AVALON PHARMACEUTICALS, INC., as Borrower and MANUFACTURERS AND TRADERS TRUST COMPANY, as Bank LETTER OF CREDIT AGREEMENT $12,000,000 Maryland Industrial Development Financing Authority Taxable Variable Rate Demand Revenue Bonds (Avalon Pharmaceuticals, Inc. Facility), Series 2003 Dated as of April

Exhibit 10.35A

AVALON PHARMACEUTICALS, INC.,

and

MANUFACTURERS AND TRADERS TRUST COMPANY,

LETTER OF CREDIT AGREEMENT

Dated as of April 1, 2003

TABLE OF CONTENTS

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LETTER OF CREDIT AGREEMENT

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

RECITALS

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

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

     The Bonds are being issued pursuant to the Indenture.

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

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

AGREEMENTS

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

ARTICLE I.

DEFINITIONS

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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     “ Completion Date ” means March 6, 2003.

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

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

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

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

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

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

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

     “ Debt ” of any Person means, without duplication:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

     “ State ” means the State of Maryland.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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ARTICLE II.

EFFECTIVE DATE OF LETTER OF CREDIT AGREEMENT;
DURATION OF TERM

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

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

ARTICLE III.

ISSUANCE OF LETTER OF CREDIT; SECURITY

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

     (i)  Payment of Certain Fees .

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

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ARTICLE IV.

AGREEMENTS WITH RESPECT TO LETTER OF CREDIT

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

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

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

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

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

     (e)  Monitoring Fee . The Borrower shall pay to the Bank a fee in the amount of $250.00 per month for the Bank’s monthly covenant compliance review of the Borrower to be performed by the Bank’s Commercial Real Estate Department or its assignee.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

ARTICLE V.

PAYMENT PROVISIONS

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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ARTICLE VI.

UNCONDITIONAL OBLIGATIONS

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

ARTICLE VII.

REPRESENTATIONS AND WARRANTIES OF BORROWER

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

     (o)  Subsidiaries . The Borrower has no Subsidiaries.

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

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

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

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

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

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

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

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

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

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

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

ARTICLE VIII.

REPRESENTATIONS AND COVENANTS OF BORROWER
WITH RESPECT TO FACILITY; RELATED MATTERS

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

     SECTION 8.2. Covenants by Borrower with Respect to Completion of Facility . With respect to the completion of the Facility, the Bo