Document:

Representation and Indemnification Agreement

 Exhibit 10.3 
  

  
 REPRESENTATION AND INDEMNIFICATION AGREEMENT 
  
 by
and among 
  
 ENTEGRA POWER GROUP LLC, UNION POWER LLC, GILA RIVER
POWER LLC 
 AND TRANS-UNION PIPELINE LLC 
  
 as “Transferees” 
  
 and 
  
 TECO ENERGY, INC. 
  
 Dated: June 1, 2005 
  

 TABLE OF CONTENTS 
  

					
	 	  	 	  	Page

	ARTICLE I. DEFINITIONS	  	2
			
	 	  	 1.1      Defined Terms
	  	2
	 	  	 1.2      Construction
	  	5
		
	 ARTICLE II. REPRESENTATIONS AND WARRANTIES OF TECO
	  	5
			
	 	  	 2.1      Organization
	  	6
	 	  	 2.2      Authorization
	  	6
	 	  	 2.3      No Conflict or Violation
	  	6
	 	  	 2.4      Compliance with Law
	  	6
	 	  	 2.5      Taxes
	  	6
	 	  	 2.6      Employees and Employee Benefits
	  	7
	 	  	 2.7      Intellectual Property
	  	8
	 	  	 2.8      Full Disclosure
	  	8
	 	  	 2.9      Sufficiency of Assets
	  	8
	 	  	 2.10    Senior Executives’ Knowledge of Breach
	  	8
		
	ARTICLE III. REPRESENTATIONS AND WARRANTIES OF THE TRANSFEREES	  	8
			
	 	  	 3.1      Organization
	  	9
	 	  	 3.2      Authorization
	  	9
	 	  	 3.3      No Conflict or Violation
	  	9
		
	ARTICLE IV. SURVIVAL; INDEMNIFICATION	  	9
			
	 	  	 4.1      Survival Period
	  	9
	 	  	 4.2      Indemnification
	  	9
	 	  	 4.3      Indemnification Procedures
	  	10
	 	  	 4.4      Limitation of Liability
	  	11
	 	  	 4.5      Other Matters
	  	12
		
	ARTICLE V. MISCELLANEOUS	  	13
			
	 	  	 5.1      Assignment
	  	13
	 	  	 5.2      Notices
	  	13
	 	  	 5.3      Choice of Law; Service of Process; Venue
	  	14
	 	  	 5.4      Effectiveness; Entire Agreement; Amendments and Waivers
	  	15
	 	  	 5.5      Multiple Counterparts
	  	15
	 	  	 5.6      Invalidity
	  	16
	 	  	 5.7      Titles; Currency; Schedules
	  	16
	 	  	 5.8      Representation of Counsel; Mutual Negotiation
	  	16
	 	  	 5.9      No Third Party Beneficiaries
	  	16
	 	  	 5.10    Time of Essence
	  	16

  

 ii 

 EXHIBITS 
  

			
	Exhibit A	  	 DISCLOSURE SCHEDULE (See Below)

  
 DISCLOSURE SCHEDULE ITEMS

  

			
	Schedule 1.1	 	EXCEPTIONS TO MATERIAL ADVERSE EFFECT
	Schedule 2.6(a)(i)	 	TECO PROJECT EMPLOYEE INFORMATION
	Schedule 2.6(a)(ii)	 	SEVERANCE BENEFITS; ACCELERATION OF PAYMENTS OR VESTING
	Schedule 2.10	 	SENIOR EXECUTIVES’ KNOWLEDGE OF BREACH
	Schedule 4.2(a)	 	EXISTING TECO SHAREHOLDER CLASS ACTIONS

 REPRESENTATION AND INDEMNIFICATION AGREEMENT 
  
 This REPRESENTATION AND INDEMNIFICATION AGREEMENT (this
“Agreement”), dated as of June 1, 2005, is made by and among ENTEGRA POWER GROUP LLC, a Delaware limited liability company (“Entegra Power Group”), UNION POWER LLC, a Delaware limited liability company
(“Union Power LLC”), GILA RIVER POWER LLC, a Delaware limited liability company (“Gila River Power”), TRANS-UNION PIPELINE LLC, a Delaware limited liability company (“Trans-Union Pipeline LLC” and together
with Entegra Power Group, Union Power LLC, and Gila River Power, the “Transferees”), and TECO ENERGY, INC., a Florida corporation (“TECO”). 
  
 RECITALS 
  
 I. Ownership 
  
 WHEREAS, Union Power Partners, L.P., a Delaware limited partnership (“Union Power”), owns and operates an approximately
2,205 megawatt combined cycle natural gas fired generating facility located in Union County, Arkansas (the “Union Power Facility”); 
  
 WHEREAS, Panda Gila River L.P., a Delaware limited partnership (“Gila River”), owns and operates an approximately 2,145
megawatt combined cycle natural gas fired generating facility located in Gila Bend, Arizona (the “Gila River Facility”); 
  
 WHEREAS, Trans-Union Interstate Pipeline, L.P., a Delaware limited partnership (“Trans-Union”, and, together with Union
Power and Gila River, the “Companies”), owns and operates an approximately 42 mile interstate natural gas pipeline interconnecting the Union Power Facility to the Sharon, Louisiana Compressor Station which is connected to the
natural gas supply pipelines owned and operated by Texas Gas Transmission Corporation (the “Trans-Union Pipeline”, and together with the Union Power Facility and the Gila River Facility, the “Facilities”);

  
 WHEREAS, each of the Companies is a
wholly-owned direct or indirect subsidiary of TECO; 
  
 II. Loan Documents

  
 WHEREAS, Union Power is a party to
that certain Union Power Project Credit Agreement, dated as of May 31, 2001, among Union Power, the other Persons named as lenders therein (the “Union Power Banks”), Citibank, N.A., as Administrative Agent (in such capacity, the
“Union Power Administrative Agent”), and Societe Generale, as LC Bank, as amended from time to time (the “UPP Credit Agreement”), under which principal in the amount of $685,371,540 is currently outstanding
(together with interest, fees and other outstanding obligations, the “Existing Union Debt”); 
  
 WHEREAS, Gila River is a party to that certain Gila River Project Credit Agreement, dated as of May 31, 2001, among Gila River, the other
Persons named as lenders therein (the “Gila River Banks” and together with the Union Power Banks, the “Banks”), 

  

 1 

 
Citibank, N.A., as Administrative Agent (in such capacity, the “Gila River Administrative Agent”), and Societe Generale, as LC Bank, as
amended from time to time (the “Gila River Credit Agreement”), under which principal in the amount of $777,783,494 is currently outstanding (together with interest, fees and other outstanding obligations, the “Existing Gila
River Debt”); 
  
 WHEREAS, pursuant to the
terms of that certain Master Settlement Agreement and Restructuring Support Agreement dated as of January 24, 2005 (as amended, supplemented, amended and restated or otherwise modified from time to time, the “Settlement Agreement”),
TECO has agreed to enter into this Agreement with the Transferees ; 
  
 AGREEMENT 
  
 NOW,
THEREFORE, in consideration of the mutual covenants and promises contained herein, and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto agree as follows: 
  
 ARTICLE I. 
 DEFINITIONS 
  
 1.1 Defined Terms. Unless otherwise defined herein, capitalized terms used herein shall have the meanings ascribed thereto in the Credit Documents (as defined below). As used herein, the terms below shall have the following meanings:

  
 “Affiliate” shall mean, with respect to any
Person, any other Person that directly, or indirectly through one or more intermediaries, controls, is controlled by or is under common control with the Person specified, or who holds or beneficially owns 10% or more of the equity interest in the
Person specified or 10% or more of any class of voting securities of the Person specified. When used with respect to any Company, “Affiliate” shall include each partner and any affiliate of any partner (other than such Company).

  
 “Code” shall mean the Internal Revenue Code
of 1986, as amended, and the regulations thereunder. 
  
 “Companies” is defined in the introductory paragraph of this Agreement. 
  
 “Controlled Group” shall mean all members of a controlled group of corporations and all trades or businesses (whether or not
incorporated) under common control which, together with any Company, are treated as a single employer under Section 414(b), (c), (m) or (o) of the Code. 
  

“Credit Documents” shall mean the UPP Credit Documents and Gila River Credit Documents. 
  
 “ERISA” shall mean the Employee Retirement Income Security
Act of 1974, as amended, and the regulations issued thereunder. 
  

 2 

 “ERISA Plan” shall mean (a) any employee benefit plan (as defined in Section 3(3) of
ERISA) maintained by the Companies or any member of their respective Controlled Groups, or to which any of them contributes or is obligated to contribute, for its employees, and (b) each other bonus, deferred compensation, severance or termination
pay, supplemental unemployment, profit sharing or other fringe benefit plan, program or arrangement applicable to TECO Project Employees. 
  
 “GAAP” shall mean generally accepted accounting principles in the United States consistently applied. 
  
 “Gila River Credit Documents” means the Credit Documents as
defined in the Gila River Credit Agreement. 
  
 “Governmental Authority” shall mean any federal, state, local or foreign government, court of competent jurisdiction, or other regulatory, administrative or governmental agency, authority or instrumentality. 
  
 “Intellectual Property” shall mean all patents, trademarks,
tradenames, service marks, copyrights, software, domain names, or registrations or pending applications thereto, and any other such rights or adequate licenses therein that are owned or licensed for use by the Companies, or in which the Companies
have any rights or obligations, or are bound in any way. 
  
 “Knowledge” shall mean, (i) with respect to a named individual, the actual knowledge of such individual after reasonable inquiry of those individuals likely to have knowledge of the relevant facts and those individuals
likely to have knowledge of the Disclosed Information (as defined in Section 2.8) or (ii) with respect to an entity, the actual knowledge of an officer or director of such entity after reasonable inquiry of those individuals likely to have knowledge
of the relevant facts and those individuals likely to have knowledge of the Disclosed Information. 
  
 “Lien” shall mean any mortgage, deed of trust, lien, pledge, charge, security interest, option, right of first refusal, or easement or
encumbrance of any kind, whether or not filed, recorded, or otherwise perfected or effective under applicable law, as well as the interest of a vendor or lessor under any conditional sale agreement, capital lease or other title retention agreement
relating to such asset. 
  
 “Material Adverse
Effect” shall mean a material adverse effect on the condition (financial or otherwise), operations (financial or otherwise), earnings, business or assets of any Company, whether or not occurring in the ordinary course of business;
provided, however, that Material Adverse Effect shall exclude any change or effect due to (a) the negotiation, execution, announcement of this Agreement and the transfer of the Interests to the Transferees contemplated hereby,
including the impact thereof on relationships, contractual or otherwise, with customers, suppliers or distributors, (b) any action taken by TECO or any of its representatives or Affiliates that is expressly required by the terms of this Agreement or
expressly permitted by the terms of this Agreement, (c) the general state of the electric power generating industry, except for such effects that disproportionately affect any Company, (d) general economic conditions, except for such changes or
effects which disproportionately affect any Company, and (e) any matters as and to the extent described in Schedule 1.1 of the Disclosure Schedule hereto. 
  

 3 

 “Organizational Documents” shall mean, with respect to any Company or the Union Finance
Subsidiary, the certificate of formation or limited partnership, and partnership agreement or limited liability company agreement of such Company or the Union Finance Subsidiary, as applicable, and all amendments thereto. 
  
 “Permits” shall mean all licenses, permits, franchises,
approvals, authorizations, or consents or orders of, any Governmental Authority, whether foreign, federal, state or local, required for conduct of the business of the Companies, or the operation of the Facilities or the ownership of the assets of
the Companies. 
  
 “Permitted Liens” shall mean
any Liens granted pursuant to the Credit Documents. 
  
 “Person” shall mean any individual, corporation, partnership, joint venture, association, joint stock company, trust, unincorporated organization, limited liability company or government or other entity. 
  
 “Senior Executives” shall mean the Senior Vice President and
General Counsel, the Executive Vice President and Chief Financial Officer, and the Vice President and Treasurer of TECO, as of the date of this Agreement. 
  
 “Tax(es)” shall mean any and all taxes, charges, levies, impositions, tariffs, duties, fees or other assessments of any kind (together
with any and all interest, penalties, additions to tax or additional amounts imposed with respect thereto) imposed by any Tax authority or other Governmental Authority, including, without limitation, income, service, license, net worth, payroll,
employment, unemployment, workers’ compensation, withholding, retirement, social security, sales, use, value-added, excise, franchise, gross receipts, profits, capital stock, compensation, occupation, real and personal property, ad valorem,
environmental, stamp, transfer and recording taxes, and shall include any liability for Taxes of any other Person pursuant to Treasury Regulation Section 1.1502-6 (or any similar provision of state, local or foreign law) or as a transferee,
successor, by contract or otherwise. 
  
 “TECO Project
Employees” shall mean each employee of TECO or any affiliate thereof who works for or whose primary duties involve performance of services for the Companies or a Facility. 
  
 “Union Finance Subsidiary” shall mean UPP Finance Co., LLC, a Delaware limited liability company.

  
 “UPP Credit Documents” means the Credit
Documents as defined in the UPP Credit Agreement. 
  

 4 

 1.2 Construction. 
  
 (a) Unless the context of this Agreement otherwise requires, (i) words of any gender include each other gender; (ii) words
using the singular or plural number also include the plural or singular number, respectively; (iii) the terms “hereof,” “herein,” “hereby” and derivative or similar words refer to this entire Agreement; (iv) the terms
“Article” or “Section” refer to the specified Article or Section of this Agreement; (v) the word “including” shall mean “including, without limitation;” and (vi) the word “or” shall be disjunctive
but not exclusive. 
  
 (b) References to agreements and other
documents shall be deemed to include all subsequent amendments and other modifications thereto. 
  
 (c) References to statutes shall include all regulations promulgated thereunder and references to statutes or regulations shall be construed as including
all statutory and regulatory provisions consolidating, amending or replacing the statute or regulation. 
  
 (d) The annexes, schedules and exhibits to this Agreement are a material part hereof and shall be treated as if fully incorporated into the body of the
Agreement. 
  
 (e) Whenever this Agreement refers to a number of
days, such number shall refer to calendar days unless business days are specified, and shall be counted from the day immediately following the date from which such number of days are to be counted. 
  
 (f) All accounting terms used herein and not expressly defined herein shall
have the meanings given to them under GAAP. 
  
 ARTICLE II.

 REPRESENTATIONS AND WARRANTIES OF TECO 
  

In connection with the transactions contemplated by the Settlement Agreement TECO hereby makes the following representations and warranties to the
Transferees, except as otherwise set forth in the disclosure schedule (the “Disclosure Schedule”) attached hereto as Exhibit A, which contains schedules numbered to correspond to various sections of this Article II (each a
“Schedule”) that set forth certain exceptions to the representations and warranties contained in this Article II and certain other information called for by this Agreement. The inclusion of any matter on any Schedule shall not be
deemed to be an admission (a) as to the materiality of such matter or (b) that such disclosure is required. 
  
 2.1 Organization. TECO is duly organized, validly existing and in good standing as a corporation under the laws of the jurisdiction of its
formation. TECO has full corporate power and authority to execute and deliver this Agreement and perform its obligations hereunder. 
  
 2.2 Authorization. TECO has the requisite power, capacity and authority to, and has taken all action necessary to execute and deliver this
Agreement, to consummate the transactions contemplated hereby and to perform its obligations contained herein. This Agreement has been duly executed and delivered by TECO and is a valid and binding obligation of TECO, enforceable against TECO in
accordance with its terms, except as the enforceability thereof may be limited by (a) applicable bankruptcy, insolvency, moratorium, reorganization or similar laws in effect that affect the enforcement of creditors rights generally or (b) general
principles of equity, whether considered in a proceeding at law or in equity. 
  

 5 

 2.3 No Conflict or Violation. None of the execution, delivery and performance of this Agreement,
compliance with any of the provisions hereof or the consummation of the transactions contemplated hereby by TECO will result in (a) a violation of or a conflict with the articles of incorporation or by-laws of TECO (b) a violation by TECO of any
applicable Laws. 
  
 2.4 Compliance with Law. Except as
otherwise would not reasonably be expected to have a Material Adverse Effect, none of the Companies or the Union Finance Subsidiary has violated, and each Company and the Union Finance Subsidiary is in compliance with, (a) all applicable laws,
statutes, ordinances, regulations, decrees, rules and orders of every Governmental Authority and (b) any judgment, decision, decree or order of, or Permit issued by, any Governmental Authority ((a) and (b), collectively, “Laws”). Except as
otherwise would not reasonably be expected to have a Material Adverse Effect, none of the Companies or the Union Finance Subsidiary has received any written notice that remains unresolved to the effect that, and TECO does not have any knowledge
that, (i) such Company or the Union Finance Subsidiary is not currently in compliance with, or is in violation of, any applicable Laws or (ii) any Governmental Authority has any intention to conduct any investigation or proceeding or any
investigation or proceeding by any Governmental Authority is pending or threatened. 
  
 2.5 Taxes. Each of the Companies and the Union Finance Subsidiary is, and has been since its formation, disregarded as an entity separate from its owner for federal and state income tax purposes. None of the
Companies or the Union Finance Subsidiary is (i) liable for any Taxes of any other Person pursuant to Treasury Regulation Section 1.1502-6 (or any similar provision of state, local or foreign law) or as a transferee, successor, by contract or
otherwise or (ii) a party to any Tax sharing, indemnity, allocation or similar agreement. The transactions contemplated herein are not subject to the Tax withholding provisions of Section 3406 of the Code or of any other provision of Law.

  
 2.6 Employees and Employee Benefits. 
  
 (a) Remuneration. 
  
 (i) Schedule 2.6(a)(i) sets forth a list of all TECO Project
Employees, their salaries, wage rates, commissions and bonuses, applicable ERISA Plans, positions, status as full-time or part-time, location of employment, accrued vacation or paid time off and length of service, as well as whether such TECO
Project Employee is currently on leave and the reason for such leave (disability, workers’ compensation, parental leave or other approved leave) and their expected date of return to work, if known. 
  
 (ii) Except as described on Schedule 2.6(a)(ii), the consummation of
the transactions contemplated by this Agreement will not (i) entitle any TECO Project Employee to severance benefits or any other payment or (ii) accelerate the time of payment or vesting, or increase the amount of compensation due any TECO Project
Employee. 
  
 (b) ERISA. Each ERISA Plan applicable to TECO
Project Employees complies in all material respects with the requirements of ERISA, the Code and all applicable laws. The Companies have no liability with respect to any ERISA Plan, contingent or otherwise, under ERISA, the Code, any other
applicable law or pursuant to any contractual agreement other than liability for normal intercompany payments to reimburse TECO for advances made to ERISA Plans to cover expenses associated with TECO Project Employees. 
  

 6 

 (c) Labor Matters. 
  
 (i) The terms of the TECO Project Employees employment are not subject to any collective bargaining agreement or other
labor contract, nor are there any activities or proceedings of any labor union to organize any of the TECO Project Employees. The TECO Project Employees have not instituted a strike or other organized work stoppage. 
  
 (ii) With respect to the TECO Project Employees the employers of the TECO
Project Employees have complied in all material respects with all terms and conditions of employment and all applicable laws relating to employment including, employee health and safety, fair employment practices, human rights, pay equity and wages
and hours, and the Companies have no potential liability as a successor employer for any violations of applicable laws governing employment of the TECO Project Employees, including with respect to any claims or investigations alleging employment
discrimination or unfair labor practices. 
  
 (d) Project
Employees. None of the Companies or the Union Finance Subsidiary has any employees. 
  
 2.7 Intellectual Property. No Company has received any notice of any material infringement, impairment, dilution, misappropriation, or other unauthorized use by any Company or the Union Finance Subsidiary of
any other person’s Intellectual Property. 
  
 2.8
Full Disclosure. To the Knowledge of TECO, no statement, representation or warranty made by TECO in this Agreement or in any certificate, schedule or other document furnished or to be furnished to the Administrative Agent, the Banks or any
Transferee hereunder or otherwise in connection with the transfer of the Interests to the Transferees (collectively, the “Disclosed Information”) contains, or when so furnished will contain, any untrue statement of a material fact
(a “Section 2.8 Untrue Statement”), or fails to state, or when so furnished will fail to state, a material fact necessary to make the statements contained herein or therein, in light of the circumstances in which they are made, not
misleading (a “Section 2.8 Necessary Fact”). To the Knowledge of TECO, there is no fact which TECO has failed to disclose to the Administrative Agents, the Banks and the Transferees in writing which has had or would reasonably be
anticipated to have a Material Adverse Effect (a “Section 2.8 Fact”). 
  
 2.9 Sufficiency of Assets. The Companies own good and marketable title, free and clear of all Liens (other than Permitted Liens and Liens otherwise permitted by the Credit Documents), or a valid leasehold
interest to, all material property and assets (tangible and intangible) used by the Companies in the operation of their businesses. The Companies own or have the valid right to use all of those assets (personal, tangible and intangible) used in
connection with the ownership and operation of their respective businesses during the twelve months prior to the date hereof and will enable Transferees to own and operate the Companies’ respective businesses in a manner consistent, in all
material respects, with the manner in which they were operated by and conducted by the Companies prior to and as of the date hereof. 
  

 7 

 2.10 Senior Executives’ Knowledge of Breach. TECO hereby confirms that none of the Senior
Executives listed on Schedule 2.10 have any Knowledge of any fact or circumstance that would give rise to a breach of any such representation or warranty of TECO set forth in this Article II. 
  
 ARTICLE III. 
 REPRESENTATIONS AND WARRANTIES OF THE TRANSFEREES 
  
 Each Transferee hereby makes the following representations and warranties as of the date hereof: 
  
 3.1 Organization. Such Transferee is duly organized, validly existing
and in good standing under the laws of the State of Delaware. 
  
 3.2 Authorization. Such Transferee has the requisite limited liability company power, capacity and authority to, and has taken all limited liability company action necessary on its part to, execute and deliver this Agreement, to
consummate the transactions contemplated hereby and to perform all of its obligations hereunder, and no other proceedings on the part of such Transferee are necessary to authorize the execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby. This Agreement has been duly executed and delivered by such Transferee and is a valid and binding obligation of such Transferee, enforceable against such Transferee in accordance with its terms,
except as the enforceability thereof may be limited by (a) applicable bankruptcy, insolvency, moratorium, reorganization or similar laws in effect which affect the enforcement of creditors rights generally or (b) general principles of equity,
whether considered in a proceeding at law or in equity. 
  
 3.3
No Conflict or Violation. None of the execution, delivery and performance of this Agreement, the consummation of the transactions contemplated hereby, or compliance with any of the provisions hereof or thereof by such Transferee will result
in (a) a violation of or a conflict with any provision of the Transferee Organizational Documents or (b) a violation by such Transferee of any applicable Law. 
  

ARTICLE IV. 
 SURVIVAL;
INDEMNIFICATION 
  
 4.1 Survival Period. All
representations and warranties of the parties contained in this Agreement shall survive the execution and delivery of this Agreement until the date that is eighteen (18) months after the date of this Agreement (the “Survival Period”). The
parties agree that no claims or causes of action may be brought against TECO, on the one hand, or the Transferees, on the other hand, based upon, directly or indirectly, any of the representations or warranties of the parties contained in this
Agreement after the Survival Period or any termination of this Agreement. The parties expressly acknowledge and agree that the provisions of this Section 4.1 are intended to shorten the statute of limitations with respect to the breach by either
party of any of its representations and warranties set forth in this Agreement. 
  

 8 

 4.2 Indemnification.Subject to the terms, conditions and limitations set forth in this Article IV,
from and after the date of this Agreement: 
  
 (a) TECO shall
defend, indemnify and hold harmless the Transferees from and against any actual out-of-pocket costs or expenses (including, without limitation, reasonable attorneys’ fees), judgments, fines, claims and damages (collectively, “Losses”)
that are imposed on the Transferees arising out of (i) a breach of any representation or warranty set forth in Article II hereof, (ii) any privileges tax or so-called “speculative builder tax” imposed on or attempted to be imposed on the
transfer of the Gila River partnership interests or the Gila River Facility to the Transferees, and (iii) any shareholder class action lawsuit filed against TECO that specifically relates to TECO’s public disclosures with regard to its
investments in the Projects, including, but not limited to, the lawsuits listed on Schedule 4.2(a). 
  
 (b) The Transferees shall defend, indemnify and hold harmless TECO from and against any actual Losses that are imposed on TECO arising out of a breach of
any representation or warranty set forth in Article III hereof. 
  
 4.3 Indemnification Procedures. All claims for indemnification by any party entitled to indemnification under Article IV (an “Indemnified Party”) based on or arising from a third party claim shall be asserted and resolved
as set forth in this Section 4.3. In the event that any claim or demand by a third party for which a party (the “Indemnifying Party”) may be required to indemnify the Indemnified Party hereunder (a “Claim”) is asserted against or
sought to be collected from any Indemnified Party by a third party, such Indemnified Party shall as promptly as practicable notify the Indemnifying Party in writing of such Claim and the amount or the estimated amount thereof to the extent then
feasible as well as the basis, in reasonable detail, of why the Indemnified Party believes that it is entitled to indemnification hereunder (the “Claim Notice”). The failure on the part of the Indemnified Party to give any such Claim
Notice in a reasonably prompt manner shall not relieve the Indemnifying Party of any indemnification obligation hereunder except to the extent that the Indemnifying Party is prejudiced thereby. The Indemnifying Party shall have 30 days from delivery
of the Claim Notice (the “Notice Period”) to notify the Indemnified Party whether or not the Indemnifying Party acknowledges its obligations under this Article IV and elects to defend the Indemnified Party against such Claim; and prior to
such time as it has been notified by the Indemnifying Party as to its intention, the Indemnified Party shall take all reasonable actions to preserve its defenses. All costs and expenses incurred by the Indemnifying Party in defending such Claim
shall be a liability of, and shall be paid by, the Indemnifying Party; provided, however, that the amount of such costs and expenses shall be a liability of the Indemnifying Party hereunder but shall not be subject to the limitations
set forth in Section 4.4 hereof. In the event that the Indemnifying Party notifies the Indemnified Party within the Notice Period that it desires to defend the Indemnified Party against such Claim, the Indemnifying Party shall have the right to
defend the Indemnified Party by appropriate proceedings and shall have the sole power to direct and control such defense. If any Indemnified Party desires to participate in any such defense it may do so at its sole cost and expense. The Indemnified
Party shall not settle, admit or in any other way materially prejudice a Claim for which it is indemnified by the Indemnifying Party without the written consent of the Indemnifying Party. The Indemnifying Party may, with the consent of the
Indemnified Party (which consent shall not be unreasonably withheld), settle or compromise any action or consent to the entry of any judgment. Notwithstanding the foregoing, the Indemnified Party shall have 

  

 9 

 
the sole right to defend, settle or compromise any Claim with respect to which it has agreed in writing to waive its right to indemnification pursuant to
this Agreement. If the Indemnifying Party elects not to defend the Indemnified Party against such Claim, then the Indemnified Party shall defend such Claim by appropriate proceedings and shall control the defense of such Claim, and in such case may,
without the consent of the Indemnifying Party (which consent shall not be unreasonably withheld) settle or compromise such action or consent to the entry of any judgment. The amount required to be paid in respect of any such Claim, or, if the same
be contested by the Indemnified Party, then that portion thereof as to which such defense is unsuccessful (and the reasonable costs and expenses pertaining to such defense) shall be the liability of the Indemnifying Party hereunder, subject to the
limitations set forth in Section 4.4. The Indemnified Party will give the Indemnifying Party and its counsel reasonable access to the personnel, business records and other documents within the possession of the Indemnified Party or its Affiliates,
and shall permit them to consult with the counsel and other advisors of the Indemnified Party. The Indemnified Party, if requested by the Indemnifying Party, shall cooperate and assist in the defense of all such Claims at the expense of the
Indemnifying Party. Notwithstanding anything in this Section 4.3 to the contrary, any indemnification claims made pursuant to Section 4.2(a)(ii) hereof shall be paid within five (5) business days of the receipt by TECO of written documentation to
the reasonable satisfaction of TECO evidencing the payment by the Transferees or the Banks of any privileges tax or so-called “speculative builder tax” relating to the transfer of the Gila River Partnership Interests or the Gila River
Facility for a period prior to the date of this Agreement. Any such indemnification payment made pursuant to Section 4.2(a)(ii) or the immediately preceding sentence of this Section 4.3 shall not be subject to the limitations of liability pursuant
to Section 4.4(b) hereof. 
  
 4.4 Limitation of Liability.

  
 (a) Anything in this Agreement to the contrary
notwithstanding (other than the last two sentences of Section 4.3), the liability of the Indemnifying Party to indemnify the Indemnified Party against any Losses shall be limited to claims for indemnification with respect to which the Indemnified
Party has given to the Indemnifying Party written notice thereof at or prior to the applicable survival date as set forth in Section 4.1, except for indemnification claims made pursuant to Section 4.2(a)(ii) and (iii) hereof which shall not be
subject to such limitation. The written notice referred to in the previous sentence must state the basis of the claim for indemnification with reasonable specificity, including the Section or Sections of this Agreement alleged to have been breached.

  
 (b) In no event shall TECO, on the one hand, or the
Transferees, on the other hand, be liable for indemnification pursuant to Section 4.2(a)(i) unless and until the aggregate of all Losses which are incurred or suffered by the party seeking indemnification exceeds ONE MILLION DOLLARS ($1,000,000)
(the “Threshold Amount”), in which case such party shall only be entitled to indemnification for such Losses in excess of the Threshold Amount; provided, however, that: 
  
 (i) Except as provided in Section 4.4(d), TECO shall not be required to make payments for indemnification pursuant to
Section 4.2(a)(i) in an aggregate amount in excess of TEN MILLION DOLLARS ($10,000,000); and 
  

 10 

 (ii) Transferees shall not be required to make payments for indemnification pursuant to Section 4.2(b)
in an aggregate amount in excess of TEN MILLION DOLLARS ($10,000,000). 
  
 (c) Notwithstanding anything to the contrary in this Agreement, neither party shall be liable for any Losses to the extent that the Losses suffered by an Indemnified Party result from the gross negligence or willful misconduct of such
Indemnified Party or any of its officers, employees, agents or representatives, or the failure to mitigate Losses as required by applicable law. 
  
 (d) Notwithstanding anything to the contrary in this Agreement, any payments made by TECO for Losses actually incurred by the Transferees, resulting from
(i) a breach of the representations and warranties contained in Section 2.8 (Full Disclosure), which claim of breach is based upon a Section 2.8 Untrue Statement, a Section 2.8 Necessary Fact, or a Section 2.8 Fact of which (x) as to a Section 2.8
Necessary Fact, or a Section 2.8 Fact any of the Senior Executives had Knowledge as of the date hereof or (y) as to a Section 2.8 Untrue Statement any of the Senior Executives had Knowledge that such statement was untrue as of the date hereof or
(ii) breaches of representations and warranties contained in Section 2.6 (Employees and Employee Benefits), shall not be subject to the limitations of liability set forth in Section 4.4(b). 
  
 (e) In calculating amounts payable to an Indemnified Party, the amount of the
indemnified Losses shall be computed net of (i) payments that the Indemnified Party is entitled to receive under any insurance policy with respect to such Losses, or (ii) any prior or subsequent recovery by the Indemnified Party from any Person with
respect to such Losses; provided that an Indemnified Party shall be entitled to apply all such amounts under clauses (i) and (ii) first to the payment of Losses that are not paid to, or that are payable by, the Indemnified Party under this
Agreement. 
  
 4.5 Other Matters. 
  
 (a) Other than as expressly set forth herein, if the Closing shall occur,
the indemnification provisions of this Article IV shall be the sole and exclusive remedy of TECO, on the one hand, and the Transferees, on the other hand, for any breach of any representations or warranties made by the other party in this Agreement
and each party hereby waives all statutory, common law and other claims with respect thereto, other than claims for indemnification pursuant to this Article IV. 
  

(b) There shall be no indemnification by TECO or Transferees for any special, incidental, punitive or consequential damages (except to the extent
incurred by an Indemnified Party with respect to a third party Claim). 
  
 (c) Upon making any payment to an Indemnified Party for any indemnification claim pursuant to this Article IV, and after the Indemnified Party has first recovered any Losses not paid or payable by the Indemnifying Party under this
Agreement, the Indemnifying Party shall be subrogated, to the extent of such payment, to any rights which the Indemnified Party or its Affiliates may have against any other Persons with respect to the subject 

  

 11 

 
matter underlying such indemnification claim and the Indemnified Party shall take such actions as the Indemnifying Party may reasonably require to perfect
such subrogation or to pursue such rights against such other Persons as the Indemnified Party or its Affiliates may have. 
  
 ARTICLE V. 
 MISCELLANEOUS

  
 5.1 Assignment. None of this Agreement or any of
the rights or obligations hereunder may be assigned by TECO without the prior written consent of the Transferees. TECO agrees to the assignment by the Transferees of their respective rights pursuant to this Agreement at any time to any Person, or to
any lender as collateral security, and TECO and TECO agrees to execute any and all appropriate agreements or instruments that the Transferees or the Agent may reasonably request in order to effect or evidence such assignment or consent, provided
that no such assignment or agreement imposes any additional material obligations on TECO or its or their Affiliates (other than the Companies), or results in any material changes to the transactions contemplated by this Agreement. 
  
 5.2 Notices. All notices, consents, waivers, requests, demands and
other communications which are required or may be given under this Agreement shall be in writing and shall be deemed to have been duly given when received if personally delivered; if transmitted by facsimile, upon receipt of telephonic or electronic
confirmation; the day after it is sent, if sent for next day delivery to a domestic address by recognized overnight delivery service (e.g., Federal Express); and upon receipt, if sent by certified or registered mail, return receipt requested.
In each case notice shall be sent to: 
  
 If to
TECO, 
  
 TECO Energy, Inc. 
 702 North Tampa Street 
 Tampa, Florida 33602 
 Attention: General Counsel 
 Tel: (813) 228-4111 
 Fax:(813)228-4811 
  
 With a copy to:

  
 Skadden, Arps, Slate, Meagher & Flom LLP

 Four Times Square 
 New York, New York 10036 
 Attention: Sheldon S. Adler, Esq. 
 Tel: (212) 735-3000 
 Fax: (212) 735-2000 
  

 12 

 If to a Transferee after the Closing, addressed to such Transferee c/o: 
  
 Entegra Power Group LLC 
 702 North Franklin Street 
 Tampa, Florida 33602 
 Attention: Jerry Coffey 
 Tel: (813) 228-4433 
 Fax: (813) 228-4300 
  
 With a copy to:

  
 Citigroup Global Markets 
 Global Corporate & Investment Bank 
 388 Greenwich Street, 21st Floor 
 New York, New York 10013 
 Attention: Charles E. Tauber 
 Tel: (212) 816-7495 
 Fax: (212) 816-7738 
  
 and with copies to: 
  
 Dewey Ballantine LLP 
 1301 Avenue Americas 
 New York, New York 10019 
 Attention: Richard Shutran 
 Tel: (212) 259-8000 
 Fax: (212) 259-6333 
  
 Latham &
Watkins LLP 
 Sears Tower, Suite 5800 
 233 South Wacker Drive 
 Chicago, Illinois 60606 
 Attention: Ronald W. Hanson 
 Tel: (312) 876-7700 
 Fax: (312) 993-9767 
  
 or to such other place and with such other copies
as either party may designate as to itself by written notice to the others. 
  
 5.3 Choice of Law; Service of Process; Venue. This Agreement shall be construed and interpreted and the rights of the parties determined in accordance with the internal laws of the State of New York without
giving effect to any choice or conflict of law provision or rule (whether of the State of New York or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of New York, other than Sections
5-1401 and 5-1402 of the General Obligations law of the State of New York. TECO and each Transferee irrevocably consents to the service of any and all process in any action or proceeding arising out of or relating to this Agreement by the registered
or certified mailing of copies of such process to such party at the addresses specified in Section 4.2. Each of the parties hereto consents and 

  

 13 

 
voluntarily submits to personal jurisdiction in the State of New York and in the courts in such state located in New York County and the United States
District Court for the Southern District of New York in any proceedings arising out of or relating to this Agreement and the transactions contemplated hereby and agrees that all claims in respect of any such proceeding may be heard and determined in
any such court. Each party agrees that any action instituted against another party with respect to this Agreement will be instituted exclusively in the United States District Court for the Southern District of New York or, if such Court does not
have jurisdiction to adjudicate such action, in the courts of New York located in New York County. Each party hereto irrevocably and unconditionally waives and agrees not to plead, to the fullest extent permitted by law, any objection that they may
now or hereafter have to the laying of venue or the convenience of the forum of any action with respect to this Agreement in the United States District Court for the Southern District of New York and the courts of the State of New York located in
New York County. Each party agrees that a final judgment, subject to appeal rights, in any proceeding so brought shall be conclusive and may be enforced by suit on the judgment or in any other manner provided by law or in equity. Each of the parties
hereto irrevocably waives, to the fullest extent permitted by law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Agreement or the transactions contemplated hereby. 
  
 5.4 Effectiveness; Entire Agreement; Amendments and Waivers. This
Agreement shall become effective on the parties hereto when all parties hereto have executed and delivered this Agreement. Except as set forth in the prior sentence, no amendment, supplement, modification or waiver of this Agreement shall be binding
unless executed in writing by all of the parties hereto indicating their intention to amend this Agreement. Neither the failure nor any delay by any party in exercising any right, power or privilege under this Agreement will operate as a waiver of
any right, power or privilege under this Agreement, and no waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provision hereof (whether or not similar), nor shall such waiver constitute a
continuing waiver unless otherwise expressly provided in such waiver in writing. In addition, no notice to or demand on one party will be deemed a waiver of any obligation of such party or of the right of the party giving such notice or demand to
take further action without notice or demand as provided in this Agreement. 
  
 5.5 Multiple Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

  
 5.6 Invalidity. In the event that any one or more of
the provisions contained in this Agreement or in any other instrument referred to herein, shall, for any reason, be held to be invalid, illegal or unenforceable in any respect, then to the maximum extent permitted by law, such invalidity, illegality
or unenforceability shall not affect any other provision of this Agreement or any other such instrument. 
  
 5.7 Titles; Currency; Schedules. The titles, captions or headings of the Articles and Sections herein are inserted for convenience of reference
only and are not intended to be a part of or to affect the meaning or interpretation of this Agreement. Unless otherwise specified, all references contained in this Agreement to dollars or “$” will mean United States Dollars. 

 

 14 

 5.8 Representation of Counsel; Mutual Negotiation. Each party has been represented by counsel of
its choice in negotiating this Agreement. This Agreement shall therefore be deemed to have been negotiated and prepared at the joint request, direction and construction of the parties, at arm’s length, with the advice and participation of
counsel, and will be interpreted in accordance with its terms without favor to any party. 
  
 5.9 No Third Party Beneficiaries. This Agreement shall be binding upon and inure solely to the benefit of each party hereto and any of their respective assigns pursuant to Section 5.1 hereto. Except for
Administrative Agents, which are expressly intended to be third party beneficiaries of this Agreement, nothing in this Agreement, express or implied, is intended to or shall confer upon any other person any legal or equitable right, benefit or
remedy of any nature whatsoever under or by reason of this Agreement, including by way of subrogation. 
  
 5.10 Time of Essence. With regard to all dates and time periods set forth or referred to in this Agreement, time is of the essence. 
  
 [signature page follows] 
  

 15 

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

			
	ENTEGRA POWER GROUP LLC, as a Transferee
		
	By:	 	  

	Name:	 	 
	Title:	 	 
	
	UNION POWER LLC, as a Transferee
		
	By:	 	  

	Name:	 	 
	Title:	 	 
	
	GILA RIVER POWER LLC, as a Transferee
		
	By:	 	  

	Name:	 	 
	Title:	 	 
	
	TRANS-UNION PIPELINE LLC, as a Transferee
		
	By:	 	  

	Name:	 	 
	Title:	 	 
	
	TECO ENERGY, INC.
		
	By:	 	  

	Name:	 	 
	Title:	 	 

 EXHIBIT A 
  
 DISCLOSURE SCHEDULE 
  
 [INCLUDED IN SEPARATE DOCUMENT]Fourth Amendment to Credit Agreement as of June 3, 2005

 EXHIBIT 10.1 
  
 NOBEL LEARNING COMMUNITIES, INC. 
 FOURTH AMENDMENT TO CREDIT AGREEMENT 
  
 This Fourth Amendment to Credit Agreement (herein, the
“Amendment”) is entered into as of June 3, 2005, between Nobel Learning Communities, Inc., a Delaware corporation (the “Borrower”), and Harris N.A., as successor by merger with Harris Trust and Savings Bank
(“Harris”), as sole Lender on the date hereof and as Administrative Agent for the Lenders. 
  
 PRELIMINARY STATEMENTS 
  
 A. The Borrower, the Guarantors, and Harris entered into a certain Credit Agreement, dated as of February 20, 2004, as amended (referred to herein as the
“Credit Agreement”). All capitalized terms used herein without definition shall have the same meanings herein as such terms have in the Credit Agreement. 
  
 B. The Borrower has requested that Harris relend to it the incremental portion of the Term Loan which has been repaid since
the Closing Date, increase the amount of the Revolving Credit Commitment, increase the amount of the L/C Sublimit, amend the definitions of “Applicable Margin”, “EBITDA” and “Revolving Credit Commitment”, amend the
Dividends and Certain Other Restricted Payments, Total Funded Debt/EBITDA Ratio, Minimum EBITDA, and Fixed Charge Coverage Ratio covenants, permit the repayment of the Initial Subordinated Debt and make certain other amendments, and Harris is
willing to do so under the terms and conditions set forth in this Amendment. 
  
 NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows: 
  
 SECTION 1. AMENDMENTS. 
  
 Subject to the satisfaction of the conditions precedent set forth in Section
3 below, the Credit Agreement shall be and hereby is amended as follows: 
  
 1.1. Section 1.1 of the Credit Agreement is hereby amended and restated to read in its entirety as follows: 
  
 Section 1.1. Term Loan Commitments. Subject to the terms and conditions hereof, each Lender, by its acceptance hereof, severally
agrees to make loans (individually a “Term Loan” and collectively for all the Lenders the “Term Loans”) in U.S. Dollars to the Borrower in the amount of such Lender’s Term Loan Commitment. The entire amount of
Term Loans shall be advanced in a Borrowing of $15,000,000 on the Closing Date, and $4,700,000 of the Term Loans shall be readvanced in a second Borrowing on or about the Fourth Amendment Closing Date, such amount readvanced being the aggregate
principal amount of Term Loans repaid by the Borrower from the Closing Date through and including the 

 
Fourth Amendment Closing Date. The Term Loans shall be made ratably by the Lenders in proportion to their respective Term Loan Percentages, at which time the
Term Loan Commitments shall expire. As provided in Section 1.6(a) hereof, the Borrower may elect that the Term Loans be outstanding as Base Rate Loans or Eurodollar Loans. Except as specifically set forth in this Section 1.1, no amount repaid or
prepaid on any Term Loan may be borrowed again. 
  
 1.2. The second sentence of Section 1.9(c) of the Credit Agreement is hereby amended and restated to read in its entirety as follows: 
  
 Except as specifically set forth in Section 1.1 hereof, no amount of the Term Loans paid or prepaid may be reborrowed, and, in the case of any partial
prepayment, such prepayment shall be applied to the remaining amortization payments on the relevant Loans in the reverse order of maturity, beginning with the final payment on the Term Loans due on the final maturity date thereof. 
  
 1.3. The definitions of “Applicable Margin,”
“EBITDA,” “L/C Sublimit”, “Revolving Credit Commitment” and “Term Loan Commitment” set forth in Section 5.1 of the Credit Agreement are each hereby amended and restated to read in their entirety as follows:

  
 “Applicable Margin” means,
with respect to Loans, Reimbursement Obligations, and the commitment fees and letter of credit fees payable under Section 2.1 hereof, until the first Pricing Date, the rates per annum shown opposite Level II below, and thereafter from one Pricing
Date to the next the Applicable Margin means the rates per annum determined in accordance with the following schedule: 
  

																		
	 LEVEL

	  	 TOTAL FUNDED 
 DEBT/EBITDA 
 RATIO FOR SUCH 
 PRICING
DATE

	  	APPLICABLE
MARGIN FOR BASE
RATE LOANS UNDER
REVOLVING
 CREDIT
AND
REIMBURSEMENT
OBLIGATIONS SHALL
BE:

	 	 	APPLICABLE
MARGIN
FOR
EURODOLLAR
LOANS UNDER
REVOLVING
CREDIT
AND
LETTER OF CREDIT
FEE SHALL BE:

	 	 	APPLICABLE
MARGIN FOR
BASE
RATE
LOANS UNDER
TERM CREDIT
SHALL BE:

	 	 	APPLICABLE
MARGIN
FOR
EURODOLLAR
LOANS UNDER
TERM CREDIT
SHALL BE:

	 	 	APPLICABLE
MARGIN
FOR
REVOLVING CREDIT
COMMITMENT FEE
SHALL BE:

	 
	 II
	  	Greater than or equal to 1.0 to 1.0	  	1.25	%	 	2.75	%	 	1.50	%	 	3.00	%	 	0.375	%
	 I
	  	Less than 1.0 to 1.0	  	0.75	%	 	2.25	%	 	1.00	%	 	2.50	%	 	0.375	%

  
 For purposes hereof,
the term “Pricing Date” means, for any fiscal quarter of the Borrower ending on or after September 30, 2005, the 

 
date on which the Administrative Agent is in receipt of the Borrower’s most recent financial statements (and, in the case of the year-end financial
statements, audit report) for the fiscal quarter then ended, pursuant to Section 8.5 hereof, it being understood by the parties hereto that the Applicable Margins shall be maintained at the rates per annum shown opposite Level II until receipt of
such financial statements for the fiscal quarter ended September 30, 2005. The Applicable Margin shall be established based on the Total Funded Debt/EBITDA Ratio for the most recently completed fiscal quarter and the Applicable Margin established on
a Pricing Date shall remain in effect until the next Pricing Date. If the Borrower has not delivered its financial statements by the date such financial statements (and, in the case of the year-end financial statements, audit report) are required to
be delivered under Section 8.5 hereof, until such financial statements and audit report are delivered, the Applicable Margin shall be the highest Applicable Margin (i.e., Level II shall apply). If the Borrower subsequently delivers such
financial statements before the next Pricing Date, the Applicable Margin established by such late delivered financial statements shall take effect from the date of delivery until the next Pricing Date. In all other circumstances, the Applicable
Margin established by such financial statements shall be in effect from the Pricing Date that occurs immediately after the end of the fiscal quarter covered by such financial statements until the next Pricing Date. Each determination of the
Applicable Margin made by the Administrative Agent in accordance with the foregoing shall be conclusive and binding on the Borrower and the Lenders if reasonably determined. 
  
 “EBITDA” means, with reference to any period, Net Income for such period plus the
sum of all amounts deducted in arriving at such Net Income amount in respect of (a) Interest Expense for such period, (b) federal, state, and local income taxes for the Borrower and its Subsidiaries for such period, (c) depreciation of fixed assets
and amortization of intangible assets for the Borrower and its Subsidiaries for such period, (d) with respect to the fiscal quarter ended April 2, 2005 only, charges against income in an amount not to exceed $1,500,000 relating to an investment in
Total Education Solutions, Inc., and (e) for any fiscal quarter, non-cash losses in an amount acceptable to the Administrative Agent resulting from impairment charges arising from the application of SFAS No. 142 or SFAS No. 144, less (f)
interest income and extraordinary gains for such period, less (g) any cash lease expenses incurred by the Borrower and its Subsidiaries during such period and charged against the lease expense reserve, less (h) cash severance expenses
incurred by the 

 
Borrower and its Subsidiaries for such period and charged against the severance expense reserve, plus/less (i) other adjustments approved by the
Administrative Agent. 
  
 “L/C
Sublimit” means $3,500,000 as reduced pursuant to the terms hereof. 
  
 “Revolving Credit Commitment” means, as to any Lender, the obligation of such Lender to make Revolving Loans and to participate in Letters of Credit issued for the account of the Borrower hereunder in
an aggregate principal or face amount at any one time outstanding not to exceed the amount set forth opposite such Lender’s name on Schedule 1 attached hereto and made a part hereof, as the same may be reduced or modified at any time or from
time to time pursuant to the terms hereof. The Borrower and the Lenders acknowledge and agree that the Revolving Credit Commitments of the Lenders aggregate $10,000,000 on the date hereof. 
  
 “Term Loan Commitment” means, as to any
Lender, the obligation of such Lender to make its Term Loans on dates set forth in Section 1.1 hereof in the principal amount not to exceed the amount set forth opposite such Lender’s name on Schedule 1 attached hereto and made a part hereof.

  
 1.4. Section 5.1 of the Credit Agreement is
hereby further amended by adding the following new defined term thereto in its appropriate place in the alphabetical sequence: 
  
 “Fourth Amendment Closing Date” means the date upon which the Fourth Amendment becomes effective in accordance with its
terms. 
  
 1.5. Section 8.12 of the Credit
Agreement is hereby amended and restated to read in its entirety as follows: 
  
 Section 8.12. Dividends and Certain Other Restricted Payments. The Borrower shall not, nor shall it permit any Subsidiary to, (a) declare or pay any dividends on or make any other distributions in respect of
any class or series of its capital stock or other equity interests or (b) directly or indirectly purchase, redeem, or otherwise acquire or retire any of its capital stock or other equity interests or any warrants (including, without limitation,
those Warrants issued pursuant to, and as defined in, that Investment Agreement dated as of June 30, 1998, as amended by a First Amendment thereto dated as of May 24, 2001), options, or similar instruments to acquire the same; provided,
however, that the foregoing 

 
shall not operate to prevent (i) the making of dividends or distributions by any Subsidiary to the Borrower, (ii) provided that (x) no Default or Event of
Default exists before or after giving effect thereto, and (y) the Borrower’s Fixed Charge Coverage Ratio would have been 1.15 to 1.0 or greater as of the end of its most recently ended fiscal quarter if such dividend had been made on the last
day of such fiscal quarter, the payment of cash dividends on the Borrower’s Series E and F Preferred Stock at a rate not exceeding the rate in effect on the Closing Date, (iii) the making of dividends or distributions by the Borrower on any
series of its preferred stock solely in the form of the issuance of additional shares of such series of preferred stock, or (iv) the acceptance by the Borrower of shares of its capital stock (or all or any portion off a warrant to purchase shares of
its capital stock) in satisfaction of the exercise price of any warrant to acquire its shares. 
  
 1.6. Sections 8.22(a), (b), (c) and (d) of the Credit Agreement are each hereby amended and restated to read in their entirety as follows:

  
 Section 8.22. Financial Covenants (a)
Total Funded Debt/EBITDA Ratio. The Borrower shall not, as of the last day of each fiscal quarter of the Borrower ending during the periods set forth below, permit the Total Funded Debt/EBITDA Ratio to be greater than the corresponding ratio
set forth opposite such period: 
  

			
	 FOUR FISCAL QUARTER PERIODS ENDING

	  	 TOTAL FUNDED
 DEBT/EBITDA RATIO SHALL
 NOT BE GREATER THAN:

	 Fourth Amendment Closing Date through December 31, 2005
	  	1.90 to 1.0
	 January 1, 2006 through March 31, 2006
	  	1.80 to 1.0
	 April 1, 2006 through March 31, 2007
	  	1.65 to 1.0
	 April 1, 2007 through March 31, 2008
	  	1.45 to 1.0
	 April 1, 2008 and at all times thereafter
	  	1.25 to 1.0

  
 (b)
[Intentionally Deleted.] 

 (c) Minimum EBITDA. The Borrower shall not, as of the last day of each fiscal
quarter of the Borrower ending during the periods set forth below, permit EBITDA for the four fiscal quarters of the Borrower ending on such day to be less than the corresponding amount set forth opposite such day: 
  

				
	 FOUR FISCAL QUARTER PERIODS ENDING

	  	MINIMUM FOUR FISCAL
QUARTER EBITDA

	 Fourth Amendment Closing Date through December 31, 2005
	  	$	12,000,000
	 January 1, 2006 through March 31, 2006
	  	$	12,500,000
	 April 1, 2006 through March 31, 2007
	  	$	12,750,000
	 April 1, 2007 and at all times thereafter
	  	$	14,000,000

  
 (d)
Fixed Charge Coverage Ratio. As of the last day of each fiscal quarter of the Borrower, the Borrower shall maintain a ratio of (a) EBITDA for the four fiscal quarters of the Borrower then ended, less Net Capital Expenditures for such four
fiscal quarters, to (b) Fixed Charges for the same four fiscal quarters then ended of not less than (x) 1.05 to 1.0 on all fiscal quarter ending dates from the Fourth Amendment Closing Date through and including the fiscal quarter ending September
30, 2005, and 1.10 to 1.0 on all fiscal quarter ending dates thereafter. 
  
 1.7. Schedule 1 to Credit Agreement shall be amended and restated to read as set forth on Schedule 1 attached hereto and made a part hereof. 
  
 SECTION 2. NEW NOTE; TERM NOTE. 
  
 In replacement for that certain Revolving Note payable to the order of
Harris dated February 20, 2004 in the principal amount of $8,000,000 (the “Previous Note”), the Borrower shall execute and deliver to Harris a new revolving note in the principal amount of $10,000,000, dated the date of its issuance
and otherwise in the form of Exhibit A attached hereto (the “New Note”) which shall substitute for the Previous Note and shall evidence the Revolving Loans outstanding to Harris. All references in the Credit Agreement to the
Revolving Note shall be deemed references to the New Note. The parties hereto agree that the Term Note executed and delivered by the Borrower on the Closing Date shall continue to evidence all of the Term Loans, including without limitation the Term
Loans readvanced by Harris on or about the Fourth Amendment Closing Date, and the Borrower hereby affirms that the aggregate principal amount 

 
of Term Loans outstanding after giving effect to such readvance of the Term Loans is $15,000,000. The Borrower further agrees to deliver a replacement Term
Note evidencing the Term Loans after the Fourth Amendment Closing Date if Harris should reasonably request the same, and the parties acknowledge that any reference in any corporate resolutions or other corporate authority documents of the Borrower
authorizing the execution and delivery of a new Term Note shall not be understood to affect the obligations of the Borrower under the existing Term Note if no such new Term Note is ever delivered. 
  
 SECTION 3. CONDITIONS PRECEDENT. 
  
 Upon the satisfaction of all of the following conditions precedent, this
Amendment shall become effective on and as of the date first above written to the same extent as if it had been entered into on such date: 
  
 3.1. The Borrower and Harris shall have executed and delivered this Amendment. 
  
 3.2. The Borrower shall have executed and delivered the New
Note. 
  
 3.3. The Borrower shall have delivered
to Harris resolutions of the Board of Directors of the Borrower and each Guarantor authorizing the execution, delivery and performance of its obligations under this Amendment and the New Note and the performance of its obligations under Credit
Agreement as amended hereby. 
  
 3.4. The
Borrower shall have paid Harris an amendment fee in the amount of $100,000. 
  
 3.5. The Borrower shall have delivered evidence satisfactory to Harris that (i) Borrower’s EBITDA for the four fiscal quarters of the Borrower ended March 31, 2005 was equal to or greater than $12,000,000 and
(ii) the Total Funded Debt/EBITDA Ratio based on Total Funded Debt outstanding on the Fourth Amendment Closing Date after giving effect to any borrowings on such date and EBITDA for the four fiscal quarters of the Borrower ended March 31, 2005, is
less than 1.50 to 1.0. 
  
 3.6. No material
adverse change in the financial condition, operations or properties of the Borrower and its Subsidiaries shall have occurred from that reflected in the June 30, 2004 audited financial statements delivered to Harris pursuant to Section 8.5(b) of the
Credit Agreement. 
  
 3.7. Legal matters incident
to the execution and delivery of this Amendment shall be satisfactory to Harris and its counsel. 
  
 3.8. The Guarantors shall have executed and delivered to Harris their consent to this Amendment in the form set forth below. 

 
 3.9 The Initial Subordinated Debt shall be repaid in full
concurrently with the effectiveness of this Amendment. 

 SECTION 4. REPAYMENT OF INITIAL SUBORDINATED
DEBT. 
  
 Harris hereby (i) agrees and consents to
the Borrower making a full repayment of the Initial Subordinated Debt prior to the maturity date thereof, and (ii) acknowledges and agrees that such repayment shall be not constitute an Event of Default under the Credit Agreement. 
  
 SECTION 5. REPRESENTATIONS. 
  
 In order to induce Harris to execute and deliver this Amendment, the
Borrower hereby represents to Harris that as of the date hereof the representations and warranties set forth in Section 6 of the Credit Agreement are and shall be and remain true and correct (except that (a) the representations contained in Section
6.2 shall be deemed to refer to the most recent list of subsidiaries of Borrower delivered to the Administrative Agent prior to the date hereof, and (b) the representations contained in Section 6.5 shall be deemed to refer to the most recent
financial statements of the Borrower delivered to the Administrative Agent) and the Borrower is in compliance with the terms and conditions of the Credit Agreement and no Default or Event of Default has occurred and is continuing under the Credit
Agreement or shall result after giving effect to this Amendment. 
  
 SECTION 6. MISCELLANEOUS. 
  
 6.1. The Borrower and the Guarantors heretofore executed and delivered to the Lenders the Collateral Documents. Each of the Borrower and the Guarantors hereby acknowledges and agrees that the Liens created and provided for by the Collateral
Documents continue to secure, among other things, the Obligations arising under the Credit Agreement as amended hereby; and the Collateral Documents and the rights and remedies of the Administrative Agent and Lenders thereunder, the obligations of
the Borrower and Guarantors thereunder, and the Liens created and provided for thereunder remain in full force and effect and shall not be affected, impaired or discharged hereby. Nothing herein contained shall in any manner affect or impair the
priority of the liens and security interests created and provided for by the Collateral Documents as to the indebtedness which would be secured thereby prior to giving effect to this Amendment. 
  
 6.2. Except as specifically amended herein, the Credit Agreement shall
continue in full force and effect in accordance with its original terms. Reference to this specific Amendment need not be made in the Credit Agreement, the Notes, or any other instrument or document executed in connection therewith, or in any
certificate, letter or communication issued or made pursuant to or with respect to the Credit Agreement, any reference in any of such items to the Credit Agreement being sufficient to refer to the Credit Agreement as amended hereby. 
  
 6.3. The Borrower agrees to pay on demand all costs and expenses of or
incurred by the Administrative Agent in connection with the negotiation, preparation, execution and delivery of this Amendment, including the fees and expenses of counsel for the Administrative Agent. 
  
 6.4. This Amendment may be executed in any number of counterparts, and by the
different parties on different counterpart signature pages, all of which taken together shall constitute one and the same agreement. Any of the parties hereto may execute this Amendment by signing any such counterpart and each of such counterparts
shall for all purposes be deemed to be an original. This Amendment shall be governed by the internal laws of the State of Illinois. 

 [SIGNATURE PAGE TO FOLLOW] 

 This Fourth Amendment to Credit Agreement is entered into as of the date and year first above
written. 
  

			
	NOBEL LEARNING COMMUNITIES, INC.
		
	By	 	 /s/ Thomas Frank

	Name	 	Thomas Frank
	Title	 	CFO

  
 Accepted and
agreed to. 
  

			
	 HARRIS N.A., as successor by merger with Harris Trust And Savings Bank, as the sole Lender and as Administrative
Agent

		
	By	 	 /s/ Jay S. Dameron

	Name	 	Jay S. Dameron
	Title	 	Director

 GUARANTORS’ ACKNOWLEDGEMENT AND
CONSENT 
  
 Each of the undersigned, pursuant
to Section 12 of the Credit Agreement, has, inter alia, guaranteed the Obligations, Hedging Liability, and Funds Transfer and Deposit Account Liability. Each of the undersigned hereby consents to the Fourth Amendment to Credit Agreement as
set forth above and confirms that its aforementioned Guaranty and all of the undersigned’s obligations thereunder remain in full force and effect (and, without limiting the foregoing, each of the undersigned acknowledges and agrees that the
indebtedness evidenced by the New Note constitutes indebtedness which is guarantied by the undersigned). Each of the undersigned further agrees that the consent of the undersigned to any further amendments to the Credit Agreement shall not be
required as a result of this consent having been obtained. 
  

			
	MERRYHILL SCHOOLS NEVADA, INC.
		
	By	 	 /s/ Thomas Frank

	Name	 	Thomas Frank
	Title	 	President
	
	NEDI, INC.
		
	By	 	 /s/ Thomas Frank

	Name	 	Thomas Frank
	Title	 	Assistant Treasurer
	
	THE HOUSTON LEARNING ACADEMY, INC.
		
	By	 	 /s/ George H. Bernstein

	Name	 	George H. Bernstein
	Title	 	President
	
	HOUSTON LEARNING ACADEMY–SAN ANTONIO, INC.
		
	By	 	 /s/ George H. Bernstein

	Name	 	George H. Bernstein
	Title	 	President

			
	SPYROS, INC.
		
	By	 	 /s/ George H. Bernstein

	Name	 	George H. Bernstein
	Title	 	President
	
	ORTHONI, INC.
		
	By	 	 /s/ George H. Bernstein

	Name	 	George H. Bernstein
	Title	 	President
	
	MARIAN CATECHIS, INC.
		
	By	 	 /s/ George H. Bernstein

	Name	 	George H. Bernstein
	Title	 	President
	
	SANC, INC.
		
	By	 	 /s/ George H. Bernstein

	Name	 	George H. Bernstein
	Title	 	President
	
	MALONA, INC.
		
	By	 	 /s/ George H. Bernstein

	Name	 	George H. Bernstein
	Title	 	President
	
	NOBEL LEARNING TECHNOLOGIES, INC.
		
	By	 	 /s/ George H. Bernstein

	Name	 	George H. Bernstein
	Title	 	President

					
	NOBEL SCHOOL MANAGEMENT SERVICES, INC.
		
	By	 	 /s/ George H. Bernstein

	Name	 	George H. Bernstein
	Title	 	President
	
	PALADIN ACADEMY, L.L.C.
		
	By:	 	Nobel Learning Communities, Inc., its sole member
			
	 	 	By	 	 /s/ Thomas Frank

	 	 	Name	 	Thomas Frank
	 	 	Title	 	CFO
	
	THE ACTIVITIES CLUB, INC.
		
	By	 	 /s/ Thomas Frank

	Name	 	Thomas Frank
	Title	 	Secretary/Treasurer

 EXHIBIT A 
  
 REVOLVING NOTE 
  

			
	U.S. $10,000,000	  	June     , 2005

  
 FOR
VALUE RECEIVED, the undersigned, NOBEL LEARNING COMMUNITIES, INC., a Delaware corporation (the “Borrower”), hereby promises to pay to the
order of Harris N.A., as successor by merger with Harris Trust and Savings Bank (the “Lender”) on the Revolving Credit Termination Date of the hereinafter defined Credit Agreement, at the principal office of Harris N.A., as
Administrative Agent, in Chicago, Illinois, in immediately available funds, the principal sum of Ten Million Dollars ($10,000,000) or, if less, the aggregate unpaid principal amount of all Revolving Loans made by the Lender to the Borrower pursuant
to the Credit Agreement, together with interest on the principal amount of each Revolving Loan from time to time outstanding hereunder at the rates, and payable in the manner and on the dates, specified in the Credit Agreement. 
  
 This Note is one of the Revolving Notes referred to in the Credit Agreement
dated as of February 20, 2004, among the Borrower, the Guarantors party thereto, the Lenders party thereto, and Harris Trust and Savings Bank, as Administrative Agent for the Lenders (as extended, renewed, amended or restated from time to time, the
“Credit Agreement”), and this Note and the holder hereof are entitled to all the benefits and security provided for thereby or referred to therein, to which Credit Agreement reference is hereby made for a statement thereof. All
defined terms used in this Note, except terms otherwise defined herein, shall have the same meaning as in the Credit Agreement. This Note shall be governed by and construed in accordance with the internal laws of the State of Illinois. 

 
 Voluntary prepayments may be made hereon, certain prepayments are required
to be made hereon, and this Note may be declared due prior to the expressed maturity hereof, all in the events, on the terms and in the manner as provided for in the Credit Agreement. 
  
 This Note is issued in substitution and replacement for, and evidences the indebtedness evidenced by that certain Revolving
Note of the Borrower dated February 20, 2004, payable to the order of the Lender in the face principal amount of $8,000,000. 
  
 The Borrower hereby waives demand, presentment, protest or notice of any kind hereunder. 
  

			
	NOBEL LEARNING COMMUNITIES, INC.
		
	By	 	  

	Name	 	  

	Title	 	  

 SCHEDULE 1 
  
 COMMITMENTS 
  

							
	 NAME OF LENDER

	  	TERM LOAN
COMMITMENT

	  	REVOLVING CREDIT
COMMITMENT

	 Harris Trust and Savings Bank
	  	$	15,000,000	  	$	10,000,000
			
	 TOTAL
	  	$	15,000,000	  	$	10,000,000

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