Document:

exv10w34

 

Exhibit 10.34

 

 

MARYLAND INDUSTRIAL DEVELOPMENT FINANCING AUTHORITY

as Issuer

and

AVALON PHARMACEUTICALS, INC.

as Borrower

LOAN AGREEMENT

$12,000,000

Maryland Industrial Development Financing Authority

Taxable Variable Rate Demand Revenue Bonds

(Avalon Pharmaceuticals, Inc. Facility)

Series 2003

Dated as of April 1, 2003

 

 

 

 

TABLE OF CONTENTS

     (This Table of Contents is not a part of the Loan Agreement and is only for convenience of
reference.)

	 	 	 	 	 	 	 
	SECTION	 	 	 	PAGE
	Recitals

	 	 	 	 	1	 
	Agreements

	 	 	 	 	2	 
	 
	 	 	 	 	 	 
	ARTICLE I

	 
	 	 	 	 	 	 
	DEFINITIONS

	 
	 	 	 	 	 	 
	Section 1.1.

	 	Definitions
	 	 	2	 
	Section 1.2.

	 	Rules of Construction
	 	 	2	 
	 
	 	 	 	 	 	 
	ARTICLE II

	 
	 	 	 	 	 	 
	ISSUANCE OF SERIES 2003 BONDS; THE SERIES 2003 LOAN;

	SECURITY FOR THE LOANS

	 
	 	 	 	 	 	 
	Section 2.1.

	 	Issuance of Series 2003 Bonds; Deposit of Proceeds
	 	 	3	 
	Section 2.2.

	 	Additional Bonds; Issuance of Other Obligations
	 	 	3	 
	Section 2.3.

	 	Funds Established under Indenture; Disbursement
of Bond Proceeds
	 	 	3	 
	Section 2.4.

	 	The Series 2003 Loan
	 	 	3	 
	Section 2.5.

	 	Security
	 	 	3	 
	Section 2.6.

	 	Additional Security
	 	 	4	 
	 
	 	 	 	 	 	 
	ARTICLE III

	 
	 	 	 	 	 	 
	EFFECTIVE DATE OF LOAN AGREEMENT; DURATION

	OF LOAN TERM; POSSESSION AND OWNERSHIP

	OF PROPERTY; REPAYMENT PROVISIONS

	 
	 	 	 	 	 	 
	Section 3.1.

	 	Effective Date of Loan Agreement; Duration
of Loan Term
	 	 	4	 
	Section 3.2.

	 	Possession and Ownership of the Property
	 	 	4	 
	Section 3.3.

	 	Repayment of Loans
	 	 	4	 
	Section 3.4.

	 	Payments to Trustee for Purchase of Bonds
	 	 	6	 
	Section 3.5.

	 	Place of Payments
	 	 	6	 
	Section 3.6.

	 	Credit Facility; Substitute Credit Facility
	 	 	6	 

 - i -

 

	 	 	 	 	 	 	 
	SECTION
 	 	 	 	PAGE
 
	Section 3.7.

	 	Obligations of the Borrower Hereunder Are Unconditional
	 	 	7	 
	Section 3.8.

	 	Failure to Make Payments
	 	 	7	 
	 
	 	 	 	 	 	 
	ARTICLE IV
 
	PREPAYMENT OF LOANS

	 
	 	 	 	 	 	 
	Section 4.1.

	 	Prepayment of Loans Prior to Maturity
	 	 	8	 
	Section 4.2.

	 	Amount Required for Prepayment
	 	 	8	 
	Section 4.3.

	 	Purchase of Bonds
	 	 	9	 
	 
	 	 	 	 	 	 
	ARTICLE V

	 
	 	 	 	 	 	 
	REPRESENTATIONS, WARRANTIES AND UNDERTAKINGS

	 
	 	 	 	 	 	 
	Section 5.1.

	 	General Representations and Warranties by the Issuer
	 	 	9	 
	Section 5.2.

	 	Representations and Warranties by the Borrower
	 	 	10	 
	 
	 	 	 	 	 	 
	ARTICLE VI

	 
	 	 	 	 	 	 
	COMPLETION OF ACQUISITION OF 2003 FACILITY;

	COVENANTS AND REPRESENTATIONS AND WARRANTIES OF BORROWER WITH

	RESPECT TO THE INVESTMENT OF BOND PROCEEDS; RELATED MATTERS

	 
	 	 	 	 	 	 
	Section 6.1

	 	Completion of Acquisition of 2003 Facility
	 	 	12	 
	Section 6.2.

	 	Application and Investment of Bond Proceeds
	 	 	12	 
	Section 6.3

	 	Establishment of Completion Date
	 	 	12	 
	Section 6.4

	 	Borrower Required to Pay Facility Costs in the Event that
Facility Fund Insufficient
	 	 	13	 
	 
	 	 	 	 	 	 
	ARTICLE VII

	 
	 	 	 	 	 	 
	PAYMENT OF FEES AND EXPENSES OF THE ISSUER, THE TRUSTEE,

	THE PAYING AGENT, THE REMARKETING AGENT AND THE REGISTRAR;

	INDEMNIFICATION; ADVANCES; RESERVED RIGHTS OF ISSUER

	 
	 	 	 	 	 	 
	Section 7.1.

	 	Payment of Administration Expenses of the Trustee, the Paying Agent,
the Remarketing Agent and the Registrar
	 	 	13	 
	Section 7.2.

	 	Payment of Issuer’s Fee and Administration Expenses
	 	 	13	 
	Section 7.3.

	 	No Pecuniary Liability.
	 	 	14	 

 - ii -

 

	 	 	 	 	 	 	 
	SECTION
 	 	 	 	PAGE
 
	Section 7.4.

	 	Indemnification of the Issuer, the Trustee, the Paying Agent,
the Remarketing Agent and the Registrar
	 	 	14	 
	Section 7.5.

	 	Right to Perform, Advances by Issuer or Trustee
	 	 	16	 
	Section 7.6.

	 	Agreement to Pay Attorneys’ Fees and Expenses
	 	 	16	 
	Section 7.7.

	 	Inspection of Property
	 	 	16	 
	Section 7.8.

	 	No Warranty of Suitability or Merchantability by Issuer
	 	 	16	 
	Section 7.9.

	 	Issuer’s Rights to Approve Certain Actions and Receive Notices and Information
	 	 	17	 
	Section 7.10.

	 	Officials of Issuer Not Liable
	 	 	17	 
	 
	 	 	 	 	 	 
	ARTICLE VIII

	 
	 	 	 	 	 	 
	COVENANTS OF BORROWER

	 
	 	 	 	 	 	 
	Section 8.1.

	 	Covenants of Borrower
	 	 	17	 
	Section 8.2.

	 	Negative Covenants of the Borrower
	 	 	20	 
	 
	 	 	 	 	 	 
	ARTICLE IX

	 
	 	 	 	 	 	 
	SPECIAL TERMS AND PROVISIONS

	 
	 	 	 	 	 	 
	Section 9.1.

	 	Service of Process; Consent to Jurisdiction; Waiver of Jury Trial
	 	 	21	 
	Section 9.2.

	 	Further Assurances and Corrective Instruments
	 	 	22	 
	Section 9.3.

	 	Estoppel Certificates
	 	 	22	 
	Section 9.4.

	 	Authorized Borrower Representative; Authorized Issuer Representative;
Successors
	 	 	22	 
	Section 9.5.

	 	Net Proceeds
	 	 	22	 
	Section 9.6

	 	Compliance with Indenture
	 	 	22	 
	 
	 	 	 	 	 	 
	ARTICLE X

	 
	 	 	 	 	 	 
	USE OF PROPERTY; ASSIGNMENT; LEASING; REDEMPTION

	 
	 	 	 	 	 	 
	Section 10.1.

	 	Use of Property
	 	 	23	 
	Section 10.2.

	 	Assignment and Leasing
	 	 	23	 
	Section 10.3.

	 	Assignment by the Issuer
	 	 	24	 
	Section 10.4.

	 	Redemption of Bonds
	 	 	24	 

 - iii -

 

	 	 	 	 	 	 	 
	SECTION
 	 	 	 	PAGE
 
	ARTICLE XI

	 
	 	 	 	 	 	 
	EVENTS OF DEFAULT AND REMEDIES

	 
	 	 	 	 	 	 
	Section 11.1.

	 	Events of Default Defined
	 	 	24	 
	Section 11.2.

	 	Remedies on Default
	 	 	26	 
	Section 11.3.

	 	No Remedy Exclusive; Trustee and Owners Deemed Third-Party Beneficiaries
	 	 	28	 
	Section 11.4.

	 	No Additional Waiver Implied by One Waiver
	 	 	29	 
	 
	 	 	 	 	 	 
	ARTICLE XII

	 
	 	 	 	 	 	 
	MISCELLANEOUS

	 
	 	 	 	 	 	 
	Section 12.1.

	 	Notices
	 	 	29	 
	Section 12.2.

	 	Prior Agreements Cancelled
	 	 	30	 
	Section 12.3.

	 	Filing
	 	 	31	 
	Section 12.4.

	 	Binding Effect; Borrower Bound by Bond Documents
and Credit Facility Documents
	 	 	31	 
	Section 12.5.

	 	Illegality
	 	 	31	 
	Section 12.6.

	 	Amendments, Changes and Modifications
	 	 	31	 
	Section 12.7.

	 	Execution of Counterparts
	 	 	32	 
	Section 12.8.

	 	Law Governing Construction of Loan Agreement
	 	 	32	 
	Section 12.9.

	 	Amounts Remaining in Funds
	 	 	32	 
	Section 12.10.

	 	Payments by Credit Facility Provider
	 	 	32	 
	Section 12.11.

	 	Conflicts with Credit Facility Agreement
	 	 	32	 
	Section 12.12.

	 	Approvals of Credit Facility Provider
	 	 	32	 
	Section 12.13.

	 	Effective Date
	 	 	32	 

Exhibit A – Form of Completion Certificate

 - iv -

 

LOAN AGREEMENT

     THIS LOAN AGREEMENT is dated as of April 1, 2003, and is made by and between the MARYLAND
INDUSTRIAL DEVELOPMENT FINANCING AUTHORITY, a body politic and corporate and a public
instrumentality of the State of Maryland (the “Issuer”), and AVALON PHARMACEUTICALS, INC., a
Delaware corporation (the “Borrower”).

RECITALS

     Certain of the terms and words used in these Recitals, and in the following Agreements,
are defined in Section 1.1 of this Loan Agreement.

     Pursuant to, and in accordance with, the Acts, the Issuer has determined to issue and sell
the Series 2003 Bonds in the aggregate principal amount of $12,000,000 pursuant to a Trust
Indenture dated as of April 1, 2003 by and between the Issuer and Allfirst Trust Company National
Association, as Trustee (the “Indenture”). The Issuer will lend the proceeds of the Series 2003
Bonds to the Borrower upon the terms and conditions of this Loan Agreement, for the sole and
exclusive purpose of financing the acquisition by the Borrower of the 2003 Facility. It is the
intention of the Issuer and the Borrower that the Loans be evidenced and secured by (among other
things) the execution and delivery of this Loan Agreement. The Indenture contains provisions
permitting the issuance of Additional Bonds. The Series 2003 Bonds and any Additional Bonds are
herein referred to as the “Bonds.”

     In order to enhance the marketability of the Series 2003 Bonds, the Borrower has requested
the Bank to issue to the Trustee its irrevocable transferable direct-pay letter of credit to
provide payment for and secure the payment of the principal of and interest on, and the purchase
price of, the Series 2003 Bonds. The Bank will issue the 2003 Letter of Credit concurrently with
the issuance and delivery of the Series 2003 Bonds.

     The issuance, sale and delivery of the Series 2003 Bonds and the execution and delivery of
this Loan Agreement have been in all respects duly and validly authorized in accordance with the
Acts by the Resolution.

     The Issuer has determined that the acquisition of the 2003 Facility and the financing of the
costs of the 2003 Facility constitute undertakings which will accomplish the purposes, objects and
powers of the Issuer as described in the MIDFA Act.

THE BONDS AND THE PREMIUM (IF ANY) AND INTEREST THEREON, AND THE PURCHASE PRICE THEREOF,
ARE LIMITED OBLIGATIONS OF THE ISSUER, THE PRINCIPAL OF, PREMIUM, IF ANY, AND INTEREST ON, AND THE
PURCHASE PRICE OF, WHICH ARE PAYABLE SOLELY FROM THE REVENUES TO BE RECEIVED IN CONNECTION WITH
THE FINANCING AND REFINANCING OF THE 2003 FACILITY AND ANY ADDITIONAL FACILITIES AND FROM ANY
OTHER MONEYS MADE AVAILABLE TO THE ISSUER FOR SUCH PURPOSE. NEITHER THE BONDS NOR ANY PREMIUM OR
INTEREST THEREON, NOR THE PURCHASE PRICE THEREOF, SHALL EVER CONSTITUTE AN INDEBTEDNESS

 

 

OR A CHARGE AGAINST THE GENERAL CREDIT OR TAXING POWERS OF THE STATE OF MARYLAND, THE
DEPARTMENT, THE ISSUER OR ANY OTHER PUBLIC BODY WITHIN THE MEANING OF ANY CONSTITUTIONAL OR
CHARTER PROVISION OR STATUTORY LIMITATION AND NONE OF THE ABOVE SHALL EVER CONSTITUTE OR GIVE RISE
TO ANY PECUNIARY LIABILITY OF THE STATE OF MARYLAND, THE DEPARTMENT, THE ISSUER OR ANY OTHER
PUBLIC BODY. THE BONDS DO NOT CONSTITUTE AN INDEBTEDNESS TO WHICH THE FAITH OR CREDIT OF THE STATE
OF MARYLAND, THE DEPARTMENT, THE ISSUER OR ANY OTHER PUBLIC BODY IS PLEDGED. THE ISSUER HAS NO
TAXING POWER.

AGREEMENTS

     NOW, THEREFORE, in consideration of the premises, the respective representations, covenants
and agreements hereinafter contained, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as follows (provided, that
in the performance of the agreements of the Issuer herein contained, any obligation the Issuer may
thereby incur for the payment of money shall not create a pecuniary liability or a charge upon its
general credit, but shall be payable solely out of the proceeds derived from the Revenues and the
sale of the Bonds):

ARTICLE I

DEFINITIONS

     SECTION 1.1. Definitions. Certain terms used in this Loan Agreement are defined in one
of the Credit Facility Documents or one of the other Bond Documents. When and if used herein, such
terms shall have the meanings given to them by the language employed in such Credit Facility
Document (as defined in the Indenture) or other Bond Document (as defined in the Indenture)
defining such terms, unless the context clearly indicates otherwise.

     SECTION 1.2. Rules of Construction. The words “hereof,” “herein,” “hereunder,”
“hereto,” and other words of similar import refer to this Loan Agreement.

     The terms “agree” and “agreements” contained herein are intended to include and mean
“covenant” and “covenants.”

     References to Articles, Sections, and other subdivisions of this Loan Agreement are to the
designated Articles, Sections, and other subdivisions of this Loan Agreement.

     The headings of this Loan Agreement are for convenience only and shall not define or limit the
provisions hereof.

     All references made (a) in the neuter, masculine or feminine gender shall be deemed to have
been made in all such genders, and (b) in the singular or plural number shall be deemed to have
been made, respectively, in the plural or singular number as well.

- 2 -

 

     Any reference to particular sections or subsections of the Code and applicable United
States Treasury Regulations shall include any successor provisions of law or regulations, to the
extent the same shall apply to the Bonds.

ARTICLE II

ISSUANCE OF SERIES 2003 BONDS; THE SERIES 2003 LOAN;

SECURITY FOR THE LOANS

     SECTION 2.1. Issuance of Series 2003 Bonds; Deposit of Proceeds. To provide funds to
finance the 2003 Facility, the Issuer, concurrently with the execution and delivery of this Loan
Agreement, and upon satisfaction of the conditions to the delivery of the Series 2003 Bonds set
forth in Section 2.8 of the Indenture, shall issue, sell and deliver the Series 2003 Bonds and
will cause the proceeds thereof to be deposited with the Trustee in accordance with Section 5.2 of
the Indenture.

     SECTION 2.2. Additional Bonds; Issuance of Other Obligations. The Indenture contains
provisions permitting the issuance of Additional Bonds. The Issuer shall loan the proceeds of any
Series of Additional Bonds to the Borrower upon the terms and provisions of any Supplement to the
Indenture authorizing such Series of Additional Bonds and any Supplement to this Loan Agreement
made in connection therewith. The Issuer expressly reserves the right (but shall be under no
obligation to do so) to enter into, to the extent permitted by law, an agreement other than this
Loan Agreement with respect to the issuance by the Issuer under an indenture or indentures other
than the Indenture to refund all or any portion of the principal amount of the Bonds or to finance
any other projects of the Borrower.

     SECTION 2.3. Funds Established under Indenture; Disbursement of Bond Proceeds.
The Issuer shall establish the Bond Fund, the Facility Fund, the Issuer’s Fee Fund and the Net
Proceeds Escrow Fund in accordance with the Indenture. Amounts in the Facility Fund, the Bond
Fund, the Issuer’s Fee Fund and the Net Proceeds Escrow Fund shall be invested by the Trustee as
provided in the Indenture and shall be disbursed by the Trustee as provided in the Indenture.
Until moneys in the Bond Fund, the Facility Fund and the Net Proceeds Escrow Fund are applied by
the Trustee as provided in the Indenture, such moneys shall be and remain subject to the lien of
the Indenture as a part of the Trust Estate and held in trust by the Trustee for the benefit of
the Owners of the Bonds to the extent and as provided in the Indenture, and the Borrower shall
have no right, title or interest therein.

     SECTION 2.4. The Series 2003 Loan. The Issuer agrees, upon the terms and subject to
the conditions contained in this Loan Agreement and the Indenture, to make to the Borrower the
Series 2003 Loan in the amount of $12,000,000. The Borrower unconditionally promises to repay the
principal of the Series 2003 Loan with interest thereon as provided in this Loan Agreement.

     SECTION 2.5. Security. The Borrower’s Bond Obligations are secured by the Bond
Documents executed and delivered for the purpose of securing the Loans.

- 3 -

 

     SECTION 2.6. Additional Security. The Borrower shall obtain and cause to be
delivered to the Trustee, for the benefit of the Owners of the Series 2003 Bonds, the 2003 Letter
of Credit.

          As additional security for the Borrower’s Bond Obligations, the Borrower hereby assigns and
pledges to the Issuer and its assigns (including the Trustee and the Credit Facility Provider),
and grants to the Issuer and its assigns (including the Trustee and the Credit Facility Provider),
and agrees that the Issuer and its assigns (including the Trustee and the Credit Facility
Provider) shall have, a continuing security interest in the interest of the Borrower in the
Facility Fund, the Bond Fund and the Net Proceeds Escrow Fund and in all accounts and subaccounts
created and maintained under any of such Funds.

          The Borrower agrees that with respect to the collateral described above the Issuer and its
assigns (including the Trustee and the Credit Facility Provider) shall have all of the rights and
remedies of a secured party under the Uniform Commercial Code.

ARTICLE III

EFFECTIVE DATE OF LOAN AGREEMENT; DURATION OF LOAN TERM;

POSSESSION AND OWNERSHIP OF PROPERTY; REPAYMENT PROVISIONS

     SECTION 3.1. Effective Date of this Loan Agreement; Duration of Loan Term.
This Loan Agreement shall become effective on the Closing Date and shall continue in full
force and effect until the principal and interest on the Bonds have been fully paid (or provision
for payment of the Bonds has been made in accordance with the terms of the Indenture), together
with all sums then due and owing by the Borrower to the Issuer or the Trustee pursuant to the
terms hereof; provided, however, that the expiration of this Loan Agreement shall not affect the
Borrower’s obligation to (a) pay to (i) the Trustee, the Paying Agent, the Remarketing Agent and
the Registrar any amounts which may then be due and owing or thereafter become payable to the
Trustee, the Paying Agent, the Remarketing Agent or the Registrar by reason of Section 7.1 hereof
or any indemnification of the Trustee, the Paying Agent, the Remarketing Agent and the Registrar
pursuant to Article VII hereof, and (ii) the Issuer, its agents and employees any amounts which
may thereafter become payable to the Issuer or any indemnification of the Issuer pursuant to
Article VII hereof, and (b) furnish moneys to purchase Bonds as provided in Section 4.3 hereof,
which obligations shall survive the expiration of this Loan Agreement.

     SECTION 3.2. Possession and Ownership of the Property. The Issuer agrees that the
Property shall be solely the property of the Borrower and that the Borrower shall enjoy the sole
and exclusive ownership and possession of the Property (subject to the right of the Issuer and the
Trustee to enter on the Property for inspection and other purposes pursuant to the provisions of
Section 7.7 hereof). The Issuer covenants and agrees that it will not take any action, other than
pursuant to Article XI hereof to prevent the Borrower from having quiet and peaceable enjoyment of
the Property.

     SECTION 3.3. Repayment of Loans. The Issuer will make the Loans to the Borrower from
the proceeds derived from the sale of the Bonds. The Borrower shall pay when due (i) the total
interest due on the Bonds to the respective dates of payment thereof, (ii) the total principal

- 4 -

 

amount of the Bonds and (iii) the total purchase price (principal and interest) of the
Bonds tendered for purchase by the Owners thereof, all in accordance with the terms of the
Indenture. All payments with respect to the principal of and interest on any Series of Additional
Bonds shall be made in accordance with any Supplement to the Indenture authorizing the issuance
thereof and any Supplement to this Loan Agreement made in connection therewith.

     In order to provide for the payment of the amounts due under this Section with respect to the
Series 2003 Bonds, the Borrower shall repay the Series 2003 Loan with interest in accordance with
the following provisions:

          (a) On or before each and every Interest Payment Date, commencing on the first Interest
Payment Date after the Closing Date, until the principal of and interest on the Series 2003 Bonds
shall have been fully paid or provision for payment thereof shall have been made in accordance with
the Indenture, the Borrower shall pay to the Trustee, for the account of the Issuer, a sum of
money, in funds immediately available on such date, equal to the amount payable on such Interest
Payment Date as interest (at the applicable rate or rates provided in the Indenture and in the
Series 2003 Bonds) on the Series 2003 Bonds.

          (b) Each year until the Series 2003 Bonds shall have been fully paid or provision for payment
thereof shall have been made in accordance with the Indenture, the Borrower shall pay to the
Trustee, for the account of the Issuer, a sum of money, in funds immediately available on such
date, as required by Section 4.9 of the Letter of Credit Agreement.

          (c) Each payment to be made under subsection (a) and (b) above shall be made by check or draft
or wire transfer (or other method agreed to by the Trustee and the Borrower), and upon such other
terms, all as provided in the Indenture and/or the Letter of Credit Agreement, as the case may be.

          (d) In any event, each and every payment under this Section shall be sufficient, taking into
account past and anticipated future payments, to pay the amount of principal (including annual
payments made in accordance with Section 4.9 of the Letter of Credit Agreement) (whether at
maturity or by redemption or acceleration or otherwise) and interest payable on the Series 2003
Bonds on its respective Bond Payment Date. If on any date on which a payment is required to be made
by the Borrower pursuant to subparagraph (a) or (b) (whether or not such payment date is a Bond
Payment Date), the required payments are not made by the Borrower or the balance in the Principal
Account and the Interest Account of the Bond Fund is insufficient to make the required payments of
principal (including annual payments made in accordance with Section 4.9 of the Letter of Credit
Agreement) (whether at maturity or by redemption or acceleration or otherwise) and interest on such
Bond Payment Date or, taking into account all future required payments, on the next succeeding Bond
Payment Date, as appropriate, the Borrower shall forthwith pay any such amounts due or any such
deficiency, in funds immediately available on the date on which such payment is due or on such Bond
Payment Date, as appropriate; provided that any amount held by the Trustee in the Bond Fund on any
Bond Payment Date (except for amounts held for redemption of the Series 2003 Bonds called for
redemption pursuant to Article III of the Indenture or for the payment of the purchase price of
such Bonds Tendered or Deemed Tendered for Purchase pursuant to Article IV of the Indenture

- 5 -

 

or for the payment of the Series 2003 Bonds not presented for payment as provided in
Section 5.8 of the Indenture) shall be credited against the payment to be made on such Bond
Payment Date to the extent such amount is in excess of the amount required for payment of the
Series 2003 Bonds theretofore matured or called for redemption and past due interest in all cases
where interest payments have been returned to the Trustee, or the Trustee has otherwise been
unable to pay interest to the Owners of such Bonds; and provided further, that if the amount held
by the Trustee in the Bond Fund should be sufficient to pay at the times required the principal of
and interest on all of the Series 2003 Bonds then remaining Outstanding and unpaid, the Borrower
shall not be obligated to make any further payments under the foregoing provisions of this
Section.

     SECTION 3.4. Payments to Trustee for Purchase of Bonds. The Borrower shall pay to the
Trustee amounts equal to the amounts to be paid to Owners of Bonds pursuant to Section 4.1 and
Section 4.2 of the Indenture, on the dates the purchase price of such Bonds Tendered or Deemed
Tendered for Purchase to the Trustee is to be paid from the sources described in Section 4.4 of
the Indenture. The obligation of the Borrower to make the payments required to be made under this
Section 3.4 shall be reduced by the amount of any moneys available for such payment from proceeds
of the remarketing and sale of Bonds, moneys received from a Bond Purchase Drawing under the
Credit Facility and Excess Bond Proceeds, Net Proceeds and proceeds from the disposition of
certain equipment pursuant to Section 9.9 of the Letter of Credit Agreement, which have been
deposited into the Purchase Account of the Bond Fund in accordance with the Indenture.

     SECTION 3.5. Place of Payments. The payments provided for in Section 3.3 hereof shall
be paid directly to the Trustee for the account of the Issuer and deposited in the Bond Fund. The
additional payments to be made to the Issuer, the Trustee, the Paying Agent, the Remarketing Agent
or the Registrar under Section 7.1 and Section 7.2 hereof shall be paid directly to the Issuer,
the Trustee, the Paying Agent, the Remarketing Agent or the Registrar for their own use. Any
additional payments which the Borrower may be required to pay to the Issuer, the Trustee, the
Paying Agent, the Remarketing Agent or the Registrar pursuant to Article VII hereof shall be paid
directly to the Issuer, the Trustee, the Paying Agent, the Remarketing Agent or the Registrar, as
the case may be, or to such other person as the Issuer, the Trustee, the Paying Agent, the
Remarketing Agent or the Registrar may direct. The payments to be made to the Trustee pursuant to
Section 3.4 hereof shall be paid directly to the Trustee.

     SECTION
3.6. Credit Facility; Substitute Credit Facility. (a) On the date of issuance
of any Series of Bonds, the Borrower shall provide security for payment of the principal thereof
and interest thereon and for payment of the purchase price of Bonds Tendered or Deemed Tendered for
Purchase and not remarketed by causing a Credit Facility for each Series of Bonds to be delivered
to the Trustee. The Borrower hereby authorizes and directs the Trustee to draw moneys under the
Credit Facility, in accordance with its terms and the terms of the Indenture, to the extent
necessary to pay the principal of and interest on the Bonds when due and to pay the purchase price
of Bonds Tendered or Deemed Tendered for Purchase. The Borrower is initially providing the 2003
Letter of Credit to provide payment for, and secure the payment of, the principal of and interest
on, and the purchase price of, the Series 2003 Bonds.

- 6 -

 

          (b) The Borrower may, at its election and with the consent of the Credit Facility
Provider, provide for one or more extensions of the Credit Facility beyond its then stated date of
expiration.

          (c) The Borrower may provide for the delivery to the Trustee of a Substitute Credit Facility
to replace the Credit Facility then in effect (i) upon the expiration of the Credit Facility then
in effect, or (ii) with the prior written consent of the existing Credit Facility Provider,
provided that the Borrower must furnish to the Trustee the items described in the definition of
“Substitute Credit Facility” contained in Section 1.1 of the Indenture.

          (d) The stated expiration date of any Substitute Credit Facility shall not be earlier than the
earlier of (i) the date that is one year after the effective date of such Substitute Credit
Facility and (ii) the fifth Business Day after the date of the final maturity of the Series of
Bonds secured thereby.

          (e) Any Credit Facility securing a Series of Bonds shall secure only that particular Series of
Bonds and no other and shall not be available to pay the principal of, interest on, or the purchase
price of, any other Series of Bonds.

     SECTION 3.7. Obligations of the Borrower Hereunder Are Unconditional. The payment and
performance by the Borrower of the Borrower’s Bond Obligations shall be absolute and
unconditional, irrespective of any defense or any rights of set-off, recoupment or counterclaim it
might otherwise have against the Issuer or the Trustee, and the Borrower shall pay absolutely net
during the Loan Term the payments to be made on account of the Loans as prescribed in Section 3.3
hereof and in any Supplement to this Loan Agreement and all other payments required here-under and
thereunder, free of any deductions and without abatement, diminution or set-off, other than as
herein or therein expressly provided; and until termination of this Loan Agreement, the Borrower
(a) will not suspend or discontinue any payments provided for in Section 3.3 hereof or in any
Supplement to this Loan Agreement; (b) will perform and observe all of its other agreements
contained in this Loan Agreement, including (without limitation) all payments required to be made
to the Issuer, the Trustee, the Paying Agent, the Remarketing Agent or the Registrar; and (c)
except as provided in Article IV hereof, will not terminate this Loan Agreement for any cause,
including, without limiting the generality of the foregoing, failure of the Borrower to complete
the acquisition of the 2003 Facility or any Additional Facilities, sale or other transfer of the
Property, destruction of or damage to the Property, condemnation of the Property, commercial
frustration of purpose, the occurrence of any acts or circumstances that may constitute a failure
of consideration, any change in the tax laws of the United States of America or of the State or
any political subdivision of either of these, or any failure of the Issuer to perform and observe
any agreement, whether express or implied, or any duty, liability or obligation arising out of or
connected with this Loan Agreement, except to the extent permitted by this Loan Agreement.

     SECTION 3.8. Failure to Make Payments. In the event the Borrower fails to make any of
the payments required by this Loan Agreement and any Supplement to this Loan Agreement, when the
same are due and payable, such payment shall continue as an obligation of the Borrower until the
amount in default shall have been fully paid, and the Borrower agrees to pay the same to the person
entitled thereto, with interest thereon, including, to the extent permitted by law, interest on

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any overdue payment of principal or interest on Bonds of any Series, at the interest rate
borne by such Bonds.

ARTICLE IV

PREPAYMENT OF LOANS

     SECTION 4.1. Prepayment of Loans Prior to Maturity. In the manner and with the effect
provided in this Loan Agreement and the Indenture, the Loans shall be subject to prepayment prior
to maturity as follows:

          (a) Mandatory Prepayment in the Amount of Excess Bond Proceeds. The Borrower shall
prepay any Loan to the extent that Excess Bond Proceeds remain in the Facility Fund following the
date on which the Completion Certificate is delivered to the Trustee and such Excess Bond Proceeds
are transferred from the Facility Fund to the Principal Account of the Bond Fund pursuant to
Section 5.5 of the Indenture.

          (b) Mandatory Prepayment in the Amount of Net Proceeds and Proceeds from
the Disposition of Certain Equipment. The Borrower shall prepay any Loan to the
extent that moneys in the Principal Account of the Bond Fund shall have been furnished by the
Borrower, or by the Credit Facility Provider on behalf of the Borrower, which moneys represent Net
Proceeds or proceeds from the disposition of certain equipment pursuant to Section 9.9 of the
Letter of Credit Agreement.

          (c) Mandatory Prepayment. The Borrower shall prepay any Loan to the extent that the
Bonds of the corresponding Series are required to be redeemed in accordance with the provisions of
(i) Section 4.9 and Schedule A of the Letter of Credit Agreement, as the same may be amended from
time to time, and (ii) Sections 3.1(c) and 3.6(b) of the Indenture.

          (d) Optional Prepayment. The Borrower may prepay any Loan in whole or in part (but in
part only if the aggregate principal amount of Outstanding Bonds of the corresponding Series
immediately following such prepayment will be at least $500,000) on any Interest Payment Date, by
giving written direction of such prepayment to the Trustee (such direction to be given by the
Borrower at least 45 days prior to the date fixed for redemption), in a principal amount equal to
the principal amount of such Bonds to be redeemed on such Interest Payment Date.

          (e) Optional Prepayment on Mandatory Tender Dates. The Borrower may prepay any Loan
in whole or in part, on any Mandatory Tender Date, by giving written direction of such prepayment
to the Trustee (such direction to be given by the Borrower at least 45 days prior to the date fixed
for redemption), in a principal amount equal to the principal amount of Bonds of the corresponding
Series to be redeemed on such Mandatory Tender Date.

     SECTION 4.2. Amount Required for Prepayment. To prepay any Loan pursuant to this
Article, the Borrower shall pay to the Trustee moneys in such amount as may be necessary to pay the
applicable redemption price as set forth in Section 3.1 of the Indenture, so that all Bonds of the
Series corresponding to the Loan to be redeemed shall no longer be deemed Outstanding.

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The Borrower shall also pay to the Trustee an amount which will be sufficient to pay all
expenses of redemption, the fees and expenses of the Issuer (which will be collected by the
Trustee and paid to the Issuer unless otherwise provided herein), the Trustee, the Paying Agent
and the Registrar in connection with such redemption or the cancellation and discharge of any of
the Bond Documents, and any and all sums then due to the Issuer or the Trustee under the Bond
Documents. The Borrower shall make arrangements satisfactory to the Trustee for the giving of any
required notice of redemption of any series of Bonds. Any prepayment shall be made in Authorized
Denominations; provided, however, no prepayment shall be permitted if such prepayment would result
in a Bond in a denomination of less than $100,000. With regard to any partial prepayment, the
Borrower agrees to pay to the Trustee any additional amounts, which when added to amounts
available for redemption, will permit Bonds to be redeemed in the denominations described in the
immediately preceding sentence.

     SECTION 4.3. Purchase of Bonds. The Borrower may furnish moneys to the Trustee
accompanied by a notice directing such moneys to be applied to the purchase of Bonds of any series
pursuant to Section 4.1 and Section 4.2 of the Indenture; however, moneys for the payment of the
purchase price of such Bonds Tendered or Deemed Tendered for Purchase shall be derived solely from
the sources, and in order of priority, described in Section 4.4 of the Indenture.

ARTICLE V

REPRESENTATIONS, WARRANTIES AND UNDERTAKINGS

     SECTION 5.1. General Representations and Warranties by the Issuer. The Issuer makes
the following representations and warranties:

          (a) The Issuer is a body politic and corporate and a public instrumentality of the State.
Under the provisions of the Acts, the Issuer has the power to enter into this Loan Agreement and
the other Bond Documents entered into by it and the transactions contemplated hereunder and
thereunder and to carry out its obligations hereunder and thereunder. By proper action, the Issuer
has duly authorized the execution and delivery of this Loan Agreement and each of the other Bond
Documents executed and delivered by it. The Issuer is not in default under any of the provisions of
the laws of the State which would affect its existence or its powers referred to in this subsection
(a).

          (b) To finance the costs of acquisition of the 2003 Facility, the Issuer has agreed at the
request of the Borrower to issue and sell the Series 2003 Bonds and to lend the proceeds thereof to
the Borrower under and pursuant to this Loan Agreement.

          (c) As provided in the Indenture, the Revenues are pledged to secure the payment of the
principal of and interest on the Bonds and for any other payment referred to in this Loan
Agreement.

          (d) This Loan Agreement and the Indenture have been duly and properly authorized, executed,
sealed and delivered by the Issuer, constitute valid and legally binding obligations of the Issuer,
and are fully enforceable against the Issuer in accordance with their

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respective terms; provided, however, that the enforceability and binding nature of this Loan
Agreement and the Indenture are subject to bankruptcy, insolvency, reorganization and other state
and federal laws affecting the enforcement of creditors’ rights generally, and, to the extent that
certain remedies under such instruments require, or may require, enforcement by a court of equity,
such principles of equity as the court having jurisdiction may impose.

          (e) There are no proceedings pending or, to the knowledge of the Issuer, threatened in writing
before any court or administrative agency which may affect the authority of the Issuer to enter
into this Loan Agreement or the Indenture.

          (f) The execution, delivery and performance by the Issuer of this Loan Agreement and the
Indenture, or any other document required to be delivered hereby by the Issuer, do not constitute a
violation or breach of or a default under the Acts or any existing mortgage, indenture, contract,
instrument or agreement binding on the Issuer or affecting its property, or any provision of law or
order of any court binding upon the Issuer.

          (g) The Resolution was duly and properly adopted by the Issuer and the same is in full force
and effect on the Closing Date.

     SECTION 5.2. Representations and Warranties by the Borrower. The Borrower makes the
following representations and warranties to induce the Issuer to enter into this Loan Agreement
and to issue the Series 2003 Bonds, to induce the Bank to enter into the Letter of Credit
Agreement and to issue the 2003 Letter of Credit and to induce the Owners, from time to time, of
the Series 2003 Bonds, to purchase the same:

          (a) Good Standing. The Borrower is a corporation duly organized and existing, in good
standing, under the laws of the State of Delaware. The Borrower is not a successor to any entity.
The Borrower has the corporate power and all necessary governmental licenses, authorizations,
consents, approvals and permits to own, lease and hold its property and to carry on its business as
now being conducted and as proposed to be conducted. The Borrower is duly qualified to transact
business as a foreign corporation and is in good standing in the State of Maryland and in every
other jurisdiction in the United States and elsewhere in which the failure to so qualify would have
a material adverse effect on the business, assets, properties, financial condition or results of
operations of the Borrower.

          (b) Authority. The Borrower has full power and authority to enter into and execute and
deliver this Loan Agreement and each of the other Bond Documents and the Credit Facility Documents
executed and delivered by the Borrower, and to incur and perform the obligations provided for
herein and therein (including the borrowing of the Series 2003 Loan), all of which have been duly
authorized by all proper and necessary corporate action. No consent or approval of any person or
public authority or regulatory body is required as a condition to the validity or enforceability of
this Loan Agreement or any of the other Bond Documents and the Credit Facility Documents executed
and delivered by the Borrower or, if required, the same has been duly obtained.

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          (c) Binding Agreements. This Loan Agreement and each of the other Bond
Documents and the Credit Facility Documents executed and delivered by the Borrower have been duly
and properly executed by the Borrower, constitute valid and legally binding obligations of the
Borrower, and are fully enforceable against the Borrower in accordance with their respective terms;
except to the extent that enforceability may be affected by any bankruptcy or insolvency proceeding
filed by or against the Borrower and subject to the exercise of judicial discretion in accordance
with general principles of equity.

          (d) Litigation. There is no litigation or proceeding pending or, so far as the
Borrower knows, threatened, before any court or administrative agency which would materially
adversely affect the business, financial condition or operations of the Borrower, the transactions
contemplated hereby and by the other Bond Documents and the Credit Facility Documents or the
authority of the Borrower to enter into, or the validity or enforceability of, this Loan Agreement
or any of the other Bond Documents or the Credit Facility Documents executed and delivered by the
Borrower.

          (e) No Conflicting Agreements, Laws, etc. There is (i) no provision of the Articles of
Incorporation or By-Laws of the Borrower and no provision of any existing mortgage, indenture,
contract or agreement binding on the Borrower or affecting any property of the Borrower, and (ii)
to the knowledge of the Borrower, no provision of law or order of court binding on the Borrower or
affecting the Borrower’s property, which would conflict with or in any way prevent the execution,
delivery, or performance of the terms of this Loan Agreement or any of the other Bond Documents or
the Credit Facility Documents executed and delivered by the Borrower, or which would be in default
or violated as a result of such execution, delivery or performance, or for which adequate consents
or waivers have not been obtained.

          (f) Use of Proceeds of Series 2003 Loan. The Borrower intends that the proceeds of
the Series 2003 Loan be used solely to finance the 2003 Facility Costs.

          (g) Places of Business of Borrower. The Borrower has its principal place of business
and maintains or keeps its records in Montgomery County, Maryland, and in no other county in the
State and at no location outside the State.

          (h) Names of Borrower. Except for Therapeutic Genomics, Inc., the Borrower has never
done business under any name other than “Avalon Pharmaceuticals, Inc.”

          (i) Requisitions. Each requisition submitted in accordance with Section 5.3 of the
Indenture, or the receipt of the disbursement requested thereby, shall constitute an affirmation
that the representations and warranties of the Borrower set forth in this Section are true and
correct in all material respects as of the date of such requisition.

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ARTICLE VI

COMPLETION OF ACQUISITION OF 2003 FACILITY;

COVENANTS AND REPRESENTATIONS AND WARRANTIES

OF BORROWER WITH RESPECT TO THE INVESTMENT OF

BOND PROCEEDS; RELATED MATTERS

     SECTION 6.1. Completion of Acquisition of 2003 Facility. The Borrower will complete
the acquisition of the 2003 Facility in accordance with the Plans and Specifications and the
Construction Contract on or before the Projected Completion Date.

     SECTION 6.2. Application and Investment of Bond Proceeds. The Borrower consents and
agrees to the provisions of Article V of the Indenture relating to the disbursement of moneys on
deposit in the Facility Fund and the use of moneys on deposit therein.

     The Borrower consents and agrees to the provisions of Article VI of the Indenture relating to
investment of the proceeds of the Bonds and any amounts held in the Bond Fund, the Net Proceeds
Escrow Fund and the Facility Fund. The Borrower acknowledges and agrees that neither the Issuer
nor the Trustee shall have any liability for any loss incurred by reason of any such investment,
unless, as to the Trustee, such loss is a result of the Trustee’s gross negligence or willful
misconduct.

     SECTION 6.3. Establishment of Completion Date. The Completion Date for the 2003
Facility and any Additional Facilities, to the extent applicable, shall be evidenced to the
Trustee and the Credit Facility Provider by the Borrower’s delivery to the Trustee, the Issuer and
the Credit Facility Provider of a Completion Certificate (appropriately completed) substantially
in the form attached to this Loan Agreement as Exhibit A and made a part hereof.

     Upon receipt of a Completion Certificate for the 2003 Facility and any Additional Facilities,
the Trustee shall apply any Excess Bond Proceeds remaining in the Facility Fund with respect
thereto, other than moneys necessary for the payment of Facility Costs incurred by the Borrower but
not then due or payable, as provided in Section 5.5 of the Indenture. With respect to Excess Bond
Proceeds remaining in the Facility Fund after the Completion Date, the Borrower shall direct the
Trustee in writing (a) to apply such Excess Bond Proceeds to redeem Bonds of the Series from which
the Excess Bond Proceeds derive pursuant to Section 5.5 of the Indenture, or (b) to apply such
Excess Bond Proceeds to purchase Bonds Tendered or Deemed Tendered for Purchase. If any portion of
such Excess Bond Proceeds aggregating less than an Authorized Denomination is not used to redeem or
purchase Bonds as provided in the preceding sentence or to pay the Borrower’s reimbursement
obligations to the Credit Facility Provider to the extent of drawings paid by the Credit Facility
Provider to redeem or purchase Bonds as provided in the preceding sentence, within 12 months of
being deposited in the Principal Account or the Purchase Account, as the case may be, such Excess
Bond Proceeds shall be applied as provided in Section 5.5 of the Indenture.

     Notwithstanding the foregoing, the Completion Certificate shall state that it is given
without prejudice to any rights against third parties which exist at the date of the Completion
Certificate or which may subsequently come into being. It shall be the duty of the Borrower to
cause the

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Completion Certificates to be furnished as soon as the acquisition of the 2003 Facility and any
Additional Facilities, to the extent applicable, shall have been completed.

     SECTION 6.4. Borrower Required to Pay Facility Costs in the Event that Facility Fund
Insufficient. In the event the moneys in the Facility Fund available for payment of Facility
Costs are not sufficient to pay the Facility Costs in full, the Borrower agrees to complete, or
cause to be completed, the 2003 Facility and any Additional Facilities and to pay or finance, or
cause to be paid or financed, all that portion of the Facility Costs as may be in excess of the
moneys available therefor in the Facility Fund. The Issuer does not make any warranty, either
express or implied, that the moneys which will be paid into the Facility Fund and which, under the
provisions of this Loan Agreement, will be available to lend to the Borrower for payment of the
Facility Costs will be sufficient to provide funds to pay all the Facility Costs. The Borrower
agrees that if the Borrower finances any portion of the Facility Costs from sources other than the
proceeds of the Loans, it shall not be entitled to any reimbursement therefor from the Issuer or
from the Trustee, nor shall it be entitled to any abatement or diminution of the payments required
by this Loan Agreement.

ARTICLE VII

PAYMENT OF FEES AND EXPENSES OF THE ISSUER, THE TRUSTEE, THE PAYING

AGENT, THE REMARKETING AGENT AND THE REGISTRAR; INDEMNIFICATION;

ADVANCES; RESERVED RIGHTS OF ISSUER

     SECTION 7.1. Payment of Administration Expenses of the Trustee, the Paying Agent, the
Remarketing Agent and the Registrar. The Borrower agrees to pay to the Trustee, the Paying
Agent, the Remarketing Agent and the Registrar amounts equal to the respective agreed to fees and
charges of the Trustee, the Paying Agent, the Remarketing Agent and the Registrar (such agreed
upon fees and charges being set forth on Schedule 7.1 attached hereto) for the services
rendered and expenses incurred (including reasonable attorneys’ fees) under the Bond Documents as
and when the same become due; provided, however, that the fees and expenses of the Remarketing
Agent shall be paid by the Borrower as provided in the Placement and Remarketing Agreement. In
addition, the Borrower shall pay all reasonable costs and expenses of the Trustee, the Registrar
and the Paying Agent in connection with the registration, exchange or registration of transfer of
the Bonds pursuant to Section 2.11 of the Indenture. The obligations of the Borrower under this
Section shall survive the termination of this Loan Agreement and the payment and performance of
all other of the Borrower’s Bond Obligations.

     SECTION 7.2. Payment of Issuer’s Fee and Administration Expenses.

          (a) Payment of Issuer’s Fee. The Borrower agrees to pay an annual fee to the Issuer
(“the “Issuer’s Fee”). The first Issuer’s Fee is $15,000 and shall be due and payable on the
Closing Date. Following the payment of the initial Issuer’s Fee, the Borrower agrees to pay an
amount equal to 0.125% of the outstanding principal balance of the Bonds. Subsequent payments shall
be made in arrears on (i) each subsequent anniversary of the Closing Date, and (ii) the date on
which the Bonds are paid in full (whether by maturity, redemption or otherwise), and shall be
calculated on the outstanding principal balance of the Bonds as of the anniversary of the Closing
Date (taking into account any reduction of principal on such anniversary date)

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preceding the payment date of the Issuer’s Fee. The Issuer’s Fee shall be calculated and invoiced
by the Trustee, paid by the Borrower to the Trustee on the date due and payable and promptly
remitted by the Trustee to the Issuer. No refund of the Issuer’s Fee shall be made in the event
the Bonds mature or are redeemed, accelerated or otherwise paid during any period for which the
Issuer’s Fee has been paid and no proration of the Issuer’s Fee paid at maturity shall be made.
Neither the failure to receive an invoice for the Issuer’s Fee nor any defect in such invoice so
delivered shall affect the Borrower’s obligation to make Issuer’s Fee payments.

          (b) Administration Expenses of the Issuer. The Borrower agrees to pay the Issuer (or,
if the Issuer so elects, to pay directly to the person entitled to payment) for the Administration
Expenses, if any, incurred by the Issuer in the administration of this Loan Agreement, of the
Loans, and of the Bonds, including attorneys’ fees. The obligation of the Borrower under this
Section shall survive the termination of this Loan Agreement and the payment and performance of
all other of the Borrower’s Bond Obligations.

     SECTION 7.3. No Pecuniary Liability. The Acts and the Resolution prescribe and the
parties intend that by reason of making this Loan Agreement, by reason of the issuance of the
Bonds, by reason of the performance of any act required of it by this Loan Agreement, or by reason
of the performance of any act requested of it by the Borrower, no indebtedness or charge against
the general credit of the Issuer, the Department or the State within the meaning of any
constitutional or charter provision or statutory limitation shall occur, nor shall any of the
foregoing ever constitute or give rise to any pecuniary liability of the Issuer, the Department or
the State. Nevertheless, if the Issuer incurs any such pecuniary liability, then in such event the
Borrower shall indemnify and hold the Issuer harmless by reason thereof.

     SECTION 7.4. Indemnification of the Issuer, the Trustee, the Paying Agent, the Remarketing
Agent and the Registrar. The Borrower shall protect, indemnify, and save harmless the Issuer,
the Trustee, the Paying Agent, the Remarketing Agent and the Registrar and their respective
officers, employees and agents against and from any and all liabilities, suits, actions, claims,
demands, losses, expenses and costs of every kind and nature incurred by, or asserted or imposed
against, the Issuer, the Trustee, the Paying Agent, the Remarketing Agent and the Registrar and
their respective officers, agents or employees, or any of them, by reason of any accident, injury
(including death) or damage to any person or property, however caused (other than the gross
negligence or willful misconduct of the Trustee, the Paying Agent, the Remarketing Agent or the
Registrar, which gross negligence or willful misconduct shall affect the indemnification rights of
only that person which committed such gross negligence or willful misconduct), resulting from,
connected with or growing out of any act of commission or omission of the Borrower, or any
officers, employees, agents, assignees, contractors or subcontractors of the Borrower or any use,
non-use, possession, occupation, condition, operation, service, design, construction, acquisition,
maintenance or management of, or on, or in connection with, the Property, or any part thereof,
during the Loan Term and regardless of whether such liabilities, suits, actions, claims, demands,
damages, losses, expenses and costs be against or be suffered or sustained by the Issuer, the
Trustee, the Paying Agent, the Remarketing Agent or the Registrar, or any of their respective
officers, agents or employees, or be against or be suffered or sustained by legal entities,
officers, agents, or other persons to whom the Issuer, the Trustee, the Paying Agent, the
Remarketing Agent and the Registrar, or any of their respective officers, agents or employees may
become liable therefor. The

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Issuer shall not be liable for any damage or injury occurring during the Loan Term to the persons
or property of the Borrower or any of its officers, agents, including operating personnel,
contractors and employees, or any other person or entity who or which may be upon the Property.

     The Borrower may, and if so requested by the Issuer, the Trustee, the Paying Agent, the
Remarketing Agent and the Registrar shall, undertake to defend, at its sole cost and expense, any
and all suits, actions and proceedings brought against the Issuer, the Trustee, the Paying Agent,
the Remarketing Agent and the Registrar, or any of their respective officers, agents or employees
in connection with any of the matters indemnified against in this Section. The Issuer, the
Trustee, the Paying Agent, the Remarketing Agent and the Registrar shall give the Borrower timely
notice of and shall forward to the Borrower every demand, notice, summons or other process
received with respect to any claim or legal proceedings within the purview hereof, but the failure
of the Issuer, the Trustee, the Paying Agent, the Remarketing Agent or the Registrar to give such
notice shall not affect its right to indemnification hereunder, unless the failure to give notice
shall have deprived the Borrower of a reasonable opportunity to contest any such matter.

     The Borrower shall protect, indemnify, and save harmless the Issuer and its officers,
employees and agents against and from any and all damages, liabilities, actions, suits,
proceedings, claims, demands, losses, costs and expenses (including attorneys’ and experts’ fees)
of every kind and nature incurred by, or asserted or imposed against, the Issuer, and its officers,
employees or agents acting in the course and scope of their employment or agency for the Issuer, or
any of them, arising out of or in connection with the Bonds, this Loan Agreement, the Indenture,
the Letter of Credit Agreement, or any of the Bond Documents or other Letter of Credit Documents;
provided, however, that the Borrower shall not protect, indemnify, and save harmless the Issuer,
and its officers, employees and agents for any willful misconduct on their part, nor shall the
Issuer, its officers, employees and agents be indemnified to the extent that the Issuer, its
officers, employees and agents are covered by or have the defense of sovereign immunity (provided,
however, that the Borrower will still indemnify the Issuer, its officers, employees and agents for
all reasonable costs, including, but not limited to, reasonable attorneys’ fees, in connection with
any suit in which the Issuer, its officers, employees and agents are covered by or have a
successful defense of sovereign immunity).

     The Borrower agrees to indemnify the Trustee, the Paying Agent, the Registrar and their
respective officers, employees and agents for, and to hold them harmless against, any loss,
liability or expense incurred without gross negligence, willful misconduct or bad faith on their
part, arising out of or in connection with the acceptance or administration of the trust or trusts
and duties hereunder and under the Bond Documents, including the costs and expenses (including
attorneys’ fees) of defending themselves against any claim or liability in connection with the
exercise or performance of any of their powers or duties hereunder.

     If the indemnification provided for herein is held by a court to be unavailable or is
insufficient to hold any indemnified party harmless in respect of any losses, claims, damages or
liabilities (or actions in respect thereof), then the Borrower shall contribute to the amount paid
or payable by the indemnified party as a result of the losses, claims, damages or liabilities (or
actions in respect thereof) in such proportion as is appropriate to reflect the relative fault of
the Borrower

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on the one hand and the indemnified party on the other hand, as well as any other relevant
equitable considerations.

     The obligations of the Borrower under this Section shall survive the termination of this Loan
Agreement and the payment and performance of all other of the Borrower’s Bond Obligations.

     All acts, including any failure to act, relating to the Property by any agent, representative
or designee of the Trustee are performed solely for the benefit of the Trustee and the Owners to
assure repayment of the Loans and are not for the benefit of the Borrower or the benefit of any
other person. The obligations of the Borrower under this Section shall survive the termination of
this Loan Agreement and the payment and performance of all other of the Borrower’s Bond
Obligations.

     SECTION
7.5. Right to Perform; Advances by Issuer or Trustee. If the Borrower fails
to make, or cause to be made, any payment or to perform any other of the Borrower’s Bond
Obligations, the Issuer or the Trustee, without notice or demand upon the Borrower, without
waiving any default or releasing the Borrower from the Borrower’s Bond Obligations, and without
being under any obligation to do so, may make such payment or perform the Borrower’s Bond
Obligations. All amounts so paid by the Issuer or the Trustee and all costs, fees and expenses
incurred by the Issuer or the Trustee in connection with such payment or performance shall be
immediately due and payable by the Borrower as additional payments, together with interest thereon
from the date the same are paid or incurred at the Penalty Rate, until the same are paid in full
by the Borrower.

     SECTION 7.6. Agreement to Pay Attorneys’ Fees and Expenses. In the event the Borrower
defaults under any of the provisions of the Bond Documents and the Issuer or the Trustee employs
attorneys or incurs other expenses for the collection of amounts due hereunder or the enforcement
of performance or observance of any obligation or agreement on the part of the Borrower contained
in the Bond Documents, the Borrower will, on demand therefor, pay to the Issuer or the Trustee the
reasonable fees of such attorneys and such other expenses so incurred by the Issuer or the
Trustee.

     SECTION 7.7. Inspection of Property. The Borrower will permit the Issuer or the
Trustee or any person or persons authorized by the Issuer or the Trustee to enter and make
inspections of the Property or any part thereof at all reasonable times and as often as may be
reasonably requested by the Trustee or the Issuer, and at any time whatsoever without notice to
enforce any remedies upon the occurrence of an Event of Default.

     SECTION 7.8. No Warranty of Suitability or Merchantability by Issuer. The Borrower
recognizes that since any plans and specifications for the 2003 Facility and any Additional
Facilities are furnished by it, and since any items of equipment are selected by it and are to be
installed in accordance with its directions, the Issuer makes no warranty, either express or
implied, and offers no assurances that the 2003 Facility and any Additional Facilities will be
suitable for the Borrower’s purposes or needs or that the proceeds derived from the Loans will be
sufficient to pay or refinance in full all costs of the acquisition of the 2003 Facility and any
Additional Facilities. Without limiting the generality of the foregoing provisions of this Section,
the Borrower hereby

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acknowledges that THE ISSUER DOES NOT IN ANY WAY WARRANT THE MERCHANTABILITY OF ANY
EQUIPMENT, AND THAT THERE ARE NO IMPLIED WARRANTIES OR WARRANTIES OF FITNESS MADE BY THE ISSUER.
By acceptance of each item of equipment, the Borrower is deemed to have acknowledged to the Issuer
that such item of equipment is in acceptable condition and operating order.

     SECTION 7.9. Issuer’s Rights to Approve Certain Actions and Receive Notices and
Information. Notwithstanding the Granting Clauses of the Indenture, the Issuer reserves to
itself and shall retain the right to grant any and all approvals which the Issuer is specifically
entitled to grant under the terms of the Bond Documents, and the right to receive from time to
time reports, notices and other information from the Borrower or any other person pursuant to the
Bond Documents.

     SECTION 7.10. Officials of Issuer Not Liable. No covenant or agreement contained in
the Bonds or in the other Bond Documents shall be deemed to be the covenant or agreement of any
member, director, official, officer, agent, or employee of the Issuer, the Department or the State
in his or her individual capacity, and neither any member, director, official, officer, agent or
employee of the Issuer, the Department or the State nor any official or officer executing the Bonds
shall be liable personally on the Bonds or be subject to any personal liability or accountability
by reason of the issuance thereof.

ARTICLE VIII

COVENANTS OF BORROWER

     SECTION 8.1. Covenants of Borrower. Throughout the Loan Term and until all of the
Issuer’s Obligations and the Borrower’s Bond Obligations shall have been paid and performed in
full, the Borrower will:

          (a) Conduct of Business, Corporate Existence. Continue to engage in the business of
operating the Property for the purposes for which it is intended to be operated on the date of this
Loan Agreement and shall cause to be done all things necessary to obtain, preserve and keep in full
force and effect (i) its existence in good standing as a Delaware corporation, qualified to do
business in the State and (ii) all licenses which are necessary for its business operations on the
Property.

          (b) Compliance with Laws. Comply with all applicable federal, State and local laws,
rules and regulations, including, without limitation, the Employee Retirement Income Security Act
of 1974, as amended, and laws relating to nondiscrimination in employment subject to the Borrower’s
right to contest any of the foregoing, at its sole cost and expense, in good faith, and by
appropriate and diligent proceedings.

          (c) Books and Records. Permit access by the Trustee, the Issuer and the Credit
Facility Provider to the books and records of the Borrower at the offices of the Borrower during
normal business hours and prior to an Event of Default upon reasonable notice.

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          (d) Taxes and Claims. Pay and discharge all applicable Taxes, imposed upon it
or its income or properties prior to the date upon which penalties attach thereto, and all lawful
claims which, if unpaid, might become a lien or charge upon any of its properties, subject to the
right of the Borrower to contest any of the foregoing, at its sole cost and expense, in good faith,
by appropriate and diligent proceedings and after the establishment of reasonable reserves.

          (e) Financial Statements. Maintain at all times a system of accounting established
and administered in accordance with generally accepted accounting principles and deliver to the
Issuer:

               (i) as soon as available but in no event more than 90 days after the close of each of the
Borrower’s fiscal years, a copy of the annual financial statements in reasonable detail
satisfactory to the Issuer relating to the Borrower prepared in accordance with generally accepted
accounting principles and examined and certified by an Independent Accountant, which financial
statements shall include a balance sheet of the Borrower as at the end of such fiscal year, a
statement of earnings and surplus of the Borrower for such fiscal year and a statement of changes
in cash flow of the Borrower for such fiscal year; and

               (ii) with reasonable promptness, such additional information, reports or statements as the
Issuer may from time to time reasonably request.

          (f) Drug and Alcohol Free Workplace. Make a good faith effort to eliminate illegal
drug use and alcohol and drug abuse from any workplace of the Borrower in the State, including,
without limitation, the 2003 Facility and any Additional Facilities, during the term of this
Agreement by:

               (i) prohibiting the unlawful manufacture, distribution, dispensation, possession, or use of
drugs in any workplace of the Borrower in the State, including, without limitation, the 2003
Facility and any Additional Facilities;

               (ii) prohibiting its employees from working while under the influence of alcohol or illegal
drugs or abusing alcohol or drugs;

               (iii) not hiring or assigning to work on an activity funded in whole or part with State funds
anyone whom it knows, or in the exercise of due diligence should know, currently abuses alcohol or
drugs and is not actively engaged in a bona fide rehabilitation program;

               (iv) promptly informing the appropriate law enforcement agency of every drug-related crime
that occurs in any workplace of the Borrower in the State, including, without limitation, the 2003
Facility and any Additional Facilities if it or its employee has observed the violations or
otherwise has reliable information that a violation has occurred; and

               (v) notifying employees that illegal drug use and alcohol and drug abuse are banned in any
workplace of the Borrower in the State, including, without limitation,

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the 2003 Facility and any Additional Facilities, imposing sanctions on employees who abuse drugs
and alcohol in any workplace of the Borrower in the State, including, without limitation, the 2003
Facility and any Additional Facilities, and instituting steps to maintain any workplace of the
Borrower in the State, including, without limitation, the 2003 Facility and any Additional
Facilities, free from illegal drug use and drug and alcohol abuse.

          (g) Employment Count. Upon request, but not more frequently than twice annually,
supply the employment count at the 2003 Facility and any Additional Facilities to the Issuer,
including the number of employees of any tenants.

          (h) Insurance. Maintain policies of insurance in such amounts as is required by the
Issuer from time to time, including (without limitation) Property Damage, Bodily Injury, Worker’s
Compensation, Business Interruption, Fire and Extended Coverage, Builder’s Risk, Flood and General
Contractor’s Insurance. In addition, all insurance coverage shall be evidenced by binders or
properly endorsed policies and not certificates. Where appropriate, all binders and
policies shall have attached thereto standard non-contributing, non-reporting mortgagee or loss
payee clauses, as appropriate, in favor of Manufacturers and Traders Trust Company, at an address
to be supplied by it and Maryland Industrial Development Financing Authority, 22nd
Floor, Redwood Tower, 217 E. Redwood Street, Baltimore, Maryland 21202; and such binders and
policies shall contain exactly the following cancellation clause:

     “These policies will not be cancelled without 30 days’ prior written notice to Manufacturers
and Traders Trust Company and Maryland Industrial Development Financing Authority.”

          (i) Issuer’s Insurance Premium. Pay directly to the Bank, for remittance to the
Issuer, the Issuer’s insurance premium payable in advance on the Closing Date and on the first day
of each anniversary of the Closing Date in the amount of one-half of one percent (.5%) of the
outstanding insured principal balance of the Letter of Credit.

          (j) Issuer’s Issuance Fee. Pay directly to the Issuer the Issuer’s issuance fee
referred to in Section 7.2(a) hereof.

          (k) Licenses and Permits. Obtain and maintain all licenses and permits required for
the Borrower’s operations.

          (l) Appraisals. Permit the Bank and/or the Issuer from time to time, at the Borrower’s
expense, to order an appraisal of all equipment to be performed by an appraiser or appraisers
selected by the Bank and/or the Issuer, in their sole discretion; provided, however, that the
Borrower shall only be obligated to pay for one appraisal of the equipment in any twelve month
period unless a default or event of default has occurred and is continuing under the Bond Documents
or the Credit Facility Documents. The Borrower further agrees to (i) fully cooperate with such
appraisers, (ii) provide such appraisers with access to the equipment and with any information
regarding the equipment as is reasonably requested, and (iii) permit the Bank and the Issuer, their
agents and representatives, to disclose to such appraisers any and all information they may have
with regard to the equipment, the Borrower and the Loans as the Bank and the

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Issuer, in their reasonable discretion, determine is necessary to provide for an accurate
appraisal of the equipment.

          (m) Collaborative Agreements. Provide the Issuer and the Bank with summaries of any
collaborative agreements as may be qualified by confidentiality agreement within 30 days after the
effective date of such agreement or agreements.

     SECTION 8.2. Negative Covenants of the Borrower. Without the prior written consent of
the Issuer and the Bank, the Borrower will not:

          (a) Borrowing. Borrow any funds or incur any indebtedness except (i) indebtedness
in existence as of the Closing Date and of which the Borrower has informed the Bank and the Issuer
in writing prior to the Closing Date, (ii) indebtedness of the Borrower or any subsidiary
specifically permitted by (b) below, (iii) short-term trade indebtedness incurred in the ordinary
course of business, (iv) equipment financing; or (v) indebtedness incurred in accordance with any
Credit Facility Agreement then in effect.

          (b) Mortgages and Pledges. Create, incur or assume any mortgage, pledge, lien or
other encumbrance of any kind upon any of its property or assets, whether now owned or hereafter
acquired, except:

               (i) encumbrances permitted by Section 11.1 (f) of the Letter of Credit Agreement,

               (ii) liens for taxes not delinquent or being contested in good faith and by appropriate
proceedings,

               (iii) liens in connection with worker’s compensation, unemployment insurance or other social
security obligations,

               (iv) deposits or pledges to secure bids, tenders, contracts (other than contracts for the
payment of money), leases, statutory obligations, surety and appeal bonds and other obligations of
like nature arising in the ordinary course of business, and

               (v) mechanics’, worker’s, materialmen’s, landlords’, carriers’, or other like liens arising
in the ordinary course of business with respect to obligations which are not due or which are
being contested in good faith.

          (c)
Merger, Acquisition or Sale of Assets. Enter into any merger,
consolidation, or dissolution or acquire all or substantially all of the assets of any person, or
sell, lease, or otherwise dispose of any of its assets (except assets disposed of in the ordinary
course of business and except in accordance with the Credit Facility Agreement then in effect).

          (d) Management. Fail to notify the Bank and the Issuer of any change in the executive
management of the Borrower. For purposes of this subsection, “executive
management” shall mean the President, Chief Executive Officer, Chief Operating Officer and Chief
Financial Officer of the Borrower.

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          (e) Loans. Make loans or advances to any person, except for advances for
customary and reasonable business expenses.

          (f) Contingent Liabilities. Guaranty the indebtedness of any person or
entity.

          (g) Investments. Purchase or invest in non-operating assets not in compliance with the
Borrower’s investment policy.

          (h) Equal Employment for Contractors. Discriminate on the basis of race, color, sex,
religion, or national or ethnic origin in its hiring of contractors to carry out any portion of
the 2003 Facility or any Additional Facilities. The Borrower further covenants that it shall
prohibit its contractors from engaging in such discrimination in the hiring of subcontractors to
carry out any portion of the 2003 Facility or any Additional Facilities.

ARTICLE IX

SPECIAL TERMS AND PROVISIONS

     SECTION
9.1. Service of Process; Consent to Jurisdiction; Waiver of Jury Trial. (a)
The Borrower hereby agrees and consents that any action or proceeding arising out of or brought to
enforce the provisions of this Loan Agreement or any of the other Bond Documents may be brought in
any appropriate court in the State of Maryland or in any other court having jurisdiction over the
subject matter, all at the sole election of the Issuer or the Trustee, and by the execution of
this Loan Agreement, the Borrower irrevocably consents to the jurisdiction of each such court.

          (b) If for any reason the Borrower should become not qualified to do business in the State,
the Borrower hereby agrees to designate and appoint, without power of revocation, an agent for
service of process within the State of Maryland, as the agent for the Borrower upon whom may be
served all process, pleadings, notice or other papers which may be served upon the Borrower as a
result of any of the Borrower’s Bond Obligations.

          (c) The Borrower covenants that throughout the period during which any of the Bonds remain
Outstanding, if a new agent for service of process within the State of Maryland is designated, the
Borrower will immediately file with the Trustee and the Issuer the name and address of such new
agent and the date on which his appointment is to become effective.

          (d) The Borrower and the Issuer hereby waive trial by jury in any action or proceeding to
which the Borrower and the Issuer may be parties, arising out of or in any way pertaining to this
Loan Agreement or any of the other Bond Documents. It is agreed and understood that this waiver
constitutes a waiver of trial by jury of all claims against all parties to such actions or
proceedings, including claims against parties who are not parties to this Loan Agreement.

          This waiver is knowingly, willingly and voluntarily made by the Borrower, and the Borrower
hereby represents that no representations of fact or opinion have been made by any

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individual to induce this waiver of trial by jury or to in any way modify or nullify its
effect. The Borrower further represents that it has been represented in the signing of this Loan
Agreement and in the making of this waiver by independent legal counsel, selected of its own free
will, and that it has had the opportunity to discuss this waiver with counsel.

     SECTION 9.2. Further Assurances and Corrective Instruments. The Issuer and the
Borrower agree that they will, from time to time, execute and deliver or cause to be executed and
delivered, such supplements hereto and such further instruments as may reasonably be required for
carrying out the intention of the parties to, or facilitating the performance of, this Loan
Agreement.

     SECTION 9.3. Estoppel Certificates. The Borrower will, upon not less than 10 business
days’ request by the Trustee or the Credit Facility Provider, execute, acknowledge and deliver to
the Trustee or the Credit Facility Provider a statement in writing, certifying (a) whether the
Bond Documents are unmodified and in full force and effect and whether the payments required by
this Loan Agreement to be paid by the Borrower have been paid, specifying the date and amount of
each of such payments, and (b) the then unpaid balance of the Loans; and stating whether or not,
to the knowledge of the signer of such certificate, the Issuer or the Borrower is in default in
the performance of any covenant, agreement or condition contained in this Loan Agreement or in any
of the other Bond Documents or the Credit Facility Documents and, if so, specifying each such
default of which the signer may have knowledge, it being intended that any such statement
delivered pursuant to this Section may be relied upon by the Trustee or the Credit Facility
Provider.

     SECTION
9.4. Authorized Borrower Representative; Authorized Issuer Representative;
Successors. The Borrower and the Issuer, respectively, shall designate, in the manner
prescribed in Section 1.1 of the Indenture, the Authorized Borrower Representative and the
Authorized Issuer Representative. In the event that any person or persons so designated and their
alternate or alternates, if any, becomes unavailable or unable to take any action or make any
certificate provided for or required in this Loan Agreement, a successor or successors shall be
appointed in the same manner. Whenever under the provisions of this Loan Agreement the approval of
the Issuer or the Borrower is required, or the Issuer or the Borrower is required to take some
action at the request of the other, such approval or such request shall be given for the Issuer by
the Authorized Issuer Representative and for the Borrower by the Authorized Borrower
Representative, and the other party hereto and the Trustee are authorized to rely upon any such
approval or request, and neither party hereto shall have any complaint against the other nor
against the Trustee as a result of any such reliance; provided, however, that no such acceptance
shall be deemed to be a waiver of any right or remedy which the Borrower may have against any third
party.

     SECTION 9.5. Net Proceeds. If the Property is damaged or either partially or totally
destroyed, or if title to or the temporary use of the whole or any part of the Property is taken
or condemned by a competent authority for any public use or purpose, there shall be no abatement
or reduction in the amounts payable by the Borrower hereunder, and the Borrower shall continue to
be obligated to make such payments. All Net Proceeds shall be applied in accordance with the terms
of the Letter of Credit Agreement and the Indenture.

     SECTION 9.6. Compliance with Indenture. The Borrower agrees that, whenever the
Indenture by its terms imposes a duty or obligation on the Borrower, such duty or obligation shall

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be binding upon the Borrower to the same extent as if the Borrower were an express party to
the Indenture, and the Borrower agrees to carry out and perform all of its obligations under the
Indenture.

ARTICLE X

USE OF PROPERTY; ASSIGNMENT; LEASING; REDEMPTION

     SECTION 10.1. Use of Property. The Borrower shall use the Property as a corporate
headquarters and laboratory research facility or for any other lawful use approved by the Issuer
and the Credit Facility Provider, such approval not to be unreasonably withheld.

     SECTION 10.2.1. Assignment of Loan Agreement. This Loan Agreement may be assigned by
the Borrower, but only with the prior written consent of the Issuer and the Credit Facility
Provider.

     SECTION 10.2.2. Assignment of the Property. The Borrower’s interest in the Property
may be assigned, sold or otherwise disposed of, as a whole or in part, or leased as a whole by the
Borrower, but only with the prior written consent of the Issuer and the Credit Facility Provider,
subject, however, to applicable provisions of the Credit Facility Agreement and this Loan
Agreement with respect to any leasing or assignment of the Property. Any such assignment or other
disposition, or leasing as a whole, which is consented to by the Issuer and the Credit Facility
Provider shall be further subject to the following conditions:

          (a) No assignment, leasing, sale or other disposition shall relieve the Borrower from primary
liability for the Borrower’s Bond Obligations, and in the event of any such assignment or lease,
sale or other disposition, the Borrower shall continue to remain primarily liable for all of the
Borrower’s Bond Obligations.

          (b) The Borrower shall, within 30 days after the delivery thereof, furnish or cause to be
furnished to the Issuer, the Trustee and the Credit Facility Provider a true and complete copy of
each such assignment, lease, sublease, deed or other instrument, as the case may be.

     Notwithstanding the foregoing, during any period in which the Credit Facility is in effect,
and the Credit Facility Provider has not wrongfully failed to honor any drawing under the Credit
Facility (which drawing strictly complies with, and conforms to, the terms and conditions of the
Credit Facility), the Borrower, in connection with any such assignment, leasing, sale or other
disposition, may be relieved of liability for the Borrower’s Bond Obligations, if:

          (a) the Credit Facility Provider and the Issuer both agree, in writing, that the Borrower may
be so relieved from such liability;

          (b) the assignee, lessee or transferee assumes, in writing, all of the Borrower’s Bond
Obligations; and

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          (c) all other conditions set forth above in this Section are met and complied with
in all respects.

     The Credit Facility Provider, as a condition to its approval of any such assignment or
disposition or leasing as a whole, may require that the net proceeds of any such assignment or
disposition or leasing be applied to the redemption of the Bonds.

     SECTION 10.3. Assignment by the Issuer. The Issuer, simultaneously with the delivery
of this Loan Agreement, has assigned to the Trustee and the Credit Facility Provider, pursuant to
the Indenture, as security for the Issuer’s Obligations (among other things), all of the Issuer’s
right, title and interest in and to and remedies under the Bond Documents, including the Revenues,
and including (without limitation) any and all security referred to herein, excepting only the
Reserved Rights of the Issuer. The Borrower consents to such assignment and agrees that it will
make payment directly to the Trustee of all Revenues.

     SECTION 10.4. Redemption of Bonds. The Issuer, at the request at any time and expense
of the Borrower, shall forthwith take all steps that may be necessary for the Issuer to take under
the applicable redemption provisions of the Indenture to effect redemption of all or part of the
then Outstanding Bonds in accordance with the provisions of the Indenture.

ARTICLE XI

EVENTS OF DEFAULT AND REMEDIES

     SECTION 11.1. Events of Default Defined. The following shall be “Events of Default”
under this Loan Agreement, and the term “Event of Default” shall mean, whenever it is used in this
Loan Agreement, any one or more of the following events:

          (a) If any material representation or warranty made herein or in any other of the Bond
Documents or in any report, certificate, financial statement, opinion or other instrument furnished
in connection with this Loan Agreement proves to be false or misleading in any material respect
when made or affirmed; provided, however, that so long as the Credit Facility Provider has not
wrongfully failed to honor any draft drawn under the Credit Facility made in accordance with the
terms of the Credit Facility (which drawing strictly complies with, and conforms to, the terms and
conditions of the Credit Facility) presented under the Credit Facility, the event described in this
paragraph (a) shall not constitute an Event of Default hereunder, unless the Credit Facility
Provider declares the same to be an Event of Default hereunder by notice given in writing and
delivered to the Trustee, the Issuer and the Borrower accompanied by a written request that the
Bonds and all accrued and unpaid interest thereon become immediately due and payable; or

          (b) Failure by the Borrower to make any interest payment hereunder, but only if such failure
results in a failure to pay interest on the Bonds on any Bond Payment Date; or

          (c) Failure by the Borrower to make any principal payment hereunder, but only if such failure
results in a failure to pay principal of the Bonds on any Bond Payment Date; or

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          (d) Failure by the Borrower to pay amounts to be paid with respect to the purchase price of
the Bonds Tendered or Deemed Tendered for Purchase on any Tender Date, which failure continues for
a period of ten days; provided however, that such failure shall not constitute an Event of Default
hereunder so long as the Credit Facility Provider has not failed to honor any drawing (which
drawing strictly complies with, and conforms to, the terms and conditions of the Credit Facility)
presented under the Credit Facility, unless the Credit Facility Provider declares the same to be an
Event of Default hereunder by notice given in writing and delivered to the Trustee and the Borrower
accompanied by a written request that the Bonds and all accrued and unpaid interest thereon become
immediately due and payable; or

          (e) The Trustee’s receipt of written notice from the Credit Facility Provider that an “Event
of Default” (as that term is defined in the Credit Facility Agreement) has occurred under the
Credit Facility Agreement accompanied by a written request that the Bonds and all accrued and
unpaid interest thereon become immediately due and payable; or

          (f) An Act of Bankruptcy occurs; provided, however, if an Act of Bankruptcy is filed or
commenced against the Borrower, the same shall not constitute an Event of Default hereunder if such
Act of Bankruptcy is dismissed within 60 days from the date of such Act of Bankruptcy; or

          (g) If by reason of an “Event of Default” (as that term is defined in the Indenture) under the
Indenture the Bonds automatically become, or are declared, due and payable by acceleration of
maturity in accordance with Section 9.2(a) of the Indenture; or

          (h) Failure by the Borrower to pay when due any amount required to be paid under this Loan
Agreement or to observe and perform any covenant, condition or agreement on its part to be
observed or performed (other than a failure described in clause (b), (c), (d) or (j) of this
Section), which failure continues for a period of 30 days after written notice, specifying such
failure and requesting that it be remedied, shall have been given to the Borrower by the Trustee
or to the Borrower and the Trustee by the Issuer, unless the Issuer and the Trustee agree in
writing to an extension of such period prior to its expiration; provided, however, that if such
failure is other than the payment of money and cannot be cured within such 30 day period, and if
corrective action is initiated by the Borrower within such period and is being diligently pursued,
and the Borrower certifies to the Trustee that the conditions to such extension contained in this
paragraph (h) have been complied with, such failure shall not constitute an Event of Default
hereunder; provided further, however, that such failure shall not constitute an Event of Default
hereunder so long as the Credit Facility Provider has not failed to pay any drawing (which drawing
strictly complies with, and conforms to, the terms and conditions of the Credit Facility)
presented under the Credit Facility, unless the Credit Facility Provider declares the same to be
an Event of Default hereunder by notice given in writing and delivered to the Trustee and the
Borrower accompanied by a written request that the Bonds and all accrued and unpaid interest
thereon become immediately due and payable; or

          (i) An Event of Default (as that term is defined in the Security Agreement) occurs under the
Security Agreement; provided, however, that such occurrence shall not constitute an Event of
Default hereunder so long as the Credit Facility Provider has not failed to pay any

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drawing (which drawing strictly complies with, and conforms to, the terms and conditions of the
Credit Facility) presented under the Credit Facility, unless the Credit Facility Provider declares
the same to be an Event of Default hereunder by notice given in writing and delivered to the
Trustee and the Borrower accompanied by a written request that the Bonds and all accrued and
unpaid interest thereon become immediately due and payable; or

          (j) Failure by the Borrower to pay the Issuer’s Annual Fee when due and payable.

     SECTION 11.2. Remedies on Default. (a)(i) Upon the occurrence and continuance of an
Event of Default described in paragraph (b), (c) or (d) of Section 11.1 hereof, the Trustee shall,
by written notice to the Issuer, the Borrower, the Remarketing Agent and the Credit Facility
Provider, declare all payments payable under Section 3.3 hereof for the remainder of the Loan
Term, together with all other moneys payable hereunder, to be immediately due and payable,
whereupon they shall, without further action, become and be immediately due and payable; anything
in this Loan Agreement or in the other Bond Documents to the contrary notwithstanding.

               (ii) Upon the occurrence and during the continuance of an Event of Default described in
paragraph (a), (h) or (i) of Section 11.1 hereof, the Trustee may and, at the written request of
the Owners of not less than 25% in aggregate principal amount of the Bonds then Outstanding,
shall, by written notice to the Issuer, the Borrower, the Remarketing Agent and the Credit
Facility Provider, declare all payments payable under Section 3.3 hereof for the remainder of the
Loan Term, together with all other moneys payable hereunder, to be immediately due and payable,
whereupon they shall, without further action, become and be immediately due and payable.

               (iii) Upon the occurrence of an Event of Default described in paragraph (e), (f) or (g) of
Section 11.1 hereof, all payments payable under Section 3.3 hereof for the remainder of the Loan
Term, together with all other moneys payable hereunder, shall automatically become immediately due
and payable without the necessity of any declaration or other action by the Trustee or any other
person.

               (iv) Upon the occurrence of an Event of Default described in paragraph (j) of Section 11.1
hereof, the Trustee shall not declare all payments payable under Section 3.3 hereof for the
remainder of the Loan Term, together with all other moneys payable hereunder, to be immediately
due and payable, unless the Issuer so directs the Trustee in writing. If such written direction is
received by the Trustee, the Trustee shall, by written notice to the Issuer, the Borrower, the
Remarketing Agent and the Credit Facility Provider, declare all payments payable under Section 3.3
hereof for the remainder of the Loan Term, together with all other moneys payable hereunder, to be
immediately due and payable.

               (v) Upon any such acceleration of maturity of the amounts payable hereunder as described in
clause (i), (ii), (iii) or (iv) of this paragraph (a), the Trustee shall give notice thereof to the
Issuer, the Borrower, the Remarketing Agent and the Credit Facility Provider and, by Mail, to all
Owners of Outstanding Bonds, and the Trustee shall immediately draw moneys under the Credit
Facility as provided in Section 9.2(a)(iv) of the Indenture.

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          (b) If the amounts drawn under the Credit Facility are not sufficient to pay all of the
principal of and interest on all Bonds then Outstanding, the Trustee may take one or more of the
following steps:

               (i) Have access to and inspect, examine and make copies of the books and records and any and
all accounts and similar data of the Borrower.

               (ii) Take whatever action at law or in equity may appear necessary or desirable to collect
the payments and other amounts then due and thereafter to become due or to enforce performance and
observance of any obligation, agreement or covenant of the Borrower under this Loan Agreement.

               (iii) Proceed under the Uniform Commercial Code and in conjunction therewith exercise all of
the rights, remedies and powers of a secured party under the Uniform Commercial Code.

               (iv) Subject to the terms thereof, exercise any rights and remedies it may have under the
Bond Documents securing repayment of the Loans or payment of the Bonds, including the right to
draw under the Credit Facility.

               (v) Proceed under the Uniform Commercial Code as to all or any part of the security referred
to in Section 2.6 hereof, and in conjunction therewith exercise all of the rights, remedies and
powers of a secured party under the Uniform Commercial Code, including, without limitation, taking
possession of such security pursuant to Section 9-503 of the Uniform Commercial Code. Any
notification required by the Uniform Commercial Code shall be deemed reasonably and properly given
if mailed certified mail, return receipt requested, postage prepaid, by the Trustee to the Borrower
at the address specified in Section 12.1 hereof at least 10 days before any sale or other
disposition of any of such security referred to in Section 2.6 hereof. Disposition of any of the
security referred to in Section 2.6 hereof, shall be deemed commercially reasonable if made
pursuant to a public offering advertised at least once a week for two consecutive weeks in a
newspaper of general circulation in the community in which the Property is located.

          (c) Any amounts collected pursuant to action taken under this Section shall be paid into the
Bond Fund and applied in accordance with the provisions of the Indenture.

          (d) No action taken pursuant to this Section shall relieve the Borrower from the Borrower’s
Bond Obligations or the Borrower’s Credit Facility Obligations, all of which shall survive any such
action, and the Trustee may take whatever action at law or in equity as may appear necessary and
desirable to collect the payments and other amounts then due and thereafter to become due or to
enforce the performance and observance of the Borrower’s Bond Obligations.

          (e) Any waiver of any “Event of Default” (as that term is defined in the Indenture) under the
Indenture and a rescission and annulment of its consequences shall constitute a waiver of the
corresponding Event of Default under this Loan Agreement and a rescission and annulment of the
consequences thereof.

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          (f)(i) Upon the occurrence of an Event of Default hereunder, the Credit Facility Provider
shall have the right, but not the obligation, (A) in accordance with the terms of the Credit
Facility Documents, to permit the Borrower to cure such Event of Default and (B) to exercise any
and all rights and remedies set forth herein or under any of the other Bond Documents, and to step
in and assume in writing and take over all of the Borrower’s rights and obligations under the Bond
Documents and may then in so doing:

               (1) cure any such Event of Default without prejudice to the Credit Facility Provider’s
rights and remedies against the Borrower;

               (2) assume management, operation and control of the Property; and

               (3) assume the Borrower’s Bond Obligations.

               (ii) If the Credit Facility Provider has elected its right to cure pursuant to clause (f)(i)
above and that right to cure has not terminated under the terms hereof, the Credit Facility
Provider, at its option, may sell or assign its rights and obligations thus assumed under the Bond
Documents to a third party of its choice, provided, however, that the Credit Facility Provider
must (A) obtain the prior written consent of the Issuer to any such sale or assignment, and (B)
deliver to the Trustee an instrument or instruments evidencing the third party’s assumption of the
Borrower’s rights and obligations. The Issuer shall consider the merits of such a sale or
assignment within 30 calendar days of the Credit Facility Provider’s request for its consent. The
Issuer further agrees that such consent to a sale or assignment by the Credit Facility Provider to
a third party pursuant to this clause (f)(ii) shall not unreasonably be withheld and may be
subject to certain conditions.

          If the Credit Facility Provider has elected its right to cure hereunder and either owns the
Property or has sold or assigned the Property to a third party, the Credit Facility Provider shall
continue to make payments to the Trustee under the Credit Facility. If the Credit Facility
Provider fails to make a payment when drawn under the Credit Facility within the time provided in
the Credit Facility and subject to the terms thereof, the rights of the Credit Facility Provider
under this Section 11.2(f) shall immediately terminate, and the Trustee may then exercise its
remedies under the Indenture and pursue its rights and remedies hereunder.

     SECTION
11.3. No Remedy Exclusive; Trustee and Owners Deemed Third-Party
Beneficiaries. No remedy herein conferred upon or reserved to the Issuer or the Trustee is
intended to be exclusive of any other available remedy or remedies, but each and every such remedy
shall be cumulative and shall be in addition to every other remedy given under this Loan Agreement
or any of the other Bond Documents or now or hereafter existing at law or in equity or by statute.
No delay or omission to exercise any right or power accruing upon any default shall impair any such
right or power or shall be construed to be a waiver thereof, but any such right and power may be
exercised from time to time and as often as may be deemed expedient. In order to entitle the Issuer
or the Trustee to exercise any remedy reserved to it in this Article, it shall not be necessary to
give any notice, other than such notice as may be herein expressly required. Such rights and
remedies as are given the Issuer hereunder shall also extend to the Trustee, and the Trustee and
the Owners of

- 28 -

 

the Bonds shall be deemed third-party beneficiaries of all covenants and agreements herein
contained.

     SECTION 11.4. No Additional Waiver Implied by One Waiver. In the event any agreement
contained in this Loan Agreement should be breached by the Borrower and thereafter waived by the
Issuer or the Trustee, such waiver shall be limited to the particular breach so waived and shall
not be deemed to waive any other breach hereunder.

ARTICLE XII

MISCELLANEOUS

     SECTION 12.1. Notices. All notices, demands, requests, consents, approvals,
certificates or other communications required under this Loan Agreement to be in writing shall be
sufficiently given and shall be deemed to have been properly given three days after the same is
mailed by certified mail, postage prepaid, return receipt requested, addressed to the person to
whom any such notice, demand, request, consent, approval, certificate or other communication is to
be given, at the appropriate address for the Principal Office of such person designated
below:

	 	 	 
	Issuer:

	 	 Maryland Industrial Development Financing Authority
	

	 	 217 E. Redwood Street, 22nd Floor
	

	 	 Baltimore, Maryland 21202
	

	 	 Attention: Executive Director
	 
	 	 
	Borrower:

	 	 Avalon Pharmaceuticals, Inc.
	

	 	 20358 Seneca Meadows Parkway
	

	 	 Germantown, Maryland 20876
	

	 	 Attention: Chief Financial Officer and General Counsel
	 
	 	 
	

	 	 with a copy to:
	 
	 	 
	

	 	 Mark I. Gruhin, Esq.
	

	 	 Schmeltzer, Aptaker & Shepard, P.C.
	

	 	 Suite 1000
	

	 	 2600 Virginia Avenue, N.W.
	

	 	 Washington, DC 20037-1922
	 
	 	 
	Trustee, Paying

	 	 Allfirst Trust Company National Association
	Agent and

	 	 Mail Code 101-951
	Registrar:

	 	 25 South Charles Street
	

	 	 Baltimore, Maryland 21201
	

	 	 Attention: Corporate Trust Department

- 29 -

 

	 	 	 
	Bank:

	 	 Manufacturers and Traders Trust Company
	

	 	 25 South Charles Street, 15th Floor
	

	 	 Baltimore, Maryland 21201
	

	 	 Attention: Letter of Credit Department
	 
	 	 
	

	 	 and
	 
	 	 
	

	 	 Manufacturers and Traders Trust Company
	

	 	 1410 Spring Hill Road, Suite 125
	

	 	 McLean, Virginia 22102
	

	 	 Attention: David DiLuigi
	 
	 	 
	

	 	 with a copy to:
	 
	 	 
	

	 	 Fred Levy, Esq.
	

	 	 Sonnenschein, Nath & Rosenthal
	

	 	 1301 K Street, N.W.
	

	 	 Suite 600, East Tower
	

	 	 Washington, DC 20005
	 
	 	 
	Remarketing

	 	 Manufacturers and Traders Trust Company
	Agent:

	 	 Mail Code 101-343
	

	 	 25 South Charles Street, 12th Floor
	

	 	 Baltimore, Maryland 21201
	

	 	 Attention: Treasury and Securities Markets Division
	 
	 	 
	

	 	 with a copy to:
	 
	 	 
	

	 	 Alan S. Mark, Esq.
	

	 	 Paley, Rothman, Goldstein,
	

	 	 Rosenberg & Cooper, Chartered
	

	 	 4800 Hampden Lane
	

	 	 7th Floor
	

	 	 Bethesda, Maryland 20814

Any person listed above may, by notice given hereunder, designate any further or different
addresses to which subsequent notices, certificates or other communications shall be sent. During
any period in which the Registrar and the Paying Agent are the same and have the same address, any
notice required to be given to either the Registrar or the Paying Agent, or both, may be given by
one notice to the address for the Registrar and Paying Agent set forth above.

     SECTION 12.2. Prior Agreements Cancelled. This Loan Agreement shall completely and
fully supersede all other prior agreements, both written and oral, between the Issuer and the
Borrower relating to the acquisition of the 2003 Facility. Neither the Issuer nor the Borrower
shall

- 30 -

 

hereafter have any rights under such prior agreements but shall look solely to this Loan
Agreement for definitions and determination of all of their respective rights, liabilities and
responsibilities relating to the 2003 Facility and the Series 2003 Loan.

     SECTION 12.3. Filing. The security interest of the Issuer created hereby and the
security interest of the Trustee created by the Indenture shall be perfected by the filing of
financing statements which fully comply with the Uniform Commercial Code. The parties further
agree that all necessary continuation statements shall be filed by the Trustee within the time
prescribed by Uniform Commercial Code in order to continue the security interest created by this
Loan Agreement and the Indenture.

     If, at any time, any of the information contained in any financing statement filed in
connection with the security interests created by the Bond Documents, including without
limitation, the description of any collateral, shall change in such manner as to cause such
financing statement to become misleading in any material respect or as may impair the perfection
of the security interests intended to be created by the Bond Documents, then the Borrower shall
promptly prepare an amendment to such financing statements as may be necessary to continue the
perfection of the security interests intended to be created by the Bond Documents, obtain the
signatures of the debtor and secured party upon such amendment, and file the same in any office
where such amendment is required to be filed to continue the perfection of the security interest
intended to be created thereby. Upon the request of the Trustee, the Borrower shall prepare, have
executed and file any amendments to the financing statements filed with respect to the security
interests created by the Bond Documents in such form as the Trustee may require. The Borrower
shall pay all costs and expenses incurred in connection with the performance of its obligations
set forth in this paragraph.

     SECTION
12.4. Binding Effect; Borrower Bound by Bond Documents and Credit Facility
Documents. This Loan Agreement shall inure to the benefit of and shall be binding upon the
Issuer, the Borrower and their respective successors and assigns. The Borrower consents and agrees
to the terms and provisions of the Indenture and the other Bond Documents and Credit Facility
Documents and agrees that the Borrower and its successors and assigns shall be bound by such terms
and provisions.

     SECTION 12.5. Illegality. If fulfillment of any provision hereof or any transaction
related hereto or to the other Bond Documents, at the time performance of such provisions shall be
due, shall involve transcending the limit of validity prescribed by
law, then ipso facto,
the obligation to be fulfilled shall be reduced to the limit of such validity; and if any clause
or provision herein contained operates or would prospectively operate to invalidate this Loan
Agreement in whole or in part, then such clause or provision only shall be void, as though not
herein contained, and the remainder of this Loan Agreement shall remain operative and in full
force and effect.

     SECTION 12.6. Amendments, Changes and Modifications. This Loan Agreement may not be
amended, changed, modified, altered or terminated except in accordance with the requirements of
Sections 12.5, 12.6 and 12.7 of the Indenture.

- 31 -

 

     SECTION 12.7. Execution of Counterparts. This Loan Agreement may be executed in
several counterparts, each of which shall be an original and all of which shall constitute but one
and the same instrument.

     SECTION 12.8. Law Governing Construction of Loan Agreement. This Loan Agreement is
prepared and entered into with the intention that the law of the State shall govern its
construction.

     SECTION 12.9. Amounts Remaining in Funds. It is agreed by the parties hereto that any
amounts remaining in the Facility Fund, the Net Proceeds Escrow Fund and the Bond Fund under the
Indenture upon expiration or sooner termination of the term hereof, as provided below after
payment in full of the Bonds (or provision for payment thereof having been made in accordance with
the provisions of the Indenture) and all Administration Expenses in accordance with the Indenture
or this Loan Agreement, shall be paid in accordance with the Indenture.

     SECTION 12.10. Payments by Credit Facility Provider. The Credit Facility Provider
shall, to the extent of any payments made by it pursuant to the Credit Facility, be subrogated to
all rights of the Issuer or its assigns (including, without limitation, the Trustee) as to all
obligations of the Borrower with respect to which such payments shall be made by the Credit
Facility Provider, but, so long as any of the Bonds remain Outstanding under the terms of the
Indenture, such right of subrogation on the part of the Credit Facility Provider shall be in all
respects subordinate to all rights and claims of the Issuer for all payments which shall be or
become due and payable under the Indenture or otherwise arising under this Loan Agreement, the
Indenture or the Bonds. The Trustee will, upon request, execute and deliver any instrument
reasonably requested by the Credit Facility Provider to evidence such subrogation, and the Trustee
shall assign its rights in any obligations of the Borrower with respect to which payment of the
entire principal balance and accrued interest thereon shall be made by the Credit Facility
Provider.

     SECTION 12.1l. Conflicts with Credit Facility Agreement. Any provision of this Loan
Agreement to the contrary notwithstanding, the Borrower shall comply with all of the terms and
provisions of the Credit Facility Agreement, the terms of which shall be controlling to the extent
of any conflict with the provisions of this Loan Agreement.

     SECTION 12.12. Approvals of Credit Facility Provider. Any and all approvals by the
Credit Facility Provider of Plans and Specifications, requisitions and any other matters
pertaining to the 2003 Facility and any Additional Facilities or the use of the proceeds of the
Bonds for the 2003 Facility and any Additional Facilities shall be given solely for the benefit of
the Credit Facility Provider and shall not constitute any warranty or representation by the Credit
Facility Provider to any other party as to the technical sufficiency or adequacy or safety of any
structure or any of its component parts and other physical condition or feature pertaining to the
2003 Facility and any Additional Facilities or any use, or the appropriateness of any use, of
proceeds of the Bonds for the 2003 Facility and any Additional Facilities; provided, however, that
such proceeds must be used for appropriate purposes which comply with the purposes of the Acts.

     SECTION 12.13. Effective Date. This Loan Agreement has been dated as of the date
first above written solely for the purpose of convenience of reference and shall become effective
upon

- 32 -

 

its execution and delivery by the parties hereto on the Closing Date. All representations and
warranties set forth herein shall be deemed to have been made on the Closing Date.

[SIGNATURES APPEAR ON THE FOLLOWING PAGE]

- 33 -

 

     IN WITNESS WHEREOF, the parties hereto have caused this Loan Agreement to be duly
executed, sealed and delivered as of the Closing Date.

	 	 	 	 	 	 	 	 	 	 	 	 	 
	WITNESS:	 	 	 	MARYLAND INDUSTRIAL DEVELOPMENT	 	 
	 	 	 	 	 	 	FINANCING AUTHORITY	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	/s/ D. Gregory Cole	 	 	 	By:	 	/s/ Bernard Koman	 	 
	 	 	 	 	 	 	 	 	 
	Name:

	 	D. Gregory Cole
	 	 	 	 	 	Name:
	 	Bernard Koman	 	 
	Title:

	 	Executive Director
	 	 	 	 	 	Title:
	 	Chairman	 	 
	[SEAL]
	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	AVALON PHARMACEUTICALS, INC.	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	/s/ Ammarie Brennan Rice	 	 	 	By:	 	/s/ Kenneth C. Carter	 	 
	 	 	 	 	 	 	 	 	 
	

	 	 	 	 	 	 	 	Name:
	 	Kenneth C. Carter	 	 
	

	 	 	 	 	 	 	 	Title:
	 	CEO	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	[SEAL]
	 	 	 	 	 	 	 	 	 	 	 	 

1455135

 

 

EXHIBIT A

$12,000,000

Maryland Industrial Development Financing Authority

Taxable Variable Rate Demand Revenue Bonds

(Avalon Pharmaceuticals, Inc. Facility)

Series 2003

FORM OF COMPLETION CERTIFICATE

Allfirst Trust Company
  National
Association

25 South Charles Street

Mail Code 101-951

Baltimore, Maryland 21201

Attention: Corporate Trust Department

Maryland Industrial Development
  Financing
Authority

217 E. Redwood Street, 22nd Floor

Baltimore, Maryland 21202

Attention: Executive Director

Manufacturers and Traders Trust Company

1410 Spring Hill Road, Suite 125

McLean, Virginia 22102

Attention: David DiLuigi

     This Completion Certificate is being executed and delivered pursuant to the Trust Indenture
dated as of April 1, 2003 (such Trust Indenture as supplemented and amended from time to time, the
“Indenture”) and the Loan Agreement dated as of April 1, 2003 (such Loan Agreement as supplemented
and amended from time to time, the “Loan Agreement”) each executed and delivered in connection with
the issuance and sale of the above-referenced Bonds. Unless the context clearly indicates a
contrary meaning, all terms used herein and defined in the Indenture or the Loan Agreement have the
meanings set forth in the Indenture or the Loan Agreement.

A - 1

 

     As required by the Indenture and the Loan Agreement, the Borrower hereby certifies
to the Trustee, the Issuer and the Bank that:

          (a) The acquisition of the 2003 Facility (the “Facility”) has been completed in
accordance with the Plans and Specifications therefor and all labor, services, materials and
supplies used in connection therewith have been paid for.

          (b) All other improvements necessary in connection with the Facility have been acquired
and constructed, and all obligations, costs and expenses incurred in connection therewith and
payable out of the Facility Fund have been paid and discharged.

          (c) The Facility is suitable and sufficient for its use as a corporate headquarters and a
laboratory research facility.

          (d) All of the proceeds of the applicable Loan heretofore disbursed by the Trustee have
been used for the payment of Facility Costs for the Facility.

          (e) Delivered to the Credit Facility Provider and the Issuer herewith are the following,
to the extent applicable:

	 	1.  	final lien waivers of the Contractor and all subcontractors,
	 
	 	2.  	a copy of the permanent use and
occupancy certificate authorizing occupancy of the Facility,
	 
	 	3.  	evidence of availability of all applicable insurance, and
	 
	 	4.  	final plans and specifications
(to the Credit Facility Provider only).

          (f) This Certificate is given without prejudice to any rights against third parties which
exist as of the date hereof or which may subsequently come into being.

[SIGNATURES APPEAR ON THE FOLLOWING PAGE]

A - 2

 

     WITNESS MY SIGNATURE THIS                      DAY OF                                         ,           .

	 	 	 	 	 	 	 	 	 
	 	 	 	 	AVALON PHARMACEUTICALS, INC.	 	 
	 
	 	 	 	 	 	 	 	 
	

	 	 	 	By:
	 	                                                            

Authorized Borrower Representative	 	 
	 
	 	 	 	 	 	 	 	 
	APPROVED this       day of           ,           .	 	Approved this       day of           ,           .	 	 
	 
	 	 	 	 	 	 	 	 
	                                                                                

(General Contractor)	 	                                                                                

(Construction Inspector)	 	 
	 
	 	 	 	 	 	 	 	 
	By:

	 	                                                            
	 	By:
	 	                                                            	 	 

APPROVED this       day of                ,      .

                                                            

(Borrower’s Architect)

By:                                                             

A - 3

 

SCHEDULE 7.1

ADMINISTRATIVE EXPENSES OF THE TRUSTEE, THE PAYING AGENT, THE

REMARKETING AGENT AND THE REGISTRAR

A - 4exv10w35a

 

Exhibit 10.35A

AVALON PHARMACEUTICALS, INC.,

as Borrower

and

MANUFACTURERS AND TRADERS TRUST COMPANY,

as Bank

LETTER OF CREDIT AGREEMENT

$12,000,000 Maryland Industrial Development Financing Authority

Taxable Variable Rate Demand Revenue Bonds

(Avalon Pharmaceuticals, Inc. Facility), Series 2003

Dated as of April 1, 2003

 

 

TABLE OF CONTENTS

	 	 	 	 	 
	 	 	 	PAGE
	ARTICLE I. DEFINITIONS
	 	 	1	 
	Section 1.1. Definitions
	 	 	1	 
	Section 1.2. Accounting Terms
	 	 	14	 
	Section 1.3. Rules of Construction
	 	 	14	 
	ARTICLE II. EFFECTIVE DATE OF LETTER OF CREDIT AGREEMENT; DURATION
OF TERM
	 	 	15	 
	Section 2.1. Effective Date of Letter of Credit Agreement; Duration of Term
	 	 	15	 
	ARTICLE III. ISSUANCE OF LETTER OF CREDIT; SECURITY
	 	 	15	 
	Section 3.1. Issuance of Letter of Credit
	 	 	15	 
	Section 3.2. Security
	 	 	15	 
	Section 3.3. Loss to Security
	 	 	16	 
	Section 3.4. Borrower’s Covenants Pertaining to Security
	 	 	16	 
	Section 3.5. Conditions Precedent to Issuance of Letter of Credit
	 	 	16	 
	ARTICLE IV. AGREEMENTS WITH RESPECT TO LETTER OF CREDIT
	 	 	20	 
	Section 4.1. Letter of Credit Fee; Negotiation Fee; Monitoring Fee
	 	 	20	 
	Section 4.2. Transfer of Letter of Credit
	 	 	21	 
	Section 4.3. Payment of Certificates Under the Letter of Credit
	 	 	21	 
	Section 4.4. Amendment of Letter of Credit
	 	 	22	 
	Section 4.5. Liability of the Bank for Use of the Letter of Credit
	 	 	22	 
	Section 4.6. Expenses
	 	 	23	 
	Section 4.7. Bank’s Right to Cure or Avoid Defaults Under Documents
	 	 	23	 
	Section 4.8. Bank’s Obligation
	 	 	24	 
	Section 4.9. Annual Reduction of Stated Amount
	 	 	24	 
	ARTICLE V. PAYMENT PROVISIONS
	 	 	24	 
	Section 5.1. Reimbursement and Other Payments
	 	 	24	 
	Section 5.2. Payments Due Upon Expiration of Letter of Credit
	 	 	27	 
	Section 5.3. Late Payments
	 	 	27	 
	Section 5.4. Increased Costs Due to Change in Law
	 	 	27	 
	Section 5.5. Computation
	 	 	28	 
	Section 5.6. Payment Procedure
	 	 	28	 
	Section 5.7. Business Days
	 	 	28	 
	Section 5.8. Termination of Swap Agreement
	 	 	28	 
	ARTICLE VI. UNCONDITIONAL OBLIGATIONS
	 	 	28	 
	Section 6.1. Obligations Absolute
	 	 	28	 
	ARTICLE VII. REPRESENTATIONS AND WARRANTIES OF BORROWER
	 	 	29	 
	Section 7.1. Representations, Warranties and Undertakings
	 	 	29	 
	ARTICLE VIII. REPRESENTATIONS AND COVENANTS OF BORROWER
WITH RESPECT TO FACILITY; RELATED MATTERS
	 	 	33	 
	Section 8.1. Completion of Facility
	 	 	33	 
	Section 8.2. Covenants by Borrower with Respect to Completion of Facility
	 	 	34	 
	Section 8.3. Enforcement of Remedies Against Contractor and Subcontractors
	 	 	 	 

- i -

 

 

	 	 	 	 	 
	SECTION	 	PAGE 
	and Their Sureties
	 	 	35	 
	Section 8.4. Application of Proceeds of the Bonds
	 	 	35	 
	Section 8.5. Conditions Precedent to the Bank’s Approval of Requisitions for
Disbursements from Facility Fund
	 	 	37	 
	Section 8.6. Financing Sign on Facility; Publicity
	 	 	38	 
	ARTICLE IX. COVENANTS AND AGREEMENTS WITH RESPECT
TO PROPERTY
	 	 	38	 
	Section 9.1. Use of Facility
	 	 	38	 
	Section 9. 2. Compliance with Laws
	 	 	38	 
	Section 9.3. Approvals and Inspections
	 	 	39	 
	Section 9.4. Possession of the Facility
	 	 	39	 
	Section 9.5. Insurance
	 	 	39	 
	Section 9.6 Condemnation
	 	 	43	 
	Section 9.7. Damage and Destruction; Condemnation; Application of Net Proceeds
	 	 	46	 
	Section 9.8. Maintenance and Repair of the Facility
	 	 	47	 
	Section 9.9. Alterations, Additions and Improvements
	 	 	47	 
	Section 9.10 Other Liens
	 	 	48	 
	ARTICLE X. AFFIRMATIVE COVENANTS OF BORROWER
	 	 	48	 
	Section 10.1. Affirmative Covenants of Borrower
	 	 	48	 
	ARTICLE XI. NEGATIVE COVENANTS OF BORROWER
	 	 	52	 
	Section 11.1. Negative Covenants of Borrower
	 	 	52	 
	ARTICLE XII. INDEMNIFICATION
	 	 	56	 
	Section 12.1. Special Indemnity
	 	 	56	 
	Section 12.2. Indemnification of Bank
	 	 	57	 
	Section 12.3. Indemnification Under Letter of Credit and Letter of Credit Documents
	 	 	57	 
	ARTICLE XIII. EVENTS OF DEFAULT AND REMEDIES
	 	 	57	 
	Section 13.1. Events of Default Defined
	 	 	57	 
	Section 13.2. Remedies on Default
	 	 	60	 
	Section 13.3. No Remedy Exclusive
	 	 	62	 
	Section 13.4. Agreement to Pay Attorneys’ Fees and Expenses
	 	 	62	 
	Section 13.5. Waiver of Event of Default; No Additional Waiver
Implied by One Waiver
	 	 	63	 
	Section 13.6. MIDFA Insurance
	 	 	63	 
	ARTICLE XIV. MISCELLANEOUS
	 	 	64	 
	Section 14.1. Notices
	 	 	64	 
	Section 14.2. Prior Agreements Cancelled
	 	 	66	 
	Section 14.3. Filing
	 	 	67	 
	Section 14.4. Binding Effect
	 	 	67	 
	Section 14.5. Illegality; Severability
	 	 	67	 
	Section 14.6. Assignment
	 	 	67	 
	Section 14.7. Consent to Jurisdiction; Service of Process; Waiver of Jury Trial
	 	 	67	 
	Section 14.8. Further Assurances and Corrective Instruments
	 	 	68	 
	Section 14.9. Right to Perform; Advances by Bank
	 	 	68	 
	Section 14.10. Amendments, Changes and Modifications
	 	 	69	 
	Section 14.11. Execution of Counterparts
	 	 	69	 
	Section 14.12. Law Governing Construction of Agreement
	 	 	69	 

- ii -

 

 

	 	 	 	 	 
	SECTION	 	PAGE 
	  Section 14.13.  Effective Date
	 	 	69	 
	  Section 14.14.  Conflicting Agreements
	 	 	69	 
	  Section 14.15.  Specialty
	 	 	69	 

	 	 	 	 	 
	Exhibits	 	 
	 
	 	Exhibit A	 	Form of Letter of Credit
	 
	 	Exhibit B	 	Required Post Closing Documents
	 
	 	Exhibit C	 	Architect Certificate
	 
	 	Exhibit D	 	Contractor Certificate

	 	 	 	 	 
	Schedules	 	 
	 
	 	Schedule 7.1 (z)	 	Redemptions
	 
	 	Schedule 8.2(a)	 	Exceptions to Title
	 
	 	Schedule 11.1 (e)	 	Borrowings
	 
	 	Schedule A	 	Annual Reduction of Stated Amount

- iii -

 

 

LETTER OF CREDIT AGREEMENT

     THIS LETTER OF CREDIT AGREEMENT is dated as of April 1, 2003 and is made by and between
AVALON PHARMACEUTICALS, INC., a Delaware corporation qualified to do business in the State of
Maryland (the “Borrower”), and Manufacturers and Traders Trust Company, a New York banking
corporation (the “Bank”).

RECITALS

     Certain of the terms and words used in these Recitals, and in the following Agreements, are
defined in Section 1.1 of this Letter of Credit Agreement.

     Pursuant to, and in accordance with, the Acts, the Maryland Industrial Development Financing
Authority, a body politic and corporate and a public instrumentality of the State of Maryland (the
“Issuer”), has determined to issue and sell the Bonds in the aggregate principal amount of
$12,000,000 and to lend the proceeds thereof to the Borrower, upon the terms and conditions of the
Loan Agreement, for the sole and exclusive purpose of financing the acquisition by the Borrower of
the Facility.

     The Bonds are being issued pursuant to the Indenture.

     In order to enhance the marketability of the Bonds, the Borrower has requested the Bank to
issue to the Trustee the Bank’s irrevocable transferable letter of credit to provide payment for
and secure the payment of the principal of and interest on, and the purchase price of, the Bonds.
The Bank, in consideration for, among other things, the execution and delivery by the Borrower of
this Letter of Credit Agreement, will issue the Letter of Credit concurrently with the issuance
and delivery of the Bonds.

     Pursuant to and in accordance with the MIDFA Act and subject to the terms and conditions of
the Insurance Agreement, MIDFA, in its capacity as insurer, is providing financial assistance by
insuring, through its Industrial Development Fund, thirty percent (30%) of the outstanding balance
of the Letter of Credit subject to a reduction in the amount insured by MIDFA to twenty-five
percent (25%) of the outstanding balance of the Letter of Credit if a certain event fails to occur
as further described in the Insurance Agreement.

AGREEMENTS

     NOW, THEREFORE, in consideration of the premises, the respective representations, covenants
and agreements hereinafter contained, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, and intending to be legally bound hereby, the
parties hereto agree as follows:

ARTICLE I.

DEFINITIONS

     SECTION 1.1. Definitions. Certain terms used in this Letter of Credit Agreement are
defined in this Section or are defined by reference to one of the Bond Documents or one of the

 

 

other Letter of Credit Documents; and, when and if used herein, such terms shall have the meanings
given to them by the language employed in this Section defining such terms or by the language
employed in such Bond Document or other Letter of Credit Document defining such terms, unless the
context clearly indicates otherwise.

     “Acceleration Drawing” has the meaning given to that term in the Letter of Credit.

     “Act of Bankruptcy” means the filing of a petition in bankruptcy under the Bankruptcy
Code, or the commencement of a proceeding under any other applicable law concerning insolvency,
reorganization or bankruptcy, by or against the Borrower, as debtor.

     “Acts” has the meaning given to that term in the Indenture.

     “Additions” means any and all alterations, additions, accessions, extensions, betterments and
improvements to the Facility (or any portion thereof), substitutions therefor, and renewals and
replacements thereof.

     “Adjusted Market Value” has the meaning given to that term in the Collateral/Control
Agreement.

     “Adjustment Date” has the meaning given to that term by the Indenture.

     “Administration Expenses” means compensation, indemnities and reimbursement of fees,
expenses and advances payable to the Issuer, the Trustee, the Remarketing Agent, the Paying Agent
and the Registrar, all as described in Article VII of the Loan Agreement.

     “Affiliates” means any Person directly or indirectly controlling, controlled by or under
common control with, another Person. For purposes of this definition, the term “control”
(including the correlative meanings of the terms “controlling,” “controlled by” and “under
common control with”), as used with respect to any Person, means the possession, directly
or indirectly, of the power to direct or cause the direction of the management policies of such
Person, whether through the ownership of voting securities or by contract or otherwise,
provided (but without limiting the foregoing) that no pledge of voting securities of any
Person without the current right to exercise voting rights with respect thereto shall by itself be
deemed to constitute control over such Person.

     “Architect Certificate” means the certificate of the Person providing architectural
and engineering services pertaining to the construction of the Facility in the form of Exhibit C
hereof.

     “Architect’s Contract” means the contract or contracts for architectural and/or
engineering services pertaining to the construction of the Facility.

     “Asset Disposition” means the sale, lease or other disposition of any property or
asset (including the capital stock of an Affiliate) by a Person; but for purposes hereof shall not
include, in any event, (a) the sale of inventory in the ordinary course of business, or (b) the
sale or disposition of machinery and equipment no longer used or useful in the conduct of business.

     “Authorized Denomination” has the meaning given to that term by the Indenture.

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     “Authorized Borrower Representative” means the President, Chief Financial
Officer and General Counsel of the Borrower, or such other persons at the time designated to act
on behalf of the Borrower by written certificate furnished to the Trustee and the Bank containing
the specimen signature of such persons and signed on behalf of the Borrower by the President of
the Borrower. Such certificate may designate an alternate or alternates.

     “Available Moneys” has the meaning given to that term by the Indenture.

     “Bank” means Manufacturers and Traders Trust Company, a New York banking corporation, its
successors and assigns.

     “Bankruptcy Code” means the United States Bankruptcy Code, 11 U.S.C. §§ 101 et seq.,
and all future acts supplemental thereto or amendatory thereof.

     “Bond Counsel” has the meaning given to that term by the Indenture.

     “Bond Documents” means and includes (without limitation) the Bonds, the Indenture, the Loan
Agreement, the Placement and Remarketing Agreement and any and all other documents which the
Borrower or any other party or parties or their representatives, have executed and delivered, or
may hereafter execute and deliver, to evidence or secure the Borrower’s Bond Obligations or any
part thereof, or in connection therewith, together with any and all Supplements thereto; provided,
however, that the term “Bond Documents” with the exception of the Pledge and Security Agreement
and the Pledged Bonds Custody Agreement, does not include the Letter of Credit Documents.

     “Bond Fund” means the Bond Fund created in Section 5.1 of the Indenture.

     “Bond Payment Date” means any Interest Payment Date and any other date on which the
principal of, premium (if any) on or interest on the Bonds is to be paid to the Owners thereof
(whether at maturity thereof, or by acceleration of maturity or after notice of redemption or
prepayment or otherwise).

     “Bond Purchase Drawing” means a Bond Purchase Interest Drawing or a Bond Purchase
Principal Drawing.

     “Bond Purchase Interest Drawing” and “Bond Purchase Principal Drawing” each
has the meaning given to that term by the Letter of Credit.

     “Bonds” (or singularly, a “Bond”) means the Issuer’s $12,000,000 Taxable Variable Rate Demand
Revenue Bonds (Avalon Pharmaceuticals, Inc. Facility), Series 2003, issued pursuant to the
Indenture.

     “Bonds Tendered or Deemed Tendered for Purchase” has the meaning given to that term in
the Indenture.

     “Borrower” means Avalon Pharmaceuticals, Inc., a Delaware corporation qualified to do business
in the State of Maryland.

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     “Borrower’s Bond Obligations” has the meaning given to that term in the
Indenture.

     “Borrower’s Letter of Credit Obligations” means the obligations of the Borrower under
the Letter of Credit Documents to pay all payments required by the Letter of Credit Documents,
when and as the same become due and payable, and timely perform, observe and comply with all
terms, covenants, conditions, stipulations and agreements, express or implied, which the Borrower
is required by the Letter of Credit Documents to observe or perform. The “Borrower’s Letter of
Credit Obligations” constitute “Borrower’s Credit Facility Obligations” (as defined in the
Indenture).

     “Business Day” or “business day” means a day on which (a) banks located in any of the cities
in which the Principal Office of the Trustee, the Bank, the Paying Agent and the Remarketing Agent
is located are not required or authorized by law or executive order to close for business, or (b)
the New York Stock Exchange is closed.

     “Capital Lease Obligations” means all obligations of a Person to pay rent or other
amounts under a lease of (or other agreement conveying the right to use) property (real, personal
or mixed) to the extent such obligations are required to be classified and accounted for as a
capital lease on such Person’s balance sheet under GAAP.

     “Change in Control” means the occurrence of any of the following: (a) the sale,
lease, transfer, conveyance or other disposition (other than by way of merger or consolidation) in
one or a series of related transactions, of all or substantially all of the assets of the Borrower
taken as a whole to any “person” (as such term is used in Section 13(d)(3) of the Securities
Exchange Act of 1934), (b) the adoption of a plan relating to the liquidation or dissolution of
the Borrower, or (c) any Person or group of Persons (within the meaning of Section 13(d) of the
Exchange Act, as amended) shall obtain ownership or control, either directly, indirectly, through
voting agreements or otherwise, in one or more series of transactions of more than twenty-five
percent (25%) of the voting stock of the Borrower entitled to vote in the election of members of
the board of directors of the Borrower.

     “Closing Date” means April 8, 2003, the date of the issuance and initial delivery of fully
executed and authenticated Bonds.

     “Code” means the Internal Revenue Code of 1986, as amended, and any successor statute, and
any applicable statutory provision. Each reference to a section of the Code herein shall be deemed
to include the United States Treasury Regulations in effect or proposed from time to time with
respect thereto and applicable to the Bonds or the use of the proceeds thereof.

     “Collateral/Control Agreement” means that certain Collateral Pledge and Security
Agreement and Control Agreement, dated as of even date herewith, entered into by and among the
Bank, the Borrower and the Securities Intermediary.

     “Completion Certificate” means a Completion Certificate, substantially in the form
attached to the Loan Agreement as Exhibit A, signed by an Authorized Borrower
Representative, furnished by the Borrower pursuant to Section 3.5(b) of this Letter of Credit
Agreement and Section 6.3 of the Loan Agreement.

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     “Completion Date” means March 6, 2003.

     “Condemnation
Award” has the meaning given to that term in the Security
Agreement.

     “Contractor” means Whiting-Turner Contracting Company, its successors and assigns.

     “Contractor Certificate” means the certificate of the Contractor in the form of
Exhibit D hereof.

     “Construction Contract” means the construction contract by and between the Borrower
and the Contractor, pertaining to the construction of the Facility.

     “Costs of Issuance” means all fees, costs and expenses incurred in connection with
the issuance of the Bonds.

     “Current Assets” means the assets treated as current assets in accordance with GAAP,
including but not limited to, cash, deposits, marketable securities and accounts receivable.

     “Current Liabilities” means all liabilities treated as current liabilities in
accordance with GAAP including without limitation (a) all obligations payable on demand or within
one year after the date on which the determination is made, and (b) final maturities and sinking
fund payments required to be made within one year after the date on which the determination is
made, but excluding all such liabilities or obligations that are renewable or extendable at the
option of the Borrower to a date more than one year from the date of determination.

     “Debt” of any Person means, without duplication:

     (a) all obligations of such Person for borrowed money and all obligations of such
Person evidenced by bonds, debentures, notes or other similar instruments;

     (b) all obligations, contingent or otherwise, relative to the face amount of all letters of
credit, whether or not drawn, and banker’s acceptances issued for the account of such Person
other than letters of credit or banker’s acceptances that support obligations of such Person in
respect of accounts payable, trade payments and other short-term trade related obligations;

     (c) all obligations of such Person as lessee under leases which have been or should
be, in accordance with GAAP, recorded as capitalized lease obligations; and

     (d) all contingent liabilities of such Person recorded in the financial statements
(including the notes thereto) of such Person and its consolidated subsidiaries in respect of any of
the foregoing.

     For all purposes of this Letter of Credit Agreement, the Debt of any Person shall include the
Debt of any partnership or joint venture characterized as a partnership for commercial law
purposes in which such Person is a general partner or a joint venture. The amount of Debt of any
Person at any date shall be the outstanding balance at such date of all unconditional obligations
as described above and the maximum liability of any such contingent liabilities at such date.

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     “Deposits” has the meaning given to that term in Section 10.1(h)(i) of this Letter of
Credit Agreement.

     “Direct Costs of Construction” means the direct costs of constructing the Facility as
set forth in the Construction Contract and in the trade form cost breakdown furnished by the
Borrower and approved by the Bank.

     “Downgrade” means a withdrawal or a downgrading by one or more Rating Agencies of one full
grade from the long-term debt ratings of the Bank as of the Closing Date.

     “Encumbrance” means any mortgage, deed of trust, pledge, lien, security interest,
encumbrance, easement, servitude, claim or charge of any kind.

     “Environmental Requirement” means any law, regulation, order or other agreement or
restriction, whether public or private (including but not limited to any condition or requirement
imposed by any insurer or surety company), now existing or hereafter created, issued or enacted
and all amendments thereto, modifications thereof and substitutions therefor, which in any way
pertains to human health, safety or welfare, Hazardous Materials, Hazardous Materials
Contamination or the environment (including but not limited to structures, ground, air, water,
natural resources or noise pollution or contamination, and underground or above ground tanks) and
shall include without limitation, the Resource Conservation and Recovery Act (the Solid Waste
Disposal Act), 42 U.S.C. § 6901 et seq.; the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, 42 U.S.C. § 9601 et seq. (“CERCLA”), as amended by the Superfund
Amendments and Reauthorization Act of 1986 (“SARA”); the Hazardous Materials Transportation Act,
49 U.S.C. § 1801 et seq.; the Federal Water Pollution Control Act, 33 U.S.C. § 1251 et seq.; the
Clean Air Act, 42 U.S.C. § 7401 et seq.; the Toxic Substances Control Act, 15 U.S.C. § 2601 et
seq.; and the Safe Drinking Water Act, 42 U.S.C. § 300f et seq; and all similar state or local
requirements.

     “Equipment Collateral” means any and all “Equipment” as that term is defined in the
Security Agreement.

     “ERISA” means the Employee Retirement Income Security Act of 1974, as amended, and any
successor statute thereto.

     “Event of Default” and “Events of Default” shall have the meanings given to such terms
in Section 13.1 hereof.

     “Expiration Date” shall have the meaning given to such term in the Letter of Credit.

     “Facility” means the “2003 Facility” as that term is defined in the Indenture.

     “Facility Costs” has the meaning given that term in the Indenture.

     “Facility Fund” means the Facility Fund created in Section 5.1 of the Indenture.

     “Government Acts” shall have the meaning given to such term in Section 12.3 hereof.

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     “Government Obligations” has the meaning given that term in Section 6.1(a) of
the Indenture.

     “Governmental Authority” means any government or any state or other political
subdivision thereof and any entity exercising any executive, legislative, judicial, regulatory or
administrative functions of, or pertaining to, government.

     “Hazardous Materials” means any and all hazardous or toxic substances, wastes or
materials which, because of their quantity, concentration, or physical, chemical or infectious
characteristics, may cause or pose a present or potential hazard or nuisance to human health,
safety or welfare or to the environment when used, treated, stored, disposed of, generated,
manufactured, transported or otherwise handled, including without limitation, any substance, waste
or material which is or contains asbestos, radon, polychlorinated biphenyls, urea formaldehyde,
explosives, radioactive materials or petroleum products and their constituents.

     “Hazardous Materials Contamination” means the contamination of or impact at (whether
presently existing or occurring after the Closing Date) the Facility, by Hazardous Materials, or
the contamination of the buildings, facilities, soil, water, air, natural resources, or other
elements on, in or about or constituting a part of, the Facility or adjacent properties as a
result of Hazardous Materials at any time (whether before or after the Closing Date) emanating
from the Facility.

     “Indebtedness” with respect to a specified Person as of any date, means all liabilities,
obligations and reserves, contingent or otherwise, which, in accordance with GAAP, are required to
be classified as liabilities on a balance sheet of such Person as of the date as of which
Indebtedness is to be determined (except items of capital stock, capital or paid-in surplus or
retained earnings and excluding trade accounts payable and accrued expenses arising in the
ordinary course of business and payable in accordance with customary practices for businesses
comparable to such Person’s business), but in any event including (without duplication) (a) all
obligations of such Person for borrowed money (whether recourse or non-recourse) or with respect
to deposits or advances of any kind, including, without limitation, principal, interest, fees and
premiums; (b) indebtedness of such Person evidenced by notes, debentures, bonds or similar
instruments; (c) all Capital Lease Obligations of such Person; (d) all liabilities of others
secured by any Encumbrance (whether existing or contingent) on property owned or acquired by such
Person, whether or not the liability secured thereby shall have been assumed; (e) all obligations
of such Person issued or assumed as the deferred purchase price of assets, services or securities,
including related noncompetition, consulting and stock repurchase obligations; and (g) all
reimbursement obligations, whether contingent or matured, of such Person with respect to letters
of credit, bankers acceptances, surety bonds and other financial guarantees (without duplication
of other Indebtedness supported or guaranteed thereby).

     “Indenture” means the Trust Indenture of even date herewith between the Issuer and the
Trustee, together with any and all Supplements thereto.

     “Independent Accountant” means an Independent Person engaged in the accounting
profession, either entitled to practice, or having members or officers entitled to practice, as a
certified public accountant under the laws of the State and in fact independent, designated in

- 7

 

writing by the Borrower and acceptable to the Bank and qualified to pass upon those matters
required by the Bond Documents or the Letter of Credit Documents to be passed upon by an
Independent Accountant.

     “Independent Architect” means an Independent Person registered and qualified to
practice the profession of architecture under the laws of the State and acceptable to the Bank.

     “Independent Counsel” means an Independent Person duly admitted to practice law
before the highest court of the State.

     “Independent Engineer” means an Independent Person registered and qualified to
practice the profession of engineering under the laws of the State.

     “Independent Person” means a person designated by the Borrower and approved by the
Bank, and not an employee of the Borrower.

     “Initial Disbursement” has the meaning given that term in Section 8.4(a) of this
Letter of Credit Agreement.

     “Insurance Agreement” means the Insurance Agreement, dated as of even date herewith,
by and among the Borrower, MIDFA and the Bank pursuant to which MIDFA, through the Industrial
Development Fund, has provided financial assistance in connection with the Facility by insuring
the payment of a portion of the Borrower’s Letter of Credit Obligations, together with any and all
Supplements thereto.

     “Interest Account” means the Interest Account created within the Bond Fund pursuant
to Section 5.1 of the Indenture.

     “Interest Drawing” has the meaning given to that term by the Letter of Credit.

     “Interest Payment Date” has the meaning given to that term by the
Indenture.

     “Interest Portion” has the meaning given to that term by the Letter
of Credit.

     “Investments” in any Person shall mean any loan or advance to such Person, any purchase or
other acquisition of any capital stock, warrants, rights, options, obligations or other securities
of, or equity interest in, such Person, any capital contribution to such Person or any other
investment in such Person, including, without limitation, any guaranty obligation incurred for the
benefit of such Person.

     “Issuer” means the Maryland Industrial Development Financing Authority, a body politic and
corporate and a public instrumentality of the State of Maryland, in its role as issuer of the
Bonds.

     “Landlord” means Westphalia Center II Limited Partnership, a Maryland limited partnership, and
its successors and assigns.

- 8

 

     “Landlord Consent” means that certain Landlord’s Consent and Waiver, dated as
of April 1, 2003, between the Landlord, the Borrower and the Bank.

     “Lease” means that certain Lease, dated as of July 15, 2002, between the Borrower and
Landlord for the premises known as Building No. 1, Seneca Meadows Corporate Center, 20358, 20360,
20362, 20382, 20384 and 20386 Seneca Meadows Parkway, Germantown, Maryland 20876.

     “Leased Premises” means a portion of the two (2) story building, containing
approximately 55,000 rentable square feet, located at 20358 Seneca Meadows Parkway, Germantown,
Maryland 20876, also know as Building No. 1 in Seneca Meadows Corporate Center in the City of
Germantown, Montgomery County, Maryland, together with all rights of the Borrower to such
building, the land upon which such building is located, and all fixtures, equipment and other
improvements in or upon such building and/or land, including sidewalks, areaways, parking areas,
loading areas, gardens and lawns arising under the Lease.

     “Letter of Credit” means the Bank’s Irrevocable Transferable Letter of Credit No.
SB-904507-0101 dated the Closing Date, together with any extension, amendment or renewal thereof
or substitution therefor made in accordance with this Letter of Credit Agreement. The “Letter of
Credit” is a “Credit Facility” (as defined in the Indenture).

     “Letter of Credit Agreement” means this Letter of Credit Agreement, together with any
and all Supplements hereto.

     “Letter of Credit Documents” means the Letter of Credit, this Letter of Credit
Agreement, the Collateral/Control Agreement, the Security Agreement, the Landlord’s Consent, the
Insurance Agreement, the Swap Agreement, the Pledged Bonds Custody Agreement, the Pledge and
Security Agreement and any and all other documents which the Borrower or any other party or
parties or their representatives, have executed and delivered, or may hereafter execute and
deliver, to evidence or secure the Borrower’s Letter of Credit Obligations, or any part thereof,
or in connection therewith, together with any and all Supplements thereto. The “Letter of Credit
Documents” constitute “Credit Facility Documents” (as defined in the Indenture).

     “Letter of Credit Fee” shall have the meaning given to that term in Section 4.1(a)
of this Letter of Credit Agreement.

     “LIBOR Rate” means the fluctuating annual rate of interest which shall at all times equal the
interest rate which the Bank announces and declares from time to time to be its one (1) month
London Interbank Offered Rate, adjusted for any Federal Reserve Board requirements imposed on the
Bank from time to time. All interest at the LIBOR Rate or computed thereon shall be calculated on
the basis of a 360 day-year factor applied to actual days elapsed and shall be adjusted on any date
on which a change occurs in the LIBOR Rate.

     “Loan Agreement” has the meaning given to that term by the Indenture.

     “Mail” has the meaning given to that term by the Indenture.

- 9

 

     “Mandatory Tender Date” and “Mandatory Tender Notice” each has the meaning
given to that term by the Indenture.

     “Maximum Rate” has the meaning given to that term by the Indenture.

     “MIDFA” means Maryland Industrial Development Financing Authority, a body politic and
corporate and a public instrumentality of the State of Maryland, in its role as insurer of the
Bonds.

     “MIDFA Act” has the meaning given to that term by the Indenture.

     “MIDFA’s Subrogation Rights” means all of MIDFA’s rights of subrogation, as set forth
in the Insurance Agreement and any of the other Letter of Credit Documents or the Bond Documents
and as may otherwise be available under law.

     “Moody’s” means Moody’s Investors Service, Inc., a corporation organized and existing under
the laws of the State of Delaware, its successors and assigns, and, if such corporation shall for
any reason no longer perform the functions of a securities rating agency, “Moody’s” shall be
deemed to refer to any other nationally recognized rating agency designated by the Borrower with
the approval of the Issuer.

     “Net Proceeds” means, when used with respect to any Condemnation Award or insurance proceeds
allocable to the Facility (including, without limitation, title insurance), the gross proceeds
from a Condemnation Award or insurance proceeds (including, without limitation, the proceeds of
title insurance) so allocable, with respect to which that term is used, remaining after payment of
all expenses (including attorneys’ fees and expenses) incurred in the collection of such gross
proceeds.

     “Net Proceeds Escrow Fund” means the Net Proceeds Escrow Fund created in Section 5.1
of the Indenture.

     “Other Bank Obligations” means any and all obligations of any nature whatsoever owed
by the Borrower to the Bank (other than the Letter of Credit Obligations under this Letter of
Credit Agreement) including without limitation any letter of credit issued after the Closing Date
by the Bank for the benefit of the Landlord.

     “Optional Tender Date” and “Optional Tender Notice” each has the meaning
given to that term by the Indenture.

     “Outstanding”, “outstanding” or “Bonds Outstanding” has the meaning given to that
term by the Indenture.

     “Owner” or “Owners” or “Owner of Bonds” or “Owners of Bonds” means the person or
persons in whose name any Bond is registered on the books of the Issuer maintained by the
Registrar.

     “Paying Agent” means the Trustee, or any successor Paying Agent appointed under the
Indenture.

- 10

 

     “Penalty Rate” means the fluctuating rate per annum which, unless the Bank determines in its
sole discretion to set a lower rate, is equal to the Reimbursement Rate plus one and
one-half percent (1 1/2%) per annum.

     “Permitted Encumbrances” has the meaning given to that term in the Security
Agreement.

     “Permitted Investments” has the meanings given to that term in Section 6.1 of the
Indenture and the Collateral/Control Agreement.

     “Person” or “person” means any natural person, firm, association, corporation, company,
trust, partnership, public body or other entity.

     “Placement and Remarketing Agreement” means (a) the Placement and Remarketing
Agreement of even date herewith by and among the Remarketing Agent, the Issuer and the Borrower,
together with any and all Supplements thereto, and (b) any other Remarketing Agreement or similar
agreement by and among the Remarketing Agent, the Issuer and the Borrower, pursuant to which the
Remarketing Agent agrees to use its best efforts to remarket and sell Bonds Tendered or Deemed
Tendered for Purchase, together with any and all Supplements thereto.

     “Plan” means any pension, profit sharing, savings or stock bonus plan established or
maintained by the Borrower or any commonly controlled entity of the Borrower that is intended to
satisfy the qualification requirements under Code §401 and is subject to the requirements of
ERISA, together with any related trusts.

     “Plans and Specifications” means, as applicable, the plans and specifications and any
amendments thereto from time to time approved by the Bank with respect to the Facility.

     “Pledge and Security Agreement” means (a) the Pledge and Security Agreement of even
date herewith, by and between the Borrower and the Bank, together with any and all Supplements
thereto, and (b) any other pledge and security agreement or similar agreement between the Borrower
and the Credit Facility Provider pursuant to which Pledged Bonds are pledged as security for the
Borrower’s Credit Facility Obligations, together with any and all Supplements thereto.

     “Pledged Bonds” means Bonds that, subsequent to a Bond Purchase Principal Drawing, are
delivered to and held by the Pledged Bonds Custodian as security for the Borrower’s Letter of
Credit Obligations and registered as directed by the Bank.

     “Pledged Bonds Custodian” means Allfirst Trust Company, National Association, as
agent for the Bank under the Pledged Bonds Custody Agreement, or any successor custodian of the
Pledged Bonds acting as the Bank’s agent.

     “Pledged Bonds Custody Agreement” means the Pledged Bonds Custody Agreement of even
date herewith by and among the Bank, the Borrower and the Pledged Bonds Custodian, together with
any and all Supplements thereto.

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     “Prime Rate” means (a) with respect to the interest rate on any moneys owed to the
Bank or the Trustee (so long as Allfirst Trust Company, National Association serves as the
Trustee) bearing interest at or based on the Prime Rate pursuant to the Letter of Credit Documents
or the Bond Documents, the greater of: (i) the floating and fluctuating per annum prime rate of
interest of the Bank, established and declared by the Bank from time to time, which rate of
interest may or may not constitute the lowest rate of interest charged by the Bank to borrowers,
and (ii) the average rate, rounded to the nearest one-tenth of one percent (.1%), for ninety (90)
day maturity dealer placed commercial paper for the week most recently reported in the Federal
Reserve Statistical Release No. H.15 (519), entitled “Selected Interest Rates” (or any succeeding
publication); provided, however, that if such rates shall cease to be published, the Bank
may select, in its sole and absolute discretion, a comparable index as a successor source for such
rates, (b) with respect to the interest rate on any moneys owed to any person other than the Bank
bearing interest at or based on the Prime Rate pursuant to the Letter of Credit Documents or the
Bond Documents, the prime rate of interest established and declared by the Bank from time to time,
and (c) with respect to the interest rate on any moneys owed to the Trustee (other than Allfirst
Trust Company, National Association) bearing interest at or based on the Prime Rate, the rate of
interest as established and declared by the Trustee or a commercial lending affiliate of the
Trustee as its prime lending rate for loans in the city in which the Principal Office of the
Trustee is located, or if no such rate is available, the prime rate of interest as described in
clause (b) above. All interest at the Prime Rate or computed thereon shall be calculated on the
basis of a 360-day year factor applied to the actual number of days elapsed and shall be adjusted
on any date on which a change occurs in the Prime Rate.

     “Principal Account” means the Principal Account created within the Bond Fund pursuant
to Section 5.1 of the Indenture.

     “Principal Drawing” has the meaning given to that term by the Letter of Credit.

     “Principal Office” means, with respect to the Trustee, the Registrar, the Paying Agent, the
Remarketing Agent or the Bank, the office designated as such, from time to time, by the respective
party in writing to the Issuer, the Trustee, the Paying Agent, the Registrar, the Remarketing
Agent, and the Bank.

     “Principal Portion” has the meaning given to that term by the Letter of Credit.

     “Properly Margined” has the meaning given to that term by the Collateral/Control
Agreement.

     “Purchase Account” means the Purchase Account created within the Bond Fund pursuant to
Section 5.1 of the Indenture.

     “Rating Agencies” means Moody’s and S&P.

     “Record Date” has the meaning given to that term by the Indenture.

     “Registrar” or “Bond Registrar” means the Trustee, or any successor Registrar appointed under
the Indenture.

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     “Reimbursement Rate” means the fluctuating rate of interest which is at all
times equal to the Prime Rate, plus two percent (2%) per annum.

     “Remarketing Agent” means Manufacturers and Traders Trust Company, a New York banking
corporation, or any successor Remarketing Agent appointed under the Indenture.

     “Required Post Closing Documents” means all of the documents listed on Exhibit B
attached hereto and made a part hereof.

     “Resolution” has the meaning given to that term by the Indenture.

     “Securities Intermediary” means Allfirst Trust Company, National Association, a
national banking association, having its Principal Office in Baltimore, Maryland, and its
successor or successors in the trust created by the Indenture.

     “Security Agreement” means that certain Security Agreement of even date herewith by
and between the Borrower and the Bank.

     “S&P” means Standard & Poor’s Corporation, a corporation organized and existing under the
laws of the State of New York, its successors and their assigns, and, if such corporation shall
for any reason no longer perform the functions of a securities rating agency, “S&P” shall be
deemed to refer to any other nationally recognized securities rating agency designated by the
Borrower with the approval of the Issuer.

     “State” means the State of Maryland.

     “Stated Amount” has the meaning given to that term by the Letter of Credit.

     “Subsidiary” and “Subsidiaries” means any present or future corporation(s) at least a
majority of whose outstanding voting stock shall at the time be owned by the Borrower or by one or
more Subsidiaries of the Borrower or by the Borrower and one or more of its Subsidiaries.

     “Supplement” or “Supplements” means any and all extensions, renewals, modifications,
amendments, supplements and substitutions.

     “Swap Agreement” means, collectively, any ISDA Master Agreement and attached
Schedules executed and delivered at any time and from time to time whether before or on or after
the Closing Date by the Borrower and the Bank, and any and all other documents relating to such
Master Agreement, and any and all replacements of or substitutions for such Master Agreement or
such other documents, as any such Master Agreement and other documents with attached Schedules or
any such replacement or substitution thereof may at any time or from time to time be amended,
restated, supplemented or otherwise modified.

     “Swap Obligations” means and includes all present and future indebtedness, obligations
and liabilities of the Borrower to the Bank of any nature whatsoever under or in connection with
the Swap Agreement, whether such indebtedness, obligations and liabilities are direct or indirect,
secured or unsecured, joint or several, absolute or contingent, due or to become due, or now

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existing or hereafter arising. The Swap Obligations constitute part of the Borrower’s Letter
of Credit Obligations.

     “Taxes” means all taxes, water rents, sewer rents, assessments and other governmental or
municipal or public or private dues, charges and levies and any prior liens (including federal tax
liens) for the Taxes which are or may be levied, imposed or assessed upon the Facility or any part
thereof, or any leases pertaining thereto, or upon the rents, issues, income or profits thereof,
whether any or all of the aforementioned be levied directly or indirectly or as excise taxes or as
income taxes.

     “Tender Date” has the meaning given to that term by the Indenture.

     “Termination Date” has the meaning given to that term by the
Indenture.

     “Trust Estate” has the meaning given to that term by the
Indenture.

     “Trustee” means Allfirst Trust Company, National Association, a national banking association,
having its Principal Office in Baltimore, Maryland, and its successor or successors in the trust
created by the Indenture.

     “Uniform Commercial Code” or “UCC” means the Uniform Commercial Code of Maryland and
the Uniform Commercial Code of any other applicable jurisdiction.

     “Variable Rate” has the meaning given to that term by the Indenture.

     SECTION 1.2. Accounting Terms. Unless specifically provided otherwise, all accounting
terms have the definitions given them in accordance with generally accepted accounting principles
(“GAAP”) as applied to the applicable person on a consistent basis by its accountants in the
preparation of its previous annual financial statements.

     SECTION
1.3. Rules of Construction. The words “hereof”, “herein”, “hereunder”,
“hereto”, and other words of similar import refer to this Letter of Credit Agreement in its
entirety.

     The terms “agree” and “agreements” contained herein are intended to include and mean
“covenant” and “covenants”.

     References to Articles, Sections, and other subdivisions of this Letter of Credit Agreement
are to the designated Articles, Sections, and other subdivisions of this Letter of Credit
Agreement as originally executed.

     The headings of this Letter of Credit Agreement are for convenience only and shall not define
or limit the provisions hereof.

     All references made (a) in the neuter, masculine or feminine gender shall be deemed to have
been made in all such genders, and (b) in the singular or plural number shall be deemed to have
been made, respectively, in the plural or singular number as well.

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ARTICLE II.

EFFECTIVE DATE OF LETTER OF CREDIT AGREEMENT;
 DURATION OF TERM

     SECTION
2.1. Effective Date of Letter of Credit Agreement; Duration of Term. This
Letter of Credit Agreement shall become effective on the Closing Date and shall continue in full
force and effect until (a) the Letter of Credit has expired as therein provided, and (b)
all of the Borrower’s Letter of Credit Obligations have been fully performed and satisfied.

     In the event that an Act of Bankruptcy has occurred, then this Letter of Credit Agreement
shall continue in full force and effect, and shall not expire, until (a) the Letter of Credit has
expired in accordance with its terms, (b) all of the Borrower’s Letter of Credit Obligations have
been fully performed and satisfied, and (c) either (i) a final order has been issued,
holding that the Bank is not required to return any funds it has received from the Borrower, or
(ii) all statutes of limitation relating to Section 547 of the Bankruptcy Code have expired.

ARTICLE III.

 ISSUANCE OF LETTER OF CREDIT; SECURITY

     SECTION 3.1. Issuance of Letter of Credit. The Bank agrees, upon the terms and
subject to the conditions contained in this Letter of Credit Agreement, to issue the Letter of
Credit for the account of the Borrower and in favor of the Trustee and its transferees, in the
initial Stated Amount of $12,197,260.00, consisting of $12,000,000 of principal and $197,260 in
interest, computed at 50 days’ at an assumed maximum rate of interest of 12% per annum. The Letter
of Credit shall be issued and become effective on the Closing Date and shall expire in accordance
with its terms. The Letter of Credit shall be in the form attached hereto as Exhibit A and
made a part hereof.

     The Stated Amount may be reduced, reinstated or increased to any amount not exceeding
$12,197,260.00 from time to time, all as set forth in the Letter of Credit. The Stated Amount
shall be reduced annually by an amount equal to the actual aggregate Sinking Fund Installments
which have occurred during the twelve month period ending on each anniversary date of the issuance
of the Letter of Credit.

     The Bank shall have no obligation whatsoever to extend the effectiveness of the Letter of
Credit beyond its stated Expiration Date. Any extension of the Expiration Date of the Letter of
Credit shall be made by the Bank in its sole and absolute discretion.

     SECTION 3.2. Security. The Borrower’s Letter of Credit Obligations are secured by the
Letter of Credit Documents. As additional security for the Borrower’s Letter of Credit
Obligations, the Borrower hereby assigns and pledges to the Bank, its successors and assigns, and
grants to the Bank, its successors and assigns, a continuing security interest in and lien on the
following:

     (a) The interest of the Borrower in the Facility Fund and in the Net Proceeds Escrow Fund and
in all sub-accounts created and maintained under any of such funds;

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     (b) All
right, title and interest of the Borrower in and to (but not the Borrower’s obligations under) the Swap Agreement;

     (c) All right, title and interest of the Borrower in and to the Pledged Bonds; and

     (d) All the assets of the Borrower in which the Borrower granted to the Bank a
security interest under the Security Agreement and the Collateral/Control Agreement.

     The Borrower agrees, that with respect to the security described in this Section, the Bank,
its successors and assigns, shall have all of the rights and remedies of a secured party under the
Uniform Commercial Code.

     With respect only to the security described in subsection (a) above, the security interest
granted to the Bank hereunder to secure the Borrower’s Letter of Credit Obligations is subordinate
to the security interest granted to the Trustee and the Owners under the Indenture to secure the
Issuer’s Bond Obligations.

     SECTION 3.3. Loss to Security. The Bank shall not be liable for any loss to any
security in its possession other than due to the gross negligence or willful misconduct of the
Bank, nor shall such loss diminish the Borrower’s Letter of Credit Obligations.

     SECTION 3.4. Borrower’s Covenants Pertaining to Security. The Borrower agrees that,
with respect to the security described in Section 3.2 and in the other Letter of Credit Documents,
the Borrower will not transfer, sell, assign, or otherwise dispose of its interest in any of such
security, nor permit any other security interest to be created therein, without the prior written
consent of the Bank, which consent shall not be unreasonably withheld or delayed.

     SECTION 3.5. Conditions Precedent to Issuance of Letter of Credit. The Bank’s
obligation to issue and deliver the Letter of Credit shall be subject to the fulfillment of the
following conditions precedent:

     (a) Insurance. The Bank shall have received certificates of insurance reflecting the
insurance coverages required to be provided by the Borrower under the Letter of Credit
Documents and the Bond Documents, with the Bank named as an additional insured, as their
interests may appear, and where appropriate, loss payee/mortgagee, and such insurance shall be
satisfactory to the Bank in all respects.

     (b) Certain Documents and Closing Conditions. The Bank shall have received a fully
executed counterpart of each of the following agreements to which the applicable entity is a
party, or evidence of satisfaction of the following closing conditions, as the case may be:

	 	(i)  	this Letter of Credit Agreement;
	 
	 	(ii)  	the Collateral/Control Agreement;
	 
	 	(iii)  	the Landlord’s Consent;
	 
	 	(iv)  	the Security Agreement;

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	 	(v)  	the Financing Statements;
	 
	 	(vi)  	a copy of the Lease, which provides for a minimum initial term
of at least ten (10) years;
	 
	 	(vii)  	the Insurance Agreement;
	 
	 	(viii)  	the Swap Agreement;
	 
	 	(ix)  	the Completion Certificate;
	 
	 	(x)  	the Contractor Certificate;

	 
	 	(xi)  	the Architect Certificate;
	 
	 	(xii)  	copies of the fully executed Bond Documents; and
	 
	 	(xiii)  	fully executed copies of any contracts (including, but not limited to the
Construction Contract, the Architect’s Contract and the contract with the
project manager), the public works agreements or other agreements executed by
the Borrower in connection with the acquisition or construction of the
Facility, in form and substance approved by the Bank.

     Each of the aforementioned documents, to the extent the same constitutes an agreement or
undertaking, shall have been duly authorized, executed and delivered by each of the parties
thereto and shall be in full force and effect.

     (c) Filings and Recordation. All filings and recordings required hereunder or under
the Collateral/Control Agreement, and/or the Security Agreement shall have been made, or shall
have been arranged to be made promptly thereafter, in the appropriate places or offices,
including any recordings and filings necessary to create, preserve and protect the Bank’s valid
and binding security interests described herein and in the Collateral/Control Agreement and the
Security Agreement. All recording and filing fees and taxes with respect to any recordings or
filings made pursuant to this section or otherwise payable in respect
of the Letter of Credit Documents shall have been paid in full by the Borrower, and satisfactory evidence thereof shall
have been delivered to the Bank, or arrangements for such payment shall have been made to the
satisfaction of the Bank.

     (d) Consents and Approvals. All approvals and consents required to be taken, given
or obtained, as the case may be, by or from any governmental authority or pursuant to the
Borrower’s Certificate of Incorporation and/or Bylaws, that are necessary or, in the reasonable
opinion of the Bank, advisable in connection with the execution, delivery and performance of the
Letter of Credit Documents by the Borrower, shall have been taken, given or obtained as the case
may be, shall be in full force and effect and the time for appeal with respect thereto shall have
expired (or, if an appeal shall have been taken, the same shall have been dismissed) and shall not
be subject to any pending proceedings or appeals (administrative, judicial or otherwise).

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     (e) Opinion of Counsel. The Bank shall have received:

	 	(i)  	the opinion of Schmeltzer, Aptaker & Shepard, P.C., counsel to
the Borrower, covering such matters and in the form as the Bank shall request;
	 
	 	(ii)  	the opinion of counsel to MIDFA covering such matters and in
the form as the Bank shall request; and
	 
	 	(iii)  	the opinion of Bond Counsel addressed to, among others, the Bank.

     (f) Corporate Status and Proceedings of Borrower. The Bank shall have received
copies of:

	 	(i)  	certificates of existence and good standing with respect to
the Borrower, from the Secretary of State of the State of Delaware and a
certificate of qualification to do business and good standing from the
Maryland State Department of Assessments and Taxation, dated as of a recent
date;
	 
	 	(ii)  	a certificate of the Secretary or an Assistant Secretary of
the Borrower, in each case attaching and certifying as to (1) the resolutions
of its Board of Directors or similar body and/or other authorized persons duly
authorizing the execution, delivery and performance by it of each Letter of
Credit Document and the Bond Documents to which it is or will be a party, (2)
its certificate of incorporation, as the case may be, certified as of a recent
date by the Secretary of State of the State of Delaware, (3) its by-laws and
(4) the incumbency and signature of persons authorized to execute and deliver
on its behalf the Letter of Credit Documents and the Bond Documents to which
it is a party.

     (g) Litigation. No action or proceeding shall have been instituted or threatened nor
shall any government action be instituted or threatened against the Borrower before any
governmental authority, nor shall any order, judgment or decree have been issued or proposed to
be issued by any governmental authority, to set aside, restrain, enjoin or prevent the performance
of this Letter of Credit Agreement or any other Letter of Credit Documents or the Bond
Documents or any transaction contemplated hereby or thereby.

     (h) No Event of Loss. No casualty or loss shall have occurred in respect of the
Facility. No action shall be pending or threatened by a governmental authority to initiate a
condemnation or a taking by such governmental authority in respect of the Facility.

     (i) Payment of Certain Fees.

	 	(i)  	Certain Fees. The Borrower shall have paid to the Bank,
on or before the Closing Date, the following fees: (1) the Letter of Credit Fee
in the approximate amount of $231,747.94 as required under
Section 4.1(a)
hereof; (2) the remaining balance of the Commitment Fee in the approximate
amount of $42,000; (3) the remaining balance of the

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	 	   	Placement Fee in the approximate amount of $91,000; (4) the letter of
credit issuance fee in the approximate amount of $2,000; and (5) the
Negotiation Fee in the amount of $1,200 as required under Section 4.1(b)
hereof.
	 
	 	(ii)  	Payment of Certain Construction Review Fees. The
Borrower shall have paid the following amounts to the Bank, on or before the
Closing Date, in connection with the tenant improvements to the Facility: (1)
$2,100 for review of the project budget and the Plans and Specifications and
(2) $2,500 for construction inspection of the Facility.
	 
	 	(iii)  	Filing and Recordation Fees. The Borrower shall have
paid to the Bank, or to such parties as designated by the Bank, on or before
the Closing Date, all fees or costs paid or incurred, or to be paid or
incurred, by the Bank in connection with the filing or recordation of any of
the Letter of Credit Documents.
	 
	 	(iv)  	MIDFA’s Insurance Premium. The Borrower shall have
paid to MIDFA on or before the Closing Date the Authority’s Insurance Premium
(as defined in the Insurance Agreement) as required under the Insurance
Agreement.
	 
	 	(v)  	Attorneys Fees and Other Fees. The Borrower shall have
paid on or before the Closing Date, to the parties identified by the Bank, the
legal fees and costs incurred by the Bank in connection with the preparation of
the Letter of Credit Documents.

     (j) Other Deliveries. The Borrower shall also deliver the following items, each
to the reasonable satisfaction of the Bank:

	 	(i)  	Evidence of compliance with all zoning and building laws and
regulations and ordinances applicable to the Facility;
	 
	 	(ii)  	A copy of the Plans and
Specifications;
	 
	 	(iii)  	A draw schedule;
	 
	 	(iv)  	Copies of necessary building permits for the Facility and the
Certificate of Occupancy;
	 
	 	(v)  	Evidence of availability of all utilities necessary for the
operation of the Facility, including telephone, electric, water and sewer
capacity;
	 
	 	(vi)  	Lien releases from each subcontractor, materialman and
mechanic which has been paid in full as of the Closing Date;

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	 	(vii)  	Invoices detailing those amounts of the Facility Costs paid by the
Borrower as of the Closing Date for which the Borrower is requesting an
Initial Disbursement;
	 
	 	(viii)  	Such other evidence of performance of all of the covenants and satisfaction
of all of the conditions required by the Borrower by this Letter of Credit
Agreement or as the Bank’s counsel may require at or before the Closing.

ARTICLE IV.

AGREEMENTS WITH RESPECT TO LETTER OF CREDIT

     SECTION
4.1. Letter of Credit Fee; Negotiation Fee; Monitoring Fee.

     (a) Letter of Credit Fee. The Borrower agrees to pay to the Bank an annual Letter of
Credit fee (the “Letter of Credit Fee”) of 1.90% of the outstanding Stated Amount of the Letter
of Credit in cash (without regard for the amount of any reduction in the Principal Portion or the
Interest Portion as a result of a Bond Purchase Drawing or an Interest Drawing which amount is
to be automatically reinstated in accordance with the provisions of the Letter of Credit) over each
one-year period from and including the Closing Date until the Letter of Credit expires, which
Letter of Credit Fee shall be payable annually in advance with the first payment to be made on
the Closing Date, and to cover the period from the Closing Date through the date immediately
preceding the first anniversary date of the Closing Date and subsequent payments to be made on
the anniversary date of the Closing Date in each and every year, continuing until the Letter of
Credit expires. If, prior to the end of any year for which the Letter of Credit Fee has been paid,
the Letter of Credit expires or is otherwise terminated, the Bank will refund to the Borrower a
pro-rata portion of the Letter of Credit Fee.

     (b) Negotiation Fee. The Borrower also agrees to pay to the Bank an annual
negotiation fee (the “Negotiation Fee”) in the amount of $1,200 for each one-year period from
and including the Closing Date until the Letter of Credit expires, which Negotiation Fee shall be
payable annually in advance with the first payment to be made on the Closing Date and to cover
the period from the Closing Date through the date immediately preceding the first anniversary
date of the Closing Date and subsequent payments to be made on the anniversary date of the
Closing Date in each and every year, continuing until the Letter of Credit expires. Payment of
the amount of $1,200 by the Borrower shall be deemed to be payment in full of the Negotiation
Fee for each one-year period for which such amount represents payment therefor, and the
Borrower shall have no further liability therefor, regardless of the actual number of sight drafts
which are presented for payment by the Bank under the Letter of Credit during each such one-year period. If, prior to the end of any year for which the Negotiation Fee has been paid, the
Letter of Credit expires or the Stated Amount is reduced, the Bank will not refund any portion of
the Negotiation Fee.

     (c) Amendment to Letter of Credit Fee. Upon any amendment to the Letter of Credit
subsequent to the Closing Date, the Borrower shall pay to the Bank an amendment fee of $500.

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     (d) Inspection Fee. The Borrower shall pay to the Bank a fee for the monthly
inspections to be performed by the Bank’s Commercial Real Estate Department or its assignee
under this Letter of Credit Agreement in the amount of $500.00 per visit.

     (e) Monitoring
Fee. The Borrower shall pay to the Bank a fee in the amount of $250.00 per month for the Bank’s monthly covenant compliance review of the Borrower to be

performed by the Bank’s Commercial Real Estate Department or its assignee.

     SECTION 4.2. Transfer of Letter of Credit. The Letter of Credit may be transferred
and assigned in accordance with the terms of the Letter of Credit. The Borrower shall pay to the
Bank the transfer charge payable to the Bank pursuant to the Letter of Credit, plus interest
thereon as provided in Section 5.1 hereof.

     SECTION 4.3. Payment of Certificates Under the Letter of Credit. The Borrower hereby
instructs the Bank to pay any certificate complying with the terms of the Letter of Credit. The
Borrower authorizes the Bank to receive or pay as complying with the terms of the Letter of Credit
any certificate or other documents under or purported to be under the Letter of Credit which are
otherwise in order but are signed by, or issued to, any administrator, executor, assignee for the
benefit of creditors, trustee in bankruptcy or receiver for any property of the beneficiary or any
other party in whose name it is provided in the Letter of Credit that any certificate or other
documents thereunder should be drawn. The Bank and its branches, affiliates or correspondents shall
not be responsible for, and the Borrower shall indemnify and hold the Bank and its branches,
affiliates or correspondents harmless from and against, any and all liability, loss and expense
(including reasonable attorney’s fees and costs) incurred by the Bank or its branches, affiliates
or correspondents relative to or as a consequence of any of the following (other than due to the
gross negligence or willful misconduct of the Bank): (a) any failure by the Borrower to perform the
Borrower’s agreements hereunder, (b) this Letter of Credit Agreement, the Letter of Credit and any
certificate(s) under or purported to be under the Letter of Credit, (c) any action taken or omitted
by the Bank or its branches, affiliates or correspondents at the request of the Borrower, or (d)
any consequences arising from causes beyond the control of the Bank or its branches, affiliates or
correspondents. Any and all of the following provisions may be waived by the Bank in its sole
discretion, and the Bank and its branches, affiliates or correspondents shall not be liable or
responsible in any respect for any noncompliance therewith or waiver thereof: (a) any requirement
for certificates under or purported to be under the Letter of Credit to bear a reference to or
otherwise identify, the Letter of Credit, (b) any requirement that the amount of any certificates
under or purported to be under the Letter of Credit be noted on the Letter of Credit, (c) any
requirement that documents physically accompany any certificate at negotiation, (d) any requirement
that any party send documents physically apart from any certificate or acceptance, or (e) any
requirement that the Trustee or any other beneficiary of the Letter of Credit surrender the Letter
of Credit for any reason whatsoever. The Bank and its branches or affiliates shall not be liable or
responsible in any respect for any error, neglect, default or breach by any of its correspondents
in connection with the Letter of Credit (other than due to the gross negligence or willful
misconduct of the Bank). None of the above shall affect, impair or prevent the vesting of any of
the Bank’s rights or powers hereunder or constitute a defense to the enforceability of any right,
power or remedy of the Bank hereunder.

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     All certificates paid under the Letter of Credit shall be paid solely from the funds of the
Bank and not from any funds of the Borrower.

     The provisions of this Section shall survive the expiration of the Letter of Credit and the
termination of the Letter of Credit Documents.

     SECTION 4.4. Amendment of Letter of Credit. The Letter of Credit may be amended,
modified or revoked only upon the receipt by the Bank from the Borrower and the Trustee or other
beneficiary of the Letter of Credit (including any transferee(s) of the original beneficiary of
the Letter of Credit) of a written consent and request therefor, and then only upon such terms and
conditions as the Bank may prescribe. In the event of (a) the extension of the Expiration Date of
the Letter of Credit, (b) the extension of the time for the drawing, negotiation, presentation or
of the maturity of any drafts or other documents under or purported to be under the Letter of
Credit, (c) an increase in the amount of the Letter of Credit, or (d) any other modification of
the terms of the Letter of Credit of any nature whatsoever, this Letter of Credit Agreement shall
be binding upon the Borrower with regard to the Letter of Credit so extended, increased or
otherwise modified and without regard to any and all actions, inaction and omissions of the Bank,
its branches, affiliates and correspondents in connection therewith. The Stated Amount may be
reduced, reinstated or increased from time to time, all as provided in this Letter of Credit
Agreement or the Letter of Credit and subject to Section 4.1(c) hereof.

     SECTION 4.5. Liability of the Bank for Use of the Letter of Credit. The Borrower
assumes all risks of the acts or omissions of the Borrower, the Issuer, the Trustee, and any
beneficiary or transferee of the Letter of Credit with respect to the use of the Letter of Credit.
Neither the Bank nor any of its officers or directors shall be liable or responsible for (other
than due to the gross negligence or willful misconduct of the Bank): (a) the use which may be made
of the Letter of Credit or for any acts or omissions of the Borrower, the Issuer, the Trustee, and
any beneficiary or transferee in connection therewith, (b) the form, validity, sufficiency,
accuracy, genuineness or legal effect of any document submitted by any party in connection with the
application for and issuance of the Letter of Credit, or of any endorsement(s) thereon, even if
such document should in fact prove to be in any or all respects invalid, insufficient, inaccurate,
fraudulent or forged, (c) payment by the Bank against presentation of documents which substantially
comply with the terms of the Letter of Credit, including failure of any documents to bear any
reference or adequate reference to the Letter of Credit, (d) the validity or sufficiency of any
instrument transferring or assigning or purporting to transfer or assign the Letter of Credit, or
the rights or benefits thereunder or proceeds thereof, in whole or in part, which may prove to be
invalid or ineffective for any reason, (e) the failure of the Trustee or any transferee of the
Letter of Credit to comply fully with conditions required in order to draw upon the Letter of
Credit, (f) errors, omissions, interruptions or delays in transmission or delivery of any messages,
by Mail, cable, telegraph, telex or otherwise, whether or not they be in cipher, (g) any loss or
delay in the transmission or otherwise of any document required in order to make a drawing under
the Letter of Credit or of the proceeds thereof, or (h) any other circumstances whatsoever in
making or failing to make payment under the Letter of Credit. In connection with the foregoing, the
Bank may accept in good faith documents that appear on their face to be in order, without
responsibility for further investigation, regardless of any notice or information to the contrary.
None of the above shall affect, impair or prevent the vesting of any of the Bank’s rights or

- 22

 

powers hereunder or constitute a defense to the enforceability of any right, power or
remedy of the Bank hereunder.

     In furtherance and extension and not in limitation of the specific provisions hereinabove set
forth, any action taken or omitted by the Bank, under or in connection with the Letter of Credit
or the related drafts or document(s), if taken or omitted in good faith, shall be binding on the
Borrower and shall not put the Bank under any resulting liability to the Borrower.

     The provisions of this Section and of Sections 4.3 and 4.6 and of Article XII hereof shall
survive the expiration of the Letter of Credit and the termination of the Letter of Credit
Documents.

     SECTION
4.6. Expenses. The Borrower shall pay, or provide for the payment of, all
fees, commissions, costs, charges, taxes and other expenses incurred by the Bank and by any of its
agents, employees and representatives in connection with (i) the issuance of the Letter of Credit,
(ii) the documentation and consummation of the transactions contemplated by the Bond Documents,
and the Letter of Credit Documents, including (without limitation), in all such cases, fees and
expenses of the Bank’s legal counsel, Bond Counsel, fees and charges, if any, for surveys, title
reports and title insurance, hazard, liability and other insurance, bond premiums, brokerage fees
and commissions, mortgage taxes, transfer taxes and all filing and recording fees, charges, costs
and taxes and appraisal fees, and (iii) the administration of the Letter of Credit Documents and
the enforcement of all rights and remedies of the Bank thereunder, in all cases whether now
payable or hereafter arising or becoming payable. In no event, however, shall any income taxes or
franchise taxes of the Bank, measured by income, or taxes in lieu of such income taxes or
franchise taxes be required to be paid by the Borrower.

     SECTION
4.7. Bank’s Right to Cure or Avoid Defaults Under Documents. Solely for the
purpose of protecting the Bank’s security interest under the Letter of Credit Documents, the Bank,
in its sole and absolute discretion, without any request therefor from the Borrower and without
waiving any of its rights hereunder, may (but shall have no obligation to do so) elect to cure or
avoid any default by the Borrower under the Bond Documents, the Lease or the Letter of Credit
Documents by advancing or paying to any person any amount then due and owing by the Issuer or the
Borrower, as the case may be, to such person, for the account of the Borrower. The Bank shall
provide the Borrower with notice prior to making any advance to cure or avoid a default by the
Borrower under the Bond Documents or under the Letter of Credit Documents; provided, however, that
(a) no such prior notice shall be required if, in the judgment of the Bank exercised in good faith,
the delay attendant thereto could result in the impairment of any of the security for the
Borrower’s Letter of Credit Obligations, (b) the Bank shall provide notice to the Borrower promptly
following the making of any such advance if prior notice had not been given, and (c) any failure to
provide any notice described in this sentence shall not result in the Bank suffering or incurring
any liability or penalty, except that if and for so long as no Event of Default shall have
occurred, the Bank shall accrue interest on the amount of such advance at the Reimbursement Rate
(and not the Penalty Rate). Any such advances made by the Bank to cure or avoid a default under the
Bond Documents or under the Letter of Credit Documents shall be deemed to be advances made by the
Bank to the Borrower and shall be part of the Borrower’s Letter of Credit Obligations secured by
the Letter of Credit Documents. The Borrower hereby irrevocably and unconditionally authorizes the
making of such advances, and promises and

- 23

 

agrees to repay such advances in accordance with the provisions of Section 5.1 of this Letter of
Credit Agreement.

     SECTION
4.8. Bank’s Obligation. The Bank shall exercise good faith and observe
general and customary banking practices in the performance of its obligations under the Letter of
Credit Documents.

     SECTION
4.9. Annual Reduction of Stated Amount. The Principal Portion of the Letter
of Credit shall be reduced on each anniversary of the Closing Date in accordance with the
amortization schedule set forth on Schedule A hereto. The Borrower agrees to give notice
to the Trustee, in accordance with the terms of the Bond Documents, prior to such anniversary
date, instructing the Trustee to redeem a portion of the Bonds as of such anniversary date, in an
amount equal to such reduction in the Principal Portion. In addition, the Borrower agrees to
deposit with the Bank within forty-eight (48) hours of delivering such notice to the Trustee,
funds in an amount equal to such Principal Portion reduction, plus the amount of the Interest
Drawing to be paid in connection therewith, which funds will be used by the Bank to reimburse the
Bank for the amount of any Principal Drawing and Interest Drawing made by the Trustee in
connection with such Principal Portion reduction.

ARTICLE V.

 PAYMENT PROVISIONS

     SECTION
5.1. Reimbursement and Other Payments. The Borrower hereby unconditionally promises to pay to the Bank:

     (a) immediately on demand by the Bank, a sum equal to (i) any amount drawn under,
or paid by the Bank in good faith under, the Letter of Credit pursuant to a Bond Purchase
Principal Drawing plus (ii) interest on such amount as provided in subsection (j) below;

     (b) immediately and no later than 2:00 p.m. (without the necessity of any demand by
or notice from the Bank) on each date that the Bank pays any amount drawn under, or paid by
the Bank in good faith under, the Letter of Credit pursuant to a Principal Drawing or an Interest
Drawing or an Acceleration Drawing, a sum equal to (i) such amount so drawn under, or paid by
the Bank in good faith under, the Letter of Credit pursuant to a Principal Drawing or an Interest
Drawing or an Acceleration Drawing, plus (ii) interest on such amount as provided in subsection (j) below;

     (c) immediately on demand by the Bank, any amount drawn under, or paid by the
Bank in good faith under, the Letter of Credit pursuant to a Bond Purchase Interest Drawing, a
sum equal to (i) such amount so drawn under, or paid by the Bank in good faith under, the Letter
of Credit pursuant to a Bond Purchase Interest Drawing, plus (ii) interest on such amount as
provided in subsection (j) below;

     (d) immediately on demand by the Bank, a sum equal to (i) any and all reasonable
charges and expenses (excluding the Bank’s internal overhead) which the Bank may pay or incur
relative to the payment of any draft drawn under, or paid by the Bank in good faith under, the

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Letter of Credit or in connection with any amendment or extension of or substitution for or
renewal of the Letter of Credit, plus (ii) interest thereon as provided in subsection (j)
below;

     (e) immediately on demand by the Bank, a sum equal to (i) the amount advanced or
paid by the Bank pursuant to the provisions of Section 4.7 or Section 14.9 hereof,
plus (ii) interest on such amount as provided in subsection (j) below, plus (iii) any and all
reasonable charges and expenses which the Bank may pay or incur relative to such payment;

     (f) immediately (without the necessity of any demand by or notice from the Bank) as
and when due and payable, the Letter of Credit Fee and the Negotiation Fee and such other fees
as set forth in Section 4.1 of this Letter of Credit Agreement (including any additional
amounts required by Section 5.4 hereof), plus interest thereon as provided in subsection (j)
below;

     (g) immediately on demand by the Bank, any and all expenses incurred by the Bank
in enforcing any rights under this Letter of Credit Agreement plus interest thereon as provided in
subsection (j) below;

     (h) immediately on demand by the Bank, all other costs and expenses of the Bank, as set forth
in this Letter of Credit Agreement (including, without limitation, all costs and expenses payable
pursuant to Section 4.6 of this Letter of Credit Agreement) plus interest thereon as
provided in subsection (j) below;

     (i) immediately on demand by the Bank upon any transfer of the Letter of Credit, the transfer
charge payable to the Bank pursuant to the Letter of Credit ($2,500) plus interest thereon
as provided in subsection (j) below (a “transfer” of the Letter of Credit means the designation of
a new beneficiary thereunder as a substitute Trustee under the Indenture); and

     (j) immediately on demand by the Bank, interest on any and all amounts and sums payable by
the Borrower under this Letter of Credit Agreement at any time (including, without limitation, any
and all amounts or sums described or referred to in subsections (a) through (i) above), such
interest being payable from the date such amounts and sums become due until the Bank actually
receives payment thereof in full, at the Reimbursement Rate. Interest on any amounts advanced or
paid by the Bank or any costs, charges and expenses incurred by the Bank shall be due and payable
from the date such amounts are advanced or costs are incurred or paid by the Bank until the Bank
actually receives payment thereof in full at the Reimbursement Rate.

     The Borrower shall not, however, be relieved of liability for repaying any such amounts (plus
interest thereon, at the Reimbursement Rate, from the date such amounts are paid by the Bank under
the Letter of Credit) to the Bank by reason of any action or inaction on the part of the Trustee
or any other person which results in a failure by the Bank to actually receive such amounts from
the Trustee pursuant to the Indenture or results in any delay in the receipt by the Bank of such
amount from the Trustee pursuant to the Indenture.

     All amounts paid by the Bank under the Letter of Credit shall bear interest from the date such
amounts are paid by the Bank until such time as such amounts are actually repaid to the Bank in the
absence of an Event of Default hereunder, at the Reimbursement Rate, and from and after the
occurrence of an Event of Default hereunder, at the Penalty Rate.

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     The Borrower shall apply any and all amounts which it receives in respect of the
principal of and interest on Pledged Bonds to the repayment of amounts from time to time owing to
the Bank pursuant to subsection (a) above.

     Any amounts from time to time owing to the Bank pursuant to subsection (a) above may be paid
at any time by the Borrower, prior to demand therefor by the Bank, on written notice to the Bank
(to be received by the Bank no later than 10:00 a.m., prevailing Baltimore, Maryland time, on the
date of the proposed payment) stating the amount to be paid (which amount shall be $100,000 or
integral multiples of $5,000 in excess thereof with respect to payments made pursuant to
subsection (a)(i) above). Upon payment to the Bank of the amount to be paid pursuant to subsection
(a)(i) above, together with accrued interest to the date of such payment on the amount to be paid
as required pursuant to subsection (a)(ii) above, the outstanding obligations of the Borrower
under subsection (a) above shall be reduced by the amount of such payment and interest shall cease
to accrue on the amount so paid; and, if no Event of Default has occurred and is continuing, the
Bank, upon the Borrower’s request, will, as provided in Section 6(a) of the Pledge and Security
Agreement, release from the lien of the Pledge and Security Agreement and the Pledged Bonds
Custody Agreement Pledged Bonds in an aggregate principal amount which is equal to the amount paid
to the Bank as required pursuant to subsection (a)(i) above.

     Notwithstanding any other terms and provisions of any of the Letter of Credit Documents, the
amounts described in the foregoing subsections (a) through (j) shall be due and payable in full at
the time indicated, regardless of whether or not the Bank (or the Pledged Bonds Custodian, for the
account of the Bank) is then holding any Pledged Bonds as a result of any Bond Purchase Principal
Drawing and regardless of whether or not the Bank (in its sole discretion) has theretofore
extended the time for payment of any amounts payable hereunder; provided, however, that during any
period that the Bank holds any Pledged Bonds (or the Pledged Bonds Custodian holds any Pledged
Bonds for the account of the Bank), the Bank shall apply the amount of any interest payable on the
Bonds which is actually received by the Bank as a “pledgee” of Bonds to the amount of interest
payable on the Borrower’s Letter of Credit Obligations as provided in subsection (j) above, and
the Borrower’s obligation for the payment of interest as provided in subsection (j) above will be
adjusted accordingly.

     Notwithstanding anything to the contrary set forth in this Section, following the date on
which the Bank honors a Bond Purchase Principal Drawing, the Bank will not make demand for the
payment of the amounts payable under subsection (a) above in connection with such Bond Purchase
Principal Drawing, so long as (1) within 48 hours after the Bank honors such Bond Purchase
Principal Drawing (or such longer period of time not to exceed five (5) Business Days if the
Trustee advises the Bank that the delay is caused by administrative difficulties), the Pledged
Bonds Custodian receives an aggregate principal amount of Bonds equal to the amount of such Bond
Purchase Principal Drawing, registered by the Trustee in the Borrower’s name, as owner, and in the
Bank’s name, as pledgee, (2) the Bank actually receives all payments of the principal of and
interest on such Bonds, when due, (3) no Event of Default shall have occurred and be continuing,
and (4) the Letter of Credit shall not have expired. On the date of the expiration of the Letter of
Credit, all amounts payable under subsection (a) above in connection with such Bond Purchase
Principal Drawing which shall not have been repaid, together with all accrued and unpaid interest
thereon, shall become immediately due and payable, without the

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necessity of any demand by or
notice from the Bank; provided, however, if such Bond
Purchase Principal Drawing is the result of a Downgrade, all amounts payable in connection with
such Bond Purchase Principal Drawing which shall not have been repaid, together with all accrued
and unpaid interest thereon, shall become immediately due and payable, without demand or notice
from the Bank, on the day which is ninety (90) days following the date on which the Bank honors
such Bond Purchase Principal Drawing.

     SECTION
5.2. Payments Due Upon Expiration of Letter of Credit. On the date on which
the Letter of Credit expires, all amounts described in Section 5.1 (a) through (j) above, and all
other amounts owed to the Bank hereunder, together with all accrued and unpaid interest thereon,
shall become immediately due and payable, without the necessity of any demand or notice from the
Bank.

     SECTION
5.3. Late Payments. In the event any payment required to be made by the
Borrower in accordance with the provisions of Section 5.1 or Section 5.2 hereof or in accordance
with any other provision of this Letter of Credit Agreement is not paid within three (3) days from
the date on which the same is due and payable, such payment in default shall continue as an
obligation of the Borrower, and such payment in default and the entire unpaid balance of all
amounts owing hereunder shall bear interest, from the date on which the payment was due until such
payment in default is paid in full, at the fluctuating rate which is at all times equal to the
Penalty Rate. In addition, the Borrower shall pay (a) a late charge in an amount equal to 5% of
the amount of any payment which is made more than three (3) days after the date on which the same
is due and payable (except for any payment with respect to a Bond Purchase Principal Drawing), and
(b) all costs of collection, including reasonable attorneys’ fees (based on hourly rates), if this
Letter of Credit Agreement is referred to an attorney for collection after default by the
Borrower.

     SECTION
5.4. Increased Costs Due to Change in Law. If any change in any law,
regulation or official directive of any international, federal, state or local governmental
authority (whether or not having the force of law) or in the interpretation thereof by any court
or administrative agency or compliance by the Bank with any lawful request, law, regulation or
directive from any applicable fiscal or monetary authority (whether or not having the force of
law) shall either:

     (a) impose, modify or render applicable any reserve, special deposit or similar
requirement against letters of credit issued by the Bank or require the inclusion of such letters of
credit in any analysis of minimum capital requirements or capital adequacy; or

     (b) subject the Bank to any tax with respect to such letters of credit or any amount
payable under this Letter of Credit Agreement (other than a tax on the overall net income of the
Bank) imposed by the United States of America or the State; or

     (c) impose on the Bank any other condition regarding this Letter of Credit Agreement
or the Letter of Credit, and the result of any such event shall be:

	 	(i)  	to increase the cost to the Bank of issuing or maintaining the Letter of
Credit or any renewal thereof or of making, funding or maintaining the

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	 	   	whole or any part of any unpaid drawing under the Letter of Credit
(which increase in cost shall be determined by the Bank’s reasonable
allocation of the aggregate of such cost increases resulting from such
events); or
	 
	 	(ii)  	to reduce the amount of any sum received or receivable by the
Bank under this Letter of Credit Agreement or to require the Bank to make any
payment or forego any interest; or
	 
	 	(iii)  	to reduce the rate of return on the Bank’s capital as a result
of issuing or maintaining the Letter of Credit and/or any renewals thereof
(which reduction shall be determined by the Bank in accordance with the Bank’s
policies concerning capital adequacy), then and in each such case, upon demand
by the Bank, the Borrower shall pay to the Bank, from time to time as specified
by the Bank, additional amounts which shall be sufficient to compensate the
Bank for such increased cost, reduction, payment or foregone interest, together
with interest on each such amount from the date demanded until payment in full
thereof at the Reimbursement Rate. A certificate as to such increased cost,
reduction, payment or foregone interest as a result of any such event,
submitted in good faith by the Bank to the Borrower, shall be conclusive
evidence of such additional amounts to be paid by the Borrower and the basis
therefor, absent manifest error as to the amount thereof.

     SECTION 5.5. Computation. All payments of interest, Letter of Credit Fee and any
other fees and charges under this Letter of Credit Agreement shall be computed on the basis of a
360-day year factor applied to the actual number of days elapsed. The rate of interest shall be
adjusted on any day on which a change occurs in the LIBOR Rate.

     SECTION 5.6. Payment Procedure. Except as may otherwise be specifically provided
herein, all payments made by the Borrower under this Letter of Credit Agreement shall be made to
the Bank in lawful money of the United States of America at the time of payment and in immediately
available funds at the Bank’s offices at 25 South Charles Street, Baltimore, Maryland 21201,
before 12:00 noon, prevailing Baltimore, Maryland time on the date when due.

     SECTION 5.7. Business Days. If the date for any payment hereunder is a day which is
not a Business Day, then for all purposes of this Letter of Credit Agreement, the payment then due
shall be made on the next following Business Day, and such extension of time shall in each case be
included in any computation of payments of interest.

     SECTION 5.8. Termination of Swap Agreement. Any Swap Agreement shall terminate or be
assigned by the Bank to a new counterparty at the option of the Borrower if the Letter of Credit is
replaced, expires or is otherwise terminated.

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ARTICLE VI.

UNCONDITIONAL OBLIGATIONS

     SECTION 6.1. Obligations Absolute. The obligations of the Borrower under this Letter
of Credit Agreement shall be absolute, unconditional and irrevocable, and shall be paid strictly
in accordance with the terms of this Letter of Credit Agreement, under any and all circumstances
whatsoever; including, without limitation, the following circumstances: (a) any invalidity or
unenforceability of the Letter of Credit, the Bonds, the other Bond Documents or any other
agreement or instrument related thereto; (b) any amendment or waiver of, or any consent to or
departure from, the terms of the Letter of Credit, the Bonds, the other Bond Documents or any
other agreement or instrument related thereto; (c) the existence of any claim, set-off, defense or
other right which the Borrower may have at any time against any beneficiary or any transferee of
the Letter of Credit (or any person for whom the Borrower, any such beneficiary or any such
transferee may be acting), the Bank or any other Person, whether in connection with this Letter of
Credit Agreement, the Letter of Credit, the Bond Documents, the Facility or any unrelated
transaction; (d) any statement or any other document presented under the Letter of Credit proving
to be forged, fraudulent, invalid, unenforceable or insufficient in any respect, or any statement
therein being untrue or inaccurate in any respect whatsoever; (e) payment by the Bank under the
Letter of Credit against presentation of a sight draft or certificate which substantially complies
with the terms of the Letter of Credit; (f) the surrender or impairment of any security for the
performance or observance of any of the agreements or terms of this Letter of Credit Agreement; or
(g) the use to which the Letter of Credit may be put or any acts or omissions of the Trustee in
connection therewith; or (h) any other circumstance, happening or omission whatsoever, whether or
not similar to any of the foregoing. The Borrower understands and agrees that no payment under any
other agreement will release it from liability hereunder unless the Bank has been indefeasibly
paid in full; and the Bank understands and agrees that nothing contained in this Section 6.1 shall
affect its obligations under Section 4.8 hereof.

ARTICLE VII.

REPRESENTATIONS AND WARRANTIES OF BORROWER

     SECTION 7.1. Representations, Warranties and Undertakings. The Borrower makes the
following representations and warranties to induce the Bank to enter into this Letter of Credit
Agreement and to issue the Letter of Credit and to induce MIDFA to insure a portion of the
Borrower’s Letter of Credit Obligations pursuant to the Insurance Agreement:

     (a) Authority. The Borrower is a corporation duly organized and validly existing and
in good standing under the laws of Delaware and is qualified and in good standing in the State of
Maryland. The Borrower has the power to enter into, deliver and perform this Letter of Credit
Agreement and the other Letter of Credit Documents and Bond Documents entered into by it and the
transactions contemplated hereunder and thereunder and to carry out its obligations hereunder and
thereunder. By proper action, the Borrower has duly authorized the execution, delivery and
performance of this Letter of Credit Agreement and each of the other Letter of Credit Documents and
Bond Documents executed and delivered by it. The Borrower is not in

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default under any of the provisions of the laws of the State of Delaware or the State which would
affect its existence or its powers referred to in this subsection (a).

     (b) Binding
Agreements. This Letter of Credit Agreement and the other Letter of
Credit Documents and Bond Documents to which the Borrower is a party have been duly and
properly authorized, executed, sealed and delivered by the Borrower, constitute valid and
legally binding limited obligations of the Borrower, and are fully enforceable against the Borrower in
accordance with their respective terms; provided, however, that the enforceability and binding
nature of this Letter of Credit Agreement and the other Letter of Credit Documents and Bond
Documents are subject to bankruptcy, insolvency, reorganization and other state and federal
laws affecting the enforcement of creditors’ rights generally, and, to the extent that certain
remedies under such instruments require, or may require, enforcement by a court of equity, such principles
of equity as the court having jurisdiction may impose.

     (c) No
Violation. The transactions contemplated in this Letter of Credit Agreement
and any other Letter of Credit Documents and the Bond Documents do not and will not (i)
conflict with, contravene or violate any provision of any law, rule, regulation, order, writ,
judgment, injunction, decree, determination or award presently in effect having applicability to
the Borrower, or the certificate of incorporation or the bylaws of the Borrower, including all
amendments thereto, or (ii) result in a breach of or constitute a default under any existing
mortgage, indenture, contract, loan or credit agreement or any other agreement, lease or
instrument to which the Borrower, or by which its properties, may be bound or affected.

     (d) Litigation. There is no action, suit or proceeding or any governmental
investigation or any arbitration, in each case pending or, to the knowledge of the Borrower,
threatened against or affecting the Borrower or its properties before any court or arbitrator
or governmental department, commission board, bureau, agency or instrumentality which would,
upon final judgment, in the aggregate, exceed $250,000 (unless covered by insurance).

     (e) Marketability;
Liens or Security Interests. The Borrower has good marketable
title to all the collateral in which the Borrower has granted to the Bank a security interest
under the Letter of Credit Documents and, except for liens being granted to the Bank under the
Letter of Credit Documents, and except as may be provided in the Bond Documents, there exist no
Encumbrance on or with respect to any collateral referred to in any of the Letter of Credit
Documents, including the security for the Borrower’s Letter of Credit Obligations as set forth
in Section 3.2 of this Letter of Credit Agreement.

     (f) Full
Disclosure. All information heretofore furnished by the Borrower to the
Bank for purposes of, or in connection with this Letter of Credit Agreement and the other Letter
of Credit Documents and the Bond Documents, or any transaction contemplated hereby or
thereby is, and all such information hereafter furnished by the Borrower to the Bank will be,
true and accurate in all material respects on the date as of which such information is stated or
certified and has not and will not omit to state any material fact necessary in order to make
the statements contained herein or therein not misleading in light of the circumstances under
which such information was provided.

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     (g) Places
of Business of Borrower. The Borrower has its principal place of
business and maintains or keeps its records in Montgomery County, Maryland, and in no other county
in the State and at no location outside the State.

     (h) Utilities. All utility services necessary for the operation of the Facility for
their intended purposes are available at the Facility, including water supply of sufficient
quantity and pressure, storm and sanitary sewer facilities of adequate capacities, gas, electric
and telephone facilities. The Borrower has procured from the appropriate State, subdivision,
municipal, and other authorities and corporations, connection and discharge arrangements for the
supply of water, gas, electricity and other utilities and sewage and industrial waste disposal for
the operation of the Facility.

     (i) Roads. All roads necessary for the full utilization of the Facility for its
intended purposes have either been completed or the necessary rights of way therefor have either
been acquired by the Borrower or the Landlord or the appropriate governmental authority or have
been dedicated to public use and accepted by such governmental authority or will be so acquired or
dedicated within a period of time required for the operation of the Facility by the Borrower and
all necessary steps have been taken by the Borrower and such governmental authority to assure the
complete construction and installation thereof in accordance with law and all applicable
governmental or quasi-governmental requirements.

     (j) Zoning,
etc. The Facility, and the use of the Facility for its intended use, do
not violate any zoning or other ordinance, regulation or law, restrictive covenant or agreement of
the Borrower (either now in existence or known by the Borrower to be proposed, including, but not
limited to the Lease) applicable to the Facility or its use, and all requirements for such use
have been satisfied.

     (k) Licenses. All necessary permits and licenses for the construction and operation of
the Facility for its intended purposes have been obtained and are in full force and effect. The
Borrower is in compliance with all such permits and licenses. There has been no threatened
suspension or revocation of such permits or licenses and nor does there exist any facts or
circumstances which would provide grounds for any such suspension or revocation.

     (l) Name
of Borrower. The Borrower has never done business under any name other than
“Avalon Pharmaceuticals, Inc.” and “Therapeutic Genomics, Inc.”

     (m) Condemnation. No condemnation, eminent domain or similar proceeding is pending,
or to the best knowledge of the Borrower, threatened, with respect to the Facility or any portion
thereof.

     (n) Hazardous
Materials. To the Borrower’s knowledge, (i) no Hazardous Materials are
currently located at the Facility (except for Hazardous Materials stored and handled in strict
compliance with all Environmental Requirements and only to the extent necessary in the Borrower’s
ordinary course of business), nor is the Facility affected by any Hazardous Materials
Contamination, (ii) the Facility has never been used as a manufacturing, storage, treatment,
processing, recycling or disposal site for Hazardous Materials, and (iii) no property within a
one-half (1/2) mile radius of the Facility has ever been used as a manufacturing, storage,
treatment,

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processing, recycling or disposal site for Hazardous Materials, nor is any such property
affected by Hazardous Materials Contamination. The present condition and uses of, and activities
on, the Facility do not, to the Borrower’s knowledge, violate any Environmental Requirement and
the uses of the Facility which the Borrower and each tenant and subtenant, if any, intend in the
future to make of the Facility, to the Borrower’s knowledge, comply and will comply with all
applicable Environmental Requirements. The Borrower has received no notice, and is not aware, of
any Claim involving a violation of any Environmental Requirement with respect to the Facility or
any parcel in the vicinity of the Facility or any operation conducted on the Facility or on any
parcel in the vicinity of the Facility. To the Borrower’s knowledge, there is no Environmental
Requirement nor is there any Hazardous Material Contamination which requires any investigation,
assessment, work, repair, construction, capital expenditure, or other remedial work of any nature
whatsoever at, on, in, under or adjacent to the Facility.

     (o) Subsidiaries. The Borrower has no Subsidiaries.

     (p) Insurance. The Borrower maintains and has in full force and effect, with
financially sound and reputable insurers, insurance with respect to its properties and business,
and covering such risks, liabilities, casualties and contingencies and in such types and amounts
as to comply with the Letter of Credit Documents and the Bond Documents.

     (q) Material
Contracts. The Borrower is in compliance with all material provisions of
all material contracts to which it is a party, and there exists no material default under any
material contract by the Borrower or, to the best knowledge of the Borrower, by any other party
thereto.

     (r) Tax
Returns. The Borrower has filed all required federal, state and local tax or
information returns and has paid all Taxes as shown on such returns as they have become due. No
claims have been assessed and are unpaid with respect to such Taxes, and the Borrower has
established reserves which it believes to be adequate for the payment of additional Taxes for
years which have not been audited by the respective tax authorities.

     (s) ERISA. (i) Any Plan established and maintained by the Borrower or any “Commonly
Controlled Entity” is a qualifying plan under the applicable requirements of ERISA, and there is no
current matter which would materially adversely affect the qualified tax-exempt status of any Plan;
(ii) neither the Borrower nor any “Commonly Controlled Entity” has engaged in or is engaging in any
“Prohibited Transaction” or has incurred any “Accumulated Funding Deficiency” in connection with
any such Plan, whether or not waived, and no “Reportable Event” has occurred with respect to any
Plan subject to the minimum funding requirements of Section 412 of the Code; (iii) no
“Multiemployer Plan” has “terminated”, as that term is defined in ERISA; (iv) neither the Borrower
nor any “Commonly Controlled Entity” has “withdrawn” or “partially withdrawn” from any
“Multiemployer Plan”; (v) no “Multiemployer Plan” provides that any such Plan will be placed in
“reorganization”. Neither the consummation of this Letter of Credit Agreement, nor any transaction
contemplated hereunder, will constitute a Prohibited Transaction with regard to any Plan. All
capitalized terms used in this section and not otherwise defined in this Letter of Credit Agreement
shall have the meanings given them in ERISA.

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     (t) Margin
Stock. The Borrower is not engaged principally or as one of its important
activities in the business of extending credit for the purpose of purchasing or carrying margin
stock (within the meaning of Regulations X, T or U of the Board of Governors of the Federal
Reserve System). The execution, delivery and performance of this Letter of Credit Agreement and
the use of the proceeds of the Bonds or any extension of credit hereunder, do not and will not
constitute a violation of such regulations.

     (u) Public
Utility Holding Company. The Borrower is not (i) a “holding company,” or
(ii) a “subsidiary company” of a “holding company,” or (iii) an “affiliate” of a “holding company”
or a subsidiary company” of a holding company,” within the meaning of the Public Utility Holding
Company Act of 1935, as amended.

     (v) Not
an Investment Company. The Borrower is not an “investment company” required
to be registered or a company “controlled” by such “investment company” within the meaning of the
Investment Company Act of 1940, as amended.

     (w) No
Defaults. The Borrower is not in violation of any statute or other law or in
default under any order, regulation or ruling of any court or any other tribunal or governmental
or administrative authority or agency, or in default under its certificate of incorporation, as
applicable, or its bylaws, each as amended to date, or under any indenture, agreement, lease,
instrument or other undertaking to which the Borrower is a party or by which its property or
assets may be bound or affected.

     (x) Financial
Position. The financial statements of the Borrower heretofore delivered
to the Bank and MIDFA are complete and correct and fairly present the financial position of the
Borrower and the results of its operations and transactions in its surplus accounts as of the date
for the period referred to and have been prepared in accordance with GAAP for interim or annual
financial statements, as the case may be applied on a consistent basis throughout the period
involved; provided that certain notes and other information have been condensed or omitted from
the interim financial statements delivered and, therefore, such statements should be read in
conjunction with the annual audited financial statements for such year. There are no liabilities,
direct or indirect, fixed or contingent, of the Borrower which are not reflected therein or in the
notes thereto. There has been no material adverse change in the financial condition, prospects or
operations of the Borrower since the date of such financial statements (and to the Borrower’s
knowledge no such material adverse change is pending or threatened), and the Borrower has not
guaranteed the obligations of, or made any investment in or advances to, any person except as
disclosed in such financial statements. The Borrower has good and marketable title to all of its
properties and assets, and all of such properties and assets are free and clear of liens and
encumbrances, except as reflected on such financial statements or in the notes thereto. The
Borrower is not insolvent on the date hereof within the meaning of the Bankruptcy Code.

     (y) Compliance
with Laws. The Borrower is in compliance with all laws, ordinances,
governmental rules and regulations to which it is subject, the failure to comply with which could
materially adversely affect the condition (financial or other) of the Borrower or the ability of
the Borrower to perform its obligations under the Letter of Credit Documents and the Bond Documents
or otherwise conduct its activities.

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     (z) Redemptions. Except as set forth on Schedule 7.1 (z), Borrower has not granted
any stockholder the right to have any or all of its stock, or options or warrants to purchase
stock of the Borrower, redeemed, purchased or otherwise retired prior to the Maturity Date and the
Borrower has not set aside any sums for any such purchase, redemption or retirement.

ARTICLE VIII.

REPRESENTATIONS AND COVENANTS OF BORROWER

WITH RESPECT TO FACILITY; RELATED MATTERS

     SECTION
8.1. Completion of Facility. The Bonds are being issued to finance a portion
of the Facility Costs. The Borrower has completed the Facility in accordance with the Plans and
Specifications and in accordance with the requirements of the Letter of Credit Documents and the
Bond Documents.

     SECTION
8.2. Covenants by Borrower with Respect to Completion of Facility. With
respect to the completion of the Facility, the Borrower hereby covenants and agrees with the Bank
that:

     (a) Time
of Completion. The Borrower has completed, on or before the Completion
Date, the improvements to and equipping of the Facility in accordance with the Plans and
Specifications and the Construction Contract, free and clear of any Encumbrance or any claims
for any Encumbrance for material supplies and for labor or services performed in connection
with the Facility except as described on Schedule 8.2(a) hereof.

     (b) Inspection. The Borrower will permit the Bank and its representatives and
MIDFA and its representatives to enter upon the Facility and surrounding areas, upon reasonable
notice to the Borrower (which may be telephonic) during normal business hours, to inspect the
Facility and the Equipment, and to examine all detailed plans and drawings which are or may be
kept at the site, and will cooperate, and cause the Landlord to cooperate, with the Bank and
MIDFA in connection with any such inspections; provided, however, any person conducting
such inspection shall comply with the Borrower’s safety and operating policies and procedures.

     (c) Delivery
of Certain Documents to Bank. The Borrower has delivered and will
deliver to the Bank, if requested by the Bank, any contracts, bills of sale, statements, receipted
vouchers or agreements, under which the Borrower claims title to any materials, fixtures or
articles incorporated in the Facility or subject to the lien arising under any of the Letter
of Credit Documents.

     (d) Correction
of Defects. The improvements to the Facility have been constructed in
accordance with good building practices. The Borrower will promptly notify the Bank of any
structural defect in the Facility and, upon demand by the Bank, commence and proceed promptly
and diligently to correct any structural defect in the Facility. The Bank shall determine in its
reasonable discretion whether the Borrower is acting promptly and diligently. No approval of
any disbursement by the Bank from the Facility Fund will constitute a waiver of the Bank’s
right to require compliance with this covenant with respect to any such defects.

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     (e) Identification
of Subcontractors and Suppliers. The Borrower has delivered to
the Bank and MIDFA a list of all subcontractors, mechanics and materialmen, which list specifies
the name and address (including the names of principals of unincorporated businesses) and
contract value for each subcontractor and mechanic and materialman.

     (f) Compliance With Restrictions, etc. The Borrower has complied and will continue
to comply with all applicable building restrictions, zoning ordinances, building codes,
environmental protection requirements and other governmental regulations applicable to the
Facility, noncompliance with which could adversely affect the financial position of the
Borrower or the security for the Borrower’s Bond Obligations or the Borrower’s Letter of Credit
Obligations, subject to the Borrower’s right to contest any of the foregoing as set forth in
Section 9.2 hereof, or which may impose any duty or obligation upon the Borrower or any other
occupant of the Facility, or any part thereof, and the Borrower will 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 Facility.

     (g) Payment
of Contractor. The Borrower will promptly pay the Contractor and all
other contractors and materialmen the amounts justly due to them, and receive the disbursements
from the Facility Fund, and hold the right to receive such disbursements, as trust funds to be
applied for the purpose of paying the cost of the completion of the Facility.

     SECTION 8.3. Enforcement of Remedies Against Contractor and Subcontractors and Their
Sureties. The Borrower covenants that it will (at its sole cost and expense) take such action
and institute such proceedings as shall be necessary to cause and require all contractors,
including (without limitation) the Contractor, subcontractors, and material suppliers to complete
their contracts, including (without limitation) the Construction Contract, diligently in
accordance with the terms of such contracts, including (without limitation) correcting any
defective work. The Borrower may, from time to time, take such action as may be necessary or
advisable, as determined by the Borrower (and at the Borrower’s sole cost and expense) to insure
the improvements to and equipping of the Facility in accordance with the Plans and Specifications
and the terms of the Construction Contract, to insure the purchase and installation of any
equipment in the Facility, and to insure the peaceable and quiet enjoyment of the Facility. Any
amounts recovered by way of damages, refunds, adjustments or otherwise in connection with the
foregoing, less any expenses incurred by the Borrower in order to collect the same, shall be used
to correct any defective work with respect to the Facility or to pay other Facility Costs.

     SECTION 8.4. Application
of Proceeds of the Bonds.

     (a) General. On the Closing Date, the proceeds of the sale of the Bonds will be
deposited with the Trustee into the Facility Fund to be advanced to the Borrower, or for the
account of the Borrower, to pay the Facility Costs or to reimburse the Borrower for the payment of
the Facility Costs. Such funds will also be disbursed directly to the Borrower, or for the account
of the Borrower, to pay for the Costs of Issuance of the Bonds as the same are incurred and to pay
the Facility Costs as the construction and equipping of the Facility progresses. Disbursements
shall be made only against requisitions in the form attached to the Indenture as Exhibit B, which
requisitions must be approved by the Bank pursuant to the procedures set forth

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herein and in the Indenture. Disbursements from the Facility Fund shall be made only to pay
Facility Costs as permitted by the Acts.

     On
the Closing Date, the Bank will approve a disbursement (the
“Initial Disbursement”) from
the Facility Fund sufficient to pay certain transaction costs incurred by the Borrower in
connection with the issuance and sale of the Bonds and certain Facility Costs incurred by the
Borrower prior to the Closing Date, as approved by the Bank.

     The Required Post Closing Documents, all of which are customarily required by the Bank and
MIDFA prior to closing in connection with the financing of facilities similar to the Facility,
will not be available on the Closing Date. If all of the Required Post Closing Documents shall not
have been received and approved, in all respects, by the Bank and MIDFA prior to May 12, 2003 (or
such later date as the Bank and MIDFA, in their sole discretion, may select and approve), an Event
of Default shall be deemed to have occurred hereunder.

     The waiver by the Bank and MIDFA of any requirement for a disbursement, or the failure by the
Bank and MIDFA to insist upon strict performance of such requirements for the Initial Disbursement
or any subsequent disbursement shall not be deemed a waiver of the Bank’s or MIDFA’s rights to
later insist upon strict compliance with such conditions with respect to any future disbursements.

     (b) Investments. Moneys on deposit with the Trustee in the Facility Fund shall be
invested in Permitted Investments (as defined in the Indenture) at the direction of the
Borrower. Except as otherwise provided in the Indenture, investment earnings on moneys on deposit in the
Facility Fund will be disbursed to the Borrower, or for the account of the Borrower, solely to
pay the Facility Costs, or to reimburse the Borrower for the payment of the Facility Costs, as the
improvements to the Facility progresses.

     (c) Amounts
Remaining After Completion. Upon approval and payment of the final holdback of the Direct Costs of Construction, all moneys remaining in the Facility Fund shall
be applied in accordance with Section 5.5 of the Indenture.

     (d) Approval
of Bank Required. All requisitions for disbursements of moneys on
deposit in the Facility Fund shall be made in accordance with the terms of the Indenture and
this Letter of Credit Agreement and shall be subject to the prior written approval of the Bank. No
disbursements will be made from the Facility Fund except upon a requisition signed by the
Authorized Borrower Representative and approved in writing by the Bank. The Bank shall have
a period of ten (10) Business Days within which to approve any requisition.

     (e) Disbursements
for Facility Costs Other than Direct Costs of Construction.
Requisitions for Facility Costs, other than Direct Costs of Construction, must (i) include an
itemization of the costs for which payment is requested, (ii) have attached thereto invoices
evidencing such costs, (iii) indicate that the delivery and installation of any equipment for
which payment is requested has been completed except for payment of amounts as shall be reasonably
satisfactory to the Bank, (iv) be approved by the Bank prior to any disbursement from the
Facility Fund, and (v) have attached thereto any additional documents or information
(including any financing statements or amendments to financing statements and all filing fees necessary
for

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the filing thereof) reasonably required by the Bank in order to create or perfect, or continue the
perfection of, the Bank’s security interest in the equipment.

     (f) Disbursements
for Direct Costs of Construction. Requisitions for Direct Costs of
Construction must include the AIA approved progress payment form, which must be signed by the
Contractor and the Borrower.

     (g) Release
of Final Holdback. The final holdback of the Direct Costs of
Construction under the Construction Contract will be retained until the Bank and the Trustee have
been furnished with final mechanics’ lien waivers from the Contractor and all
subcontractors, materialmen and mechanics. The Borrower shall deliver to the Bank all documents
necessary for the release of the final holdback and evidence that all other items necessary for
the release of the final holdback have been completed no later than June 30, 2003.

     (h) Disbursement
Procedure. All disbursements from the Facility Fund will be made by
the Trustee directly to the Borrower; provided, however, that notwithstanding any
provision of any of the Bond Documents or the Letter of Credit Documents, the Bank may, in its
sole discretion, require that all disbursements from the Facility Fund be made (i) jointly to the
Borrower and any one or more of the Contractor or subcontractors, laborers, materialmen or persons
furnishing labor, services, materials or equipment used or to be used on or in connection with the
Facility (including authorized extras), or (ii) directly to the Contractor, or to subcontractors,
laborers, materialmen or persons furnishing labor, services, materials or equipment used or to be
used on or in connection with the Facility (including authorized extras), or to any combination
thereof, or to pay any loan fees, taxes, appraisals, inspection fees, recording charges, legal
fees and any other outstanding amounts due relating to the Facility and the full cost of its
completion. Any such disbursement or payment shall be deemed to have been made to the Borrower or
for its account.

     SECTION 8.5. Conditions Precedent to the Bank’s Approval of Requisitions for
Disbursements from Facility Fund. The Bank shall not be obligated to approve any requisition
for disbursement from the Facility Fund including the Initial Disbursement until it shall have
received a requisition meeting the requirements of Section 5.3 of the Indenture, and until all of
the following conditions precedent shall have been fully met and complied with in all respects:

     (a) No
Event of Default. There shall exist no Event of Default and no circumstances or
event which, with the giving of notice or lapse of time, or both, would constitute an Event of
Default.

     (b) Representations
and Warranties. The representations and warranties of the
Borrower contained under Article VII of this Letter of Credit Agreement shall be true and correct
in all material respects with the same effect as though made on the Closing Date. Each
requisition for disbursement shall constitute a representation by the Borrower to such effect as of
the date of such requisition.

     (c) Waivers
of Liens; Receipts. The Borrower shall have furnished waivers of liens
and receipts of payment as to the Contractor and each subcontractor for all work performed to

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the date of each requisition (at the time such requisition is submitted) and waivers of liens from
each supplier of materials included in such requisition.

     (d) Financing
Statement Search Report. At the option of the Bank, the Bank shall
have received an updated financing statement search showing that the Equipment Collateral is clear
of any Encumbrance (other than Permitted Encumbrances) to the date of such disbursement and that no
financing statements affecting the Equipment Collateral (other than Permitted Encumbrances), or any
part thereof, other than in favor of the Issuer and the Bank, have been filed, until, if there are
any such Encumbrances, the same have been removed, discharged, bonded, or insured over to the
satisfaction of the Bank.

     (e) Proper
Application of Prior Disbursements. The Bank shall have received, upon
the Bank’s request, evidence satisfactory to it that all prior disbursements have been properly
applied to Facility Costs.

     (f) Documents
Required Prior to Disbursements for Equipment Collateral. The Bank shall
have received and approved all of the following:

	 	(i)  	specific description of such Equipment Collateral, including
name of manufacturer, manufacturer’s I.D. number or serial number and any other
information reasonably requested by the Bank in order to sufficiently describe
the equipment being financed so that the Bank’s security interest in such
equipment is adequately described and may be adequately perfected, and
	 
	 	(ii)  	a financing statement or amendment to financing statement, if
necessary in the sole opinion of the Bank, together with all filing fees and
recordation taxes therefor, to be filed among the appropriate financing
statement records in order to perfect such security interest.

     (g) Sufficient
Funds to Complete Facility. The Bank shall have received from the
Contractor a certificate stating that the amounts remaining to be paid in respect of the
Completion of the Facility do not exceed the balance of the Facility Fund.

     (h) Quality
and Quantity of Construction. The Bank shall have received evidence
acceptable to the Bank in its reasonable discretion that work performed and materials in place to
the date of the requisition are satisfactory both as to quantity and quality.

     SECTION
8.6. Financing Sign on Facility; Publicity. The Borrower authorizes the Bank
and the Issuer to place a sign at the Facility (subject to the provisions of the Lease), for a
period not to exceed ninety (90) days from the date such sign is installed, at any location
mutually agreeable to the Bank and the Borrower, with the Borrower’s consent, which consent shall
not be unreasonably withheld, and to prepare and furnish tombstone advertisements and news releases
to the news media or any other publications selected by the Bank or the Issuer advertising the fact
that financial assistance for the Facility has been obtained from the Bank and the Issuer, and the
details of such financial assistance and using the name of the Borrower.

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ARTICLE IX.

COVENANTS AND AGREEMENTS WITH RESPECT TO PROPERTY

     SECTION
9.1. Use of Facility. The Borrower will use the Facility in accordance with
the terms of the Lease for general offices and as a wet laboratory facility for research and
development for Borrower’s pharmaceutical business (the
“Permitted Use”), or for any other use
approved by the Bank and the Issuer in their sole and absolute discretion.

     SECTION
9.2. Compliance with Laws. The Borrower will comply with and not violate the
Lease, all present and future laws, statutes, ordinances, rules, regulations, decrees and orders
of any governmental or other authority or regulatory body relating to the Facility or any part
thereof or to the use and operation of the Facility or any part thereof; provided, however, that
the Borrower may, at its sole cost and expense, in good faith and by appropriate and diligent
proceedings, contest the validity or applicability of any such law, statute, ordinance, rule,
regulation, decree, or order, or Lease provision so long as (i) the Borrower’s ability to pay and
perform the Borrower’s Letter of Credit Obligations and the Borrower’s Bond Obligations and the
security for the Borrower’s Bond Obligations or the Borrower’s Letter of Credit Obligations is
not, in the sole opinion of the Bank, materially impaired during the period of contest, (ii) the
Borrower gives the Bank notice of its intention to contest, (iii) the Borrower diligently
prosecutes such contest and (iv) the Borrower at all times effectively stays or prevents
enforcement of any such law, statute, ordinance, rule, regulation, decree or order until
resolution of the contest.

     SECTION
9.3. Approvals and Inspections. No inspections or approvals of the Facility
by the Bank shall constitute a warranty or representation by the Bank or any of its agents,
representatives or designees, as to the technical sufficiency, or adequacy or safety of the
structure or any of its component parts, including without limitation, its fixtures, equipment or
furnishings, nor shall such approvals or inspections constitute such a warranty or representation
as to any other physical condition or feature pertaining to the Facility or the Leased Premises.

     All acts, including any failure to act, relating to the Facility by any agent, representative
or designee of the Bank are performed solely for the benefit of the Bank to assure payment and
performance of the Borrower’s Letter of Credit Obligations and are not for the benefit of the
Borrower or any other Person.

     SECTION
9.4. Possession of the Facility. The Bank agrees that the Facility shall be
the sole property of the Borrower and that the Borrower shall enjoy the sole and exclusive
ownership and possession of the Facility (subject to the right of the Bank to enter on the
Facility for inspection and other purposes pursuant to the provisions of this Letter of Credit
Agreement). The Bank covenants and agrees that it will not take any action, other than pursuant to
(a) Article XIII of this Letter of Credit Agreement, and (b) the Letter of Credit Documents to
prevent the Borrower from having quiet and peaceable enjoyment of the Facility.

     SECTION
9.5. Insurance. In addition to any other insurance required under the other
Letter of Credit Documents or the Bond Documents, the Borrower shall maintain the insurance as
provided in this Section 9.5.

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     (a) Insurance
Required. The Borrower, until the expiration of this Letter of
Credit Agreement, shall, at its sole cost and expense, maintain or cause to be maintained
insurance coverage in accordance with the customary insurance practices of businesses similar to
the business which will be carried on in, or on the Facility, but in all events at least to the
following extent:

	 	(i)  	Insurance of Tenant’s Interest in Facility. The Borrower will keep
its interest in the Facility insured, and will cause the Landlord to keep the
Facility insured, against loss or damage from:

	 	(i)  	the perils of fire and hazards ordinarily
included under standard extended coverage endorsements in amounts
necessary to prevent the application of any co-insurance provisions of
the applicable policies up to the full insurable value thereof within
the terms of applicable policies, and
	 
	 	(ii)  	boiler or pressure vessel explosion (if there
are boilers or pressure vessels located on or about the Leased
Premises) in an amount customarily carried in the case of similar
operations, and
	 
	 	(iii)  	such other insurance on the Facility or any
replacements or substitutions therefor, against other insurable
casualties which at the time are commonly insured against in the case
of properties of similar character and location, due regard being given
to the height and type of the improvements comprising the Facility,
their construction, location, use and occupancy, or any replacements or
substitutions therefor, such insurance to be in such amounts as may
from time to time be reasonably required by the Bank.

	 	(ii)  	General Public Liability, Worker’s Compensation, and
Property Damage Insurance. The Borrower shall maintain or cause to be
maintained:

	 	(i)  	general public liability insurance and worker’s
compensation insurance in amounts usually carried by similar operations
against claims for bodily injury or death occurring upon, in or about
the Leased Premises, with such insurance (other than worker’s
compensation insurance) to afford protection to the limit of not less
than $11,000,000 in respect of bodily injury or death for any one
occurrence and to the limit of not less than $11,000,000 for the
aggregate of all occurrences during any given annual policy period, and
	 
	 	(ii)  	property damage insurance against claims by
Borrower for damage to property (including loss of use) occurring upon,
in or about the Leased Premises with such insurance to afford protection
to the limit of not less than $10,400,000 in respect of damage to
property

- 40

 

	 	   	for any one occurrence and $10,400,000 for the aggregate of all
occurrences during any given annual policy period.

	 	(iii)  	Builders Risk Insurance. During any period of
construction upon the Leased Premises, the Borrower shall maintain, or cause
the Landlord, the Contractor, or others to maintain, builder’s risk insurance
of the type customarily carried in the case of similar construction for the
full replacement cost of work in place and materials stored at or upon the
Leased Premises.
	 
	 	(iv)  	Flood Insurance. If at any time the Leased Premises is
located in an area that has been identified by the Federal Insurance
Administration as having special flood and mudslide hazards, and in which the
sale of flood insurance has been made available under the National Flood
Insurance Act of 1968, the Borrower shall purchase and maintain, or cause the
Landlord to purchase and maintain a flood insurance policy in the Stated Amount
or the maximum limit of coverage available on the Property, whichever is less.
In the event that the Property is not in an area having special flood and
mudslide hazards, the Borrower shall deliver to the Bank on the Closing Date,
and thereafter upon request, a certificate or letter issued by its insurance
company stating that the Leased Premises is not in such a flood or mudslide
area.
	 
	 	(v)  	Business Interruption Insurance. The Borrower will
maintain or cause to be maintained business interruption insurance in an amount
equal to $5,000,000.
	 
	 	(vi)  	Additional Insurance. The Borrower will keep, or cause
the Landlord to keep, the Leased Premises insured against any other risk
insured against by persons operating like properties in the locality of the
Leased Premises, in such amounts as are insured against by such persons, or as
may be from time to time reasonably required by the Bank and the Issuer. The
Borrower will obtain and keep in force such other and further insurance as may
be required from time to time by the Bank.

     (b) Specific
Requirements With Respect to Insurance. The following provisions
shall apply with respect to the insurance coverage required by this Section 9.5:

	 	(i)  	Insurance Companies. All insurance required by this
Section shall be carried with responsible insurance companies selected by the
Borrower, but unrelated to the Borrower, and may be effected by endorsement of
blanket insurance policies; provided, however, that all policies of
insurance shall be written by companies of recognized standing which are
authorized to do business in the State and are approved by the Bank:
	 
	 	(ii)  	Evidence of Insurance. The Borrower shall deliver to the
Bank, promptly upon the execution and delivery of this Letter of Credit
Agreement,

- 41

 

	 	  	original policies or duplicates thereof, or binders evidencing such insurance, and the
Borrower shall deliver to the Bank, at least thirty (30) business days prior to the
expiration of any such insurance, additional policies or duplicates thereof, or binders
evidencing the renewal of such insurance and the payment of the premiums therefor.
	 
	 	(iii)  	Loss Payee Clauses. The insurance policies required by subsections (i), (iii), (iv)
and (v) of Section 9.5(a) hereof and all renewals thereof are hereby assigned to the Bank and
shall be deposited with and held by the Bank, and as collateral and further security for the
Borrower’s Bond Obligations and the Borrower’s Letter of Credit Obligations, and shall have
attached thereto standard noncontributing, nonreporting loss payee clauses in favor of and
entitling the Bank and the Issuer, as their interests may appear, without contribution, to
collect any and all proceeds payable under such insurance as their interests may appear, all
to be in form and substance acceptable to the Bank.
	 
	 	(iv)  	Cancellation. The Borrower will immediately notify the Bank and the Issuer of any
cancellation of or change in any insurance policy, and each such insurance policy to be
provided under this Section 9.5 shall contain an agreement by the insurer that it will not
cancel such policy except upon at least thirty (30) calendar days’ prior written notice to
the Bank and the Issuer, and that any loss otherwise payable thereunder shall be payable
notwithstanding any act of negligence of the Bank, the Issuer or the Borrower which might,
absent such agreement, result in a forfeiture of all or part of such insurance payment.
	 
	 	(v)  	Collection and Adjustment of Insurance. So long as an Event of Default shall not
have occurred and be continuing under this Letter of Credit Agreement, the Borrower may
collect, adjust and compromise any losses or claims under any of the insurance policies
described in this Section 9.5; provided, however, that the Bank must approve any such
adjustment or compromise by the Borrower. If an Event of Default shall have occurred, the
Bank shall collect, adjust and compromise any losses or claims under any of such insurance
policies. The Net Proceeds of such insurance, whether collected by the Borrower or the Bank,
shall be held in trust to be applied only as set forth in Section 9.7 hereof; provided,
however, that so long as an Event of Default shall not have occurred and be continuing,
if the Net Proceeds are less than $100,000, such amount shall be delivered directly to the
Borrower to be applied as set forth in Section 9.7 hereof.
	 
	 	(vi)  	Failure of the Borrower to Effect Insurance. The Borrower will promptly pay when due
any and all premiums on all such insurance. On each anniversary of the Closing Date, the
Borrower shall deliver to the Bank and the Issuer a certificate, dated as of such date, to the
effect that there is then in force all such insurance which is then required to be maintained

- 42

 

	 	   	by the Borrower. Should the Borrower fail to effect, maintain or renew
any of the insurance required by this Section in the required amounts, or to pay
the premium therefor, or to deliver to the Trustee, the Bank and the Issuer
any of such certificates, then in any of such events the Bank, at its
option, but without obligation so to do, may procure such insurance, and any
sums expended by it to procure any such insurance shall be payable by the
Borrower to the Bank with interest, at the Penalty Rate on demand; however,
it is expressly understood that procurement by the Bank of any such
insurance shall not be deemed to waive or release the default of the
Borrower, or the right of the Bank, at the Bank’s option, to exercise the
remedies hereinafter set forth upon the occurrence of an Event of Default.
	 
	 	(vii)  	Post Foreclosure Collection of Insurance. In the event
of a sale of all or any part of the Facility pursuant to the provisions of the
Security Agreement or the Assignment of Lease, the Bank shall succeed to all
the rights and interest of the Borrower, including any right of the Borrower to
unearned premiums, in and to all such policies of insurance.
	 
	 	(viii)  	Separate Insurance. The Borrower shall not take out separate
insurance concurrent in form or contributing in the event of loss with that
required in this Section 9.5, unless the Issuer and the Bank are included
therein as named insured, with loss payable as required in this Letter of
Credit Agreement. The Borrower shall immediately notify the Bank whenever any
such separate insurance is applied for and shall promptly deliver to the Bank
the policy or policies or binders evidencing the same.

     SECTION
9.6. Condemnation. So long as no Event of Default shall have occurred and be
continuing, the Borrower is hereby authorized, at its option, to commence, appear in and
prosecute, any action or proceeding relating to any condemnation of the Facility or any part
thereof, or sale in lieu of condemnation, and, subject to the rights of the Landlord under the
Lease, to settle or compromise any claim in connection therewith,
provided, however, that
the Bank shall approve any such settlement or compromise by the Borrower.

     If an Event of Default shall have occurred and be continuing, the Bank is hereby authorized,
at its option, to commence, appear in and prosecute, in its own or in the Borrower’s name, any and
all actions or proceedings relating to any condemnation of the Property or any part thereof, or
sale in lieu of condemnation, and to settle or compromise any claim in connection therewith.
Notwithstanding any taking by eminent domain, sale in lieu of condemnation, alteration of the grade
of any street or other injury to, or decrease in, the value of the Facility by any governmental
authority, the Borrower will continue to pay the Borrower’s Bond Obligations and the Borrower’s
Credit Obligations as and when the same shall become due and payable, and any reduction in the
Borrower’s Bond Obligations or the Borrower’s Credit Obligations resulting from the application of
any Condemnation Award shall be deemed to take effect only on the date of such receipt. All or any
part of any Condemnation Award so received shall be deposited with the Bank and applied as set
forth in Section 9.7 hereof. If, prior to the receipt by the Bank of such Condemnation Award, the
Borrower’s interest in the Facility or any part thereof shall have been sold pursuant to the
provisions of the Security Agreement or the Assignment of Lease, the

- 43

 

Bank shall have the right to receive such Condemnation Award to the extent of (a) any
deficiency found to be due upon such sale, with legal interest thereon, and (b) the reasonable
attorneys’ fees, costs and disbursements incurred by the Bank in connection with the collection of
such Condemnation Award. The Borrower agrees to execute and deliver, from time to time, upon the
request of the Bank, such further instruments or documents as may be requested by the Bank or the
Issuer to confirm the grant and assignment to the Bank or the Issuer of any such condemnation
award.

     SECTION
9.7. Damage and Destruction; Condemnation; Application of Net
Proceeds. If,
at any time prior to the repayment in full of all of the Borrower’s Letter of Credit Obligations
and the Borrower’s Bond Obligations, (a) the Facility or any part thereof is damaged by fire or
other casualty or is destroyed (in whole or in part) by fire or other casualty, or (b) title to,
or the use of, the Leased Premises or any part thereof, or the interest of the Borrower in the
Leased Premises or any part thereof, is taken under the exercise of the power of eminent domain by
any governmental body or by any person acting under any governmental authority, either temporarily
or permanently, the Net Proceeds resulting from any event described in this Section will be
deposited with the Trustee and applied as follows:

     (a) Application
of Net Proceeds - Damage or Destruction. The Net Proceeds resulting
from any event of damage or destruction as referred to in the immediately preceding clause (a)
shall be applied to one of the following purposes:

	 	(i)  	to the repair, rebuilding or restoration of that portion of such
property damaged or destroyed by fire or other casualty, in which event the Net
Proceeds shall be deposited into the Net Proceeds Escrow Fund with the Trustee,
and the Borrower will (1) proceed promptly to repair, rebuild or restore that
part of such property so damaged or destroyed to substantially the same
condition as it existed prior to the event causing such damage or destruction,
with such changes, alterations and modifications (including the substitution and
addition of other property) as may be desired by the Borrower and as will not,
in the sole opinion of an Independent Engineer, impair the operating unity or
productive capacity of the Facility, and (2) cause withdrawals to be made from
the Net Proceeds Escrow Fund to pay the costs of such repair, rebuilding or
restoration, either on completion thereof or as the work progresses.
Disbursements from the Net Proceeds Escrow Fund to pay such costs of repair,
rebuilding or restoration shall be made following the same procedure set forth
in Section 5.3 of the Indenture for making disbursements from the Facility Fund
and against requisitions in substantially the same form as the form of
requisition attached to the Indenture as Exhibit B, with such modifications as
may be necessary to reflect the nature of the work being done. The balance, if
any, of the Net Proceeds remaining after the payment of all of the costs of such
repair, rebuilding or restoration shall be applied (1) to the Borrower’s
reimbursement obligations to the Bank to the extent of any drawing honored by
the Bank to pay the redemption price of Bonds redeemed in accordance with
Section 3.1 (b) of the Indenture or to pay the purchase price of Bonds purchased
pursuant to Section 4.4 of the

- 44

 

	 	   	Indenture, or (2) to the redemption of the Bonds as set forth in
Section 3.1(b) of the Indenture and Section 4.1(b) of the Loan Agreement, or to the
purchase of Bonds as set forth in Section 4.4 of the Indenture; or
	 
	 	(ii)  	to the Borrower’s reimbursement obligations to the Bank to the
extent of any drawings honored by the Bank to pay the redemption price of Bonds
redeemed in accordance with Section 3.1(b) of the Indenture or to pay the
purchase price of Bonds purchased pursuant to Section 4.4 of the Indenture, or
to the redemption of the Bonds in full or in part as set forth in Section 3.1
(b) of the Indenture and Section 4.1 (b) of the Loan Agreement, or to the
purchase of Bonds as set forth in Section 4.4 of the Indenture;

in either of which events, the Borrower shall pay to the Trustee any additional amounts which,
when added to such Net Proceeds, will permit the Bonds to be redeemed or purchased in Authorized
Denominations.

     (b) Application
of Net Proceeds - Condemnation. The Net Proceeds resulting from
any taking as referred to in clause (b) above shall be applied to one of the following purposes:

	 	(i)  	to the repair, rebuilding, restoration or alteration of any part
of the remaining portion of the Facility which may have been altered, damaged or
destroyed as a result of any such taking or to the acquisition by the Borrower,
by construction or otherwise, of other lands or improvements suitable for the
Borrower’s operations at the Facility (which land or improvements (a) shall be
acquired by the Borrower, subject to no liens or encumbrances, (b) shall be
located in a “priority funding area” in Montgomery County, Maryland (as defined
in Section 5-7B-02 of the State Finance and Procurement Article of the Annotated
Code of Maryland), and (c) shall be deemed part of the Facility in any or all of
which events the Net Proceeds shall be deposited into the Net Proceeds Escrow
Fund), and the Borrower will (1) proceed promptly to repair, rebuild, restore,
or alter that part of such remaining property which may have been altered,
damaged or destroyed as a result of any such taking to substantially the same
condition as it existed prior to such taking, with such changes, alterations and
modifications (including the acquisition by the Borrower of other lands and
improvements and/or leasehold interests) as may be desired by the Borrower and
as will not, in the sole opinion of an Independent Engineer, impair the
operating unity or productive capacity of the Facility, and (2) cause
withdrawals to be made from the Net Proceeds Escrow Fund to pay the costs of
such repair, rebuilding, restoration, alteration, and acquisition. Disbursements
from the Net Proceeds Escrow Fund to pay such costs of repair, rebuilding,
restoration, alteration and acquisition shall be made following the same
procedure set forth in Section 5.3 of the Indenture for making disbursements
from the Facility Fund and against requisitions in substantially the same form
as the form of requisition attached to the Indenture as
Exhibit B, with
such

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	 	   	modifications as may be necessary to reflect the nature of the work
being done. The balance, if any, of the Net Proceeds remaining after
payment of all of the costs of such repair, rebuilding, restoration,
alteration, and acquisition shall be applied (x) to the Borrower’s
reimbursement obligations to the Bank to the extent of any drawings honored
by the Bank to pay the redemption price of Bonds redeemed in accordance
with Section 3.1(b) of the Indenture, or to pay the purchase price of Bonds
purchased pursuant to Section 4.4 of the Indenture, or (y) to the
redemption of the Bonds as set forth in Section 3.1(b) of the Indenture and
Section 4.1(b) of the Loan Agreement, or to the purchase of Bonds as set
forth in Section 4.4 of the Indenture; or
	 
	 	(ii)  	to the Borrower’s reimbursement obligations to the Bank to the
extent of any drawings honored by the Bank to pay the redemption price of
Bonds redeemed in accordance with Section 3.1(b) of the Indenture or to pay
the purchase price of Bonds purchased pursuant to Section 4.4 of the
Indenture, or to the redemption of the Bonds in full or in part as set forth
in Section 3.1(b) of the Indenture and Section 4.1(b) of the Loan Agreement,
or to the purchase of Bonds as set forth in Section 4.4 of the Indenture;

in either of which events, the Borrower shall pay to the Trustee any additional amounts which, when
added to such Net Proceeds, will permit the Bonds to be redeemed or purchased in Authorized
Denominations.

          The Borrower shall determine the application of Net Proceeds in accordance with this Section,
unless an Event of Default has occurred and is continuing or the Net Proceeds constitute a
substantial portion of the then-current principal amount of the Bonds, in the reasonable judgment
of the Bank. In either of such events, the determination as to application of Net Proceeds shall be
made by the Bank in its sole discretion.

          Notwithstanding anything herein or in any of the Bond Documents or the Letter of Credit
Documents to the contrary, Net Proceeds may not be used to purchase Bonds in accordance with
Section 4.4 of the Indenture without the prior written consent of the Bank, which written consent
must be delivered to the Trustee.

          The Borrower expressly waives any right or privilege now granted or created under the
provisions of any of the real property laws of the State or any similar law, rule or regulation
now or hereafter in effect relating to such condemnation, damage or destruction from any cause and
agree that the foregoing provisions of this Article shall govern in lieu thereof.

          All Net Proceeds received by the Bank or the Borrower shall be held in trust by the recipient
thereof to be applied in accordance with the terms of this Section. In the event the Net Proceeds
are not sufficient to pay in full the costs of repairing, rebuilding, altering and restoring the
Facility as provided in this Section, the Borrower will nonetheless complete the work thereof and
pay that portion of the costs thereof in excess of the amount of such Net Proceeds, and the Bank
may, as a condition precedent to disbursement of any Net Proceeds from

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the Net Proceeds Escrow Fund, require that the Borrower deposit moneys into the Net Proceeds
Escrow Fund or furnish to the Bank an irrevocable letter of credit or a surety bond satisfactory
to the Bank, in either case in an amount sufficient to pay the costs of repairing, rebuilding,
altering and restoring such property in excess of the Net Proceeds available for such purposes.
The Borrower shall not, by reason of the payment of any costs in excess of the amount of such Net
Proceeds (whether by direct payment thereof or payment to the Bank therefor), be entitled to any
reimbursement from the Issuer or the Bank or any abatement or diminution of the payments payable
under the Bond Documents or the Letter of Credit Documents.

          Any moneys held as part of the Net Proceeds Escrow Fund shall be invested by the Trustee as
provided in Section 6.1 of the Indenture.

     SECTION 9.8. Maintenance and Repair of the Facility. The Borrower will, or will cause
the Landlord to, at its sole cost and expense, (a) properly operate, keep and maintain the
Facility and each part thereof in good condition, working order and repair, and (b) make all
necessary or appropriate repairs, replacements and renewals to the Facility and Additions so that
each part of the Facility shall at all times be in good condition, fit and proper for the
respective purposes for which they were originally intended, erected, or installed and to insure
that the security for the Borrower’s Bond Obligations and the Borrower’s Letter of Credit
Obligations are not impaired. The Borrower shall, or shall cause the Landlord to, keep and
maintain all portions of the Facility and the sidewalks, curbs, and passageways adjoining the same
in a clean and orderly condition, free of dirt, rubbish, snow, ice and unlawful obstructions.

     SECTION
9.9. Alterations, Additions and Improvements. Except (a) for application of
Net Proceeds in the event of damage or destruction to the Facility or a taking as described in
Section 9.7(b) hereof to the extent permitted by Section 9.7 hereof, and (b) as hereinafter
provided in this Section, no portion of the Facility shall be removed, demolished or materially
altered; provided, however, the Borrower may, without the consent of the Bank, but at its
sole cost and expense:

     (a) make additions, improvements or replacements to the Equipment Collateral that it may deem
desirable for its business purposes, provided that the Borrower files with the Bank such
evidence as the Bank may require that such additions, improvements, alterations or replacements
will not adversely affect the utility of the Equipment Collateral or materially reduce its value;
and

     (b) remove and dispose of, free from the lien and security interest of the Security Agreement,
such of the Equipment Collateral as from time to time may become worn out or obsolete,
provided that either (A) such removal or disposition is in the ordinary course of the
Borrower’s business, (B) simultaneously with or prior to such removal any such Equipment Collateral
is replaced with other equipment of value at least equal to that of the replaced Equipment
Collateral (as evidenced by a certificate of the Authorized Borrower Representative to the effect
that the Equipment Collateral removed or disposed of has been replaced by property having at least
the same fair market value) and free from the lien or security interest of any title retention or
security agreement or other encumbrance, and by such removal and replacement the Borrower shall be
deemed to have subjected such equipment to the lien and security interest of the Security Agreement
or (C) such Equipment Collateral is sold at fair market value for cash (as

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evidenced by a certificate of the Authorized Borrower Representative to such effect) and the net
cash proceeds received from such disposition are paid over promptly to the Trustee to be applied
(1) to the Borrower’s reimbursement obligations to the Bank to the extent of any drawing honored
by the Bank to pay the redemption price of Bonds redeemed in accordance with Section 3.1 (b) of
the Indenture or to pay the purchase price of Bonds purchased pursuant to Section 4.4 of the
Indenture, or (2) to the redemption of the Bonds as set forth in Section 3.1(b) of the Indenture
and Section 4.1 (b) of the Loan Agreement, or to the purchase of Bonds as set forth in
Section 4.4 of the Indenture, in either of which events the Borrower shall pay to the Trustee any
additional amounts which, when added to such net cash proceeds, will permit the Bonds to be
redeemed or purchased in Authorized Denominations. All permitted additions, alterations,
substitutions, replacements and removals shall be constructed expeditiously in a good and
workmanlike manner and in compliance with all uniformly applicable laws and requirements
applicable thereto, and in accordance with the orders, rules and regulations of the National Board
of Fire Underwriters, or any other Board hereafter constituted exercising similar functions.
Notwithstanding anything herein or in any of the Bond Documents or the Letter of Credit Documents
to the contrary, as long as there is a Letter of Credit in effect and until this Letter of Credit
Agreement has expired, proceeds from the sale or disposition of Equipment Collateral may not be
used to purchase Bonds in accordance with Section 4.4 of the Indenture without the prior written
consent of the Bank, which written consent must be delivered to the Trustee.

     The Borrower shall furnish, in connection with such work, general public liability insurance
for the benefit of the Bank, in limits set forth under Section 9.5 hereof. The Borrower shall
promptly pay for all such changes, additions, alterations, substitutions, replacements, removals
or improvements, shall discharge any and all liens filed against the Equipment Collateral (unless
the Borrower in good faith contests any such lien by appropriate and diligent proceedings), and
upon the request of the Bank, shall deposit with the Bank a surety bond or other security
satisfactory to the Bank to assure the payment for and completion of any such changes, additions,
alterations, substitutions, replacements, removals or improvements. All such changes, additions,
alterations, substitutions, replacements, removals and improvements shall become a part of the
Equipment Collateral and subject to the liens and security interests of the Security Agreement and
this Letter of Credit Agreement.

     SECTION
9.10. Other Liens. The Borrower will not, without the prior written consent of
the Bank and MIDFA, permit any Encumbrance to accrue or remain on the Equipment Collateral or any
part thereof which may be superior to or on a parity with the lien or security interest of the
Security Agreement or which may be inferior or junior to the lien or security interest of the
Security Agreement, except for the Permitted Encumbrances. The Borrower will give the Bank notice
of any default in any permitted senior, parity, junior or subordinated Encumbrance (including the
Permitted Encumbrances) on the Equipment Collateral and notice of any foreclosure or threat of
foreclosure of such permitted senior, parity, junior or subordinated Encumbrance. The foregoing
provisions of this Section 9.10 are not intended to prohibit or limit the Borrower’s rights
provided under this Letter of Credit Agreement with respect to acquisition, and purchase money
financing, of non-replacement machinery and equipment.

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ARTICLE X.

AFFIRMATIVE COVENANTS OF BORROWER

     SECTION
10.1. Affirmative Covenants of Borrower. Until the termination of this Letter
of Credit Agreement, and unless the prior written consent to do otherwise is obtained from the
Bank and MIDFA, the Borrower will:

     (a) Reporting Requirements. Furnish or cause to be furnished to the Bank and MIDFA:

	 	(i)  	as soon as available but in no event more than thirty (30)
days after the close of each fiscal month of the Borrower, a copy of the
Borrower’s monthly financial statements which shall include a statement of earnings,
sources and uses of funds and a balance sheet as of the end of such month,
accompanied by a certificate of the chief financial officer of the Borrower
stating whether any event has occurred which constitutes an Event of
Default, or which would constitute such an Event of Default with the giving
of notice or the lapse of time or both, and, if so, stating the facts with
respect thereto; and
	 
	 	(ii)  	as soon as available but in no event more than one hundred
twenty (120) days after the close of each fiscal year of the Borrower, a copy
of the unqualified annual audited financial statements relating to the
Borrower prepared in accordance with GAAP, which financial statements shall
include a balance sheet of the Borrower as at the end of such fiscal year and
a statement of earnings, and sources and uses of funds of the Borrower for
such fiscal year; and
	 
	 	(iii)  	as soon as available but in no event more than one hundred
twenty (120) days after the close of each fiscal year of the Borrower, a
certificate of the chief financial officer of the Borrower stating whether any
event which constitutes an Event of Default hereunder has occurred, or any
event which would constitute such an Event of Default with the giving of
notice or the lapse of time or both, and, if so, stating the facts with
respect thereto; and
	 
	 	(iv)  	with reasonable promptness, such budgets, cash flow
projections and other additional information, reports or statements as the
Bank and MIDFA may from time to time reasonably request; and
	 
	 	(v)  	promptly upon the occurrence thereof, written notice of any
Change in Control; and
	 
	 	(vi)  	the Borrower shall deliver to the Bank and MIDFA, together with
each delivery of the financial statements required pursuant to Section
10.1(a)(i), (a)(ii) and (a)(iii), a computation of the financial tests set
forth in Sections 10.1(h); and

- 49

 

	 	(vii)  	should any Authorized Borrower Representative acquire
knowledge of an Event of Default hereunder or of any fact or circumstance
which after notice or lapse of time or both would constitute an Event of
Default, the Borrower shall within two (2) Business Days notify the Bank in
writing of such Event of Default or fact or circumstance.

     Notwithstanding the above, the Borrower shall send MIDFA the financial statements in (i)
above only upon request.

     (b) Taxes and Other Claims. Pay and discharge or cause to be paid and discharged all
Taxes imposed upon it or its income, properties or assets prior to the date on which penalties
attach thereto, and all lawful claims which, if unpaid, might become a lien or charge upon any of
its properties or assets. The Borrower shall have the right to contest the validity of any such
tax, assessment, charge, levy or claim, by timely and appropriate proceedings, provided that the
Borrower shall (a) give the Bank and MIDFA written notice of its intention to contest, (b) diligently
prosecute such contest, (c) at all times effectively stay or prevent any
official or judicial sale of any of its property or any part thereof by reason of nonpayment of any
such taxes, and (d) establish reasonable reserves for such liabilities being contested if the Bank
reasonably determines such reserves to be necessary.

     (c) Compliance with Laws. Comply with all applicable federal, State and local laws,
rules and regulations, subject to the Borrower’s right to contest the validity or applicability of
any of the foregoing, at its sole cost and expense, in good faith and by appropriate and diligent
proceedings.

     (d)
Compliance with Environmental Laws.

	 	(i)  	Comply in all material respects with all Environmental Laws
and shall not generate, store, handle, process, dispose of or otherwise use
and not permit any other occupant of any of the Leased Premises to generate,
store, handle, process, dispose of or otherwise use Hazardous Materials in,
on, under or about the Leased Premises in a manner that could lead to
imposition on the Borrower or the Bank or the Leased Premises of any liability
or lien of any nature whatsoever under any Environmental Law.
	 
	 	(ii)  	Notify the Bank promptly in the event of any spill or other
release of any Hazardous Material in, on, under or about any of the Leased
Premises which is required to be reported to Governmental Authority under any
Environmental Law, promptly forward to the Bank copies of any notices received
by the Borrower relating to any actual or alleged violation of any
Environmental Law and promptly pay when due any fine or assessment against the
Bank, the Borrower or the Leased Premises relating to any Environmental Law.
	 
	 	(iii)  	If at any time it is determined that the operation or use
of any of the Leased Premises violates any applicable Environmental Law or
that there is any Hazardous Material located in, on, under or about the
Leased

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	 	   	Premises which under any Environmental Law requires special handling in
collection, treatment, storage or disposal or any other form of cleanup or
remedial or corrective action, then, within thirty (30) days after the
receipt of notice thereof from a Governmental Authority (or such other time
period as may be specified in the notice sent by such Governmental
Authority) or from the Bank, take, at its sole cost and expense, such
actions as may be necessary to fully comply in all material respects with
all Environmental Laws, provided, however, that if such compliance cannot
reasonably be completed within such thirty (30) day period, the Borrower
shall commence such necessary action within such thirty (30) day period and
shall thereafter diligently and expeditiously proceed to fully comply in
all material respects and in a timely fashion with all Environmental Laws.
Nothing herein shall prohibit the Borrower from asserting any good faith
defenses against the applicable Governmental Authority in any governmental
demands.
	 
	 	(iv)  	If a lien is filed against the Leased Premises by any
Governmental Authority resulting from the need to expend or the actual
expending of monies arising from an action or omission, whether intentional or
unintentional, of the Borrower or for which the Borrower is responsible,
resulting in the releasing, spilling, leaking, leaching, pumping, emitting,
pouring, emptying or dumping of any Hazardous Material, then, within thirty
(30) days from the date that the Borrower is first given notice such lien
has been placed against the Leased Property, either (i) pay the claim and
remove the lien or (ii) furnish a cash deposit, bond or such other security
with respect thereto as is satisfactory in all respects to the Bank and is
sufficient to effect a complete discharge of such lien on the Leased
Premises.

     (e) Books and Records. Maintain appropriate books and records with respect to the
Facility and all collateral securing the Borrower’s Letter of Credit Obligations and permit access
by the Bank and MIDFA and their authorized representatives and employees to the books and records
of the Borrower at the offices of the Borrower during normal business hours.

     (f) Insurance. In addition to all insurance required under the other Letter of Credit
Documents and the Bond Documents, maintain at all times insurance with responsible insurance
companies on such of its properties now or hereafter owned, in such amounts and against such risks
as is customarily maintained by similar businesses operating in the same vicinity including
insurance against loss and damage by fire and other casualty. The Borrower shall file with the
Bank, upon its request, a detailed list of the insurance then in effect covering the Borrower and
the Borrower’s properties, stating the names of the insurance companies, the amounts and rates of
the insurance, dates of the expiration thereof and the properties and risks covered thereby; and,
within thirty (30) days after notice of writing from the Bank, obtain such additional insurance as
the Bank may reasonably request. Each insurance policy pertaining to any of the insurable property
in which the Bank has been granted a security interest under any of the Letter of Credit Documents
shall name the Bank as an additional insured, and where appropriate, loss payee/mortgagee.

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     (g) Corporate Existence. Maintain its existence as a corporation in good standing in
the State of Delaware and remain qualified to transact business in the State.

     (h) Financial Covenants.

	 	(i)  	Minimum Liquidity. Maintain, at all times, Properly
Margined, unrestricted cash and securities constituting Permitted Investments
(as that term is defined in the Collateral/Control Agreement) with an Adjusted
Market Value of $7,700,000 in one or more accounts at the Bank or the
Securities Intermediary (“Deposits”). The cash and/or marketable securities
pledged by the Borrower pursuant to the Collateral/Control Agreement shall be
credited against the foregoing $7,700,000 requirement. The Borrower shall,
within two (2) Business Days, deposit with the Bank, additional cash and/or
marketable securities constituting Permitted Investments whenever the market
value of the Deposits hereunder falls below $7,700,000 to make up the
deficiency.
	 
	 	(ii)  	Minimum Current Ratio. Maintain a minimum ratio of
Current Assets to Current Liabilities of not less than 1.5:1 measured monthly.
	 
	 	(iii)  	Minimum Tangible Net Worth. Maintain a minimum
Tangible Net Worth of no less than $7,700,000. “Tangible Net Worth”
shall be defined as members’/stockholders’ equity less all intangibles.

     (i) Inspection of Collateral. The Borrower shall permit the agents of the Bank and
MIDFA to have access to the collateral for the Borrower’s Letter of Credit Obligations from time to
time, as requested by the Bank, for purposes of examination, inspection, and appraisal thereof for
their internal purposes and verification of the records relating thereto. Upon reasonable demand by
the Bank, the Borrower shall make the collateral available to the Bank at such places as may be
designated by the Bank which are reasonably convenient to all parties.

     (j) Name of Borrower. The Borrower shall promptly notify the Bank and the Issuer in
writing of any proposed change in the Borrower’s corporate name prior to taking the action
necessary to effect any such change in its corporate name.

     (k) Maintenance of Properties. The Borrower shall maintain, or cause to be
maintained, in good repair, working order and condition, ordinary and reasonable wear and tear
excepted, all properties now or hereafter owned, leased or otherwise possessed by it, and shall
make or cause to be made all needful and proper repairs, renewals, replacements and improvements
thereto, in each case as and to the extent necessary or appropriate to the proper and advantageous
conduct of its business.

     (l) Payment of Debt. The Borrower shall make full and timely payment of the principal
of and interest on all of its Debt, whether now existing or hereafter arising, and comply in all
material respects with all covenants and agreements set forth in instruments evidencing, securing
or governing such Debt.

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     (m) Maintain Accounts with Bank. The Borrower agrees to maintain its primary deposit
accounts and operating account services with the Bank and to utilize the investment management
services of Allied Investment Advisors, Inc.

ARTICLE XI.

NEGATIVE COVENANTS OF BORROWER

     SECTION 11.1. Negative Covenants of Borrower.

     Until the termination of this Letter of Credit Agreement, without the prior written consent
of the Bank and MIDFA, which consent shall not be unreasonably delayed, the Borrower will not:

     (a) Encumbrances. Directly or indirectly, create, incur, assume or suffer to exist any
Encumbrance upon, or in, any of the collateral, whether now owned or hereafter acquired, in which
the Borrower has granted the Bank a security interest under any of the Letter of Credit Documents,
including the collateral described in Section 3.2 hereof, except for Permitted Encumbrances and the
security interests granted under the Letter of Credit Documents or Bond Documents.

     (b) Dividends, Redemption etc. Declare any dividends (other than dividends payable in
capital stock of the Borrower) on any shares of any class of its capital stock, or set apart any
sum for the payment of any dividends on, or make any other distribution by reduction of capital or
otherwise in respect of, any shares of any class of capital stock of the Borrower. Create any
class of stock of the Borrower, or issue any stock or options or warrants to purchase stock of the
Borrower which has the right, or grant to any shareholder, option holder or warrant holder of the
Borrower the right, to require the Borrower to redeem, purchase or otherwise retire all or any of
the stock of Borrower or set apart any sum for the payment of any such redemption, purchase or
retirement. Notwithstanding the above, the Borrower may redeem, purchase or otherwise retire stock
of employees, officers or directors of the Borrower in an amount not to exceed $250,000 in the aggregate.

     (c) Officers. Fail to notify the Bank of any change in the officers (within the
meaning of Section 240.16a-l of the Regulations under the Securities Exchange Act of 1934, as
amended) of the Borrower.

     (d) Plans. (i) Restate or amend any Plan in a manner designed to jeopardize the tax
qualified status of such Plan; (ii) permit any officers of the Borrower or any “Commonly Controlled
Entity” to materially adversely affect the tax qualified status of any Plan; (iii) engage in or
permit any “Commonly Controlled Entity” to engage in any “Prohibited Transactions”, unless such
transaction is exempt from the restrictions imposed by Section 406 of ERISA and Section 4975 of the
Code; (iv) permit an “Accumulated Funding Deficiency”, whether or not waived, with respect to any
Plan; (v) take or permit any “Commonly Controlled Entity” to take any action or fail to take any
action which causes a termination of any Plan in a manner which could result in the Borrower or any
“Commonly Controlled Entity” incurring liability under Title IV of ERISA; (vi) incur or permit any
“Commonly Controlled Entity” to incur a “complete withdrawal” or “partial withdrawal” (as defined
in Title IV of ERISA) from any “Multiemployer

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Plan”; or (vii) fail to notify the Bank that notice has been received from the administrator of
any “Multiemployer Plan” to which the Borrower or any “Commonly Controlled Entity” has an
obligation to contribute that any such Plan be placed in reorganization. Terms which appear in
quotation marks in this section shall have the meanings ascribed to them under ERISA, the Code and
all regulations and rulings issued with respect thereto.

     (e) Borrowing. Incur, create, assume or become liable, directly or indirectly or
contingently, in any manner with respect to, or permit to exist, any Indebtedness or liability
except (i) Indebtedness existing as of the Closing Date described on Schedule 11.1(e)
hereof, provided the terms of such Indebtedness shall not be modified or amended in any material
respect without the prior written consent of the Bank and MIDFA; (ii) Other Bank Obligations, (iii)
Indebtedness of the Borrower to the Bank under the Letter of Credit Documents; (iv) short- term
trade Indebtedness incurred in the ordinary course of business; and (v) additional Indebtedness not
to exceed $6,000,000 in the aggregate during the term of the Letter of Credit.

     (f) Mortgages and Pledges. Create, incur or assume any mortgage, pledge, lien or
other encumbrance of any kind upon any of its property or assets, whether now owned or hereafter
acquired, except:

	 	(i)  	encumbrances permitted by the Bank and MIDFA in writing;
	 
	 	(ii)  	liens for taxes not delinquent or being contested in good
faith by appropriate proceedings in accordance with Section 10.1(b) of this
Letter of Credit Agreement;
	 
	 	(iii)  	liens in connection with worker’s compensation, unemployment
insurance or other social security obligations arising in the ordinary course
of business;
	 
	 	(iv)  	deposits or pledges to secure bids, tenders, contracts (other
than contracts for the payment of money), leases, statutory obligations,
surety and appeal bonds and other obligations of like nature arising in the
ordinary course of business;
	 
	 	(v)  	mechanics’, worker’s, materialmen’s, landlords’, carriers’, or
other like liens arising in the ordinary course of business with respect to
obligations (1) which are not due or (2) which are being contested in good
faith by the Borrower provided that the Borrower shall (a) give the Bank
and MIDFA written notice of its intention to contest, (b) diligently
prosecute such contest, (c) at all times effectively stay or prevent any
official or judicial sale of any of its property or any part thereof by
reason of nonpayment of any such lien, and (d) establish reasonable
reserves for such liabilities being contested if the Bank reasonably
determines such reserves to be necessary; and
	 
	 	(vi)  	purchase money liens on machinery or equipment (other than
machinery or equipment which is acquired to replace Collateral);
provided, that the indebtedness secured by such liens shall be included
in the calculation of

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	 	   	additional Indebtedness set forth in Section 11.1(e)(v) and shall not exceed
the limitations set forth in Section 11.1(e)(v) above.

     (g) Nature of Business. Substantively alter or enter into any agreement which would
alter or restrict the character or conduct of the business conducted by the Borrower as of Closing
Date.

     (h) Dissolution. Dissolve, liquidate or wind up its affairs.

     (i) Change in Control. Permit or suffer any Change in Control, or enter into, or
permit the entering into of, any agreement to effect a Change in Control.

     (j) Asset Dispositions. Make any Asset Disposition (including, without limitation,
any sale/leaseback transaction), except (i) assets disposed of in the ordinary cause of business
(other than assets comprising Collateral); (ii) dispositions of assets (other than assets
comprising Collateral) with a value in excess of $100,000 in the aggregate in any twelve (12)
month period, or (iii) dispositions of equipment and machinery (other than machinery or equipment
which comprises Collateral) in sale/leaseback transactions; provided that such
transactions shall be included in the calculations of additional Indebtedness under Section
11.1(e)(v) and shall not exceed the limitations set forth in Section 11.1(e)(v) above.

     (k) Investments. Make any Investments, except for Permitted Investments as defined in
the Indenture and the Collateral/Control Agreement.

     (l) Merger, Consolidation and Acquisitions. Merge with or into or consolidate or
combine with any Person or purchase or otherwise acquire any capital stock or other equity
interests of another Person or all or any substantial portion of the property or assets of another
Person (whether or not involving a merger or consolidation with such
other Person); provided,
however, the Borrower may merge with or into or consolidate or combine with any Person or
purchase or otherwise acquire any capital stock or other equity interests of another Person or all
or any substantial portion of the property or assets of another Person engaged in substantially
the same business of the Borrower if the total purchase price for such transaction, including but
not limited to cash, stock and/or assumption of liabilities, is equal to or less than $500,000 in
the aggregate.

     (m) Transactions with Affiliates. Enter into or permit to exist any transaction or
series of transactions with any officer, director, shareholder, subsidiary or Affiliate of Borrower
other than (i) normal compensation and reimbursement of expenses of officers and directors and (ii)
except as otherwise specifically prohibited by the Letter of Credit Documents, other transactions
which are entered into in the ordinary course of such Person’s business on terms and conditions
substantially as favorable to such Person as would be obtainable by it in a comparable arms-length
transaction with a Person other than an officer, director, shareholder, subsidiary or Affiliate.

     (n) Contingent Liabilities. Guaranty, endorse, or otherwise become directly or
contingently responsible for the Indebtedness or obligations of any Person.

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     (o) Loans. Make loans or advances (excluding advances to employees for expenses to be
incurred and reimbursed) to any Person, firm, joint venture, corporation or other entity.

     (p) Changes in Fiscal Year or Accounting Methods. Change its Fiscal Year or modify
its Accounting Methods without the prior written consent of the Bank and MIDFA.

     (q) Existing Debt. Modify any material term of any Debt existing on the Closing Date,
nor shall the Borrower make any voluntary prepayments with respect to any such Debt.

     (r) Lease.
Make any changes to the Lease.

     (s) Subsidiaries. Create any Subsidiaries.

     (t) Care of Collateral. Do or permit anything to be done to the collateral for the
Borrower’s Letter of Credit Obligations or the Borrower’s Bond Obligations that may impair its
value or that may violate the terms of any insurance concerning such collateral or any part
thereof, always maintaining such collateral in good condition. The Bank shall have no duty to, and
the Borrower hereby releases the Bank from, all claims for loss or damage caused by the failure to
collect or enforce any accounts receivable or to preserve rights against prior parties to such
collateral. The Borrower shall immediately notify the Bank of any event causing deterioration,
loss, or depreciation in value of any substantial portion of such collateral and the amount of
such loss or depreciation.

     (u) Sale and Leaseback. Enter into any arrangements, directly or indirectly, with any
Person whereby it shall sell or transfer any property, real, personal or mixed, used or useful in
its business, whether now owned or hereafter acquired, and thereafter rent or lease such property
other than sale/leaseback transactions of equipment and machinery, except sale/leaseback
transactions involving equipment or machinery which does not comprise Collateral; provided
that such transactions shall be included in the calculations of additional Indebtedness under
Section 11.1(e)(v) and shall not exceed the limitations set forth in Section 11.1(e)(v) above.

     (v) Restrictive Agreement. Enter into any agreement (excluding the Letter of Credit
Documents and Bond Documents) restricting in any respect the Borrower from fulfilling its
obligations under any of the Letter of Credit Documents or Bond Documents or which could adversely
affect the collateral in which the Borrower granted to the Bank a security interest under the
Letter of Credit Documents or any of the Bank’s rights and remedies under any of the Letter of
Credit Documents or under the Bond Documents.

ARTICLE XII.

INDEMNIFICATION

     SECTION 12.1. Special Indemnity. The Borrower hereby agrees to indemnify and hold the
Bank harmless from any costs, taxes, losses, assessments, charges, levies, claims or fees
(including legal fees) of any kind or character which may arise due to the Bonds not
constituting the legal, valid and authorized limited obligations of the Issuer or the Borrower.

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     SECTION 12.2. Indemnification of Bank. To the extent permitted by law, in addition to
all amounts payable hereunder, the Borrower shall protect, indemnify, and save harmless the Bank
and its officers, employees and agents against and from any and all liabilities, suits, actions,
claims, demands, losses, expenses and costs of every kind and nature incurred by, or asserted or
imposed against, the Bank and its officers, employees or agents, by reason of (a) any accident,
injury (including death) or damage to any person or property, however caused (other than the gross
negligence or willful misconduct of the Bank), resulting from, connected with or growing out of
any act of commission or omission of the Borrower, or any officers, employees, agents, assignees,
contractors or subcontractors of the Borrower or any use, non-use, possession, occupation,
condition, operation, service, design, construction, acquisition, maintenance or management of, or
on, or in connection with, the Facility, or any part thereof; (b) federal and state securities
laws, including, without limitation, any failure to register the Bonds, the Letter of Credit or
any other “separate security” under federal or state securities laws; (c) any untrue statement of
a material fact or any omission to state a material fact necessary in order to make any statements
made, in light of the circumstances under which they were made, not misleading in connection with
the sale of the Bonds (in each case, other than as a result of the gross negligence or willful
misconduct of the Bank); and, in any such case, regardless of whether such liabilities, suits,
actions, claims, demands, damages, losses, expenses and costs be against, or be suffered or
sustained by, the Bank or its officers, agents or employees, or be against, or be suffered or
sustained by, legal entities, officers, agents, or other persons to whom the Bank or its officers,
agents or employees, become liable therefor. The Borrower may, and if so requested by the Bank
shall, undertake to defend, at its sole cost and expense, any and all suits, actions and
proceedings brought against the Bank or its officers, agents or employees in connection with any
of the matters indemnified against in this Section. The Bank agrees to give the Borrower timely
notice of and shall forward to the Borrower every demand, notice, summons or other process
received with respect to any claim or legal proceedings within the purview hereof, but the failure
of the Bank to give such notice shall not affect its right to indemnification hereunder, unless
such failure shall have deprived the Borrower of a reasonable opportunity to contest any such
claim or legal proceeding. The obligation of the Borrower to indemnify the Bank under this Section
12.2 shall not extend to indemnification of the Bank in its capacity as Remarketing Agent and any
rights of the Bank in such capacity shall arise under the Placement and Remarketing Agreement.

     If the indemnification provided for herein is held by a court to be unavailable or is
insufficient to hold the Bank harmless in respect of any losses, claims, damages or liabilities
(or actions in respect thereof), then the Borrower, shall contribute to the amount paid or payable
by the Bank as a result of the losses, claims, damages or liabilities (or actions in respect
thereof) (except those caused by the gross negligence or willful misconduct of the Bank) in such
proportion as is appropriate to reflect the relative fault of the Borrower on the one hand and the
Bank on the other hand, as well as any other relevant equitable considerations.

     SECTION
12.3. Indemnification Under Letter of Credit and Letter of Credit Documents. In addition to all amounts payable hereunder, and to the extent permitted by law, the Borrower
hereby protects, indemnifies and holds harmless the Bank from and against, and hereby agrees to
defend the Bank against, any and all claims, damages, losses, liabilities, costs or expenses
whatsoever which the Bank may, at any time, sustain or incur by reason of or in consequence of or
arising out of the issuance of the Letter of Credit; it being the intention of the parties that
this Letter of Credit Agreement shall be construed and applied to protect and indemnify the Bank

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against any and all risks involved in the issuance of the Letter of Credit all of which risks are
hereby assumed by the Borrower, including, without limitation, any and all risks of the acts or
omissions, whether rightful or wrongful, of any present or future de jure or de facto government
or governmental authority (all such acts or omissions, herein called
“Government Acts”).
Notwithstanding anything to the contrary herein contained, the Borrower shall have no obligation
to indemnify the Bank from and against any liability incurred by the Bank arising solely out of
the gross negligence or willful misconduct of the Bank. The Bank shall not, in any way, be liable
for any failure by the Bank or anyone else to pay any drawing under the Letter of Credit as a
result of any Government Acts or any other cause beyond the control of the Bank. Nothing in this
Section 12.3 is intended to limit the Borrower’s reimbursement obligations contained in Article V
hereof.

     The provisions of this Article shall survive the expiration of the Letter of Credit and the
termination of the Bond Documents and the Letter of Credit Documents.

ARTICLE XIII.

EVENTS OF DEFAULT AND REMEDIES

     SECTION
13.1. Events of Default Defined. The following shall be
“Events of Default”
under this Letter of Credit Agreement, and the term “Event of
Default” shall mean, whenever it is
used in this Letter of Credit Agreement, any one or more of the following events:

     (a) Any representation or warranty made herein or any statement or representation made in any
certificate, report or opinion (including legal opinions), financial statement or other instrument
furnished in connection with this Letter of Credit Agreement or any of the other Letter of Credit
Documents, proves to have been incorrect, false or misleading in any material respect when made; or

     (b) Any failure by Borrower to pay to the Bank (i) a Bond Purchase Principal Drawing under
Section 5.1 (a) hereof, (ii) a Principal Drawing under Section 5.1(b) hereof, and (iii) an
Acceleration Drawing under Section 5.1(b) hereof, when any of the same shall become due and
payable;

     (c) Any failure by Borrower to pay to the Bank (i) an Interest Drawing under Section 5.1(b),
(ii) a Bond Purchase Interest Drawing under Section 5.1(c) hereof, (iii) any payment required by
Section 4.1 hereof, or (iv) any other payment whatsoever required by this Letter of Credit
Agreement to be paid by the Borrower; and any such failure is not cured within one (1) Business Day
after notice from the Bank to the Borrower; provided that if Borrower has failed to make
payment as provided hereunder two (2) times in the immediately preceding twelve months, the
Borrower shall not have any right to notice or cure;

     (d) Any default by the Borrower in the due observance or performance of, or compliance with,
any of the terms, covenants, conditions or agreements contained in Section 10.1(h) and such default
continues unremedied for five (5) days after the earlier to occur of (i) discovery by the Borrower
of such default or (ii) receipt of notice by the Borrower
thereof from the Bank; provided however, that if such default cannot be remedied, then such default shall be deemed to be an
Event of Default as of the date of the occurrence thereof;

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     (e) Any failure by the Borrower to duly and promptly perform, comply with or observe any of
the terms, covenants, conditions or agreements contained in Sections 9.9, 9.10, 10.1(b), 11.1 (a)
or 11.1(f) hereof, provided, however, such failure shall not be an Event of Default if in
the case of Sections 10.1(b), 11.1(f)(ii) or 11.1.(f)(v), the Borrower is diligently
contesting such Encumbrance in good faith in accordance with the terms and provisions of this
Letter of Credit Agreement and such failure is either cured or bonded against by the Borrower to
the Bank’s satisfaction within thirty (30) days after such failure;

     (f) Any failure by the Borrower timely to provide the notice to the Trustee as set forth in
Section 4.9 hereof or to deposit with the Bank the funds required to be deposited with the Bank
pursuant to Section 4.9 hereof;

     (g) Any failure by the Borrower to duly and promptly perform, comply with or observe any other
term, covenant, condition or agreement contained in this Letter of Credit Agreement or any of the
Bond Documents or the other Letter of Credit Documents, or of any other of the Borrower’s Bond
Obligations or Borrower’s Letter of Credit Obligations, which failure remains unremedied for
fifteen (15) days after the earlier to occur: (i) discovery by the Borrower of such failure or (ii)
receipt by Borrower of notice thereof from the Bank; provided
however, that if such failure
cannot be remedied, then such failure shall be deemed to be an Event of Default as of the date of
the occurrence thereof;

     (h) An Act of Bankruptcy occurs with respect to the Borrower or the Borrower becomes
generally unable to pay its debts as they become due; provided,
however, if a proceeding
with respect to an Act of Bankruptcy is filed or commenced against the Borrower, the same shall
not constitute an Event of Default if such proceeding is dismissed within sixty (60) days from the
date of such Act of Bankruptcy;

     (i) The Borrower is dissolved, merged, consolidated or reorganized;

     (j) Any execution or attachment is levied against the Facility, or any part thereof, and such
execution or attachment is not set aside, discharged, bonded against, or stayed within thirty (30)
days after the same is levied;

     (k) Any change in any zoning ordinance or any other public restriction is enacted, limiting
or defining the uses which may be made of the Facility or a part thereof, such that the intended
use of the Facility, as specified herein and in the other Letter of Credit Documents, would not be
permitted after such restriction or zoning change;

     (l) Any failure by the Borrower to comply with any material requirement of any Governmental
Authority having jurisdiction over the Facility within the time required by such Governmental
Authority; or any proceeding is commenced or action taken to enforce any remedy for a violation of
any material requirement of a Governmental Authority; or any failure by the Borrower to comply with
any non-material requirement of any Governmental Authority if the Borrower is diligently contesting
in good faith such non-compliance or proceeding or action, in accordance with the terms of this
Letter of Credit Agreement, and such non-material failure, proceeding or action is either cured or
bonded to the Bank’s satisfaction within thirty (30) days of such failure;

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     (m) Any failure by Borrower to pay to the Bank MIDFA’s Insurance Premium (as defined in the
Insurance Agreement) when the same shall become due and payable;

     (n) An “Event of Default” arises under the Lease;

     (o) An “Event of Default” arises under any of the other Letter of Credit Documents or the
Bond Documents;

     (p) Any material provision of this Letter of Credit Agreement and the Letter of Credit
Documents at any time for any reason ceases to be valid and binding on the Borrower, or is declared
to be null and void, or the validity or enforceability thereof is contested by the
Borrower or any governmental agency or authority, or the Borrower denies that it has any or
further liability or obligation under this Letter of Credit Agreement or any of the Bond Documents
or the Letter of Credit Documents;

     (q) The Borrower shall permit or suffer any Change in Control or enter into, or permit the
entering into of, any agreement to effect a Change in Control;

     (r) The Borrower shall fail to obtain by April 26, 2006, the consent of the stockholders
required to waive the redemption rights set out on Schedule 7.1(z), or shall fail to obtain, at
least six (6) months prior to the date for any other redemption of the Borrower’s stock, the
consent of the stockholders required to waive such redemption;

     (s) Within 48 hours following a Bond Purchase Principal Drawing (or such longer period of
time, not to exceed five (5) Business Days, if the Trustee advises the Bank that the delay is
caused by administrative difficulties), the Trustee does not deliver, or cause to be delivered to
the Pledged Bonds Custodian an aggregate principal amount of Bonds equal to the amount of the Bond
Purchase Principal Drawing, registered in the name of the Bank, as pledgee;

     (t) Failure to deliver to the Bank or the Issuer all of the Required Post Closing Documents,
in a form and substance acceptable in all respects to the Bank on or before thirty (30) days after
the Closing Date;

     (u) An event of default occurs in respect of any Debt of Borrower, which when aggregated with
all other such events of default exceeds $25,000;

     (v) Any mechanics’ liens are established against the Facility or any of the Equipment
Collateral and are not caused to be discharged or bonded against by the Borrower within thirty
(30) days after it receives notice of the establishment thereof;

     (w) The Bank or its representatives are not permitted, at all reasonable times, to inspect the
Facility and all materials, fixtures and articles used or to be used in connection with the
Facility, and to examine all detailed plans, shop drawings and specifications which relate to the
Facility or the appurtenances thereto or to be used in the operation thereof;

     (x) An “Event of Default” occurs under any of the Other Bank Obligations;

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     (y) One or more judgments or orders for the payment of money in excess of $25,000 not
covered by insurance, excepting any judgment or order which has been either bonded off or stayed
pending appeal, shall be rendered against the Borrower and such judgment or order shall continue
unsatisfied for a period of thirty (30) days during which executing shall not be effectively
stayed; or

     (z) The Borrower shall admit its inability to pay its debts as they mature or shall make any
assignment for the benefit of its creditors.

     SECTION 13.2. Remedies on Default. Whenever any Event of Default referred to in
Section 13.1 hereof occurs, the Bank may, at its option, exercise any one or more of the following
remedies:

     (a) The Bank, at its option, may (i) demand that the Trustee exercise its remedies under the
Indenture and accelerate the maturity of the Bonds (in which event the Trustee is required to
immediately draw under the Letter of Credit pursuant to Section 9.2(a) of the Indenture), and (ii)
declare all amounts payable under Article V hereof (including amounts
payable as a result of a drawing under the Letter of Credit as described in clause (i) above),
together with all other moneys payable hereunder, to be immediately due and payable, whereupon the
same shall become immediately due and payable, by written notice to that effect given to the
Borrower, without protest, presentment, or further notice or demand, all of which are expressly
waived by the Borrower. Upon such declaration by the Bank, payment of all amounts due under Article
V hereof (including amounts payable as a result of a drawing under the Letter of Credit as
described in clause (i) above) shall be made immediately by the Borrower, and the Borrower, hereby
promises to pay such amount immediately, to the Bank. Upon payment in full of all of the Borrower’s
Letter of Credit Obligations, whether contingent or otherwise, but only upon the expiration of this
Letter of Credit Agreement, any remaining surplus of such funds held by the Bank as a result of
payment pursuant to this Section 13.2(a) shall be applied first to pay any unpaid Administration
Expenses and any remainder shall be returned to the Borrower, unless otherwise agreed by the
Borrower and the Bank.

     (b) The Bank may take whatever action at law or in equity may appear necessary or
desirable to collect the payments and other amounts then due and thereafter to become due or to
enforce performance and observance of all of the Borrower’s Bond Obligations and the Borrower’s
Letter of Credit Obligations, including, without limitation, any obligation, agreement or covenant
of the Borrower under this Letter of Credit Agreement. THE BORROWER HEREBY AUTHORIZES AND
EMPOWERS ANY CLERK OF ANY COURT OF RECORD IN THE STATE OF MARYLAND OR ELSEWHERE
TO ENTER JUDGMENT BY CONFESSION AGAINST THE BORROWER IN FAVOR OF THE BANK FOR THE FULL AMOUNT OF
THE BORROWER’S LETTER OF CREDIT OBLIGATIONS AND/OR THE BORROWER’S BOND OBLIGATIONS TOGETHER WITH
EXPENSES OF COLLECTION, INCLUDING COSTS OF SUIT AND FURTHER INCLUDING
ACTUAL ATTORNEY’S FEES (IN AN AMOUNT CUSTOMARY IN SIMILAR CIRCUMSTANCES), EXPRESSLY WAIVING SUMMONS AND OTHER PROCESS, AND DOES
FURTHER CONSENT TO THE IMMEDIATE EXECUTION OF SAID JUDGMENT. ANY JUDGMENT ENTERED AGAINST
THE BORROWER WHETHER BY CONFESSION OR OTHERWISE, SHALL BEAR INTEREST AT THE

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PENALTY RATE. THE AUTHORITY AND POWER TO APPEAR FOR AND ENTER JUDGMENT AGAINST THE BORROWER,
SHALL NOT BE EXHAUSTED BY ONE OR MORE EXERCISES THEREOF, OR BY ANY IMPERFECT EXERCISE THEREOF, AND
SHALL NOT BE EXTINGUISHED BY ANY JUDGMENT ENTERED PURSUANT THERETO; SUCH AUTHORITY AND POWER MAY
BE EXERCISED ON ONE OR MORE OCCASIONS, FROM TIME TO TIME, IN THE SAME OR DIFFERENT JURISDICTIONS
AS OFTEN AS THE BANK OR ITS ASSIGNS SHALL DEEM NECESSARY OR ADVISABLE UNTIL ALL SUMS DUE UNDER THE
BORROWER’S LETTER OF CREDIT OBLIGATIONS AND THE BORROWER’S BOND OBLIGATIONS HAVE BEEN PAID IN
FULL.

     (c) The Bank, with or without resort to judicial process, may take such steps as the
Bank deems appropriate to protect the Facility from depredation or injury, including (without
limitation) employment of watchmen or other protective services, and any expenses incurred by the
Bank in taking such steps shall be paid by the Borrower to the Bank as provided in Section 14.9
hereof.

     (d) The Bank may proceed under the Uniform Commercial Code as to all or any part of the
security for the Borrower’s Letter of Credit Obligations, and in conjunction therewith exercise all
of the rights, remedies and powers of a secured party under the Uniform Commercial Code, including,
without limitation, taking possession of the security for the Borrower’s Letter of Credit Obligations without judicial process pursuant to Section 9-609 of the Uniform
Commercial Code. Upon the occurrence of any Event of Default hereunder, the Borrower shall assemble
all of the security for the Borrower’s Letter of Credit Obligations, and make the same available to
the Bank. Any notification required by Section 9-610 of the Uniform Commercial Code shall be
deemed reasonably and properly given if mailed certified mail, return receipt requested, postage
prepaid, by the Bank to the Borrower at the address specified in Section 14.1 hereof at least 10
days before any sale or other disposition of the security for the Borrower’s Letter of Credit
Obligations, or any portion thereof.

     (e) The Bank may exercise any and all remedies available to it under any of the Bond Documents
and the other Letter of Credit Documents.

     (f) In addition to all remedies available to the Bank at law or in equity pursuant to any
claim of subrogation by reason of any payment made pursuant to the Letter of Credit, the Bank in
accordance with the Indenture shall be entitled to enforce the rights of the Owners of the Bonds
under the Bond Documents against the Borrower notwithstanding any payment, satisfaction or
discharge thereof, irrespective of whether such payment, satisfaction or discharge shall have been
entered as a matter of record in any court or other office wherein liens, mortgages, deeds of trust
or financing statements are filed pursuant to law.

     No action taken pursuant to this Section shall relieve the Borrower from any of the Borrower’s
Bond Obligations or the Borrower’s Letter of Credit Obligations, all of which shall survive any
such action, and the Bank may take whatever action at law or in equity as may appear necessary and
desirable to collect the payments and other amounts then due and thereafter to become due or to
enforce the performance and observance of the Borrower’s Bond Obligations or the Borrower’s Letter
of Credit Obligations.

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     Any amounts collected pursuant to action taken under this Section shall be paid over
to the Bank and applied to the Borrower’s Letter of Credit Obligations.

     SECTION 13.3. No Remedy Exclusive. No remedy herein conferred upon or reserved to the
Bank is intended to be exclusive of any other available remedy or remedies, but each and every
such remedy shall be cumulative and shall be in addition to every other remedy given under this
Letter of Credit Agreement or any of the other Letter of Credit Documents or now or hereafter
existing at law or in equity or by statute. No delay or omission to exercise any right or power
accruing upon any default shall impair any such right or power or shall be construed to be a
waiver thereof, but any such right and power may be exercised from time to time and as often as
may be deemed expedient. In order to entitle the Bank to exercise any remedy reserved to it in
this Article, it shall not be necessary to give any notice, other than such notice as may be
herein expressly required.

     SECTION
13.4. Agreement to Pay Attorneys’ Fees and Expenses. In the event the
Borrower defaults under any of the provisions of this Letter of Credit Agreement, and the Bank
employs attorneys or incurs other expenses for the collection of amounts due hereunder or the
enforcement of performance or observance of any obligation or agreement on the part of the
Borrower herein contained, the Borrower agrees that it will on demand therefor pay to the Bank the
reasonable fees of such attorneys and such other expenses so incurred by the Bank.

     SECTION
13.5. Waiver of Event of Default; No Additional Waiver Implied by One Waiver.
The Bank in its sole discretion may waive an Event of Default, provided that either (a) notice of
the occurrence of an Event of Default has not yet been given to the Trustee, or (b) following such
Event of Default, a drawing under the Letter of Credit is not required to be made by the Trustee
in accordance with Section 9.2 of the Indenture.

     In the event any agreement contained in this Letter of Credit Agreement is breached by the
Borrower and thereafter waived (expressly or impliedly) by the Bank, such waiver shall be limited
to the particular breach so waived and shall not be deemed to waive any other breach hereunder.
Any forbearance (expressly or impliedly) by the Bank to demand payment for any amounts payable
hereunder shall be limited to the particular payment for which the Bank forebears demand for
payment and will not be deemed a forbearance to demand any other amount payable hereunder.

     SECTION 13.6. MIDFA Insurance. Pursuant to the terms and conditions of the Insurance
Agreement, MIDFA has insured a portion of the Borrower’s Letter of Credit Obligations. Certain of
the rights, duties, obligations and remedies of the Bank under this Letter of Credit Agreement and
the other Letter of Credit Documents and the Bond Documents are subject to the terms, conditions
and limitations set forth in the Insurance Agreement.

     In recognition of the interests of MIDFA as an insurer, the parties to this Letter of Credit
Agreement hereby agree that, in addition to the rights and remedies of MIDFA set forth in the
Insurance Agreement and in the other Letter of Credit Documents and the Bond Documents, MIDFA has
certain rights and remedies in connection with this transaction, as follows:

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     (a) Notices
to MIDFA. The Borrower agrees to provide MIDFA with copies of all
financial statements, certifications, evidence of insurance coverage, and any other
information or documentation required by the Bond Documents and the Letter of Credit Documents to be given
to the Bank, and to give MIDFA notice of any occurrences or circumstances requiring notice to
be given to the Bank, as provided in this Letter of Credit Agreement and in the other Letter
of Credit Documents or the Bond Documents.

     (b) Consents. The Borrower and the Bank agree that (i) none of the Letter of Credit
Documents or the Bond Documents may be modified or amended without the prior written
consent of MIDFA; (ii) to obtain the consent, approval, determination, permission, opinion or
similar agreement of MIDFA under such circumstances and at such times as is required by this
Letter of Credit Agreement and the other Letter of Credit Documents and the Bond Documents;
and (iii) that the Bank shall not exercise any remedies after the occurrence of an Event of
Default hereunder without obtaining the prior approval of MIDFA, except as may be authorized or
permitted under the Insurance Agreement.

     (c) Borrower’s
Insurance; Inspections. In addition, the Borrower agrees:

	 	(i)  	that MIDFA shall be named as an additional insured, as
its interest may appear, on all insurance required to be maintained by this
Letter of Credit Agreement or the Security Agreement naming the Bank as an
insured, and
	 
	 	(ii)  	upon reasonable notice, to permit MIDFA and its agents to
visit and inspect the Facility, to examine its records and books of account
and to discuss the affairs, finances and accounts pertaining thereto with
agents of the Borrower at its offices during normal business hours and at such
other reasonable times as may be requested by MIDFA.

     (d) Payment of MIDFA’s Insurance Premium. As consideration for MIDFA’s
financial assistance in accordance with the Insurance Agreement, the Borrower agrees to pay
directly to the Bank for remittance to MIDFA annually, in advance, a sum of money equal to the
annual amount of MIDFA’s Insurance Premium (as defined in the Insurance Agreement). Such
amount shall be payable on the Closing Date and on each anniversary thereof.

     (e) No Warranties by MIDFA. MIDFA makes no warranty, express or implied, and
makes no assurances that the Facility will be suitable for the needs of the Borrower or that
the proceeds of the Bonds will be sufficient to pay for the costs of the acquisition and
construction of the Facility.

     (f) Payments by MIDFA. Notwithstanding any of the provisions of this Letter of
Credit Agreement or any of the other Letter of Credit Documents or the Bond Documents,
MIDFA, on behalf of the Borrower, may, in its discretion, elect to make any payments required
to be made by the Borrower under the Letter of Credit Documents and not paid by the Borrower
within the time provided for therein, and may, as provided in Section 6.2A of the Insurance
Agreement, elect to cure any defaults under any of the Letter of Credit Documents if it so
chooses. In such event, MIDFA shall be entitled to reimbursement from the Borrower for any

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payments made by it pursuant to this subsection, with interest thereon at the Penalty Rate;
provided, however, that the right of MIDFA to receive such reimbursement shall at all
times be subordinate to the rights of the Bank to receive payment under the Letter of Credit
Documents.

     (g) Subrogation and Reimbursement of MIDFA to the Extent of Payments Made. MIDFA, to
the extent of any payments made by it pursuant to the Insurance Agreement or pursuant to
subsection (f) above, shall be subrogated to (a) all rights of the Bank to receive payment of such
amounts from the Borrower or others under any of the Letter of Credit Documents, and (b) all
rights of the Borrower to receive payment or reimbursement of such amounts from other sources. In
addition, the Borrower agrees to reimburse MIDFA for any payments made by MIDFA under the
Insurance Agreement, and such obligation to reimburse MIDFA, as well as the obligation to
reimburse MIDFA pursuant to the provisions of this Letter of Credit Agreement, shall be deemed to
be part of the Borrower’s Letter of Credit Obligations secured by this Letter of Credit Agreement
and the other Letter of Credit Documents. MIDFA’s rights under this Section 13.7 (f) and (g) are
at all times subordinate to the rights of the Bank to receive payments pursuant to the terms of
the Letter of Credit Documents.

ARTICLE XIV.

MISCELLANEOUS

     SECTION 14.1. Notices. Except as otherwise provided in this Letter of Credit
Agreement, all notices, demands, requests, consents, approvals, certificates or other
communications required under this Letter of Credit Agreement to be in writing shall be
sufficiently given and shall be deemed to have been properly given (i) if delivered by hand, when
written confirmation of delivery is received by the sender, (ii) three (3) days after the same is
mailed by certified mail, postage prepaid, return receipt requested, or (iii) if sent by overnight
courier, 24 hours after delivery to such overnight courier, addressed to the person to whom any
such notice, demand, request, approval, certificate or other communication is to be given, at the
appropriate address for the Principal Office of such person designated below:

	 	 	 
	Issuer:
	 	Maryland Industrial Development

Financing Authority 

217 E. Redwood Street, 22nd Floor

Baltimore, Maryland 21202 

Attention: Executive Director

	 
	 	 

	Borrower:
	 	Avalon Pharmaceuticals, Inc.

20358 Seneca Meadows Parkway

Germantown, Maryland 20876

Attention: Thomas G. David,

                  Sr. Vice President of Operations

                  and General Counsel

- 65

 

	 	 	 
	 	 	with a copy to:

	 
	 	 

	 	 	Mark I. Gruhin, Esq. 

Schmeltzer, Aptaker & Shepard, P.C. 

2600 Virginia Avenue, NW, Suite 1000 

Washington, DC 20037-1922

	 
	 	 

	Trustee, Paying Agent and Registrar:
	 	Allfirst Trust Company, National Association 

25 South Charles Street 

Mail Code: Banc 101-591 

Baltimore, Maryland 21201 

Attention: Donald Hargadon

	 
	 	 

	 	 	with a copy to:

	 
	 	 

	 	 	Alan S. Mark

Paley, Rothman, Goldstein, Rosenberg 
   &
Cooper Chartered 

4800 Hampden Lane 

Bethesda, Maryland 20814 

	 
	 	 

	Bank:
	 	Manufacturers and Traders Trust Company

1410 Spring Hill Road

Suite 125

McLean, Virginia 22102

Attention: David DiLuigi

	 
	 	 

	 	 	with a copy to:

	 
	 	 

	 	 	Sonnenschein Nath & Rosenthal 

1301 K Street, N.W. 

Suite 600, East Tower 

Washington, DC 20005 

Attention: Fred Levy, Esq. 

	 
	 	 

	Remarketing Agent:
	 	Manufacturers and Traders Trust Company 

25 South Charles Street

12th Floor

Baltimore, Maryland 21201

Attention: Howard Sakin

- 66

 

	 	 	 
	 	 	with a copy to:

	 
	 	 

	 	 	Alan S. Mark

Paley, Rothman, Goldstein, Rosenberg
   &
Cooper Chartered 

4800
Hampden Lane 

Bethesda,
Maryland 20814

     Any person listed above may, by notice given hereunder, designate any further or different
addresses to which subsequent communications shall be sent. During any period in which the
Registrar and the Paying Agent are the same and have the same address, any notice required to be
given to either the Registrar or the Paying Agent, or both, may be given by one notice to the
address for the Registrar and Paying Agent set forth above.

     SECTION 14.2. Prior Agreements Cancelled. This Letter of Credit Agreement and the
other Letter of Credit Documents completely and fully supersede all other prior agreements, both
written and oral, between the Bank and the Borrower relating to the issuance of the Letter of
Credit and the matters set forth herein and therein.

     SECTION 14.3. Filing. The security interests of the Bank created hereby shall be
perfected by the filing of financing statements which fully comply with the Uniform Commercial
Code, among the financing statement records of the appropriate jurisdiction. The parties further
agree that all necessary continuation statements shall be filed within the time prescribed by the
Uniform Commercial Code, in order to continue the security interest created by this Agreement. The
Borrower authorizes the Bank to file financing statements, continuation statements, modifications
and amendments thereto from time to time, covering the collateral and all personal property of the
Borrower securing the Borrower’s Letter of Credit Obligations and containing such legends as may
be reasonably required by the Bank to perfect the Bank’s interest in such collateral and personal
property intended to be created by this Letter of Credit Agreement, the Letter of Credit
Documents, or the Bond Documents. The Borrower agrees to pay all taxes, fees and costs (including
attorneys’ fees) paid or incurred by the Bank in connection with the preparation, filing or
recordation thereof. The Borrower shall not file any amendments, correction statements or
termination statements concerning the collateral or such personal property without the prior
written consent of the Bank.

     SECTION 14.4. Binding Effect. This Letter of Credit Agreement shall inure to the
benefit of and shall be binding upon the Bank, the Borrower and their respective successors and
assigns, provided however the Borrower may only assign its interest hereunder pursuant to Section
14.6 hereof.

     SECTION
14.5. Illegality; Severability. If fulfillment of any provision hereof or any
transaction related hereto or to the other Letter of Credit Documents, at the time performance of
such provisions shall be due, shall involve transcending the limit of validity prescribed by law,
then ipso  facto, the obligation to be fulfilled shall be reduced to the limit of such
validity; and if any clause or provisions herein contained, operates or would prospectively operate
to invalidate this Letter of Credit Agreement in whole or in part, then such clause or provision
only shall be

- 67

 

void, as though not herein contained, and the remainder of this Letter of Credit Agreement shall
remain operative and in full force and effect.

     SECTION 14.6. Assignment. None of the Letter of Credit Documents or the Bond
Documents may be assigned by the Borrower. The Bank may at any time sell or grant participations
to any other Person (a “participant”) in the Borrower’s Letter of Credit Obligations under this
Letter of Credit Agreement and the other Letter of Credit Documents; provided, however, except as
provided in the immediately following sentence, the Borrower shall continue to deal solely and
directly with the Bank in connection with the Bank’s rights and remedies under this Letter of
Credit Agreement. The Borrower hereby authorizes the Bank and each such participant, in case of an
Event of Default hereunder, to proceed directly, by right of setoff, banker’s lien or otherwise,
against any assets of the Borrower which may at the time of such default be in the hands of the
Bank or in the hands of such participant. The Bank hereby acknowledges that it shall have no right
of set-off against any funds held the Securities Intermediary that are not subject to the
Collateral/Control Agreement.

     SECTION
14.7. Consent to Jurisdiction; Service of Process; Waiver of Jury Trial.

     (a) The Borrower hereby agrees and consents that any action or proceeding arising
out of or brought to enforce the provisions of this Letter of Credit Agreement may be brought
in any appropriate court in the State, all at the sole election of the Bank, and by the execution
of this Letter of Credit Agreement the Borrower irrevocably consents to the jurisdiction of each
such court.

     (b) If for any reason the Borrower should become not qualified to do business in the
State, the Borrower hereby agrees to designate and appoint, without power of revocation, an
agent for service of process within the State, as the agent for the Borrower upon whom may be
served all process, pleadings, notice or other papers which may be served upon the Borrower as
a result of any of the Borrower’s Letter of Credit Obligations.

     (c) The Borrower covenants that throughout the period during which any of the
Borrower’s Letter of Credit Obligations remain outstanding, if a new agent for service of
process within the State is designated pursuant to the terms of subsection (b) of this Section, the
Borrower will immediately file with the Bank the name and address of such new agent and the
date on which such appointment is to become effective.

     (d) THE BORROWER AND THE BANK HEREBY JOINTLY WAIVE TRIAL
BY JURY IN ANY ACTION OR PROCEEDING TO WHICH THE BORROWER AND
THE BANK MAY BE PARTIES, ARISING OUT OF OR IN ANY WAY PERTAINING
TO THIS LETTER OF CREDIT AGREEMENT OR ANY OF THE OTHER LETTER OF
CREDIT DOCUMENTS. IT IS AGREED AND UNDERSTOOD THAT THIS WAIVER
CONSTITUTES A WAIVER OF TRIAL BY JURY OF ALL CLAIMS AGAINST ALL
PARTIES TO SUCH ACTIONS OR PROCEEDINGS WHO ARE PARTIES TO THE
LETTER OF CREDIT DOCUMENTS AND THE BOND DOCUMENTS.

     THIS WAIVER IS KNOWINGLY, WILLINGLY AND VOLUNTARILY MADE BY THE BORROWER, AND THE BORROWER
HEREBY REPRESENTS THAT NO

- 68

 

REPRESENTATIONS OF FACT OR OPINION HAVE BEEN MADE BY ANY INDIVIDUAL TO INDUCE THIS WAIVER
OF TRIAL BY JURY OR TO IN ANY WAY MODIFY OR NULLIFY ITS EFFECT. THE BORROWER FURTHER REPRESENTS
THAT IT HAS BEEN REPRESENTED IN THE SIGNING OF THIS LETTER OF CREDIT AGREEMENT AND IN THE MAKING
OF THIS WAIVER BY INDEPENDENT LEGAL COUNSEL, SELECTED OF ITS OWN FREE WILL, AND THAT IT HAS HAD
THE OPPORTUNITY TO DISCUSS THIS WAIVER WITH COUNSEL.

     SECTION 14.8. Further Assurances and Corrective Instruments. The Bank and the
Borrower agree that they will, from time to time, execute and deliver or cause to be executed and
delivered, such supplements hereto and such further instruments as may reasonably be required for
carrying out the intention of the parties to, or facilitating the performance of, this Letter of
Credit Agreement.

     SECTION
14.9. Right to Perform; Advances by Bank. If the Borrower fails to make or
cause to be made any payment, or fails to perform, observe or comply with any of the Borrower’s
Bond Obligations or the Borrower’s Letter of Credit Obligations, the Bank, without notice to the
Borrower and without waiving any default or releasing the Borrower from any of the Borrower’s Bond
Obligations or the Borrower’s Letter of Credit Obligations, and without being under any obligation
to do so, may make such payment or perform any of the Borrower’s Bond Obligations or the
Borrower’s Letter of Credit Obligations for the account of the Borrower, and may enter upon the
Facility or any part thereof for that purpose and take all such action thereon as the Bank may
consider necessary or appropriate for such purpose. All amounts so paid by the Bank and all costs,
fees and expenses incurred by the Bank in connection with such payment or performance (including,
without limitation, attorneys’ fees and expenses) shall be immediately due and payable by the
Borrower as additional payments, together with interest thereon from the date the same are paid or
incurred at the Penalty Rate until the same are paid in full by the Borrower.

     SECTION 14.10. Amendments, Changes and Modifications. This Letter of Credit Agreement
may not be amended, changed, modified, altered or terminated except by a written instrument
executed by the Bank and the Borrower.

     SECTION 14.11. Execution of Counterparts. This Letter of Credit Agreement may be
executed in several counterparts, each of which shall be an original and all of which shall
constitute but one and the same instrument without giving effect to any conflicts of laws
provisions thereof.

     SECTION 14.12. Law Governing Construction of Agreement. This Letter of Credit
Agreement is prepared and entered into with the intention that the law of the State shall govern
its construction.

     SECTION 14.13. Effective Date. This Letter of Credit Agreement has been dated as of
the date above written solely for the purpose of convenience of reference and shall become
effective upon its execution and delivery, on the Closing Date, by the parties hereto. All

- 69

 

EXHIBIT A

 

FORM OF LETTER OF CREDIT

 

 

Manufacturers and Traders
Trust Company

 25
South Charles Street 

Baltimore, Maryland 21201

Attention: Letter of Credit Department 

Irrevocable Letter of Credit No. SB-904507-0101 

Date of Issuance: April 8, 2003

Allfirst Trust Company National Association, 

as Trustee under the Trust Indenture, dated as 

of April 1, 2003, between Maryland 

Industrial Development Financing Authority 

(“Issuer”) and the Trustee 

25 South Charles Street 

Baltimore, Maryland 21201 

General

     At the request and on the instructions of our customer, Avalon Pharmaceuticals, Inc., a
Delaware corporation (“Borrower”), we hereby establish this Irrevocable Transferable Letter of
Credit No. SB-904507-0101 (hereinafter referred to as “this Letter of Credit”) in your favor, as
Trustee under the above-referenced Trust Indenture (the “Indenture”), pursuant to which
$12,000,000 in aggregate principal amount of the Issuer’s Taxable Variable Rate Demand Revenue
Bonds (Avalon Pharmaceuticals, Inc. Facility) Series 2003 (the “Bonds”) are being issued.

     The Issuer is using the proceeds of the Bonds to make a loan to the Borrower to be used by
the Borrower to finance a portion of the fit out costs and tenant improvement cost of a certain
facility leased by the Borrower and located in Germantown, Montgomery County, Maryland, as more
fully described in the Indenture. This Letter of Credit is issued as an obligation of
Manufacturers and Traders Trust Company pursuant to the Letter of Credit Agreement dated as of
April 1, 2003 between the Issuer and us (the “Letter of Credit Agreement”).

     This Letter of Credit is effective immediately and, unless it expires earlier as hereinafter
provided, will expire at 2:00 P.M., prevailing Baltimore, Maryland time, on April 8, 2008 unless a
written extension amendment is provided by Manufacturers and Traders Trust Company.

Stated Amount

     We hereby irrevocably authorize you, in your capacity as Trustee under the Indenture and
acting for the benefit of the owners of the Bonds, to draw on us in accordance with the terms and
conditions hereinafter set forth, by one or more sight draft(s), an amount not exceeding in the
aggregate $12,197,260 (such amount, as reinstated, reduced or increased from time to time in
accordance with the provisions hereof, is hereinafter referred to as the “Stated Amount”), of
which Stated Amount:

     (a) an aggregate amount not exceeding $12,000,000 (such amount, as reinstated or reduced
from time to time in accordance with the provisions hereof, is hereinafter referred to as the
“Principal Portion”) may be drawn upon to pay only:

          (i) the principal amount of the Bonds (whether at maturity, if the stated
expiration date of this Letter of Credit is extended by us in our sole discretion, or upon
redemption, acceleration of maturity or otherwise) (a “Principal Drawing”); and

 

 

Manufacturers and Traders Trust Company

25 South Charles Street

Baltimore, Maryland 21201

Attention: Letter of Credit Department

Irrevocable Transferable Letter of Credit No. SB-904507-0101

Date of Issuance: April 8, 2003

Page 2 of 19

          (ii) that portion of the purchase price of any Bonds tendered, or deemed to have been
tendered, as provided in the Indenture, for purchase on a Tender Date (as defined in the
Indenture) in accordance with the provisions of Section 4.1 and Section 4.2 of the
Indenture (any such Bonds so tendered, or deemed to have been tendered, to the Trustee for
purchase on a Tender Date being hereinafter referred to as “Bonds Tendered or Deemed
Tendered for Purchase”), which is equal to the principal amount of any such Bonds
Tendered or Deemed Tendered for Purchase (in either event, a “Bond Purchase Principal
Drawing”);

     (b) an aggregate amount not exceeding $197,260 (such amount, as reinstated, reduced or
increased from time to time in accordance with the provisions hereof, is hereinafter referred to
as the “Interest Portion”) may be drawn upon to pay only:

          (i) the interest payable on the outstanding principal amount of the Bonds on any
Interest Payment Date (as defined in the Indenture), or on any other date on which interest
is payable on the Bonds (an “Interest Drawing”); and

          (ii) that portion of the purchase price of any Bonds Tendered or Deemed Tendered
for Purchase which is equal to the amount of accrued interest on the principal amount of
any such Bonds Tendered or Deemed Tendered for Purchase on a Tender Date in accordance with
the provisions of Section 4.1 or Section 4.2 of the Indenture (in either event, a “Bond
Purchase Interest Drawing”).

     The Interest Portion may be drawn upon only to pay interest which has accrued on the
outstanding principal amount of the Bonds on or prior to the applicable due date for each payment
of the principal of the Bonds (whether at maturity, if the stated expiration date of this Letter of
Credit is extended by us in our sole discretion, or upon redemption, acceleration of maturity,
tender or otherwise) and may not be drawn upon to pay any interest that may accrue on the principal
of the Bonds after the applicable due date for payment of such principal.

     THIS LETTER OF CREDIT MAY NOT BE DRAWN UPON TO PAY (A) THE RESALE DISCOUNT, IF ANY, ON ANY
BONDS BEING REMARKETED BY THE REMARKETING AGENT (AS DEFINED IN THE LETTER OF CREDIT AGREEMENT), OR
(B) THE REDEMPTION PREMIUM, IF ANY, PAYABLE IN CONNECTION WITH ANY REDEMPTION OF THE BONDS. IN
ADDITION, THIS LETTER OF CREDIT MAY NOT BE DRAWN UPON TO PAY THE PRINCIPAL OR THE PURCHASE PRICE
OF ANY PLEDGED BONDS (AS DEFINED IN THE INDENTURE), IF AND TO THE EXTENT THAT THE PRINCIPAL
PORTION OF THIS LETTER OF CREDIT HAS NOT BEEN REINSTATED FOLLOWING OUR PAYMENT OF A BOND PURCHASE
PRINCIPAL DRAWING WITH RESPECT TO SUCH PLEDGED BONDS.

Demands for Payment

     Subject to the foregoing and the further provisions of this Letter of Credit, a demand for
payment may be made by you by presentation to us, at Manufacturers and Traders Trust Company,
15th Floor, Suite 1501, 25 S. Charles Street, Baltimore, Maryland 21201, of an
executed:

          (i) Certificate For Principal Drawing and Reduction Of Stated Amount, appropriately
completed, in the form attached hereto as EXHIBIT A and made a part hereof, if your
drawing is a Principal Drawing, or

 

 

Manufacturers and Traders Trust Company

25 South Charles Street

Baltimore, Maryland 21201

Attention: Letter of Credit Department

Irrevocable Transferable Letter of Credit No. SB-904507-0101

Date of Issuance: April 8, 2003

Page 3 of 19

          (ii) Certificate For Interest Drawing, appropriately completed, in the form attached
hereto as EXHIBIT B and made a part hereof, if your drawing is an Interest Drawing;
or

          (iii) Certificate for Acceleration Drawing (Principal and Interest), appropriately
completed, in the form attached hereto as EXHIBIT C and made part hereof, if your
drawing is both a Principal Drawing and an Interest Drawing and is being made because the
maturity of the Bonds has been accelerated pursuant to the terms and provisions of the
Indenture (an “Acceleration Drawing”); or

          (iv) Certificate For Bond Purchase Principal Drawing, appropriately completed, in the
form attached hereto as EXHIBIT D and made a part hereof, if your drawing is a Bond
Purchase Principal Drawing; or

          (v) Certificate For Bond Purchase Interest Drawing, appropriately completed, in the
form attached hereto as EXHIBIT E and made a part hereof, if your drawing is a Bond
Purchase Interest Drawing.

     The certificates set out in Exhibits A through E shall be presented pursuant to this Letter
of Credit for an Interest Drawing, a Principal Drawing, an Acceleration Drawing, a Bond Purchase
Principal Drawing or a Bond Purchase Interest Drawing, respectively, and may be presented
concurrently. An Acceleration Drawing may include both a Principal Drawing and an Interest
Drawing.

     In lieu of delivery to us at our offices of any certificate described above, you may present
to us, by means of facsimile, such certificate, provided, that the original certificate must be
promptly delivered to us at our aforesaid offices after your drawing hereunder. We shall have no
responsibility for any discrepancies between the telecopied and original versions of certificates
presented hereunder. Any such telecopied certificate shall be directed to us at facsimile number
410-244-3986 (or at such other facsimile number as we shall have advised you in writing).

     Prior to any drawing under this Letter of Credit, you must inform us by telephone at
410-244-4475 of the dollar amount of such drawing; provided, however, that your failure to so
inform us will not affect our obligations to honor any drawing which otherwise complies in all
respects with the terms of this Letter of Credit.

     Multiple
drawings may be made under this Letter of Credit; provided, however (subject
to the provisions hereinafter set forth with respect to the reinstatement and reduction of the
Principal Portion of the Stated Amount, and the reinstatement, reduction and increase of the
Interest Portion of the Stated Amount), that:

     (a) drawings hereunder which are honored by us shall not exceed the Stated Amount available to
be drawn hereunder at any time;

     (b) Principal Drawings and Bond Purchase Principal Drawings hereunder which are honored by us
shall not exceed the Principal Portion available to be drawn hereunder at any time;

     (c) Interest Drawings and Bond Purchase Interest Drawings hereunder which are honored by us
shall not exceed the Interest Portion available to be drawn hereunder at any time; and

     (d) each
drawing hereunder which is honored by us shall, pro tanto, reduce the amount
available to be drawn under this Letter of Credit.

 

 

Manufacturers and Traders Trust Company

25 South Charles Street

Baltimore, Maryland 21201

Attention: Letter of Credit Department

Irrevocable Transferable Letter of Credit No. SB-904507-0101

Date of Issuance: April 8, 2003

Page 4 of 19

Reinstatement, Reduction and Increase in Stated Amount

     The Principal Portion (and, accordingly, the Stated Amount) is subject to reinstatement and
reduction, and the Interest Portion (and, accordingly, the Stated Amount) is subject to
reinstatement, reduction and increase, as follows:

     (a) Effective at 5:00 P.M. (prevailing Baltimore, Maryland time) on the fifth Business Day (as
defined in the Indenture) following the date on which we honor any Bond Purchase Principal
Drawing, the amount drawn shall be automatically reinstated and restored to the Principal Portion;
provided, however, that such amount shall not be so reinstated and restored to the Principal Portion if, prior to such
fifth Business Day following the date on which such Bond Purchase Principal Drawing is honored by us, you receive
written notice from us that such amount will not be so reinstated and restored to the Principal Portion.

     (b) Effective immediately upon any Interest Drawing (other than an Interest Drawing that is
included as part of an Acceleration Drawing) or Bond Purchase Interest Drawing which is
honored by us, the amount drawn shall be automatically reinstated and restored to the Interest Portion.

     (c) The Principal Portion and the Interest Portion (and, accordingly, the Stated Amount) will
be automatically and permanently reduced from time to time, upon our receipt of an executed
Certificate For Principal Drawing and Reduction Of Stated Amount, appropriately completed, substantially in
the form attached hereto as EXHIBIT A and made a part hereof, by the respective amounts specified in
such Certificate.

     (d) The Interest Portion (and, accordingly, the Stated Amount) will be automatically increased
or decreased from time to time, upon our delivery to you of an executed Certificate For
Increase/Decrease Of Interest Portion, appropriately completed, substantially in the form attached hereto as
EXHIBIT F and made a part hereof, by the amount specified by us in such Certificate. Any such increase or decrease
in the Interest Portion shall constitute an amendment to this Letter of Credit.

Payment

     Prior to the expiration of this Letter of Credit, demand for payment may be made by you under
this Letter of Credit at our aforesaid offices at any time prior to 2:00 P.M., prevailing
Baltimore, Maryland time, on a Business Day.

     If demand for payment is made by you hereunder at or prior to 11:00 A.M., prevailing
Baltimore, Maryland time, on a Business Day, and provided that such demand for payment and the
documents presented in connection therewith conform to the terms and conditions hereof, payment
shall be made to you of the amount demanded, in immediately available funds, not later than 12:00
noon, prevailing Baltimore, Maryland time, on the Business Day immediately succeeding the day of
demand.

     If demand for payment is made by you hereunder after 11:00 a.m. prevailing Baltimore,
Maryland time, on a Business Day, and provided that such demand for payment and the documents
presented in connection therewith conform to the terms and conditions hereof, payment shall be
sent to you of the amount demanded in immediately available funds, not later than 12:00 noon,
prevailing Baltimore, Maryland time, on the second Business Day following the date of demand.

     If a demand for payment made by you hereunder does not conform to the terms and conditions of
this Letter of Credit, we shall give you telephonic notice that the purported negotiation was not
effected in

 

 

Manufacturers and Traders Trust Company

25 South Charles Street

Baltimore, Maryland 21201

Attention: Letter of Credit Department

Irrevocable Transferable Letter of Credit No. SB-904507-0101

Date of Issuance: April 8, 2003

Page 5 of 19

accordance with the terms and conditions of this Letter of Credit, stating the reasons therefor and
that we are holding any documents at your disposal or are returning the same to you, as we may elect. Upon
being notified that the purported negotiation was not effected in conformity with the terms and conditions of this
Letter of Credit, you may attempt to correct any such non-conforming demand for payment if, and to the extent
that, you are able to do so prior to the expiration of this Letter of
Credit.

     All drafts paid under this Letter of Credit shall be paid solely from the funds of
Manufacturers and Traders Trust Company, and not from any funds of the Issuer or the Borrower.

Expiration

     This Letter of Credit shall automatically expire at 2:00 P.M., prevailing Baltimore, Maryland
time, at our aforesaid counters on the earliest to occur of the following dates:

     (a) April 8, 2008; or

     (b) the date on which we honor an Acceleration Drawing; or

     (c) the date on which the Stated Amount is reduced to zero and, in the event that the Stated
Amount is reduced to zero as a result of a Bond Purchase Principal Drawing (other than a Bond
Purchase Principal Drawing on a Mandatory Tender Date which is a Termination Date, as defined in the Indenture),
the Stated Amount remains zero five Business Days following the date on which we honor such Bond Purchase
Principal Drawings; or

     (d) the date on which we honor the last drawing available to be made hereunder; or

     (e) the date on which we receive an executed Certificate As To Final Payment, appropriately
completed, in the form attached hereto as EXHIBIT G and made a part hereof; or

     (f) three (3) Business Days after the date on which we receive an executed Certificate As To
Acceptance Of A Substitute Credit Facility, appropriately completed, in the form attached
hereto as EXHIBIT H and made a part hereof; or

     Upon expiration, this Letter of Credit shall promptly be surrendered by you to us, at our
offices at 15th Floor, Suite 1501, 25 South Charles Street, Baltimore, Maryland 21201,
for cancellation.

Entire Agreement

     This Letter of Credit sets forth in full the terms of our undertaking, and this undertaking
shall not in any way be modified, amended, amplified or limited by reference to any document,
instrument or agreement referred to herein or in which this Letter of Credit is referred to or to
which this Letter of Credit relates, except for the exhibits attached hereto and made a part
hereof, references to the Indenture and the Letter of Credit Agreement for the definitions of
certain terms, and any amendment to which you consent, as beneficiary of this Letter of Credit; and
any such reference shall not be deemed to incorporate herein by reference any document, instrument
or agreement except for such exhibits, such references to the Indenture and the Letter of Credit
Agreement or any amendment to which you consent.

 

 

Manufacturers and Traders Trust Company

25 South Charles Street

Baltimore, Maryland 21201

Attention: Letter of Credit Department

Irrevocable Transferable Letter of Credit No. SB-904507-0101

Date of Issuance: April 8, 2003

Page 6 of 19

Transfer

     This Letter of Credit is transferable in its entirety (but not in part) to any transferee who
has succeeded you as Trustee under the Indenture and may be successively transferred. Transfer of
this Letter of Credit to such transferee shall be effected by the presentation to us of this
Letter of Credit for endorsement of the transfer accompanied by an executed Transfer Of Rights To
Draw Under Letter of Credit, appropriately completed, in the form of EXHIBIT I attached
hereto and made a part hereof. Each transfer is subject to the Borrower’s payment to us of a
transfer charge as provided in the Letter of Credit Agreement.

     Only you (or a transferee as permitted by the terms of this Letter of Credit) may make a
drawing under this Letter of Credit. Upon the payment to you or your account or to the transferee
or its account of the amount specified in any certificate delivered hereunder, we shall be fully
discharged on our obligation under this Letter of Credit with respect to such draft, and we shall
not thereafter be obligated to make any further payments under this Letter of Credit in respect of
such draft to you or the transferee or to any other person who may have made to you or who makes
to you a demand for payment of principal of or interest on any of the Bonds.

Governing Law

     This Letter of Credit is a documentary credit subject to the International Standby Practices
1998 (the “ISP”). Consistent with the ISP, we will make payments under this Letter of Credit on
the basis of the documents which are hereby required to be presented by the Trustee if and to the
extent that such documents appear on their face to comply with the requirements of this Letter of
Credit, without any duty to investigate the basis or truthfulness of the facts certified by the
Trustee. All non-documentary terms and conditions herein contained are included for purposes of
clarity only and shall be ignored by us in determining compliance by the Trustee with the terms of
this Letter of Credit. This Letter of Credit shall be deemed to be issued under the laws of the
State of Maryland and shall, as to matters not governed by the ISP, be governed by and construed
in accordance with the law of the State of Maryland.

Communications

     Communications with respect to this Letter of Credit shall be in writing and shall be
addressed to us at the address of our offices set forth above (Attention: Letter of Credit
Department specifically referring to the number of this Letter of Credit.)

     We hereby agree with the drawer of a certificate delivered in compliance with the terms of
this Letter of Credit that the same shall be duly honored on presentation to the drawee.

	 	 	 	 	 
	 	Very truly yours,

MANUFACTURERS AND TRADERS TRUST COMPANY

 	 
	 	By:  	___________________
 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 
	 

 

 

Manufacturers and Traders Trust Company

25 South Charles Street

Baltimore, Maryland 21201

Attention: Letter of Credit Department

Irrevocable Transferable Letter of Credit No. SB-904507-0101

Date of Issuance: April 8, 2003

Page 7 of 19

EXHIBIT A

CERTIFICATE FOR PRINCIPAL DRAWING

AND REDUCTION OF STATED AMOUNT

     ALLFIRST TRUST COMPANY NATIONAL ASSOCIATION, as Trustee (the “Trustee”) hereby
certifies to MANUFACTURERS AND TRADERS TRUST COMPANY (the “Bank”), in connection with the Bank’s
Irrevocable Transferable Letter of Credit No. SB-904507-0101 (the “Letter of Credit”) (any
capitalized term used herein and not defined herein shall have its respective meaning as set forth
in the Letter of Credit) issued by the Bank in favor of the Trustee, that:

     (a) The Trustee is the Trustee under the Indenture, is making a drawing under the Letter of
Credit in trust for the Owners of the Bonds with respect to a payment of the principal amount
of the Bonds, and will apply the proceeds of this Principal Drawing only to pay the principal amount
of the Bonds with respect to which this Principal Drawing is made. This Principal Drawing is not
being made for payment of the principal amount of any Pledged Bonds (as defined in the Indenture),
unless, and to the extent that, the Principal Portion has been reinstated following the Bank’s payment of a Bond
Purchase Principal Drawing with respect to such Pledged Bonds.

     (b) DEMAND IS HEREBY MADE UNDER THE LETTER OF CREDIT FOR $                     .

     (c) The principal amount of the Bonds which is due and payable (whether at the stated
maturity or upon redemption), is $                     .

     (d) The maturity of the Bonds has not been accelerated pursuant to the terms and provisions
of the Indenture.

     (e) The amount specified in paragraph (b) above, (i) together with (A) the aggregate amount
of all prior payments made by the Bank pursuant to the Principal Drawings under the Letter of
Credit, plus (B) the aggregate amount of all reductions of the Principal Portion as a result of
payments of principal of the Bonds from sources other than drawings under the Letter of Credit, does not
exceed, in the aggregate, the sum of $                    ; (ii) does not exceed the Principal Portion, which is the amount
available on the date hereof to be drawn under the Letter of Credit with respect to the payment of
the principal amount of the Bonds; and (iii) was computed in accordance with the terms and
conditions of the Bond and the Indenture.

     (f)                     days’ interest at the Maximum Rate (as defined in the Indenture) on the
principal amount of the days’ interest at the Maximum Rate (as defined in the Indenture) on the
principal amount of the Bonds which is due and payable as stated in paragraph (c) above is $                                        .

     (g) Accordingly, effective immediately upon your payment of the amount demanded in this
Certificate, (i) the Principal Portion is automatically and permanently reduced by the amount
set forth in paragraph (b) above, and (ii) the Interest Portion is automatically reduced by the amount set
forth in paragraph (e) above.

     (h) Effective immediately upon your payment of the amount demanded in this
Certificate, the Stated Amount of the Letter of Credit is $                                        , of which Stated Amount
$                                         represents the Principal Portion and $                     represents the Interest Portion.

 

 

Manufacturers and Traders Trust Company

25 South Charles Street

Baltimore, Maryland 21201

Attention: Letter of Credit Department

Irrevocable Transferable Letter of Credit No. SB-904507-0101

Date of Issuance: April 8, 2003

Page 8 of 19

     IN WITNESS WHEREOF, the Trustee has executed and delivered this Certificate as of the                    
day
of                                        ,
                    .

	 	 	 	 	 
	 	ALLFIRST TRUST COMPANY 

NATIONAL
ASSOCIATION, as Trustee

 	 
	 	By:  	__________________
 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 
	 

 

 

Manufacturers and Traders Trust Company

25 South Charles Street

Baltimore, Maryland 21201

Attention: Letter of Credit Department

Irrevocable Transferable Letter of Credit No. SB-904507-0101

Date of Issuance: April 8, 2003

Page 9 of 19

EXHIBIT B

CERTIFICATE FOR INTEREST DRAWING

     ALLFIRST TRUST COMPANY NATIONAL ASSOCIATION, as Trustee (the “Trustee”), hereby
certifies to MANUFACTURERS AND TRADERS TRUST COMPANY (the
“Bank”), in connection with the Bank’s
Irrevocable Transferable Letter of Credit
No. SB-904507-0101_(the “Letter of Credit”) (any
capitalized term used herein and not defined herein shall have its respective meaning as set forth
in the Letter of Credit) issued by the Bank in favor of the Trustee, that:

     (a) The Trustee is the Trustee under the Indenture and, is making a drawing under the Letter
of Credit in trust for the Owners of the Bonds with respect to a payment of the interest on the
outstanding principal amount of the Bonds, and will apply the proceeds of this Interest Drawing solely to
the payment of interest due and payable on the Bonds. This Interest Drawing is being made only to pay
interest which has accrued on the outstanding principal amount of the Bonds on or prior to the applicable due
date for payment of the principal of the Bonds (whether at maturity or upon redemption) and is not
being made to pay any interest that may accrue on the principal of the Bonds after the applicable due date
for payment of such principal.

     (b) DEMAND IS HEREBY MADE UNDER THE LETTER OF CREDIT FOR $                    .

     (c) The maturity of the Bonds has not been accelerated pursuant to the terms and provisions
of the Indenture.

     (d) The amount of interest that is due and payable on the outstanding principal amount of the
Bonds is $                                        .

     (e) The amount specified in paragraph (b) above (i) does not exceed the Interest Portion,
which is the amount available on the date hereof to be drawn under the Letter of Credit with
respect to the payment of interest accrued on or prior to the maturity date of the Bonds on the outstanding
principal amount of the Bonds; and (ii) was computed in accordance with the terms and conditions of the
Bonds and the Indenture.

     IN WITNESS WHEREOF, the Trustee has executed and delivered this Certificate as of the                    
day of                                        ,                     .

	 	 	 	 	 
	 	ALLFIRST TRUST COMPANY 

NATIONAL
ASSOCIATION, as Trustee

 	 
	 	By:  	_________________________
 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 
	 

 

 

Manufacturers and Traders Trust Company

25 South Charles Street

Baltimore, Maryland 21201

Attention: Letter of Credit Department

Irrevocable Transferable Letter of Credit No. SB-904507-0101

Date of Issuance: April 8, 2003

Page 10 of 19

EXHIBIT C

CERTIFICATE FOR ACCELERATION DRAWING (PRINCIPAL AND INTEREST)

     ALLFIRST TRUST COMPANY NATIONAL ASSOCIATION, as Trustee (the “Trustee”), hereby certifies to
MANUFACTURERS AND TRADERS TRUST COMPANY (the “Bank”), in connection with the Bank’s Irrevocable
Transferable Letter of Credit No. SB-904507-0101 (the “Letter of Credit”) (any capitalized term
used herein and not defined herein shall have its respective meaning as set forth in the Letter of
Credit) issued by the Bank in favor of the Trustee, that:

          (a) The Trustee is the Trustee under the Indenture, is making an Acceleration
Drawing under the Letter of Credit in trust for the Owners of the Bonds with respect to a
payment of the principal amount of the Bonds and with respect to a payment of the interest on the outstanding
principal amount of the Bonds, and will apply the proceeds of this Acceleration Drawing solely to the
payment of the principal amount of the Bonds and the interest thereon with respect to which this
Acceleration Drawing is made. This Acceleration Drawing is not being made for payment to the Bank or for
the account of the Bank for the principal amount of any Pledged Bonds (as defined in the Letter of
Credit Agreement) or for interest on any Pledged Bonds.

          (b) DEMAND IS HEREBY MADE UNDER THE LETTER OF CREDIT FOR $                                        
of which $                                         represents a Principal Drawing and $                                        
represents an Interest Drawing.

          (c) The maturity of the Bonds has been accelerated pursuant to the terms and
provisions of the Indenture.

          (d) The principal amount of the Bonds which is due and payable is $                    ,
and the amount of interest that is due and payable on the outstanding principal amount of the Bonds
is $                    , and the amount specified in paragraph (b) above does not exceed the combined total of such
amounts.

          (e) The amount specified in paragraph (b) above representing a Principal Drawing (i)
together with (A) the aggregate amount of all prior payments made by the Bank pursuant to
Principal Drawings under the Letter of Credit, plus (B) the aggregate amount of all reductions of the
Principal Portion as a result of payments of principal of the Bonds from sources other than drawings
under the Letter of Credit, does not exceed, in the aggregate, $                    , (ii) does not exceed the Principal
Portion, which is available on the date hereof to be drawn under the Letter of Credit with respect
to the payment of the principal amount of the Bonds; (iii) does not exceed the amount equal to the
sum of the full amount of the outstanding principal amount of the Bonds; and (iv) was computed in
accordance with the terms and conditions of the Bonds and the Indenture.

          (f) The amount specified in paragraph (b) above representing an Interest Drawing (i)
does not exceed the Interest Portion, which is the amount available on the date hereof to be
drawn under the Letter of Credit with respect to the payment of interest accrued on or prior to the
maturity date of the Bonds on the outstanding principal amount of the Bonds; and (ii) was computed in accordance
with the terms and conditions of the Bonds and the Indenture.

 

 

Manufacturers and Traders Trust Company

25 South Charles Street

Baltimore, Maryland 21201

Attention: Letter of Credit Department

Irrevocable Transferable Letter of Credit No. SB-904507-0101

Date of Issuance: April 8, 2003

Page 11 of 19

          (g) This Acceleration Drawing is being made within any time period required by the
Indenture.

          (h) The Trustee acknowledges that the Letter of Credit will expire when the Bank honors
this Acceleration Drawing.

     IN WITNESS WHEREOF, the Trustee has executed and delivered this Certificate as of                    
the day of                    ,                     .

	 	 	 	 	 
	 	ALLFIRST TRUST COMPANY 

NATIONAL
ASSOCIATION, as Trustee

 	 
	 	By:  	_____________________
 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 
	 

 

 

Manufacturers and Traders Trust Company

25 South Charles Street

Baltimore, Maryland 21201

Attention: Letter of Credit Department

Irrevocable Transferable Letter of Credit No. SB-904507-0101

Date of Issuance: April 8, 2003

Page 12 of 19

EXHIBIT D

CERTIFICATE FOR BOND PURCHASE PRINCIPAL DRAWING

     ALLFIRST TRUST COMPANY NATIONAL ASSOCIATION, as Trustee (the “Trustee”), hereby
certifies to MANUFACTURERS AND TRADERS TRUST COMPANY (the “Bank”), in connection with the Bank’s
Irrevocable Transferable Letter of Credit No. SB-904507-0101 (the “Letter of Credit”) (any
capitalized term used herein and not defined herein shall have its respective meaning as set forth
in the Letter of Credit) issued by the Bank in favor of the Trustee, that:

     (a) The Trustee is the Trustee under the Indenture and (i) is making a drawing under the
Letter of Credit in trust for the Owners of the Bonds to pay that portion of the purchase price of Bonds
Tendered or Deemed Tendered for Purchase (place an [x] in the appropriate space) [                    ] on an Optional Tender
Date pursuant to Section 4.1 of the Indenture, or [                    ] on a Mandatory Tender Date pursuant to
Section 4.2 of the Indenture, which is equal to the principal amount of such Bonds Tendered or
Deemed Tendered for Purchase minus any proceeds of the remarketing and sale of Bonds Tendered or
Deemed Tendered for Purchase on deposit in the Purchase Account (as defined in the Indenture) and
available for the payment of such principal, (ii) will apply the proceeds of this Bond Purchase
Principal Drawing solely to the payment of the purchase price of such Bonds Tendered or Deemed
Tendered for Purchase which is due and payable, and (iii) unconditionally agrees that, within 48
hours after the Bank honors this drawing, the Trustee will deliver, or cause to be delivered, to
the Pledged Bonds Custodian (as defined in the Indenture) Bonds in an aggregate principal amount
equal to the amount specified in paragraph (b) below, registered in such name as the Bank directs.
This Bond Purchase Principal Drawing is not being made to pay any resale discount on any Bonds
being remarketed by the Remarketing Agent. This Bond Purchase Principal Drawing is not being made
for payment of the purchase price of any Pledged Bonds (as defined in the Indenture), unless, and
to the extent that, the Principal Portion has been reinstated following the Bank’s payment of a
previous Bond Purchase Principal Drawing with respect to such Pledged Bonds.

     (b) DEMAND IS HEREBY MADE UNDER THE LETTER OF CREDIT FOR $                    .

     (c) The amount specified in paragraph (b) above does not exceed the principal amount of
Bonds Tendered or Deemed Tendered for Purchase, and with respect to the payment of which the
Trustee does not have proceeds of the remarketing and sale of Bonds Tendered or Deemed Tendered for
Purchase on deposit in the Purchase Account (as defined in the Indenture).

     (d) The amount specified in paragraph (b) above (i) does not exceed the amount of such
portion of the purchase price that is due and payable; (ii) together with (A) the aggregate
amount of all prior payments made by the Bank pursuant to Principal Drawings under the Letter of Credit,
plus (B) the aggregate amount of all reductions of the Principal Portion as a result of payments of
principal of the Bonds from sources other than drawings under the Letter of Credit, does not exceed, in the
aggregate, the sum of $                    ; (iii) does not exceed the Principal Portion, which is the amount available on the
date hereof to be drawn under the Letter of Credit with respect to the payment of that portion of
the purchase price of Bonds Tendered or Deemed Tendered for Purchase which is equal to the
principal amount of such Bonds Tendered or Deemed Tendered for Purchase; and (iv) was computed in
accordance with the terms and conditions of the Bonds and the Indenture.

 

 

Manufacturers and Traders Trust Company

25 South Charles Street

Baltimore, Maryland 21201

Attention: Letter of Credit Department

Irrevocable Transferable Letter of Credit No. SB-904507-0101

Date of Issuance: April 8, 2003

Page 13 of 19

     IN WITNESS WHEREOF, the Trustee has executed and delivered this Certificate as of the
                     day of                     ,             .

	 	 	 	 	 	 	 
	 	 	ALLFIRST TRUST COMPANY

NATIONAL ASSOCIATION, as Trustee	 	 
	 
	 	 	 	 	 	 
	

	 	By:	 	 	 	 
	

	 	 	 	 	 	 
	

	 	 	 	Name:	 	 
	

	 	 	 	Title:	 	 

 

 

Manufacturers and Traders Trust Company

25 South Charles Street

Baltimore, Maryland 21201

Attention: Letter of Credit Department

Irrevocable Transferable Letter of Credit No. SB-904507-0101

Date of Issuance: April 8, 2003

Page 14 of 19

EXHIBIT E

CERTIFICATE FOR BOND PURCHASE INTEREST DRAWING

     ALLFIRST TRUST COMPANY NATIONAL ASSOCIATION, as Trustee (the “Trustee”), hereby
certifies to MANUFACTURERS AND TRADERS TRUST COMPANY (the “Bank”), in connection with the Bank’s
Irrevocable Transferable Letter of Credit No. SB-904507-0101 (the “Letter of Credit”) (any
capitalized term used herein and not defined herein shall have its respective meaning as set forth
in the Letter of Credit) issued by the Bank in favor of the Trustee, that:

     (a) The Trustee is the Trustee under the Indenture and (i) is making a drawing under the
Letter of Credit in trust for the Owners of the Bonds to pay that portion of the purchase price of Bonds
Tendered or Deemed Tendered for Purchase (place an [x] in the appropriate space) [                    ] on an Optional Tender
Date pursuant to Section 4.1 of the Indenture, or [                    ] on a Mandatory Tender Date pursuant to
Section 4.2 of the Indenture, which is equal to the amount of accrued and unpaid interest on such
Bonds Tendered or Deemed Tendered for Purchase to the date of purchase thereof minus any proceeds
of the remarketing and sale of Bonds Tendered or Deemed Tendered for Purchase on deposit in the
Purchase Account (as defined in the Indenture) and available for payment of such interest, and (ii)
will apply the proceeds of this Bond Purchase Interest Drawing solely to the payment of accrued and
unpaid interest on such Bonds Tendered or Deemed Tendered for Purchase. This Bond Purchase Interest
Drawing is being made only to pay interest which has accrued on the outstanding principal amount of
the Bonds on or prior to the applicable due date for payment of the principal of the Bonds (whether
at maturity or upon redemption, acceleration of maturity or otherwise) and is not being made to pay
any interest that may accrue on the principal of the Bonds after the applicable due date for
payment of such principal. This Bond Purchase Interest Drawing is not being made to pay any resale
discount on any Bonds being remarketed by the Remarketing Agent.

     (b) DEMAND IS HEREBY MADE UNDER THE LETTER OF CREDIT FOR $                    .

     (c) The amount specified in paragraph (b) above is $                     which amount does not
exceed the amount of interest that has accrued on the outstanding principal amount of Bonds
Tendered or Deemed Tendered for Purchase, and with respect to the payment of which the Trustee does
not have proceeds of the remarketing and sale of Bonds Tendered or Deemed Tendered for Purchase on
deposit in the Purchase Account (as defined in the Indenture).

     (d) The amount specified in paragraph (b) above (i) does not exceed the amount of such
portion of the purchase price that is due and payable; (ii) does not exceed the Interest
Portion, which is the amount available on the date hereof to be drawn under the Letter of Credit with respect to the
payment of interest accrued on or prior to the maturity date of the Bonds on the outstanding principal
amount of the Bonds; and (iii) was computed in accordance with the terms and conditions of the Bonds and the
Indenture.

 

 

Manufacturers and Traders Trust Company

25 South Charles Street

Baltimore, Maryland 21201

Attention: Letter of Credit Department

Irrevocable Transferable Letter of Credit No. SB-904507-0101

Date of Issuance: April 8, 2003

Page 15 of 19

     IN WITNESS WHEREOF, the Trustee has executed and delivered this Certificate as of the                     
day of                     ,                     .

	 	 	 	 	 	 	 
	 	 	ALLFIRST TRUST COMPANY 
NATIONAL
ASSOCIATION, as Trustee	 	 
	 
	 	 	 	 	 	 
	

	 	By:	 	 	 	 
	

	 	 	 	 	 	 
	

	 	 	 	Name:	 	 
	

	 	 	 	Title	 	 

 

 

Manufacturers and Traders Trust Company

25 South Charles Street

Baltimore, Maryland 21201

Attention: Letter of Credit Department

Irrevocable Transferable Letter of Credit No. SB-904507-0101

Date of Issuance: April 8, 2003

Page 16 of 19

EXHIBIT F

CERTIFICATE FOR INCREASE/DECREASE OF INTEREST PORTION

     MANUFACTURERS AND TRADERS TRUST COMPANY (the “Bank”) hereby certifies to ALLFIRST
TRUST COMPANY NATIONAL ASSOCIATION, as Trustee (the “Trustee”), in connection with the Bank’s
Irrevocable Transferable Letter of Credit No. SB-904507-0101 (the “Letter of Credit”) (any
capitalized term used herein and not defined herein shall have its respective meaning as set forth
in the Letter of Credit) issued by the Bank in favor of the Trustee, that:

     (a) The Bank has approved an [increase] [decrease] in the [CHECK APPROPRIATE SPACE]

	 	   	                     Maximum Rate (as defined in the Indenture).
	 
	 	   	                     Number of days of accrued interest covered by
the Letter of Credit.

     (b) The Maximum Rate in effect as of the date of this Certificate is    % per annum.

     (c) The number of days of accrued interest covered by the Letter of Credit as of the date of
this Certificate is                      days.

     (d)                      days’ interest at the Maximum Rate set forth in paragraph (b) above on $                    , which is the outstanding principal amount of the Bonds as of the date of this Certificate,
is $                    .

     (e) Accordingly, effective immediately, the Stated Amount of the Letter of Credit is
$                                        , of which Stated Amount $                     represents the Principal Portion and
$                     represents the Interest Portion.

     IN WITNESS WHEREOF, the Bank has executed and delivered this Certificate as of the
                     day of             ,             .

	 	 	 	 	 	 	 
	 	 	MANUFACTURERS AND TRADERS
 TRUST COMPANY	 	 
	 
	 	 	 	 	 	 
	

	 	By:	 	 	 	 
	

	 	 	 	 	 	 
	

	 	 	 	Name:	 	 
	

	 	 	 	Title:	 	 

	 	 	 	 	 
	APPROVED:	 	 
	 
	 	 	 	 
	AVALON PHARMACEUTICALS, INC., as Borrower	 	 
	 
	 	 	 	 
	By:
	 	 	 	 
	

	 	 	 	 
	

	 	Name:	 	 
	

	 	Title:	 	 

 

 

Manufacturers and Traders Trust Company

25 South Charles Street

Baltimore, Maryland 21201

Attention: Letter of Credit Department

Irrevocable Transferable Letter of Credit No. SB-904507-0101

Date of Issuance: April 8, 2003

Page 17 of 19

EXHIBIT G

CERTIFICATE AS TO FINAL PAYMENT

     ALLFIRST TRUST COMPANY NATIONAL ASSOCIATION, as Trustee (the “Trustee”), and AVALON
PHARMACEUTICALS, INC. (the “Borrower”), hereby certify to MANUFACTURERS AND TRADERS TRUST COMPANY
(the “Bank”), in connection with the Bank’s Irrevocable Transferable Letter of Credit No.
SB-904507-0101 (the “Letter of Credit”) (any capitalized term used herein and not defined herein
shall have its respective meaning as set forth in the Letter of Credit) issued by the Bank in
favor of the Trustee, that:

     (a) The Trustee is the Trustee under the Indenture, and the Borrower is the Borrower under
the Bond Documents (as defined in the Indenture) and under the Letter of Credit Agreement.

     (b) The principal amount of all of the Bonds has been paid in full in accordance with the
provisions of the Indenture (or Available Monies (as defined in the Indenture) on deposit with
Trustee sufficient to defease Bonds).

     (c) Accordingly, the Letter of Credit expires on the date of this Certificate and the Trustee
is surrendering the Letter of Credit to the Bank herewith for cancellation.

     IN WITNESS WHEREOF, the Trustee and the Borrower have each executed and delivered this
Certificate  as of                      day of             ,             .

	 	 	 	 	 
	AVALON PHARMACEUTICALS, INC., 
as Borrower	 	 
	 
	 	 	 	 
	By:
	 	 	 	 
	

	 	 	 	 
	

	 	Name:	 	 
	

	 	Title	 	 

	 	 	 	 	 
	ALLFIRST TRUST COMPANY 
NATIONAL ASSOCIATION, as Trustee	 	 
	 
	 	 	 	 
	By:
	 	 	 	 
	

	 	 	 	 
	

	 	Name:	 	 
	

	 	Title	 	 

 

 

Manufacturers and Traders Trust Company

25 South Charles Street

Baltimore, Maryland 21201

Attention: Letter of Credit Department

Irrevocable Transferable Letter of Credit No. SB-904507-0101

Date of Issuance: April 8, 2003

Page 18 of 19

EXHIBIT H

CERTIFICATE AS TO ACCEPTANCE OF SUBSTITUTE CREDIT FACILITY

     ALLFIRST TRUST COMPANY NATIONAL ASSOCIATION, as Trustee (the “Trustee”), and AVALON
PHARMACEUTICALS, INC. (the “Borrower”), hereby certify to MANUFACTURERS AND TRADERS TRUST COMPANY
(the “Bank”), in connection with the Bank’s Irrevocable Transferable Letter of Credit No.
SB-904507-0101 (the “Letter of Credit”) (any capitalized term used herein and not defined herein
shall have its respective meaning as set forth in the Letter of Credit) issued by the Bank in
favor of the Trustee, that:

     (a) The Trustee is the Trustee under the Indenture, and the Borrower is the Borrower under the
Bond Documents (as defined in the Indenture) and under the Letter of Credit Agreement.

     (b) All conditions precedent to the acceptance of a Substitute Credit Facility (as defined in
the Indenture) set forth in Section 5.7(b) of the Indenture have been satisfied.

     (c) As Trustee under the Indenture, on                                         ,             , the Trustee accepted
such Substitute Credit Facility.

     (d) Accordingly, the Letter of Credit expires three Business Days after such date.

     (e) Pursuant to the Indenture, the Trustee will deliver the Letter of Credit to the Bank for
cancellation by the close of business on the third Business Day after such date.

     IN WITNESS WHEREOF, the Trustee and the Borrower have executed and delivered to this
Certificate as of the                      day of                     ,            .

	 	 	 	 	 
	AVALON PHARMACEUTICALS, INC., 
as Borrower	 	 
	 
	 	 	 	 
	By:
	 	 	 	 
	

	 	 	 	 
	

	 	Name:	 	 
	

	 	Title	 	 

	 	 	 	 	 
	ALLFIRST TRUST COMPANY NATIONAL
ASSOCIATION, as Trustee	 	 
	 
	 	 	 	 
	By:
	 	 	 	 
	

	 	 	 	 
	

	 	Name:	 	 
	

	 	Title	 	 

 

 

Manufacturers and Traders Trust Company

25 South Charles Street

Baltimore, Maryland 21201

Attention: Letter of Credit Department

Irrevocable Transferable Letter of Credit No. SB-904507-0101

Date of Issuance: April 8, 2003

Page 19 of 19

EXHIBIT I

TRANSFER OF RIGHTS TO DRAW UNDER LETTER OF CREDIT

	 	 	 
	To:

	 	Manufacturers and Traders Trust Company
	

	 	Attention:                                         
	

	 	25 S. Charles Street, 15th Floor, Suite 1501
	

	 	Baltimore, Maryland 21201

Re: Manufacturers and Traders Trust Company, Irrevocable Transferable Letter of Credit No.
SB-904507-0101

For value received, the undersigned beneficiary hereby irrevocably transfers to:

	 	 	 	 	 
	

	 	 	 	 
	

	 	(Name of Transferee)
	 	 
	 
	 	 	 	 
	

	 	 	 	 
	 
	 	 	 	 
	

	 	 	 	 
	

	 	(Address)	 	 

all rights (in their entirety) of the undersigned beneficiary to draw under the above
Letter of Credit.

     The transferee has succeeded the undersigned as Trustee under the Trust Indenture entered
into between MARYLAND INDUSTRIAL DEVELOPMENT FINANCING AUTHORITY and ALLFIRST TRUST COMPANY
NATIONAL ASSOCIATION, as Trustee, dated as of April 1, 2003.

     By this transfer, all rights of the undersigned beneficiary in the Letter of Credit are
transferred to the transferee, and the transferee shall have the sole rights as beneficiary
thereof, including sole rights relating to any amendments, whether increases or extensions or
other amendments and whether now existing or hereafter made. All amendments are to be advised
directly to the transferee without necessity of any consent of or notice to the undersigned
beneficiary.

     The original of the Letter of Credit is returned herewith, and we ask you to endorse the
transfer on the reverse hereof, and forward it directly to the transferee with your customary
notice of transfer at which time (and not before) this transfer will become effective.

     Enclosed is payment of the transfer charge in the amount of $                     .

     IN WITNESS WHEREOF, the undersigned beneficiary has executed and delivered this Transfer
as of the                      day of                     ,                     .

	 	 	 	 	 	 	 
	 	 	ALLFIRST TRUST COMPANY 
NATIONAL ASSOCIATION, as Trustee	 	 
	 
	 	 	 	 	 	 
	

	 	By:	 	 	 	 
	

	 	 	 	 	 	 
	

	 	 	 	Name:	 	 
	

	 	 	 	Title	 	 

 

 

EXHIBIT B

REQUIRED POST CLOSING DOCUMENTS

	1.  	Lien releases from each subcontractor, materialman and mechanic for amounts that have
been paid to such subcontractor, materialman and mechanic.
	 
	2.  	Swap Agreement.
	 
	3.  	Serial numbers or other identifying information for all equipment listed on Exhibit A to the
Security Agreement.
	 
	4.  	Certified copy of the Articles of Incorporation of the Borrower from the State of Delaware.

 

 

EXHIBIT C

ARCHITECT CERTIFICATE

 

 

EXHIBIT D

CONTRACTOR CERTIFICATE

 

 

SCHEDULE A

ANNUAL REDUCTION OF STATED AMOUNT

	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	REDUCTION	 	 	REMAINING PRINCIPAL	 
	 	DATE	 	 	AMOUNT	 	 	PORTION	 
	 	April 1, 2004

	 	 	$	1,200,000	 	 	 	$	10,800,000	 	 
	 	April 1, 2005

	 	 	$	1,200,000	 	 	 	$	9,600,000	 	 
	 	April 1, 2006

	 	 	$	1,200,000	 	 	 	$	8,400,000	 	 
	 	April 1, 2007

	 	 	$	1,200,000	 	 	 	$	7,200,000	 	 
	 

 

 

LETTER OF CREDIT AGREEMENT

SCHEDULE 7.1(z)

REDEMPTIONS

	 	 	 	 	 	 	 	 	 
	 	 	Authorized	 	 	Issued	 
	Series A redeemable convertible preferred stock
	 	 	6,000,000	 	 	 	5,577,500	 
	 
	 	 	 	 	 	 	 	 
	Series B redeemable convertible preferred stock
	 	 	23,000,000	 	 	 	20,126,997	 
	 
	 	 	 	 	 	 	 	 
	Undesignated preferred stock
	 	 	2,000,000	 	 	 	—	 
	 
	 	 	 	 	 	 	 	 
	Series B purchase stock warrants:
	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	GATX Ventures, Inc.
	 	 	 	 	 	 	20,000	 
	 
	 	 	 	 	 	 	 	 
	Array Capital
	 	 	 	 	 	 	1,543,795	 
	 
	 	 	 	 	 	 	 	 
	General Electric Capital Corporation
	 	 	 	 	 	 	14,943	 
	 
	 	 	 	 	 	 	 	 
	General Electric Capital Corporation
	 	 	 	 	 	 	10,095	 

Series A Redeemble Convertible Preferred Stock:

In October 2006, the holders of Series A Preferred Stock have the right to call their shares
for
redemption based upon the request of at least 60% of the then-outstanding shares of Series A
Preferred Stock. The redemption would take place in three equal installments in October 2006,
February 2007, and February 2008. The redemption price, subject to certain equitable
adjustments and antidilution protections, shall be equal to $2.00 per share, plus all accrued but
unpaid dividends. No share of Series A Preferred Stock can be redeemed unless all shares of
Series B Preferred Stock are first redeemed.

Series B Redeemble Convertible Preferred Stock:

In October 2006, the holders of the Series B Preferred Stock have the right to call for
redemption
of their shares based upon the request of at least 60% of the then-outstanding shares of Series B
Preferred Stock. The redemption price, subject to certain equitable adjustments and antidilution
protections, shall be the greater of $3.5276 per share, plus all accrued but unpaid dividends or
110% of the fair market value of a share of Series B Preferred Stock, as defined.

State of Maryland Requirements:

The company entered into an agreement with a Series A and B preferred stockholder that
requires
the Company to repurchase any and all of the stockholder’s 125,000 shares of Series A Preferred
Stock and 70,870 shares of Series B Preferred Stock, should the Company relocate its principle
place of business outside the state of Maryland prior to March 2005 or if the Company or its
executives are convicted of a felony. The repurchase price shall be equal to the greater of the
fair
market value of the shares, as defined, or 110% of the original purchase price.

 

 

SCHEDULE 8.2(a)

EXEMPTIONS TO TITLE

 

 

LETTER OF CREDIT AGREEMENT

SCHEDULE 8.2(a)

TIME OF COMPLETION

Names and Addresses of Subcontractors With Amounts Outstanding as of 4/7/03

in Connection with Services Rendered or to be Rendered at Project

at 20358 Seneca Meadows Parkway, Germantown, MD 20876

of Avalon Pharmaceuticals, Inc.*

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	Company Name	 	 	Address	 	 	City	 	 	State	 	 	 	Postal Code	 	 	First Name	 	 	Last Name	 	 	Phone	 
	 	Homewood General Contractors

	 	 	9710 Monroe Street
	 	 	Cockeysville
	 	 	MD
	 	 	 	21030	 	 	 	Paul
	 	 	Mallonee
	 	 	410-628-8996	 
	 	Eastern Glass & Glazing, Inc.

	 	 	1930 E. Baltimore Street
	 	 	Baltimore
	 	 	MD
	 	 	 	21224	 	 	 	Tom
	 	 	Healy
	 	 	410-282-2770	 
	 	Leonard A. Kraus Co., Inc.

	 	 	800 Race Road
	 	 	Baltimore
	 	 	MD
	 	 	 	21221	 	 	 	Mike
	 	 	Kraus
	 	 	410-391-8020	 
	 	Frederick Tile Inc.

	 	 	305 Pine Avenue
	 	 	Frederick
	 	 	MD
	 	 	 	21702	 	 	 	Bill
	 	 	Miles
	 	 	301-662-4944	 
	 	Life Science Products

	 	 	105 Dixon Drive
	 	 	Chestertown
	 	 	MD
	 	 	 	21620	 	 	 	Mark
	 	 	Smith
	 	 	410-778-6474	 
	 	Highson Company, Inc.

	 	 	5513 Vine Street
	 	 	Alexandria
	 	 	VA
	 	 	 	22310	 	 	 	Jim
	 	 	Doherty
	 	 	703-971-5200	 
	 	VWR International, Inc.

	 	 	3021 Gateway Drive, Suite 280
	 	 	Irving
	 	 	TX
	 	 	 	75063	 	 	 	Dave
	 	 	Reid
	 	 	443-562-3223	 
	 	Consolidated Stills and Sterilizers

	 	 	76 Ashford Street
	 	 	Boston
	 	 	MA
	 	 	 	02134	 	 	 	Kim
	 	 	Shephard
	 	 	617-782-6072	 
	 	Steris Corporation

	 	 	5960 Heisley Road
	 	 	Mentor
	 	 	OH
	 	 	 	44060	 	 	 	Ed
	 	 	Rodick
	 	 	800-444-9009	 
	 	Thyssen Krupp Elevator

	 	 	601 Nursery Road
	 	 	Linthicum
	 	 	MD
	 	 	 	21090	 	 	 	Jim
	 	 	Turner
	 	 	410-636-3232	 
	 	Helfron Company

	 	 	4940 Nicholson Court
	 	 	Kensington
	 	 	MD
	 	 	 	20895	 	 	 	Tom
	 	 	Sullivan
	 	 	301-816-2088	 
	 	The Fireguard Corporation

	 	 	200 Ritchie Road
	 	 	Capital Heights
	 	 	MD
	 	 	 	20743	 	 	 	Mark
	 	 	Frank
	 	 	301-350-4700	 
	 	HYDRO Service & Supplies, Inc.

	 	 	5609 Kraft Drive
	 	 	Rockville
	 	 	MD
	 	 	 	20852	 	 	 	Joe
	 	 	Hutchison
	 	 	301-770-2120	 
	 	F.B. Harding, Inc.

	 	 	405 East Gude Drive, Suite 12
	 	 	Rockville
	 	 	MD
	 	 	 	20850	 	 	 	Art
	 	 	Lohsea
	 	 	301-315-0900	 
	 	ADT Security Services, Inc.

	 	 	2-8 Metropolitan Court
	 	 	Gaithersburg
	 	 	MD
	 	 	 	20878	 	 	 	Mike
	 	 	Tooney
	 	 	301-212-8803	 
	 	GDS Equipment Rental, Inc.

	 	 	4665 Huntingtown Road
	 	 	Huntingtown
	 	 	MD
	 	 	 	20639	 	 	 	Gary
	 	 	Sydoor
	 	 	301-855-1966	 
	 	Partition Plus, Inc.

	 	 	P.O. Box 8
	 	 	Fallston
	 	 	MD
	 	 	 	21047	 	 	 	David
	 	 	Gross
	 	 	410-879-6200	 
	 	AEGIS Applied Films

	 	 	3135 Medlock Bridge Road
	 	 	Norcross
	 	 	GA
	 	 	 	30071	 	 	 	Walt
	 	 	Goode
	 	 	800-438-8468	 
	 	ECS, Ltd.

	 	 	5103 Pegasus Court, Suite K
	 	 	Frederick
	 	 	MD
	 	 	 	21704	 	 	 	Jeffrey
	 	 	Castonguay
	 	 	301-668-4303	 
	 	Artic Fireproofing, Inc.

	 	 	7130 Kit Kat Road, Suite B
	 	 	Elkridge
	 	 	MD
	 	 	 	21075	 	 	 	Rush
	 	 	Fleshman
	 	 	410-779-4453	 
	 	Overhead Door Co. of Washington, DC

	 	 	6841 Distribution Drive
	 	 	Beltsville
	 	 	MD
	 	 	 	20705	 	 	 	Randy
	 	 	Renninger
	 	 	301-937-1800	 
	 	The Blind Shop

	 	 	P.O. Box 7059
	 	 	Gaithersburg
	 	 	MD
	 	 	 	20898	 	 	 	Jules	 	 	 	 	 	 	 
	 	Digging & Rigging, Inc.

	 	 	23924 Frederick Road
	 	 	Clarksburg
	 	 	MD
	 	 	 	20871	 	 	 	Warren
	 	 	Sirk
	 	 	301-972-4470	 
	 	Customized-Fit, Inc.

	 	 	4507 Grenoble Court
	 	 	Rockville
	 	 	MD
	 	 	 	20853	 	 	 	Lindsay
	 	 	Sikes
	 	 	301-933-1065	 
	 	Long Fence

	 	 	2520 Urbana Pike
	 	 	Ijamsville
	 	 	MD
	 	 	 	21754	 	 	 	Sheila
	 	 	Emikovich
	 	 	301-662-1600	 
	 

DNAK6715.doc

	*Please see General Contractor’s Certificate and Architect’s Certificate relating to
amounts outstanding to them as of 4/8/03.

 

 

LETTER OF CREDIT AGREEMENT

Schedule 11.1(e)

Borrowing

Indebtedness existing as of Closing Date includes:

	 	 	 	 	 	 	 
	•

	 	GE Capital Corporation Line of Credit
	 	$	5,000,000	 
	 
	 	 	 	 	 	 
	•

	 	GATX Ventures, Inc. Line of Credit
	 	$	652,840	 

The existing indebtedness stated above does not include trade payables, accrued payroll
expense or indebtedness relating to Series A or Series B redeemable convertible
preferred stock.

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