-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EFT61+nSCLML9fhP71LY53VoseXt5rYrxMOcyW1S/vp4ICnk8Uupn/Izpen05nxJ IN14B4zgIQoavQNR44/BTg== 0000921895-97-000731.txt : 19971006 0000921895-97-000731.hdr.sgml : 19971006 ACCESSION NUMBER: 0000921895-97-000731 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19971003 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: NUTRITION MANAGEMENT SERVICES CO/PA CENTRAL INDEX KEY: 0000879303 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-EATING PLACES [5812] IRS NUMBER: 232095332 STATE OF INCORPORATION: PA FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-19824 FILM NUMBER: 97690634 BUSINESS ADDRESS: STREET 1: 725 KIMBERTON RD CITY: KIMBERTON STATE: PA ZIP: 19442 BUSINESS PHONE: 6109352050 MAIL ADDRESS: STREET 1: 725 KIMBERTON ROAD CITY: KIMBERTON STATE: PA ZIP: 19442 10-K 1 FORM 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (Fee required) For the fiscal year ended June 30, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 (No fee required) (NO FEE REQUIRED) For the transition period from _____ to _____ Commission file Number 0-19824 NUTRITION MANAGEMENT SERVICES COMPANY (Exact name of registrant as specified in its charter) Pennsylvania 23-2095332 ------------------------------------------------------------------ (State or other jurisdiction of (IRS Employer Identification No.) incorporation or organization) 725 Kimberton Road, Kimberton, Pennsylvania 19442 ------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: 610-935-2050 Securities registered pursuant to Section 12(b) of the Act: Name of Each Exchange Title of Each Class on Which Registered ------------------- ------------------- None Securities registered pursuant to Section 12(g) of the Act: Title of Each Class ------------------- Shares of Class A Common Stock (no par value) (Cover page 1 of 2 pages) Indicate by checkmark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchanges Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES /X/ NO / / Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not ontained herein, and will not be contained to the best of the Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. /X/ The aggregate market value of voting stock (Class A Common Stock, no par value) held by non-affiliates of the Registrant as of September 24, 1997 was approximately $1,563,081. Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: At September 24, 1997, there was outstanding 2,772,665 shares of the Registrant's Class A Common Stock, no par value, and 100,000 shares of the Registrant's Class B Common Stock, no par value. DOCUMENTS INCORPORATED BY REFERENCE The information required by Part III for Form 10-K will be incorporated by reference to certain portions of a definitive proxy statement which is expected to be filed by the Registrant pursuant to Regulation 14A within 120 days after the close of its fiscal year. This report consists of consecutively numbered pages (inclusive of all exhibits and including this cover page). The Exhibit Index appears on pages 17-19. (Cover page 2 of 2 pages) PART I ITEM 1 - BUSINESS GENERAL Nutrition Management Services Company (the "Company" or the "Registrant") provides food management services to continuing care facilities, hospitals and retirement communities. The Company was incorporated under the laws of the Commonwealth of Pennsylvania on March 28, 1979, and focuses on the continuing care and health-care segments of the food service market. Its customers include continuing care facilities, hospitals, and retirement communities. On May 31, 1994, the Company purchased twenty-two (22) acres of land containing a 40,000 square foot building formerly used as a restaurant and banquet facility. The Company is currently renovating the property to serve as a comprehensive training facility for Company employees. In addition, the facility will serve as a showroom for prospective customers who will be able to observe the Company's programs for nursing and retirement home dining and hospital cafeteria operations. In September of 1997, the Company opened the retail restaurant portion of the Collegeville Inn Conference & Training Center. The revenue from the restaurant operation will be used to defray the costs and expenses of the training facility. The restaurant is managed by experienced professionals employed by and recruited by the Company. The remaining three divisions of the project are expected to open by the third quarter of fiscal 1998. See "Management's Discussion of Financial Condition and Results of Operations -- Liquidity and Capital Resources -- Investing Activities" for a description of the costs relating to the renovation work. FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS Not applicable. DESCRIPTION OF SERVICES The Company provides contract food service to continuing care facilities, hospitals, and retirement communities. The Company provides complete management and supervision of the dietary operations in its customers' facilities through the use of on-site management staff, quality and cost-control programs, and training and education of dietary staff. The Company's operational districts are supported by District Managers, registered dietitians and quality assurance staff. 1 The Company seeks to provide food service at a lower cost than self-managed facilities, while maintaining or improving existing service, nutritional care standards and regulatory compliance. MARKETING AND SALES The Company's customers include continuing care facilities, hospitals and retirement communities, which range in size from small individual facilities to large multi-facility operations. Although many facilities perform their own food service functions without relying upon outside management firms such as the Company, the Company expects the market for its services to grow as facilities increasingly seek to contain costs and are required to comply with increased governmental regulations. The Company's services are marketed at the corporate level by its Chief Executive Officer, its President, and its Marketing Representatives. The Company's services are marketed primarily through in-person solicitation of facilities. The Company also utilizes direct mail and participates in industry trade shows. MARKET FOR SERVICES The market for the Company's services consists of a large number of facilities involved in various aspects of the continuing care and health care fields, including nursing homes, retirement communities, hospitals and rehabilitation centers. Such facilities may be specialized or general, privately owned or public, profit or not-for-profit and may serve residents and patients on a continuing or short-term basis. SERVICE AGREEMENTS The Company provides its services under several different financial arrangements including a fee basis and profit and loss basis. As of June 30, 1997 the Company provided services under various service agreements at 102 facilities. At certain of these facilities, the Company has contracts to provide vending services in addition to the contract to provide food services. Most of these contracts have one year terms and are automatically renewable at the end of each service year. The agreements generally provide that either party may cancel the agreement upon ninety (90) days written notice. 2 The following table shows the number of customer accounts maintained by the Company during each of the last three fiscal years: 1997 1996 1995 ---- ---- ---- Agreements in effect at beginning of fiscal year 92 95 92 New agreements during the fiscal year 24 10 16 Purchased contracts -- -- -- Contracts canceled during the fiscal year 14 13 13 --- --- --- Agreements in effect at the end of the fiscal year 102 92 95 --- --- --- In consideration for providing its services, the Company expects to be paid by its clients in accordance with the credit terms agreed upon. Historically, the Company has not incurred any significant losses related to amounts not collected for services rendered. MAJOR CUSTOMER In fiscal 1997, 13% of the Company's revenues were derived from sales to one customer. The loss of such customer could have a material adverse affect on the Company's results of operations in fiscal 1998. COMPETITION The Company competes mainly with regional and national food service management companies operating in the continuing care and health care industries, as well as with the self managed departments of its potential clients. Although the competition to service these facilities is intense, the Company believes that it competes effectively for new agreements as well as for renewals of existing agreements based upon the quality and dependability of its services. The Company's ability to compete successfully depends upon its ability to maintain and improve quality, service and reliability, to attract and retain qualified employees and to continue to expand its marketing and service activities. 3 EMPLOYEES At June 30, 1997, the Company employed a total of approximately 885 employees. Approximately 309 of those employees serve in various executive, management, administrative, quality assurance and sales capacities. The remaining 576 employees are primarily dietary workers. A small percentage of the Company's dietary workers were covered by collective bargaining agreements. The Company considers relationships with its employees to be satisfactory. FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES Not applicable. ITEM 2 - PROPERTIES The Company leases its corporate offices, located at 725 Kimberton Road, Kimberton, PA 19442, which consists of approximately 8,500 square feet from a corporation controlled by a related party. The initial term of the lease expires on June 30, 2002. The Company leases an apartment from a corporation controlled by a related party to accommodate visiting clients and employees. In addition, the Company is provided with office space at each of its client facilities. The Company owns approximately twenty-two acres of land in Collegeville, Pennsylvania, upon which construction is currently in progress. The Company is renovating an existing 40,000 square foot building to serve as a training facility and restaurant. The Company presently owns food service equipment, computers, office furniture, and equipment, automobiles and trucks. Management believes that all properties and equipment are sufficient for the conduct of the Company's current operations. ITEM 3 - LEGAL PROCEEDINGS There are no material legal proceedings pending against the Company. ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. 4 PART II ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's Class A Common Stock No Par Value, (the "Class A Common Stock") is traded on the NASDAQ Small Cap Market ("NASDAQ"). The following table shows the range of high and low bid quotations as reported by NASDAQ for the quarters ending during the last two fiscal years for the Class A Common Stock: FISCAL 1997 HIGH LOW ----------------------------------------------- First Quarter 2 1 7/16 Second Quarter 1 9/16 1 1/4 Third Quarter 1 7/8 1 3/8 Fourth Quarter 2 1/8 1 7/16 FISCAL 1996 HIGH LOW ----------------------------------------------- First Quarter 2 5/8 1 11/16 Second Quarter 2 3/16 1 5/8 Third Quarter 1 13/16 1 1/8 Fourth Quarter 2 5/16 1 3/16 The prices presented are bid prices, which represent prices between broker-dealers and do not include retail mark-ups and mark-downs or any commission to the broker-dealer. The above prices do not reflect prices in actual transactions. HOLDERS As of September 19, 1997, there were approximately eighty holders of record of the Class A Common Stock. It is estimated that there are in excess of 500 beneficial holders of record. DIVIDENDS The Company has not paid any dividends on its Class A or Class B Common Stock. It is not expected that the Company will pay any dividends in the foreseeable future. 5 ITEM 6 - SELECTED FINANCIAL DATA The selected historical financial data presented below should be read in conjunction with, and is qualified in its entirety by reference to, the Consolidated Financial Statements and the notes thereto.
Years ended June 30 1997 1996 1995 1994 1993 ---- ---- ---- ---- ---- (as restated) Revenue $ 35,293,962 $ 35,138,432 $ 33,352,992 $ 31,464,440 $ 10,152,594 Gross profit 6,782,040 6,801,924 6,337,036 5,711,775 4,023,750 Income from Operations 1,020,689 418,991 553,050 1,160,541 498,924 Other income (Expense) 242,383 128,563 (41,187) (306,521) 498,282 Income before effect of accounting change 752,276 301,954 265,461 401,151 552,825 ============ ============ ============ ============ ============ Net Income $ 752,276 $ 301,954 $ 265,461 $ 656,838 $ 552,825 ============ ============ ============ ============ ============ Per share of common stock: Income before effect of accounting change $ 0.26 $ 0.10 $ 0.09 $ 0.13 $ 0.18 Net Income $ 0.26 $ 0.10 $ 0.09 $ 0.22 $ 0.18 ============ ============ ============ ============ ============ Weighted average common shares outstanding 2,921,549 2,956,504 2,975,000 2,989,589 3.088,356 ========= ========= ========= ========= ========= As of June, 30 1997 1996 1995 1994 1993 ---- ---- ---- ---- ---- (as restated) Working capital $ 2,800,374 $ 3,921,140 $ 6,131,681 $ 6,518,916 $ 5,370,610 Total Assets 20,381,557 16,962,352 16,366,159 15,556,388 7,645,020 Long-term debt 6,083,851 3,267,808 4,039,474 3,739,150 338,249 Shareholders' equity 6,972,153 6,309,595 6,037,329 5,771,868 5,341,655
6 ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS YEAR ENDED JUNE 30, 1997 COMPARED TO YEAR ENDED JUNE 30, 1996 Revenues for the year ended June 30, 1997 ("fiscal 1997") increased by 0.4% to $35,293,962 over revenues for the year ended June 30, 1996 ("fiscal 1996"). The increase results from growth within existing accounts as well as new accounts opened during the intervening period, offset by contracts canceled during the period. It is anticipated that revenues will increase in fiscal year 1998 over 1997 with the opening of the Collegeville Inn Conference & Training Center in the Fall of 1997. Direct cost of operations for fiscal 1997 was $28,511,922, compared to $28,336,508 for similar expenses in fiscal 1996, an increase of $175,414 or 0.6%. This increase in direct costs is consistent with revenue growth. Gross Profit for fiscal 1997 was $6,782,040, compared to $6,801,924, a decrease of $19,884 or 0.3%. This decrease is due to revenues decreasing at a greater percentage than direct expenses. General and administrative expenses for fiscal 1997 were $4,929,812 or 13.9% of revenue, compared to $5,608,365 or 15.9% of revenue for fiscal 1996. The expense reductions are the result of lower start-up costs, increased operating efficiencies and reduced travel expenses. Depreciation and amortization for fiscal 1997 was $651,539, compared to $621,285 for fiscal 1996. The increase of $30,254 or 4.8%, was attributable to additional depreciation related to capital expenditures. Depreciation and amortization expenses will increase by approximately $250,000 in fiscal 1998 over 1997 with the opening of the Collegeville Inn Conference & Training Center. Provisions for doutful accounts for fiscal 1997 was $180,000, compared to $153,283 for fiscal 1996. The increase of $26,717 or 17.4% was attributable to the increase in accounts receivable over 90 days for approximately six (6) accounts. Income from operations for fiscal 1997 was $1,020,689 or 2.9% of revenue compared to $418,991 or 1.2% of revenue for fiscal 1996, an increase of $601,698 or 144%. This increase in operating income is primarily the result of the decrease in general and administrative expenses of approximately $600,000. Interest expense for fiscal 1997 was $95,157 compared to $234,280 for fiscal 1996. This decrease of approximately $140,000 is a result of 7 the increase in the amount of interest expense capitalized due to an increase in the weighted average investment in Collegeville Inn Conference & Training Center. Interest expense will increase in fiscal year 1998 over 1997 with the opening of the Collegeville Inn Conference and Training Center. Interest and other non-operating income for fiscal 1997 was $337,540 as compared to $362,843 for fiscal 1996. This decrease is due to a reduction of gains resulting from dispositions of fixed assets. For the foregoing reasons, net income before taxes for fiscal 1997 was $1,263,072 or 3.6% of revenue compared to $547,554 or 1.6% of revenue for fiscal 1996, an increase of $715,518, or 130.7% from fiscal 1996. Net income for fiscal 1997 was $752,276 or $0.26 per share as compared to $301,954 and $0.10 per share for fiscal 1996. This increase of approximately $450,000 is primarily from operations. YEAR ENDED JUNE 30, 1996 COMPARED TO YEAR ENDED JUNE 30, 1995 Revenues for the year ended June 30, 1996 ("fiscal 1996") increased by 5.4% to $35,138,432 over revenues for the year ended June 30, 1995 ("fiscal 1995"). The increase results from growth within existing accounts as well as new accounts opened during the intervening period, offset by contracts canceled during the period. Direct cost of operations for fiscal 1996 was $28,336,508, compared to $27,015,956 for similar expenses in fiscal 1995, an increase of $1,320,552 or 4.9%. This increase in direct costs is consistent with revenue growth. Gross Profit for fiscal 1996 was $6,801,924, compared to $6,337,036, an increase of $464,888 or 7.3%. This increase is due to revenues increasing at a greater percentage than direct expenses. General and administrative expenses for fiscal 1996 were $5,608,365 or 15.9% of revenue, compared to $5,067,038 or 15.1% of revenue for fiscal 1995. These increases are due to additional administrative personnel being employed during the current year and additional expenses incurred for the installation of a company-wide computer network, as well as operating losses associated with the start-up costs of two major customers, of which one relationship has been terminated. Depreciation and amortization for fiscal 1996 was $621,285, compared to $530,596 for fiscal 1995. The increase of $90,689 or 17.1%, was 8 attributable to the charge-off of deferred costs associated with contracts canceled during fiscal 1996. (See "Service Contracts"). Provision for doubtful accounts for fiscal 1996 was $153,283 as compared to $186,352 for fiscal 1995. The decrease of $33,069 or 17.7% was attributable to the Company's increased efforts to collect past due accounts receivable. Income from operations for fiscal 1996 was $418,991 or 1.2% of revenue compared to $553,050 or 1.7% of revenue for fiscal 1995, a decrease of $134,059. This decrease in operating income is the result of the increase in expenses. Interest expense for fiscal 1996 was $234,280 or 0.7% of revenue, compared to $360,886 or 1.1% of revenue for fiscal 1995. This decrease is attributable to a decline in the average debt outstanding due to the Company's compliance with scheduled repayments. Interest and other non-operating income for fiscal 1996 was $362,843 as compared to $319,699 for fiscal 1995. This increase is due to "Other Income" consisting of discounts from making timely payments and gains resulting from dispositions of fixed assets. For the foregoing reasons, net income before taxes for fiscal 1996 was $547,554 or 1.6% of revenue compared to $511,863 or 1.5% of revenue for fiscal 1995, an increase of $35,691, an increase of 7.0% from fiscal 1995. Net income for fiscal 1996 was $301,954 or $0.10 per share as compared to $265,461 and $0.09 per share for fiscal 1995. LIQUIDITY AND CAPITAL RESOURCES At June 30, 1997, the Company had working capital of $2,800,374 as compared to $3,921,140 at June 30, 1996. This decrease in working capital is primarily attributable to expenses relating to $4,000,000 of renovation work at the Collegeville Inn Conference & Training Center. The Company's holdings in cash, cash equivalents and marketable securities decreased by $758,794 during fiscal 1997 to $2,267,723. The Company believes that its existing cash and cash equivalents, investments, and anticipated revenues will be sufficient to meet its liquidity and cash requirements for the next twelve months. 9 OPERATING ACTIVITIES Cash provided by operations for fiscal 1997 and 1996 was $1,776,147 and $1,629,000 respectively. This is primarily attributable to the decrease in accounts payable. INVESTING ACTIVITIES Investing activities consumed $5,109,103 in cash during fiscal 1997 compared to $754,404 provided by investing activities for fiscal 1996. Investing activities for fiscal 1997 includes capital expenditure in the amount of $4,002,864, of which approximately $3,848,361 related to the renovation work at the Collegeville Inn Conference & Training Center. The Company intends to incur costs between $1,000,000 and $1,250,000 for the remainder of the renovation. (See "Business - General Description of Business" for more discussion on the Collegeville Inn project). Additionally, the Company recorded proceeds of $1,000,000 from a bond issue to restricted cash. (See "Financing Activities"). For fiscal 1996, investing activities included capital expenditure in the amount of $2,672,801, of which $2,484,000 related to the renovation work at the Collegeville Inn Conference & Training Center. FINANCING ACTIVITIES During fiscal 1997, financing activities provided a net $2,574,162 in cash compared to $801,335 in cash consumed from financing activities in 1996. This is primarily due from the proceeds of two bond issuance's by the Montgomery County Industrial Development Authority. The total amount raised was $3,500,000, of which $2,500,000 is to be used by the Company for the rehabilitation, reconstruction, installation, furnishing and equipping of a building to be used as a conference center, training center, a food manufacturing/processing and distribution center and a retail restaurant. The remaining $1,000,000 is restricted as to use for the acquisition, construction, installation and renovation of certain equipment to be used in connection with a cook-chill system of batch food processing. In addition, during fiscal 1997, the Company restructured its debt with its primary lender to increase its revolving credit facility to $4,000,000. Borrowings under the Revolving Credit facility were $2,529,553 at June 30, 1997. CAPITAL RESOURCES The Company has certain credit facilities with its bank including a line of credit and three term loans. As of June 30, 1997, the Company had approximately $1,470,447 of unused credit available on its line of credit. The 10 Company is current with all its obligations to its bank and has met all financial covenants in its loan documents. A substantial portion of the Company's revenue are dependent upon the payment of its fees by customer health care facilities, which, in turn, are dependent upon third-party payers such as state governments, Medicare and Medicaid. Delays in payment by third-party payers, particularly state and local governments, may lead to delays in collection of accounts receivable. The Company has no other material commitments for capital expenditures (aside from the Collegeville Inn) and believes that its cash from operations, existing balances and available credit line will be sufficient to satisfy the needs of its operations and its capital commitments for the foreseeable future. However, if the need arose, the Company would seek to obtain capital from such sources as continuing debt financing or equity financing. EFFECTS OF INFLATION All of the Company's agreements with its customers allow the Company to pass through to its customers its increases in the cost of labor. The Company believes that it will be able to recover increased costs attributable to inflation by continuing to pass through cost increases to its customers. FORWARD-LOOKING STATEMENTS This Form 10-K contains certain forward looking statements within the meaning of Section 27A of the Securities Act of 1993, as amended, and Section 21E of the Securities Exchange Act of 1934 as amended, which are intended to be covered by the safe harbors created thereby. Although the Company believes that the assumptions underlying the forward-looking statements contained herein are reasonable, any of the assumptions could be inaccurate, and therefore, there can be no assurance that the forward-looking statements included in this Form 10-K will provide to be accurate. Factors that could cause actual results to differ from the results discussed in the forward-looking statements include, but are not limited to, expenditures relating to the renovation work at the Collegeville Inn Conference & Training Center. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by the Company or any other person that the objectives and plans of the Company will be achieved. NEW AUTHORITATIVE PRONOUNCEMENTS The Financial Accounting Standards Board ("FASB") has issued Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per 11 Share", and SFAS No. 129, "Disclosure of Information about Capital Structure," in February 1997. SFAS No. 128 simplifies the earnings per share ("EPS") calculations required by Accounting Principles Board ("APB") Opinion No. 15, and related interpretations, by replacing the presentation of primary EPS with a presentation of basic EPS. SFAS No. 128 requires dual presentation of basic and diluted EPS by entities with complex capital structures. Basic EPS includes no dilution and is computed by dividing income available to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution of securities that could share in the earnings of an entity, similar to the fully diluted EPS of APB Opinion No. 15. SFAS No. 128 is effective for financial statements issued for periods ending after December 15, 1997, including interim periods; earlier application is not permitted. When adopted, SFAS No. 128 will require restatement of all prior-period EPS data presented; however, the Company has not sufficiently analyzed SFAS No. 128 to determine that effect SFAS No. 128 will have on its historically reported EPS amounts. SFAS No. 129 does not change any previous disclosure requirements, but rather consolidates existing disclosure requirements for ease of retrieval. The FASB has issued SFAS No. 130, "Reporting Comprehensive Income." SFAS No. 130 is effective for fiscal years beginning after December 15, 1997. Earlier application is permitted. Reclassification of financial statements for earlier periods provided for comparative purposes is required. SFAS No. 130 is not expected to have a material impact on the Company. The FASB has issued SFAS No. 131, "Disclosures About Segments of an Enterprise and Related Information." SFAS No. 131 changes how operating segments are reported in annual financial statements and requires the reporting of selected information about operating segments in interim fnancial reports issued to shareholders. SFAS No. 131 is effective for periods beginning after December 15, 1997, and comparative information for earlier years is to be restated. SFAS No. 131 need not be applied to interim financial statements in the initial year of its application. SFAS No. 131 is not expected to have a material impact on the Company. ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The Financial Statements and Supplementary Data to be provided pursuant to this Item 8 are included under Part IV, Item 14, of this Form 10-K. 12 ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE In its filing on Form 8-K dated August 11, 1995, the Company reported that it had dismissed Mortenson & Associates, P. C. of Cranford, New Jersey (Mortenson) as its independent accountants. Mortenson had served as the Company's independent accountants as of and for the years ended June 30, 1994, 1993, 1992 and 1991. None of Mortenson's reports on these years contained any adverse opinions or disclaimers of opinion, nor were they qualified or modified as to uncertainty, audit scope, or accounting principles. In its filing on Form 8-K dated August 29, 1995, the Company reported that it had engaged Deloitte & Touche, LLP (Deloitte & Touche) of Philadelphia, Pennsylvania to serve as its new independent accountants. On October 12, 1995, the Company dismissed Deloitte & Touche, LLP, 1700 Market Street, Philadelphia, PA 19103 as its independent accountants. The Company and Deloitte & Touche had a disagreement regarding the accounting for a loss on a sale of investments. Both members of management and of the board of directors have discussed the subject matter of the disagreement with Deloitte & Touche. (See below for further description of the matter of disagreement.) Deloitte & Touche has never issued any report on the Company's financial statements. Also effective October 12, 1995, the Company re-engaged Mortenson to serve as its principal independent accountants to audit the Company's financial statements as of and for the year ended June 30, 1995. On September 27, 1994, the Company liquidated its holdings in certain GNMA funds and realized a loss of $316,000 which represented the difference between the funds' carrying value (cost) of $4,139,000 and the sale proceeds of $3,823,000. The loss was recognized as a charge to earnings for the quarter ended September 30, 1994 and was reported in the Company's Form 10-QSB for that quarter. At June 30, 1994, the Company's holdings in the GNMA funds were carried at cost which exceeded the market value of at that time by approximately $281,000. In connection with its audit, which it did not complete, of the Company's financial statements for the year ended June 30, 1995, Deloitte & Touche advised the Company that the GNMA funds should have, in its opinion, been reported at the lower of cost or market at June 30, 1994 and an unrealized loss should have been recorded as a charge against earnings in the Company's financial statements for the year ended June 30, 1994. Deloitte & Touche advised the Company that the fiscal 1994 financial statements and the interim fiscal 1995 financial statements should, in its opinion, be restated to reflect the loss in the fiscal 13 year ended June 30, 1994. Deloitte & Touche also advised the Company that it reports on the Company's fiscal 1995 financial statements would be qualified if the fiscal 1994 financial statements were not restated to report the loss in that year. Mortenson did not believe that restatement of the financial statements as of and for the year ended June 30, 1994 was required believing that the transaction in question had been accounted for in accordance with generally accepted accounting principles. Mortenson concurred with the Company's accounting for the holdings in the GNMA funds and that the unrealized loss of $281,000 as of June 30, 1994 was a temporary market decline. Mortenson's position was also based on the Company's belief that, as of June 30, 1994, it had both the intent and ability to hold these GNMA funds until the temporary decline reversed. The Company changed its intent due to events occurring in the first quarter of 1995 and, in turn, sold the GNMA fund holdings and realized the loss at that time. Mortenson believed that the accounting of the full loss in the first quarter of 1995 was appropriate. At the time of the change in independent accountants, the Company's management also believed that restatement of 1994's financial statements was not necessary. In July of 1996, the firm of Mortenson & Associates, P.C. changed its name to Moore Stephens, P.C. There have been no other transactions similar to the one described herein that resulted in the disagreement. PART III ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT This information will be contained in the Proxy Statement of the Company for the 1997 Annual Meeting of Shareholders under the caption "Directors and Executive Officers of the Registrant", and is incorporated herein by reference. ITEM 11 - EXECUTIVE COMPENSATION This information will be contained in the Proxy Statement of the Company for the 1997 Annual Meeting of Shareholders under the caption "Executive Compensation and Compensation of Directors" and is incorporated herein by reference. ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT This information will be contained in the Proxy Statement of the Company for the 1997 Annual Meeting of Shareholders under the caption 14 "Security Ownership" and "Election of Directors" and is incorporated herein by reference. ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS This information will be contained in the Proxy Statements of the Company for the 1997 Annual Meeting of Shareholders under the caption "Certain Relationships and Related Transactions" and is incorporated herein by reference. PART IV ITEM 14 - EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K (A) 1. Consolidated Financial Statements Independent Auditor's Report F-1 Consolidated Balance Sheets as of June 30, 1997 and 1996 F-2, 3 Consolidated Statements of Operations for the Years Ended June 30, 1997, 1996, 1995 and 1994 F-4 Consolidated Statements of Stockholders' Equity for the Years Ended June 30, 1997 1996 and 1995 F-5 Consolidated Statements of Cash Flows for the Years Ended June 30, 1997, 1996 and 1995 F-6, 7 Notes to Consolidated Financial Statements F-8 to F-20 Independent Auditor's Report Related Financial Statement Schedule F-21 Schedule of Valuation Accounts F-22 (B) REPORTS ON FORM 8-K None 15 (C) EXHIBITS The following Exhibits are filed as part of this report (references are to Reg. S-K Exhibit Numbers): 3.1 Amended and Restated Certificate of Incorporation of Company (Incorporated by reference to Exhibit 3-1 of the Company's Registration Statement on Form S-1 (File No. 33-4281). 3.2 By-laws of the Company (Incorporated by reference to Exhibit 3.2 of the S-1). 4.1 Specimen Stock Certificate of the Company (Incorporated by reference to Exhibit 4.1 of the S-1). 4.5 Registration Rights Agreement between the Company and Kathleen Hill (Incorporated by reference to Exhibit 4.5 of the S-1). 10.1 Employment Agreement between the Company and Joseph Roberts (Incorporated by reference to Exhibit 10.1 of the S-1). 10.3 Employment Agreement between the Company and Kathleen Hill (Incorporated by reference 10.3 of the S-1). 10.4 Company's 1991 Stock Option Plan (Incorporated by reference to Exhibit 10.4 of the S-1). 10.8 Guaranty Agreement between the Company and Joseph Roberts (Incorporated by reference to Exhibit 10.9 Annual Report on Form 10-K filed September 27, 1992). 10.9 Lease Agreement Between the Company and Ocean 7, Inc. (Incorporated by reference to Exhibit 10.11 Annual Report of Form 10-K filed September 27, 1992). 10.11 Escrow Agreement among the Company, Service America Corporation and Meridian Bank (Incorporated by reference to Exhibit 2, Current Report on Form 8-K filed July 29, 1993). 10.13 Agreement of Purchase and Sale between the Company and REVEST II Corporation, with Amendments. (Incorporated by reference to Exhibit 10.13, Annual Report on Form 10-KSB filed September 27, 1994). 16 10.14 Loan Agreement between the Montgomery County Industrial Development Authority and Collegeville Inn Conference & Training Center, Inc. (a wholly-owned subsidiary of the Company). 10.15 Trust Indenture between Montgomery County Industrial Development Authority and Dauphin Deposit Bank and Trust Company, as Trustee. 10.16 Loan Agreement between Montgomery County Industrial Development Authority and Apple Fresh Foods Limited (a wholly- owned subsidiary of the Company). 10.17 Trust Indenture between the Montgomery County Development Authority and Dauphin Deposit Bank and Trust Company, as Trustee. 10.18 Loan Agreement between the Company and Corestates Bank, N.A. 17 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Nutrition Management Services Company (Registrant) /s/ Joseph V. Roberts ---------------------------------- Joseph V. Roberts, Chief Executive Officer and Director /s/ James J. Swiniuch --------------------------------- James J. Swiniuch, Chief Financial Officer and Principal Accounting Officer Date: September 22, 1997 Pursuant to the requirements of the Securities and Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities indicated as of September 22, 1996. /s/ Joseph V. Roberts /s/ Kathleen A. Hill - ------------------------------- ------------------------------ Joseph V. Roberts, Chief Kathleen A. Hill, President and Executive Officer and Director Director /s/ Janet Purro /s/ Samuel R. Shipley - ------------------------------- ------------------------------ Janet Purro, Director Samuel R. Shipley, Director /s/ Michael M. Gosman /s/ Jane Scaccetti Fumo - ------------------------------- ------------------------------ Michael M. Gosman, Director Jane Scaccetti Fumo, Director 18 NUTRITION MANAGEMENT SERVICES COMPANY AND SUBSIDIARIES - -------------------------------------------------------------------------------- TABLE OF CONTENTS - -------------------------------------------------------------------------------- Page Independent Auditor's Report........................................ F-1 Consolidated Balance Sheets as of June 30, 1997 and 1996............ F-2 - F-3 Consolidated Statements of Operations for the years ended June 30, 1997, 1996 and 1995........................................ F-4 Consolidated Statements of Stockholders' Equity for the years ended June 30, 1997, 1996 and 1995........................ F-5 Consolidated Statements of Cash Flows for the years ended June 30, 1997, 1996 and 1995.................................. F-6 - F-7 Notes to Consolidated Financial Statements.......................... F-8 - 20 . . . . . . . . . INDEPENDENT AUDITOR'S REPORT To the Board of Directors and Stockholders of Nutrition Management Services Company Kimberton, Pennsylvania We have audited the accompanying consolidated balance sheets of Nutrition Management Services Company and its subsidiaries as of June 30, 1997 and 1996, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended June 30, 1997. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Nutrition Management Services Company and its subsidiaries as of June 30, 1997 and 1996, and the consolidated results of their operations and their cash flows for each of the three years in the period ended June 30, 1997, in conformity with generally accepted accounting principles. MOORE STEPHENS, P. C. Certified Public Accountants. Cranford, New Jersey September 10, 1997 F-1 NUTRITION MANAGEMENT SERVICES COMPANY AND SUBSIDIARIES - -------------------------------------------------------------------------------- CONSOLIDATED BALANCE SHEETS - --------------------------------------------------------------------------------
June 30, -------- 1 9 9 7 1 9 9 6 ------- ------- Assets: Current Assets: Cash and Cash Equivalents $ 2,267,813 $ 3,026,607 Accounts Receivable [Net of Allowance for Doubtful Accounts of $531,428 and $362,065 in 1997 and 1996, Respectively] 5,900,572 5,863,105 Unbilled Revenue 244,107 273,132 Notes and Leases Receivable [Net of Allowance for Doubtful Accounts of $-0- and $-0- in 1997 and 1996, Respectively] 202,124 823,602 Advances to Employees 281,026 262,415 Deferred Income Taxes 599,000 387,183 Inventory and Other 409,068 407,221 --------------- --------------- Total Current Assets 9,903,710 11,043,265 --------------- --------------- Property and Equipment - Net 1,203,429 1,358,968 --------------- --------------- Construction in Progress 6,939,702 3,091,341 --------------- --------------- Other Assets: Restricted Cash 1,096,076 146,827 Long-Term Accounts Receivable [Net of Allowance for Doubtful Accounts of $57,509 in 1997 and 1996] 50,815 50,815 Investment in Contracts [Net of Accumulated Amortization of $1,278,561 and $937,263 in 1997 and 1996, Respectively] 427,928 769,226 Lease Receivable 157,952 289,882 Deferred Income Taxes 233,000 112,000 Deferred Costs and Other Assets 368,945 100,028 --------------- --------------- Total Other Assets 2,334,716 1,468,778 --------------- --------------- Total Assets $ 20,381,557 $ 16,962,352 =============== ===============
See Notes to Consolidated Financial Statements. F-2 NUTRITION MANAGEMENT SERVICES COMPANY AND SUBSIDIARIES - -------------------------------------------------------------------------------- CONSOLIDATED BALANCE SHEETS - --------------------------------------------------------------------------------
June 30, -------- 1 9 9 7 1 9 9 6 ------- ------- Liabilities and Stockholders' Equity: Current Liabilities: Accounts Payable $ 4,322,662 $ 5,042,025 Accrued Expenses 757,286 273,054 Accrued Payroll 460,898 471,806 Accrued Professional 392,012 124,000 Current Portion of Long-Term Debt 744,504 896,667 Accrued Income Taxes 232,521 45,063 Other 193,453 269,510 --------------- --------------- Total Current Liabilities 7,103,336 7,122,125 --------------- --------------- Long-Term Liabilities: Long-Term Debt - Net of Current Portion 6,083,851 3,267,808 Other 222,217 262,824 --------------- --------------- Total Long-Term Liabilities 6,306,068 3,530,632 --------------- --------------- Commitments and Contingencies -- -- --------------- --------------- Stockholders' Equity: Undesignated Preferred Stock - No Par, 2,000,000 Shares Authorized, None Outstanding -- -- Common Stock: Class A - No Par, 10,000,000 Shares Authorized; 3,000,000 and 3,000,000 Issued, 2,797,665 and 2,850,000 Outstanding in 1997 and 1996, Respectively 3,801,926 3,801,926 Class B - No Par, 100,000 Shares Authorized; 100,000 Shares Issued and Outstanding 48 48 Retained Earnings 3,591,210 2,838,934 --------------- --------------- Totals 7,393,184 6,640,908 Less: Treasury Stock - [Common - Class A: 202,335 and 150,000 Shares in 1997 and 1996, Respectively] - At Cost (421,031) (331,313) --------------- --------------- Total Stockholders' Equity 6,972,153 6,309,595 --------------- --------------- Total Liabilities and Stockholders' Equity $ 20,381,557 $ 16,962,352 =============== ===============
See Notes to Consolidated Financial Statements. F-3 NUTRITION MANAGEMENT SERVICES COMPANY AND SUBSIDIARIES - -------------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF OPERATIONS - --------------------------------------------------------------------------------
Y e a r s e n d e d J u n e 3 0, 1 9 9 7 1 9 9 6 1 9 9 5 ------- ------- ------- Food Service Revenue $ 35,293,962 $ 35,138,432 $ 33,352,992 ---------------- --------------- --------------- Cost of Operations: Payroll and Related Expenses 13,918,106 13,128,099 13,204,316 Other Costs of Operations 14,593,816 15,208,409 13,811,640 ---------------- --------------- --------------- Total Cost of Operations 28,511,922 28,336,508 27,015,956 ---------------- --------------- --------------- Gross Profit 6,782,040 6,801,924 6,337,036 ---------------- --------------- --------------- Expenses: General and Administrative Expenses 4,929,812 5,608,365 5,067,038 Depreciation and Amortization 651,539 621,285 530,596 Provision for Doubtful Accounts 180,000 153,283 186,352 ---------------- --------------- --------------- Total Expenses 5,761,351 6,382,933 5,783,986 ---------------- --------------- --------------- Income from Operations 1,020,689 418,991 553,050 ---------------- --------------- --------------- Other Income [Expenses]: Interest Expense (95,157) (234,280) (360,886) Interest Income 309,158 292,819 307,912 Other 28,382 70,024 11,787 ---------------- --------------- --------------- Other Income [Expenses] - Net 242,383 128,563 (41,187) ---------------- --------------- --------------- Income Before Income Taxes 1,263,072 547,554 511,863 Income Tax Expense 510,796 245,600 246,402 ---------------- --------------- --------------- Net Income $ 752,276 $ 301,954 $ 265,461 ================ =============== =============== Net Income Per Share $ .26 $ .10 $ .09 ================ =============== =============== Weighted Average Number of Shares 2,921,549 2,956,504 2,975,000 ================ =============== =============== See Notes to Consolidated Financial Statements.
F-4 NUTRITION MANAGEMENT SERVICES COMPANY AND SUBSIDIARIES - -------------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY - --------------------------------------------------------------------------------
Class A Class B Common Stock Common Stock Treasury Stock Total Number Number Retained Number Stockholders' of Shares Amount of Shares Amount Earnings of Shares Amount Equity Balance - June 30, 1994 [Restated] 2,875,000 $ 3,801,926 100,000 $ 48 $ 2,271,519 (125,000) $ (301,625) $ 5,771,868 Net Income -- -- -- -- 265,461 -- -- 265,461 ------------ ------------ ---------- -------- ------------ ----------- ------------ ------------- Balance - June 30, 1995 2,875,000 3,801,926 100,000 48 2,536,980 (125,000) (301,625) 6,037,329 Sale of 12,500 Treasury Shares of Class A Stock 12,500 -- -- -- -- 12,500 25,000 25,000 Repurchase of Company Stock (37,500) -- -- -- -- (37,500) (54,688) (54,688) Net Income -- -- -- -- 301,954 -- -- 301,954 ------------ ------------ ---------- -------- ------------ ----------- ------------ ------------- Balance - June 30, 1996 2,850,000 3,801,926 100,000 48 2,838,934 (150,000) (331,313) 6,309,595 Repurchase of Company Stock (52,335) -- -- -- -- (52,335) (89,718) (89,718) Net Income -- -- -- -- 752,276 -- 752,276 ------------ ------------ ---------- -------- ------------ ----------- ------------ ------------- Balance - June 30, 1997 2,797,665 $ 3,801,926 100,000 $ 48 $ 3,591,210 (202,335) $ (421,031) $ 6,972,153 ============ ============ ========== ======== ============ =========== ============ =============
See Notes to Consolidated Financial Statements. F-5 NUTRITION MANAGEMENT SERVICES COMPANY AND SUBSIDIARIES - -------------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF CASH FLOWS - --------------------------------------------------------------------------------
Y e a r s e n d e d J u n e 3 0, 1 9 9 7 1 9 9 6 1 9 9 5 ------- ------- ------- Operating Activities: Net Income $ 752,276 $ 301,954 $ 265,461 Adjustments to Reconcile Net Income to Net Cash Provided by [Used for] Operating Activities: Depreciation and Amortization 651,539 621,285 530,596 Provision for Bad Debts 180,000 153,283 186,352 Amortization of Deferred Gain (26,372) (26,372) (26,372) Provision for Deferred Taxes (333,000) (156,000) 62,615 Amortization of Lease Receivable (28,438) (44,460) (54,584) Gain on Sale of Fixed Assets -- (43,472) -- Changes in Assets and Liabilities: Accounts Receivable (217,467) (618,087) (1,474,826) Notes Receivable 637,057 199,129 202,762 Unbilled Revenue 29,025 64,544 (5,190) Accounts Payable (719,363) 1,084,369 975,882 Accrued Legal and Expenses 752,244 42,820 149,938 Accrued Payroll (10,908) 57,844 55,369 Accrued Income Taxes 187,458 (34,863) (753,849) Other (77,904) 27,026 (150,418) --------------- ---------------- --------------- Net Cash - Operating Activities 1,776,147 1,629,000 (36,264) --------------- ---------------- --------------- Investing Activities: Payment of Mortgage Receivable from Related Party -- 55,577 23,715 Proceeds from Sale of Marketable Securities -- 2,970,099 6,690,667 Investment in Marketable Securities -- -- (5,848,266) Purchase of Property and Equipment (154,503) (188,780) (702,891) Construction in Progress Expenditures (3,848,361) (2,484,021) (597,386) Proceeds from Sale of Fixed Assets -- 71,645 -- Investment in Contracts -- -- (232,053) Transfers From [To] Restricted Cash (949,249) -- 452,017 Other (296,079) 53,517 57,007 Payment of Lease Receivable 144,790 157,953 157,953 Advances to Employees and Officers (18,611) (133,305) (92,526) Deferred Costs 12,910 251,719 (93,971) --------------- ---------------- --------------- Net Cash - Investing Activities (5,109,103) 754,404 (185,734) --------------- ---------------- --------------- Financing Activities: Proceeds from Long-Term Borrowings 3,560,547 125,000 1,645,000 Repayment of Long-Term Borrowings (896,667) (896,667) (1,493,950) Purchase of Treasury Stock (89,718) (54,688) -- Sale of Treasury Stock -- 25,000 -- --------------- ---------------- --------------- Net Cash - Financing Activities 2,574,162 (801,355) 151,050 --------------- ---------------- --------------- Net [Decrease] Increase in Cash and Cash Equivalents - Forward $ (758,794) $ 1,582,049 $ (70,948)
See Notes to Consolidated Financial Statements. F-6 NUTRITION MANAGEMENT SERVICES COMPANY AND SUBSIDIARIES - -------------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF CASH FLOWS - --------------------------------------------------------------------------------
Y e a r s e n d e d J u n e 3 0, 1 9 9 7 1 9 9 6 1 9 9 5 ------- ------- ------- Net [Decrease] Increase in Cash and Cash Equivalents - Forwarded $ (758,794) $ 1,582,049 $ (70,948) Cash and Cash Equivalents - Beginning of Years 3,026,607 1,444,558 1,515,506 --------------- ---------------- --------------- Cash and Cash Equivalents - End of Years $ 2,267,813 $ 3,026,607 $ 1,444,558 =============== ================ =============== Supplemental Disclosures of Cash Flow Information: Cash paid during the years for: Interest [Net of Amounts Capitalized] $ 100,987 $ 234,280 $ 356,596 Income Taxes $ 674,903 $ 250,000 $ 870,138
Supplemental Disclosure of Non-Cash Investing and Financing Activities: During the year ended June 30, 1997 and 1996, the Company exchanged accounts receivable and property and equipment of approximately $500,873 and $62,085, respectively, for a note receivable. See Notes to Consolidated Financial Statements. F-7 NUTRITION MANAGEMENT SERVICES COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- [1] Organization and Business Nutrition Management Services Company [the "Company"] was organized on March 28, 1979 to provide professional management expertise and food services to continuing care and health care facilities in the domestic United States. The Company competes mainly with regional and national food service management companies as well as self managed departments. Apple Management Services ["Apple Management"], a wholly-owned subsidiary, was organized on November 25, 1991 to provide management service expertise. The Collegeville Inn Conference and Training Center, Inc. ["Collegeville Inn"], a wholly-owned subsidiary, was organized on April 29, 1994 to acquire the land and a building located in Lower Providence Township, Pennsylvania. This facility will be utilized to operate a training center which will be open to the public. Apple Fresh Foods, Ltd. ["Apple Fresh Foods"] was organized on November 14, 1996, to develop a "cook/chill" food preparation technology for use in the Company's food service business. Apple Fresh Food's operation is located in the Collegeville Inn. [2] Summary of Significant Accounting Policies Principles of Consolidation - The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. Intercompany transactions and balances have been eliminated in consolidation. Cash and Cash Equivalents - Cash equivalents are comprised of certain highly liquid investments with a maturity of three months or less when purchased. Unbilled Revenue - Unbilled revenue represents amounts for services provided, but not billed as of the balance sheet date. Inventory - Inventory, which consists primarily of food, is stated at the lower of cost [first-in, first-out method] or market. Inventory of $304,579 and $374,850 has been included in inventory and other as of June 30, 1997 and 1996, respectively. Property and Equipment and Depreciation - Property and equipment are stated at cost. Depreciation is provided using the straight-line method over the estimated useful lives of the related assets or the remaining lease term. Estimated useful lives of the principal items of property and equipment range from 2 to 7 years. Investment in Contracts - During 1993, the Company entered into an agreement for the acquisition of various service facility contracts. The costs associated with this acquisition were capitalized and are being amortized over a period of five years using the straight-line method. Deferred Costs - Costs for contracts which are incurred in connection with the commencement of providing services to a new customer are capitalized. These costs are amortized over a period of twelve months. Unamortized deferred costs of $10,557 have been included in deferred costs and other as of June 30, 1996. During the years ended June 30, 1997, 1996 and 1995, amortization expense was $341,298, $341,298 and $329,695, respectively. Deferred Financing Costs - Debt financing costs incurred in connection with the bonds payable are deferred and amortized, using the interest method, over the term of the related debt and are classified as other assets on the balance sheet. F-8 NUTRITION MANAGEMENT SERVICES COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #2 - -------------------------------------------------------------------------------- [2] Summary of Significant Accounting Policies [Continued] Accounting for Stock-Based Compensation - Effective July 1, 1996, the Company adopted the disclosure provisions of Financial Accounting Standards ["SFAS"] No. 123, "Accounting for Stock- Based Compensation." The Company applies Accounting Principles Board Opinion No. 25 and related interpretations in accounting for its employee stock option plans. Note 11 to the Consolidated Financial Statements contains a summary of the pro forma effects on reported net income and earnings per share for fiscal 1997 and 1996 based on the fair value of options and shares granted as prescribed by SFAS No. 123. Income Taxes - Income taxes consist of taxes currently due plus deferred taxes related primarily to temporary differences between the basis of assets and liabilities for financial and income tax reporting. Deferred tax assets and liabilities represent the future tax return consequences of those differences, which will either be taxable or deductible when the assets and liabilities are recovered or settled. Impairment - Certain long-term assets of the Company including goodwill are reviewed at least annually as to whether their carrying value has become impaired, pursuant to guidance established in Statement of Financial Accounting Standards ["SFAS"] No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." Management considers assets to be impaired if the carrying value exceeds the future projected cash flows from related operations [undiscounted and without interest charges]. If impairment is deemed to exist, the assets will be written down to fair value or projected discounted cash flows from related operations. Management also re-evaluates the periods of amortization to determine whether subsequent events and circumstances warrant revised estimates of useful lives. As of June 30, 1997, management expects these assets to be fully recoverable. Earnings Per Share - Earnings per share amounts are based on the weighted average number of shares of common stock outstanding during the years ended June 30, 1997, 1996 and 1995. Stock options and warrants did not impact earnings per share each year as they were anti-dilutive. Reclassification - Certain 1996 items have been reclassified to conform to the current year presentation. Use of Estimates - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. [3] Property and Equipment and Construction in Progress The following details the composition of property and equipment: June 30, -------- 1 9 9 7 1 9 9 6 ------- ------- Property and Equipment: Land $ 497,967 $ 497,967 Machinery and Equipment 1,481,032 1,409,270 Other, Principally Autos and Trucks 193,605 110,864 -------------- --------------- Totals 2,172,604 2,018,101 Less: Accumulated Depreciation 969,175 659,133 -------------- --------------- Totals $ 1,203,429 $ 1,358,968 ------ ============== =============== F-9 NUTRITION MANAGEMENT SERVICES COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #3 - -------------------------------------------------------------------------------- [3] Property and Equipment and Construction in Progress [Continued] Depreciation expense amounted to $310,241, $299,978 and $206,984 for the years ended June 30, 1997, 1996 and 1995, respectively. The Company capitalized interest costs of $366,492, $164,702 and $-0- in 1997, 1996 and 1995, respectively, for qualifying construction projects. Total interest costs incurred before recognition of the capitalized amounts were $461,649, $398,982 and $360,886 for the years ended June 30, 1997, 1996 and 1995, respectively. The Company has capitalized salary of $90,000 paid to the Chairman of the Board for his additional supervisory services for the Collegeville Inn project. These services commenced January 1997 for a monthly fee of $15,000. [4] Restricted Cash At June 30, 1997 and 1996, the Company had $1,096,076 and $146,827 of restricted cash, respectively of which $154,782 and $145,627, respectively, is held in escrow in connection with the acquisition of various service facility contracts [See Note 2]. The remaining balance is attributable to the Industrial Revenue Bond proceeds of $1,000,000 to finance the acquisition, construction, installation and renovation of certain equipment to be used in connection with a cook-chill system of batch food processing; and the payment of a portion of the costs and expenses of issuing the Bonds [See Note 6]. [5] Lease Receivable The Company leases equipment to a service facility under a direct financing type lease as defined in Statement of Financial Accounting Standards No. 13. Future minimum gross lease payments to be received for the following years consist of: June 30, 1998 $ 157,953 1999 157,953 --------------- Total 315,906 Less: Amount Representing Unearned Interest Income (28,882) --------------- Minimum Lease Payments Receivable $ 287,024 --------------------------------- =============== These amounts are classified in the balance sheet as follows: Current Assets $ 129,072 Noncurrent Assets 157,952 --------------- Total $ 287,024 ----- =============== F-10 NUTRITION MANAGEMENT SERVICES COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #4 - -------------------------------------------------------------------------------- [6] Long-Term Debt Long-term debt consisted of the following:
June 30, 1 9 9 7 1 9 9 6 ------- ------- Bank revolving credit, interest due monthly at the bank's prime rate plus 0.5%, secured by all corporate assets as well as a negative pledge on all assets. Converts to a 5 year term loan in December 1998. $ 2,529,553 $ 2,529,553 Note payable, term loan incurred in connection with acquisition of various service facility contracts, payable in equal monthly installments of $53,334 plus interest of 7.5%, note is unsecured, matures on March 5, 1998. 453,671 1,093,672 Note payable, term loan incurred in connection with purchased equipment, payable in equal monthly installments of $10,417 bearing interest at 9.5%, matures in fiscal 1999. The acquired equipment is pledged as collateral. 218,750 343,750 Note payable, term loan incurred in connection with the purchase of equipment payable in monthly installments of $10,972 bearing interest at 8.5%, matures in fiscal 1998. The acquired equipment is pledged as collateral. 65,833 197,500 Industrial Revenue Bonds [Collegeville Inn Projects][See Bonds Payable]. 2,560,548 -- Industrial Revenue Bonds [Apple Fresh Foods Projects][See Bonds Payable]. 1,000,000 -- ------------- ------------- Totals 6,828,355 4,164,475 Less: Current Maturities 744,504 896,667 ------------- ------------- Totals $ 6,083,851 $ 3,267,808 ------ ============= =============
In December 1996, the Company executed a loan agreement with a bank for a revolving credit and two irrevocable letters of credit, totaling approximately $7,500,000. The revolving credit is available for two years, at which time, it converts to a term loan, and the letters of credit are available for four years, with annual renewals. At June 30, 1997, the Company has approximately $1,500,000 available under the revolving credit. Advances under the revolving credit are used for working capital purposes and the acquisition and renovation of the Collegeville Inn. These credit agreements contain covenants that include the submission of specified financial information and the maintenance of insurance coverage for the pledged assets during the term of the loans. The covenants also include the maintenance of a certain current ratio, minimum net worth, minimum cash and cash equivalents balance and other ratios. As of June 30, 1997, the Company was in compliance with the covenant provisions of these agreements. The bank's prime rate at June 30, 1997 was 8.25%. All borrowing is from a single lender. F-11 NUTRITION MANAGEMENT SERVICES COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #5 - -------------------------------------------------------------------------------- [6] Long-Term Debt [Continued] Maturities of principal due in the following years are set forth below: Year ending June 30, 1998 $ 744,504 1999 198,750 2000 110,000 2001 120,000 2002 125,000 Thereafter 5,530,101 --------------- Total $ 6,828,355 ----- =============== Bonds Payable - In December 1996, the Company, through its subsidiaries, authorized two industrial revenue bond issues. Issue #1 Title - Montgomery County Industrial Development Authority, $2,500,000 aggregate principal amount, federally taxable variable rate demand/fixed rate revenue bonds [Collegeville Inn Project] Series of 1996. Rate - Variable, to a maximum of 17% Term - 20 years [2016] Purpose - Rehabilitate, furnish and equip the Collegeville Inn facility. Issue #2 Title - Montgomery County Industrial Development Authority, $1,000,000 aggregate principal amount, federally taxable variable rate demand/fixed rate revenue bonds [Apple Fresh Foods Ltd. Project] Series of 1996. Rate - Variable, to a maximum of 15% Term - 20 years [2016] Purpose - Develop a "cook/chill" food preparation technology at the Collegeville Inn side for the Company. Note: This issue is tax-exempt. Each series of bonds is guaranteed by the parent company and the other subsidiaries. The assets of Collegeville Inn and Apple Fresh Foods are pledged as collateral for both series of bonds. The Company's bank has issued irrevocable letters of credit in favor of the bond trustee for the full amount of both bond issues. The letters of credit have a term of four years and can be renewed on an annual basis by the bank. The bank holds the mortgage on the Collegeville Inn building and property. The letters of credit are guaranteed by the parent company. F-12 NUTRITION MANAGEMENT SERVICES COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #6 - -------------------------------------------------------------------------------- [6] Long-Term Debt [Continued] The sinking fund requirements are as follows: Collegeville Apple Fresh Inn Foods Total 1998 $ 70,000 $ 30,000 $ 100,000 1999 $ 70,000 $ 35,000 $ 105,000 2000 $ 75,000 $ 35,000 $ 110,000 2001 $ 80,000 $ 40,000 $ 120,000 2002 $ 85,000 $ 40,000 $ 125,000 [7] Income Taxes The components of income tax expense are:
J u n e 3 0, -------------------------------- 1 9 9 7 1 9 9 6 1 9 9 5 ------- ------- ------- Current: Federal $ 618,839 $ 267,900 $ 115,656 State 224,957 133,700 68,131 ---------------- --------------- ---------------- Total Current 843,796 401,600 183,787 ---------------- --------------- ---------------- Deferred: Federal (266,000) (121,000) 44,590 State (67,000) (35,000) 18,025 ---------------- --------------- ---------------- Total Deferred [Benefit] Expense (333,000) (156,000) 62,615 ---------------- --------------- ---------------- Totals $ 510,796 $ 245,600 $ 246,402 ------ ================ =============== ================
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are presented below: June 30, -------- 1 9 9 7 1 9 9 6 ------- ------- Deferred Tax Assets: Provision for Doubtful Accounts $ 265,000 $ 191,000 Excess of Tax Over Financial Statement Basis of Investments in Contracts 228,000 108,000 Deferred Gains 47,000 62,000 Vacation Accrual 205,000 169,000 Other Compensation Accrual 80,000 28,183 Federal Capital Loss Carryforwards 51,680 51,680 Other 109,000 -- ------------- -------------- Gross Deferred Tax Assets 985,680 609,863 Deferred Tax Asset Valuation Allowance (51,680) (51,680) ------------- -------------- Total Deferred Tax Assets - Forward $ 934,000 $ 558,183 F-13 NUTRITION MANAGEMENT SERVICES COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #7 - -------------------------------------------------------------------------------- [7] Income Taxes [Continued]
June 30, -------- 1 9 9 7 1 9 9 6 ------- ------- Total Deferred Tax Assets - Forwarded $ 934,000 $ 558,183 --------------- ---------------- Deferred Tax Liabilities: Deferred Costs Capitalized for Financial Statement Purposes 17,000 5,000 Depreciation 85,000 54,000 --------------- ---------------- Total Deferred Tax Liabilities 102,000 59,000 --------------- ---------------- $ 832,000 $ 499,183 =============== ================ These amounts are classified in the balance sheet as follows: Current Asset $ 599,000 $ 387,183 Non-Current Asset 233,000 112,000 --------------- ---------------- Totals $ 832,000 $ 499,183 ------ =============== ================
The following reconciles the tax provision with the U.S. statutory tax rates: J u n e 3 0, -------------------------------- 1 9 9 7 1 9 9 6 1 9 9 5 ------- ------- ------- Income Taxes at U.S. Statutory Rates 34.0% 34.0% 34.0% States Taxes, Net of Federal Tax Benefit 7.3 9.5 11.3 Other, Principally Nondeductible Expenses 0.6 1.4 2.8 -------- -------- -------- Totals 41.9% 44.9% 48.1% ------ ======== ======== ======== The Company has available federal capital loss carryforwards in the amount of $152,000, which expire in the year 2000. [8] Related Party During 1992, the Company sold its building for a purchase price of $610,000, to a related party [a corporation wholly-owned by the principal stockholder of the Company]. At the time of the sale a lease was entered into for ten years, whereby the Company will lease back the building from the purchaser. The sale resulted in a gain of $263,717, which has been deferred and will be amortized over the life of the lease. During each of the three years in the period ended June 30, 1997, the Company recognized a gain of $26,372. As of June 30, 1997 and 1996, the balance of the unamortized gain on the sale was $131,882 and $158,246, respectively. The Company leases its corporate office building from the above-mentioned related party [See Note 9]. During the years ended June 30, 1997, 1996 and 1995, rent expense was $195,178, $178,651 and $169,347, respectively. F-14 NUTRITION MANAGEMENT SERVICES COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #8 - -------------------------------------------------------------------------------- [9] Commitments and Contingencies Operating Leases - The Company leases real estate facilities from a corporation owned by a principal stockholder under operating leases. In addition to the minimum annual rentals, the lease requires additional rentals based upon increases in the consumer price index. These leases range from one to five years [See Note 8]. The Company is also obligated under various operating leases for operating equipment for periods expiring through 1997. During the years ended June 30, 1997, 1996 and 1995, rent expense was $216,778, $228,211 and $203,873, respectively. Minimum annual rentals under non-cancelable operating leases subsequent to June 30, 1997 are as follows: Year Ending Operating Real Estate June 30, Equipment Facilities 1998 $ 34,322 $ 163,862 1999 9,178 163,862 2000 2,811 163,862 2001 2,811 163,862 2002 -- 163,862 Thereafter -- -- ------------- ------------- Totals $ 49,122 $ 819,310 ------ ============= ============= Purchase Commitment - The Company has entered into a commitment to purchase a minimum of $5,000,000 in supplies between February 1995 and January 2000 from one of its vendors. If the Company does not meet this commitment during the term of the agreement, the agreement automatically extends until the minimum commitment is met. There is no penalty to the Company for its failure to meet the minimum purchase requirement during the agreement period. In exchange for this commitment, the vendor made a donation to the Company to be used to acquire equipment for the Collegeville Inn. The amount of the donation is being amortized over five-years. In the event the agreement is terminated prior to January 2000, the Company is required to repay to the vendor a proportionate amount of the donation received. Litigation - In the normal course of its business, the Company is exposed to asserted and unasserted claims. In the opinion of management, the resolution of these matters will not have a material adverse affect on the Company's financial position, results of operations or cash flows. [10] Stockholders' Equity Class A Common Stock - The Company is authorized to issue 10,000,000 shares of Class A Common Stock, no par value, of which holders of Class A Common Stock have the right to cast one vote for each share held of record in all matters submitted to a vote of holders of Class A Common Stock. The Class A Common Stock and Class B Common Stock vote together as a single class on all matters on which shareholders may vote, except when class voting is required by applicable law. Holders of Class A Common Stock are entitled to dividends, together with the holders of Class B Common Stock, pro rata based on the number of shares held. In the event of the liquidation, dissolution or winding up of the affairs of the Company, all assets and funds of the Company remaining after the payment to creditors and to holders of Preferred Stock, if any, shall be distributed, pro rata, among the holders of the Class A Common Stock and Class B Common Stock. F-15 NUTRITION MANAGEMENT SERVICES COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #9 - -------------------------------------------------------------------------------- [10] Stockholders' Equity [Continued] Class A Common Stock [Continued] - During the fiscal years ended June 30, 1997 and 1996, the Company repurchased 52,335 and 37,500 shares of common stock, respectively, for an aggregate price of $89,718 and $54,688, respectively. The repurchase price is recorded as a reduction of stockholders' equity. During 1996, the Company sold from treasury 12,500 shares of Class A common stock for $25,000. Class B Common Stock - The Company has authorized 100,000 shares of Class B Common Stock, all of which were issued to the Chief Executive Officer and majority shareholder of the Company, in exchange for 100,000 shares of Class A Common Stock. Each share of Class B Common Stock is entitled to seven votes on all matters on which shareholders may vote, including the election of directors. The Class A Common Stock and Class B Common Stock vote together as a single class on all matters on which shareholders may vote, except when class voting is required by applicable law. Each share of Class B Common Stock also is convertible at any time upon the option of the holder into one share of Class A Common Stock. There are no preemptive, redemption, conversion or cumulative voting rights applicable to the Class B Common Stock. Preferred Stock - The Company is authorized to issue 2,000,000 shares of Preferred Stock, no par value, of which no shares have been issued. The Preferred Stock may be issued by the Company's Board of Directors from time to time in one or more series. [11] Stock Options and Employee Stock Purchase Plan [A] Stock Options - In September 1991, the Company adopted the 1991 Stock Option Plan for officers, directors and key employees to receive incentive stock options. The options are exercisable for a period up to 10 years from date of grant at an exercise price not less than fair market value of the common stock at date of grant. The Plan expires in September 2001. There have been 500,000 shares of common stock reserved for the Plan. The following is a summary of transactions:
Number of Options Outstanding Incentive Non-Qualified Weighted Stock Stock Average Underwriters Options Option Total Exercise Price Outstanding at June 30, 1994 100,000 221,000 30,000 351,000 $ 4.85 Granted -- 225,000 30,000 255,000 $ 4.00 Forfeited/Exercised -- (122,000) -- (122,000) $ 4.00 ------------ ------------ ----------- ----------- Outstanding at June 30, 1995 100,000 324,000 60,000 484,000 $ 4.62 Exercisable at June 30, 1995 100,000 -- -- 100,000 $ 7.00 Granted -- 7,000 -- 7,000 $ 4.00 Forfeited/Exercised -- (139,750) (15,000) (154,750) $ 4.00 ------------ ------------ ----------- ----------- Outstanding at June 30, 1996 100,000 191,250 45,000 336,250 $ 4.89 Exercisable at June 30, 1996 100,000 184,250 45,000 329,250 $ 4.91 Granted -- 80,000 -- 80,000 $ 4.00 Forfeited/Exercised (100,000) -- -- (100,000) $ 7.00 ------------ ------------ ----------- ----------- Outstanding at June 30, 1997 -- 271,250 45,000 316,250 $ 4.00 ============ Exercisable at June 30, 1997 -- 185,650 45,000 230,650 $ 4.00
F-16 NUTRITION MANAGEMENT SERVICES COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #10 - -------------------------------------------------------------------------------- [11] Stock Options and Employee Stock Purchase Plan [Continued] [A] Stock Options [Continued] - All options were granted at exercise prices above market price. The exercise price was $4.00 per share at June 30, 1997 for both the incentive and non-qualified stock options. The remaining contractual life of outstanding and exercisable options is approximately six years and five years, respectively. The Company applies Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations for stock options issued to employees in accounting for its stock option plan. No compensation expense has been recognized for the Company's stock-based compensation plan because no stock options were issued below the stock price at the date of grant. Had compensation cost for the Company's stock options issued to employees been determined based upon the fair value at the grant date for stock options issued under these plans pursuant to the fair value methodology prescribed under Statement of Financial Accounting Standards ["SFAS"] No. 123, "Accounting for Stock-Based Compensation," the Company's net income and earnings per share would have been reduced, on a pro forma basis, by approximately $71,314 or $.02 per share for the year ended June 30, 1997, and $23,930 or $.01 per share for the year ended June 30, 1996. The weighted average fair value of the stock options granted to employees used in determining the pro forma amounts is estimated at $.89 and $3.42 during the years ended June 30, 1997 and 1996, respectively, using the Black-Sholes option-pricing model with the following weighted average assumptions used for grants in fiscal year 1997 and 1996: dividend yields of 0% and 0%, respectively; expected volatility of 84% and 84%, respectively; risk-free interest rate of 6.7% and 5.8%, respectively; and an expected life of 5 years for both periods. Net income [loss] and net income [loss] per share as reported, and on a pro forma basis as if compensation cost had been determined on the basis of fair value pursuant to SFAS No. 123 is as follows: Years ended June 30, 1 9 9 7 1 9 9 6 ------- ------- Net Income: As Reported $ 752,276 $ 301,954 Pro Forma $ 709,488 $ 278,024 Per Share: As Reported $ .26 $ .10 Pro Forma $ .24 $ .09 The Company has been advised that a consultant believes that he and an entity controlled by him were granted options in November 1995 to purchase an aggregate 112,500 shares of Common Stock of the Company at an exercise price of $2.125 per share. The Company is not aware of any documentation supporting the grant of these stock options and is currently in the process of determining whether in fact such stock options were granted. If the Company determines that such stock options were granted, the grant of such options would not have a financial statement impact under APB 25 because the options would have been granted at a price at least equal to or above the fair value of the underlying stock. However, under the guidelines of FAS 123 the Company estimates that on a pro forma basis the Company's net income would have been reduced by $92,000 or $.03 per share for the fiscal year ended June 30, 1996. [B] Employee Stock Purchase Plan - The Company has a stock purchase plan that allows participating employees to purchase, through payroll deductions, shares of the Company's common stock at 85 percent of the fair market value at specified dates. At June 30, 1996, all employees were eligible to participate in the plan. A summary of stock purchased under the plan is shown below: 1 9 9 7 1 9 9 6 1 9 9 5 ------- ------- ------- Aggregate Purchase Price $ 30,871 $ 55,611 $ 22,815 Shares Purchased 21,388 37,126 12,238 Employee Participants 40 34 35 F-17 NUTRITION MANAGEMENT SERVICES COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #11 - -------------------------------------------------------------------------------- [12] Defined Contribution Pension Plan The Company sponsors a 401[k] plan for all employees who have attained the age of twenty-one and have completed one year of service. Eligible employees may contribute up to 15% of their annual compensation to the plan. The Company can match 100% up to the first 6% of employee plan contributions. Participants are vested 20% for each year of service beginning after year 3 and are fully vested after seven service years. During the years ended June 30, 1997, 1996 and 1995, company contributions to the plan, which were charged to expense, amounted to $25,976, $25,398 and $20,085, respectively. [13] Concentrations of Credit Risk Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents, accounts receivable, and notes receivable. A substantial portion of the Company's revenues are dependent upon the payment by customers who are dependent upon third-party payors such as state governments, medicare and medicaid. Generally, the Company does not require collateral or other security to support customer receivables. The Company routinely assesses the financial strength of its customers and, based upon factors surrounding the credit risk of its customers, establishes an allowance for uncollectible accounts and, as a consequence, believes that its accounts receivable credit risk exposure beyond such allowances is limited. As of June 30, 1997, the Company has cash accounts with various financial institutions having high credit standings and periodically has cash balances subject to credit risk beyond insured amounts. As a consequence, it believes that its exposure to credit risk loss is limited. At June 30, 1997, approximately $500,000 of cash exceeds insured amounts. The Company does not require collateral and other security to support financial instruments subject to credit risk. [14] Acquisition During 1993, the Company acquired from Service America Corporation ["SAC"] certain food service management contracts to provide services to health care and retirement facilities. The aggregate purchase price for the contracts was $2,099,258, of which $1,099,258 was paid in July 1993 and $1,000,000 was placed in escrow. The purchase price was subject to adjustment in the event the contracts did not remain in effect or were not assigned within a period of 120 days following the closing and, accordingly, adjustments to reduce the purchase price in the amount of $365,601 were made during the year ended June 30, 1995. With respect to the $1,000,000 placed in escrow, at June 30, 1997, $154,782 remains in escrow. In addition, the Company agreed to pay SAC an amount of up to $750,000 for SAC's inventory and equipment at such facilities. The acquisition has been accounted for as a purchase and, accordingly, the purchase price has been allocated to the assets acquired based on fair market value. [15] Major Customers The Company had sales to one customer representing approximately 13%, 12%, and 14% of total revenues for the years ending June 30, 1997, 1996 and 1995, respectively. The loss of such customer could have a material adverse effect on the Company's future results of operations. F-18 NUTRITION MANAGEMENT SERVICES COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #12 - -------------------------------------------------------------------------------- [16] Fair Value of Financial Instruments Effective June 30, 1996, the Company adopted Statement of Financial Accounting Standard ["SFAS"] No. 107, "Disclosure about Fair Value of Financial Instruments," which requires the disclosure of the fair value of off- and on-balance sheet financial instruments. For certain financial instruments, including cash and cash equivalents, accounts and notes receivables, advances to employees and accounts payables, the carrying amount approximated fair value for the majority of these instruments because of their short maturities. It was estimated that the carrying amount of the Company's long-term debt approximates its fair value based on the Company's cost of capital. [17] New Authoritative Pronouncements The Financial Accounting Standards Board ["FASB"] has issued Statement of Financial Accounting Standards ["SFAS"] No. 128, "Earnings per Share," and SFAS No. 129, "Disclosure of Information about Capital Structure," in February 1997. SFAS No. 128 simplifies the earnings per share ["EPS"] calculations required by Accounting Principles Board ["APB"] Opinion No. 15, and related interpretations, by replacing the presentation of primary EPS with a presentation of basic EPS. SFAS No. 128 requires dual presentation of basic and diluted EPS by entities with complex capital structures. Basic EPS includes no dilution and is computed by dividing income available to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution of securities that could share in the earnings of an entity, similar to the fully diluted EPS of APB Opinion No. 15. SFAS No. 128 is effective for financial statements issued for periods ending after December 15, 1997, including interim periods; earlier application is not permitted. When adopted, SFAS No. 128 will require restatement of all prior-period EPS data presented; however, the Company has not sufficiently analyzed SFAS No. 128 to determine what effect SFAS No. 128 will have on its historically reported EPS amounts. SFAS No. 129 does not change any previous disclosure requirements, but rather consolidates existing disclosure requirements for ease of retrieval. The FASB has issued SFAS No. 130, "Reporting Comprehensive Income." SFAS No. 130 is effective for fiscal years beginning after December 15, 1997. Earlier application is permitted. Reclassification of financial statements for earlier periods provided for comparative purposes is required. SFAS No. 130 is not expected to have a material impact on the Company. The FASB has issued SFAS No. 131, "Disclosures About Segments of an Enterprise and Related Information." SFAS No. 131 changes how operating segments are reported in annual financial statements and requires the reporting of selected information about operating segments in interim financial reports issued to shareholders. SFAS No. 131 is effective for periods beginning after December 15, 1997, and comparative information for earlier years is to be restated. SFAS No. 131 need not be applied to interim financial statements in the initial year of its application. SFAS No. 131 is not expected to have a material impact on the Company. F-19 NUTRITION MANAGEMENT SERVICES COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #13 - -------------------------------------------------------------------------------- [18] Quarterly Financial Data [Unaudited] The following quarterly financial data is unaudited, but in the opinion of management includes all necessary adjustments for a fair presentation of the interim results:
F i s c a l 1 9 9 7 --------------------------------------------- September 30, December 31, March 31, June 30, Revenues $ 8,552,087 $ 8,428,595 $ 8,947,786 $ 9,365,494 ============== ============== ============== ============== Gross Profit $ 1,488,330 $ 1,681,297 $ 1,778,730 $ 1,833,683 ============== ============== ============== ============== Net Income $ 124,493 $ 174,425 $ 170,574 $ 282,784 ============== ============== ============== ============== Net Income Per Share $ .04 $ .06 $ .06 $ .10 ============== ============== ============== ============== F i s c a l 1 9 9 6 --------------------------------------------- September 30, December 31, March 31, June 30, Revenues $ 9,246,352 $ 8,850,795 $ 8,728,220 $ 8,313,065 ============== ============== ============== ============== Gross Profit $ 1,709,805 $ 1,637,621 $ 1,659,287 $ 1,795,211 ============== ============== ============== ============== Net Income $ 40,572 $ 17,742 $ 85,984 $ 157,656 ============== ============== ============== ============== Net Income Per Share $ .01 $ .01 $ .03 $ .05 ============== ============== ============== ============== F i s c a l 1 9 9 5 --------------------------------------------- September 30, December 31, March 31, June 30, [Restated] Revenues $ 7,548,714 $ 8,091,258 $ 8,583,376 $ 9,129,644 ============== ============== ============== ============== Gross Profit $ 1,399,099 $ 1,709,343 $ 1,513,326 $ 1,715,268 ============== ============== ============== ============== Net Income $ 60,074 $ 115,036 $ 71,671 $ 18,680 ============== ============== ============== ============== Net Income Per Share $ .02 $ .04 $ .03 $ -- ============== ============== ============== ==============
[19] Subsequent Events [Unaudited] In September of 1997, the Company opened the retail restaurant portion of the Collegeville Inn Training and Conference Center. The remaining three divisions of the project are anticipated to open in the third quarter of fiscal 1998. . . . . . . . . . . . . . . . F-20 INDEPENDENT AUDITOR'S REPORT To the Board of Directors and Stockholders of Nutrition Management Services Company Kimberton, Pennsylvania Our report on the consolidated financial statements of Nutrition Management Services Company is referenced on page F-1 and included in this Form 10-K. In connection with our audits of such financial statements, we have also audited the related financial statement schedule listed on page F-22 of this Form 10-K. In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, present fairly, in all material respects, the information required to be included therein. MOORE STEPHENS, P. C. Certified Public Accountants. Cranford, New Jersey September 10, 1997 F-21 NUTRITION MANAGEMENT SERVICES COMPANY AND SUBSIDIARIES - -------------------------------------------------------------------------------- SCHEDULE II - SCHEDULE OF VALUATION ACCOUNTS - -------------------------------------------------------------------------------- The following sets forth the activity in the Company's valuation accounts: Notes and Long-Term Accounts Lease Accounts Receivable Receivable Receivable Balance At June 30, 1994 $ 288,831 $ -- $ 165,730 Provision for Bad Debts 186,352 -- -- Writeoffs (52,066) -- (28,221) Other - Reclasses (41,448) 121,448 (80,000) ------------ ---------- ---------- Balance At June 30, 1995 381,669 121,448 57,509 Provision for Bad Debts 153,283 -- -- Writeoffs (172,887) (121,448) -- ------------ ---------- ---------- Balance At June 30, 1996 362,065 -- 57,509 Provision for Bad Debts 180,000 -- -- Writeoffs (10,637) -- -- ------------ ---------- ---------- Balance At June 30, 1997 $ 531,428 $ -- $ 57,509 ============ ========== ========== F-22 EX-1 2 LOAN AGREEMENT LOAN AGREEMENT Dated December 26, 1996 Between MONTGOMERY COUNTY INDUSTRIAL DEVELOPMENT AUTHORITY and APPLE FRESH FOODS LIMITED Bond Counsel Authority Counsel Kassab Archbold & O'Brien, L.L.P. McGrory, Wentz, Fernandez & O'Hara 214 North Jackson Street 115 West Germantown Pike, Suite 100 Media, PA 19023 Swede Square Norristown, PA 19401 TABLE OF CONTENTS* Page RECITALS.....................................................................1 ARTICLE I DEFINITIONS Section 1.01. Definitions...............................................2 Section 1.02. Content of Certificates and Opinions......................2 Section 1.03. Interpretation ...........................................3 ARTICLE II THE LOAN: USE OF PROCEEDS Section 2.01. Loan of Funds to the Company..............................3 Section 2.02. Use of Proceeds...........................................4 Section 2.03. Establishment of Completion Date..........................4 Section 2.04. Covenants for Benefit of Bondholders and Bank.............4 ARTICLE III PAYMENT PROVISIONS Section 3.01. Loan Payments.............................................4 Section 3.02. Letter of Credit..........................................5 Section 3.03. Time of Loan Payments.....................................5 Section 3.04. Additional Payments; Taxes; Utility Charges...............6 Section 3.05. Acceleration of Payment to Redeem Bonds...................7 Section 3.06. No Defense or Set-Off.....................................7 Section 3.07. Termination Upon Payment or Defeasance of Bonds...........8 Section 3.08. Assignment of Authority's Rights..........................8 Section 3.09. Assignment by Company.................................... 8 Section 3.10. Indemnity Against Claims................................. 9 Section 3.11. Authority is Conduit Issuer; Company is Real Party in Interest; Covenant Not to Sue ............ 10 ARTICLE IV COMPANY OBLIGATIONS; ASSIGNMENT TO TRUSTEE - -------- *This Table of Contents is for convenience only, does not constitute a part of this Loan Agreement and shall not be considered as having any bearing upon any interpretation of this Loan Agreement. (i) Section 4.01. General Obligation of the Company......................... 11 Section 4.02. Assignment to Trustee..................................... 11 Section 4.03. Maintenance and Operation of the Project Facilities....... 11 Section 4.04. Maintenance of Existence...................................11 Section 4.05. Compliance with Laws..................................... 12 Section 4.06. Notice of Bankruptcy Case Commencement................... 12 Section 4.07. Substitute Letter of Credit............................... 12 ARTICLE V THE PROJECT FACILITIES Section 5.01. Prohibited Uses........................................... 13 Section 5.02. Liens..................................................... 13 ARTICLE VI INSURANCE; DESTRUCTION; DAMAGE; EMINENT DOMAIN Section 6.01. Insurance to be Maintained................................ 14 Section 6.02. Destruction. Damage and Eminent Domain.................... 14 Section 6.03. Notice of Property Loss................................... 15 Section 6.04. Disposition of Casualty Insurance and Condemnation Award Proceeds............................... 15 ARTICLE VII ADDITIONAL COVENANTS OF THE COMPANY Section 7.01. Compliance with Laws...................................... 15 Section 7.02. Power to Perform Obligations.............................. 16 Section 7.03. Inspection................................................ 16 Section 7.04. Additional Information.................................... 16 Section 7.05. Nondiscrimination......................................... 16 ARTICLE VIII EVENTS OF DEFAULT AND REMEDIES Section 8.01. Events of Default......................................... 17 Section 8.02. Acceleration.............................................. 18 Section 8.03. Payment of Loan Payments on Default; Suit Therefor........ 19 Section 8.04. Waiver.................................................... 19 Section 8.05. Cumulative Rights......................................... 20 Section 8.06. No Exercise of Remedies Without Consent of Bank........... 20 (ii) ARTICLE IX OPTIONS TO TERMINATE AGREEMENT Section 9.01. Option to Terminate Upon Defeasance....................... 20 Section 9.02. Option to Terminate Upon the Occurrence of Certain Events. 20 ARTICLE X MISCELLANEOUS Section 10.01. Approval of Indenture..................................... 22 Section 10.02. Taxes and Insurance-Rights of Authority to Pay............ 22 Section 10.03. Illegal Provisions Disregarded............................ 22 Section 10.04. Limitation of Liability of the Authority.................. 22 Section 10.05. No Recourse as to the Authority........................... 23 Section 10.06. Reference to Statute or Regulation........................ 23 Section 10.07. Notices................................................... 23 Section 10.08. Applicable Law............................................ 24 Section 10.09. Amendments................................................ 24 Section 10.10. Term of Agreement......................................... 24 Section 10.11. Amounts Remaining in Bond Fund............................ 25 Section 10.12. Survival of Covenants, Conditions and Representations..... 25 Section 10.13. Multiple Counterparts..................................... 25 Section 10.14. Consent................................................... 25 (iii) THIS LOAN AGREEMENT dated December 26, 1996 (the "Agreement"), is by and between MONTGOMERY COUNTY INDUSTRIAL DEVELOPMENT AUTHORITY (the "Authority"), and APPLE FRESH FOODS LIMITED, a Pennsylvania corporation (the "Company"). W I T N E S S E T H : WHEREAS, the Authority is a body politic and a public instrumentality of the Commonwealth, organized and existing under the Pennsylvania Economic development Financing Law, Act of August 23, 1967, P.L. 251, as amended (the "Act"), and is authorized under the Act to acquire, hold, construct, improve, maintain, own, finance, lease, in the capacity of lessor or lessee, and/or sell industrial, commercial and specialized development projects for the public purpose of alleviating unemployment, maintaining employment at a high level and creating and developing business opportunities, by the construction, improvement, rehabilitation, revitalization and financing of industrial, commercial and specialized enterprises; and WHEREAS, the Company has requested the Authority to undertake a project (the "Project") that consists of, among other things: (i) the acquisition, construction, installation and renovation of certain equipment to be used in connection with a cook-chill system of batch food processing; and (ii) the payment of a portion of the costs and expenses of issuing the Bonds; and WHEREAS, in order to provide funds for and toward the payment of a portion of the costs of the Project, the Authority has authorized the issuance and sale of its Bonds; and WHEREAS, the Bonds are to be issued under and secured by a Trust Indenture dated December 26, 1996 (the "Indenture"), between the Authority and Dauphin Deposit Bank and Trust Company (the "Trustee"); and WHEREAS, this Agreement provides that the Authority will loan the proceeds of the Bonds to the Company to finance the Project and the Company will agree, among other things, to repay the loan in installments equal to payments of debt service on the Bonds when due; and WHEREAS, the Trustee has agreed under the Indenture to draw on the Letter of Credit (as such phrase is defined in the Indenture) at such times and in such amounts as shall be sufficient to pay when due the principal, interest and Purchase Price (as such phrase is defined in the Indenture) on the Bonds and to credit all amounts paid under the Letter of Credit against the Company's obligation to make installment payments under this Agreement for such items; and WHEREAS, execution and delivery of this Agreement and the issuance hereunder and under the Act of the Bonds have been in all respects duly and validly authorized by resolution of the Board of the Authority duly adopted prior to such execution and delivery; and WHEREAS, as security for the full and prompt payment and performance of all its obligations under the Indenture, including, specifically, without limiting the generality of the -1- foregoing, its obligation to make payment of principal of, premium, if any, and interest on the Bonds, when due, the Authority has, pursuant to the provisions of the Indenture, assigned to the Trustee all of its right, title and interest in, to and under this Agreement (except its right to indemnification and to receive its fees and expenses hereunder), including without limitation, the right to receive loan payments payable by the Company hereunder; and WHEREAS, in order to assure full and prompt payment of the Bonds, the Company, among other things, has caused the Bank to issue the Letter of Credit to assure payment of principal of, and interest on the Bonds when due (subject to reduction and reinstatement as provided therein) pursuant to the Reimbursement Agreement (as defined in the Indenture). NOW, THEREFORE, THIS LOAN AGREEMENT WITNESSETH: That the parties hereto, intending to be legally bound hereby and in consideration of the mutual covenants hereinafter contained, DO HEREBY AGREE to all the terms and conditions set forth in this Agreement. ARTICLE I DEFINITIONS Section 1.01. Definitions. Capitalized terms and phrases used as defined terms in the recitals shall have the same meanings throughout this Agreement, and, in addition thereto, capitalized terms and phrases used and not defined herein shall have the meanings assigned to such terms in the Indenture, unless the context clearly indicates otherwise. Section 1.02. Content of Certificates and Opinions. The Trustee may, but shall not be obligated to, require that every certificate or opinion provided for in this Agreement with respect to compliance with any provision hereof shall include: (1) a statement to the effect that the Person making or giving such certificate or opinion has read such provision and the definitions herein relating thereto; (2) a brief statement as to the nature and scope of the examination or investigation upon which the certificate or opinion is based; (3) a statement to the effect that in the opinion of such Person, he has made or caused to be made such examination or investigation as is necessary to enable him to express an informed opinion with respect to the subject matter referred to in the instrument to which his signature is affixed; (4) a statement of the assumptions upon which such certificate or opinion is based, and that such assumptions are reasonable; and (5) a statement as to whether, in the opinion of such Person, such provision has been complied with. Any such certificate or opinion made or given by an officer of the Authority or the Company may be based, insofar as it relates to legal or accounting matters, upon a certificate or opinion of or representation by counsel or an accountant, unless such officer knows, or in the exercise of reasonable care should have known, that the certificate, opinion or representation with respect to the matters upon which such certificate or statement may be based, as aforesaid, is erroneous. Any such -2- certificate or opinion made or given by counsel or an accountant may be based, insofar as it relates to factual matters (with respect to which information is in the possession of the Authority or the Company, as the case may be) upon a certificate or opinion of or representation by an officer of the Authority or the Company, unless such counsel or accountant knows, or in the exercise of reasonable care should have known, that the certificate or opinion or representation with respect to the matters upon which such certificate or opinion or representation may be based, as aforesaid, is erroneous. The same officer of the Authority or the Company, or the same counsel or accountant, as the case may be, need not certify to all of the matters required to be certified under any provision of this Agreement, but different officers, counsel or accountants may certify to different matters, respectively. Section 1.03. Interpretation. (a) Unless the context otherwise indicates, words expressed in the singular shall include the plural and vice versa and the use of the neuter, masculine, or feminine gender is for convenience only and shall be deemed to mean and include the neuter, masculine or feminine gender, as appropriate. (b) Headings of articles and sections herein and the table of contents hereof are solely for convenience of reference, do not constitute a part hereof and shall not affect the meaning, construction or effect hereof. (c) All references herein to "Articles," "Sections" and other subdivisions are to the corresponding Articles, Sections or subdivisions of this Agreement; the words "herein," "hereof," "hereby," "hereunder" and other words of similar import refer to this Agreement as a whole and not to any particular Article, Section or subdivision hereof. (d) Whenever in this Agreement it is required that notice be provided to the Bank or that consent of the Bank be obtained, such provisions shall be effective only when: (i) the Letter of Credit is in effect; (ii) the Bank, in its capacity as provider of the Letter of Credit, is the Holder of any Bonds; or (iii) any amounts are due and owing to the Bank under the Reimbursement Agreement. ARTICLE II THE LOAN; USE OF PROCEEDS Section 2.01. Loan of Funds to the Company. The Authority hereby agrees that simultaneously with the execution and delivery of this Agreement, it will loan to the Company, upon the terms and conditions specified herein and in the Indenture, the proceeds of the sale of the Bonds, and the Company agrees to receive such loan from the Authority, for the purposes provided herein and in the Indenture. -3- Section 2.02. Use of Proceeds. The proceeds of the Bonds shall be deposited with the Trustee and applied as provided in the Indenture and in this Agreement to finance the Project. Section 2.03. Establishment of Completion Date. The Completion Date shall mean the date of delivery to the Authority and the Trustee of a certificate executed by an Authorized Representative of the Company stating in effect that: (i) all equipment for the Project has been acquired and installed and all costs and expenses incurred in connection therewith have been paid, including all costs of labor, services, materials and supplies used in connection with such acquisition and installation have been paid; and (ii) all other facilities necessary in connection with the Project have been acquired, constructed, improved and equipped and all costs and expenses incurred in connection therewith have been paid. Notwithstanding the foregoing, such certificate shall state that it is given without prejudice to any rights against third parties which exist at the date of such certificate or which may subsequently come into being. Upon completion of the Project, the Company agrees to cause such certificate to be promptly furnished to the Authority and the Trustee. Upon receipt of such certificate, the Trustee shall give notice to the Company of the amount of funds remaining unspent in the Construction Fund. Any remaining moneys on deposit in the Construction Fund shall be forthwith applied to the payment of the Costs of the Project, or if not so applied shall be promptly transferred by the Trustee into the Bond Fund and used by the Trustee in accordance with the terms of Section 6.08 of the Indenture. Section 2.04. Covenants for Benefit of Bondholders and Bank. This Agreement is executed in part to induce: (a) the purchase by others of the Bonds; and (b) the issuance by the Bank of the Letter of Credit, and the participation by the Bank in the funding of advances under the Letter of Credit. Accordingly, all covenants and agreements on the part of the Company and the Authority, as set forth in this Agreement, are hereby declared to be for the benefit of the Owners from time to time of the Bonds and for the benefit of the Bank. ARTICLE III PAYMENT PROVISIONS Section 3.01. Loan Payments. (a) The Company hereby agrees to pay duly and punctually: (i) the principal, premium, if any, and interest due and payable on the Bonds; (ii) the Purchase Price of the Bonds, and (iii) any other amounts due and payable by the Company under this Agreement. The Company shall be given an immediate credit in the amount of all draws paid to the Trustee under the Letter of Credit against the loan payments due hereunder. Any portion of the loan payments due under this Agreement which is not timely paid (upon proper demand under the Letter of Credit by the Trustee) from draws under the Letter of Credit shall be paid to the Trustee directly by the Company as provided in Section 3.03 hereof. Any other amounts required to be paid under this Agreement shall be paid by the Company to the party entitled to receive such amounts hereunder and in the manner provided for herein. Loan payments shall be made by the Company with the Company's funds, except to the extent -4- a credit in respect thereof has been granted pursuant to the terms of this Agreement. It is the intention of the Authority and the Company that, notwithstanding any other provision of this Agreement, the Authority shall receive funds from the Company under this Agreement at such times and in such amounts as will enable the Authority to meet all of its obligations under the Bonds and the Indenture, including any such obligations surviving the payment of the Bonds and the defeasance of the Indenture. (b) All loan payments and other sums due and payable to the Authority or the Trustee under this Agreement shall be absolutely net to the Authority or the Trustee, as applicable, free of any taxes, costs, liabilities or other deductions whatsoever with respect to the Project Facilities and the maintenance, repair, rebuilding, use or occupation thereof or any portion thereof, so that this Agreement shall yield all amounts due hereunder net to the Authority or the Trustee throughout the term hereof. Section 3.02. Letter of Credit. Concurrently with the issuance by the Authority of the Bonds, the Company shall cause to be delivered to the Trustee the Letter of Credit issued by the Bank, authorizing the Trustee to make draws on the Bank, up to an aggregate stated amount of ONE MILLION TWENTY ONE THOUSAND THREE HUNDRED SEVENTY DOLLARS ($1,021,370), of which ONE MILLION DOLLARS ($1,000,000) shall be in respect of principal on the Bonds and TWENTY ONE THOUSAND THREE HUNDRED SEVENTY DOLLARS ($21,370) shall be in respect of up to 52 days' interest accrued on the Bonds on or prior to the maturity thereof. Section 3.03. Time of Loan Payments. (a) The Company shall pay to the Trustee, as assignee of the Authority (but only to the extent such amounts have not been advanced to the Trustee under the Letter of Credit), on the dates and times hereinafter set forth, for deposit in the Bond Fund, the following sums: (i) Not later than 12 noon on any Interest Payment Date or any other date that any payment of interest, premium, if any, or principal is required to be made in respect of the Bonds pursuant to the Indenture, until the principal of, premium, if any, and interest on the Bonds shall have been fully paid or provision for the payment thereof shall have been made in accordance with the Indenture, in immediately available funds, a sum which, together with any moneys available for such payment in the Bond Fund, will enable the Trustee to pay the amount payable on such date as principal of (whether at maturity or upon redemption or acceleration or otherwise), premium, if any, and interest on the Bonds as provided in the Indenture; provided, however, that the obligation of the Company to make any payment hereunder shall be deemed satisfied and discharged to the extent of the corresponding payment made by the Bank to the Trustee under the Letter of Credit. All payments payable by the Company under subsection (a)(i) of this Section 3.03 are assigned by the Authority to the Trustee for the benefit of the Owners of the Bonds. The Company hereby acknowledges and consents to such assignment. The Authority hereby directs the -5- Company and the Company hereby agrees to pay to the Trustee at the Principal Corporate Trust Office of the Trustee all payments payable by the Company pursuant to this subsection. (ii) The Company covenants, for the benefit of the Owners of the Bonds, to pay or cause to be paid, to the Tender Agent, such amounts as shall be necessary to enable the Tender Agent to pay the Purchase Price of Bonds delivered to it for purchase, all as more particularly described in Sections 5.01, 5.03 and 5.04 of the Indenture; provided, however, that the obligation of the Company to make any such payment under this subsection (a)(ii) shall be reduced by the amount of moneys available for such payment described in subsection (i) or (ii) of Section 5.05(a) of the Indenture; and provided, further, that the obligation of the Company to make any payment under this subsection (ii) shall be deemed to be satisfied and discharged to the extent of the corresponding payment made by the Bank under the Letter of Credit. (iii) Additionally, from time to time, the Company shall make such payments as shall be necessary to make up any deficiency in or to fund fully any of the funds established under the Indenture. Section 3.04. Additional Payments; Taxes; Utility Charges. As Additional Payments, the Company, during the term of this Agreement, shall pay or cause to be paid the following: (a) To the public officers charged with the collection thereof, promptly as the same become due, all taxes (or contributions or payments in lieu thereof), including but not limited to income, profits or property taxes, which may now or hereafter be imposed by the United States of America, any state or municipality or any political subdivision or subdivisions thereof, and all assessments for public improvements or other assessments, levies, license fees, charges for publicly supplied water or sewer services, excises, franchises, imposts and charges, general and special, ordinary and extraordinary (including interest, penalties and all costs resulting from delayed payment of any of the foregoing) of whatever name, nature and kind and whether or not now within the contemplation of the parties hereto and which are now or may hereafter be levied, assessed, charged or imposed or which are or may become a lien upon the payments due under this Agreement, the Project Facilities or the use or occupation thereof, or upon the Company or the Authority, or upon any franchises, businesses, transactions, income, earnings and receipts (gross, net or otherwise) of the Company in connection with the Project Facilities, or its earnings, profits or receipts from, or its subleasing of, the Project Facilities; provided, however, that the Company shall not be required to pay or discharge or cause to be paid or discharged any tax, assessment, lien or other matter hereunder so long as the validity thereof is being contested in good faith and by appropriate legal proceedings diligently pursued, so long as the operation of the Project Facilities or the receipt of income therefrom is not adversely affected by reason thereof; (b) All reasonable fees, charges and expenses of the Trustee, the Remarketing Agent, the Placement Agent, the Tender Agent and the Bank, as and when the same become due and payable; -6- (c) The reasonable fees and expenses of such accountants, consultants, attorneys and other experts as may be engaged by the Authority, the Trustee or the Tender Agent to prepare audits, financial statements, reports, opinions or provide such other services required under this Agreement or the Indenture; and (d) The reasonable fees and expenses of the Authority in connection with this Agreement, the Bonds, the Indenture, the Tender Agent Agreement or the Remarketing Agreement and any and all other expenses incurred in connection with the authorization, issuance, sale and delivery of any such Bonds or incurred by the Authority in connection with any litigation which may at any time be instituted involving this Agreement, the Bonds, the Indenture or any of the other documents contemplated thereby, or incurred in connection with the administration of this Agreement, or otherwise in connection with this Agreement, the Indenture, the Bonds, the Tender Agent Agreement, the Remarketing Agreement or any of the other documents, instruments or agreements in connection therewith. Such Additional Payments shall be billed to the Company, from time to time, by the Authority, the Trustee, the Remarketing Agent, the Tender Agent or the Bank, as the case may be, together with a statement certifying that the amount billed has been paid or incurred and attaching reasonable supporting documentation indicating that the amount billed has been paid or incurred for one or more of the above items. After such a demand, amounts so billed shall be paid by the Company within thirty (30) days after receipt of the bill by the Company. Section 3.05. Acceleration of Payment to Redeem Bonds. Whenever the Bonds are subject to optional redemption or extraordinary redemption pursuant to the Indenture and the provisions hereof, the Authority will, upon request of the Company, direct the Trustee to call the same for redemption as provided in the Indenture. Whenever any Bond is subject to mandatory redemption pursuant to the Indenture, the Company will cooperate with the Authority and the Trustee in effecting such redemption. In the event of any mandatory, optional or extraordinary redemption of the Bonds, the Company will pay or cause to be paid to the Trustee an amount equal to the applicable redemption price as a prepayment of that portion of the loan payment corresponding to the Bonds to be redeemed together with interest accrued to the date of redemption and will also pay all fees and expenses of the Authority and the Trustee arising with respect to such redemption or otherwise due and owing hereunder or under the Indenture at such times and in such amounts as are required to effect the mandatory, optional or extraordinary redemption of the Bonds under the terms of the Indenture. Section 3.06. No Defense or Set-Off. The obligations of the Company to make loan payments shall be absolute and unconditional without any defense or set-off for any reason, including, without limitation, any acts or circumstances that may constitute failure of consideration, destruction of or damage to the Project Facilities, invalidity or unenforceability of the Bonds, commercial frustration of purpose or failure of the Authority to perform and observe any agreement, whether express or implied, or any duty, liability or obligation arising out of or connected with this Agreement, it being the intention of the parties that the payments required of the Company hereunder -7- will be paid in full when due without any delay or diminution whatsoever. Section 3.07. Termination Upon Payment or Defeasance of Bonds. When: (a) interest on, and principal or the redemption price (as the case may be) of, all Bonds issued under the Indenture, together with all other amounts due and payable by the Company hereunder, shall have been paid; or (b) there shall have been deposited with the Trustee an amount evidenced by moneys or Government Obligations, the principal of and interest on which, when due, without reinvestment, will provide sufficient moneys to fully pay the principal or redemption price (as the case may be) of, and all accrued interest on, all Bonds then Outstanding, as well as all other sums payable or to become payable by the Company under this Agreement, as evidenced by a verification report from an independent certified public accountant, delivered to the Trustee, no further loan payments shall be payable hereunder and, with the consent of the Bank (if the Letter of Credit remains outstanding or if any amounts are due and owing to the Bank under the Reimbursement Agreement or any of the other Reimbursement Documents (as such term is defined in the Reimbursement Agreement)), this Agreement shall thereupon be terminated, and the Authority: (i) shall cause the Trustee to pay over to the Company any additional moneys then remaining in any Funds under the Indenture (and which will not be required to pay any amounts as set forth immediately above in this Section 3.07); and (ii) shall pay over to the Company any additional moneys which may be paid to the Authority by the Trustee; provided, however, that in each such case moneys remaining in any Fund under the Indenture or any additional moneys shall be first paid to the Bank to the extent of any moneys then due and owing from the Company to the Bank under the Reimbursement Agreement or any of the other Reimbursement Documents (as such term is defined in the Reimbursement Agreement). Section 3.08. Assignment of Authority's Rights. As security for the payment of the Bonds, the Authority will assign to the Trustee all the Authority's rights under this Agreement. Subject to the prior assignment made to the Trustee to secure the Bonds, the Authority will also assign all the Authority's rights under this Agreement to the Bank to secure all of the Obligations (as defined in the Reimbursement Agreement). The Company consents to such assignments and agrees to make the loan payments under Section 3.01 and Section 3.05 hereof directly to the Trustee without defense or set-off by reason of any dispute between the Company and the Trustee or the Authority. Whenever the Company is required to obtain the consent of the Authority hereunder, the Company shall also obtain the consent of the Bank. Section 3.09. Assignment by Company. This Agreement may be assigned in whole or in part by the Company without the necessity of obtaining the consent of the Trustee or the Owners of the Bonds; provided, however, any such assignment shall require the prior written consent of the Bank (as long as the Bank is not in default under the Letter of Credit) and the Authority; and further provided that no assignment pursuant to this Section shall be made otherwise than in accordance with the Act and the Code, as from time to time amended. The Company shall, within thirty (30) days after execution thereof, furnish or cause to be furnished to the Authority, the Trustee and the Bank a true and complete copy of each such assignment together with any instrument of assumption. -8- Section 3.10. Indemnity Against Claims. (a) The Company agrees that at all times it will protect and hold the Authority, its officers, members, employees and agents harmless and indemnified from and against all claims for losses, damages or injuries to others, including death, personal injury and property damage or loss, arising during the term hereof or during any other period arising out of the acquisition, installation and equipping of the Project Facilities; and the Authority shall not be liable for any loss, damage or injury to the Person or property of the Company or its agents, servants or employees or any other Person who or which may be upon the Project Facilities or damaged or injured as a result of any condition existing or activity occurring upon the Project Facilities or any other matter connected directly or indirectly therewith due to any act or negligence of any Person, excepting only willful misconduct of the Authority, its officers, agents, members or employees. The indemnity provided for in this Section 3.10(a) shall be effective only to the extent that any loss sustained by the Authority, its officers, members, employees and agents shall be in excess of the net proceeds actually recovered and received by the Authority from, or paid on behalf of the Authority by, any insurance carried with respect to the loss sustained. (b) The Company hereby covenants and agrees that it will indemnify and hold harmless the Trustee against any and all losses, damages or claims arising out of the Trustee's exercise and performance of powers and duties granted unto it by the Indenture and hereunder, and not resulting from the Trustee's willful misconduct or negligence. (c) The Company will indemnify, hold harmless and defend the Authority and the Trustee and the respective officers, members, directors, officials and employees of each of them against all losses, costs, damages, expenses, suits, judgments, actions and liabilities of whatever nature including, specifically, any liability under any state or federal securities laws (including but not limited to reasonable attorneys' fees, litigation and court costs, amounts paid in settlement and amounts paid to discharge judgments) directly or indirectly resulting from or arising out of or related to: (i) the design, construction, installation, operation, use, occupancy, maintenance or ownership of the Project Facilities (including compliance with laws, ordinances and rules and regulations of public authorities relating thereto); or (ii) any statements or representations with respect to the Company, the Project Facilities, this Agreement, the Bonds, the Indenture, the Letter of Credit, the Reimbursement Agreement or any other documents or instruments delivered at or in connection with the closing held on the Closing Date (including any statements or representations made in connection with the offer or sale thereof) made or given to the Authority, the Trustee or any placement advisors or underwriters or purchasers of any of the Bonds, by the Company or any of its officers, agents or employees, including, but not limited to, statements or representations of facts, financial information or Company affairs. The Company also will pay and discharge and indemnify and hold harmless the Authority and the Trustee from: (x) any lien or charge upon payments by the Company to the Authority and the Trustee under this Agreement; and (y) any taxes (including, without limitation, any ad valorem taxes and sales taxes, assessments, impositions and other charges in respect of any portion of the Project Facilities). If any such claim is asserted, or any such lien or charge upon payments, or any such taxes, assessments, impositions or other charges are sought to be imposed, the Authority or the Trustee will give prompt notice to the Company, and the Company will have the sole right and duty to assume, and will assume, the defense thereof, with full power to litigate, compromise or settle -9- the same in its sole discretion. The Company's obligations, liabilities and duties hereunder shall not be diminished or altered by: (i) reason of the assumption of any defense required hereby; or (ii) the outcome of any proceeding, investigation or litigation with respect to the validity or enforceability of the matters described in this Section 3.10(c). (d) If the indemnification provided heretofore is for any reason determined to be unavailable to the Authority or the Trustee, then, with respect to any such loss, claim, demand or liability, including expenses in connection therewith, the Authority and the Trustee, as appropriate, shall be entitled as a matter of right to contribution by the Company. The amount of such contribution shall be in such proportion as is appropriate to reflect relative culpability of the parties. Section 3.11. Authority is Conduit Issuer; Company is Real Party in Interest; Covenant Not to Sue. (a) The Company hereby expressly acknowledges that the Authority is a conduit issuer and that all of the right, title and interest of the Authority in and to this Agreement, but not the obligations of the Authority, are to be assigned first to the Trustee and then to the Bank (except for the right of the Authority to receive its reasonable fees and expenses and to indemnification), naming the Trustee and the Bank, as applicable, its true and lawful attorney for and in its name to enforce the terms and conditions of this Agreement. Notwithstanding any other provision contained herein, the Company hereby expressly agrees, acknowledges and covenants that it shall duly and punctually perform or cause to be performed each and every duty and obligation of the Authority under and pursuant to the Indenture, which the Company is reasonably able to perform. (b) The Company covenants and agrees that it shall neither sue the Authority, or any of its board members, officers, agents or employees, past, present or future, for any claim, loss, demand, action or nonaction based upon this financing nor ever raise as a defense in any proceedings whatsoever that the Authority is the true party in interest. Notwithstanding the provisions of the foregoing sentence, the Company shall be entitled to: (i) bring an action of specific performance against the Authority to compel any action required to be taken by the Authority hereunder or an action to enjoin the Authority from performing any action prohibited hereunder or under any other documents, by this instrument or any other agreement executed and delivered in connection with the issuance of the Bonds, but no such action shall in any way impose pecuniary liability upon the Authority or any of its board members, officers, agents or employees; and (ii) join the Authority in any litigation if such joinder is necessary to pursue any of the Company's rights, provided that prior to such joinder, the Company shall post such security as the Authority may reasonably require to protect the Authority from further loss. -10- ARTICLE IV COMPANY OBLIGATIONS; ASSIGNMENT TO TRUSTEE Section 4.01. General Obligation of the Company. This Agreement constitutes a general obligation of the Company and the full faith and credit of the Company is pledged to the payment of all amounts due hereunder. Section 4.02. Assignment to Trustee. The Authority immediately following execution and delivery hereof, shall assign this Agreement and all loan payments payable hereunder (except its right to receive its fees and expenses and indemnification) to the Trustee pursuant to the Indenture, IN TRUST, to be held and applied pursuant to the provisions of the Indenture, and to the Bank. The Company: (1) consents to such assignments and accepts notice thereof with the same legal effect as though such acceptances were embodied in separate instruments, separately executed after execution of such assignments; (2) agrees to pay directly to the Trustee or the Bank, as applicable, all payments payable hereunder for application to amounts then due and payable or to become due and payable under the Indenture, such payments to be paid by the Company to the Trustee without any defense, set-off or counterclaim arising out of any default on the part of the Authority under the Agreement or any transaction between the Company and the Authority or the Company and the Trustee; and (3) agrees that the Trustee and the Bank, as applicable, may exercise any and all rights and pursue any and all remedies granted the Authority hereunder. Section 4.03. Maintenance and Operation of the Project Facilities. (a) During the term of this Agreement, the Company will at its own cost and expense keep and maintain, or cause to be kept and maintained, in good repair and condition (excepting reasonable wear and tear) the Project Facilities and all additions and improvements thereto, and pay, or cause to be paid, any utility charges and other costs and expenses arising out of its use or occupancy of the Project Facilities; and (b) the Company agrees to timely pay for any improvements to the Project Facilities lawfully done or lawfully ordered to be done by any municipal, state or federal authority and to comply in all material respects at its own cost and expense with all lawful and enforceable notices received (whether by the Authority or the Company) from public authorities from and after the date hereof that affect the Project Facilities and the use and operation thereof, other than those improvements, orders and notices, the amount, validity or application of which is at the time being contested, in whole or in part, in good faith by appropriate proceedings promptly initiated and diligently conducted. Section 4.04. Maintenance of Existence. Except as otherwise permitted in the Reimbursement Agreement, the Company agrees that it will maintain its existence as a Pennsylvania corporation, will maintain its status as an entity authorized to conduct business in the Commonwealth, will not dissolve or otherwise dispose of all or substantially all of its assets and will not consolidate with or merge into another entity. -11- Section 4.05. Compliance with Laws. With respect to the Project Facilities and any additions, alterations or improvements thereto, the Company will at all times comply with all applicable requirements of federal, state and local laws and with all applicable lawful requirements of any agency, board, or commission created under laws of the Commonwealth or of any other duly constituted public authority, and will use, and permit the use of, the Project Facilities only for such purposes as are lawful under the Act; provided, however, that the Company shall be deemed in compliance with this Section 4.05 so long as it is contesting in good faith any such requirement by appropriate legal proceedings. Section 4.06. Notice of Bankruptcy Case Commencement. The Company covenants and agrees that it shall immediately notify the Authority, the Bank and the Trustee of the commencement of any case by or against it under the Bankruptcy Code. In addition, within fifteen days of receipt of a written request from the Trustee, the Company shall deliver a certificate to the Trustee certifying as to whether a petition in bankruptcy has been filed by or against the Company under the Bankruptcy Code or any applicable state bankruptcy or insolvency law. Section 4.07. Substitute Letter of Credit. The Company may provide for the delivery to the Trustee of a Substitute Letter of Credit upon thirty (30) days prior written notice to the Trustee, the Tender Agent, the Remarketing Agent and the Authority. Any Substitute Letter of Credit shall be delivered to the Trustee on an Interest Payment Date and not later than the thirtieth (30th) Business Day prior to the expiration of the Letter of Credit it is being issued to replace. On or before the date of the delivery of any Substitute Letter of Credit to the Trustee, as a condition to the acceptance of any Substitute Letter of Credit by the Trustee, the Company shall furnish to the Authority, the Trustee and the Remarketing Agent: (i) written evidence that the issuer of such Substitute Letter of Credit is a commercial bank organized and doing business in the United States or a branch or agency of a foreign commercial bank located and doing business in the United States and subject to regulation by state or federal banking regulatory authorities and that it has been assigned the same or better rating as the Letter of Credit in effect immediately prior to the substitution of the Substitute Letter of Credit; (ii) an opinion of nationally recognized bond counsel to the effect that the delivery of such Substitute Letter of Credit is authorized under this Agreement and the Indenture and the Act and complies with the terms hereof, and, that the delivery of such Substitute Letter of Credit does not adversely affect the exclusion from gross income of the interest on the Bonds for federal income tax purposes; and (iii) an opinion of Counsel satisfactory to the Trustee, the Authority, the Company and the Remarketing Agent to the effect that the Substitute Letter of Credit is a legal, valid and binding obligation of the issuer (or, in the case of a branch or agency of a foreign commercial bank, the branch or agency) issuing the same, enforceable in accordance with its terms, that payments of principal, premium, if any (if such Substitute Letter of Credit secures the payment of premium), or Purchase Price of or interest on the Bonds from the proceeds of a drawing on the Substitute Letter of Credit will not constitute voidable preferences under the Bankruptcy Code or other applicable laws and regulations and that it is not necessary to register the Substitute Letter of Credit under the Securities Act of 1933, as amended, or to qualify an indenture with respect thereto under the Trust Indenture Act of 1939, as amended. On or before the delivery of any Substitute Letter of Credit to the Trustee, as an additional condition to the -12- acceptance of any Substitute Letter of Credit by the Trustee, the Company shall furnish to the Authority, the Trustee and the Remarketing Agent written evidence from each Rating Agency that the rating on the Bonds will not be reduced or withdrawn as a result of the acceptance of the Substitute Letter of Credit and that the short term unsecured debt of the Bank or Substitute Bank, as applicable, shall then have been assigned a rating by Moody's of "P-1" or the equivalent rating assigned by S&P. In the case of a Substitute Letter of Credit issued by a branch or agency of a foreign commercial bank there shall also be delivered an opinion of Counsel, satisfactory to the Trustee, the Authority, the Company and the Remarketing Agent and licensed to practice law in the jurisdiction in which the head office of such bank is located, to the effect that the Substitute Letter of Credit is the legal, valid and binding obligation of such bank enforceable in accordance with its terms. The Trustee shall accept any such Substitute Letter of Credit only in accordance with the terms, and upon the satisfaction of the conditions, contained in this Section 4.07 and any other provisions applicable to acceptance of a Substitute Letter of Credit under this Agreement and the Indenture. ARTICLE V THE PROJECT FACILITIES Section 5.01. Prohibited Uses. The Company covenants and agrees that it will not use or permit the use by any Person of any of the funds provided by the Authority hereunder or any other of its funds, directly or indirectly, or direct the Trustee to invest any funds held by it under the Indenture or this Agreement, in such manner as would, or enter into, any arrangement, formal or informal, that would, or take or omit to take any other action that would, cause any Bond to be an "arbitrage bond" within the meaning of Section 148(a) of the Code. The Company acknowledges having read Sections 6.13 and 7.06 of the Indenture and the Rebate Certificate and agrees to perform all duties imposed upon it by such Sections and by the Rebate Certificate. Insofar as said Sections and the Rebate Certificate impose duties and responsibilities on the Company, they are specifically incorporated herein by reference. Section 5.02. Liens. The Company will not create, assume, or suffer to exist, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind upon the Premises except: (a) the liens and security interests created by the Collateral Documents, or otherwise existing on and disclosed to the Authority and the Bank on the date hereof; (b) purchase money liens on and security interests in equipment hereafter acquired which constitutes the deferred portion of the purchase price thereof; (c) liens for taxes not yet payable or being contested in good faith by appropriate proceedings and for which adequate reserves have been provided on the books of the Company; -13- (d) mechanics', materialmen's, warehousemen's, carriers' or other like liens arising in the ordinary course of business of the Company, arising with respect to obligations which are not overdue for a period longer than thirty (30) days or which are being contested in good faith by appropriate proceedings and for which adequate reserves have been provided on the books of the Company; (e) other encumbrances consisting of zoning restrictions, easements, restrictions on the use of real property or minor irregularities in the title thereto, which do not arise in connection with the borrowing of, or any obligation for the payment of, money and which, in the aggregate, do not materially detract from the value of the Premises; or (f) any liens authorized or permitted under the Reimbursement Agreement. ARTICLE VI INSURANCE; DESTRUCTION, DAMAGE, EMINENT DOMAIN Section 6.01. Insurance to be Maintained. The Company covenants to provide and maintain continuously unless otherwise herein provided, adequate insurance on the Project Facilities as shall be mutually agreed upon by the Bank and the Company. Each insurance policy with respect to the Project Facilities shall name the Bank as an additional insured. Section 6.02. Destruction, Damage and Eminent Domain. If the Project Facilities shall be wholly or partially destroyed or damaged by fire or other casualty covered by insurance, or shall be wholly or partially condemned, taken or injured by any Person, including any Person possessing the right to exercise the power of or a power in the nature of eminent domain or shall be transferred to such a Person by way of a conveyance in lieu of the exercise of such a power by such a Person, the Company covenants that it will take all actions and will do all things which may be necessary to enable recovery to be made upon such policies of insurance or on account of such taking, condemnation, conveyance, damage or injury. The Company is authorized, in its own name, as trustee of an express trust, to demand, collect, sue, settle claims, receipt and release monies which may be due and payable under policies of insurance covering such damage or destruction or on account of such condemnations, damage or injury. Any moneys recovered: (i) on policies of insurance required to be maintained hereunder; or (ii) as a result of any taking, condemnation, conveyance, damage or injury shall be deposited in the Construction Fund held by the Trustee under the Indenture and shall be applied in accordance with the provisions of Section 6.04 hereof; provided, however, that as long as the Bank is not in default under the terms of the Letter of Credit, the applicable provisions of the Reimbursement Agreement shall control the disposition of casualty insurance and condemnation award proceeds. Any appraisement or adjustment of loss or damage and any settlement or payment therefor, shall be agreed upon by the Company, the Bank (as long as the Bank is not in default under the Letter of Credit) and the appropriate insurer or condemnor or Person, and shall be evidenced to the Bank -14- by the certificate and approvals set forth in the Indenture. The Bank may rely conclusively upon such certificates. Section 6.03. Notice of Property Loss. After the occurrence of loss or damage to, or after receipt of notice of condemnation of, the Project Facilities, if such loss or damage to the Project Facilities exceeds $50,000, the Company shall within five (5) Business Days thereof notify the Authority, the Trustee and the Bank, in writing, of such damage. Section 6.04. Disposition of Casualty Insurance and Condemnation Award Proceeds. Subject to the provisions of Section 6.02 hereof, if the Bank is in default under the terms of the Letter of Credit, and as long as the Company is not in default under the terms of this Agreement, the Company may elect, in its discretion, whether to apply the proceeds of any casualty insurance coverage and/or condemnation awards to: (i) the repair, reconstruction or replacement of damaged, destroyed or injured property comprising the Project Facilities; or (ii) the redemption of Bonds pursuant to the applicable provisions of the Indenture. Absent timely direction from the Company as to the application of any casualty insurance coverage and/or condemnation awards or if the Company shall be in default under the terms of this Agreement, the proceeds thereof shall be applied to the extraordinary redemption of the Bonds at par plus accrued interest through the date of redemption. For purposes of the preceding sentence, "timely direction" shall mean 30 days after the Company has agreed, in connection with any damage to or condemnation of the Project Facilities, upon the settlement or payment with respect to any appraisement or adjustment of loss or damage, as appropriate. ARTICLE VII ADDITIONAL COVENANTS OF THE COMPANY Section 7.01. Compliance with Laws. The Company covenants that all actions heretofore and hereafter taken by the Company or by the Authority upon the recommendation or request of any officer of the Company to acquire and carry out the Project have been and will be, to the best knowledge of the Company, in full compliance with all pertinent laws, ordinances, rules, regulations and orders applicable to the Company. In connection with the operation, maintenance, repair and replacement of the Project Facilities, the Company covenants that it shall comply with all applicable ordinances, laws, rules, regulations and orders of the government of the United States of America, the Commonwealth, the County, and any other applicable government unit having jurisdiction over it, and any requirement of any board of fire underwriters having jurisdiction or of any insurance company writing insurance on the Project Facilities; provided, however, that nothing herein shall prevent or prohibit the Company from contesting in good faith and by appropriate proceedings the legality or reasonableness of any such standards, or the imposition of any such standards upon it with respect to the Project Facilities so long as the operation of the Project Facilities or the receipt of income therefrom would not be adversely affected by reason thereof. The Company further covenants and represents that the Project Facilities are in compliance with all applicable zoning, subdivision, building, land use and similar laws and ordinances. The Company covenants that it shall not take any -15- action or request the Authority to execute any release which would cause the Project Facilities to be in violation of such laws or ordinances or such that a conveyance of the Project Facilities or of any portion of the Project Facilities would create a violation of such laws and ordinances. The Company acknowledges that any review by the Authority or Counsel to the Authority of any action heretofore or hereafter taken by the Company has been or will be solely for the protection of the Authority. Such reviews shall not prevent the Authority from enforcing any of the covenants made by the Company. Section 7.02. Power to Perform Obligations. The Company covenants and represents that it has full power and legal right to enter into this Agreement and perform its obligations hereunder. The making and performance of the Agreement by the Company has been duly authorized by all necessary action and will not conflict with or constitute a breach of or default under any bond, contract, indenture, agreement or any other instrument by which the Company or any of its properties is or may be bound. Section 7.03. Inspection. The Company covenants that the Authority, by its duly authorized representatives, at reasonable times and with reasonable notice, for purposes of determining compliance with the Agreement, may inspect any part of the Project Facilities. Section 7.04. Additional Information. The Company agrees, whenever requested by the Authority, to provide and certify or cause to be provided and certified such information concerning the Project Facilities, to enable the Authority to make any reports or supply any information required by the Indenture, law, governmental regulation or otherwise. Section 7.05. Nondiscrimination. During the term of this Agreement, the Company agrees, as to itself and as to each occupant of the Project Facilities controlling, controlled by or under common control with the Company (each, a "Contractor") as follows: (a) Contractors shall not discriminate against any employee, applicant for employment, independent contractor or any other Person because of race, color, religious creed, handicap, ancestry, national origin, age or sex. Contractors shall take affirmative action to insure that applicants are employed, and that employees or agents are treated during employment, without regard to their race, color, religious creed, handicap, ancestry, national origin, age or sex. Such affirmative action shall include, but is not limited to: employment, upgrading, demotion or transfer, recruitment or recruitment advertising; layoff or termination; rates of pay or other forms of compensation; and selection for training. Contractors shall post in conspicuous places, available to employees, agents, applicants for employment and other persons, a notice to be provided by the contracting agency setting forth the provisions of this Section 7.05. (b) Contractors shall, in advertisements or requests for employment placed by it or on its behalf, state that all qualified applicants will receive consideration for employment without regard to race, color, religious creed, handicap, ancestry, national origin, age, or sex. (c) Contractors shall send each labor union or workers' representative with which -16- it has a collective bargaining agreement or other contract or understanding, a notice advising said labor union or workers' representative of its commitment to this nondiscrimination clause. Similar notices shall be sent to every other source of recruitment regularly utilized by Contractors. (d) It shall be no defense to a finding of noncompliance with this Section 7.05 that a Contractor had delegated some of its employment practices to any union, training program or other source of recruitment which prevents it from meeting its obligations. However, if the evidence indicates that such a Contractor was not on notice of the third-party discrimination or made a good faith effort to correct it, such factor shall be considered in mitigation in determining appropriate sanctions. (e) Where the practices of a union or of any training program or other source of recruitment will result in the exclusion of minority group persons, so that a Contractor will be unable to meet its obligations under this Section 7.05, such a Contractor shall then employ and fill vacancies through other nondiscriminatory employment procedures. (f) Contractors shall comply with all state and federal laws prohibiting discrimination in hiring or employment opportunities. Noncompliance with this Section 7.05 will constitute an Event of Default under this Agreement. (g) Contractors shall furnish all necessary employment documents and records to, and permit access to its books, records and accounts by, the Authority for purposes of investigation to ascertain compliance with the provisions of this Section 7.05. If Contractor does not possess documents or records reflecting the necessary information requested, it shall furnish such information on reporting forms supplied by the Authority. (h) Contractors shall actively recruit minority subcontractors and women subcontractors or subcontractors with substantial minority or women representation among their employees. (i) Contractors shall include the provisions of this Section 7.05 in every subcontract, so that such provisions will be binding upon each subcontractor. (j) Contractors' obligations under this Section 7.05 are limited to Contractors' facilities within the Commonwealth or, where the contract is for purchase of goods manufactured outside of the Commonwealth, the facilities at which such goods are actually produced. ARTICLE VIII EVENTS OF DEFAULT AND REMEDIES Section 8.01. Events of Default. The following events shall constitute "Events of Default~ under this Agreement: -17- (a) if the Company falls to make any payment required by Sections 3.01, 3.03, 3.04 or 3.05 hereof when due; or (b) if the Company fails to make any other payment required hereby and such failure continues for 30 days after the Authority or the Trustee gives notice to the Company that such payment is due and unpaid; or (c) if the Company fails to perform any of its other covenants or conditions or fails to perform any of its obligations hereunder and such failure continues for 30 days after the Authority or the Trustee gives the Company notice thereof; provided, however, that if such performance requires work to be done, actions to be taken, or conditions to be remedied, which by their nature cannot reasonably be done, taken or remedied, as the case may be, within such 30 day period, no Event of Default shall be deemed to have occurred or to exist if, and so long as, the Company shall commence such performance within such 30-day period and shall diligently and continuously proceed to completion; or (d) if the Company commits any act of bankruptcy under the Bankruptcy Code or any state bankruptcy law or any law providing for reorganization or relief for debtors or files or has filed against it a petition in bankruptcy or for arrangement or reorganization pursuant to the Bankruptcy Code or other similar law, federal or state, or if, by the decree of a court of competent jurisdiction, is adjudicated a bankrupt or declared insolvent, or makes an assignment for the benefit of creditors, or admits in writing its inability to pay its debts generally when or as they become due, or consents to the appointment of a trustee, receiver or to the liquidation of all or any part of the Project Facilities, provided that, if any such proceeding is commenced by a Person other than the Company, there shall be no Event of Default if such proceedings are dismissed within 60 days of the filing of initial pleadings therein; or (e) the written declaration by the Bank of an Event of Default under and as defined in the Reimbursement Agreement; Section 8.02. Acceleration. Upon the occurrence of any "Event of Default" by the Authority under the Indenture caused or resulting directly or indirectly by the occurrence of an Event of Default by the Company hereunder, the Trustee (with the prior written consent of the Bank as long as the Bank is not in default under the Letter of Credit), may, and upon request of the Owners of 25% in principal amount of the Bonds then Outstanding shall, pursuant to Section 8.02 of the Indenture, declare the principal of the then-Outstanding Bonds and accrued interest immediately due and payable, but such Trustee shall not declare the principal due and payable if such acceleration is annulled as provided in Section 8.02 thereof. Upon such declaration by the Trustee, the Authority shall have the right to terminate this Agreement and, upon such termination, there shall become immediately due and payable hereunder as then current damages of the Authority under this Agreement, an amount equal: (i) to all amounts then due and payable by the Authority to the Trustee under this Section 8.02; and (ii) all other amounts due and owing as loan payments hereunder. Until such amount is paid by the Company, at the time or times and in the manner required to permit the -18- Authority to meet its obligations under the Indenture, the Authority shall continue to have all of the rights, powers and remedies herein (notwithstanding the termination hereof), and, for such time as may be necessary to enable the Authority to satisfy in full its obligations under the Indenture, the term of this Agreement shall, at the election of the Authority, be extended at the will of the Authority, and the Company's obligations hereunder shall continue in full force and effect. Section 8.03. Payment of Loan Payments on Default; Suit Therefor. (a) Upon the occurrence of an Event of Default under this Agreement, then, upon demand of the Authority or its assignee, the Company will pay to the Authority or its assignee the whole amount of the loan payments that then shall have become due and payable hereunder and to the extent such loan payments represent payments due on the Bonds, such payments shall be applied to the payment of the Bonds in accordance with the terms of the Indenture; and, in addition thereto, such further amount as shall be sufficient to pay the costs and expenses of collection, including reasonable compensation based upon actual time expended by the Authority and its assignee and their respective agents and attorneys, and any expenses or liabilities incurred by the Authority or its assignee (other than through the Authority's or its assignee's own gross negligence or bad faith). In case the Company shall fail forthwith to pay such amounts upon such demand, the Authority or its assignee shall be entitled and empowered to institute any actions or proceedings at law or in equity for the collection of the sums so due and unpaid, and may prosecute any such action or proceeding to judgment or final decree, and may enforce any such judgment or final decree against the Company and collect in the manner provided by law out of the property of the Company the money adjudged or decreed to be payable. (b) In case there shall be pending proceedings in bankruptcy or for the reorganization of the Company under the Bankruptcy Code or any other applicable law, or in case a receiver or trustee shall have been appointed for the benefit of the creditors or the property of the Company, or in the case of any other similar judicial proceedings relative to the Company, the Authority or its assignee shall be entitled and empowered, by intervention in such proceedings or otherwise, to file and prove a claim or claims for the whole amount of the loan payments, including interest owing and unpaid in respect thereof, and, in case of any judicial proceedings, to file such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Authority or its assignee allowed, and to collect and receive any moneys or other property payable or deliverable on any such claims, and to distribute the same after the deduction of its charges and expenses; and any receiver, assignee or trustee in bankruptcy or reorganization is hereby authorized to make such payments to the Authority or its assignee, and to pay to the Authority or its assignee any amount due it for compensation based upon actual time expended and expenses, including counsel fees incurred by it up to the date of such distribution. Section 8.04. Waiver. The Company hereby waives and relinquishes the benefits of any present or future law exempting the Project Facilities from attachment, levy or sale on execution, or any part of the proceeds arising from the sale thereof, and all benefit of stay of execution or other process. -19- Section 8.05. Cumulative Rights. No remedy conferred upon or reserved to the Authority or its assignee by this Agreement is intended to be exclusive of any other available remedy or remedies, but each and every such remedy shall be cumulative and shall be in addition to every other remedy given under this Agreement or now or hereafter existing at law or in equity or by statute. No waiver by the Authority or its assignee of any breach by the Company of any of its obligations, agreements or covenants hereunder shall be a waiver of any subsequent breach, and no delay or omission to exercise any right or power 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. Section 8.06. No Exercise of Remedies Without Consent of Bank. Notwithstanding anything to the contrary contained in this Agreement, neither the Authority nor any assignee of the Authority under this Agreement shall exercise or pursue remedies or declare an Event of Default or cause an acceleration of the obligations contained in this Agreement without the prior written consent of the Bank as long as the Bank shall not be in default of its obligations under the Letter of Credit or a voluntary or involuntary case has not been commenced by the filing of a petition under the Bankruptcy Code or any other law relating to insolvency, bankruptcy, reorganization, winding-up or composition or adjustment of debts by or against the Bank. ARTICLE IX OPTIONS TO TERMINATE AGREEMENT Section 9.01. Option to Terminate Upon Defeasance. The Company shall have, and is hereby granted, the option to terminate its obligations under this Agreement prior to full payment of the Bonds by providing for the payment of all of the Outstanding Bonds in accordance with Article XI of the Indenture. Section 9.02. Option to Terminate Upon the Occurrence of Certain Events. The Company shall have, and is hereby granted, the option to terminate its obligations under this Agreement if any of the events set forth below shall occur: (A) The Project Facilities or any portion thereof shall have been damaged or destroyed: (1) to such extent that it cannot, in the Company's judgment, be reasonably restored within a period of six (6) months to the condition thereof immediately preceding such damage or destruction; or (2) to such extent that the Company is thereby prevented, in the Company's reasonable judgment, from carrying on its normal operations at the Project Facilities for a period of six (6) months or more; (B) Title to, or the temporary use for a period of six (6) months or more of, all or substantially all of the Project Facilities, or such part thereof as shall materially interfere, in the Company's reasonable judgment, with the operation of the Project Facilities for the purpose for which the Project Facilities are designed, shall have been taken under the exercise -20- of the power of eminent domain by any governmental body or by any Person, firm or corporation acting under governmental authority (including such a taking or takings as results in the Company's being thereby prevented from carrying on its normal operations at the Project Facilities for a period of six (6) months or more); (C) Changes which the Company cannot reasonably control or overcome in the economic availability of materials, supplies, labor, equipment and other properties and things necessary for the efficient operation of the Project Facilities for the purposes contemplated by this Agreement, shall have occurred, or technological or other changes shall have occurred which in the judgment of the Company render the continued operation of the Project Facilities uneconomical for such purpose; or (D) As a result of any changes in the Constitution of the Commonwealth or the Constitution of the United States of America or of legislative or administrative action (whether state or federal) or by final decree, judgment or order of any court or administrative body (whether state or federal) entered after the contest thereof by the Company in good faith, this Agreement shall have become void and unenforceable or impossible of performance in accordance with the intent and purposes of the parties as expressed in this Agreement, or unreasonable burdens or excessive liabilities shall have been imposed on the Company in respect to the Project Facilities, including, without limitation, federal, state or other ad valorem, property, income, or other taxes not being imposed on the date of this Agreement. To exercise such option, the Company shall within ninety (90) days following the event authorizing such termination, give written notice to the Authority and the Trustee and shall specify therein the date of redemption of Bonds pursuant to Section 4.01 of the Indenture, which date shall be the next interest payment date in respect of the Bonds for which the required notice of redemption can practicably be given. In accordance with the terms of the Indenture, the Company shall make arrangements for the Trustee to give the required notice of redemption. Payment of the redemption price of Bonds redeemed pursuant to this Section 9.02 will be made in accordance with the terms of the Indenture. Anything contained in this Agreement to the contrary notwithstanding, the Bank shall have the right (as long as the Bank shall not be in default under the terms of the Letter of Credit) to cause the Company to terminate its obligations under this Agreement, in accordance with the provisions of this Section 9.02 by so notifying the Company in writing, if as a result of any changes in the Constitution of the Commonwealth or the Constitution of the United States of America or as a result of a legislative or administrative action (whether state or federal) or final decree, judgment or order of any court or administrative body (whether state or federal) entered after the contest thereof by the Company in good faith, this Agreement shall have become void and unenforceable or impossible of performance, in accordance with the intent and purposes of the parties as expressed in this Agreement. -21- ARTICLE X MISCELLANEOUS Section 10.01. Approval of Indenture. The Company acknowledges that it has received executed copies of the Indenture and a copy the Letter of Credit and that it is familiar with their provisions, and agrees that it will take all such actions as are required or contemplated of it under the Indenture to preserve and protect the rights of the Trustee thereunder and that it will not take any action which would cause a default or an Event of Default thereunder. It is agreed by the Company and the Authority that any redemption of the Bonds prior to maturity shall be effected as provided in the Indenture. Section 10.02. Taxes and Insurance-Rights of Authority to Pay. If the Company, at any time, fails to pay any taxes or other impositions payable by it in accordance with Section 3.04 hereof, or to take out, pay for, maintain or deliver any of the insurance policies provided for in Article VI, or shall fail, within the time provided for in Article VIII after the notice therein specified of any Event of Default, as therein defined, has been given thereunder, to make any other payment or perform any other act on its part to be made or performed, then the Authority may, but shall not be obligated so to do, and without further notice to or demand upon the Company and without waiving or releasing the Company from any of its obligations under the Agreement: (a) pay any taxes or other impositions payable by the Company in accordance with Section 3.04 hereof; (b) take out, pay for and maintain any of the insurance policies provided for in Article VI hereof; or (c) make any other payment or perform any other act on the Company's part to be made or performed as provided in this Agreement. All sums so paid by the Authority and all necessary incidental costs and expenses in connection with the performance of any such act by the Authority shall, together with interest thereon at the rate at which interest is charged on defaulted payments under the Reimbursement Agreement, be payable to the Authority, on demand, or, at the option of the Authority, may be added to any installment of the loan payments then due or thereafter becoming due under this Agreement, and the Company covenants to pay any such sums. Section 10.03. Illegal Provisions Disregarded. If any term or provision hereof or the application thereof for any reason or circumstance shall to any extent be held to be invalid or unenforceable, this Agreement shall be invalid or unenforceable only to the extent of such invalidity or unenforceability and such invalidity or unenforceability shall not invalidate the balance of such provision or the remaining terms or provisions of this Agreement or the application of such terms or provisions to Persons other than those as to which it has been held invalid or unenforceable; each term and provision hereof shall be valid and enforceable to the fullest extent permitted by law, and shall be liberally construed in favor of the Authority or its assignee in order to effect the intent of this Agreement. Section 10.04. Limitation of Liability of the Authority. In the event of any default by the Authority hereunder, and notwithstanding any provision or obligation to the contrary hereinbefore or hereinafter set forth, the liability of the Authority shall be limited to its interest in the Project -22- Facilities, the improvements thereon, the rents, issues and profits therefrom, and the lien of any judgment shall be restricted thereto. The Authority does not assume general liability nor specific liability for the repayment of any mortgage or other loan, or for the costs, fees, penalties, taxes, interest, commissions, charges, insurance or any other payments therein recited or therein set forth, or incurred in any way in connection therewith. Other than as set forth hereinabove in this Section 10.04, there shall be no other recourse for damages of any kind or nature by the Company or any other Person against the Authority, its incorporator, officers, members, agents and employees, past, present or future, or any of the property or other assets now or hereafter owned by it or them, either directly or indirectly; and all such recourse or liability is hereby expressly waived and released as a condition of and in consideration for execution and delivery of this Agreement by the Authority. In the event of entry of judgment against the Authority by virtue of the power herein contained, the Authority shall mark the judgment index to the effect that the judgment is limited as aforesaid. Section 10.05. No Recourse as to the Authority. Except as expressly provided in Section 10.04 above, no recourse under or upon any obligation, covenant or agreement contained herein or in any Bond shall be had against the Authority or any member, officer, employee or agent, past, present or future, of the Authority or of any successor of the Authority under this Agreement, any other agreement, any rule of law, statute or constitutional provision, or by enforcement of any assessment or by any legal or equitable proceeding or otherwise, it expressly being agreed and understood that the obligations of the Authority hereunder, and under the Bonds and elsewhere, are solely corporate obligations of the Authority to the extent specifically limited in the Act and that no personal liability whatsoever shall attach to or shall be incurred by the Authority or such members, officers, employees or agents, past, present or future, of the Authority or of any successor of the Authority, or any of them, because of such indebtedness or by reason of any obligation, covenant or agreement contained herein, in the Bonds or implied therefrom. Section 10.06. Reference to Statute or Regulation. A reference herein to a statute or to a regulation issued by a governmental agency includes the statute or regulation in force as of the date hereof, together with all amendments and supplements thereto and any statute or regulation substituted for such statute or regulation, unless the specific language or the context of the reference herein clearly includes only the statute or regulation in force as of the date hereof. A reference herein to a governmental agency, department, board, commission or other public body or to a public officer includes an entity or officer which or who succeeds to substantially the same functions as those performed by such public body or officer as of the date hereof, unless the specific language or the context of the reference herein clearly includes only such public body or public officer as of the date hereof. Section 10.07. Notices. All notices required or authorized to be given by the Company, the Authority or the Trustee under the Indenture or pursuant to this Agreement shall be in writing and shall be sent by registered or certified mail, postage prepaid, to the following addresses: -23- to the Authority to: Montgomery County Industrial Development Authority 3 Stony Creek Office Center 151 West Marshall Street Norristown, Pennsylvania 19401 to the Company to: Apple Fresh Foods Limited Box 725, Kimberton Road Kimberton, PA 19442 Attention: Controller to the Trustee to: Dauphin Deposit Bank and Trust Company 213 Market Street Harrisburg, PA 17101 Attention: Corporate Trust Services or to such other addresses as may from time to time be furnished to the parties, effective upon the receipt of notice thereof given as set forth above. Each of the above agrees that it shall send a duplicate copy or executed copy of all certificates, notices, correspondence or other data and materials required to be sent to one of the above to all other parties and in addition, to the Bank at Great Valley Corporate Center, 55 Valley Stream Parkway, Suite 200, Malvern, Pennsylvania 19355, Attention: Mr. Michael Bailey. Section 10.08. Applicable Law. This Agreement shall be deemed to be a contract made in the Commonwealth and governed by the law of the Commonwealth. Section 10.09. Amendments. This Agreement may not be amended except by an instrument in writing signed by the parties and, if such amendment occurs after the issuance of any of the Bonds, consented to by the Trustee and the Bank, so long as the Bank is not in default under the Letter of Credit. Section 10.10. Term of Agreement. This Agreement and the respective obligations of the parties hereto shall be in full force and effect from the date hereof until all principal of, premium, if any, and interest on the Bonds shall have been paid or provision for such payment shall have been made pursuant to the terms and provisions of the Indenture. -24- Section 10.11. Amounts Remaining in Bond Fund. It is agreed by the parties hereto that any amounts remaining in the Bond Fund established under the Indenture upon expiration or sooner termination of this Agreement after payment in full of the Bonds (or provision for payment thereof having been made in accordance with the provisions of the Indenture) and of the fees charges and expenses of the Trustee and the Authority in accordance with the Indenture, shall, to the extent of any unreimbursed draws under the Letter of Credit, or any other Obligations owing by the Company to the Bank under the Reimbursement Agreement or any of the other Reimbursement Documents (as defined in the Reimbursement Agreement) be paid to the Bank. Any remaining moneys shall belong to and be paid to the Company by the Trustee. Section 10.12. Survival of Covenants, Conditions and Representations. All covenants, duties, obligations, conditions and representations of the Company contained herein that, by nature, implied or expressly involve performance in any particular manner after the termination of this Agreement or that cannot be ascertained to have been performed until after termination of this Agreement, shall survive said termination. Without intending to limit the generality of the foregoing, the Company's covenant to indemnify the Authority and the Trustee, as set forth in Section 3.10 hereof shall survive any termination of this Agreement. Section 10.13. Multiple Counterparts. This Agreement may be executed in multiple counterparts, each of which shall be regarded for all purposes as an original and such counterparts shall constitute but one and the same instrument. Section 10.14. Consent. Whenever the consent of the Authority or its assignee is given pursuant to the terms of this Agreement, such consent shall create no liability or responsibility upon the Authority or its assignee, and whenever required, shall not be unreasonably withheld. -25- IN WITNESS WHEREOF, the MONTGOMERY COUNTY INDUSTRIAL DEVELOPMENT AUTHORITY has caused this Agreement to be executed in its name and on its behalf by its Chairperson or Vice Chairman and attested by its Secretary or Assistant Secretary, and APPLE FRESH FOODS LIMITED has caused this Agreement to be executed in its name and on its behalf by its President or Vice President and attested by its Secretary or Assistant Secretary, all as of the day and year first above written. MONTGOMERY COUNTY INDUSTRIAL DEVELOPMENT AUTHORITY By: __________________________________ Chairperson or Vice Chairman Attest:_______________________________ (Assistant) Secretary APPLE FRESH FOODS LIMITED By:___________________________________ (Vice) President Attest:_______________________________ Authorized Officer -26- EX-2 3 LOAN AGREEMENT LOAN AGREEMENT between CORESTATES BANK, N.A. and NUTRITION MANAGEMENT SERVICES COMPANY, THE COLLEGEVILLE INN CONFERENCE & TRAINING CENTER, INC. and APPLE FRESH FOODS LIMITED Dated as of December 26, 1996 TABLE OF CONTENTS Article Page I. Definitions....................................................... 1 II. Credit Accommodations............................................. 7 2.1 The Revolving Credit.................................... 7 2.2 Term Loans.............................................. 9 2.3 First Term Loan......................................... 10 2.4 Second Term Loan........................................ 10 2.5 Third Term Loan......................................... 11 2.6 Prepayment and Repayment................................ 11 2.7 Loan Account............................................ 12 2.8 Payments and Computations............................... 12 2.9 Existing Documents Superseded........................... 12 2.10 Requirements of Law..................................... 12 III. Representations and Warranties of the Borrowers...................... 13 3.1 Corporate Existence; Authorization...................... 13 3.2 Compliance with Laws and Other Agreements............... 14 3.3 No Conflict; Governmental Approvals..................... 14 3.4 Financial and Other Information Regarding Borrowers.............................................. 14 3.5 Taxes................................................... 15 3.6 Encumbrances and Guaranties............................. 15 3.7 Material Adverse Changes................................ 15 3.8 Margin Securities....................................... 15 3.9 ERISA................................................... 15 3.10 Pending Litigation...................................... 16 3.11 Valid, Binding and Enforceable.......................... 16 3.12 Environmental Matters................................... 16 3.13 No Untrue Statements.................................... 17 3.14 Subsidiaries............................................ 17 3.15 Priority of Security Interests.......................... 17 IV. Conditions Precedent to the Bank's Obligations.................... 18 4.1 Documents to be Delivered by the Borrowers at Closing............................................. 18 4.2 Conditions Precedent to Making Loans.................... 19 V. Affirmative Covenants of the Borrowers............................ 19 5.1 Use of Proceeds......................................... 19 5.2 Financial Statements.................................... 19 5.3 Ordinary Course of Business; Records.................... 20 5.4 Information for the Bank................................ 20 5.5 Insurance............................................... 21 5.6 Maintenance............................................. 21 5.7 Taxes................................................... 21 5.8 Leases.................................................. 22 5.9 Corporate Existence; Certain Rights; Laws............... 22 5.10 Notice of Litigation or Other Proceedings............... 22 5.11 Indebtedness............................................ 22 - 1 - 5.12 Notice of Events of Default............................. 22 5.13 ERISA................................................... 22 5.14 Deposit Accounts........................................ 23 5.15 Management.............................................. 23 5.16 Financial Covenants..................................... 23 5.17 Compliance with Environmental Laws...................... 23 5.18 Asset Purchase.......................................... 23 5.19 Further Actions......................................... 24 5.20 Release of Liens........................................ 24 VI. Negative Covenants................................................ 25 6.1 Fundamental Corporate Changes........................... 25 6.2 Indebtedness............................................ 25 6.3 Encumbrances............................................ 25 6.4 Guaranties.............................................. 26 6.5 Sales and Lease-Backs................................... 26 6.6 Loans, Investments...................................... 26 6.7 Change in Business...................................... 27 6.8 Sale or Discount of Receivables......................... 27 6.9 ERISA................................................... 27 6.10 Restricted Payments..................................... 27 6.11 Compliance with Federal Reserve Board Regulations............................................ 27 VII. Events of Default.................................................... 28 7.1 Borrowers' Failure to Pay............................... 28 7.2 Breach of Covenants or Conditions....................... 28 7.3 Defaults in Other Agreements............................ 28 7.4 Agreements Invalid...................................... 28 7.5 False Warranties; Breach of Representations............. 29 7.6 Judgments............................................... 29 7.7 Bankruptcy or Insolvency of the Borrowers............... 29 7.8 Change in Control....................................... 30 VIII. Remedies.......................................................... 30 8.1 Further Advances; Acceleration; Setoff.................. 30 8.2 Further Remedies; Confession of Judgment................ 30 IX. Miscellaneous..................................................... 31 9.1 Remedies Cumulative; No Waiver.......................... 31 9.2 Notices................................................. 31 9.3 Costs, Expenses and Attorneys' Fees..................... 33 9.4 Survival of Covenants................................... 33 9.5 Counterparts; Effectiveness............................. 33 9.6 Headings................................................ 33 9.7 Payment Due On A Day Other Than a Business Day.......... 33 9.8 Judicial Proceedings.................................... 33 9.9 Governing Law........................................... 34 9.10 Integration............................................. 34 9.11 Amendment and Waiver.................................... 34 9.12 Successors and Assigns.................................. 34 9.13 Severability of Provisions.............................. 35 9.14 Consent to Jurisdiction and Service of Process.......... 35 9.15 Indemnification......................................... 35 - 2 - LOAN AGREEMENT THIS LOAN AGREEMENT ("Agreement"), dated as of December 26, 1996, is between CORESTATES BANK, N.A., a national banking association (the "Bank"), and NUTRITION MANAGEMENT SERVICES COMPANY, a Pennsylvania corporation ("Nutrition Management"), THE COLLEGEVILLE INN CONFERENCE & TRAINING CENTER, INC. a Pennsylvania corporation ("Collegeville"), and APPLE FRESH FOODS LIMITED, a Pennsylvania corporation ("Apple Fresh"; together with Collegeville and Nutrition Management, the "Borrowers" and individually, a "Borrower"). BACKGROUND Nutrition Management and the Bank are parties to a Loan Agreement dated July 13, 1993, as amended on March 10, 1995 (the "Existing Loan Agreement") pursuant to which the Bank extended a revolving credit to Nutrition Management in the amount of $2,900,000, a term loan in the amount of $3,200,000 and a term loan in the amount of $500,000, and a promissory note dated November 16, 1994 in the amount of $395,000, (the "Existing Loans"), as evidenced by promissory notes of Nutrition Management to the Bank in the aggregate amount of $6,995,000 (the "Existing Notes"; together with the Existing Loan Agreement, and all other documents and instruments executed in connection therewith, the "Existing Loan Documents"). Pursuant to the terms hereof, the Borrowers under this Agreement have requested the Bank to provide the Borrowers with a new revolving credit facility in the amount of $4,000,000 and to refinance the other Existing Loans in replacement of the Existing Loan Documents, and the Bank is willing to do so on the terms and subject to the conditions set forth herein. ARTICLE I DEFINITIONS Terms used herein without definition that are defined in the Uniform Commercial Code shall have the meanings ascribed to them therein, unless the context requires otherwise. The following terms shall have the following meanings in this Agreement: "Account" shall have the meaning given to that term in the Uniform Commercial Code and, in addition, shall include any right to payment for goods sold or leased or services rendered which is evidenced by an instrument or chattel paper. "Adjusted Prime Rate" shall mean (i) the Prime Rate plus one-half of one percent (0.50%) until the Bank receives the Borrowers' financial statements for the fiscal year ending June 30, 1997 and (ii) for the twelve months commencing on the first day of the month after the Bank's receipt of such statements and for every twelve month period thereafter, the interest rate for the ensuing fiscal year shall be based on the Borrowers' Consolidated Debt Service Coverage Ratio (as defined in Schedule 5.16 hereto) as follows: Consolidated Debt Service Coverage Ratio Adjusted Prime Rate (1.00:1.00 Prime + .75% less than 1.00:1.00 through 1.15:1.00 Prime + .375% more than 1.15:1.00 Prime "Affiliate" shall mean any Subsidiary of any Borrower and any Person or entity that, now or hereafter, directly or indirectly through one or more intermediaries, controls, is controlled by or is under common ownership or control with any Borrower. For purposes of this definition, the terms "control," "controls" and "controlled" shall refer to the power to determine the management or policies of a Person, whether resulting from an official position or capacity with such Person, direct or indirect beneficial ownership of at least twenty percent (20%) of the voting securities or other equity interests of such Person, or otherwise. "Agreement" shall mean this agreement, together with all exhibits, amendments, modifications and supplements hereto. "Apple Fresh" shall have the meaning given such term in the initial paragraph of this Agreement. "Asset Purchases" shall have the meaning set forth in Section 2.1(a) of this Agreement. "Assignment of Agreement" shall mean that agreement dated March 10, 1995, as amended on the date hereof, together with all amendments, modifications, exhibits, and schedules thereto as may be in effect from time to time. "Bank" shall have the meaning specified in the initial paragraph of this Agreement, together with its successors and assigns. "Borrowers" shall have the meaning set forth in the initial paragraph of this Agreement, together with their successors and assigns, and "Borrower" shall mean any one of such Borrowers. "Business Day" shall mean any day upon which the Bank is open for business at its main office in Philadelphia, Pennsylvania. - 2 - "Capital Lease" shall mean any lease of property which, in accordance with GAAP, should be capitalized on the lessee's balance sheet. "Capital Lease Obligation" shall mean the amount of the liability which, according to GAAP, should be capitalized or disclosed with respect to a Capital Lease. "Closing" shall mean the execution and delivery to the Bank of all of the documents and instruments required by the terms of Section 4.1 of this Agreement. "Closing Date" shall mean the date on which the Closing takes place. "Code" shall mean the Internal Revenue Code of 1986, as amended. "Collateral" shall mean any property in which the Bank is granted a security interest or mortgage. "Collegeville" shall have the meaning set forth in the initial paragraph of this Agreement. "Default" shall mean any fact, condition or event which with the giving of notice or lapse of time, or both, would be an Event of Default. "Default Rate" shall mean the Adjusted Prime Rate plus two percent (2%). "Encumbrance" shall mean, as to any Person, any mortgage, lien, pledge, charge, security interest or other similar encumbrance in or on, or any interest or title of any vendor, lessor, lender to, or other secured party of the Person under any conditional sale or other title retention agreement or Capital Lease with respect to, any property or asset of the Person. "Environmental Laws" shall mean the Federal Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. {{ 9601, et. seq., the Federal Resource Conservation and Recovery Act, 42 U.S.C. {{ 6901 et. seq., the Hazardous Materials Transportation Act, 49 U.S.C. {{ 1801, et. seq., all other federal, state and local environmental or health laws applicable to each Borrower or its business, operations or assets now or hereafter enacted, and all rules, regulations, orders and publications adopted or promulgated pursuant thereto from time to time. "ERISA" shall mean the Federal Employee Retirement Income Security Act of 1974, as amended from time to time, and the regulations promulgated and rulings issued thereunder. - 3 - "Escrow Security Agreement" shall mean the agreement between Nutrition Management as debtor and the Bank as secured party, dated the same date as this Agreement, by which Nutrition Management shall, subject to the terms thereof, grant security interests in certain of its assets to the Bank, together with all amendments, modifications, exhibits, and schedules thereto as may be in effect from time to time. "Event of Default" shall have the meaning set forth in Article VII of this Agreement. "Existing Loan Documents" shall have the meaning set forth in the preamble of this Agreement. "Financial Statements" shall have the meaning set forth in Section 3.4(a) of this Agreement. "First Term Loan" shall have the meaning given such term in Section 2.3 of this Agreement. "First Term Note" shall have the meanings given such term in Section 2.3 of this Agreement. "GAAP" shall mean generally accepted accounting principles, as in effect at the time of application to the provisions hereof. "Guaranty" shall mean any guaranty or agreement to be a surety or other contingent liability (other than any endorsement for collection or deposit in the ordinary course of business), with respect to any obligation of another Person. "Hazardous Materials" shall mean all materials of any kind which are flammable, explosive, toxic, radioactive or otherwise hazardous to animal or plant life or the environment, including, without limitation, "hazardous wastes," "hazardous substances" and "contaminants," as such terms are defined by Environmental Laws. "Indebtedness" shall mean any obligation for borrowed money, including, without limitation: (a) any obligation owed for all or any part of the purchase price of property or other assets or for the cost of property or other assets constructed or of improvements thereto, other than accounts payable included in current liabilities and incurred in respect of property purchased or assets constructed in the ordinary course of business; and (b) any Capital Lease Obligation. "Judgment" shall have the meaning set forth in Section 7.6 of this Agreement. "Loan Account" shall have the meaning given such term in Section 2.4 of this Agreement. - 4 - "Loan Documents" shall mean this Agreement, the Notes, the Security Agreement, the Mortgage, the Escrow Security Agreement, the Assignment of Agreement and all agreements, amendments, certificates, financing statements, schedules, reports, notices, and exhibits now or hereafter executed or delivered in connection with any of the foregoing, as may be in effect from time to time, including, without limitation, any documents delivered to the Bank pursuant to Section 5.18 of this Agreement in connection with Collateral. "Loans" shall mean the Revolving Credit Loans and the Term Loans, the First Term Loan, the Second Term Loan and the Third Term Loan. "Mortgage" shall mean that Mortgage, Assignment of Leases and Security Agreement from Collegeville to the Bank, dated the same date of this Agreement, together with all amendments, modifications, exhibits and schedules thereto as may be in effect from time to time. "Non-Approval Loan" shall have the meaning given such term in Section 2.1(a) of this Agreement. "Notes" shall mean the Revolving Credit Note and Term Loan Notes, if any, the First Term Note, the Second Term Note, the Third Term Note, and all replacements, amendments, extensions and renewals thereof. "Nutrition Management" shall have the meaning given such term in the initial paragraph of this Agreement. "Obligations" shall mean the obligations of the Borrowers:(a) to pay the principal, interest, commitment fees and any other liabilities of the Borrowers to the Bank under this Agreement and the other Loan Documents in accordance with the terms thereof;(b) to satisfy all of the other liabilities of any of Borrowers to the Bank under any agreement in existence between the Bank and any Borrower on the date hereof, whether now existing or hereafter incurred, whether or not evidenced by any note or other instrument, matured or unmatured, direct, absolute or contingent, joint or several, including any extensions, modifications, renewals thereof and substitutions therefor;(c) to repay the Bank all amounts advanced by the Bank hereunder on behalf of the Borrowers, including, but without limitation, advances for principal or interest payments to prior secured parties, mortgagors or lienors, or for taxes, levies, insurance, rent, wages, repairs to or maintenance or storage of any Collateral; and (d) to reimburse the Bank, upon request, for all of the Bank's expenses and costs payable under Section 9.3 hereof. "PBGC" shall mean the Pension Benefit Guaranty Corporation. - 5 - "Person" shall mean any individual, corporation, partnership, association, joint-stock company, trust, unincorporated organization, joint venture, court or governmental or political subdivision or agency thereof. "Prime Rate" shall mean the floating annual rate of interest that is publicly announced from time to time by the Bank as the "Prime Rate" and is used by the Bank as a reference base with respect to interest rates charged to borrowers. The determination and statement of the Prime Rate shall not in any way preclude the Bank from making loans to other borrowers at rates which are higher or lower than the Prime Rate. "Revolving Credit" shall mean the revolving credit from the Bank to the Borrowers established pursuant to Section 2.1 of this Agreement. "Revolving Credit Commitment" shall have the meaning set forth in Section 2.1 of this Agreement. "Revolving Credit Loans" shall mean the loans made by the Bank to the Borrowers pursuant to the Revolving Credit. "Revolving Credit Note" shall have the meaning set forth in Section 2.1 of this Agreement, together with all replacements, amendments and renewals thereof. "Second Term Loan" shall have the meaning given such term in Section 2.4 of this Agreement. "Second Term Note" shall have the meaning given such term in Section 2.4 of this Agreement. "Security Agreement" shall mean the agreement between Collegeville and Apple Fresh as debtor and the Bank as secured party, dated the same date as this Agreement, by which each of Collegeville and Apple Fresh shall, subject to the terms thereof, grant security interests in certain of its assets to the Bank, together with all amendments, modifications, exhibits, and schedules thereto as may be in effect from time to time. "Subsidiary" shall mean, as to any designated corporation, any corporation, the outstanding shares of which having sufficient voting power (not depending on the happening of a contingency) to elect at least a majority of the members of its board of directors, are at the time owned by the designated corporation. "Term Loans" and "Term Loan" shall have the meaning given such term in Section 2.2(a) of this Agreement. "Term Loan Note" shall have the meaning set forth in Section 2.2(c) of this Agreement. - 6 - "Termination Date" shall have the meaning set forth in Section 2.1 of this Agreement. "Third Term Loan" shall have the meaning given such term in Section 2.5 of this Agreement. "Third Term Note" shall have the meaning given such term in Section 2.5 of this Agreement. "Uniform Commercial Code" shall mean the Uniform Commercial Code of Pennsylvania as codified at 13 Pa. C.S.A. {101 et seq., as in effect on the date of this Agreement. ARTICLE II CREDIT ACCOMMODATIONS 2.1 The Revolving Credit. The Bank shall make available to the Borrowers, commencing on the Closing Date, a Revolving Credit in the maximum principal amount of $4,000,000 (the "Revolving Credit Commitment"), upon the terms and conditions set forth herein. (a) Advances. At any time and from time to time during the period commencing on the Closing Date and ending on December 31, 1998 (the "Termination Date"), upon the request of the Borrowers, the Bank shall provide to the Borrowers a loan or loans to be used by the Borrowers for (i) working capital and/or (ii) the acquisition of existing contracts or lines of business directly related to the food service operations of the Borrowers whether by the purchase of assets or stock or by merger, consolidation or a similar transaction (the "Asset Purchases", each an "Asset Purchase"). As a condition to making any Revolving Credit Loan for an Asset Purchase, the Borrowers shall deliver to the Bank at least thirty (30) Business Days prior to the proposed requested funding date all documentation required by the Bank for its review and written approval with respect to any Asset Purchase as set forth in Section 5.18 of this Agreement, provided however, the Borrowers shall be permitted to borrow two advances up to $1,500,000 each for Asset Purchases without the prior written approval of the Bank (each, a "Non-Approval Loan"). At any time cumulative advances under the Revolving Credit for Asset Purchases exceed $1,000,000, the Borrowers shall be required to convert such advances to a Term Loan in accordance with Section 2.2 of this Agreement. The Bank shall not be required to make a Non-Approval Loan under the Revolving Credit for the purpose of financing an Asset Purchase more than thirty (30) days after payment has been made by the Borrowers for such Asset Purchase. - 7 - The Borrowers may use the Revolving Credit during the period referred to in the preceding sentence by borrowing, repaying and reborrowing in accordance with the terms of this Agreement. The aggregate outstanding principal under the Revolving Credit at any time shall not exceed the Revolving Credit Commitment. If, at any time, the aggregate outstanding principal under the Revolving Credit exceeds the Revolving Credit Commitment, then, without any requirement of demand or notice from the Bank, the Borrowers shall immediately pay to the Bank the amount of such excess. On or before December 31, 1997, and on or before each successive December 31, thereafter, if applicable, the Bank shall notify the Borrowers of the Bank's decision, in its sole discretion, to extend the Termination Date of the Revolving Credit for one year or to terminate the Revolving Credit on the then existing Termination Date. Upon notice to the Borrowers by the Bank of its decision to extend the Termination Date for one year and the written acceptance by the Borrowers, the Borrowers shall execute, upon request of the Bank, all such documents required by the Bank for the extension of such Termination Date. Upon the Termination Date, unless the same has been extended by written agreement between the Bank and the Borrowers, the Bank's commitment to make Revolving Credit Loans shall terminate, all Revolving Credit Loans shall immediately mature, and all Obligations under the Revolving Credit shall be immediately due and payable in full, except to the extent that the Borrowers shall have exercised the right under this Agreement to convert such Loans to one or more Term Loans pursuant to Section 2.2 hereof. The aggregate outstanding principal of all Revolving Credit Loans and Term Loans extended by the Bank in accordance with Section 2.2 hereof at any time shall not exceed Four Million Dollars ($4,000,000). The Revolving Credit shall be subject to review and, at the sole discretion of the Bank, renewal by the Bank on or before the Termination Date. (b) Interest. Subject to Section 2.2(b) hereof, interest shall accrue on the aggregate outstanding principal under the Revolving Credit at an annual rate equal at all times to the Adjusted Prime Rate and shall be payable monthly on the first day of each month, commencing February 1, 1997, and shall change simultaneously and automatically upon any change in the Prime Rate. (c) Revolving Credit Note. The obligations of the Borrowers to repay the aggregate outstanding principal under the Revolving Credit and to pay accrued interest thereon to the Bank shall be evidenced by a promissory note, in form and substance satisfactory to the Bank, to be executed and delivered to the Bank concurrently with the execution and delivery of this Agreement (the "Revolving Credit Note"). - 8 - (d) Unused Commitment Fee. In addition to the interest payable by the Borrowers to the Bank in respect of the Revolving Credit, the Borrowers shall pay to the Bank on a quarterly basis beginning April 1, 1997, a fee equal to one-half of one percent (.50%) per annum on the amount, if any, by which the average Revolving Credit Loans during a calendar quarter, including any Term Loans, are less than $4,000,000. Such fee shall be computed for the actual number of days elapsed and on the basis of a year of 360 days, and shall be payable quarterly in arrears as billed by the Bank. 2.2 Term Loans. (a) Generally. Subject to the terms and conditions of this Agreement, at any time or times on or before notification to the Borrowers by the Bank of the Bank's election to not extend the Termination Date, and provided no Default or Event of Default shall exist under this Agreement, the Borrowers shall have the right to request a loan for a term of years for an Asset Purchase or to convert all or a part of the outstanding principal balance of any Revolving Credit Loan made in connection with an Asset Purchase under the Revolving Credit into a loan for a term of years ("Term Loan"). The Borrowers shall not be permitted to request a Term Loan hereunder that would be a Non-Approval Loan more than thirty (30) days after payment has been made by the Borrowers for such Asset Purchase. The Borrowers may exercise their right of conversion by giving the Bank notice thereof not less than ten Business Days prior to the date on which such conversion is requested to take effect. The maximum term which the Borrowers may elect pursuant to such right of conversion shall be the lesser of (i) five years, or (ii) the weighted average number of years over which GAAP permits the purchased contracts to be amortized. The Borrowers shall repay the outstanding principal balance of each Term Loan in approximately equal consecutive monthly installments of principal commencing on the first day of the first calendar month of the term thereof and continuing throughout the entire term thereof in accordance with the provisions of each respective Term Loan Note. (b) Interest. Interest shall accrue on the outstanding principal of each Term Loan at the Adjusted Prime Rate. Interest shall be payable monthly on the first day of each month together with each payment of principal, in accordance with the terms of each Term Loan Note, and shall change simultaneously and automatically upon any change in the Prime Rate. Upon request of the Borrowers, made concurrently with any request for a Term Loan, the Bank shall quote a fixed rate of interest, if available, for any Term Loan which the Borrowers may elect in lieu of the Adjusted Prime Rate. (c) Term Loan Notes. The obligations of the Borrowers to repay the aggregate outstanding principal of each Term Loan and to pay accrued interest thereon to the Bank shall - 9 - be evidenced by a separate promissory note, substantially in the form of Exhibit 2.2(c) hereto, to be executed and delivered to the Bank on the Conversion Date with respect to such Term Loan (each such note, a "Term Loan Note" and collectively, the "Term Notes"). 2.3 First Term Loan. (i) Generally. The Bank shall make available to the Borrowers on the Closing Date a term loan (the "First Term Loan") in the amount of $773,671.47, for the purpose replacing the existing note under the Existing Loan Documents dated July 13, 1993. The Borrowers shall repay the outstanding principal of the First Term Loan in fourteen (14) equal, consecutive, monthly installments of $53,333.33 each on the fifth day of each month beginning January 5, 1997, and a final installment of all remaining principal on March 5, 1998. (ii) Interest. Interest shall accrue on the outstanding principal of the First Term Loan at an annual rate equal to seven and one-half percent (7.5%) and shall be payable monthly on the first day of each month beginning January 5, 1997. (iii) First Term Note. The obligations of the Borrowers to repay the aggregate outstanding principal under the First Term Loan and to pay accrued interest thereon shall be evidenced by a promissory note, in form and substance satisfactory to the Bank, to be executed and delivered to the Bank concurrently with the execution and delivery of this Agreement (the "First Term Note"). 2.4 Second Term Loan. (i) Generally. The Bank shall make available to the Borrowers on the Closing Date a term loan (the "Second Term Loan") in the amount of $281,249.93 for the purpose of replacing the existing note under the Existing Loan Documents dated March 10, 1995. The Borrowers shall repay the outstanding principal of the Second Term Loan in twenty-six (26) equal, consecutive, monthly installments of $10,416.67 each, on the tenth day of each month beginning January 10, 1997, and a final installment of all remaining principal on March 10, 1999. (ii) Interest. Interest shall accrue on the outstanding principal of the Second Term Loan at an annual rate equal to nine and one-half percent (9.50%) and shall be payable monthly on the first day of each month beginning January 10, 1997. (iii) Second Term Note. The obligations of the Borrowers to repay the aggregate outstanding principal under the First Term Loan and to pay accrued interest - 10 - thereon shall be evidenced by a promissory note, in form and substance satisfactory to the Bank, to be executed and delivered to the Bank concurrently with the execution and delivery of this Agreement (the "Second Term Note"). 2.5 Third Term Loan. (i) Generally. The Bank shall make available to the Borrowers on the Closing Date a term loan,(the "Third Term Loan") in the amount of $131,666.72, for the purpose of replacing the existing note under the Existing Loan Documents dated November 16, 1994. The Borrowers shall repay the outstanding principal of the Third Term Loan in eleven (11) equal, consecutive, monthly installments of $10,972.22 each, on the first day of each month beginning January 1, 1997, and a final installment of all remaining principal on December 1, 1997. (ii) Interest. Interest shall accrue on the outstanding principal of the Third Term Loan at an annual rate equal to eight and one-half percent (8.50%) and shall be payable monthly on the first day of each month beginning January 1, 1997. (iii) Third Term Note. The obligations of the Borrowers to repay the aggregate outstanding principal under the Term Loan and to pay accrued interest thereon shall be evidenced by a promissory note, in form and substance satisfactory to the Bank, to be executed and delivered to the Bank concurrently with the execution and delivery of this Agreement (the "Third Term Note"). 2.6 Prepayment and Repayment. The Borrowers may make a prepayment of principal of any Loan accruing interest at the Adjusted Prime Rate at any time without penalty. Prepayment of any amounts of principal of any Loan bearing interest at a fixed rate shall not be permitted unless accompanied by the following prepayment premium equal to the amount, if any, by which the aggregate present value of scheduled principal and interest payments eliminated by the prepayment exceeds the principal amount being prepaid. Said present value shall be calculated by application of a discount rate determined by Bank in its reasonable judgment to be the yield-to-maturity at the time of prepayment on U.S. Treasury securities having a maturity which most closely approximates the final maturity date of the principal balance then outstanding. The determination of the foregoing prepayment premium by the Bank shall be final, binding and conclusive upon the Borrower, except to the extent of any manifest error in computation or transmission. All prepayments of the Loans shall be accompanied by the payment of accrued interest on the amount of such prepayment to the date thereof. Subject to the above prepayment premium, the Borrowers may make payments and prepayments of the Loans in whole or in part at any time and from time to time upon notification to the Bank not - 11 - later than 10:00 a.m. Philadelphia time one Business Day prior to the date of the proposed prepayment. Each such notice shall set forth (i) the date, which shall be a Business Day, on which the proposed prepayment is to be made; (ii) to which Loan such prepayment is to be applied; and (iii) the total amount of such prepayment which shall be in the amount equal to the lesser of the entire remaining principal balance of the Loan, or $500,000 or a multiple thereof. Such notice, once given to the Bank, shall be irrevocable. 2.7 Loan Account. The Bank shall maintain on its books the account or accounts previously established by the Borrowers with the Bank (collectively, the "Loan Account") to which it shall charge all Loans to or for the benefit of the Borrowers pursuant to the terms of this Agreement, including, without limitation, all advances to the Borrowers under the Revolving Credit and the proceeds of all Term Loans, and to which it shall credit, in accordance with the terms hereof, each payment made by the Borrowers. The records of the Bank with respect to the Loan Account shall be presumed to correctly evidence the outstanding principal balance of all Loans under this Agreement, except to the extent that the Borrowers prove any error in such records. 2.8 Payments and Computations. All amounts payable by the Borrowers to the Bank under this Agreement or the Notes shall be paid directly to the Bank in immediately available funds at the address of the Bank set forth in Section 9.2 hereof or at such other address of which the Bank shall give notice to the Borrowers pursuant to Section 9.2 hereof. All computations of interest hereunder shall be made by the Bank on the basis of a year of 360 days for the actual number of days elapsed. All payments under each of the Notes shall be applied first to the payment of interest due and payable thereunder and then to the reduction of the outstanding principal balance thereof. 2.9 Existing Documents Superseded. On the Closing Date, the Existing Loan Documents shall be superseded by this Agreement, the Notes and the other instruments evidencing or securing the Loans as provided for in this Agreement, except that the security interests granted thereunder shall be continued by the Loan Documents executed on the date hereof and that Nutrition Management hereby agrees that the Assignment of Agreement dated March 10, 1995 shall be hereby deemed amended to provide security for the obligations under the Loan Documents executed on the date hereof. 2.10 Requirements of Law. In the event that after the date hereof, any change in any law, regulation or treaty or in the interpretation or application thereof or compliance by the Bank with any request or directive (whether or not having the force of law) from any central bank or other governmental authority, agency or instrumentality: - 12 - (a) subjects or shall subject the Bank to any tax of any kind whatsoever with respect to this Agreement, the Loans made hereunder or changes the basis of taxation of payments to the Bank of principal, commitment fee, interest or any other amount payable hereunder (except for changes in taxes on or measured by the overall net income of the Bank); (b) imposes, modifies or holds or shall impose, modify or hold applicable any reserve, special deposit, compulsory loan or similar requirement in respect of this Agreement or the Loans (or any category of assets or extensions of credit in which this Agreement and the Loans are included) against assets held by, or deposits or other liabilities in or for the account of, advances or loans by, or other credit extended by, or any other acquisition of funds by, any office of the Bank, which reserve, special deposit, compulsory loan or similar requirement is not otherwise included in determination of the interest rate hereunder; (c) imposes or shall impose on the Bank any other condition; and the result of any of the foregoing is to, directly or indirectly, increase the cost to the Bank of making renewing or maintaining advances or extensions of credit or to reduce any amount receivable thereunder for the category of Loans made under this Agreement then, in any such case, the Borrowers shall promptly pay the Bank, upon its request, any additional amounts necessary to compensate the Bank for such additional cost or reduced amount receivable. If the Bank becomes entitled to claim any additional amounts pursuant to this subsection, it shall promptly notify the Borrowers of the event by reason of which it has become so entitled. The good faith determination as to any additional amounts payable pursuant to the foregoing sentence by the Bank shall be conclusive in the absence of manifest error. ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE BORROWERS In order to induce the Bank to execute and deliver this Agreement and to make the Loans available to the Borrowers, each Borrower represents and warrants to the Bank that, as of the date hereof: 3.1 Corporate Existence; Authorization. Each Borrower is duly incorporated, organized and existing and in good standing in the state of its incorporation set forth on Schedule 3.1 of this Agreement, and is duly qualified as a foreign corporation and authorized to do business in all other jurisdictions wherein the nature of its business or property makes such qualification necessary, and has the corporate power to own its properties and - 13 - to carry on its business as now conducted. The execution, delivery and performance of this Agreement and the Loan Documents have been duly authorized by all necessary corporate proceedings on the part of each Borrower. 3.2 Compliance with Laws and Other Agreements. Each Borrower is in compliance in all material respects with all laws, rules, regulations, judgments, decrees, orders, agreements and requirements which affect in any material way the Borrower, its assets or the operation of its business and no Borrower has received, and has no knowledge of, any order or notice of any governmental investigation or of any violation or claim of violation in any material respect of any law, regulation, judgment, decree, order, agreement, or other governmental requirement. 3.3 No Conflict; Governmental Approvals. The execution, delivery, and performance of this Agreement and each of the Loan Documents will not (i) conflict with, violate, constitute a default under, or result in a breach of any provision of any applicable law, rule, regulation, judgment, decree, order, instrument or other agreement, or (ii) conflict with or result in a breach of any provision of the certificate or articles of incorporation or by-laws of any Borrower. No authorization, permit, consent or approval of or other action by, and no filing, registration or declaration with, any governmental authority or regulatory body is required to be obtained or made by any Borrower for the due execution, delivery and performance of this Agreement or any of the Loan Documents, except such as have been duly obtained or made prior to the Closing Date and are in full force and effect as of the Closing Date (copies of which have been delivered to the Bank on or before the Closing Date). 3.4 Financial and Other Information Regarding Borrowers. (a) The Borrowers have delivered to the Bank true, correct and complete copies of the consolidated balance sheet of Nutrition Management and its subsidiaries as of September 30, 1996, and related statements of income and cash flows for the period then ended. Those financial statements ("Financial Statements") present fairly the consolidated financial position of Nutrition Management and its subsidiaries as of September 30, 1996 and the consolidated results of the operations of the Borrower and its subsidiaries for the period then ended in conformity with GAAP. (b) The Borrowers have no Indebtedness other than as shown in the most recent Financial Statements. (c) No Borrower has any "investment" (as such term is defined under GAAP), whether by stock purchase, capital contribution, loan, advance, purchase of property or otherwise, in any Person, other than as shown in the Financial Statements. - 14 - 3.5 Taxes. To the best knowledge of the Borrowers, none of the Borrowers is delinquent in payment of any income, property or other tax paid on a normal and customary on-going basis, except for any delinquency in the payment of a tax which is contested in good faith by the Borrowers and for which appropriate reserves have been established in accordance with GAAP. 3.6 Encumbrances and Guaranties. (a) All properties and assets of each Borrower are owned by such Borrower free and clear of all Encumbrances except (i) those for taxes or other government charges either not yet delinquent or the nonpayment of which is permitted by Section 3.5 of this Agreement; (ii) those not arising in connection with Indebtedness that do not materially impair the use or value of the properties or assets of the Borrower in the conduct of its businesses; (iii) Encumbrances whose release and termination is evidenced by the Borrowers delivery to the Bank of appropriate documents on the Closing Date; (iv) Encumbrances permitted by the Loan Documents; and (v) Encumbrances set forth on Schedule 6.3 of this Agreement. (b) None of the Borrowers is obligated under any Guaranty, except in favor of the Bank. 3.7 Material Adverse Changes. Since September 30, 1996, there has not been any material adverse change in the business, operations, properties or financial position of any Borrower. None of the Borrowers knows of any fact (other than matters of a general economic or political nature) which materially adversely affects, or, so far as any Borrower can now reasonably foresee, will materially adversely affect, the business, operations, properties or financial position of any Borrower or the performance by any Borrower of its obligations under this Agreement and the other Loan Documents. 3.8 Margin Securities. None of the assets of the Borrowers include any "margin securities" within the meaning of Regulations G or U of the Board of Governors of the Federal Reserve System (12 C.F.R. 207, 221), and none of the Borrowers have any present intention of acquiring any margin security. 3.9 ERISA. The provisions of each employee benefit plan as defined in Section 3(3) of ERISA ("Plan") maintained by each Borrower complies in all material respects with all applicable requirements of ERISA and of the Code, and with all applicable rulings and regulations issued under the provisions of ERISA and the Code setting forth those requirements. No reportable event, as defined in Section 4043 of ERISA, has occurred with respect to any Plan; no Plan to which Section 4021 of ERISA applies has been terminated; no Plan has incurred any liability to PBGC as provided in Section 4062, 4063 and 4064 of ERISA; no Plan has - 15 - been involved in any prohibited transaction within the meaning of Section 406 of ERISA or Section 4975 of the Code; and there are no unfunded liabilities with respect to any Plan which are not disclosed in the Financial Statements. None of the Borrowers has any Plan subject to ERISA. 3.10 Pending Litigation. There are no actions, suits, proceedings or investigations pending, or, to the knowledge of any Borrower, threatened against or affecting any Borrower, before any court, arbitrator or administrative or governmental body which, in the aggregate, might adversely affect any action taken or to be taken by any Borrower under this Agreement and the other Loan Documents or which, in the aggregate, might materially adversely affect the business, operations, properties or financial position of any Borrower, or the ability of any Borrower to perform its obligations under this Agreement and the other Loan Documents. 3.11 Valid, Binding and Enforceable. This Agreement and the Loan Documents have been duly and validly executed and delivered by the parties thereto (other than the Bank) and constitute the valid and legally binding obligations of such parties enforceable in accordance with their respective terms, except as enforcement of this Agreement and the other Loan Documents may be limited by bankruptcy, insolvency, fraudulent conveyance or other laws of general application relating to or affecting the enforcement of creditors' rights and except as enforcement is subject to general equitable principles. 3.12 Environmental Matters. (a) To the best of each Borrower's knowledge, each Borrower has performed all of its obligations under, has obtained all necessary approvals, permits, authorizations and other consents required by, and is not in material violation of, any Environmental Laws. (b) No Borrower has received any notice, citation, summons, directive, order or other communication, written or oral, from, and no Borrower has knowledge of the filing or giving of any such notice, citation, summons, directive, order or other communication by, any governmental or quasi-governmental authority or agency or any other Person concerning the presence, generation, treatment, storage, transportation, transfer, disposal, release or other handling of any Hazardous Materials within, on, from, related to, or affecting any real property owned or occupied by any Borrower. (c) To the best of each Borrower's knowledge, after reasonable inquiry, no real property owned or occupied by any Borrower has ever been used, either by any Borrower or any of its predecessors in interest, to generate, treat, store, transport, - 16 - transfer, dispose of, release or otherwise handle any Hazardous Material, in violation of any applicable Environmental Laws. (d) To the best of each Borrower's knowledge, after due inspection, there are no Hazardous Materials within, on or under any real property owned or occupied by any Borrower in violation of any applicable Environmental Laws. 3.13 No Untrue Statements. Neither this Agreement, the Loan Documents nor any other document, certificate or statement furnished or to be furnished by any Borrower or by any other party to the Bank in connection herewith, to the best knowledge of any Borrower, contains, or at the time of delivery will contain, any untrue statement of a material fact or omits or will omit to state a material fact necessary in order to make the statements contained herein and therein not misleading. 3.14 Subsidiaries. Nutrition Management owns no shares of stock or other equity interest, directly or indirectly, in any Person, other than Collegeville and Apple Fresh, and up to $100,000 of equity interests in any other Person. The Subsidiaries own no shares of stock or other equity interest, directly or indirectly, in any Person. After the Closing, the Borrowers shall own no stock or other equity interest in any Person, other than as provided above in this paragraph and as otherwise permitted to be acquired under the terms of this Agreement. 3.15 Priority of Security Interests. Collegeville and Apple Fresh represent and warrant that the Security Agreement, upon the filing of financing statements in the appropriate governmental offices, will create valid first perfected security interests in the personal property of Collegeville and Apple Fresh described therein as collateral for all the Obligations subject to no prior Encumbrances. Nutrition Management represents and warrants that the Escrow Security Agreement, upon the filing of financing statements in the appropriate governmental offices, will create valid first perfected security interests in the personal property of Nutrition Management described therein as collateral for all the Obligations subject to no prior Encumbrances. The Bank hereby agrees that the Escrow Security Agreement and the financing statements delivered to the Bank on the Closing Date pursuant to Section 4.1(c) of this Agreement shall be held in escrow by the Bank and shall not be filed or acted upon until an Event of Default exists under this Agreement, in which case the Bank may enforce such Escrow Security Agreement and perfect its interest therein to the fullest extent permissible under the law. - 17 - ARTICLE IV CONDITIONS PRECEDENT TO THE BANK'S OBLIGATIONS The Bank's obligations hereunder are conditioned upon the satisfaction by the Borrowers of the following conditions precedent: 4.1 Documents to be Delivered by the Borrowers at Closing. The Borrowers shall deliver or cause to be delivered to the Bank at the Closing the following: (i) This Agreement duly executed by each Borrower; (ii) The Revolving Credit Note duly executed by each Borrower; (iii) The First Term Note, the Second Term Note and the Third Term Note duly executed by each Borrower; (iv) The Escrow Security Agreement duly executed by the Borrowers, together with such Uniform Commercial Code financing statements and other documents as the Bank may reasonably require to be executed by the Borrowers; (v) The Security Agreement duly executed by each of Collegeville and Apple Fresh, together with such Uniform Commercial Code financing statements and other documents as the Bank may reasonably require to be executed by the Borrowers; (vi) The Mortgage duly executed by Collegeville; (vii) A certificate of the Secretary or an Assistant Secretary of each Borrower dated the Closing Date including (i) copy of each Borrower's Articles and Certificate of Incorporation, together with a certificate (dated as of the Closing Date), of the secretary of each Borrower to the effect that such Articles and Certificate of Incorporation are true and correct copies thereof and have not been amended since the date thereof; (ii) copy of the by-laws of each Borrower and copies of resolutions duly adopted by each Borrower authorizing the transactions contemplated by this Agreement, duly certified by the secretary of each Borrower; (iii) certificate, dated as of the Closing Date, of each Borrower's corporate secretary or assistant secretary as to the incumbency and signatures of the officers executing the Loan Documents and each other document to be delivered pursuant hereto; and (iv) certificates of authority or good standing for the Borrower from it jurisdiction of incorporation and any other jurisdiction where the Borrower is qualified to do business; - 18 - (viii) A copy of each and every authorization, permit, consent, and approval of and other action by, and notice to and filing with, every governmental authority and regulatory body which is required to be obtained or made by each Borrower for the due execution, delivery and performance of this Agreement and the other Loan Documents; and (ix) The opinion of Stradley, Ronon, Stevens & Young, LLP dated as of Closing Date, in form and substance reasonably satisfactory to the Bank and its counsel. 4.2 Conditions Precedent to Making Loans. The Bank shall not be obligated to make any Loan hereunder unless: (i) As of the date of the proposed advance, no Event of Default or Default has occurred; (ii) The representations and warranties contained in Article IV are true and correct on the date of the proposed advance, except that the representations and warranties in Section 3.4 shall refer to the financial statements most recently supplied to the Bank pursuant to Section 5.2 of this Agreement; (iii) No material adverse change has occurred in the financial condition of any Borrower since the date hereof; and (iv) The Borrowers have delivered to the Bank, upon the Bank's request, a certificate executed by the chief executive officer of the Borrowers confirming the statements made in paragraphs (a), (b) and (c) above. ARTICLE V AFFIRMATIVE COVENANTS OF THE BORROWERS Each Borrower hereby covenants and agrees that from the date hereof and until satisfaction in full of the Obligations, unless the Bank shall otherwise consent in writing, each Borrower shall do the following: 5.1 Use of Proceeds. Use the proceeds of the borrowings hereunder only for the purposes specified in Sections 2.1 and 2.2 of this Agreement, unless otherwise agreed in writing by the Bank and the Borrowers. 5.2 Financial Statements. Furnish to the Bank: (a) within ninety (90) days after the end of each fiscal year, the consolidated financial statements of the Borrowers, including a balance sheet, statement of income, and statement of cash flows. Such financial statements shall present fairly the financial condition of the Borrowers as of the close - 19 - of such year and the results of their operations and their cash flows during such year on a consolidated basis, in accordance with GAAP, and shall be audited and accompanied by an unqualified opinion, satisfactory in form and substance to the Bank, of an independent public accountant acceptable to the Bank, together with the accountant prepared consolidating financial statements, and the 10K of the Borrowers for such fiscal year; (b) within ninety (90) after each fiscal year end of the Borrowers, a financial forecast for the following fiscal year of the Borrowers on a monthly basis; (c) promptly upon receipt thereof, a copy of each other report submitted to the Borrowers by their independent public accountants, in connection with any annual, interim or special audit report made by them of the financial condition of the Borrowers; (d) within forty-five (45) days after the end of each fiscal quarter (i) a management prepared consolidated and consolidating balance sheet, statement of income and statement of cash flows for Nutrition Management, Apple Fresh and Collegeville, which shall present fairly the financial position of the Borrowers as of the end of such quarter and the results of their operations during such quarter on a consolidated and consolidating basis, in accordance with GAAP, (ii) the 10Q of the Borrowers for such quarter; and (iii) a compliance letter with respect to the absence of any Default or Event of Default and with respect to the financial covenants set forth in Schedule 5.16 of this Agreement, to be certified by the chief financial officer of the Borrowers; (e) within fifteen (15) days after the end of each quarter, the accounts receivable aging reports of the Borrowers as of the last day of such quarter, certified by the chief financial officer of the Borrowers; (f) with reasonable promptness, all such other data and information in respect of the condition, operations and affairs of the Borrowers as the Bank may reasonably request from time to time. 5.3 Ordinary Course of Business; Records. Except as permitted by this Agreement, conduct its business only in the ordinary course and keep accurate and complete books and records of its assets, liabilities and operations consistent with sound business practices and in accordance with GAAP. 5.4 Information for the Bank. Make available during normal business hours for inspection by the Bank or its designated representatives any of its books and records when reasonably requested by the Bank to do so, and furnish the Bank any information reasonably requested regarding its operations, - 20 - business affairs and financial condition within a reasonable time after the Bank gives notice of its request therefor. In particular, and without limiting the foregoing, each Borrower shall permit, during normal business hours, representatives of the Bank's Audit Department to make such periodic inspections of the Borrower's books, records and assets as such representatives deem necessary and proper. 5.5 Insurance. Carry insurance at all times in financially sound and reputable insurers, against such liabilities and hazards as are usually insured against by business entities of established reputation engaged in like businesses and similarly situated, including, without limitation, fire (flood, if applicable) and extended coverage, and such other insurance as the Bank may from time to time reasonably require, and pay all premiums on the policies for all such insurance when and as they become due and take all other actions necessary to maintain such policies in full force and effect at all times. The Borrowers shall from time to time, upon request by the Bank, promptly furnish or cause to be furnished to the Bank evidence, in form and substance satisfactory to the Bank, of the maintenance of all insurance required to be maintained hereby, including, without limitation, such originals or copies as the Bank may request of policies, certificates of insurance, riders and endorsements relating to such insurance and proof of premium payments. The Borrowers shall cause each hazard insurance policy to provide, and the insurer issuing each such policy to certify to the Bank, that (a) if such insurance be proposed to be canceled or materially changed for any reason whatsoever, such insurer will promptly notify the Bank and such cancellation or change shall not be effective for 30 days after receipt by the Bank of such notice, unless the effect of such change is to extend or increase coverage under the policy; (b) the Bank shall be named as lender loss payee with respect to personal property and mortgagee with respect to real property; and (c) the Bank will have the right, at its election, to remedy any default in the payment of premiums within 30 days of notice from the insurer of such default. The foregoing covenants regarding insurance are in addition to, and not intended to supersede, those covenants regarding insurance set forth in the Security Agreement. In the event and to the extent of any conflict between the provisions of this Agreement and the provisions of the Security Agreement regarding the insuring of Collateral, the provisions of the Security Agreement with respect thereto shall govern. 5.6 Maintenance. Maintain its equipment, real property and other properties in good condition and repair (normal wear and tear excepted) and pay and discharge the cost of repairs thereto or maintenance thereof. 5.7 Taxes. Pay all taxes, assessments, charges and levies imposed upon it or on any of its property, or which it is required to withhold and pay over, and provide evidence of - 21 - payment thereto to the Bank if the Bank so requests, except where contested in good faith by lawful and appropriate proceedings and where adequate reserves therefor have been set aside on its books; provided, however, that the Borrowers shall pay all such taxes, assessments, charges and levies forthwith whenever foreclosure on any lien which attaches to any security for the obligations of any Borrower appears imminent. 5.8 Leases. Pay all rent or other sums required by every lease to which the Borrower is a party as the same becomes due and payable, perform all its obligations as tenant or lessee thereunder except where contested in good faith by lawful and appropriate proceedings and where adequate reserves therefor have been set aside; and keep all such leases at all times in full force and effect during the terms thereof. 5.9 Corporate Existence; Certain Rights; Laws. Do all things necessary to preserve and keep in full force and effect in each jurisdiction in which it conducts business the business existence, licenses, permits, rights, patents, trademarks, trade names and franchises of the Borrower and comply with all present and future laws, ordinances, rules, regulations, judgments, orders and decrees which affect in any material way the Borrower, its assets or the operation of its business. 5.10 Notice of Litigation or Other Proceedings. Give prompt notice to the Bank of the existence of(i) any dispute, (ii) the institution of any litigation, administrative proceeding or governmental investigation involving the Borrower, or (iii) the entry of any judgment, decree or order against or involving the Borrower, any of the foregoing (i), (ii) or (iii) in an amount in excess of $250,000, or (iv) any event which might affect the enforceability of this Agreement or any of the other Loan Documents. 5.11 Indebtedness. Pay or cause to be paid when due (or within applicable grace periods) all Indebtedness of the Borrower. 5.12 Notice of Events of Default. Give prompt notice to the Bank if the Borrower becomes aware of the occurrence of any Event of Default or Default, or of the failure of the Borrower to observe or perform any of the conditions or covenants to be observed or performed by it under this Agreement or any of the other Loan Documents. 5.13 ERISA. Maintain each Plan in compliance in all material respects with all applicable requirements of ERISA and of the Code and with all applicable rulings and regulations issued under the provisions of ERISA and of the Code. As promptly as practicable (but in any event not later than ten days) after the Borrower receives from the PBGC a notice of intent to terminate any Plan or to appoint a trustee to - 22 - administer any Plan, after the Borrower has notified the PBGC that any reportable event, as defined in Section 4043 of ERISA, with respect to any Plan has occurred, or after the Borrower has provided a notice of intent to terminate to each affected party, as defined for purposes of Section 4041(a)(2) of ERISA, with respect to any Plan, a certificate of the chief executive officer of the Borrower shall be furnished to the Bank setting forth the details with respect to the events resulting in such reportable event, as the case may be, and the action which the Borrower proposes to take with respect thereto, together with a copy of the notice of intent to terminate or to appoint a trustee from the PBGC, of the notice of such reportable event or of the Borrower's notice of intent to terminate, as the case may be. 5.14 Deposit Accounts. Use the Bank as its primary depository institution to the extent reasonably feasible unless otherwise agreed in writing by the Bank; and notify the Bank, in writing and on a continuing basis, of all deposit accounts and certificates of deposit (including the numbers thereof) maintained with or purchased from other banks and other financial institutions. The Borrowers hereby agree to consider using the Bank's asset management affiliates as investment managers for all short term investments, provided such affiliates deliver proposals competitive with those of non-affiliated asset managers, provided any cash or investments at the Bank's asset management affiliates shall not be considered collateral for the Borrowers' Obligations to any extent greater than if there were being managed by entities not affiliated with the Bank. 5.15 Management. Furnish to Bank within five (5) days of any election or appointment of officers or directors, written notice of any change in the persons who from time to time become officers and directors of the Borrower and retain executive management personnel at all times satisfactory to the Bank, it being understood that present management is satisfactory and that Joseph Roberts must be Chairman and Chief Executive Officer of Nutrition Management. 5.16 Financial Covenants. Maintain the financial covenants set forth on Schedule 5.16 attached hereto and made a part hereof. 5.17 Compliance with Environmental Laws. Comply fully with all Environmental Laws and not use any property which it owns or occupies to generate, treat, store, transport, transfer, dispose of, release or otherwise handle any Hazardous Material, except in compliance with all Environmental Laws. 5.18 Asset Purchases. Except as permitted by Section 2.1(a) of this Agreement, deliver to the Bank concurrently with any request for a Revolving Credit Loan or Term Loan to finance the cost of an Asset Purchase: - 23 - (a) copies of all due diligence performed by the Borrowers with respect to such purchase, if requested by the Bank, provided however that the Borrowers shall in all cases provide the Bank with an environmental assessment with respect to any real property purchases; (b) financial information on the impact of the acquisition on the financial condition of the Borrowers including, without limitation, a twelve month management prepared pro forma financial statement and statement of cash flows for the Borrowers reflecting the acquisition, and such other financial information as the Bank may reasonably request; (c) all documents required, to the satisfaction of the Bank and its counsel, to grant the Bank a first priority security interest under the Uniform Commercial Code as security for such Loan in the fixed assets acquired (and in the fixed assets of any corporation the stock of which is acquired) including, without limitation, machinery and equipment (including, without limitation, fixtures, office equipment and furniture), accessions and proceeds of any of the foregoing; (d) all documents required, to the satisfaction of the Bank and its counsel, to grant the Bank a first lien in any real property acquired, including, without limitation, title insurance; and (e) evidence of insurance on all assets required in accordance with the provisions of Section 5.5 of this Agreement; provided however, that the Bank may request the Borrowers to deliver to the Bank any of the above after the funding of any Non-Approval Loan and that if collateral is delivered by Nutrition Management to the Bank under subsection (c) or (d) above, such collateral shall be held in escrow in accordance with Section 3.15 of this Agreement. 5.19 Further Actions. Cooperate and join with the Bank, at its own expense, in taking all such further actions as the Bank, in its sole judgment, shall deem necessary to effectuate the provisions of the Loan Documents and to perfect or continue the perfected status of all Encumbrances granted to the Bank pursuant to the Loan Documents, including, without limitation, the execution, delivery and filing of financing statements, amendments thereto and continuation statements. 5.20 Release of Liens. Within thirty (30) days from the date hereof, deliver to the Bank uniform commercial code searches of record evidencing the termination of those uniform commercial code financing statements and judgments of record set forth on Schedule 5.20 of this Agreement. - 24 - ARTICLE VI NEGATIVE COVENANTS Each Borrower hereby covenants and agrees that from the Closing Date until satisfaction in full of the Obligations, it will not do any one or more of the following without first obtaining the written consent of the Bank, which consent shall not be unreasonably withheld: 6.1 Fundamental Corporate Changes. (a) Enter into or effect any merger, consolidation, share exchange, division, conversion, reclassification, recapitalization, reorganization or other transaction of like effect, or dissolve, or permit any change in the ownership of the capital stock of Collegeville or Apple Fresh; (b) Sell, transfer, lease or otherwise dispose of all or any part of its assets or any significant product line or process (except for inventory in the ordinary course of business) in excess of $250,000, in any one fiscal year in the aggregate for the Borrowers, except that no such disposition may be made with respect to the equipment of Apple Fresh permanently fixed on the property of Collegeville; (c) Have any Subsidiary, except that Nutrition Management may have Collegeville and Apple Fresh, and any other Subsidiary provided such Subsidiary joins in this Agreement and agrees to be bound by the terms hereof. 6.2 Indebtedness. Incur, create, assume or have any Indebtedness except: (a) The Loans; (b) Not more than $250,000 of Indebtedness in the aggregate for the Borrowers in any one fiscal year constituting either Capital Lease Obligations or Indebtedness under agreements for the installment purchase of equipment (excluding leases with customers), provided that such Indebtedness does not exceed 100% of the net purchase price of such equipment; and (c) Indebtedness set forth on Schedule 6.2 of this Agreement. 6.3 Encumbrances. Create or allow any Encumbrances to be on or otherwise affect any of its property or assets except: (a) Encumbrances in favor of the Bank; - 25 - (b) Encumbrances for taxes, assessments and other governmental charges incurred in the ordinary course of business which are not yet due and payable; (c) Pledges or deposits made in the ordinary course of business to secure payment of workmen's compensation or to participate in any fund in connection with workmen's compensation, unemployment insurance or other social security obligations; (d) Good faith pledges or deposits made in the ordinary course of business to secure performance of tenders, contracts (other than for the repayment of Indebtedness) or leases or to secure statutory obligations or surety, appeal, indemnity, performance or other similar bonds required in the ordinary course of business; (e) Liens of mechanics, materialmen, warehousemen, carriers or other similar liens, securing obligations incurred in the ordinary course of business that are not yet due and payable; (f) Encumbrances securing Indebtedness permitted under Section 6.2(b), provided that (i) no other covenants of this Agreement are thereby violated and (ii) no equipment other than the equipment so acquired secures such Indebtedness; (g) Encumbrances disclosed on Schedule 6.3 and Schedule 5.20 of this Agreement. In addition to the foregoing, no Borrower shall execute a negative pledge agreement or otherwise enter into an agreement with any Person which prohibits or otherwise restricts the Borrower's ability to create or allow any Encumbrance to be on or otherwise affect any of its properties, other than pursuant to this Agreement. 6.4 Guaranties. Make any Guaranty, except in favor of the Bank. 6.5 Sales and Lease-Backs. Sell, transfer or otherwise dispose of any property, real or personal, now owned or hereafter acquired, with the intention of directly or indirectly taking back a lease on such property. 6.6 Loans, Investments. Purchase, invest in, or make any loan in the nature of an investment in the stocks, bonds, notes or other securities or evidence of Indebtedness of any Person, except as permitted in Section 3.14 of this Agreement, or make any loan or advance to or for the benefit of any Person except for short term investments that have been approved by the Board of Directors pursuant to such investment policy attached hereto - 26 - as Schedule 6.6 to this Agreement, which policy shall not be modified in any way without the prior written consent of the Bank. 6.7 Change in Business. Discontinue any substantial part, or change the nature of, its business or enter into any new business unrelated to the present businesses conducted by it. 6.8 Sale or Discount of Receivables. Sell any notes receivable or accounts receivable, with or without recourse, except in the normal course of business. 6.9 ERISA. (a) Terminate any Plan maintained by the Borrower to which Section 4021 of ERISA applies; (b) Allow the value of the benefits guaranteed under Title IV of ERISA to exceed the value of assets allocable to such benefits; (c) Incur a withdrawal liability within the meaning of Section 4201 of ERISA. 6.10 Restricted Payments. Declare or pay any dividend, or make any distributions of cash or property, to holders of any shares of its capital stock, or, directly or indirectly, redeem or otherwise acquire any such shares, except for repurchases as treasury stock or redemptions of stock held by employees, or any option, warrant or right to acquire any such shares; provided that Nutrition Management may declare and may pay dividends and Collegeville and Apple Fresh may pay dividends to Nutrition Management during any fiscal year, provided no Event of Default or Default has occurred and is continuing at the time of such declaration or payment and provided further that the payment of such dividend will not cause the occurrence of an Event of Default or Default. 6.11 Compliance with Federal Reserve Board Regulations. (i) Use any of the proceeds of the Loans, directly or indirectly, for the purposes of purchasing or carrying any "margin security" within the meaning of Regulations G or U of the Board of Governors of the Federal Reserve System (12 C.F.R. 207, 221), (ii) use any of the proceeds of the Loans, directly or indirectly, for the purpose of purchasing, carrying or trading in any securities under such circumstances as to involve the Borrowers in a violation of Regulation X of such Board (12 C.F.R. 224), or (iii) take or permit to be taken any other action which would result in the Loans or the consummation of any of the other transactions contemplated hereby being violative of such regulations or any other regulation of such Board. - 27 - ARTICLE VII EVENTS OF DEFAULT An event of default ("Event of Default") under this Agreement shall be deemed to exist if any one or more of the following events occurs and is continuing, whatever the reason therefor: 7.1 Borrowers' Failure to Pay. The Borrowers fail to pay any amount of principal, interest, fees or other sums as and when due under this Agreement or any of the Loan Documents, whether upon stated maturity, acceleration, or otherwise and have not remedied and fully cured such failure to pay within ten (10) Business Days after the date such payment is so due. 7.2 Breach of Covenants or Conditions. The Borrowers fail to perform or observe any other term, covenant, agreement or condition contained in this Agreement or any of the other Loan Documents or is in violation of or non-compliance with any provision of this Agreement or any of the Loan Documents, and have not remedied and fully cured such non-performance, non- observance, violation of or non-compliance within thirty (30) days after the Bank has given written notice thereof to the Borrowers; provided, however, that if such default is not fully cured after fifteen (15) Business Days from the Bank's written notice, at the option of the Bank, the Bank's obligations to make further Loans to the Borrowers shall be suspended. 7.3 Defaults in Other Agreements. Any Borrower fails to perform or observe any term, covenant, agreement or condition contained in, or there shall occur any default under or as defined in any agreement of such Borrower (i) with the Bank which shall not be remedied within the period of time (if any) within which the applicable agreement permits such default to be remedied unless such default is waived by the Bank or exercised as a matter of law, or (ii) in any other agreement applicable to any Borrower or by which it is bound, involving a liability of such Borrower to a Person other than the Bank in the amount of $500,000 or more which shall not be remedied within the period of time (if any) within which such other agreement permits such default to be remedied, unless such default is waived by the other party thereto or excused as a matter of law, and the potential payment of which under this subparagraph (ii) would cause a breach of a financial covenant contained in Section 5.16 of this Agreement and such breach is not cured within thirty (30) days. 7.4 Agreements Invalid. The validity, binding nature of, or enforceability of any material term or provision of any of the Loan Documents is disputed by, on behalf of, or in the right or name of any Borrower or any material term or provision of any - 28 - such Loan Document is found or declared to be invalid, avoidable, or non-enforceable by any court of competent jurisdiction. 7.5 False Warranties; Breach of Representations. Any warranty or representation made by any Borrower in this Agreement or any other Loan Document or in any certificate or other writing delivered under or pursuant to this Agreement or any other Loan Document, or in connection with any provision of this Agreement or related to the transactions contemplated hereby shall prove to have been false or incorrect or breached in any material respect on the date as of which made. 7.6 Judgments. A final judgment or judgments is entered, or an order or orders of any judicial authority or governmental entity is issued against any Borrower (such judgment(s) and order(s) hereinafter collectively referred to as "Judgment") (i) for payment of money, which Judgment, in the aggregate, exceeds Five Hundred Thousand Dollars ($500,000) at any one time and the potential payment of which would cause a breach of a financial covenant contained in Section 5.16 of this Agreement and such breach is not cured within thirty (30) days; or (ii) for injunctive or declaratory relief which would have a material adverse effect on the ability of any Borrower to conduct its business, and such Judgment is not discharged or execution thereon or enforcement thereof stayed pending appeal, within thirty days after entry or issuance thereof, or, in the event of such a stay, such Judgment is not discharged within thirty days after such stay expires. 7.7 Bankruptcy or Insolvency of the Borrowers. (a) Any Borrower becomes insolvent, or generally fails to pay, or is generally unable to pay, or admits in writing its inability to pay, its debts as they become due or applies for, consents to, or acquiesces in, any appointment of a trustee, receiver or other custodian for such Borrower, or a substantial part of its property, or makes a general assignment for the benefit of creditors. (b) Any Borrower commences any bankruptcy, reorganization, debt arrangement, or other case or proceeding under any state or federal bankruptcy or insolvency law, or any dissolution or liquidation proceeding. (c) Any bankruptcy, reorganization, debt arrangement, or other case or proceeding under any state or federal bankruptcy or insolvency law, or any dissolution or liquidation proceeding, is involuntarily commenced against or in respect of any Borrower or an order for relief is entered in any such proceeding, and such proceeding is not dismissed within forty-five (45) days after the commencement thereof. - 29 - (d) A trustee, receiver, or other custodian is appointed for any Borrower or a substantial part of such Borrower's property. 7.8 Change in Control. The occurrence of an event such that, or entering into an agreement whereby, Joseph Roberts shall fail to own and control the voting of more than 50% of the shares of capital stock of Nutrition Management which are entitled to vote for the election of directors. ARTICLE VIII REMEDIES 8.1 Further Advances; Acceleration; Setoff. (a) Upon the occurrence of any one or more Events of Default, the Bank may, in its sole discretion, refuse to make any further advances or Loans to the Borrowers; (b) Automatically upon the occurrence of any Event of Default described in Section 7.7 of this Agreement, and in the sole discretion of the Bank upon the occurrence of any other Event of Default, the unpaid principal balance of all Loans, all interest and fees accrued and unpaid thereon, and all other amounts and Obligations payable by the Borrowers under this Agreement and the other Loan Documents shall immediately become due and payable in full, all without protest, presentment, demand, or further notice of any kind to the Borrowers, all of which are expressly waived by the Borrowers. 8.2 Further Remedies; Confession of Judgment. (a) Upon the occurrence of any one or more Events of Default, the Bank may proceed to protect and enforce its rights under this Agreement and the other Loan Documents by exercising such remedies as are available to the Bank in respect thereof under applicable law, either by suit in equity or by action at law, or both, whether for specific performance of any provision contained in this Agreement or any of the other Loan Documents or in aid of the exercise of any power granted in this Agreement or any of the other Loan Documents, including without limitation, enforcement of the Escrow Security Agreement and all rights granted in connection therewith in accordance with Section 3.15 of this Agreement. (b) EACH BORROWER HEREBY IRREVOCABLY AUTHORIZES AND EMPOWERS THE BANK, BY ITS ATTORNEY, OR BY THE PROTHONOTARY OR CLERK OF ANY COURT OF RECORD IN THE COMMONWEALTH OF PENNSYLVANIA OR IN ANY JURISDICTION WHERE PERMITTED BY LAW, UPON THE OCCURRENCE OF AN EVENT OF DEFAULT, OR AT ANY TIME THEREAFTER, TO APPEAR FOR IT AND CONFESS AND ENTER JUDGMENT AGAINST IT IN FAVOR - 30 - OF THE BANK IN ANY JURISDICTION IN WHICH THE BORROWER OR ANY OF ITS PROPERTY IS LOCATED FOR THE AMOUNT OF ALL OBLIGATIONS, TOGETHER WITH COSTS OF SUIT AND WITH ACTUAL COLLECTION COSTS (INCLUDING REASONABLE ATTORNEYS' FEES NOT TO EXCEED $25,000), WITH OR WITHOUT DECLARATION, WITHOUT STAY OF EXECUTION AND WITH RELEASE OF ALL ERRORS AND THE RIGHT TO ISSUE EXECUTION FORTHWITH, AND FOR DOING SO THIS AGREEMENT OR A COPY VERIFIED BY AFFIDAVIT SHALL BE A SUFFICIENT WARRANT. EACH BORROWER HEREBY WAIVES AND RELEASES ALL RELIEF FROM ANY AND ALL APPRAISEMENT, STAY OR EXEMPTION LAW OF ANY STATE NOW IN FORCE OR HEREAFTER ENACTED. THIS AUTHORITY AND POWER SHALL NOT BE EXHAUSTED BY THE EXERCISE THEREOF, AND SHALL CONTINUE UNTIL THE OBLIGATIONS ARE FULLY PAID, PERFORMED, DISCHARGED AND SATISFIED. BEING FULLY AWARE OF ITS RIGHTS TO PRIOR NOTICE AND HEARING ON THE VALIDITY OF ANY CLAIMS THAT MAY BE ASSERTED AGAINST IT BY THE BANK UNDER THIS AGREEMENT BEFORE JUDGMENT CAN BE ENTERED AND BEFORE ASSETS OF THE BORROWER CAN BE GARNISHED AND ATTACHED, EACH BORROWER HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES THESE RIGHTS AND EXPRESSLY AGREES AND CONSENTS TO THE BANK, UPON THE OCCURRENCE OF AN EVENT OF DEFAULT, OR AT ANY TIME THEREAFTER, ENTERING JUDGMENT AGAINST THE BORROWER BY CONFESSION AND ATTACHING AND GARNISHING THE BANK ACCOUNTS AND OTHER ASSETS OF THE BORROWER, WITHOUT PRIOR NOTICE OR OPPORTUNITY FOR A HEARING. EACH BORROWER ACKNOWLEDGES THAT IT HAS HAD THE ASSISTANCE OF LEGAL COUNSEL IN THE REVIEW AND EXECUTION OF THIS AGREEMENT AND FURTHER ACKNOWLEDGES THAT THE MEANING AND EFFECT OF THE FOREGOING PROVISIONS CONCERNING CONFESSION OF JUDGMENT HAVE BEEN FULLY EXPLAINED TO THE BORROWER BY SUCH COUNSEL. ARTICLE IX MISCELLANEOUS 9.1 Remedies Cumulative; No Waiver. The rights, powers and remedies of the Bank provided in this Agreement and the other Loan Documents are cumulative and not exclusive of any right, power or remedy provided by law or equity, and no failure or delay on the part of the Bank in the exercise of any right, power, or remedy shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power, or remedy preclude other or further exercise thereof, or the exercise of any other right, power or remedy. 9.2 Notices. Every notice and communication under this Agreement or any of the other Loan Documents shall be in writing and shall be given by either (i) hand-delivery, (ii) first class mail (postage prepaid), (iii) reliable overnight commercial courier (charges prepaid), or (iv) telecopy or other means of electronic transmission, if confirmed promptly by any of the - 31 - methods specified in clauses (i), (ii) and (iii) of this sentence, to the following addresses: If to any Borrower: Nutrition Management Services Company P.O. Box 725 Kimberton Road Kimberton, PA 19442 Attn: Joseph Roberts, Chief Financial Officer Frank Ford Kathleen Hill Fax: (610) 935-8287 With a copy to: Stradley, Ronon, Stevens & Young, LLP 30 Valley Stream Parkway Great Valley Corporate Center Malvern, PA 19355 Attn: Ann Cuddy Roda, Esquire Fax: (610) 640-1965 If to the Bank: CoreStates Bank, N.A. Great Valley Corporate Center 55 Valley Stream Parkway Suite 200 Malvern, PA 19355 Attn: Michael R. Bailey, Vice President Fax: (610) 251-5929 With a copy to: Duane, Morris & Heckscher One Liberty Place Philadelphia, PA 19103 Attn: Dianne A. Meyer, Esquire Fax: (215) 979-1020 Notice given by telecopy or other means of electronic transmission shall be deemed to have been given and received when sent. Notice by overnight courier shall be deemed to have been given and received on the date scheduled for delivery. Notice by mail shall be deemed to have been given and received three (3) calendar days after the date first deposited in the United States Mail. Notice by hand delivery shall be deemed to have been given and received upon delivery. A party may change its address by giving written notice to the other party as specified herein. - 32 - 9.3 Costs, Expenses and Attorneys' Fees. Whether or not the transactions contemplated by this Agreement and the other Loan Documents are fully consummated, each Borrower shall promptly pay (or reimburse, as the Bank may elect) all out-of-pocket costs and expenses which the Bank has incurred or may hereafter reasonably incur in connection with the negotiation, preparation, reproduction, interpretation and enforcement of this Agreement and the other Loan Documents, the collection of all amounts due hereunder and thereunder, and any amendment, modification, consent or waiver which may be hereafter requested by the Borrower or otherwise required. Such costs and expenses shall include, without limitation, the fees and disbursements of counsel to the Bank, the costs of searches of public records, costs of filing and recording documents with public offices, and similar costs and expenses incurred by the Bank. Upon the occurrence of an Event of Default, such costs shall also include the reasonable fees of any accountants, consultants or other professionals retained by the Bank. Each Borrower's reimbursement obligations under this Section shall survive any termination of this Agreement. 9.4 Survival of Covenants. This Agreement and all covenants, agreements, representations and warranties made herein and in any certificates delivered pursuant hereto shall survive the making of the Loans and the execution and delivery of the Notes and, subject to the provisions of 9.15 hereof, shall continue in full force and effect until all of the Obligations have been fully paid, performed, satisfied and discharged. 9.5 Counterparts; Effectiveness. This Agreement may be executed in any number of counterparts and by the different parties on separate counterparts. Each such counterpart shall be deemed to be an original, but all such counterparts shall together constitute one and the same Agreement. This Agreement shall be deemed to have been executed and delivered when the Bank has received counterparts hereof executed by all parties listed on the signature page(s) hereto. 9.6 Headings. The headings of sections have been included herein for convenience only and shall not be considered in interpreting this Agreement. 9.7 Payment Due On A Day Other Than A Business Day. If any payment due or action to be taken under this Agreement or any Loan Document falls due or is required to be taken on a day which is not a Business Day, such payment or action shall be made or taken on the next succeeding Business Day and such extended time shall be included in the computation of interest. 9.8 Judicial Proceedings. Each party to this Agreement agrees that any suit, action or proceeding, whether claim or counterclaim, brought or instituted by any party hereto or any successor or assign of any party, on or with respect to this - 33 - Agreement or the dealings of the parties with respect hereto, shall be tried only by a court and not by a jury. EACH PARTY HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY SUCH SUIT, ACTION OR PROCEEDING. Further, each party waives any right it may have to claim or recover, in any such suit, action or proceeding, any special, exemplary, punitive or consequential damages or any damages other than, or in addition to, actual damages. EACH BORROWER ACKNOWLEDGES AND AGREES THAT THIS SECTION IS A SPECIFIC AND MATERIAL ASPECT OF THIS AGREEMENT AND THAT THE BANK WOULD NOT EXTEND CREDIT TO THE BORROWERS IF THE WAIVERS SET FORTH IN THIS SECTION WERE NOT A PART OF THIS AGREEMENT. 9.9 Governing Law. This Agreement shall be construed in accordance with and governed by the internal laws of the Commonwealth of Pennsylvania. 9.10 Integration. This Agreement and the other Loan Documents constitute the sole agreement of the parties with respect to the subject matter hereof and thereof and supersede all oral negotiations and prior writings with respect to the subject matter hereof and thereof. 9.11 Amendment and Waiver. No amendment of this Agreement, and no waiver of any one or more of the provisions hereof shall be effective unless set forth in writing and signed by the parties hereto. 9.12 Successors and Assigns. (a) Generally. This Agreement (i) shall be binding upon each Borrower and the Bank and their respective successors and assigns, and (ii) shall inure to the benefit of each Borrower and the Bank and its respective successors and assigns, provided, however, that no Borrower may assign its rights hereunder or any interest herein without the prior written consent of the Bank, and any such assignment or attempted assignment by such Borrower shall be void and of no effect with respect to the Bank. The Bank shall give the Borrowers prior written notice of any assignment by the Bank and such assignment shall not result in any charges or expenses to the Borrowers not already contained in the Loan Documents. (b) Participations. The Bank may from time to time sell or otherwise grant participations in the Loans and the Notes, and the holder of any such participation, if the participation agreement so provides, (i) shall, with respect to its participation, be entitled to all of the rights of the Bank and (ii) may exercise any and all rights of setoff or banker's lien with respect thereto, in each case as fully as though the Borrowers were directly indebted to the holder of such participation in the amount of such participation. The Bank may disclose to prospective participants such information regarding - 34 - the affairs of the borrowers as the Bank possesses. The Bank shall give notice to the Borrowers of the grant of such participations; however, the failure to give such notice shall not affect any of the Bank's rights hereunder. In connection with any participation, the Bank agrees that it shall continue to deal with the Borrower as if no participation has occurred and such participation shall not result in any charges or expenses to the Borrowers not already contained in the Loan Documents. 9.13 Severability of Provisions. Any provision in this Agreement that is held to be inoperative, unenforceable, voidable, or invalid in any jurisdiction shall, as to that jurisdiction, be ineffective, unenforceable, void or invalid without affecting the remaining provisions in any other jurisdiction, and to this end the provisions of this Agreement are declared to be severable. 9.14 Consent to Jurisdiction and Service of Process. Each Borrower irrevocably appoints each of its executive officers as its attorneys upon whom may be served any notice, process or pleading in any action or proceeding against it arising out of or in connection with any of the Loan Documents; and each Borrower hereby (i) consents that any action or proceeding against it be commenced and maintained in any court within the County of Montgomery, County of Philadelphia, County of Chester or in the United States District Court for the Eastern District of Pennsylvania by service of process on any such officer; (ii) agrees that the courts of the County of Montgomery, County of Philadelphia, County of Chester and the United States District Court for the Eastern District of Pennsylvania shall have jurisdiction with respect to the subject matter hereof and the person of the Borrower and the Collateral; and (iii) waives any objection that such Borrower may now or hereafter have as to the venue of any such suit, action or proceeding brought in such a court or that such court is an inconvenient forum. Notwithstanding the foregoing, the Bank, in its absolute discretion may also initiate proceedings in the courts of any other jurisdiction in which any Borrower may be found or in which any of its properties or Collateral may be located. 9.15 Indemnification (a) If, after receipt of any payment of all or any part of the Obligations, the Bank is compelled to surrender such payment to any Person or entity for any reason (including, without limitation, a determination that such payment is void or voidable as a preference or fraudulent conveyance, an impermissible setoff, or a diversion of trust funds), then this Agreement and the other Loan Documents shall continue in full force and effect, and the Borrowers shall be liable for, and shall indemnify, defend and hold harmless the Bank with respect to the full amount so surrendered. (b) Each Borrower shall indemnify, defend and hold harmless the Bank with respect to any and all claims, expenses, - 35 - demands, losses, costs, fines or liabilities of any kind, including reasonable attorneys' fees and costs, arising from or in any way related to (i) acts or conduct of the Borrower or any under, pursuant to or related to this Agreement and the other Loan Documents, (ii) Borrower's breach or violation of any representation, warranty, covenant or undertaking contained in this Agreement or the other Loan Documents, and (iii) Borrower's failure to comply with any or all laws, statutes, ordinances, governmental rules, regulations or standards, whether federal, state, or local, or court or administrative orders or decrees, including without limitation those resulting from any Hazardous Materials or dangerous environmental condition within, on, from, related to or affecting any real property owned or occupied by the Borrower, unless resulting from the acts or conduct of the Bank constituting gross negligence or willful misconduct. (c) The provisions of this section shall survive the termination of this Agreement and the other Loan Documents and shall be and remain effective notwithstanding the payment of the Obligations, the cancellation of any of the Notes, the release of any Encumbrance securing the Obligations or any other action which the Bank may have taken in reliance upon its receipt of such payment. Any cancellation of any of the Notes, release of any Encumbrance or other such action shall be deemed to have been conditioned upon any payment of the Obligations having become final and irrevocable. - 36 - IN WITNESS WHEREOF, each of the undersigned have caused this Agreement to be executed by its duly authorized officer on the date first above written. Attest: NUTRITION MANAGEMENT SERVICES COMPANY ________________________ By:____________________________ Title:__________________ Title:_________________________ THE COLLEGEVILLE INN CONFERENCE Attest: & TRAINING CENTER, INC. ________________________ By:____________________________ Title:__________________ Title:_________________________ Attest: APPLE FRESH FOODS LIMITED ________________________ By:____________________________ Title:__________________ Title:_________________________ CORESTATES BANK, N.A. By:____________________________ Title:_________________________ - 37 - SCHEDULE 5.16 FINANCIAL COVENANTS This Schedule is a part of the Loan Agreement dated December 26, 1996 between CoreStates Bank, N.A. and the Borrowers. A. Consolidated Quick Ratio -- Borrowers shall have a Consolidated Quick Ratio at all times of not less than 1.00:1.00, measured at the end of each fiscal quarter. B. Consolidated Debt Service Coverage Ratio-- The Borrowers shall have a Consolidated Debt Service Coverage Ratio at all times measured at the end of each fiscal quarter on a rolling four quarters basis of not less than: (1) 1.00:1.00 for the Fiscal Year 1997; (2) 1.125:1.00 for the Fiscal Year 1998; and (3) 1.15:1.00 for the Fiscal Year 1999, and thereafter. If the Consolidated Debt Service Coverage Ratio is less than 1.00:1.00 during Fiscal Year 1997, the Borrowers must have cash and marketable securities as of the date of such Consolidated Debt Service Coverage Ratio in an amount equal to the amount by which the denominator exceeds the numerator in the calculation thereof. C. Consolidated Tangible Net Worth--The Borrowers shall have a Consolidated Tangible Net Worth measured at the end of each fiscal quarter of not less than: (1) $5,250,000 for the Fiscal Year 1997; (2) $5,600,000 for the Fiscal Year 1998; and (3) $6,000,000 for the Fiscal Year 1999, and thereafter. D. Ratio of Consolidated Total Liabilities to Consolidated Tangible Net Worth. The Borrowers shall have a ratio of Consolidated Total Liabilities to Consolidated Tangible Net Worth measured at the end of each fiscal quarter of not more than: (1) 3.00:1.00 for the Fiscal Year 1997; (2) 2.75:1.00 for the Fiscal Year 1998; and (3) 2.50:1.00 for the Fiscal Year 1999, and thereafter. - 38 - E. Debt Service Coverage Ratio. Collegeville and Apple Fresh shall have a Debt Service Coverage Ratio at the end of each fiscal quarter on a rolling four quarters basis of not less than: (i) 1.125:1.00 for Fiscal Year 1998; (ii) 1.15:1.00 for Fiscal Year 1999, and thereafter. For purposes hereof, Debt Service Coverage Ratio shall mean the following ratio with respect to Collegeville and Apple Fresh on a combined basis: EBIT(1-tax rate) + depreciation + amortization ------------------------------------------------------------------- interest expense(1-tax rate) + Current Maturities of Long Term Debt For purposes of this Schedule, all capitalized terms used herein and not otherwise defined shall have the meanings given to them, respectively, in the Loan Agreement, and the following terms shall have the following meanings: "Consolidated Current Liabilities" shall mean, at any time, all liabilities which, in accordance with GAAP, should be classified as current liabilities of the Borrowers on a consolidated basis. "Consolidated Debt Service Coverage Ratio" shall mean the following ratio with respect to the Borrowers on a consolidated basis: EBIT, plus interest income (1-tax rate) + depreciation + amortization --------------------------------------------------------------------- interest expense(1-tax rate) + Current Maturities of Long Term Debt "Consolidated Net Income" shall mean, for any period, the net income (after the deduction of federal and state income taxes) of the Borrowers on a consolidated basis, determined in accordance with GAAP. "Consolidated Quick Ratio" shall mean, at any time, the ratio of cash, cash equivalents, and accounts receivable of the Borrowers on a consolidated basis to Consolidated Current Liabilities. "Consolidated Tangible Net Worth" shall mean, at any time, aggregate Stockholders' Equity plus aggregate Subordinated Indebtedness, less all intangible assets of the Borrowers (other than investments in contracts and other intangible assets resulting from an Asset Purchase) including, without limitation, organization costs, securities issuance costs, unamortized debt discount and expense, goodwill, excess of purchase costs over net assets acquired, patents, trademarks, trade names, copyrights, trade secrets, knowhow, licenses, franchises, research and development expenses, amounts owing from officers and/or Affiliates and any amount reflected as treasury stock. "Current Maturities of Long Term Debt" shall mean at the time of measurement, all Indebtedness coming due during the next twelve months. - 39 - "Consolidated Total Liabilities" shall mean, at any time, all liabilities which, in accordance with GAAP, should be classified as liabilities of the Borrowers on a consolidated basis. "Fiscal Year" shall mean with respect to any period of measure the period beginning July 1 of any year and ending June 30 of the following year. "Subordinated Indebtedness" shall mean, at any time, all Indebtedness of the Borrowers subordinated to the Obligations on terms satisfactory to the Bank. "Stockholders' Equity" shall mean, at any time, stockholders' equity of the Borrowers on a consolidated basis as determined in accordance with GAAP. - 40 - Schedule 5.20 Uniform Commercial Code Financing Statement and Judgments of Record - 41 - Schedule 6.2 Indebtedness None - 42 - Schedule 6.3 Encumbrances None - 43 - Schedule 6.6 Investment Policy - 44 - EX-3 4 LOAN AGREEMENT LOAN AGREEMENT Dated December 26, 1996 Between MONTGOMERY COUNTY INDUSTRIAL DEVELOPMENT AUTHORITY and COLLEGEVILLE INN CONFERENCE & TRAINING CENTER, INC. Bond Counsel Authority Counsel Kassab Archbold & O'Brien, L.L.P. McGrory, Wentz, Fernandez & O'Hara 214 North Jackson Street 115 West Germantown Pike, Suite 100 Media, PA 19023 Swede Square Norristown, PA 19401 TABLE OF CONTENTS* Page RECITALS.......................................................................1 ARTICLE I DEFINITIONS Section 1.01. Definitions.................................................2 Section 1.02. Content of Certificates and Opinions........................2 Section 1.03. Interpretation .............................................3 ARTICLE II THE LOAN: USE OF PROCEEDS Section 2.01. Loan of Funds to the Company................................3 Section 2.02. Use of Proceeds.............................................4 Section 2.03. Establishment of Completion Date............................4 Section 2.04. Covenants for Benefit of Bondholders and Bank...............4 ARTICLE III PAYMENT PROVISIONS Section 3.01. Loan Payments...............................................4 Section 3.02. Letter of Credit............................................5 Section 3.03. Time of Loan Payments.......................................5 Section 3.04. Additional Payments; Taxes; Utility Charges.................6 Section 3.05. Acceleration of Payment to Redeem Bonds.....................7 Section 3.06. No Defense or Set-Off.......................................7 Section 3.07. Termination Upon Payment or Defeasance of Bonds.............8 Section 3.08. Assignment of Authority's Rights............................8 Section 3.09. Assignment by Company...................................... 8 Section 3.10. Indemnity Against Claims................................... 9 Section 3.11. Authority is Conduit Issuer; Company is Real Party in Interest; Covenant Not to Sue .............. 10 ARTICLE IV COMPANY OBLIGATIONS; ASSIGNMENT TO TRUSTEE - -------- *This Table of Contents is for convenience only, does not constitute a part of this Loan Agreement and shall not be considered as having any bearing upon any interpretation of this Loan Agreement. (i) Section 4.01. General Obligation of the Company......................... 11 Section 4.02. Assignment to Trustee..................................... 11 Section 4.03. Maintenance and Operation of the Project Facilities....... 11 Section 4.04. Maintenance of Existence.................................. 11 Section 4.05. Compliance with Laws...................................... 11 Section 4.06. Notice of Bankruptcy Case Commencement.................... 12 Section 4.07. Substitute Letter of Credit............................... 12 ARTICLE V THE PROJECT FACILITIES Section 5.01. Intentionally Omitted..................................... 13 Section 5.02. Liens......................................................13 ARTICLE VI INSURANCE; DESTRUCTION; DAMAGE; EMINENT DOMAIN Section 6.01. Insurance to be Maintained................................ 14 Section 6.02. Destruction. Damage and Eminent Domain.................... 14 Section 6.03. Notice of Property Loss................................... 14 Section 6.04. Disposition of Casualty Insurance and Condemnation Award Proceeds............................... 14 ARTICLE VII ADDITIONAL COVENANTS OF THE COMPANY Section 7.01. Compliance with Laws...................................... 15 Section 7.02. Power to Perform Obligations.............................. 15 Section 7.03. Inspection................................................ 16 Section 7.04. Additional Information.................................... 16 Section 7.05. Nondiscrimination......................................... 16 ARTICLE VIII EVENTS OF DEFAULT AND REMEDIES Section 8.01. Events of Default......................................... 17 Section 8.02. Acceleration.............................................. 18 Section 8.03. Payment of Loan Payments on Default; Suit Therefor........ 19 Section 8.04. Waiver.................................................... 19 Section 8.05. Cumulative Rights......................................... 19 Section 8.06. No Exercise of Remedies Without Consent of Bank........... 20 ARTICLE IX OPTIONS TO TERMINATE AGREEMENT Section 9.01. Option to Terminate Upon Defeasance....................... 20 Section 9.02. Option to Terminate Upon the Occurrence of Certain Events. 20 ARTICLE X MISCELLANEOUS Section 10.01. Approval of Indenture..................................... 22 Section 10.02. Taxes and Insurance-Rights of Authority to Pay............ 22 Section 10.03. Illegal Provisions Disregarded............................ 22 Section 10.04. Limitation of Liability of the Authority.................. 22 Section 10.05. No Recourse as to the Authority........................... 23 Section 10.06. Reference to Statute or Regulation........................ 23 Section 10.07. Notices................................................... 23 Section 10.08. Applicable Law............................................ 24 Section 10.09. Amendments................................................ 24 Section 10.10. Term of Agreement..........................................24 Section 10.11. Amounts Remaining in Bond Fund............................ 25 Section 10.12. Survival of Covenants, Conditions and Representations..... 25 Section 10.13. Multiple Counterparts..................................... 25 Section 10.14. Consent................................................... 25 (ii) THIS LOAN AGREEMENT dated December 26, 1996 (the "Agreement"), is by and between MONTGOMERY COUNTY INDUSTRIAL DEVELOPMENT AUTHORITY (the "Authority"), and COLLEGEVILLE INN CONFERENCE & TRAINING CENTER, INC., a Pennsylvania corporation (the "Company"). W I T N E S S E T H : WHEREAS, the Authority is a body politic and a public instrumentality of the Commonwealth, organized and existing under the Pennsylvania Economic development Financing Law, Act of August 23, 1967, P.L. 251, as amended (the "Act"), and is authorized under the Act to acquire, hold, construct, improve, maintain, own, finance, lease, in the capacity of lessor or lessee, and/or sell industrial, commercial and specialized development projects for the public purpose of alleviating unemployment, maintaining employment at a high level and creating and developing business opportunities, by the construction, improvement, rehabilitation, revitalization and financing of industrial, commercial and specialized enterprises; and WHEREAS, the Company has requested the Authority to undertake a project (the "Project") that consists of, among other things: (i) the rehabilitation, reconstruction, installation, furnishing and equipping of a building to be used as a conference center, a training center, a food manufacturing/processing and distribution center and a retail restaurant located at 4000 Ridge Pike Collegeville, Pennsylvania, which is in the Township of Lower Providence, Montgomery County, Pennsylvania; and (ii) the payment of a portion of the costs and expenses of issuing the Bonds; and WHEREAS, in order to provide funds for and toward the payment of a portion of the costs of the Project, the Authority has authorized the issuance and sale of its Bonds; and WHEREAS, the Bonds are to be issued under and secured by a Trust Indenture dated December 26, 1996 (the "Indenture"), between the Authority and Dauphin Deposit Bank and Trust Company (the "Trustee"); and WHEREAS, this Agreement provides that the Authority will loan the proceeds of the Bonds to the Company to finance the Project and the Company will agree, among other things, to repay the loan in installments equal to payments of debt service on the Bonds when due; and WHEREAS, the Trustee has agreed under the Indenture to draw on the Letter of Credit (as such phrase is defined in the Indenture) at such times and in such amounts as shall be sufficient to pay when due the principal, interest and Purchase Price (as such phrase is defined in the Indenture) on the Bonds and to credit all amounts paid under the Letter of Credit against the Company's obligation to make installment payments under this Agreement for such items; and WHEREAS, execution and delivery of this Agreement and the issuance hereunder and under the Act of the Bonds have been in all respects duly and validly authorized by resolution of the Board of the Authority duly adopted prior to such execution and delivery; and -1- WHEREAS, as security for the full and prompt payment and performance of all its obligations under the Indenture, including, specifically, without limiting the generality of the foregoing, its obligation to make payment of principal of, premium, if any, and interest on the Bonds, when due, the Authority has, pursuant to the provisions of the Indenture, assigned to the Trustee all of its right, title and interest in, to and under this Agreement (except its right to indemnification and to receive its fees and expenses hereunder), including without limitation, the right to receive loan payments payable by the Company hereunder; and WHEREAS, in order to assure full and prompt payment of the Bonds, the Company, among other things, has caused the Bank to issue the Letter of Credit to assure payment of principal of, and interest on the Bonds when due (subject to reduction and reinstatement as provided therein) pursuant to the Reimbursement Agreement (as defined in the Indenture). NOW, THEREFORE, THIS LOAN AGREEMENT WITNESSETH: That the parties hereto, intending to be legally bound hereby and in consideration of the mutual covenants hereinafter contained, DO HEREBY AGREE to all the terms and conditions set forth in this Agreement. ARTICLE I DEFINITIONS Section 1.01. Definitions. Capitalized terms and phrases used as defined terms in the recitals shall have the same meanings throughout this Agreement, and, in addition thereto, capitalized terms and phrases used and not defined herein shall have the meanings assigned to such terms in the Indenture, unless the context clearly indicates otherwise. Section 1.02. Content of Certificates and Opinions. The Trustee may, but shall not be obligated to, require that every certificate or opinion provided for in this Agreement with respect to compliance with any provision hereof shall include: (1) a statement to the effect that the Person making or giving such certificate or opinion has read such provision and the definitions herein relating thereto; (2) a brief statement as to the nature and scope of the examination or investigation upon which the certificate or opinion is based; (3) a statement to the effect that in the opinion of such Person, he has made or caused to be made such examination or investigation as is necessary to enable him to express an informed opinion with respect to the subject matter referred to in the instrument to which his signature is affixed; (4) a statement of the assumptions upon which such certificate or opinion is based, and that such assumptions are reasonable; and (5) a statement as to whether, in the opinion of such Person, such provision has been complied with. -2- Any such certificate or opinion made or given by an officer of the Authority or the Company may be based, insofar as it relates to legal or accounting matters, upon a certificate or opinion of or representation by counsel or an accountant, unless such officer knows, or in the exercise of reasonable care should have known, that the certificate, opinion or representation with respect to the matters upon which such certificate or statement may be based, as aforesaid, is erroneous. Any such certificate or opinion made or given by counsel or an accountant may be based, insofar as it relates to factual matters (with respect to which information is in the possession of the Authority or the Company, as the case may be) upon a certificate or opinion of or representation by an officer of the Authority or the Company, unless such counsel or accountant knows, or in the exercise of reasonable care should have known, that the certificate or opinion or representation with respect to the matters upon which such certificate or opinion or representation may be based, as aforesaid, is erroneous. The same officer of the Authority or the Company, or the same counsel or accountant, as the case may be, need not certify to all of the matters required to be certified under any provision of this Agreement, but different officers, counsel or accountants may certify to different matters, respectively. Section 1.03. Interpretation. (a) Unless the context otherwise indicates, words expressed in the singular shall include the plural and vice versa and the use of the neuter, masculine, or feminine gender is for convenience only and shall be deemed to mean and include the neuter, masculine or feminine gender, as appropriate. (b) Headings of articles and sections herein and the table of contents hereof are solely for convenience of reference, do not constitute a part hereof and shall not affect the meaning, construction or effect hereof. (c) All references herein to "Articles," "Sections" and other subdivisions are to the corresponding Articles, Sections or subdivisions of this Agreement; the words "herein," "hereof," "hereby," "hereunder" and other words of similar import refer to this Agreement as a whole and not to any particular Article, Section or subdivision hereof. (d) Whenever in this Agreement it is required that notice be provided to the Bank or that consent of the Bank be obtained, such provisions shall be effective only when: (i) the Letter of Credit is in effect; (ii) the Bank, in its capacity as provider of the Letter of Credit, is the Holder of any Bonds; or (iii) any amounts are due and owing to the Bank under the Reimbursement Agreement. ARTICLE II THE LOAN; USE OF PROCEEDS Section 2.01. Loan of Funds to the Company. The Authority hereby agrees that simultaneously with the execution and delivery of this Agreement, it will loan to the Company, upon -3- the terms and conditions specified herein and in the Indenture, the proceeds of the sale of the Bonds, and the Company agrees to receive such loan from the Authority, for the purposes provided herein and in the Indenture. Section 2.02. Use of Proceeds. The proceeds of the Bonds shall be deposited with the Trustee and applied as provided in the Indenture and in this Agreement to finance the Project. Section 2.03. Establishment of Completion Date. The Completion Date shall mean the date of delivery to the Authority and the Trustee of a certificate executed by an Authorized Representative of the Company stating in effect that: (i) all equipment for the Project has been acquired and installed and all costs and expenses incurred in connection therewith have been paid, including all costs of labor, services, materials and supplies used in connection with such acquisition and installation have been paid; and (ii) all other facilities necessary in connection with the Project have been acquired, constructed, improved and equipped and all costs and expenses incurred in connection therewith have been paid. Notwithstanding the foregoing, such certificate shall state that it is given without prejudice to any rights against third parties which exist at the date of such certificate or which may subsequently come into being. Upon completion of the Project, the Company agrees to cause such certificate to be promptly furnished to the Authority and the Trustee. Upon receipt of such certificate, the Trustee shall give notice to the Company of the amount of funds remaining unspent in the Construction Fund. Any remaining moneys on deposit in the Construction Fund shall be forthwith applied to the payment of the Costs of the Project, or if not so applied shall be promptly transferred by the Trustee into the Bond Fund and used by the Trustee in accordance with the terms of Section 6.08 of the Indenture. Section 2.04. Covenants for Benefit of Bondholders and Bank. This Agreement is executed in part to induce: (a) the purchase by others of the Bonds; and (b) the issuance by the Bank of the Letter of Credit, and the participation by the Bank in the funding of advances under the Letter of Credit. Accordingly, all covenants and agreements on the part of the Company and the Authority, as set forth in this Agreement, are hereby declared to be for the benefit of the Owners from time to time of the Bonds and for the benefit of the Bank. ARTICLE III PAYMENT PROVISIONS Section 3.01. Loan Payments. (a) The Company hereby agrees to pay duly and punctually: (i) the principal, premium, if any, and interest due and payable on the Bonds; (ii) the Purchase Price of the Bonds, and (iii) any other amounts due and payable by the Company under this Agreement. The Company shall be given an immediate credit in the amount of all draws paid to the Trustee under the Letter of Credit against the loan payments due hereunder. Any portion of the loan payments due under this Agreement which is not timely paid (upon proper demand under the Letter of Credit by the Trustee) from draws -4- under the Letter of Credit shall be paid to the Trustee directly by the Company as provided in Section 3.03 hereof. Any other amounts required to be paid under this Agreement shall be paid by the Company to the party entitled to receive such amounts hereunder and in the manner provided for herein. Loan payments shall be made by the Company with the Company's funds, except to the extent a credit in respect thereof has been granted pursuant to the terms of this Agreement. It is the intention of the Authority and the Company that, notwithstanding any other provision of this Agreement, the Authority shall receive funds from the Company under this Agreement at such times and in such amounts as will enable the Authority to meet all of its obligations under the Bonds and the Indenture, including any such obligations surviving the payment of the Bonds and the defeasance of the Indenture. (b) All loan payments and other sums due and payable to the Authority or the Trustee under this Agreement shall be absolutely net to the Authority or the Trustee, as applicable, free of any taxes, costs, liabilities or other deductions whatsoever with respect to the Project Facilities and the maintenance, repair, rebuilding, use or occupation thereof or any portion thereof, so that this Agreement shall yield all amounts due hereunder net to the Authority or the Trustee throughout the term hereof. Section 3.02. Letter of Credit. Concurrently with the issuance by the Authority of the Bonds, the Company shall cause to be delivered to the Trustee the Letter of Credit issued by the Bank, authorizing the Trustee to make draws on the Bank, up to an aggregate stated amount of TWO MILLION FIVE HUNDRED SIXTY THOUSAND FIVE HUNDRED FORTY-EIGHT DOLLARS ($2,560,548), of which TWO MILLION FIVE HUNDRED THOUSAND DOLLARS ($2,500,000) shall be in respect of principal on the Bonds and SIXTY THOUSAND FIVE HUNDRED FORTY-EIGHT DOLLARS ($60,548) shall be in respect of up to 52 days' interest accrued on the Bonds on or prior to the maturity thereof. Section 3.03. Time of Loan Payments. (a) The Company shall pay to the Trustee, as assignee of the Authority (but only to the extent such amounts have not been advanced to the Trustee under the Letter of Credit), on the dates and times hereinafter set forth, for deposit in the Bond Fund, the following sums: (i) Not later than 12 noon on any Interest Payment Date or any other date that any payment of interest, premium, if any, or principal is required to be made in respect of the Bonds pursuant to the Indenture, until the principal of, premium, if any, and interest on the Bonds shall have been fully paid or provision for the payment thereof shall have been made in accordance with the Indenture, in immediately available funds, a sum which, together with any moneys available for such payment in the Bond Fund, will enable the Trustee to pay the amount payable on such date as principal of (whether at maturity or upon redemption or acceleration or otherwise), premium, if any, and interest on the Bonds as provided in the Indenture; provided, however, that the obligation of the Company to make any payment hereunder shall be deemed satisfied and discharged to the extent of the corresponding payment made by the Bank to the Trustee under the Letter of Credit. -5- All payments payable by the Company under subsection (a)(i) of this Section 3.03 are assigned by the Authority to the Trustee for the benefit of the Owners of the Bonds. The Company hereby acknowledges and consents to such assignment. The Authority hereby directs the Company and the Company hereby agrees to pay to the Trustee at the Principal Corporate Trust Office of the Trustee all payments payable by the Company pursuant to this subsection. (ii) The Company covenants, for the benefit of the Owners of the Bonds, to pay or cause to be paid, to the Tender Agent, such amounts as shall be necessary to enable the Tender Agent to pay the Purchase Price of Bonds delivered to it for purchase, all as more particularly described in Sections 5.01, 5.03 and 5.04 of the Indenture; provided, however, that the obligation of the Company to make any such payment under this subsection (a)(ii) shall be reduced by the amount of moneys available for such payment described in subsection (i) or (ii) of Section 5.05(a) of the Indenture; and provided, further, that the obligation of the Company to make any payment under this subsection (ii) shall be deemed to be satisfied and discharged to the extent of the corresponding payment made by the Bank under the Letter of Credit. (iii) Additionally, from time to time, the Company shall make such payments as shall be necessary to make up any deficiency in or to fund fully any of the funds established under the Indenture. Section 3.04. Additional Payments; Taxes; Utility Charges. As Additional Payments, the Company, during the term of this Agreement, shall pay or cause to be paid the following: (a) To the public officers charged with the collection thereof, promptly as the same become due, all taxes (or contributions or payments in lieu thereof), including but not limited to income, profits or property taxes, which may now or hereafter be imposed by the United States of America, any state or municipality or any political subdivision or subdivisions thereof, and all assessments for public improvements or other assessments, levies, license fees, charges for publicly supplied water or sewer services, excises, franchises, imposts and charges, general and special, ordinary and extraordinary (including interest, penalties and all costs resulting from delayed payment of any of the foregoing) of whatever name, nature and kind and whether or not now within the contemplation of the parties hereto and which are now or may hereafter be levied, assessed, charged or imposed or which are or may become a lien upon the payments due under this Agreement, the Project Facilities or the use or occupation thereof, or upon the Company or the Authority, or upon any franchises, businesses, transactions, income, earnings and receipts (gross, net or otherwise) of the Company in connection with the Project Facilities, or its earnings, profits or receipts from, or its subleasing of, the Project Facilities; provided, however, that the Company shall not be required to pay or discharge or cause to be paid or discharged any tax, assessment, lien or other matter hereunder so long as the validity thereof is being contested in good faith and by appropriate legal proceedings diligently pursued, so long as the operation of the Project Facilities or the receipt of income therefrom is not adversely affected by reason thereof; (b) All reasonable fees, charges and expenses of the Trustee, the Remarketing -6- Agent, the Placement Agent, the Tender Agent and the Bank, as and when the same become due and payable; (c) The reasonable fees and expenses of such accountants, consultants, attorneys and other experts as may be engaged by the Authority, the Trustee or the Tender Agent to prepare audits, financial statements, reports, opinions or provide such other services required under this Agreement or the Indenture; and (d) The reasonable fees and expenses of the Authority in connection with this Agreement, the Bonds, the Indenture, the Tender Agent Agreement or the Remarketing Agreement and any and all other expenses incurred in connection with the authorization, issuance, sale and delivery of any such Bonds or incurred by the Authority in connection with any litigation which may at any time be instituted involving this Agreement, the Bonds, the Indenture or any of the other documents contemplated thereby, or incurred in connection with the administration of this Agreement, or otherwise in connection with this Agreement, the Indenture, the Bonds, the Tender Agent Agreement, the Remarketing Agreement or any of the other documents, instruments or agreements in connection therewith. Such Additional Payments shall be billed to the Company, from time to time, by the Authority, the Trustee, the Remarketing Agent, the Tender Agent or the Bank, as the case may be, together with a statement certifying that the amount billed has been paid or incurred and attaching reasonable supporting documentation indicating that the amount billed has been paid or incurred for one or more of the above items. After such a demand, amounts so billed shall be paid by the Company within thirty (30) days after receipt of the bill by the Company. Section 3.05. Acceleration of Payment to Redeem Bonds. Whenever the Bonds are subject to optional redemption or extraordinary redemption pursuant to the Indenture and the provisions hereof, the Authority will, upon request of the Company, direct the Trustee to call the same for redemption as provided in the Indenture. Whenever any Bond is subject to mandatory redemption pursuant to the Indenture, the Company will cooperate with the Authority and the Trustee in effecting such redemption. In the event of any mandatory, optional or extraordinary redemption of the Bonds, the Company will pay or cause to be paid to the Trustee an amount equal to the applicable redemption price as a prepayment of that portion of the loan payment corresponding to the Bonds to be redeemed together with interest accrued to the date of redemption and will also pay all fees and expenses of the Authority and the Trustee arising with respect to such redemption or otherwise due and owing hereunder or under the Indenture at such times and in such amounts as are required to effect the mandatory, optional or extraordinary redemption of the Bonds under the terms of the Indenture. Section 3.06. No Defense or Set-Off. The obligations of the Company to make loan payments shall be absolute and unconditional without any defense or set-off for any reason, including, without limitation, any acts or circumstances that may constitute failure of consideration, destruction of or damage to the Project Facilities, invalidity or unenforceability of the Bonds, commercial -7- frustration of purpose or failure of the Authority to perform and observe any agreement, whether express or implied, or any duty, liability or obligation arising out of or connected with this Agreement, it being the intention of the parties that the payments required of the Company hereunder will be paid in full when due without any delay or diminution whatsoever. Section 3.07. Termination Upon Payment or Defeasance of Bonds. When: (a) interest on, and principal or the redemption price (as the case may be) of, all Bonds issued under the Indenture, together with all other amounts due and payable by the Company hereunder, shall have been paid; or (b) there shall have been deposited with the Trustee an amount evidenced by moneys or Government Obligations, the principal of and interest on which, when due, without reinvestment, will provide sufficient moneys to fully pay the principal or redemption price (as the case may be) of, and all accrued interest on, all Bonds then Outstanding, as well as all other sums payable or to become payable by the Company under this Agreement, as evidenced by a verification report from an independent certified public accountant, delivered to the Trustee, no further loan payments shall be payable hereunder and, with the consent of the Bank (if the Letter of Credit remains outstanding or if any amounts are due and owing to the Bank under the Reimbursement Agreement or any of the other Reimbursement Documents (as such term is defined in the Reimbursement Agreement)), this Agreement shall thereupon be terminated, and the Authority: (i) shall cause the Trustee to pay over to the Company any additional moneys then remaining in any Funds under the Indenture (and which will not be required to pay any amounts as set forth immediately above in this Section 3.07); and (ii) shall pay over to the Company any additional moneys which may be paid to the Authority by the Trustee; provided, however, that in each such case moneys remaining in any Fund under the Indenture or any additional moneys shall be first paid to the Bank to the extent of any moneys then due and owing from the Company to the Bank under the Reimbursement Agreement or any of the other Reimbursement Documents (as such term is defined in the Reimbursement Agreement). Section 3.08. Assignment of Authority's Rights. As security for the payment of the Bonds, the Authority will assign to the Trustee all the Authority's rights under this Agreement. Subject to the prior assignment made to the Trustee to secure the Bonds, the Authority will also assign all the Authority's rights under this Agreement to the Bank to secure all of the Obligations (as defined in the Reimbursement Agreement). The Company consents to such assignments and agrees to make the loan payments under Section 3.01 and Section 3.05 hereof directly to the Trustee without defense or set-off by reason of any dispute between the Company and the Trustee or the Authority. Whenever the Company is required to obtain the consent of the Authority hereunder, the Company shall also obtain the consent of the Bank. Section 3.09. Assignment by Company. This Agreement may be assigned in whole or in part by the Company without the necessity of obtaining the consent of the Trustee or the Owners of the Bonds; provided, however, any such assignment shall require the prior written consent of the Bank (as long as the Bank is not in default under the Letter of Credit) and the Authority; and further provided that no assignment pursuant to this Section shall be made otherwise than in accordance with the Act, as from time to time amended. The Company shall, within thirty (30) days after execution thereof, furnish or cause to be furnished to the Authority, the Trustee and the Bank a true and -8- complete copy of each such assignment together with any instrument of assumption. Section 3.10. Indemnity Against Claims. (a) The Company agrees that at all times it will protect and hold the Authority, its officers, members, employees and agents harmless and indemnified from and against all claims for losses, damages or injuries to others, including death, personal injury and property damage or loss, arising during the term hereof or during any other period arising out of the acquisition, installation and equipping of the Project Facilities; and the Authority shall not be liable for any loss, damage or injury to the Person or property of the Company or its agents, servants or employees or any other Person who or which may be upon the Project Facilities or damaged or injured as a result of any condition existing or activity occurring upon the Project Facilities or any other matter connected directly or indirectly therewith due to any act or negligence of any Person, excepting only willful misconduct of the Authority, its officers, agents, members or employees. The indemnity provided for in this Section 3.10(a) shall be effective only to the extent that any loss sustained by the Authority, its officers, members, employees and agents shall be in excess of the net proceeds actually recovered and received by the Authority from, or paid on behalf of the Authority by, any insurance carried with respect to the loss sustained. (b) The Company hereby covenants and agrees that it will indemnify and hold harmless the Trustee against any and all losses, damages or claims arising out of the Trustee's exercise and performance of powers and duties granted unto it by the Indenture and hereunder, and not resulting from the Trustee's willful misconduct or negligence. (c) The Company will indemnify, hold harmless and defend the Authority and the Trustee and the respective officers, members, directors, officials and employees of each of them against all losses, costs, damages, expenses, suits, judgments, actions and liabilities of whatever nature including, specifically, any liability under any state or federal securities laws (including but not limited to reasonable attorneys' fees, litigation and court costs, amounts paid in settlement and amounts paid to discharge judgments) directly or indirectly resulting from or arising out of or related to: (i) the design, construction, installation, operation, use, occupancy, maintenance or ownership of the Project Facilities (including compliance with laws, ordinances and rules and regulations of public authorities relating thereto); or (ii) any statements or representations with respect to the Company, the Project Facilities, this Agreement, the Bonds, the Indenture, the Letter of Credit, the Reimbursement Agreement or any other documents or instruments delivered at or in connection with the closing held on the Closing Date (including any statements or representations made in connection with the offer or sale thereof) made or given to the Authority, the Trustee or any placement advisors or underwriters or purchasers of any of the Bonds, by the Company or any of its officers, agents or employees, including, but not limited to, statements or representations of facts, financial information or Company affairs. The Company also will pay and discharge and indemnify and hold harmless the Authority and the Trustee from: (x) any lien or charge upon payments by the Company to the Authority and the Trustee under this Agreement; and (y) any taxes (including, without limitation, any ad valorem taxes and sales taxes, assessments, impositions and other charges in respect of any portion -9- of the Project Facilities). If any such claim is asserted, or any such lien or charge upon payments, or any such taxes, assessments, impositions or other charges are sought to be imposed, the Authority or the Trustee will give prompt notice to the Company, and the Company will have the sole right and duty to assume, and will assume, the defense thereof, with full power to litigate, compromise or settle the same in its sole discretion. The Company's obligations, liabilities and duties hereunder shall not be diminished or altered by: (i) reason of the assumption of any defense required hereby; or (ii) the outcome of any proceeding, investigation or litigation with respect to the validity or enforceability of the matters described in this Section 3.10(c). (d) If the indemnification provided heretofore is for any reason determined to be unavailable to the Authority or the Trustee, then, with respect to any such loss, claim, demand or liability, including expenses in connection therewith, the Authority and the Trustee, as appropriate, shall be entitled as a matter of right to contribution by the Company. The amount of such contribution shall be in such proportion as is appropriate to reflect relative culpability of the parties. Section 3.11. Authority is Conduit Issuer; Company is Real Party in Interest; Covenant Not to Sue. (a) The Company hereby expressly acknowledges that the Authority is a conduit issuer and that all of the right, title and interest of the Authority in and to this Agreement, but not the obligations of the Authority, are to be assigned first to the Trustee and then to the Bank (except for the right of the Authority to receive its reasonable fees and expenses and to indemnification), naming the Trustee and the Bank, as applicable, its true and lawful attorney for and in its name to enforce the terms and conditions of this Agreement. Notwithstanding any other provision contained herein, the Company hereby expressly agrees, acknowledges and covenants that it shall duly and punctually perform or cause to be performed each and every duty and obligation of the Authority under and pursuant to the Indenture, which the Company is reasonably able to perform. (b) The Company covenants and agrees that it shall neither sue the Authority, or any of its board members, officers, agents or employees, past, present or future, for any claim, loss, demand, action or nonaction based upon this financing nor ever raise as a defense in any proceedings whatsoever that the Authority is the true party in interest. Notwithstanding the provisions of the foregoing sentence, the Company shall be entitled to: (i) bring an action of specific performance against the Authority to compel any action required to be taken by the Authority hereunder or an action to enjoin the Authority from performing any action prohibited hereunder or under any other documents, by this instrument or any other agreement executed and delivered in connection with the issuance of the Bonds, but no such action shall in any way impose pecuniary liability upon the Authority or any of its board members, officers, agents or employees; and (ii) join the Authority in any litigation if such joinder is necessary to pursue any of the Company's rights, provided that prior to such joinder, the Company shall post such security as the Authority may reasonably require to protect the Authority from further loss. -10- ARTICLE IV COMPANY OBLIGATIONS; ASSIGNMENT TO TRUSTEE Section 4.01. General Obligation of the Company. This Agreement constitutes a general obligation of the Company and the full faith and credit of the Company is pledged to the payment of all amounts due hereunder. Section 4.02. Assignment to Trustee. The Authority immediately following execution and delivery hereof, shall assign this Agreement and all loan payments payable hereunder (except its right to receive its fees and expenses and indemnification) to the Trustee pursuant to the Indenture, IN TRUST, to be held and applied pursuant to the provisions of the Indenture, and to the Bank. The Company: (1) consents to such assignments and accepts notice thereof with the same legal effect as though such acceptances were embodied in separate instruments, separately executed after execution of such assignments; (2) agrees to pay directly to the Trustee or the Bank, as applicable, all payments payable hereunder for application to amounts then due and payable or to become due and payable under the Indenture, such payments to be paid by the Company to the Trustee without any defense, set-off or counterclaim arising out of any default on the part of the Authority under the Agreement or any transaction between the Company and the Authority or the Company and the Trustee; and (3) agrees that the Trustee and the Bank, as applicable, may exercise any and all rights and pursue any and all remedies granted the Authority hereunder. Section 4.03. Maintenance and Operation of the Project Facilities. (a) During the term of this Agreement, the Company will at its own cost and expense keep and maintain, or cause to be kept and maintained, in good repair and condition (excepting reasonable wear and tear) the Project Facilities and all additions and improvements thereto, and pay, or cause to be paid, any utility charges and other costs and expenses arising out of its use or occupancy of the Project Facilities; and (b) the Company agrees to timely pay for any improvements to the Project Facilities lawfully done or lawfully ordered to be done by any municipal, state or federal authority and to comply in all material respects at its own cost and expense with all lawful and enforceable notices received (whether by the Authority or the Company) from public authorities from and after the date hereof that affect the Project Facilities and the use and operation thereof, other than those improvements, orders and notices, the amount, validity or application of which is at the time being contested, in whole or in part, in good faith by appropriate proceedings promptly initiated and diligently conducted. Section 4.04. Maintenance of Existence. Except as otherwise permitted in the Reimbursement Agreement, the Company agrees that it will maintain its existence as a Pennsylvania corporation, will maintain its status as an entity authorized to conduct business in the Commonwealth, will not dissolve or otherwise dispose of all or substantially all of its assets and will not consolidate with or merge into another entity. Section 4.05. Compliance with Laws. With respect to the Project Facilities and any additions, alterations or improvements thereto, the Company will at all times comply with all -11- applicable requirements of federal, state and local laws and with all applicable lawful requirements of any agency, board, or commission created under laws of the Commonwealth or of any other duly constituted public authority, and will use, and permit the use of, the Project Facilities only for such purposes as are lawful under the Act; provided, however, that the Company shall be deemed in compliance with this Section 4.05 so long as it is contesting in good faith any such requirement by appropriate legal proceedings. Section 4.06. Notice of Bankruptcy Case Commencement. The Company covenants and agrees that it shall immediately notify the Authority, the Bank and the Trustee of the commencement of any case by or against it under the Bankruptcy Code. In addition, within fifteen days of receipt of a written request from the Trustee, the Company shall deliver a certificate to the Trustee certifying as to whether a petition in bankruptcy has been filed by or against the Company under the Bankruptcy Code or any applicable state bankruptcy or insolvency law. Section 4.07. Substitute Letter of Credit. The Company may provide for the delivery to the Trustee of a Substitute Letter of Credit upon thirty (30) days prior written notice to the Trustee, the Tender Agent, the Remarketing Agent and the Authority. Any Substitute Letter of Credit shall be delivered to the Trustee on an Interest Payment Date and not later than the thirtieth (30th) Business Day prior to the expiration of the Letter of Credit it is being issued to replace. On or before the date of the delivery of any Substitute Letter of Credit to the Trustee, as a condition to the acceptance of any Substitute Letter of Credit by the Trustee, the Company shall furnish to the Authority, the Trustee and the Remarketing Agent: (i) written evidence that the issuer of such Substitute Letter of Credit is a commercial bank organized and doing business in the United States or a branch or agency of a foreign commercial bank located and doing business in the United States and subject to regulation by state or federal banking regulatory authorities and that it has been assigned the same or better rating as the Letter of Credit in effect immediately prior to the substitution of the Substitute Letter of Credit; (ii) an opinion of nationally recognized bond counsel to the effect that the delivery of such Substitute Letter of Credit is authorized under this Agreement and the Indenture and the Act and complies with the terms hereof, and, that the delivery of such Substitute Letter of Credit does not adversely affect the exclusion from gross income of the interest on the Bonds for federal income tax purposes; and (iii) an opinion of Counsel satisfactory to the Trustee, the Authority, the Company and the Remarketing Agent to the effect that the Substitute Letter of Credit is a legal, valid and binding obligation of the issuer (or, in the case of a branch or agency of a foreign commercial bank, the branch or agency) issuing the same, enforceable in accordance with its terms, that payments of principal, premium, if any (if such Substitute Letter of Credit secures the payment of premium), or Purchase Price of or interest on the Bonds from the proceeds of a drawing on the Substitute Letter of Credit will not constitute voidable preferences under the Bankruptcy Code or other applicable laws and regulations and that it is not necessary to register the Substitute Letter of Credit under the Securities Act of 1933, as amended, or to qualify an indenture with respect thereto under the Trust Indenture Act of 1939, as amended. On or before the delivery of any Substitute Letter of Credit to the Trustee, as an additional condition to the acceptance of any Substitute Letter of Credit by the Trustee, the Company shall furnish to the Authority, the Trustee and the Remarketing Agent written evidence from each Rating Agency that -12- the rating on the Bonds will not be reduced or withdrawn as a result of the acceptance of the Substitute Letter of Credit and that the short term unsecured debt of the Bank or Substitute Bank, as applicable, shall then have been assigned a rating by Moody's of "P-1" or the equivalent rating assigned by S&P. In the case of a Substitute Letter of Credit issued by a branch or agency of a foreign commercial bank there shall also be delivered an opinion of Counsel, satisfactory to the Trustee, the Authority, the Company and the Remarketing Agent and licensed to practice law in the jurisdiction in which the head office of such bank is located, to the effect that the Substitute Letter of Credit is the legal, valid and binding obligation of such bank enforceable in accordance with its terms. The Trustee shall accept any such Substitute Letter of Credit only in accordance with the terms, and upon the satisfaction of the conditions, contained in this Section 4.07 and any other provisions applicable to acceptance of a Substitute Letter of Credit under this Agreement and the Indenture. ARTICLE V THE PROJECT FACILITIES Section 5.01. Intentionally Omitted. Section 5.02. Liens. The Company will not create, assume, or suffer to exist, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind upon the Premises except: (a) the liens and security interests created by the Collateral Documents, or otherwise existing on and disclosed to the Authority and the Bank on the date hereof; (b) purchase money liens on and security interests in equipment hereafter acquired which constitutes the deferred portion of the purchase price thereof; (c) liens for taxes not yet payable or being contested in good faith by appropriate proceedings and for which adequate reserves have been provided on the books of the Company; (d) mechanics', materialmen's, warehousemen's, carriers' or other like liens arising in the ordinary course of business of the Company, arising with respect to obligations which are not overdue for a period longer than thirty (30) days or which are being contested in good faith by appropriate proceedings and for which adequate reserves have been provided on the books of the Company; (e) other encumbrances consisting of zoning restrictions, easements, restrictions on the use of real property or minor irregularities in the title thereto, which do not arise in connection with the borrowing of, or any obligation for the payment of, money and which, in the aggregate, do not materially detract from the value of the Premises; or -13- (f) any liens authorized or permitted under the Reimbursement Agreement. ARTICLE VI INSURANCE; DESTRUCTION, DAMAGE, EMINENT DOMAIN Section 6.01. Insurance to be Maintained. The Company covenants to provide and maintain continuously unless otherwise herein provided, adequate insurance on the Project Facilities as shall be mutually agreed upon by the Bank and the Company. Each insurance policy with respect to the Project Facilities shall name the Bank as an additional insured. Section 6.02. Destruction, Damage and Eminent Domain. If the Project Facilities shall be wholly or partially destroyed or damaged by fire or other casualty covered by insurance, or shall be wholly or partially condemned, taken or injured by any Person, including any Person possessing the right to exercise the power of or a power in the nature of eminent domain or shall be transferred to such a Person by way of a conveyance in lieu of the exercise of such a power by such a Person, the Company covenants that it will take all actions and will do all things which may be necessary to enable recovery to be made upon such policies of insurance or on account of such taking, condemnation, conveyance, damage or injury. The Company is authorized, in its own name, as trustee of an express trust, to demand, collect, sue, settle claims, receipt and release monies which may be due and payable under policies of insurance covering such damage or destruction or on account of such condemnations, damage or injury. Any moneys recovered: (i) on policies of insurance required to be maintained hereunder; or (ii) as a result of any taking, condemnation, conveyance, damage or injury shall be deposited in the Construction Fund held by the Trustee under the Indenture and shall be applied in accordance with the provisions of Section 6.04 hereof; provided, however, that as long as the Bank is not in default under the terms of the Letter of Credit, the applicable provisions of the Reimbursement Agreement shall control the disposition of casualty insurance and condemnation award proceeds. Any appraisement or adjustment of loss or damage and any settlement or payment therefor, shall be agreed upon by the Company, the Bank (as long as the Bank is not in default under the Letter of Credit) and the appropriate insurer or condemnor or Person, and shall be evidenced to the Bank by the certificate and approvals set forth in the Indenture. The Bank may rely conclusively upon such certificates. Section 6.03. Notice of Property Loss. After the occurrence of loss or damage to, or after receipt of notice of condemnation of, the Project Facilities, if such loss or damage to the Project Facilities exceeds $50,000, the Company shall within five (5) Business Days thereof notify the Authority, the Trustee and the Bank, in writing, of such damage. Section 6.04. Disposition of Casualty Insurance and Condemnation Award Proceeds. Subject to the provisions of Section 6.02 hereof, if the Bank is in default under the terms of the Letter of Credit, and as long as the Company is not in default under the terms of this Agreement, -14- the Company may elect, in its discretion, whether to apply the proceeds of any casualty insurance coverage and/or condemnation awards to: (i) the repair, reconstruction or replacement of damaged, destroyed or injured property comprising the Project Facilities; or (ii) the redemption of Bonds pursuant to the applicable provisions of the Indenture. Absent timely direction from the Company as to the application of any casualty insurance coverage and/or condemnation awards or if the Company shall be in default under the terms of this Agreement, the proceeds thereof shall be applied to the extraordinary redemption of the Bonds at par plus accrued interest through the date of redemption. For purposes of the preceding sentence, "timely direction" shall mean 30 days after the Company has agreed, in connection with any damage to or condemnation of the Project Facilities, upon the settlement or payment with respect to any appraisement or adjustment of loss or damage, as appropriate. ARTICLE VII ADDITIONAL COVENANTS OF THE COMPANY Section 7.01. Compliance with Laws. The Company covenants that all actions heretofore and hereafter taken by the Company or by the Authority upon the recommendation or request of any officer of the Company to acquire and carry out the Project have been and will be, to the best of the knowledge of the Company, in full compliance with all pertinent laws, ordinances, rules, regulations and orders applicable to the Company. In connection with the operation, maintenance, repair and replacement of the Project Facilities, the Company covenants that it shall comply with all applicable ordinances, laws, rules, regulations and orders of the government of the United States of America, the Commonwealth, the County, and any other applicable government unit having jurisdiction over it, and any requirement of any board of fire underwriters having jurisdiction or of any insurance company writing insurance on the Project Facilities; provided, however, that nothing herein shall prevent or prohibit the Company from contesting in good faith and by appropriate proceedings the legality or reasonableness of any such standards, or the imposition of any such standards upon it with respect to the Project Facilities so long as the operation of the Project Facilities or the receipt of income therefrom would not be adversely affected by reason thereof. The Company further covenants and represents that the Project Facilities are in compliance with all applicable zoning, subdivision, building, land use and similar laws and ordinances. The Company covenants that it shall not take any action or request the Authority to execute any release which would cause the Project Facilities to be in violation of such laws or ordinances or such that a conveyance of the Project Facilities or of any portion of the Project Facilities would create a violation of such laws and ordinances. The Company acknowledges that any review by the Authority or Counsel to the Authority of any action heretofore or hereafter taken by the Company has been or will be solely for the protection of the Authority. Such reviews shall not prevent the Authority from enforcing any of the covenants made by the Company. Section 7.02. Power to Perform Obligations. The Company covenants and represents that it has full power and legal right to enter into this Agreement and perform its obligations hereunder. The making and performance of the Agreement by the Company has been duly authorized by all necessary action and will not conflict with or constitute a breach of or default under any bond, 6 -15- contract, indenture, agreement or any other instrument by which the Company or any of its properties is or may be bound. Section 7.03. Inspection. The Company covenants that the Authority, by its duly authorized representatives, at reasonable times and with reasonable notice, for purposes of determining compliance with the Agreement, may inspect any part of the Project Facilities. Section 7.04. Additional Information. The Company agrees, whenever requested by the Authority, to provide and certify or cause to be provided and certified such information concerning the Project Facilities, to enable the Authority to make any reports or supply any information required by the Indenture, law, governmental regulation or otherwise. Section 7.05. Nondiscrimination. During the term of this Agreement, the Company agrees, as to itself and as to each occupant of the Project Facilities controlling, controlled by or under common control with the Company (each, a "Contractor") as follows: (a) Contractors shall not discriminate against any employee, applicant for employment, independent contractor or any other Person because of race, color, religious creed, handicap, ancestry, national origin, age or sex. Contractors shall take affirmative action to insure that applicants are employed, and that employees or agents are treated during employment, without regard to their race, color, religious creed, handicap, ancestry, national origin, age or sex. Such affirmative action shall include, but is not limited to: employment, upgrading, demotion or transfer, recruitment or recruitment advertising; layoff or termination; rates of pay or other forms of compensation; and selection for training. Contractors shall post in conspicuous places, available to employees, agents, applicants for employment and other persons, a notice to be provided by the contracting agency setting forth the provisions of this Section 7.05. (b) Contractors shall, in advertisements or requests for employment placed by it or on its behalf, state that all qualified applicants will receive consideration for employment without regard to race, color, religious creed, handicap, ancestry, national origin, age, or sex. (c) Contractors shall send each labor union or workers' representative with which it has a collective bargaining agreement or other contract or understanding, a notice advising said labor union or workers' representative of its commitment to this nondiscrimination clause. Similar notices shall be sent to every other source of recruitment regularly utilized by Contractors. (d) It shall be no defense to a finding of noncompliance with this Section 7.05 that a Contractor had delegated some of its employment practices to any union, training program or other source of recruitment which prevents it from meeting its obligations. However, if the evidence indicates that such a Contractor was not on notice of the third-party discrimination or made a good faith effort to correct it, such factor shall be considered in mitigation in determining appropriate sanctions. -16- (e) Where the practices of a union or of any training program or other source of recruitment will result in the exclusion of minority group persons, so that a Contractor will be unable to meet its obligations under this Section 7.05, such a Contractor shall then employ and fill vacancies through other nondiscriminatory employment procedures. (f) Contractors shall comply with all state and federal laws prohibiting discrimination in hiring or employment opportunities. Noncompliance with this Section 7.05 will constitute an Event of Default under this Agreement. (g) Contractors shall furnish all necessary employment documents and records to, and permit access to its books, records and accounts by, the Authority for purposes of investigation to ascertain compliance with the provisions of this Section 7.05. If Contractor does not possess documents or records reflecting the necessary information requested, it shall furnish such information on reporting forms supplied by the Authority. (h) Contractors shall actively recruit minority subcontractors and women subcontractors or subcontractors with substantial minority or women representation among their employees. (i) Contractors shall include the provisions of this Section 7.05 in every subcontract, so that such provisions will be binding upon each subcontractor. (j) Contractors' obligations under this Section 7.05 are limited to Contractors' facilities within the Commonwealth or, where the contract is for purchase of goods manufactured outside of the Commonwealth, the facilities at which such goods are actually produced. ARTICLE VIII EVENTS OF DEFAULT AND REMEDIES Section 8.01. Events of Default. The following events shall constitute "Events of Default" under this Agreement: (a) if the Company falls to make any payment required by Sections 3.01, 3.03, 3.04 or 3.05 hereof when due; or (b) if the Company fails to make any other payment required hereby and such failure continues for 30 days after the Authority or the Trustee gives notice to the Company that such payment is due and unpaid; or (c) if the Company fails to perform any of its other covenants or conditions or fails to perform any of its obligations hereunder and such failure continues for 30 days after the Authority or the Trustee gives the Company notice thereof; provided, however, that if such -17- performance requires work to be done, actions to be taken, or conditions to be remedied, which by their nature cannot reasonably be done, taken or remedied, as the case may be, within such 30 day period, no Event of Default shall be deemed to have occurred or to exist if, and so long as, the Company shall commence such performance within such 30-day period and shall diligently and continuously proceed to completion; or (d) if the Company commits any act of bankruptcy under the Bankruptcy Code or any state bankruptcy law or any law providing for reorganization or relief for debtors or files or has filed against it a petition in bankruptcy or for arrangement or reorganization pursuant to the Bankruptcy Code or other similar law, federal or state, or if, by the decree of a court of competent jurisdiction, is adjudicated a bankrupt or declared insolvent, or makes an assignment for the benefit of creditors, or admits in writing its inability to pay its debts generally when or as they become due, or consents to the appointment of a trustee, receiver or to the liquidation of all or any part of the Project Facilities, provided that, if any such proceeding is commenced by a Person other than the Company, there shall be no Event of Default if such proceedings are dismissed within 60 days of the filing of initial pleadings therein; or (e) the written declaration by the Bank of an Event of Default under and as defined in the Reimbursement Agreement; Section 8.02. Acceleration. Upon the occurrence of any "Event of Default" by the Authority under the Indenture caused or resulting directly or indirectly by the occurrence of an Event of Default by the Company hereunder, the Trustee (with the prior written consent of the Bank as long as the Bank is not in default under the Letter of Credit), may, and upon request of the Owners of 25% in principal amount of the Bonds then Outstanding shall, pursuant to Section 8.02 of the Indenture, declare the principal of the then-Outstanding Bonds and accrued interest immediately due and payable, but such Trustee shall not declare the principal due and payable if such acceleration is annulled as provided in Section 8.02 thereof. Upon such declaration by the Trustee, the Authority shall have the right to terminate this Agreement and, upon such termination, there shall become immediately due and payable hereunder as then current damages of the Authority under this Agreement, an amount equal: (i) to all amounts then due and payable by the Authority to the Trustee under this Section 8.02; and (ii) all other amounts due and owing as loan payments hereunder. Until such amount is paid by the Company, at the time or times and in the manner required to permit the Authority to meet its obligations under the Indenture, the Authority shall continue to have all of the rights, powers and remedies herein (notwithstanding the termination hereof), and, for such time as may be necessary to enable the Authority to satisfy in full its obligations under the Indenture, the term of this Agreement shall, at the election of the Authority, be extended at the will of the Authority, and the Company's obligations hereunder shall continue in full force and effect. -18- Section 8.03. Payment of Loan Payments on Default; Suit Therefor. (a) Upon the occurrence of an Event of Default under this Agreement, then, upon demand of the Authority or its assignee, the Company will pay to the Authority or its assignee the whole amount of the loan payments that then shall have become due and payable hereunder and to the extent such loan payments represent payments due on the Bonds, such payments shall be applied to the payment of the Bonds in accordance with the terms of the Indenture; and, in addition thereto, such further amount as shall be sufficient to pay the costs and expenses of collection, including reasonable compensation based upon actual time expended by the Authority and its assignee and their respective agents and attorneys, and any expenses or liabilities incurred by the Authority or its assignee (other than through the Authority's or its assignee's own gross negligence or bad faith). In case the Company shall fail forthwith to pay such amounts upon such demand, the Authority or its assignee shall be entitled and empowered to institute any actions or proceedings at law or in equity for the collection of the sums so due and unpaid, and may prosecute any such action or proceeding to judgment or final decree, and may enforce any such judgment or final decree against the Company and collect in the manner provided by law out of the property of the Company the money adjudged or decreed to be payable. (b) In case there shall be pending proceedings in bankruptcy or for the reorganization of the Company under the Bankruptcy Code or any other applicable law, or in case a receiver or trustee shall have been appointed for the benefit of the creditors or the property of the Company, or in the case of any other similar judicial proceedings relative to the Company, the Authority or its assignee shall be entitled and empowered, by intervention in such proceedings or otherwise, to file and prove a claim or claims for the whole amount of the loan payments, including interest owing and unpaid in respect thereof, and, in case of any judicial proceedings, to file such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Authority or its assignee allowed, and to collect and receive any moneys or other property payable or deliverable on any such claims, and to distribute the same after the deduction of its charges and expenses; and any receiver, assignee or trustee in bankruptcy or reorganization is hereby authorized to make such payments to the Authority or its assignee, and to pay to the Authority or its assignee any amount due it for compensation based upon actual time expended and expenses, including counsel fees incurred by it up to the date of such distribution. Section 8.04. Waiver. The Company hereby waives and relinquishes the benefits of any present or future law exempting the Project Facilities from attachment, levy or sale on execution, or any part of the proceeds arising from the sale thereof, and all benefit of stay of execution or other process. Section 8.05. Cumulative Rights. No remedy conferred upon or reserved to the Authority or its assignee by this Agreement is intended to be exclusive of any other available remedy or remedies, but each and every such remedy shall be cumulative and shall be in addition to every other remedy given under this Agreement or now or hereafter existing at law or in equity or by statute. No waiver by the Authority or its assignee of any breach by the Company of any of its obligations, -19- agreements or covenants hereunder shall be a waiver of any subsequent breach, and no delay or omission to exercise any right or power 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. Section 8.06. No Exercise of Remedies Without Consent of Bank. Notwithstanding anything to the contrary contained in this Agreement, neither the Authority nor any assignee of the Authority under this Agreement shall exercise or pursue remedies or declare an Event of Default or cause an acceleration of the obligations contained in this Agreement without the prior written consent of the Bank as long as the Bank shall not be in default of its obligations under the Letter of Credit or a voluntary or involuntary case has not been commenced by the filing of a petition under the Bankruptcy Code or any other law relating to insolvency, bankruptcy, reorganization, winding-up or composition or adjustment of debts by or against the Bank. ARTICLE IX OPTIONS TO TERMINATE AGREEMENT Section 9.01. Option to Terminate Upon Defeasance. The Company shall have, and is hereby granted, the option to terminate its obligations under this Agreement prior to full payment of the Bonds by providing for the payment of all of the Outstanding Bonds in accordance with Article XI of the Indenture. Section 9.02. Option to Terminate Upon the Occurrence of Certain Events. The Company shall have, and is hereby granted, the option to terminate its obligations under this Agreement if any of the events set forth below shall occur: (A) The Project Facilities or any portion thereof shall have been damaged or destroyed: (1) to such extent that it cannot, in the Company's judgment, be reasonably restored within a period of six (6) months to the condition thereof immediately preceding such damage or destruction; or (2) to such extent that the Company is thereby prevented, in the Company's reasonable judgment, from carrying on its normal operations at the Project Facilities for a period of six (6) months or more; (B) Title to, or the temporary use for a period of six (6) months or more of, all or substantially all of the Project Facilities, or such part thereof as shall materially interfere, in the Company's reasonable judgment, with the operation of the Project Facilities for the purpose for which the Project Facilities are designed, shall have been taken under the exercise of the power of eminent domain by any governmental body or by any Person, firm or corporation acting under governmental authority (including such a taking or takings as results in the Company's being thereby prevented from carrying on its normal operations at the Project Facilities for a period of six (6) months or more); -20- (C) Changes which the Company cannot reasonably control or overcome in the economic availability of materials, supplies, labor, equipment and other properties and things necessary for the efficient operation of the Project Facilities for the purposes contemplated by this Agreement, shall have occurred, or technological or other changes shall have occurred which in the judgment of the Company render the continued operation of the Project Facilities uneconomical for such purpose; or (D) As a result of any changes in the Constitution of the Commonwealth or the Constitution of the United States of America or of legislative or administrative action (whether state or federal) or by final decree, judgment or order of any court or administrative body (whether state or federal) entered after the contest thereof by the Company in good faith, this Agreement shall have become void and unenforceable or impossible of performance in accordance with the intent and purposes of the parties as expressed in this Agreement, or unreasonable burdens or excessive liabilities shall have been imposed on the Company in respect to the Project Facilities, including, without limitation, federal, state or other ad valorem, property, income, or other taxes not being imposed on the date of this Agreement. To exercise such option, the Company shall within ninety (90) days following the event authorizing such termination, give written notice to the Authority and the Trustee and shall specify therein the date of redemption of Bonds pursuant to Section 4.01 of the Indenture, which date shall be the next interest payment date in respect of the Bonds for which the required notice of redemption can practicably be given. In accordance with the terms of the Indenture, the Company shall make arrangements for the Trustee to give the required notice of redemption. Payment of the redemption price of Bonds redeemed pursuant to this Section 9.02 will be made in accordance with the terms of the Indenture. Anything contained in this Agreement to the contrary notwithstanding, the Bank shall have the right (as long as the Bank shall not be in default under the terms of the Letter of Credit) to cause the Company to terminate its obligations under this Agreement, in accordance with the provisions of this Section 9.02 by so notifying the Company in writing, if as a result of any changes in the Constitution of the Commonwealth or the Constitution of the United States of America or as a result of a legislative or administrative action (whether state or federal) or final decree, judgment or order of any court or administrative body (whether state or federal) entered after the contest thereof by the Company in good faith, this Agreement shall have become void and unenforceable or impossible of performance, in accordance with the intent and purposes of the parties as expressed in this Agreement. -21- ARTICLE X MISCELLANEOUS Section 10.01. Approval of Indenture. The Company acknowledges that it has received executed copies of the Indenture and a copy the Letter of Credit and that it is familiar with their provisions, and agrees that it will take all such actions as are required or contemplated of it under the Indenture to preserve and protect the rights of the Trustee thereunder and that it will not take any action which would cause a default or an Event of Default thereunder. It is agreed by the Company and the Authority that any redemption of the Bonds prior to maturity shall be effected as provided in the Indenture. Section 10.02. Taxes and Insurance-Rights of Authority to Pay. If the Company, at any time, fails to pay any taxes or other impositions payable by it in accordance with Section 3.04 hereof, or to take out, pay for, maintain or deliver any of the insurance policies provided for in Article VI, or shall fail, within the time provided for in Article VIII after the notice therein specified of any Event of Default, as therein defined, has been given thereunder, to make any other payment or perform any other act on its part to be made or performed, then the Authority may, but shall not be obligated so to do, and without further notice to or demand upon the Company and without waiving or releasing the Company from any of its obligations under the Agreement: (a) pay any taxes or other impositions payable by the Company in accordance with Section 3.04 hereof; (b) take out, pay for and maintain any of the insurance policies provided for in Article VI hereof; or (c) make any other payment or perform any other act on the Company's part to be made or performed as provided in this Agreement. All sums so paid by the Authority and all necessary incidental costs and expenses in connection with the performance of any such act by the Authority shall, together with interest thereon at the rate at which interest is charged on defaulted payments under the Reimbursement Agreement, be payable to the Authority, on demand, or, at the option of the Authority, may be added to any installment of the loan payments then due or thereafter becoming due under this Agreement, and the Company covenants to pay any such sums. Section 10.03. Illegal Provisions Disregarded. If any term or provision hereof or the application thereof for any reason or circumstance shall to any extent be held to be invalid or unenforceable, this Agreement shall be invalid or unenforceable only to the extent of such invalidity or unenforceability and such invalidity or unenforceability shall not invalidate the balance of such provision or the remaining terms or provisions of this Agreement or the application of such terms or provisions to Persons other than those as to which it has been held invalid or unenforceable; each term and provision hereof shall be valid and enforceable to the fullest extent permitted by law, and shall be liberally construed in favor of the Authority or its assignee in order to effect the intent of this Agreement. Section 10.04. Limitation of Liability of the Authority. In the event of any default by the Authority hereunder, and notwithstanding any provision or obligation to the contrary hereinbefore or hereinafter set forth, the liability of the Authority shall be limited to its interest in the Project -22- Facilities, the improvements thereon, the rents, issues and profits therefrom, and the lien of any judgment shall be restricted thereto. The Authority does not assume general liability nor specific liability for the repayment of any mortgage or other loan, or for the costs, fees, penalties, taxes, interest, commissions, charges, insurance or any other payments therein recited or therein set forth, or incurred in any way in connection therewith. Other than as set forth hereinabove in this Section 10.04, there shall be no other recourse for damages of any kind or nature by the Company or any other Person against the Authority, its incorporator, officers, members, agents and employees, past, present or future, or any of the property or other assets now or hereafter owned by it or them, either directly or indirectly; and all such recourse or liability is hereby expressly waived and released as a condition of and in consideration for execution and delivery of this Agreement by the Authority. In the event of entry of judgment against the Authority by virtue of the power herein contained, the Authority shall mark the judgment index to the effect that the judgment is limited as aforesaid. Section 10.05. No Recourse as to the Authority. Except as expressly provided in Section 10.04 above, no recourse under or upon any obligation, covenant or agreement contained herein or in any Bond shall be had against the Authority or any member, officer, employee or agent, past, present or future, of the Authority or of any successor of the Authority under this Agreement, any other agreement, any rule of law, statute or constitutional provision, or by enforcement of any assessment or by any legal or equitable proceeding or otherwise, it expressly being agreed and understood that the obligations of the Authority hereunder, and under the Bonds and elsewhere, are solely corporate obligations of the Authority to the extent specifically limited in the Act and that no personal liability whatsoever shall attach to or shall be incurred by the Authority or such members, officers, employees or agents, past, present or future, of the Authority or of any successor of the Authority, or any of them, because of such indebtedness or by reason of any obligation, covenant or agreement contained herein, in the Bonds or implied therefrom. Section 10.06. Reference to Statute or Regulation. A reference herein to a statute or to a regulation issued by a governmental agency includes the statute or regulation in force as of the date hereof, together with all amendments and supplements thereto and any statute or regulation substituted for such statute or regulation, unless the specific language or the context of the reference herein clearly includes only the statute or regulation in force as of the date hereof. A reference herein to a governmental agency, department, board, commission or other public body or to a public officer includes an entity or officer which or who succeeds to substantially the same functions as those performed by such public body or officer as of the date hereof, unless the specific language or the context of the reference herein clearly includes only such public body or public officer as of the date hereof. Section 10.07. Notices. All notices required or authorized to be given by the Company, the Authority or the Trustee under the Indenture or pursuant to this Agreement shall be in writing and shall be sent by registered or certified mail, postage prepaid, to the following addresses: to the Authority to: -23- Montgomery County Industrial Development Authority 3 Stony Creek Office Center 151 West Marshall Street Norristown, Pennsylvania 19401 to the Company to: Collegeville Inn Conference & Training Center, Inc. Box 725, Kimberton Road Kimberton, PA 19442 Attention: Controller to the Trustee to: Dauphin Deposit Bank and Trust Company 213 Market Street Harrisburg, PA 17101 Attention: Corporate Trust Services or to such other addresses as may from time to time be furnished to the parties, effective upon the receipt of notice thereof given as set forth above. Each of the above agrees that it shall send a duplicate copy or executed copy of all certificates, notices, correspondence or other data and materials required to be sent to one of the above to all other parties and in addition, to the Bank at Great Valley Corporate Center, 55 Valley Stream Parkway, Suite 200, Malvern, PA 19355, Attention: Mr. Michael Bailey. Section 10.08. Applicable Law. This Agreement shall be deemed to be a contract made in the Commonwealth and governed by the law of the Commonwealth. Section 10.09. Amendments. This Agreement may not be amended except by an instrument in writing signed by the parties and, if such amendment occurs after the issuance of any of the Bonds, consented to by the Trustee and the Bank, so long as the Bank is not in default under the Letter of Credit. Section 10.10. Term of Agreement. This Agreement and the respective obligations of the parties hereto shall be in full force and effect from the date hereof until all principal of, premium, if any, and interest on the Bonds shall have been paid or provision for such payment shall have been made pursuant to the terms and provisions of the Indenture. -24- Section 10.11. Amounts Remaining in Bond Fund. It is agreed by the parties hereto that any amounts remaining in the Bond Fund established under the Indenture upon expiration or sooner termination of this Agreement after payment in full of the Bonds (or provision for payment thereof having been made in accordance with the provisions of the Indenture) and of the fees charges and expenses of the Trustee and the Authority in accordance with the Indenture, shall, to the extent of any unreimbursed draws under the Letter of Credit, or any other Obligations owing by the Company to the Bank under the Reimbursement Agreement or any of the other Reimbursement Documents (as defined in the Reimbursement Agreement) be paid to the Bank. Any remaining moneys shall belong to and be paid to the Company by the Trustee. Section 10.12. Survival of Covenants, Conditions and Representations. All covenants, duties, obligations, conditions and representations of the Company contained herein that, by nature, implied or expressly involve performance in any particular manner after the termination of this Agreement or that cannot be ascertained to have been performed until after termination of this Agreement, shall survive said termination. Without intending to limit the generality of the foregoing, the Company's covenant to indemnify the Authority and the Trustee, as set forth in Section 3.10 hereof shall survive any termination of this Agreement. Section 10.13. Multiple Counterparts. This Agreement may be executed in multiple counterparts, each of which shall be regarded for all purposes as an original and such counterparts shall constitute but one and the same instrument. Section 10.14. Consent. Whenever the consent of the Authority or its assignee is given pursuant to the terms of this Agreement, such consent shall create no liability or responsibility upon the Authority or its assignee, and whenever required, shall not be unreasonably withheld. -25- IN WITNESS WHEREOF, the MONTGOMERY COUNTY INDUSTRIAL DEVELOPMENT AUTHORITY has caused this Agreement to be executed in its name and on its behalf by its Chairperson or Vice Chairman and attested by its Secretary or Assistant Secretary, and COLLEGEVILLE INN CONFERENCE & TRAINING CENTER, INC. has caused this Agreement to be executed in its name and on its behalf by its President or Vice President and attested by its Secretary or Assistant Secretary, all as of the day and year first above written. MONTGOMERY COUNTY INDUSTRIAL DEVELOPMENT AUTHORITY By:________________________________ Chairperson or Vice Chairman Attest:____________________________ (Assistant) Secretary COLLEGEVILLE INN CONFERENCE & TRAINING CENTER, INC. By:_________________________________ Authorized Officer Attest:_____________________________ Authorized Officer -26- EX-4 5 TRUST INDENTURE MONTGOMERY COUNTY INDUSTRIAL DEVELOPMENT AUTHORITY and DAUPHIN DEPOSIT BANK AND TRUST COMPANY, as Trustee TRUST INDENTURE Dated December 26, 1996 MONTGOMERY COUNTY INDUSTRIAL DEVELOPMENT AUTHORITY VARIABLE RATE DEMAND/FIXED RATE REVENUE BONDS (APPLE FRESH FOODS LTD PROJECT) SERIES OF 1996 BOND COUNSEL AUTHORITY SOLICITOR KASSAB ARCHBOLD & O'BRIEN, L.L.P. McGRORY, WENTZ, FERNANDEZ & 214 North Jackson Street O'HARA Media, PA 19063 115 West Germantown Pike, Suite 100 Swede Square Norristown, PA 19401 TABLE OF CONTENTS* Page ARTICLE I DEFINITIONS; CONTENT OF CERTIFICATES AND OPINIONS Section 1.01. Definitions.............................................4 Section 1.02. Content of Certificates and Opinions...................18 Section 1.03. Interpretation.........................................18 ARTICLE II THE BONDS Section 2.01. Authorization of Bonds.................................19 Section 2.02. Terms of Bonds: Interest on the Bonds..................19 Section 2.03. Execution of Bonds.....................................21 Section 2.04. Authentication.........................................22 Section 2.05. Form of Bonds..........................................22 Section 2.06. Transfer of Bonds .....................................22 Section 2.07. Exchange of Bonds......................................23 Section 2.08. Bond Register..........................................23 Section 2.09. Temporary Bonds........................................23 Section 2.10. Bonds Mutilated, Lost, Destroyed or Stolen.............23 Section 2.11. Cancellation and Destruction of Surrendered Bonds......24 Section 2.12. Acts of Bondholders; Evidence of Ownership.............24 Section 2.13. Book-Entry Bonds; Securities Depository................24 ARTICLE III ISSUANCE OF BONDS; APPLICATION OF PROCEEDS Section 3.01. Issuance of the Bonds........................................26 Section 3.02. Validity of Bonds............................................26 Section 3.03. Disposition of Proceeds of the Bonds and Other Amounts.......26 *This Table of Contents is for convenience only, does not constitute a part of this Indenture and shall not be considered as having any bearing upon any interpretation of this Indenture. (i) ARTICLE IV REDEMPTION OF BONDS BEFORE MATURITY Section 4.01. Extraordinary and Mandatory Redemption.................27 Section 4.02. Optional Redemption....................................28 Section 4.03. Notice of Redemption...................................29 Section 4.04. Interest on Bonds Called for Redemption................29 Section 4.05. Cancellation...........................................29 Section 4.06. Partial Redemption of Bonds............................29 Section 4.07. Payment of Redemption Price with Available Moneys; Consent of Letter of Credit Bank to Optional Redemption.................................30 ARTICLE V CONVERSION OF INTEREST RATE; DEMAND PURCHASE OPTION Section 5.01. Conversion of Interest Rate on Conversion Date.........30 Section 5.02. Delivery of Bonds After Conversion Date ...............32 Section 5.03 Mandatory Tender Upon Substitution of Letter of Credit.32 Section 5.04. Demand Purchase Option.................................33 Section 5.05. Funds for Purchase of Bonds............................34 Section 5.06. Delivery of Purchased Bonds............................36 Section 5.07. Sale of Bonds by Remarketing Agent.....................36 Section 5.08. Delivery of Proceeds of Sale of Purchased Bonds........................................37 Section 5.09. Duties of Trustee and Tender Agent with Respect to Purchase of Bonds...........................37 Section 5.10. No Purchases or Sales After Certain Defaults...........38 ARTICLE VI REVENUES AND FUNDS Section 6.01. Creation of the Bond Fund..............................38 Section 6.02. Payments into the Bond Fund............................38 Section 6.03. Use of Moneys in the Bond Fund.........................39 Section 6.04. Custody of Separate Trust Fund.........................39 (ii) Section 6.05. Construction Fund......................................39 Section 6.06. Payments into the Construction Fund; Disbursements.....39 Section 6.07. Use of Money in the Construction Fund Upon Default ....40 Section 6.08. Use of Money in the Construction Fund Upon Completion of the Project ........................40 Section 6.09. Nonpresentment of Bonds................................40 Section 6.10. Moneys to be Held in Trust.............................40 Section 6.11. Repayment to the Bank and the Company from the Bond Fund or the Rebate Fund..................41 Section 6.12. Letter of Credit.......................................41 Section 6.13. Rebate Fund............................................41 Section 6.14. Investment of Moneys in Funds..........................43 ARTICLE VII PARTICULAR COVENANTS Section 7.01. Punctual Payment.......................................44 Section 7.02. Extension of Payment of Bonds..........................44 Section 7.03. Against Encumbrances...................................44 Section 7.04. Power to Issue Bonds and Make Pledge and Assignment....44 Section 7.05. Accounting Records and Financial Statements............44 Section 7.06. Tax Covenants..........................................45 Section 7.07. Other Covenants........................................45 Section 7.08. Waiver of Laws.........................................46 Section 7.09. Further Assurances.....................................46 ARTICLE VIII EVENTS OF DEFAULT AND REMEDIES OF BONDHOLDERS Section 8.01. Events of Default......................................46 Section 8.02. Acceleration...........................................47 Section 8.03. Other Remedies.........................................49 Section 8.04. Legal Proceedings by Trustee...........................49 Section 8.05. Discontinuance of Proceedings by Trustee...............50 Section 8.06. Bondholders May Direct Proceedings.....................50 Section 8.07. Limitations on Actions by Bondholders..................50 Section 8.08. Trustee May Enforce Rights Without Possession of Bonds....................................51 Section 8.09. Delays and Omissions Not to Impair Rights..............51 Section 8.10. Application of Moneys in Event of Default..............51 Section 8.11. Trustee and Bondholders Entitled to All (iii) Remedies Under Act: Remedies Not Exclusive.............51 Section 8.12. Trustee's Right to Receiver............................52 Section 8.13. Subrogation Rights of Bank.............................52 Section 8.14. Waiver of Default......................................52 ARTICLE IX THE TRUSTEE; THE TENDER AGENT AND THE REMARKETING AGENT Section 9.01. Duties, Immunities and Liabilities of Trustee..........52 Section 9.02. Merger or Consolidation................................54 Section 9.03. Liability of Trustee...................................54 Section 9.04. Right of Trustee to Rely on Documents..................55 Section 9.05. Preservation and Inspection of Documents...............55 Section 9.06. Compensation...........................................55 Section 9.07. The Tender Agent.......................................56 Section 9.08. Qualifications of Tender Agent.........................56 Section 9.09. Qualifications of Remarketing Agent; Resignation; Removal...................................57 Section 9.10. Construction of Ambiguous Provisions...................57 ARTICLE X MODIFICATION OR AMENDMENT OF THE INDENTURE Section 10.01. Amendments Permitted...................................57 Section 10.02. Effect of Supplemental Indenture.......................58 Section 10.03. Trustee Authorized to Join in Amendments and Supplements; Reliance on Counsel...................58 ARTICLE XI DEFEASANCE Section 11.01. Discharge of Indenture.................................58 Section 11.02. Discharge of Liability on Bonds........................59 Section 11.03. Deposit of Money or Securities with Trustee............59 Section 11.04. Payment of Bonds After Discharge of Indenture..........60 (iv) ARTICLE XII MISCELLANEOUS Section 12.01. Liability of Authority Limited to Revenues.............60 Section 12.02. Limitation of Liability of Directors, Etc.of Authority.......................................61 Section 12.03. Covenant Not to Sue....................................61 Section 12.04. Successor Is Deemed Included in All References to Predecessor..............................61 Section 12.05. Limitation of Rights to Parties, Bank, Company and Bondholders................................62 Section 12.06. Waiver of Notice.......................................62 Section 12.07. Severability of Invalid Provisions.....................62 Section 12.08. Notices................................................62 Section 12.09. Evidence of Rights of Bondholders......................64 Section 12.10. Disqualified Bonds.....................................64 Section 12.11. Money Held for Particular Bonds........................64 Section 12.12. Funds..................................................65 Section 12.13. Payments Due on Days other than Business Days..........65 Section 12.14. Execution in Several Counterparts......................65 Section 12.15. Notices to Rating Agency...............................65 Exhibit "A" - Floating Rate Form of Bond..................................A-1 Exhibit "B" - Fixed Rate Form of Bond.....................................B-1 Exhibit "C" - Form of Construction Fund Requisition.......................C-1 Exhibit "D" - Bank Approval...............................................D-1 (v) This TRUST INDENTURE, made and entered into December 26, 1996, by and between the MONTGOMERY COUNTY INDUSTRIAL DEVELOPMENT AUTHORITY, a body public and corporate and a public instrumentality of the Commonwealth (the "Authority") and DAUPHIN DEPOSIT BANK AND TRUST COMPANY, a banking corporation organized and existing under the laws of the Commonwealth, as trustee (the "Trustee") and tender agent (the "Tender Agent"); W I T N E S S E T H: (Capitalized terms and phrases used in these Recitals, and in the following Granting Clauses, and not otherwise defined shall have the meanings ascribed to them in Section 1.01 of this Indenture.) WHEREAS, the Authority is a body politic and corporate and a public instrumentality of the Commonwealth, organized and existing under the Act, and is authorized under the Act to acquire, hold, construct, improve, maintain, own, finance, lease, in the capacity of lessor or lessee, and/or sell industrial, commercial and specialized development projects for the public purpose of alleviating unemployment, maintaining employment at a high level and creating and developing business opportunities, by the construction, improvement, rehabilitation, revitalization and financing of industrial, commercial and specialized enterprises; and WHEREAS, the Authority has determined to undertake the financing required to provide the funds to the Authority necessary in connection with the Project pursuant to the provisions and requirements of the Act; and WHEREAS, the Authority has entered into the Agreement with the Company wherein the Authority will, among other things, loan the proceeds of the Bonds to the Company, and wherein the Company agrees to, among other things, make certain loan payments to the Authority, all as set forth in the Agreement; and WHEREAS, the Authority has determined to assign, transfer and pledge unto the Trustee; as trustee under this Indenture, all right, title and interest of the Authority (except for certain rights of the Authority to indemnification and the payment of its costs, fees and expenses as more particularly described in the Agreement) in and to the Agreement and sums payable thereunder; and WHEREAS, the Authority is authorized by the Act to borrow money, and the Authority deems it necessary to borrow money under and pursuant to provisions hereof for the purposes of, among other things, financing the costs and expenses of the Project (all in accordance with applicable law) and of carrying out its obligations under the terms of the Agreement, and, to that end, the Authority has duly authorized and directed the issuance, sale and delivery of the Bonds to be issued as fully registered bonds; and to secure payment of the principal thereof and of the interest and premium, if any, thereon and the performance and observance of the covenants and conditions herein contained, the Authority has authorized the execution and delivery of this Indenture; and -1- WHEREAS, the Agreement provides that the Company will cause the Letter of Credit to be delivered by the Bank to the Trustee at the time of delivery of the Bonds for the further security and benefit of Owners of the Bonds; and WHEREAS, the Company and the Bank have entered into the Reimbursement Agreement whereunder the Bank has agreed to issue and maintain the Letter of Credit as provided for therein and herein, and the Company has agreed to, among other things, reimburse the Bank for any draws made by the Trustee on the Letter of Credit and for other costs, expenses and charges, as specified in the Reimbursement Agreement; and WHEREAS, execution and delivery of this Indenture and the issuance of the Bonds hereunder and under the Act have been duly and validly authorized by resolution of the Board of the Authority duly adopted prior to such execution and delivery. GRANTING CLAUSES AND AGREEMENTS NOW, THEREFORE, in consideration of the premises and the acceptance by the Trustee of the trusts hereby created and of the purchase and acceptance of the Bonds issued and sold by the Authority under this Indenture by those who shall own the same from time to time, and of the sum of one dollar, lawful money of the United States, duly paid to the Authority by the Trustee at or before the execution and delivery of this Indenture, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and for the purpose of fixing and declaring the terms and conditions upon which the Bonds are to be executed, authenticated, issued, delivered and accepted by all persons who shall from time to time be or become owners thereof; and in order to secure the payment of the principal of and premium (if any) and interest on, and purchase price of, the Bonds according to their tenor and effect and the performance and observance by the Authority of all the covenants expressed or implied herein and in the Bonds and the payment and performance of all other of the Authority's obligations, the Authority does hereby grant, bargain, sell, convey, pledge and assign, without recourse, unto the Trustee and unto its successors in the trust forever, and grants to the Trustee and to its successors in the trust, a security interest in all of the following: GRANTING CLAUSE FIRST All right, title and interest of the Authority in and to the Agreement and the security granted thereunder and under the Collateral Documents and the other Bond Documents, including, but not limited to: (i) the obligation of the Company under Section 3.03 of the Agreement to make payments at such times and in such amounts as are necessary to pay the principal of, interest and redemption premium, if any, on the Bonds; (ii) the present and continuing right to make claim for, collect, receive and receipt for any of the sums, amounts, income, revenues, issues and profits and any other sums of money payable or receivable under the Agreement, the Collateral Documents and the other Bond Documents (except for the right to receive any Administrative Fees or Expenses and any Additional Payments to the extent payable to the Authority and any rights of the Authority to -2- indemnification); (iii) the right to bring actions and proceedings thereunder or for the enforcement thereof; and (iv) the right to do any and all things which the Authority is or may become entitled to do under the Agreement, the Collateral Documents and the other Bond Documents. GRANTING CLAUSE SECOND All right, title and interest of the Authority in and to all moneys and securities from time to time held by the Trustee under the terms of this Indenture; provided, however, that in consideration of the issuance by the Letter of Credit Bank of the Letter of Credit, the Authority hereby grants a security interest in the Construction Fund to the Letter of Credit Bank in order to secure payment of the obligations of the Company under the Reimbursement Agreement, the rights of the Letter of Credit Bank therein being subject and subordinate to the rights of the Trustee so long as any amount due in respect of the Bonds remains unpaid. GRANTING CLAUSE THIRD Any and all other property rights and interests of every kind and nature from time to time hereafter by delivery or by writing of any kind granted, bargained, sold, alienated, demised, released, conveyed, assigned, transferred, mortgaged, pledged, hypothecated or otherwise subjected hereto, as and for additional security herewith, by the Company or any other person on its behalf or with its written consent or by the Authority or any other person on its behalf or with its written consent, and the Trustee is hereby authorized to receive any and all such property at any and all times and to hold and apply the same subject to the terms hereof. TO HAVE AND TO HOLD all and singular the Trust Estate with all privileges and appurtenances hereby conveyed and assigned, or agreed or intended so to be to the Trustee and its successors in trust forever. IN TRUST NEVERTHELESS, under and subject to the terms and conditions hereinafter set forth: (a) for the equal benefit, protection and security of the Owners of any and all of the Bonds, all of which regardless of the time or times of their issuance or maturity shall be of equal rank, without preference, priority or distinction of any of the Bonds over any other thereof, except as otherwise provided in or pursuant to this Indenture; (b) for securing the observance and performance of the Authority's obligations and of all others of the conditions, promises, stipulations, agreements and terms and provisions of this Indenture and the uses and purposes herein expressed and declared; and (c) for the benefit of the Letter of Credit Bank. PROVIDED, HOWEVER, that if the Authority, its successors or assigns, well and truly pays, or causes to be paid, the principal of the Bonds issued hereunder and the premium (if any) and interest due or to become due thereon, and the purchase price thereof, at the times and in the manner mentioned in the Bonds and as provided herein, according to the true intent and meaning thereof, and shall cause the payments to be made into the Bond Fund as required under Article VI hereof, or shall provide, as permitted hereby, for payment thereof in accordance with Article XI hereof, and -3- shall well and truly keep, perform and observe all of the covenants and conditions pursuant to the terms of this Indenture and all other of the Authority's obligations to be kept, performed and observed by it, and shall pay or cause to be paid to the Trustee all sums of money due or to become due in accordance with the terms and provisions hereof, then upon such final payments or deposits as provided in Article XI hereof, and upon the termination of the Agreement, the right, title and interest of the Trustee in and to the Trust Estate shall cease, terminate and be void, and the Trustee shall thereupon assign, transfer, and turn over the Trust Estate to the Letter of Credit Bank; provided, that if the Trustee shall have received written evidence from the Letter of Credit Bank that all obligations of the Company under the Reimbursement Agreement have been satisfied and that the Reimbursement Agreement has been terminated, or if no Letter of Credit Bank shall then exist, the Trust Estate shall be assigned, transferred and turned over to the Company; and the Trustee shall execute and deliver to the Authority, the Letter of Credit Bank and the Company; as appropriate, such instruments in writing as shall be requisite to evidence such transfer of the Trust Estate. Upon the Trustee's assignment, transfer and turning over to the Letter of Credit Bank or the Company, as appropriate, of the Trust Estate pursuant to the provisions of Section XI hereof, the Trustee shall have no further duties, responsibilities or obligations under and pursuant to this Indenture. AND IT IS EXPRESSLY DECLARED that all Bonds issued and secured hereunder are to be issued, authenticated and delivered and all of the Trust Estate hereby pledged is to be dealt with and disposed of under, upon and subject to the terms, conditions, stipulations, covenants, agreements, trusts, uses and purposes hereinafter expressed, and the Authority has agreed and covenanted and intending to be legally bound does hereby agree and covenant with the Trustee and with the respective Owners from time to time of the Bonds, or any part thereof as follows: ARTICLE I DEFINITIONS; CONTENT OF CERTIFICATES AND OPINIONS Section 1.01. Definitions. Unless the context otherwise requires, the terms and phrases defined in this Section shall, for all purposes of the recitals hereto, this Indenture and of any indenture supplemental hereto and of any certificate, opinion or other document herein mentioned, have the meanings herein specified, to be equally applicable to both the singular and plural forms of any of the terms herein defined. Unless otherwise defined in this Indenture, all terms used herein shall have the meanings assigned to such terms in the Act. "Accountant" means any firm of independent certified public accountants (not an individual) selected by the Company and acceptable to the Bank. "Act" means the Pennsylvania Economic Development Financing Law, Act of August 23, 1967, P.L. 251, as amended and supplemented and as it may, from time to time, hereafter be amended or supplemented. "Additional Payments" means any payments required to be made by the Company pursuant -4- to the Agreement which are not required to be: (i) applied to the payment of scheduled debt service on the Bonds; or (ii) reimbursed to the Letter of Credit Bank for monies drawn on the Letter of Credit to pay debt service on the Bonds. "Administrative Expenses" means those expenses of the Authority and the Bank which are properly chargeable to the Company on account of the Bonds and the Bond Documents as administrative expenses under Generally Accepted Accounting Principles and include, without limiting the generality of the foregoing, the following: (a) fees and expenses of the Trustee, the Tender Agent, the Authority, the Bank and the Placement Agent; and (b) fees and expenses of the Authority's, the Bank's, the Trustee's, the Tender Agent's and the Placement Agent's professional advisors reasonably necessary and fairly attributable to the Project Facilities, including without limiting the generality of the foregoing, fees and reasonable expenses of the Authority's, the Trustee's, the Bank's and the Placement Agent's counsel. "Agreement" means the Loan Agreement, dated December 26, 1996, between the Authority and the Company, together with all supplements thereto. "Authority" means the Montgomery County Industrial Development Authority created pursuant to, and as defined in, the Act, and its successors. "Authority Board" shall mean, at any given time, the governing body of the Authority. "Authorized Representative" means with respect to the Company, the Chairman, the President, Vice President, Secretary, Assistant Secretary or Treasurer thereof, or any other person designated as an Authorized Representative of the Company by a Certificate of the Company executed by the President, Vice President, Secretary, Assistant Secretary or Treasurer of the Company and filed with the Trustee. "Available Moneys" means: (i) moneys derived from drawings under the Letter of Credit; (ii) moneys held by the Trustee in funds and accounts established under this Indenture for a period of at least one hundred twenty-four (124) days and not commingled with any moneys so held for less than said one hundred twenty-four (124) day period and during and prior to which period, no petition in bankruptcy was filed by or against the Company or the Authority under the Bankruptcy Code or any applicable state bankruptcy or insolvency law, unless such petition was dismissed and all applicable appeal periods have expired without an appeal having been filed; (iii) investment income derived from the investment of moneys described in clauses (i) or (ii) above; or (iv) any other moneys, if the Trustee and the Letter of Credit Bank have received an opinion of nationally recognized counsel acceptable to Moody's experienced in bankruptcy matters to the effect that payment of the principal or purchase price of or interest on the Bonds with such moneys would not, in the event of bankruptcy of the Company, the Authority, any affiliate of the Company or other payor, constitute a voidable preference under the Bankruptcy Code or any applicable state bankruptcy or insolvency law. -5- "Bank" means CoreStates Bank, N.A., a national banking association organized and existing under the laws of the United States, whose principal office is located in the City of Philadelphia, Philadelphia County, Pennsylvania, its lawful successors and assigns and, if applicable, the issuer of any Substitute Letter of Credit hereunder. "Bankruptcy Code" means the federal Bankruptcy Code, 11 U.S.C. ss.101 et seq., as amended and supplemented from time to time. "Bond Documents" means any or all of the Agreement, this Indenture, the Tender Agent Agreement, the Remarketing Agreement and all documents, certificates and instruments executed in connection therewith. "Bond Fund" means the fund created in Section 6.01 hereof. "Bond Registrar" means any bank, national banking association or trust company designated as registrar for the Bonds, and its successor appointed under the Indenture. "Bonds" means the $1,000,000 original aggregate principal amount of the Authority's Variable Rate Demand/Fixed Rate Revenue Bonds (Apple Fresh Foods Ltd Project) Series of 1996 authorized to be issued under this Indenture. "Bond Year" shall have the meaning ascribed to such term in the Rebate Certificate. "Business Day" means any day other than: (i) a Saturday or Sunday; (ii) a legal holiday or any day on which banking institutions in the State of New York, the Commonwealth, the City of New York, or the city in which the principal office of the Trustee, the Tender Agent or the Bank are authorized to remain closed; or (iii) a day on which the New York Stock Exchange is closed. "Cede & Co." means Cede & Co., as nominee of The Depository Trust Company, New York, New York. "Certificate," "Statement," "Request," "Requisition" and "Order" means: (a) with respect to the Authority, a written certificate, statement, request, requisition or order executed in the name of the Authority by its Chairman, Vice Chairman, Executive Director or such other person as may be designated and authorized to sign for the Authority; or (b) with respect to the Company a written certificate, statement, request, requisition or order executed by an Authorized Representative of the Company. Any such instrument and supporting opinions or representations, if any, may, but need not, be combined in a single instrument with any other instrument, opinion or representation, and the two or more so combined shall be read and construed as a single instrument. If and to the extent required by Section 1.02 hereof, each such instrument shall include the statements provided for in such Section 1.02. "Certified Resolution of the Authority" means a copy of a resolution of the Authority -6- Board certified by the Secretary or an Assistant Secretary of the Authority, or other officer serving in a similar capacity, under its corporate seal, to have been duly adopted by the Authority Board and to be in full force and effect on the date of such certification. "Certified Resolution of the Company" means a copy of a resolution of the Company duly adopted and in full force and effect as of the date of the execution and delivery of the Bonds and the Letter of Credit. "Clearing Fund" means the fund created pursuant to Section 3.03 hereof. "Closing Date" means December 26, 1996 or such other date which shall be the date of the execution and delivery of the Agreement and the other Bond Documents and the issuance and delivery of the Bonds. "Code" means the Internal Revenue Code of 1986, as amended, and all regulations promulgated thereunder. "Collateral" means all of the rights and assets of the Company or any other Person in which the Authority or the Trustee is now or hereafter granted a lien or security interest in order to secure the performance of (i) the Company's obligations under the Agreement or any of the Collateral Documents or (ii) the obligations of the Authority hereunder or under the Bonds. "Collateral Documents" means all documents executed and delivered or to be executed and delivered and under which the Authority or the Trustee is granted a lien or security interest in any of the rights and assets of the Company or any other Person in order to secure the performance of the Company's obligations under the Agreement or any other Bond Documents or the obligations of the Authority hereunder or under the Bonds. "Commonwealth" means the Commonwealth of Pennsylvania. "Company" means Apple Fresh Foods Limited, a Pennsylvania corporation. "Completion Date" means the date of completion of the Project, as that date shall be certified as provided in Section 2.03 of the Agreement. "Construction Fund" means the fund created pursuant to Section 6.05 hereof. "Conversion Date" means the Optional Conversion Date. "Conversion Option" means the option granted to the Company in Section 5.01 hereof pursuant to which the interest rate on the Bonds is converted from the Floating Rate to the Fixed Rate as of the Optional Conversion Date. "Cost" or "Costs," means any cost in respect of the Project Facilities permitted under the Act and the Code. "Counsel" means an attorney-at-law or law firm (who may be counsel for the Company or for the Authority) satisfactory to the Trustee. -7- "County" means the County of Montgomery, Pennsylvania. "Debt Service Requirements," with reference to a specified period means, with respect to Bonds: (a) amounts required to be paid into any mandatory sinking fund account during the period; and (b) amounts needed to pay the principal of such indebtedness maturing during the period and not to be redeemed prior to maturity from amounts on deposit in any sinking fund or redemption, retirement or similar fund or account; and (c) interest payable on the subject indebtedness during the period, excluding capitalized interest and amounts on deposit with the Trustee which are available under the Indenture to pay interest with respect to such indebtedness. "Demand Purchase Notice" means a notice delivered pursuant to paragraph (i) of Section 5.04 hereof. "Demand Purchase Option" means the option granted to Owners of Bonds to require that Bonds be purchased prior to the Conversion Date pursuant to Section 5.04 hereof. "Determination Date" means with respect to any Floating Rate Bonds, each Wednesday or if such Wednesday is not a Business Day, on the next succeeding Business Day. "Determination of Taxability" means, with respect to any Bond, the first to occur of the following events: (i) the date on which the Company determines that an Event of Taxability has occurred by filing with the Trustee a statement to that effect supported by one or more tax schedules, returns or documents that disclose that such an Event of Taxability has occurred; (ii) the date on which the Company or the Trustee is advised by private ruling, technical advice or any other written communication from any authorized official of the Internal Revenue Service that, based upon any filings of the Company or any other person or entity, or upon any review or audit of the Company or any other person or entity, or upon any other grounds whatsoever, an Event of Taxability has occurred; (iii) the date on which the Trustee or the Company is advised that a court of competent jurisdiction has issued an order, declaration, ruling or judgment to the effect that an Event of Taxability has occurred; (iv) the date the Trustee shall have received written notice from any owner of the Bonds that such owner has received a written assertion or claim by any authorized official of -8- the Internal Revenue Service that an Event of Taxability has occurred; or (v) the date the Trustee is notified that the Internal Revenue Service has issued any private ruling, technical advice or any other written communication, with or to the effect that an Event of Taxability has occurred; provided, however, that (x) no Determination of Taxability described above shall be deemed to have occurred unless the Trustee shall have received a written opinion of nationally recognized bond counsel satisfactory to the Bank and the Company and not unsatisfactory to the Trustee, and in form and substance satisfactory to the Bank and the Company and not unsatisfactory to the Trustee, to the effect that an Event of Taxability has occurred; and (y) no Determination of Taxability described above shall be deemed to have occurred until 180 days shall have elapsed from the dates described in clauses (i), (ii), (iii), (iv) or (v) above without such Determination of Taxability having been rescinded or canceled. "Event of Default" means any of the events specified in Section 8.01 of this Indenture. "Event of Taxability" means, with respect to any Bond, a change of law or regulations, or the interpretation thereof, or the occurrence of any other event or the existence of any other circumstances (including without limitation the fact that any representations or warranties of the Company or the Authority made in connection with the issuance of any Bond is or was untrue or that a covenant of the Company has been breached) that has the effect of causing interest payable on any Bond to be includable in gross income for federal income tax purposes under Section 103 of the Code other than by reason that such interest: (i) is includable in the gross income of an owner or former owner of any Bond while such owner or former owner is or was a "substantial user" or a "related person" to a "substantial user" of the Project Facilities (as such terms are used in Section 147(a)(1) of the Code); or (ii) is deemed an item of tax preference, including without limitation an item subject to any alternative minimum tax "Fiscal Year" means the period of twelve (12) consecutive months beginning July 1 of each year, or such other period of twelve consecutive months established by the Company as its new Fiscal Year. "Fixed Rate" means the interest rate in effect on any Bonds from and after the Conversion Date, as said rate is determined in accordance with Section 2.02(D) hereof. "Fixed Rate Bonds" means any Bonds which are converted to a Fixed Rate in accordance with the provisions of this Indenture. "Fixed Rate Period" means, with respect to any Bonds, a Period during which interest on such Bonds accrues at a Fixed Rate. "Floating Rate" means a variable rate of interest equal to the minimum rate of interest necessary, in the sole judgment of the Remarketing Agent, to sell the Bonds at a price equal to the principal amount thereof, exclusive of accrued interest, if any, thereon; said interest rate to be in effect on the Bonds from the date of issuance of the Bonds until (but not including) the Conversion -9- Date, as said rate is determined in accordance with Section 2.02(C) hereof. "Floating Rate Bonds" means any Bonds which bear interest at the Floating Rate. "Generally Accepted Accounting Principles" means those accounting principles applicable in the preparation of financial statements of business institutions or industrial development authorities, as appropriate, as promulgated by the Financial Accounting Standards Board or such other body recognized as authoritative by the American Institute of Certified Public Accountants or any successor body. "Government Obligations" means direct obligations of (including obligations issued or held in book entry form) or obligations the principal of and interest on which are unconditionally guaranteed as to full and timely payment by the United States. "Holder," "Owner", "Registered Owner" or "Bondholders" whenever used herein with respect to a Bond, means the person in whose name such Bond is registered on the registration books maintained by the Trustee. "Indenture" means this Trust Indenture, dated December 26, 1996, between the Authority and the Trustee, as originally executed or as it may, from time to time, be supplemented, modified or amended by any Supplemental Indenture. "Interest Payment Date" means prior to the Conversion Date, the first Wednesday of each calendar month, or if such date is not a Business Day, the next succeeding Business Day, commencing February 5, 1997 and from and after the Conversion Date, June 1 and December 1 of each year, commencing on the June 1 or December 1 next following the Conversion Date. "Investment Securities" means any of the following which at the time are legal investments under the laws of the Commonwealth for moneys held hereunder: -10- (i) Government Obligations; (ii) bonds, debentures, notes or other evidences of indebtedness issued by any agency or other governmental or government-sponsored agencies which may be hereafter created by the United States, provided, however, that the full and timely payment of the securities issued by each such agency or government-sponsored agency is secured by the full faith and credit of the United States; (iii) certificates of deposit of, or time deposits in, any bank (including the Trustee) or savings and loan association having securities rated, at the time of purchase or acquisition, in one of the three highest Rating Categories (without regard to modifiers) of Moody's or S&P; (iv) certificates which evidence ownership of the right to the payment of the principal of and interest on obligations described in clauses (i) and (ii) of this definition, provided that such obligations are held in the custody of a bank or trust company in a special account separate from the general assets of such custodian; -11- (v) obligations which, at the time of purchase or acquisition, are rated in one of the two highest Rating Categories (without regard to modifiers) of Moody's and the interest on which is not includable in gross income for federal income tax purposes and the timely payment of the principal of and interest on which is fully provided for by the deposit in trust or escrow of cash or obligations described in clauses (i) or (ii) of this definition; (vi) guaranteed investment contracts or other similar financial instruments with a commercial bank, insurance company or other financial institution whose long term debt obligations are rated, at the time of purchase or acquisition, in one of the two highest Rating Categories (without regard to modifiers) by Moody's; (vii) mutual funds invested primarily in obligations described in clauses (i) and (ii) of this definition, and rated, at the time of purchase, in one of the two highest rating categories (without regard to modifiers) by Moody's, including, if such fund meets the criteria described in this clause (vii), mutual funds managed by the Trustee or an affiliate thereof; (viii) any investment approved in writing by the Bank and Moody's; (ix) repurchase agreements issued by financial institutions: (i) insured by the Federal Deposit Insurance Corporation; or (ii) whose senior debt obligations at the time of purchase are rated, at the time of purchase or acquisition, in any of the three highest Rating Categories (without regard to modifiers) by Moody's; provided, such repurchase agreements are subject to perfected security interests in the Investment Securities of the kind specified in paragraphs (i) or (ii) above, which have a fair market value, exclusive of accrued interest, at least equal to the amount invested in the repurchase agreement; and provided further: (1) the Trustee has possession of the securities; (2) the Trustee has a perfected first security interest in the securities; (3) the securities are free and clear of any third-party liens; and (4) failure to maintain the requisite securities percentage will require the Trustee to liquidate the securities in accordance with the terms of the repurchase agreement; and (x) any other security or obligation constituting a permitted investment under the Act, provided that the Bank and Moody's consent to the investment of funds in such security or obligation. "Issue Date" means the date on which the Trustee authenticates the Bonds and on which the Bonds are delivered to the purchasers thereof upon original issuance. "Letter of Credit" means the Irrevocable Direct Pay Letter of Credit issued by the Letter of Credit Bank pursuant to the provisions of the Reimbursement Agreement, or, in the event of delivery of a Substitute Letter of Credit, such Substitute Letter of Credit. "Letter of Credit Bank" means the Bank, as issuer of the Letter of Credit, and its lawful successors and assigns, and to the extent applicable, the issuer of any Substitute Letter of Credit. -12- "Letter of Credit Termination Date" means the later of: (i) that date upon which the Letter of Credit shall expire or terminate pursuant to its terms; or (ii) that date to which the expiration or termination of the Letter of Credit may be extended, from time to time, either by extension or renewal of the existing Letter of Credit or the issuance of a Substitute Letter of Credit. "Moody's" means Moody's Investors Service, a corporation organized and existing under the laws of the State of Delaware, its successors and their assigns, or, if such corporation shall be dissolved or liquidated or shall no longer perform the functions of a securities rating agency, any other nationally recognized securities rating agency designated by the Authority, with the approval of the Company. "Net Proceeds," when used with respect to any insurance proceeds or any condemnation award, means the amount remaining after deducting all expenses (including attorneys' fees and disbursements) incurred in the collection of such proceeds or award from the gross proceeds thereof. "Obligation Termination Date" means the date on which the Bank delivers to the Trustee a certificate to the effect that all obligations owing to the Bank under the Reimbursement Agreement have been paid in full. "Officers' Certificate" means with respect to the Authority, a certificate, duly executed by the Chairman or Vice Chairman, Secretary or Assistant Secretary, Treasurer or Assistant Treasurer of the Authority, under the corporate seal of the Authority; or with respect to the Company, a certificate duly executed by an Authorized Representative, under the corporate seal of the Company. "Opinion of Counsel" means a written opinion of counsel (who may be counsel for the Authority) selected by the Authority and acceptable to the Trustee. If and to the extent required by the provisions of Section 1.02 hereof, each Opinion of Counsel shall include in substance the statements provided for in such Section 1.02. "Optional Conversion Date" means that date on or after February 5, 1997, which shall be a Business Day, from and after which the interest rate on the Bonds is converted from the Floating Rate to the Fixed Rate as a result of the exercise by the Company of the Conversion Option in accordance with the terms of this Indenture. "Outstanding," when used as of any particular time with reference to Bonds, means (subject to the provisions of Section 12.10) all Bonds theretofore, or thereupon being, authenticated and delivered by the Trustee under this Indenture, except: (1) Bonds theretofore canceled by the Trustee or surrendered to the Trustee for cancellation; (2) Bonds with respect to which all liability of the Authority shall have been discharged in accordance with Section 11.02, including Bonds (or portions of Bonds) referred to in Section 12.10; and (3) Bonds for the transfer or exchange of or in lieu of or in substitution for which other Bonds shall have been authenticated and delivered by the Trustee pursuant to this Indenture. -13- "Participants" means those financial institutions for whom the Securities Depository effects book-entry transfers and pledges of securities deposited with the Securities Depository, as such listing of Participants exists at the time of such reference. "Permitted Encumbrances" means any liens or encumbrances permitted under the Reimbursement Agreement or otherwise permitted by the Bank. "Person" means an individual, corporation, firm, association, partnership, trust, or other legal entity or group of entities, including a governmental entity or any agency or political subdivision thereof. "Placement Agent" means CoreStates Capital Markets, a division of CoreStates Bank, N.A. "Pledge Agreement" means: (i) the Pledge and Security Agreement, dated December 26, 1996, between the Company and the Bank, and any amendments or supplements thereto; and (ii) any pledge and security agreement made by the Company and the Substitute Bank for the benefit of any Substitute Bank, and any amendments or supplements thereto. "Pledged Bonds" means any Bonds which shall, at the time of determination thereof, be held in pledge for the benefit of the Bank by the Pledged Bonds Custodian pursuant to the Pledge Agreement. "Pledged Bonds Custodian" means that banking entity which serves as the custodian for the Pledged Bonds under the terms and conditions of the Pledge Agreement. The initial Pledged Bonds Custodian shall be the Tender Agent. "Premises" shall mean that certain parcel of real property located at 4000 Ridge Avenue, Collegeville, Pennsylvania, located in the Township of Lower Providence, Montgomery County, Pennsylvania. "Principal Corporate Trust Office" means the principal corporate trust office of the Trustee, which at the date of the execution of the Indenture is located at 213 Market Street, Harrisburg, Pennsylvania 17101, Attention Corporation Trust Services. "Project" means, among other things: (i) the acquisition, construction, installation and renovation of certain equipment to be used in connection with a cook-chill system of batch food processing; and (ii) the payment of a portion of the costs of issuance of the Bonds. "Project Facilities" shall mean all of the Company's right, title and interest in and to the Premises, together with all the right, title and interest of the Company in and to all buildings, improvements, and appurtenant facilities located on the Premises. "Purchase Price" means an amount equal to 100% of the principal amount of any Bond -14- tendered or deemed tendered pursuant to Sections 5.01, 5.03 or 5.04 hereof, plus accrued and unpaid interest thereon to the date of purchase. "Rating Agency" means Moody's when the Bonds are rated by Moody's and S&P when the Bonds are rated by S&P. "Rating Category" means one of the general rating categories of Moody's or S&P, without regard to any refinement or gradation of such rating category by a numerical modifier or otherwise. "Rebate Certificate" means the requirements relating to rebate within the meaning of Section 148 of the Code included in the Authority's Non-Arbitrage Certificate and Compliance Agreement, delivered by the Authority at the time of the issuance and delivery of the Bonds, as such requirements may be amended or supplemented from time to time in accordance with its terms. "Rebate Fund" means the fund by that name established pursuant to the provisions of Section 6.13 hereof. "Record Date" means, prior to the Conversion Date, that day which is the seventh calendar day next preceding any Interest Payment Date and thereafter, that date which is the fifteenth calendar day next preceding any Interest Payment Date. "Reimbursement Agreement" means the Reimbursement Agreement, dated December 26, 1996 by and among the Bank and the Company, and any other similar agreement entered into in connection with the issuance of any Substitute Letter of Credit and any and all modifications, alterations, amendments and supplements thereto. "Remarketing Agent" means (singly or collectively, as the case may be) the remarketing agent(s) appointed by the Company and accepted and consented to in writing by the Authority and the Trustee and at the time serving as such under the Remarketing Agreement. "Remarketing Agreement" means the Remarketing Agreement, dated December 26, 1996, by and between the Company and CoreStates Capital Markets, a division of CoreStates Bank, N.A., as the remarketing agent, and accepted and consented in writing to by the Authority and the Trustee. "Replacement Bonds" means Bonds issued to the beneficial owners of the Bonds in accordance with Section 2.13 hereof. "Revenues" means all amounts received by the Authority or the Trustee for the account of the Authority pursuant or with respect to the Agreement or the Letter of Credit, including, without limiting the generality of the foregoing, payments under the Agreement (including both timely and delinquent payments and any late charges, and whether paid from any source), prepayments, insurance proceeds, condemnation proceeds, and all interest, profits or other income derived from the investment of amounts in any fund or account established pursuant to this Indenture. -15- "Securities Depository" means The Depository Trust Company and its successors and assigns or if: (i) the then-Securities Depository resigns from its functions as depository of the Bonds; or (ii) the Authority discontinues use of the then-Securities Depository pursuant to Section 2.13, any other securities depository which agrees to follow the procedures required to be followed by a securities depository in connection with the Bonds and which is selected by the Authority with the consent of the Company. "Securities Depository Nominee" means, as to any Securities Depository, such Securities Depository or the nominee of such Securities Depository in whose name there shall be registered on the registration books maintained by the Trustee the Bond certificates to be delivered to and immobilized at such Securities Depository during the continuation with such Securities Depository of participation in its book-entry system. "Securities Exchange Act" means the Securities Exchange Act of 1934, as amended. "S&P" means Standard & Poor's Rating Services, a division of the McGraw-Hill Companies, Inc., a corporation organized and existing under the laws of the State of Delaware, its successors and their assigns, or, if such corporation shall be dissolved or liquidated or shall no longer perform the functions of a securities rating agency, any other nationally recognized securities rating agency designated by the Authority, with the approval of the Company. "Substitute Bank" means a commercial bank, savings and loan association or savings bank which has issued a Substitute Letter of Credit. "Substitute Letter of Credit" means a letter of credit delivered to the Trustee in accordance with Section 4.07 of the Agreement: (i) issued by the Bank or a Substitute Bank, the short term unsecured debt of which shall then have been assigned a rating by Moody's of "P-1" or the equivalent rating assigned by S&P, or the long term senior subordinated debt of which shall then have been assigned a rating of "Aa3" or higher by Moody's or the equivalent rating assigned by S&P; (ii) replacing any existing Letter of Credit; (iii) dated no later than the date of the expiration or replacement date of the Letter of Credit for which the same is to be substituted; (iv) which shall expire on a date which is 15 days after an Interest Payment Date for the Bonds; (v) having a term of at least one year; and (vi) issued on substantially identical terms and conditions as the then existing Letter of Credit, except that the stated amount of the Substitute Letter of Credit shall equal the sum of: (A) the aggregate principal amount of Bonds at the time Outstanding, plus (B) an amount equal to (i) prior to the Conversion Date, forty-six (46) days' interest or such other number of days as shall be required by the Rating Agency (computed at a rate of 15% per annum) on all Bonds at the time Outstanding and (ii) from and after the Conversion Date, two hundred (200) days' interest or such other number of days as shall be required by the Rating Agency (computed at the fixed rate on all Bonds at the time outstanding). "Substitution Date" shall mean the date the Company delivers a Substitute Letter of Credit to the Trustee in accordance with the terms and conditions of Section 4.07 of the Agreement. -16- "Supplemental Indenture" means any indenture hereafter duly authorized and entered into between the Authority and the Trustee, supplementing, modifying or amending this Indenture, but only if and to the extent that such Supplemental Indenture is specifically authorized hereunder. "Tender Agent" means Dauphin Deposit Bank and Trust Company, a banking corporation organized and existing under the laws of the Commonwealth and its successors and any corporation resulting from or surviving any consolidation or merger to which it or its successors may be a party and any successor Tender Agent at the time serving as successor Tender Agent hereunder and under the Tender Agent Agreement. "Delivery Office" and "Principal Office" of the Tender Agent means 213 Market Street, Harrisburg, Pennsylvania 17101, Attention: Corporate Trust Services or such other address as may be designated in writing to the Authority, the Trustee, the Remarketing Agent and the Company. "Tender Agent Agreement" means the Tender Agent Agreement, dated December 26, 1996, between the Company, the Trustee and the Tender Agent and any amendments and supplements thereto. "Trust Estate" means all property rights and interests transferred, assigned, or otherwise pledged to the Trustee and the Letter of Credit Bank pursuant to the Granting Clauses hereof, which does not include the moneys on deposit from time to time in the Rebate Fund pursuant to Section 6.13 hereof. "Trustee" means Dauphin Deposit Bank and Trust Company, a banking corporation organized and existing under the laws of the Commonwealth and its successor and any entity resulting from or surviving any consolidation or merger to which it or its successors may be a party and any successor trustee at the time serving as successor trustee hereunder. "United States" means the United States of America. "Unremarketed Bonds" means Bonds which have been purchased pursuant to Sections 5.01, 5.03 or 5.04 hereof but which have not been remarketed. "Weekly Period" shall mean, while the Bonds bear interest at the Floating Rate, the weekly period that begins on and includes Wednesday of each calendar week and ends at the close of business on Tuesday of the next succeeding week. -17- Section 1.02. Content of Certificates and Opinions. The Trustee may, but shall not be obligated to, require that every certificate or opinion provided for in this Indenture with respect to compliance with any provision hereof shall include: (1) a statement to the effect that the Person making or giving such certificate or opinion has read such provision and the definitions herein relating thereto; (2) a brief statement as to the nature and scope of the examination or investigation upon which the certificate or opinion is based; (3) a statement to the effect that in the opinion of such person, he has made or caused to be made such examination or investigation as is necessary to enable him to express an informed opinion with respect to the subject matter referred to in the instrument to which his signature is affixed; (4) a statement of the assumptions upon which such certificate or opinion is based, and that such assumptions are reasonable; and (5) a statement as to whether, in the opinion of such person, such provision has been complied with. Any such certificate or opinion made or given by an officer of the Authority or the Company may be based, insofar as it relates to legal or accounting matters, upon a certificate or opinion of or representation by counsel or an accountant, unless such officer knows, or in the exercise of reasonable care should have known, that the certificate, opinion or representation with respect to the matters upon which such certificate or statement may be based, as aforesaid, is erroneous. Any such certificate or opinion made or given by counsel or an accountant may be based, insofar as it relates to factual matters (with respect to which information is in the possession of the Authority or the Company, as the case may be) upon a certificate or opinion of or representation by an officer of the Authority or the Company, unless such counsel or accountant knows, or in the exercise of reasonable care should have known, that the certificate or opinion or representation with respect to the matters upon which such person's certificate or opinion or representation may be based, as aforesaid, is erroneous. The same officer of the Authority or the Company, or the same counsel or accountant, as the case may be, need not certify to all of the matters required to be certified under any provision of this Indenture, but different officers, counsel or accountants may certify to different matters, respectively. Section 1.03. Interpretation. (a) Unless the context otherwise indicates, words expressed in the singular shall include the plural and vice versa and the use of the neuter, masculine, or feminine gender is for convenience only and shall be deemed to mean and include the neuter, masculine or feminine gender, as appropriate. (b) Headings of articles and sections herein and the table of contents hereof are solely for convenience of reference, do not constitute a part hereof and shall not affect the meaning, construction or effect hereof. (c) All references herein to "Articles," "Sections" and other subdivisions are to the corresponding Articles, Sections or subdivisions of this Indenture; the words "herein," "hereof," "hereby," "hereunder" and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or subdivision hereof. -18- (d) Whenever in this Indenture it is required that notice be provided to the Bank or that consent of the Bank be obtained, such provisions shall be effective only when: (i) the Letter of Credit is in effect; or (ii) the Bank, in its capacity as provider of the Letter of Credit, is the Holder of any Bonds. ARTICLE II THE BONDS Section 2.01. Authorization of Bonds. The Bonds shall be issued hereunder in order to obtain moneys to finance the Project for the benefit of the Authority and the Company. The Bonds are designated as "Montgomery County Industrial Development Authority Variable Rate Demand/Fixed Rate Revenue Bonds (Apple Fresh Foods Ltd Project), Series of 1996." The aggregate principal amount of Bonds which may be issued and Outstanding under this Indenture shall not exceed One Million Dollars ($1,000,000). No additional bonds may be issued under this Indenture. This Indenture constitutes a continuing agreement by the Authority for the benefit of the Holders from time to time of the Bonds to secure the full payment of the principal of and interest on all such Bonds subject to the covenants, provisions and conditions herein contained. Section 2.02. Terms of Bonds; Interest on the Bonds. (A) The Bonds shall be issued in fully registered form. Prior to the Conversion Date: (i) such Bonds shall be Outstanding in denominations of $100,000 or any integral multiple of $5,000 in excess thereof; and (ii) such Bonds may not be issued, exchanged or transferred except in the authorized denominations of $100,000 or any integral multiple of $5,000 in excess thereof. From and after the Conversion Date: (x) such Bonds shall be Outstanding in denominations of $5,000 or any integral multiple of $5,000; and (y) such Bonds may not be issued, exchanged or transferred except in the authorized denominations of $5,000 or any integral multiple of $5,000 in excess thereof. The Bonds shall be dated as of the date of delivery and shall mature, subject to prior redemption, as provided herein. Unless the Authority shall otherwise direct, prior to the Conversion Date the Bonds shall be lettered "VR" and shall be numbered consecutively from 1 upward, and after the Conversion Date the Bonds shall be lettered "FR" and shall be numbered consecutively from 1 upward. (B) Each Bond shall be dated the Issue Date and shall bear interest, payable: (i) prior to the Conversion Date, on the first Wednesday of each calendar month, or if such date is not a Business Day, the next succeeding Business Day commencing February 5, 1997; (ii) on the Conversion Date; and (iii) from and after the Conversion Date, on June 1 and December 1 of each year, commencing on the June 1 or December 1 next following the Conversion Date, in each case from the Interest Payment Date next preceding the date of authentication thereof to which interest has been paid or duly provided for, unless the date of authentication thereof is an Interest Payment Date to which interest has been paid or duly provided for, in which case from the date of -19- authentication thereof, or unless no interest has been paid or duly provided for on the Bonds, in which case from the Issue Date, until payment of the principal thereof has been made or duly provided for. Notwithstanding the foregoing, any Bond authenticated after any Record Date and before the following Interest Payment Date shall bear interest from such Interest Payment Date, provided, however, that if the Authority shall default in the payment of interest due on such Interest Payment Date, then such Bond shall bear interest from the next preceding Interest Payment Date to which interest has been paid or duly provided for, or, if no interest has been paid or duly provided for on the Bonds, from the Issue Date. The Bonds shall mature on December 1, 2016. (C) (i) From the Issue Date to the Conversion Date, the Bonds shall bear interest at the Floating Rate. The Floating Rate shall be determined by the Remarketing Agent by 9:30 a.m. on each Determination Date and shall be effective on such Determination Date for the immediately following Weekly Period. (ii) The Remarketing Agent shall advise the Company and the Trustee of the Floating Rate by telephone (confirmed by telecopy to the Trustee) at or before the close of business on each Determination Date. Upon request of any Bondholder, the Remarketing Agent shall notify such Bondholder of the Floating Rate then borne by the Bonds. (iii) If for any reason the interest rate on a Bond for any Weekly Period is not determined by the Remarketing Agent pursuant to (C)(i) above, or a court holds that the Floating Rate set as provided pursuant to (C)(i) above is invalid or unenforceable, the Floating Rate for such Bonds shall be for the first such Weekly Period that a Floating Rate is not determined by the Remarketing Agent or has been determined invalid or unenforceable, a rate per annum equal to the Floating Rate established by the Remarketing Agent pursuant to (C)(i) on the immediately preceding Determination Date and on each Determination Date thereafter, shall be a rate per annum equal to 85% of the interest rate per annum for 30 day commercial paper having a rating of A-2/P-2 as reported in The Wall Street Journal on each Determination Date. (iv) The determination of the Floating Rate by the Remarketing Agent shall be conclusive and binding upon the Authority, the Trustee, the Bank, the Company, the Remarketing Agent, the Tender Agent and the Owners of the Bonds. Anything herein to the contrary notwithstanding, the Floating Rate shall in no event exceed 15% per annum. (D) The Bonds shall bear interest at the Fixed Rate from and after the Conversion Date until the maturity of the Bonds. The Fixed Rate shall be a fixed annual interest rate on the Bonds established by the Remarketing Agent as the rate of interest for which the Remarketing Agent has received commitments from purchasers on or prior to the 5th Business Day preceding the Conversion Date to purchase all the Outstanding Bonds on the Conversion Date at a price of par. -20- (E) Prior to the Conversion Date, interest on the Bonds shall be computed on the basis of a 365/366-day year, for the actual number of days elapsed. On and after the Conversion Date, interest on the Bonds shall be computed on the basis of a 360-day year of twelve 30-day months. The principal of and premium, if any, on the Bonds shall be payable in lawful money of the United States at the Principal Corporate Trust Office of the Trustee, or of its successor in trust. The Purchase Price of the Bonds shall be payable in lawful money of the United States by the Tender Agent to the Owner of Bonds entitled to receive such Purchase Price. Interest on the Bonds shall be payable on each Interest Payment Date to the persons in whose name the Bonds are registered at the close of business on the Record Date for the respective Interest Payment Date. Interest shall be paid by check mailed to each Owner at the addresses shown on the registration books maintained by the Trustee, provided that such interest shall be paid by wire transfer to: (i) the Bank; and (ii) any Holder of at least $1,000,000 in aggregate principal amount of Bonds, if the Holder makes a written request of the Trustee at least 15 days before a Record Date specifying the account address and wiring instructions. Such a request may provide that it will remain in effect for subsequent interest payments until changed or revoked by written notice to the Trustee or upon the transfer or re-registration of the Bond. The principal of the Bonds shall be payable in lawful money of the United States at the Principal Corporate Trust Office of the Trustee; provided, however that payment of Bonds tendered pursuant to Sections 5.01, 5.03 and 5.04 hereof shall be paid at the Delivery Office of the Tender Agent. Except as provided for in Section 2.13 hereof, no payment of principal shall be made on any Bond until such Bond is surrendered to the Trustee at its Principal Corporate Trust Office. Section 2.03. Execution of Bonds. The Bonds shall be executed in the name and on behalf of the Authority with the manual or facsimile signature of its Chairman, under its seal attested by the manual or facsimile signature of its Secretary. Such seal may be in the form of a facsimile of the Authority's seal and may be reproduced, imprinted or impressed on the Bonds. The Bonds shall then be delivered to the Trustee for authentication by it. In case any of the officers who shall have executed or attested any of the Bonds shall cease to be such officer or officers of the Authority before the Bonds so executed or attested shall have been authenticated or delivered by the Trustee or issued by the Authority, such Bonds may nevertheless be authenticated, delivered and issued and, upon such authentication, delivery and issue, shall be as binding upon the Authority as though those who executed and attested the same had continued to be such officers of the Authority, and also any Bond may be signed and attested on behalf of the Authority by such persons as at the actual date of execution of such Bond shall be the proper officers of the Authority although at the nominal date of such Bond any such person shall not have been such officer of the Authority. Only such of the Bonds as shall bear thereon a certificate of authentication substantially in the form set forth on the form of Bond, manually executed by the Trustee, shall be valid or obligatory for any purpose or entitled to the benefits of this Indenture, and such certificate of the Trustee shall be conclusive evidence that the Bonds so authenticated have been duly executed, authenticated and delivered hereunder and are entitled to the benefits of this Indenture. -21- Section 2.04. Authentication. (a) The Authority hereby appoints the Tender Agent as a co-authenticating agent for the Bonds. (b) No Bond shall be valid or obligatory for any purpose or entitled to any security or benefit under this Indenture unless and until a certificate of authentication on such Bond, substantially in the form set forth in Exhibit "A" and Exhibit "B" attached hereto, shall have been duly executed by the Trustee or by the Tender Agent and such executed certificate of authentication upon any such Bond shall be conclusive evidence that such Bond has been authenticated and delivered under this Indenture. The certificate of authentication on any Bond shall be deemed to have been executed by the Trustee or the Tender Agent if executed by an authorized signatory of the Trustee or the Tender Agent, as the case may be, but it shall not be necessary that the same signatory execute the certificate of authentication on all of the Bonds. (c) In the event any Bond is deemed tendered to the Tender Agent as provided in Section 5.01 or 5.04 hereof but is not physically delivered to the Tender Agent, the Authority shall execute and the Trustee or the Tender Agent shall authenticate a new Bond of like denomination as that deemed tendered. Section 2.05. Form of Bonds. The Floating Rate Bonds and the certificate of authentication to be endorsed thereon prior to the Conversion Date are to be in substantially the form set forth in Exhibit "A" which is attached hereto and hereby made a part hereof as though fully set forth herein, with appropriate variations, omissions and insertions as permitted or required by this Indenture and applicable law. The Fixed Rate Bonds and the certificate of authentication to be endorsed thereon are to be in substantially the form set forth in Exhibit "B" which is attached hereto and hereby made a part hereof as though fully set forth herein, with appropriate variations, omissions and insertions as permitted or required by this Indenture. Section 2.06. Transfer of Bonds. Any Bond may be transferred in accordance with its terms upon the books required to be kept pursuant to the provisions of Section 2.08 hereof. Such transfer shall be made, in accordance with the requirements of Section 2.02 hereof, by the person in whose name it is registered, in person or by his duly authorized attorney, upon surrender of such registered Bond for cancellation, accompanied by delivery of a written instrument of transfer, duly executed in a form approved by the Trustee. Whenever any Bond or Bonds shall be surrendered for transfer, the Authority shall execute and the Trustee or the Tender Agent, as the case may be, shall authenticate and deliver a new Bond or Bonds of the same Series for a like aggregate principal amount. The Trustee shall require the Bondholder requesting such transfer to pay any tax or other governmental charge required to be paid with respect to such transfer, and may in addition require the payment of a reasonable sum to cover expenses incurred by the Authority or the Trustee in connection with such transfer. -22- During the Fixed Rate Period, the Trustee shall not be required to transfer any Bond during the period beginning 15 days before the mailing of notice of redemption calling the Bond or any portion of the Bond for redemption and ending on the redemption date. Section 2.07. Exchange of Bonds. Bonds may be exchanged at the Principal Corporate Trust Office of the Trustee for a like aggregate principal amount of Bonds of the same Series of other authorized denominations in accordance with the requirements of Section 2.02 hereof. The Trustee shall require the Bondholder requesting such exchange to pay any tax or other governmental charge required to be paid with respect to such exchange, and may in addition require the payment of a reasonable sum to cover expenses incurred by the Authority or the Trustee in connection with such exchange. During the Fixed Rate Period, the Trustee shall not be required to exchange any Bond during the period beginning 15 days before the mailing of notice of redemption calling the Bond or any portion of the Bond for redemption and ending on the redemption date. Section 2.08. Bond Register. The Trustee is hereby appointed the Bond Registrar of the Authority and the Tender Agent is hereby appointed the Co-Bond Registrar of the Authority. The Trustee or the Tender Agent, as the case may be, will keep or cause to be kept sufficient books for the registration and transfer of the Bonds, which shall at all times be open to inspection during regular business hours by any Bondholder or his agent duly authorized in writing, the Authority, the Company, the Bank and the Remarketing Agent; and upon presentation for such purpose, the Trustee or the Tender Agent, as the case may be, shall, under such reasonable regulations as they may prescribe, register or transfer or cause to be registered or transferred, on such books, Bonds as hereinbefore provided. Section 2.09. Temporary Bonds. The Bonds may be issued in temporary form exchangeable for definitive Bonds when ready for delivery. Any temporary Bond may be printed, lithographed or typewritten, shall be of such denomination as may be determined by the Authority, shall be in fully registered form without coupons and may contain such reference to any of the provisions of this Indenture as may be appropriate. Every temporary Bond shall be executed by the Authority and be authenticated by the Trustee or the Tender Agent, as the case may be, upon the same conditions and in substantially the same manner as the definitive Bonds. If the Authority issues temporary Bonds it will execute and deliver definitive Bonds as promptly thereafter as practicable, and thereupon the temporary Bonds may be surrendered, for cancellation, in exchange therefor at the Principal Corporate Trust Office of the Trustee and the Trustee or the Tender Agent, as the case may be, shall authenticate and deliver in exchange for such temporary Bonds an equal aggregate principal amount of definitive Bonds of authorized denominations. Until so exchanged, the temporary Bonds shall be entitled to the same benefits under this Indenture as definitive Bonds authenticated and delivered hereunder. Section 2.10. Bonds Mutilated, Lost, Destroyed or Stolen. If any Bond shall become mutilated, the Authority, at the expense of the Holder of said Bond, shall execute, and the Trustee -23- shall thereupon authenticate and deliver, a new Bond of like tenor and number in exchange and substitution for the Bond so mutilated, but only upon surrender to the Trustee of the Bond so mutilated. Every mutilated Bond so surrendered to the Trustee shall be canceled by it and delivered to, or upon the order of, the Authority. If any Bond shall be lost, destroyed or stolen, evidence of such loss, destruction or theft may be submitted to the Authority and the Trustee and, if such evidence be satisfactory to both and indemnity satisfactory to them both shall be given, the Authority, at the expense of the Holder, shall execute, and the Trustee shall thereupon authenticate and deliver, a new Bond of like tenor and number in lieu of and in substitution for the Bond so lost, destroyed or stolen (or if any such Bond shall have matured or shall be about to mature, instead of issuing a substitute Bond, the Trustee may pay the same without surrender thereof). The Authority may require payment by the Holder of a sum not exceeding the actual cost of preparing each new Bond issued under this Section and of the expenses which may be incurred by the Authority and the Trustee in connection therewith. Any Bond issued under the provisions of this Section in lieu of any Bond alleged to be lost, destroyed or stolen shall constitute an original additional contractual obligation on the part of the Authority whether or not the Bond so alleged to be lost, destroyed or stolen be at any time enforceable by anyone, and shall be entitled to the benefits of this Indenture with all other Bonds secured by this Indenture. Section 2.11. Cancellation and Destruction of Surrendered Bonds. All Bonds surrendered for payment or redemption and all Bonds purchased with moneys available for that purpose in any funds established under this Indenture, shall, at the time of such payment or redemption, be canceled and destroyed by the Trustee. The Trustee shall deliver to the Authority certificates of destruction with respect to all Bonds destroyed in accordance with this Section. Section 2.12. Acts of Bondholders; Evidence of Ownership. Any action to be taken by Bondholders may be evidenced by one or more concurrent written instruments of similar tenor signed or executed by such Bondholders in person or by agents appointed in writing. The fact and date of the execution by any person of any such instrument may be proved by acknowledgment before a notary public or other officer empowered to take acknowledgments or by an affidavit of a witness to such execution. Any action by the holder of any Bond shall bind all future holders of the same Bond in respect of any thing done or suffered by the Authority or the Trustee in pursuance thereof. Section 2.13. Book-Entry Bonds; Securities Depository. (a) The Bonds shall initially be registered to Cede & Co., the nominee for the Securities Depository, and no beneficial owner will receive certificates representing their respective interests in the Bonds, except in the event the Trustee issues Replacement Bonds as provided in subsection (b) hereof. It is anticipated that during the term of the Bonds, the Securities Depository will make book-entry transfers among its Participants and receive and transmit payment of principal of, premium, if any, and interest on, the Bonds to the Participants until and unless the Trustee authenticates and delivers Replacement Bonds to the beneficial owners as described in subsection (b). -24- (b) If the Company determines: (1) that the Securities Depository is unable to properly discharge its responsibilities; or (2) that the Securities Depository is no longer qualified to act as a securities depository and registered clearing agency under the Securities Exchange Act; or (3) that the continuation of a book-entry system to the exclusion of any Bonds being issued to any Bondowner other than Cede & Co. is no longer in the best interests of the beneficial owners of the Bonds, then the Trustee shall notify the Bondowners of such determination or such notice and of the availability of certificates of Owners requesting the same, and the Trustee shall register in the name of and authenticate and deliver Replacement Bonds to the beneficial owners or their nominees in principal amounts representing the interest of each, making such adjustments as it may find necessary or appropriate as to accrued interest and previous calls for redemption; provided, that in the case of a determination under (1) or (2) of this subsection (b), the Company, with the consent of the Trustee, may select a successor Securities Depository in accordance with subsection (c) hereof to effect book-entry transfers. In such event, all references to the Securities Depository herein shall relate to the period of time when the Securities Depository has possession of at least one Bond. Upon the issuance of Replacement Bonds, all references herein to obligations imposed upon or to be performed by the Securities Depository shall be deemed to be imposed upon and performed by the Trustee, to the extent applicable with respect to such Replacement Bonds. If the Securities Depository resigns and the Company, the Trustee or Bondowners are unable to locate a qualified successor of the Securities Depository in accordance with subsection (c) hereof, then the Trustee shall authenticate and cause delivery of Replacement Bonds to Bondowners, as provided herein. The Trustee may rely on information from the Securities Depository and its Participants as to the names of the beneficial owners of the Bonds. The cost of printing Replacement Bonds shall be paid for by the Company. (c) In the event the Securities Depository resigns, is unable to properly discharge its responsibilities, or is no longer qualified to act as a securities depository and registered clearing agency under the Securities Exchange Act, the Company may appoint a successor Securities Depository provided the Trustee receives written evidence satisfactory to the Trustee with respect to the ability of the successor Securities Depository to discharge its responsibilities. Any such successor Securities Depository shall be a securities depository which is a registered clearing agency under the Securities Exchange Act, or other applicable statute or regulation that operates a securities depository upon reasonable and customary terms. The Trustee upon its receipt of a Bond or Bonds for cancellation shall cause the delivery of Bonds to the successor Securities Depository in appropriate denominations and form as provided herein. (d) Notwithstanding any provision herein to the contrary, so long as the Bonds are subject to a system of book-entry transfers pursuant to this Section 2.13, any requirement for the delivery of Bonds to the Tender Agent or the Trustee in connection with a tender pursuant to Section 5.01, 5.03 or 5.04 or a partial redemption pursuant to Section 4.01 shall be deemed satisfied upon the transfer, on the registration books of the Securities Depository, of the beneficial ownership interests in such Bonds tendered for purchase to the account of the Tender Agent, or a Participant acting on behalf of or at the discretion of such Tender Agent, or on the books of the Trustee. -25- ARTICLE III ISSUANCE OF BONDS; APPLICATION OF PROCEEDS Section 3.01. Issuance of the Bonds. At any time after the execution of this Indenture, the Authority may execute and the Trustee or the Tender Agent, as the case may be, shall authenticate and, upon request of the Authority, deliver the Bonds in the aggregate principal amount of One Million Dollars ($1,000,000). Section 3.02. Validity of Bonds. The validity of the authorization and issuance of the Bonds is not dependent on and shall not be affected in any way by any proceedings taken by the Authority or the Trustee with respect to or in connection with the Agreement. The recital contained in the Bonds that the same are issued pursuant to the Act and the Constitution and laws of the Commonwealth shall be conclusive evidence of their validity and of compliance with all provisions of law in their issuance. Section 3.03. Disposition of Proceeds of the Bonds and Other Amounts. The Authority shall deposit or cause to be deposited with the Trustee, immediately upon receipt thereof, all proceeds derived from the sale of the Bonds, together with any monies deposited by the Company as an equity contribution. The Trustee shall deposit all such amounts in a special fund, which the Trustee is hereby directed to establish and create, to be known as the "Clearing Fund", and in the following order, the Trustee shall: (a) Transfer to the persons identified on the Closing Statement executed by the Authority and the Company and delivered to the Trustee on the Closing Date (the "Closing Statement") to pay or reserve for payment any and all costs of issuance incurred in connection with the Bonds; (b) Transfer to the Company the amount set forth on the Closing Statement to reimburse the Company for any capital expenditures made, if any, in connection with the Project prior to the issuance of the Bonds; and (c) Transfer to the credit of the Construction Fund (created pursuant to Section 6.05 hereof) the balance of the funds held in the Clearing Fund not otherwise reserved for the payment of the items described in subsection 3.03(a) and (b) above. -26- ARTICLE IV REDEMPTION OF BONDS BEFORE MATURITY Section 4.01. Extraordinary and Mandatory Redemption. (a) Extraordinary Redemption. The Bonds are callable for redemption in the event: (1) the Project Facilities or any portion thereof are damaged or destroyed or taken in a condemnation proceeding as provided in Section 6.04 of the Agreement; or (2) the Company shall exercise its option to cause the Bonds to be redeemed as provided in Section 9.02 of the Agreement. If called for redemption at any time pursuant to this Section 4.01(a), the Bonds shall be subject to redemption by the Authority on any Interest Payment Date, in whole or in part, at a redemption price equal to 100% of the principal amount thereof being redeemed, plus accrued interest to the redemption date. (b) Mandatory Redemption. The Bonds are subject to mandatory redemption: (1) at any time, in whole, within one hundred eighty (180) days after the Trustee receives notice of the occurrence of a Determination of Taxability, at a redemption price equal to one hundred percent (100%) of the aggregate principal amount of Bonds Outstanding plus accrued interest to the redemption date; or (2) five (5) Business Days prior to the Letter of Credit Termination Date, in whole, at a redemption price equal to one hundred percent (100%) of the principal amount thereof being redeemed plus accrued interest to the redemption date if, on the thirtieth (30th) Business Day prior to the Letter of Credit Termination Date, the Trustee shall not have received a Substitute Letter of Credit which will be effective on or before the Letter of Credit Termination Date. (c) Mandatory Sinking Fund Redemption. The Bonds are subject to mandatory sinking fund redemption on the Interest Payment Date occurring in the month of December in each of the years set forth below commencing on the Interest Payment Date occurring in December of 1997 (each, a "Mandatory Sinking Account Payment Date"), at a redemption price equal to 100% of the principal amount thereof plus accrued interest as follows: -27- Mandatory Sinking Year Account Payments ---- ---------------- 1997 30,000 1998 35,000 1999 35,000 2000 40,000 2001 40,000 2002 40,000 2003 40,000 2004 45,000 2005 45,000 2006 50,000 2007 50,000 2008 50,000 2009 55,000 2010 55,000 2011 60,000 2012 60,000 2013 65,000 2014 65,000 2015 70,000 2016* 70,000 *Final maturity of the Bonds is December 1, 2016 Section 4.02. Optional Redemption. On or prior to the Conversion Date, the Bonds are subject to redemption by the Authority, at the option of the Company, at any time, subject to provisions of Section 4.03 hereof, in whole or in part, at the redemption price of 100% of the principal amount thereof being redeemed plus accrued interest to the redemption date. After the Conversion Date, if the length of time from the Conversion Date to the final maturity date of the Bonds is seven (7) years or more, the Bonds are subject to redemption by the Authority, at the option of the Company, on or after the fifth anniversary of the Conversion Date, in whole at any time or in part on any Interest Payment Date, at the redemption price of 100% of the principal amount thereof being redeemed plus accrued interest to the redemption date. Notwithstanding the foregoing, no such optional redemption shall occur after the Conversion Date unless there shall be available in the Bond Fund sufficient Available Moneys to pay all amounts due with respect to such a redemption. -28- Section 4.03. Notice of Redemption. Notice of the call for redemption, identifying the Bonds or portions thereof to be redeemed and the redemption price (including the premium, if any), shall be given by the Trustee by mailing a copy of the redemption notice by first-class mail, postage prepaid, at least thirty (30) days but not more than sixty (60) days prior to the date fixed for redemption to the Owner of each Bond to be redeemed in whole or in part at the address shown on the registration books. Such notice shall contain such matters specified in the Bonds for the redemption thereof and shall state that such redemption is conditional upon the receipt of monies by the Trustee for such purpose on or prior to the redemption date. Any notice mailed as provided in this Section shall be conclusively presumed to have been duly given, whether or not the Owner receives the notice. The Trustee shall deliver a copy of any such redemption notice to the Tender Agent, the Company and to the Remarketing Agent. Section 4.04. Interest on Bonds Called for Redemption. Upon the giving of notice and the deposit of Available Moneys for redemption at the required times on or prior to the date fixed for redemption, as provided in this Article, interest on the Bonds or portions thereof thus called shall no longer accrue after the date fixed for redemption. Section 4.05. Cancellation. All Bonds which have been redeemed shall not be reissued but shall be canceled and destroyed by the Trustee in accordance with Section 2.11 hereof. Section 4.06. Partial Redemption of Bonds. (a) If less than all the Bonds are to be redeemed, the particular Bonds or portions thereof to be redeemed shall be selected by the Trustee by lot. (b) Upon surrender of any Bond for redemption in part only, the Authority shall execute and the Trustee shall authenticate and deliver to the Owner thereof a new Bond or Bonds of authorized denominations, in an aggregate principal amount equal to the unredeemed portion of the Bond surrendered. If all or a portion of Bonds tendered for purchase pursuant to Section 5.04 hereof have been selected by the Trustee for redemption, the Tender Agent, upon receipt of such tendered Bonds, shall authenticate and redeliver only such portion of tendered Bonds not subject to redemption. The Tender Agent shall deliver to the tendering Bondholder a copy of the notice of redemption, indicating the portion of the Bonds subject thereto, and upon receipt of funds as provided herein, an amount representing the principal of and interest on the Bonds not called for redemption. The principal of and interest accrued on the Bonds called for redemption shall be paid to such bondholder on the redemption date. The Tender Agent shall cancel the Bond or such portion thereof tendered for purchase and subject to redemption, and shall deliver a certificate evidencing such cancellation and the canceled Bond to the Trustee. (c) (i) Prior to the Conversion Date, in case a Bond is of a denomination larger than $100,000, a portion of such Bond ($100,000 or any integral multiple of $5,000 in excess thereof) may be redeemed, but Bonds shall be redeemed only if the remaining unredeemed portion of such Bond is in the principal amount of $100,000 or any integral multiple of $5,000 in excess of $100,000. -29- (ii) After the Conversion Date, in case a Bond is of a denomination larger than $5,000, a portion of such Bond ($5,000 or any integral multiple thereof) may be redeemed, but Bonds shall be redeemed only if the remaining unredeemed portion of such Bond is in the principal amount of $5,000 or any integral multiple of $5,000. (d) Notwithstanding anything to the contrary contained in this Indenture, whenever the Bonds are to be redeemed in part, Bonds which are Pledged Bonds at the time of selection of Bonds for redemption shall be selected for redemption prior to the selection of any other Bond. If the aggregate principal amount of Bonds to be redeemed exceeds the aggregate principal amount of Pledged Bonds at the time of selection, the Trustee may select for redemption Bonds in an aggregate principal amount equal to such excess in such manner as the Trustee in its discretion shall deem fair and appropriate. Section 4.07. Payment of Redemption Price with Available Moneys; Consent of Letter of Credit Bank to Optional Redemption. Notwithstanding any provision to the contrary contained in this Indenture, the payment of the redemption price of Bonds shall be made only from Available Moneys. On each date that the Bonds are subject to redemption, the Trustee shall draw on the Letter of Credit in an amount sufficient to pay the full redemption price of the Bonds then subject to redemption from the sources and in the order provided in Section 6.03 hereof. As long as the Bank is not in default under the Letter of Credit, the Trustee shall not call Bonds for Optional Redemption unless it has received the prior written consent to such Optional Redemption from the Letter of Credit Bank. ARTICLE V CONVERSION OF INTEREST RATE; DEMAND PURCHASE OPTION Section 5.01. Conversion of Interest Rate on Conversion Date. The interest rate on the Bonds shall be converted from the Floating Rate to the Fixed Rate upon the exercise by the Company of the Conversion Option, and the Bonds shall be subject to mandatory tender for purchase by the Owners thereof on the Conversion Date. To exercise the Conversion Option, the Company shall notify the Trustee, the Tender Agent, the Bank, the Authority and the Remarketing Agent at least thirty-five (35) days prior to the Conversion Date of such exercise, cause the Remarketing Agent to furnish to the Trustee the information set forth in paragraphs 1 and 4 below and, thereafter cause the Trustee to deliver or mail by first class mail a notice at least twenty (20) days but not more than thirty (30) days prior to the Conversion Date to the Owner of each Bond at the address shown on the registration books of the Bond Registrar. No such notice may be given unless the Trustee first receives: (i) an opinion of nationally recognized bond counsel to the effect that the proposed conversion of the interest rate on the Bonds will not cause the interest on the Bonds to be includable in gross income of the Bondholders for federal income tax purposes; (ii) a commitment from the -30- Bank or a Substitute Bank to issue a Substitute Letter of Credit to take effect on the Conversion Date, together with a proposed form of such Substitute Letter of Credit; and (iii) a Company certificate to the effect that each of the Company's representations and warranties made in the Agreement and in any other agreements or certificates given by the Company in connection with the issuance of the Bonds remain true and correct in all material respects as of the proposed Conversion Date. Any notice given as provided in this section shall be conclusively presumed to have been duly given, whether or not the Owner receives the notice. Said notice shall state in substance the following: 1. the Conversion Date; 2. that the existing Letter of Credit will expire five (5) Business Days after the Conversion Date; 3. that unless firm commitments for the purchase of all Outstanding Bonds have been received on or prior to the fifth (5th) Business Day prior to the proposed Conversion Date, the Company has the option to rescind an optional conversion of the Bonds; and 4. that in the event the Company elects not to rescind the optional conversion of the Bonds, all Bonds shall be subject to mandatory purchase on the Conversion Date pursuant to this Section 5.01. On or prior to the Conversion Date, Owners of Bonds shall be required to deliver their Bonds to the Tender Agent for purchase at the Purchase Price, and any such Bonds not delivered to the Tender Agent on or prior to the Conversion Date ("Undelivered Bonds"), for which there has been irrevocably deposited in trust with the Trustee or the Tender Agent an amount of money sufficient to pay the Purchase Price of the Undelivered Bonds, shall be deemed to have been purchased pursuant to this Section 5.01 and are deemed to be no longer Outstanding with respect to such prior Owners. IN THE EVENT OF A FAILURE BY AN OWNER OF BONDS TO DELIVER ITS BONDS ON OR PRIOR TO THE CONVERSION DATE, SAID OWNER SHALL NOT BE ENTITLED TO ANY PAYMENT (INCLUDING ANY INTEREST TO ACCRUE ON OR SUBSEQUENT TO THE OPTIONAL CONVERSION DATE) OTHER THAN THE PURCHASE PRICE FOR SUCH UNDELIVERED BONDS, AND ANY UNDELIVERED BONDS SHALL NO LONGER BE ENTITLED TO THE BENEFIT OF THIS INDENTURE, EXCEPT FOR THE PURPOSE OF PAYMENT OF THE PURCHASE PRICE THEREFOR. Notwithstanding the foregoing provisions, to the extent that at the close of the fifth Business Day prior to the proposed Conversion Date, the Remarketing Agent has not presented to the Company firm commitments for the purchase of all of the Bonds, the Company, at its option, may rescind an optional conversion of the Bonds. Any such election to rescind must be made by the close of the fourth Business Day prior to the proposed Conversion Date and the Company shall give written notice to the Trustee, the Tender Agent and the Bank of its decision to rescind by such time. -31- The Company shall cause the Trustee to immediately notify the Owners of such rescission and thereafter the Bonds shall bear interest at the Floating Rate in effect for the current Weekly Period and thereafter the Bonds shall bear interest at the Floating Rate until any subsequent Conversion Date effected in accordance with this Indenture. In the event the Company rescinds the proposed optional conversion in accordance with the terms of the foregoing paragraph, the Letter of Credit then in effect will remain in effect in accordance with its terms. The Bonds are subject to mandatory purchase in whole on the Conversion Date, at a purchase price equal to 100% of the principal amount thereof being purchased, plus accrued interest to the purchase date; provided, however, that: (i) all Pledged Bonds for which a commitment to purchase has not been received in connection with a conversion of the Bonds to a Fixed Rate, shall be redeemed or otherwise paid by the Company on or before the Conversion Date; and (ii) no such mandatory purchase shall take place in the event the Company exercises its right to rescind the conversion. Section 5.02. Delivery of Bonds After Conversion Date. At any time prior to the Record Date preceding the first Interest Payment Date following the Conversion Date, the Trustee or the Tender Agent, as the case may be, shall deliver Bonds in the form of Exhibit "B" hereto. Prior to the delivery by the Trustee of such Bonds, there shall be filed with the Trustee a request and authorization to the Trustee on behalf of the Authority, which shall be executed by the Chairman, Vice Chairman, Secretary, Assistant Secretary or any authorized officer of the Authority to authenticate and deliver the Bonds, as executed by the Authority, to the purchasers thereof. Such delivery shall be made by the Trustee or the Tender Agent, as the case may be, without making any charge therefor to the Owner of such Bonds. Section 5.03. Mandatory Tender upon Substitution of Letter of Credit. Prior to the Conversion Date, the Bonds are subject to mandatory purchase in whole on the Substitution Date, at a purchase price equal to 100% of the principal amount thereof being purchased, plus accrued interest to the purchase date. The Trustee shall deliver or mail by first class mail a notice at least twenty (20) days but not more than thirty (30) days prior to the Substitution Date to the Owner of each Bond at the address shown on the registration books of the Bond Registrar notifying such Owner that their Bonds are subject to mandatory purchase. No such notice may be given unless the Company shall have satisfied the provisions of Section 4.07 of the Agreement. Any notice given as provided in this Section 5.03 shall be conclusively presumed to have been given, whether or not the Owner receives the notice. Said notice shall state in substance the following: (1) the Substitution Date; (2) that the existing Letter of Credit securing such Bonds will expire five (5) Business Days after the Substitution Date; and -32- (3) that if the Company satisfies the conditions precedent to delivery of the Substitute Letter of Credit, all Bonds shall be subject to mandatory purchase on the Substitution Date pursuant to this Section 5.03. On or prior to the Substitution Date, Owners of Bonds shall be required to deliver their Bonds to the Tender Agent for purchase at the Purchase Price, and any such Bonds not delivered to the Tender Agent on or prior to the Substitution Date ("Undelivered Bonds"), for which there has been irrevocably deposited in trust with the Trustee or the Tender Agent an amount of money sufficient to pay the Purchase Price of the Undelivered Bonds, shall be deemed to have been purchased pursuant to this Section 5.03 and are deemed to be no longer Outstanding with respect to such prior Owners. IN THE EVENT OF A FAILURE BY AN OWNER OF BONDS TO DELIVER ITS BONDS ON OR PRIOR TO THE SUBSTITUTION DATE, SAID OWNER SHALL NOT BE ENTITLED TO ANY PAYMENT (INCLUDING ANY INTEREST TO ACCRUE ON OR SUBSEQUENT TO THE SUBSTITUTION DATE) OTHER THAN THE PURCHASE PRICE FOR SUCH UNDELIVERED BONDS, AND ANY UNDELIVERED BONDS SHALL NO LONGER BE ENTITLED TO THE BENEFIT OF THIS INDENTURE, EXCEPT FOR THE PURPOSE OF PAYMENT OF THE PURCHASE PRICE THEREFOR. Notwithstanding the foregoing provisions, to the extent that at the close of the fifth Business Day prior to the proposed Substitution Date, the Company has not delivered to the Authority, the Trustee and the Remarketing Agent the items set forth in Section 4.07(i) through (iv) of the Agreement, the mandatory purchase of Bonds shall be rescinded and the Trustee shall notify the Owners of such rescission immediately and thereafter the Bonds shall continue to be secured by the existing Letter of Credit until its termination date. Section 5.04. Demand Purchase Option. Prior to the Conversion Date, any Bond shall be purchased at the Purchase Price from the Owner thereof upon: (i) delivery by such Owner to the Trustee and the Tender Agent at their Principal Corporate Trust Office and Delivery Office, respectively, and to the Remarketing Agent at its principal office set forth in Section 12.08 hereof, of a notice (the "Demand Purchase Notice") (said notice to be irrevocable and effective upon receipt) which states: (1) the aggregate principal amount and bond numbers of the Bonds to be purchased; and (2) the date on which such Bonds are to be purchased, which date shall be a Business Day not prior to the seventh (7th) day next succeeding the date of delivery of such notice and which date shall be prior to the Conversion Date; (ii) if such Bonds are to be purchased prior to an Interest Payment Date and after the Record Date in respect thereof, delivery to the Tender Agent together with the Demand Purchase Notice described in (i) above, of a nonrecourse due-bill, payable to bearer, for interest due on such interest payment date; and (iii) delivery to the Tender Agent at its Delivery Office at or prior to 10:00 a.m., New York City time, on the date designated for purchase in the applicable Demand Purchase Notice of such Bonds to be purchased, with an appropriate endorsement for transfer or accompanied by a bond power endorsed in blank. -33- Any Bond as to which a Demand Purchase Notice has been delivered pursuant to paragraph (i) above, must be delivered to the Tender Agent, as provided in (iii) above, and any such Bond not so delivered ("Undelivered Bonds"), for which there has been irrevocably deposited in trust with the Trustee or the Tender Agent an amount of money sufficient to pay the Purchase Price thereof, shall be deemed to have been purchased at the Purchase Price pursuant to this Section 5.04 and are deemed to be no longer Outstanding with respect to such tendering Owner. IN THE EVENT OF A FAILURE BY AN OWNER OF BONDS TO DELIVER ITS BONDS AS SPECIFIED ABOVE, SAID OWNER SHALL NOT BE ENTITLED TO ANY PAYMENT (INCLUDING ANY INTEREST TO ACCRUE ON OR SUBSEQUENT TO THE DATE DESIGNATED FOR PURCHASE IN THE APPLICABLE DEMAND PURCHASE NOTICE) OTHER THAN THE PURCHASE PRICE FOR SUCH UNDELIVERED BONDS, AND ANY UNDELIVERED BONDS SHALL NO LONGER BE ENTITLED TO THE BENEFIT OF THE INDENTURE, EXCEPT FOR THE PAYMENT OF THE PURCHASE PRICE THEREFOR. Notwithstanding the foregoing provisions, in the event any Bond as to which the Owner thereof has exercised the Demand Purchase Option is remarketed to such Owner pursuant to the Remarketing Agreement, such Owner need not deliver such Bond to the Tender Agent as provided in (iii) above, although such Bond shall be deemed to have been delivered to the Tender Agent, redelivered to such Owner, and remarketed for purposes of this Indenture, including, without limitation, for purposes of adjusting the Floating Rate as provided in Section 2.02(C) hereof. Section 5.05. Funds for Purchase of Bonds. (a) On the date Bonds are to be purchased pursuant to Section 5.01, Section 5.03 or Section 5.04 hereof, such Bonds shall be purchased at the Purchase Price only from the funds listed below. Subject to the provisions of Section 6.12(b), funds for the payment of the Purchase Price shall be derived from the following sources in the order of priority indicated: (i) moneys drawn by the Trustee under the Letter of Credit (in the event of a drawing on the Letter of Credit to fund payment of the Purchase Price of Bonds tendered pursuant to Section 5.03 hereof, the Trustee shall draw on the existing Letter of Credit and not the Substitute Letter of Credit to fund such payment); (ii) proceeds of the remarketing of the Bonds; and (iii) any other Available Moneys furnished to the Trustee or the Tender Agent and available for such purpose. (b) Payment for the Bonds purchased pursuant to Sections 5.01, 5.03 or 5.04 shall be made as follows: -34- (i) On the Business Day immediately preceding the date on which such Bonds are to be purchased (the "Purchase Date"), the Trustee shall make a drawing pursuant to the Letter of Credit in respect of the Purchase Price of such Bonds. In connection therewith, the Trustee shall prepare and present to the Bank the appropriate certificates required under the Letter of Credit by 12:00 noon, New York City time on the Business Day immediately preceding the Purchase Date. (ii) By not later than 10:00 a.m., New York City time, on the Purchase Date, the Remarketing Agent shall give telephonic notice, promptly confirmed in writing, to the Bank, the Trustee and the Tender Agent, specifying: (1) the total principal amount of Bonds, if any, remarketed by it; and (2) the names of the persons to whom such Bonds were sold and are to be registered, each such person's address and social security number or taxpayer identification number, the denominations in which replacement Bonds are to be prepared, and any other appropriate registration and transfer instructions. (iii) There is hereby established with the Tender Agent a special fund to be designated the "Bond Purchase Fund" and therein two separate and segregated accounts to be designated the "Remarketing Account" and the "Bank Account." An amount equal to the proceeds received by the Trustee pursuant to a draw under the Letter of Credit shall be transferred by the Trustee in immediately available funds to the Tender Agent for deposit in the Bank Account no later than 12:30 p.m., New York City time on the applicable Purchase Date. (iv) No later than 1:00 p.m., New York City time, on each Purchase Date, the Tender Agent shall give telephonic notice (promptly confirmed by telecopy) to the Remarketing Agent of the amount deposited in the Bank Account on such date. No later than 2:00 p.m., New York City time, on each Purchase Date the Remarketing Agent shall: (x) transfer to the Bank an amount of the proceeds of the remarketing of the Bonds equal to the amount deposited in the Bank Account on such Purchase Date; (y) transfer the remainder of the proceeds of the remarketing of the Bonds to the Tender Agent for deposit in the Remarketing Account and shall give telephonic notice (promptly confirmed by telecopy) to the Tender Agent of the amount of such proceeds transferred to the Bank; and (z) give telephonic notice, promptly confirmed in writing, to the Company of the total principal amount of Unremarketed Bonds, if any. (v) The Tender Agent shall pay the Purchase Price to the tendering Bondholders from the amounts on deposit in the Bank Account to the extent available. If amounts on deposit in the Bank Account are insufficient to pay the Purchase Price to the tendering Bondholders, the Tender Agent shall make up any such deficiency from amounts on deposit in the Remarketing Account. -35- (vi) The Bank shall give telephonic confirmation to the Tender Agent and the Trustee by 4:00 p.m., New York City time on the applicable Purchase Date of its receipt of the remarketing proceeds described in Section 5.05(b)(iv) hereof. Section 5.06. Delivery of Purchased Bonds. (a) Remarketed Bonds shall be delivered by the Tender Agent, at its Delivery Office, to or upon the order of the purchasers thereof. (b) Unremarketed Bonds purchased with funds drawn under the Letter of Credit shall be delivered by the Tender Agent to the Pledged Bonds Custodian or otherwise upon the order of the Bank pursuant to the Pledge Agreement. (c) Unremarketed Bonds purchased with moneys described in Section 5.05(a)(iii) hereof shall, at the direction of the Company, be: (i) delivered as instructed by the Company; or (ii) delivered to the Trustee for cancellation; provided, however, that any Bonds so purchased after the selection thereof by the Trustee for redemption shall be delivered to the Trustee for cancellation. (d) The Tender Agent shall deliver to the person to whom the Tender Agent is to deliver such Bonds, the nonrecourse due-bills, if any, delivered to the Tender Agent with respect to such Bonds in accordance with Section 5.04 hereof. Bonds delivered as provided in this Section shall be registered in the manner directed by the recipient thereof. Section 5.07. Sale of Bonds by Remarketing Agent. (a) On each Purchase Date, the Remarketing Agent shall offer for sale and use its best efforts to sell, as agent of the Company, all Bonds tendered or deemed tendered for purchase on such Purchase Date at the Purchase Price thereof and, if such Bonds are not sold on such date, the Remarketing Agent shall continue, for a period not in excess of thirty (30) days thereafter, to use its best efforts to sell such Bonds. (b) Notwithstanding anything to the contrary herein: (i) the Remarketing Agent shall use its best efforts to remarket any Bonds tendered or deemed tendered for purchase in such a manner that, immediately following the remarketing of any Bonds, at least one (1) Holder will own at least $200,000 in aggregate principal amount of Bonds; and (ii) the Remarketing Agent shall not remarket any Bonds to the Authority, the Company or any affiliate thereof. -36- Section 5.08. Delivery of Proceeds of Sale of Purchased Bonds. (a) Except in the case of the sale of any Pledged Bonds, the proceeds of the sale of any Bonds delivered or deemed delivered to the Tender Agent pursuant to Sections 5.01, 5.03 or 5.04 hereof, to the extent not required to pay the Purchase Price to tendering Bondholders and not required to reimburse the Bank under the Reimbursement Agreement, shall be paid to or upon the order of the Company. (b) In the event the Remarketing Agent shall have remarketed any Pledged Bonds and the Company or the Remarketing Agent shall have directed the Bank to cause the Pledged Bonds Custodian to deliver such Pledged Bonds to the Tender Agent pursuant to the Pledge Agreement, such Bonds shall be delivered to the Tender Agent and the proceeds of sale of such Bonds shall be delivered to the Delivery Office of the Tender Agent, and shall be paid to or upon the order of the Bank; provided that any amounts so paid in excess of amounts then due to the Bank in respect of drawings under the Letter of Credit shall be delivered by the Bank to or upon the order of the Company; provided further that Pledged Bonds shall not be delivered to the Tender Agent until the Letter of Credit has been reinstated in accordance with the terms of the Pledge Agreement and the Letter of Credit. Section 5.09. Duties of Trustee and Tender Agent with Respect to Purchase of Bonds. (a) The Tender Agent shall hold all Bonds delivered to it pursuant to Sections 5.01, 5.03 or 5.04 hereof in trust for the benefit of the respective Owners of Bonds which shall have so delivered such Bonds until moneys representing the Purchase Price of such Bonds shall have been delivered to or for the account of or to the order of such Owners of Bonds. Upon delivery of monies representing the Purchase Price of such Bonds to or for the account of or to the order of such Owners of Bonds, the Tender Agent shall deliver all such Unremarketed Bonds, the funds for which have been obtained by a drawing under the Letter of Credit, to the Pledged Bonds Custodian pursuant to Section 5.06(b) hereof for the purpose of perfecting the Bank's security interest therein under the Pledge Agreement unless the Bank shall direct the Tender Agent to deliver such Bonds to or upon the order of the Bank in accordance with Section 5.06 hereof. (b) The Trustee and the Tender Agent shall hold all moneys delivered to them pursuant to this Indenture for the purchase of Bonds in a separate account, in trust for the benefit of the Bank or, in the case of remarketed Bonds, the purchasers of such Bonds, until the Bonds purchased with such moneys shall have been delivered to or for the account of the Pledged Bonds Custodian, the Bank or to such other purchaser, as appropriate. (c) The Trustee shall deliver to the Company and the Bank a copy of each notice delivered to it in accordance with Section 5.04 within two (2) days of the receipt thereof. (d) As soon as possible, but not later than the close of business on any date designated for purchase of Bonds in accordance with Section 5.04; the Tender Agent shall give -37- telephonic or telegraphic notice to the Remarketing Agent and the Trustee specifying the principal amount of Bonds delivered or deemed delivered for purchase on such date. (e) The Trustee shall draw moneys under the Letter of Credit in accordance with the terms thereof to the extent required by Sections 5.05 and 6.12 hereof to provide for timely payment of the Purchase Price of Bonds. Section 5.10. No Purchases or Sales After Certain Defaults. Anything in this Indenture to the contrary notwithstanding, there shall be no purchases or sales of Bonds pursuant to Section 5.04 if there shall have occurred any Event of Default in respect of which the principal of all Bonds Outstanding shall have been declared immediately due and payable pursuant to Section 8.02 and such declaration shall not have been annulled. If the Trustee shall have given a notice of a call for redemption pursuant to Section 4.03 hereof and such notice shall not have been rescinded, the Remarketing Agent shall provide a notice of such redemption to any prospective purchaser of such Bonds upon the remarketing of any Bonds tendered pursuant to Section 5.04 hereof. Nothing in this Section is intended to limit secondary trading or transfer of the Bonds. ARTICLE VI REVENUES AND FUNDS Section 6.01. Creation of the Bond Fund. There is hereby created and established with the Trustee a trust fund to be designated "Bond Fund" which shall be used to pay when due the principal and Purchase Price of, premium, if any, and interest on the Bonds. Section 6.02. Payments into the Bond Fund. There shall be deposited into the Bond Fund from time to time the following: (a) any amount in the Construction Fund directed to be paid into the Bond Fund in accordance with the provisions of Section 6.07 or Section 6.08 hereof; (b) any amount deposited into the Bond Fund pursuant to Section 6.04 hereof; (c) all payments specified in Sections 3.03 and 3.04 of the Agreement (other than amounts paid for the Trustee's or the Authority's own account); (d) any moneys received pursuant to the Collateral Documents; (e) any moneys drawn under the Letter of Credit which moneys shall be deposited or credited (in the case of a draw to pay the Purchase Price) in a separate subaccount of the Bond Fund and shall not be commingled with any other moneys held by the Trustee; (f) amounts, if any, held by the Trustee pursuant to Section 5.09 hereof; and -38- (g) all other moneys received by the Trustee under and pursuant to any of the provisions of the Agreement which are required to be or which are accompanied by directions that such moneys are to be paid into the Bond Fund. Section 6.03. Use of Moneys in the Bond Fund. Except as provided in Sections 5.05, 5.09 and 6.11 hereof, moneys in the Bond Fund shall be used solely for the payment of the principal of, premium, if any, and interest on the Bonds, for the redemption of the Bonds prior to maturity and for payment of the Acceleration Price as defined in Section 8.02 hereof. Subject to the provisions of Section 6.12(b) hereof, funds for such payments of redemption price and principal of and premium, if any, and interest on the Bonds shall be derived from the following sources in the order of priority indicated: (i) moneys drawn by the Trustee under the Letter of Credit; (ii) amounts deposited into the Bond Fund which constitute Available Moneys (other than moneys drawn by the Trustee under the Letter of Credit); and (iii) any other moneys furnished to the Trustee and available for such purpose. Section 6.04. Custody of Separate Trust Fund. The Trustee is authorized and directed to hold all Net Proceeds from any insurance proceeds or condemnation award and disburse such proceeds in accordance with Article VII of the Agreement. If the Company directs that any portion of such Net Proceeds be applied to redeem Bonds, the Trustee shall deposit such Net Proceeds in a separate sub-account of the Bond Fund, and the Authority covenants and agrees to take and cause to be taken any action requested of the Authority to redeem on the earliest possible redemption date the amount of Bonds so specified by the Company. Section 6.05. Construction Fund. There is hereby created and established with the Trustee a trust fund to be designated "Construction Fund," which shall be expended in accordance with the provisions hereof and of the Agreement. Section 6.06. Payments into the Construction Fund; Disbursements. The Construction Fund shall initially consist of those monies deposited therein pursuant to Section 3.03(c) hereof. Proceeds of the Bonds deposited in the Construction Fund shall be applied to pay a portion of the costs of the Project. The Trustee is hereby authorized and directed to make disbursements from the Construction Fund upon the receipt of a requisition in the form of Exhibit "C" which is attached hereto and hereby made a part hereof as though fully set forth herein, executed by an Authorized Representative of the Company and approved by the Bank. The Trustee shall keep and maintain adequate records pertaining to the Construction Fund and all disbursements therefrom, including records of all Requisitions made pursuant to the Agreement, and the Trustee shall, upon request of the Company, furnish statements in the form customarily prepared by the Trustee. The Trustee shall hold all monies and investments from time to time on deposit in the Construction Fund for the Owners and for the Bank, the rights of the Bank being subject and subordinate to the rights of the -39- Trustee so long as any amount due in respect of the Bonds remains unpaid. Section 6.07. Use of Money in the Construction Fund Upon Default. If the principal of the Bonds shall have become due and payable pursuant to Article VIII hereof, any balance remaining in the Construction Fund shall without further authorization: (i) prior to the Obligation Termination Date, if any amounts are due and owing under the Reimbursement Agreement, be transferred immediately to the Bank, as long as the Bank is not in default of its obligations under either Letter of Credit; or (ii) after the Obligation Termination Date, be transferred into the Bond Fund. Section 6.08. Use of Money in the Construction Fund Upon Completion of the Project. The completion of the Project and payment or provision for payment of all Costs of the Project shall be evidenced by the filing with the Trustee of the certificate required by Section 2.03 of the Agreement. As soon as practicable and in any event not more than sixty (60) days from the date of receipt by the Trustee of the certificate referred to in the preceding sentence, any balance remaining in the Construction Fund (except amounts the Company shall have directed the Trustee to retain for any Cost of the Project not then due and payable) shall, without further authorization be transferred into a separate sub-account within the Bond Fund. Thereafter, such funds shall be transferred by the Trustee on the next Interest Payment Date to the Letter of Credit Bank to reimburse the Letter of Credit Bank for a drawing affected pursuant to Section 6.12 hereof. Section 6.09. Nonpresentment of Bonds. In the event any Bond shall not be presented for payment when the principal thereof becomes due, either at maturity, or at the date fixed for redemption thereof, or otherwise, if Available Moneys sufficient to pay any such Bond shall have been made available to the Trustee for the benefit of the Owner thereof, all liability of the Authority to the Owner thereof for the payment of such Bond shall forthwith cease, determine and be completely discharged, and thereupon it shall be the duty of the Trustee to hold such funds uninvested, without liability for interest thereon, for the benefit of the Owner of such Bond who shall thereafter be restricted exclusively to such funds for any claim of whatever nature on his part under this Indenture with respect to such Bond. Any moneys so deposited with and held by the Trustee not so applied to the payment of Bonds within five (5) years after the date on which the same shall have become due shall be repaid by the Trustee to the Company upon written direction of a Company Representative, and thereafter Owners of Bonds shall be entitled to look only to the Company for payment, and then only to the extent of the amount so repaid, and all liability of the Trustee with respect to such money shall thereupon cease, and the Company shall not be liable for any interest thereon and shall not be regarded as a trustee of such money. Section 6.10. Moneys to be Held in Trust. All moneys required to be deposited with or paid to the Trustee for the account of any fund or account referred to in any provision of this Indenture or the Agreement shall be held by the Trustee in trust, and (except for the moneys from time to time required to be deposited and maintained in the Rebate Fund) shall, while held by the Trustee, constitute part of the Trust Estate and be subject to the lien and security interest created hereby. -40- Section 6.11. Repayment to the Bank and the Company from the Bond Fund or the Rebate Fund. Any amounts remaining in the Bond Fund, the Rebate Fund, the Construction Fund, or any other fund or account created hereunder after payment in full of the principal of, premium, if any, and interest on the Bonds, the fees, charges and expenses of the Trustee and all other amounts required to be paid hereunder, including payment to the United States of the final installment of the Rebate Amount, if any, pursuant to Section 6.13 hereof, shall be paid as soon as possible to the Bank unless the Bank notifies the Trustee to the contrary in writing, in which case such amounts shall be paid directly to the Company. Section 6.12. Letter of Credit. (a) During the term of the Letter of Credit, the Trustee shall draw moneys under the Letter of Credit in accordance with the terms thereof: (i) in an amount sufficient to pay when due (whether by reason of maturity, redemption, conversion, acceleration or otherwise) the principal of, and interest and, to the extent the Letter of Credit covers same, any premium on the Bonds; and (ii) in an amount sufficient to pay when due the Purchase Price of Bonds. Within two (2) Business Days after the last Determination Date of each month, the Trustee shall give written notice (which notice may be transmitted via facsimile) to the Company of the amount that the Trustee will draw under the Letter of Credit on the next Interest Payment Date. (b) Notwithstanding any provision to the contrary which may be contained in this Indenture, including, without limitation, Section 6.12(a): (i) in computing the amount to be drawn under the Letter of Credit on account of the payment of the principal or Purchase Price of, interest or, to the extent the Letter of Credit covers same, any premium, on the Bonds, the Trustee shall exclude any such amounts in respect of any Bonds which it is advised by the Tender Agent (pursuant to Section 5.09(d) hereof) are Pledged Bonds prior to the date such payment is due; and (ii) amounts drawn by the Trustee under the Letter of Credit shall not be applied to the payment of the Purchase Price of any Bonds which are Pledged Bonds prior to the date such payment is due. (c) The Letter of Credit shall terminate in accordance with its terms on the Letter of Credit Termination Date. Upon such termination, the Trustee shall deliver the terminated Letter of Credit to the Bank, together with such certificates as may be required by the terms of the Letter of Credit. Section 6.13. Rebate Fund. (a) The Trustee shall establish and maintain a fund separate from any other fund established and maintained hereunder designated as the Rebate Fund. The Rebate Fund shall be held for the benefit of the United States and not for the benefit of the Holders of the Bonds, which Holders shall have no rights in or to such fund. (b) Subject to subsection (c) of this Section 6.13, as of the last day of every fifth Bond Year (the "Rebate Computation Date"), the Company, on behalf of the Authority shall -41- calculate, or cause to be calculated, the amount required to be paid to the United States (the "Rebatable Arbitrage") pursuant to Section 148 of the Code. On or before the sixtieth day after such date, the Trustee at the direction of, and upon the receipt of funds from, the Company shall deposit in the Rebate Fund the amount, if any, needed to increase the amount in such Fund to an amount equal to ninety percent (90%) of the Rebatable Arbitrage for the period from the date of issuance of the Bonds to the Rebate Computation Date at issue, or shall transfer from the Rebate Fund to the Bond Fund the amount, if any, needed to reduce the amount in the Rebate Fund to 90% of the amount of the Rebatable Arbitrage for such period. Subject to subsection (c) of this Section 6.13, as of the last day on which the last Bond remaining outstanding is retired (the "Final Computation Date"), the Company, on behalf of the Authority shall calculate, or cause to be calculated, the amount required to be paid to the United States of America pursuant to Section 148 of the Code. On or before the sixtieth day after such date, the Trustee, at the direction of, and upon the receipt of funds from, the Company, shall deposit in the Rebate Fund the amount, if any, needed to increase the amount in such Fund to an amount equal to the Rebatable Arbitrage for the period from the date of issuance of the Bonds to the Final Computation Date, or shall transfer from the Rebate Fund to the Bond Fund the amount, if any, needed to reduce the amount in the Rebate Fund to the amount of the Rebatable Arbitrage for such period. After making any transfer required for a Rebate Computation Date and the Final Computation date, the Authority shall immediately pay or cause to be paid to the United States the amount in the Rebate Fund. The amounts in the Rebate Fund shall not be subject to the claim of any party, including any Bondholder, and shall not be paid to any party other than the United States. All amounts in the Rebate Fund shall be used and withdrawn by the Authority or the Trustee solely for the purposes set forth in this Section. In the event the amount in the Rebate Fund is for any reason insufficient to pay to the United States the amounts due as calculated in this Section, the Company, or the Trustee at the direction of, and upon the receipt of funds from, the Company, shall deposit in the Rebate Fund the amount for such deficiency. (c) Notwithstanding the provisions of this Section 6.13, the Company, on behalf of the Authority, hereby agrees to calculate the amount to be deposited in the Rebate Fund and the amount to be rebated to the United States pursuant to Section 148(f) of the Code in any manner not inconsistent with its arbitrage covenants set forth in its Rebate Agreement delivered on the date of issuance of the Bonds. Such calculation shall give regard to all regulations applicable to such Section 148(f) including any temporary regulations heretofore or hereafter released. (d) The Authority and the Company agree that the Trustee shall not be liable for any damages, costs or liabilities resulting from the performance of the Trustee's duties and obligations under Section 6.13 hereof, except that the Trustee shall be liable for its gross negligence or willful misconduct. The Company shall indemnify and hold harmless the Trustee from and against any liabilities which the Trustee may incur in the exercise and performance of its duties and -42- obligations under Section 6.13 hereof, excepting only those damages, costs, expenses or liabilities caused by the Trustee's gross negligence or willful misconduct. In making any deposit or transfer to or payment from the Rebate Fund, the Trustee shall be entitled to rely solely on the written instructions of the Company and shall have no duty to examine such written instruments to determine the accuracy of the Company's calculation of the Rebate Amount or the amounts to be paid to the United States. In the event that the Company or the Authority shall not comply with their respective obligations under Section 6.13 of this Indenture, the Trustee shall have no obligation to cause compliance on their respective behalf. Section 6.14. Investment of Moneys in Funds. All moneys in any of the funds established pursuant to this Indenture (except moneys obtained from a draw on the Letter of Credit, which moneys shall be held uninvested) shall be invested by the Trustee, as directed in writing by the Company, solely in Investment Securities except with respect to Available Moneys held by the Trustee for the payment of Undelivered Bonds, which Available Moneys the Trustee shall not invest. Investment Securities may be purchased at such prices as the Trustee may in its discretion determine or as may be directed by the Company. All Investment Securities shall be acquired subject to the limitations set forth in Section 7.06, the limitations as to maturities hereinafter in this Section set forth and such additional limitations or requirements consistent with the foregoing as may be established by request of the Company. To the extent the Bank has not been reimbursed under the Reimbursement Agreement and has notified the Trustee of same in writing, all interest, profits and other income received from the investment of moneys in any fund established pursuant to this Indenture shall be transferred to the Bank in the amount specified by the Bank. Otherwise, such amounts shall be deposited to the appropriate fund or account in which such investments were made. Notwithstanding anything to the contrary contained in this paragraph, an amount of interest received with respect to any Investment Security equal to the amount of accrued interest, or premium paid, if any, paid as part of the purchase price of such Investment Security shall be credited to the fund from which such accrued interest was paid. Investment Securities acquired as an investment of moneys in any fund established under this Indenture shall be credited to such fund. For the purpose of determining the amount in any fund, all Investment Securities credited to such fund shall be valued at the lesser of cost or par value plus, prior to the first payment of interest following purchase, the amount of accrued interest, if any, paid as a part of the purchase price. The Trustee may act as principal or agent in the making or disposing of any investment. The Trustee may sell or present for redemption, any Investment Securities so purchased whenever it shall be necessary to provide moneys to meet any required payment, transfer, withdrawal or disbursement from the fund to which such Investment Security is credited, and the Trustee shall not be liable or responsible for any loss resulting from such investment. -43- ARTICLE VII PARTICULAR COVENANTS Section 7.01. Punctual Payment. The Authority shall punctually pay or cause to be paid the principal, premium, if any, and interest to become due in respect of all the Bonds, in strict conformity with the terms of the Bonds and of this Indenture, according to the true intent and meaning thereof, but only out of Revenues and other assets pledged for such payment as provided in this Indenture. Section 7.02. Extension of Payment of Bonds. The Authority shall not directly or indirectly extend or assent to the extension of the maturity of any of the Bonds or the time of payment of any claims for interest by the purchase or funding of such Bonds or claims for interest or by any other arrangement and in case the maturity of any of the Bonds or the time of payment of any such claims for interest shall be extended, such Bonds or claims for interest shall not be entitled, in case of any default hereunder, to the benefits of this Indenture, except subject to the prior payment in full of the principal of all of the Bonds then outstanding and of all claims for interest thereon which shall not have been so extended. Nothing in this Section shall be deemed to limit the right of the Authority to issue Bonds for the purpose of refunding any Outstanding Bonds, and such issuance shall not be deemed to constitute an extension of maturity of Bonds. Section 7.03. Against Encumbrances. The Authority shall not create, or permit the creation of, any pledge, lien, charge or other encumbrance upon the Revenues and other assets pledged or assigned under this Indenture while any of the Bonds are Outstanding, except the pledge and assignment created by this Indenture and will assist the Trustee in contesting any such pledge, lien, charge or other encumbrance which may be created. Subject to this limitation, the Authority expressly reserves the right to enter into one or more other indentures for any of its corporate purposes, including other programs under the Act, and reserves the right to issue other obligations for such purposes. Section 7.04. Power to Issue Bonds and Make Pledge and Assignment. The Authority represents and covenants that it is duly authorized pursuant to law to issue the Bonds and to enter into this Indenture and to pledge and assign the Revenues and other assets pledged and assigned, respectively, under this Indenture in the manner and to the extent provided in this Indenture. The Bonds and the provisions of this Indenture are and will be the legal, valid and binding limited obligations of the Authority in accordance with their terms, and the Authority and Trustee shall at all times, to the extent permitted by law, defend, preserve and protect said pledge and assignment of Revenues and other assets and all the rights of the Bondholders under this Indenture against all claims and demands of all Persons whomsoever. Section 7.05. Accounting Records and Financial Statements. (A) The Trustee shall at all times keep, or cause to be kept, proper books of record and account as shall be consistent with prudent industry practice, in which complete and accurate entries shall be made of all transactions relating to the proceeds of Bonds, the Revenues, the Agreement and all funds established pursuant to this Indenture. Such books of record and account shall be available for inspection by the -44- Authority, the Company, the Bank and any bondholder, or his agent or representative duly authorized in writing, at reasonable hours and under reasonable circumstances. (B) The Trustee shall within 30 days after the end of each month furnish to the Company a monthly statement (which need not be audited) covering receipts, disbursements, allocation and application of Revenues and any other moneys (including proceeds of Bonds) in any of the funds and accounts established pursuant to this Indenture for such month. Section 7.06. Tax Covenants. The Authority covenants, and the Company has covenanted, not to take any action, or fail to take any action, if any such action or failure to take action would adversely affect the exclusion from gross income of the interest on the Bonds under Section 103 and Sections 141 through 150, inclusive, of the Code. The Authority and the Company will not directly or indirectly use or permit the use of any proceeds of the Bonds or any other funds of the Authority or the Company, or take or omit to take any action that would cause the Bonds to be "arbitrage bonds" within the meaning of Section 148 of the Code. To that end, the Authority and the Company will comply with all requirements of Section 148 of the Code to the extent applicable to the Bonds. In the event that at any time the Authority or the Company is of the opinion that for purposes of this Section 7.06 it is necessary to restrict or limit the yield on the investment of any moneys held by the Trustee under this Indenture, the Agreement or otherwise, the Authority or the Company shall so instruct the Trustee in writing, and the Trustee shall take such action as shall be set forth in such instructions. The covenants of the Authority contained in the Agreement are fully incorporated herein by reference and are made a part of this Indenture as if fully set forth herein. Without limiting the generality of the foregoing, the Authority and the Company agree that there shall be paid, from time to time, all amounts required to be rebated to the United States pursuant to Section 148(f) of the Code and any temporary, proposed or final Treasury Regulations as may be applicable to the Bonds from time to time. This covenant shall survive payment in full or defeasance of the Bonds. The Authority and the Company specifically covenant to pay or cause to be paid to the United States at the times and in the amounts determined under Section 6.13 hereof the Rebate Amounts, as described in the Rebate Certificate. Notwithstanding any provision of this Section and Section 6.13 hereof, if the Company shall provide to the Authority and the Trustee an opinion of nationally recognized bond counsel to the effect that any action required under this Section and Section 6.13 hereof is no longer required, or to the effect that some further action is required, to maintain the exclusion from gross income of interest on the Bonds, the Authority, the Trustee and the Company may rely conclusively on such opinion. Section 7.07. Other Covenants. (A) The Trustee shall promptly collect all amounts due from the Company pursuant to the Agreement, and upon an Event of Default (as defined in the Agreement) shall perform all duties imposed upon it pursuant to the Agreement and shall diligently enforce, and take all steps, actions and proceedings reasonably necessary for the enforcement of all of the rights of the Authority and all of the obligations of the Company. -45- (B) The Authority shall not amend, modify or terminate any of the terms of the Agreement, or consent to any such amendment, modification or termination, without the written consent of the Trustee. The Trustee shall give such written consent only if (1) notification of such amendment, modification or termination has been given to each rating agency then rating the Bonds and to the Holders, (2) the Trustee receives the written consent of the Bank, (3)(i) such amendment, modification or termination will not materially adversely affect the interests of the Bondholders or result in any material impairment of the security hereby given for the payment of the Bonds or (ii) the Trustee first obtains the written consent of the Bank and the Holders of a majority in principal amount of the Bonds then Outstanding to such amendment, modification or termination and provides notice of such amendment, modification or termination and of such written consent to the Holders, provided that no such amendment, modification or termination shall reduce the amount of installment sale payments to be made to the Authority or the Trustee by the Company pursuant to the Agreement, or extend the time for making such payments, without the written consent of all of the Holders of the Bonds then Outstanding, and (4) the Authority shall have delivered to the Trustee an opinion of Counsel satisfactory to the Trustee that all of the provisions and conditions set forth in this Section 7.07(B) have been satisfied. Section 7.08. Waiver of Laws. The Authority shall not at any time insist upon or plead in any manner whatsoever, or claim or take the benefit or advantage of, any stay or extension provided by law now or at any time hereafter in force that may affect the covenants and agreements contained in this Indenture or in the Bonds, and all benefit or advantage of any such law or laws is hereby expressly waived by the Authority to the extent permitted by law. Section 7.09. Further Assurances. The Authority will make, execute and deliver any and all such further indentures, instruments and assurances as may be reasonably necessary or proper to carry out the intention or to facilitate the performance of this Indenture and for the better assuring and confirming unto the Holders of the Bonds of the rights and benefits provided in this Indenture. ARTICLE VIII EVENTS OF DEFAULT AND REMEDIES OF BONDHOLDERS Section 8.01. Events of Default. The following events shall be Events of Default: (a) default in the due and punctual payment of the principal of any Bond when and as the same shall become due and payable, whether at maturity as therein expressed, by proceedings for redemption, by acceleration, or otherwise; or (b) default in the due and punctual payment of any installment of interest on any Bond when and as the same shall become due and payable; or (c) failure to pay the purchase price on any Bond tendered pursuant to Article V when such payment is due; or -46- (d) default by the Authority in the observance of any of the other covenants, agreements or conditions on its part in this Indenture or in the Bonds, if such default shall have continued for a period of sixty (60) days after written notice thereof, specifying such default and requiring the same to be remedied, shall have been given to the Authority by the Trustee, or to the Authority and the Trustee by the Holders of not less than twenty-five per cent (25%) in aggregate principal amount of the Bonds at the time Outstanding; or (e) if there occurs an Event of Default as defined in Sections 8.01(a) through (d) of the Agreement; or (f) the Trustee's receipt of written notice from the Bank that the Bank has declared an Event of Default under the provisions of the Reimbursement Agreement and instructing the Trustee to declare the principal amount of the Outstanding Bonds to be immediately due and payable; or (g) if, at any time after a draw under the Letter of Credit, the Trustee shall have received notice from the Bank that the amount of such draw corresponding to the payment of interest on the Bonds shall not be reinstated in the amount and in the manner set forth in the Letter of Credit. Upon actual knowledge of the existence of any Event of Default, the Trustee shall, as soon as practicable, notify the Bank, the Company, the Authority, the Tender Agent and the Remarketing Agent. Anything contained in this Indenture to the contrary notwithstanding: (i) no Event of Default under subsections (d) or (e) above shall occur without the prior written consent of the Bank so long as the Bank is not in default under the terms of the Letter of Credit; and (ii) the Trustee shall not notify bondholders of the existence of any Event of Default without the prior written consent of the Bank (except upon the occurrence of an Event of Default under subsections 8.01(f) or (g) hereof), as long as the Bank is not in default under the terms of the Letter of Credit. Section 8.02. Acceleration. If any Event of Default under Section 8.01 hereof occurs, the Trustee (with the written consent of the Bank provided the Bank is not in default of its obligations under the Letter of Credit) may, and upon request of the Owners of 25% in principal amount of the Bonds then Outstanding shall, by written notice to the Authority, the Bank and the Company, declare the principal amount of all Bonds then Outstanding and the interest accrued thereon to such date (the "Acceleration Date") to be due and the Acceleration Price (as such phrase is hereinafter defined) shall thereupon become payable on the first (lst) Business Day following the Acceleration Date (the "Payment Date"). Thereupon, the Trustee, among other things, shall draw immediately upon the Letter of Credit as set forth in Section 6.12 hereof. Interest on the accelerated Bonds shall cease to accrue on the Acceleration Date. Accelerated Bonds shall be payable at a price equal to 100% of the aggregate principal amount thereof plus interest accrued to the Acceleration Date (the "Acceleration Price"). Notwithstanding anything contained herein to the contrary, upon the occurrence of an Event of Default described in Section 8.01(f) or (g), the Trustee shall, by written notice to the Bank, the Company and the Authority declare immediately due and payable the principal amount of, and interest accrued on, the Outstanding Bonds. -47- Any such declaration is subject to the condition that if, at any time after such declaration and before any judgment or decree for the payment of the moneys due shall have been obtained or entered, the Letter of Credit shall have been reinstated in full as to principal and interest and the reasonable charges and expenses of the Trustee, and any and all other defaults known to the Trustee (other than in the payment of principal of and interest on the Bonds due and payable solely by reason of such declaration) shall have been made good or cured to the satisfaction of the Trustee or provision deemed by the Trustee to be adequate shall have been made therefor, then, and in every such case, the Holders of not less than 25% in aggregate principal amount of the Bonds then Outstanding, by written notice to the Authority, the Bank, the Company and the Trustee, or the Trustee if such declaration was made by the Trustee, may, on behalf of the Holders of all of the Bonds, rescind and annul such declaration and its consequences and waive such default; but such rescission and annulment shall not extend to or affect any subsequent default, and shall not impair or exhaust any right or power in consequence thereof. The foregoing to the contrary notwithstanding, Owners of 25% in principal amount of the Bonds then outstanding shall have no right to request the Trustee to accelerate the Bonds under this Section 8.02 and the Trustee shall not be obligated to give any Bondholder notice of a default under the Indenture (except upon the occurrence of an Event of Default under Section 8.01(f) or (g) hereof), the Agreement or any other documents executed and delivered in connection with the Bonds without the prior written consent of the Bank, unless the Bank shall be in default of its obligations under the Letter of Credit or a voluntary or involuntary case has been commenced by the filing of a petition under the Bankruptcy Code or any other law relating to bankruptcy, insolvency, reorganization, winding-up or composition or adjustment of debts by or against the Bank. Upon any declaration of acceleration hereunder, the Trustee shall as soon as possible give written notice of the acceleration to the Bondholders as set forth below. In addition, notice of such acceleration shall be mailed, by registered or certified mail or overnight mail, to the rating agency then rating the Bonds, if any, but failure to mail any such notice or any defect in the mailing thereof shall not affect the validity of such acceleration. Such notice of acceleration: (i) shall be given in the name of the Authority; (ii) shall identify the accelerated Bonds (by name, date of issue, interest rate and maturity date); (iii) shall specify the Acceleration Date; (iv) shall specify the Payment Date and the Acceleration Price; (v) shall state that the interest on the accelerated Bonds ceased to accrue on the Acceleration Date; (vi) shall state the reason for the acceleration; and (vii) shall state that on the Payment Date the Acceleration Price will be payable at the principal corporate trust office of the Trustee. The Trustee shall use "CUSIP" numbers on such notices as a convenience to Bondholders and such notice shall state that no representation is made as to the correctness of such "CUSIP" numbers either as printed on the Bonds or as contained in any notice of acceleration and that reliance may be placed on the registration and description printed on the Bonds. Upon acceleration pursuant to this Section 8.02, the Trustee shall immediately exercise such rights as it may have under the Agreement to declare all payments thereunder to be immediately due and payable and shall immediately draw upon the Letter of Credit as provided in Section 6.12 hereof in an amount that, together with any Available Moneys on deposit in the Bond Fund (excluding Available Moneys held by the Trustee for the Owner of any Bond not presented for payment as -48- provided in Section 6.09 hereof) and irrevocably committed to the payment of principal of and interest on the Bonds, is sufficient to pay the Acceleration Price due on the Outstanding Bonds on the Payment Date. Upon receipt by the Trustee of any amount from the Bank under the preceding paragraphs of this Section 8.02 (or after receipt by the Trustee of any amounts from the Bank under any other provision of this Indenture), the Bank shall be subrogated to the right, title and interest of the Trustee and the Bondholders in and to the Agreement, the Project Facilities and any other security held for the payment of the Bonds (other than said funds), all of which, upon payment of any fees and expenses due and payable to the Trustee pursuant to the Agreement or this Indenture, shall be assigned by the Trustee to the Bank. Section 8.03. Other Remedies. If any Event of Default occurs and is continuing, the Trustee, before or after declaring the principal of the Bonds immediately due and payable, may enforce each and every right granted to the Authority or the Trustee under the Indenture, the Agreement, the Letter of Credit or any other security instrument, or under any supplements or amendments thereto, and shall, at all times complying with the provisions of Section 8.02 hereof, apply any Revenues or Available Moneys in the Bond Fund held by the Trustee to the payment of principal of or interest on the Bonds. In exercising such rights and the rights given the Trustee under this Article VIII, the Trustee shall take such action, as in the judgment of the Trustee, applying the standards described in Section 9.01 hereof, would best serve the interests of the Bondholders. Section 8.04. Legal Proceedings by Trustee. If any Event of Default has occurred and is continuing, the Trustee in its discretion may and, upon the written request of the Bank or the Owners of 25% in principal amount of the Bonds then Outstanding (subject to the consent of the Bank, as long as the Bank is not in default of its obligations under the Letter of Credit or a voluntary or involuntary case has not been commenced by the filing of a petition under the Bankruptcy Code or any other law relating to bankruptcy, insolvency, reorganization, winding-up or composition or adjustment of debts by or against the Bank) and receipt of indemnity to its satisfaction shall, in its own name: (A) by mandamus, other suit, action or proceeding at law or in equity, enforce all rights of the Bondholders, including the right to require the Authority to collect the amounts payable under the Agreement and to require the Authority to carry out any other provisions of this Indenture for the benefit of the Bondholders and to perform its duties under the Act; (B) bring suit upon the Bonds; (C) by action or suit in equity require the Authority to account as if it were the trustee of an express trust for the Bondholders; and (D) by action or suit in equity enjoin any acts or things that may be unlawful or in violation of the rights of the Bondholders. -49- Section 8.05. Discontinuance of Proceedings by Trustee. If any proceeding taken by the Trustee on account of any Event of Default is discontinued or is determined adversely to the Trustee, the Authority, the Trustee, the Bondholders and the Bank shall be restored to their former positions and rights hereunder as though no such proceeding had been taken, but subject to the limitations of any such adverse determination. Section 8.06. Bondholders May Direct Proceedings. The Holders of a majority in principal amount of the Bonds Outstanding hereunder shall have the right to direct the method and place of conducting all remedial proceedings by the Trustee hereunder, provided that such direction shall not be otherwise than in accordance with law or the provisions of this Indenture, and that the Trustee shall not be required to comply with any such direction which it deems to be unlawful or unjustly prejudicial to Bondholders not parties to such direction. The foregoing provisions of this Section 8.06 to the contrary notwithstanding, as long as the Bank shall not be in default under the Letter of Credit, the Bank shall have the right to direct the method and the place of conducting all remedial proceedings by the Trustee hereunder provided that such direction shall not be otherwise than in accordance with law or the provisions of this Indenture. Section 8.07. Limitations on Actions by Bondholders. Anything in this Indenture to the contrary notwithstanding, no bondholder shall have any right to pursue any remedy hereunder or under the Agreement unless: (a) the Trustee shall have been given written notice of an Event of Default; (b) the holders of at least 25% in aggregate principal amount of the Bonds Outstanding shall have requested the Trustee, in writing, to exercise the powers hereinabove granted or to pursue such remedy in its or their name or names; (c) the Trustee shall have been offered indemnity satisfactory to it against costs, expenses and liabilities; (d) the Trustee shall have failed to comply with such request within a reasonable time; and (e) the Bank shall be in default of its obligations under the Letter of Credit or a voluntary or involuntary case has been commenced by the filing of a petition under the Bankruptcy Code or any other law relating to bankruptcy, insolvency, reorganization, winding-up or composition or adjustment of debts by or against the Bank; provided, however, that nothing herein shall affect or impair the right of any Owner of any Bond to enforce payment of the principal thereof and interest thereon at and after the maturity thereof, or the obligation of the Authority to pay such principal and interest to the respective Owners of the Bonds at the time and place, from the source and in the manner expressed herein and in the Bonds, provided further that such action shall not disturb or prejudice the lien of this Indenture. -50- Section 8.08. Trustee May Enforce Rights Without Possession of Bonds. All rights under the Indenture and the Bonds may be enforced by the Trustee without the possession of any Bonds or the production thereof at the trial or other proceedings relative thereto, and any proceedings instituted by the Trustee shall be brought in its name for the ratable benefit of the Owners of the Bonds. Section 8.09. Delays and Omissions Not to Impair Rights. No delay or omission in respect of exercising any right or power accruing upon any Event of Default shall impair such right or power or be a waiver of such Event of Default and every remedy given by this Article VIII may be exercised, from time to time, and as often as may be deemed expedient. Section 8.10. Application of Moneys in Event of Default. Any money received by the Trustee under this Article VIII shall be applied in the order listed below (provided that any money received by the Trustee upon a drawing under the Letter of Credit together with Available Moneys on deposit in the Bond Fund and available for payment of principal and interest on all Outstanding Bonds, any money held by the Trustee upon the nonpresentment of Bonds and any money held by the Trustee for the defeasance of Bonds pursuant to Article XI shall be applied only as provided in clause (B) below and only to pay outstanding principal and accrued interest, as provided in the Letter of Credit, with respect to the Bonds): (A) To the payment of the fees and expenses of the Trustee and the Authority including reasonable counsel fees and expenses, and any disbursements of the Trustee with interest thereon and its reasonable compensation; (B) To the payment of principal and interest then owing on the Bonds, including any interest on overdue interest, and in case such money shall be insufficient to pay the same in full, then to the payment of principal and interest ratably, without preference or priority of one over another or of any installment of principal or interest over any other installment of principal or interest; and The surplus, if any, remaining after the application of the money as set forth above shall to the extent of any unreimbursed drawing under the Letter of Credit, or other obligations owing by the Company to the Bank under the Reimbursement Agreement, be paid to the Bank. Any remaining money shall be paid to the Company or the person lawfully entitled to receive the same as a court of competent jurisdiction may direct. Section 8.11. Trustee and Bondholders Entitled to All Remedies Under Act; Remedies Not Exclusive. It is the purpose of this Article VIII to provide to the Trustee and the Bondholders all rights and remedies as may be lawfully granted under the provisions of the Act; but should any remedy herein granted be held unlawful, the Trustee and the Bondholders shall nevertheless be entitled to every remedy permitted by the Act. It is further intended that, insofar as lawfully possible, the provisions of this Article VIII shall apply to and be binding upon any trustee or receiver appointed under the Act. -51- No remedy herein conferred is intended to be exclusive of any other remedy or remedies, and each remedy is in addition to every other remedy given hereunder or now or hereafter existing at law or in equity or by statute. Section 8.12. Trustee's Right to Receiver. As provided by the Act, the Trustee shall be entitled as of right to the appointment of a receiver; and the Trustee, the Bondholders and any receiver so appointed shall have such rights and powers and be subject to such limitations and restrictions as may be contained in or permitted by the Act. Section 8.13. Subrogation Rights of Bank. The Trustee agrees that the Bank or other provider of a Substitute Letter of Credit shall be subrogated to all rights, remedies and collateral of the Trustee under the Indenture, the Agreement or any other document or instrument, to the extent the Bank or other provider of a Substitute Letter of Credit has honored a draw under the Letter of Credit or Substitute Letter of Credit, as the case may be, and has not been reimbursed or paid therefor. Section 8.14. Waiver of Default. As long as the Bank is not in default of its obligations under the Letter of Credit and the Letter of Credit is in full force and effect, the Bank may waive an Event of Default and if the Bank does so, the Trustee must also waive such Event of Default. The Trustee may not waive an Event of Default under this Indenture if the Letter of Credit has not been reinstated to cover principal and interest on the Bonds in accordance with the terms of the Letter of Credit. ARTICLE IX THE TRUSTEE, THE TENDER AGENT AND THE REMARKETING AGENT Section 9.01. Duties, Immunities and Liabilities of Trustee. (A) The Trustee shall, prior to an Event of Default, and after the curing of all Events of Default which may have occurred, perform such duties and only such duties as are specifically set forth in this Indenture. The Trustee shall, during the existence of any Event of Default (which has not been cured or waived), exercise such of the rights and powers vested in it by this Indenture, and use the same degree of care and skill in their exercise, as a prudent man would exercise or use under the circumstances in the conduct of his own affairs. (B) At the written direction of the Company, the Authority shall remove the Trustee if at any time requested to do so by an instrument or concurrent instruments in writing executed by the Holders of not less than a majority in aggregate principal amount of the Bonds then Outstanding (or their attorneys duly authorized in writing) or if at any time the Trustee shall cease to be eligible to act in such capacity, or shall become incapable of acting, or shall be adjudged a bankrupt or insolvent, or a receiver of the Trustee or its property shall be appointed, or any public officer shall take control or charge of the Trustee or of its property or affairs for the purpose of -52- rehabilitation, conservation or liquidation, in each case by giving written notice of such removal to the Trustee, and thereupon shall appoint, with the consent of the Bank and the Company, a successor Trustee by an instrument in writing. (C) The Trustee may at any time resign by giving written notice of such resignation to the Authority, the Company and the Bank and by giving the Bondholders notice of such resignation by mail at the addresses shown on the registration books maintained by the Trustee. Upon receiving such notice of resignation, the Authority shall promptly appoint, with the consent of the Bank and the Company, a successor Trustee by an instrument in writing. (D) Any removal or resignation of the Trustee and appointment of a successor Trustee shall become effective upon acceptance of appointment by the successor Trustee. If no successor Trustee shall have been appointed and have accepted appointment within forty-five (45) days of giving notice of removal or notice of resignation as aforesaid, the resigning Trustee or any Bondholder (on behalf of himself and all other Bondholders) may petition any court of competent jurisdiction for the appointment of a successor Trustee, and such court may thereupon, after such notice (if any) as it may deem proper, appoint such successor Trustee. Any successor Trustee appointed under this Indenture, shall signify its acceptance of such appointment by executing and delivering to the Authority and to its predecessor Trustee a written acceptance thereof, and thereupon such successor Trustee, without any further act, deed or conveyance, shall become vested with all the moneys, estates, properties, rights, powers, trusts, duties and obligations of such predecessor Trustee, with like effect as if originally named Trustee herein; but, nevertheless at the request of the Authority or the request of the successor Trustee, such predecessor Trustee shall execute and deliver any and all instruments of conveyance or further assurance and do such other things as may reasonably be required for more fully and certainly vesting in and confirming to such successor Trustee all the right, title and interest of such predecessor Trustee in and to any property held by it under this Indenture and shall pay over, transfer, assign and deliver to the successor Trustee any money or other property subject to the trusts and conditions herein set forth. Upon request of the successor Trustee, the Authority shall execute and deliver any and all instruments as may be reasonably required for more fully and certainly vesting in and confirming to such successor Trustee all such moneys, estates, properties, rights, powers, trusts, duties and obligations. Upon the acceptance of the appointment by a successor Trustee as provided in this subsection, the Authority shall mail a notice of the succession of such Trustee to the trusts hereunder to the Rating Agency and to the Bondholders at the addresses shown on the registration books maintained by the Trustee. If the Authority fails to mail such notice within fifteen (15) days after acceptance of appointment by the successor Trustee, the successor Trustee shall cause such notice to be mailed at the expense of the Authority. (E) Any Trustee appointed under the provisions of this Section in succession to the Trustee shall be a trust company or bank having the powers of a trust company, having a corporate trust office in the Commonwealth, having a combined capital and surplus of at least One Hundred Million Dollars ($100,000,000), subject to supervision or examination by federal or state authorities and shall be rated at least Baa3/P-3 by Moody's if the Bonds are then rated by Moody's -53- or has received written evidence from Moody's that the use of such Trustee would not result in a reduction or withdrawal of the rating on the Bonds. If such bank or trust company publishes a report of condition at least annually, pursuant to law or to the requirements of any supervising or examining authority above referred to, then for the purpose of this subsection the combined capital and surplus of such bank or trust company shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. Section 9.02. Merger or Consolidation. Any company into which the Trustee may be merged or converted or with which it may be consolidated or any company resulting from any merger, conversion or consolidation to which it shall be a party or any company to which the Trustee may sell or transfer all or substantially all of its corporate trust business, provided such company shall be eligible under subsection (E) of Section 9.01, shall be the successor to such Trustee without the execution or filing of any paper or any further act, anything herein to the contrary notwithstanding. Section 9.03. Liability of Trustee. (A) The recitals of facts herein and in the Bonds contained shall be taken as statements of the Authority, and the Trustee shall assume no responsibility for the correctness of the same, or make any representations as to the validity or sufficiency of this Indenture or of the Bonds or shall incur any responsibility in respect thereof, other than in connection with the duties or obligations herein or in the Bonds assigned to or imposed upon it. The Trustee shall, however, be responsible for its representations contained in its certificate of authentication on the Bonds. The Trustee shall not be liable in connection with the performance of its duties hereunder, except for its own gross negligence or willful misconduct. The Trustee may become the owner of Bonds with the same rights it would have if it were not Trustee and, to the extent permitted by law, may act as depositary for and permit any of their officers or directors to act as a member of, or in any other capacity with respect to, any committee formed to protect the rights of Bondholders, whether or not such committee shall represent the Holders of a majority in principal amount of the Bonds then Outstanding. (B) The Trustee shall not be liable for any error of judgment made in good faith by a responsible officer, unless it shall be proved that the Trustee was negligent in ascertaining the pertinent facts. (C) The Trustee shall not be liable with respect to any action taken or omitted to be taken by it in good faith in accordance with the direction of the Holders of not less than a majority in aggregate principal amount of the Bonds at the time Outstanding relating to the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred upon the Trustee under this Indenture. (D) The Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture (other than the making of a draw under the Letter of Credit in accordance with its terms and the terms hereof, declaring the principal of the Bonds to be immediately due and payable when required hereunder or making payments on the Bonds when due) -54- at the request, order or direction of any of the Bondholders pursuant to the provisions of this Indenture unless such Bondholders shall have offered to the Trustee indemnification to its satisfaction for indemnity against the costs, expenses and liabilities which may be incurred therein or thereby. (E) The Trustee shall not be liable for any action taken by it in good faith and believed by it to be authorized or within the discretion or rights or powers conferred upon it by this Indenture. Section 9.04. Right of Trustee to Rely on Documents. The Trustee may conclusively rely, and shall be protected in acting upon any notice, resolution, request, consent, order, certificate, report, opinion, bond or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties. The Trustee may consult with counsel, who may be counsel of or to the Authority, with regard to legal questions, and the opinion of such counsel shall be full and complete authorization and protection in respect of any action taken or suffered by it hereunder in good faith and in accordance therewith. The Trustee shall not be bound to recognize any person as the Holder of a Bond unless and until such Bond is submitted for inspection, if required, and his title thereto is satisfactorily established, if disputed. Whenever in the administration of the trusts imposed upon it by this Indenture the Trustee shall deem it necessary or desirable that a matter be proved or established prior to taking or suffering any action hereunder, such matter (unless other evidence in respect thereof be herein specifically prescribed) may be deemed to be conclusively proved and established by a Certificate of the Authority, and such Certificate shall be full warrant to the Trustee for any action taken or suffered in good faith under the provisions of this Indenture in reliance upon such Certificate, but in its discretion the Trustee may, in lieu thereof, accept other evidence of such matter or may require such additional evidence as it may deem reasonable. Section 9.05. Preservation and Inspection of Documents. (A) All documents received by the Trustee under the provisions of this Indenture shall be retained in its possession and shall be subject during normal business hours of the Trustee to the inspection of the Authority, the Company and any Bondholder, and their agents and representatives duly authorized in writing, at reasonable hours and under reasonable conditions. (B) The Trustee covenants and agrees that it shall maintain a current list of the names and addresses of all the Bondholders. Section 9.06. Compensation. The Trustee shall be paid (solely from Additional Payments) from time to time reasonable compensation for all services rendered under this Indenture, and also all reasonable expenses, charges, legal and consulting fees and other disbursements and those of its -55- attorneys, agents and employees, incurred in and about the performance of its powers and duties under this Indenture. Section 9.07. The Tender Agent. Dauphin Deposit Bank and Trust Company, the initial Tender Agent appointed by the Company, and each successor tender agent appointed in accordance herewith, shall designate its office and signify its acceptance of the duties and obligations imposed upon it as described herein by a written instrument of acceptance delivered to the Trustee and the Company under which the Tender Agent shall, among other things: (a) hold all Bonds delivered to it hereunder in trust for the benefit of the respective Owners of Bonds which shall have so delivered such Bonds until moneys representing the Purchase Price of such Bonds shall have been delivered to or for the account of or to the order of such Owners of Bonds. Upon delivery of moneys representing the Purchase Price of such Bonds to or for the account of or to the order of such Owners of Bonds, the Tender Agent shall hold all such Bonds which are required to be delivered to the Pledged Bonds Custodian pursuant to Section 5.06(b) hereof, as the agent of the Bank for the purpose of perfecting the Bank's security interest therein under the Pledge Agreement (which agency shall terminate upon delivery of such Bonds by the Tender Agent to or upon the order of the Bank in accordance with such Section 5.06(b); and (b) hold all moneys delivered to it hereunder and under the Tender Agent Agreement for the purchase of such Bonds in a separate account in trust for the benefit of the person or entity which shall have so delivered such moneys until required to transfer such funds as provided herein. Section 9.08. Qualifications of Tender Agent. (a) The Tender Agent shall be a bank or trust company duly organized under the laws of the United States or any state or territory thereof, having a combined capital stock, surplus and undivided profits of at least Fifty Million Dollars ($50,000,000) or that is a wholly-owned subsidiary of such a bank or trust company, and authorized by law to perform all duties imposed upon it by this Indenture and shall be rated at least Baa3/P-3 by Moody's if the Bonds are then rated by Moody's, or has received written evidence from Moody's that the use of such Tender Agent would not result in a reduction or withdrawal of the rating on the Bonds. The Tender Agent may at any time resign and be discharged of its duties and obligations by giving at least sixty (60) days' written notice to the Authority, the Trustee, the Remarketing Agent, the Bank, and the Company; provided that such resignation shall not take effect until the appointment of a successor Tender Agent, and in accordance with the provisions hereof. Upon the written approval of the Bank, the Tender Agent may be removed at any time by the Company upon written notice to the Authority, the Trustee and the Remarketing Agent. Successor Tender Agents may be appointed from time to time by the Company, with the prior written consent of the Bank. (b) Upon the resignation or removal of the Tender Agent, the Tender Agent shall deliver any Bonds and moneys held by it in such capacity to its successor. -56- (c) The Tender Agent shall have the same rights and immunities granted to the Trustee hereunder. Section 9.09. Qualifications of Remarketing Agent; Resignation; Removal. The Remarketing Agent shall be a financial institution or registered broker/dealer authorized by law to perform all the duties imposed upon it by this Indenture. The Remarketing Agent may at any time resign and be discharged of its duties and obligations created by this Indenture giving at least thirty (30) days' written notice to the Authority, the Company and the Trustee. The Remarketing Agent may be removed at any time, upon not less than thirty (30) days' written notice from the Company filed with the Trustee. Upon the resignation or removal of the Remarketing Agent, the Company shall appoint a successor Remarketing Agent and shall provide written notice thereof to the Trustee. The resignation or removal of the Remarketing Agent shall not become effective until a successor Remarketing Agent is appointed and accepts such appointment. If the Bonds are rated by a Rating Agency, any successor Remarketing Agent shall be rated at least Baa3/P-3 or otherwise be acceptable to such Rating Agency. Section 9.10. Construction of Ambiguous Provisions. The Trustee may construe any provision hereof insofar as such may appear to be ambiguous or inconsistent with any other provision hereof; and any construction of any such provision by the Trustee, in good faith shall be binding upon the Owners of the Bonds. ARTICLE X MODIFICATION OR AMENDMENT OF THE INDENTURE Section 10.01. Amendments Permitted. This Indenture and the rights and obligations of the Authority, of the Trustee and of the Holders of the Bonds may be modified or amended, from time to time, and at any time, for any lawful purpose, by an indenture or indentures supplemental hereto, which the Authority and the Trustee may enter into without the consent of any Bondholders but with the prior written consent of the Company and the Bank (as long as the Bank is not in default under the Letter of Credit). The foregoing to the contrary notwithstanding, no such modification or amendment shall, without the written consent of the Company and the holders of all Bonds then Outstanding: (i) extend the maturity date of any Bond; (ii) reduce the amount of principal thereof; (iii) extend the time of payment or change the method of computing the rate of interest thereon, without the consent of the Holder of each Bond so affected, or eliminate the Holders' rights to tender the Bonds; (iv) extend the due date for the purchase of Bonds tendered by the Holders thereof; or (v) reduce the purchase price of such Bonds. It shall not be necessary for the consent of the Bondholders to approve the particular form of any Supplemental Indenture, but it shall be sufficient if such consent shall approve the substance thereof. Promptly after the execution by the Authority and the Trustee of any Supplemental Indenture pursuant to this Section 10.01, the Trustee shall mail a notice, setting forth in general terms the substance of such Supplemental Indenture, to each rating agency then rating the Bonds and the Holders of the Bonds at the address shown on the registration books of the Trustee. Any failure to give such notice, or any defect therein, shall not, however, in -57- any way impair or affect the validity of any such Supplemental Indenture. Section 10.02. Effect of Supplemental Indenture. Upon the execution of any Supplemental Indenture pursuant to this Article, this Indenture shall be deemed to be modified and amended in accordance therewith, and the respective rights, duties and obligations under this Indenture of the Authority, the Trustee and all Holders of Bonds Outstanding shall thereafter be determined, exercised and enforced hereunder subject in all respects to such modification and amendment, and all the terms and conditions of any such Supplemental Indenture shall be deemed to be part of the terms and conditions of this Indenture for any and all purposes. Section 10.03. Trustee Authorized to Join in Amendments and Supplements; Reliance on Counsel. The Trustee is authorized to join with the Authority in the execution and delivery of any supplemental indenture or amendment permitted by this Article X and in so doing shall be fully protected by an opinion of Counsel that such supplemental indenture or amendment is so permitted and has been duly authorized by the Authority and that all things necessary to make it a valid and binding agreement have been done. ARTICLE XI DEFEASANCE Section 11.01. Discharge of Indenture. The Bonds may be paid by the Authority in any of the following ways, provided that the Authority also pays or causes to be paid any other sums payable hereunder by the Authority: (a) by paying or causing to be paid the principal of and interest on the Bonds of such Series, as and when the same become due and payable; (b) with respect to Bonds which bear interest at a Fixed Rate, by depositing with the Trustee, in trust, Available Moneys or securities purchased with Available Moneys in the necessary amount (as provided in Section 11.03) to pay or redeem all Bonds then Outstanding; or -58- (c) by delivering to the Trustee, for cancellation by it, the Bonds then Outstanding. If the Authority shall also pay or cause to be paid all Bonds then Outstanding and shall also pay or cause to be paid all other sums payable hereunder by the Authority, then and in that case, at the election of the Authority (evidenced by a Certificate of the Authority filed with the Trustee, signifying the intention of the Authority to discharge all such indebtedness and this Indenture), and notwithstanding that any Bonds shall not have been surrendered for payment, this Indenture, the assignment of the Agreement and the pledge of Revenues and other assets made under this Indenture and all covenants, agreements and other obligations of the Authority under this Indenture shall cease, terminate, become void and be completely discharged and satisfied. In such event, upon request of the Authority, the Trustee shall cause an accounting for such period or periods as may be requested by the Authority to be prepared and filed with the Authority and shall execute and deliver to the Authority all such instruments, as prepared by or caused to be prepared by the Authority, that may be necessary or desirable to evidence such discharge and satisfaction, and the Trustee shall pay over, transfer, assign or deliver all moneys or securities or other property held by it pursuant to this Indenture, which are not required for: (i) the payment of all the charges and reasonable expenses of the Trustee under this Indenture; (ii) the payment or redemption of Bonds not theretofore surrendered for such payment or redemption; (iii) the payment of amounts owed to the Bank by the Company under the Reimbursement Agreement, to the Company; or (iv) the payment of any and all sums due to the United States pursuant to Section 6.13 hereof. Section 11.02. Discharge of Liability on Bonds. During the Fixed Rate Period, upon the deposit with the Trustee, in trust, at or before maturity, of money or securities in the necessary amount (as provided in Section 11.03) to pay or redeem any Outstanding Bond (whether upon or prior to the end of the Fixed Rate Period or the redemption date of such Bond), provided that, if such Bond is to be redeemed prior to maturity, notice of such redemption shall have been given as in Article IV provided or provision satisfactory to the Trustee shall have been made for the giving of such notice, then all liability of the Authority in respect of such Bond shall cease, terminate and be completely discharged, and the Holder thereof shall thereafter be entitled only to payment out of such money or securities deposited with the Trustee as aforesaid for their payment, subject, however, to the provisions of Section 11.04. The Authority may at any time surrender to the Trustee for cancellation by it any Bonds previously issued and delivered, which the Authority may have acquired in any manner whatsoever, and such Bonds, upon such surrender and cancellation, shall be deemed to be paid and retired. Section 11.03. Deposit of Money or Securities with Trustee. During the Fixed Rate Period, whenever in this Indenture it is provided or permitted that there be deposited with or held in trust by the Trustee money or securities in the necessary amount to pay or redeem any Bonds, the money or securities so to be deposited or held shall be cash or Government Obligations, which Government Obligations shall be noncallable and not subject to prepayment, the principal of and interest on which when due will provide money sufficient to pay the principal of, premium, if any, and all -59- unpaid interest to maturity, or to the redemption date, as the case may be, on the Bonds to be paid or redeemed, as such principal, premium, if any, and interest become due, provided that, in the case of Bonds which are to be redeemed prior to the maturity thereof, notice of such redemption shall have been given as provided in Article IV or provision satisfactory to the Trustee shall have been made for the giving of such notice; provided, in each case, that the Trustee shall have been irrevocably instructed (by Request of the Authority) to apply such money to the payment of such principal and interest with respect to such Bonds. Whenever Government Obligations are deposited with the Trustee in accordance with Section 11.03 hereof, the Company shall provide to the Trustee and the Rating Agency: (i) a verification report from an independent public accountant, satisfactory in form and content to the Trustee, demonstrating that the Government Obligations so deposited and the income therefore shall be sufficient to pay the principal of, premium, if any, and all unpaid interest to maturity, or to the redemption date, as the case may be, on the Bonds to be paid or redeemed, as such principal or premium, if any, and interest become due; and (ii) an opinion acceptable to the Rating Agency, of nationally recognized bankruptcy counsel, to the effect that the provision for payment of the Bonds contemplated to be made pursuant to this Section 11.03 will not constitute or result in such payments constituting voidable preferences under Section 547 of the Bankruptcy Code. Section 11.04. Payment of Bonds After Discharge of Indenture. Notwithstanding any provisions of this Indenture, any moneys held by the Trustee in trust for the payment of the principal of, premium, if any, or interest on, any Bonds and remaining unclaimed for five years after the principal of all of the Bonds has become due and payable (whether at maturity or upon call for redemption or by acceleration as provided in this Indenture), if such moneys were so held at such date, or five years after the date of deposit of such moneys if deposited after said date when all of the Bonds became due and payable, shall be repaid to the Company, upon its written request, free from the trusts created by this Indenture and all liability of the Trustee with respect to such moneys shall thereupon cease; provided, however, that before the repayment of such moneys to the Company as aforesaid, the Trustee may (at the cost and request of the Company) first mail to the Holders of Bonds which have not been paid, at the addresses last shown on the registration books maintained by the Trustee, a notice, in such form as may be deemed appropriate by the Trustee with respect to the Bonds so payable and not presented and with respect to the provisions relating to the repayment to the Company of the moneys held for the payment thereof. ARTICLE XII MISCELLANEOUS Section 12.01. Liability of Authority Limited to Revenues. Notwithstanding anything to the contrary contained in this Indenture or in the Bonds, the Authority shall not be required to advance any moneys derived from any source other than the Revenues and other assets pledged under this Indenture for any of the purposes in this Indenture mentioned, whether for the payment of the principal of or interest on the Bonds or for any other purpose of this Indenture. -60- Notwithstanding any provisions of this Indenture to the contrary, no recourse under or upon any obligation, covenant or agreement contained herein or in any Bond shall be had against the Authority, it being expressly agreed and understood that the obligations of the Authority hereunder, and under the Bonds and elsewhere, are solely corporate obligations of the Authority and shall be enforceable only out of the Authority's interest in this Indenture and the Agreement (except for the Authority's rights to payment of certain costs, fees and expenses as set forth in this Indenture, the Agreement and elsewhere) and there shall be no other recourse against the Authority or any property now or hereafter owned by it and after entry of judgment against the Authority by virtue of the power herein contained, the Authority shall mark the judgment index to the effect that the judgment is limited as aforesaid. Section 12.02. Limitation of Liability of Directors, Etc., of Authority. No covenant, agreement, provision or obligation contained herein shall be deemed to be a covenant, agreement or obligation of any present or future director, commissioner, officer, employee, member or agent of the Authority in his individual capacity, and neither the members of the Authority nor any officer thereof shall be liable personally on this Indenture or any of the Bonds or be subject to any personal liability or accountability by reason of the issuance thereof or this Indenture. No director, commissioner, officer, employee, member or agent of the Authority shall incur any personal liability with respect to any other action taken by him pursuant to this Indenture or the Act. Notwithstanding anything contained herein to the contrary, the liability of the Authority, including its officers, members, and employees, under any and all of the documentation executed in connection with the issuance of the Bonds shall not constitute its general obligation and recourse against the Authority on the documentation executed in connection with the issuance of the Bonds shall be had only against the property specifically pledged as security therefor and any rents, issues or profits thereof. It is expressly understood that the Authority shall not otherwise be obligated and that none of its members, officers, or employees shall be in any way obligated for any costs, expenses, fees or other obligations or liabilities incurred or imposed in connection with the issuance of the Bonds, whether incurred prior to or after closing, and that recourse against the Authority and its members, officers, or employees, shall be limited as set forth herein. Section 12.03. Covenant Not to Sue. The forms of Bonds provide that the owners of the Bonds agree not to sue the Authority or any of its board members, officers, agents or employees, past, present or future except as provided herein and in the Agreement as a condition of, and in consideration for, the issuance of the Bonds; accordingly, except as provided herein and in the Agreement, the Trustee shall not be permitted to sue the Authority, on behalf of the owners of the Bonds. Section 12.04. Successor Is Deemed Included in All References to Predecessor. Whenever in this Indenture either the Authority or the Trustee is named or referred to, such reference shall be deemed to include the successors or assigns thereof, and all the covenants and agreements in this Indenture contained by or on behalf of the Authority or the Trustee shall bind and inure to the benefit of the respective successors and assigns thereof whether so expressed or not. -61- Section 12.05. Limitation of Rights to Parties, Bank, Company and Bondholders. Nothing in this Indenture or in the Bonds expressed or implied is intended or shall be construed to give to any person other than the Authority, the Trustee, the Bank, the Company and the Holders of the Bonds, any legal or equitable right, remedy or claim under or in respect of this Indenture or any covenant, condition or provision therein or herein contained; and all such covenants, conditions and provisions are and shall be held to be for the sole and exclusive benefit of the Authority, the Trustee, the Bank, the Company and the Holders of the Bonds. Section 12.06. Waiver of Notice. Whenever in this Indenture the giving of notice by mail or otherwise is required, the giving of such notice may be waived in writing by the person entitled to receive such notice and in any such case the giving or receipt of such notice shall not be a condition precedent to the validity of any action taken in reliance upon such waiver. Section 12.07. Severability of Invalid Provisions. If any one or more of the provisions contained in this Indenture or in the Bonds shall for any reason be held to be invalid, illegal or unenforceable in any respect, then such provision or provisions shall be deemed severable from the remaining provisions contained in this Indenture and such invalidity, illegality or unenforceability shall not affect any other provision of this Indenture, and this Indenture shall be construed as if such invalid or illegal or unenforceable provision had never been contained herein. The Authority hereby declares that it would have entered into this Indenture and each and every other Section, paragraph, sentence, clause or phrase hereof and authorized the issuance of the Bonds pursuant thereto irrespective of the fact that any one or more Sections, paragraphs, sentences, clauses or phrases of this Indenture may be held illegal, invalid or unenforceable. Section 12.08. Notices. All notices to Bondholders shall be given by telex, telegram, telecopier or other telecommunication device unless otherwise provided herein and confirmed in writing as soon as practicable. All such notices shall also be sent to the Holder and any person designated by any Holder to receive copies of such notices. Any notice to or demand upon the Trustee may be served or presented, and such demand may be made, at the Principal Corporate Trust Office of the Trustee, or at such other address as may have been filed in writing by the Trustee with the Authority. Any notice to or demand upon the Trustee, the Authority, the Company, the Remarketing Agent, the Tender Agent or the Bank shall be deemed to have been sufficiently given or served for all purposes by being delivered or sent by telex or by being deposited, postage prepaid, in a post office letter box, addressed, as the case may be, To the Trustee: Dauphin Deposit Bank and Trust Company 213 Market Street Harrisburg, PA 17101 Attention: Corporate Trust Services -62- To the Authority: Montgomery County Industrial Development Authority 3 Stony Creek Office Center Norristown, Pennsylvania 19401 Attention: Executive Director (or such other address as may have been filed in writing by the Authority with the Trustee), To the Company: Apple Fresh Foods Limited Box 725 Kimberton Road Kimberton, Pennsylvania 19442 Attention: Controller (or such other address as may have been filed in writing by the Company with the Trustee), To the Remarketing Agent: CoreStates Capital Markets 601 Penn Street Penn Square Center - 4th Floor Reading, Pennsylvania 19601 Attention: Sales and Underwriting Department (or such other address as may have been filed in writing by the Remarketing Agent with the Trustee), To the Tender Agent: Dauphin Deposit Bank and Trust Company 213 Market Street Harrisburg, PA 17101 Attention: Corporate Trust Services (or such other address as may have been filed in writing by the Tender Agent with the Trustee), To the Bank: CoreStates Bank, N.A. Great Valley Corporate Center 55 Valley Stream Parkway Suite 200 Malvern, Pennsylvania 19355 Attention: Mr. Michael Bailey, Vice President (or such other address as may have been filed in writing by the Bank with the Trustee). -63- Section 12.09. Evidence of Rights of Bondholders. Any request, consent or other instrument required or permitted by this Indenture to be executed by Bondholders may be in any number of concurrent instruments of substantially similar tenor and shall be signed or executed by such Bondholders in person or by an agent or agents duly appointed in writing. Proof of the execution of any such request, consent or other instrument or of a writing appointing any such agent, or of the holding by any person of Bonds transferable by delivery, shall be sufficient for any purpose of this Indenture and shall be conclusive in favor of the Trustee and of the Authority if made in the manner provided in this Section. The fact and date of the execution by any person of any such request, consent or other instrument or writing may be proved by the certificate of any notary public or other officer of any jurisdiction, authorized by the laws thereof to take acknowledgments of deeds, certifying that the person signing such request, consent or other instrument acknowledged to him the execution thereof, or by an affidavit of a witness of such execution duly sworn to before such notary public or other officer. The ownership of Bonds shall be proved by the bond registration books held by the Trustee. Any request, consent, or other instrument or writing of the Holder of any Bond shall bind every future Holder of the same Bond and the Holder of every Bond issued in exchange therefor or in lieu thereof, in respect of anything done or suffered to be done by the Trustee or the Authority in accordance therewith or in reliance thereon. Section 12.10. Disqualified Bonds. In determining whether the Holders of the requisite aggregate principal amount of Bonds have concurred in any demand, request, direction, consent or waiver under this Indenture, Bonds which are owned or held by or for the account of the Authority or the Company, or by any other obligor on the Bonds, or by any person directly or indirectly controlling or controlled by, or under direct or indirect common control with, the Authority, the Company, or any other obligor on the Bonds, shall be disregarded and deemed not to be Outstanding for the purpose of any such determination. Bonds so owned which have been pledged in good faith may be regarded as Outstanding for the purposes of this Section if the pledgee shall establish to the satisfaction of the Trustee the pledgee's right to vote such Bonds and that the pledgee is not a person directly or indirectly controlling or controlled by, or under direct or indirect common control with, the Authority or the Company, or any other obligor on the Bonds. In case of a dispute as to such right, any decision by the Trustee taken upon the advice of counsel shall be full protection to the Trustee. Section 12.11. Money Held for Particular Bonds. The money held by the Trustee for the payment of the interest, principal or premium due on any date with respect to particular Bonds (or portions of Bonds in the case of registered Bonds redeemed in part only) shall, on and after such date and pending such payment, be set aside on its books and held uninvested in trust by it for the Holders of the Bonds entitled thereto, subject, however, to the provisions of Section 11.04 hereof. -64- Section 12.12. Funds. Any fund required by this Indenture to be established and maintained by the Trustee may be established and maintained in the accounting records of the Trustee, either as a fund or an account, and may, for the purposes of such records, any audits thereof and any reports or statements with respect thereto, be treated either as a fund or as an account; but all such records with respect to all such funds shall at all times be maintained in accordance with current industry standards, to the extent practicable, and with due regard for the requirements of Section 7.05 hereof and for the protection of the security of the Bonds and the rights of every holder thereof. Section 12.13. Payments Due on Days other than Business Days. If a payment day is not a Business Day at the place of payment, then payment may be made at that place on the next Business Day and no interest shall accrue for the intervening period. Section 12.14. Execution in Several Counterparts. This Indenture may be executed in any number of counterparts and each of such counterparts shall for all purposes be deemed to be an original; and all such counterparts, or as many of them as the Authority and the Trustee shall preserve undestroyed, shall together constitute but one and the same instrument. Section 12.15. Notices to Rating Agency. Written notice shall be provided by the Trustee to each Rating Agency of: (i) the appointment of any successor Trustee, Tender Agent, Paying Agent or Remarketing Agent; (ii) any Supplemental Indenture or any amendment to the Agreement or the Letter of Credit; (iii) the expiration, termination, extension or substitution of the Letter of Credit; (iv) the payment of all Outstanding Bonds; (v) the conversion of the Bonds to the Fixed Rate; (vi) the mandatory tender of Bonds in accordance with Sections 5.01 or 5.03 hereof; or (vii) the acceleration of the Bonds. Any notice required to be delivered to Moody's hereunder shall be deemed to have been sufficiently given or served for all purposes by being delivered or by being deposited, postage prepaid, in a post office letter box, addressed to Moody's Investors Service, 99 Church Street, New York, New York 10007, Attention, Secured Finance Group. -65- IN WITNESS WHEREOF, MONTGOMERY COUNTY INDUSTRIAL DEVELOPMENT AUTHORITY has caused this Indenture to be executed in its name by its Chairperson or Vice Chairman and attested by its Secretary, and DAUPHIN DEPOSIT BANK AND TRUST COMPANY, as evidence of its acceptance of the trusts created hereunder, has caused this Indenture to be signed in its corporate name by its duly authorized officer and attested, all as of the day and year first above written. MONTGOMERY COUNTY INDUSTRIAL DEVELOPMENT AUTHORITY By__________________________________ Chairperson (Vice) Chairman [SEAL] Attest:_______________________________ (Assistant) Secretary DAUPHIN DEPOSIT BANK AND TRUST COMPANY, as Trustee and Tender Agent By_____________________________________ Authorized Officer [SEAL] Attest:________________________________ Authorized Officer -66- EXHIBIT "A" No. VR- (FLOATING RATE FORM OF BOND) $1,000,000 Unless this certificate is presented by an authorized representative of The Depository Trust Company, a New York corporation ("DTC") to the Authority or its agent for registration of transfer, exchange or payment, and any certificate issued is registered in the name of Cede & Co. or in such other name as is requested by an authorized representative of DTC (and any payment is made to Cede & Co. or to such other entity as is requested by an authorized representative of DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner (the "Registered Owner") hereof, Cede & Co., has an interest herein. MONTGOMERY COUNTY INDUSTRIAL DEVELOPMENT AUTHORITY VARIABLE RATE DEMAND/FIXED RATE REVENUE BOND (APPLE FRESH FOODS LTD PROJECT) SERIES OF 1996 MATURITY DATE: December 1, 2016 CUSIP______________ DATE OF ISSUANCE: December 26, 1996 THIS BOND IS SUBJECT TO MANDATORY TENDER FOR PURCHASE AT THE TIME AND IN THE MANNER HEREINAFTER DESCRIBED, AND MUST BE SO TENDERED OR WILL BE DEEMED TO HAVE BEEN SO TENDERED UNDER CERTAIN CIRCUMSTANCES DESCRIBED HEREIN. KNOW ALL MEN BY THESE PRESENTS that the MONTGOMERY COUNTY INDUSTRIAL DEVELOPMENT AUTHORITY (the "Authority"), for value received, promises to pay from the source and as hereinafter provided, to CEDE & CO. or registered assigns, on the maturity date hereof (or upon prior redemption as hereinafter provided), upon surrender hereof, the principal sum of One Million Dollars ($1,000,000), and in like manner to pay interest on said sum at the rate described below on the first Wednesday of each calendar month, or if such date is not a Business Day, the next succeeding Business Day and on the Conversion Date (hereinafter defined), commencing February 5, 1997 (each an "Interest Payment Date"), from the Interest Payment Date next preceding the date of authentication hereof to which interest has been paid or duly provided for, unless the date of authentication hereof is an Interest Payment Date to which interest has been paid or duly provided for, in which case from the date of authentication hereof, or unless no interest has been paid or duly provided for on the Bonds (as hereinafter defined), in which case from the date of issuance set forth above (the "Date of Issuance"), until payment of the principal hereof has been A-1 made or duly provided for. Notwithstanding the foregoing, if this Bond is authenticated after any date which is the seventh calendar day next preceding any Interest Payment Date (a "Record Date") and before the following Interest Payment Date, this Bond shall bear interest from such Interest Payment Date; provided, however, that if the Authority shall default in the payment of interest due on such Interest Payment Date, then this Bond shall bear interest from the next preceding Interest Payment Date to which interest has been paid or duly provided for, or, if no interest has been paid or duly provided for on the Bonds, from the Date of Issuance. The principal of this Bond is payable in lawful money of the United States of America at the principal corporate trust office of Dauphin Deposit Bank and Trust Company, as trustee (together with its successors in trust, the "Trustee") or at the duly designated office of any successor Trustee under the Trust Indenture, dated December 26, 1996, between the Authority and the Trustee (which, as from time to time amended and supplemented, is hereinafter referred to as the "Indenture"). Payment of interest on this Bond shall be made on each Interest Payment Date to the registered Owner hereof as of the applicable Record Date and shall be paid by check mailed by the Trustee to such registered Owner at his address as it appears on the registration books of the Authority or at such other address as is furnished to the Trustee in writing by such registered Owner, or in such other manner as may be permitted by the Indenture. The purchase price (the amount equal to 100% of the principal amount of any Bond tendered or deemed tendered pursuant to the terms of the Indenture plus accrued and unpaid interest thereon to the date of purchase (the "Purchase Price") of this Bond shall be payable by Dauphin Deposit Bank and Trust Company (together with any successor Tender Agent, the "Tender Agent") to the registered Owner hereof at the principal corporate trust office of the Tender Agent. As used herein, the term "Business Day" means any day other than: (i) a Saturday or Sunday; (ii) a legal holiday or any day on which banking institutions in the State of New York, the Commonwealth of Pennsylvania, the City of New York, or the city in which the principal office of the Trustee, the Tender Agent or the Bank are authorized to remain closed; or (iii) a day on which the New York Stock Exchange is closed. This Bond is one of the duly authorized bonds designated as the Variable Rate Demand/Fixed Rate Revenue Bonds (Apple Fresh Foods Ltd Project) Series of 1996 of the Authority issued in the aggregate principal amount of $1,000,000 (herein referred to as the "Bonds") under and by virtue of the Pennsylvania Economic Development Financing Law, Act of August 23, 1967, P.L. 251, as amended and supplemented (the "Act"), and by virtue of a resolution duly adopted by the Authority (the "Bond Resolution"), and equally and ratably secured under the Indenture, for the purpose of raising funds to finance a portion of the costs of a project consisting of, among other things: (i) the acquisition, construction, installation and renovation of certain equipment to be used in connection with a cook-chill system of batch food processing; and (ii) the payment of a portion of the costs of issuing the Bonds (the "Project"). Pursuant to a Loan Agreement, dated December 26, 1996 (the "Agreement") by and between the Authority and Apple Fresh Foods Limited, a Pennsylvania corporation (the "Company"), installment payments sufficient for the prompt payment when due of the principal and Purchase Price of, premium, if any, and interest on the Bonds are to be paid to the Trustee for the account of the Authority and deposited in the Bond Fund established by the Indenture and have been duly pledged for that purpose, all to the extent and in the manner provided in the Indenture. A-2 The Bonds are all issued under and are equally and ratably secured by and entitled to the protection of the Indenture, pursuant to which all payments due from the Company to the Authority under the Agreement (other than certain indemnification payments and the payment of certain expenses of the Authority) are assigned to the Trustee to secure the payment of the principal and Purchase Price of, and premium, if any, and interest on the Bonds and certain costs, fees and expenses of the Trustee. The Company has caused to be delivered to the Trustee an irrevocable direct pay letter of credit (together with any Substitute Letter of Credit, the "Letter of Credit") issued by CoreStates Bank, N.A. (in such capacity, the "Bank") and dated the Date of Issuance of the Bonds, which will expire, unless earlier terminated or extended, on December 24, 2000. Subject to certain conditions, the Letter of Credit may be replaced by a Substitute Letter of Credit of another commercial bank, savings and loan association or savings bank. Under the Letter of Credit, the Trustee will be entitled to draw up to an amount sufficient to pay: (a) the principal of the Bonds or the portion of the Purchase Price corresponding to the principal of the Bonds; and (b) accrued interest (at the maximum rate of 15% per annum based on 365/366 day year and the actual number of days elapsed) on the Bonds or the portion of the Purchase Price of the Bonds corresponding to accrued interest thereon. Reference is hereby made to the Indenture, the Agreement and the Letter of Credit for a description of the property pledged and assigned, the provisions, among others, with respect to the nature and extent of the security, the rights, duties and obligations of the Authority, the Trustee and the Owners of the Bonds and the terms upon which the Bonds are issued and secured; and the Owner of this Bond, by acceptance hereof, hereby consents to the terms and provisions of all of the foregoing as a material portion of the consideration for the issuance of this Bond. This Bond shall bear interest as follows: (A) From the Date of Issuance of this Bond to the Conversion Date, this Bond shall bear interest at the "Floating Rate." The "Floating Rate" shall be a variable rate of interest equal to the minimum rate of interest necessary, in the sole judgment of the Remarketing Agent (hereinafter defined), to sell the Bonds on any Business Day at a price equal to the principal amount thereof, exclusive of accrued interest, if any, thereon. The Floating Rate shall be determined weekly by CoreStates Capital Markets, a division of CoreStates Bank, N.A., Reading, Pennsylvania (the "Remarketing Agent") by 9:30 a.m. on each Wednesday (or if such Wednesday is not a Business Day, on the next succeeding Business Day) and shall be effective on such Wednesday for the immediately following Weekly Period (as hereinafter defined), all as more fully set forth in the Indenture. The determination of the Floating Rate shall be conclusive and binding upon the Authority, the Trustee, the Bank, the Company, the Remarketing Agent, the Tender Agent and the Owners of this Bond. Anything herein to the contrary notwithstanding, the Floating Rate shall in no event exceed 15% per annum. A-3 (B) The Bonds shall bear interest at the "Fixed Rate" from and after the Conversion Date. In such event, the Fixed Rate shall be applicable until the maturity of the Bonds. The "Fixed Rate" shall be a fixed annual interest rate on the Bonds established by the Remarketing Agent as the rate of interest for which the Remarketing Agent has received commitments on or prior to the 5th Business Day preceding the Conversion Date, at a price of par without discount or premium. Prior to the Conversion Date, interest on the Bonds shall be computed on the basis of a 365/366-day year, actual number of days elapsed. On and after the Conversion Date, interest on the Bonds shall be computed on the basis of a 360-day year of twelve 30-day months. As used herein, the term "Conversion Date" means the Optional Conversion Date; the term "Letter of Credit Termination Date" means the later of: (i) that date upon which the Letter of Credit shall expire or terminate pursuant to its terms; or (ii) that date to which the expiration or termination of the Letter of Credit may be extended, from time to time, either by extension or renewal of the existing Letter of Credit or the issuance of a Substitute Letter of Credit (as such phrase is defined in the Indenture); the term "Optional Conversion Date" means that date on or after February 5, 1997 which shall be a Business Day, from and after which the interest rate on the Bonds is converted from the Floating Rate to the Fixed Rate as a result of the exercise by the Company of the Conversion Option; the term "Conversion Option" means the option granted to the Company in the Indenture pursuant to which the interest rate on the Bonds is converted from the Floating Rate to the Fixed Rate as of the Optional Conversion Date; the term "Purchase Price" means an amount equal to 100% of the principal amount of any Bond tendered or deemed tendered for purchase pursuant to the Indenture or with respect to which the Demand Purchase Option has been exercised, plus accrued and unpaid interest thereon to the date of purchase. The interest rate on the Bonds may be converted from the Floating Rate to the Fixed Rate upon satisfaction of certain conditions and notice given by the Trustee at the direction of the Company to the Owners of the Bonds at least twenty (20) days but not more than thirty (30) days prior to the Conversion Date in accordance with the requirements of the Indenture, and the Bonds shall be subject to mandatory tender by the Owners thereof on the Conversion Date. On and after the Conversion Date, the Demand Purchase Option will not be available to the Owners of the Bonds. On or prior to the Conversion Date, an Owner of Bonds, shall be required to deliver their Bonds to the Tender Agent for purchase at the Purchase Price. Accrued interest on the Bonds will be payable on the Conversion Date to the Owners of Bonds as of the Conversion Date. Any Bonds not delivered to the Tender Agent on or prior to the conversion Date ("Undelivered Bonds"), for which there has been irrevocably deposited in trust with the Trustee or the Tender Agent an amount of money sufficient to pay the Purchase Price of the Undelivered Bonds, shall be deemed to have been purchased at the Purchase Price and are deemed to be no longer outstanding with respect to such prior Owners. IN THE EVENT OF A FAILURE BY AN OWNER OF BONDS TO DELIVER ITS BONDS ON OR PRIOR TO THE CONVERSION DATE, SAID OWNER SHALL NOT BE ENTITLED TO ANY PAYMENT (INCLUDING ANY INTEREST TO ACCRUE ON OR SUBSEQUENT TO THE CONVERSION DATE) OTHER THAN THE PURCHASE PRICE FOR A-4 SUCH UNDELIVERED BONDS, AND ANY UNDELIVERED BONDS SHALL NO LONGER BE ENTITLED TO THE BENEFIT OF THE INDENTURE, EXCEPT FOR THE PURPOSE OF PAYMENT OF THE PURCHASE PRICE THEREFOR. Notwithstanding the foregoing provisions, to the extent that at the close of the fifth Business Day prior to the proposed Optional Conversion Date, the Remarketing Agent has not presented to the Company firm commitments for the purchase of all of the Bonds, the Company, at its option, may rescind an optional conversion of the Bonds. Any such election to rescind must be made by the close of the fourth Business Day prior to the proposed Conversion Date and the Company shall give written notice to the Trustee, the Tender Agent and the Bank of its decision to rescind the optional conversion by such time. The Company shall cause the Trustee to immediately notify the Owners of such rescission and thereafter the Bonds shall bear interest at the Floating Rate in effect for the then current Weekly Period and thereafter the Bonds shall bear interest at the Floating Rate until any subsequent Conversion Date effected in accordance with the Indenture. As used herein, "Weekly Period" means, while this Bond bears interest at the Floating Rate, the weekly period that begins on and includes Wednesday of each calendar week and ends at the close of business on Tuesday of the next succeeding week. At any time prior to the Record Date preceding the first Interest Payment Date following the Conversion Date, the Trustee or the Tender Agent, as the case may be, shall deliver a replacement Bond evidencing interest payable at the Fixed Rate. Prior to the Conversion Date, this Bond shall be purchased, at the option of the Owner hereof ("Demand Purchase Option") at the Purchase Price, upon: (a) delivery by such Owner to the Trustee and the Tender Agent at their principal corporate trust office and Delivery Office (hereinafter defined) respectively, and to the Remarketing Agent at its principal office of a notice (a "Demand Purchase Notice") (said notice to be irrevocable and effective upon receipt) which states: (i) the aggregate principal amount and the bond numbers of Bonds to be purchased; and (ii) the date on which such Bonds are to be purchased, which date shall be a Business Day not prior to the seventh (7th) day next succeeding the date of delivery of such notice and which date shall be prior to the Conversion Date; (b) if such Bonds are to be purchased prior to an Interest Payment Date and after the Record Date in respect thereof, delivery to the Tender Agent together with the Demand Purchase Notice described in (a) above, of a non-recourse due-bill, payable to bearer, for interest due on such Interest Payment Date; and (c) delivery to the Tender Agent at its Delivery Office (hereinafter defined) at or prior to 10:00 a.m., New York City time, on the date designated for purchase in the applicable Demand Purchase Notice of such Bonds to be purchased with an appropriate endorsement for transfer or accompanied by a bond power endorsed in blank. A-5 Any Bond as to which a Demand Purchase Notice has been delivered pursuant to (a) above, must be delivered to the Tender Agent as provided in (c) above, and any such Bonds not so delivered ("Undelivered Bonds"), for which there has been irrevocably deposited in trust with the Trustee or the Tender Agent an amount of money sufficient to pay the Purchase Price thereof, shall be deemed to have been purchased at the Purchase Price and are deemed to be no longer outstanding with respect to such tendering Owner. IN THE EVENT OF A FAILURE BY AN OWNER OF BONDS TO DELIVER ITS BONDS AS SPECIFIED ABOVE, SAID OWNER SHALL NOT BE ENTITLED TO ANY PAYMENT (INCLUDING ANY INTEREST TO ACCRUE ON OR SUBSEQUENT TO THE DATE DESIGNATED FOR PURCHASE IN THE APPLICABLE DEMAND PURCHASE NOTICE) OTHER THAN THE PURCHASE PRICE FOR SUCH UNDELIVERED BONDS, AND ANY UNDELIVERED BONDS SHALL NO LONGER BE ENTITLED TO THE BENEFIT OF THE INDENTURE, EXCEPT FOR THE PAYMENT OF THE PURCHASE PRICE THEREFOR. Notwithstanding the foregoing provisions, in the event any Bond as to which the Owner thereof has exercised the Demand Purchase Option is remarketed to such Owner pursuant to the Remarketing Agreement, such Owner need not deliver such Bond to the Tender Agent as provided in (c) above, although such Bond shall be deemed to have been delivered to the Tender Agent, redelivered to such Owner, and remarketed for purposes of the Indenture. The Agreement provides that the Company, upon satisfaction of certain conditions precedent, may, at any time, at its option, provide for the delivery to the Trustee of a Substitute Letter of Credit. The Bonds shall be subject to mandatory tender by the Owners thereof on the date of delivery of the Substitute Letter of Credit (the "Substitution Date"). On or prior to the Substitution Date, Owners of Bonds shall be required to deliver their Bonds to the Tender Agent for purchase at the Purchase Price. Accrued interest on the Bonds will be payable on the Substitution Date to the Owners of Bonds as of the Substitution Date. Any Bonds not delivered to the Tender Agent on or prior to the Substitution Date ("Undelivered Bonds"), for which there has been irrevocably deposited in trust with the Trustee or the Tender Agent an amount of money sufficient to pay the Purchase Price of the Undelivered Bonds, shall be deemed to have been purchased at the Purchase Price and are deemed to be no longer outstanding with respect to such Owners. IN THE EVENT OF A FAILURE BY AN OWNER OF BONDS TO DELIVER ITS BONDS ON OR PRIOR TO THE SUBSTITUTION DATE, SAID OWNER SHALL NOT BE ENTITLED TO ANY PAYMENT (INCLUDING ANY INTEREST TO ACCRUE ON OR SUBSEQUENT TO THE SUBSTITUTION DATE) OTHER THAN THE PURCHASE PRICE FOR SUCH UNDELIVERED BONDS, AND ANY UNDELIVERED BONDS SHALL NO LONGER BE ENTITLED TO THE BENEFIT OF THE INDENTURE, EXCEPT FOR THE PURPOSE OF PAYMENT OF THE PURCHASE PRICE THEREFOR. Any delivery of a notice required to be made to the Trustee at its principal corporate trust office pursuant to (a) above shall be delivered to the Trustee at 213 Market Street, Harrisburg, Pennsylvania 17101, Attention Corporate Trust Services, or to the office designated for such purpose by any successor Trustee; any delivery of a notice required to be made to the Remarketing A-6 Agent at its principal office pursuant to (a) above shall be delivered to the Remarketing Agent at 601 Penn Square Center, Fourth Floor, Reading, Pennsylvania 19601, Attention: CoreStates Capital Markets, Sales and Underwriting Department, or to the office designated for such purpose by any successor Remarketing Agent; and any delivery of Bonds required to be made to the Tender Agent pursuant to (b) above shall be delivered to the Tender Agent at 213 Market Street, Harrisburg, Pennsylvania 17101, Attention: Corporate Trust Services, or to the office designated for such purpose by any successor Tender Agent (the "Delivery Office"). Notwithstanding any provision herein to the contrary, so long as this Bond is subject to a system of book-entry transfers, any requirement for the delivery of Bonds to the Tender Agent in connection with an optional or mandatory tender shall be deemed satisfied upon the transfer, on the registration books of DTC, of the beneficial ownership interests in the Bonds tendered for purchase to the account of the Tender Agent, or a Participant (as such term is defined in the Indenture) acting on behalf of or at the discretion of such Tender Agent. THE BONDS ARE SPECIAL LIMITED OBLIGATIONS OF THE AUTHORITY PAYABLE SOLELY AND EXCLUSIVELY FROM THE PAYMENTS REQUIRED TO BE MADE BY THE COMPANY UNDER THE AGREEMENT AND FROM DRAWS ON THE LETTER OF CREDIT. NO RECOURSE SHALL BE HAD FOR THE PAYMENT OF PRINCIPAL, PURCHASE PRICE OR REDEMPTION PRICE OF, OR INTEREST ON, THIS BOND, OR ANY CLAIM BASED HEREON OR ON THE INDENTURE OR THE AGREEMENT, AGAINST THE AUTHORITY OR ANY SUCCESSOR BODY OR AGAINST ANY OFFICER, MEMBER, EMPLOYEE OR AGENT PAST, PRESENT OR FUTURE OF THE AUTHORITY OR ANY SUCCESSOR BODY, UNDER ANY CONSTITUTIONAL PROVISION, STATUTE OR RULE OF LAW, OR BY THE ENFORCEMENT OF ANY ASSESSMENT OR BY ANY LEGAL OR EQUITABLE PROCEEDING OR OTHERWISE, AND ALL SUCH LIABILITY OF THE AUTHORITY OR ANY SUCCESSOR BODY OR ANY SUCH OFFICERS, MEMBERS, EMPLOYEES OR AGENTS IS RELEASED AS A CONDITION OF, AND IN CONSIDERATION FOR, THE ISSUANCE OF THIS BOND. AS A CONDITION OF, AND IN CONSIDERATION FOR, THE ISSUANCE OF THIS BOND, THE REGISTERED OWNER HEREOF COVENANTS THAT HE WILL NOT SUE THE AUTHORITY OR ITS MEMBERS, OFFICERS, EMPLOYEES OR AGENTS, PAST, PRESENT OR FUTURE, EXCEPT AS EXPRESSLY PERMITTED IN THE INDENTURE AND THE AGREEMENT. THE BONDS AND THE INTEREST THEREON SHALL NOT BE IN ANY WAY A DEBT OR LIABILITY OF THE COUNTY OF MONTGOMERY, PENNSYLVANIA (THE "COUNTY"), THE COMMONWEALTH OF PENNSYLVANIA (THE "COMMONWEALTH") OR ANY POLITICAL SUBDIVISION THEREOF AND SHALL NOT CREATE OR CONSTITUTE ANY INDEBTEDNESS, LIABILITY OR OBLIGATION OF THE COUNTY, THE COMMONWEALTH OR ANY POLITICAL SUBDIVISION THEREOF, EITHER LEGAL, MORAL OR OTHERWISE, AND THE AUTHORITY SHALL NOT INCUR ANY INDEBTEDNESS ON BEHALF OF OR IN ANY WAY TO OBLIGATE THE COUNTY, THE COMMONWEALTH OR ANY POLITICAL SUBDIVISION THEREOF. NEITHER THE MEMBERS OF THE AUTHORITY NOR ANY PERSON EXECUTING THE BONDS SHALL BE LIABLE PERSONALLY ON THE BONDS BY REASON OF THE ISSUANCE THEREOF. THE AUTHORITY IS A CONDUIT ISSUER AND HAS NO TAXING POWER. A-7 This Bond is transferable by the Registered Owner hereof in person or by his attorney duly authorized in writing, at the principal corporate trust office of the Trustee or at the Delivery Office of the Tender Agent or that of any successor Tender Agent, but only in the manner, subject to the limitations and upon payment of the charges provided in the Indenture, and upon surrender and cancellation of this Bond. Upon such transfer a new registered Bond or Bonds of authorized denomination or denominations for the same aggregate principal amount will be issued to the transferee in exchange herefor. The Authority, the Tender Agent and the Trustee may deem and treat the registered Owner hereof as the absolute Owner hereof (whether or not this Bond shall be overdue) for all purposes, and neither the Authority, the Tender Agent nor the Trustee shall be bound by any notice or knowledge to the contrary. Prior to the Conversion Date: (i) the Bonds are issuable as fully registered bonds without coupons in the denominations of $100,000 or any integral multiple of $5,000 in excess thereof; and (ii) the Bonds may not be issued, exchanged or transferred except in authorized denominations of $100,000 or any integral multiple of $5,000 in excess thereof. From and after the Conversion Date, the Bonds shall be issuable as fully registered bonds without coupons in the denominations of $5,000 or any integral multiple thereof. Extraordinary Redemption The Bonds are callable for redemption in the event: (1) the Project Facilities or any portion thereof is damaged or destroyed or taken in a condemnation proceeding as provided in Section 6.04 of the Agreement; or (2) the Company shall exercise its option to cause the Bonds to be redeemed as provided in Section 9.02 of the Agreement. If called for redemption at any time pursuant to (1) or (2) above, the Bonds shall be subject to redemption by the Authority on any Interest Payment Date, in whole or in part, at a redemption price of one hundred percent (100%) of the principal amount thereof plus accrued interest to the redemption date. Mandatory Redemption The Bonds are subject to mandatory redemption, five (5) Business Days prior to the Letter of Credit Termination Date, in whole, at a redemption price equal to one hundred percent (100%) of the principal amount thereof being redeemed plus accrued interest to the redemption date if, on the thirtieth (30th) Business Day prior to the Letter of Credit Termination Date, the Trustee shall not have received a Substitute Letter of Credit which will be effective on or before the Letter of Credit Termination Date. The Bonds are also subject to mandatory redemption, in whole, at any time, within one hundred eighty (180) days after the Trustee receives notice of the occurrence of a "Determination of Taxability" (as such phrase is hereinafter defined), at a redemption price equal to one hundred percent (100%) of the aggregate principal amount of Bonds Outstanding plus accrued interest to the redemption date. A-8 "Event of Taxability" with respect to any Bond means a change of law or regulations, or the interpretation thereof, or the occurrence of any other event or the existence of any other circumstance (including without limitation the fact that any representations or warranties of the Company or the Authority made in connection with the issuance of any Bond is or was untrue or that a covenant of the Company has been breached) that has the effect of causing interest payable on any Bond to be includable in gross income for federal income tax purposes under Section 103 of the Internal Revenue Code of 1986, as amended, and the applicable regulations thereunder (the "Code") other than by reason that such interest: (i) is includable in the gross income of an Owner or former Owner of any Bond while such Owner or former Owner is or was a "substantial user" or a "related person" to a "substantial user" of the Project Facilities (as such terms are used in Section 147(a)(1) of the Code); or (ii) is deemed an item of tax preference including, without limitation, an item subject to any alternative minimum tax. "Determination of Taxability" with respect to any Bond shall be deemed to have been made upon the first to occur of the following events: (i) the date on which the Company determines that an Event of Taxability has occurred by filing with the Trustee a statement to that effect supported by one or more tax schedules, returns or documents which disclose that such an Event of Taxability has occurred; (ii) the date on which the Company or the Trustee is advised by private ruling, technical advice or any other written communication from any authorized official of the Internal Revenue Service that, based upon any filings of the Company or any other person or entity, or upon any review or audit of the Company or any other person or entity, or upon any other grounds whatsoever, an Event of Taxability has occurred; (iii) the date on which the Trustee or the Company is advised that a court of competent jurisdiction has issued an order, declaration, ruling or judgment to the effect that an Event of Taxability has occurred; (iv) the date the Trustee shall have received written notice from any owner of the Bonds that such owner has received a written assertion or claim by any authorized official of the Internal Revenue Service that an Event of Taxability has occurred; or (v) the date the Trustee is notified that the Internal Revenue Service has issued any private ruling, technical advice or any other written communication, with or to the effect that an Event of Taxability has occurred; provided, however, that (x) no Determination of Taxability described in each of clause (i), (ii), (iii), (iv) or (v) above shall be deemed to have occurred unless the Trustee shall have received a written opinion of nationally recognized bond counsel satisfactory to the Trustee, in form and substance A-9 satisfactory to the Bank and the Company and not unsatisfactory to the Trustee, to the effect that an Event of Taxability has occurred; and (y) no Determination of Taxability described in each of clauses (i), (ii), (iii), (iv) or (v) above shall be deemed to have occurred until 180 days shall have elapsed from the dates described in clauses (i), (ii), (iii), (iv) or (v) above without such Determination of Taxability having been rescinded or canceled. Mandatory Sinking Fund Redemption The Bonds are subject to mandatory sinking fund redemption on the Interest Payment Date occurring in the month of December in each of the years set forth below commencing on the Interest Payment Date occurring in December of 1997 (each, a "Mandatory Sinking Account Payment Date"), at a redemption price equal to 100% of the principal amount thereof plus accrued interest as follows: Mandatory Sinking Year Account Payments ---- ---------------- 1997 30,000 1998 35,000 1999 35,000 2000 40,000 2001 40,000 2002 40,000 2003 40,000 2004 45,000 2005 45,000 2006 50,000 2007 50,000 2008 50,000 2009 55,000 2010 55,000 2011 60,000 2012 60,000 2013 65,000 2014 65,000 2015 70,000 2016* 70,000 *Final maturity of the Bonds is December 1, 2016 Optional Redemption On or prior to the Conversion Date, the Bonds are subject to redemption by the Authority, A-10 at the option of the Company, at any time, subject to the notice provisions described below, in whole or in part, at the redemption price of 100% of the principal amount thereof being redeemed plus accrued interest to the redemption date. A-11 No such optional redemption shall occur unless there shall be available in the Bond Fund established under the Indenture sufficient Available Moneys (as defined in the Indenture) to pay all amounts due with respect to such a redemption. In the event any of the Bonds or portions thereof are called for redemption as aforesaid, notice of the call for redemption, identifying the Bonds or portions thereof to be redeemed and the redemption price (including the premium, if any), shall be given by the Trustee by mailing a copy of the redemption notice by first-class mail at least thirty (30) days but not more than sixty (60) days prior to the date fixed for redemption to the Owner of each Bond to be redeemed in whole or in part at the address shown on the registration books. Any notice mailed as provided above shall be conclusively presumed to have been duly given, whether or not the Owner receives the notice. No further interest shall accrue on the principal of any Bond called for redemption after the redemption date if Available Moneys (as defined in the Indenture) sufficient for such redemption have been deposited with the Trustee. Notwithstanding the foregoing, the notice requirements contained in the first sentence of this paragraph may be deemed satisfied with respect to a transferee of a Bond which has been purchased pursuant to the Demand Purchase Option under certain circumstances provided in Section 4.06 of the Indenture, after such Bond has previously been called for redemption, notwithstanding the failure to satisfy the notice requirements of the first sentence of this paragraph with respect to such transferee. If less than all the Bonds are to be redeemed, the particular Bonds or portions thereof to be redeemed shall be selected by the Trustee by lot. Prior to the Conversion Date, in case a Bond is of a denomination larger than $100,000, a portion of such Bond ($100,000 or any integral multiple of $5,000 in excess thereof) may be redeemed, but Bonds shall be redeemed only if the remaining unredeemed portion of such Bond is in the principal amount of $100,000 or any integral multiple in excess of $100,000. The Bonds are issued pursuant to and in full compliance with the Constitution and laws of the Commonwealth, particularly the Act, and by appropriate action duly taken by the Authority which authorizes the execution and delivery of the Agreement and the Indenture. The Bonds have been issued under the provisions of the Act. Notwithstanding anything to the contrary contained herein or in the Indenture, the Agreement, or in any other instrument or document executed by or on behalf of the Authority in connection herewith, no stipulation, covenant, agreement or obligation contained herein or therein shall be deemed or construed to be a stipulation, covenant, agreement or obligation of any present or future member, commissioner, director, trustee, officer, employee or agent of the Authority, or of any successor to the Authority, in any such person's individual capacity, and no such person, in his individual capacity, shall be liable personally for any breach or nonobservance of or for any failure to perform, fulfill or comply with any such stipulations, covenants, agreements or the principal of or premium, if any, or interest on any of the Bonds or for any claim based thereon or on any such stipulation, covenant, agreement or obligation, against any such person, in his individual capacity, either directly or through the Authority or any successor to the Authority, under any rule A-12 of law or equity, statute or constitution or by the enforcement of any assessment or penalty or otherwise, and all such liability of any such person, in his individual capacity, is hereby expressly waived and released. The Owner of this Bond shall have no right to enforce the provisions of the Indenture or to institute action to enforce the covenants therein, or to take any action with respect to any default under the Indenture, or to institute, appear in or defend any suit or other proceedings with respect thereto, unless certain circumstances described in the Indenture shall have occurred. In certain events, on the conditions, in the manner and with the effect set forth in the Indenture, the principal of all the Bonds issued under the Indenture and then outstanding may become or may be declared due and payable before the stated maturity thereof, together with interest accrued thereon. The Indenture permits, with certain exceptions as therein provided, the amendment thereof and the modification of the rights and obligations of the Authority and the rights of the Owners of the Bonds at any time by the Authority with the consent of the Company, the Bank and the holders of all Bonds at the time outstanding. Any such consent or any waiver by the Company, the Bank and the holders of all Bonds at the time outstanding shall be conclusive and binding upon the Owner and upon all future Owners of this Bond and of any Bond issued in replacement hereof whether or not notation of such consent or waiver is made upon this Bond. The Indenture also contains provisions which, subject to certain conditions, permit or require the Trustee to waive certain past defaults under the Indenture and their consequences. It is hereby certified, recited and declared that all acts, conditions and things required to exist, happen and be performed precedent to and in connection with the execution and delivery of the Indenture and the issuance of this Bond do exist, have happened and have been performed in due time, form and manner as required by law; and that the issuance of this Bond and the issue of which it forms a part, together with all other obligations of the Authority, does not exceed or violate any constitutional or statutory limitation. This Bond shall not be valid or become obligatory for any purpose or be entitled to any security or benefit under the Indenture until the certificate of authentication hereon shall have been signed by the Trustee or the Tender Agent, as authenticating agent. A-13 IN WITNESS WHEREOF, the Montgomery County Industrial Development Authority has caused this Bond to be signed in its name and on its behalf by the manual or facsimile signature of its Chairperson or Vice Chairman and its corporate seal to be affixed, imprinted or reproduced hereon and attested by the manual or facsimile signature of its Secretary all as of the Date of Issuance. MONTGOMERY COUNTY INDUSTRIAL DEVELOPMENT AUTHORITY Attest:____________________________ By________________________________ Secretary Chairperson (SEAL) (Form of Certificate of Authentication) CERTIFICATE OF AUTHENTICATION This Bond is one of the Bonds of the issue described in the within-mentioned Trust Indenture. DAUPHIN DEPOSIT BANK AND TRUST COMPANY, as Trustee and Tender Agent By:_________________________________ Authorized Representative Date of Authentication:____________ A-14 (Form for Transfer) FOR VALUE RECEIVED, __________, the undersigned, hereby sells, assigns and transfers unto (Tax Identification or Social Security No. ___________) the within Bond and all rights thereunder, and hereby irrevocably constitutes and appoints _________ attorney to transfer the within Bond on the books kept for registration thereof, with full power of substitution in the premises. Dated__________________________________ _______________________________ NOTICE: Signature(s) must be guaranteed NOTICE: The signature to this by an approved eligible guarantor institution, assignment must correspond with an institution which is participant in a the name as it appears upon the Securities Transfer Association recognized face of the within Bond in signature guarantee program. every particular, without alteration or enlargement or any change whatever. A-15 EXHIBIT "B" (FIXED RATE FORM OF BOND) Unless this certificate is presented by an authorized representative of The Depository Trust Company, a New York corporation ("DTC") to the Authority or its agent for registration of transfer, exchange or payment, and any certificate issued is registered in the name of Cede & Co. or in such other name as is requested by an authorized representative of DTC (and any payment is made to Cede & Co. or to such other entity as is requested by an authorized representative of DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner (the "Registered Owner") hereof, Cede & Co., has an interest herein. UNITED STATES OF AMERICA MONTGOMERY COUNTY INDUSTRIAL DEVELOPMENT AUTHORITY VARIABLE RATE DEMAND/FIXED RATE REVENUE BOND (APPLE FRESH FOODS LTD PROJECT) SERIES OF 1996 No. FR- $ Interest Rate: CUSIP__________ KNOW ALL MEN BY THESE PRESENTS that the MONTGOMERY COUNTY INDUSTRIAL DEVELOPMENT AUTHORITY (the "Authority"), for value received, promises to pay from the source and as hereinafter provided, to CEDE & CO. or registered assigns, on __________, upon surrender hereof, the principal sum of __________ Dollars, and in like manner to pay interest (calculated on the basis of a 360-day year of twelve 30 day months) on said sum at the rate per annum set forth above on June 1 and December 1 of each year, commencing ___________, (each an "Interest Payment Date") from the Interest Payment Date next preceding the date of authentication hereof to which interest has been paid or duly provided for, unless the date of authentication hereof is an Interest Payment Date to which interest has been paid or duly provided for, in which case from the date of authentication hereof or unless no interest has been paid or duly provided for on the Bonds (as hereinafter defined), in which case from the Conversion Date (as defined in the Indenture, as hereinafter defined), until payment of the principal hereof has been made or duly provided for. Notwithstanding the foregoing, if this Bond is authenticated after any date which is the fifteenth day next preceding any Interest Payment Date (a "Record Date") and before the following Interest Payment Date, this Bond shall bear interest from such Interest Payment Date; B-1 provided, however, that if the Authority shall default in the payment of interest due on such Interest Payment Date, then this Bond shall bear interest from the next preceding interest payment date to which interest has been paid or duly provided for, or, if no interest has been paid or duly provided for on the Bonds, from the Date of Issuance. The principal of this Bond is payable in lawful money of the United States of America at the principal corporate trust office of Dauphin Deposit Bank and Trust Company, as trustee (together with its successors in trust, the "Trustee") or at the duly designated office of any successor Trustee under the Trust Indenture, dated December 26, 1996 between the Authority and the Trustee (which Indenture, as from time to time amended and supplemented, is hereinafter referred to as the "Indenture"). Payment of interest on this Bond shall be made on each Interest Payment Date to the registered Owner hereof as of the applicable Record Date and shall be paid by check mailed by the Trustee to such registered Owner at his address as it appears on the registration books of the Authority or at such other address as is furnished to the Trustee in writing by such registered Owner, or in such other manner as may be permitted by the Indenture. As used herein, the term "Business Day" means a day which is not a Saturday, Sunday or legal holiday on which banking institutions in the State of New York, Commonwealth of Pennsylvania, the City of New York, or the city in which the principal office of the Trustee, the Tender Agent or the Bank are authorized to remain closed or on which the New York Stock Exchange is closed. This Bond is one of the duly authorized bonds designated as the Variable Rate Demand/Fixed Rate Revenue Bonds (Apple Fresh Foods Ltd Project) Series of 1996 of the Authority issued in the aggregate principal amount of $ (herein referred to as the "Bonds") under and by virtue of the Pennsylvania Economic Development Financing Law, Act of August 23, 1967, P.L. 251, as amended and supplemented (the "Act"), and by virtue of a resolution duly adopted by the Authority (the "Bond Resolution"), and equally and ratably secured under the Indenture, for the purpose of raising funds to finance a portion of the costs of a project consisting of, among other things, (i) the acquisition, construction, installation and renovation of certain equipment to be used in connection with a cook-chill system of batch food processing; and (ii) payment of a portion of the costs of issuing the Bonds (the "Project"). Pursuant to a Loan Agreement, dated December 26, 1996 (the "Agreement") by and between the Authority and Apple Fresh Foods Limited, a Pennsylvania corporation (the "Company"), installment payments sufficient for the prompt payment when due of the principal and Purchase Price of, premium, if any, and interest on the Bonds are to be paid to the Trustee for the account of the Authority and deposited in the Bond Fund established by the Indenture and have been duly pledged for that purpose, all to the extent and in the manner provided in the Indenture. The Bonds are all issued under and are equally and ratably secured by and entitled to the protection of the Indenture, pursuant to which all payments due from the Company to the Authority under the Agreement (other than certain indemnification payments and the payment of certain expenses of the Authority) are assigned to the Trustee to secure the payment of the principal of and premium, if any, and interest on the Bonds. Reference is hereby made to the Indenture and the Agreement for a description of the B-2 property pledged and assigned, the provisions, among others, with respect to the nature and extent of the security, the rights, duties and obligations of the Authority, the Trustee and the Owners of the Bonds, and the terms upon which the Bonds are issued and secured; and the Owner of this Bond, by acceptance hereof, hereby consents to the terms and provisions of all of the foregoing as a material portion of the consideration for the issuance of this Bond. THE BONDS ARE SPECIAL LIMITED OBLIGATIONS OF THE AUTHORITY PAYABLE SOLELY AND EXCLUSIVELY FROM THE PAYMENTS REQUIRED TO BE MADE BY THE COMPANY UNDER THE AGREEMENT AND FROM DRAWS ON THE LETTER OF CREDIT. NO RECOURSE SHALL BE HAD FOR THE PAYMENT OF PRINCIPAL, PURCHASE PRICE OR REDEMPTION PRICE OF, OR INTEREST ON, THIS BOND, OR ANY CLAIM BASED HEREON OR ON THE INDENTURE OR THE AGREEMENT, AGAINST THE AUTHORITY OR ANY SUCCESSOR BODY OR AGAINST ANY OFFICER, MEMBER, EMPLOYEE OR AGENT PAST, PRESENT OR FUTURE OF THE AUTHORITY OR ANY SUCCESSOR BODY, UNDER ANY CONSTITUTIONAL PROVISION, STATUTE OR RULE OF LAW, OR BY THE ENFORCEMENT OF ANY ASSESSMENT OR BY ANY LEGAL OR EQUITABLE PROCEEDING OR OTHERWISE, AND ALL SUCH LIABILITY OF THE AUTHORITY OR ANY SUCCESSOR BODY OR ANY SUCH OFFICERS, MEMBERS, EMPLOYEES OR AGENTS IS RELEASED AS A CONDITION OF, AND IN CONSIDERATION FOR, THE ISSUANCE OF THIS BOND. AS A CONDITION OF, AND IN CONSIDERATION FOR, THE ISSUANCE OF THIS BOND, THE REGISTERED OWNER HEREOF COVENANTS THAT HE WILL NOT SUE THE AUTHORITY OR ITS MEMBERS, OFFICERS, EMPLOYEES OR AGENTS, PAST, PRESENT OR FUTURE, EXCEPT AS EXPRESSLY PERMITTED IN THE INDENTURE AND THE AGREEMENT. THE BONDS AND THE INTEREST THEREON SHALL NOT BE IN ANY WAY A DEBT OR LIABILITY OF THE COUNTY OF MONTGOMERY, PENNSYLVANIA (THE "COMMONWEALTH"), THE COMMONWEALTH OF PENNSYLVANIA (THE "COMMONWEALTH") OR ANY POLITICAL SUBDIVISION THEREOF AND SHALL NOT CREATE OR CONSTITUTE ANY INDEBTEDNESS, LIABILITY OR OBLIGATION OF THE COUNTY, THE COMMONWEALTH OR ANY POLITICAL SUBDIVISION THEREOF, EITHER LEGAL, MORAL OR OTHERWISE, AND THE AUTHORITY SHALL NOT INCUR ANY INDEBTEDNESS ON BEHALF OF OR IN ANY WAY TO OBLIGATE THE COUNTY, THE COMMONWEALTH OR ANY POLITICAL SUBDIVISION THEREOF. NEITHER THE MEMBERS OF THE AUTHORITY NOR ANY PERSON EXECUTING THE BONDS SHALL BE LIABLE PERSONALLY ON THE BONDS BY REASON OF THE ISSUANCE THEREOF. THE AUTHORITY IS A CONDUIT ISSUER AND HAS NO TAXING POWER. This Bond is transferable by the Registered Owner hereof in person or by his attorney duly authorized in writing, at the principal corporate trust office of the Trustee but only in the manner, subject to the limitations and upon payment of the charges provided in the Indenture, and upon surrender and cancellation of this Bond. Upon such transfer a new registered Bond or Bonds of authorized denomination or denominations for the same aggregate principal amount will be issued to the transferee in exchange herefor. The Authority and the Trustee may deem and treat the B-3 registered Owner hereof as the absolute Owner hereof (whether or not this Bond shall be overdue) for all purposes, and neither the Authority nor the Trustee shall be bound by any notice or knowledge to the contrary. The Bonds shall be issuable as fully registered Bonds without coupons in the denomination of $5,000 or any integral multiple thereof. Extraordinary Redemption The Bonds are callable for redemption in the event: (1) the Project Facilities or any portion thereof is damaged or destroyed or taken in a condemnation proceeding as provided in Section 6.04 of the Agreement; or (2) the Company shall exercise its option to cause the Bonds to be redeemed as provided in Section 9.02 of the Agreement. If called for redemption at any time pursuant to (1) or (2) above, the Bonds shall be subject to redemption by the Authority on any interest payment date, in whole or in part, at a redemption price of one hundred percent (100%) of the principal amount thereof plus accrued interest to the redemption date. Mandatory Redemption The Bonds are subject to mandatory redemption, five (5) Business Days prior to the Letter of Credit Termination Date, in whole, at a redemption price equal to one hundred percent (100% of the principal amount thereof being redeemed plus accrued interest to the redemption date if, on the thirtieth (30th) Business Day prior to the Letter of Credit Termination Date, the Trustee shall not have received a Substitute Letter of Credit which will be effective on or before the Letter of Credit Termination Date. The Bonds are also subject to mandatory redemption, in whole, at any time, within one hundred eighty (180) days after the Trustee receives notice of the occurrence of a "Determination of Taxability" (as hereinafter defined), at a redemption price equal to one hundred percent (100%) of the aggregate principal amount of Bonds Outstanding plus accrued interest to the redemption date. "Event of Taxability" with respect to any Bond means a change of law or regulations, or the interpretation thereof, or the occurrence of any other event or the existence of any other circumstance (including without limitation the fact that any representations or warranties of the Company or the Authority made in connection with the issuance of any Bond is or was untrue or that a covenant of the Company has been breached) that has the effect of causing interest payable on any Bond to be includable in gross income for federal income tax purposes under Section 103 of the Internal Revenue Code of 1986, as amended, and the applicable regulations thereunder (the "Code") other than by reason that such interest: (i) is includable in the gross income of an Owner or former Owner of any Bond while such Owner or former Owner is or was a "substantial user" or a "related person" to a "substantial user" of the Project Facilities (as such terms are used in Section 147(a)(1) of the Code); or (ii) is deemed an item of tax preference including, without limitation, an item subject to any alternative minimum tax. B-4 "Determination of Taxability" with respect to any Bond shall be deemed to have been made upon the first to occur of the following events: (i) the date on which the Company determines that an Event of Taxability has occurred by filing with the Trustee a statement to that effect supported by one or more tax schedules, returns or documents which disclose that such an Event of Taxability has occurred; (ii) the date on which the Company or the Trustee is advised by private ruling, technical advice or any other written communication from any authorized official of the Internal Revenue Service that, based upon any filings of the Company or any other person or entity, or upon any review or audit of the Company or any other person or entity, or upon any other grounds whatsoever, an Event of Taxability has occurred; (iii) the date on which the Trustee or the Company is advised that a court of competent jurisdiction has issued an order, declaration, ruling or judgment to the effect that an Event of Taxability has occurred; (iv) the date the Trustee shall have received written notice from any owner of the Bonds that such owner has received a written assertion or claim by any authorized official of the Internal Revenue Service that an Event of Taxability has occurred; or (v) the date the Trustee is notified that the Internal Revenue Service has issued any private ruling, technical advice or any other written communication, with or to the effect that an Event of Taxability has occurred; provided, however, that (x) no Determination of Taxability described in each of clauses (i), (ii), (iii), (iv) or (v) above shall be deemed to have occurred unless the Trustee shall have received a written opinion of other nationally recognized bond counsel satisfactory to the Bank and the Company and not unsatisfactory to the Trustee, and in form and substance satisfactory to the Bank and the Company and not unsatisfactory to the Trustee, to the effect that an Event of Taxability has occurred; and (y) no Determination of Taxability described in each of clauses (i), (ii), (iii), (iv) or (v) above shall be deemed to have occurred until 180 days shall have elapsed from the dates described in clauses (i), (ii), (iii), (iv) or (v) above without such Determination of Taxability having been rescinded or canceled. Mandatory Sinking Fund Redemption The Bonds are subject to mandatory redemption on the Interest Payment Date occurring in the month of ____________ in each of the years set forth below (except _______) commencing on the Interest Payment Date occurring in __________ of __________ (each, a "Mandatory Sinking Account Payment Date"), at a redemption price equal to 100% of the principal amount thereof plus accrued interest as follows: B-5 Mandatory Sinking Year Account Payments ---- ---------------- *Final maturity Optional Redemption If the length of time from the Conversion Date to the final maturity date of the Bonds is seven (7) years or more, the Bonds are subject to redemption by the Authority, at the option of the Company, on or after the fifth (5th) anniversary of the Conversion Date, in whole at any time or in part on any Interest Payment Date, at the redemption price of 100% of the principal amount thereof being redeemed plus accrued interest to the redemption date. In the event any of the Bonds or portions thereof are called for redemption as aforesaid, notice of the call for redemption, identifying the Bonds or portions thereof to be redeemed and the redemption price, shall be given by the Trustee by mailing a copy of the redemption notice by first-class mail at least thirty (30) days but not more than sixty (60) days prior to the date fixed for redemption to the Owner of each Bond to be redeemed in whole or in part at the address shown on the registration books. Any notice mailed as provided above shall be conclusively presumed to have been duly given, whether or not the Owner receives the notice. No further interest shall accrue on the principal of any Bond called for redemption after the redemption date if moneys sufficient for such redemption have been deposited with the Trustee. If less than all the Bonds are to be redeemed, the particular Bonds or portions thereof to be redeemed shall be selected by the Trustee by lot. The Bonds are issued pursuant to and in full compliance with the Constitution and laws of the Commonwealth, particularly the Act, and by appropriate action duly taken by the Authority which authorizes the execution and delivery of the Agreement and the Indenture. The Bonds have been issued under the provisions of the Act. Notwithstanding anything to the contrary contained herein or in the Indenture, the Agreement, or in any other instrument or document executed by or on behalf of the Authority in connection herewith, no stipulation, covenant, agreement or obligation contained herein or therein shall be deemed or construed to be a stipulation, covenant, agreement or obligation of any present or future member, commissioner, director, trustee, officer, employee or agent of the Authority, or of any successor to the Authority, in any such person's individual capacity, and no such person, in his individual capacity, shall be liable personally for any breach or nonobservance of or for any failure to perform, fulfill or comply with any such stipulations, covenants, agreements or obligations, nor shall any recourse be had for the payment of the principal of or premium, if any, or interest on B-6 any of the Bonds or for any claim based thereon or on any such stipulation, covenant, agreement or obligation, against any such person, in his individual capacity, either directly or through the Authority or any successor to the Authority, under any rule of law or equity, statute or constitution or by the enforcement of any assessment or penalty or otherwise, and all such liability of any such person, in his individual capacity, is hereby expressly waived and released. The Owner of this Bond shall have no right to enforce the provisions of the Indenture or to institute action to enforce the covenants therein, or to take any action with respect to any default under the Indenture, or to institute, appear in or defend any suit or other proceedings with respect thereto, unless certain circumstances described in the Indenture shall have occurred. In certain events, on the conditions, in the manner and with the effect set forth in the Indenture, the principal of all the Bonds issued under the Indenture and then outstanding may become or may be declared due and payable before the stated maturity thereof, together with interest accrued thereon. The Indenture permits, with certain exceptions as therein provided, the amendment thereof and the modification of the rights and obligations of the Authority and the rights of the Owners of the Bonds at any time by the Authority with the consent of the Company, the Bank and the holders of all Bonds at the time outstanding. Any such consent or any waiver by the Company, the Bank and the holders of all Bonds shall be conclusive and binding upon the Owner and upon all future Owners of this Bond and of any Bond issued in replacement hereof whether or not notation of such consent or waiver is made upon this Bond. The Indenture also contains provisions which, subject to certain conditions, permit or require the Trustee to waive certain past defaults under the Indenture and their consequences. It is hereby certified, recited and declared that all acts, conditions and things required to exist, happen and be performed precedent to and in connection with the execution and delivery of the Indenture and the issuance of this Bond do exist, have happened and have been performed in due time, form and manner as required by law; and that the issuance of this Bond and the issue of which it forms a part, together with all other obligations of the Authority does not exceed or violate any constitutional or statutory limitation. This Bond shall not be valid or become obligatory for any purpose or be entitled to any security or benefit under the Indenture until the certificate of authentication hereon shall have been signed by the Trustee or a duly appointed authenticating agent pursuant to the Indenture. B-7 IN WITNESS WHEREOF, the Montgomery County Industrial Development Authority has caused this Bond to be signed in its name and on its behalf by the manual or facsimile signature of its Chairperson or Vice Chairman and its corporate seal to be affixed, imprinted or reproduced hereon and attested by the manual or facsimile signature of its Secretary or Assistant Secretary, all as of the Date of Issuance. MONTGOMERY COUNTY INDUSTRIAL DEVELOPMENT AUTHORITY Attest:____________________ By:______________________________ Secretary Chairperson (SEAL) (Form of Certificate of Authentication) CERTIFICATE OF AUTHENTICATION This Bond is one of the Bonds of the issue described in the within-mentioned Trust Indenture. DAUPHIN DEPOSIT BANK AND TRUST COMPANY, as Trustee By___________________________________ Authorized Representative Date of Authentication:_________________ B-8 (Form for Transfer) FOR VALUE RECEIVED, , the undersigned, hereby sells, assigns and transfers unto (Tax Identification or Social Security No. ) the within Bond and all rights thereunder, and hereby irrevocably constitutes and appoints attorney to transfer the within Bond on the books kept for registration thereof with full power of substitution in the premises. Dated:_________________________________ __________________________________ NOTICE: Signature(s) must be guaranteed NOTICE: The signature to this by an approved eligible guarantor assignment must correspond with the institution, an institution which is name as it appears upon the face of participant in a Securities Transfer the within Bond in every particular, Association recognized signature without alteration or enlargement or guarantee program. any change whatever. B-9 EXHIBIT "C" CONSTRUCTION FUND REQUISITION NO._________________ Date:_________________ Dauphin Deposit Bank and Trust Company 213 Market Street Harrisburg, PA 17101 Attention: Corporate Trust Services Mail Code 001-01-02 Ladies and Gentlemen: On behalf of the Montgomery County Industrial Development Authority (the "Authority"), I hereby requisition pursuant to Section 6.06 of a Trust Indenture, dated December 26, 1996 (the "Indenture") between the Authority and Dauphin Deposit Bank and Trust Company, as Trustee, the sum of $ to be paid as follows: Name and Address of Payee: Purpose of Obligation: -------------------------- ---------------------- I hereby certify that: (a) such obligation has been incurred by Apple Fresh Foods Limited, as applicable, in connection with the acquisition, construction and equipping of the Project Facilities, as defined in the Indenture; (b) each item is a proper charge against the Construction Fund; (c) such obligation has not been the basis for a prior requisition which has been paid; (d) no written notice of any lien, right to lien or attachment upon, or claim affecting the right to receive payment of, any of the moneys payable under the requisition above has been received; (e) the payment of such requisition will not violate the prohibitions or requirements relating to the use of proceeds set forth in the Agreement; and (f) no Event of Default, as such phrase defined in the Indenture and in the Agreement or event which after notice or lapse of time or both would constitute such an Event of Default has occurred and not been waived or cured. C-1 NOTE: THIS REQUISITION IS NOT COMPLETE AND IS NOT TO BE PAID UNTIL THE APPROVAL OF THE BANK IS RECEIVED IN THE FORM OF EXHIBIT "D" TO THE INDENTURE. APPLE FRESH FOODS LIMITED By_________________________________ Authorized Representative C-2 EXHIBIT "D" BANK APPROVAL CoreStates Bank, N.A., Reading, Pennsylvania, issuer of the Letter of Credit hereby approves the Company's Requisition No. ___________. CORESTATES BANK, N.A. By______________________________ Dated:__________________________ D-1 EX-5 6 TRUST INDENTURE MONTGOMERY COUNTY INDUSTRIAL DEVELOPMENT AUTHORITY and DAUPHIN DEPOSIT BANK AND TRUST COMPANY, as Trustee TRUST INDENTURE Dated December 26, 1996 MONTGOMERY COUNTY INDUSTRIAL DEVELOPMENT AUTHORITY FEDERALLY TAXABLE VARIABLE RATE DEMAND/FIXED RATE REVENUE BONDS (COLLEGEVILLE INN PROJECT) SERIES OF 1996 BOND COUNSEL AUTHORITY SOLICITOR KASSAB ARCHBOLD & O'BRIEN, L.L.P. McGORY, WENTZ, FERNANDEZ & 214 North Jackson Street O'HARA Media, PA 19063 115 West Germantown Pike, Suite 100 Swede Square Norristown, PA 19401 TABLE OF CONTENTS* Page ARTICLE I DEFINITIONS; CONTENT OF CERTIFICATES AND OPINIONS Section 1.01. Definitions...............................................4 Section 1.02. Content of Certificates and Opinions.....................15 Section 1.03. Interpretation...........................................16 ARTICLE II THE BONDS Section 2.01. Authorization of Bonds...................................17 Section 2.02. Terms of Bonds: Interest on the Bonds....................17 Section 2.03. Execution of Bonds.......................................19 Section 2.04. Authentication...........................................20 Section 2.05. Form of Bonds............................................20 Section 2.06. Transfer of Bonds .......................................20 Section 2.07. Exchange of Bonds........................................21 Section 2.08. Bond Register............................................21 Section 2.09. Temporary Bonds..........................................21 Section 2.10. Bonds Mutilated, Lost, Destroyed or Stolen...............21 Section 2.11. Cancellation and Destruction of Surrendered Bonds........22 Section 2.12. Acts of Bondholders; Evidence of Ownership...............22 Section 2.13. Book-Entry Bonds; Securities Depository..................22 ARTICLE III ISSUANCE OF BONDS; APPLICATION OF PROCEEDS Section 3.01. Issuance of the Bonds..........................................23 Section 3.02. Validity of Bonds..............................................24 Section 3.03. Disposition of Proceeds of the Bonds and Other Amounts.........24 *This Table of Contents is for convenience only, does not constitute a part of this Indenture and shall not be considered as having any bearing upon any interpretation of this Indenture. (i) ARTICLE IV REDEMPTION OF BONDS BEFORE MATURITY Section 4.01. Extraordinary and Mandatory Redemption...................24 Section 4.02. Optional Redemption......................................25 Section 4.03. Notice of Redemption.....................................26 Section 4.04. Interest on Bonds Called for Redemption..................26 Section 4.05. Cancellation.............................................26 Section 4.06. Partial Redemption of Bonds..............................26 Section 4.07. Payment of Redemption Price with Available Moneys; Consent of Letter of Credit Bank to Optional Redemption...................................27 ARTICLE V CONVERSION OF INTEREST RATE; DEMAND PURCHASE OPTION Section 5.01. Conversion of Interest Rate on Conversion Date...........27 Section 5.02. Delivery of Bonds After Conversion Date .................29 Section 5.03 Mandatory Tender upon Substitution of Letter of Credit...29 Section 5.04. Demand Purchase Option...................................30 Section 5.05. Funds for Purchase of Bonds..............................31 Section 5.06. Delivery of Purchased Bonds..............................33 Section 5.07. Sale of Bonds by Remarketing Agent.......................33 Section 5.08. Delivery of Proceeds of Sale of Purchased Bonds..........................................34 Section 5.09. Duties of Trustee and Tender Agent with Respect to Purchase of Bonds.............................34 Section 5.10. No Purchases or Sales After Certain Defaults.............35 ARTICLE VI REVENUES AND FUNDS Section 6.01. Creation of the Bond Fund................................35 Section 6.02. Payments into the Bond Fund..............................35 Section 6.03. Use of Moneys in the Bond Fund...........................36 Section 6.04. Custody of Separate Trust Fund...........................36 Section 6.05. Construction Fund........................................36 Section 6.06. Payments into the Construction Fund; Disbursements.......36 Section 6.07. Use of Money in the Construction Fund Upon Default ......37 Section 6.08. Use of Money in the Construction Fund Upon Completion of the Project ..........................37 Section 6.09. Nonpresentment of Bonds..................................37 Section 6.10. Moneys to be Held in Trust...............................37 Section 6.11. Repayment to the Bank and the Company from the Bond Fund.......................................38 Section 6.12. Letter of Credit.........................................38 Section 6.13. Intentionally Omitted....................................38 Section 6.14. Investment of Moneys in Funds............................38 ARTICLE VII PARTICULAR COVENANTS Section 7.01. Punctual Payment.........................................39 Section 7.02. Extension of Payment of Bonds............................39 Section 7.03. Against Encumbrances.....................................40 Section 7.04. Power to Issue Bonds and Make Pledge and Assignment......40 Section 7.05. Accounting Records and Financial Statements..............40 Section 7.06. Intentionally Omitted....................................40 Section 7.07. Other Covenants..........................................40 Section 7.08. Waiver of Laws...........................................41 Section 7.09. Further Assurances.......................................41 ARTICLE VIII EVENTS OF DEFAULT AND REMEDIES OF BONDHOLDERS Section 8.01. Events of Default........................................41 Section 8.02. Acceleration.............................................42 Section 8.03. Other Remedies...........................................44 Section 8.04. Legal Proceedings by Trustee.............................44 Section 8.05. Discontinuance of Proceedings by Trustee.................45 Section 8.06. Bondholders May Direct Proceedings.......................45 Section 8.07. Limitations on Actions by Bondholders....................45 Section 8.08. Trustee May Enforce Rights Without Possession of Bonds......................................46 Section 8.09. Delays and Omissions Not to Impair Rights................46 Section 8.10. Application of Moneys in Event of Default................46 Section 8.11. Trustee and Bondholders Entitled to All Remedies Under Act: Remedies Not Exclusive...............47 Section 8.12. Trustee's Right to Receiver..............................47 Section 8.13. Subrogation Rights of Bank...............................47 Section 8.14. Waiver of Default........................................47 ARTICLE IX THE TRUSTEE; THE TENDER AGENT AND THE REMARKETING AGENT Section 9.01. Duties, Immunities and Liabilities of Trustee............47 Section 9.02. Merger or Consolidation..................................49 Section 9.03. Liability of Trustee.....................................49 Section 9.04. Right of Trustee to Rely on Documents....................50 Section 9.05. Preservation and Inspection of Documents.................50 Section 9.06. Compensation.............................................51 Section 9.07. The Tender Agent.........................................51 Section 9.08. Qualifications of Tender Agent...........................51 Section 9.09. Qualifications of Remarketing Agent; Resignation; Removal.....................................52 Section 9.10. Construction of Ambiguous Provisions.....................52 ARTICLE X MODIFICATION OR AMENDMENT OF THE INDENTURE Section 10.01. Amendments Permitted.....................................52 Section 10.02. Effect of Supplemental Indenture.........................53 Section 10.03. Trustee Authorized to Join in Amendments and Supplements; Reliance on Counsel.....................53 ARTICLE XI DEFEASANCE Section 11.01. Discharge of Indenture...................................53 Section 11.02. Discharge of Liability on Bonds..........................54 Section 11.03. Deposit of Money or Securities with Trustee..............54 Section 11.04. Payment of Bonds After Discharge of Indenture............55 ARTICLE XII MISCELLANEOUS Section 12.01. Liability of Authority Limited to Revenues...............55 Section 12.02. Limitation of Liability of Directors, Etc. of Authority........................................56 Section 12.03. Covenant Not to Sue......................................56 Section 12.04. Successor Is Deemed Included in All References to Predecessor................................56 Section 12.05. Limitation of Rights to Parties, Bank, Company and Bondholders..................................57 Section 12.06. Waiver of Notice.........................................57 Section 12.07. Severability of Invalid Provisions.......................57 Section 12.08. Notices..................................................57 Section 12.09. Evidence of Rights of Bondholders........................59 Section 12.10. Disqualified Bonds.......................................59 Section 12.11. Money Held for Particular Bonds..........................59 Section 12.12. Funds....................................................60 Section 12.13. Payments Due on Days other than Business Days............60 Section 12.14. Execution in Several Counterparts........................60 Section 12.15. Notices to Rating Agency.................................60 Exhibit "A" - Floating Rate Form of Bond....................................A-1 Exhibit "B" - Fixed Rate Form of Bond.......................................B-1 Exhibit "C" - Form of Construction Fund Requisition.........................C-1 Exhibit "D" - Bank Approval.................................................D-1 (ii) This TRUST INDENTURE, made and entered into December 26, 1996, by and between the MONTGOMERY COUNTY INDUSTRIAL DEVELOPMENT AUTHORITY, a body public and corporate and a public instrumentality of the Commonwealth (the "Authority") and DAUPHIN DEPOSIT BANK AND TRUST COMPANY, a banking corporation organized and existing under the laws of the Commonwealth, as trustee (the "Trustee") and tender agent (the "Tender Agent"); W I T N E S S E T H: (Capitalized terms and phrases used in these Recitals, and in the following Granting Clauses, and not otherwise defined shall have the meanings ascribed to them in Section 1.01 of this Indenture.) WHEREAS, the Authority is a body politic and corporate and a public instrumentality of the Commonwealth, organized and existing under the Act, and is authorized under the Act to acquire, hold, construct, improve, maintain, own, finance, lease, in the capacity of lessor or lessee, and/or sell industrial, commercial and specialized development projects for the public purpose of alleviating unemployment, maintaining employment at a high level and creating and developing business opportunities, by the construction, improvement, rehabilitation, revitalization and financing of industrial, commercial and specialized enterprises; and WHEREAS, the Authority has determined to undertake the financing required to provide the funds to the Authority necessary in connection with the Project pursuant to the provisions and requirements of the Act; and WHEREAS, the Authority has entered into the Agreement with the Company wherein the Authority will, among other things, loan the proceeds of the Bonds to the Company, and wherein the Company agrees to, among other things, make certain loan payments to the Authority, all as set forth in the Agreement; and WHEREAS, the Authority has determined to assign, transfer and pledge unto the Trustee; as trustee under this Indenture, all right, title and interest of the Authority (except for certain rights of the Authority to indemnification and the payment of its costs, fees and expenses as more particularly described in the Agreement) in and to the Agreement and sums payable thereunder; and WHEREAS, the Authority is authorized by the Act to borrow money, and the Authority deems it necessary to borrow money under and pursuant to provisions hereof for the purposes of, among other things, financing the costs and expenses of the Project (all in accordance with applicable law) and of carrying out its obligations under the terms of the Agreement, and, to that end, the Authority has duly authorized and directed the issuance, sale and delivery of the Bonds to be issued as fully registered bonds; and to secure payment of the principal thereof and of the interest and premium, if any, thereon and the performance and observance of the covenants and conditions herein contained, the Authority has authorized the execution and delivery of this Indenture; and WHEREAS, the Agreement provides that the Company will cause the Letter of Credit to be delivered by the Bank to the Trustee at the time of delivery of the Bonds for the further security and benefit of Owners of the Bonds; and -1- WHEREAS, the Company and the Bank have entered into the Reimbursement Agreement whereunder the Bank has agreed to issue and maintain the Letter of Credit as provided for therein and herein, and the Company has agreed to, among other things, reimburse the Bank for any draws made by the Trustee on the Letter of Credit and for other costs, expenses and charges, as specified in the Reimbursement Agreement; and WHEREAS, execution and delivery of this Indenture and the issuance of the Bonds hereunder and under the Act have been duly and validly authorized by resolution of the Board of the Authority duly adopted prior to such execution and delivery. GRANTING CLAUSES AND AGREEMENTS NOW, THEREFORE, in consideration of the premises and the acceptance by the Trustee of the trusts hereby created and of the purchase and acceptance of the Bonds issued and sold by the Authority under this Indenture by those who shall own the same from time to time, and of the sum of one dollar, lawful money of the United States, duly paid to the Authority by the Trustee at or before the execution and delivery of this Indenture, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and for the purpose of fixing and declaring the terms and conditions upon which the Bonds are to be executed, authenticated, issued, delivered and accepted by all persons who shall from time to time be or become owners thereof; and in order to secure the payment of the principal of and premium (if any) and interest on, and purchase price of, the Bonds according to their tenor and effect and the performance and observance by the Authority of all the covenants expressed or implied herein and in the Bonds and the payment and performance of all other of the Authority's obligations, the Authority does hereby grant, bargain, sell, convey, pledge and assign, without recourse, unto the Trustee and unto its successors in the trust forever, and grants to the Trustee and to its successors in the trust, a security interest in all of the following: GRANTING CLAUSE FIRST All right, title and interest of the Authority in and to the Agreement and the security granted thereunder and under the Collateral Documents and the other Bond Documents, including, but not limited to: (i) the obligation of the Company under Section 3.03 of the Agreement to make payments at such times and in such amounts as are necessary to pay the principal of, interest and redemption premium, if any, on the Bonds; (ii) the present and continuing right to make claim for, collect, receive and receipt for any of the sums, amounts, income, revenues, issues and profits and any other sums of money payable or receivable under the Agreement, the Collateral Documents and the other Bond Documents (except for the right to receive any Administrative Fees or Expenses and any Additional Payments to the extent payable to the Authority and any rights of the Authority to indemnification); (iii) the right to bring actions and proceedings thereunder or for the enforcement thereof; and (iv) the right to do any and all things which the Authority is or may become entitled to do under -2- the Agreement, the Collateral Documents and the other Bond Documents. GRANTING CLAUSE SECOND All right, title and interest of the Authority in and to all moneys and securities from time to time held by the Trustee under the terms of this Indenture; provided, however, that in consideration of the issuance by the Letter of Credit Bank of the Letter of Credit, the Authority hereby grants a security interest in the Construction Fund to the Letter of Credit Bank in order to secure payment of the obligations of the Company under the Reimbursement Agreement, the rights of the Letter of Credit Bank therein being subject and subordinate to the rights of the Trustee so long as any amount due in respect of the Bonds remains unpaid. GRANTING CLAUSE THIRD Any and all other property rights and interests of every kind and nature from time to time hereafter by delivery or by writing of any kind granted, bargained, sold, alienated, demised, released, conveyed, assigned, transferred, mortgaged, pledged, hypothecated or otherwise subjected hereto, as and for additional security herewith, by the Company or any other person on its behalf or with its written consent or by the Authority or any other person on its behalf or with its written consent, and the Trustee is hereby authorized to receive any and all such property at any and all times and to hold and apply the same subject to the terms hereof. TO HAVE AND TO HOLD all and singular the Trust Estate with all privileges and appurtenances hereby conveyed and assigned, or agreed or intended so to be to the Trustee and its successors in trust forever. IN TRUST NEVERTHELESS, under and subject to the terms and conditions hereinafter set forth: (a) for the equal benefit, protection and security of the Owners of any and all of the Bonds, all of which regardless of the time or times of their issuance or maturity shall be of equal rank, without preference, priority or distinction of any of the Bonds over any other thereof, except as otherwise provided in or pursuant to this Indenture; (b) for securing the observance and performance of the Authority's obligations and of all others of the conditions, promises, stipulations, agreements and terms and provisions of this Indenture and the uses and purposes herein expressed and declared; and (c) for the benefit of the Letter of Credit Bank. PROVIDED, HOWEVER, that if the Authority, its successors or assigns, well and truly pays, or causes to be paid, the principal of the Bonds issued hereunder and the premium (if any) and interest due or to become due thereon, and the purchase price thereof, at the times and in the manner mentioned in the Bonds and as provided herein, according to the true intent and meaning thereof, and shall cause the payments to be made into the Bond Fund as required under Article VI hereof, or shall provide, as permitted hereby, for payment thereof in accordance with Article XI hereof, and shall well and truly keep, perform and observe all of the covenants and conditions pursuant to the terms of this Indenture and all other of the Authority's obligations to be kept, performed and observed by it, and -3- shall pay or cause to be paid to the Trustee all sums of money due or to become due in accordance with the terms and provisions hereof, then upon such final payments or deposits as provided in Article XI hereof, and upon the termination of the Agreement, the right, title and interest of the Trustee in and to the Trust Estate shall cease, terminate and be void, and the Trustee shall thereupon assign, transfer, and turn over the Trust Estate to the Letter of Credit Bank; provided, that if the Trustee shall have received written evidence from the Letter of Credit Bank that all obligations of the Company under the Reimbursement Agreement have been satisfied and that the Reimbursement Agreement has been terminated, or if no Letter of Credit Bank shall then exist, the Trust Estate shall be assigned, transferred and turned over to the Company; and the Trustee shall execute and deliver to the Authority, the Letter of Credit Bank and the Company; as appropriate, such instruments in writing as shall be requisite to evidence such transfer of the Trust Estate. Upon the Trustee's assignment, transfer and turning over to the Letter of Credit Bank or the Company, as appropriate, of the Trust Estate pursuant to the provisions of Section XI hereof, the Trustee shall have no further duties, responsibilities or obligations under and pursuant to this Indenture. AND IT IS EXPRESSLY DECLARED that all Bonds issued and secured hereunder are to be issued, authenticated and delivered and all of the Trust Estate hereby pledged is to be dealt with and disposed of under, upon and subject to the terms, conditions, stipulations, covenants, agreements, trusts, uses and purposes hereinafter expressed, and the Authority has agreed and covenanted and intending to be legally bound does hereby agree and covenant with the Trustee and with the respective Owners from time to time of the Bonds, or any part thereof as follows: ARTICLE I DEFINITIONS; CONTENT OF CERTIFICATES AND OPINIONS Section 1.01. Definitions. Unless the context otherwise requires, the terms and phrases defined in this Section shall, for all purposes of the recitals hereto, this Indenture and of any indenture supplemental hereto and of any certificate, opinion or other document herein mentioned, have the meanings herein specified, to be equally applicable to both the singular and plural forms of any of the terms herein defined. Unless otherwise defined in this Indenture, all terms used herein shall have the meanings assigned to such terms in the Act. "Accountant" means any firm of independent certified public accountants (not an individual) selected by the Company and acceptable to the Bank. "Act" means the Pennsylvania Economic Development Financing Law, Act of August 23, 1967, P.L. 251, as amended and supplemented and as it may, from time to time, hereafter be amended or supplemented. "Additional Payments" means any payments required to be made by the Company pursuant to the Agreement which are not required to be: (i) applied to the payment of scheduled debt service on the Bonds; or (ii) reimbursed to the Letter of -4- Credit Bank for monies drawn on the Letter of Credit to pay debt service on the Bonds. "Administrative Expenses" means those expenses of the Authority and the Bank which are properly chargeable to the Company on account of the Bonds and the Bond Documents as administrative expenses under Generally Accepted Accounting Principles and include, without limiting the generality of the foregoing, the following: (a) fees and expenses of the Trustee, the Tender Agent, the Authority, the Bank and the Placement Agent; and (b) fees and expenses of the Authority's, the Bank's, the Trustee's, the Tender Agent's and the Placement Agent's professional advisors reasonably necessary and fairly attributable to the Project Facilities, including without limiting the generality of the foregoing, fees and reasonable expenses of the Authority's, the Trustee's, the Bank's and the Placement Agent's counsel. "Agreement" means the Loan Agreement, dated December 26, 1996, between the Authority and the Company, together with all supplements thereto. "Authority" means the Montgomery County Industrial Development Authority created pursuant to, and as defined in, the Act, and its successors. "Authority Board" shall mean, at any given time, the governing body of the Authority. "Authorized Representative" means with respect to the Company, the Chairman, the President, Vice President, Secretary, Assistant Secretary or Treasurer thereof, or any other person designated as an Authorized Representative of the Company by a Certificate of the Company executed by the President, Vice President, Secretary, Assistant Secretary or Treasurer of the Company and filed with the Trustee. "Available Moneys" means: (i) moneys derived from drawings under the Letter of Credit; (ii) moneys held by the Trustee in funds and accounts established under this Indenture for a period of at least one hundred twenty-four (124) days and not commingled with any moneys so held for less than said one hundred twenty-four (124) day period and during and prior to which period, no petition in bankruptcy was filed by or against the Company or the Authority under the Bankruptcy Code or any applicable state bankruptcy or insolvency law, unless such petition was dismissed and all applicable appeal periods have expired without an appeal having been filed; (iii) investment income derived from the investment of moneys described in clauses (i) or (ii) above; or (iv) any other moneys, if the Trustee and the Letter of Credit Bank have received an opinion of nationally recognized counsel acceptable to Moody's experienced in bankruptcy matters to the effect that payment of the principal or purchase price of or interest on the Bonds with such moneys would not, in the event of bankruptcy of the Company, the Authority, any affiliate of the Company or other payor, constitute a voidable preference under the Bankruptcy Code or any applicable state bankruptcy or insolvency law. "Bank" means CoreStates Bank, N.A., a national banking association organized and existing under the laws of the United States, whose principal office is located in the City of Philadelphia, Philadelphia County, Pennsylvania, its lawful successors and assigns and, if applicable, the issuer of any Substitute Letter of Credit hereunder. -5- "Bankruptcy Code" means the federal Bankruptcy Code, 11 U.S.C. ss.101 et seq., as amended and supplemented from time to time. "Bond Documents" means any or all of the Agreement, this Indenture, the Tender Agent Agreement, the Remarketing Agreement and all documents, certificates and instruments executed in connection therewith. "Bond Fund" means the fund created in Section 6.01 hereof. "Bond Registrar" means any bank, national banking association or trust company designated as registrar for the Bonds, and its successor appointed under the Indenture. "Bonds" means the $2,500,000 original aggregate principal amount of the Authority's Federally Taxable Variable Rate Demand/Fixed Rate Revenue Bonds (Collegeville Inn Project) Series of 1996 authorized to be issued under this Indenture. "Business Day" means any day other than: (i) a Saturday or Sunday; (ii) a legal holiday or any day on which banking institutions in the State of New York, the Commonwealth, the City of New York, or the city in which the principal office of the Trustee, the Tender Agent or the Bank are authorized to remain closed; or (iii) a day on which the New York Stock Exchange is closed. "Cede & Co." means Cede & Co., as nominee of The Depository Trust Company, New York, New York. "Certificate," "Statement," "Request," "Requisition" and "Order" means: (a) with respect to the Authority, a written certificate, statement, request, requisition or order executed in the name of the Authority by its Chairman, Vice Chairman, Executive Director or such other person as may be designated and authorized to sign for the Authority; or (b) with respect to the Company a written certificate, statement, request, requisition or order executed by an Authorized Representative of the Company. Any such instrument and supporting opinions or representations, if any, may, but need not, be combined in a single instrument with any other instrument, opinion or representation, and the two or more so combined shall be read and construed as a single instrument. If and to the extent required by Section 1.02 hereof, each such instrument shall include the statements provided for in such Section 1.02. "Certified Resolution of the Authority" means a copy of a resolution of the Authority Board certified by the Secretary or an Assistant Secretary of the Authority, or other officer serving in a similar capacity, under its corporate seal, to have been duly adopted by the Authority Board and to be in full force and effect on the date of such certification. "Certified Resolution of the Company" means a copy of a resolution of the Company duly adopted and in full force and effect as of the date of the execution and delivery of the Bonds and the Letter of Credit. -6- "Clearing Fund" means the fund created pursuant to Section 3.03 hereof. "Closing Date" means December 26, 1996 or such other date which shall be the date of the execution and delivery of the Agreement and the other Bond Documents and the issuance and delivery of the Bonds. "Collateral" means all of the rights and assets of the Company or any other Person in which the Authority or the Trustee is now or hereafter granted a lien or security interest in order to secure the performance of (i) the Company's obligations under the Agreement or any of the Collateral Documents or (ii) the obligations of the Authority hereunder or under the Bonds. "Collateral Documents" means all documents executed and delivered or to be executed and delivered and under which the Authority or the Trustee is granted a lien or security interest in any of the rights and assets of the Company or any other Person in order to secure the performance of the Company's obligations under the Agreement or any other Bond Documents or the obligations of the Authority hereunder or under the Bonds. "Commonwealth" means the Commonwealth of Pennsylvania. "Company" means Collegeville Inn Conference & Training Center, Inc. a Pennsylvania corporation. "Completion Date" means the date of completion of the Project, as that date shall be certified as provided in Section 2.03 of the Agreement. "Construction Fund" means the fund created pursuant to Section 6.05 hereof. "Conversion Date" means the Optional Conversion Date. "Conversion Option" means the option granted to the Company in Section 5.01 hereof pursuant to which the interest rate on the Bonds is converted from the Floating Rate to the Fixed Rate as of the Optional Conversion Date. "Cost" or "Costs," means any cost in respect of the Project Facilities permitted under the Act. "Counsel" means an attorney-at-law or law firm (who may be counsel for the Company or for the Authority) satisfactory to the Trustee. "County" means the County of Montgomery, Pennsylvania. -7- "Debt Service Requirements," with reference to a specified period means, with respect to Bonds: (a) amounts required to be paid into any mandatory sinking fund account during the period; and (b) amounts needed to pay the principal of such indebtedness maturing during the period and not to be redeemed prior to maturity from amounts on deposit in any sinking fund or redemption, retirement or similar fund or account; and (c) interest payable on the subject indebtedness during the period, excluding capitalized interest and amounts on deposit with the Trustee which are available under the Indenture to pay interest with respect to such indebtedness. "Demand Purchase Notice" means a notice delivered pursuant to paragraph (i) of Section 5.04 hereof. "Demand Purchase Option" means the option granted to Owners of Bonds to require that Bonds be purchased prior to the Conversion Date pursuant to Section 5.04 hereof. "Determination Date" means with respect to any Floating Rate Bonds, each Wednesday or if such Wednesday is not a Business Day, on the next succeeding Business Day. "Event of Default" means any of the events specified in Section 8.01 of this Indenture. "Fiscal Year" means the period of twelve (12) consecutive months beginning July 1 of each year, or such other period of twelve consecutive months established by the Company as its new Fiscal Year. "Fixed Rate" means the interest rate in effect on any Bonds from and after the Conversion Date, as said rate is determined in accordance with Section 2.02(D) hereof. "Fixed Rate Bonds" means any Bonds which are converted to a Fixed Rate in accordance with the provisions of this Indenture. "Fixed Rate Period" means, with respect to any Bonds, a Period during which interest on such Bonds accrues at a Fixed Rate. "Floating Rate" means a variable rate of interest equal to the minimum rate of interest necessary, in the sole judgment of the Remarketing Agent, to sell the Bonds at a price equal to the principal amount thereof, exclusive of accrued interest, if any, thereon; said interest rate to be in effect on the Bonds from the date of issuance of the Bonds until (but not including) the Conversion Date, as said rate is determined in accordance with Section 2.02(C) hereof. -8- "Floating Rate Bonds" means any Bonds which bear interest at the Floating Rate. "Generally Accepted Accounting Principles" means those accounting principles applicable in the preparation of financial statements of business institutions or industrial development authorities, as appropriate, as promulgated by the Financial Accounting Standards Board or such other body recognized as authoritative by the American Institute of Certified Public Accountants or any successor body. "Government Obligations" means direct obligations of (including obligations issued or held in book entry form) or obligations the principal of and interest on which are unconditionally guaranteed as to full and timely payment by the United States. "Holder," "Owner", "Registered Owner" or "Bondholders" whenever used herein with respect to a Bond, means the person in whose name such Bond is registered on the registration books maintained by the Trustee. "Indenture" means this Trust Indenture, dated December 26, 1996, between the Authority and the Trustee, as originally executed or as it may, from time to time, be supplemented, modified or amended by any Supplemental Indenture. "Interest Payment Date" means prior to the Conversion Date, the first Wednesday of each calendar month, or if such date is not a Business Day, the next succeeding Business Day, commencing February 5, 1997 and from and after the Conversion Date, June 1 and December 1 of each year, commencing on the June 1 or December 1 next following the Conversion Date. "Investment Securities" means any of the following which at the time are legal investments under the laws of the Commonwealth for moneys held hereunder: (i) Government Obligations; (ii) bonds, debentures, notes or other evidences of indebtedness issued by any agency or other governmental or government-sponsored agencies which may be hereafter created by the United States, provided, however, that the full and timely payment of the securities issued by each such agency or government-sponsored agency is secured by the full faith and credit of the United States; (iii) certificates of deposit of, or time deposits in, any bank (including the Trustee) or savings and loan association having securities rated, at the time of purchase or acquisition, in one of the three highest Rating Categories (without regard to modifiers) of Moody's or S&P; (iv) certificates which evidence ownership of the right to the payment of the principal of and interest on obligations described in clauses (i) and (ii) of this definition, provided that such obligations are held in the custody of a bank or trust company in a special account separate from the general assets of such custodian; -9- (v) obligations which, at the time of purchase or acquisition, are rated in one of the two highest Rating Categories (without regard to modifiers) of Moody's and the interest on which is not includable in gross income for federal income tax purposes and the timely payment of the principal of and interest on which is fully provided for by the deposit in trust or escrow of cash or obligations described in clauses (i) or (ii) of this definition; (vi) guaranteed investment contracts or other similar financial instruments with a commercial bank, insurance company or other financial institution whose long term debt obligations are rated, at the time of purchase or acquisition, in one of the two highest Rating Categories (without regard to modifiers) by Moody's; (vii) mutual funds invested primarily in obligations described in clauses (i) and (ii) of this definition, and rated, at the time of purchase, in one of the two highest rating categories (without regard to modifiers) by Moody's, including, if such fund meets the criteria described in this clause (vii), mutual funds managed by the Trustee or an affiliate thereof; (viii) any investment approved in writing by the Bank and Moody's; (ix) repurchase agreements issued by financial institutions: (i) insured by the Federal Deposit Insurance Corporation; or (ii) whose senior debt obligations at the time of purchase are rated, at the time of purchase or acquisition, in any of the three highest Rating Categories (without regard to modifiers) by Moody's; provided, such repurchase agreements are subject to perfected security interests in the Investment Securities of the kind specified in paragraphs (i) or (ii) above, which have a fair market value, exclusive of accrued interest, at least equal to the amount invested in the repurchase agreement; and provided further: (1) the Trustee has possession of the securities; (2) the Trustee has a perfected first security interest in the securities; (3) the securities are free and clear of any third-party liens; and (4) failure to maintain the requisite securities percentage will require the Trustee to liquidate the securities in accordance with the terms of the repurchase agreement; and (x) any other security or obligation constituting a permitted investment under the Act, provided that the Bank and Moody's consent to the investment of funds in such security or obligation. "Issue Date" means the date on which the Trustee authenticates the Bonds and on which the Bonds are delivered to the purchasers thereof upon original issuance. "Letter of Credit" means the Irrevocable Direct Pay Letter of Credit issued by the Letter of Credit Bank pursuant to the provisions of the Reimbursement Agreement, or, in the event of delivery of a Substitute Letter of Credit, such Substitute Letter of Credit. "Letter of Credit Bank" means the Bank, as issuer of the Letter of Credit, and its lawful successors and assigns, and to the extent applicable, the issuer of any Substitute Letter of Credit. -10- "Letter of Credit Termination Date" means the later of: (i) that date upon which the Letter of Credit shall expire or terminate pursuant to its terms; or (ii) that date to which the expiration or termination of the Letter of Credit may be extended, from time to time, either by extension or renewal of the existing Letter of Credit or the issuance of a Substitute Letter of Credit. "Moody's" means Moody's Investors Service, a corporation organized and existing under the laws of the State of Delaware, its successors and their assigns, or, if such corporation shall be dissolved or liquidated or shall no longer perform the functions of a securities rating agency, any other nationally recognized securities rating agency designated by the Authority, with the approval of the Company. "Net Proceeds," when used with respect to any insurance proceeds or any condemnation award, means the amount remaining after deducting all expenses (including attorneys' fees and disbursements) incurred in the collection of such proceeds or award from the gross proceeds thereof. "Obligation Termination Date" means the date on which the Bank delivers to the Trustee a certificate to the effect that all obligations owing to the Bank under the Reimbursement Agreement have been paid in full. "Officers' Certificate" means with respect to the Authority, a certificate, duly executed by the Chairman or Vice Chairman, Secretary or Assistant Secretary, Treasurer or Assistant Treasurer of the Authority, under the corporate seal of the Authority; or with respect to the Company, a certificate duly executed by an Authorized Representative, under the corporate seal of the Company. "Opinion of Counsel" means a written opinion of counsel (who may be counsel for the Authority) selected by the Authority and acceptable to the Trustee. If and to the extent required by the provisions of Section 1.02 hereof, each Opinion of Counsel shall include in substance the statements provided for in such Section 1.02. "Optional Conversion Date" means that date on or after February 5, 1997, which shall be a Business Day, from and after which the interest rate on the Bonds is converted from the Floating Rate to the Fixed Rate as a result of the exercise by the Company of the Conversion Option in accordance with the terms of this Indenture. "Outstanding," when used as of any particular time with reference to Bonds, means (subject to the provisions of Section 12.10) all Bonds theretofore, or thereupon being, authenticated and delivered by the Trustee under this Indenture, except: (1) Bonds theretofore canceled by the Trustee or surrendered to the Trustee for cancellation; (2) Bonds with respect to which all liability of the Authority shall have been discharged in accordance with Section 11.02, including Bonds (or portions of Bonds) referred to in Section 12.10; and (3) Bonds for the transfer or exchange of or in lieu of or in substitution for which other Bonds shall have been authenticated and delivered by the Trustee pursuant to this Indenture. -11- "Participants" means those financial institutions for whom the Securities Depository effects book-entry transfers and pledges of securities deposited with the Securities Depository, as such listing of Participants exists at the time of such reference. "Permitted Encumbrances" means any liens or encumbrances permitted under the Reimbursement Agreement or otherwise permitted by the Bank. "Person" means an individual, corporation, firm, association, partnership, trust, or other legal entity or group of entities, including a governmental entity or any agency or political subdivision thereof. "Placement Agent" means CoreStates Capital Markets, a division of CoreStates Bank, N.A. "Pledge Agreement" means: (i) the Pledge and Security Agreement, dated December 26, 1996, between the the Company and the Bank, and any amendments or supplements thereto; and (ii) any pledge and security agreement made by the Company and the Substitute Bank for the benefit of any Substitute Bank, and any amendments or supplements thereto. "Pledged Bonds" means any Bonds which shall, at the time of determination thereof, be held in pledge for the benefit of the Bank by the Pledged Bonds Custodian pursuant to the Pledge Agreement. "Pledged Bonds Custodian" means that banking entity which serves as the custodian for the Pledged Bonds under the terms and conditions of the Pledge Agreement. The initial Pledged Bonds Custodian shall be the Tender Agent. "Premises" shall mean that certain parcel of real property located at 4000 Ridge Avenue, Collegeville, Pennsylvania, located in the Township of Lower Providence, Montgomery County, Pennsylvania. "Principal Corporate Trust Office" means the principal corporate trust office of the Trustee, which at the date of the execution of the Indenture is located at 213 Market Street, Harrisburg, Pennsylvania 17101, Attention Corporation Trust Services. "Project" means, among other things: (i) the rehabilitation, reconstruction, installation, furnishing and equipping of a building to be used as a conference center, a training center, a food manufacturing/processing and distribution center and a retail restaurant located at 4000 Ridge Pike, Collegeville, Pennsylvania, which is in the Township of Lower Providence, Montgomery County, Pennsylvania; and (ii) the payment of a portion of the costs of issuance of the Bonds. "Project Facilities" shall mean all of the Company's right, title and interest in and to the Premises, together with all the right, title and interest of the Company in and to all buildings, improvements, and appurtenant facilities located on the Premises. -12- "Purchase Price" means an amount equal to 100% of the principal amount of any Bond tendered or deemed tendered pursuant to Sections 5.01, 5.03 or 5.04 hereof, plus accrued and unpaid interest thereon to the date of purchase. "Rating Agency" means Moody's when the Bonds are rated by Moody's and S&P when the Bonds are rated by S&P. "Rating Category" means one of the general rating categories of Moody's or S&P, without regard to any refinement or gradation of such rating category by a numerical modifier or otherwise. "Record Date" means, prior to the Conversion Date, that day which is the seventh calendar day next preceding any Interest Payment Date and thereafter, that date which is the fifteenth calendar day next preceding any Interest Payment Date. "Reimbursement Agreement" means the Reimbursement Agreement, dated December 26, 1996 by and among the Bank and the Company, and any other similar agreement entered into in connection with the issuance of any Substitute Letter of Credit and any and all modifications, alterations, amendments and supplements thereto. "Remarketing Agent" means (singly or collectively, as the case may be) the remarketing agent(s) appointed by the Company and accepted and consented to in writing by the Authority and the Trustee and at the time serving as such under the Remarketing Agreement. "Remarketing Agreement" means the Remarketing Agreement, dated December 26, 1996, by and between the Company and CoreStates Capital Markets, a division of CoreStates Bank, N.A., as the remarketing agent, and accepted and consented in writing to by the Authority and the Trustee. "Replacement Bonds" means Bonds issued to the beneficial owners of the Bonds in accordance with Section 2.13 hereof. "Revenues" means all amounts received by the Authority or the Trustee for the account of the Authority pursuant or with respect to the Agreement or the Letter of Credit, including, without limiting the generality of the foregoing, payments under the Agreement (including both timely and delinquent payments and any late charges, and whether paid from any source), prepayments, insurance proceeds, condemnation proceeds, and all interest, profits or other income derived from the investment of amounts in any fund or account established pursuant to this Indenture. "Securities Depository" means The Depository Trust Company and its successors and assigns or if: (i) the then-Securities Depository resigns from its functions as depository of the Bonds; or (ii) the Authority discontinues use of the then-Securities Depository pursuant to Section 2.13, any other securities depository which agrees to follow the procedures required to be followed by a securities depository in connection with the Bonds and which is selected by the Authority with the consent of the Company. -13- "Securities Depository Nominee" means, as to any Securities Depository, such Securities Depository or the nominee of such Securities Depository in whose name there shall be registered on the registration books maintained by the Trustee the Bond certificates to be delivered to and immobilized at such Securities Depository during the continuation with such Securities Depository of participation in its book-entry system. "Securities Exchange Act" means the Securities Exchange Act of 1934, as amended. "S&P" means Standard & Poor's Rating Services, a division of the McGraw-Hill Companies, Inc., a corporation organized and existing under the laws of the State of Delaware, its successors and their assigns, or, if such corporation shall be dissolved or liquidated or shall no longer perform the functions of a securities rating agency, any other nationally recognized securities rating agency designated by the Authority, with the approval of the Company. "Substitute Bank" means a commercial bank, savings and loan association or savings bank which has issued a Substitute Letter of Credit. "Substitute Letter of Credit" means a letter of credit delivered to the Trustee in accordance with Section 4.07 of the Agreement: (i) issued by the Bank or a Substitute Bank, the short term unsecured debt of which shall then have been assigned a rating by Moody's of "P-1" or the equivalent rating assigned by S&P, or the long term senior subordinated debt of which shall then have been assigned a rating of "Aa3" or higher by Moody's or the equivalent rating assigned by S&P; (ii) replacing any existing Letter of Credit; (iii) dated no later than the date of the expiration or replacement date of the Letter of Credit for which the same is to be substituted; (iv) which shall expire on a date which is 15 days after an Interest Payment Date for the Bonds; (v) having a term of at least one year; and (vi) issued on substantially identical terms and conditions as the then existing Letter of Credit, except that the stated amount of the Substitute Letter of Credit shall equal the sum of: (A) the aggregate principal amount of Bonds at the time Outstanding, plus (B) an amount equal to (i) prior to the Conversion Date, forty-six (46) days' interest or such other number of days as shall be required by the Rating Agency (computed at a rate of 17% per annum) on all Bonds at the time Outstanding and (ii) from and after the Conversion Date, two hundred (200) days' interest or such other number of days as shall be required by the Rating Agency (computed at the fixed rate on all Bonds at the time outstanding). "Substitution Date" shall mean the date the Company delivers a Substitute Letter of Credit to the Trustee in accordance with the terms and conditions of Section 4.07 of the Agreement. "Supplemental Indenture" means any indenture hereafter duly authorized and entered into between the Authority and the Trustee, supplementing, modifying or amending this Indenture, but only if and to the extent that such Supplemental Indenture is specifically authorized hereunder. "Tender Agent" means Dauphin Deposit Bank and Trust Company, a banking corporation organized and existing under the laws of the Commonwealth and its successors and any corporation resulting from or surviving any consolidation or merger to which it or its successors may be a party and any successor Tender Agent at the time serving as successor Tender Agent hereunder and under the Tender Agent Agreement. "Delivery Office" and "Principal Office" of the Tender Agent means 213 Market Street, Harrisburg, Pennsylvania 17101, Attention: Corporate Trust Services or such other address as may be designated in writing to the Authority, the Trustee, the Remarketing Agent and the Company. -14- "Tender Agent Agreement" means the Tender Agent Agreement, dated December 26, 1996, between the Company, the Trustee and the Tender Agent and any amendments and supplements thereto. "Trust Estate" means all property rights and interests transferred, assigned, or otherwise pledged to the Trustee and the Letter of Credit Bank pursuant to the Granting Clauses hereof. "Trustee" means Dauphin Deposit Bank and Trust Company, a banking corporation organized and existing under the laws of the Commonwealth and its successor and any entity resulting from or surviving any consolidation or merger to which it or its successors may be a party and any successor trustee at the time serving as successor trustee hereunder. "United States" means the United States of America. "Unremarketed Bonds" means Bonds which have been purchased pursuant to Sections 5.01, 5.03 or 5.04 hereof but which have not been remarketed. "Weekly Period" shall mean, while the Bonds bear interest at the Floating Rate, the weekly period that begins on and includes Wednesday of each calendar week and ends at the close of business on Tuesday of the next succeeding week. Section 1.02. Content of Certificates and Opinions. The Trustee may, but shall not be obligated to, require that every certificate or opinion provided for in this Indenture with respect to compliance with any provision hereof shall include: (1) a statement to the effect that the Person making or giving such certificate or opinion has read such provision and the definitions herein relating thereto; (2) a brief statement as to the nature and scope of the examination or investigation upon which the certificate or opinion is based; (3) a statement to the effect that in the opinion of such person, he has made or caused to be made such examination or investigation as is necessary to enable him to express an informed opinion with respect to the subject matter referred to in the instrument to which his signature is affixed; (4) a statement of the assumptions upon which such certificate or opinion is based, and that such assumptions are reasonable; and (5) a statement as to whether, in the opinion of such person, such provision has been complied with. Any such certificate or opinion made or given by an officer of the Authority or the Company may be based, insofar as it relates to legal or accounting matters, upon a certificate or opinion of or representation by counsel or an accountant, unless such officer knows, or in the exercise of -15- reasonable care should have known, that the certificate, opinion or representation with respect to the matters upon which such certificate or statement may be based, as aforesaid, is erroneous. Any such certificate or opinion made or given by counsel or an accountant may be based, insofar as it relates to factual matters (with respect to which information is in the possession of the Authority or the Company, as the case may be) upon a certificate or opinion of or representation by an officer of the Authority or the Company, unless such counsel or accountant knows, or in the exercise of reasonable care should have known, that the certificate or opinion or representation with respect to the matters upon which such person's certificate or opinion or representation may be based, as aforesaid, is erroneous. The same officer of the Authority or the Company, or the same counsel or accountant, as the case may be, need not certify to all of the matters required to be certified under any provision of this Indenture, but different officers, counsel or accountants may certify to different matters, respectively. Section 1.03. Interpretation. (a) Unless the context otherwise indicates, words expressed in the singular shall include the plural and vice versa and the use of the neuter, masculine, or feminine gender is for convenience only and shall be deemed to mean and include the neuter, masculine or feminine gender, as appropriate. (b) Headings of articles and sections herein and the table of contents hereof are solely for convenience of reference, do not constitute a part hereof and shall not affect the meaning, construction or effect hereof. (c) All references herein to "Articles," "Sections" and other subdivisions are to the corresponding Articles, Sections or subdivisions of this Indenture; the words "herein," "hereof," "hereby," "hereunder" and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or subdivision hereof. (d) Whenever in this Indenture it is required that notice be provided to the Bank or that consent of the Bank be obtained, such provisions shall be effective only when: (i) the Letter of Credit is in effect; or (ii) the Bank, in its capacity as provider of the Letter of Credit, is the Holder of any Bonds. -16- ARTICLE II THE BONDS Section 2.01. Authorization of Bonds. The Bonds shall be issued hereunder in order to obtain moneys to finance the Project for the benefit of the Authority and the Company. The Bonds are designated as "Montgomery County Industrial Development Authority Federally Taxable Variable Rate Demand/Fixed Rate Revenue Bonds (Collegeville Inn Project), Series of 1996." The aggregate principal amount of Bonds which may be issued and Outstanding under this Indenture shall not exceed Two Million Five Hundred Thousand Dollars ($2,500,000). No additional bonds may be issued under this Indenture. This Indenture constitutes a continuing agreement by the Authority for the benefit of the Holders from time to time of the Bonds to secure the full payment of the principal of and interest on all such Bonds subject to the covenants, provisions and conditions herein contained. Section 2.02. Terms of Bonds; Interest on the Bonds. (A) The Bonds shall be issued in fully registered form. Prior to the Conversion Date: (i) such Bonds shall be Outstanding in denominations of $100,000 or any integral multiple of $5,000 in excess thereof; and (ii) such Bonds may not be issued, exchanged or transferred except in the authorized denominations of $100,000 or any integral multiple of $5,000 in excess thereof. From and after the Conversion Date: (x) such Bonds shall be Outstanding in denominations of $5,000 or any integral multiple of $5,000; and (y) such Bonds may not be issued, exchanged or transferred except in the authorized denominations of $5,000 or any integral multiple of $5,000 in excess thereof. The Bonds shall be dated as of the date of delivery and shall mature, subject to prior redemption, as provided herein. Unless the Authority shall otherwise direct, prior to the Conversion Date the Bonds shall be lettered "VR" and shall be numbered consecutively from 1 upward, and after the Conversion Date the Bonds shall be lettered "FR" and shall be numbered consecutively from 1 upward. (B) Each Bond shall be dated the Issue Date and shall bear interest, payable: (i) prior to the Conversion Date, on the first Wednesday of each calendar month, or if such date is not a Business Day, the next succeeding Business Day commencing February 5, 1997; (ii) on the Conversion Date; and (iii) from and after the Conversion Date, on June 1 and December 1 of each year, commencing on the June 1 or December 1 next following the Conversion Date, in each case from the Interest Payment Date next preceding the date of authentication thereof to which interest has been paid or duly provided for, unless the date of authentication thereof is an Interest Payment Date to which interest has been paid or duly provided for, in which case from the date of authentication thereof, or unless no interest has been paid or duly provided for on the Bonds, in which case from the Issue Date, until payment of the principal thereof has been made or duly provided for. Notwithstanding the foregoing, any Bond authenticated after any Record Date and before the following Interest Payment Date shall bear interest from such Interest Payment Date, provided, however, that if the Authority shall default in the payment of interest due on such Interest Payment Date, then such Bond shall bear interest from the next preceding Interest Payment Date to which interest has been paid or duly provided for, or, if no interest has been paid or duly provided for on the Bonds, from the Issue Date. -17- The Bonds shall mature on December 1, 2016. (C) (i) From the Issue Date to the Conversion Date, the Bonds shall bear interest at the Floating Rate. The Floating Rate shall be determined by the Remarketing Agent by 9:30 a.m. on each Determination Date and shall be effective on such Determination Date for the immediately following Weekly Period. (ii) The Remarketing Agent shall advise the Company and the Trustee of the Floating Rate by telephone (confirmed by telecopy to the Trustee) at or before the close of business on each Determination Date. Upon request of any Bondholder, the Remarketing Agent shall notify such Bondholder of the Floating Rate then borne by the Bonds. (iii) If for any reason the interest rate on a Bond for any Weekly Period is not determined by the Remarketing Agent pursuant to (C)(i) above, or a court holds that the Floating Rate set as provided pursuant to (C)(i) above is invalid or unenforceable, the Floating Rate for such Bonds shall be for the first such Weekly Period that a Floating Rate is not determined by the Remarketing Agent or has been determined invalid or unenforceable, a rate per annum equal to the Floating Rate established by the Remarketing Agent pursuant to (C)(i) on the immediately preceding Determination Date and on each Determination Date thereafter, shall be a rate per annum equal to 85% of the interest rate per annum for 30 day commercial paper having a rating of A-2/P-2 as reported in The Wall Street Journal on each Determination Date. (iv) The determination of the Floating Rate by the Remarketing Agent shall be conclusive and binding upon the Authority, the Trustee, the Bank, the Company, the Remarketing Agent, the Tender Agent and the Owners of the Bonds. Anything herein to the contrary notwithstanding, the Floating Rate shall in no event exceed 17% per annum. (D) The Bonds shall bear interest at the Fixed Rate from and after the Conversion Date until the maturity of the Bonds. The Fixed Rate shall be a fixed annual interest rate on the Bonds established by the Remarketing Agent as the rate of interest for which the Remarketing Agent has received commitments from purchasers on or prior to the 5th Business Day preceding the Conversion Date to purchase all the Outstanding Bonds on the Conversion Date at a price of par. (E) Prior to the Conversion Date, interest on the Bonds shall be computed on the basis of a 365/366-day year, for the actual number of days elapsed. On and after the Conversion Date, interest on the Bonds shall be computed on the basis of a 360-day year of twelve 30-day months. The principal of and premium, if any, on the Bonds shall be payable in lawful money of the United States at the Principal Corporate Trust Office of the Trustee, or of its successor in trust. The Purchase Price of the Bonds shall be payable in lawful money of the United States by the Tender Agent to the Owner of Bonds entitled to receive such Purchase Price. -18- Interest on the Bonds shall be payable on each Interest Payment Date to the persons in whose name the Bonds are registered at the close of business on the Record Date for the respective Interest Payment Date. Interest shall be paid by check mailed to each Owner at the addresses shown on the registration books maintained by the Trustee, provided that such interest shall be paid by wire transfer to: (i) the Bank; and (ii) any Holder of at least $1,000,000 in aggregate principal amount of Bonds, if the Holder makes a written request of the Trustee at least 15 days before a Record Date specifying the account address and wiring instructions. Such a request may provide that it will remain in effect for subsequent interest payments until changed or revoked by written notice to the Trustee or upon the transfer or re-registration of the Bond. The principal of the Bonds shall be payable in lawful money of the United States at the Principal Corporate Trust Office of the Trustee; provided, however that payment of Bonds tendered pursuant to Sections 5.01, 5.03 and 5.04 hereof shall be paid at the Delivery Office of the Tender Agent. Except as provided for in Section 2.13 hereof, no payment of principal shall be made on any Bond until such Bond is surrendered to the Trustee at its Principal Corporate Trust Office. Section 2.03. Execution of Bonds. The Bonds shall be executed in the name and on behalf of the Authority with the manual or facsimile signature of its Chairman, under its seal attested by the manual or facsimile signature of its Secretary. Such seal may be in the form of a facsimile of the Authority's seal and may be reproduced, imprinted or impressed on the Bonds. The Bonds shall then be delivered to the Trustee for authentication by it. In case any of the officers who shall have executed or attested any of the Bonds shall cease to be such officer or officers of the Authority before the Bonds so executed or attested shall have been authenticated or delivered by the Trustee or issued by the Authority, such Bonds may nevertheless be authenticated, delivered and issued and, upon such authentication, delivery and issue, shall be as binding upon the Authority as though those who executed and attested the same had continued to be such officers of the Authority, and also any Bond may be signed and attested on behalf of the Authority by such persons as at the actual date of execution of such Bond shall be the proper officers of the Authority although at the nominal date of such Bond any such person shall not have been such officer of the Authority. Only such of the Bonds as shall bear thereon a certificate of authentication substantially in the form set forth on the form of Bond, manually executed by the Trustee, shall be valid or obligatory for any purpose or entitled to the benefits of this Indenture, and such certificate of the Trustee shall be conclusive evidence that the Bonds so authenticated have been duly executed, authenticated and delivered hereunder and are entitled to the benefits of this Indenture. -19- Section 2.04. Authentication. (a) The Authority hereby appoints the Tender Agent as a co-authenticating agent for the Bonds. (b) No Bond shall be valid or obligatory for any purpose or entitled to any security or benefit under this Indenture unless and until a certificate of authentication on such Bond, substantially in the form set forth in Exhibit "A" and Exhibit "B" attached hereto, shall have been duly executed by the Trustee or by the Tender Agent and such executed certificate of authentication upon any such Bond shall be conclusive evidence that such Bond has been authenticated and delivered under this Indenture. The certificate of authentication on any Bond shall be deemed to have been executed by the Trustee or the Tender Agent if executed by an authorized signatory of the Trustee or the Tender Agent, as the case may be, but it shall not be necessary that the same signatory execute the certificate of authentication on all of the Bonds. (c) In the event any Bond is deemed tendered to the Tender Agent as provided in Section 5.01 or 5.04 hereof but is not physically delivered to the Tender Agent, the Authority shall execute and the Trustee or the Tender Agent shall authenticate a new Bond of like denomination as that deemed tendered. Section 2.05. Form of Bonds. The Floating Rate Bonds and the certificate of authentication to be endorsed thereon prior to the Conversion Date are to be in substantially the form set forth in Exhibit "A" which is attached hereto and hereby made a part hereof as though fully set forth herein, with appropriate variations, omissions and insertions as permitted or required by this Indenture and applicable law. The Fixed Rate Bonds and the certificate of authentication to be endorsed thereon are to be in substantially the form set forth in Exhibit "B" which is attached hereto and hereby made a part hereof as though fully set forth herein, with appropriate variations, omissions and insertions as permitted or required by this Indenture. Section 2.06. Transfer of Bonds. Any Bond may be transferred in accordance with its terms upon the books required to be kept pursuant to the provisions of Section 2.08 hereof. Such transfer shall be made, in accordance with the requirements of Section 2.02 hereof, by the person in whose name it is registered, in person or by his duly authorized attorney, upon surrender of such registered Bond for cancellation, accompanied by delivery of a written instrument of transfer, duly executed in a form approved by the Trustee. Whenever any Bond or Bonds shall be surrendered for transfer, the Authority shall execute and the Trustee or the Tender Agent, as the case may be, shall authenticate and deliver a new Bond or Bonds of the same Series for a like aggregate principal amount. The Trustee shall require the Bondholder requesting such transfer to pay any tax or other governmental charge required to be paid with respect to such transfer, and may in addition require the payment of a reasonable sum to cover expenses incurred by the Authority or the Trustee in connection with such transfer. During the Fixed Rate Period, the Trustee shall not be required to transfer any Bond during the period beginning 15 days before the mailing of notice of redemption calling the Bond or any portion of the Bond for redemption and ending on the redemption date. -20- Section 2.07. Exchange of Bonds. Bonds may be exchanged at the Principal Corporate Trust Office of the Trustee for a like aggregate principal amount of Bonds of the same Series of other authorized denominations in accordance with the requirements of Section 2.02 hereof. The Trustee shall require the Bondholder requesting such exchange to pay any tax or other governmental charge required to be paid with respect to such exchange, and may in addition require the payment of a reasonable sum to cover expenses incurred by the Authority or the Trustee in connection with such exchange. During the Fixed Rate Period, the Trustee shall not be required to exchange any Bond during the period beginning 15 days before the mailing of notice of redemption calling the Bond or any portion of the Bond for redemption and ending on the redemption date. Section 2.08. Bond Register. The Trustee is hereby appointed the Bond Registrar of the Authority and the Tender Agent is hereby appointed the Co-Bond Registrar of the Authority. The Trustee or the Tender Agent, as the case may be, will keep or cause to be kept sufficient books for the registration and transfer of the Bonds, which shall at all times be open to inspection during regular business hours by any Bondholder or his agent duly authorized in writing, the Authority, the Company, the Bank and the Remarketing Agent; and upon presentation for such purpose, the Trustee or the Tender Agent, as the case may be, shall, under such reasonable regulations as they may prescribe, register or transfer or cause to be registered or transferred, on such books, Bonds as hereinbefore provided. Section 2.09. Temporary Bonds. The Bonds may be issued in temporary form exchangeable for definitive Bonds when ready for delivery. Any temporary Bond may be printed, lithographed or typewritten, shall be of such denomination as may be determined by the Authority, shall be in fully registered form without coupons and may contain such reference to any of the provisions of this Indenture as may be appropriate. Every temporary Bond shall be executed by the Authority and be authenticated by the Trustee or the Tender Agent, as the case may be, upon the same conditions and in substantially the same manner as the definitive Bonds. If the Authority issues temporary Bonds it will execute and deliver definitive Bonds as promptly thereafter as practicable, and thereupon the temporary Bonds may be surrendered, for cancellation, in exchange therefor at the Principal Corporate Trust Office of the Trustee and the Trustee or the Tender Agent, as the case may be, shall authenticate and deliver in exchange for such temporary Bonds an equal aggregate principal amount of definitive Bonds of authorized denominations. Until so exchanged, the temporary Bonds shall be entitled to the same benefits under this Indenture as definitive Bonds authenticated and delivered hereunder. Section 2.10. Bonds Mutilated, Lost, Destroyed or Stolen. If any Bond shall become mutilated, the Authority, at the expense of the Holder of said Bond, shall execute, and the Trustee shall thereupon authenticate and deliver, a new Bond of like tenor and number in exchange and substitution for the Bond so mutilated, but only upon surrender to the Trustee of the Bond so mutilated. Every mutilated Bond so surrendered to the Trustee shall be canceled by it and delivered to, or upon the order of, the Authority. If any Bond shall be lost, destroyed or stolen, evidence of such loss, destruction or theft may be submitted to the Authority and the Trustee and, if such evidence be satisfactory to both and indemnity satisfactory to them both shall be given, the Authority, at the expense of the Holder, shall execute, and the Trustee shall thereupon authenticate and deliver, a new Bond of like tenor and number in lieu of and in substitution for the Bond so lost, destroyed or stolen (or if any such Bond shall have matured or shall be about to mature, instead of issuing a substitute Bond, the Trustee may pay the same without surrender thereof). The Authority may require payment by the Holder of a sum not exceeding the actual cost of preparing each new Bond issued under this Section and of the expenses which may be incurred by the Authority and the Trustee in connection therewith. Any Bond issued under the provisions of this Section in lieu of any Bond alleged to be lost, destroyed or stolen shall constitute an original additional contractual obligation on the part of the Authority whether or not the Bond so alleged to be lost, destroyed or stolen be at any time enforceable by anyone, and shall be entitled to the benefits of this Indenture with all other Bonds secured by this Indenture. -21- Section 2.11. Cancellation and Destruction of Surrendered Bonds. All Bonds surrendered for payment or redemption and all Bonds purchased with moneys available for that purpose in any funds established under this Indenture, shall, at the time of such payment or redemption, be canceled and destroyed by the Trustee. The Trustee shall deliver to the Authority certificates of destruction with respect to all Bonds destroyed in accordance with this Section. Section 2.12. Acts of Bondholders; Evidence of Ownership. Any action to be taken by Bondholders may be evidenced by one or more concurrent written instruments of similar tenor signed or executed by such Bondholders in person or by agents appointed in writing. The fact and date of the execution by any person of any such instrument may be proved by acknowledgment before a notary public or other officer empowered to take acknowledgments or by an affidavit of a witness to such execution. Any action by the holder of any Bond shall bind all future holders of the same Bond in respect of any thing done or suffered by the Authority or the Trustee in pursuance thereof. Section 2.13. Book-Entry Bonds; Securities Depository. (a) The Bonds shall initially be registered to Cede & Co., the nominee for the Securities Depository, and no beneficial owner will receive certificates representing their respective interests in the Bonds, except in the event the Trustee issues Replacement Bonds as provided in subsection (b) hereof. It is anticipated that during the term of the Bonds, the Securities Depository will make book-entry transfers among its Participants and receive and transmit payment of principal of, premium, if any, and interest on, the Bonds to the Participants until and unless the Trustee authenticates and delivers Replacement Bonds to the beneficial owners as described in subsection (b). (b) If the Company determines: (1) that the Securities Depository is unable to properly discharge its responsibilities; or (2) that the Securities Depository is no longer qualified to act as a securities depository and registered clearing agency under the Securities Exchange Act; or (3) that the continuation of a book-entry system to the exclusion of any Bonds being issued to any Bondowner other than Cede & Co. is no longer in the best interests of the beneficial owners of the Bonds, then the Trustee shall notify the Bondowners of such determination or such notice and of the availability of certificates of Owners requesting the same, and the Trustee shall register in the name of and authenticate and deliver Replacement Bonds to the beneficial owners or their nominees in principal amounts representing the interest of each, making such adjustments as it may find necessary or appropriate as to accrued interest and previous calls for redemption; provided, that in the case of a determination under (1) or (2) of this subsection (b), the Company, with the consent of the Trustee, may select a successor Securities Depository in accordance with subsection (c) hereof to effect book-entry transfers. In such event, all references to the Securities Depository herein shall relate to the period of time when the Securities Depository has possession of at least one Bond. Upon the issuance of Replacement Bonds, all references herein to obligations imposed upon or to be performed by the Securities Depository shall be deemed to be imposed upon and performed by the Trustee, to the extent applicable with respect to such Replacement Bonds. If the Securities Depository resigns and the Company, the Trustee or Bondowners are unable to locate a qualified successor of the Securities Depository in accordance with subsection (c) hereof, then the Trustee shall authenticate and cause delivery of Replacement Bonds to Bondowners, as provided herein. The Trustee may rely on information from the Securities Depository and its Participants as to the names of the beneficial owners of the Bonds. The cost of printing Replacement Bonds shall be paid for by the Company. (c) In the event the Securities Depository resigns, is unable to properly discharge its responsibilities, or is no longer qualified to act as a securities depository and registered clearing agency under the Securities Exchange Act, the Company may appoint a successor Securities Depository provided the Trustee receives written evidence satisfactory to the Trustee with respect to the ability of the successor Securities Depository to discharge its responsibilities. Any such successor Securities Depository shall be a securities depository which is a registered clearing agency under the Securities Exchange Act, or other applicable statute or regulation that operates a securities depository upon reasonable and customary terms. The Trustee upon its receipt of a Bond or Bonds for cancellation shall cause the delivery of Bonds to the successor Securities Depository in appropriate denominations and form as provided herein. 22 (d) Notwithstanding any provision herein to the contrary, so long as the Bonds are subject to a system of bookentry transfers pursuant to this Section 2.13, any requirement for the delivery of Bonds to the Tender Agent or the Trustee in connection with a tender pursuant to Section 5.01, 5.03 or 5.04 or a partial redemption pursuant to Section 4.01 shall be deemed satisfied upon the transfer, on the registration books of the Securities Depository, of the beneficial ownership interests in such Bonds tendered for purchase to the account of the Tender Agent, or a Participant acting on behalf of or at the discretion of such Tender Agent, or on the books of the Trustee. ARTICLE III ISSUANCE OF BONDS; APPLICATION OF PROCEEDS Section 3.01. Issuance of the Bonds. At any time after the execution of this Indenture, the Authority may execute and the Trustee or the Tender Agent, as the case may be, shall authenticate and, upon request of the Authority, deliver the Bonds in the aggregate principal amount of Two Million Five Hundred Thousand Dollars ($2,500,000). Section 3.02. Validity of Bonds. The validity of the authorization and issuance of the Bonds is not dependent on and shall not be affected in any way by any proceedings taken by the Authority or the Trustee with respect to or in connection with the Agreement. The recital contained in the Bonds that the same are issued pursuant to the Act and the Constitution and laws of the Commonwealth shall be conclusive evidence of their validity and of compliance with all provisions of law in their issuance. Section 3.03. Disposition of Proceeds of the Bonds and Other Amounts. The Authority shall deposit or cause to be deposited with the Trustee, immediately upon receipt thereof, all proceeds derived from the sale of the Bonds, together with any monies deposited by the Company as an equity contribution. The Trustee shall deposit all such amounts in a special fund, which the Trustee is hereby directed to establish and create, to be known as the "Clearing Fund", and in the following order, the Trustee shall: (a) Transfer to the persons identified on the Closing Statement executed by the Authority and the Company and delivered to the Trustee on the Closing Date (the "Closing Statement") to pay or reserve for payment any and all costs of issuance incurred in connection with the Bonds; (b) Transfer to the Company the amount set forth on the Closing Statement to reimburse the Company for any capital expenditures made, if any, in connection with the Project prior to the issuance of the Bonds; and (c) Transfer to the credit of the Construction Fund (created pursuant to Section 6.05 hereof) the balance of the funds held in the Clearing Fund not otherwise reserved for the payment of the items described in subsection 3.03(a) and (b) above. ARTICLE IV REDEMPTION OF BONDS BEFORE MATURITY Section 4.01. Extraordinary and Mandatory Redemption. (a) Extraordinary Redemption. The Bonds are callable for redemption in the event: (1) the Project Facilities or any portion thereof are damaged or destroyed or taken in a condemnation proceeding as provided in Section 6.04 of the Agreement; or (2) the Company shall exercise its option to cause the Bonds to be redeemed as provided in Section 9.02 of the Agreement. If called for redemption at any time pursuant to this Section 4.01(a), the Bonds shall be subject to redemption by the Authority on any Interest Payment Date, in whole or in part, at a redemption price equal to 100% of the principal amount thereof being redeemed, plus accrued interest to the redemption date. -23- (b) Mandatory Redemption. The Bonds are subject to mandatory redemption five (5) Business Days prior to the Letter of Credit Termination Date, in whole, at a redemption price equal to one hundred percent (100%) of the principal amount thereof being redeemed plus accrued interest to the redemption date if, on the thirtieth (30th) Business Day prior to the Letter of Credit Termination Date, the Trustee shall not have received a Substitute Letter of Credit which will be effective on or before the Letter of Credit Termination Date. (c) Mandatory Sinking Fund Redemption. The Bonds are subject to mandatory sinking fund redemption on the Interest Payment Date occurring in the month of December in each of the years set forth below commencing on the Interest Payment Date occurring in December of 1997 (each, a "Mandatory Sinking Account Payment Date"), at a redemption price equal to 100% of the principal amount thereof plus accrued interest as follows: Mandatory Sinking Year Account Payments ---- ---------------- 1997 $ 70,000 1998 70,000 1999 75,000 2000 80,000 2001 85,000 2002 90,000 2003 95,000 2004 100,000 2005 105,000 2006 115,000 2007 120,000 2008 130,000 2009 135,000 2010 145,000 2011 155,000 2012 165,000 2013 175,000 2014 185,000 2015 195,000 2016* 210,000 *Final maturity of the Bonds is December 1, 2016 Section 4.02. Optional Redemption. On or prior to the Conversion Date, the Bonds are subject to redemption by the Authority, at the option of the Company, at any time, subject to provisions of Section 4.03 hereof, in whole or in part, at the redemption price of 100% of the principal amount thereof being redeemed plus accrued interest to the redemption date. -24- After the Conversion Date, if the length of time from the Conversion Date to the final maturity date of the Bonds is seven (7) years or more, the Bonds are subject to redemption by the Authority, at the option of the Company, on or after the fifth anniversary of the Conversion Date, in whole at any time or in part on any Interest Payment Date, at the redemption price of 100% of the principal amount thereof being redeemed plus accrued interest to the redemption date. Notwithstanding the foregoing, no such optional redemption shall occur after the Conversion Date unless there shall be available in the Bond Fund sufficient Available Moneys to pay all amounts due with respect to such a redemption. Section 4.03. Notice of Redemption. Notice of the call for redemption, identifying the Bonds or portions thereof to be redeemed and the redemption price (including the premium, if any), shall be given by the Trustee by mailing a copy of the redemption notice by first-class mail, postage prepaid, at least thirty (30) days but not more than sixty (60) days prior to the date fixed for redemption to the Owner of each Bond to be redeemed in whole or in part at the address shown on the registration books. Such notice shall contain such matters specified in the Bonds for the redemption thereof and shall state that such redemption is conditional upon the receipt of monies by the Trustee for such purpose on or prior to the redemption date. Any notice mailed as provided in this Section shall be conclusively presumed to have been duly given, whether or not the Owner receives the notice. The Trustee shall deliver a copy of any such redemption notice to the Tender Agent, the Company and to the Remarketing Agent. Section 4.04. Interest on Bonds Called for Redemption. Upon the giving of notice and the deposit of Available Moneys for redemption at the required times on or prior to the date fixed for redemption, as provided in this Article, interest on the Bonds or portions thereof thus called shall no longer accrue after the date fixed for redemption. Section 4.05. Cancellation. All Bonds which have been redeemed shall not be reissued but shall be canceled and destroyed by the Trustee in accordance with Section 2.11 hereof. Section 4.06. Partial Redemption of Bonds. (a) If less than all the Bonds are to be redeemed, the particular Bonds or portions thereof to be redeemed shall be selected by the Trustee by lot. (b) Upon surrender of any Bond for redemption in part only, the Authority shall execute and the Trustee shall authenticate and deliver to the Owner thereof a new Bond or Bonds of authorized denominations, in an aggregate principal amount equal to the unredeemed portion of the Bond surrendered. If all or a portion of Bonds tendered for purchase pursuant to Section 5.04 hereof have been selected by the Trustee for redemption, the Tender Agent, upon receipt of such tendered Bonds, shall authenticate and redeliver only such portion of tendered Bonds not subject to redemption. The Tender Agent shall deliver to the tendering Bondholder a copy of the notice of redemption, indicating the portion of the Bonds subject thereto, and upon receipt of funds as provided herein, an amount representing the principal of and interest on the Bonds not called for redemption. The principal of and interest accrued on the Bonds called for redemption shall be paid to such bondholder on the redemption date. The Tender Agent shall cancel the Bond or such portion thereof tendered for purchase and subject to redemption, and shall deliver a certificate evidencing such cancellation and the canceled Bond to the Trustee. -25- (c) (i) Prior to the Conversion Date, in case a Bond is of a denomination larger than $100,000, a portion of such Bond ($100,000 or any integral multiple of $5,000 in excess thereof) may be redeemed, but Bonds shall be redeemed only if the remaining unredeemed portion of such Bond is in the principal amount of $100,000 or any integral multiple of $5,000 in excess of $100,000. (ii) After the Conversion Date, in case a Bond is of a denomination larger than $5,000, a portion of such Bond ($5,000 or any integral multiple thereof) may be redeemed, but Bonds shall be redeemed only if the remaining unredeemed portion of such Bond is in the principal amount of $5,000 or any integral multiple of $5,000. (d) Notwithstanding anything to the contrary contained in this Indenture, whenever the Bonds are to be redeemed in part, Bonds which are Pledged Bonds at the time of selection of Bonds for redemption shall be selected for redemption prior to the selection of any other Bond. If the aggregate principal amount of Bonds to be redeemed exceeds the aggregate principal amount of Pledged Bonds at the time of selection, the Trustee may select for redemption Bonds in an aggregate principal amount equal to such excess in such manner as the Trustee in its discretion shall deem fair and appropriate. Section 4.07. Payment of Redemption Price with Available Moneys; Consent of Letter of Credit Bank to Optional Redemption. Notwithstanding any provision to the contrary contained in this Indenture, the payment of the redemption price of Bonds shall be made only from Available Moneys. On each date that the Bonds are subject to redemption, the Trustee shall draw on the Letter of Credit in an amount sufficient to pay the full redemption price of the Bonds then subject to redemption from the sources and in the order provided in Section 6.03 hereof. As long as the Bank is not in default under the Letter of Credit, the Trustee shall not call Bonds for Optional Redemption unless it has received the prior written consent to such Optional Redemption from the Letter of Credit Bank. ARTICLE V CONVERSION OF INTEREST RATE; DEMAND PURCHASE OPTION Section 5.01. Conversion of Interest Rate on Conversion Date. The interest rate on the Bonds shall be converted from the Floating Rate to the Fixed Rate upon the exercise by the Company of the Conversion Option, and the Bonds shall be subject to mandatory tender for purchase by the Owners thereof on the Conversion Date. To exercise the Conversion Option, the Company shall notify the Trustee, the Tender Agent, the Bank, the Authority and the Remarketing Agent at least thirty-five (35) days prior to the Conversion Date of such exercise, cause the Remarketing Agent to furnish to the Trustee the information set forth in paragraphs 1 and 4 below and, thereafter cause the Trustee to deliver or mail by first class mail a notice at least twenty (20) days but not more than thirty (30) days prior to the Conversion Date to the Owner of each Bond at the address shown on the registration books of the Bond Registrar. No such notice may be given unless the Trustee first receives: (i) a commitment from the Bank or a Substitute Bank to issue a Substitute Letter of Credit to take effect on the Conversion Date, together with a proposed form of such Substitute Letter of Credit; and (ii) a Company certificate to the effect that each of the Company's representations and warranties made in the Agreement and in any other agreements or certificates given by the Company in connection with the issuance of the Bonds remain true and correct in all material respects as of the proposed Conversion Date. Any notice given as provided in this section shall be conclusively presumed to have been duly given, whether or not the Owner receives the notice. Said notice shall state in substance the following: -26- 1. the Conversion Date; 2. that the existing Letter of Credit will expire five (5) Business Days after the Conversion Date; 3. that unless firm commitments for the purchase of all Outstanding Bonds have been received on or prior to the fifth (5th) Business Day prior to the proposed Conversion Date, the Company has the option to rescind an optional conversion of the Bonds; and 4. that in the event the Company elects not to rescind the optional conversion of the Bonds, all Bonds shall be subject to mandatory purchase on the Conversion Date pursuant to this Section 5.01. On or prior to the Conversion Date, Owners of Bonds shall be required to deliver their Bonds to the Tender Agent for purchase at the Purchase Price, and any such Bonds not delivered to the Tender Agent on or prior to the Conversion Date ("Undelivered Bonds"), for which there has been irrevocably deposited in trust with the Trustee or the Tender Agent an amount of money sufficient to pay the Purchase Price of the Undelivered Bonds, shall be deemed to have been purchased pursuant to this Section 5.01 and are deemed to be no longer Outstanding with respect to such prior Owners. IN THE EVENT OF A FAILURE BY AN OWNER OF BONDS TO DELIVER ITS BONDS ON OR PRIOR TO THE CONVERSION DATE, SAID OWNER SHALL NOT BE ENTITLED TO ANY PAYMENT (INCLUDING ANY INTEREST TO ACCRUE ON OR SUBSEQUENT TO THE OPTIONAL CONVERSION DATE) OTHER THAN THE PURCHASE PRICE FOR SUCH UNDELIVERED BONDS, AND ANY UNDELIVERED BONDS SHALL NO LONGER BE ENTITLED TO THE BENEFIT OF THIS INDENTURE, EXCEPT FOR THE PURPOSE OF PAYMENT OF THE PURCHASE PRICE THEREFOR. Notwithstanding the foregoing provisions, to the extent that at the close of the fifth Business Day prior to the proposed Conversion Date, the Remarketing Agent has not presented to the Company firm commitments for the purchase of all of the Bonds, the Company, at its option, may rescind an optional conversion of the Bonds. Any such election to rescind must be made by the close of the fourth Business Day prior to the proposed Conversion Date and the Company shall give written notice to the Trustee, the Tender Agent and the Bank of its decision to rescind by such time. The Company shall cause the Trustee to immediately notify the Owners of such rescission and thereafter the Bonds shall bear interest at the Floating Rate in effect for the current Weekly Period and thereafter the Bonds shall bear interest at the Floating Rate until any subsequent Conversion Date effected in accordance with this Indenture. In the event the Company rescinds the proposed optional conversion in accordance with the terms of the foregoing paragraph, the Letter of Credit then in effect will remain in effect in accordance with its terms. -27- The Bonds are subject to mandatory purchase in whole on the Conversion Date, at a purchase price equal to 100% of the principal amount thereof being purchased, plus accrued interest to the purchase date; provided, however, that: (i) all Pledged Bonds for which a commitment to purchase has not been received in connection with a conversion of the Bonds to a Fixed Rate, shall be redeemed or otherwise paid by the Company on or before the Conversion Date; and (ii) no such mandatory purchase shall take place in the event the Company exercises its right to rescind the conversion. Section 5.02. Delivery of Bonds After Conversion Date. At any time prior to the Record Date preceding the first Interest Payment Date following the Conversion Date, the Trustee or the Tender Agent, as the case may be, shall deliver Bonds in the form of Exhibit "B" hereto. Prior to the delivery by the Trustee of such Bonds, there shall be filed with the Trustee a request and authorization to the Trustee on behalf of the Authority, which shall be executed by the Chairman, Vice Chairman, Secretary, Assistant Secretary or any authorized officer of the Authority to authenticate and deliver the Bonds, as executed by the Authority, to the purchasers thereof. Such delivery shall be made by the Trustee or the Tender Agent, as the case may be, without making any charge therefor to the Owner of such Bonds. Section 5.03. Mandatory Tender upon Substitution of Letter of Credit. Prior to the Conversion Date, the Bonds are subject to mandatory purchase in whole on the Substitution Date, at a purchase price equal to 100% of the principal amount thereof being purchased, plus accrued interest to the purchase date. The Trustee shall deliver or mail by first class mail a notice at least twenty (20) days but not more than thirty (30) days prior to the Substitution Date to the Owner of each Bond at the address shown on the registration books of the Bond Registrar notifying such Owner that their Bonds are subject to mandatory purchase. No such notice may be given unless the Company shall have satisfied the provisions of Section 4.07 of the Agreement. Any notice given as provided in this Section 5.03 shall be conclusively presumed to have been given, whether or not the Owner receives the notice. Said notice shall state in substance the following: (1) the Substitution Date; (2) that the existing Letter of Credit securing such Bonds will expire five (5) Business Days after the Substitution Date; and (3) that if the Company satisfies the conditions precedent to delivery of the Substitute Letter of Credit, all Bonds shall be subject to mandatory purchase on the Substitution Date pursuant to this Section 5.03. On or prior to the Substitution Date, Owners of Bonds shall be required to deliver their Bonds to the Tender Agent for purchase at the Purchase Price, and any such Bonds not delivered to the Tender Agent on or prior to the Substitution Date ("Undelivered Bonds"), for which there has been irrevocably deposited in trust with the Trustee or the Tender Agent an amount of money sufficient to pay the Purchase Price of the Undelivered Bonds, shall be deemed to have been purchased pursuant to this Section 5.03 and are deemed to be no longer Outstanding with respect to such prior Owners. IN THE EVENT OF A FAILURE BY AN OWNER OF BONDS TO DELIVER ITS BONDS ON OR PRIOR TO THE SUBSTITUTION DATE, SAID OWNER SHALL NOT BE ENTITLED TO ANY PAYMENT (INCLUDING ANY INTEREST TO ACCRUE ON OR SUBSEQUENT TO THE SUBSTITUTION DATE) OTHER THAN THE PURCHASE PRICE FOR SUCH UNDELIVERED BONDS, AND ANY UNDELIVERED BONDS SHALL NO LONGER BE ENTITLED TO THE BENEFIT OF THIS INDENTURE, EXCEPT FOR THE PURPOSE OF PAYMENT OF THE PURCHASE PRICE THEREFOR. -28- Notwithstanding the foregoing provisions, to the extent that at the close of the fifth Business Day prior to the proposed Substitution Date, the Company has not delivered to the Authority, the Trustee and the Remarketing Agent the items set forth in Section 4.07(i) through (iv) of the Agreement, the mandatory purchase of Bonds shall be rescinded and the Trustee shall notify the Owners of such rescission immediately and thereafter the Bonds shall continue to be secured by the existing Letter of Credit until its termination date. Section 5.04. Demand Purchase Option. Prior to the Conversion Date, any Bond shall be purchased at the Purchase Price from the Owner thereof upon: (i) delivery by such Owner to the Trustee and the Tender Agent at their Principal Corporate Trust Office and Delivery Office, respectively, and to the Remarketing Agent at its principal office set forth in Section 12.08 hereof, of a notice (the "Demand Purchase Notice") (said notice to be irrevocable and effective upon receipt) which states: (1) the aggregate principal amount and bond numbers of the Bonds to be purchased; and (2) the date on which such Bonds are to be purchased, which date shall be a Business Day not prior to the seventh (7th) day next succeeding the date of delivery of such notice and which date shall be prior to the Conversion Date; -29- (ii) if such Bonds are to be purchased prior to an Interest Payment Date and after the Record Date in respect thereof, delivery to the Tender Agent together with the Demand Purchase Notice described in (i) above, of a nonrecourse due-bill, payable to bearer, for interest due on such interest payment date; and (iii) delivery to the Tender Agent at its Delivery Office at or prior to 10:00 a.m., New York City time, on the date designated for purchase in the applicable Demand Purchase Notice of such Bonds to be purchased, with an appropriate endorsement for transfer or accompanied by a bond power endorsed in blank. Any Bond as to which a Demand Purchase Notice has been delivered pursuant to paragraph (i) above, must be delivered to the Tender Agent, as provided in (iii) above, and any such Bond not so delivered ("Undelivered Bonds"), for which there has been irrevocably deposited in trust with the Trustee or the Tender Agent an amount of money sufficient to pay the Purchase Price thereof, shall be deemed to have been purchased at the Purchase Price pursuant to this Section 5.04 and are deemed to be no longer Outstanding with respect to such tendering Owner. IN THE EVENT OF A FAILURE BY AN OWNER OF BONDS TO DELIVER ITS BONDS AS SPECIFIED ABOVE, SAID OWNER SHALL NOT BE ENTITLED TO ANY PAYMENT (INCLUDING ANY INTEREST TO ACCRUE ON OR SUBSEQUENT TO THE DATE DESIGNATED FOR PURCHASE IN THE APPLICABLE DEMAND PURCHASE NOTICE) OTHER THAN THE PURCHASE PRICE FOR SUCH UNDELIVERED BONDS, AND ANY UNDELIVERED BONDS SHALL NO LONGER BE ENTITLED TO THE BENEFIT OF THE INDENTURE, EXCEPT FOR THE PAYMENT OF THE PURCHASE PRICE THEREFOR. Notwithstanding the foregoing provisions, in the event any Bond as to which the Owner thereof has exercised the Demand Purchase Option is remarketed to such Owner pursuant to the Remarketing Agreement, such Owner need not deliver such Bond to the Tender Agent as provided in (iii) above, although such Bond shall be deemed to have been delivered to the Tender Agent, redelivered to such Owner, and remarketed for purposes of this Indenture, including, without limitation, for purposes of adjusting the Floating Rate as provided in Section 2.02(C) hereof. Section 5.05. Funds for Purchase of Bonds. (a) On the date Bonds are to be purchased pursuant to Section 5.01, Section 5.03 or Section 5.04 hereof, such Bonds shall be purchased at the Purchase Price only from the funds listed below. Subject to the provisions of Section 6.12(b), funds for the payment of the Purchase Price shall be derived from the following sources in the order of priority indicated: -30- (i) moneys drawn by the Trustee under the Letter of Credit (in the event of a drawing on the Letter of Credit to fund payment of the Purchase Price of Bonds tendered pursuant to Section 5.03 hereof, the Trustee shall draw on the existing Letter of Credit and not the Substitute Letter of Credit to fund such payment); (ii) proceeds of the remarketing of the Bonds; and (iii) any other Available Moneys furnished to the Trustee or the Tender Agent and available for such purpose. (b) Payment for the Bonds purchased pursuant to Sections 5.01, 5.03 or 5.04 shall be made as follows: (i) On the Business Day immediately preceding the date on which such Bonds are to be purchased (the "Purchase Date"), the Trustee shall make a drawing pursuant to the Letter of Credit in respect of the Purchase Price of such Bonds. In connection therewith, the Trustee shall prepare and present to the Bank the appropriate certificates required under the Letter of Credit by 12:00 noon, New York City time on the Business Day immediately preceding the Purchase Date. (ii) By not later than 10:00 a.m., New York City time, on the Purchase Date, the Remarketing Agent shall give telephonic notice, promptly confirmed in writing, to the Bank, the Trustee and the Tender Agent, specifying: (1) the total principal amount of Bonds, if any, remarketed by it; and (2) the names of the persons to whom such Bonds were sold and are to be registered, each such person's address and social security number or taxpayer identification number, the denominations in which replacement Bonds are to be prepared, and any other appropriate registration and transfer instructions. (iii) There is hereby established with the Tender Agent a special fund to be designated the "Bond Purchase Fund" and therein two separate and segregated accounts to be designated the "Remarketing Account" and the "Bank Account." An amount equal to the proceeds received by the Trustee pursuant to a draw under the Letter of Credit shall be transferred by the Trustee in immediately available funds to the Tender Agent for deposit in the Bank Account no later than 12:30 p.m., New York City time on the applicable Purchase Date. (iv) No later than 1:00 p.m., New York City time, on each Purchase Date, the Tender Agent shall give telephonic notice (promptly confirmed by telecopy) to the Remarketing Agent of the amount deposited in the Bank Account on such date. No later than 2:00 p.m., New York City time, on each Purchase Date the Remarketing Agent shall: (x) transfer to the Bank an amount of the proceeds of the remarketing of the Bonds equal to the amount deposited in the Bank Account on such Purchase Date; (y) transfer the remainder of the proceeds of the remarketing of the Bonds to the Tender Agent for deposit in the Remarketing Account and shall give telephonic notice (promptly confirmed by telecopy) to the Tender Agent of the amount of such proceeds transferred to the Bank; and (z) give telephonic notice, promptly confirmed in writing, to the Company of the total principal amount of Unremarketed Bonds, if any. (v) The Tender Agent shall pay the Purchase Price to the tendering Bondholders from the amounts on deposit in the Bank Account to the extent available. If amounts on deposit in the Bank Account are insufficient to pay the Purchase Price to the tendering Bondholders, the Tender Agent shall make up any such deficiency from amounts on deposit in the Remarketing Account. -31- (vi) The Bank shall give telephonic confirmation to the Tender Agent and the Trustee by 4:00 p.m., New York City time on the applicable Purchase Date of its receipt of the remarketing proceeds described in Section 5.05(b)(iv) hereof. Section 5.06. Delivery of Purchased Bonds. (a) Remarketed Bonds shall be delivered by the Tender Agent, at its Delivery Office, to or upon the order of the purchasers thereof. (b) Unremarketed Bonds purchased with funds drawn under the Letter of Credit shall be delivered by the Tender Agent to the Pledged Bonds Custodian or otherwise upon the order of the Bank pursuant to the Pledge Agreement. (c) Unremarketed Bonds purchased with moneys described in Section 5.05(a)(iii) hereof shall, at the direction of the Company, be: (i) delivered as instructed by the Company; or (ii) delivered to the Trustee for cancellation; provided, however, that any Bonds so purchased after the selection thereof by the Trustee for redemption shall be delivered to the Trustee for cancellation. (d) The Tender Agent shall deliver to the person to whom the Tender Agent is to deliver such Bonds, the nonrecourse due-bills, if any, delivered to the Tender Agent with respect to such Bonds in accordance with Section 5.04 hereof. Bonds delivered as provided in this Section shall be registered in the manner directed by the recipient thereof. Section 5.07. Sale of Bonds by Remarketing Agent. (a) On each Purchase Date, the Remarketing Agent shall offer for sale and use its best efforts to sell, as agent of the Company, all Bonds tendered or deemed tendered for purchase on such Purchase Date at the Purchase Price thereof and, if such Bonds are not sold on such date, the Remarketing Agent shall continue, for a period not in excess of thirty (30) days thereafter, to use its best efforts to sell such Bonds. (b) Notwithstanding anything to the contrary herein: (i) the Remarketing Agent shall use its best efforts to remarket any Bonds tendered or deemed tendered for purchase in such a manner that, immediately following the remarketing of any Bonds, at least one (1) Holder will own at least $200,000 in aggregate principal amount of Bonds; and (ii) the Remarketing Agent shall not remarket any Bonds to the Authority, the Company or any affiliate thereof. -32- Section 5.08. Delivery of Proceeds of Sale of Purchased Bonds. (a) Except in the case of the sale of any Pledged Bonds, the proceeds of the sale of any Bonds delivered or deemed delivered to the Tender Agent pursuant to Sections 5.01, 5.03 or 5.04 hereof, to the extent not required to pay the Purchase Price to tendering Bondholders and not required to reimburse the Bank under the Reimbursement Agreement, shall be paid to or upon the order of the Company. (b) In the event the Remarketing Agent shall have remarketed any Pledged Bonds and the Company or the Remarketing Agent shall have directed the Bank to cause the Pledged Bonds Custodian to deliver such Pledged Bonds to the Tender Agent pursuant to the Pledge Agreement, such Bonds shall be delivered to the Tender Agent and the proceeds of sale of such Bonds shall be delivered to the Delivery Office of the Tender Agent, and shall be paid to or upon the order of the Bank; provided that any amounts so paid in excess of amounts then due to the Bank in respect of drawings under the Letter of Credit shall be delivered by the Bank to or upon the order of the Company; provided further that Pledged Bonds shall not be delivered to the Tender Agent until the Letter of Credit has been reinstated in accordance with the terms of the Pledge Agreement and the Letter of Credit. Section 5.09. Duties of Trustee and Tender Agent with Respect to Purchase of Bonds. (a) The Tender Agent shall hold all Bonds delivered to it pursuant to Sections 5.01, 5.03 or 5.04 hereof in trust for the benefit of the respective Owners of Bonds which shall have so delivered such Bonds until moneys representing the Purchase Price of such Bonds shall have been delivered to or for the account of or to the order of such Owners of Bonds. Upon delivery of monies representing the Purchase Price of such Bonds to or for the account of or to the order of such Owners of Bonds, the Tender Agent shall deliver all such Unremarketed Bonds, the funds for which have been obtained by a drawing under the Letter of Credit, to the Pledged Bonds Custodian pursuant to Section 5.06(b) hereof for the purpose of perfecting the Bank's security interest therein under the Pledge Agreement unless the Bank shall direct the Tender Agent to deliver such Bonds to or upon the order of the Bank in accordance with Section 5.06 hereof. (b) The Trustee and the Tender Agent shall hold all moneys delivered to them pursuant to this Indenture for the purchase of Bonds in a separate account, in trust for the benefit of the Bank or, in the case of remarketed Bonds, the purchasers of such Bonds, until the Bonds purchased with such moneys shall have been delivered to or for the account of the Pledged Bonds Custodian, the Bank or to such other purchaser, as appropriate. -33- (c) The Trustee shall deliver to the Company and the Bank a copy of each notice delivered to it in accordance with Section 5.04 within two (2) days of the receipt thereof. (d) As soon as possible, but not later than the close of business on any date designated for purchase of Bonds in accordance with Section 5.04; the Tender Agent shall give telephonic or telegraphic notice to the Remarketing Agent and the Trustee specifying the principal amount of Bonds delivered or deemed delivered for purchase on such date. (e) The Trustee shall draw moneys under the Letter of Credit in accordance with the terms thereof to the extent required by Sections 5.05 and 6.12 hereof to provide for timely payment of the Purchase Price of Bonds. Section 5.10. No Purchases or Sales After Certain Defaults. Anything in this Indenture to the contrary notwithstanding, there shall be no purchases or sales of Bonds pursuant to Section 5.04 if there shall have occurred any Event of Default in respect of which the principal of all Bonds Outstanding shall have been declared immediately due and payable pursuant to Section 8.02 and such declaration shall not have been annulled. If the Trustee shall have given a notice of a call for redemption pursuant to Section 4.03 hereof and such notice shall not have been rescinded, the Remarketing Agent shall provide a notice of such redemption to any prospective purchaser of such Bonds upon the remarketing of any Bonds tendered pursuant to Section 5.04 hereof. Nothing in this Section is intended to limit secondary trading or transfer of the Bonds. ARTICLE VI REVENUES AND FUNDS Section 6.01. Creation of the Bond Fund. There is hereby created and established with the Trustee a trust fund to be designated "Bond Fund" which shall be used to pay when due the principal and Purchase Price of, premium, if any, and interest on the Bonds. Section 6.02. Payments into the Bond Fund. There shall be deposited into the Bond Fund from time to time the following: (a) any amount in the Construction Fund directed to be paid into the Bond Fund in accordance with the provisions of Section 6.07 or Section 6.08 hereof; (b) any amount deposited into the Bond Fund pursuant to Section 6.04 hereof; (c) all payments specified in Sections 3.03 and 3.04 of the Agreement (other than amounts paid for the Trustee's or the Authority's own account); -34- (d) any moneys received pursuant to the Collateral Documents; (e) any moneys drawn under the Letter of Credit which moneys shall be deposited or credited (in the case of a draw to pay the Purchase Price) in a separate subaccount of the Bond Fund and shall not be commingled with any other moneys held by the Trustee; (f) amounts, if any, held by the Trustee pursuant to Section 5.09 hereof; and (g) all other moneys received by the Trustee under and pursuant to any of the provisions of the Agreement which are required to be or which are accompanied by directions that such moneys are to be paid into the Bond Fund. Section 6.03. Use of Moneys in the Bond Fund. Except as provided in Sections 5.05, 5.09 and 6.11 hereof, moneys in the Bond Fund shall be used solely for the payment of the principal of, premium, if any, and interest on the Bonds, for the redemption of the Bonds prior to maturity and for payment of the Acceleration Price as defined in Section 8.02 hereof. Subject to the provisions of Section 6.12(b) hereof, funds for such payments of redemption price and principal of and premium, if any, and interest on the Bonds shall be derived from the following sources in the order of priority indicated: (i) moneys drawn by the Trustee under the Letter of Credit; (ii) amounts deposited into the Bond Fund which constitute Available Moneys (other than moneys drawn by the Trustee under the Letter of Credit); and (iii) any other moneys furnished to the Trustee and available for such purpose. Section 6.04. Custody of Separate Trust Fund. The Trustee is authorized and directed to hold all Net Proceeds from any insurance proceeds or condemnation award and disburse such proceeds in accordance with Article VII of the Agreement. If the Company directs that any portion of such Net Proceeds be applied to redeem Bonds, the Trustee shall deposit such Net Proceeds in a separate sub-account of the Bond Fund, and the Authority covenants and agrees to take and cause to be taken any action requested of the Authority to redeem on the earliest possible redemption date the amount of Bonds so specified by the Company. -35- Section 6.05. Construction Fund. There is hereby created and established with the Trustee a trust fund to be designated "Construction Fund," which shall be expended in accordance with the provisions hereof and of the Agreement. Section 6.06. Payments into the Construction Fund; Disbursements. The Construction Fund shall initially consist of those monies deposited therein pursuant to Section 3.03(c) hereof. Proceeds of the Bonds deposited in the Construction Fund shall be applied to pay a portion of the costs of the Project. The Trustee is hereby authorized and directed to make disbursements from the Construction Fund upon the receipt of a requisition in the form of Exhibit "C" which is attached hereto and hereby made a part hereof as though fully set forth herein, executed by an Authorized Representative of the Company and approved by the Bank. The Trustee shall keep and maintain adequate records pertaining to the Construction Fund and all disbursements therefrom, including records of all Requisitions made pursuant to the Agreement, and the Trustee shall, upon request of the Company, furnish statements in the form customarily prepared by the Trustee. The Trustee shall hold all monies and investments from time to time on deposit in the Construction Fund for the Owners and for the Bank, the rights of the Bank being subject and subordinate to the rights of the Trustee so long as any amount due in respect of the Bonds remains unpaid. Section 6.07. Use of Money in the Construction Fund Upon Default. If the principal of the Bonds shall have become due and payable pursuant to Article VIII hereof, any balance remaining in the Construction Fund shall without further authorization: (i) prior to the Obligation Termination Date, if any amounts are due and owing under the Reimbursement Agreement, be transferred immediately to the Bank, as long as the Bank is not in default of its obligations under either Letter of Credit; or (ii) after the Obligation Termination Date, be transferred into the Bond Fund. Section 6.08. Use of Money in the Construction Fund Upon Completion of the Project. The completion of the Project and payment or provision for payment of all Costs of the Project shall be evidenced by the filing with the Trustee of the certificate required by Section 2.03 of the Agreement. As soon as practicable and in any event not more than sixty (60) days from the date of receipt by the Trustee of the certificate referred to in the preceding sentence, any balance remaining in the Construction Fund (except amounts the Company shall have directed the Trustee to retain for any Cost of the Project not then due and payable) shall, without further authorization be transferred into a separate sub-account within the Bond Fund. Thereafter, such funds shall be transferred by the Trustee on the next Interest Payment Date to the Letter of Credit Bank to reimburse the Letter of Credit Bank for a drawing affected pursuant to Section 6.12 hereof. Section 6.09. Nonpresentment of Bonds. In the event any Bond shall not be presented for payment when the principal thereof becomes due, either at maturity, or at the date fixed for redemption thereof, or otherwise, if Available Moneys sufficient to pay any such Bond shall have been made available to the Trustee for the benefit of the Owner thereof, all liability of the Authority to the Owner thereof for the payment of such Bond shall forthwith cease, determine and be completely discharged, and thereupon it shall be the duty of the Trustee to hold such funds uninvested, without liability for interest thereon, for the benefit of the Owner of such Bond who shall thereafter be restricted exclusively to such funds for any claim of whatever nature on his part under this Indenture with respect to such Bond. Any moneys so deposited with and held by the Trustee not so applied to the payment of Bonds within five (5) years after the date on which the same shall have become due shall be repaid by the Trustee to the Company upon written direction of a Company Representative, and thereafter Owners of Bonds shall be entitled to look only to the Company for payment, and then only to the extent of the amount so repaid, and all liability of the Trustee with respect to such money shall thereupon cease, and the Company shall not be liable for any interest thereon and shall not be regarded as a trustee of such money. Section 6.10. Moneys to be Held in Trust. All moneys required to be deposited with or paid to the Trustee for the account of any fund or account referred to in any provision of this Indenture or the Agreement shall be held by the Trustee in trust, and shall, while held by the Trustee, constitute part of the Trust Estate and be subject to the lien and security interest created hereby. -36- Section 6.11. Repayment to the Bank and the Company from the Bond Fund. Any amounts remaining in the Bond Fund, the Construction Fund, or any other fund or account created hereunder after payment in full of the principal of, premium, if any, and interest on the Bonds, the fees, charges and expenses of the Trustee and all other amounts required to be paid hereunder, shall be paid as soon as possible to the Bank unless the Bank notifies the Trustee to the contrary in writing, in which case such amounts shall be paid directly to the Company. Section 6.12. Letter of Credit. (a) During the term of the Letter of Credit, the Trustee shall draw moneys under the Letter of Credit in accordance with the terms thereof: (i) in an amount sufficient to pay when due (whether by reason of maturity, redemption, conversion, acceleration or otherwise) the principal of, and interest and, to the extent the Letter of Credit covers same, any premium on the Bonds; and (ii) in an amount sufficient to pay when due the Purchase Price of Bonds. Within two (2) Business Days after the last Determination Date of each month, the Trustee shall give written notice (which notice may be transmitted via facsimile) to the Company of the amount that the Trustee will draw under the Letter of Credit on the next Interest Payment Date. (b) Notwithstanding any provision to the contrary which may be contained in this Indenture, including, without limitation, Section 6.12(a): (i) in computing the amount to be drawn under the Letter of Credit on account of the payment of the principal or Purchase Price of, interest or, to the extent the Letter of Credit covers same, any premium, on the Bonds, the Trustee shall exclude any such amounts in respect of any Bonds which it is advised by the Tender Agent (pursuant to Section 5.09(d) hereof) are Pledged Bonds prior to the date such payment is due; and (ii) amounts drawn by the Trustee under the Letter of Credit shall not be applied to the payment of the Purchase Price of any Bonds which are Pledged Bonds prior to the date such payment is due. (c) The Letter of Credit shall terminate in accordance with its terms on the Letter of Credit Termination Date. Upon such termination, the Trustee shall deliver the terminated Letter of Credit to the Bank, together with such certificates as may be required by the terms of the Letter of Credit. Section 6.13. Intentionally Omitted. Section 6.14. Investment of Moneys in Funds. All moneys in any of the funds established pursuant to this Indenture (except moneys obtained from a draw on the Letter of Credit, which moneys shall be held uninvested) shall be invested by the Trustee, as directed in writing by the Company, solely in Investment Securities except with respect to Available Moneys held by the Trustee for the payment of Undelivered Bonds, which Available Moneys the Trustee shall not invest. Investment Securities may be purchased at such prices as the Trustee may in its discretion determine or as may be directed by the Company. All Investment Securities shall be acquired subject to the limitations as to maturities hereinafter in this Section set forth and such additional limitations or requirements consistent with the foregoing as may be established by request of the Company. -37- To the extent the Bank has not been reimbursed under the Reimbursement Agreement and has notified the Trustee of same in writing, all interest, profits and other income received from the investment of moneys in any fund established pursuant to this Indenture shall be transferred to the Bank in the amount specified by the Bank. Otherwise, such amounts shall be deposited to the appropriate fund or account in which such investments were made. Notwithstanding anything to the contrary contained in this paragraph, an amount of interest received with respect to any Investment Security equal to the amount of accrued interest, or premium paid, if any, paid as part of the purchase price of such Investment Security shall be credited to the fund from which such accrued interest was paid. Investment Securities acquired as an investment of moneys in any fund established under this Indenture shall be credited to such fund. For the purpose of determining the amount in any fund, all Investment Securities credited to such fund shall be valued at the lesser of cost or par value plus, prior to the first payment of interest following purchase, the amount of accrued interest, if any, paid as a part of the purchase price. The Trustee may act as principal or agent in the making or disposing of any investment. The Trustee may sell or present for redemption, any Investment Securities so purchased whenever it shall be necessary to provide moneys to meet any required payment, transfer, withdrawal or disbursement from the fund to which such Investment Security is credited, and the Trustee shall not be liable or responsible for any loss resulting from such investment. ARTICLE VII PARTICULAR COVENANTS Section 7.01. Punctual Payment. The Authority shall punctually pay or cause to be paid the principal, premium, if any, and interest to become due in respect of all the Bonds, in strict conformity with the terms of the Bonds and of this Indenture, according to the true intent and meaning thereof, but only out of Revenues and other assets pledged for such payment as provided in this Indenture. Section 7.02. Extension of Payment of Bonds. The Authority shall not directly or indirectly extend or assent to the extension of the maturity of any of the Bonds or the time of payment of any claims for interest by the purchase or funding of such Bonds or claims for interest or by any other arrangement and in case the maturity of any of the Bonds or the time of payment of any such claims for interest shall be extended, such Bonds or claims for interest shall not be entitled, in case of any default hereunder, to the benefits of this Indenture, except subject to the prior payment in full of the principal of all of the Bonds then outstanding and of all claims for interest thereon which shall not have been so extended. Nothing in this Section shall be deemed to limit the right of the Authority to issue Bonds for the purpose of refunding any Outstanding Bonds, and such issuance shall not be deemed to constitute an extension of maturity of Bonds. -38- Section 7.03. Against Encumbrances. The Authority shall not create, or permit the creation of, any pledge, lien, charge or other encumbrance upon the Revenues and other assets pledged or assigned under this Indenture while any of the Bonds are Outstanding, except the pledge and assignment created by this Indenture and will assist the Trustee in contesting any such pledge, lien, charge or other encumbrance which may be created. Subject to this limitation, the Authority expressly reserves the right to enter into one or more other indentures for any of its corporate purposes, including other programs under the Act, and reserves the right to issue other obligations for such purposes. Section 7.04. Power to Issue Bonds and Make Pledge and Assignment. The Authority represents and covenants that it is duly authorized pursuant to law to issue the Bonds and to enter into this Indenture and to pledge and assign the Revenues and other assets pledged and assigned, respectively, under this Indenture in the manner and to the extent provided in this Indenture. The Bonds and the provisions of this Indenture are and will be the legal, valid and binding limited obligations of the Authority in accordance with their terms, and the Authority and Trustee shall at all times, to the extent permitted by law, defend, preserve and protect said pledge and assignment of Revenues and other assets and all the rights of the Bondholders under this Indenture against all claims and demands of all Persons whomsoever. Section 7.05. Accounting Records and Financial Statements. (A) The Trustee shall at all times keep, or cause to be kept, proper books of record and account as shall be consistent with prudent industry practice, in which complete and accurate entries shall be made of all transactions relating to the proceeds of Bonds, the Revenues, the Agreement and all funds established pursuant to this Indenture. Such books of record and account shall be available for inspection by the Authority, the Company, the Bank and any bondholder, or his agent or representative duly authorized in writing, at reasonable hours and under reasonable circumstances. (B) The Trustee shall within 30 days after the end of each month furnish to the Company a monthly statement (which need not be audited) covering receipts, disbursements, allocation and application of Revenues and any other moneys (including proceeds of Bonds) in any of the funds and accounts established pursuant to this Indenture for such month. Section 7.06. Intentionally Omitted. Section 7.07. Other Covenants. (A) The Trustee shall promptly collect all amounts due from the Company pursuant to the Agreement, and upon an Event of Default (as defined in the Agreement) shall perform all duties imposed upon it pursuant to the Agreement and shall diligently enforce, and take all steps, actions and proceedings reasonably necessary for the enforcement of all of the rights of the Authority and all of the obligations of the Company. -39- (B) The Authority shall not amend, modify or terminate any of the terms of the Agreement, or consent to any such amendment, modification or termination, without the written consent of the Trustee. The Trustee shall give such written consent only if (1) notification of such amendment, modification or termination has been given to each rating agency then rating the Bonds and to the Holders, (2) the Trustee receives the written consent of the Bank, (3)(i) such amendment, modification or termination will not materially adversely affect the interests of the Bondholders or result in any material impairment of the security hereby given for the payment of the Bonds or (ii) the Trustee first obtains the written consent of the Bank and the Holders of a majority in principal amount of the Bonds then Outstanding to such amendment, modification or termination and provides notice of such amendment, modification or termination and of such written consent to the Holders, provided that no such amendment, modification or termination shall reduce the amount of installment sale payments to be made to the Authority or the Trustee by the Company pursuant to the Agreement, or extend the time for making such payments, without the written consent of all of the Holders of the Bonds then Outstanding, and (4) the Authority shall have delivered to the Trustee an opinion of Counsel satisfactory to the Trustee that all of the provisions and conditions set forth in this Section 7.07(B) have been satisfied. Section 7.08. Waiver of Laws. The Authority shall not at any time insist upon or plead in any manner whatsoever, or claim or take the benefit or advantage of, any stay or extension provided by law now or at any time hereafter in force that may affect the covenants and agreements contained in this Indenture or in the Bonds, and all benefit or advantage of any such law or laws is hereby expressly waived by the Authority to the extent permitted by law. Section 7.09. Further Assurances. The Authority will make, execute and deliver any and all such further indentures, instruments and assurances as may be reasonably necessary or proper to carry out the intention or to facilitate the performance of this Indenture and for the better assuring and confirming unto the Holders of the Bonds of the rights and benefits provided in this Indenture. ARTICLE VIII EVENTS OF DEFAULT AND REMEDIES OF BONDHOLDERS Section 8.01. Events of Default. The following events shall be Events of Default: (a) default in the due and punctual payment of the principal of any Bond when and as the same shall become due and payable, whether at maturity as therein expressed, by proceedings for redemption, by acceleration, or otherwise; or (b) default in the due and punctual payment of any installment of interest on any Bond when and as the same shall become due and payable; or (c) failure to pay the purchase price on any Bond tendered pursuant to Article V when such payment is due; or (d) default by the Authority in the observance of any of the other covenants, agreements or conditions on its part in this Indenture or in the Bonds, if such default shall have continued for a period of sixty (60) days after written notice thereof, specifying such default and requiring the same to be remedied, shall have been given to the Authority by the Trustee, or to the Authority and the Trustee by the Holders of not less than twenty-five per cent (25%) in aggregate principal amount of the Bonds at the time Outstanding; or (e) if there occurs an Event of Default as defined in Sections 8.01(a) through (d) of the Agreement; or (f) the Trustee's receipt of written notice from the Bank that the Bank has declared an Event of Default under the provisions of the Reimbursement Agreement and instructing the Trustee to declare the principal amount of the Outstanding Bonds to be immediately due and payable; or -40- (g) if, at any time after a draw under the Letter of Credit, the Trustee shall have received notice from the Bank that the amount of such draw corresponding to the payment of interest on the Bonds shall not be reinstated in the amount and in the manner set forth in the Letter of Credit. Upon actual knowledge of the existence of any Event of Default, the Trustee shall, as soon as practicable, notify the Bank, the Company, the Authority, the Tender Agent and the Remarketing Agent. Anything contained in this Indenture to the contrary notwithstanding: (i) no Event of Default under subsections (d) or (e) above shall occur without the prior written consent of the Bank so long as the Bank is not in default under the terms of the Letter of Credit; and (ii) the Trustee shall not notify bondholders of the existence of any Event of Default without the prior written consent of the Bank (except upon the occurrence of an Event of Default under subsections 8.01(f) or (g) hereof), as long as the Bank is not in default under the terms of the Letter of Credit. Section 8.02. Acceleration. If any Event of Default under Section 8.01 hereof occurs, the Trustee (with the written consent of the Bank provided the Bank is not in default of its obligations under the Letter of Credit) may, and upon request of the Owners of 25% in principal amount of the Bonds then Outstanding shall, by written notice to the Authority, the Bank and the Company, declare the principal amount of all Bonds then Outstanding and the interest accrued thereon to such date (the "Acceleration Date") to be due and the Acceleration Price (as such phrase is hereinafter defined) shall thereupon become payable on the first (lst) Business Day following the Acceleration Date (the "Payment Date"). Thereupon, the Trustee, among other things, shall draw immediately upon the Letter of Credit as set forth in Section 6.12 hereof. Interest on the accelerated Bonds shall cease to accrue on the Acceleration Date. Accelerated Bonds shall be payable at a price equal to 100% of the aggregate principal amount thereof plus interest accrued to the Acceleration Date (the "Acceleration Price"). Notwithstanding anything contained herein to the contrary, upon the occurrence of an Event of Default described in Section 8.01(f) or (g), the Trustee shall, by written notice to the Bank, the Company and the Authority declare immediately due and payable the principal amount of, and interest accrued on, the Outstanding Bonds. Any such declaration is subject to the condition that if, at any time after such declaration and before any judgment or decree for the payment of the moneys due shall have been obtained or entered, the Letter of Credit shall have been reinstated in full as to principal and interest and the reasonable charges and expenses of the Trustee, and any and all other defaults known to the Trustee (other than in the payment of principal of and interest on the Bonds due and payable solely by reason of such declaration) shall have been made good or cured to the satisfaction of the Trustee or provision deemed by the Trustee to be adequate shall have been made therefor, then, and in every such case, the Holders of not less than 25% in aggregate principal amount of the Bonds then Outstanding, by written notice to the Authority, the Bank, the Company and the Trustee, or the Trustee if such declaration was made by the Trustee, may, on behalf of the Holders of all of the Bonds, rescind and annul such declaration and its consequences and waive such default; but such rescission and annulment shall not extend to or affect any subsequent default, and shall not impair or exhaust any right or power in consequence thereof. The foregoing to the contrary notwithstanding, Owners of 25% in principal amount of the Bonds then outstanding shall have no right to request the Trustee to accelerate the Bonds under this Section 8.02 and the Trustee shall not be obligated to give any Bondholder notice of a default under the Indenture (except upon the occurrence of an Event of Default under Section 8.01(f) or (g) hereof), the Agreement or any other documents executed and delivered in connection with the Bonds without the prior written consent of the Bank, unless the Bank shall be in default of its obligations under the Letter of Credit or a voluntary or involuntary case has been commenced by the filing of a petition under the Bankruptcy Code or any other law relating to bankruptcy, insolvency, reorganization, winding-up or composition or adjustment of debts by or against the Bank. Upon any declaration of acceleration hereunder, the Trustee shall as soon as possible give written notice of the acceleration to the Bondholders as set forth below. In addition, notice of such acceleration shall be mailed, by registered or certified mail or overnight mail, to the rating agency then rating the Bonds, if any, but failure to mail any such notice or any defect in the mailing thereof shall not affect the validity of such acceleration. Such notice of acceleration: (i) shall be given in the name of the Authority; (ii) shall identify the accelerated Bonds (by name, date of issue, interest rate and maturity date); (iii) shall specify the Acceleration Date; (iv) shall specify the Payment Date and the Acceleration Price; (v) shall state that the interest on the accelerated Bonds ceased to accrue on the Acceleration Date; (vi) shall state the reason for the acceleration; and (vii) shall state that on the Payment Date the Acceleration Price will be payable at the principal corporate trust office of the Trustee. The Trustee shall use "CUSIP" numbers on such notices as a convenience to Bondholders and such notice shall state that no representation is made as to the correctness of such "CUSIP" numbers either as printed on the Bonds or as contained in any notice of acceleration and that reliance may be placed on the registration and description printed on the Bonds. -41- Upon acceleration pursuant to this Section 8.02, the Trustee shall immediately exercise such rights as it may have under the Agreement to declare all payments thereunder to be immediately due and payable and shall immediately draw upon the Letter of Credit as provided in Section 6.12 hereof in an amount that, together with any Available Moneys on deposit in the Bond Fund (excluding Available Moneys held by the Trustee for the Owner of any Bond not presented for payment as provided in Section 6.09 hereof) and irrevocably committed to the payment of principal of and interest on the Bonds, is sufficient to pay the Acceleration Price due on the Outstanding Bonds on the Payment Date. Upon receipt by the Trustee of any amount from the Bank under the preceding paragraphs of this Section 8.02 (or after receipt by the Trustee of any amounts from the Bank under any other provision of this Indenture), the Bank shall be subrogated to the right, title and interest of the Trustee and the Bondholders in and to the Agreement, the Project Facilities and any other security held for the payment of the Bonds (other than said funds), all of which, upon payment of any fees and expenses due and payable to the Trustee pursuant to the Agreement or this Indenture, shall be assigned by the Trustee to the Bank. Section 8.03. Other Remedies. If any Event of Default occurs and is continuing, the Trustee, before or after declaring the principal of the Bonds immediately due and payable, may enforce each and every right granted to the Authority or the Trustee under the Indenture, the Agreement, the Letter of Credit or any other security instrument, or under any supplements or amendments thereto, and shall, at all times complying with the provisions of Section 8.02 hereof, apply any Revenues or Available Moneys in the Bond Fund held by the Trustee to the payment of principal of or interest on the Bonds. In exercising such rights and the rights given the Trustee under this Article VIII, the Trustee shall take such action, as in the judgment of the Trustee, applying the standards described in Section 9.01 hereof, would best serve the interests of the Bondholders. Section 8.04. Legal Proceedings by Trustee. If any Event of Default has occurred and is continuing, the Trustee in its discretion may and, upon the written request of the Bank or the Owners of 25% in principal amount of the Bonds then Outstanding (subject to the consent of the Bank, as long as the Bank is not in default of its obligations under the Letter of Credit or a voluntary or involuntary case has not been commenced by the filing of a petition under the Bankruptcy Code or any other law relating to bankruptcy, insolvency, reorganization, winding-up or composition or adjustment of debts by or against the Bank) and receipt of indemnity to its satisfaction shall, in its own name: -42- (A) by mandamus, other suit, action or proceeding at law or in equity, enforce all rights of the Bondholders, including the right to require the Authority to collect the amounts payable under the Agreement and to require the Authority to carry out any other provisions of this Indenture for the benefit of the Bondholders and to perform its duties under the Act; (B) bring suit upon the Bonds; (C) by action or suit in equity require the Authority to account as if it were the trustee of an express trust for the Bondholders; and (D) by action or suit in equity enjoin any acts or things that may be unlawful or in violation of the rights of the Bondholders. Section 8.05. Discontinuance of Proceedings by Trustee. If any proceeding taken by the Trustee on account of any Event of Default is discontinued or is determined adversely to the Trustee, the Authority, the Trustee, the Bondholders and the Bank shall be restored to their former positions and rights hereunder as though no such proceeding had been taken, but subject to the limitations of any such adverse determination. Section 8.06. Bondholders May Direct Proceedings. The Holders of a majority in principal amount of the Bonds Outstanding hereunder shall have the right to direct the method and place of conducting all remedial proceedings by the Trustee hereunder, provided that such direction shall not be otherwise than in accordance with law or the provisions of this Indenture, and that the Trustee shall not be required to comply with any such direction which it deems to be unlawful or unjustly prejudicial to Bondholders not parties to such direction. The foregoing provisions of this Section 8.06 to the contrary notwithstanding, as long as the Bank shall not be in default under the Letter of Credit, the Bank shall have the right to direct the method and the place of conducting all remedial proceedings by the Trustee hereunder provided that such direction shall not be otherwise than in accordance with law or the provisions of this Indenture. Section 8.07. Limitations on Actions by Bondholders. Anything in this Indenture to the contrary notwithstanding, no bondholder shall have any right to pursue any remedy hereunder or under the Agreement unless: (a) the Trustee shall have been given written notice of an Event of Default; (b) the holders of at least 25% in aggregate principal amount of the Bonds Outstanding shall have requested the Trustee, in writing, to exercise the powers hereinabove granted or to pursue such remedy in its or their name or names; -43- (c) the Trustee shall have been offered indemnity satisfactory to it against costs, expenses and liabilities; (d) the Trustee shall have failed to comply with such request within a reasonable time; and (e) the Bank shall be in default of its obligations under the Letter of Credit or a voluntary or involuntary case has been commenced by the filing of a petition under the Bankruptcy Code or any other law relating to bankruptcy, insolvency, reorganization, winding-up or composition or adjustment of debts by or against the Bank; provided, however, that nothing herein shall affect or impair the right of any Owner of any Bond to enforce payment of the principal thereof and interest thereon at and after the maturity thereof, or the obligation of the Authority to pay such principal and interest to the respective Owners of the Bonds at the time and place, from the source and in the manner expressed herein and in the Bonds, provided further that such action shall not disturb or prejudice the lien of this Indenture. Section 8.08. Trustee May Enforce Rights Without Possession of Bonds. All rights under the Indenture and the Bonds may be enforced by the Trustee without the possession of any Bonds or the production thereof at the trial or other proceedings relative thereto, and any proceedings instituted by the Trustee shall be brought in its name for the ratable benefit of the Owners of the Bonds. Section 8.09. Delays and Omissions Not to Impair Rights. No delay or omission in respect of exercising any right or power accruing upon any Event of Default shall impair such right or power or be a waiver of such Event of Default and every remedy given by this Article VIII may be exercised, from time to time, and as often as may be deemed expedient. Section 8.10. Application of Moneys in Event of Default. Any money received by the Trustee under this Article VIII shall be applied in the order listed below (provided that any money received by the Trustee upon a drawing under the Letter of Credit together with Available Moneys on deposit in the Bond Fund and available for payment of principal and interest on all Outstanding Bonds, any money held by the Trustee upon the nonpresentment of Bonds and any money held by the Trustee for the defeasance of Bonds pursuant to Article XI shall be applied only as provided in clause (B) below and only to pay outstanding principal and accrued interest, as provided in the Letter of Credit, with respect to the Bonds): (A) To the payment of the fees and expenses of the Trustee and the Authority including reasonable counsel fees and expenses, and any disbursements of the Trustee with interest thereon and its reasonable compensation; -44- (B) To the payment of principal and interest then owing on the Bonds, including any interest on overdue interest, and in case such money shall be insufficient to pay the same in full, then to the payment of principal and interest ratably, without preference or priority of one over another or of any installment of principal or interest over any other installment of principal or interest; and The surplus, if any, remaining after the application of the money as set forth above shall to the extent of any unreimbursed drawing under the Letter of Credit, or other obligations owing by the Company to the Bank under the Reimbursement Agreement, be paid to the Bank. Any remaining money shall be paid to the Company or the person lawfully entitled to receive the same as a court of competent jurisdiction may direct. Section 8.11. Trustee and Bondholders Entitled to All Remedies Under Act; Remedies Not Exclusive. It is the purpose of this Article VIII to provide to the Trustee and the Bondholders all rights and remedies as may be lawfully granted under the provisions of the Act; but should any remedy herein granted be held unlawful, the Trustee and the Bondholders shall nevertheless be entitled to every remedy permitted by the Act. It is further intended that, insofar as lawfully possible, the provisions of this Article VIII shall apply to and be binding upon any trustee or receiver appointed under the Act. No remedy herein conferred is intended to be exclusive of any other remedy or remedies, and each remedy is in addition to every other remedy given hereunder or now or hereafter existing at law or in equity or by statute. Section 8.12. Trustee's Right to Receiver. As provided by the Act, the Trustee shall be entitled as of right to the appointment of a receiver; and the Trustee, the Bondholders and any receiver so appointed shall have such rights and powers and be subject to such limitations and restrictions as may be contained in or permitted by the Act. Section 8.13. Subrogation Rights of Bank. The Trustee agrees that the Bank or other provider of a Substitute Letter of Credit shall be subrogated to all rights, remedies and collateral of the Trustee under the Indenture, the Agreement or any other document or instrument, to the extent the Bank or other provider of a Substitute Letter of Credit has honored a draw under the Letter of Credit or Substitute Letter of Credit, as the case may be, and has not been reimbursed or paid therefor. Section 8.14. Waiver of Default. As long as the Bank is not in default of its obligations under the Letter of Credit and the Letter of Credit is in full force and effect, the Bank may waive an Event of Default and if the Bank does so, the Trustee must also waive such Event of Default. The Trustee may not waive an Event of Default under this Indenture if the Letter of Credit has not been reinstated to cover principal and interest on the Bonds in accordance with the terms of the Letter of Credit. -45- ARTICLE IX THE TRUSTEE, THE TENDER AGENT AND THE REMARKETING AGENT Section 9.01. Duties, Immunities and Liabilities of Trustee. (A) The Trustee shall, prior to an Event of Default, and after the curing of all Events of Default which may have occurred, perform such duties and only such duties as are specifically set forth in this Indenture. The Trustee shall, during the existence of any Event of Default (which has not been cured or waived), exercise such of the rights and powers vested in it by this Indenture, and use the same degree of care and skill in their exercise, as a prudent man would exercise or use under the circumstances in the conduct of his own affairs. (B) At the written direction of the Company, the Authority shall remove the Trustee if at any time requested to do so by an instrument or concurrent instruments in writing executed by the Holders of not less than a majority in aggregate principal amount of the Bonds then Outstanding (or their attorneys duly authorized in writing) or if at any time the Trustee shall cease to be eligible to act in such capacity, or shall become incapable of acting, or shall be adjudged a bankrupt or insolvent, or a receiver of the Trustee or its property shall be appointed, or any public officer shall take control or charge of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation, in each case by giving written notice of such removal to the Trustee, and thereupon shall appoint, with the consent of the Bank and the Company, a successor Trustee by an instrument in writing. (C) The Trustee may at any time resign by giving written notice of such resignation to the Authority, the Company and the Bank and by giving the Bondholders notice of such resignation by mail at the addresses shown on the registration books maintained by the Trustee. Upon receiving such notice of resignation, the Authority shall promptly appoint, with the consent of the Bank and the Company, a successor Trustee by an instrument in writing. (D) Any removal or resignation of the Trustee and appointment of a successor Trustee shall become effective upon acceptance of appointment by the successor Trustee. If no successor Trustee shall have been appointed and have accepted appointment within forty-five (45) days of giving notice of removal or notice of resignation as aforesaid, the resigning Trustee or any Bondholder (on behalf of himself and all other Bondholders) may petition any court of competent jurisdiction for the appointment of a successor Trustee, and such court may thereupon, after such notice (if any) as it may deem proper, appoint such successor Trustee. Any successor Trustee appointed under this Indenture, shall signify its acceptance of such appointment by executing and delivering to the Authority and to its predecessor Trustee a written acceptance thereof, and thereupon such successor Trustee, without any further act, deed or conveyance, shall become vested with all the moneys, estates, properties, rights, powers, trusts, duties and obligations of such predecessor Trustee, with like effect as if originally named Trustee herein; but, nevertheless at the request of the Authority or the request of the successor Trustee, such predecessor Trustee shall execute and deliver any and all instruments of conveyance or further assurance and do such other things as may reasonably be required for more fully and certainly vesting in and confirming to such successor Trustee all the right, title and interest of such predecessor Trustee in and to any property held by it under this Indenture and shall pay over, transfer, assign and deliver to the successor Trustee any money or other property subject to the trusts and conditions herein set forth. Upon request of the successor Trustee, the Authority shall execute and deliver any and all instruments as may be reasonably required for more fully and certainly vesting in and confirming to such successor Trustee all such moneys, estates, properties, rights, powers, trusts, duties and obligations. Upon the acceptance of the appointment by a successor Trustee as provided in this subsection, the Authority shall mail a notice of the succession of such Trustee to the trusts hereunder to the Rating Agency and to the Bondholders at the addresses shown on the registration books maintained by the Trustee. If the Authority fails to mail such notice within fifteen (15) days after acceptance of appointment by the successor Trustee, the successor Trustee shall cause such notice to be mailed at the expense of the Authority. (E) Any Trustee appointed under the provisions of this Section in succession to the Trustee shall be a trust company or bank having the powers of a trust company, having a corporate trust office in the Commonwealth, having a combined capital and surplus of at least One Hundred Million Dollars ($100,000,000), subject to supervision or examination by federal or state authorities and shall be rated at least Baa3/P-3 by Moody's if the Bonds are then rated by Moody's or has received written evidence from Moody's that the use of such Trustee would not result in a reduction or withdrawal of the rating on the Bonds. If such bank or trust company publishes a report of condition at least annually, pursuant to law or to the requirements of any supervising or examining authority above referred to, then for the purpose of this subsection the combined capital and surplus of such bank or trust company shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. -46- Section 9.02. Merger or Consolidation. Any company into which the Trustee may be merged or converted or with which it may be consolidated or any company resulting from any merger, conversion or consolidation to which it shall be a party or any company to which the Trustee may sell or transfer all or substantially all of its corporate trust business, provided such company shall be eligible under subsection (E) of Section 9.01, shall be the successor to such Trustee without the execution or filing of any paper or any further act, anything herein to the contrary notwithstanding. Section 9.03. Liability of Trustee. (A) The recitals of facts herein and in the Bonds contained shall be taken as statements of the Authority, and the Trustee shall assume no responsibility for the correctness of the same, or make any representations as to the validity or sufficiency of this Indenture or of the Bonds or shall incur any responsibility in respect thereof, other than in connection with the duties or obligations herein or in the Bonds assigned to or imposed upon it. The Trustee shall, however, be responsible for its representations contained in its certificate of authentication on the Bonds. The Trustee shall not be liable in connection with the performance of its duties hereunder, except for its own gross negligence or willful misconduct. The Trustee may become the owner of Bonds with the same rights it would have if it were not Trustee and, to the extent permitted by law, may act as depositary for and permit any of their officers or directors to act as a member of, or in any other capacity with respect to, any committee formed to protect the rights of Bondholders, whether or not such committee shall represent the Holders of a majority in principal amount of the Bonds then Outstanding. (B) The Trustee shall not be liable for any error of judgment made in good faith by a responsible officer, unless it shall be proved that the Trustee was negligent in ascertaining the pertinent facts. (C) The Trustee shall not be liable with respect to any action taken or omitted to be taken by it in good faith in accordance with the direction of the Holders of not less than a majority in aggregate principal amount of the Bonds at the time Outstanding relating to the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred upon the Trustee under this Indenture. (D) The Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture (other than the making of a draw under the Letter of Credit in accordance with its terms and the terms hereof, declaring the principal of the Bonds to be immediately due and payable when required hereunder or making payments on the Bonds when due) at the request, order or direction of any of the Bondholders pursuant to the provisions of this Indenture unless such Bondholders shall have offered to the Trustee indemnification to its satisfaction for indemnity against the costs, expenses and liabilities which may be incurred therein or thereby. -47- (E) The Trustee shall not be liable for any action taken by it in good faith and believed by it to be authorized or within the discretion or rights or powers conferred upon it by this Indenture. Section 9.04. Right of Trustee to Rely on Documents. The Trustee may conclusively rely, and shall be protected in acting upon any notice, resolution, request, consent, order, certificate, report, opinion, bond or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties. The Trustee may consult with counsel, who may be counsel of or to the Authority, with regard to legal questions, and the opinion of such counsel shall be full and complete authorization and protection in respect of any action taken or suffered by it hereunder in good faith and in accordance therewith. The Trustee shall not be bound to recognize any person as the Holder of a Bond unless and until such Bond is submitted for inspection, if required, and his title thereto is satisfactorily established, if disputed. Whenever in the administration of the trusts imposed upon it by this Indenture the Trustee shall deem it necessary or desirable that a matter be proved or established prior to taking or suffering any action hereunder, such matter (unless other evidence in respect thereof be herein specifically prescribed) may be deemed to be conclusively proved and established by a Certificate of the Authority, and such Certificate shall be full warrant to the Trustee for any action taken or suffered in good faith under the provisions of this Indenture in reliance upon such Certificate, but in its discretion the Trustee may, in lieu thereof, accept other evidence of such matter or may require such additional evidence as it may deem reasonable. Section 9.05. Preservation and Inspection of Documents. (A) All documents received by the Trustee under the provisions of this Indenture shall be retained in its possession and shall be subject during normal business hours of the Trustee to the inspection of the Authority, the Company and any Bondholder, and their agents and representatives duly authorized in writing, at reasonable hours and under reasonable conditions. (B) The Trustee covenants and agrees that it shall maintain a current list of the names and addresses of all the Bondholders. Section 9.06. Compensation. The Trustee shall be paid (solely from Additional Payments) from time to time reasonable compensation for all services rendered under this Indenture, and also all reasonable expenses, charges, legal and consulting fees and other disbursements and those of its attorneys, agents and employees, incurred in and about the performance of its powers and duties under this Indenture. -48- Section 9.07. The Tender Agent. Dauphin Deposit Bank and Trust Company, the initial Tender Agent appointed by the Company, and each successor tender agent appointed in accordance herewith, shall designate its office and signify its acceptance of the duties and obligations imposed upon it as described herein by a written instrument of acceptance delivered to the Trustee and the Company under which the Tender Agent shall, among other things: (a) hold all Bonds delivered to it hereunder in trust for the benefit of the respective Owners of Bonds which shall have so delivered such Bonds until moneys representing the Purchase Price of such Bonds shall have been delivered to or for the account of or to the order of such Owners of Bonds. Upon delivery of moneys representing the Purchase Price of such Bonds to or for the account of or to the order of such Owners of Bonds, the Tender Agent shall hold all such Bonds which are required to be delivered to the Pledged Bonds Custodian pursuant to Section 5.06(b) hereof, as the agent of the Bank for the purpose of perfecting the Bank's security interest therein under the Pledge Agreement (which agency shall terminate upon delivery of such Bonds by the Tender Agent to or upon the order of the Bank in accordance with such Section 5.06(b); and (b) hold all moneys delivered to it hereunder and under the Tender Agent Agreement for the purchase of such Bonds in a separate account in trust for the benefit of the person or entity which shall have so delivered such moneys until required to transfer such funds as provided herein. Section 9.08. Qualifications of Tender Agent. (a) The Tender Agent shall be a bank or trust company duly organized under the laws of the United States or any state or territory thereof, having a combined capital stock, surplus and undivided profits of at least Fifty Million Dollars ($50,000,000) or that is a wholly-owned subsidiary of such a bank or trust company, and authorized by law to perform all duties imposed upon it by this Indenture and shall be rated at least Baa3/P-3 by Moody's if the Bonds are then rated by Moody's, or has received written evidence from Moody's that the use of such Tender Agent would not result in a reduction or withdrawal of the rating on the Bonds. The Tender Agent may at any time resign and be discharged of its duties and obligations by giving at least sixty (60) days' written notice to the Authority, the Trustee, the Remarketing Agent, the Bank, and the Company; provided that such resignation shall not take effect until the appointment of a successor Tender Agent, and in accordance with the provisions hereof. Upon the written approval of the Bank, the Tender Agent may be removed at any time by the Company upon written notice to the Authority, the Trustee and the Remarketing Agent. Successor Tender Agents may be appointed from time to time by the Company, with the prior written consent of the Bank. (b) Upon the resignation or removal of the Tender Agent, the Tender Agent shall deliver any Bonds and moneys held by it in such capacity to its successor. (c) The Tender Agent shall have the same rights and immunities granted to the Trustee hereunder. Section 9.09. Qualifications of Remarketing Agent; Resignation; Removal. The Remarketing Agent shall be a financial institution or registered broker/dealer authorized by law to perform all the duties imposed upon it by this Indenture. The Remarketing Agent may at any time resign and be discharged of its duties and obligations created by this Indenture giving at least thirty (30) days' written notice to the Authority, the Company and the Trustee. The Remarketing Agent may be removed at any time, upon not less than thirty (30) days' written notice from the Company filed with the Trustee. Upon the resignation or removal of the Remarketing Agent, the Company shall appoint a successor Remarketing Agent and shall provide written notice thereof to the Trustee. The resignation or removal of the Remarketing Agent shall not become effective until a successor Remarketing Agent is appointed and accepts such appointment. If the Bonds are rated by a Rating Agency, any successor Remarketing Agent shall be rated at least Baa3/P-3 or otherwise be acceptable to such Rating Agency. -49- Section 9.10. Construction of Ambiguous Provisions. The Trustee may construe any provision hereof insofar as such may appear to be ambiguous or inconsistent with any other provision hereof; and any construction of any such provision by the Trustee, in good faith shall be binding upon the Owners of the Bonds. ARTICLE X MODIFICATION OR AMENDMENT OF THE INDENTURE Section 10.01. Amendments Permitted. This Indenture and the rights and obligations of the Authority, of the Trustee and of the Holders of the Bonds may be modified or amended, from time to time, and at any time, for any lawful purpose, by an indenture or indentures supplemental hereto, which the Authority and the Trustee may enter into without the consent of any Bondholders but with the prior written consent of the Company and the Bank (as long as the Bank is not in default under the Letter of Credit). The foregoing to the contrary notwithstanding, no such modification or amendment shall, without the written consent of the Company and the holders of all Bonds then Outstanding: (i) extend the maturity date of any Bond; (ii) reduce the amount of principal thereof; (iii) extend the time of payment or change the method of computing the rate of interest thereon, without the consent of the Holder of each Bond so affected, or eliminate the Holders' rights to tender the Bonds; (iv) extend the due date for the purchase of Bonds tendered by the Holders thereof; or (v) reduce the purchase price of such Bonds. It shall not be necessary for the consent of the Bondholders to approve the particular form of any Supplemental Indenture, but it shall be sufficient if such consent shall approve the substance thereof. Promptly after the execution by the Authority and the Trustee of any Supplemental Indenture pursuant to this Section 10.01, the Trustee shall mail a notice, setting forth in general terms the substance of such Supplemental Indenture, to each rating agency then rating the Bonds and the Holders of the Bonds at the address shown on the registration books of the Trustee. Any failure to give such notice, or any defect therein, shall not, however, in any way impair or affect the validity of any such Supplemental Indenture. Section 10.02. Effect of Supplemental Indenture. Upon the execution of any Supplemental Indenture pursuant to this Article, this Indenture shall be deemed to be modified and amended in accordance therewith, and the respective rights, duties and obligations under this Indenture of the Authority, the Trustee and all Holders of Bonds Outstanding shall thereafter be determined, exercised and enforced hereunder subject in all respects to such modification and amendment, and all the terms and conditions of any such Supplemental Indenture shall be deemed to be part of the terms and conditions of this Indenture for any and all purposes. Section 10.03. Trustee Authorized to Join in Amendments and Supplements; Reliance on Counsel. The Trustee is authorized to join with the Authority in the execution and delivery of any supplemental indenture or amendment permitted by this Article X and in so doing shall be fully protected by an opinion of Counsel that such supplemental indenture or amendment is so permitted and has been duly authorized by the Authority and that all things necessary to make it a valid and binding agreement have been done. -50- ARTICLE XI DEFEASANCE Section 11.01. Discharge of Indenture. The Bonds may be paid by the Authority in any of the following ways, provided that the Authority also pays or causes to be paid any other sums payable hereunder by the Authority: (a) by paying or causing to be paid the principal of and interest on the Bonds of such Series, as and when the same become due and payable; (b) with respect to Bonds which bear interest at a Fixed Rate, by depositing with the Trustee, in trust, Available Moneys or securities purchased with Available Moneys in the necessary amount (as provided in Section 11.03) to pay or redeem all Bonds then Outstanding; or (c) by delivering to the Trustee, for cancellation by it, the Bonds then Outstanding. If the Authority shall also pay or cause to be paid all Bonds then Outstanding and shall also pay or cause to be paid all other sums payable hereunder by the Authority, then and in that case, at the election of the Authority (evidenced by a Certificate of the Authority filed with the Trustee, signifying the intention of the Authority to discharge all such indebtedness and this Indenture), and notwithstanding that any Bonds shall not have been surrendered for payment, this Indenture, the assignment of the Agreement and the pledge of Revenues and other assets made under this Indenture and all covenants, agreements and other obligations of the Authority under this Indenture shall cease, terminate, become void and be completely discharged and satisfied. In such event, upon request of the Authority, the Trustee shall cause an accounting for such period or periods as may be requested by the Authority to be prepared and filed with the Authority and shall execute and deliver to the Authority all such instruments, as prepared by or caused to be prepared by the Authority, that may be necessary or desirable to evidence such discharge and satisfaction, and the Trustee shall pay over, transfer, assign or deliver all moneys or securities or other property held by it pursuant to this Indenture, which are not required for: (i) the payment of all the charges and reasonable expenses of the Trustee under this Indenture; (ii) the payment or redemption of Bonds not theretofore surrendered for such payment or redemption; or (iii) the payment of amounts owed to the Bank by the Company under the Reimbursement Agreement, to the Company. -51- Section 11.02. Discharge of Liability on Bonds. During the Fixed Rate Period, upon the deposit with the Trustee, in trust, at or before maturity, of money or securities in the necessary amount (as provided in Section 11.03) to pay or redeem any Outstanding Bond (whether upon or prior to the end of the Fixed Rate Period or the redemption date of such Bond), provided that, if such Bond is to be redeemed prior to maturity, notice of such redemption shall have been given as in Article IV provided or provision satisfactory to the Trustee shall have been made for the giving of such notice, then all liability of the Authority in respect of such Bond shall cease, terminate and be completely discharged, and the Holder thereof shall thereafter be entitled only to payment out of such money or securities deposited with the Trustee as aforesaid for their payment, subject, however, to the provisions of Section 11.04. The Authority may at any time surrender to the Trustee for cancellation by it any Bonds previously issued and delivered, which the Authority may have acquired in any manner whatsoever, and such Bonds, upon such surrender and cancellation, shall be deemed to be paid and retired. Section 11.03. Deposit of Money or Securities with Trustee. During the Fixed Rate Period, whenever in this Indenture it is provided or permitted that there be deposited with or held in trust by the Trustee money or securities in the necessary amount to pay or redeem any Bonds, the money or securities so to be deposited or held shall be cash or Government Obligations, which Government Obligations shall be noncallable and not subject to prepayment, the principal of and interest on which when due will provide money sufficient to pay the principal of, premium, if any, and all unpaid interest to maturity, or to the redemption date, as the case may be, on the Bonds to be paid or redeemed, as such principal, premium, if any, and interest become due, provided that, in the case of Bonds which are to be redeemed prior to the maturity thereof, notice of such redemption shall have been given as provided in Article IV or provision satisfactory to the Trustee shall have been made for the giving of such notice; provided, in each case, that the Trustee shall have been irrevocably instructed (by Request of the Authority) to apply such money to the payment of such principal and interest with respect to such Bonds. Whenever Government Obligations are deposited with the Trustee in accordance with Section 11.03 hereof, the Company shall provide to the Trustee and the Rating Agency: (i) a verification report from an independent public accountant, satisfactory in form and content to the Trustee, demonstrating that the Government Obligations so deposited and the income therefore shall be sufficient to pay the principal of, premium, if any, and all unpaid interest to maturity, or to the redemption date, as the case may be, on the Bonds to be paid or redeemed, as such principal or premium, if any, and interest become due; and (ii) an opinion acceptable to the Rating Agency, of nationally recognized bankruptcy counsel, to the effect that the provision for payment of the Bonds contemplated to be made pursuant to this Section 11.03 will not constitute or result in such payments constituting voidable preferences under Section 547 of the Bankruptcy Code. -52- Section 11.04. Payment of Bonds After Discharge of Indenture. Notwithstanding any provisions of this Indenture, any moneys held by the Trustee in trust for the payment of the principal of, premium, if any, or interest on, any Bonds and remaining unclaimed for five years after the principal of all of the Bonds has become due and payable (whether at maturity or upon call for redemption or by acceleration as provided in this Indenture), if such moneys were so held at such date, or five years after the date of deposit of such moneys if deposited after said date when all of the Bonds became due and payable, shall be repaid to the Company, upon its written request, free from the trusts created by this Indenture and all liability of the Trustee with respect to such moneys shall thereupon cease; provided, however, that before the repayment of such moneys to the Company as aforesaid, the Trustee may (at the cost and request of the Company) first mail to the Holders of Bonds which have not been paid, at the addresses last shown on the registration books maintained by the Trustee, a notice, in such form as may be deemed appropriate by the Trustee with respect to the Bonds so payable and not presented and with respect to the provisions relating to the repayment to the Company of the moneys held for the payment thereof. ARTICLE XII MISCELLANEOUS Section 12.01. Liability of Authority Limited to Revenues. Notwithstanding anything to the contrary contained in this Indenture or in the Bonds, the Authority shall not be required to advance any moneys derived from any source other than the Revenues and other assets pledged under this Indenture for any of the purposes in this Indenture mentioned, whether for the payment of the principal of or interest on the Bonds or for any other purpose of this Indenture. Notwithstanding any provisions of this Indenture to the contrary, no recourse under or upon any obligation, covenant or agreement contained herein or in any Bond shall be had against the Authority, it being expressly agreed and understood that the obligations of the Authority hereunder, and under the Bonds and elsewhere, are solely corporate obligations of the Authority and shall be enforceable only out of the Authority's interest in this Indenture and the Agreement (except for the Authority's rights to payment of certain costs, fees and expenses as set forth in this Indenture, the Agreement and elsewhere) and there shall be no other recourse against the Authority or any property now or hereafter owned by it and after entry of judgment against the Authority by virtue of the power herein contained, the Authority shall mark the judgment index to the effect that the judgment is limited as aforesaid. -53- Section 12.02. Limitation of Liability of Directors, Etc., of Authority. No covenant, agreement, provision or obligation contained herein shall be deemed to be a covenant, agreement or obligation of any present or future director, commissioner, officer, employee, member or agent of the Authority in his individual capacity, and neither the members of the Authority nor any officer thereof shall be liable personally on this Indenture or any of the Bonds or be subject to any personal liability or accountability by reason of the issuance thereof or this Indenture. No director, commissioner, officer, employee, member or agent of the Authority shall incur any personal liability with respect to any other action taken by him pursuant to this Indenture or the Act. Notwithstanding anything contained herein to the contrary, the liability of the Authority, including its officers, members, and employees, under any and all of the documentation executed in connection with the issuance of the Bonds shall not constitute its general obligation and recourse against the Authority on the documentation executed in connection with the issuance of the Bonds shall be had only against the property specifically pledged as security therefor and any rents, issues or profits thereof. It is expressly understood that the Authority shall not otherwise be obligated and that none of its members, officers, or employees shall be in any way obligated for any costs, expenses, fees or other obligations or liabilities incurred or imposed in connection with the issuance of the Bonds, whether incurred prior to or after closing, and that recourse against the Authority and its members, officers, or employees, shall be limited as set forth herein. Section 12.03. Covenant Not to Sue. The forms of Bonds provide that the owners of the Bonds agree not to sue the Authority or any of its board members, officers, agents or employees, past, present or future except as provided herein and in the Agreement as a condition of, and in consideration for, the issuance of the Bonds; accordingly, except as provided herein and in the Agreement, the Trustee shall not be permitted to sue the Authority, on behalf of the owners of the Bonds. Section 12.04. Successor Is Deemed Included in All References to Predecessor. Whenever in this Indenture either the Authority or the Trustee is named or referred to, such reference shall be deemed to include the successors or assigns thereof, and all the covenants and agreements in this Indenture contained by or on behalf of the Authority or the Trustee shall bind and inure to the benefit of the respective successors and assigns thereof whether so expressed or not. Section 12.05. Limitation of Rights to Parties, Bank, Company and Bondholders. Nothing in this Indenture or in the Bonds expressed or implied is intended or shall be construed to give to any person other than the Authority, the Trustee, the Bank, the Company and the Holders of the Bonds, any legal or equitable right, remedy or claim under or in respect of this Indenture or any covenant, condition or provision therein or herein contained; and all such covenants, conditions and provisions are and shall be held to be for the sole and exclusive benefit of the Authority, the Trustee, the Bank, the Company and the Holders of the Bonds. Section 12.06. Waiver of Notice. Whenever in this Indenture the giving of notice by mail or otherwise is required, the giving of such notice may be waived in writing by the person entitled to receive such notice and in any such case the giving or receipt of such notice shall not be a condition precedent to the validity of any action taken in reliance upon such waiver. -54- Section 12.07. Severability of Invalid Provisions. If any one or more of the provisions contained in this Indenture or in the Bonds shall for any reason be held to be invalid, illegal or unenforceable in any respect, then such provision or provisions shall be deemed severable from the remaining provisions contained in this Indenture and such invalidity, illegality or unenforceability shall not affect any other provision of this Indenture, and this Indenture shall be construed as if such invalid or illegal or unenforceable provision had never been contained herein. The Authority hereby declares that it would have entered into this Indenture and each and every other Section, paragraph, sentence, clause or phrase hereof and authorized the issuance of the Bonds pursuant thereto irrespective of the fact that any one or more Sections, paragraphs, sentences, clauses or phrases of this Indenture may be held illegal, invalid or unenforceable. Section 12.08. Notices. All notices to Bondholders shall be given by telex, telegram, telecopier or other telecommunication device unless otherwise provided herein and confirmed in writing as soon as practicable. All such notices shall also be sent to the Holder and any person designated by any Holder to receive copies of such notices. Any notice to or demand upon the Trustee may be served or presented, and such demand may be made, at the Principal Corporate Trust Office of the Trustee, or at such other address as may have been filed in writing by the Trustee with the Authority. Any notice to or demand upon the Trustee, the Authority, the Company, the Remarketing Agent, the Tender Agent or the Bank shall be deemed to have been sufficiently given or served for all purposes by being delivered or sent by telex or by being deposited, postage prepaid, in a post office letter box, addressed, as the case may be, To the Trustee: Dauphin Deposit Bank and Trust Company 213 Market Street Harrisburg, PA 17101 Attention: Corporate Trust Services To the Authority: Montgomery County Industrial Development Authority 3 Stoney Creek Office Center Norristown, Pennsylvania 19401 Attention: Executive Director (or such other address as may have been filed in writing by the Authority with the Trustee), To the Company: Collegeville Inn Conference & Training Center, Inc. Box 725 Kimberton Road Kimberton, Pennsylvania 19442 Attention: Controller (or such other address as may have been filed in writing by the Company with the Trustee), To the Remarketing Agent: CoreStates Capital Markets 601 Penn Street Penn Square Center - 4th Floor Reading, Pennsylvania 19601 Attention: Sales and Underwriting Department (or such other address as may have been filed in writing by the Remarketing Agent with the Trustee), To the Tender Agent: Dauphin Deposit Bank and Trust Company 213 Market Street Harrisburg, PA 17101 Attention: Corporate Trust Services (or such other address as may have been filed in writing by the Tender Agent with the Trustee), -55- To the Bank: CoreStates Bank, N.A. Great Valley Corporate Center 55 Valley Stream Parkway Suite 200 Malvern, Pennsylvania 19355 Attention: Mr. Michael Bailey, Vice President (or such other address as may have been filed in writing by the Bank with the Trustee). Section 12.09. Evidence of Rights of Bondholders. Any request, consent or other instrument required or permitted by this Indenture to be executed by Bondholders may be in any number of concurrent instruments of substantially similar tenor and shall be signed or executed by such Bondholders in person or by an agent or agents duly appointed in writing. Proof of the execution of any such request, consent or other instrument or of a writing appointing any such agent, or of the holding by any person of Bonds transferable by delivery, shall be sufficient for any purpose of this Indenture and shall be conclusive in favor of the Trustee and of the Authority if made in the manner provided in this Section. The fact and date of the execution by any person of any such request, consent or other instrument or writing may be proved by the certificate of any notary public or other officer of any jurisdiction, authorized by the laws thereof to take acknowledgments of deeds, certifying that the person signing such request, consent or other instrument acknowledged to him the execution thereof, or by an affidavit of a witness of such execution duly sworn to before such notary public or other officer. The ownership of Bonds shall be proved by the bond registration books held by the Trustee. -56- Any request, consent, or other instrument or writing of the Holder of any Bond shall bind every future Holder of the same Bond and the Holder of every Bond issued in exchange therefor or in lieu thereof, in respect of anything done or suffered to be done by the Trustee or the Authority in accordance therewith or in reliance thereon. Section 12.10. Disqualified Bonds. In determining whether the Holders of the requisite aggregate principal amount of Bonds have concurred in any demand, request, direction, consent or waiver under this Indenture, Bonds which are owned or held by or for the account of the Authority or the Company, or by any other obligor on the Bonds, or by any person directly or indirectly controlling or controlled by, or under direct or indirect common control with, the Authority, the Company, or any other obligor on the Bonds, shall be disregarded and deemed not to be Outstanding for the purpose of any such determination. Bonds so owned which have been pledged in good faith may be regarded as Outstanding for the purposes of this Section if the pledgee shall establish to the satisfaction of the Trustee the pledgee's right to vote such Bonds and that the pledgee is not a person directly or indirectly controlling or controlled by, or under direct or indirect common control with, the Authority or the Company, or any other obligor on the Bonds. In case of a dispute as to such right, any decision by the Trustee taken upon the advice of counsel shall be full protection to the Trustee. Section 12.11. Money Held for Particular Bonds. The money held by the Trustee for the payment of the interest, principal or premium due on any date with respect to particular Bonds (or portions of Bonds in the case of registered Bonds redeemed in part only) shall, on and after such date and pending such payment, be set aside on its books and held uninvested in trust by it for the Holders of the Bonds entitled thereto, subject, however, to the provisions of Section 11.04 hereof. Section 12.12. Funds. Any fund required by this Indenture to be established and maintained by the Trustee may be established and maintained in the accounting records of the Trustee, either as a fund or an account, and may, for the purposes of such records, any audits thereof and any reports or statements with respect thereto, be treated either as a fund or as an account; but all such records with respect to all such funds shall at all times be maintained in accordance with current industry standards, to the extent practicable, and with due regard for the requirements of Section 7.05 hereof and for the protection of the security of the Bonds and the rights of every holder thereof. Section 12.13. Payments Due on Days other than Business Days. If a payment day is not a Business Day at the place of payment, then payment may be made at that place on the next Business Day and no interest shall accrue for the intervening period. Section 12.14. Execution in Several Counterparts. This Indenture may be executed in any number of counterparts and each of such counterparts shall for all purposes be deemed to be an original; and all such counterparts, or as many of them as the Authority and the Trustee shall preserve undestroyed, shall together constitute but one and the same instrument. -57- Section 12.15. Notices to Rating Agency. Written notice shall be provided by the Trustee to each Rating Agency of: (i) the appointment of any successor Trustee, Tender Agent, Paying Agent or Remarketing Agent; (ii) any Supplemental Indenture or any amendment to the Agreement or the Letter of Credit; (iii) the expiration, termination, extension or substitution of the Letter of Credit; (iv) the payment of all Outstanding Bonds; (v) the conversion of the Bonds to the Fixed Rate; (vi) the mandatory tender of Bonds in accordance with Sections 5.01 or 5.03 hereof; or (vii) the acceleration of the Bonds. Any notice required to be delivered to Moody's hereunder shall be deemed to have been sufficiently given or served for all purposes by being delivered or by being deposited, postage prepaid, in a post office letter box, addressed to Moody's Investors Service, 99 Church Street, New York, New York 10007, Attention, Secured Finance Group. -58- IN WITNESS WHEREOF, MONTGOMERY COUNTY INDUSTRIAL DEVELOPMENT AUTHORITY has caused this Indenture to be executed in its name by its Chairperson or Vice Chairman and attested by its Secretary, and DAUPHIN DEPOSIT BANK AND TRUST COMPANY, as evidence of its acceptance of the trusts created hereunder, has caused this Indenture to be signed in its corporate name by its duly authorized officer and attested, all as of the day and year first above written. MONTGOMERY COUNTY INDUSTRIAL DEVELOPMENT AUTHORITY By__________________________________ Chairperson (Vice) Chairman [SEAL] Attest:_____________________________ (Assistant) Secretary DAUPHIN DEPOSIT BANK AND TRUST COMPANY, as Trustee and Tender Agent By__________________________________ Authorized Officer [SEAL] Attest:_____________________________ Authorized Officer -59- EXHIBIT "A" No. VR- (FLOATING RATE FORM OF BOND) $2,500,000 Unless this certificate is presented by an authorized representative of The Depository Trust Company, a New York corporation ("DTC") to the Authority or its agent for registration of transfer, exchange or payment, and any certificate issued is registered in the name of Cede & Co. or in such other name as is requested by an authorized representative of DTC (and any payment is made to Cede & Co. or to such other entity as is requested by an authorized representative of DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner (the "Registered Owner") hereof, Cede & Co., has an interest herein. MONTGOMERY COUNTY INDUSTRIAL DEVELOPMENT AUTHORITY FEDERALLY TAXABLE VARIABLE RATE DEMAND/FIXED RATE REVENUE BOND (COLLEGEVILLE INN PROJECT) SERIES OF 1996 MATURITY DATE: December 1, 2016 CUSIP________ DATE OF ISSUANCE: December 26, 1996 THIS BOND IS SUBJECT TO MANDATORY TENDER FOR PURCHASE AT THE TIME AND IN THE MANNER HEREINAFTER DESCRIBED, AND MUST BE SO TENDERED OR WILL BE DEEMED TO HAVE BEEN SO TENDERED UNDER CERTAIN CIRCUMSTANCES DESCRIBED HEREIN. KNOW ALL MEN BY THESE PRESENTS that the MONTGOMERY COUNTY INDUSTRIAL DEVELOPMENT AUTHORITY (the "Authority"), for value received, promises to pay from the source and as hereinafter provided, to CEDE & CO. or registered assigns, on the maturity date hereof (or upon prior redemption as hereinafter provided), upon surrender hereof, the principal sum of Two Million Five Hundred Thousand Dollars ($2,500,000), and in like manner to pay interest on said sum at the rate described below on the first Wednesday of each calendar month, or if such date is not a Business Day, the next succeeding Business Day and on the Conversion Date (hereinafter defined), commencing February 5, 1997 (each an "Interest Payment Date"), from the Interest Payment Date next preceding the date of authentication hereof to which interest has been paid or duly provided for, unless the date of authentication hereof is an Interest Payment Date to which interest has been paid or duly provided for, in which case from the date of authentication hereof, or unless no interest has been paid or duly provided for on the Bonds (as hereinafter defined), A-1 in which case from the date of issuance set forth above (the "Date of Issuance"), until payment of the principal hereof has been made or duly provided for. Notwithstanding the foregoing, if this Bond is authenticated after any date which is the seventh calendar day next preceding any Interest Payment Date (a "Record Date") and before the following Interest Payment Date, this Bond shall bear interest from such Interest Payment Date; provided, however, that if the Authority shall default in the payment of interest due on such Interest Payment Date, then this Bond shall bear interest from the next preceding Interest Payment Date to which interest has been paid or duly provided for, or, if no interest has been paid or duly provided for on the Bonds, from the Date of Issuance. The principal of this Bond is payable in lawful money of the United States of America at the principal corporate trust office of Dauphin Deposit Bank and Trust Company, as trustee (together with its successors in trust, the "Trustee") or at the duly designated office of any successor Trustee under the Trust Indenture, dated December 26, 1996, between the Authority and the Trustee (which, as from time to time amended and supplemented, is hereinafter referred to as the "Indenture"). Payment of interest on this Bond shall be made on each Interest Payment Date to the registered Owner hereof as of the applicable Record Date and shall be paid by check mailed by the Trustee to such registered Owner at his address as it appears on the registration books of the Authority or at such other address as is furnished to the Trustee in writing by such registered Owner, or in such other manner as may be permitted by the Indenture. The purchase price (the amount equal to 100% of the principal amount of any Bond tendered or deemed tendered pursuant to the terms of the Indenture plus accrued and unpaid interest thereon to the date of purchase (the "Purchase Price") of this Bond shall be payable by Dauphin Deposit Bank and Trust Company (together with any successor Tender Agent, the "Tender Agent") to the registered Owner hereof at the principal corporate trust office of the Tender Agent. As used herein, the term "Business Day" means any day other than: (i) a Saturday or Sunday; (ii) a legal holiday or any day on which banking institutions in the State of New York, the Commonwealth of Pennsylvania, the City of New York, or the city in which the principal office of the Trustee, the Tender Agent or the Bank are authorized to remain closed; or (iii) a day on which the New York Stock Exchange is closed. This Bond is one of the duly authorized bonds designated as the Federally Taxable Variable Rate Demand/Fixed Rate Revenue Bonds (Collegeville Inn Project) Series of 1996 of the Authority issued in the aggregate principal amount of $2,500,000 (herein referred to as the "Bonds") under and by virtue of the Pennsylvania Economic Development Financing Law, Act of August 23, 1967, P.L. 251, as amended and supplemented (the "Act"), and by virtue of resolutions duly adopted by the Authority (collectively the "Bond Resolution"), and equally and ratably secured under the Indenture, for the purpose of raising funds to finance a portion of the costs of a project consisting of, among other things: (i) the rehabilitation, reconstruction, installation, furnishing and equipping of a building to be used as a conference center, a training center, a food manufacturing/processing and distribution center and a retail restaurant located at 4000 Ridge Pike, Collegeville, Pennsylvania, which is in the Township of Lower Providence, Montgomery County, Pennsylvania; and (ii) the payment of a portion of the costs of issuing the Bonds (the "Project"). Pursuant to a Loan Agreement, dated December 26, 1996 (the "Agreement") by and between the Authority and Collegeville Inn Conference & Training Center, Inc., a Pennsylvania corporation (the "Company"), installment payments sufficient for the prompt payment when due of the principal and Purchase Price of, premium, if any, and interest on A-2 the Bonds are to be paid to the Trustee for the account of the Authority and deposited in the Bond Fund established by the Indenture and have been duly pledged for that purpose, all to the extent and in the manner provided in the Indenture. The Bonds are all issued under and are equally and ratably secured by and entitled to the protection of the Indenture, pursuant to which all payments due from the Company to the Authority under the Agreement (other than certain indemnification payments and the payment of certain expenses of the Authority) are assigned to the Trustee to secure the payment of the principal and Purchase Price of, and premium, if any, and interest on the Bonds and certain costs, fees and expenses of the Trustee. The Company has caused to be delivered to the Trustee an irrevocable direct pay letter of credit (together with any Substitute Letter of Credit, the "Letter of Credit") issued by CoreStates Bank, N.A. (in such capacity, the "Bank") and dated the Date of Issuance of the Bonds, which will expire, unless earlier terminated or extended, on December 24, 2000. Subject to certain conditions, the Letter of Credit may be replaced by a Substitute Letter of Credit of another commercial bank, savings and loan association or savings bank. Under the Letter of Credit, the Trustee will be entitled to draw up to an amount sufficient to pay: (a) the principal of the Bonds or the portion of the Purchase Price corresponding to the principal of the Bonds; and (b) accrued interest (at the maximum rate of 17% per annum based on 365/366 day year and the actual number of days elapsed) on the Bonds or the portion of the Purchase Price of the Bonds corresponding to accrued interest thereon. Reference is hereby made to the Indenture, the Agreement and the Letter of Credit for a description of the property pledged and assigned, the provisions, among others, with respect to the nature and extent of the security, the rights, duties and obligations of the Authority, the Trustee and the Owners of the Bonds and the terms upon which the Bonds are issued and secured; and the Owner of this Bond, by acceptance hereof, hereby consents to the terms and provisions of all of the foregoing as a material portion of the consideration for the issuance of this Bond. This Bond shall bear interest as follows: (A) From the Date of Issuance of this Bond to the Conversion Date, this Bond shall bear interest at the "Floating Rate." The "Floating Rate" shall be a variable rate of interest equal to the minimum rate of interest necessary, in the sole judgment of the Remarketing Agent (hereinafter defined), to sell the Bonds on any Business Day at a price equal to the principal amount thereof, exclusive of accrued interest, if any, thereon. The Floating Rate shall be determined weekly by CoreStates Capital Markets, a division of CoreStates Bank, N.A., Reading, Pennsylvania (the "Remarketing Agent") by 9:30 a.m. on each Wednesday (or if such Wednesday is not a Business Day, on the next succeeding Business Day) and shall be effective on such Wednesday for the immediately following Weekly Period (as hereinafter defined), all as more fully set forth in the Indenture. The determination of the Floating Rate shall be conclusive and binding upon the Authority, the Trustee, the Bank, the Company, the Remarketing Agent, the Tender Agent and the Owners of this Bond. Anything herein to the contrary notwithstanding, the Floating Rate shall in no event exceed 17% per annum. A-3 (B) The Bonds shall bear interest at the "Fixed Rate" from and after the Conversion Date. In such event, the Fixed Rate shall be applicable until the maturity of the Bonds. The "Fixed Rate" shall be a fixed annual interest rate on the Bonds established by the Remarketing Agent as the rate of interest for which the Remarketing Agent has received commitments on or prior to the 5th Business Day preceding the Conversion Date, at a price of par without discount or premium. Prior to the Conversion Date, interest on the Bonds shall be computed on the basis of a 365/366-day year, actual number of days elapsed. On and after the Conversion Date, interest on the Bonds shall be computed on the basis of a 360-day year of twelve 30-day months. As used herein, the term "Conversion Date" means the Optional Conversion Date; the term "Letter of Credit Termination Date" means the later of: (i) that date upon which the Letter of Credit shall expire or terminate pursuant to its terms; or (ii) that date to which the expiration or termination of the Letter of Credit may be extended, from time to time, either by extension or renewal of the existing Letter of Credit or the issuance of a Substitute Letter of Credit (as such phrase is defined in the Indenture); the term "Optional Conversion Date" means that date on or after February 5, 1997 which shall be a Business Day, from and after which the interest rate on the Bonds is converted from the Floating Rate to the Fixed Rate as a result of the exercise by the Company of the Conversion Option; the term "Conversion Option" means the option granted to the Company in the Indenture pursuant to which the interest rate on the Bonds is converted from the Floating Rate to the Fixed Rate as of the Optional Conversion Date; the term "Purchase Price" means an amount equal to 100% of the principal amount of any Bond tendered or deemed tendered for purchase pursuant to the Indenture or with respect to which the Demand Purchase Option has been exercised, plus accrued and unpaid interest thereon to the date of purchase. The interest rate on the Bonds may be converted from the Floating Rate to the Fixed Rate upon satisfaction of certain conditions and notice given by the Trustee at the direction of the Company to the Owners of the Bonds at least twenty (20) days but not more than thirty (30) days prior to the Conversion Date in accordance with the requirements of the Indenture, and the Bonds shall be subject to mandatory tender by the Owners thereof on the Conversion Date. On and after the Conversion Date, the Demand Purchase Option will not be available to the Owners of the Bonds. On or prior to the Conversion Date, an Owner of Bonds, shall be required to deliver their Bonds to the Tender Agent for purchase at the Purchase Price. Accrued interest on the Bonds will be payable on the Conversion Date to the Owners of Bonds as of the Conversion Date. Any Bonds not delivered to the Tender Agent on or prior to the conversion Date ("Undelivered Bonds"), for which there has been irrevocably deposited in trust with the Trustee or the Tender Agent an amount of money sufficient to pay the Purchase Price of the Undelivered Bonds, shall be deemed to have been purchased at the Purchase Price and are deemed to be no longer outstanding with respect to such prior Owners. IN THE EVENT OF A FAILURE BY AN OWNER OF BONDS TO DELIVER ITS BONDS ON OR PRIOR TO THE CONVERSION DATE, SAID OWNER SHALL NOT BE A-4 ENTITLED TO ANY PAYMENT (INCLUDING ANY INTEREST TO ACCRUE ON OR SUBSEQUENT TO THE CONVERSION DATE) OTHER THAN THE PURCHASE PRICE FOR SUCH UNDELIVERED BONDS, AND ANY UNDELIVERED BONDS SHALL NO LONGER BE ENTITLED TO THE BENEFIT OF THE INDENTURE, EXCEPT FOR THE PURPOSE OF PAYMENT OF THE PURCHASE PRICE THEREFOR. Notwithstanding the foregoing provisions, to the extent that at the close of the fifth Business Day prior to the proposed Optional Conversion Date, the Remarketing Agent has not presented to the Company firm commitments for the purchase of all of the Bonds, the Company, at its option, may rescind an optional conversion of the Bonds. Any such election to rescind must be made by the close of the fourth Business Day prior to the proposed Conversion Date and the Company shall give written notice to the Trustee, the Tender Agent and the Bank of its decision to rescind the optional conversion by such time. The Company shall cause the Trustee to immediately notify the Owners of such rescission and thereafter the Bonds shall bear interest at the Floating Rate in effect for the then current Weekly Period and thereafter the Bonds shall bear interest at the Floating Rate until any subsequent Conversion Date effected in accordance with the Indenture. As used herein, "Weekly Period" means, while this Bond bears interest at the Floating Rate, the weekly period that begins on and includes Wednesday of each calendar week and ends at the close of business on Tuesday of the next succeeding week. At any time prior to the Record Date preceding the first Interest Payment Date following the Conversion Date, the Trustee or the Tender Agent, as the case may be, shall deliver a replacement Bond evidencing interest payable at the Fixed Rate. Prior to the Conversion Date, this Bond shall be purchased, at the option of the Owner hereof ("Demand Purchase Option") at the Purchase Price, upon: (a) delivery by such Owner to the Trustee and the Tender Agent at their principal corporate trust office and Delivery Office (hereinafter defined) respectively, and to the Remarketing Agent at its principal office of a notice (a "Demand Purchase Notice") (said notice to be irrevocable and effective upon receipt) which states: (i) the aggregate principal amount and the bond numbers of Bonds to be purchased; and (ii) the date on which such Bonds are to be purchased, which date shall be a Business Day not prior to the seventh (7th) day next succeeding the date of delivery of such notice and which date shall be prior to the Conversion Date; (b) if such Bonds are to be purchased prior to an Interest Payment Date and after the Record Date in respect thereof, delivery to the Tender Agent together with the Demand Purchase Notice described in (a) above, of a non-recourse due-bill, payable to bearer, for interest due on such Interest Payment Date; and (c) delivery to the Tender Agent at its Delivery Office (hereinafter defined) at or prior to 10:00 a.m., New York City time, on the date designated for purchase in the applicable Demand Purchase Notice of such Bonds to be purchased with an appropriate endorsement for transfer or accompanied by a bond power endorsed in blank. A-5 Any Bond as to which a Demand Purchase Notice has been delivered pursuant to (a) above, must be delivered to the Tender Agent as provided in (c) above, and any such Bonds not so delivered ("Undelivered Bonds"), for which there has been irrevocably deposited in trust with the Trustee or the Tender Agent an amount of money sufficient to pay the Purchase Price thereof, shall be deemed to have been purchased at the Purchase Price and are deemed to be no longer outstanding with respect to such tendering Owner. IN THE EVENT OF A FAILURE BY AN OWNER OF BONDS TO DELIVER ITS BONDS AS SPECIFIED ABOVE, SAID OWNER SHALL NOT BE ENTITLED TO ANY PAYMENT (INCLUDING ANY INTEREST TO ACCRUE ON OR SUBSEQUENT TO THE DATE DESIGNATED FOR PURCHASE IN THE APPLICABLE DEMAND PURCHASE NOTICE) OTHER THAN THE PURCHASE PRICE FOR SUCH UNDELIVERED BONDS, AND ANY UNDELIVERED BONDS SHALL NO LONGER BE ENTITLED TO THE BENEFIT OF THE INDENTURE, EXCEPT FOR THE PAYMENT OF THE PURCHASE PRICE THEREFOR. Notwithstanding the foregoing provisions, in the event any Bond as to which the Owner thereof has exercised the Demand Purchase Option is remarketed to such Owner pursuant to the Remarketing Agreement, such Owner need not deliver such Bond to the Tender Agent as provided in (c) above, although such Bond shall be deemed to have been delivered to the Tender Agent, redelivered to such Owner, and remarketed for purposes of the Indenture. The Agreement provides that the Company, upon satisfaction of certain conditions precedent, may, at any time, at its option, provide for the delivery to the Trustee of a Substitute Letter of Credit. The Bonds shall be subject to mandatory tender by the Owners thereof on the date of delivery of the Substitute Letter of Credit (the "Substitution Date"). On or prior to the Substitution Date, Owners of Bonds shall be required to deliver their Bonds to the Tender Agent for purchase at the Purchase Price. Accrued interest on the Bonds will be payable on the Substitution Date to the Owners of Bonds as of the Substitution Date. Any Bonds not delivered to the Tender Agent on or prior to the Substitution Date ("Undelivered Bonds"), for which there has been irrevocably deposited in trust with the Trustee or the Tender Agent an amount of money sufficient to pay the Purchase Price of the Undelivered Bonds, shall be deemed to have been purchased at the Purchase Price and are deemed to be no longer outstanding with respect to such Owners. IN THE EVENT OF A FAILURE BY AN OWNER OF BONDS TO DELIVER ITS BONDS ON OR PRIOR TO THE SUBSTITUTION DATE, SAID OWNER SHALL NOT BE ENTITLED TO ANY PAYMENT (INCLUDING ANY INTEREST TO ACCRUE ON OR SUBSEQUENT TO THE SUBSTITUTION DATE) OTHER THAN THE PURCHASE PRICE FOR SUCH UNDELIVERED BONDS, AND ANY UNDELIVERED BONDS SHALL NO LONGER BE ENTITLED TO THE BENEFIT OF THE INDENTURE, EXCEPT FOR THE PURPOSE OF PAYMENT OF THE PURCHASE PRICE THEREFOR. Any delivery of a notice required to be made to the Trustee at its principal corporate trust office pursuant to (a) above shall be delivered to the Trustee at 213 Market Street, Harrisburg, A-6 Pennsylvania 17101, Attention Corporate Trust Services, or to the office designated for such purpose by any successor Trustee; any delivery of a notice required to be made to the Remarketing Agent at its principal office pursuant to (a) above shall be delivered to the Remarketing Agent at 601 Penn Square Center, Fourth Floor, Reading, Pennsylvania 19601, Attention: CoreStates Capital Markets, Sales and Underwriting Department, or to the office designated for such purpose by any successor Remarketing Agent; and any delivery of Bonds required to be made to the Tender Agent pursuant to (b) above shall be delivered to the Tender Agent at 213 Market Street, Harrisburg, Pennsylvania 17101, Attention: Corporate Trust Services or to the office designated for such purpose by any successor Tender Agent (the "Delivery Office"). Notwithstanding any provision herein to the contrary, so long as this Bond is subject to a system of book-entry transfers, any requirement for the delivery of Bonds to the Tender Agent in connection with an optional or mandatory tender shall be deemed satisfied upon the transfer, on the registration books of DTC, of the beneficial ownership interests in the Bonds tendered for purchase to the account of the Tender Agent, or a Participant (as such term is defined in the Indenture) acting on behalf of or at the discretion of such Tender Agent. THE BONDS ARE SPECIAL LIMITED OBLIGATIONS OF THE AUTHORITY PAYABLE SOLELY AND EXCLUSIVELY FROM THE PAYMENTS REQUIRED TO BE MADE BY THE COMPANY UNDER THE AGREEMENT AND FROM DRAWS ON THE LETTER OF CREDIT. NO RECOURSE SHALL BE HAD FOR THE PAYMENT OF PRINCIPAL, PURCHASE PRICE OR REDEMPTION PRICE OF, OR INTEREST ON, THIS BOND, OR ANY CLAIM BASED HEREON OR ON THE INDENTURE OR THE AGREEMENT, AGAINST THE AUTHORITY OR ANY SUCCESSOR BODY OR AGAINST ANY OFFICER, MEMBER, EMPLOYEE OR AGENT PAST, PRESENT OR FUTURE OF THE AUTHORITY OR ANY SUCCESSOR BODY, UNDER ANY CONSTITUTIONAL PROVISION, STATUTE OR RULE OF LAW, OR BY THE ENFORCEMENT OF ANY ASSESSMENT OR BY ANY LEGAL OR EQUITABLE PROCEEDING OR OTHERWISE, AND ALL SUCH LIABILITY OF THE AUTHORITY OR ANY SUCCESSOR BODY OR ANY SUCH OFFICERS, MEMBERS, EMPLOYEES OR AGENTS IS RELEASED AS A CONDITION OF, AND IN CONSIDERATION FOR, THE ISSUANCE OF THIS BOND. AS A CONDITION OF, AND IN CONSIDERATION FOR, THE ISSUANCE OF THIS BOND, THE REGISTERED OWNER HEREOF COVENANTS THAT HE WILL NOT SUE THE AUTHORITY OR ITS MEMBERS, OFFICERS, EMPLOYEES OR AGENTS, PAST, PRESENT OR FUTURE, EXCEPT AS EXPRESSLY PERMITTED IN THE INDENTURE AND THE AGREEMENT. THE BONDS AND THE INTEREST THEREON SHALL NOT BE IN ANY WAY A DEBT OR LIABILITY OF THE COUNTY OF MONTGOMERY, PENNSYLVANIA (THE "COUNTY"), THE COMMONWEALTH OF PENNSYLVANIA (THE "COMMONWEALTH") OR ANY POLITICAL SUBDIVISION THEREOF AND SHALL NOT CREATE OR CONSTITUTE ANY INDEBTEDNESS, LIABILITY OR OBLIGATION OF THE COUNTY, THE COMMONWEALTH OR ANY POLITICAL SUBDIVISION THEREOF, EITHER LEGAL, MORAL OR OTHERWISE, AND THE AUTHORITY SHALL NOT INCUR ANY INDEBTEDNESS ON BEHALF OF OR IN ANY WAY TO OBLIGATE THE COUNTY, THE COMMONWEALTH OR ANY POLITICAL SUBDIVISION THEREOF. NEITHER THE MEMBERS OF THE AUTHORITY NOR ANY PERSON EXECUTING THE BONDS SHALL BE LIABLE PERSONALLY ON THE BONDS BY REASON A-7 OF THE ISSUANCE THEREOF. THE AUTHORITY IS A CONDUIT ISSUER AND HAS NO TAXING POWER. This Bond is transferable by the Registered Owner hereof in person or by his attorney duly authorized in writing, at the principal corporate trust office of the Trustee or at the Delivery Office of the Tender Agent or that of any successor Tender Agent, but only in the manner, subject to the limitations and upon payment of the charges provided in the Indenture, and upon surrender and cancellation of this Bond. Upon such transfer a new registered Bond or Bonds of authorized denomination or denominations for the same aggregate principal amount will be issued to the transferee in exchange herefor. The Authority, the Tender Agent and the Trustee may deem and treat the registered Owner hereof as the absolute Owner hereof (whether or not this Bond shall be overdue) for all purposes, and neither the Authority, the Tender Agent nor the Trustee shall be bound by any notice or knowledge to the contrary. Prior to the Conversion Date: (i) the Bonds are issuable as fully registered bonds without coupons in the denominations of $100,000 or any integral multiple of $5,000 in excess thereof; and (ii) the Bonds may not be issued, exchanged or transferred except in authorized denominations of $100,000 or any integral multiple of $5,000 in excess thereof. From and after the Conversion Date, the Bonds shall be issuable as fully registered bonds without coupons in the denominations of $5,000 or any integral multiple thereof. Extraordinary Redemption The Bonds are callable for redemption in the event: (1) the Project Facilities or any portion thereof is damaged or destroyed or taken in a condemnation proceeding as provided in Section 6.04 of the Agreement; or (2) the Company shall exercise its option to cause the Bonds to be redeemed as provided in Section 9.02 of the Agreement. If called for redemption at any time pursuant to (1) or (2) above, the Bonds shall be subject to redemption by the Authority on any Interest Payment Date, in whole or in part, at a redemption price of one hundred percent (100%) of the principal amount thereof plus accrued interest to the redemption date. Mandatory Redemption The Bonds are subject to mandatory redemption, five (5) Business Days prior to the Letter of Credit Termination Date, in whole, at a redemption price equal to one hundred percent (100%) of the principal amount thereof being redeemed plus accrued interest to the redemption date if, on the thirtieth (30th) Business Day prior to the Letter of Credit Termination Date, the Trustee shall not have received a Substitute Letter of Credit which will be effective on or before the Letter of Credit Termination Date. Mandatory Sinking Fund Redemption The Bonds are subject to mandatory sinking fund redemption on the Interest Payment Date A-8 occurring in the month of December in each of the years set forth below commencing on the Interest Payment Date occurring in December of 1997 (each, a "Mandatory Sinking Account Payment Date"), at a redemption price equal to 100" of the principal amount thereof plus accrued interest as follows: Mandatory Sinking Year Account Payments 1997 $ 70,000 1998 70,000 1999 75,000 2000 80,000 2001 85,000 2002 90,000 2003 95,000 2004 100,000 2005 105,000 2006 115,000 2007 120,000 2008 130,000 2009 135,000 2010 145,000 2011 155,000 2012 165,000 2013 175,000 2014 185,000 2015 195,000 2016* 210,000 *Final maturity of the Bonds is December 1, 2016 Optional Redemption On or prior to the Conversion Date, the Bonds are subject to redemption by the Authority, at the option of the Company, at any time, subject to the notice provisions described below, in whole or in part, at the redemption price of 100% of the principal amount thereof being redeemed plus accrued interest to the redemption date. No such optional redemption shall occur unless there shall be available in the Bond Fund established under the Indenture sufficient Available Moneys (as defined in the Indenture) to pay all amounts due with respect to such a redemption. In the event any of the Bonds or portions thereof are called for redemption as aforesaid, A-9 notice of the call for redemption, identifying the Bonds or portions thereof to be redeemed and the redemption price (including the premium, if any), shall be given by the Trustee by mailing a copy of the redemption notice by first-class mail at least thirty (30) days but not more than sixty (60) days prior to the date fixed for redemption to the Owner of each Bond to be redeemed in whole or in part at the address shown on the registration books. Any notice mailed as provided above shall be conclusively presumed to have been duly given, whether or not the Owner receives the notice. No further interest shall accrue on the principal of any Bond called for redemption after the redemption date if Available Moneys (as defined in the Indenture) sufficient for such redemption have been deposited with the Trustee. Notwithstanding the foregoing, the notice requirements contained in the first sentence of this paragraph may be deemed satisfied with respect to a transferee of a Bond which has been purchased pursuant to the Demand Purchase Option under certain circumstances provided in Section 4.06 of the Indenture, after such Bond has previously been called for redemption, notwithstanding the failure to satisfy the notice requirements of the first sentence of this paragraph with respect to such transferee. If less than all the Bonds are to be redeemed, the particular Bonds or portions thereof to be redeemed shall be selected by the Trustee by lot. Prior to the Conversion Date, in case a Bond is of a denomination larger than $100,000, a portion of such Bond ($100,000 or any integral multiple of $5,000 in excess thereof) may be redeemed, but Bonds shall be redeemed only if the remaining unredeemed portion of such Bond is in the principal amount of $100,000 or any integral multiple in excess of $100,000. The Bonds are issued pursuant to and in full compliance with the Constitution and laws of the Commonwealth, particularly the Act, and by appropriate action duly taken by the Authority which authorizes the execution and delivery of the Agreement and the Indenture. The Bonds have been issued under the provisions of the Act. Notwithstanding anything to the contrary contained herein or in the Indenture, the Agreement, or in any other instrument or document executed by or on behalf of the Authority in connection herewith, no stipulation, covenant, agreement or obligation contained herein or therein shall be deemed or construed to be a stipulation, covenant, agreement or obligation of any present or future member, commissioner, director, trustee, officer, employee or agent of the Authority, or of any successor to the Authority, in any such person's individual capacity, and no such person, in his individual capacity, shall be liable personally for any breach or nonobservance of or for any failure to perform, fulfill or comply with any such stipulations, covenants, agreements or the principal of or premium, if any, or interest on any of the Bonds or for any claim based thereon or on any such stipulation, covenant, agreement or obligation, against any such person, in his individual capacity, either directly or through the Authority or any successor to the Authority, under any rule of law or equity, statute or constitution or by the enforcement of any assessment or penalty or otherwise, and all such liability of any such person, in his individual capacity, is hereby expressly waived and released. The Owner of this Bond shall have no right to enforce the provisions of the Indenture or to institute action to enforce the covenants therein, or to take any action with respect to any default A-10 under the Indenture, or to institute, appear in or defend any suit or other proceedings with respect thereto, unless certain circumstances described in the Indenture shall have occurred. In certain events, on the conditions, in the manner and with the effect set forth in the Indenture, the principal of all the Bonds issued under the Indenture and then outstanding may become or may be declared due and payable before the stated maturity thereof, together with interest accrued thereon. The Indenture permits, with certain exceptions as therein provided, the amendment thereof and the modification of the rights and obligations of the Authority and the rights of the Owners of the Bonds at any time by the Authority with the consent of the Company, the Bank and the holders of all Bonds at the time outstanding. Any such consent or any waiver by the Company, the Bank and the holders of all Bonds at the time outstanding shall be conclusive and binding upon the Owner and upon all future Owners of this Bond and of any Bond issued in replacement hereof whether or not notation of such consent or waiver is made upon this Bond. The Indenture also contains provisions which, subject to certain conditions, permit or require the Trustee to waive certain past defaults under the Indenture and their consequences. It is hereby certified, recited and declared that all acts, conditions and things required to exist, happen and be performed precedent to and in connection with the execution and delivery of the Indenture and the issuance of this Bond do exist, have happened and have been performed in due time, form and manner as required by law; and that the issuance of this Bond and the issue of which it forms a part, together with all other obligations of the Authority, does not exceed or violate any constitutional or statutory limitation. This Bond shall not be valid or become obligatory for any purpose or be entitled to any security or benefit under the Indenture until the certificate of authentication hereon shall have been signed by the Trustee or the Tender Agent, as authenticating agent. IN WITNESS WHEREOF, the Montgomery County Industrial Development Authority has caused this Bond to be signed in its name and on its behalf by the manual or facsimile signature of its Chairperson or Vice Chairman and its corporate seal to be affixed, imprinted or reproduced hereon and attested by the manual or facsimile signature of its Secretary all as of the Date of Issuance. MONTGOMERY COUNTY INDUSTRIAL DEVELOPMENT AUTHORITY Attest:____________________ By______________________________ Secretary Chairperson (SEAL) A-11 (Form of Certificate of Authentication) CERTIFICATE OF AUTHENTICATION This Bond is one of the Bonds of the issue described in the within-mentioned Trust Indenture. DAUPHIN DEPOSIT BANK AND TRUST COMPANY, as Trustee and Tender Agent By:_____________________________ Authorized Representative Date of Authentication:__________________ (Form for Transfer) FOR VALUE RECEIVED, , the undersigned, hereby sells, assigns and transfers unto (Tax Identification or Social Security No. ) the within Bond and all rights thereunder, and hereby irrevocably constitutes and appoints attorney to transfer the within Bond on the books kept for registration thereof, with full power of substitution in the premises. Dated_____________________________________ ____________________________ NOTICE: Signature(s) must be guaranteed NOTICE: The signature to this by an approved eligible guarantor institution, assignment must correspond an institution which is participant in a with the name as it appears Securities Transfer Association recognized upon the face of the within signature guarantee program. Bond in every particular, without alteration or enlargement or any change whatever. A-12 EXHIBIT "B" (FIXED RATE FORM OF BOND) Unless this certificate is presented by an authorized representative of The Depository Trust Company, a New York corporation ("DTC") to the Authority or its agent for registration of transfer, exchange or payment, and any certificate issued is registered in the name of Cede & Co. or in such other name as is requested by an authorized representative of DTC (and any payment is made to Cede & Co. or to such other entity as is requested by an authorized representative of DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner (the "Registered Owner") hereof, Cede & Co., has an interest herein. UNITED STATES OF AMERICA MONTGOMERY COUNTY INDUSTRIAL DEVELOPMENT AUTHORITY FEDERALLY TAXABLE VARIABLE RATE DEMAND/FIXED RATE REVENUE BOND (COLLEGEVILLE INN PROJECT) SERIES OF 1996 No. FR- $ Interest Rate: CUSIP____________ KNOW ALL MEN BY THESE PRESENTS that the MONTGOMERY COUNTY INDUSTRIAL DEVELOPMENT AUTHORITY (the "Authority"), for value received, promises to pay from the source and as hereinafter provided, to CEDE & CO. or registered assigns, on ________________, upon surrender hereof, the principal sum of ______________ Dollars, and in like manner to pay interest (calculated on the basis of a 360-day year of twelve 30 day months) on said sum at the rate per annum set forth above on June 1 and December 1 of each year, commencing _________________, (each an "Interest Payment Date") from the Interest Payment Date next preceding the date of authentication hereof to which interest has been paid or duly provided for, unless the date of authentication hereof is an Interest Payment Date to which interest has been paid or duly provided for, in which case from the date of authentication hereof or unless no interest has been paid or duly provided for on the Bonds (as hereinafter defined), in which case from the Conversion Date (as defined in the Indenture, as hereinafter defined), until payment of the principal hereof has been made or duly provided for. Notwithstanding the foregoing, if this Bond is authenticated after any date which is the fifteenth day next preceding any Interest Payment Date (a "Record Date") and before the following Interest Payment Date, this Bond shall bear interest from such Interest Payment Date; B-2 provided, however, that if the Authority shall default in the payment of interest due on such Interest Payment Date, then this Bond shall bear interest from the next preceding interest payment date to which interest has been paid or duly provided for, or, if no interest has been paid or duly provided for on the Bonds, from the Date of Issuance. The principal of this Bond is payable in lawful money of the United States of America at the principal corporate trust office of Dauphin Deposit Bank and Trust Company, as trustee (together with its successors in trust, the "Trustee") or at the duly designated office of any successor Trustee under the Trust Indenture, dated December 26, 1996 between the Authority and the Trustee (which Indenture, as from time to time amended and supplemented, is hereinafter referred to as the "Indenture"). Payment of interest on this Bond shall be made on each Interest Payment Date to the registered Owner hereof as of the applicable Record Date and shall be paid by check mailed by the Trustee to such registered Owner at his address as it appears on the registration books of the Authority or at such other address as is furnished to the Trustee in writing by such registered Owner, or in such other manner as may be permitted by the Indenture. As used herein, the term "Business Day" means a day which is not a Saturday, Sunday or legal holiday on which banking institutions in the State of New York, Commonwealth of Pennsylvania, the City of New York, or the city in which the principal office of the Trustee, the Tender Agent or the Bank are authorized to remain closed or on which the New York Stock Exchange is closed. This Bond is one of the duly authorized bonds designated as the Federally Taxable Variable Rate Demand/Fixed Rate Revenue Bonds (Collegeville Inn Project) Series of 1996 of the Authority issued in the aggregate principal amount of $ (herein referred to as the "Bonds") under and by virtue of the Pennsylvania Economic Development Financing Law, Act of August 23, 1967, P.L. 251, as amended and supplemented (the "Act"), and by virtue of resolutions duly adopted by the Authority (collectively the "Bond Resolution"), and equally and ratably secured under the Indenture, for the purpose of raising funds to finance a portion of the costs of a project consisting of, among other things, (i) the rehabilitation, reconstruction, installation, furnishing and equipping of a building to be used as a conference center, a training center, a food manufacturing/processing and distribution center and a retail restaurant located at 4000 Ridge Pike, Collegeville, Pennsylvania, which is in the Township of Lower Providence, Montgomery County, Pennsylvania; and (ii) payment of a portion of the costs of issuing the Bonds (the "Project"). Pursuant to a Loan Agreement, dated December 26, 1996 (the "Agreement") by and between the Authority and Collegeville Inn Conference & Training Center, Inc., a Pennsylvania corporation (the "Company"), installment payments sufficient for the prompt payment when due of the principal and Purchase Price of, premium, if any, and interest on the Bonds are to be paid to the Trustee for the account of the Authority and deposited in the Bond Fund established by the Indenture and have been duly pledged for that purpose, all to the extent and in the manner provided in the Indenture. The Bonds are all issued under and are equally and ratably secured by and entitled to the protection of the Indenture, pursuant to which all payments due from the Company to the Authority under the Agreement (other than certain indemnification payments and the payment of certain expenses of the Authority) are assigned to the Trustee to secure the payment of the principal of and premium, if any, and interest on the Bonds. B-3 Reference is hereby made to the Indenture and the Agreement for a description of the property pledged and assigned, the provisions, among others, with respect to the nature and extent of the security, the rights, duties and obligations of the Authority, the Trustee and the Owners of the Bonds, and the terms upon which the Bonds are issued and secured; and the Owner of this Bond, by acceptance hereof, hereby consents to the terms and provisions of all of the foregoing as a material portion of the consideration for the issuance of this Bond. THE BONDS ARE SPECIAL LIMITED OBLIGATIONS OF THE AUTHORITY PAYABLE SOLELY AND EXCLUSIVELY FROM THE PAYMENTS REQUIRED TO BE MADE BY THE COMPANY UNDER THE AGREEMENT AND FROM DRAWS ON THE LETTER OF CREDIT. NO RECOURSE SHALL BE HAD FOR THE PAYMENT OF PRINCIPAL, PURCHASE PRICE OR REDEMPTION PRICE OF, OR INTEREST ON, THIS BOND, OR ANY CLAIM BASED HEREON OR ON THE INDENTURE OR THE AGREEMENT, AGAINST THE AUTHORITY OR ANY SUCCESSOR BODY OR AGAINST ANY OFFICER, MEMBER, EMPLOYEE OR AGENT PAST, PRESENT OR FUTURE OF THE AUTHORITY OR ANY SUCCESSOR BODY, UNDER ANY CONSTITUTIONAL PROVISION, STATUTE OR RULE OF LAW, OR BY THE ENFORCEMENT OF ANY ASSESSMENT OR BY ANY LEGAL OR EQUITABLE PROCEEDING OR OTHERWISE, AND ALL SUCH LIABILITY OF THE AUTHORITY OR ANY SUCCESSOR BODY OR ANY SUCH OFFICERS, MEMBERS, EMPLOYEES OR AGENTS IS RELEASED AS A CONDITION OF, AND IN CONSIDERATION FOR, THE ISSUANCE OF THIS BOND. AS A CONDITION OF, AND IN CONSIDERATION FOR, THE ISSUANCE OF THIS BOND, THE REGISTERED OWNER HEREOF COVENANTS THAT HE WILL NOT SUE THE AUTHORITY OR ITS MEMBERS, OFFICERS, EMPLOYEES OR AGENTS, PAST, PRESENT OR FUTURE, EXCEPT AS EXPRESSLY PERMITTED IN THE INDENTURE AND THE AGREEMENT. THE BONDS AND THE INTEREST THEREON SHALL NOT BE IN ANY WAY A DEBT OR LIABILITY OF THE COUNTY OF MONTGOMERY, PENNSYLVANIA (THE "COMMONWEALTH"), THE COMMONWEALTH OF PENNSYLVANIA (THE "COMMONWEALTH") OR ANY POLITICAL SUBDIVISION THEREOF AND SHALL NOT CREATE OR CONSTITUTE ANY INDEBTEDNESS, LIABILITY OR OBLIGATION OF THE COUNTY, THE COMMONWEALTH OR ANY POLITICAL SUBDIVISION THEREOF, EITHER LEGAL, MORAL OR OTHERWISE, AND THE AUTHORITY SHALL NOT INCUR ANY INDEBTEDNESS ON BEHALF OF OR IN ANY WAY TO OBLIGATE THE COUNTY, THE COMMONWEALTH OR ANY POLITICAL SUBDIVISION THEREOF. NEITHER THE MEMBERS OF THE AUTHORITY NOR ANY PERSON EXECUTING THE BONDS SHALL BE LIABLE PERSONALLY ON THE BONDS BY REASON OF THE ISSUANCE THEREOF. THE AUTHORITY IS A CONDUIT ISSUER AND HAS NO TAXING POWER. This Bond is transferable by the Registered Owner hereof in person or by his attorney duly authorized in writing, at the principal corporate trust office of the Trustee but only in the manner, subject to the limitations and upon payment of the charges provided in the Indenture, and upon surrender and cancellation of this Bond. Upon such transfer a new registered Bond or Bonds of authorized denomination or denominations for the same aggregate principal amount will be issued B-4 to the transferee in exchange herefor. The Authority and the Trustee may deem and treat the registered Owner hereof as the absolute Owner hereof (whether or not this Bond shall be overdue) for all purposes, and neither the Authority nor the Trustee shall be bound by any notice or knowledge to the contrary. The Bonds shall be issuable as fully registered Bonds without coupons in the denomination of $5,000 or any integral multiple thereof. Extraordinary Redemption The Bonds are callable for redemption in the event: (1) the Project Facilities or any portion thereof is damaged or destroyed or taken in a condemnation proceeding as provided in Section 6.04 of the Agreement; or (2) the Company shall exercise its option to cause the Bonds to be redeemed as provided in Section 9.02 of the Agreement. If called for redemption at any time pursuant to (1) or (2) above, the Bonds shall be subject to redemption by the Authority on any interest payment date, in whole or in part, at a redemption price of one hundred percent (100%) of the principal amount thereof plus accrued interest to the redemption date. Mandatory Redemption The Bonds are subject to mandatory redemption, five (5) Business Days prior to the Letter of Credit Termination Date, in whole, at a redemption price equal to one hundred percent (100% of the principal amount thereof being redeemed plus accrued interest to the redemption date if, on the thirtieth (30th) Business Day prior to the Letter of Credit Termination Date, the Trustee shall not have received a Substitute Letter of Credit which will be effective on or before the Letter of Credit Termination Date. Mandatory Sinking Fund Redemption The Bonds are subject to mandatory redemption on the Interest Payment Date occurring in the month of in each of the years set forth below (except ) commencing on the Interest Payment Date occurring in of (each, a "Mandatory Sinking Account Payment Date"), at a redemption price equal to 100% of the principal amount thereof plus accrued interest as follows: Mandatory Sinking Year Account Payments ---- ---------------- *Final maturity B-5 Optional Redemption If the length of time from the Conversion Date to the final maturity date of the Bonds is seven (7) years or more, the Bonds are subject to redemption by the Authority, at the option of the Company, on or after the fifth (5th) anniversary of the Conversion Date, in whole at any time or in part on any Interest Payment Date, at the redemption price of 100% of the principal amount thereof being redeemed plus accrued interest to the redemption date. In the event any of the Bonds or portions thereof are called for redemption as aforesaid, notice of the call for redemption, identifying the Bonds or portions thereof to be redeemed and the redemption price, shall be given by the Trustee by mailing a copy of the redemption notice by first-class mail at least thirty (30) days but not more than sixty (60) days prior to the date fixed for redemption to the Owner of each Bond to be redeemed in whole or in part at the address shown on the registration books. Any notice mailed as provided above shall be conclusively presumed to have been duly given, whether or not the Owner receives the notice. No further interest shall accrue on the principal of any Bond called for redemption after the redemption date if moneys sufficient for such redemption have been deposited with the Trustee. If less than all the Bonds are to be redeemed, the particular Bonds or portions thereof to be redeemed shall be selected by the Trustee by lot. The Bonds are issued pursuant to and in full compliance with the Constitution and laws of the Commonwealth, particularly the Act, and by appropriate action duly taken by the Authority which authorizes the execution and delivery of the Agreement and the Indenture. The Bonds have been issued under the provisions of the Act. Notwithstanding anything to the contrary contained herein or in the Indenture, the Agreement, or in any other instrument or document executed by or on behalf of the Authority in connection herewith, no stipulation, covenant, agreement or obligation contained herein or therein shall be deemed or construed to be a stipulation, covenant, agreement or obligation of any present or future member, commissioner, director, trustee, officer, employee or agent of the Authority, or of any successor to the Authority, in any such person's individual capacity, and no such person, in his individual capacity, shall be liable personally for any breach or nonobservance of or for any failure to perform, fulfill or comply with any such stipulations, covenants, agreements or obligations, nor shall any recourse be had for the payment of the principal of or premium, if any, or interest on any of the Bonds or for any claim based thereon or on any such stipulation, covenant, agreement or obligation, against any such person, in his individual capacity, either directly or through the Authority or any successor to the Authority, under any rule of law or equity, statute or constitution or by the enforcement of any assessment or penalty or otherwise, and all such liability of any such person, in his individual capacity, is hereby expressly waived and released. The Owner of this Bond shall have no right to enforce the provisions of the Indenture or to institute action to enforce the covenants therein, or to take any action with respect to any default B-6 under the Indenture, or to institute, appear in or defend any suit or other proceedings with respect thereto, unless certain circumstances described in the Indenture shall have occurred. In certain events, on the conditions, in the manner and with the effect set forth in the Indenture, the principal of all the Bonds issued under the Indenture and then outstanding may become or may be declared due and payable before the stated maturity thereof, together with interest accrued thereon. The Indenture permits, with certain exceptions as therein provided, the amendment thereof and the modification of the rights and obligations of the Authority and the rights of the Owners of the Bonds at any time by the Authority with the consent of the Company, the Bank and the holders of all Bonds at the time outstanding. Any such consent or any waiver by the Company, the Bank and the holders of all Bonds shall be conclusive and binding upon the Owner and upon all future Owners of this Bond and of any Bond issued in replacement hereof whether or not notation of such consent or waiver is made upon this Bond. The Indenture also contains provisions which, subject to certain conditions, permit or require the Trustee to waive certain past defaults under the Indenture and their consequences. It is hereby certified, recited and declared that all acts, conditions and things required to exist, happen and be performed precedent to and in connection with the execution and delivery of the Indenture and the issuance of this Bond do exist, have happened and have been performed in due time, form and manner as required by law; and that the issuance of this Bond and the issue of which it forms a part, together with all other obligations of the Authority does not exceed or violate any constitutional or statutory limitation. This Bond shall not be valid or become obligatory for any purpose or be entitled to any security or benefit under the Indenture until the certificate of authentication hereon shall have been signed by the Trustee or a duly appointed authenticating agent pursuant to the Indenture. B-7 IN WITNESS WHEREOF, the Montgomery County Industrial Development Authority has caused this Bond to be signed in its name and on its behalf by the manual or facsimile signature of its Chairperson or Vice Chairman and its corporate seal to be affixed, imprinted or reproduced hereon and attested by the manual or facsimile signature of its Secretary or Assistant Secretary, all as of the Date of Issuance. MONTGOMERY COUNTY INDUSTRIAL DEVELOPMENT AUTHORITY Attest:_____________________ By:__________________________________ Secretary Chairperson (SEAL) (Form of Certificate of Authentication) CERTIFICATE OF AUTHENTICATION This Bond is one of the Bonds of the issue described in the within-mentioned Trust Indenture. DAUPHIN DEPOSIT BANK AND TRUST COMPANY, as Trustee By_________________________________ Authorized Representative Date of Authentication:______________________ B-7 (Form for Transfer) FOR VALUE RECEIVED, __________________ , the undersigned, hereby sells, assigns and transfers unto (Tax Identification or Social Security No. _________) the within Bond and all rights thereunder, and hereby irrevocably constitutes and appoints attorney to transfer the within Bond on the books kept for registration thereof with full power of substitution in the premises. Dated_____________________________________ ____________________________ NOTICE: Signature(s) must be guaranteed NOTICE: The signature to this by an approved eligible guarantor institution, assignment must correspond an institution which is participant in a with the name as it appears Securities Transfer Association recognized upon the face of the within signature guarantee program. Bond in every particular, without alteration or enlargement or any change whatever. B-8 EXHIBIT "C" CONSTRUCTION FUND REQUISITION NO.____________ Date:____________________ Dauphin Deposit Bank and Trust Company 213 Market Street Harrisburg, PA 17101 Attention: Corporate Trust Services Mail Code 001-01-02 Ladies and Gentlemen: On behalf of the Montgomery County Industrial Development Authority (the "Authority"), I hereby requisition pursuant to Section 6.06 of a Trust Indenture, dated December 26, 1996 (the "Indenture") between the Authority and Dauphin Deposit Bank and Trust Company, as Trustee, the sum of $ to be paid as follows: Name and Address of Payee: Purpose of Obligation: -------------------------- ---------------------- I hereby certify that: (a) such obligation has been incurred by Collegeville Inn Conference & Training Center, Inc., as applicable, in connection with the acquisition, construction and equipping of the Project Facilities, as defined in the Indenture; (b) each item is a proper charge against the Construction Fund; (c) such obligation has not been the basis for a prior requisition which has been paid; (d) no written notice of any lien, right to lien or attachment upon, or claim affecting the right to receive payment of, any of the moneys payable under the requisition above has been received; (e) the payment of such requisition will not violate the prohibitions or requirements relating to the use of proceeds set forth in the Agreement; and (f) no Event of Default, as such phrase defined in the Indenture and in the Agreement or event which after notice or lapse of time or both would constitute such an Event of Default has occurred and not been waived or cured. C-1 NOTE: THIS REQUISITION IS NOT COMPLETE AND IS NOT TO BE PAID UNTIL THE APPROVAL OF THE BANK IS RECEIVED IN THE FORM OF EXHIBIT "D" TO THE INDENTURE. COLLEGEVILLE INN CONFERENCE & TRAINING CENTER, INC. By_________________________________ Authorized Representative C-2 EXHIBIT "D" BANK APPROVAL CoreStates Bank, N.A., Reading, Pennsylvania, issuer of the Letter of Credit hereby approves the Company's Requisition No. __________. CORESTATES BANK, N.A. By_______________________ Dated:_____________________ D-1 EX-27 7 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S FINANCIAL STATEMENTS CONTAINED IN THE COMPANY'S 10-K FOR THE PERIOD ENDED JUNE 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 12-MOS JUN-30-1997 JUL-01-1996 JUN-30-1997 2,267,813 0 5,900,572 (531,428) 304,579 9,903,710 8,143,131 (969,175) 20,381,557 7,103,336 3,560,548 0 0 3,801,974 3,170,179 20,381,557 35,293,962 35,293,962 28,511,922 34,273,273 0 0 95,157 1,263,072 510,796 0 0 0 0 752,276 0.26 0.26
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