement Memorandum and the Placement Memorandum by the Placement Agent. The foregoing representations and warranties shall survive Closing. Section 6. Covenants of Issuer. The Issuer covenants that: (a) The Issuer will cooperate with the Placement Agent in the qualification of the Bonds (and, if necessary, any other security contemplated by this Placement Agreement and the Placement Memorandum) for offering and sale in, and the determination of their eligibility for investment under the laws of, such jurisdictions as the Placement Agent shall designate, provided that the Issuer shall not be required to qualify to do business or consent to service of process in any state or jurisdiction other than the Commonwealth of Pennsylvania and the Issuer's out-of-pocket costs shall be paid out of the Bond proceeds or otherwise provided for. -7- (b) The Issuer will refrain from taking any action, with regard to which it may exercise control, that would result in the loss of the exclusion of the interest on the Bonds from gross income for federal income tax purposes. Section 7. Covenants of Borrower. The Borrower covenants that: (a) The Borrower will provide to the Placement Agent not later than March 20, 1997 the Final Placement Memorandum in such quantity as the Placement Agent may reasonably request, and will use its best efforts to amend the Final Placement Memorandum if and as necessary so that it will not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. (b) The Borrower will promptly notify the Placement Agent of any material adverse change with respect to the financing of the Project as contemplated by this Placement Agreement and the Placement Memorandum or with respect to its business, properties or financial condition, occurring before Closing which would require a change in the Placement Memorandum in order to make the information contained therein not misleading in connection with the placement of the Bonds. (c) The Borrower will cooperate with the Placement Agent in the qualification of the Bonds (and, if necessary, any other security contemplated by this Placement Agreement or the Placement Memorandum) for offering and sale in, and the determination of their eligibility for investment under the laws of, such jurisdictions as the Placement Agent shall designate; provided that the Borrower shall not be required to qualify to do business under the laws of any jurisdiction where it is not now so qualified or to file any general consent to service of process where it is not now so subject. (d) The Borrower will refrain from taking any action, or voluntarily permitting any action to be taken, that results in the loss of the exclusion of the interest on the Bonds from gross income for federal income tax purposes. (e) To the extent permitted by applicable law, the Borrower will indemnify, hold harmless, protect and defend the Issuer and its members, directors, officers and employees, past, present and future, and the Placement Agent and its directors, officers and employees, past, present and future, and each person, if any, who controls the Placement Agent within the meaning of Section 15 of the Securities Act (hereinafter collectively called the "Indemnified Parties"), against any and all losses, claims, damages, liabilities or expenses whatsoever arising out of or based upon: (i) any untrue statement or alleged untrue statement of a material fact contained in the Placement Memorandum under the caption "THE BORROWER" or in the second paragraph under the caption "LITIGATION" or any omission or alleged omission to state therein a material fact necessary to make the statements made therein, in light of the circumstances under which they were made, not misleading; or -8- (ii) an allegation or determination that registration under the Securities Act was required in connection with the issuance, placement or sale of the Bonds or that the Indenture should have been qualified under the Trust Indenture Act of 1939, as amended. In case any action or claim shall be brought or asserted against one or more of the Indemnified Parties with respect to the matters subject to the indemnity provided by this Section, the Indemnified Party or Parties shall promptly notify the Borrower in writing, and the Borrower shall promptly assume the defense thereof, including the employment of counsel reasonably satisfactory to such Indemnified Party or Parties and the payment of all expenses. Any one or more of the Indemnified Parties shall have the right to employ separate counsel in any such action and to participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such Indemnified Party or Parties unless: (i) the employment thereof has been specifically authorized by the Borrower in writing; (ii) the Borrower has failed to assume promptly the defense and employ counsel reasonably satisfactory to such Indemnified Party or Parties; or (iii) the named parties to any such action (including any impleaded parties) include both such Indemnified Party or Parties and the Borrower, and such Indemnified Party or Parties shall have been advised by counsel that there may be one or more legal defenses available to it which are different from or additional to those available to the Borrower (in which case the Borrower shall not have the right to assume the defense of such action on behalf of such Indemnified Party or Parties), in any of which events such fees and expenses shall be borne by the Borrower. The Borrower shall not be liable for any settlement of such action effected without its consent (such consent not to be unreasonably withheld), but if settled with the consent of the Borrower, or if there is final judgement for the plaintiff in any such action with or without consent, the Borrower agrees to indemnify and hold harmless the Indemnified Party or Parties from and against any loss or liability by reason of settlement or judgement. The indemnity provided in this Section includes reimbursement for expenses incurred by the Indemnified Parties in investigating the claim and in defending it in accordance with the terms of this Section. The indemnity provided in this Section shall survive Closing. (f) In order to provide for just and equitable contribution in circumstances in which the indemnification provided for in paragraph (e) of this Section is due in accordance with its terms but is for any reason unavailable or insufficient, the Borrower shall contribute to the aggregate losses, claims, damages and liabilities (including legal or other expenses reasonably incurred in connection with investigating or defending the same) to which the Placement Agent may be subject in such proportion so that the Borrower bears them in a portion that considers the benefits received by the Borrower from the placement of the Bonds, the Borrower's knowledge and access to information concerning the matter with respect to which the claim was asserted, the opportunity to correct or prevent any statement or omission and any other equitable considerations appropriate under the circumstances; and no person (including the Placement Agent) guilty of fraudulent misrepresentation within the meaning of Section 11(f) of the Securities Act shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. For purposes of this Section, each person who controls the Placement Agent within the -9- meaning of Section 15 of the Securities Act shall have the same rights as the Placement Agent. Any party entitled to contribution shall, promptly after receipt of notice of commencement of any action, suit or proceeding against such party in respect of which a claim for contribution may be made against the Borrower under this paragraph, notify the Borrower, but the omission so to notify the Borrower shall not relieve the Borrower from any other obligation it may have hereunder or otherwise under this paragraph. Section 8. Conditions of Closing. The placement of the Bonds with the initial purchasers thereof is subject to fulfillment of the following conditions at or before Closing: (a) The Issuer's and the Borrower's representations hereunder shall be true on and as of the Closing Date and shall be confirmed by certificates at Closing. (b) Neither the Issuer nor the Borrower shall have defaulted in any of their covenants hereunder. (c) The Placement Agent shall have received: (i) original executed copies (or photocopies thereof) of the Indenture, the Loan Agreement, the Letter of Credit, the Participating Bank Agreement, the Reimbursement Agreement, the Pledge Agreement, the Remarketing Agreement and all other documents executed in connection therewith or delivered at Closing; (ii) opinions of Bond Counsel dated the Closing Date with respect to the matters set forth in Exhibits A, B and C attached hereto; (iii) an opinion of Issuer Counsel dated the Closing Date with respect to the matters set forth in Exhibit D attached hereto; (iv) an opinion or opinions of Borrower Counsel dated the Closing Date with respect to the matters set forth in Exhibit E attached hereto; (v) an opinion of Bank Counsel dated the Closing Date with respect to the matters set forth in Exhibit F attached hereto; (vi) a certificate of the Bank dated the Closing Date in the form set forth in Exhibit G attached hereto; and (vii) a certificate of the Borrower dated the Closing Date with respect to the matters set forth in Exhibit H attached hereto; and (viii) a certificate of the Issuer dated the Closing Date with respect to the matters set forth in Exhibit I attached hereto. -10- (d) At Closing there shall not have been any adverse change with respect to the Project or the financing thereof as contemplated by the Placement Memorandum and this Placement Agreement or in the business, property or financial condition of the Borrower, except as set forth in or contemplated by the Placement Memorandum, which, in the judgment of the Placement Agent, is material and makes it inadvisable to proceed with the placement and sale of the Bonds; and the Placement Agent shall have received certificates that no material adverse change has occurred or, if such a change has occurred, full information with respect thereto. (e) The Placement Agent shall receive such documentation as it may reasonably request to evidence that the Borrower has received all necessary state and local licenses and approvals from applicable state and local governmental authorities required on the part of the Borrower to be obtained in connection with the execution and delivery of the Loan Agreement and this Placement Agreement and the Borrower's consummation of the transactions contemplated thereby and by the Placement Memorandum. (f) The Placement Agent shall receive such additional documentation as it may reasonably request to evidence compliance with applicable law, the validity of the Resolutions, the Bonds, the Indenture, the Loan Agreement, the Letter of Credit, the Participating Bank Agreement, the Reimbursement Agreement, the Pledge Agreement, the Remarketing Agreement, this Placement Agreement and all other documents delivered by the Borrower in connection with the financing of the Project and to demonstrate the status of the offering of the Bonds under the Securities Act. (g) The Bonds shall have been rated at least "Aa3" by Moody's Investors Service. Section 9. Events Permitting Placement Agent to Terminate. The Placement Agent may terminate its obligation to arrange for the placement of the Bonds at any time before Closing if any of the following occur: (a) Legislative, executive or regulatory action or a court decision which, in the judgment of the Placement Agent, casts sufficient doubt on the legality of obligations such as the Bonds, or the exclusion of interest on obligations such as the Bonds from gross income for federal income tax purposes, so as to impair materially the marketability thereof; (b) Any action by the Securities and Exchange Commission or a court which would require any registration under the Securities Act, in connection with the issuance, placement or sale of the Bonds, or qualification of the Indenture under the Trust Indenture Act of 1939, as amended; (c) Any general suspension of trading in securities on the New York Stock Exchange or the establishment by the New York Stock Exchange, by the Securities -11- and Exchange Commission, by any federal or state agency or by the decision of any court, of any limitation on prices for such trading, or any outbreak of hostilities or occurrence of any other national or international calamity or crisis, the effect of which on the financial markets of the United States shall be such as to make it impracticable for the Placement Agent to proceed with the placement of the Bonds; or (d) Any event or condition which, in the judgment of the Placement Agent, renders untrue or incorrect, in any material respect as of the time to which the same purports to relate, the information contained in the Placement Memorandum, or which requires that information not reflected in the Placement Memorandum should be reflected therein in order to make the statements and information contained therein not misleading in any material respect as of such time. If the Placement Agent terminates its obligations to place the Bonds because any of the conditions specified in Section 8 or 9 shall not have been fulfilled or shall have occurred at or before the Closing, such termination shall not result in any liability on the part of the Issuer or the Placement Agent. Section 10. Notices and Other Actions. All notices, demands and formal actions hereunder shall be in writing mailed, telegraphed or delivered to: The Issuer: Montgomery County Industrial Development Authority #3 Stony Creek Office Center Suite 320 151 West Marshall Street Norristown, PA 19401 Attention: Executive Director -12- The Borrower: Neose Technologies, Inc. 102 Witmer Road Horsham, PA 19044 Attention: President With a copy to: Ballard Spahr Andrews & Ingersoll 1735 Market Street, 51st Floor Philadelphia, PA 19103 Attention: Lynn Axelroth, Esquire The Placement Agent: CoreStates Capital Markets, a division of CoreStates Bank, N.A. 600 Penn Street, Second Floor Reading, PA 19602 Attention: Ms. Angel Helm Senior Vice President Section 11. Governing Law. This Placement Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Pennsylvania. Section 12. Assignment; Successors and Assigns. The rights and obligations of the Borrower and the Issuer hereunder shall not be assignable without the prior written consent of the Placement Agent. This Placement Agreement will inure to the benefit of and be binding upon the parties hereto and their successors and assigns, and will not confer any rights upon any other persons except that the Purchasers shall be beneficiaries of the representations in Sections 4 and 5 hereof. Section 13. Counterparts. This Placement Agreement may be executed in any number of counterparts, all of which taken together shall be one and the same instrument, and any parties hereto may execute this Placement Agreement by signing any such counterpart. Section 14. Expenses. Whether or not the Bonds are sold by the Issuer, the Placement Agent shall be under no obligation to pay any fees or expenses incident to the performance of the obligations of the Issuer. All fees, expenses and costs to effect the authorization, preparation, issuance, delivery, placement and sale of the Bonds (including without limitation the Issuer's fees and legal and other expenses), the fees and disbursements of Bond Counsel, the placement fee and expenses (including legal, travel and newspaper "tombstone" advertisement expenses) of the Placement Agent and the expenses and costs for the preparation, printing, -13- photocopying, execution and delivery of the Placement Memorandum, the Bonds, the Indenture, the Loan Agreement, the Letter of Credit, the Participating Bank Agreement, the Reimbursement Agreement, the Pledge Agreement, the Remarketing Agreement, this Placement Agreement and all other documents contemplated hereby and/or delivered at Closing, shall be paid by the Borrower or by the Trustee from moneys deposited in the Project Fund established under the Indenture pursuant to appropriate closing statements and/or requisitions signed and delivered by the Borrower. -14- IN WITNESS WHEREOF, the Issuer, the Borrower and the Placement Agent have caused their duly authorized representatives to execute and deliver this Placement Agreement as of the date first written above. [SEAL] MONTGOMERY COUNTY INDUSTRIAL DEVELOPMENT AUTHORITY Attest: /s/ Gerald J. Birkelbach By: /s/ Sherry L. Horowitz ------------------------------- ------------------------------- (Assistant) Secretary Chairperson or Vice Chairman [SEAL] NEOSE TECHNOLOGIES, INC. Attest: /s/ A. Brian Davis By: /s/ P. Sherrill Neff --------------------------------- ------------------------------- Secretary President [SEAL] CORESTATES CAPITAL MARKETS, A DIVISION OF CORESTATES BANK, N.A. By: /s/ Wade Johnson -------------------------------- Senior Vice President This execution page is part of the Placement Agreement, dated March 20, 1997 among Montgomery County Industrial Development Authority, Neose Technologies, Inc. and CoreStates Capital Markets, a division of CoreStates Bank, N.A.. -15- LIST OF EXHIBITS OMITTED EXHIBIT A - Points to Be Covered in Opinion of Bond Counsel EXHIBIT B - Points to be Covered in Supplemental Opinion of Bond Counsel EXHIBIT C - Points to be Covered in Preference Opinion of Bond Counsel EXHIBIT D - Points to be Covered in Opinion of Issuer Counsel EXHIBIT E - Points to be Covered in Opinion of Borrower Counsel EXHIBIT F - Points to be Covered in Opinion of Bank Counsel EXHIBIT G - CERTIFICATE OF BANK EXHIBIT H - Certificate of Borrower EXHIBIT I - Certificate of Issuer The Registrant hereby agrees to furnish supplementally a copy of any omitted exhibit to the Securities and Exchange Commission upon request. EX-10.12 17 REMARKETING AGREEMENT Exhibit 10.12 $8,400,000 MONTGOMERY COUNTY INDUSTRIAL DEVELOPMENT AUTHORITY FEDERALLY TAXABLE VARIABLE RATE DEMAND REVENUE BONDS (NEOSE TECHNOLOGIES, INC. PROJECT), SERIES B OF 1997 REMARKETING AGREEMENT Neose Technologies, Inc. 102 Witmer Road Horsham, PA 19044 Attention: P. Sherrill Neff, President Dear Sirs: This confirms the agreement between CORESTATES CAPITAL MARKETS, A DIVISION OF CORESTATES BANK, N.A., (the "Remarketing Agent") and NEOSE TECHNOLOGIES, INC., a Delaware corporation (the "Borrower"), for the undersigned to act as exclusive remarketing agent for the above-captioned Bonds (the "Bonds"). This Agreement is dated as of March 1, 1997, but effective on the date of issuance of the Bonds. The Bonds are being issued pursuant to a Trust Indenture, dated as of March 1, 1997 (the "Indenture") between Montgomery County Industrial Development Authority (the "Issuer") and Dauphin Deposit Bank and Trust Company, as trustee (the "Trustee") and are supported by an irrevocable Letter of Credit issued by CoreStates Bank, N.A. (as issuer of the Letter of Credit, the "Bank") to the Trustee. All capitalized terms and phrases used herein and not defined herein shall have the meanings specified in the Indenture. 1. Acceptance of Appointment of Remarketing Agent; Responsibilities of Remarketing Agent. (a) Subject to the terms and conditions herein contained, CoreStates Capital Markets, a division of CoreStates Bank, N.A. hereby accepts its appointment as Remarketing Agent under the Indenture in connection with the placement and sale of Bonds, from time to time, subsequent to the initial placement, issuance and sale of the Bonds and hereby accepts all of the duties and obligations imposed on it under the Indenture as Remarketing Agent, including, without limitation, the Remarketing Agent's obligations under the Indenture to: (i) hold all Bonds delivered to it by the Trustee under the Indenture for delivery to the Holders thereof; -1- (ii) hold all moneys representing the purchase price of Bonds for delivery to the Trustee pursuant to the Indenture for the benefit of the persons entitled to receive the payment of such purchase price (such moneys to be held uninvested); and (iii) keep such books and records as shall be consistent with prudent industry practice and make such books and records available for inspection by the Issuer, the Trustee and the Borrower at all reasonable times. (b) Subject to the terms and conditions herein contained, the Remarketing Agent, upon timely receipt of appropriate notice pursuant to the Indenture with respect to any Bonds, shall exercise its best efforts to arrange for the sale of such Bonds in the principal amount described in such notice, at a purchase price equal to the principal amount thereof plus accrued interest thereon, if any, on the purchase date in respect of which such notice is given. (c) It is understood and agreed that no assurance can be given that any such purchases will be consummated on any purchase date, and it is further understood and agreed that the Remarketing Agent shall in no respect be deemed to be warranting that any such purchases will be consummated on the purchase date or to be assuming any liability or undertaking any obligation of any nature in the event any such purchases shall not be consummated on the purchase date. (d) The Remarketing Agent agrees that its duties hereunder will include the determination of interest rates to be borne by the Bonds as set forth in the Indenture. (e) The Remarketing Agent may cease its efforts to arrange for the sale of the Bonds with immediate effect if it determines that for any reason, including without limitation: (i) a pending or proposed change in applicable tax laws; (ii) a material adverse change in the financial condition of the Borrower or the Bank; (iii) a banking moratorium; (iv) hostilities adversely affecting the market conditions generally or for municipal obligations; (v) a down-rating of the Bonds; (vi) an imposition of material restrictions on the Bonds or similar obligations; or (vii) a material misstatement or omission in the Disclosure Materials (as such phrase is defined in Section 2 hereof), it is not advisable to attempt to remarket the Bonds. (f) The Remarketing Agent shall have the right to suspend or cancel forthwith its obligations under this Agreement and the Indenture (it being agreed that any such suspension or cancellation shall not constitute a default hereunder or under the Indenture on the part of the Remarketing Agent) by notifying the Borrower, the Trustee, the Issuer, Jefferson Bank (the "Participating Bank") and the Bank of its election to do so, if at any time any of the following events occurs: (i) An Event of Default under the Indenture, the Participating Bank Agreement or the Reimbursement Agreement or an event which with the giving of notice or lapse of time or both would be an Event of Default under the Indenture, the -2- Participating Bank Agreement or the Reimbursement Agreement has occurred, whether or not the Bank or the Participating Bank has notified the Trustee to draw on the Letter of Credit; or (ii) A Rating Service shall revise, withdraw or otherwise change its rating (or one of its ratings) of the Bonds in a manner that adversely affects the market for the Bonds; or (iii) Intentionally Omitted; or (iv) Legislation shall have been enacted by the Congress of the United States of America or by the Commonwealth of Pennsylvania, or a decision shall have been rendered by a court of the United States of America or the Commonwealth of Pennsylvania, or a regulation or ruling shall have been issued by a federal authority or an authority of the Commonwealth of Pennsylvania, which has the effect, either directly or indirectly, of materially adversely affecting the Remarketing Agent's ability to remarket the Bonds; or (v) Any fee of the Remarketing Agent under this Agreement remains unpaid for a period of 30 days after such fee becomes due and payable. (g) Anything herein or in the Indenture to the contrary notwithstanding: (i) the Remarketing Agent's duties and obligations accepted under this Agreement shall terminate on the date of conversion to a Term Mode; (ii) the Remarketing Agent shall have no obligation under this Agreement to determine the Term Rate in connection with the conversion of the interest rate thereon to a Term Rate; and (iii) the Remarketing Agent shall have no obligation under this Agreement to remarket Bonds upon a mandatory tender for purchase pursuant to the Indenture. (h) The Remarketing Agent represents as of the date hereof that: (i) it is authorized by law to perform its duties and obligations as Remarketing Agent under this Agreement and the Indenture; (ii) it routinely engages in the remarketing of municipal securities such as the Bonds; and (iii) it will settle all transactions pursuant to industry practice within five days of execution. (i) Executed copies of this Agreement shall be delivered to the Issuer and the Trustee for the purpose of evidencing the Remarketing Agent's acceptance of its duties and obligations under the Indenture as required by Section 8.13 thereof. (j) Except as otherwise provided in the Indenture, the Remarketing Agent agrees that it will not remarket to the Issuer, the Borrower or any Affiliate, any Bonds to be purchased pursuant to Section 4.01 or 4.02 of the Indenture. -3- 2. Furnishings of Disclosure Materials. (a) The Borrower agrees to furnish the Remarketing Agent with as many copies as the Remarketing Agent may reasonably request of the final Placement Memorandum, dated March 20, 1997 (the "Placement Memorandum"), relating to the Bonds. (b) If the Remarketing Agent reasonably determines that it is necessary to use any other disclosure materials in connection with its remarketing of Bonds, the Remarketing Agent will so notify the Borrower, and the Remarketing Agent shall not be obligated to remarket Bonds until it has been provided (and the Borrower will use its best efforts so to provide) such disclosure materials reasonably satisfactory to the Remarketing Agent and its counsel for the remarketing of the Bonds. The Placement Memorandum and any such disclosure materials, together with any amendments and supplements thereto and any other information provided to the Remarketing Agent pursuant to this Section 2, are herein referred to as the "Disclosure Materials". The Borrower will supply the Remarketing Agent, at no expense to the Remarketing Agent, with as many copies as the Remarketing Agent may reasonably request, of all Disclosure Materials, and will use its best efforts to amend such materials (and any documents that may be incorporated by reference therein) so that such materials will not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. In connection with any Disclosure Materials, the Borrower will use its best efforts to provide the Remarketing Agent with such certificates, opinions of counsel (including bond counsel) and other support for the information contained therein as the Remarketing Agent and its counsel may reasonably request. All fees and expenses reasonably incurred by the Remarketing Agent in connection with such revisions and updating, including without limitation the costs of printing and the fees and expenses of counsel to the Remarketing Agent and of bond counsel, shall be paid by the Borrower. (c) If, at any time during the term of this Agreement, any event known to the Borrower relating to or affecting the Borrower, the Project or the Bonds shall occur which materially affects the adequacy of the disclosure set forth in the Disclosure Materials, including the correctness of any fact contained in or the propriety of omitting any fact from any Disclosure Materials, the Borrower will promptly notify the Remarketing Agent in writing of the circumstances and details of such event. 3. Representations, Warranties, Covenants and Agreements of the Borrower. The Borrower represents, warrants, covenants and agrees with the Remarketing Agent as follows: (a) This Agreement has been duly authorized, executed and delivered by the Borrower and performance by the Borrower hereunder will not conflict with, or result in a breach of any of the provisions of, or constitute a default (or an event which with the giving of notice or the lapse of time or both would constitute a default) under, any agreement or -4- instrument by which the Borrower is bound or violate any law, administrative regulation or court order to which the Borrower is subject. (b) The Borrower will diligently cooperate with the Remarketing Agent to qualify the Bonds to be remarketed by the Remarketing Agent pursuant to this Agreement under the securities or "Blue Sky" laws of such jurisdictions as the Remarketing Agent may request; provided that in doing so the Borrower shall not be obligated to qualify to do business in any jurisdiction where it is not now so qualified or take any action which would subject it to the general service of process in any jurisdiction where it is not now so subject. (c) The information set forth in the Disclosure Materials under the caption "THE BORROWER" does not contain an untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made not misleading. Furthermore, nothing has come to the Borrower's attention that leads it to believe the Disclosure Materials contain and (after being amended or supplemented, if appropriate) will contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, except that no representation is made with respect to the information set forth under the caption "THE ISSUER" (relating to the Issuer) and in Appendix A thereto (relating to the Bank). (d) There is no action, suit, proceeding, inquiry or investigation, at law or in equity, before or by any court, agency, department, board or body or before any arbitrator, pending or, to the knowledge of the Borrower, threatened against or affecting the Borrower: (i) which would be required to be disclosed in any Disclosure Materials in order that they not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in the light of the circumstances under which they are made, not misleading and which is not disclosed in such Disclosure Materials; or (ii) wherein an unfavorable decision, ruling or finding would, in any way, materially adversely affect the transactions contemplated hereby or the validity or enforceability of this Agreement, the Bonds, the Indenture, the Loan Agreement or the Letter of Credit. (e) All required consents, rulings and approvals of governmental authorities (other than registration or filing requirements of "Blue Sky" authorities, as to which no representation is made) required in connection with the execution and delivery by the Borrower of this Agreement and the performance by the Borrower of its obligations hereunder have been obtained and are in full force and effect. 4. Term of Agreement; Termination. This Agreement shall become effective upon execution and delivery by the Remarketing Agent and the Borrower and shall continue in full force and effect to and including the date final payment on the Bonds is made or the date the Bonds are required to be purchased pursuant to a mandatory tender for purchase pursuant to the Indenture, subject to the right of the Remarketing Agent to resign and the right of the Borrower to request the Remarketing Agent to resign as set forth in this Section 4. The -5- Remarketing Agent may be removed by the Issuer, with the written consent of the Borrower, at any time on 30 days written notice, by an instrument, signed by the Issuer delivered to the Remarketing Agent, the Trustee, the Participating Bank and the Bank. The Remarketing Agent may resign at any time on 30 days written notice to the Borrower, the Issuer, the Trustee, the Participating Bank and the Bank. Following termination of this Agreement, the provisions of Sections 7 and 9 of this Agreement will continue in effect as to transactions prior to the date of such termination, and each party will pay the other any amounts owing at the time of such termination. 5. Payment of Fees and Expenses. (a) The Borrower shall pay to the Remarketing Agent, as compensation for the Remarketing Agent's services hereunder: (1) on the date of execution and delivery of this Agreement, a fee equal to $8,400; and (2) on each March 1 thereafter a fee equal to one tenth of one percent (.10%) of the aggregate principal amount of the Bonds outstanding on such March 1. Such fees are payable at the Remarketing Agent's address set forth in Section 8 hereof, are nonrefundable in the event Bonds are thereafter redeemed or paid, and are subject to change upon 90 days written notice by the Remarketing Agent to the Borrower. (b) Expenses of the Remarketing Agent payable by the Borrower shall include, without limitation, any costs of funds incurred by the Remarketing Agent in connection with the payment of the purchase price of Bonds prior to the receipt of funds drawn under the Letter of Credit or the receipt of remarketing proceeds as provided in the Indenture. Nothing herein shall be construed as obligating CoreStates Capital Markets, a division of CoreStates Bank, N.A. in its capacity as Remarketing Agent to pay the purchase price of any Bond from any of its own funds. The Remarketing Agent will not be entitled to compensation accruing after this Agreement shall have been terminated. 6. Conditions to Remarketing Agent's Obligations. The obligations of the Remarketing Agent under this Agreement shall be subject, at the option of the Remarketing Agent, to the satisfaction of each of the following conditions: (i) to the extent that any Disclosure Materials shall have been provided to the Remarketing Agent in connection with the remarketing of the Bonds to be purchased on any date, the Remarketing Agent shall have received such certificates, opinions of counsel (including bond counsel) and other support for the information contained in such Disclosure Materials as the Remarketing Agent or its counsel shall have reasonably requested pursuant to Section 2(b) hereof; and (ii) the representations and warranties of the Borrower contained herein shall be true and correct in all material respects on and as if made on any date on which the Bonds are to be remarketed. -6- 7. Indemnification; Contribution. (a) To the extent permitted by applicable law, the Borrower will indemnify and hold harmless the Remarketing Agent and each director, officer and employee of the Remarketing Agent and each person who controls the Remarketing Agent within the meaning of Section 15 of the Securities Act of 1933, as amended (such Act being herein called the "Securities Act", and any such person being herein sometimes called an "Indemnified Party"), against any and all losses, claims, damages or liabilities, joint or several, to which such Indemnified Party may become subject under any statute or at law or in equity or otherwise, and shall reimburse any such Indemnified Party for any legal or other expenses incurred by it in connection with investigating any claims against it and defending any actions, but only to the extent that such losses, claims, damages, liabilities or actions arise out of or are based upon: (i) any untrue statement or alleged untrue statement of a material fact contained under the caption "THE BORROWER" or describing the operation and affairs of the Borrower in any Disclosure Materials or any omission or alleged omission to state therein a material fact necessary to make the statements therein, in the light of the circumstances under which they are made, not misleading; or (ii) an allegation or determination that registration under the Securities Act was required in connection with the offering or sale of the Bonds or the Indenture should have been qualified under the Trust Indenture Act of 1939, as amended. (b) If any action or claim shall be brought or asserted against an Indemnified Party in respect of which indemnity may be sought from the Borrower, such Indemnified Party shall promptly notify the Borrower in writing, and the Borrower shall assume the defense thereof, including the employment of counsel reasonably satisfactory to such Indemnified Party and the payment of all expenses. Such Indemnified Party shall have the right to employ separate counsel in any such action and to participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such Indemnified Party unless: (i) the employment thereof has been specifically authorized by the Borrower in writing; (ii) the Borrower has failed to assume promptly the defense and employ counsel reasonably satisfactory to such Indemnified Party; or (iii) the named parties to any such action (including any impleaded parties) include such Indemnified Party and the Borrower, and such Indemnified Party shall have been advised by counsel that there may be one or more legal defenses available to it which are different from or additional to those available to the Borrower (in which case the Borrower shall not have the right to assume the defense of such action on behalf of such Indemnified Party), in any of which events the fees and expenses of such counsel shall be borne by the Borrower. The Borrower shall not be liable for any settlement of any such action or claim effected without its consent (which consent shall not be unreasonably withheld), but if settled with its consent or if there is a final judgment for the plaintiff in any such action, the Borrower will indemnify and hold harmless each Indemnified Party from and against any loss or liability by reason of such settlement or judgment. The indemnity provided in this Section includes reimbursement for expenses incurred by the Indemnified Party in investigating the claim and in defending it in accordance with this Section. -7- (c) In order to provide for just and equitable contribution in circumstances in which the indemnification provided for in paragraphs (a) and (b) of this Section is due in accordance with its terms but is for any reason unavailable or insufficient, the Borrower shall contribute to the aggregate losses, claims, damages and liabilities (including legal or other expenses reasonably incurred in connection with investigating or defending the same) to which the Remarketing Agent may be subject in such proportion so that the Borrower bears them in a portion that considers the benefits received from the remarketing of the Bonds, the Borrower's knowledge and access to information concerning the matter with respect to which the claim was asserted, the opportunity to correct or prevent any statement or omission and any other equitable considerations appropriate under the circumstances; and no person (including the Remarketing Agent) guilty of fraudulent misrepresentation within the meaning of Section 11(f) of the Securities Act shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. For purposes of this Section, each person who controls the Remarketing Agent within the meaning of Section 15 of the Securities Act shall have the same rights as the Remarketing Agent. Any party entitled to contribution shall, promptly after receipt of notice of commencement of any action, suit or proceeding against such party in respect of which a claim for contribution may be made against another party or parties under this paragraph (c), notify the Borrower, but the omission so to notify the Borrower shall not relieve the Borrower from any other obligation it may have hereunder. (d) The agreements contained in this Section 7 shall remain operative and in full force and effect, regardless of any investigation made by or on behalf of any Indemnified Party or delivery of the Bonds. 8. Notices. All notices under this Agreement shall be in writing and mailed, delivered or transmitted to: The Remarketing Agent: CoreStates Capital Markets, a division of CoreStates Bank, N.A. 600 Penn Street, Second Floor Reading, PA 19602 Attention: Municipal Syndicate Desk Telecopier No.: (610) 655-0934 -8- The Borrower: Neose Technologies, Inc. 102 Witmer Road Horsham, PA 19044 Attention: President Telecopier: (215) 441-5896 With a copy to: Ballard Spahr Andrews & Ingersoll 1735 Market Street Philadelphia, PA 19103 Attention: Lynn Axelroth, Esquire Telecopier: (215) 864-8999 Any party may, by notice given under this Agreement, designate another address to which notices hereunder shall be directed. The Remarketing Agent shall accept delivery of Bonds from the Trustee at the notice address. 9. Remarketing Agent's Liabilities. The Remarketing Agent shall incur no liability to the Borrower, the Issuer or any other party by its actions as Remarketing Agent, except for gross negligence, willful misconduct or breach of the terms of this Agreement. 10. Ownership of Bonds by Remarketing Agent. CoreStates Capital Markets, a division of CoreStates Bank, N.A., in its individual capacity, either as principal or agent, may buy, sell, own and hold the Bonds, and may join in any action which any Holder may be entitled to take with like effect as if it did not act as Remarketing Agent hereunder. CoreStates Capital Markets, a division of CoreStates Bank, N.A. or any entity with which it is affiliated, in its individual capacity, either as principal or agent, may also engage in or be interested in any financial or other transaction with the Borrower and may also act as Trustee, the Participating Bank and/or issuer of the Letter of Credit as freely as if CoreStates Capital Markets, a division of CoreStates Bank, N.A., did not act as Remarketing Agent hereunder. 11. Intention of Parties. It is the express intention of the parties hereto that no purchase, sale or transfer of any Bonds, as herein provided, shall constitute or be construed to be the extinguishment of any Bond or the indebtedness represented thereby or the reissuance of any Bond or the refunding of any indebtedness represented thereby. 12. Miscellaneous. (a) The rights and obligations of the respective parties hereto may not be assigned or delegated to any other person without the consent of the other parties hereto, -9- except that the Remarketing Agent may assign its rights and obligations hereunder to an affiliate of the Remarketing Agent. This Agreement will inure to the benefit of and be binding upon the Borrower and the Remarketing Agent and their respective successors and assigns, and, except as expressly set forth herein, will not confer any rights upon any other person. (b) All of the representations, warranties, covenants and agreements of the Borrower and the Remarketing Agent in this Agreement shall remain operative and in full force and effect, regardless of: (i) any investigation made by or on behalf of the Remarketing Agent or the Borrower; or (ii) delivery of and payment for any Bonds hereunder. (c) Section headings have been inserted in this Agreement as a matter of convenience of reference only, are not a part of this Agreement and shall not be used in the interpretation of any provisions of this Agreement. (d) If any provision of this Agreement shall be held or deemed to be or shall, in fact, be invalid, inoperative or unenforceable as applied in any particular case in any jurisdiction or jurisdictions, or in all jurisdictions, because it conflicts with any provision of any constitution, statute or rule of public policy or for any other reason, such circumstances shall not have the effect of rendering the provision in question invalid, inoperative or unenforceable in any other case or circumstance, or of rendering any other provision or provisions of this Agreement invalid, inoperative or unenforceable to any extent whatever. (e) This Agreement may be executed in several counterparts each of which shall be regarded as an original and all of which shall constitute one and the same document. (f) This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Pennsylvania. (g) By executing this Agreement in the respective places provided below, the Remarketing Agent and the Borrower agree to be legally bound by the provisions of this Agreement. -10- Very truly yours, CORESTATES CAPITAL MARKETS, A DIVISION OF CORESTATES BANK, N.A., By: /s/ Angel Helm ------------------------------- Senior Vice President Accepted and agreed to as of the date first above written: NEOSE TECHNOLOGIES, INC. By: /s/ P. Sherrill Neff --------------------------------- P. Sherrill Neff, President Attest: /s/ A. Brian Davis ----------------------------- Secretary (SEAL) -11- EX-10.13 18 1995 STOCK OPTION/STOCK ISSUANCE PLAN NEOSE TECHNOLOGIES, INC. 1995 STOCK OPTION/STOCK ISSUANCE PLAN (Amended and Restated as of March 16, 1996 and as of April 23, 1997) ARTICLE ONE GENERAL I. PURPOSE OF THE PLAN A. This 1995 Stock Option/Stock Issuance Plan (the "Plan") is intended to promote the interests of Neose Technologies, Inc., a Delaware corporation (the "Corporation"), by providing eligible individuals with the opportunity to obtain an equity interest, or otherwise increase their equity interest, in the Corporation. This Plan shall serve as the successor equity incentive program to the Corporation's 1992 Stock Option Plan and 1991 Stock Option Plan. B. The Discretionary Option Grant and Stock Issuance Programs of the Plan became effective immediately upon the adoption of the Plan by the Corporation's Board of Directors. Such date is hereby designated the "Plan Effective Date." The Automatic Option Grant Program became effective upon the execution and final pricing of the Underwriting Agreement for the initial public offering of the Corporation's Common Stock. The execution date of such Underwriting Agreement is hereby designated as the Automatic Option Program Effective Date. The Director Fee Option Grant Program became effective on March 16, 1996. II. DEFINITIONS A. For the purposes of this Plan, the following definitions shall be in effect: Board: the Corporation's Board of Directors. Change in Control: a change in ownership or control of the Corporation effected through either of the following transactions: -- the direct or indirect acquisition by any person or related group of persons (other than the Corporation or a person that directly or indirectly controls, is controlled by, or is under common control with, the Corporation) of beneficial ownership (within the meaning of Rule 13d-3 of the 1934 Act) of securities possessing more than fifty percent (50%) of the total combined voting power of the Corporation's outstanding securities pursuant to a tender or exchange offer made directly to the Corporation's shareholders which the Board does not recommend such shareholders to accept, or -- a change in the composition of the Board over a period of thirty-six (36) months or less such that a majority of the Board members ceases, by reason of one or more contested elections for Board membership, to be comprised of individuals who either (a) have been Board members continuously since the beginning of such period or (b) have been elected or nominated for election as Board members during such period by at least a majority of the Board members described in clause (a) who were still in office at the time such election or nomination was approved by the Board. Code: the Internal Revenue Code of 1986, as amended. Committee: the committee of two (2) or more non-employee Board members appointed by the Board to administer the Plan. Common Stock: shares of the Corporation's common stock. Corporate Transaction: either of the following shareholder- approved transactions to which the Corporation is a party: (i) a merger or consolidation in which securities possessing more than fifty percent (50%) of the total combined voting power of the Corporation's outstanding securities are transferred to a person or persons different from the persons holding those securities immediately prior to such transaction, or (ii) the sale, transfer or other disposition of all or substantially all of the Corporation's assets in complete liquidation or dissolution of the Corporation. Employee: an individual who performs services while in the employ of the Corporation or one or more parent or subsidiary corporations, subject to the control and direction of the employer entity not only as to the work to be performed but also as to the manner and method of performance. Exercise Date: the date on which the Corporation shall have written notice of the option exercise. Fair Market Value: the Fair Market Value per share of Common Stock determined in accordance with the following provisions: -- If the Common Stock is at the time traded on the Nasdaq National Market, the Fair Market Value shall be the closing selling price per share on the date in question, as such price is reported by the National Association of Securities Dealers on the Nasdaq National Market or any successor system. If there is no reported closing selling price for the Common Stock on the date in question, then the Fair Market Value shall be the closing selling price on the last preceding date for which such quotation exists. -- If the Common Stock is at the time listed or admitted to trading on any national securities exchange, then the Fair Market Value shall be the closing selling price per share on the date in question on the exchange determined by the Plan Administrator to be the primary market for the Common Stock, as such price is officially quoted in the composite tape of transactions on such exchange. If there is no reported sale of Common Stock on such exchange on the date in question, then the Fair Market Value shall be the closing selling price on the exchange on the last preceding date for which such quotation exists. -- If the Common Stock is on the date in question neither listed nor admitted to trading on any national securities exchange nor traded on the Nasdaq National Market, then the Fair Market Value of the Common Stock on such date shall be determined by the Plan Administrator after taking into account such factors as the Plan Administrator shall deem appropriate. Hostile Take-Over: a change in ownership of the Corporation effected through the following transaction: -- the direct or indirect acquisition by any person or related group of persons (other than the Corporation or a person that directly or indirectly controls, is controlled by, or is under common control with, the Corporation) of beneficial ownership (within the meaning of Rule 13d-3 of the 1934 Act) of securities possessing more than fifty percent (50%) of the total combined voting power of the Corporation's outstanding securities pursuant to a tender or exchange offer made directly to the Corporation's shareholder's which the Board does not recommend such shareholders to accept, and -- the acceptance of more than fifty percent (50%) of the securities so acquired in such tender or exchange offer from holders other than the officers and directors of the Corporation subject to the short-swing profit restrictions of Section 16 of the 1934 Act. Incentive Option: a stock option which satisfies the requirements of Code Section 422. 2 Involuntary Termination: the termination of the Service of any Optionee or Participant which occurs by reason of: -- such individual's voluntary resignation following (A) a change in his or her position with the Corporation which materially reduces his or her level of responsibility, (B) a reduction in his or her level of compensation (including base salary, fringe benefits and any non-discretionary and objective-standard incentive payment or bonus award) by more than ten percent (10%) in the aggregate or (C) a relocation of such individual's place of employment by more than fifty (50) miles, provided and only if such change, reduction or relocation is effected by the Corporation without the individual's consent. Misconduct: the commission of any act of fraud, embezzlement or dishonesty by the Optionee or Participant, any unauthorized use or disclosure by such individual of confidential information or trade secrets of the Corporation or its parent or subsidiary corporations, any failure to perform specific lawful direction of the Corporation's Board or officers of the Corporation, any refusal or neglect to perform such individual's duties, any conviction of, or entering of a plea of nolo contendere to, a crime which constitutes a felony or any other Misconduct by such individual adversely affecting the business or affairs of the Corporation. The foregoing definition shall not be deemed to be inclusive of all the acts or omissions which the Corporation or any parent or subsidiary may consider as grounds for the dismissal or discharge of any Optionee, Participant or other individual in the Service of the Corporation. 1934 Act: the Securities Exchange Act of 1934, as amended. Non-Statutory Option: a stock option not intended to meet the requirements of Code Section 422. Optionee: a person to whom an option is granted under the Discretionary Option Grant Program, the Automatic Option Grant Program or the Director Fee Option Grant Program. Participant: a person who is issued Common Stock under the Stock Issuance Program. Permanent Disability: the inability of an individual to engage in any substantial gainful activity, by reason of any medically determinable physical or mental impairment which is expected to result in death or which has lasted or can be expected to last for a period of not less than twelve (12) months. Plan Administrator: either the Board or the Committee, to the extent the Committee is at the time responsible for the administration of the Plan in accordance with Section IV of Article One. Predecessor Plans: the Corporation's 1992 Stock Option Plan and 1991 Stock Option Plan. Service: the performance of services on a periodic basis for the Corporation (or any parent or subsidiary corporation) in the capacity of an Employee, a non-employee member of the board of directors or an independent consultant, except to the extent otherwise specifically provided in the applicable stock option or stock issuance agreement. Section 12(g) Registration Date: the date on which the initial registration of the Common Stock under Section 12(g) of the 1934 Act became effective. Take-Over Price: the greater of (a) the Fair Market Value per share of Common Stock on the date the particular option to purchase such stock is surrendered to the Corporation in connection with a Hostile Take-Over or (b) the highest reported price per share of Common Stock paid by the tender offeror in effecting such Hostile Take-Over. However, if the canceled option is an Incentive Option, then the Take-Over Price shall not exceed the clause (a) price per share. 10% Shareholder: the owner of stock (as determined under Code Section 424(d)) possessing ten (10%) percent or more of the total combined voting power of all classes of stock of the Corporation or any parent or subsidiary corporation. 3 B. The following provisions shall be applicable in determining the parent and subsidiary corporations of the Corporation: Any corporation (other than the Corporation) in an unbroken chain of corporations ending with the Corporation shall be considered to be a parent of the Corporation, provided each such corporation in the unbroken chain (other than the Corporation) owns, at the time of the determination, stock possessing fifty percent (50%) or more of the total combined voting power of all classes or stock in one of the other corporations in such chain. Each corporation (other than the Corporation) in an unbroken chain of corporations beginning with the Corporation shall be considered to be a subsidiary of the Corporation, provided each such corporation (other than the last corporation) in the unbroken chain owns, at the time of the determination, stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. III. STRUCTURE OF THE PLAN A. The Plan shall be divided into four separate components: the Discretionary Option Grant Program specified in Article Two, the Stock Issuance Program specified in Article Three, the Automatic Option Grant Program specified in Article Four and the Director Fee Option Grant Program specified in Article Five. Under the Discretionary Option Grant Program, eligible individuals may at the discretion of the Plan Administrator be granted options to purchase shares of Common Stock in accordance with the provisions of Article Two at a price not less than eighty-five percent (85%) of the Fair Market Value of such shares on the grant date. Under the Stock Issuance Program, eligible individuals may be issued shares of Common Stock directly, either through the immediate purchase of the shares (at Fair Market Value or at discounts of up to 15%) or as a bonus tied to the individual's performance of services or the Corporation's attainment of prescribed milestones. Under the Automatic Option Grant Program, each individual serving as a non-employee Board member on the Automatic Option Grant Program Effective Date and each individual who first joins the Board as a non-employee director at any time after such Effective Date shall at periodic intervals receive option grants to purchase shares of Common Stock in accordance with the provisions of Article Four, with the first such grants to be made on such Effective Date. Under the Director Fee Option Grant Program, each non-employee Board member may elect to apply all or a portion of his or her annual retainer fee otherwise payable in cash to a special below market option grant. B. Unless the context clearly indicates otherwise, the provisions of Articles One and Six shall apply to all equity programs under the Plan and shall accordingly govern the interests of all individuals under the Plan. IV. ADMINISTRATION OF THE PLAN A. The Discretionary Option Grant and Stock Issuance Programs shall be administered solely and exclusively by the Committee, subject to such conditions and limitations as the Board may decide, to the extent permissible under applicable securities and tax laws requirements. No non-employee Board member shall be eligible to serve on the Committee if such individual has, within the relevant period designated below received an option grant or direct stock issuance under this Plan or any other stock plan of the Corporation (or any parent or subsidiary corporation), other than pursuant to the Automatic Option Grant or Director Fee Option Grant Program: --- for each of the initial members of the Committee, the period commencing with the Section 12(g) Registration Date and ending with the date of his or her appointment to the Committee, or --- for any successor or substitute member, the twelve (12) month period immediately preceding the date of his or her appointment to the Committee or (if shorter) the period commencing with the Section 12(g) Registration Date and ending with the date of his or her appointment to the Committee. B. Members of the Committee shall serve for such period of time as the Board may determine and shall be subject to removal by the Board at any time. 4 C. The Plan Administrator shall have full power and authority (subject to the express provisions of the Plan) to establish rules and regulations for the proper administration of the Discretionary Option Grant and Stock Issuance Programs and to make such determinations under, and issue such interpretations of, the provisions of such programs and any outstanding option grants or stock issuances thereunder as it may deem necessary or advisable. Decisions of the Plan Administrator shall be final and binding on all parties who have an interest in the Discretionary Option Grant or Stock Issuance Program or any outstanding option grant or share issuance thereunder. D. Administration of the Automatic Option Grant and Director Fee Option Grant Programs shall be self-executing in accordance with the express terms and conditions of those programs, and the Plan Administrator shall exercise no discretionary functions with respect to option grants made pursuant to those programs. V. OPTION GRANTS AND STOCK ISSUANCES A. The persons eligible to participate in the Discretionary Option Grant Program under Article Two and the Stock Issuance Program under Article Three shall be limited to the following (i) officers and other employees of the Corporation (or any parent or subsidiary corporation); (ii) non-employee members of the Board or the non-employee members of the board of directors of any parent or subsidiary corporation; and (iii) consultants who provide valuable services to the Corporation (or any parent or subsidiary corporation). B. The non-employee Board members serving as Plan Administrator shall not, during their period of service from and after the Section 12(g) Registration Date, be eligible to participate in the Discretionary Option Grant and Stock Issuance Programs or in any other stock option, stock purchase, stock bonus or other stock plan of the Corporation (or its parent or subsidiary corporations). Such individuals shall, however, be eligible to receive automatic option grants pursuant to Article Four and to participate in the Director Fee Option Grant Program pursuant to Article Five. C. The Plan Administrator shall have full authority to determine, (i) with respect to the option grants made under the Discretionary Option Grant Program, which eligible individuals are to receive option grants, the time or times when such grants are to be made, the number of shares to be covered by each such grant, the status of the granted option as either an Incentive Option or a Non-Statutory Option, the time or times at which each granted option is to become exercisable and the maximum term for which the option may remain outstanding, and (ii) with respect to stock issuances under the Stock Issuance Program, the number of shares to be issued to each Participant, the vesting schedule (if any) to be applicable to the issued shares, and the consideration to be paid by the Participant for such shares. VI. STOCK SUBJECT TO THE PLAN A. Shares of Common Stock shall be available for issuance under the Plan and shall be drawn from either the Corporation's authorized but unissued shares of Common Stock or from reacquired shares of Common Stock, including shares repurchased by the Corporation on the open market. The maximum number of shares of Common Stock which may be issued over the term of the Plan shall not exceed 1,878,706* shares, subject to adjustment from time to time in accordance with the provisions of this Section VI. Such authorized share reserve is comprised of (i) the number of shares which remained for issuance, as of the Plan Effective Date, under the Predecessor Plans as last approved by the Corporation's shareholders, including the shares subject to the outstanding options incorporated into this Plan and any - -------- * Reflects the 1-for-3 stock split that was effected immediately prior to the consummation of the initial public offering of the Common Stock. 5 other shares which would have been available for future option grant under the Predecessor Plans as last approved by the shareholders, plus (ii) an additional increase of 333,333* shares authorized by the Board on the Plan Effective Date, (iii) an additional increase of 600,000* shares authorized by the Board on December 6, 1995, and (iv) an additional increase of 500,000 shares authorized by the Board on March 19, 1997. As one or more outstanding options under the Plan are exercised, the number of shares issued with respect to each such option shall reduce, on a share-for-share basis, the number of shares available for issuance under this Plan. B. In no event shall the aggregate number of shares of Common Stock for which any one individual participating in the Plan may be granted stock options, separately exercisable stock appreciation rights and direct stock issuances for any given year exceed fifty percent (50%) of the total number of shares for which stock options, separately exercisable stock appreciation rights and direct stock issuances may be granted over the term of the Plan. C. Should one or more outstanding options under this Plan (including options incorporated from the Predecessor Plans) expire or terminate for any reason prior to exercise in full (including any option canceled in accordance with the cancellation-regrant provisions of Section IV of Article Two of the Plan), then the shares subject to the portion of each option not so exercised shall be available for subsequent issuance under the Plan. Shares subject to any stock appreciation rights exercised under the Plan and all share issuances under the Plan, whether or not the shares are subsequently repurchased by the Corporation pursuant to its repurchase rights under the Plan, shall reduce on a share-for-share basis the number of shares of Common Stock available for subsequent issuance under the Plan. In addition, should the exercise price of an outstanding option under the Plan be paid with shares of Common Stock or should shares of Common Stock otherwise issuable under the Plan be withheld by the Corporation in satisfaction of the withholding taxes incurred in connection with the exercise of an outstanding option under the Plan or the vesting of a direct share issuance made under the Plan, then the number of shares of Common Stock available for issuance under the Plan shall be reduced by the gross number of shares for which the option is exercised or which vest under the share issuance, and not by the net number of shares of Common Stock actually issued to the holder of such option or share issuance. D. Should any change be made to the Common Stock issuable under the Plan by reason of any stock split, stock dividend, recapitalization, combination of shares, exchange of shares or other change affecting the outstanding Common Stock as a class without the Corporation's receipt of consideration, then appropriate adjustments shall be made to (i) the maximum number and/or class of securities issuable under the Plan, (ii) the maximum amount and/or class of securities for which any one individual participating in the Plan may be granted stock options, separately exercisable stock appreciation rights and direct stock issuances for any given year under the Plan, (iii) the number and/or class of securities for which automatic option grants are to be subsequently made per eligible non-employee Board member under the Automatic Option Grant Program, (iv) the number and/or class of securities and price per share in effect under each option outstanding under the Discretionary Option Grant, Automatic Option Grant or Director Fee Option Grant Program and (v) the number and/or class of securities and price per share in effect under each outstanding option incorporated into this Plan from the Predecessor Plans. Such adjustments to the outstanding options are to be effected in a manner which shall preclude the enlargement or dilution of rights and benefits under such options. The adjustments determined by the Plan Administrator shall be final, binding and conclusive. ARTICLE TWO DISCRETIONARY OPTION GRANT PROGRAM I. TERMS AND CONDITIONS OF OPTIONS Options granted pursuant to the Discretionary Option Grant Program shall be authorized by action of the Plan Administrator and may, at the Plan Administrator's discretion, be either Incentive Options or Non-Statutory Options. Individuals who are not Employees of the Corporation or its parent or subsidiary corporations may only be granted Non-Statutory Options. Each granted option shall be evidenced by one or more instruments in the form approved by the Plan Administrator; provided, however, that each such instrument shall comply with the terms and conditions specified below. Each instrument evidencing an Incentive Option shall, in addition, be subject to the applicable provisions of Section II of this Article Two. 6 A. Exercise Price. 1. The exercise price per share shall be fixed by the Plan Administrator in accordance with the following provisions: (i) The exercise price per share of Common Stock subject to an Incentive Option shall in no event be less than one hundred percent (100%) of the Fair Market Value of such Common Stock on the grant date. (ii) The exercise price per share of Common Stock subject to a Non-Statutory Option shall in no event be less than eighty-five percent (85%) of the Fair Market Value of such Common Stock on the grant date. (iii) If any individual to whom an Incentive Option is granted is a 10% Shareholder, then the exercise price per share shall not be less than one hundred ten percent (110%) of the Fair Market Value per share of Common Stock on the grant date. 2. The exercise price shall become immediately due upon exercise of the option and shall, subject to the provisions of Section I of Article Six, be payable in one or more of the forms specified below: (i) cash or check made payable to the Corporation, (ii) in shares of Common Stock held by the Optionee for the requisite period necessary to avoid a charge to the Corporation's earnings for financial reporting purposes and valued at Fair Market Value on the Exercise Date, or (iii) to the extent the option is exercised for vested shares, through a special sale and remittance procedure pursuant to which the Optionee shall concurrently provide irrevocable written instructions (a) to a Corporation-designated brokerage firm to effect the immediate sale of the purchased shares and remit to the Corporation, out of the sale proceeds available on the settlement date, sufficient funds to cover the aggregate exercise price payable for the purchased shares plus all applicable Federal, state and local income and employment taxes required to be withheld by the Corporation by reason of such purchase and (b) to the Corporation to deliver the certificates for the purchased shares directly to such brokerage firm in order to complete the sale transaction. 3. Except to the extent such sale and remittance procedure is utilized, payment of the exercise price for the purchased shares must be made on the Exercise Date. B. Term and Exercise of Options. Each option granted under this Plan shall be exercisable at such time or times and during such period as is determined by the Plan Administrator and set forth in the instrument evidencing the grant. No such option, however, shall have a maximum term in excess of ten (10) years measured from the grant date. During the lifetime of the Optionee, the option, together with any related stock appreciation right, shall be exercisable only by the Optionee and shall not be assignable or transferable by the Optionee, except for a transfer of the option by will or by the laws of descent and distribution following the Optionee's death. C. Termination of Service. 1. Except to the extent otherwise provided pursuant to subsection C.2 below, the following provisions shall govern the exercise period applicable to any options held by the Optionee at the time of cessation of Service or death: (i) Should the Optionee cease to remain in Service for any reason other than death, Permanent Disability or Misconduct, then the period during which each outstanding option held by such Optionee is to remain exercisable shall be limited to the three (3)-month period following the date of such 7 cessation of Service. (ii) Should the Optionee's Service terminate by reason of Permanent Disability, then the period during which each outstanding option held by the Optionee is to remain exercisable shall be limited to the twelve (12)-month period following the date of such cessation of Service. (iii) Should the Optionee die while holding one or more outstanding options, then the period during which each such option is to remain exercisable shall be limited to the twelve (12)-month period following the date of the Optionee's death. During such limited period, the option may be exercised by the personal representative of the Optionee's estate or by the person or persons to whom the option is transferred pursuant to the Optionee's will or in accordance with the laws of descent and distribution. (iv) Should the Optionee's Service be terminated for Misconduct, then all outstanding options held by the Optionee shall terminate immediately and cease to be outstanding. (v) Under no circumstances, however, shall any such option be exercisable after the specified expiration date of the option term. (vi) During the applicable post-Service exercise period, the option may not be exercised in the aggregate for more than the number of vested shares for which the option is exercisable on the date of the Optionee's cessation of Service. Upon the expiration of the applicable exercise period or (if earlier) upon the expiration of the option term, the option shall terminate and cease to be exercisable for any vested shares for which the option has not been exercised. However, the option shall, immediately upon the Optionee's cessation of Service, terminate and cease to be outstanding with respect to any option shares for which the option is not at that time exercisable or in which the Optionee is not otherwise at that time vested. 2. The Plan Administrator shall have complete discretion, exercisable either at the time the option is granted or at any time while the option remains outstanding, - to extend the period of time for which the option is to remain exercisable following the Optionee's cessation of Service or death from the limited period in effect under subsection C.1 of this Section I of Article Two to such greater period of time as the Plan Administrator shall deem appropriate; provided that in no event shall such option be exercisable after the specified expiration date of the option term; and/or - to permit one or more options held by the Optionee under this Article Two to be exercised, during the limited post-Service exercise period applicable under this paragraph C, not only with respect to the number of vested shares of Common Stock for which each such option is exercisable at the time of the Optionee's cessation of Service but also with respect to one or more subsequent installments for which the option would otherwise have become exercisable had such cessation of Service not occurred. D. Shareholder Rights. An Optionee shall have no shareholder rights with respect to any shares covered by the option until such individual shall have exercised the option and paid the exercise price for the purchased shares. E. Unvested Shares. The Plan Administrator shall have the discretion to authorize the issuance of unvested shares of Common Stock under the Plan. Should the Optionee cease Service while holding such unvested shares, the Corporation shall have the right to repurchase, at the exercise price paid per share, any or all of those unvested shares. The terms and conditions upon which such repurchase right shall be exercisable (including the period and procedure for exercise and the appropriate vesting schedule for the purchased shares) shall be established by the Plan Administrator and set forth in the agreement evidencing such repurchase right. All outstanding repurchase rights under the Plan shall terminate automatically upon the occurrence of any Corporate Transaction, except to the extent the repurchase rights are expressly assigned to the successor corporation (or parent thereof) in connection with the Corporate 8 Transaction. F. First Refusal Rights. Until such time as the Corporation's outstanding shares of Common Stock are first registered under Section 12(g) of the 1934 Act, the Corporation shall have the right of first refusal with respect to any proposed sale or other disposition by the Optionee (or any successor in interest by reason of purchase, gift or other transfer) of any shares of Common Stock issued under the Plan. Such right of first refusal shall be exercisable in accordance with the terms and conditions established by the Plan Administrator and set forth in the agreement evidencing such right. II. INCENTIVE OPTIONS Incentive Options may only be granted to individuals who are Employees, and the terms and conditions specified below shall be applicable to all Incentive Options granted under the Plan. Except as modified by the provisions of this Section II, all the provisions of Articles One, Two and Six of the Plan shall be applicable to all Incentive Options granted hereunder. Any Options specifically designated as Non-Statutory shall not be subject to the terms and conditions of this Section II. A. Dollar Limitation. The aggregate Fair Market Value (determined as of the respective date or dates of grant) of the Common Stock for which one or more options granted to any Employee under this Plan (or any other option plan of the Corporation or its parent or subsidiary corporations) may for the first time become exercisable as incentive stock options under the Federal tax laws during any one calendar year shall not exceed the sum of One Hundred Thousand Dollars ($100,000). To the extent the Employee holds two (2) or more such options which become exercisable for the first time in the same calendar year, the foregoing limitation on the exercisability of such options as incentive stock options under the Federal tax laws shall be applied on the basis of the order in which such options are granted. Should the number of shares of Common Stock for which any Incentive Option first becomes exercisable in any calendar year exceed the applicable One Hundred Thousand Dollar ($100,000) limitation, then that option may nevertheless be exercised in that calendar year for the excess number of shares as a Non-Statutory Option under the Federal tax laws. B. 10% Shareholder. If any individual to whom an Incentive Option is granted is a 10% Shareholder, then the option term shall not exceed five (5) years measured from the grant date. III. CORPORATE TRANSACTION/CHANGE IN CONTROL A. In the event of any Corporate Transaction, each option which is at the time outstanding under this Article Two shall automatically accelerate so that each such option shall, immediately prior to the specified effective date for such Corporate Transaction, become fully exercisable with respect to the total number of shares of Common Stock at the time subject to such option and may be exercised for all or any portion of such shares as fully-vested shares. However, an outstanding option under this Article Two shall not so accelerate if and to the extent: (i) such option is, in connection with such Corporate Transaction, either to be assumed by the successor corporation or parent thereof or to be replaced with a comparable option to purchase shares of the capital stock of the successor corporation or parent thereof, (ii) such option is to be replaced with a cash incentive program of the successor corporation which preserves the option spread existing at the time of such Corporate Transaction and provides for subsequent payout in accordance with the same vesting schedule applicable to such option, (iii) such option is to be replaced by another incentive program which the Plan Administrator determines is reasonably equivalent in value to the program contemplated by either clause (i) or (ii) above, or (iv) the acceleration of such option is subject to other limitations imposed by the Plan Administrator at the time of the option grant. However, upon an Optionee's cessation of Service by reason of an Involuntary Termination (other than for Misconduct) within eighteen (18) months after a Corporate Transaction in which his or her outstanding options are assumed or replaced pursuant to clause (i), (ii) or (iii) above, each such option under clause (i) shall automatically accelerate and become fully exercisable with respect to the total number of shares of Common Stock at the time subject to such option and may be exercised for all or any portion of such shares as fully-vested shares, the cash incentive program under clause (ii) shall become fully vested and the benefits under a clause (iii) replacement program shall become fully vested. The option as so accelerated shall remain exercisable until the earlier of (i) the expiration of the option term or (ii) the expiration of a ninety (90)-day period measured from the date of such Involuntary Termination. The determination of option comparability under clause (i) or program comparability under clause (iii) above shall be made by the Plan 9 Administrator, and its determination shall be final, binding and conclusive. B. Immediately following the consummation of a Corporate Transaction, all outstanding options under this Article Two shall terminate and cease to remain outstanding, except to the extent assumed by the successor corporation or its parent company. C. Each outstanding option under this Article Two that is assumed in connection with a Corporate Transaction shall be appropriately adjusted, immediately after such Corporate Transaction, to apply and pertain to the number and class of securities which would have been issued to the option holder in consummation of such Corporate Transaction. had such person exercised the option immediately prior to such Corporate Transaction. Appropriate adjustments shall also be made to the exercise price payable per share, provided the aggregate exercise price payable for such securities shall remain the same. In addition, the class and number of securities available for issuance under the Plan on both an aggregate and participant basis following the consummation of such Corporate Transaction shall be appropriately adjusted. D. The Plan Administrator shall have the discretionary authority, exercisable either at the time the option is granted or at any time while the option remains outstanding, to provide for the automatic acceleration of one or more outstanding options under this Article Two (and the termination of one or more of the Corporation's outstanding repurchase rights under this Article Two) upon the occurrence of a Change in Control. The Plan Administrator shall also have full power and authority to condition any such option acceleration (and the termination of any outstanding repurchase rights) upon the Optionee's cessation of Service by reason of an Involuntary Termination (other than for Misconduct) within a specified period following such Change in Control. E. Any options accelerated in connection with a Change in Control shall remain fully exercisable until the expiration or sooner termination of the option term or the surrender of such option in accordance with Section V of this Article Two. F. The grant of options under this Article Two shall in no way affect the right of the Corporation to adjust, reclassify, reorganize or otherwise change its capital or business structure or to merge, consolidate, dissolve, liquidate or sell or transfer all or any part of its business or assets. G. The portion of any Incentive Option accelerated under this Section III in connection with a Corporate Transaction or Change in Control shall remain exercisable as an incentive stock option under the Federal tax laws only to the extent the dollar limitation of Section II of this Article Two is not exceeded. To the extent such dollar limitation is exceeded, the accelerated portion of such option shall be exercisable as a non-statutory option under the Federal tax laws. IV. CANCELLATION AND REGRANT OF OPTIONS The Plan Administrator shall have the authority to effect, at any time and from time to time, with the consent of the affected Optionees, the cancellation of any, or all outstanding options under this Article Two (including outstanding options under the Predecessor Plans incorporated into this Plan) and to grant in substitution new options under the Plan covering the same or different numbers of shares of Common Stock but with an exercise price per share not less than (i) one hundred percent (100%) of the Fair Market Value on the new grant date in the case of a grant of an Incentive Option, (ii) one hundred ten percent (110%) of such Fair Market Value in the case of an Incentive Option grant to a 10% Shareholder or (iii) eighty-five percent (85%) of such Fair Market Value in the case of all other grants. V. STOCK APPRECIATION RIGHTS A. Provided and only if the Plan Administrator determines in its discretion to implement the stock appreciation right provisions of this Section V, one or more Optionees may be granted the right, exercisable upon such terms and conditions as the Plan Administrator may establish, to surrender all or part of an unexercised option under this Article Two in exchange for a distribution from the Corporation in an amount equal to the excess of (i) the Fair Market Value (on the option surrender date) of the number of shares in which the Optionee is at the time vested under the 10 surrendered option (or surrendered portion thereof) over (ii) the aggregate exercise price payable for such vested shares. B. No surrender of an option shall be effective hereunder unless it is approved by the Plan Administrator. If the surrender is so approved, then the distribution to which the Optionee shall accordingly become entitled under this Section V may be made in shares of Common Stock valued at Fair Market Value on the option surrender date, in cash, or partly in shares and partly in cash, as the Plan Administrator shall in its sole discretion deem appropriate. C. If the surrender of an option is rejected by the Plan Administrator, then the Optionee shall retain whatever rights the Optionee had under the surrendered option (or surrendered portion thereof) on the option surrender date and may exercise such rights at any time prior to the later of (i) five (5) business days after the receipt of the rejection notice or (ii) the last day on which the option is otherwise exercisable in accordance with the terms of the instrument evidencing such option, but in no event may such rights be exercised more than ten (10) years after the date of the option grant. D. One or more officers of the Corporation subject to the short-swing profit restrictions of the Federal securities laws may, in the Plan Administrator's sole discretion, be granted limited stock appreciation rights in tandem with their outstanding options under this Article Two. Upon the occurrence of a Hostile Take-Over at a time when the Corporation's outstanding Common Stock is registered under Section 12(g) of the 1934 Act, each such officer holding one or more options with such a limited stock appreciation right in effect for at least six (6) months shall have the unconditional right (exercisable for a thirty (30)-day period following such Hostile Take-Over) to surrender each such option to the Corporation, to the extent the option is at the time exercisable for fully vested shares of Common Stock. The officer shall in return be entitled to a cash distribution from the Corporation in an amount equal to the excess of (i) the Take-Over Price of the vested shares of Common Stock at the time subject to each surrendered option (or surrendered portion of such option) over (ii) the aggregate exercise price payable for such vested shares. Such cash distribution shall be made within five (5) days following the option surrender date. Neither the approval of the Plan Administrator nor the consent of the Board shall be required in connection with such option surrender and cash distribution. Any unsurrendered portion of the option shall continue to remain outstanding and become exercisable in accordance with the terms of the instrument evidencing such grant. E. The shares of Common Stock subject to any option surrendered for an appreciation distribution pursuant to this Section V shall not be available for subsequent issuance under the Plan. ARTICLE THREE STOCK ISSUANCE PROGRAM I. TERMS AND CONDITIONS OF STOCK ISSUANCES Shares of Common Stock may be issued under the Stock Issuance Program through direct and immediate purchases without any intervening stock option grants. The issued shares shall be evidenced by a Stock Issuance Agreement ("Issuance Agreement") that complies with the terms and conditions of this Article Three. A. Consideration. 1. Shares of Common Stock may be issued under the Stock Issuance Program for one or more of the following items of consideration which the Plan Administrator may deem appropriate in each individual instance: (i) full payment in cash or check made payable to the Corporation's order; (ii) a promissory note payable to the Corporation's order in one or more installments; or 11 (iii) past services rendered to the Corporation or any parent or subsidiary corporation. 2. The shares may, in the absolute discretion of the Plan Administrator, be issued for consideration with a value less than one hundred percent (100%) of the Fair Market Value of such shares at the time of issuance, but in no event less than eighty-five percent (85%) of such Fair Market Value. B. Vesting Provisions. 1. Shares of Common Stock issued under the Stock Issuance Program may, in the absolute discretion of the Plan Administrator, be fully and immediately vested upon issuance (as a bonus for past services) or may vest in one or more installments over the Participant's period of Service or the Corporation's attainment of performance milestones. The elements of the vesting schedule applicable to any unvested shares of Common Stock issued under the Stock Issuance Program, namely: (i) the Service period to be completed by the Participant or the performance objectives to be achieved by the Corporation, (ii) the number of installments in which the shares are to vest, (iii) the interval or intervals (if any) which are to lapse between installments, and (iv) the effect which death, Permanent Disability or other event designated by the Plan Administrator is to have upon the vesting schedule, shall be determined by the Plan Administrator and incorporated into the Issuance Agreement executed by the Corporation and the Participant at the time such unvested shares are issued. 2. The Participant shall have full shareholder rights with respect to any shares of Common Stock issued to him or her under the Plan, whether or not his or her interest in those shares is vested. Accordingly, the Participant shall have the right to vote such shares and to receive any regular cash dividends paid on such shares. Any new, additional or different shares of stock or other property (including money paid other than as a regular cash dividend) which the Participant may have the right to receive with respect to his or her unvested shares by reason of any stock dividend, stock split, recapitalization, combination of shares, exchange of shares or other change affecting the outstanding Common Stock as a class without the Corporation's receipt of consideration or by reason of any Corporate Transaction, shall be issued subject to (i) the same vesting requirements applicable to his or her unvested shares and (ii) such escrow arrangements as the Plan Administrator shall deem appropriate. 3. Should the Participant cease to remain in Service while holding one or more unvested shares of Common Stock under the Stock Issuance Program, then the Corporation shall have the right to require the Participant to surrender those shares immediately to the Corporation for cancellation, and the Participant shall cease to have any further shareholder rights with respect to the surrendered shares. To the extent the surrendered shares were previously issued to the Participant for consideration paid in cash or cash equivalent (including the Participant's purchase-money promissory note), the Corporation shall repay to the Participant the cash consideration paid for the surrendered shares and shall cancel the unpaid principal balance of any outstanding purchase-money note of the Participant attributable to such surrendered shares. 4. The Plan Administrator may in its discretion elect to waive the surrender and cancellation of one or more unvested shares of Common Stock (or other assets attributable thereto) which would otherwise occur upon the non-completion of the vesting schedule applicable to such shares. Such waiver shall result in the immediate vesting of the Participant's interest in the shares of Common Stock as to which the waiver applies. Such waiver may be effected at any time, whether before or after the Participant's cessation of Service or the attainment or non-attainment of the applicable performance objectives. C. First Refusal Rights. Until such time as the Corporation's outstanding shares of Common Stock 12 are first registered under Section 12(g) of the 1934 Act, the Corporation shall have a right of first refusal with respect to any proposed disposition by the Participant (or any successor in interest by reason of purchase, gift or other transfer) of any shares of Common Stock issued under this Article Three. Such right of first refusal shall be exercisable in accordance with the terms and conditions established by the Plan Administrator and set forth in the agreement evidencing such right. II. CORPORATE TRANSACTION/CHANGE IN CONTROL A. All of the Corporation's outstanding repurchase rights under this Article Three shall automatically terminate upon the occurrence of a Corporate Transaction, except to the extent the Corporation's outstanding repurchase rights are expressly assigned to the successor corporation (or parent thereof) in connection with such Corporate Transaction. However, any assigned repurchase rights covering the unvested shares held by a Participant under this Article Three shall immediately terminate should there occur an Involuntary Termination of that Participant's Service (other than for Misconduct) within eighteen (18) months after such Corporate Transaction. B. The Plan Administrator shall have the discretionary authority, exercisable either at the time the shares are issued under this Article Three or at any time while those shares remain outstanding, to provide for the automatic termination of the Corporation's repurchase rights with respect to those shares should there occur a Change in Control. The Plan Administrator shall also have full power and authority to condition the termination of those repurchase rights upon the Participant's cessation of Service by reason of an Involuntary Termination (other than for Misconduct) within a specified period following such Change in Control. III. SHARE ESCROW/TRANSFER RESTRICTIONS A. Unvested shares may, in the Plan Administrator's discretion, be held in escrow by the Corporation until the Participant's interest in such shares vests or may be issued directly to the Participant with restrictive legends on the certificates evidencing such unvested shares. To the extent an escrow arrangement is utilized, the unvested shares and any securities or other assets distributed with respect to such shares (other than regular cash dividends) shall be delivered in escrow to the Corporation to be held until the Participant's interest in such (or the distributed securities or assets) vests. B. The Participant shall have no right to transfer any unvested shares of Common Stock issued to him or her under the Stock Issuance Program. For purposes of this restriction, the term "transfer" shall include (without limitation) any sale, pledge, assignment, encumbrance, gift or other disposition of such shares, whether voluntary or involuntary. Upon any such attempted transfer, the unvested shares shall immediately be canceled in accordance with substantially the same procedure in effect under Section I.B.3 of this Article Three, and neither the Participant nor the proposed transferee shall have any rights with respect to such canceled shares. However, the Participant shall have the right to make a gift of unvested shares acquired under the Stock Issuance Program to his or her spouse or issue, including adopted children, or to a trust established for such spouse or issue, provided the transferee of such shares delivers to the Corporation a written agreement to be bound by all the provisions of the Stock Issuance Program and the Issuance Agreement applicable to the gifted shares. ARTICLE FOUR AUTOMATIC OPTION GRANT PROGRAM I. ELIGIBILITY The individuals eligible to receive automatic option grants pursuant to the provisions of this Article Four program shall be limited to (i) those individuals who are serving as non-employee Board members on the Automatic Option Grant Program Effective Date, (ii) those individuals who are first elected or appointed as non-employee Board members on or after such Effective Date, whether through appointment by the Board or election by the Corporation's shareholders, and (iii) those individuals who are re-elected to serve as non-employee Board members at one or more Annual Shareholders Meetings held after the Section 12(g) Registration Date. In no event, however, shall a non-employee Board member be eligible to receive an automatic option grant pursuant to clause (i) or (ii) above if such individual has 13 at any time been in the prior employ of the Corporation (or any parent or subsidiary corporation), but such individual shall be eligible to receive one or more automatic option grants pursuant to clause (iii). Each non-employee Board member eligible to receive one or more automatic option grants pursuant to the foregoing criteria shall be designated an Eligible Director for purposes of the Plan. II. TERMS AND CONDITIONS OF AUTOMATIC OPTION A. Grant Dates. Option grants shall be made under this Article Four on the dates specified below: 1. Initial Grant. Each Eligible Director who is first elected or appointed as a non-employee Board member after the Automatic Option Grant Program Effective Date shall automatically be granted, on the date of such initial election or appointment (as the case may be), a Non-Statutory Option to purchase 16,666 shares of Common Stock upon terms and conditions of this Article Four. 2. Annual Grant. On the date of each Annual Shareholders Meeting, beginning with the first Annual Meeting held after the Section 12(g) Registration Date, each individual who will continue to serve as an Eligible Director shall automatically be granted, whether or not such individual is standing for re-election as a Board member at that Annual Meeting, a Non-Statutory Option to purchase an additional 3,333 shares of Common Stock upon the terms and conditions of this Article Four, provided he or she has served as a non-employee Board member for at least six (6) months prior to the date of such Annual Meeting. 3. No Limitation. There shall be no limit on the number of shares for which any one Eligible Director may be granted stock options under this Article Four over his or her period of Board service. B. Exercise Price. The exercise price per share of Common Stock subject to each automatic option grant made under this Article Four shall be equal to one hundred percent (100%) of the Fair Market Value per share of Common Stock, on the automatic grant date. C. Payment. The exercise price shall be payable in one of the alternative forms specified below. To the extent the option is exercised for any unvested shares, the Optionee must execute and deliver to the Corporation a stock purchase agreement for those unvested shares which provides the Corporation with the right to repurchase, at the exercise price paid per share, any unvested shares held by the Optionee at the time of cessation of Board service and which precludes the sale, transfer or other disposition of the purchased shares at any time while those shares remain subject to the Corporation's repurchase right. (i) full payment in cash or check drawn to the Corporation's order; (ii) full payment in shares of Common Stock held for the requisite period necessary to avoid a charge to the Corporation's earnings for financial reporting purposes and valued at Fair Market Value on the Exercise Date; (iii) full payment in a combination of shares of Common Stock held for the requisite period necessary to avoid a charge to the Corporation's earnings for financial reporting purposes and valued at Fair Market Value on the Exercise Date and cash or check drawn to the Corporation's order; or (iv) to the extent the option is exercised for vested shares, full payment through a sale and remittance procedure pursuant to which the Optionee shall provide irrevocable written instructions to (a) a Corporation designated brokerage firm to effect the immediate sale of the purchased shares and remit to the Corporation, out of the sale proceeds available on the settlement date, sufficient funds to cover the aggregate exercise price payable for the purchased shares and (b) the Corporation to deliver the certificates for the purchased shares directly to such brokerage firm in order to complete the sale transaction. Except to the extent the sale and remittance procedure specified above is used for the exercise of the option for vested shares, payment of the exercise price for the purchased shares must accompany the exercise 14 notice. D. Option Term. Each automatic grant under this Article Four shall have a maximum term of ten (10) years measured from the automatic grant date. E. Exercisability/Vesting. Each automatic grant shall be immediately exercisable for any or all of the option shares. However, any shares purchased under the option shall be subject to repurchase by the Corporation, at the exercise price paid per share, upon the Optionee's cessation of Board service prior to vesting in those shares in accordance with the applicable schedule below: Initial Grant. Each initial 16,666-share automatic grant shall vest, and the Corporation's repurchase right shall lapse, in a series of four successive and equal annual installments over the Optionee's period of continued service as a Board member, with the first such installment to vest upon Optionee's completion of one (1) year of Board service measured from the automatic grant date. Annual Grant. Each additional 3,333-share automatic grant shall vest, and the Corporation's repurchase right shall lapse, upon the Optionee's completion of one (1) year of Board service measured from the automatic grant date. Vesting of the option shares shall be subject to acceleration, as provided in Section II.G.3 and Section III of this Article Four. In no event shall any additional option shares vest after the Optionee's cessation of Board service, except as otherwise provided in Section II.G.3 of this Article Four. F. Non-Transferability. During the lifetime of the Optionee, each automatic option grant, together with the limited stock appreciation right pertaining to that option, shall be exercisable only by the Optionee and shall not be assignable or transferable by the Optionee, except for a transfer of the option by will or by the laws of descent and distribution following Optionee's death. G. Effect of Termination of Board Service. 1. Should the Optionee cease to serve as a Board member for any reason (other than death or Permanent Disability) while holding one or more automatic option grants under this Article Four, then such individual shall have a six (6)-month period following the date of such cessation of Board service in which to exercise each such option for any or all of the shares of Common Stock in which the Optionee is vested at the time of such cessation of Board service. However, each such option shall immediately terminate and cease to be outstanding at the time of such cessation of Board service, with respect to any shares in which the Optionee is not otherwise at that time vested under that option. 2. Should the Optionee die within six (6) months after cessation of Board service, then any automatic option grant held by the Optionee at the time of death may subsequently be exercised. for any or all of the shares of Common Stock in which the Optionee is vested at the time of his or her cessation of Board service (less any option shares subsequently purchased by the Optionee prior to death), by the personal representative of the Optionee's estate or by the person or persons to whom the option is transferred pursuant to the Optionee's will or in accordance with the laws of descent and distribution. The right to exercise such option shall lapse upon the expiration of a twelve (12)- month period measured from the date of the Optionee's death. 3. Should the Optionee die or become Permanently Disabled while serving as a Board member, then the shares of Common Stock at the time subject to each automatic option grant held by such Optionee under this Article Four which are vested may be purchased by the Optionee (or the representative of the Optionee's estate or the person or persons to whom the option is transferred upon the Optionee's death) pursuant to the option for a twelve (12)-month period following the date of the Optionee's cessation of Board service. 4. In no event shall any automatic grant under this Article Four remain exercisable after the expiration date of the ten (10)-year option term. Upon the expiration of the applicable post-service exercise period 15 under subparagraphs 1 through 3 above or (if earlier) upon the expiration of the ten (10)-year option term, the automatic grant shall terminate and cease to be outstanding for any option shares in which the Optionee was vested at the time of his or her cessation of Board service but for which such option was not subsequently exercised. H. Shareholder Rights. The holder of an automatic option grant under this Article Four shall have none of the rights of a shareholder with respect to any shares subject to such option until such individual shall have exercised the option and paid the exercise price for the purchased shares. I. Remaining Terms. The remaining terms and conditions of each automatic option grant shall be as set forth in the form of Automatic Stock Option Agreement attached as Exhibit A to the Plan. III. CORPORATE TRANSACTION/CHANGE IN CONTROL/HOSTILE TAKE-OVER A. In the event of any Corporate Transaction, the shares of Common Stock at the time subject to each outstanding option under this Article Four but not otherwise vested shall automatically vest in full so that each such option shall, immediately prior to the specified effective date for the Corporate Transaction, become fully exercisable for all of the shares of Common Stock at the time subject to that option and may be exercised for all or any portion of those shares as fully-vested shares. Immediately following the consummation of the Corporate Transaction, all automatic option grants under this Article Four shall terminate and cease to be outstanding, except to the extent one or more of those grants are assumed by the acquiring entity or its parent corporation. B. In connection with any Change in Control of the Corporation, the shares of Common Stock at the time subject to each outstanding option under this Article Four but not otherwise vested shall automatically vest in full so that each such option shall, immediately prior to the specified effective date for the Change in Control, become fully exercisable for all of the shares of Common Stock at the time subject to that option and may be exercised for all or any portion of those shares as fully-vested shares. Each such option shall remain so exercisable for all the option shares following the Change in Control, until the expiration or sooner termination of the option term. C. Should a Hostile Take-Over occur at any time following the Section 12(g) Registration Date, then the Optionee shall have a thirty (30)-day period in which to surrender to the Corporation each option held by him or her under this Article Four for a period of at least six (6) months. The optionee shall in return be entitled to a cash distribution from the Corporation in an amount equal to the excess of (i) the Take-Over Price of the shares of Common Stock at the time subject to the surrendered option (whether or not those shares are otherwise at the time fully vested) over (ii) the aggregate exercise price payable for such shares. The cash distribution shall be paid within five (5) days following the surrender of the option to the Corporation. Neither the approval of the Plan Administrator nor the consent of the Board shall be required in connection with such option surrender and cash distribution. The shares of Common Stock subject to each option surrendered in connection with the Hostile Take-Over shall not be available for subsequent issuance under the Plan. D. The automatic option grants outstanding under this Article Four shall in no way affect the right of the Corporation to adjust, reclassify, reorganize or otherwise change its capital or business structure or to merge, consolidate, dissolve, liquidate or sell or transfer all or any part of its business or assets. IV. AMENDMENT OF THE AUTOMATIC GRANT PROVISIONS The provisions of this Automatic Option Grant Program, together with the automatic option grants outstanding under this Article Four, may not be amended at intervals more frequently than once every six (6) months, other than to the extent necessary to comply with applicable Federal income tax laws and regulations. 16 ARTICLE FIVE DIRECTOR FEE OPTION GRANT PROGRAM I. OPTION GRANTS Each non-employee Board member may elect to apply all or any portion of the annual retainer fee otherwise payable in cash for his or her service on the Board to the acquisition of a special option grant under this Director Fee Option Grant Program. Such election must be filed with the Corporation's Chief Financial Officer prior to first day of July in the calendar year immediately preceding the calendar year for which the annual retainer fee which is the subject of that election is otherwise payable. Each non-employee Board member who files such a timely election shall automatically be granted an option under this Director Fee Option Grant Program on the first trading day in January in the calendar year for which the annual retainer fee which is the subject of that election would otherwise be payable. II. OPTION TERMS Each option shall be a Non-Statutory Option governed by the terms and conditions specified below. A. Exercise Price. 1. The exercise price per share shall be thirty-three and one-third percent (33-1/3%) of the Fair Market Value per share of Common Stock on the option grant date. 2. The exercise price shall become immediately due upon exercise of the option and shall be payable in one or more of the alternative forms authorized under the Discretionary Option Grant Program. Except to the extent the sale and remittance procedures specified thereunder is utilized, payment of the exercise price for the purchased shares must be made on the Exercise Date. B. Number of Option Shares: The number of shares of Common Stock subject to the option shall be determined pursuant to the following formula (rounded down to the nearest whole number): X = A / (B x 66-2/3 %), where X is the number of option shares, A is the portion of the annual retainer fee subject to the non-employee Board member's election, and B is the Fair Market Value per share of Common Stock on the option grant date. C. Exercise and Term of Options. The option shall become exercisable in a series of twelve (12) successive equal monthly installments upon the Optionee's completion of each calendar month of Board service in the calendar year for which the annual retainer fee which is the subject of his or her election under this Article Five would otherwise be payable. Each option shall have a maximum term of ten (10) years measured from the option grant date. D. Effect of Termination of Service. Should the Optionee cease Board service for any reason (other than death or Permanent Disability) while holding one or more options under this Article Five, then each such option shall remain exercisable, for any or all of the shares for which the option is exercisable at the time of such cessation of Board service, until the earlier of (i) the expiration of the ten (10)-year option term or (ii) the expiration of the three (3)-year period measured from the date of such cessation of Board service. However, each option held by the Optionee under this Article Five at the time of his or her cessation of Board service shall immediately terminate and cease to remain outstanding with respect to any and all shares of Common Stock for which the option is not otherwise at that time exercisable. 17 E. Death or Permanent Disability. Should the Optionee's service as a Board member cease by reason of death or Permanent Disability, then each option held by such Optionee under this Article Five shall immediately become exercisable for all the shares of Common Stock at the time subject to that option, and the option may, during the three (3)-year period following such cessation of Board service, be exercised for any or all of those shares as fully-vested shares. Should the Optionee die while holding one or more options under this Article Five, then each such option may be exercised, for any or all of the shares for which the option is exercisable at the time of the Optionee's cessation of Board service (less any shares subsequently purchased by Optionee prior to death), by the personal representative of the Optionee's estate or by the person or persons to whom the option is transferred pursuant to the Optionee's will or in accordance with the laws of descent and distribution. Such right of exercise shall lapse, and the option shall terminate, upon the earlier of (i) the expiration of the ten (10)-year option term or (ii) the three (3)-year period measured from the date of the Optionee's cessation of Board service. III. CORPORATE TRANSACTION/CHANGE IN CONTROL A. In the event of any Corporate Transaction while the Optionee remains a Board member, each outstanding option held by such Optionee under this Director Fee Option Grant Program shall automatically accelerate so that each such option shall, immediately prior to the effective date of the Corporate Transaction, become fully exercisable with respect to the total number of shares of Common Stock at the time subject to such option and may be exercised for any or all of those shares as fully-vested shares of Common Stock. Each such outstanding option shall be assumed by the successor corporation (or parent thereof) in the Corporate Transaction and shall remain exercisable for the fully-vested shares until the earlier of (i) the expiration of the ten (10)-year option term or (ii) the expiration of the three (3)-year period measured from the date of the Optionee's cessation of Board service. B. In the event of a Change in Control while the Optionee remains in Service, each outstanding option held by such Optionee under this Director Fee Option Grant Program shall automatically accelerate so that each such option shall immediately become fully exercisable with respect to the total number of shares of Common Stock at the time subject to such option and may be exercised for any or all of those shares as fully-vested shares of Common Stock. The option shall remain so exercisable until the earlier or (i) the expiration of the ten (10)-year option term or (ii) the expiration of the three (3)-year period measured from the date of the Optionee's cessation of Service. C. The grant of options under the Director Fee Option Grant Program shall in no way affect the right of the Corporation to adjust, reclassify, reorganize or otherwise change its capital or business structure or to merge, consolidate, dissolve, liquidate or sell or transfer all or any part of its business or assets. IV. REMAINING TERMS The remaining terms of each option granted under this Director Fee Option Grant Program shall be the same as the terms in effect for option grants made under the Discretionary Option Grant Program. ARTICLE SIX MISCELLANEOUS I. LOANS OR INSTALLMENT PAYMENTS A. The Plan Administrator may, in its discretion, assist any Optionee or Participant (including an Optionee or Participant who is an officer of the Corporation) in the exercise of one or more options granted to such Optionee under the Discretionary Option Grant and Automatic Option Grant Programs or the purchase of one or more shares issued to such Participant under the Stock Issuance Program, including the satisfaction of any Federal, state and local income and employment tax obligations arising therefrom, by: (i) authorizing the extension of a loan from the Corporation to such Optionee 18 or Participant, or (ii) permitting the Optionee or Participant to pay the exercise price or purchase price for the purchased Common Stock in installments over a period of years. B. The terms of any loan or installment method of payment (including the interest rate and terms of repayment) shall be upon such terms as the Plan Administrator specifies in the applicable option or issuance agreement or otherwise deems appropriate at the time such exercise price or purchase price becomes due and payable. Loans or installment payments may be authorized with or without security or collateral. In all events, the maximum credit available to the Optionee or Participant may not exceed the option or purchase price of the acquired shares (less the par value of such shares) plus any Federal, state and local income and employment tax liability incurred by the Optionee or Participant in connection with the acquisition of such shares. C. The Plan Administrator may, in its absolute discretion, determine that one or more loans extended under this Section I shall be subject to forgiveness by the Corporation in whole or in part upon such terms and conditions as the Plan Administrator may in its discretion deem appropriate. II. AMENDMENT OF THE PLAN AND AWARDS A. The Board has complete and exclusive power and authority to amend or modify the Plan (or any component thereof) in any or all respects whatsoever. However, (i) no such amendment or modification shall adversely affect rights and obligations with respect to options at the time outstanding under the Plan, nor adversely affect the rights of any Participant with respect to Common Stock issued under the Stock Issuance Program prior to such action, unless the Optionee or Participant consents to such amendment. In addition, the Board may not, without the approval of the Corporation's shareholders, amend the Plan to (i) increase the maximum number of shares issuable under the Plan or the maximum amount of shares for which any one individual participating in the Plan may be granted stock options, separately exercisable stock appreciation rights and direct stock issuances for any given year under the Plan, except for permissible adjustments under Article One, (ii) materially modify the eligibility requirements for Plan participation, or (iii) otherwise materially increase the benefits accruing to Plan participants. B. (i) Options to purchase shares of Common Stock may be granted under the Discretionary Option Grant Program and (ii) shares of Common Stock may be issued under the Stock Issuance Program, which are in both instances in excess of the number of shares then available for issuance under the Plan, provided any excess shares actually issued under the Discretionary Option Grant or the Stock Issuance Programs are held in escrow until shareholder approval is obtained for a sufficient increase in the number of shares available for issuance under the Plan. If such shareholder approval is not obtained within twelve (12) months after the date the first such excess option grants or excess share issuances are made, then (i) any unexercised excess options shall terminate and cease to be exercisable and (ii) the Corporation shall promptly refund the purchase price paid for any excess shares actually issued under the Plan and held in escrow, together with interest (at the applicable Short Term Federal Rate) for the period the shares were held in escrow. III. TAX WITHHOLDING A. The Corporation's obligation to deliver shares of Common Stock upon the exercise of any stock options granted under Article Two or upon the issuance of any shares under Article Three shall be subject to the satisfaction of all applicable Federal, state and local income and employment tax withholding requirements. B. The Plan Administrator may, in its discretion and in accordance with the provisions of this Section III of Article Six and such supplemental rules as the Plan Administrator may from time to time adopt (including the applicable safe-harbor provisions of Rule 16b-3 of the Securities and Exchange Commission), provide any or all holders of Non-Statutory Options or unvested shares under the Plan with the right to use shares of Common Stock in satisfaction of all or part of the Federal, state and local income and employment tax liabilities incurred by such holders in connection with the exercise of their options or the vesting of their shares (the "Taxes"). Such right may be provided to any such holder in either or both of the following formats: 19 -- The holder of the Non-Statutory Option or unvested shares may be provided with the election to have the Corporation withhold, from the shares of Common Stock otherwise issuable upon the exercise of such Non-Statutory Option or the vesting of such shares, a portion of those shares with an aggregate Fair Market Value equal to the percentage of the applicable Taxes (not to exceed one hundred percent (100%)) designated by the holder. -- The Plan Administrator may, in its discretion, provide the holder of the Non-Statutory Option or the unvested shares with the election to deliver to the Corporation, at the time the Non-Statutory Option is exercised or the shares vest, one or more shares of Common Stock previously acquired by such individual (other than in connection with the option exercise or share vesting triggering the Taxes) with an aggregate Fair Market Value equal to the percentage of the Taxes incurred in connection with such option exercise or share vesting (not to exceed one hundred percent (100%)) designated by the holder. IV. EFFECTIVE DATE AND TERM OF PLAN A. The Discretionary Option Grant and Stock Issuance Programs of this Plan became effective immediately upon adoption of the Plan by the Board on March 23, 1995 (the "Plan Effective Date"). The Plan was approved by the Corporation's shareholders on April 12, 1995. On December 9, 1995, the Board approved an increase of 600,000 shares (which number reflects the 1-for-3 reverse stock split that was effected immediately prior to the consummation of the initial public offering of the Common Stock) in the aggregate number of shares issuable under the Plan; such increase was approved by the Corporation's shareholders on December 19, 1995. The Automatic Option Grant Program of this Plan became effective on the Automatic Option Grant Program Effective Date. On March 19, 1997, the Board approved an increase of 500,000 shares in the aggregate number of shares issuable under the Plan, and on April 23, 1997, the Board approved a change in the aggregate number of shares of Common Stock for which any one individual participating in the Plan may be granted stock options, separately exercisable stock appreciation rights and direct stock issuances, from a limitation of 250,000 shares over the term of the Plan, to an annual limitation not in excess of 50% of the total number of shares for which stock options, separately exercisable stock appreciation rights and direct stock issuances may be granted over the term of the Plan. Both of such amendments became effective on April 23, 1997, and are subject to the approval of stockholders at the 1997 Annual Stockholders Meeting. B. The Plan was amended by the Board on March 16, 1996 to implement the Director Fee Option Grant Program, subject to approval of the amendment at the 1996 Annual Stockholders Meeting. If such stockholder approval is not obtained, then the Director Fee Option Grant Program will terminate. C. Each stock option grant outstanding under the Predecessor Plans immediately prior to the Plan Effective Date shall be incorporated into this Plan and treated as an outstanding option under this Plan, but each such option shall continue to be governed solely by the terms and conditions of the instrument evidencing such grant, and nothing in this Plan shall be deemed to affect or otherwise modify the rights or obligations of the holders of such options with respect to their acquisition of shares of Common Stock thereunder. However, the Plan Administrator shall have complete discretion to extend, under such circumstances as it may deem appropriate, one or more provisions of this Plan to any or all of the stock options which are incorporated into this Plan from the Predecessor Plans but which do not otherwise contain such provisions. D. No further option grants or stock issuances shall be made under the Predecessor Plans from and after the Plan Effective Date. E. The Plan shall terminate upon the earlier of (i) February 28, 2005 or (ii) the date on which all shares available for issuance under the Plan shall have been issued pursuant to the exercise of the options or stock appreciation rights granted under the Plan or the issuance of shares (whether vested or unvested) under the Stock Issuance Program. If the date of termination is determined under clause (i) above, then all option grants and unvested share issuances outstanding on such date shall thereafter continue to have force and effect in accordance with the provisions of the instruments evidencing such option grants or share issuances. 20 V. NO EMPLOYMENT/SERVICE RIGHTS Neither the action of the Corporation in establishing the Plan, nor any action taken by the Plan Administrator hereunder, nor any provision of the Plan shall be construed so as to grant any individual the right to remain in the employ or service of the Corporation (or any parent or subsidiary corporation) for any period of specific duration, and the Corporation (or any parent or subsidiary corporation retaining the services of such individual) may terminate such individual's employment or service at any time and for any reason, with or without cause. VI. USE OF PROCEEDS Any cash proceeds received by the Corporation from the sale of shares pursuant to option grants or share issuances under the Plan shall be used for general corporate purposes. VII. REGULATORY APPROVALS The implementation of the Plan, the granting of any option under the Plan, the issuance of any shares under the Stock Issuance Program, and the issuance of Common Stock upon the exercise or surrender of the option grants made hereunder shall be subject to the Corporation's procurement of all approvals and permits required by regulatory authorities having jurisdiction over the Plan, the options granted under it, and the Common Stock issued pursuant to it. VIII. MISCELLANEOUS PROVISIONS A. The right to acquire Common Stock or other assets under the Plan may not be assigned, encumbered or otherwise transferred by any Optionee or Participant. B. The provisions of the Plan relating to the exercise of options and the vesting of shares shall be governed by the laws of the Commonwealth of Pennsylvania as such laws are applied to contracts entered into and performed in such Commonwealth. C. The provisions of the Plan shall inure to the benefit of, and be binding upon, the Corporation and its successors or assigns, whether by Corporate Transaction or otherwise, and the Participants and Optionees, the legal representatives of their respective estates, their respective heirs or legatees and their permitted assignees. 21 EX-27 19 ART. 5 FDS FOR 1ST QUARTER 10-Q
5 1 3-MOS DEC-31-1997 MAR-31-1997 51,378,170 0 0 0 0 54,951,742 11,911,273 1,723,300 65,143,115 1,495,970 0 0 0 94,953 53,715,102 65,143,115 0 312,500 0 0 2,682,306 0 43,071 (1,828,475) 0 (1,828,475) 0 0 0 (1,828,475) (.20) (.20)
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