-----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, GWb0I8a8KmoOOLqh1eM681AqKsRqO+0VR8+VYa1QrUdtTmb9tZFypHUgnCMft3m5 LbI9Vd5l+Za/rghEILmpJg== 0001206774-04-000414.txt : 20040428 0001206774-04-000414.hdr.sgml : 20040428 20040428160227 ACCESSION NUMBER: 0001206774-04-000414 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 20040331 FILED AS OF DATE: 20040428 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NEOSE TECHNOLOGIES INC CENTRAL INDEX KEY: 0000877902 STANDARD INDUSTRIAL CLASSIFICATION: MEDICINAL CHEMICALS & BOTANICAL PRODUCTS [2833] 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: 04760654 BUSINESS ADDRESS: STREET 1: 102 WITMER RD CITY: HORSHAM STATE: PA ZIP: 19044 BUSINESS PHONE: 2154415890 MAIL ADDRESS: STREET 1: 102 WITMER ROAD CITY: HORSHAM STATE: PA ZIP: 19044 FORMER COMPANY: FORMER CONFORMED NAME: NEOSE PHARMACEUTICALS INC DATE OF NAME CHANGE: 19950817 10-Q 1 d14589_10q.htm

UNITED STATES
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, 2004.

OR

o	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 incorporation or organization)		(I.R.S. Employer Identification No.)

102 Witmer Road
Horsham, Pennsylvania		19044

(Address of principal executive offices)		(Zip Code)

(215) 315-9000

(Registrant’s telephone number, including area code)

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 o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Yes x No o

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 19,948.921 shares of common stock, $.01 par value, were outstanding as of April 20, 2004.

NEOSE TECHNOLOGIES, INC.
(a development-stage company)

INDEX

			Page


PART I.		FINANCIAL INFORMATION:

Item 1.		Financial Statements (unaudited)

	Balance Sheets as of December 31, 2003 and March 31, 2004		3

	Statements of Operations for the three months ended March 31, 2003 and 2004, and for the period from inception through March 31, 2004		4

	Statements of Cash Flows for the three months ended March 31, 2003 and 2004, and for the period from inception through March 31, 2004		5

	Notes to Financial Statements		6

Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations	10

Item 3.		Quantitative and Qualitative Disclosure About Market Risk	20

Item 4.		Controls and Procedures	21

PART II.		OTHER INFORMATION:

Item 6.		Exhibits and Reports on Form 8-K	21

SIGNATURES			23

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

NEOSE TECHNOLOGIES, INC.
(a development-stage company)

BALANCE SHEETS
(unaudited)
(in thousands, except per share amounts)

	December 31, 2003				March 31, 2004

Assets
Current assets:
Cash and cash equivalents		$	48,101			$	39,917
Marketable securities			4,959				4,974
Restricted funds			901				-
Prepaid expenses and other current assets			917				1,906

Total current assets			54,878				46,797
Property and equipment, net			37,192				40,691
Acquired intellectual property, net			1,910				1,760
Other assets			865				845

Total assets		$	94,845			$	90,093


Liabilities and Stockholders’ Equity
Current liabilities:
Current portion of long-term debt and capital lease obligations		$	2,231			$	2,756
Accounts payable			2,342				1,835
Accrued compensation			2,510				1,218
Accrued expenses			2,433				2,780
Deferred revenue			4,333				4,789

Total current liabilities			13,849				13,378
Long-term debt and capital lease obligations			8,370				13,544
Other liabilities			413				331

Total liabilities			22,632				27,253

Stockholders’ equity:
Preferred stock, $.01 par value, 5,000 shares authorized, none issued			-				-
Common stock, $.01 par value, 30,000 shares authorized; 19,935 and 19,949 shares issued and outstanding			199				199
Additional paid-in capital			217,849				217,966
Deferred compensation			(96	)			(83	)
Deficit accumulated during the development-stage			(145,739	)			(155,242	)

Total stockholders’ equity			72,213				62,840

Total liabilities and stockholders’ equity		$	94,845			$	90,093

The accompanying notes are an integral part of these financial statements.

NEOSE TECHNOLOGIES, INC.
(a development-stage company)

STATEMENTS OF OPERATIONS
(unaudited)
(in thousands, except per share amounts)

	Three months						Period from
	ended March 31,						inception
							(January 17, 1989)
	2003			2004			to March 31, 2004


Revenue from collaborative agreements	$	70		$	1,250			$	20,131

Operating expenses:
Research and development		5,619			7,878				134,377
Marketing, general and administrative		3,005			2,862				63,082

Total operating expenses		8,624			10,740				197,459

Operating loss		(8,554	)		(9,490	)			(177,328	)
Other income		-			-				7,773
Impairment of equity securties		-			-				(1,250	)
Interest income		170			105				19,447
Interest expense		(37	)		(118	)			(3,884	)

Net loss	$	(8,421	)	$	(9,503	)		$	(155,242	)

Basic and diluted net loss per share	$	(0.53	)	$	(0.48	)

Weighted-average shares outstanding used in computing basic and diluted net loss per share		15,801			19,943

The accompanying notes are an integral part of these financial statements.

NEOSE TECHNOLOGIES, INC.
(a development-stage company)
STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)

	Three months ended						Period from
	March 31,						inception
							(January 17, 1989)
	2003			2004			to March 31, 2004

Cash flows from operating activities:
Net loss	$	(8,421	)	$	(9,503	)		$	(155,242	)
Adjustments to reconcile net loss to cash used in operating activities:
Depreciation and amortization		1,048			1,347				19,274
Loss on disposition of property and equipment					-				264
Non-cash compensation		-			14				4,931
Common stock issued for non-cash and other charges		-			-				35
Changes in operating assets and liabilities:
Prepaid expenses and other current and non-current assets		(888	)		(1,083	)			(2,314	)
Accounts payable		(256	)		(507	)			1,835
Accrued compensation		(612	)		(1,292	)			799
Accrued expenses		(249	)		(98	)			1,480
Deferred revenue		-			456				4,789
Other liabilities		2			(82	)			(88	)

Net cash used in operating activities		(9,376	)		(10,748	)			(124,237	)

Cash flows from investing activities:
Purchases of property and equipment		(353	)		(3,968	)			(54,531	)
Proceeds from sale-leaseback of equipment		-			-				1,382
Purchases of marketable securities		(18,259	)		-				(423,307	)
Proceeds from sales of marketable securities		-			-				29,686
Proceeds from maturities of and other changes in marketable securities		10,000			-				389,360
Purchase of acquired technology		-			-				(4,550	)
Investment in equity securities		-			-				(1,250	)
Impairment of equity securities									1,250

Net cash used in investing activities		(8,612	)		(3,968	)			(61,960	)

Cash flows from financing activities:
Proceeds from issuance of debt		2,954			9,941				29,215
Repayment of debt		(115	)		(4,426	)			(15,162	)
Restricted cash related to debt		(302	)		901				-
Proceeds from issuance of preferred stock, net		-			-				29,497
Proceeds from issuance of common stock, net		16,435			86				176,203
Proceeds from exercise of stock options and warrants		-			30				6,608
Acquisition of treasury stock		-			-				(175	)
Dividends paid		-			-				(72	)

Net cash provided by financing activities		18,972			6,532				226,114

Net increase (decrease) in cash and cash equivalents		984			(8,184	)			39,917
Cash and cash equivalents, beginning of period		31,088			48,101				-

Cash and cash equivalents, end of period	$	32,072		$	39,917			$	39,917

The accompanying notes are an integral part of these financial statements.

NEOSE TECHNOLOGIES, INC.
(a development-stage company)

NOTES TO FINANCIAL STATEMENTS
(unaudited)

1. Basis of Presentation

We have used accounting principles generally accepted in the United States for interim financial information to prepare our unaudited financial statements:

	•	As of March 31, 2004;
	•	For the three months ended March 31, 2003 and 2004; and
	•	For the period from inception (January 17, 1989) to March 31, 2004.

Our unaudited financial statements do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In our opinion, the unaudited financial statements include all the normal recurring adjustments that are necessary for a fair presentation of the financial position, results of operations, and cash flows for the periods presented. You should not base your estimate of our results of operations for 2004 solely on our results of operations for the three months ended March 31, 2004. You should read these unaudited financial statements in combination with:

	•	The other Notes in this section;
	•	“Management’s Discussion and Analysis of Financial Condition and Results of Operations” appearing in the following section; and
	•	The Financial Statements, including the Notes to the Financial Statements, included in our Annual Report on Form 10-K for the year ended December 31, 2003.

Certain prior year amounts have been reclassified to conform to our current year presentation.

2. Revenue Recognition

Revenue from collaborative agreements consists of upfront fees, research and development funding, and milestone payments. Non-refundable upfront fees are deferred and amortized to revenue over the related estimated performance period. Periodic payments for research and development activities are recognized over the period in which we perform those activities under the terms of each agreement. Revenue resulting from the achievement of milestone events stipulated in the agreements is recognized when the milestone is achieved.

During the three months ended March 31, 2004, we recognized revenue of $1,250,000, all of which related to our collaboration agreements with Novo Nordisk A/S. Approximately $215,000 of the revenue recognized during the quarter ended March 31, 2004 represented the amortization of the non-refundable, upfront fee received from Novo Nordisk upon execution of the agreements in November 2003. The remaining revenue of $1,035,000 was recognized in connection with our research and development activities conducted under the agreements during the quarter ended March 31, 2004.

In April 2004, we entered into an agreement with BioGeneriX AG, a company of the ratiopharm Group, to use our proprietary GlycoPEGylation technology to develop a long-acting, next-generation version of granulocyte colony stimulating factor (G-CSF). Under the agreement, we and BioGeneriX will pursue development and commercialization of a next-generation G-CSF. The parties will share equally preclinical expenses, and BioGeneriX will fund the entire clinical development program. If we and BioGeneriX proceed to commercialization, we will have commercial rights in the U.S., Canada, Mexico and Japan. BioGeneriX will have commercial rights in Europe and rest of world. Each company will receive royalties on product sales in the other company’s territory. In connection with the agreement, we received from BioGeneriX a non-refundable, upfront fee, which will be amortized to revenue over the expected period in which we perform activities under the agreement.

3. Long-term Debt and Capital Lease Obligation

In March 2004, we borrowed $941,000 to finance the purchase of equipment and facility improvements, which collateralize the amount borrowed. The terms of the financing require us to pay monthly principal and interest payments over 48 months at an interest rate of 8.09%. During the 12 months ending March 31, 2005, 2006, 2007, 2008, and 2009 we will be required to make principal repayments totaling $204,000, $240,000, $261,000, $218,000, and $18,000, respectively, under this agreement.

In February 2004, we entered into a capital lease obligation for equipment with a book value of $184,000, which was calculated using an assumed incremental annual borrowing rate of 8.66%. The terms of the lease require us to make monthly payments through February 2009. Under this agreement, we will be required to make principal repayments totaling $31,000, $34,000, $37,000, $40,000, and $40,000 during the 12 months ending March 31, 2005, 2006, 2007, 2008, and 2009, respectively.

During the three months ended March 31, 2004, we and a bank entered into agreements under which the bank acquired and reissued the $1,000,000 outstanding of our tax-exempt Industrial Development Authority bonds. In addition, we borrowed $8,000,000 from the bank, of which $1,800,000 was combined with $1,100,000 of our restricted cash for the purpose of paying in full the $2,900,000 outstanding of our taxable Industrial Development Authority bonds. The remaining $6,200,000 borrowed funded improvements to our leased facility, which we occupied in April 2004, in Horsham, PA.

The interest rate on the bond and bank debt will vary quarterly, depending on LIBOR rates. We will have the option each quarter to incur interest on the outstanding principal at a LIBOR-based variable interest rate or a fixed rate offered by our bank.

For the $1,000,000 of tax-exempt debt, we will make quarterly, interest-only payments for ten years followed by a single repayment of principal at the end of the ten-year loan period. For the remaining $8,000,000 borrowed, we will make quarterly, interest-only payments through March 31, 2005. Commencing on March 31, 2005, we will make quarterly principal payments of $222,000 plus interest over the remaining nine years of the ten-year loan period.

To provide credit support for these borrowings, we granted a mortgage to our bank on the land and building where our present headquarters are located, as well as on improvements, certain equipment, and other tangible personal property. Under our agreements with the bank, we

agreed to limit our total outstanding debt to $22,000,000. As of March 31, 2004, our total outstanding debt was $16,300,000. At any time after the fourth year of the loan period, or if we fail to maintain a minimum required cash and short-term investments balance of at least $22,000,000, our bank has the option to require additional collateral from us in the form of a security interest in certain cash and short-term investments, or in the form of a letter of credit, which may have the effect of requiring us to repay the outstanding loan balance to the bank.

4. Stockholders’ Equity

During the three months ended March 31, 2004, participating employees purchased 8,456 shares of common stock pursuant to our employee stock purchase plan, resulting in net proceeds of $86,000. In addition, during the first quarter of 2004, we received proceeds of $30,000 upon the exercise of options to purchase 5,250 shares of common stock.

5. Separation Agreement

During the quarter ended March 31, 2003, we entered into a non-competition agreement with our former Chief Executive Officer, Stephen A. Roth. Under this agreement, we agreed to pay him $39,622 per month for 24 months and, should he leave our board of directors during such two-year period, continue his stock option vesting and exercisability. Upon entering into the agreement, we recorded a liability of $882,000, which represented the present value of the future payments, and a corresponding asset for the value of the non-competition commitment. The asset will be amortized to marketing, general and administrative expense on our statements of operations over the two-year term of the agreement. As of March 31, 2004, the present value of remaining minimum payments under this agreement was $419,000.

6. Stock-based Compensation

We apply the intrinsic value method of accounting for all stock-based employee compensation in accordance with APB Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations. We record deferred compensation for option grants to employees for the amount, if any, by which the market price per share exceeds the exercise price per share.

We have elected to adopt only the disclosure provisions of Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation” (SFAS No. 123), as amended by Statement of Financial Accounting Standards No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure.” The following table illustrates the effect on our net loss and basic and diluted net loss per share if we had recorded compensation expense for the estimated fair value of our stock-based employee compensation, consistent with SFAS No. 123 (in thousands, except per share data):

	Three months ended March 31,

	2003			2004

Net loss – as reported	$	(8,421	)	$	(9,503	)

Add: Stock-based employee compensation expense included in reported net loss		11			11

Deduct: Total stock-based employee compensation expense determined under fair value-based method for all awards		(3,870	)		(2,280	)

Net loss – pro forma	$	(12,280	)	$	(11,772	)


Basic and diluted net loss per share – as reported	$	(0.53	)	$	(0.48	)

Basic and diluted net loss per share – pro forma	$	(0.78	)	$	(0.59	)

7. Net Loss Per Share

Basic and diluted net loss per share are presented in conformity with Statement of Financial Accounting Standards No. 128, “Earnings Per Share.” Basic net loss per share is computed by dividing net loss by the weighted-average number of common shares outstanding for the period. Diluted net loss per share reflects the potential dilution from the exercise or conversion of securities into common stock. For the three months ended March 31, 2003 and 2004, the effects of the exercise of outstanding stock options and warrants to purchase 4,650,376 and 5,116,228 shares, respectively, were antidilutive; accordingly, they were excluded from the calculation of diluted net loss per share.

8. Supplemental Disclosure of Cash Flow Information

The following table contains additional cash flow information for the periods reported (in thousands).

	Three months ended					Period from
	March 31,					inception
						(January 17, 1989)
	2003			2004		to March 31, 2004

Supplemental disclosure of cash flow information:
Cash paid for interest	$	52		$	209		$	4,119

Non- compete agreement	$	882		$	-		$	882

Non-cash investing activities:
Increase (decrease) in accrued property and equipment	$	(41	)	$	445		$	1,300

Assets acquired under capital leases and tenant improvement loan	$	-		$	184		$	1,525

Non-cash financing activities:
Conversion of debt into common stock	$	-		$	-		$	660

Issuance of common stock for dividends	$	-		$	-		$	90

Issuance of common stock to employees in lieu of cash compensation	$	-		$	-		$	44

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

CAUTIONARY STATEMENT PURSUANT TO SAFE HARBOR PROVISIONS OF THE PRIVATE SECURITIES LITIGATION ACT OF 1995:

This report and the documents incorporated by reference herein contain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. When used in this report and the documents incorporated herein by reference, the words “anticipate,” “believe,” “estimate,” “may,” “expect,” “intend,” and similar expressions are generally intended to identify forward-looking statements. These forward-looking statements include, among others, the statements in Management’s Discussion and Analysis of Financial Condition and Results of Operations about our:

	•	estimate of the length of time that our existing cash, cash equivalents and marketable securities, expected revenue, and interest income will be adequate to finance our operating and capital requirements;
	•	expected losses;
	•	expectations for future capital requirements;
	•	expectations for increases in operating expenses;
	•	expectations for increases in research and development, and marketing, general and administrative expenses in order to develop products, manufacture commercial quantities of reagents and products, and commercialize our technology;
	•	expectations for the development of an improved EPO, G-CSF, and subsequent proprietary drug candidates;
	•	expectations for incurring additional capital expenditures for renovations of our facilities;
	•	expectations for generating revenue; and

•

ability to enter into new or expanded collaboration agreements and the ability of our existing collaboration partners to develop and commercialize products incorporating our technologies.

Our actual results could differ materially from the results expressed in, or implied by, these forward-looking statements. Potential risks and uncertainties that could affect our actual results include the following:

	•	our ability to obtain the funds necessary for our operations;
	•	our ability to renovate our facilities as required for our operations;
	•	our ability to develop and commercialize any therapeutic proteins or to commercialize our technologies;
	•	our ability to develop commercial-scale manufacturing processes;
	•	our ability to enter into and maintain collaborative arrangements;
	•	our ability to obtain adequate sources of proteins and reagents;
	•	our ability to meet forecasted project timelines;
	•	our ability to expand and protect our intellectual property and to operate without infringing the rights of others;
	•	our ability to compete successfully in an intensely competitive field;
	•	our ability to attract and retain key personnel; and
	•	general economic conditions.

These and other risks and uncertainties that could affect our actual results are discussed in this report and in our other filings with the Securities and Exchange Commission, particularly the section entitled “Factors Affecting The Company’s Prospects” of our Annual Report on Form 10-K filed February 17, 2004. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, events, levels of activity, performance, or achievements. We do not assume responsibility for the accuracy and completeness of the forward-looking statements other than as required by applicable law.

We do not undertake any duty to update after the date of this report any of the forward-looking statements in this report to conform them to actual results.

You should read this section in combination with the Management’s Discussion and Analysis of Financial Condition and Results of Operations for the year ended December 31, 2003, included in our Annual Report on Form 10-K and in our 2003 Annual Report to Stockholders.

Overview

We are a biopharmaceutical company focused on improving protein therapeutics using our proprietary technologies. Our core technologies, GlycoAdvance™ and GlycoPEGylation™, enable us to manipulate, enzymatically, the carbohydrate structures of glycoproteins, and thereby pursue the objective of improving the therapeutic profiles of proteins that have already been marketed or substantially developed. Our business strategy is to use our technologies to improve proteins for which there exists a substantial body of data demonstrating safety and efficacy. We intend to apply this strategy to next-generation products that we are developing on our own or in

collaboration with others. We also expect to use our technologies, through strategic partners, to improve products of other parties.

We have incurred operating losses each year since our inception. As of March 31, 2004, we had an accumulated deficit of approximately $155.2 million. We expect additional losses in 2004 and over the next several years as we expand product research and development efforts, increase manufacturing scale-up activities and, potentially, begin sales and marketing activities. We have financed our operations through private and public offerings of equity securities, proceeds from debt financings, and revenues from our collaborative agreements.

We believe that our existing cash, cash equivalents, and marketable securities, expected revenue from collaborations and license arrangements, proceeds under the agreements with a bank we entered into during the three months ended March 31, 2004, and interest income should be sufficient to meet our operating and capital requirements into 2005, although changes in our collaborative relationships or our business, whether or not initiated by us, may cause us to deplete our cash, cash equivalents, and marketable securities sooner than the above estimate.

Under our agreements with a bank we entered into during the three months ended March 31, 2004, we have agreed to limit our total outstanding debt to $22.0 million. As of March 31, 2004, our total outstanding debt was approximately $16.3 million. At any time after the fourth year of the ten-year loan period, or if we fail to maintain a minimum required cash and short-term investments balance of at least $22.0 million, the bank has the option to require additional collateral from us in the form of a security interest in certain cash and short-term investments, or in the form of a letter of credit, which may have the effect of requiring us to repay the outstanding loan balance to the bank. See “Long-term Debt – Proceeds from 2004 Arrangements – Credit Agreement” in the Liquidity and Capital Resources section of this Form 10-Q for a description of the material features of this borrowing.

Liquidity and Capital Resources

Overview

We had $44,891,000 in cash, cash equivalents, and marketable securities as of March 31, 2004, compared to $53,060,000 as of December 31, 2003. The decrease for 2004 was primarily attributable to the use of cash to fund our operating activities, capital expenditures, and debt repayments. These uses of cash were partially offset by proceeds from debt financings and cash inflows from our collaborative agreements.

The development of next-generation proprietary protein therapeutics, which we are pursuing both independently and in collaboration with selected partners, will require substantial expenditures by us and our collaborators. To finance those expenditures, we plan to continue financing our operations through private and public offerings of equity securities, proceeds from debt financings, and revenues from existing and future collaborative agreements. Because our 2004 revenues could be substantially affected by entering into new collaborations and on the financial terms of any new collaborations, we cannot estimate our 2004 revenues. Other than revenues from our collaborations with Novo Nordisk and BioGeneriX, and any future collaborations with others, we expect to generate no significant revenues until such time as products incorporating our technologies are commercialized, which is not expected during the next several years. We expect an additional several years to elapse before we can expect to

generate sufficient cash flow from operations to fund our operating and investing requirements. Accordingly, we will need to raise substantial additional funds to continue our business activities and fund our operations beyond 2004.

Significant 2004 Cash Flows

During the three months ended March 31, 2004, our operating activities consumed $10,749,000. In addition, we invested $3,968,000 in capital expenditures, and made debt principal repayments of $4,426,000. Partially offsetting these expenditures were $9,941,000 in proceeds from debt financings and $901,000 from the use of restricted cash to make debt repayments. We also entered into a capital lease obligation during the three months ended March 31, 2004 for equipment with an aggregate book value of $184,000. During the three months ended March 31, 2004, participating employees purchased 8,456 shares of common stock pursuant to our employee stock purchase plan, resulting in net proceeds of $86,000. In addition, during the first quarter of 2004, we received proceeds of $30,000 upon the exercise of options to purchase 5,250 shares of common stock.

Long-term Debt – Proceeds from 2004 Arrangements

In this section, we describe the material features of our new issuances of debt, and capital lease obligations entered into, during 2004. In the following section, “Long-term Debt – Other Arrangements,” we describe the material features of long-term debt arrangements entered into in prior years.

Credit Agreement

Initially, the interest rate on the bond and bank debt will vary quarterly, depending on LIBOR rates. We will have the option each quarter to incur interest on the outstanding principal at a LIBOR-based variable interest rate or a fixed rate offered by our bank.

For the $1,000,000 of tax-exempt debt, we will make quarterly, interest-only payments on the related $1,000,000 debt for ten years followed by a single repayment of principal at the end of the ten-year loan period. For the remaining $8,000,000 borrowed, we will make quarterly, interest-only payments through March 31, 2005. Commencing on March 31, 2005, we will make quarterly principal payments of $222,000 plus interest payments over the remaining nine years of the ten-year loan period.

outstanding debt was $16,300,000. At any time after the fourth year of the loan period, or if we fail to maintain a minimum required cash and short-term investments balance of at least $22,000,000, our bank has the option to require additional collateral from us in the form of a security interest in certain cash and short-term investments, or in the form of a letter of credit, which may have the effect of requiring us to repay the outstanding loan balance to the bank.

Equipment Loan

In March 2004, we borrowed $941,000 to finance the purchase of equipment and facility improvements, which collateralize the amount borrowed. The terms of the financing require us to pay monthly principal and interest payments over 48 months at an interest rate of 8.09%. During the 12 months ending March 31, 2005, 2006, 2007, 2008, and 2009 we will be required to make principal and interest payments totaling $267,000, $291,000, $291,000, $229,000, and $19,000, respectively, under this agreement.

2004 Capital Lease Obligation

In February 2004, we entered in to a capital lease obligation for equipment with a book value of $184,000, which was calculated using an assumed incremental annual borrowing rate of 8.66%. The terms of the lease require us to make monthly payments through February 2009. Under this agreement, we will be required to make lease payments totaling $46,000, $46,000, $46,000, $46,000, and $42,000 during the 12 months ending March 31, 2005, 2006, 2007, 2008, and 2009, respectively.

Long-term Debt – Other Arrangements

In this section, we describe the material features of our debt arrangements that did not involve new borrowings during 2004. In the previous section, “Long-term Debt – Proceeds from 2004 Arrangements,” we describe the material features of long-term debt arrangements entered into during 2004.

Equipment Loans

In December 2003, we borrowed $1,201,000 to finance the purchase of equipment and facility improvements, which collateralize the amount borrowed. The terms of the financing require us to pay monthly principal and interest payments over 48 months at an interest rate of 8.66%. During the 12 months ending March 31, 2005, 2006, 2007, and 2008, we will be required to make principal and interest payments totaling $366,000, $366,000, $359,000, and $269,000, respectively, under this agreement.

In September 2003, we borrowed $831,000 to finance the purchase of equipment and facility improvements, which collateralize the amount borrowed. The terms of the financing require us to pay monthly principal and interest payments over 48 months at an interest rate of 8.35%. During the 12 months ending March 31, 2005, 2006, 2007, and 2008, we will be required to make principal and interest payments totaling $269,000, $269,000, $224,000, and $93,000, respectively, under this agreement.

In March 2003, we borrowed $2,954,000 to finance the purchase of equipment, which collateralize the amount borrowed. The terms of the financing require us to pay monthly

principal and interest payments over 42 months at an interest rate of 8.35%. During the 12 months ending March 31, 2005, 2006, and 2007, we will be required to make principal and interest payments totaling $976,000, $976,000, and $570,000, respectively, under this agreement.

In December 2002, we borrowed $2,261,000 to finance the purchase of equipment, which collateralize the amount borrowed. The terms of the financing require us to pay monthly principal and interest payments over 36 months at an interest rate of 8.0%. During the 12 months ending March 31, 2005 and 2006, we will be required to make principal and interest payments totaling $850,000 and $708,000, respectively, under this agreement.

Capital Lease Obligations

In September 2003, we entered into a capital lease for $354,000 of equipment. The terms of the lease required us to make an initial payment of $90,000 followed by monthly payments through September 2006. Under this agreement, we will be required to make lease payments totaling $99,000, $99,000, and $50,000 during the 12 months ending March 31, 2005, 2006, and 2007, respectively. We also entered into a capital lease obligation during September 2003 for $60,000 of software. The terms of the lease require us to make monthly payments through September 2008. Under this agreement, we will be required to make lease payments totaling $16,000, $16,000, $16,000, $16,000, and $8,000 during the 12 months ending March 31, 2005, 2006, 2007, 2008, and 2009, respectively.

In June 2003, we entered into a capital lease for $119,000 of equipment. The terms of the lease required us to make an initial payment of $31,000 followed by monthly payments through June 2006. Under this agreement, we will be required to make lease payments totaling $37,000, $37,000, and $9,000 during the 12 months ending March 31, 2005, 2006, and 2007, respectively.

In April and May 2003, we entered into capital leases for $254,000 of equipment. The terms of the leases require us to make monthly payments through April 2006. Under these agreements, we will be required to make lease payments totaling $96,000, $96,000, and $4,000 during the 12 months ending March 31, 2005, 2006, and 2007, respectively.

In November 2002, we entered into a capital lease for $50,000 of equipment. The terms of the lease require us to make monthly payments over 36 months. Under this agreement, we will be required to make lease payments totaling $19,000 and $14,000 during the 12 months ending March 31, 2005 and 2006, respectively.

Capital Expenditures

During the three months ended March 31, 2004, we invested $3,968,000 in property, equipment, and building improvements. Of this amount, $3,430,000 was invested in leasehold improvements that are described below. In addition, we entered into capital lease obligations for equipment with an aggregate book value of $184,000. We anticipate additional capital expenditures during 2004 of approximately $6.0 million, of which $1.3 million was accrued at March 31, 2004 for the facility renovations described below. We may finance some or all of our capital expenditures through the issuance of new debt or equity. If we issue new debt, we may be required to maintain a minimum cash and investments balance, or to transfer cash into an escrow account to collateralize some portion of the debt, or both.

We entered into a lease agreement in 2002 for a 40,000 square foot building, which we intended to convert into laboratory and office space. Later in 2002, we suspended plans to complete these renovations. In November 2003, we reinitiated renovation activities at an expected additional cost of $6,300,000, which was incremental to $4,081,000 previously invested in these renovations, on approximately 25,000 square feet of the facility, leaving approximately 15,000 square feet available for future expansion. Our construction-in-progress at March 31, 2004 included $9,101,000 in renovations to this facility. During the three months ended March 31, 2004, we entered into agreements with a bank for the purpose of funding these improvements. See “Long-term Debt – Proceeds from 2004 Arrangements – Credit Agreement” in the Liquidity and Capital Resources section of this Form 10-Q for a description of the material features of this borrowing.

Summary of Contractual Obligations

A summary of our obligations to make future payments under contracts existing as of December 31, 2003 is included in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, of our Annual Report on Form 10-K for the year ended December 31, 2003. The Liquidity and Capital Resources section of this Form 10-Q describes additional obligations from contracts entered into during the three months ended March 31, 2004.

Off-Balance Sheet Arrangements

We are not involved in any off-balance sheet arrangements that have or are reasonably likely to have a material future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources.

Critical Accounting Policies and Estimates

A discussion of our critical accounting policies and estimates is included in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, of our Annual Report on Form 10-K for the year ended December 31, 2003. There have not been any changes or additions to our critical accounting policies during the three months ended March 31, 2004.

Results of Operations

Our net loss for the three months ended March 31, 2003 and 2004 was $8,421,000 and $9,503,000, respectively. The following section explains the changes between the reporting periods in each component of net loss.

Revenue from Collaborative Agreements

Revenues from collaborative agreements for the three months ended March 31, 2003 and 2004 were $70,000 and $1,250,000, respectively. Our revenues from collaborative agreements have historically been derived from a few major collaborators. Our collaborative agreements provide for some or all of the following elements: upfront fees, research and development funding, milestone revenues, and royalties on product sales.

All of the revenues recognized during the three months ended March 31, 2004 related to

our collaboration agreements with Novo Nordisk A/S. Approximately $215,000 of the revenue recognized during the quarter ended March 31, 2004 represented the amortization of the non-refundable, upfront fee received from Novo Nordisk upon execution of the agreements in November 2003. The remaining revenue of $1,035,000 was recognized in connection with our research and development activities conducted under the agreements during the quarter ended March 31, 2004. During the three months ended March 31, 2003, we recognized revenue of $70,000 under a research and development collaboration.

Because our 2004 revenues could be substantially affected by entering into new collaborations and on the financial terms of any new collaborations, we cannot estimate our 2004 revenues.

Research and Development Expense

In January 2003, we announced the selection of an improved erythropoietin (EPO) as the target for our first proprietary drug development project. EPO is prescribed to stimulate production of red blood cells, and is approved for sale in major markets around the world for the treatment of anemia associated with oncology chemotherapy, end stage renal disease, and chronic renal insufficiency. Based on proof-of-concept data, we believe it is feasible to develop a long acting EPO through GlycoPEGylation. During 2004, we are planning to continue various preclinical development activities.

In October 2003, we announced the selection of an improved granulocyte colony stimulating factor (G-CSF) as the target for our second proprietary drug development project. G-CSF is prescribed to stimulate production of neutrophils (a type of white blood cell), and is approved for sale in major markets around the world for treatment of neutropenia associated with oncology chemotherapy. Based on proof-of-concept data, we believe it is feasible to develop a long acting G-CSF through GlycoPEGylation. During 2004, we are planning to continue various preclinical development activities.

In April 2004, we entered into an agreement with BioGeneriX AG, a company of the ratiopharm Group, to use our proprietary GlycoPEGylation technology to develop a long-acting, next-generation version of G-CSF. Under the agreement, we and BioGeneriX will pursue development and commercialization of a next-generation G-CSF. The parties will share equally preclinical expenses, and BioGeneriX will fund the entire clinical development program. If we and BioGeneriX proceed to commercialization, we will have commercial rights in the U.S., Canada, Mexico and Japan. BioGeneriX will have commercial rights in Europe and rest of world. Each company will receive royalties on product sales in the other company’s territory. In connection with the agreement, we received from BioGeneriX a non-refundable, upfront fee, which will be amortized to revenue over the expected period in which we perform activities under the agreement.

We are working in collaboration with Novo Nordisk to incorporate our technology in three next-generation versions of marketed proteins, one of which is currently marketed by Novo Nordisk.

We are also conducting exploratory research, both independently and with collaborators, to identify proteins that are likely candidates for development using our technologies, which may be advanced for development through our own proprietary drug program or through our

partnering and licensing program. We are continuing some work on the development of our other programs, including new applications of our GlycoPEGylation and GlycoConjugation technologies.

Our current research and development projects are divided between two categories: (i) GlycoAdvance and GlycoPEGylation and (ii) Other Glycotechnology Programs, which includes projects investigating other applications of our intellectual property. We are exploring the most cost-effective means of continuing some of the projects classified as Other Glycotechnology Programs. The following chart sets forth our projects in each of these categories and the stage to which each has been developed:

	Development Stage	*Status*

GlycoAdvance and GlycoPEGylation

Improved erythropoietin	Preclinical	Active
Improved granulocyte colony stimulating factor	Preclinical	Active
Other protein projects	Research	Active

Other Glycotechnology Programs

Non-protein therapeutic applications	Research	Active
Nutritional applications	N/A	Evaluating outlicensing opportunities

For each of our research and development projects, we incur both direct and indirect expenses. Direct expenses include salaries and other costs of personnel, raw materials, and supplies for each project. We may also incur third-party costs related to these projects, such as contract research and manufacturing, consulting, and preclinical development costs. Indirect expenses include depreciation expense and the costs of operating and maintaining our facilities, property, and equipment, to the extent used for our research and development projects, as well as the costs of general management of our research and development projects.

Our research and development expenses were $5,619,000 and $7,878,000 for the three months ended March 31, 2003 and 2004, respectively. We expect our research and development expenses to be significantly greater in 2004 than they were in 2003, as a result of the development and preclinical activities we plan to conduct during the year. The following table illustrates research and development expenses incurred during 2003 and 2004 in each period for our significant groups of research and development projects (in thousands).

	Three months ended March 31,

	2003			2004


GlycoAdvance and GlycoPEGylation		$	1,836		$	3,542
Other Glycotechnology Programs			133			66
Indirect expenses			3,650			4,270

		$	5,619		$	7,878

GlycoAdvance and GlycoPEGylation

Our GlycoAdvance and GlycoPEGylation research and development expenses increased during the 2004 periods, compared to 2003, primarily due to hiring of additional employees and increased purchases of supplies and outside services, including preclinical studies, associated with our proprietary drug development programs and our agreements with Novo Nordisk.

Other Glycotechnology Programs

Research and development expenses related to our Other Glycotechnology Programs decreased during the 2004 periods, compared to 2003, consistent with our decision to focus our resources on our GlycoAdvance and GlycoPEGylation programs.

Indirect expenses

Our indirect research and development expenses increased during the 2004 periods, compared to 2003, primarily due to increases related to additional personnel and depreciation of capital expenditures.

The process of bringing drugs from the preclinical research and development stage through Phase I, Phase II, and Phase III clinical trials and FDA approval is a time consuming and expensive process. Because our announced product candidates are currently in the preclinical stage and there are a variety of potential intermediate clinical and non-clinical outcomes that are inherent in drug development, we cannot reasonably estimate the timing and costs we will incur to complete these research and development projects. In addition, the timing and costs to complete our research and development projects will be affected by the timing and nature of any collaboration agreements we may enter into with a third party, neither of which we can currently estimate.

Material cash inflows from proprietary drug development projects are highly uncertain, and we cannot reasonably estimate the period in which we will begin to receive material net cash inflows from our major research and development projects. Cash inflows from development-stage products are dependent on several factors, including entering into collaborative agreements, the achievement of certain milestones, and regulatory approvals. We may not receive milestone payments from any existing or future collaborations if a development-stage product fails to meet technical or performance targets or fails to obtain the required regulatory approvals. Further, our revenues from collaborations will be affected by the level of efforts committed and made by our collaborative partners. Even if we achieve technical success in developing drug candidates, our

collaborative partners may not devote the resources necessary to complete development and commence marketing of these products or they may not successfully market potential products.

Marketing, General and Administrative Expense

Marketing, general and administrative expenses for the three months ended March 31, 2003 and 2004 were $3,005,000 and $2,862,000, respectively. This decrease is consistent with a slightly lower general and administrative headcount in 2004, as well as some savings in consulting and travel. During 2004, we expect our marketing, general and administrative expenses to increase by less than 10% over 2003.

Interest Income and Expense

Interest income for the three months ended March 31, 2003 and 2004 was $170,000 and $105,000, respectively. The decrease during the 2004 period is due to lower average cash, cash equivalents and marketable securities balances as well as lower interest rates.

Interest expense for the three months ended March 31, 2003 and 2004 was $37,000 and $118,000, respectively. The increase in the 2004 period is due to higher average debt balances. We expect our interest expense during 2004 to increase due to our entering into an agreement in January 2004 to borrow $9,000,000, all of which was borrowed during the first quarter of 2004. See “Long-term Debt – Proceeds from 2004 Arrangements – Credit Agreement” in the Liquidity and Capital Resources section of this Form 10-Q for a description of the material features of this debt financing.

Item 3. Quantitative and Qualitative Disclosure About Market Risk

Our holdings of financial instruments are comprised primarily of government agency securities. All such instruments are classified as securities held to maturity. We seek reasonable assuredness of the safety of principal and market liquidity by investing in fixed income rated securities, while at the same time seeking to achieve a favorable rate of return. Our market risk exposure consists principally of exposure to changes in interest rates. Our holdings are also exposed to the risks of changes in the credit quality of issuers. We typically invest in the shorter-end of the maturity spectrum. As of March 31, 2004, we held $4.9million in an obligation of a U.S. government agency with an original maturity of 347 days. The balance of our investment portfolio was held in money market securities. The approximate principal amount of our investment portfolio as of March 31, 2004 was $44.9 million. The annualized weighted-average interest rate for the three months ended March 31, 2004 was approximately 0.8%.

We have exposure to changing interest rates on our tax-exempt bonds and variable rate bank debt, and we are currently not engaged in hedging activities. Interest on approximately $9.0 million of outstanding indebtedness is at an interest rate that varies quarterly, depending on LIBOR rates. During the three months ended March 31, 2004, the annualized weighted-average, interest rate was approximately 4.0%.

Item 4. Controls and Procedures

We carried out an evaluation, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), for financial reporting as of March 31, 2004. Based on that evaluation, our principal executive officer and principal financial officer concluded that these controls and procedures are effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported as specified in Securities and Exchange Commission rules and forms. There were no changes in these controls or procedures identified in connection with the evaluation of such controls or procedures that occurred during our last fiscal quarter, or in other factors that have materially affected, or are reasonably likely to materially affect, these controls or procedures.

Our disclosure controls and procedures are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the rules and forms of the Securities and Exchange Commission. These disclosure controls and procedures include, among other things, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. Our internal controls and procedures for financial reporting are designed to provide reasonable assurance, and management believes that they provide such reasonable assurance, that our transactions are properly authorized, our assets are safeguarded against unauthorized or improper use, and our transactions are properly recorded and reported, in order to permit the preparation of our financial statements in conformity with generally accepted accounting principles.

Our management group, including our principal executive officer and principal financial officer, does not expect that our disclosure controls and internal controls and related procedures will prevent all error and all fraud. A control system, no matter how well designed and implemented, can provide only reasonable assurance that the objectives of the control system are met. In addition, the design and implementation of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered in relation to their costs. The design of any system of controls is based, in part, upon certain assumptions about the likelihood of future events, which may prove to be incorrect. Due to the limitations of all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within an organization have been detected or prevented.

PART II.	OTHER INFORMATION

Item 6.	Exhibits and Reports on Form 8-K.

	(a)	List of Exhibits:

		10.1 Promissory Note of the Company to General Electric Capital Corporation, dated March 30, 2004.

		10.2 Financing Agreement by and among Montgomery County Industrial Development Authority, the Company and Brown Brothers Harriman & Co., dated February 23, 2004.

		10.3 General Security Agreement by the Company to Brown Brothers Harriman & Co., dated February 23, 2004.

		10.4 Open-end Mortgage and Security Agreement by and between the Company and Brown Brothers Harriman & Co., dated February 23, 2004.

		31.1 Certification by Chief Executive Officer pursuant to Rule 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

		31.2 Certification by Chief Financial Officer pursuant to Rule 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

		32.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

		32.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

	(b)	Reports on Form 8-K:

		On February 12, 2004, we filed a Current Report on Form 8-K announcing our fourth quarter and year end financial results for 2003.

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: April 28, 2004	By:	/s/ Robert I. Kriebel

		Robert I. Kriebel
		Senior Vice President and Chief Financial Officer
		(Principal Financial Officer and Duly Authorized Signatory)

EX-10.1 2 d14589_ex10-1.htm

Exhibit 10.1

PROMISSORY NOTE

3/30/04
(Date)

FOR VALUE RECEIVED, Neose Technologies, Inc. a corporation located at the address stated below (“Maker”) promises, jointly and severally if more than one, to pay to the order of General Electric Capital Corporation or any subsequent holder hereof (each, a “Payee”) at its office located at 401 Merritt 7 Suite 23, Norwalk, CT 06851-1177 or at such other place as Payee or the holder hereof may designate, the principal sum of Nine Hundred Forty-One Thousand Four Hundred Fifty-Four – 67/100 Dollars ($941,454.67), with interest on the unpaid principal balance, from the date hereof through and including the dates of payment, at a fixed interest rate of Eight and Nine Hundredths percent (8.09%) per annum, to be paid in lawful money of the United States, in Forty -Eight (48) consecutive monthly installments of principal and interest as follows:

Periodic Installment	Amount


Thirty-Six (36)	$	24,269.82
Eleven (11)	$	18,621.34

each (“Periodic Installment”) and a final installment which shall be in the amount of the total outstanding principal and interest. The first Periodic Installment shall be due and payable on 5/1/04 and the following Periodic Installments and the final installment shall be due and payable on the same day of each succeeding month (each, a “Payment Date”). Such installments have been calculated on the basis of a 360 day year of twelve 30-day months. Each payment may, at the option of the Payee, be calculated and applied on an assumption that such payment would be made on its due date.

The acceptance by Payee of any payment which is less than payment in full of all amounts due and owing at such time shall not constitute a waiver of Payee’s right to receive payment in full at such time or at any prior or subsequent time.

The Maker hereby expressly authorizes the Payee to insert the date value is actually given in the blank space on the face hereof and on all related documents pertaining hereto.

This Note may be secured by a security agreement, chattel mortgage, pledge agreement or like instrument (each of which is hereinafter called a “Security Agreement”).

Time is of the essence hereof. If any installment or any other sum due under this Note or any Security Agreement is not received within ten (10) days after its due date, the Maker agrees to pay, in addition to the amount of each such installment or other sum, a late payment charge of five percent (5%) of the amount of said installment or other sum, but not exceeding any lawful maximum. If (i) Maker fails to make payment of any amount due hereunder within ten (10) days after the same becomes due and payable; or (ii) Maker is in default under, or fails to perform under any term or condition contained in any Security Agreement, then the entire principal sum remaining unpaid, together with all accrued interest thereon and any other sum payable under this Note or any Security Agreement, at the election of Payee, shall immediately become due and payable, with interest thereon at the lesser of eighteen percent (18%) per annum or the highest rate not prohibited by applicable law from the date of such accelerated maturity until paid (both before and after any judgment).

Notwithstanding anything to the contrary contained herein or in the Security Agreement, Maker may not prepay in full or in part any indebtedness hereunder without the express written consent of Payee in its sole discretion.

It is the intention of the parties hereto to comply with the applicable usury laws; accordingly, it is agreed that, notwithstanding any provision to the contrary in this Note or any Security Agreement, in no event shall this Note or any Security Agreement require the payment or permit the collection of interest in excess of the maximum amount permitted by applicable law. If any such excess interest is contracted for, charged or received under this Note or any Security Agreement, or if all of the principal balance shall be prepaid, so that under any of such circumstances the amount of interest contracted for, charged or received under this Note or any Security Agreement on the principal balance shall exceed the maximum amount of interest permitted by applicable law, then in such event (a) the provisions of this paragraph shall govern and control, (b) neither Maker nor any other person or entity now or hereafter liable for the payment hereof shall be obligated to pay the amount of such interest to the extent that it is in excess of the maximum amount of interest permitted by applicable law, (c) any such excess which may have been collected shall be either applied as a credit against the then unpaid principal balance or refunded to Maker, at the option of the Payee, and

(d) the effective rate of interest shall be automatically reduced to the maximum lawful contract rate allowed under applicable law as now or hereafter construed by the courts having jurisdiction thereof. It is further agreed that without limitation of the foregoing, all calculations of the rate of interest contracted for, charged or received under this Note or any Security Agreement which are made for the purpose of determining whether such rate exceeds the maximum lawful contract rate, shall be made, to the extent permitted by applicable law, by amortizing, prorating, allocating and spreading in equal parts during the period of the full stated term of the indebtedness evidenced hereby, all interest at any time contracted for, charged or received from Maker or otherwise by Payee in connection with such indebtedness; provided, however, that if any applicable state law is amended or the law of the United States of America preempts any applicable state law, so that it becomes lawful for the Payee to receive a greater interest per annum rate than is presently allowed, the Maker agrees that, on the effective date of such amendment or preemption, as the case may be, the lawful maximum hereunder shall be increased to the maximum interest per annum rate allowed by the amended state law or the law of the United States of America.

The Maker and all sureties, endorsers, guarantors or any others (each such person, other than the Maker, an “Obligor”) who may at any time become liable for the payment hereof jointly and severally consent hereby to any and all extensions of time, renewals, waivers or modifications of, and all substitutions or releases of, security or of any party primarily or secondarily liable on this Note or any Security Agreement or any term and provision of either, which may be made, granted or consented to by Payee, and agree that suit may be brought and maintained against any one or more of them, at the election of Payee without joinder of any other as a party thereto, and that Payee shall not be required first to foreclose, proceed against, or exhaust any security hereof in order to enforce payment of this Note. The Maker and each Obligor hereby waives presentment, demand for payment, notice of nonpayment, protest, notice of protest, notice of dishonor, and all other notices in connection herewith, as well as filing of suit (if permitted by law) and diligence in collecting this Note or enforcing any of the security hereof, and agrees to pay (if permitted by law) all expenses incurred in collection, including Payee’s actual attorneys’ fees. Maker and each Obligor agrees that fees not in excess of twenty percent (20%) of the amount then due shall be deemed reasonable.

Maker hereby irrevocably authorizes and empowers the Prothonotary or Clerk, or any attorney for any Court of record to appear for Maker in such Courts, at any time, and confess a judgement against Maker, without process, in favor of any holder hereof, without the filing of a declaration of default, with release of errors, without stay of execution, for such amount as may appear from the face hereof to be due hereunder (or, if such attorney so elects, for the amount which may be due hereon as evidenced by an affidavit signed by a representative of holder setting forth the amount then due) together with charges, attorney’s fees and costs as herein provided, and Maker hereby waives and releases all benefits and relief from any and all appraisement, stay or exemption laws of any state, now in force or hereafter to be passed. If a copy hereof, verified by an affidavit, shall have been filed in said proceeding, it shall not be necessary to file the original as a warrant of attorney. No single exercise of the foregoing warrant and power to confess judgement shall be deemed to exhaust the power, whether or not such exercise shall be held by any Court to be invalid, voidable, or void, but the power shall continue undiminished and may be exercised from time to time as often as the holder hereof shall elect, until all sums payable or that may become payable hereunder by Maker have been paid in full.

THE MAKER HEREBY UNCONDITIONALLY WAIVES ITS RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF, DIRECTLY OR INDIRECTLY, THIS NOTE, ANY OF THE RELATED DOCUMENTS, ANY DEALINGS BETWEEN MAKER AND PAYEE RELATING TO THE SUBJECT MATTER OF THIS TRANSACTION OR ANY RELATED TRANSACTIONS, AND/OR THE RELATIONSHIP THAT IS BEING ESTABLISHED BETWEEN MAKER AND PAYEE. THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT (INCLUDING, WITHOUT LIMITATION, CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW AND STATUTORY CLAIMS.) THIS WAIVER IS IRREVOCABLE MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING, AND THE WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS NOTE, ANY RELATED DOCUMENTS, OR TO ANY OTHER DOCUMENTS OR AGREEMENTS RELATING TO THIS TRANSACTION OR ANY RELATED TRANSACTION. IN THE EVENT OF LITIGATION, THIS NOTE MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.

This Note and any Security Agreement constitute the entire agreement of the Maker and Payee with respect to the subject matter hereof and supercedes all prior understandings, agreements and representations, express or implied.

No variation or modification of this Note, or any waiver of any of its provisions or conditions, shall be valid unless in writing and signed by an authorized representative of Maker and Payee. Any such waiver, consent, modification or change shall be effective only in the specific instance and for the specific purpose given.

Any provision in this Note or any Security Agreement which is in conflict with any statute, law or applicable rule shall be deemed omitted, modified or altered to conform thereto.

	Neose Technologies, Inc.



	By:	/s/ A Brian Davis

(Witness)
	Name: A. Brian Davis

(Print name)
	Title: Vice President, Finance

(Address)
	Federal Tax ID #: 13-3549286

	Address: 102 Witmer Rd, Horsham, Montgomery County, PA 19044

EX-10.2 3 d14589_ex10-2.htm

Exhibit 10.2

FINANCING AGREEMENT

By and Among

MONTGOMERY COUNTY
INDUSTRIAL DEVELOPMENT AUTHORITY,

NEOSE TECHNOLOGIES, INC.

and

BROWN BROTHERS HARRIMAN & CO.

Dated February 23, 2004

Relating to

$1,000,000
Montgomery County Industrial Development Authority
Variable Rate Revenue Bonds
(Neose Technologies, Inc. Project)
Series 2004

TABLE OF CONTENTS

ARTICLE 1.
DEFINITIONS		3

SECTION 1.1	DEFINITIONS.	3
SECTION 1.2	RULES OF CONSTRUCTION.	6

ARTICLE 2.
AUTHORITY REPRESENTATIONS		7

SECTION 2.1	ORGANIZATION; AUTHORITY TO ISSUE BOND.	7
SECTION 2.2	AUTHORIZATION FOR FINANCING.	7
SECTION 2.3	RESOLUTION.	7
SECTION 2.4	THE BOND.	7
SECTION 2.5	NO CONFLICT OR VIOLATION.	7
SECTION 2.6	LITIGATION.	8
SECTION 2.7	NO REPEAL.	8
SECTION 2.8	LIMITATIONS ON THE REPRESENTATION AND WARRANTIES OF THE AUTHORITY.	8

ARTICLE 3.
BORROWER’S REPRESENTATIONS		9

SECTION 3.1	EXISTENCE; AUTHORITY.	9
SECTION 3.2	AUTHORIZATION; NO CONFLICT OR VIOLATION.	9
SECTION 3.3	CONSENTS.	9
SECTION 3.4	LITIGATION OR PROCEEDINGS.	9
SECTION 3.5	LEGAL AND BINDING OBLIGATION.	10
SECTION 3.6	TAX STATUS OF BOND.	10
SECTION 3.7	INFORMATION; NO FALSE STATEMENTS.	10

ARTICLE 4.
BANK REPRESENTATIONS		11

SECTION 4.1	INDEPENDENT INVESTIGATION.	11
SECTION 4.2	PURCHASE FOR OWN ACCOUNT.	11

ARTICLE 5.
THE BOND		12

SECTION 5.1	FORM; AMOUNT AND TERMS.	12
SECTION 5.2	PAYMENT AND DATING OF THE BOND.	12
SECTION 5.3	EXECUTION	12
SECTION 5.4	TRANSFER, REGISTRATION AND EXCHANGE.	13

ARTICLE 6.
REDEMPTION OF BOND BEFORE MATURITY		14

SECTION 6.1	REDEMPTION OF THE BOND.	14

ARTICLE 7.
ISSUE OF BOND		16

SECTION 7.1	SALE AND PURCHASE OF THE BOND; LOAN OF PROCEEDS; APPLICATION OF PROCEEDS.	16
SECTION 7.2	DELIVERY OF THE BOND.	16
SECTION 7.3	DISPOSITION OF PROCEEDS OF THE BOND.	17

ARTICLE 8.
LOAN PAYMENTS AND ADDITIONAL SUMS		18

SECTION 8.1	LOAN PAYMENTS.	18
SECTION 8.2	PAYMENT OF FEES, CHARGES AND EXPENSES.	18
SECTION 8.3	MAINTENANCE OF LOAN ACCOUNT.	19
SECTION 8.4	REPAYMENT.	19
SECTION 8.5	NO ABATEMENT OR SETOFF.	19

ARTICLE 9.
[INTENTIONALLY OMITTED]		21

ARTICLE 10.
COVENANTS AND AGREEMENTS OF AUTHORITY		22

SECTION 10.1	PAYMENT OF THE BOND.	22
SECTION 10.2	TAX COVENANT.	22
SECTION 10.3	PERFORMANCE OF COVENANTS.	22
SECTION 10.4	PRIORITY OF PLEDGE.	22
SECTION 10.5	RIGHTS UNDER AGREEMENT.	22
SECTION 10.6	ASSIGNMENT TO BANK; SECURITY AGREEMENT.	23
SECTION 10.7	INSTRUMENTS OF FURTHER ASSURANCE.	23
SECTION 10.8	CONTINUED EXISTENCE, ETC.	23
SECTION 10.9	GENERAL COMPLIANCE WITH ALL DUTIES.	23
SECTION 10.10	ENFORCEMENT OF DUTIES AND OBLIGATIONS OF THE BORROWER.	23
SECTION 10.11	NON-DISCRIMINATION.	24
SECTION 10.12	INSPECTION OF BOOKS.	24

ARTICLE 11.
COVENANTS OF THE BORROWER		26

SECTION 11.1	BOND NOT TO BECOME TAXABLE.	26
SECTION 11.2	DEFICIENCIES IN REVENUES.	26
SECTION 11.3	FURTHER ASSURANCES; FINANCING STATEMENTS.	26
SECTION 11.4	USE OF PROJECT FACILITIES.	27
SECTION 11.5	MORTGAGE.	27
SECTION 11.6	LIQUIDITY; ADDITIONAL COLLATERAL; GRANT OF SECURITY INTEREST.	27
SECTION 11.7	CREDIT AGREEMENT.	27

ARTICLE 12.
LIMITED OBLIGATION		28

ARTICLE 13.
EVENTS OF DEFAULT AND REMEDIES		29

SECTION 13.1	EVENTS OF DEFAULT.	29
SECTION 13.2	ACCELERATION.	30

SECTION 13.3	LEGAL PROCEEDINGS BY BANK.	31
SECTION 13.4	APPLICATION OF MONEYS.	31
SECTION 13.5	INTENTIONALLY OMITTED.	32
SECTION 13.6	WAIVERS OF EVENTS OF DEFAULT; RESCISSION OF DECLARATION OF MATURITY.	32
SECTION 13.7	ADDITIONAL REMEDIES.	32

ARTICLE 14.
AMENDMENTS TO AGREEMENT		33

SECTION 14.1	AMENDMENTS TO AGREEMENT.	33

ARTICLE 15.
MISCELLANEOUS		33

SECTION 15.1	LIMITATION OF RIGHTS.	33
SECTION 15.2	SEVERABILITY.	33
SECTION 15.3	NOTICES.	33
SECTION 15.4	ACTS OF OWNER OF THE BOND.	34
SECTION 15.5	EXCULPATION OF AUTHORITY.	35
SECTION 15.6	INDEMNIFICATION CONCERNING THE PROJECT FACILITIES; ACCURACY OF APPLICATION AND INFORMATION IN CONNECTION THEREWITH.	35
SECTION 15.7	COUNTERPARTS.	36
SECTION 15.8	NO PERSONAL RECOURSE.	37
SECTION 15.9	PAYMENT OF EXPENSES.	37
SECTION 15.10	TERMINATION.	37
SECTION 15.11	SET-OFF.	37
SECTION 15.12	JUDICIAL PROCEEDINGS.	38
SECTION 15.13	AUTHORIZATION OF AGREEMENT; AGREEMENT TO CONSTITUTE CONTRACT.	39

iii

FINANCING AGREEMENT

FINANCING AGREEMENT dated February, 23, 2004 (the “Agreement”) is made by and among NEOSE TECHNOLOGIES, INC., a corporation organized and existing by virtue of the laws of the State of Delaware (the “Borrower”), the MONTGOMERY COUNTY INDUSTRIAL DEVELOPMENT AUTHORITY (the “Authority”), a body corporate and politic and a public instrumentality of the Commonwealth of Pennsylvania (the “Commonwealth”), and BROWN BROTHERS HARRIMAN & CO., a private bank organized as a partnership (the “Bank”).

WITNESSETH:

WHEREAS, the Authority was created and exists under the provisions of the Pennsylvania Economic Development Financing Law, as from time to time amended (hereinafter referred to collectively as the “Act”), and is empowered under the Act to acquire, by purchase or otherwise, any lands or interest therein or other property for any project and to enter into contracts with respect to the financing of any project; and

WHEREAS, the Authority has heretofore issued its Variable Rate Demand Revenue Bonds (Neose Technologies, Inc. Project) Series A of 1997, in the original aggregate principal amount of $1,000,000 (the “Prior Bonds”), all of which are currently outstanding, the proceeds of which were applied to pay the costs of a project (the “1997 Project”) on behalf of the Borrower consisting generally of the acquisition, construction and equipping of the Borrower’s facility located on approximately 4.0 acres in Horsham Township, Montgomery County Pennsylvania, to be occupied and operated by the Borrower for manufacturing purposes (the “Project Facilities”); and

WHEREAS, the Authority desires to undertake a refunding program (the “Refunding Program”) to refinance the outstanding Prior Bonds through the issuance and sale by the Authority of its Variable Rate Revenue Bond (Neose Technologies, Inc. Project), Series 2004 (the “Bond”), for the purpose of paying amounts due in respect of the principal of the Prior Bonds upon the optional redemption thereof as permitted in accordance with the terms thereof; and

WHEREAS, the Bond is being issued pursuant to the Act and a resolution of the Authority adopted on February 12, 2004 (the “Resolution”); and

WHEREAS, the Authority intends to sell the Bond to the Bank at the face amount thereof and to lend the proceeds from the sale of the Bond to the Borrower to pay the amount due by the Borrower in respect of the redemption on February 23, 2004 of the Prior Bonds (such loan being hereinafter referred to as the “Loan”), which loan will be repaid by the Borrower in accordance with the terms hereof; and

WHEREAS, payment of the Bond will be secured by an assignment of the Authority’s rights hereunder (other than its rights to payment of certain fees and expenses and to indemnification) to the Bank and its successors and assigns; and

WHEREAS, the obligations of the Borrower hereunder will be secured by a mortgage lien on the land and improvements comprising the Project Facilities pursuant to an Open-End Mortgage and Security Agreement dated as of the date hereof (the “Mortgage”); and

WHEREAS, the obligations of the Borrower hereunder will be further secured by a General Security Agreement dated as of the date hereof (the “Security Agreement”) on all assets of Borrower other than (a) GE Equipment (as defined in the Credit Agreement), and (b) equipment financed pursuant to Section 5.11(c) of the Credit Agreement (the “Equipment”); and

WHEREAS, all acts and things have been done and performed which are necessary to make the Bond, when executed and delivered by the Authority, the legal, valid and binding limited obligation of the Authority in accordance with its terms and to make this Agreement a valid and binding agreement;

NOW, THEREFOR, in consideration of the purchase and acceptance of the Bond by the Bank and of the mutual covenants and agreements herein contained, and intending to be legally bound, the parties hereby agree as follows:

ARTICLE 1.
DEFINITIONS

SECTION 1.1

Definitions.

In this Agreement and any supplement hereto (except as otherwise expressly provided), the following words and terms shall have the meanings specified in the foregoing recitals:

ACT	LOAN
AGREEMENT	MORTGAGE
AUTHORITY	PRIOR BONDS
BANK	PROJECT FACILITIES
BOND	REFUNDING PROGRAM
BORROWER	RESOLUTION
COMMONWEALTH	SECURITY AGREEMENT
EQUIPMENT	1997 Project

In addition, the following words and terms shall have the following meanings, unless a different meaning clearly appears from the context:

“AUTHORIZED OFFICER” means in the case of the Authority, the Chairperson, Vice Chairman or Secretary or Treasurer of the Authority or any other individual or individuals duly authorized in writing by the Authority to act on its behalf, and in the case of the Borrower, the individuals duly authorized by the Borrower to act on its behalf as provided in the certificate delivered in accordance with Section 7.2(b) hereof.

“BOND COUNSEL” means Counsel having a national reputation in the field of municipal and tax-exempt finance whose opinions are generally accepted by purchasers of municipal bonds and who are reasonably satisfactory to the Authority and the Bank.

“BUSINESS DAY” means any day other than (i) a Saturday or Sunday or a legal holiday, or (ii) a day on which banking institutions located in the Commonwealth are required or authorized by law or executive order to be closed for commercial banking purposes, or (iii) any other day on which the Bank’s office in Philadelphia, Pennsylvania, is not open for banking business.

“CODE” means the Internal Revenue Code of 1986, as amended, and all applicable regulations promulgated thereunder.

“COUNSEL” means an attorney or firm of attorneys duly admitted to the practice of law before the highest court of any state in the United States of America or the District of Columbia.

“CREDIT AGREEMENT” means the Credit Agreement dated as of January 30, 2004, by and between the Borrower and the Bank. References herein to the Credit Agreement or to matters “permitted under” or “provided in” (or similar language) the Credit Agreement shall be construed or determined by reference to the Credit Agreement as in effect on the date of this

Agreement without regard to any amendment or supplement thereto or any waiver or consent provided by the Bank thereunder (except as expressly consented to by the Bank).

“DETERMINATION OF TAXABILITY” means (a) the enactment of legislation or promulgation of regulation, rule or order of the Internal Revenue Service to or with the effect that interest payable on the Bond is includable in the gross income of the Bank under the federal income tax laws, any such determination being deemed to have occurred on the effective date of such legislation; or (b) receipt by the Borrower, the Authority or the Bank of notice that the Commissioner of Internal Revenue or any district director of the Internal Revenue Service, based upon filings of the Borrower, any review or audit of the Borrower, or any ground whatsoever, shall have determined that a Taxable Event has occurred; provided that the Borrower shall have been afforded a reasonable opportunity to appeal such determination, but only so long as (i) the Borrower shall diligently pursue such appeal, and (ii) the Borrower shall provide the Bank with reasonable assurance of payment of all obligations to the Bank in connection with the Bond as a result of an adverse determination of such appeal, and (iii) the prosecution of such appeal does not otherwise adversely affect the Bank in the Bank’s reasonable judgment; or (c) issuance of a published or private ruling or a technical advice memorandum by the Internal Revenue Service, or a determination by any court of competent jurisdiction, that the interest payable on the Bond is includable for federal income tax purposes in the gross income of the Bank (except as aforesaid); or (d) an opinion of Bond Counsel addressed to the Bank that such Bond Counsel cannot conclude that the interest on the Bond qualifies as exempt income under Section 103 of the Code; provided, however, that the Borrower shall have been given thirty (30) days’ notice and an opportunity to consult with such Bond Counsel.

“EVENT OF DEFAULT” means any of the events enumerated in Section 13.1.

“EVENT OF TAXABILITY” means a change in law or fact, or the interpretation thereof, or the occurrence or recognition of a fact, circumstance or situation which causes or could cause the loss of the exclusion from gross income provided under Section 103(a) of the Code for interest on the Bond, other than by reason of the recipient being or becoming a “substantial user” or a “related person” to a substantial user within the meaning of Section 147(a) of the Code.

“FINANCIAL ASSETS” means all cash, cash equivalents, savings deposits, bank accounts, investment accounts, certificates of deposit, time deposits, money market accounts and marketable securities belonging to Borrower.

“FINANCING DOCUMENTS” means this Agreement, the Mortgage, the Security Agreement and the Tax Agreement.

“GAAP” means generally accepted accounting principles and practices applied on a consistent basis.

“INDEBTEDNESS” means, as to any Person at any time, any and all indebtedness, obligations or liabilities (whether matured or unmatured, liquidated or unliquidated, direct or indirect, absolute or contingent, or joint or several) of such Person for or in respect of: (i) borrowed money, (ii) amounts raised under or liabilities in respect of any note purchase or acceptance credit facility, (iii) reimbursement obligations under any letter of credit, currency

swap agreement, interest rate swap, cap, collar or floor agreement or other interest rate management device, (iv) any other transaction (including forward sale or purchase agreements, capitalized leases and conditional sales agreements) having the commercial effect of a borrowing of money entered into by such Person to finance its operations or capital requirements (but not including trade payables and accrued expenses incurred in the ordinary course of business which are not represented by a promissory note or other evidence of indebtedness), or (v) any guaranty of Indebtedness of any other Person.

“INDEMNIFIED PARTIES” means the Commonwealth, the Authority, the Bank, any Person who “controls” the Authority and the Bank, within the meaning of Section 15 or Section 20 of the Securities Act of 1933, as amended, any member, officer, director, official, employee, agent or attorney of the Authority and the Bank (including any partner of the Bank) and their respective executors, administrators, heirs, successors and assigns.

“INTEREST PAYMENT DATE” means the last day of each March, June, September and December of each year, commencing March 31, 2004.

“LIQUIDITY”means all Financial Assets in the control, custody and/or possession of Bank.

“LOAN ACCOUNT” has the meaning set forth in Section 8.3 hereof.

“MORTGAGED PROPERTY” means the real property of Borrower subject to the lien of the Mortgage.

“OBLIGOR” means the Borrower.

“OUTSTANDING” means, as of the time in question, the Bond issued and delivered under this Agreement, except all or any portion of the principal amount thereof, as the case may be, such as:

(a) is cancelled or required to be cancelled under the terms of this Agreement; or

(b) in substitution for which another Bond has been authenticated and delivered pursuant hereto; or

(c) is paid in part without presentation and surrender of the Bond in accordance with Section 6.1(f) hereof (but only to the extent of such payments).

“PERSON” means any natural person, firm, association, corporation, limited liability company, partnership or public body.

“REGULATIONS” means the United States Treasury Regulations and any pertinent Revenue Rulings, Revenue Procedures, Notices or Announcements promulgated by the Secretary of the Treasury of the United States or by the Internal Revenue Service.

“RESERVED RIGHTS” means the rights of the Authority to (1) execute and deliver supplements and amendments to this Agreement pursuant to Section 14.1 hereof, (2) be held

harmless and indemnified pursuant to Section 15.6 hereof, (3) receive any funds for its own use, whether as administration fees pursuant to Section 8.2 or reimbursement or indemnification pursuant to Section 15.6 hereof, (4) receive notices and other documents, and (5) provide any consent, acceptance or approval with respect to matters as provided herein.

“TAX AGREEMENT” means the Tax Certificate and Agreement executed by the Authority and the Borrower, concurrently with the delivery of the Bond, relating to the expectations of the Authority and the Borrower with respect to the expenditure of the proceeds of the Bond and the compliance by the Authority and the Borrower with the provisions of the Code as required to ensure the exclusion from gross income for federal income tax purposes of the interest on the Bond.

“TAXABLE EVENT” means the application of the proceeds of the Bond in such manner, or the occurrence or non-occurrence of any other event (except the enactment of legislation described in clause (a) of the definition of Determination of Taxability above), whether within or without the control of the Borrower, with the result that, under the Code, the interest on the Bond is or becomes includable in the gross income for federal income tax purposes of the Bank (except as aforesaid).

SECTION 1.2

Rules of Construction.

In this Agreement (except as otherwise expressly provided), the following rules shall apply unless a different meaning clearly appears from the context:

(a) This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth.

(b) The section and other headings contained in this Agreement and the table of contents preceding this Agreement are for reference purposes only and shall not control or affect the construction of this Agreement or the interpretation thereof in any respect.

(c) Unless the context of this Agreement clearly requires otherwise, references to the plural include the singular, the singular the plural, and the part the whole. The words “hereof,” “herein,” “hereunder” and similar terms in this Agreement refer to this Agreement as a whole and not to a particular provision of this Agreement.

(d) Words importing the singular number include the plural number and vice versa; and all words importing the masculine gender include the feminine gender.

(e) All references herein to financial or accounting terms, except as the context may clearly otherwise require, shall be construed in accordance with GAAP.

(f) All references to the time of any day shall mean Eastern Standard or Daylight Savings Time, as prevailing on the applicable date in Philadelphia, Pennsylvania.

ARTICLE 2.
AUTHORITY REPRESENTATIONS

The Authority represents and warrants as follows:

SECTION 2.1

Organization; Authority To Issue Bond.

The Authority is a public corporation and instrumentality of the Commonwealth, duly organized, established and existing under the laws of the Commonwealth, particularly the Act. The Authority is authorized to issue the Bond in accordance with the Act and to use the proceeds thereof to make the Loan.

SECTION 2.2

Authorization for Financing.

The Authority has complied with the provisions of the Act and has full power and authority pursuant to the Act to consummate all transactions contemplated by this Agreement, the Bond, the Resolution, and any and all agreements relating thereto and to perform its obligations thereunder and to issue, sell and deliver the Bond to the Bank as provided herein.

SECTION 2.3

Resolution.

Pursuant to the Resolution adopted by the Authority and still in force and effect, the Authority has duly authorized the execution, delivery and due performance of this Agreement and the Bond and the Authority has duly authorized the taking of any and all action as may be required on the part of the Authority pursuant to the express provisions of this Agreement to perform, give effect to and consummate the transactions contemplated by this Agreement and all approvals necessary in connection with the foregoing have been received.

SECTION 2.4

The Bond.

When the Bond is issued, transferred and delivered in accordance with the provisions of this Agreement, the Bond will have been duly authorized, executed, issued and delivered and will constitute the valid and special and limited obligation of the Authority payable solely from the revenues and other monies derived by the Authority from this Agreement. The Bond shall not be in any way a debt or liability of the Commonwealth or any political subdivision thereof, except the non-recourse obligation of the Authority, and shall not create or constitute any indebtedness, liability or obligation of the Commonwealth or of any political subdivision thereof, except the nonrecourse obligation of the Authority, either legal, moral or otherwise. The Bond does not now and shall never constitute a charge against the general credit of the Authority.

SECTION 2.5

No Conflict or Violation.

The execution and delivery of this Agreement and the Bond and compliance with the provisions thereof, will not conflict with or constitute on the part of the Authority a violation of the Constitution of the Commonwealth or violation, breach of or default under its By-Laws or any statute, indenture, mortgage, deed of trust, note agreement or other agreement or instrument to which the Authority is a party or by which the Authority is bound, or, to the knowledge of the Authority, any order, rule or regulation of any court or governmental agency or body having

jurisdiction over the Authority or any of its activities or properties, and all consents, approvals, authorizations and orders of governmental or regulatory authorities which are required to be obtained by the Authority for the consummation of the transactions contemplated thereby have been obtained.

SECTION 2.6

Litigation.

There is no action, suit, proceeding or investigation at law or in equity or before or by any court, public board or body pending or threatened against or affecting the Authority, or, to the best knowledge of the Authority, any basis therefor, wherein an unfavorable decision, ruling or finding would adversely affect the transactions contemplated hereby, or which in any way would contest or adversely affect the validity of the Bond or this Agreement or the power of the Authority for the issuance of the Bond, the validity of the Resolution, the validity of, or power of the Authority to execute and deliver, any agreement or instrument to which the Authority is a party and which is used or contemplated for use in consummation of the transactions contemplated hereby or the right of the Authority to finance the 1997 Project.

SECTION 2.7

No Repeal.

No authority or proceedings for the issuance of the Bond or documents executed in connection therewith has been repealed, revoked, rescinded or superseded.

SECTION 2.8

Limitations on the Representation and Warranties of the Authority.

The Authority makes no representation as to (a) the financial position or business condition of the Borrower, (b) the value of the Project Facilities or the Mortgaged Property, or their suitability for any particular purpose or (c) the correctness, completeness or accuracy of any of the statements, materials (financial or otherwise), representations or certifications furnished or to be made by the Borrower in connection with the sale or transfer of the Bond, the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby.

ARTICLE 3.
BORROWER’S REPRESENTATIONS

The Borrower represents and warrants that all of the representations and warranties of the Borrower set forth in the Credit Agreement, which representations and warranties are incorporated herein by reference, are true and correct as of the date hereof. The Borrower further represents and warrants as follows:

SECTION 3.1

Existence; Authority.

Borrower is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware. Borrower has all requisite corporate power and authority, corporate and otherwise, to conduct its business and to own its properties and is duly qualified as a foreign corporation in good standing in all jurisdictions in which its failure so to qualify could have a material adverse effect on its financial condition, operations or business prospects. Borrower does not have any subsidiaries or affiliates, or in the past five years has not used any trade or other fictitious names.

SECTION 3.2

Authorization; No Conflict or Violation.

The execution, delivery and performance by Borrower of the Financing Documents have been duly authorized by all necessary corporate action, and do not and will not violate any current provision of any government regulation or statute material to the on-going operation of Borrower’s business or of the charter or by-laws of Borrower or result in a breach of, or constitute a default under any indenture, instrument or other material agreement to which Borrower is a party or by which it or its properties may be bound or affected, or result in the creation or imposition of any lien, charge or other security interest or encumbrance of any nature whatsoever upon any of the property or assets of Borrower, other than as contemplated by the Mortgage and the Security Agreement.

SECTION 3.3

Consents.

No authorization, consent, approval, license, exemption by or filing or registration with any court or governmental department, commission, board (including the Board of Governors of the Federal Reserve System), bureau, agency or instrumentality is or will be necessary for the valid execution, delivery or performance by Borrower of any Financing Document.

SECTION 3.4

Litigation or Proceedings.

Except as described in the financial statements of the Borrower heretofore provided to the Bank or as otherwise disclosed in writing to the Bank, there is no action, suit, proceeding or investigation at law or in equity before or by any court, arbitration board or tribunal, public board or body pending or, to the best knowledge of the Borrower, threatened against or affecting any Obligor, or, to the best knowledge of the Borrower, any basis therefor, wherein an unfavorable decision, ruling or finding would (i) adversely affect in a material way the transactions contemplated by the Financing Documents, or any other agreement or instrument to which any Obligor is a party, which is used or contemplated for use in the consummation of the transactions contemplated by the Financing Documents, or (ii) adversely affect the exemption of interest on

the Bond from federal income taxation or any state tax-exemption applicable thereto, or (iii) adversely affect in any material way the financial condition, operations or business prospects of Borrower.

SECTION 3.5

Legal and Binding Obligation.

This Agreement constitutes, and each of the other Financing Documents to which Borrower is a party, when duly executed and delivered will constitute, valid and legally binding obligations of Borrower, enforceable in accordance with their terms except as such enforceability may be limited by bankruptcy, insolvency or similar laws affecting the enforcement of creditors’ rights generally and except to the extent that the enforceability thereof may be limited by the application of general principles of equity.

SECTION 3.6

Tax Status of Bond.

The Borrower has not taken any action and knows of no action that any Person has taken or intends to take, and will not take or permit any Person to take, which would cause interest on the Bond to be includable in the gross income of the Bank for federal income tax purposes.

SECTION 3.7

Information; No False Statements.

All information heretofore furnished by Borrower to Bank in writing for purposes of or in connection with this Agreement or the Bond or the borrowing contemplated hereby or thereby is true and accurate in all material respects or, in the case of projections, based upon reasonable estimates, on the date as of which such information is stated or certified. No representation or warranty contained herein or in any certificate or other document furnished by Borrower pursuant to this Agreement contains any untrue statement of material fact or omits to state a material fact necessary to make such representation or warranty not misleading in light of the circumstances under which it was made.

ARTICLE 4.
BANK REPRESENTATIONS

The Bank represents and warrants as follows:

SECTION 4.1

Independent Investigation.

The Bank has made an independent investigation and evaluation of the financial position and business condition of the Obligor and the value of the Mortgaged Property or has caused such investigation and evaluation to be made by Persons it deems competent to do so. All information relating to the business and affairs of the Obligor that the Bank has requested in connection with the transactions referred to herein have been provided to the Bank. The Bank hereby expressly waives the right to receive such information from the Authority and relieves the Authority and its agents, representatives and attorneys of any liability for failure to provide such information or for the inclusion in such information or in any of the documents, representations or certifications to be provided by the Borrower under this Agreement of any untrue fact or for the failure therein to include any fact.

SECTION 4.2

Purchase for Own Account.

The Bank is purchasing the Bond for its own account, with the purpose of investment and not with the intention of distribution or resale thereof. The Bond will not be sold unless registered in accordance with the rules and regulations of the Securities and Exchange Commission or unless the Authority is furnished with an opinion of Counsel or a “No Action” letter from the Securities and Exchange Commission that such registration is not required.

ARTICLE 5.
THE BOND

SECTION 5.1

Form; Amount and Terms.

(a) In order to provide funds for the Refunding Program, the Bond is hereby authorized to be issued in the aggregate principal amount of $1,000,000, and shall be issued as a fully registered Bond, without coupons, substantially in the form set forth as Exhibit “A” hereto, with appropriate insertions and deletions. The Bond shall be issued in a single denomination equal to the entire principal amount thereof.

(b) The Bond shall mature on March 31, 2014, shall be subject to optional and mandatory redemption prior to maturity as provided in Section 6.1 hereof and in the Bond and shall bear interest from and including the date thereof, or from the most recent Interest Payment Date to which interest has been fully paid or provided, until payment of the principal thereof shall have been made in accordance with the provisions thereof. Principal of and interest on the Bond shall be paid as provided for in the form thereof set forth as Exhibit “A” hereto and made a part hereof, and as otherwise set forth in this Agreement.

SECTION 5.2

Payment and Dating of the Bond.

Principal of the Bond shall be payable to the Bank upon presentation and surrender of the Bond at the principal office of the Borrower on the maturity date shown thereon. Interest on the Bond shall be payable on each Interest Payment Date in the manner provided in Section 8.1(c) hereof. The Bond shall bear interest on overdue principal and, to the extent permitted by law, on overdue interest, at a rate of 2% (200 basis points) in excess of the rate otherwise applicable to the Bond (the “Default Rate”). Payment as aforesaid shall be made in such coin or currency of the United States of America as, at the respective times of payment, shall be legal tender for the payment of public and private debts.

The Bond shall be dated the date of delivery thereof.

SECTION 5.3

Execution

(a) The Bond shall be executed on behalf of the Authority by its Chairperson or Vice Chairman by his or her manual or facsimile signature, and the corporate seal of the Authority or a facsimile thereof shall be impressed thereon or affixed thereto and attested by its Secretary or Assistant Secretary by his or her manual or facsimile signature. In case any officer whose signature (or facsimile thereof) shall appear on the Bond shall cease to be such officer before the delivery of the Bond, such signature or such facsimile shall nevertheless be valid and sufficient for all purposes, the same as if such officer had remained in office until delivery.

(b) The Bond shall not be valid or obligatory for any purpose unless and until the Certificate of Authentication attached thereto shall have been duly executed by the Borrower. The executed certificate of the Borrower upon the Bond shall be conclusive evidence that the Bond has been authenticated and delivered hereunder. The Borrower is hereby authorized and empowered to authenticate the Bond on the date of execution hereof and to deliver the Bond to

the Bank thereof upon receipt of the purchase price therefor in accordance with Section 7.3 hereof.

SECTION 5.4

Transfer, Registration and Exchange.

The Borrower shall keep at its principal office books for the registration and for the transfer of the Bond in accordance with the requirements of Section 149 of the Code at all times while the Bond remains Outstanding. The Bond shall be transferable only upon such books by the owner thereof, in person or by its attorney duly authorized in writing, upon surrender thereof together with a written instrument of transfer satisfactory to the Borrower and duly executed by the owner or by its duly authorized attorney. Upon surrender for transfer of the Bond at the principal office of the Borrower, the Authority shall execute and the Borrower shall deliver in the name of the transferee a new fully registered Bond, with appropriate insertions and deletions, for the aggregate Outstanding principal amount thereof. Upon the transfer of the Bond under this Section, the Authority and the Borrower may require payment of a sum sufficient to cover any tax, fee or other governmental charge that may be imposed in relation thereto and any other expenses connected therewith.

The Authority and the Borrower may deem and treat the person in whose name the Bond is registered as the absolute owner thereof, whether the Bond shall be overdue or not, for the purpose of receiving payment of, or on account of, the principal of the Bond and for all other purposes, and all such payments so made to the owner or upon its order shall be valid and effectual to satisfy and discharge the liability upon the Bond to the extent of the sum or sums so paid, and neither the Authority, nor the Borrower shall be affected by any notice to the contrary.

ARTICLE 6.
REDEMPTION OF BOND BEFORE MATURITY

SECTION 6.1

Redemption of the Bond.

(a) Optional Redemption; Notice. The Bond shall be subject to optional redemption by the Authority, at the written direction of the Borrower, in whole or in part (but if in part in the principal amount of $100,000 or integral multiples of $5,000 in excess thereof), on any interest Payment Date, at a price equal to 100% of the principal amount thereof to be redeemed, together with accrued interest to the date of redemption, subject to the provisions of subsection (f) below. The Borrower shall provide the Bank with notice of the date of any optional redemption pursuant to this Section 6.1 (a) and the principal amount of the Bond to be redeemed, sent to the Bank in accordance with Section 15.3 hereof at least ten (10) days before such redemption date. On each such redemption date, payment of the redemption price having been made to the Bank as provided herein and in the Bond, the Bond or the portion thereof so called for redemption shall become due and payable on the redemption date and interest shall cease to accrue thereon from and after the redemption date.

(b) Mandatory Scheduled Redemption. [Intentionally Omitted]

(c) Redemption upon Repayment of Credit Agreement. Upon the repayment by the Borrower of all amounts due under the Credit Agreement, the Bond shall be redeemed by the Authority, at the option of the Bank, at a redemption price equal to 100% of the principal amount thereof, together with accrued interest to the date of redemption, subject to the provisions of subsection (f) below, upon the written demand of the Bank to the Borrower, with a copy to the Authority. The Bond, or any portion thereof, shall be redeemed, and the redemption price of the Bond and all other amounts due hereunder shall be paid to the owner of the Bond, on the date specified by the Bank.

(d) Mandatory Redemption Upon Determination of Taxability. Upon the occurrence of a Determination of Taxability, the interest rate applicable to the Outstanding balance of the Bond shall become a taxable floating rate equal to the floating rate (as opposed to the As-Offered Fixed Rate provided for in the Credit Agreement) applicable, from time to time, to outstanding balances under the Credit Agreement, or to the extent that the all amounts due and owing under the Credit Agreement have been repaid in full, the floating interest rate that would be applicable to amounts outstanding under the Credit Agreement; provided that the Interest Payment Dates and Interest Periods (as defined in the Bond) shall remain the same as set forth in the Bond.

(e) Payment Upon Redemption or Prepayment. Payment in respect of the redemption or prepayment of the Bond shall be made by the Borrower by wire transfer of immediately available funds to the bank account specified by the Bank. Except in the event of the redemption of the Bond in its entirety, any such redemption shall be made without surrender of the Bond by the Bank for payment, provided that the Borrower’ records of such payment shall be conclusive and binding on the Bank, absent manifest error.

(f) Breakage Costs. In addition to any amounts due in connection with the redemption of the Bond as set forth above, in the event of any redemption or prepayment of the

Bond for any reason, whether by redemption, prepayment, acceleration or otherwise, there shall be paid to the Bank an additional amount equal to the sum of all actual losses or expenses suffered or incurred by the Bank as a result of the redemption or prepayment, which is specifically limited to any loss, breakage or other cost or expense incurred by reason of the termination of any interest rate protection agreement .

ARTICLE 7.
ISSUE OF BOND

SECTION 7.1

Sale and Purchase of the Bond; Loan of Proceeds; Application of Proceeds.

In order to provide funds for the payment of the costs of the Refunding Program, the Authority agrees to issue the Bond, concurrently with the execution and delivery hereof and to sell the Bond to the Bank. The Bank shall purchase the Bond at a purchase price of 100% of the principal amount thereof in accordance with the terms and conditions hereof. The proceeds of the Bond are hereby loaned to the Borrower to be applied to pay a portion of the costs of redeeming the Prior Bonds in accordance with Section 7.3 below.

SECTION 7.2

Delivery of the Bond.

The Authority will issue and deliver the Bond to the Bank upon payment of the purchase price therefor and the execution and delivery to the Bank of the following:

(a) Copies of the proceedings of the Authority relating to the issuance of the Bond duly certified by an Authorized Officer of the Authority;

(b) A written certificate by an authorized officer of Borrower as to the names and signatures of the officers of Borrower authorized to sign this Agreement and the other documents or certificates of Borrower to be executed and delivered pursuant hereto. The Bank may conclusively rely on, and be protected in acting upon, such certificate until it shall receive a further certificate by the Secretary or an Assistant Secretary of each Borrower amending prior certificate;

(c) A copy of the resolutions of the Board of Directors of the Borrower certified by the Secretary or Assistant Secretary thereof authorizing and approving the execution and delivery of this Agreement and all other documents delivered pursuant to this Agreement, and such other corporate documents and records as the Bank may reasonably request;

(d) Original executed counterparts of this Agreement, the Mortgage, the Security Agreement, the Tax Agreement and other appropriate documents;

(e) Opinions in form and substance satisfactory to the Authority and the Bank dated as of the date of the closing of (i) Counsel for the Authority, (ii) Bond Counsel and (iii) Counsel for the Borrower;

(f) Evidence satisfactory to the Bank of the maintenance by the Borrower of insurance as required in the Mortgage;

(g) Results of UCC, tax and judgment searches on the Borrower and, if applicable, releases and/or termination statements terminating, or other evidence satisfactory to the Bank of the termination (or satisfactory provision for termination) of, all liens and security interests relating to the Mortgaged Property (except as permitted in the Mortgage) and the Equipment (except as permitted in the Security Agreement);

(h) Evidence satisfactory to the Bank of the filing of all UCC-1 financing statements required to perfect the liens and security interests created under the Mortgage and the Security Agreement and the assignment by the Authority to the Bank of its rights hereunder in accordance with Section 10.6 hereof;

(i) Evidence satisfactory to the Bank of the full payment and discharge of the Prior Bonds and all payment obligations of the Borrower with respect thereto (including all payment obligations of the Borrower with respect to the letter of credit of Wachovia Bank, National Association, securing the payment of the Prior Bonds); and

(j) Other customary closing certificates and documents as may reasonably be required by the Bank, the Authority or Bond Counsel.

SECTION 7.3

Disposition of Proceeds of the Bond.

Upon the issuance and sale of the Bond in accordance herewith, the Bank shall pay the purchase price therefor to or upon the order of the Borrower to be applied on the date hereof to pay the principal amount due upon the redemption of the Prior Bonds on the date hereof or to reimburse the issuer of the letter of credit securing the Prior Bonds for a draw on such letter of credit to pay such principal. All other costs and expenses of the Refunding Program shall be paid by the Borrower out of sources of funds other than the Bond.

ARTICLE 8.
LOAN PAYMENTS AND ADDITIONAL SUMS

SECTION 8.1

Loan Payments.

(a) The Borrower shall pay to the Bank, on behalf of the Authority, the following sums as loan payments hereunder at the following times, in immediately available funds:

	(i) on each Interest Payment Date during the term of this Agreement, an amount which is sufficient to pay the interest then due on the Bond. The amount of interest due shall be determined by the Bank and shall be deducted by the Bank from the Borrower’s deposit account held by the Bank. The Bank shall provide the Borrower with written notice of such deduction and the amount thereof within ten (10) days after the Interest Payment Date;

	(ii) on the maturity date of the Bond, the principal amount thereof then maturing; and

	(iii) on the redemption dates established for the Bond to be redeemed pursuant to Section 6.1 hereof (if any), an amount equal to the redemption price due on such date, including as part of such redemption price any additional amount payable in accordance with Section 6.1(f) hereof.

(b) In any event, the sum of the loan payments payable under this Section 8.1 shall be sufficient to pay the total amount due with respect to such principal and interest (including but not limited to interest and late charges payable pursuant to the Bond on any overdue amount) on the Bond, as and when due, and the Borrower shall forthwith pay any deficiency to the Bank. If at any time the Bond has been fully paid and discharged within the meaning of the terms hereof, the Borrower shall not be obligated to make any further payments under this Section.

(c) Payment by the Borrower of the loan payments set forth above shall be made by check, by bank wire transfer in immediately available funds to such account of the Bank as the Bank shall designate or by debit of a deposit account maintained by the Borrower with the Bank, in any case as the Bank and the Borrower shall agree.

SECTION 8.2

Payment of Fees, Charges and Expenses.

(a) The Borrower shall pay to, or upon the order of, the Authority, upon request of the Authority, such amounts required to pay the Authority’s customary administrative fees and to pay or reimburse its reasonable administrative expenses, including reasonable counsel fees, incurred from time to time in connection with the making by the Authority of the Loan to the Borrower of the proceeds of the Bond and all other services or actions of the Authority in connection with this Agreement.

(b) The Borrower (1) will reimburse the Bank on demand for the reasonable costs and expenses of the Bank in connection with the preparation, execution, issuance and delivery of this Agreement, the Bond, the Mortgage, the Security Agreement and the other instruments and documents to be delivered hereunder (including the reasonable fees and out-of-pocket expenses

of Counsel with respect thereto) and (2) will reimburse the Bank on demand for the reasonable costs and expenses, if any, of the Bank in connection with the enforcement of this Agreement and the Bond (including the reasonable fees and out-of-pocket expenses of Counsel with respect thereto).

SECTION 8.3

Maintenance of Loan Account.

The Bank shall open and maintain on its books a loan account (the “Loan Account”) with respect to advances made, repayments, prepayments, the computation and payment of interest and fees and the computation and final payment of all other amounts due and sums paid to the Bank under this Agreement and the Bond. Unless the Borrower object in writing to the information contained in a statement delivered to the Borrower by the Bank regarding the Loan Account within thirty (30) days of receipt of such statement, the information contained in such statement and in the Loan Account will, absent manifest error, be conclusive and binding on the Borrower as to the amount at any time due to the Bank from the Borrower under this Agreement and from the Authority to the Bank under the Bond. The Authority shall have the, right to receive copies of all statements of the Bank with respect to the Loan Account upon its written request to the Bank.

SECTION 8.4

Repayment.

After payment in full of all sums due hereunder, the Bond shall be marked “paid in full” but retained by the Bank until the regular limitations period within which the Internal Revenue Service may claim the interest payable pursuant to the Bond to be not exempt from federal income taxes has elapsed without such claim being made. Notwithstanding such marking of the Bond or its return by the Bank, the Borrower shall remain liable for payment of sums, if any, required to be paid under this Agreement.

SECTION 8.5

No Abatement or Setoff.

The Borrower shall pay all loan payments and all additional sums required hereunder without suspension or abatement of any nature, notwithstanding that all or any part of the Borrower’s facilities shall have been wholly or partially destroyed, damaged or injured and shall not have been repaired, replaced or rebuilt. So long as any portion of the Bond remains Outstanding, the obligations of the Borrower to pay all sums due from the Borrower hereunder shall be absolute and unconditional for which the Borrower pledge their full faith and credit and shall not be suspended, abated, reduced, abrogated, waived, diminished or otherwise modified in any manner or to any extent whatsoever, regardless of any rights of setoff, recoupment or counterclaim that either Borrower might otherwise have against the Authority, the Bank or any other party or parties and regardless of any contingency, act of god, event or cause whatsoever and notwithstanding any circumstances or occurrence that may arise or take place after the date hereof, including but without limiting the generality of the foregoing:

(a) any damage to or destruction of any part or all of the Borrower’s facilities, including the Project Facilities;

(b) the taking or damaging of any part or all of the Borrower’s facilities, by any public authority or agency in the exercise of the power of or in the nature of eminent domain or by way of a conveyance in lieu of such exercise or otherwise;

(c) any assignment, novation, merger, consolidation, or transfer of assets, whether with or without the approval of the Authority;

(d) any failure of the Authority to perform or observe any agreement or covenant, whether express or implied, or any duty, liability or obligation arising out of or in connection with this Agreement and the Bond;

(e) any act or circumstances that may constitute an eviction or constructive eviction;

(f) failure of consideration, failure of title or commercial frustration;

(g) any change in the tax laws or other laws of the United States or of any state or other governmental authority; or

(h) any determination that the Bond or the interest payable thereon is subject to Federal taxation.

ARTICLE 9.
[INTENTIONALLY OMITTED]

ARTICLE 10.
COVENANTS AND AGREEMENTS OF AUTHORITY

SECTION 10.1

Payment of the Bond.

The Authority covenants that it will promptly pay, or cause to be paid, the principal and redemption price of and interest on the Bond at the places, on the dates and in the manner provided herein and in the Bond according to the true intent and meaning thereof, but only from the amounts payable by the Borrower under this Agreement. It is hereby acknowledged and agreed that the Bond is a special obligation of the Authority payable as above provided, shall not be in any way a debt or liability of the Commonwealth or any political subdivision thereof, except the non-recourse obligation of the Authority, and shall not create or constitute any indebtedness, liability or obligation of the Commonwealth or any political subdivision thereof, except the non-recourse obligation of the Authority, either legal, moral or otherwise. The Bond does not now and shall never constitute a charge against the general credit of the Authority.

SECTION 10.2

Tax Covenant.

The Authority hereby covenants not to take any action or permit any action to be taken which would cause the interest of the Bond to lose the exclusion from gross income of interest on the Bond for purposes of federal income taxation (except for any period during which the Bond is held by a “substantial user” or a “related person” to a substantial user within the meaning of Section 147(a) of the Code). The Authority agrees that it will at all times do and perform all acts and things reasonably necessary in order to assure that interest paid on the Bond will, for purposes of federal income taxation, be and remain excludable from the gross income of any holder(s) of the Bonds (except for any period during which the Bond is held by a “substantial user” or a “related person” to a substantial user within the meaning of Section 147(a) of the Code). All of the representations and warranties of the Authority contained in the Tax Certificate are incorporated herein by reference with the same force and effect as if set out in full herein.

SECTION 10.3

Performance of Covenants.

The Authority covenants that it will faithfully perform at all times all covenants, undertakings, stipulations and provisions contained in this Agreement, in the Bond and in all proceedings of the Authority pertaining thereto.

SECTION 10.4

Priority of Pledge.

The pledge herein made of certain payments made by the Borrower hereunder shall at no time be impaired by the Authority and such payments shall not otherwise be pledged and no Persons shall have any rights with respect thereto except as provided herein.

SECTION 10.5

Rights Under Agreement.

The Authority and the Borrower agree that the Bank may, as owner of the Bond, in its own name or to the extent permitted by law in the name of the Authority, enforce all rights of the Authority and all obligations of the Borrower under and pursuant to this Agreement (except the

Reserved Rights of the Authority, and the obligations of the Borrower related thereto, that are not assigned for the benefit of the Bank as specified in Section 10.6 hereof) for and on behalf of the Bank, whether or not the Authority is in default hereunder.

SECTION 10.6

Assignment to Bank; Security Agreement.

(a) As security for the performance of the Authority’s obligations hereunder and with respect to the Bond, the Authority hereby pledges, assigns and conveys to the Bank, and grants to the Bank a security interest in, all right, title and interest of the Authority in and to this Agreement, and all sums payable in respect of the indebtedness of the Borrower evidenced hereby, other than the Reserved Rights of the Authority. The Authority directs that all payments by the Borrower hereunder (except for payments to the Authority pursuant to Sections 8.2 or 15.6 hereof) be paid directly to the Bank. If, notwithstanding these arrangements, the Authority shall receive any such payments, the Authority shall immediately pay over the same to the Bank.

(b) The Borrower consents to such assignment and, except as otherwise provided in subsection (a) hereof, agrees to pay all amounts payable hereunder directly to the Bank.

SECTION 10.7

Instruments of Further Assurance.

The Authority covenants that it will do, execute, acknowledge and deliver or cause to be done, executed, acknowledged and delivered, such agreements supplemental hereto and such further acts, instruments and documents as the Bank may reasonably require for the better assuring, transferring, conveying, pledging and assigning to the Bank the rights assigned hereby for the payment of the principal or redemption price of and interest on the Bond.

SECTION 10.8

Continued Existence, etc.

The Authority agrees that it will do or cause to be done in a timely manner all things necessary to preserve and keep in full force and effect its existence so long as the Bond remains Outstanding and to carry out the terms of this Agreement.

SECTION 10.9

General Compliance with All Duties.

The Authority shall faithfully and punctually perform all duties, with respect to the Refunding Program required by the Constitution and laws of the Commonwealth, and by the terms and provisions of this Agreement.

SECTION 10.10

Enforcement of Duties and Obligations of the Borrower.

The Authority may, and at the written direction of the Bank shall, take any legally available action to cause the Borrower to fully perform all duties and acts and fully comply with the covenants of the Borrower imposed by this Agreement in the manner and at the times provided therein. So long as no Event of Default hereunder shall have occurred and be continuing, the Authority may exercise all its rights under this Agreement, but the Authority shall not, without the consent of the Bank, amend any of the same so as to diminish the amounts payable thereunder or otherwise so as to adversely affect the Authority’s or the Borrower’s ability to perform its covenants under this Agreement.

SECTION 10.11

Non-Discrimination.

During the term of this Agreement, Borrower agrees, as to itself and as to each occupant of the Project Facilities (each, an “Occupant”) as follows:

(a) In the hiring of any employee(s) for the manufacture of supplies, performance of work, or any other activity required under the contract or any subcontract, the Occupant, or any person acting on behalf of the Occupant shall not by reason of gender, race, creed, or color, discriminate against any citizen of the Commonwealth of Pennsylvania (the “Commonwealth”) who is qualified and available to perform the work to which the employment relates.

(b) Neither Occupant nor any person on their behalf shall in any manner discriminate against or intimidate any employee involved in the manufacture of supplies, the performance of work, or any other activity required under the contract on account of gender, race, creed or color.

(c) Each Occupant shall establish and maintain a written sexual harassment policy and shall inform their employees of the policy. The policy must contain a notice that sexual harassment will not be tolerated and employees who practice it will be disciplined.

(d) No Occupant shall not discriminate by reason of gender, race, creed, or color against any contractor or supplier who is qualified to perform work on or in connection with the Project Facilities.

(e) Each Occupant shall furnish all necessary employment documents and records to and permit access to their books, records, and accounts by the contracting agency and the Bureau of Contract Administration and Business Development, for purposes of investigation, to ascertain compliance with provisions of this Nondiscrimination/Sexual Harassment Clause. If any Occupant does not possess documents or records reflecting the necessary information requested, the Occupant shall furnish such information on reporting forms supplied by the contracting agency or the Bureau of Contract Administration and Business Development.

(f) The Occupant shall include the provisions of this Nondiscrimination/Sexual Harassment Clause in every contract so that such provisions will be binding upon each subcontractor.

(g) The Commonwealth may cancel or terminate the contract, and all money due or to become due under the contract may be forfeited for a violation of the terms and conditions of this Nondiscrimination/Sexual Harassment Clause. In addition, the agency may proceed with debarment or suspension and may place the Occupant in the Contractor Responsibility File.

SECTION 10.12

Inspection of Books.

The Authority covenants and agrees that all books and documents in its possession relating to the Refunding Program and the Bond shall at all reasonable times be open to inspection by such accountants or other agents as the Bank or the Borrower may from time to

time designate.

ARTICLE 11.
COVENANTS OF THE BORROWER

SECTION 11.1

Bond Not to Become Taxable.

(a) The Borrower hereby covenants to the Authority and to the Bank that, notwithstanding any other provision of this Agreement or any other instrument, it will not make any investment or other use of the proceeds of the Bond which, if such investment or use had been reasonably expected on the date of issue of the Bond, would cause the Bond to fail to qualify as a “qualified small issue bond” as defined in Section 144(a) of the Code or to be an “arbitrage bond” under Section 148 of the Code and the regulations promulgated thereunder; that it will comply with the requirements of Sections 103 and 141 through 150 of the Code and any regulations applicable thereto throughout the term of the Bond; and that it will not take or omit to take any action over which it has control, which action or omission, as the case may be, would impair the exclusion from gross income for federal income tax purposes of the interest on the Bond. The terms and provisions of the Tax Agreement are hereby incorporated by reference.

(b) The Borrower covenants that it will not take any action or permit any action to be taken or fail to take any action, if any such action or failure to take action would cause the interest on the Bond to lose the exclusion from gross income for purposes of federal income taxation (except for any period during which the Bond is held by a “substantial user” or a “related person” to a substantial user within the meaning of Section 147 of the Code). The Borrower agrees that it will at all times do and perform all acts and things necessary in order to assure that interest paid on the Bond will, for purposes of federal income taxation, be and remain excludable from the gross income of the Bank (except for any period during which the Bond is held by a “substantial user” or a “related person” to a substantial user within the meaning of Section 147(a) of the Code).

(c) The parties acknowledge that all of the sale proceeds of the Bond shall be fully expended on the date hereof to refund the Prior Bonds and that, accordingly, the Borrower shall have complied with the six month exception to the arbitrage rebate requirement set forth in Section 148(f)(4)(B) of the Code.

SECTION 11.2

Deficiencies in Revenues.

If for any reason amounts paid by the Borrower hereunder would not be sufficient to make payments of principal of and interest on the Bond when and as the same shall become due and payable at maturity or otherwise, the Borrower will pay promptly the amounts required from time to time to make up any such deficiency.

SECTION 11.3

Further Assurances; Financing Statements.

The Borrower shall perform or cause to be performed any such acts, and execute and cause to be executed any and all further instruments as may be required by law or as shall reasonably be requested by the Authority or the Bank to carry out or effect the terms of this Agreement. The Borrower, if required by the Bank, will join with the Authority and the Bank in executing such financing statements and other documents under the Uniform Commercial Code as in effect in the State or other applicable law as the Authority or Bank may specify and will

pay the costs of filing the same in such public offices as the Authority or Bank shall designate, in order to preserve the security interests granted under this Agreement or any other Financing Document. For purposes of carrying out this provision, the Borrower hereby grants to the Bank an irrevocable power of attorney to execute on its behalf and to file in all appropriate jurisdictions such instruments as shall be required, in the judgment of the Bank, to evidence, perfect or preserve any lien or security interest in favor of the Bank granted in this Agreement or in any other Financing Document.

SECTION 11.4

Use of Project Facilities.

The Borrower shall use or cause the Project Facilities to be used as an authorized project for a purpose and use as provided for under the Act until payment of the Bond has been made in full.

SECTION 11.5

Mortgage.

The Borrower acknowledges and agrees that the payment obligations of the Borrower with respect to the Bond are secured as provided in the Mortgage and the Security Agreement.

SECTION 11.6

Additional Collateral.

In the event that the Bank has the right to require that the Borrower obtain and deliver to the Bank a standby letter of credit pursuant to section 5.12 of the Credit Agreement, the Bank may also require the Borrower to obtain and deliver to the Bank a standby letter of credit in the Outstanding principal amount of the Bond as additional collateral (“Additional Collateral”). Such standby letter of credit shall be in the same form and content as the form thereof set forth in the Credit Agreement. The Bank shall be permitted to make partial draws upon the Additional Collateral for payments of principal and interest.

SECTION 11.7

Credit Agreement.

The Borrower shall, at all times while any amount is Outstanding on the Bond, comply with the covenants of the Borrower set forth in the Credit Agreement other than the covenant set forth in Section 5.12 therein.

ARTICLE 12.
LIMITED OBLIGATION

SECTION 12.1

Source of Payment of the Bond.

The Bond and all payments by the Authority thereunder are not general obligations of the Authority but are limited obligations payable by the Authority solely from the revenues and receipts derived by the Authority pursuant to this Agreement. The Bond and the interest thereon shall not be deemed to constitute a debt, liability, general obligation or a pledge of the faith and credit or the taxing power of the Commonwealth or any political subdivision thereof, and do not directly, indirectly or contingently obligate the Commonwealth or any political subdivision thereof to levy or to pledge any form of taxation whatever for the payment of said principal and interest. Any liability of any kind whatsoever incurred by the Authority under or by reason of this Agreement shall be payable solely from the proceeds of the Bond and from revenues to be received by the Authority under the provisions of this Agreement and not from any other fund or source.

ARTICLE 13.
EVENTS OF DEFAULT AND REMEDIES

SECTION 13.1

Events of Default.

Each of the following shall be an “Event of Default” under this Agreement:

(a) Failure to pay when due any interest on the Bond; or failure to pay any principal or redemption price of the Bond when due, whether by redemption or at the stated maturity thereof, by acceleration or otherwise; or

(b) Failure to pay any other fee, expense or other payment due hereunder within five (5) business days after demand is made; or

(c) Failure to observe or perform any other term, covenant, condition or agreement set forth in this Agreement, where the Borrower does not cure such failure within ten (10) business days after notice from the Bank;

(d) Failure to provide a standby letter of credit when requested by the Bank pursuant to section 11.6 hereof; or

(e) The occurrence of any default under the Mortgage or the Security Agreement (subject to applicable periods of grace or cure, if any, as may be provided therein); or

(f) The Borrower shall commence a voluntary case or other proceeding seeking liquidation, reorganization or other relief with respect to itself or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, or shall consent to any such relief or to the appointment of or taking position by any such official in an involuntary case or other proceeding commenced against it, or shall make a general assignment for the benefit of creditors, or shall fail generally to pay its debts as they become due, or shall take any corporate action to authorize any of the foregoing; or

(g) An involuntary case or other proceeding shall be commenced against the Borrower seeking liquidation, reorganization or other relief with respect to it or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, and such 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 Borrower or any subsidiary of the Borrower under the Federal bankruptcy laws as now or hereafter in effect; or

(f) If any Change of Control (as defined in the Credit Agreement) shall occur; or

(g) If the Borrower shall fail to pay any obligation for the payment of borrowed money or the installment purchase price of property or on account of a lease of property (a “Credit Obligation”) owing by it, or any interest or premium thereon, when due, whether such Credit Obligation shall become due by scheduled maturity, by required prepayment, by

acceleration, by demand or otherwise, or the Borrower shall fail to perform any term, covenant or agreement on its part to be performed under any agreement or instrument evidencing or securing or relating to any such Credit Obligation when required to be performed, if the effect of such failure is to accelerate, or to permit the holder or holders of such Credit Obligation in excess of $250,000 to accelerate, the maturity of such Credit Obligation, whether or not such failure to perform shall be waived by the holder or holders of such Credit Obligation, unless such waiver has the effect of terminating the right of such holder or holders to accelerate the maturity of such Credit Obligation as a result of such failure; or

(h) If any representation or warranty by or on behalf of the Borrower made herein or in any report, certificate, financial statement or other instrument delivered to Bank shall prove to be false or misleading in any material respect when made; or

(i) If any default shall occur with respect to any other Indebtedness of the Borrower to Bank in excess of $25,000, subject to the Borrower’s right to notice and opportunity to cure, if any, under the instruments which evidence or secure such Indebtedness; or

(j) The occurrence of any material adverse change in the business, financial condition, results of operations or business prospects of the Borrower, as determined by Bank in its sole discretion; or

(k) Failure of the Borrower to maintain its Financial Assets (other than $100,000) at all times in an account(s) with the Bank and/or its affiliates; or

(l) A judgment or lien (with respect to which full adequate insurance is not maintained) in excess of $250,000 (individually or in the aggregate) is entered against the Borrower, or the property of the Borrower becomes subject to any attachment, garnishment, levy or lien; or

(m) The Borrower dissolves, liquidates or ceases to conduct operations, or prepares or attempts to do any of the foregoing; or

(n) The Borrower ceases to operate its business at its pilot plant located in its 102 Witmer Road, Horsham, Pennsylvania facility due to the failure of the Borrower to be in compliance with applicable laws, regulations and specifications of the United States Food and Drug Administration or any other relevant governmental regulatory agency or authority; or

(o) Any Event of Default occurs under the Credit Agreement.

SECTION 13.2

Acceleration.

If any Event of Default under clause (d) or (e) of Section 13.1 hereof occurs, then the principal of the Bond then Outstanding, together with interest accrued thereon, plus any amount that would otherwise be due by reason of a prepayment of the Bond under Article 6 hereof by reason of Section 6.1(g) hereof, shall become due and payable immediately without notice or demand. Upon the occurrence of any Event of Default under Section 13.1 hereof other than an Event of Default under clause (d) or (e), the Bank may, by notice in writing delivered to the Authority and the Borrower, declare the principal of the Bond and the interest accrued thereon to

the date of such acceleration immediately due and payable, and the same shall thereupon become and be immediately due and payable. Upon any acceleration of the Bond under this Section 13.2, all amounts payable under Section 6.1(f) and 8.1 hereof shall be immediately due and payable.

SECTION 13.3

Legal Proceedings by Bank.

Upon the occurrence of any Event of Default under Section 13.1 hereof, the Bank may:

(a) by mandamus, or other suit, action or proceeding at law or in equity, enforce all of its rights as owner of the Bond, and require the Borrower to carry out any other agreements with or for the benefit of the owner of the Bond;

(b) bring suit upon the Bond;

(c) by action or suit in law or equity enjoin any acts or things which may be unlawful or in violation of the rights of the owner of the Bond; or

(d) take or cause to be taken any action available under applicable law as the beneficiary of the liens and security interests and other rights created under the Mortgage and the Security Agreement.

No remedy conferred upon or reserved to the Bank is intended to be exclusive of any other remedy, but each and every such remedy shall be cumulative and shall be in addition to any other remedy given to the Bank hereunder or now or hereafter existing at law, in equity or by statute. Nothing herein contained shall affect or impair the right of action, which is absolute and unconditional, of the owner of the Bond to institute suits to enforce payment thereof.

No delay or omission to exercise any right or power accruing upon any Event of Default shall impair any such right or power or shall be construed to be a waiver of any such Event of Default or acquiescence therein; and every such right and power may be exercised from time to time and as often as may be deemed expedient.

No waiver of any Event of Default hereunder shall extend to or shall affect any subsequent Event of Default or shall impair any rights or remedies consequent thereon.

SECTION 13.4

Application of Moneys.

All moneys received by the owner of the Bond upon the exercise of any remedies provided in Section 13.3 hereof shall be applied ratably to the payment of the principal, redemption price and interest then due and unpaid upon the Bond (together with interest on overdue installments of principal and, to the extent permitted by law, on any overdue interest, at the rate per annum specified in the Bond for such overdue installments).

SECTION 13.5

Intentionally Omitted.

SECTION 13.6

Waivers of Events of Default; Rescission of Declaration of Maturity.

The Bank may waive any Event of Default under this Agreement and its consequences, or rescind any declaration of maturity of principal of the Bond. In case of any such waiver or rescission, then and in every such case the Authority, the Borrower and the Bank, respectively, shall be restored to their former positions and rights under this Agreement, but no such waiver or rescission shall extend to any subsequent or other default, or impair any right consequent thereon. All waivers under this Agreement shall be in writing and a copy of each waiver affecting the Bond shall be delivered to the Authority and the Borrower.

SECTION 13.7

Additional Remedies.

In addition to the above remedies, if the Borrower commits a breach, or threatens to commit a breach of this Agreement, or of any other document executed in connection therewith, the Authority shall have the right and remedy, without posting bond or other security, to have the provisions of this Agreement specifically enforced by any court having equity jurisdiction, it being acknowledged and agreed that any such breach or threatened breach may cause immediate and irreparable injury to the Authority for which money damages may not provide an adequate remedy.

ARTICLE 14.
AMENDMENTS TO AGREEMENT

SECTION 14.1

Amendments to Agreement.

This Agreement may be amended only by the written agreement of the Authority, the Borrower and the Bank, except that any of the covenants and agreements of the Borrower set forth in Sections 11.5, 11.6, and 11.7 hereof may be amended by the Borrower and the Bank, without the consent of the Authority; provided, however, that prompt written notice of any such amendment shall be provided to the Authority. To the extent that the Credit Agreement is amended such that any representations, warranties or covenants of either the Borrower or the Bank therein, or any Events of Default thereunder, are modified or waived in any way, such modification or waiver shall automatically be made applicable to this Agreement and any applicable Financing Document, without need of written amendment hereto or thereto.

ARTICLE 15.
MISCELLANEOUS

SECTION 15.1

Limitation of Rights.

With the exception of rights herein expressly conferred, nothing expressed or mentioned in or to be implied from this Agreement, or the Bond, is intended or shall be construed to give to any Person, other than the Authority, the Borrower and the Bank, any legal or equitable right, remedy or claim under or in respect to this Agreement or any covenants, conditions and provisions herein contained; this Agreement and all of the covenants, conditions and provisions hereof being intended to be and being for the sole and exclusive benefit of the Authority, the Borrower and the Bank as herein provided.

SECTION 15.2

Severability.

If any provision of this Agreement shall be held or deemed to be or shall, in fact, be inoperative or unenforceable as applied in any particular case in any jurisdiction or jurisdictions or in all jurisdictions, or in all cases, because it conflicts with any other provision or provisions hereof or any Constitution or statute or rule of public policy, or for any other reason, such circumstances shall not have the effect of rendering the provision in question inoperative or unenforceable in any other case or circumstance, or of rendering any other provision or provisions herein contained invalid, inoperative, or unenforceable to any extent whatever.

The invalidity of any one or more phrases, sentences, clauses or Sections in this Agreement contained, shall not affect the remaining portions of this Agreement, or any part thereof.

SECTION 15.3

Notices.

All notices and directions to any party to this Agreement shall be in writing or sent electronically, and, except as otherwise provided, shall be deemed to be sufficiently given if sent registered or certified mail, by facsimile, by e-mail (with receipt confirmed), by overnight national courier service with charges prepaid, or by delivery during business hours to the parties,

at the following addresses:

	Borrower:

	Neose Technologies, Inc.
	102 Witmer Road
	Horsham, Pennsylvania 19044
	Attention: General Counsel
	Fax: 215-315-9100

	With a copy to:

	Pepper Hamilton LLP
	3000 Two Logan Square
	18^th and Arch Streets
	Philadelphia, PA 19103
	Attention: Barry M. Abelson, Esquire
	Fax: 215-981-4750

	Authority:
	Montgomery County Industrial Development Authority
	Montgomery County Economic & Workforce Development
	Human Services Center, Fifth Floor
	1430 DeKalb Street
	P.O. Box 311
	Norristown, PA 19401
	Attention: Gerald Birkelbach
	Fax: 610-278-5944

	Bank:
	Brown Brothers Harriman & Co.
	1531 Walnut Street
	Philadelphia, Pennsylvania 19102
	Attention: J. Clark O’Donoghue
	Title: Managing Director
	FAX: 215-864-3989
	E-Mail: clark.o’donoghue@bbh.com

or to such other address as the addressee shall have indicated by prior notice to the one giving the notice or direction in question. Any notice required to be sent to the owner of the Bond shall be sent to such party at the address provided by such party to the Borrower.

SECTION 15.4

Acts of Owner of the Bond.

Any action to be taken by the Bank, as the owner of the Bond may be evidenced by a written instrument signed or executed by the Bank in person or by an agent appointed in writing. The fact and date of the execution by any Person of any such instrument may be proved by

acknowledgment before a notary public or other officer empowered to take acknowledgments or by an affidavit of a witness to such execution. Any action by the owner of the Bond shall bind any future owner of the Bond.

SECTION 15.5

Exculpation of Authority.

(a) In the exercise of the power of the Authority and its members, officers, employees and agents hereunder, including (without limiting the foregoing) the application of moneys and any action taken by it in the Event of Default by the Borrower, neither the Authority nor its members, officers, employees, or agents shall be accountable to the Borrower or the Bank for any action taken or omitted by it or its members, officers, employees and agents in good faith. The Authority and its members, officers, employees, or agents shall be protected in its or their acting upon any paper or document believed by it or them to be genuine, and it or they may conclusively rely upon the advice of Counsel (who may also be Counsel for the Borrower or the Bank) and may (but need not) require further evidence of any fact or matter before taking any action.

(b) All covenants, stipulations, promises, agreements and obligations of the Authority contained in this Agreement, the Bond or any agreement, instrument or certificate entered into or delivered by the Authority in connection therewith shall be deemed to be the covenants, stipulations, promises, agreements and obligations of the Authority and not of any member, officer, employee or agent of the Authority in an individual capacity, and no recourse shall be had for the payment of the Bond or for any claim based thereon or under this Agreement or any agreement, instrument or certificate entered into by the Authority in connection therewith against any member, officer, employee or agent in an individual capacity.

SECTION 15.6

Indemnification Concerning the Project Facilities; Accuracy of Application and Information in Connection Therewith.

(a) The Borrower covenants and agrees, at its sole expense, to pay and to indemnify and save the Indemnified Parties harmless of, from and against, any and all claims, damages, demands, expenses, liabilities, and losses of every kind, character and nature asserted by or on behalf of any Person arising out of, resulting from or in any way connected with the condition, use, possession, conduct, management, planning, design, acquisition, construction, installation, financing or sale of, the Project Facilities and the Refunding Program, or any part thereof, except for any claim, damage, demand, expense, liability or loss arising out of the Indemnified Parties’ own gross negligence or willful misconduct.

(b) The Borrower agrees to indemnify and hold harmless the Indemnified Parties against any and all losses, claims, damages or liabilities caused by any untrue statement or alleged untrue statement of a material fact contained herein or in any documentation presented to the Bank or the Authority and pertaining to the Borrower or the Project Facilities or the Refunding Program or in information submitted to the Authority or the Bank by the Borrower with respect to the issuance and purchase of the Bond or otherwise (the “Borrower Information”) or caused by any omission or alleged omission of any material fact necessary to be stated in the Borrower Information in order to make such statements in the Application and pertaining to the Borrower Information not misleading or incomplete. The Borrower shall not, however,

indemnify the Authority or the Bank against claims based upon the bad faith, fraud or deceit of an Indemnified Party or due to an Indemnified Party’s gross negligence or willful misconduct.

(c) In case any action shall be brought against the Indemnified Parties based upon any of the above and in respect to which indemnity may be sought against the Borrower, the party involved may request in writing that the Borrower assume the defense thereof, including the employment of Counsel satisfactory to such party, the payment of all reasonable costs and expenses and the right to negotiate and consent to settlement. Any one or more of the Indemnified Parties shall have the right to employ separate Counsel in any such action, to participate in defense thereof and the Borrower shall assume the payment of all reasonable costs and expenses with respect thereto. The Borrower shall not be liable for any settlement of any such action effected without its consent, but if settled with the consent of the Borrower or if there be a final judgment for the plaintiff in any such action, the Borrower agrees to indemnify and hold harmless the Indemnified Parties from and against any loss or liability by reason of such settlement or judgment.

(d) Any provision herein or elsewhere to the contrary notwithstanding, this Section 15.6 shall survive the termination of this Agreement.

(e) The Borrower will reimburse the Authority for the reasonable costs and expenses (including reasonable attorneys’ fees and expenses) of any action taken by the Authority in connection with any Event of Default by the Borrower.

(f) The Borrower agrees to and does hereby indemnify and hold harmless the Indemnified Parties against any and all losses, claims, damages or liabilities (including all costs, expenses, and reasonable counsel fees incurred in investigating or defending such claim) suffered by any of the Indemnified Parties and caused by, relating to, arising out of, resulting from, or in any way connected to an examination, investigation or audit of the Bond by the Internal Revenue Service. In the event of such examination, investigation or audit, the Indemnified Parties shall have the right to employ counsel at the Borrower’s expense. In such event, the Borrower shall assume the primary role in responding to and negotiating with the Internal Revenue Service, but shall inform the Indemnified Parties of the status of the investigation. In the event the Borrower fails to respond adequately and promptly to the Internal Revenue Service, the Authority shall have the right to assume the primary role in responding to and negotiating with the Internal Revenue Service and shall have the right to enter into a closing agreement, for which the Borrower shall be liable.

(g) This indemnity agreement is in addition to any other liability that the Borrower may otherwise have, including but not limited to any indemnification by Borrower under the documents relating to the Prior Bonds. Notwithstanding anything in the Financing Documents which may limit recourse to the Borrower or may otherwise purport to limit the Borrower’s liability, the provisions of this Section shall control the Borrower’s obligations and shall survive the repayment of the Bond.

SECTION 15.7

Counterparts.

This Agreement may be simultaneously executed in several counterparts, including by

facsimile, each of which shall be an original and all of which shall constitute but one and the same instrument.

SECTION 15.8

No Personal Recourse.

No recourse shall be had for any claim based on the Agreement or the Bond against any member, officer or employee, past, present or future, of the Authority or of any successor body as such, either directly or through the Authority or any such successor body, under any constitutional provision, statute or rule of law or by the enforcement of any assessment or penalty or by any legal or equitable proceeding or otherwise. No covenant, stipulation, obligation or agreement of the Authority contained in this Agreement shall be deemed to be a covenant, stipulation, obligation or agreement of any present or future officer, employee or agent of the Authority in his individual capacity, and any officer, employee or agent of the Authority executing the Bond shall not be liable personally thereon or be subject to any personal liability or accountability by reason of the issuance thereof.

SECTION 15.9

Payment of Expenses.

The Borrower (1) will reimburse the Bank on demand for the reasonable costs and expenses of the Bank in connection with the preparation, execution, issuance and delivery of this Agreement, the Bond, the Tax Agreement, the Mortgage, the Security Agreement and the other instruments and documents to be delivered hereunder (including the reasonable fees and out-of-pocket expenses of Counsel with respect thereto) and (2) will reimburse the Bank on demand for the reasonable costs and expenses, if any, of the Bank in connection with the enforcement of this Agreement and the Bond (including the reasonable fees and out-of-pocket expenses of Counsel with respect thereto).

SECTION 15.10

Termination.

Upon the payment in full of the principal of and interest and premium, if any, due on the Bond at maturity, or the earlier payment of the redemption price of the Bond then Outstanding (provided that in the case of payment of the redemption price of the Bond, the Bond shall have been redeemed and cancelled on the books of the Borrower), and the payment of, or provision for all other amounts (including expense reimbursements and indemnity payments) due hereunder to the satisfaction of the Authority, this Agreement and the parties obligations hereunder shall terminate, except for the obligations of the Borrower pursuant to Section 15.6 and Section 15.9 hereof, which shall survive the termination of this Agreement.

SECTION 15.11

Set-Off.

Upon the occurrence and during the continuance of an Event of Default, the Bank shall have the right, in addition to all other rights and remedies available to the Bank, without prior notice to the Borrower, to apply toward and set-off against and apply to the then Outstanding balance of the Bond and any other amounts due and owing to the Bank hereunder any items or funds held by the Bank, any and all deposits (whether general or special, time or demand, matured or unmatured, fixed or contingent, liquidated or unliquidated) and Financial Assets (as defined in the Credit Agreement) now or hereafter maintained by the Borrower for its own account with the Bank, and any other indebtedness at any time held or owing by the Bank to or

for the credit or the account of the Borrower. The Bank is hereby authorized to charge any such account or indebtedness for any amounts then due to the Bank. Such right of set-off shall exist whether or not the Bank shall have made any demand under this Agreement, the Bond or any other Financing Document. The Borrower hereby confirms the Bank’s right of set-off, and nothing in this Agreement shall be deemed any waiver or prohibition of such right of set-off.

SECTION 15.12

Judicial Proceedings.

(a) The Borrower and the Bank each mutually consent and agree that any judicial proceedings relating in any way to this Agreement maybe brought in any court of competent jurisdiction in the Commonwealth of Pennsylvania or in the United States District Court for the Eastern District of Pennsylvania. The Borrower and the Bank each hereby accepts, for themselves and their respective properties, the non-exclusive jurisdiction of such courts, agrees to be bound by any judgments rendered by them in connection with this Agreement, and will not move to transfer any such proceeding to any different court. The Borrower and the Bank each waive the defense of forum non conveniens in any such action or proceeding.

(b) Service of process in any proceeding arising out of or relating to this Agreement may be made by any means permitted by the applicable rules of court as then in force, or may be made by any form of mail requiring a signed receipt.

(c) Nothing herein shall limit the right of the Bank to bring proceedings against the Borrower in the courts of any other jurisdiction or be deemed to constitute a consent to jurisdiction by any party hereto as to Persons not parties to this Agreement or as to matters not relating to this Agreement.

(d) THE BORROWER AND THE BANK EACH HEREBY EXPRESSLY WAIVE ANY RIGHT TO A TRIAL BY JURY IN ANY SUIT, ACTION OR PROCEEDING. THE BORROWER AND THE BANK FURTHER ACKNOWLEDGE AND AGREE THAT WAIVER OF JURY TRIAL IS A SPECIFIC AND MATERIAL ASPECT OF THIS AGREEMENT AND THAT THE BANK WOULD NOT HAVE AGREED TO MAKE THE LOAN OR ACCEPT THIS AGREEMENT OR THE BOND WITHOUT SUCH AGREEMENT.

(e) CONFESSION OF JUDGMENT. BORROWER HEREBY IRREVOCABLY AUTHORIZES AND EMPOWERS BANK, BY ITS ATTORNEY OR BY THE PROTHONOTARY OR CLERK OF ANY COURT OF RECORD IN COMMONWEALTH OF PENNSYLVANIA OR IN ANY JURISDICTION WHERE PERMITTED BY LAW, UPON THE OCCURRENCE AND DURING THE CONTINUATION OF AN EVENT OF DEFAULT, TO APPEAR FOR BORROWER AND CONFESS AND ENTER JUDGMENT AGAINST BORROWER IN FAVOR OF BANK IN ANY JURISDICTION WHERE BORROWER OR ANY OF ITS PROPERTY IS LOCATED FOR THE AMOUNT OF ALL OBLIGATIONS AND OTHER SUMS DUE OR TO BECOME DUE BY BORROWER TO BANK UNDER THIS AGREEMENT, TOGETHER WITH COSTS OF SUIT AND WITH ACTUAL COLLECTION COSTS (INCLUDING ATTORNEYS’ FEES), WITH OR WITHOUT DECLARATION, WITHOUT STAY OF EXECUTION AND WITH RELEASE OF ALL ERRORS AND THE RIGHT TO ISSUE EXECUTION FORTHWITH, AND FOR DOING SO THIS AGREEMENT OR A COPY HEREOF VERIFIED BY AFFIDAVIT SHALL BE

SUFFICIENT WARRANT. BORROWER HEREBY WAIVES ALL RELIEF FROM ANY APPRAISEMENT, STAY OR EXEMPTION LAWS OF ANY STATE NOW IN FORCE OR HEREAFTER ENACTED. THIS AUTHORITY AND POWER SHALL NOT BE EXHAUSTED BY ANY EXERCISE THEREOF, AND JUDGMENT MAY BE CONFESSED AS AFORESAID FROM TIME TO TIME AS OFTEN AS THERE IS OCCASION THEREFOR UNTIL ALL SUMS DUE AND OWING HEREUNDER ARE FULLY PAID, PERFORMED, DISCHARGED AND SATISFIED.

BORROWER HEREBY IRREVOCABLY AUTHORIZES AND EMPOWERS BANK, BY ITS ATTORNEY OR BY THE PROTHONOTARY OR CLERK OF ANY COURT OF RECORD IN THE COMMONWEALTH OF PENNSYLVANIA OR IN ANY JURISDICTION WHERE PERMITTED BY LAW, UPON THE OCCURRENCE OF AN EVENT OF DEFAULT, OR AT ANY TIME THEREAFTER, TO APPEAR FOR BORROWER, AS WELL AS FOR ANY PERSONS CLAIMING UNDER, BY OR THROUGH BORROWER, IN AN ACTION OR ACTIONS FOR REPLEVIN OR OTHER APPROPRIATE ACTION AGAINST BORROWER TO CONFESS AND ENTER JUDGMENT AGAINST BORROWER, FOR RECOVERY OF POSSESSION OF ANY OR ALL OF THE MORTGAGED PROPERTY AND/OR THE PROCEEDS THEREOF, TOGETHER WITH COSTS OF SUIT AND WITH ACTUAL COLLECTION COSTS (INCLUDING ATTORNEYS’ FEES), WITHOUT THE NECESSITY OF FILING ANY BOND AND WITHOUT STAY OF EXECUTION OR APPEAL AND WITH RELEASE OF ALL ERRORS AND FOR DOING SO THIS AGREEMENT OR A COPY HEREOF VERIFIED BY AFFIDAVIT SHALL BE SUFFICIENT WARRANT, WHEREUPON A JUDGMENT AND/OR WRIT OF POSSESSION AND/OR REPLEVIN OR OTHER APPROPRIATE PROCESS TO OBTAIN POSSESSION OF SUCH MORTGAGED PROPERTY MAY BE ISSUED FORTHWITH, WITHOUT ANY PRIOR WRIT OR PROCEEDING WHATSOEVER. THIS AUTHORITY AND POWER SHALL NOT BE EXHAUSTED BY ANY EXERCISE THEREOF, AND JUDGMENT MAY BE CONFESSED AS AFORESAID FROM TIME TO TIME AS OFTEN AS THERE IS OCCASION THEREFOR UNTIL ALL SUMS DUE AND OWING HEREUNDER ARE FULLY PAID, PERFORMED, DISCHARGED AND SATISFIED.

SECTION 15.13

Authorization of Agreement; Agreement to Constitute Contract.

This Agreement is entered into pursuant to the Act and the Resolution and the provisions of this Agreement shall be deemed to be and shall constitute a contract among the Authority, the Borrower and the Bank.

[Signatures follow on next page]

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

		MONTGOMERY COUNTY INDUSTRIAL DEVELOPMENT AUTHORITY


Attest:		By:	/s/ Sherry L. Horowitz

	Gerald J. Birkelbach		Name: Sherry L. Horowitz, Esquire
	Assistant Secretary		Title: Chairperson


		NEOSE TECHNOLOGIES, INC., a Delaware corporation


Attest:		By:	/s/ C. Boyd Clarke

	Name:		Name: C. Boyd Clarke
	Title:		Title: President and CEO


		BROWN BROTHERS HARRIMAN & CO.


Attest:		By:	/s/ J. Clark O’Donoghue

	Name:		Name: J. Clark O’Donoghue
	Title:		Title: Managing Director

EXHIBIT “A”
[FORM OF BOND]

Montgomery County Industrial Development Authority
Variable Rate Revenue Bond
(Neose Technologies, Inc. Project)
Series 2004

No.	$1,000,000

MONTGOMERY COUNTY INDUSTRIAL DEVELOPMENT AUTHORITY (the “Authority”), a body corporate and politic and a public instrumentality duly existing under the laws of the Commonwealth of Pennsylvania (the “Commonwealth”), for value received, hereby promises to pay (but only from the special revenues and funds hereinafter described) to BROWN BROTHERS HARRIMAN & CO., or its registered assigns (the “Bank”), on March 31, 2014, upon the presentation and surrender hereof at the principal office of the Borrower herein described, the principal sum of ONE MILLION DOLLARS ($1,000,000), and to pay (but only out of the sources hereinafter mentioned) interest on said principal sum at the interest rate hereinafter described. Payment of the principal of and interest on this Bond shall be in any coin or currency of the United States of America as, at the respective times of payment, shall be legal tender for the payment of public and private debts.

THIS BOND IS A LIMITED OBLIGATION OF THE ISSUER AND IS PAYABLE SOLELY OUT OF AMOUNTS HELD UNDER THE AGREEMENT (HEREAFTER DESCRIBED) AND AMOUNTS TO BE DERIVED FROM THE AGREEMENT AND IS SECURED AS SET FORTH IN THE AGREEMENT. THIS BOND AND THE INTEREST HEREON SHALL NOT BE DEEMED TO CONSTITUTE A DEBT, LIABILITY, GENERAL OBLIGATION OR A PLEDGE OF THE FAITH AND CREDIT OR THE TAXING POWER OF THE COMMONWEALTH OF PENNSYLVANIA OR ANY POLITICAL SUBDIVISION THEREOF. NEITHER THE COMMONWEALTH OF PENNSYLVANIA NOR ANY POLITICAL SUBDIVISION THEREOF NOR THE ISSUER SHALL BE OBLIGATED TO PAY THE PRINCIPAL OF THIS BOND, THE INTEREST HEREON OR OTHER COSTS INCIDENT HERETO EXCEPT FROM THE REVENUES AND FUNDS PLEDGED THEREFOR, AND NEITHER THE FAITH AND CREDIT NOR THE TAXING POWER OF THE COMMONWEALTH OF PENNSYLVANIA OR ANY POLITICAL SUBDIVISION THEREOF IS PLEDGED TO THE PAYMENT OF THE PRINCIPAL OF THIS BOND OR THE INTEREST HEREON OR OTHER COSTS INCIDENT THERETO.

The Agreement and all rights of the Authority thereunder (except for certain Reserved Rights of the Authority) have been assigned to the Bank to secure payment of such principal and interest.

This Bond is a duly authorized issue of variable rate revenue bond of the Authority issued in the original principal amount of $1,000,000 designated as Montgomery County Industrial Development Authority Variable Rate Revenue Bond (Neose Technologies, Inc. Project), Series 2004 (the “Bond”), issued under and pursuant to the constitution and laws of the

Commonwealth, including particularly the Pennsylvania Economic Development Financing Law, as amended (the “Act”), and the Financing Agreement (the “Agreement”) dated February 23, 2004 by and among the Authority, Neose Technologies, Inc., a Delaware corporation (the “Borrower”) and Brown Brothers Harriman & Co. (the “Bank”) for the purpose of undertaking the Refunding Program more fully described in the Agreement. The Authority has assigned certain of its rights under the Agreement, including its right to receive loan payments from the Borrower thereunder, to the Bank to secure the Authority’s obligations with respect to this Bond. As security for the payment by the Borrower of its obligations under the Agreement, the Borrower has granted to the Bank as the owner of this Bond and the assignee of the Authority’s rights under the Agreement, a mortgage lien upon certain property of the Borrower pursuant to an Open-End Mortgage and Security Agreement and a Security Agreement, each dated as of February 23, 2004. Reference is made to the Agreement for a description, inter alia, of the provisions with respect to the nature and extent of the security for this Bond, the rights, duties, obligations and immunities of the Authority, the Borrower, and the Bank of this Bond and the terms upon which this Bond is or may be issued or secured and transferred.

The Bond shall be issued in one denomination equal to the entire principal amount hereof. All payments of principal by the Authority whether pursuant to optional or mandatory redemption or prepayment or otherwise shall be made directly to the Bank.

DEFINED TERMS

All capitalized terms not defined herein shall have the meanings ascribed to such terms in the Agreement. As used in this Agreement, the following terms shall have the following meanings (such meanings to be equally applicable to both the singular and plural forms of the terms defined):

	“As-Offered Fixed Rate” means a fixed rate of interest quoted by the Bank for such fixed periods as Bank may offer from time to time.

	“Applicable Margin”means: (a) 150 basis points when the LIBOR is less than 4.00%; (b) 125 basis points when the LIBOR ranges from 4.00% to 6.00%, inclusive; and (c) 100 basis points when the LIBOR is greater than 6.00%.

	“LIBOR”means the ninety (90) day London inter-bank offered rate, determined by Bank by reference to market reporting services available to the Bank and other banks and financial institutions.

	“Interest Payment Date” means the last day of each March, June, September and December of each year, commencing March 31, 2004.

	“Interest Period” means (a) initially, the period beginning on the date hereof and ending on March 31, 2004; and (b) thereafter, each period commencing on the day immediately succeeding the last day of the immediately preceding Interest Period and ending the last day of the then-current calendar quarter succeeding such date; provided that to the extent the Borrower selects the As-Offered Fixed Rate to be applicable to the outstanding balance hereof, the Interest Period shall end at the end of the term applicable to such As-

	Offered Fixed Rate; provided, however, that no Interest Period may end later than the Maturity Date.

	“Maturity Date” means March 31, 2014.

INTEREST RATE PROVISIONS

For each Interest Period, the outstanding principal amount hereof shall bear interest at Borrower’s option, at: (1) the As-Offered Fixed Rate, if then offered and available by the Bank; or (2) LIBOR plus the Applicable Margin, such rate to be selected by the Borrower, not less than two (2) days prior to the end of each Interest Period by telephonic notice to the Bank and to apply to the outstanding balance hereof for the succeeding Interest Period. In the absence of notice by the Borrower as aforesaid, the interest rate applicable hereto shall continue at the rate selected by the Bank. Interest shall be due and payable to the Bank quarterly on each Interest Payment Date.

If the Bank shall have determined that: (a) by reason of circumstances affecting the Bank in the London market interbank, adequate means do not exist for ascertaining LIBOR, or (b) LIBOR no longer adequately reflects the Bank’s cost of funding loans then, upon notice from the Bank to the Borrower, the Bank, in its commercially reasonable judgment, may select a substitute rate for LIBOR, and, the term LIBOR, as used herein, shall constitute such substitute rate thereafter.

Upon the occurrence of a Determination of Taxability, the interest rate applicable to the Outstanding balance of the Bond shall become a taxable floating rate equal to the floating rate (as opposed to the As-Offered Fixed Rate provided for in the Credit Agreement) applicable, from time to time, to outstanding balances under the Credit Agreement (as defined in the Agreement), or to the extent that the all amounts due and owing under the Credit Agreement have been repaid in full, the floating interest rate that would be applicable to amounts outstanding under the Credit Agreement; provided that the Interest Payment Dates and Interest Periods shall remain the same as set forth in the Bond.

In the event of any decrease in the highest marginal tax rate imposed on individuals for federal income tax purposes, the interest rate on this Bond shall be adjusted by multiplying the rate otherwise to be applied in accordance with the provisions above by a fraction equal to: (1- New Tax Rate)/(1- Current Tax Rate), where “New Tax Rate” equals the newly applicable highest marginal tax rate, and “Current Tax Rate” equals the highest marginal tax rate applicable on the date of original issuance of this Bond, such tax rates, in each case, being expressed as a decimal (e.g. 40% equals .40).

Tax Indemnification. If at any time, either: (a) in the opinion of Counsel for the Bank, any payment of interest or principal or any amount in respect of or measured in whole or in part by reference to interest on or principal of this Bond, shall be subject to a preference tax (meaning a tax imposed by Sections 55-58 of the Code, or any successor sections thereto or any similar federal tax preferences or similar items), excess profits tax or other federal tax on a basis other than as existing on the date of original issuance hereof; or (b) the Bank shall otherwise be subject to any increased cost as a result of any change (whether as a result of a change in law or

otherwise, but excluding any change due to the actions of the Bank) in the tax consequences of ownership of this Bond (including by reason of the disallowance or diminishment of any deduction available to the Bank); then, in any case, upon notice to such effect from the Bank to the Borrower and the Authority, which notice shall set forth the date as of which any such event shall have occurred, there shall be paid to the Bank, as additional interest on this Bond, an amount which, after giving effect to all taxes, interest and penalties, in addition to any other charges required to be paid by the Bank as a result of such payment, is equal to the amount of any such preference, excess profits or other federal taxes and any interest and penalties, or any other additions to tax, which are payable by the Bank as a consequence of such change (computed on the assumption that taxes are payable by the Bank at the highest marginal statutory rate of tax imposed on individuals), it being the intent and purpose of the parties hereto that the profit of the Bank with respect to the payment of interest to it on this Bond shall not be diminished by any such event (whether through or as a result of direct or indirect federal taxation of the interest on or principal of this Bond, the disallowance or diminishment of a deduction or otherwise).

Taxable Rate. Notwithstanding the foregoing, if at any time hereafter, either before or after the payment of the entire principal of and interest on this Bond, there shall be a Determination of Taxability as defined in the Agreement (hereinafter a “Determination of Taxability’), then, in such event, the Bank, at its discretion, may retroactively increase the interest rate specified above to an interest rate which maintains the after tax yield to the Bank on such payments of principal and interest equal to the tax exempt yield earned by the Bank prior to the tax exempt status being changed. If the Bank chooses to adjust the interest rate based on a proposed adjustment by the Internal Revenue Service, the Borrower shall make the increased interest payments, provided, however, if such proposed adjustment does not result in a final adjustment to the interest rate hereunder, the Bank hereby agrees to reimburse Borrower for any increased interest payments made as a result of the adjustment of the interest rate. If the tax exempt status of this Bond’s interest is altered, including by any determination as to its exempt status after repayment of the Bond, the Bank, at its election, shall require the Borrower to pay to the Bank any interest, penalties and other late payment charges incurred by the Bank as a result of the change to the Bond’s tax exempt status. The failure of the Bank to make a demand promptly following a Determination of Taxability shall not alter the rights or obligations of the Bank. If there is more than one Determination of Taxability, this paragraph shall be fully applicable to each such Determination of Taxability, whether or not the Bank exercised any or all of the rights or remedies that arose under any prior Determination of Taxability, and all the Bank’s rights and remedies shall be cumulative except to the extent of any written waiver by the Bank. If the Bank receives written notice of any Determination of Taxability, it will give prompt written notice thereof to the Borrower and the Authority, and the Borrower shall have the right to require the Bank to prosecute any administrative or judicial remedies available to it unless the Bank determines, in its sole discretion, that the prosecution of such remedies is against its best interests, provided that the Borrower shall pay all expenses of prosecuting any such remedies.

Default and Overdue Interest. Upon the occurrence of any Event of Default under the Agreement, and so long as any such Event of Default shall be continuing, the interest rate payable on this Bond in accordance with the provisions set forth above shall be increased by two percent (2%)(200 basis points).

General. Interest, calculated on the basis of a 360-day year for the actual number of days elapsed, shall accrue daily and shall be payable quarterly in arrears on each Interest Payment Date to the registered owner hereof, as shown on the registry books of the Bank on the Business Day preceding such Interest Payment Date (a “Record Date”). The interest due hereon shall be calculated by the Bank in accordance with Section 8.1(a)(i) of the Agreement. Interest on this Bond shall be paid in such manner as the Borrower and the Bank shall agree.

REDEMPTION PROVISIONS

Optional Redemption. The Bond shall be subject to optional redemption by the Authority, at the written direction of the Borrower, in whole or in part (but if in part in the principal amount of $100,000 or integral multiples of $5,000 in excess thereof), on any interest Payment Date, at a price equal to 100% of the principal amount thereof to be redeemed, together with accrued interest to the date of redemption, subject to the additional provisions described under “Breakage Costs” below. The Borrower shall provide the Bank with notice of the date of any optional redemption pursuant to this paragraph and the principal amount of the Bond to be redeemed, sent to the Bank in accordance with Section 15.3 of the Agreement at least ten (10) days before such redemption date. On each such redemption date, payment of the redemption price having been made to the Bank as provided herein and in the Agreement, the Bond or the portion thereof so called for redemption shall become due and payable on the redemption date and interest shall cease to accrue thereon from and after the redemption date.

Redemption upon Repayment of Credit Agreement. Upon the repayment by the Borrower of all amounts due under the Credit Agreement (as defined in the Agreement), the Bond shall be redeemed by the Authority, at the option of the Bank, at a redemption price equal to 100% of the principal amount thereof, together with accrued interest to the date of redemption, subject to the additional provisions described under “Breakage costs” below, upon the written demand of the Bank to the Borrower, with a copy to the Authority. The Bond, or any portion thereof, shall be redeemed, and the redemption price of the Bond and all other amounts due hereunder and in the Agreement shall be paid to the owner of the Bond, on the date specified by the Bank.

Breakage Costs. In addition to any amounts due in connection with the redemption of the Bond as set forth above, in the event of any redemption or prepayment of the Bond for any reason, whether by redemption, prepayment, acceleration or otherwise, there shall be paid to the Bank an additional amount equal to the sum of all actual losses or expenses suffered or incurred by the Bank as a result of the redemption or prepayment, which is specifically limited to any loss, breakage or other cost or expense incurred by reason of the termination of any interest rate protection agreement ..

On each such redemption date, payment or provision for payment of the redemption price having been made, this Bond or the portion thereof so called for redemption shall become due and payable on the redemption date, and interest shall cease to accrue thereon from and after the redemption date.

In the event of a redemption of this Bond in whole, the redemption price shall be paid to the Bank only upon surrender of this Bond at the principal office of the Borrower or such other

place as the Borrower shall designate on such Interest Payment Date. In the event of a partial optional or mandatory redemption, payment shall be made by wire transfer of immediately available funds without presentation and surrender of this Bond, provided that the Borrower’ record of such payment shall be conclusive and binding upon the Bank and each succeeding owner of this Bond, absent manifest error.

The Agreement permits the amendment thereof and the modifications of the rights and obligations of the Authority and the rights of the owner of this Bond upon the terms set forth therein. Any consent or waiver by the owner of this Bond shall be conclusive and binding upon such Bank and upon all future owners of this Bond and of any Bond issued upon the transfer of this Bond whether or not notation of such consent or waiver is made hereon. The Agreement also contains provisions permitting the owner of this Bond to waive certain past defaults under the Agreement and their consequences.

This Bond is issued under and pursuant to, and in full compliance with the laws of the Commonwealth, including particularly the Act, which shall govern its construction, and by appropriate action duly taken by the Authority which authorizes the execution and delivery of the Agreement and this Bond.

No covenant or agreement contained in this Bond shall be deemed to be the covenant or agreement of any member, officer, attorney, agent or employee of the Authority in an individual capacity. No recourse shall be had for the payment of principal, premium, if any, or interest on this Bond or any claim based thereon or on any instruments and documents executed and delivered by the Authority in connection with the Project Facilities, against any officer, member, agent, attorney or employee of the Authority past, present or future, or any successor body or their representative heirs, personal representatives, successors, as such, either directly or through the Authority, or any such successor body, whether by virtue of any constitutional provision, statute or rule of law, or by the enforcement of any assessment or penalty, or otherwise, all of such liability being hereby released as a condition of and as a consideration for the execution and delivery of this Bond.

This Bond shall not constitute the personal obligation, either jointly or severally, of any director, officer, employee or agent of the Authority.

IT IS HEREBY CERTIFIED, RECITED AND DECLARED that all acts, conditions and things required to exist, happen and be performed precedent to and in the execution and delivery of the Agreement and issuance of this Bond do exist, have happened, exist and have been performed.

Signatures follow on next page

IN WITNESS WHEREOF, the Montgomery County Industrial Development Authority has caused this Bond to be executed in its name by the manual or facsimile signature of its Chairperson or Vice Chairman, and the manual impression or facsimile of its corporate seal to be affixed hereto and attested by the manual or facsimile signature of its Secretary or Assistant Secretary.

Dated: February 23, 2004

[SEAL]		MONTGOMERY COUNTY INDUSTRIAL DEVELOPMENT AUTHORITY


Attest:		By:

	Gerald J. Birkelbach		Name: Sherry Horowitz, Esquire
	Assistant Secretary		Title: Chairperson

EX-10.3 4 d14589_ex10-3.htm

Exhibit 10.3

GENERAL SECURITY AGREEMENT

THIS GENERAL SECURITY AGREEMENT, dated as of February 23, 2004, is made by NEOSE TECHNOLOGIES, INC., a Delaware corporation (“Obligor”), to BROWN BROTHERS HARRIMAN & CO., a private bank organized as a partnership (the “Secured Party”).

SECTION 1. Grant of Security Interest.

Obligor hereby grants to Secured Party a security interest in all of Obligor’s right, title and interest in and to the following property of Obligor, whether now owned or hereafter arising or acquired (collectively, the “Collateral”):

(a) accounts, general intangibles, chattel paper, and instruments (collectively, the “Receivables”);

(b) inventory;

(d) equipment (whether or not constituting fixtures);

(e) letter of credit rights;

(f) supporting obligations; and

(g) to the extent not otherwise included in the original collateral described above, all proceeds and products of any of the foregoing.

Notwithstanding the foregoing, the Collateral shall not include: (a) Obligor’s Intellectual Property or Liquidity, as such terms are defined in that certain Credit Agreement (the “Credit Agreement”), dated January 30, 2004 by and between Obligor and Secured Party, except as otherwise provided in the Credit Agreement; and (b) any equipment financed by any third party which constitutes Permitted Indebtedness under the Credit Agreement, to the extent such financing arrangements preclude liens in favor of any other person or entity.

Obligor represents and warrants that it is the sole owner of the Collateral and has the legal right to grant to Secured Party a security interest therein, and that the Collateral is free and clear of all other liens, security interests and encumbrances, other than the Permitted Liens (as such term is defined in the Credit Agreement).

SECTION 2. Security for Liabilities.

This Agreement secures the payment and performance of all indebtedness, obligations, and liabilities of every kind and nature (whether primary or secondary, direct or indirect, absolute or contingent, sole, joint, or several, secured or unsecured, similar or dissimilar, or

related or unrelated), heretofore, now, or hereafter contracted or acquired, of Obligor to Secured Party under the Financing Agreement (as defined below) and the Bond (as defined in the Financing Agreement)(collectively, the “Liabilities”).

SECTION 3. Obligor Remains Liable.

Anything herein to the contrary notwithstanding, (a) Obligor shall remain liable under its contracts and agreements included in the Collateral to the extent set forth therein to perform all of Obligor’s duties and obligations thereunder to the same extent as if this Agreement had not been executed, (b) the exercise by Secured Party of any of the rights hereunder shall not release Obligor from any of its duties or obligations under its contracts and agreements included in the Collateral, and (c) Secured Party shall not have any obligation or liability under the contracts and agreements included in the Collateral by reason of this Agreement, nor shall Secured Party be obligated to perform any of the obligations or duties of Obligor thereunder or to take any action to collect or enforce any claim for payment assigned hereunder.

SECTION 4. Further Assurances.

(a) Obligor agrees that from time to time, at its expense, it will promptly execute and deliver all further instruments and documents, and take all further action, that may be necessary or desirable, or that Secured Party may reasonably request, in order to perfect and protect any security interest granted or purported to be granted hereby or to enable Secured Party to exercise and enforce its rights and remedies hereunder with respect to any Collateral. Without limiting the generality of the foregoing, Obligor will: (i) upon request by Secured Party, mark conspicuously each item of chattel paper included in its Receivables and each of its records pertaining to any of the Collateral, with a legend, in form and substance satisfactory to Secured Party, indicating that such chattel paper or Collateral is subject to the security interest granted hereby; (ii) if any of its Receivables shall be evidenced by a promissory note or other instrument, deliver and pledge to Secured Party hereunder such note or instrument duly indorsed and accompanied by duly executed instruments of transfer or assignment, all in form and substance satisfactory to Secured Party; (iii) authorize Secured Party to file such financing or continuation statements, or amendments thereto, and such other instruments or notices, as may be necessary or desirable, or as Secured Party may request, in order to perfect and preserve the security interests granted hereby; (iv) to the extent that any Collateral consists of letter-of-credit rights, cause the issuer of each underlying letter of credit to consent to the assignment to Secured Party; (v) to the extent that any Collateral is in the possession of a third party, join with Secured Party in notifying the third party of Secured Party’s security interest and in obtaining an acknowledgement from the third party that it is holding such Collateral for the benefit of Secured Party; and (vi) at any time that Secured Party so reasonably requests, work with Secured Party to set up such lock boxes and segregated accounts as Secured Party may request in order to better perfect the security interest created hereunder in proceeds.

(b) Obligor hereby authorizes Secured Party to file one or more financing or continuation statements, and amendments thereto, relative to all or any part of the Collateral without the signature of Obligor where permitted by law. A carbon, photographic, or other reproduction of this Agreement or any part thereof shall be sufficient as a financing statement where permitted by law.

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(c) Obligor will furnish to Secured Party from time to time statements and schedules further identifying and describing the Collateral and such other reports in connection with the Collateral as Secured Party may request, all in reasonable detail.

(d) Obligor shall not reincorporate or reorganize itself under the laws of any jurisdiction other than the jurisdiction in which it is incorporated or organized as of the date hereof, and shall not change its organizational structure under such jurisdiction if such action would, in the judgment of Secured Party, require filing under the Uniform Commercial Code, as adopted, in a different jurisdiction in order to maintain perfection of the security interest granted hereby, without the prior written consent of Secured Party.

(e) Obligor shall not change its corporate name without providing Secured Party at least thirty (30) days’ prior written notice.

SECTION 5. Insurance.

Obligor shall, at its own expense, (i) keep its property and business insured against fire and other hazards (so-called “all risk” coverage) in amounts and with companies reasonably satisfactory to Secured Party, or the amount necessary to avoid any co-insurance penalty, which policy shall name Secured Party as loss payee as its interest may appear, (ii) maintain public liability coverage against claims for personal injuries, death or property damage in an amount deemed reasonable by Secured Party, which policy shall name Secured Party as an additional insured as its interest may appear, and (iii) maintain all worker’s compensation, employment or similar insurance as may be required by applicable law. All such property insurance shall contain an endorsement identifying Secured Party as lienholder, lender loss payee and mortgagee, and providing for a minimum of thirty (30) days’ written cancellation notice to Secured Party. In any event, Obligor’s obligation to carry such insurance may only be brought within the coverage of a so-called blanket or umbrella policy or policies of insurance carried and maintained by Obligor if and only if the coverage afforded Secured Party will not be limited, reduced or diminished by reason of the use of a blanket or umbrella policy of insurance. Obligor shall deliver to Secured Party original or duplicate policies of insurance maintained pursuant hereto and, as often as Secured Party may reasonably request, a report of a reputable insurance broker with respect to such insurance.

SECTION 6. Representations and Warranties.

Obligor represents and warrants to Secured Party that:

(a) Obligor has all requisite rights, powers and authority to execute and deliver this Agreement and to carry out the transactions contemplated hereby, including, but not limited to, rights in and the power to transfer the Collateral free and clear of all claims, liens, security interests and other encumbrances or restrictions, other than the Permitted Liens. The execution, delivery and performance of this Agreement by Obligor has been duly authorized by all requisite corporate action, and this Agreement has been duly executed and delivered by Obligor and constitutes its valid and binding obligation, enforceable against Obligor in accordance with its terms, except as such enforcement may be limited by bankruptcy, insolvency, moratorium, reorganization and other similar laws relating to or affecting the enforcement of creditors’ rights

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generally, and except that the availability of specific performance, injunctive relief or other equitable remedies is subject to the discretion of the court before which any such proceeding may be brought.

(b) The execution, delivery and performance of this Agreement by Obligor will not violate any provision of law, any rule or regulation of any governmental authority, or any judgment, decree or order of any court binding on Obligor, and will not conflict with or result in any breach of any of the terms, conditions or provisions of, or constitute a default under, or, except as expressly provided herein, result in the creation of any lien, security interest, charge or encumbrance upon any of its properties, assets or outstanding stock under its Certificate of Incorporation or By-Laws or any indenture, mortgage, lease, agreement or other instrument to which Obligor is a party or by which it or any of its properties is bound.

(c) Obligor’s chief executive office is located at the place indicated on Schedule 1 hereto and Obligor’s books and records are and will be maintained at such location. Schedule 1 hereto lists each other location where Obligor maintains a place of business. All of the Collateral constituting goods is located at the places indicated on Schedule 1 hereto. Obligor is the record owner or lessee (as indicated on Schedule 1) of the real property where such Collateral is located, with the exception of the storage and warehouse facility of Pierce Leahy Archives located at 2500 Henderson Drive, Sharon Hill, PA. Obligor’s exact legal name and place of incorporation or legal formation is as indicated in the heading to this Agreement. Obligor has no trade names and has not used any name other than its actual corporate name for the preceding five years. No entity has merged into Obligor or been acquired by Obligor within the past five years. The federal tax identification number and state organizational identification number, if any, of Obligor is as set forth on Schedule 1 hereto.

SECTION 7. Certain Covenants as to Inventory and Equipment.

Obligor shall:

(a) Cause its equipment to be maintained and preserved in the same condition, repair, and working order as when new, ordinary wear and tear excepted, and, in the case of any material loss or damage to any of its equipment, as quickly as practicable after the occurrence thereof, make or cause to be made all repairs, replacements, and other improvements in connection therewith which are necessary or desirable to such end, in the reasonable business judgment of Obligor.

(b) Pay promptly when due all property and other taxes, assessments, and governmental charges or levies imposed upon it or any of its inventory or equipment, and all claims (including claims for labor, services, materials and supplies) for sums which by law have or might become a lien upon any of its inventory and equipment.

(c) After the occurrence and during the continuance of an Event of Default (as hereinafter defined), receive in trust for the benefit of Secured Party all amounts and proceeds received or collected by such Obligor in respect of its inventory and equipment, segregate such amounts and proceeds from other funds of such Obligor, and forthwith pay such amounts and

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proceeds over to Secured Party in the same form as so received (with any necessary endorsement) to be held as cash collateral and applied as provided in Section 15(b).

(d) Notify Secured Party in the event of material loss or damage to the Collateral or of any material adverse change in Obligor’s business, financial condition or the Collateral, or of any other occurrences which could materially and adversely affect the security of Secured Party.

SECTION 8. Certain Covenants as to Receivables.

(a) Upon the occurrence and during the continuance of an Event of Default, from time to time upon request, Obligor shall provide Secured Party with (i) schedules describing all accounts, (ii) additional schedules describing other Receivables, and (iii) specific written assignments to Secured Party of any of its Receivables. Any failure to execute or deliver any schedule or assignment shall not, however, affect or limit any security interest or other right of Secured Party in and to any Receivable. Upon the occurrence and during the continuance of an Event of Default, at Secured Party’s request, Obligor shall also furnish to Secured Party copies of invoices to customers and shipping and delivery receipts or warehouse receipts relating thereto, as well as such other documents and instruments as Secured Party may reasonably request in connection with any Receivable.

(b) Upon the occurrence and during the continuance of an Event of Default, Obligor shall promptly notify Secured Party of all returns, repossessions and recoveries of goods covered by the Receivables and of all claims asserted with respect thereto. Each such notification shall be accompanied by a statement describing the relevant goods and the location thereof. Upon the occurrence and during the continuance of an Event of Default, Obligor shall not settle or adjust any dispute or claim, grant any discount, credit or allowance, or accept any return of merchandise except in the ordinary course of business. Upon the occurrence and during the continuance of an Event of Default, when Obligor receives collateral of any kind by reason of transactions between itself and its customers or account debtors, it will hold the same on Secured Party’s behalf, subject to Secured Party’s instructions, as property forming part of the Receivables.

(c) Upon the occurrence and during the continuance of an Event of Default, Secured Party shall have the right from time to time to communicate directly with account debtors and obligors on the Receivables and to do test verifications of the Receivables.

(d) Obligor shall promptly notify Secured Party if any of its accounts arise out of contracts with the United States or any agency or instrumentality thereof, and execute any instruments and take any steps required by Secured Party in order that all moneys due and to become due under such contracts shall be assigned to Secured Party in accordance with the requirements of, and notice given to the Government under the Federal Assignment of Claims Act.

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SECTION 9. Transfers and Other Liens.

Obligor shall not:

(a) Sell, assign (by operation of law or otherwise), or otherwise dispose of any of the Collateral except (1) in the ordinary course of business or (2) if outside the ordinary course of business, where the cost of such Collateral does not exceed $100,000.

(b) Create, permit or suffer to exist any lien, security interest, or other charge or encumbrance upon or with respect to any of the Collateral, other than Permitted Liens as provided for in the Credit Agreement.

SECTION 10. Secured Party Appointed Attorney-in-Fact.

Obligor hereby irrevocably appoints Secured Party as its attorney-in-fact, with full authority in the place and stead of Obligor and in the name of Obligor, Secured Party, or otherwise, from time to time in Secured Party’s discretion to take any action and to execute any instrument which Secured Party may deem necessary or advisable to accomplish the purposes of this Agreement, including, without limitation:

(a) to authorize the filing of and/or sign in the name and on behalf of Obligor any financing statements or other papers required under Section 4;

(b) subject to the terms of the Financing Agreement (the “Financing Agreement”) dated the date hereof by and among Obligor, Secured Party and the Montgomery County Industrial Development Authority (the “Authority”) a municipal authority incorporated, organized and duly existing under the Economic Development Financing Law, 73 P.S. 371, et seq., as amended and supplemented, of the Commonwealth of Pennsylvania and that certain open-end mortgage and security agreement (the “Mortgage”), dated as of the date hereof, by and between Obligor and Secured Party, to obtain and adjust insurance required to be paid to Secured Party pursuant to Section 5;

	1. to ask, demand, collect, sue for, recover, compound, receive, and give acquittance and receipts for moneys due and to become due under or in respect of any of the Collateral;

	2. to receive, indorse, and collect any drafts or other instruments, documents, and chattel paper in connection with subsection (b) or (c) above; and

	3. to file any claims or take any action or institute any proceedings which Secured Party may deem necessary or desirable for the collection of any of the Collateral or otherwise to enforce the rights of Secured Party with respect to any of the Collateral.

Obligor hereby ratifies and approves all acts of Secured Party as such attorney-in-fact taken in compliance with this Section 10. Secured Party shall not, in its capacity as such attorney-in-fact, be liable for any acts or omissions, nor for any error in judgment or mistake of

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fact or law, but only for gross negligence or willful misconduct as determined by a court of competent jurisdiction in a final, nonappealable judgment. This power, being coupled with an interest, is irrevocable until all Liabilities have been fully satisfied and until Secured Party is no longer committed to allow additional Liabilities to be incurred. Any amounts received or collected by Secured Party in its capacity as such attorney-in-fact and in compliance with this Section 10 shall be held as cash collateral and applied as provided in Section 15(b).

SECTION 11. Secured Party May Perform.

If Obligor fails to perform any agreement contained herein, Secured Party may itself perform, or cause performance of, such agreement, and the expenses of Secured Party incurred in connection therewith shall be payable by Obligor under Section 16(b).

SECTION 12. Secured Party’s Duties.

The powers conferred on Secured Party hereunder are solely to protect its interest in the Collateral and shall not impose any duty to exercise any such powers. Except for the safe custody of any Collateral in its possession and the accounting for moneys actually received by it hereunder, Secured Party shall not have any duty as to any Collateral or as to the taking of any necessary steps to preserve rights against any parties or any other rights pertaining to any Collateral. Without limiting the generality of the foregoing, Secured Party has no obligation to clean-up or otherwise prepare the Collateral for sale.

SECTION 13. Inspection Rights.

Secured Party at all times shall have access to inspect, audit, and make extracts from all of Obligor’s records, files, and books of account relating to the Collateral and to examine and inspect inventory and other Collateral owned by Obligor; provided, prior to an Event of Default, such access, examination and inspection shall be limited to four (4) times in any calendar year, shall be during regular business hours, and shall be upon five (5) days’ prior notice to Obligor. Obligor shall, at Secured Party’s request, take all steps necessary to facilitate such inspection. Obligor shall deliver any document or instrument necessary for Secured Party to obtain records from any service bureau maintaining records for Obligor.

SECTION 14. Default.

“Event of Default” means subject to any applicable period of grace or cure, (i) nonpayment of any of the Liabilities when due (whether at stated maturity or upon demand, acceleration of maturity or otherwise), (ii) any other default with respect to the Liabilities, (iii) any other failure by Obligor to perform any of its obligations under this Agreement, the Financing Agreement or any other Loan Document evidencing or securing any of the Liabilities, or (iv) any breach of any representation or warranty made by Obligor in connection with the transactions contemplated by this Agreement, the Financing Agreement or any other Loan Document evidencing or securing any of the Liabilities.

SECTION 15. Remedies.

If any Event of Default shall have occurred and be continuing:

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(a) Secured Party may exercise in respect of the Collateral, in addition to other rights and remedies provided for herein or otherwise available to it, all the rights and remedies of a secured party on default under the Uniform Commercial Code (the “Code”) and other applicable laws and agreements, as they may be amended from time to time, and also may (i) require Obligor to, and Obligor hereby agrees that it will at its expense and upon request of Secured Party forthwith, assemble the tangible Collateral as directed by Secured Party and make it available to Secured Party at a place or places to be designated by Secured Party which are reasonably convenient to Secured Party and Obligor and (ii) without notice except as specified below, sell the Collateral or any part thereof in one or more parcels at public or private sale, at any of Secured Party’s offices or elsewhere, for cash, on credit, or for future delivery, and upon such other terms as Secured Party may deem commercially reasonable. Obligor agrees that, to the extent notice of sale shall be required by law, at least five (5) Business Days’ notice to Obligor of the time and place of any public sale or the time after which any private sale is to be made shall constitute reasonable notification. Secured Party shall not be obligated to make any sale of the Collateral regardless of notice of sale having been given. Secured Party may adjourn any public or private sale from time to time by announcement at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was so adjourned.

(b) All cash proceeds received by Secured Party in respect of any sale of, collection from, or other realization upon all or any part of the Collateral may, in the discretion of Secured Party, be held by Secured Party (without interest) as collateral for, and/or then or at any time thereafter applied (after payment of any amounts payable to Secured Party pursuant to Section 16) in whole or in part by Secured Party against, all or any part of the Liabilities in such order as Secured Party shall elect. Any surplus of such cash or cash proceeds held by Secured Party and remaining after payment in full of all the Liabilities shall be paid over to Obligor or to whosoever may be lawfully entitled to receive such surplus. Obligor shall be liable to Secured Party for any deficiency amount.

(c) Secured Party may comply with any applicable law in connection with a disposition of Collateral and compliance will not be considered adversely to affect the commercial reasonableness of any sale of the Collateral. Secured Party may sell the Collateral without giving any warranties and may specifically disclaim such warranties. If Secured Party sells any of the Collateral on credit, Obligor will only be credited with payments actually made by the purchaser.

SECTION 16. Indemnity and Expenses.

(a) Obligor agrees to indemnify Secured Party (including any partner, officer, employee, director or agent of Secured Party) from and against any and all claims, losses, and liabilities arising out of or resulting from this Agreement (including, without limitation, enforcement of this Agreement), except claims, losses, or liabilities resulting from Secured Party’s gross negligence or willful misconduct as determined by a court of competent jurisdiction in a final, nonappealable judgment.

(b) Obligor will upon demand pay to Secured Party the amount of any and all reasonable expenses, including the reasonable fees and disbursements of its counsel and of any

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experts and agents, which Secured Party may incur in connection with (i) the preparation, administration and amendment of this Agreement, (ii) the custody, preservation, use, or operation of, or the sale of, collection from, or other realization upon, any of the Collateral, (iii) the exercise or enforcement of any of the rights of Secured Party hereunder, or (iv) the failure by Obligor to perform or observe any of the provisions hereof.

SECTION 17. Amendments, Indulgences, Etc.

No amendment or waiver of any provision of this Agreement nor consent to any departure by Obligor here from shall in any event be effective unless the same shall be in writing and signed by Secured Party and Obligor, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. No failure or delay on the part of Secured Party in the exercise of any right, power, or remedy under this Agreement shall constitute a waiver thereof, or prevent the exercise thereof in that or any other instance. No remedy or right herein conferred upon, or reserved to Secured Party is intended to be to the exclusion of any other remedy or right, but each and every such remedy or right shall be cumulative and shall be in addition to every other remedy or right given hereunder or under any other contract or under law.

SECTION 18. Notices.

All notices, requests and demands to or upon the respective parties hereto shall be deemed to have been given or made, (a) if delivered by hand against receipt, on the date of such delivery, or (b) if deposited in the mails, postage prepaid, registered or certified mail, return receipt requested, on the third day following the date of postmark, addressed as follows or to such other address as may be hereafter designated in writing by the respective parties hereto:

	If to Obligor:

		Neose Technologies, Inc.
		102 Witmer Road
		Horsham, PA 19044
		Attention: General Counsel
		Facsimile: (215) 315-9100

	With a copy to:

		Pepper Hamilton LLP
		3000 Two Logan Square
		18^th & Arch Streets
		Philadelphia, PA 19103
		Attention: Barry M. Abelson, Esquire
		Facsimile: (215) 981-4750

	If to Secured Party:

		Brown Brothers Harriman & Co.
		1531 Walnut Street

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		Philadelphia, PA 19102
		Attention: J. Clark O’Donoghue
		Facsimile: (215) 864-3989

	With a copy to:

		Stradley, Ronon, Stevens & Young, LLP
		2600 One Commerce Square
		Philadelphia, PA 19103
		Attention: Dean M. Schwartz, Esquire
		Facsimile: (215) 564-8120

SECTION 19. Continuing Security Interest; etc.

This Agreement shall create a continuing security interest in the Collateral and shall (a) be binding upon Obligor and its successors and assigns and (b) inure to the benefit of Secured Party and its successors and assigns. The execution and delivery of this Agreement shall in no manner impair or affect any other security (by endorsement or otherwise) for the payment or performance of the Liabilities and no security taken hereafter as security for payment or performance of the Liabilities shall impair in any manner or affect this Agreement or the security interest granted hereby, all such present and future additional security to be considered as one general, continuing security. Any of the Collateral may be released from this Agreement without altering, varying, or diminishing in any way this Agreement or the security interest granted hereby as to the Collateral not expressly released, and this Agreement and such security interest shall continue in full force and effect as to all of the Collateral not expressly released.

SECTION 20. Governing Law; Consent to Jurisdiction; etc.

This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Pennsylvania without reference to its conflicts of laws principles. Obligor consents to the jurisdiction of the courts of Pennsylvania and of the courts of the United States sitting in Pennsylvania in any litigation concerning this Agreement, and Obligor waives any objection based on venue or inconvenient forum. Each of Obligor and Secured Party waives any right to trial by jury in any litigation involving this Agreement. Unless otherwise defined herein, terms defined in the Code as in effect in Pennsylvania on the date hereof (including the terms “accounts,” “general intangibles,” “chattel paper,” “instruments,” “inventory,” “documents,” “equipment,” “fixtures,” “investment property,” “deposit accounts,” “letter of credit rights,” “supporting obligations,” “proceeds,” and “products”) are used herein as therein defined as of such date. This Agreement may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument, and any of the parties hereto may execute this Agreement by signing any such counterpart.

SECTION 21. Severability.

The provisions of this Agreement are independent of and separable from each other, and no such provision shall be affected or rendered invalid or unenforceable by virtue of the fact that for any reason any other such provision may be invalid or unenforceable in whole or in part.

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SECTION 22. Waiver of Jury Trial; Confession of Judgment.

WAIVER OF JURY TRIAL. EACH OBLIGOR AND SECURED PARTY HEREBY EXPRESSLY WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY SUCH SUIT, ACTION OR PROCEEDING. OBLIGOR FURTHER ACKNOWLEDGES AND AGREES THAT WAIVER OF JURY TRIAL IS A SPECIFIC AND MATERIAL ASPECT OF THIS AGREEMENT AND THAT SECURED PARTY WOULD NOT HAVE AGREED TO MAKE ANY LOAN OR ACCEPT THIS AGREEMENT OR ANY NOTE WITHOUT SUCH AGREEMENT.

CONFESSION OF JUDGMENT. OBLIGOR HEREBY IRREVOCABLY AUTHORIZES AND EMPOWERS SECURED PARTY, BY ITS ATTORNEY OR BY THE PROTHONOTARY OR CLERK OF ANY COURT OF RECORD IN COMMONWEALTH OF PENNSYLVANIA OR IN ANY JURISDICTION WHERE PERMITTED BY LAW, UPON THE OCCURRENCE AND DURING THE CONTINUANCE OF AN EVENT OF DEFAULT, TO APPEAR FOR OBLIGOR AND CONFESS AND ENTER JUDGMENT AGAINST OBLIGOR IN FAVOR OF SECURED PARTY IN ANY JURISDICTION WHERE OBLIGOR OR ANY OF ITS PROPERTY IS LOCATED FOR THE AMOUNT OF ALL OBLIGATIONS AND OTHER SUMS DUE OR TO BECOME DUE BY OBLIGOR TO SECURED PARTY UNDER THIS AGREEMENT, TOGETHER WITH COSTS OF SUIT AND WITH ACTUAL COLLECTION COSTS (INCLUDING ATTORNEYS’ FEES), WITH OR WITHOUT DECLARATION, WITHOUT STAY OF EXECUTION AND WITH RELEASE OF ALL ERRORS AND THE RIGHT TO ISSUE EXECUTION FORTHWITH, AND FOR DOING SO THIS AGREEMENT OR A COPY HEREOF VERIFIED BY AFFIDAVIT SHALL BE SUFFICIENT WARRANT. OBLIGOR HEREBY WAIVES ALL RELIEF FROM ANY APPRAISEMENT, STAY OR EXEMPTION LAWS OF ANY STATE NOW IN FORCE OR HEREAFTER ENACTED. THIS AUTHORITY AND POWER SHALL NOT BE EXHAUSTED BY ANY EXERCISE THEREOF, AND JUDGMENT MAY BE CONFESSED AS AFORESAID FROM TIME TO TIME AS OFTEN AS THERE IS OCCASION THEREFOR UNTIL ALL SUMS DUE AND OWING HEREUNDER ARE FULLY PAID, PERFORMED, DISCHARGED AND SATISFIED.

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OBLIGOR HEREBY IRREVOCABLY AUTHORIZES AND EMPOWERS SECURED PARTY, BY ITS ATTORNEY OR BY THE PROTHONOTARY OR CLERK OF ANY COURT OF RECORD IN THE COMMONWEALTH OF PENNSYLVANIA OR IN ANY JURISDICTION WHERE PERMITTED BY LAW, UPON THE OCCURRENCE OF AN EVENT OF DEFAULT, OR AT ANY TIME THEREAFTER, TO APPEAR FOR OBLIGOR, AS WELL AS FOR ANY PERSONS CLAIMING UNDER, BY OR THROUGH OBLIGOR, IN AN ACTION OR ACTIONS FOR REPLEVIN OR OTHER APPROPRIATE ACTION AGAINST OBLIGOR TO CONFESS AND ENTER JUDGMENT AGAINST OBLIGOR, FOR RECOVERY OF POSSESSION OF ANY OR ALL OF THE MORTGAGED PROPERTY AND/OR THE PROCEEDS THEREOF, TOGETHER WITH COSTS OF SUIT AND WITH ACTUAL COLLECTION COSTS (INCLUDING ATTORNEYS’ FEES), WITHOUT THE NECESSITY OF FILING ANY BOND AND WITHOUT STAY OF EXECUTION OR APPEAL AND WITH RELEASE OF ALL ERRORS AND FOR DOING SO THIS AGREEMENT OR A COPY HEREOF VERIFIED BY AFFIDAVIT SHALL BE SUFFICIENT WARRANT, WHEREUPON A JUDGMENT AND/OR WRIT OF POSSESSION AND/OR REPLEVIN OR OTHER APPROPRIATE PROCESS TO OBTAIN POSSESSION OF SUCH MORTGAGED PROPERTY MAY BE ISSUED FORTHWITH, WITHOUT ANY PRIOR WRIT OR PROCEEDING WHATSOEVER. THIS AUTHORITY AND POWER SHALL NOT BE EXHAUSTED BY ANY EXERCISE THEREOF, AND JUDGMENT MAY BE CONFESSED AS AFORESAID FROM TIME TO TIME AS OFTEN AS THERE IS OCCASION THEREFOR UNTIL ALL SUMS DUE AND OWING HEREUNDER ARE FULLY PAID, PERFORMED, DISCHARGED AND SATISFIED.

Signatures follow on next page.

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IN WITNESS WHEREOF, Obligor, intending to be legally bound, has executed or caused the execution of this Agreement, under seal, as of the date first above written.

	NEOSE TECHNOLOGIES, INC.


	By:	/s/ C. Boyd Clarke

		Name: C. Boyd Clarke
		Title: President and CEO


	BROWN BROTHERS HARRIMAN & CO.


	By:	/s/ J. Clark O’Donoghue

		Name: J. Clark O’Donoghue
		Title: Managing Director

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Schedule 1
to
General Security Agreement

Legal Name of Obligor:	Neose Technologies, Inc.

Jurisdiction of Formation:	Delaware

Pennsylvania Corporate
Tax Identification No.:	6529-840

FEIN:	13-3549286

Chief Executive Office:	102 Witmer Road
	Horsham, PA 19044 (owned location)

Other Collateral Locations:	201 Witmer Road
	Horsham, PA 19044 (leased location)

	102 Rock Road
	Horsham, PA 19044 (leased location)

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EX-10.4 5 d14589_ex10-4.htm

Exhibit 10.4

OPEN-END MORTGAGE AND SECURITY AGREEMENT

This Mortgage Secures Future Advances

THIS MORTGAGE is dated as of the 23^rd day of February, 2004 (the “Mortgage”) by and between NEOSE TECHNOLOGIES, INC., a Delaware corporation, with an address of 102 Witmer Road, Horsham, Pennsylvania 19044 (the “Mortgagor”) and BROWN BROTHERS HARRIMAN & CO., a private bank organized as a partnership, with its place of business at 1531 Walnut Street, Philadelphia, Pennsylvania 19102 (the “Mortgagee”).

W I T N E S S E T H:

WHEREAS, at the request of Mortgagor, the Montgomery County Industrial Development Authority (the “Authority”) has issued a Variable Rate Revenue Bond (“Neose Technologies, Inc. Project”) Series 2004, in the principal amount of One Million and 00/100 Dollars ($1,000,000.00) (the “Bond”); and

WHEREAS, the obligations of the Mortgagor to repay the loan represented by the Bond (the “Loan”) and certain other covenants and representations of Mortgagor, are set forth in that certain Financing Agreement by and among Mortgagor, Authority and Mortgagee, dated the date hereof (the “Financing Agreement”), the terms and conditions of which are incorporated herein by reference; and

WHEREAS, the obligations of the Mortgagor to Mortgagee under the Bond and the Financing agreement are further secured by that certain Security Agreement from Mortgagor to Mortgagee dated of even date herewith (the “Security Agreement”)(the Financing Agreement, the Bond, the Security Agreement and all other documents, instruments or agreements evidencing and/or securing the Loan, as the same may be amended, modified, or supplemented from time to time, are sometimes collectively referred to below as the “Financing Documents”); and

WHEREAS, as security for the payment of the Bond and the obligations of Mortgagor under the Financing Agreement, Mortgagee has required Mortgagor to execute and deliver this Mortgage; and

WHEREAS, the maximum amount of indebtedness intended to be secured hereby is One Million and 00/100 Dollars ($1,000,000.00).

Capitalized terms used herein and not otherwise defined shall have the meanings given to them in the Financing Agreement.

NOW, THEREFORE, in order to secure the obligations of Mortgagor as set forth in the Bond and the Financing Agreement (the “Obligations”), and in consideration of the premises and the further sum of Ten Dollars ($10.00) to Mortgagor in hand well and truly paid by Mortgagee at or before the ensealing and delivery hereof, the receipt whereof is hereby acknowledged, Mortgagor has granted, bargained and sold, aliened, enfeoffed, released, remised,

conveyed, confirmed and mortgaged, and by these presents does grant, bargain and sell, alien, enfeoff, release, remise, convey, confirm, and mortgage unto Mortgagee and its successors and assigns, that certain premises located at 102 Witmer Road, Horsham Township, Montgomery County, Pennsylvania, as more particularly described in Exhibit “A” attached hereto and made a part hereof (the “Real Estate”);

TOGETHER with the appurtenances and all the estates and rights of Mortgagor in and to the Real Estate, including without limitation the fixtures, equipment, reversions, remainders, easements, issues and profits arising or issuing from the Real Estate and the improvements thereon including, but not limited to the rents, issues and profits arising or issuing from the Real Estate and the improvements thereon, including but not limited to the rents, fixtures, equipment, issues and profits arising or issuing from all insurance policies, sale agreements, licenses, options, leases and subleases now or hereafter entered into covering any part of said Real Estate or the buildings, structures and improvements thereon, all of which insurance policies, sale agreements, licenses, options, leases, subleases, rents, issues and profits are hereby assigned and shall be caused to be assigned to Mortgagee by Mortgagor. Mortgagor will execute and deliver to Mortgagee on demand such assignments as Mortgagee may require to implement this assignment;

TOGETHER with all the right, title and interest of Mortgagor in and to all streets, roads and public places, opened or proposed, adjoining the Real Estate, and all easements and rights of way, public or private, now or hereafter created or used in connection therewith;

TOGETHER with all the right, title and interest of Mortgagor, now owned or hereafter acquired, in and to any and all sidewalks and alleys adjacent to the Real Estate;

TOGETHER with all buildings and improvements of every kind and description now or hereafter erected or placed on the Real Estate;

TOGETHER with all of Mortgagor’s right, title and interest now owned or hereafter acquired in and to all heating, plumbing, sprinkler, water, gas, electric power, lighting and air conditioning equipment, elevators, machinery, fixtures, equipment, furniture, building materials of any kind or nature, together with all replacements thereof and additions thereto, now, or at any time hereafter, affixed or attached to said Real Estate, buildings, structures and improvements (hereinafter collectively called “Personal Property”), all of which Mortgagor represents and warrants are and will be owned by Mortgagor free from any prior conditional sales, chattel mortgages, security interests, liens, pledges, hypothecations, charges or encumbrances other than the Prior Mortgages (as hereinafter defined) and those liens, encumbrances and other matters affecting title to the Mortgaged Property (as hereinafter defined) set forth in Exhibit “B” attached hereto and incorporated herein by this reference (the “Permitted Encumbrances”), and is intended to be subject to the lien of this Mortgage as if part of the realty. This provision shall be self-operative and this Mortgage, to the extent that any such Personal Property or other property subject to this Mortgage shall not be deemed to be part of the realty, shall constitute a security agreement under the Pennsylvania Uniform Commercial Code, and Mortgagor shall execute and deliver to Mortgagee on demand, and hereby irrevocably appoints Mortgagee, or any person designated by Mortgagee, the attorney-in-fact of Mortgagor to execute, deliver and file such financing statements and other instruments as Mortgagee may reasonably require in order to perfect and maintain such security interest under the Pennsylvania

Uniform Commercial Code;

TOGETHER with all accounts, contract rights, accounts receivable, agreements of sale, and claims of any sort relating to or arising out of the Real Estate whether now owned or hereafter acquired;

TOGETHER with all awards, damages, payments and other compensation, and claims thereof and rights thereto, which may result from a taking or injury by virtue of the exercise of the power of eminent domain of or to, or from any damage, injury or destruction by casualty or otherwise caused to, the Real Estate and said improvements and personalty, or any part thereof, including insurance proceeds, or from any change of grade or vacation of any street abutting thereon, all of which are hereby assigned to Mortgagee to the fullest extent permitted by law, Mortgagee being hereby irrevocably appointed attorney-in-fact for Mortgagor to collect and receive any such awards, damages, payments and compensation from the authorities or insurers making the same, and to give receipts and acquittances therefor, and to institute, appear in and prosecute any proceeding therefor, it being agreed that all sums collected by or paid to Mortgagee pursuant to this assignment, net of any cost incurred by Mortgagee in collecting the same (including attorneys’ fees), shall be applied to the payment of the Obligations whether or not then due and payable, or to the restoration of the Mortgaged Property (hereinafter defined) as Mortgagee shall elect, unless otherwise set forth herein;

TOGETHER with any and all proceeds (including insurance and condemnation proceeds and proceeds of other proceeds) of any of the foregoing;

All of the property and rights hereinabove described or mentioned being hereinafter collectively called the “Mortgaged Property”.

TO HAVE AND TO HOLD the Mortgaged Property unto Mortgagee, its successors and assigns, forever;

AND, at all times until the Obligations is paid in full with interest and faithfully and strictly performed, Mortgagor does hereby covenant, promise and agree with Mortgagee as follows:

ARTICLE I

Covenants As To Taxes and Assessments

1.1 Mortgagor will pay and discharge (i) all the taxes, general and special, levies and assessments heretofore or hereafter charged, assessed or levied against the Mortgaged Property or any part thereof by any lawful authority, or which otherwise may become a lien thereon (collectively, the “Taxes”); and (ii) all water and sewer rents which may be assessed or become liens on the Mortgaged Property before the date on which any interest or penalties shall commence to accrue thereon, and produce to Mortgagee evidence of such payment not less than ten days thereafter. In default of any of the above-described payments, Mortgagee may, but shall not be obligated to, pay the same, and such payment by Mortgagee shall be repaid by Mortgagor to Mortgagee on demand, shall be secured hereby, and shall bear interest at the Default Rate as defined in the Financing Agreement (the “Default Rate”) from the date

Mortgagee makes such payment until such sums are repaid in full. Mortgagor shall promptly cause to be paid and discharged, any lien or charge whatsoever which by any present or future law may be or become superior, either in lien or in right of distribution out of the proceeds of any judicial sale of the Mortgaged Property, to the liens created hereby. Mortgagor will cause to be paid, when due, all charges for utilities whether public or private.

1.2 Upon the request of Mortgagee, Mortgagor will pay on a monthly basis to Mortgagee, a sum equal to one-twelfth (1/12th) of the real estate taxes, water rents, sewer rents, payments in lieu thereof, special assessments and any other tax, assessment, lien, claim or encumbrance which may at any time be or become a lien on the Mortgaged Property prior to, or on a parity with, the lien of this Mortgage so as to enable Mortgagee to pay the same at least thirty (30) days before they become due. If special assessments against the Mortgaged Property may be paid in installments and Mortgagor elects to do so, the monthly payments to Mortgagee for such special assessments shall be one-twelfth (1/12th) of the then current annual installment.

No amounts so paid shall be deemed to be trust funds but may be co-mingled with general funds of Mortgagee, and no interest shall be payable thereon. If, pursuant to any provision of this Mortgage, the whole amount of said principal debt remaining or any installment of interest, principal or principal and interest becomes due and payable, Mortgagee shall have the right, at its election, to apply any amounts so held against all or any of the Obligations, any interest thereon or in payment of the premiums or payments for which the amounts were deposited. Mortgagor will furnish to Mortgagee tax bills in sufficient time to enable Mortgagee to pay such taxes, assessments, levies, charges and fees, before interest and penalties accrue thereon.

1.3 Mortgagor covenants and agrees to pay to Mortgagee the principal and interest hereby secured pursuant to and in accordance with the terms of the Financing Agreement without deduction or credit for any amount for Taxes assessed or to be assessed against the Mortgaged Property.

ARTICLE II

General Representations and Covenants of Mortgagor

2.1 Mortgagor will observe and perform all of the terms, covenants and conditions on the part of Mortgagor to be observed and performed under this Mortgage and shall pay and faithfully and strictly perform all of the Obligations.

2.2 Mortgagor warrants and covenants that it has good and marketable fee simple title to the Mortgaged Property, subject to no liens, claims, security interests, pledges, hypothecations or other encumbrances or charges, other than the Prior Mortgages (as hereinafter defined) and Permitted Encumbrances. Mortgagor warrants that it has full power and lawful authority to execute and deliver this Mortgage and to mortgage to Mortgagee all of the property and rights purported to be mortgaged by it hereunder. Mortgagor will forever warrant and defend the title to the Mortgaged Property unto Mortgagee against the claims and demands of all persons whomsoever.

2.3 Mortgagor will not, without the prior written consent of Mortgagee, cause or permit any building or improvement comprising part of the Mortgaged Property to be removed, demolished or structurally altered, in whole or in part, or any material fixture therein to be removed or destroyed. Mortgagor will not abandon the Mortgaged Property or cause or permit any waste thereto and will at all times maintain the Mortgaged Property in substantially its current condition, normal wear and tear excepted.

2.4 Throughout the term of this Mortgage, Mortgagor, at its sole cost and expense, will take good care of the Mortgaged Property and will keep the same in good order and condition, and make all necessary repairs thereto, interior and exterior (including parking areas), structural and non-structural, ordinary and extraordinary, and unforeseen and foreseen. All repairs made by Mortgagor shall be equal in quality and class to the original work. The necessity for and adequacy of repairs to the buildings and improvements pursuant to this Mortgage shall be measured by the standard which is appropriate for structures of similar construction and class, provided that Mortgagor shall in any event make all repairs necessary to avoid any structural damage or injury to the buildings and improvements to keep the buildings and improvements in a proper condition.

2.5 Mortgagor will permit Mortgagee and Mortgagee’s representatives to enter the Mortgaged Property at reasonable times, upon five (5) days’ prior notice and during regular business hours to inspect the same. In the absence of an Event of Default, such inspections shall be limited to four (4) times in any calendar year. In case of any Event of Default, as defined hereinafter, Mortgagee may, at its option, enter the Mortgaged Property to protect, restore or repair any part thereof, but Mortgagee shall be under no obligation to do so. Mortgagor will repay to Mortgagee on demand any sums paid by Mortgagee to protect, restore or repair any part of the Mortgaged Property, with interest thereon at the Default Rate, and, until so paid, the same shall be secured by this Mortgage.

2.6 Throughout the term of this Mortgage, Mortgagor, at its sole cost and expense, shall promptly comply with all present and future laws, ordinances, orders, rules, regulations and requirements of all federal, state and municipal governments, courts, departments, commissions, boards and officers, any national or local Board of Fire Underwriters, or any other body exercising functions similar to those of any of the foregoing, which may be applicable to the Mortgaged Property, the maintenance and use thereof and the sidewalks and curbs adjoining the Mortgaged Property whether or not such law, ordinance, order, rule, regulation or requirement shall necessitate structural changes or improvements, or the removal of any encroachments or projections, ornamental, structural or otherwise, onto or over property contiguous or adjacent thereto, any such structural changes or improvements or removal of encroachments to be performed with the consent of Mortgagee, which consent will not be unreasonably withheld. Mortgagor will comply with all orders and notices of violation thereof issued by any governmental authority. Mortgagor will pay all license fees and similar municipal charges for the use of the Mortgaged Property and the other areas now or hereafter comprising part thereof or used in connection therewith and will not, unless so required by any governmental agency having jurisdiction, discontinue use of the Mortgaged Property without prior written consent of Mortgagee. If Mortgagor shall fail to perform any covenant herein, Mortgagee may (but shall be under no obligation to) perform such covenant for the account of Mortgagor and any sums paid by Mortgagee in such event shall be repaid by Mortgagor to Mortgagee with interest thereon at the Default Rate and, until so paid, the same shall be secured by this Mortgage.

2.7 Mortgagor shall not, without the prior written consent of Mortgagee, by deed, mortgage, pledge, lease, easement or other instrument grant, mortgage, pledge, convey, assign, devise or otherwise transfer all or any part of the Mortgaged Property or any interest therein, directly or indirectly, nor shall Mortgagor suffer or permit such conveyance, assignment or transfer by execution sale or operation of law or otherwise.

2.8 Mortgagor shall promptly pay upon demand, and presentation of invoices or bills, with interest thereon at the Default Rate, all expenses and costs incurred by Mortgagee, including reasonable attorney’s fees in connection with any action, proceeding, litigation or claim instituted or asserted by or against Mortgagee or in which Mortgagee becomes engaged, wherein it becomes necessary in the reasonable opinion of Mortgagee to defend or uphold the lien of this Mortgage, or the validity or effectiveness of any assignment of any claim, award, payment, property damage, insurance policy or any other right or property conveyed, encumbered or assigned by Mortgagor to Mortgagee hereunder, or the priority of any of the same, and all such expenses and costs, and interest thereon, may be added to and become part of the principal indebtedness of Mortgagor hereunder, bear interest at the Default Rate and be secured by this Mortgage.

2.9 To further secure payment of the Obligations, Mortgagor hereby pledges, assigns and grants to Mortgagee a continuing security interest in and lien on all of Mortgagor’s Personal Property (excluding Mortgagor’s intellectual property and Liquidity, except as otherwise provided in the Financing Agreement Agreement), accounts, contract rights, accounts receivable now owned or existing or hereafter acquired and all proceeds thereof, whether now owned or hereafter acquired and all proceeds of all of the foregoing. The parties hereto agree that the security interest created hereunder is valid under the Pennsylvania Uniform Commercial Code and is a presently existing security interest and attaches to Mortgagor’s above-mentioned Personal Property as of the date hereof.

2.10 With the exception of Permitted Liens (as defined below), Mortgagor will not, without the prior written consent of Mortgagee, create or suffer to be created any security interest under the Pennsylvania Uniform Commercial Code, or other encumbrance in favor of any party other than Mortgagee, or create or suffer any reservation of title by any such other party, with respect to any Personal Property nor shall any such Personal Property be the subject matter of any lease or other transaction whereby the ownership or any beneficial interest in any of such Personal Property is held by any person or entity other than Mortgagor (or Mortgagee as provided herein). All such Personal Property shall be purchased for cash or in such manner that no lien shall be created thereon except the lien of this Mortgage, the Prior Mortgages and liens as otherwise permitted in the Financing Agreement and the Security Agreement (collectively “Permitted Liens”), unless Mortgagee shall agree in writing to the contrary before a contract to purchase any such Personal Property is executed. Mortgagor will deliver to Mortgagee on demand, any contracts, bills of sale, statements, receipted vouchers or agreements, under which Mortgagor claims title to any Personal Property incorporated in the improvements or subject to the lien of this Mortgage.

2.11 Mortgagor shall at its expense, promptly upon request of Mortgagee (i) do all acts and things, including but not limited to the execution of any further assurances, deemed necessary by Mortgagee, to establish, confirm, maintain and continue the lien created and intended to be created hereby, all assignments made or intended to be made pursuant hereto, and

all other rights and benefits conferred or intended to be conferred on Mortgagee hereby, and Mortgagor shall pay all costs incurred by Mortgagee in connection therewith, including all filing and recording costs, cost of searches, and reasonable counsel fees incurred by Mortgagee; and (ii) furnish Mortgagee with a written certification signed by Mortgagor, or an officer of Mortgagor on Mortgagor’s behalf, as to all then existing leases for space covering any part of the Mortgaged Property, the names of the tenants, the rents payable thereunder and the dates to which such rents are paid, together with executed copies of all such leases.

2.12 Mortgagor will promptly perform and observe, or cause to be performed or observed, all of the terms, covenants and conditions of all instruments of record affecting the Mortgaged Property, noncompliance with which may affect the security of this Mortgage or which may impose any duty or obligation upon Mortgagor or any lessee or other occupant of the Mortgaged Property or any part thereof, and Mortgagor shall do or cause to be done all things necessary to preserve intact and unimpaired any and all easements, appurtenances and other interests and rights in favor of or constituting any portion of the Mortgaged Property.

2.13 To further secure payment of the Obligations, Mortgagor hereby assigns and sets over unto Mortgagee the interest of such Mortgagor as lessor in and to all leases, written or oral, of the Mortgaged Property or any part thereof now or hereafter made, executed or delivered. Mortgagor hereby authorizes and empowers Mortgagee to collect the rents under the aforesaid leases as they become due, and hereby directs each and all of the tenants of the Mortgaged Property, upon demand made by Mortgagee, to pay such rents as they become due to Mortgagee; provided, however, no such demand shall be made unless and until there has occurred an Event of Default under the terms of this Mortgage, and until such demand is made, Mortgagor is authorized to collect the aforesaid rents; but such privilege of Mortgagor to collect rents as aforesaid shall not operate to permit the collection by Mortgagor of any installment of rent for more than one month in advance.

2.14 Mortgagor will not, without the prior written consent of Mortgagee, assign the rents of the Mortgaged Property or any part thereof, nor consent (other than in the ordinary course of business) to the cancellation, modification or surrender of any lease now or hereafter covering the Mortgaged Property, or any part thereof; nor accept any prepayment of rents under any such lease more than one month in advance; and any such purported assignment, cancellation, modification, surrender or prepayment made without consent of Mortgagee shall be void as against Mortgagee.

2.15 Mortgagor shall, upon the request of Mortgagee, given 15 days in advance, furnish a duly acknowledged written statement to Mortgagee, or any proposed assignee of this Mortgage, setting forth the amount of the Obligations and stating either that no off-sets or defenses exist against the Obligations, or, if such off-sets or defenses are alleged to exist, the nature and amount thereof.

2.16 Mortgagor agrees not to do or suffer any act or thing which would impair the security of the Obligations or of the lien of this Mortgage upon the Mortgaged Property, or the rents, issues or profits thereof.

ARTICLE III

Compliance with Environmental Laws

3.1 Mortgagor shall comply with all Applicable Environmental Laws. As set forth herein, the term “Applicable Environmental Laws” shall mean any and all existing or future federal, state and local statutes, ordinances, regulations, rules, executive orders, standards and requirements, including the requirements imposed by common law, concerning or relating to industrial hygiene and the protection of health and the environment including, without limitation: (i) the Comprehensive Environmental Response, Compensation and Liability act of 1980, as amended, 42 U.S.C. §9601 et seq. (“CERCLA”); (ii) the Resource Conservation and Recovery Act of 1976, as amended, 42 U.S.C. §6901 et. seq. (“RCRA”); (iii) the Clean Air Act, as amended, 42 U.S.C. §7901 et seq.; (iv) the Clean Water Act, as amended, 33 U.S.C. §1251 et seq.; (v) the Hazardous Materials Transportation Act, as amended, 49 U.S.C. §1801 et seq.; (vi) the Toxic Substances Control Act, 15 U.S.C. §2601 et seq., as amended (“TSCA”), and the Pennsylvania Hazardous Sites Cleanup Act, 35 P.S. §6020.101 et seq. (“HSCA”). Any terms mentioned herein which are defined in any Applicable Environmental Laws shall have the meanings ascribed to such terms in such laws; provided, however, that if any of such laws are amended so as to broaden any term defined therein, such broader meaning shall apply subsequent to the effective date of such amendment.

3.2 Mortgagor represents and warrants that Mortgagor has not and will not engage in operations upon the Mortgaged Property, which involve the generation, manufacture, refining, transportation, treatment, use, storage, handling or disposal of any Hazardous Materials (as herein defined) other than in compliance with all Applicable Environmental Laws. For the purposes of this Mortgage, the term “Hazardous Materials” shall include, but shall not be limited to, petroleum fuel products, any petroleum or petroleum byproducts, PCBs, asbestos, friable asbestos or asbestos-containing material, transformers or other equipment which contain dielectric fluid containing levels of polychlorinated biphenyls in excess of 50 parts per million, any flammable explosives, radioactive materials, any “Hazardous Substance”, as such term is defined in 42 U.S.C. Section 9601(14) or 35 P.S. Section 6020.103 (herein, “Hazardous Substance”), any “Hazardous Waste”, as such term is defined in 42 U.S.C. Section 6903 (5) or 35 P.S. Section 6020.103 (herein, “Hazardous Waste”), or any other material, substance, pollutant or contaminant that is considered hazardous, radioactive or toxic under any applicable federal, state or local statues, ordinances, rules or regulations now or at any time hereafter in effect.

3.3 Mortgagor has not caused or permitted to exist and shall not cause or permit to exist, as a result of any intentional or unintentional action or omission on its part, or any tenant’s part, any releasing, spilling, leaking, pumping, pouring, emitting, emptying, or dumping from, on or about the Mortgaged Property of any Hazardous Materials other than in compliance with all Applicable Environmental Laws. Mortgagor will promptly cause the removal and remediation of any Hazardous Materials which may hereafter be found on the Mortgaged Property other than Hazardous Material that are being maintained in compliance with all Applicable Environmental Laws. The Mortgaged Property does not contain any underground storage tanks, except as may have been previously disclosed in writing to Mortgagee.

3.4 To the best of Mortgagor’s knowledge (and not imputed knowledge), and without a duty to investigate on the part of Mortgagor, Mortgagor represents and warrants that no

adjacent property has been used in such a manner that Hazardous Materials may be in the subsurface water supply.

3.5 Mortgagor will permit Mortgagee and Mortgagee’s representatives to enter the Mortgaged Property at reasonable times to inspect the same, for purposes of making site and building investigations and performing soil, groundwater, structural and other tests, upon three days prior notice to Mortgagor. In the absence of an Event of Default, such inspections and investigations shall be limited to four (4) times in any calendar year. Mortgagor shall provide Mortgagee, its agents, employees, and representatives from time to time upon request with access to and copies of any and all data and documents relating to or dealing with any potentially Hazardous Materials used, generated, manufactured, found, stored or disposed of, on, under, or about the Mortgaged Property or transported to or from the Mortgaged Property within thirty (30) days of a request therefore. Mortgagor shall bear the cost of such copies and reimburse Mortgagee for all reasonable attorneys’ fees, copy costs, and other related costs incurred to procure such information as Mortgagee, in its sole discretion deems necessary.

3.6 Mortgagor shall furnish to Mortgagee, immediately upon receipt or dispatch, a copy of any notice, summons, citation, directive, letter or other written communication from or to any federal, state or local environmental agency or department, which may evidence or result in a liability under any Environmental Law such that the costs of correcting, or of paying penalties assessed in connection with, such liability would have a material adverse effect upon the business of Mortgagor as now conducted or upon Mortgagor’s business, operations, properties or condition, financial or otherwise. In such event, Mortgagor shall use diligent efforts to complete all remediation which may be required by such communication from any federal, state, county, municipal or other administrative, investigative, prosecutorial or enforcement agency or environmental or occupational safety regulatory agency (“Environmental Regulator”) and to obtain from all such Environmental Regulators having jurisdiction thereof, and deliver to Mortgagee as received, such approvals and certifications as can be obtained from such agencies from time to time to confirm Mortgagor’s completion of all remediation and Mortgagor’s compliance with all governmental requirements applicable thereto.

3.7 In the event of failure of Mortgagor to comply with any provision of this Mortgage or any other Loan Document relating to Hazardous Substances, Environmental Laws or Environmental Regulators, or if Mortgagee shall have reason to believe that any Hazardous Substance has been or is likely to be released on, in or under the Mortgaged Property (except in compliance with all Environmental Laws), Mortgagee may do any or all of the following: (i) Mortgagee shall have the right to investigate, or to demand that Mortgagor investigate and report to Mortgagee on (in which case Mortgagor shall investigate and report to Mortgagee on) the result of the investigation of such location, and if Mortgagee requests, provide this investigation through an independent reputable environmental consulting or engineering firm acceptable to Mortgagee; (ii) without obligation to do so, to cure such default or to comply or cause compliance, or to demand that Mortgagor cure such default or comply or cause compliance, with any or all Environmental Laws. All of the foregoing shall be at the expense of Mortgagor, and any expense incurred by Mortgagee in connection with any of the foregoing (including without limitation its expenses relating to attorneys fees and any environmental consultants or engineers) shall be additional obligation of Mortgagor hereunder which shall be payable to Mortgagee upon demand, with interest computed at the Default Rate from the date(s) upon which said costs and expenses were incurred by Mortgagee.

ARTICLE IV

Insurance, Damage or Destruction

4.1 Mortgagor will insure itself and the Mortgaged Property against such perils and to such limits as Mortgagee shall reasonably require for the full replacement value of the Mortgaged Property. All such insurance shall be in such forms and with such companies, and written in such amounts and with such deductibles and endorsements, as may be reasonably satisfactory to Mortgagee from time to time, and losses thereunder shall be payable to Mortgagee under standard forms of lender loss payable and mortgagee endorsements and shall require that the insurer provide Mortgagee with thirty (30) days notice in the event of cancellation. In any case, Mortgagor’s obligation to carry such insurance may only be brought within the coverage of a so-called blanket or umbrella policy or policies of insurance carried and maintained by Mortgagor if and only if the coverage afforded Mortgagee will not be limited, reduced or diminished by reason of the use of a blanket or umbrella policy of insurance.

4.2 In the event of any material loss or damage to the Mortgaged Property, Mortgagor will promptly (and, in any event, within five (5) days of such occurrence) notify Mortgagee in writing of any loss thereunder, and Mortgagee may, after notice of its intention to do so to Mortgagor, make proof of loss thereof if not made within a reasonable time by Mortgagor. After default Mortgagee may, after notice of its intention to do so to Mortgagor, on behalf of Mortgagor, adjust and compromise any claims under such insurance and collect and receive the proceeds thereof and endorse drafts and Mortgagee is hereby irrevocably appointed attorney-in-fact of Mortgagor for such purposes. Mortgagee may deduct from such proceeds any expenses properly incurred by Mortgagee in collecting same, including reasonable counsel fees. Mortgagee shall hold such proceeds for the purposes set forth in Article VI of this Mortgage.

4.3 Mortgagor will not maintain any other insurance on the Mortgaged Property competing or contributing, in right of payment or otherwise, with any of the insurance required to be afforded to Mortgagee hereunder unless Mortgagee is made the loss payee under such other insurance.

4.4 If Mortgagor shall fail to procure, pay for and deliver to Mortgagee any policy or policies of insurance or renewals thereof, Mortgagee may at its option, but shall be under no obligation to do so, effect such insurance and pay the premiums thereof, and Mortgagor will repay to Mortgagee on demand any premiums so paid, with interest, at the Default Rate, and until so paid, the same shall be secured by this Mortgage.

4.5 Intentionally omitted.

4.6 Mortgagor, at its sole cost and expense, shall obtain a mortgagee’s title insurance policy, insuring the Mortgaged Property, in form and content and issued by a title insurance company satisfactory to Mortgagee, which will insure Mortgagee as the holder of a valid first mortgage lien for the full amount of the Mortgage on the Mortgaged Property, subject only to the Prior Mortgages (as hereinafter defined), the Permitted Encumbrances, and such exceptions as Mortgagee may approve including, but not limited to, the satisfaction or release of all mortgages encumbering the Mortgaged Property other than the first mortgage held by Mortgagee.

ARTICLE V

Condemnation

5.1 Mortgagor immediately upon obtaining knowledge of the institution of any proceedings for the condemnation of the Mortgaged Property or any part thereof shall notify Mortgagee of the pendency of such proceedings. Unless and until Mortgagee shall notify Mortgagor of Mortgagee’s intent to appear and prosecute such proceedings, pursuant to the appointment and assignment given herein by Mortgagor to Mortgagee, Mortgagor may appear in and prosecute such proceedings in any lawful manner; provided, however, that Mortgagor shall have no right or authority to execute any instrument of conveyance or confirmation in favor of the condemnor except subject hereto, nor to accept any payment or settle or compromise any claim of Mortgagor arising out of such condemnation proceedings without the consent of Mortgagee. Mortgagee’s election not to appear in or prosecute such proceedings shall not diminish any right Mortgagee may have to receive any amount paid in connection with such condemnation and to apply such funds as herein provided.

ARTICLE VI

Distribution Upon Damage, Destruction or Condemnation

6.1 In the event the whole or materially all of the Mortgaged Property shall be destroyed or damaged, Mortgagee shall have the right to collect the proceeds of any insurance and to retain and apply such proceeds, at its election, to the reduction of the Obligations or to restoration, repair, replacement, rebuilding or alteration (herein sometimes collectively called the “Restoration”) of the Mortgaged Property. In the event the whole or materially all of the Mortgaged Property shall be taken in condemnation proceedings or by agreement between Mortgagor and Mortgagee and the condemning authority, Mortgagee shall apply such award or proceeds thereof first to payment of the Obligations, and any balance then remaining shall be paid to Mortgagor. For the purposes of this Article VI, “materially all of the Mortgaged Property” shall be deemed to have been damaged, destroyed or taken if the portion of the Mortgaged Property not so damaged, destroyed or taken cannot be repaired or reconstructed so as to constitute a complete structure and facility usable in substantially the manner as prior to the damage, destruction or taking.

6.2 So long as no Event of Default has occurred, in the event of partial destruction or partial condemnation, all of the proceeds or awards shall be collected and held by Mortgagee, and shall be applied by Mortgagee, in its sole discretion, to the repayment of the Obligations in the inverse order of maturity and any other amounts due and owing under the Financing Documents, with any proceeds then remaining being paid to Mortgagor, or to the payment of the Restoration. Upon the written request of Mortgagor, Mortgagee shall apply such proceeds or awards to the payment of the Restoration as the Restoration progresses, so long as:

(a) Such proceeds are, in Mortgagee’s reasonable judgment, sufficient to cover the cost of such Restoration or, if insufficient, Mortgagor deposits with Mortgagee the amount of any such deficiency,

(b) Mortgagor shall deliver to Mortgagee contracts, plans and specifications for the Restoration which are satisfactory to Mortgagee,

(c) the work for which payment is requested has been done in a good and workmanlike manner and Mortgagor presents evidence satisfactory to Mortgagee of amounts owed or paid by Mortgagor for completed Restoration work,

(d) The Mortgaged Property, after such Restoration is or will be, in the reasonable judgment of Mortgagee, of an economic utility not less than that of the Mortgaged Property prior to the casualty or condemnation, and

(e) Mortgagor shall comply with such further conditions in connection with the use of such proceeds or award as Mortgagee may reasonably request.

Any balance remaining in the hands of Mortgagee after payment of such Restoration shall be retained by Mortgagee and applied to the payment of the Obligations.

6.3 Notwithstanding the foregoing provisions of this Article VI regarding insurance or condemnation proceeds, if no Event of Default has occurred, and if such proceeds do not exceed $1,000,000.00, and if the undamaged or uncondemned portion of the Mortgaged Property can be continuously used during the Restoration period as a complete structure and operating facility in substantially the same manner as prior to the damage, Mortgagor shall have the right to collect the insurance or condemnation proceeds and apply them to the Restoration.

6.4 No damage, destruction or condemnation of the Mortgaged Property nor any application of insurance or condemnation proceeds to the payment of the Obligations shall postpone or reduce the amount of any of the current installments of principal or interest becoming due under the Obligations which shall continue to be made in accordance with the terms of the Obligations until the Obligations and all interest due thereunder are paid in full.

ARTICLE VII

Events of Default and Remedies

7.1 Each of the following shall constitute an “Event of Default” under this Mortgage:

(a) Failure of Mortgagor to make any payment of principal or of interest as required by the Bond;

(b) Failure of Mortgagor to pay any other fee, expense or other payment due under the Financing Agreement or other Financing Document within five (5) days after demand is made; or

(c) Failure of Mortgagor to observe or perform any other covenant, agreement, undertaking, performance or obligation of any provision hereof where such failure continues for ten (10) business days after receipt by Mortgagor of written notice from Mortgagee specifying such failure;

(d) Failure of Mortgagor to observe or perform any covenant, agreement, undertaking, performance or obligation under any of the other Financing Documents, or an event of default under the Financing Agreement, subject to any applicable notice and cure periods therein; or

(e) Failure of Mortgagor to provide the insurance required in Article IV hereof;

(f) If any representation or warranty made by Mortgagor herein, in the Financing Documents or in any other instrument which pertains to this Mortgage proves to be incorrect, now or hereafter, in any material respect, when made; or

(g) Any default by Mortgagor under (i) that certain Open-End Mortgage and Security Agreement dated January 30, 2004, from Mortgagor to Mortgagee in the amount of $8,000,000, recorded in the Office of the Recorder of Deeds, in and for Montgomery County; (ii) that certain Mortgage, Assignment of Leases and Security Agreement dated March 20, 1997, from Mortgagor to Jefferson Bank in the amount of One Million and 00/100 Dollars ($1,000,000.00), recorded in the Office of the Recorder of Deeds in and for Montgomery County, Pennsylvania, on March 25, 1997, at MB 7911, Pages 416, et seq., and (iii) that certain Mortgage, Assignment of Leases and Security Agreement dated March 20, 1997, from Mortgagor to Jefferson Bank in the amount of Eight Million Four Hundred Thousand and 00/100 Dollars ($8,400,000.00), recorded in the Office of the Recorder of Deeds in and for Montgomery County, Pennsylvania, on March 25, 1997, at MB 7911, Pages 388, et seq., (the “Prior Mortgages”).

7.2 Upon the occurrence of an Event of Default which shall be continuing, Mortgagee shall have the right and is hereby authorized, but without any obligation to do so, to perform the defaulted obligation and to discharge Mortgagor’s obligations on behalf of Mortgagor, and to pay any sums necessary for that purpose, and the sums so expended by Mortgagee shall be an obligation of Mortgagor, shall bear interest at the Default Rate, be payable on demand, and be added to the Obligations. Mortgagee shall be subrogated to all the rights, equities and liens discharged by any such expenditure. Such performance by Mortgagee on behalf of Mortgagor shall not constitute a waiver by Mortgagee of such default and shall not limit Mortgagee’s rights, remedies and recourses hereunder, or the Obligations, or as otherwise provided at law or in equity. Notwithstanding that the Obligations shall not have been declared due and payable upon any such default, the Obligations shall bear interest at the Default Rate from the date of notice and demand therefor by Mortgagee until such default shall have been completely cured and removed to the satisfaction of Mortgagee.

7.3 Upon the occurrence of an Event of Default, the entire unpaid balance of the principal, accrued interest and all other sums secured by this Mortgage, shall, at the option of Mortgagee, become immediately due and payable without notice or demand and Mortgagee shall have and may exercise all the rights and remedies permitted by law, including without limitation the right to foreclose this Mortgage, and proceed thereon to final judgment and execution thereon for the entire unpaid balance of said Obligations, with interest, at the default rate and pursuant to the methods of calculation specified in the Bond, together with all other sums secured by this Mortgage, all costs of suits, interest at the Default Rate on any judgment obtained by Mortgagee from and after the date of any Sheriff’s Sale of the Mortgaged Property until actual payment is

made by the Sheriff of the full amount due Mortgagee, and reasonable attorney’s fees, without further stay, any law, usage, or custom to the contrary notwithstanding. In any such foreclosure proceedings, the Mortgaged Property shall be sold, at the sole option of Mortgagee, either (a) in one lot or unit and, as an entirety; or (b) in such lots or units and in such order and manner as may be required by law; or (c) in the absence of any such requirement, in such lots or units and in such order and manner as Mortgagee may determine in its sole discretion.

7.4 Upon the occurrence of an Event of Default which shall be continuing, Mortgagee shall have the right, without further notice or demand and without the appointment of a receiver, to enter immediately upon and take possession of the Mortgaged Property, without further consent or assignment of Mortgagor or any subsequent owner of the Mortgaged Property, with the right to let the Mortgaged Property, or any part thereof, and to collect and receive all of the rents, issues, profits and other amounts due or to become due to Mortgagor or any such subsequent owner and to apply the same in such order of priority as Mortgagee shall determine at its sole option, after payment of all necessary charges and expenses in connection with the operation of the Mortgaged Property (including any managing agent’s commission), on account of interest, principal, taxes, water charges and assessments, insurance premiums and any advances for improvements, alterations or repairs or otherwise pursuant to the terms hereof for the account of Mortgagor, or on account of the Obligations. Mortgagee may institute legal proceedings against any tenant of the Mortgaged Property who fails to comply with the provisions of his lease. If Mortgagor or any such subsequent owner is occupying the Mortgaged Property or any part thereof, such Mortgagor or subsequent owner will either immediately vacate and surrender possession thereof to Mortgagee or pay to Mortgagee a reasonable rental for the use thereof, monthly in advance, and, in default of so doing, such Mortgagor or subsequent owner may be dispossessed by legal proceedings or otherwise.

7.5 AFTER AN EVENT OF DEFAULT WHENEVER AND AS OFTEN AS MORTGAGEE HAS THE RIGHT TO TAKE POSSESSION OF THE MORTGAGED PROPERTY, MORTGAGOR IRREVOCABLY AUTHORIZES AND EMPOWERS THE CLERK OF COURT OR ANY ATTORNEY OF ANY COURT OF COMMON PLEAS OR ANY OTHER COURT OF COMPETENT JURISDICTION, AS ATTORNEY FOR MORTGAGOR AND MORTGAGOR’S SUCCESSORS AND ASSIGNS OR ANY OTHER PERSONS CLAIMING ANY INTEREST UNDER OR THROUGH MORTGAGOR, AS WELL AS FOR ALL PERSONS CLAIMING UNDER, BY OR THROUGH MORTGAGOR, TO APPEAR FOR MORTGAGOR IN AN ACTION OR ACTIONS IN EJECTMENT OR OTHER APPROPRIATE ACTION FOR POSSESSION OF THE MORTGAGED PROPERTY FILED BY MORTGAGEE OR ANY HOLDER OF THIS MORTGAGE (WITHOUT THE NECESSITY OF FILING ANY BOND AND WITHOUT ANY STAY OF EXECUTION OR APPEAL) AND IN SUCH ACTION OR ACTIONS TO ADMIT MORTGAGEE’S SUPERIOR TITLE AND/OR CONFESS JUDGMENT FOR THE RECOVERY BY MORTGAGEE OF POSSESSION OF THE MORTGAGED PROPERTY, FOR WHICH THIS INSTRUMENT (OR A COPY HEREOF VERIFIED BY AFFIDAVIT OF MORTGAGEE OR ANYONE AUTHORIZED TO MAKE SUCH AFFIDAVIT ON BEHALF OF MORTGAGEE) SHALL BE A SUFFICIENT WARRANT; WHEREUPON A WRIT OF POSSESSION OR OTHER APPROPRIATE PROCESS TO OBTAIN POSSESSION OF THE MORTGAGED PROPERTY MAY BE ISSUED FORTHWITH, WITHOUT ANY PRIOR WRIT OR PROCEEDING WHATSOEVER, MORTGAGOR HEREBY RELEASING AND AGREEING TO RELEASE MORTGAGEE AND SAID ATTORNEYS FROM ALL ERRORS AND DEFECTS

WHATSOEVER OF A PROCEDURAL NATURE IN ENTERING ANY SUCH ACTION OR JUDGMENT OR IN CAUSING ANY SUCH WRIT OR PROCESS TO BE ISSUED OR IN ANY PROCEEDING THEREON OR CONCERNING THE SAME, PROVIDED THAT MORTGAGEE SHALL HAVE FILED IN SUCH ACTION AN AFFIDAVIT MADE BY A PERSON ON MORTGAGEE’S BEHALF SETTING FORTH THE FACTS NECESSARY TO AUTHORIZE THE ENTRY OF SUCH JUDGMENT ACCORDING TO THE TERMS OF THIS INSTRUMENT, OF WHICH FACTS SUCH AFFIDAVIT SHALL BE A PRIMA FACIE EVIDENCE; AND IT IS HEREBY EXPRESSLY AGREED THAT IF FOR ANY REASON AFTER ANY SUCH ACTION HAS BEEN COMMENCED THE SAME SHALL BE DISCONTINUED, MARKED SATISFIED OF RECORD OR TERMINATED, OR POSSESSION OF THE MORTGAGED PROPERTY SHALL REMAIN IN OR BE RESTORED TO EITHER MORTGAGOR OR ANYONE CLAIMING UNDER, BY OR THROUGH MORTGAGOR, MORTGAGEE MAY, WHENEVER AND AS OFTEN AS MORTGAGEE SHALL HAVE THE RIGHT TO TAKE POSSESSION AGAIN OF THE MORTGAGED PROPERTY, BRING ONE OR MORE FURTHER ACTIONS IN THE MANNER HEREINABOVE SET FORTH TO RECOVER POSSESSION OF THE MORTGAGED PROPERTY AND TO CONFESS JUDGMENT THEREIN AS HEREINABOVE PROVIDED, AND THE AUTHORITY AND POWER GIVEN ABOVE TO ANY SUCH ATTORNEY SHALL EXTEND TO ALL SUCH FURTHER ACTIONS. MORTGAGEE SHALL HAVE THE RIGHT TO BRING SUCH AN ACTION IN EJECTMENT AND TO CONFESS JUDGMENT THEREIN AS HEREINABOVE PROVIDED BEFORE OR AFTER COMMENCING AN ACTION OF MORTGAGE FORECLOSURE AND BEFORE OR AFTER JUDGMENT THEREON OR THEREIN HAS BEEN RECOVERED OR A JUDICIAL SALE OF ALL OR ANY PART OF THE MORTGAGED PROPERTY HAS TAKEN PLACE.

Notwithstanding anything in this Paragraph 7.5 to the contrary, this Paragraph 7.5 and the authority granted by Mortgagor therein is not and shall not be construed to constitute a “power of attorney” and is not governed by the provisions of 20 Pa.C.S. Chapter 56. Furthermore, an attorney or other person or entity acting under this Paragraph 7.5 shall not have any fiduciary obligations to Mortgagor and, without limiting the foregoing shall have NO duty to: (1) Exercise the powers for the benefit of Mortgagor, (2) Keep separate any assets of Mortgagor from those of such attorney, other person or entity or Mortgagee, (3) Exercise reasonable caution and prudence on behalf of Mortgagor, or (4) Keep a full and accurate record of all actions, receipts and disbursements on behalf of Mortgagor.

MORTGAGOR AND MORTGAGEE HEREBY CONSENT TO THE JURISDICTION OF THE COURT OF COMMON PLEAS OF MONTGOMERY COUNTY OR THE FEDERAL DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA FOR ANY PROCEEDING IN CONNECTION HEREWITH, AND HEREBY WAIVE OBJECTIONS AS TO VENUE AND CONVENIENCE OF FORUM IF VENUE IS IN MONTGOMERY COUNTY, PENNSYLVANIA OR IN THE FEDERAL DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA. IN ANY ACTION OR SUIT UNDER THIS MORTGAGE, SERVICE OF PROCESS MAY BE MADE UPON MORTGAGEE OR MORTGAGOR BY MAILING A COPY OF THE PROCESS BY FIRST CLASS MAIL TO THE RECIPIENT. MORTGAGEE AND MORTGAGOR HEREBY WAIVE ANY AND ALL OBJECTIONS TO SUFFICIENCY OF SERVICE OF PROCESS IF DULY SERVED IN THIS

MANNER. MORTGAGOR AND MORTGAGEE, AS AN INDEPENDENT COVENANT, HEREBY MUTUALLY WAIVE AND AGREE TO WAIVE THE RIGHT, IF ANY, TO A JURY TRIAL IN CONNECTION WITH ANY ACTION, SUIT OR OTHER PROCEEDING WITH RESPECT HERETO OR WITH RESPECT TO ANY TRANSACTION RELATED HERETO.

7.6 All monies received by Mortgagee by virtue of the assignments made herein to Mortgagee, after payment therefrom of the costs and expenses incident to the enforcement or collection of the assigned rights or claims, shall be applied to the payment of the Obligations.

7.7 Upon the occurrence of an Event of Default, Mortgagee may proceed to protect and enforce its rights under this Mortgage by suit for specific performance of any covenant herein contained, or in aid of the execution of any power herein granted, or for the foreclosure of this Mortgage and the sale of the Mortgaged Property under the judgment or decree of a court of competent jurisdiction, or for the enforcement of any other right as Mortgagee shall deem most effectual for such purpose. The foregoing rights shall be in addition to, and not in lieu of, the rights of Mortgagee as a secured creditor under the Uniform Commercial Code of Pennsylvania with respect to any portion of the Mortgaged Property which is subject to such Code. Mortgagee may also proceed in any other manner permitted by law to enforce its rights hereunder and under the Financing Agreement and/or the Security Agreement.

7.8 No failure or delay on the part of Mortgagee in exercising any right, power or privilege under this Mortgage, and no course of dealings between Mortgagor and Mortgagee, shall operate as a waiver thereof; nor shall any single or partial exercise of any right, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, power or privilege. No notice to or demand on Mortgagor shall entitle Mortgagor to any other or further notice or demand in similar or other circumstances or constitute a waiver of the right of Mortgagee to any other or further action in the same or other circumstances without notice or demand.

7.9 In any action to foreclose this Mortgage, Mortgagee, to the fullest extent permitted by law, shall be entitled as a matter of right to the appointment of a receiver of the Mortgaged Property and of the rents, revenues, issues, income and profits thereof, without notice or demand, and without regard to the adequacy of the security for the Obligations or the solvency of Mortgagor.

7.10 Upon the occurrence of any Event of Default, Mortgagor shall pay monthly in advance to Mortgagee, or to any receiver appointed at the request of Mortgagee to collect the rents, revenues, issues and profits of the Mortgaged Property, the fair and reasonable rental value for the use and occupancy of the Mortgaged Property or of such part thereof as may be possessed by Mortgagor. Upon default in payment thereof, Mortgagor shall vacate and surrender possession of the Mortgaged Property to Mortgagee or such receiver, and upon a failure so to do may be evicted by summary proceedings, in the manner hereinabove provided or otherwise.

7.11 The rights and remedies of Mortgagee expressed or contained in this Mortgage are cumulative and no one of them shall be deemed to be exclusive of the others or of any right or remedy Mortgagee may now or hereafter have at law or in equity. The covenants of this Mortgage shall run with the land and bind Mortgagor and, unless the context clearly indicates a

contrary intent or unless otherwise specifically provided herein, its successors and assigns and all subsequent owners, encumbrancers, tenants and subtenants of the Mortgaged Property and shall inure to the benefit of Mortgagee and its successors and assigns and all subsequent holders of this Mortgage and the Obligations.

7.12 Mortgagee may in its discretion from time to time grant to Mortgagor indulgences, forbearances and extensions of the Obligations, may release, with or without consideration, any portion of the Mortgaged Property from the lien hereof, and may accept other and further collateral security for the payment of and strict and faithful performance of the Obligations, all without otherwise affecting the lien or priority of this Mortgage, and the release of any portion of the Mortgaged Property from the lien hereof shall not affect the lien of this Mortgage with respect to the remainder of the Mortgaged Property.

7.13 Mortgagor hereby waives and relinquishes the benefits of all present and future laws (i) exempting the Mortgaged Property or any other property or any part of the proceeds of sale thereof from attachment, levy or sale on execution, and (ii) staying execution or other process.

7.14 Mortgagor acknowledges and agrees that the occurrence of an Event of Default under the terms of this Mortgage shall constitute a default under each of the other Financing Documents, and a default under the other Financing Documents shall constitute an Event of Default under this Mortgage. The security interests, liens and other rights and interests in and relative to any of the collateral now or hereafter granted to Mortgagee by Mortgagor by or in any instrument or agreement, including but not limited to this Mortgage and the other Financing Documents, shall serve as security for any and all liabilities of Mortgagor to Mortgagee, including but not limited to the liabilities described in this Mortgage and the other Financing Documents, and, for the repayment thereof, Mortgagee may resort to any security held by it in such order and manner as it may elect.

ARTICLE VIII

Indemnity

8.1 To the maximum extent permitted by applicable law, Mortgagor, for itself and its successors (herein, “Indemnifying Parties”), shall jointly and severally indemnify, hold harmless, and upon request defend Mortgagee and its partners, employees and agents, officers, directors and attorneys, and their respective successors and assigns (collectively, the “Indemnified Parties”) from and against any and all claims and liabilities which any Indemnified Party may suffer, incur or be exposed to by reason of or in connection with or arising out of the transport, release, treatment, processing, manufacture, deposit, storage, disposal, burial, dumping, injecting, spilling, leaking or placement at any time heretofore or hereafter, by any person or entity, of any Hazardous Material, including but not limited to (1) costs of or liability for investigation, monitoring, boring, testing and evaluation; (2) costs or liabilities for abatement, correction, response, cleanup, removal or remediation; (3) fines, damages, penalties and other liabilities; and (4) liability for personal injury or property damage.

ARTICLE IX

Miscellaneous Provisions

9.1 All notices, demands, requests and consents required under this Mortgage shall be in writing. All such notices, demands, requests and consents shall be deemed to have been properly given if sent by United States registered or certified mail, return receipt requested, postage prepaid, if addressed to Mortgagee at 1531 Walnut Street, Philadelphia, Pennsylvania 19102, Attention: J. Clark O’Donoghue, with a copy in all instances to Dean M. Schwartz, Esquire, Stradley, Ronon, Stevens & Young, LLP, 2600 One Commerce Square, Philadelphia, Pennsylvania 19103, and if addressed to Mortgagor at 102 Witmer Road, Horsham, Pennsylvania, 19044, Attention: General Counsel, with a copy in all instances to Barry M. Abelson, Esquire, Pepper Hamilton LLP, 3000 Two Logan Square, 18^th & Arch Streets, Philadelphia, Pennsylvania 19103 or at such other address or addresses as either party may hereafter designate in writing to the other. Notices, demands and requests which shall be served by registered or certified mail, return receipt requested, upon Mortgagor or Mortgagee, in the manner aforesaid, shall be deemed sufficiently served or given for all purposes hereunder two (2) days after the time such notice, demand or request shall be mailed by United States registered or certified mail, return receipt requested, postage prepaid, in any Post Office or Branch Post Office regularly maintained by the United States Government.

9.2 If Mortgagor complies with the provisions of this Mortgage and pays to Mortgagee all sums secured hereby in accordance with the terms of and at the times provided in the Bond and the Financing Agreement, without deduction, fraud or delay, then this Mortgage and the estate and security interest hereby granted and created shall then cease, terminate and become void, and Mortgagee shall execute and deliver such mortgage satisfactions and other documents as Mortgagor may reasonably request to evidence the same.

9.3 Mortgagor shall promptly cause this Mortgage to be duly recorded in the Office for the Recording of Deeds and Mortgages in and for Montgomery County, Pennsylvania and shall pay all recording fees and other costs incurred in connection therewith.

9.4 All amendments and modifications of this Mortgage must be in writing.

9.5 If any term or provision of this Mortgage or the application thereof to any person or circumstances shall, to any extent, be invalid or unenforceable, the remainder of this Mortgage, or the application of such term or provision to persons or circumstances other than those as to which it is held invalid or unenforceable, shall not be affected thereby, and each term and provision of this Mortgage shall be valid and be enforced to the fullest extent permitted by law.

9.6 This Mortgage is intended to be eligible for all of the benefits of the provisions of Act 126 of 1990, 42 Pa. C.S. Sections 8143 and 8144, but to the extent that any rule or law would grant greater protection to Mortgagee or greater priority for the lien of this Mortgage as it secures any advance, such rule or law shall prevail.

9.7 This Mortgage is not a residential mortgage as that term is defined in 41 P.S. §101 et seq. or Act 91 of 1983.

9.8 This Mortgage and all terms, covenants and conditions hereof shall inure to the benefit of and bind the parties hereto, their successors and assigns, to the extent assignments are permitted herein.

9.9 The interest rate on the Bond secured by this Open-End Mortgage and Security Agreement is an adjustable rate based on the London Interbank Offering Rate or rates otherwise established by Mortgagee from time to time, each as more particularly set forth in the Bond.

9.10 MORTGAGOR CERTIFIES THAT IT HAS RECEIVED A FULLY EXECUTED COPY OF THIS MORTGAGE WITHOUT CHARGE.

Signatures follow on next page.

IN WITNESS WHEREOF, Mortgagor has executed and delivered this Mortgage on the day and year above written.

	NEOSE TECHNOLOGIES, INC., a Delaware corporation


Attest:	By:	/s/ C. Boyd Clarke

			Name: C. Boyd Clarke
			Title: President and CEO

THIS MORTGAGE CONTAINS A CONFESSION OF JUDGMENT IN EJECTMENT. A JUDGMENT FOR POSSESSION COULD BE ENTERED AGAINST YOU WITHOUT A PRIOR HEARING OR NOTICE. MORTGAGOR HEREBY CERTIFIES THAT THEY HAVE CONSULTED AN ATTORNEY REGARDING THE IMPLICATIONS OF A CONFESSION OF JUDGMENT AND KNOWINGLY, VOLUNTARILY AND INTELLIGENTLY WAIVE ANY RIGHTS TO PRIOR NOTICE AND OPPORTUNITY TO BE HEARD IN CONNECTION THEREWITH.

	NEOSE TECHNOLOGIES, INC., a Delaware corporation


Attest:	By:	/s/ C. Boyd Clarke

			Name: C. Boyd Clarke
			Title: President and CEO

The address of Mortgagee is:

1531 Walnut Street
Philadelphia, PA 19102


On behalf of Mortgagee

STATE OF PENNSYLVANIA	:
	:	SS
COUNTY OF PHILADELPHIA	:

On this _______ day of February, 2004, before me, a Notary Public, personally appeared C. Boyd Clarke who acknowledged that he is President and CEO of NEOSE TECHNOLOGIES, INC., a Delaware corporation, and that he being authorized to do so as such officer, executed the foregoing instrument for the purposes therein contained.

IN WITNESS WHEREOF, I have hereunto set my hand and official seal.


	Notary Public

	My Commission Expires:

EXHIBIT “A”

Description of Real Estate

EXHIBIT “B”

Permitted Encumbrances

EX-31.1 6 d14589_ex31-1.htm

Exhibit 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

I, C. Boyd Clarke, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Neose Technologies, Inc.

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to

adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

	April 28, 2004	/s/ C. Boyd Clarke
	Date
		C. Boyd Clarke
		President and Chief Executive Officer

EX-31.2 7 d14589_ex31-2.htm

Exhibit 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

I, Robert I. Kriebel, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Neose Technologies, Inc.

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

	April 28, 2004	/s/ Robert I. Kriebel
	Date
		Robert I. Kriebel
		Senior Vice President and Chief Financial Officer

EX-32.1 8 d14589_ex32-1.htm

Exhibit 32.1

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Neose Technologies, Inc. (the “Company”) on Form 10-Q for the period ending March 31, 2004 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, C. Boyd Clarke, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ C. Boyd Clarke


C. Boyd Clarke
President and Chief Executive Officer

April 28, 2004

EX-32.2 9 d14589_ex32-2.htm

Exhibit 32.2

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Neose Technologies, Inc. (the “Company”) on Form 10-Q for the period ending March 31, 2004 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Robert I. Kriebel, Principal Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Robert I. Kriebel


Robert I. Kriebel
Principal Financial Officer

April 28, 2004

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