PHILADELPHIA AUTHORITY FOR INDUSTRIAL DEVELOPMENT. $55,500,000 Revenue Bonds (Philadelphia Performing Arts Charter School Project) Series of 2013

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1 BOOK ENTRY ONLY Dated: Delivery Date RATING: Standard & Poor s: BB (stable outlook) In the opinion of Bond Counsel, assuming continuing compliance by the Authority, the Borrowers and the School with certain covenants to comply with provisions of the Internal Revenue Code of 1986, as amended (the Code ) and any applicable regulations thereunder, interest on the Bonds is not includable in gross income under Section 103(a) of the Code and is not an item of tax preference for purposes of the federal alternative minimum income tax but is included in current earnings for purposes of the alternative minimum tax imposed on certain corporations. Other provisions of the Code may affect purchasers and holders of the Bonds. See TAX MATTERS - Federal Income Tax Treatment of the Bonds herein for a brief description of these provisions. Under the laws of the Commonwealth of Pennsylvania, the Bonds and interest on the Bonds shall be free from taxation for State and local purposes within the Commonwealth of Pennsylvania, but this exemption does not extend to gift, estate, succession or inheritance taxes or any other taxes not levied or assessed directly on the Bonds or the interest thereon. Under the laws of the Commonwealth of Pennsylvania, profits, gains or income derived from the sale, exchange or other disposition of the Bonds shall be subject to State and local taxation within the Commonwealth of Pennsylvania. For a more complete description, see TAX MATTERS. PHILADELPHIA AUTHORITY FOR INDUSTRIAL DEVELOPMENT $55,500,000 Revenue Bonds (Philadelphia Performing Arts Charter School Project) Series of 2013 Due: June 15, as shown on the inside front cover The Philadelphia Authority for Industrial Development (the Authority ) intends to issue its Revenue Bonds (Philadelphia Performing Arts Charter School Project) Series of 2013 in the principal amount of $55,500,000 (the Bonds ). The Bonds are being issued by the Authority pursuant to a Loan and Trust Agreement dated as of June 1, 2013 (the Agreement ) among the Authority, DeMedici Corporation ( DC ) and DeMedici Corporation II ( DCII ), each a Pennsylvania non-for-profit corporation (each a Borrower and collectively the Borrowers ), and U.S. Bank National Association, as trustee (the Trustee ), and a resolution of the Authority. The proceeds of the Bonds will be loaned to the Borrowers to be applied, together with other available funds, to finance a project consisting of: (i) the acquisition renovation, furnishing, finishing and equipping of a facility for use as a school building housing grades sixth through twelfth, (ii) the refinancing of existing debt the proceeds of which were used to acquire and renovate a facility for use as a school building housing grades kindergarten through fifth; (iii) the funding of a debt service reserve fund for the Bonds and capitalized interest, and (v) the payment of certain costs of issuance relating to the Bonds. The financed facilities will be leased by the Borrowers to Philadelphia Performing Arts Charter School (the School ) pursuant to two separate Leases, each dated as of June 1, 2013 (the Leases ). The Bonds will be payable from the moneys held for the payment thereof by the Trustee under the Agreement, including payments to be made by the Borrowers thereunder, and amounts held in the Debt Service Reserve Fund established under the Agreement. Interest is payable initially on December 15, 2013 and semiannually thereafter on each June 15 and December 15. Pursuant to the Leases, the School will make rental payments sufficient to pay, among other things, debt service on the Bonds. To further secure the Borrowers obligations under the Agreement, the Leases and rental payments thereunder shall be assigned to the Trustee as security for the Bonds and the Borrowers will grant to the Trustee mortgages on the School Facilities (as defined herein). The Bonds will be issued as fully registered bonds in book-entry form in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York ( DTC ), which will act as securities depository for the Bonds. Purchases of beneficial interests in the Bonds will be made in book-entry form and purchasers will not receive physical certificates representing the ownership interest in the Bonds purchased by them. The Bonds will be issued in denominations of $100,000 or any integral multiple of $5,000 in excess thereof. See THE BONDS Book Entry Only System herein. The Bonds are subject to optional, mandatory and extraordinary optional redemption as described herein under THE BONDS. The Bonds are special limited obligations of the Authority and are payable solely from the revenue and property of the Borrowers and the School pledged under the Agreement. Neither the general credit of the Authority nor the general credit or taxing power of the City of Philadelphia, the Commonwealth of Pennsylvania or any other political subdivision thereof is or shall be obligated or pledged to pay the principal or redemption price of or interest on the Bonds, and the Bonds shall not be or be deemed an obligation of the City of Philadelphia, the Commonwealth of Pennsylvania or any other political subdivision thereof. The Authority has no taxing power. An investment in the Bonds involves a significant degree of risk. For more complete information with respect to the security for and sources of payment of the Bonds and certain risks with respect thereto, see SECURITY FOR THE BONDS and BONDHOLDERS RISKS herein. The Bonds may be purchased only by and may be transferred only to a Qualified Institutional Buyer as defined in Rule 144A promulgated under the Securities Act of 1933, as amended, or to an institution that is an accredited investor within the meaning of Rule 501 of Regulation D promulgated under the Securities Act of 1933, as amended. Each initial purchaser of the Bonds will be required to execute an Investment Letter substantially in the form attached hereto as APPENDIX F. This cover page contains certain information for quick reference only. It is not a summary of this issue. Investors must read the entire Official Statement including the Appendices hereto to obtain information essential to making an informed investment decision. The Bonds are offered when, as and if issued by the Authority and received by the Underwriter, subject to receipt of the legal opinion of Stradley Ronon Stevens & Young, LLP, Philadelphia, Pennsylvania, Bond Counsel. Certain legal matters will be passed upon for the Authority by its counsel, Philip M. Brandt, Esquire, Philadelphia, Pennsylvania; for the Borrowers and the School by their counsel, Sand & Saidel, P.C., Philadelphia, Pennsylvania; and for the Underwriter by its counsel, Ballard Spahr LLP, Philadelphia, Pennsylvania. The Bonds in definitive form are expected to be available for delivery through the facilities of The Depository Trust Company on or about June 28, Dated: June 20, 2013

2 PHILADELPHIA AUTHORITY FOR INDUSTRIAL DEVELOPMENT $55,500,000 Revenue Bonds (Philadelphia Performing Arts Charter School Project) Series of 2013 MATURITIES, PRINCIPAL AMOUNTS, INTEREST RATE, PRICES AND CUSIP NUMBERS $6,600, % Term Bonds due June 15, 2023 Price % to Yield 6.000% CUSIP 71781XAG8 $15,350, % Term Bonds due June 15, 2033 Price % * to Yield 6.375% CUSIP 71781XAH6 $33,550, % Term Bonds due June 15, 2043 Price % * to Yield 6.625% CUSIP 71781XAJ2 The CUSIP numbers shown above have been assigned to this issue by an organization not affiliated with the Authority and are included for the convenience of the holders of the Bonds only. Neither the Underwriter nor the Authority is responsible for the selection of the CUSIP numbers, nor is any representation made as to their correctness on the Bonds or as indicated herein. * Priced to the first optional call date of June 15, 2020.

3 IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVERALLOT OR EFFECT TRANSACTIONS THAT STABILIZE OR MAINTAIN THE MARKET PRICE OF THE BONDS AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME WITHOUT PRIOR NOTICE. No dealer, broker, salesperson or other person has been authorized by the Authority, the Borrowers or the School to give any information or to make any representations with respect to the Bonds, other than those contained in this Official Statement. Such other information or representations, if given or made, must not be relied upon as having been authorized by the Authority, the Borrowers or the School. This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of the Bonds by any person in any jurisdiction in which it is unlawful for such person to make such offer, solicitation or sale. The information and expressions of opinion herein are subject to change without notice. Neither the delivery of this Official Statement nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in any of the information set forth herein since the date hereof or the dates of the information contained herein. The Authority has not prepared or assisted in the preparation of this Official Statement except for the statements under the caption THE AUTHORITY and ABSENCE OF MATERIAL LITIGATION - The Authority. The Authority has only reviewed the information contained herein under the caption THE AUTHORITY and ABSENCE OF MATERIAL LITIGATION - The Authority and approved such information for use within the Official Statement. Certain information contained in this Official Statement has been obtained from the Borrowers, the School, The Depository Trust Company and other sources that are believed to be reliable. No representation or warranty is made, however, as to the accuracy or completeness of such information, and nothing contained in this Official Statement is, or may be relied on as, a promise or representation by the Authority or the Underwriter. The information herein relating to the Borrowers, the School and their affairs and condition has been provided by such entities and neither the Authority nor the Underwriter makes any representation with respect to or warrants the accuracy of such information. The Underwriter has provided the following sentence for inclusion in this Official Statement. The Underwriter has reviewed the information in this Official Statement in accordance with, and as part of, its responsibilities to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Underwriter does not guarantee the accuracy or completeness of such information. The order and placement of materials in this Official Statement, including the appendices hereto, are not to be deemed a determination of relevance, materiality or importance. The Official Statement, including the appendices, must be considered in its entirety. Forward Looking Statements. If and when included in this Official Statement, the words expects, forecasts, projects, intends, anticipates, estimates, assumes and analogous expressions are intended to identify forward-looking statements and any such statements inherently are subject to a variety of risks and uncertainties that could cause actual results to differ materially from those that have been projected. Such forward-looking statements speak only as of the date of this Official Statement. The Authority, the Borrowers, the School and the Underwriter disclaim any obligation or undertaking to release publicly any updates or revisions to any forward-looking statement contained herein to reflect any changes in expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based. THE BONDS HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 NOR HAS THE AGREEMENT BEEN QUALIFIED UNDER THE TRUST INDENTURE ACT OF 1939, IN RELIANCE UPON EXEMPTIONS CONTAINED IN SUCH ACTS. THE REGISTRATION OR QUALIFICATION OF THE BONDS IN ACCORDANCE WITH THE APPLICABLE PROVISIONS OF SECURITIES LAWS OF THE STATES IN WHICH THE BONDS HAVE BEEN REGISTERED OR QUALIFIED AND THE EXEMPTION FROM REGISTRATION OR QUALIFICATION IN OTHER STATES CANNOT BE REGARDED AS A RECOMMENDATION THEREOF. NEITHER THESE STATES NOR ANY OF THEIR AGENCIES HAVE PASSED UPON THE MERITS OF THE BONDS OR THE ACCURACY OR COMPLETENESS OF THIS OFFICIAL STATEMENT.

4 Table of Contents INTRODUCTION... 1 THE AUTHORITY... 2 THE BORROWERS AND THE SCHOOL... 3 ESTIMATED SOURCES AND USES OF FUNDS... 4 THE BONDS... 5 DEBT SERVICE REQUIREMENTS SECURITY FOR THE BONDS THE PROJECT CHARTER SCHOOLS THE SCHOOL DISTRICT OF PHILADELPHIA BONDHOLDERS RISKS TAX MATTERS RATING LEGAL MATTERS ABSENCE OF MATERIAL LITIGATION CONTINUING DISCLOSURE CERTIFIED PUBLIC ACCOUNTANTS UNDERWRITING OF THE BONDS MISCELLANEOUS Page APPENDIX A CERTAIN INFORMATION CONCERNING THE BORROWERS AND THE SCHOOL... A-1 APPENDIX B AUDITED FINANCIAL STATEMENTS OF THE SCHOOL FOR THE FISCAL YEAR ENDED JUNE 30, B-1 APPENDIX C FORMS OF THE LOAN AND TRUST AGREEMENT, THE LEASES AND THE MORTGAGES... C-1 APPENDIX D FORM OF BOND COUNSEL OPINION... D-1 APPENDIX E FORM OF CONTINUING DISCLOSURE AGREEMENT... E-1 APPENDIX F FORM OF INVESTOR LETTER... F-1 i

5 PHILADELPHIA AUTHORITY FOR INDUSTRIAL DEVELOPMENT $55,500,000 Revenue Bonds (Philadelphia Performing Arts Charter School Project) Series of 2013 INTRODUCTION Purpose The purpose of this Official Statement (which includes the cover hereof and the appendices hereto) of the Philadelphia Authority for Industrial Development (the Authority ) is to furnish information concerning DeMedici Corporation ( DC ) and DeMedici Corporation II ( DCII ), each a Pennsylvania non-for-profit corporation (each a Borrower and collectively the Borrowers ), Philadelphia Performing Arts Charter School (the School ) and the Authority s $55,500,000 Revenue Bonds (Philadelphia Performing Arts Charter School Project) Series of 2013 (the Bonds ). The Bonds The Bonds are issued under the laws of the Commonwealth of Pennsylvania (the Commonwealth ), including the Economic Development Financing Law of the Commonwealth, the Act of August 23, 1967, P.L. 251, as amended (the Act ), and pursuant to a resolution adopted by the Board of the Authority on April 23, 2013 and a Loan and Trust Agreement dated as of June 1, 2013 (the Agreement ) among the Authority, the Borrowers and U.S. Bank National Association, as trustee (the Trustee ). Under the Agreement, the Trustee is appointed registrar, paying agent and transfer agent with respect to the Bonds. Certain terms used in this Official Statement are defined in the Agreement or in the Leases (defined below), the form of each of which is attached as Appendix C hereto. The Project The proceeds of the Bonds will be loaned to the Borrowers in order to finance a project (the Project ) consisting of: (i) the acquisition, renovation, furnishing, finishing and equipping of a facility located at 1600 Vine Street, Philadelphia, Pennsylvania (the Vine Street Facility ) for use as a school building housing grades sixth through twelfth, (ii) the refinancing of existing debt the proceeds of which were used to acquire and renovate a facility for use as a school building housing grades kindergarten through fifth located at 2407 South Broad Street, Philadelphia, Pennsylvania, Ritner Street, Philadelphia, Pennsylvania and South Broad Street, Philadelphia, Pennsylvania (the Fels Facility ), (iii) the funding of a debt service reserve fund for the Bonds and capitalized interest, and (iv) the payment of certain costs of issuance relating to the Bonds. See THE PROJECT below. The Vine Street Facility and the Fels Facility will be leased by DCII to the School pursuant to a Lease dated as of June 1, 2013 (the DCII Lease). A separate facility located at South Broad Street, Philadelphia, Pennsylvania (the Broad Street Facility ) will be leased by DC to the School pursuant to a separate Lease dated as of June 1, 2013 (the DC Lease and together with the DCII Lease, the Leases ). The Vine Street Facility, the Fels Facility and the Broad Street Facility are referred to herein collectively as the School Facilities. The School expects to have an enrollment of 1426 students in grades K through 9 in fall

6 Security for the Bonds The Bonds will be payable from the moneys held for the payment thereof by the Trustee under the Agreement, including payments to be made by the Borrowers thereunder, and from monies held in the Debt Service Reserve Fund under certain circumstances as described in the Agreement. See SECURITY FOR THE BONDS for a further description of the security for the Bonds. Pursuant to the Leases, the School will make rental payments sufficient to pay, among other things, debt service on the Bonds. To secure the Borrowers obligations under the Agreement, each of the Borrowers will grant a mortgage lien on the School Facilities it owns in favor of the Trustee for the benefit of the owners of the Bonds pursuant to an Open-End Mortgage, Assignment of Leases, Security Agreement and Fixture Filing, each dated as of June 1, 2013 (each, a Mortgage and together, the Mortgages ). In addition, the Leases and rental payments thereunder shall be assigned by the Borrowers to the Trustee pursuant to the Mortgages. Purchase Restrictions The Bonds may be purchased only by a Qualified Institutional Buyer as defined in Rule 144A promulgated under the Securities Act of 1933, as amended (the Securities Act ), or by an institution that is an accredited investor within the meaning of Rule 501 of Regulation D promulgated under the Securities Act. All initial purchasers of the Bonds will be required to execute an Investment Letter substantially in the form attached hereto as APPENDIX F. Organization THE AUTHORITY The Authority is a public instrumentality of the Commonwealth and a body corporate and politic, created by the City of Philadelphia (the City ) pursuant to the Act, for the purpose of acquiring, holding, constructing, improving, maintaining, operating, owning, financing and leasing, either in the capacity of lessor or lessee, industrial, commercial or specialized development projects, all as permitted under the Act. A Certificate of Incorporation was issued to the Authority by the Secretary of the Commonwealth on December 27, A Certificate of Amendment evidencing the amendment of the Authority s Articles of Incorporation, extending the terms of existence of the Authority, was issued on September 21, The Authority s existence will continue for 50 years from September 21, Board of the Authority The governing body of the Authority is a board consisting of five members appointed by the Mayor of the City. Members of the Authority s board serve at the pleasure of the Mayor. The following persons are the appointed members and certain officers of the Authority. Name Thomas A.K. Queenan Leslie Anne Miller, Esquire Evelyn F. Smalls David L. Hyman, Esquire Harold B. Yaffe, DDS Paul J. Deegan * Terry DeMusis * Position Chairman Vice-Chairman Treasurer Member Member Secretary Assistant Secretary * Non-Member 2

7 Financing Program of the Authority The Authority has a number of special obligation bond and note issues outstanding and may issue others from time to time. Each such issue is payable solely from revenues derived from the project being financed, from special funds established therefor or from other financing arrangements, is separately secured and is separate and independent from the Bonds as to sources of payment and security. The Authority has experienced defaults with respect to certain obligations issued by it, by reason of nonpayment of debt service by the party receiving financing through the Authority. However, the Bonds are payable solely from the funds pledged under the Agreement and any other obligations issued by the Authority are payable solely from the funds specifically pledged for the payment of such other obligations. Accordingly, a default on another issue of obligations issued by the Authority would not constitute a default on the Bonds. The Authority may from time to time enter into further transactions with other entities in connection with projects unrelated to the project being financed by the Bonds. Such transactions will provide for the issuance of bonds or notes to be secured by sources of revenues or other security that are separate from the revenues and other security securing the Bonds. At the time of delivery of the Bonds, the Authority will, among other things, confirm the assignment of all of its rights under the Agreement to the Trustee (subject to certain reserved rights). Certain Other Activities In addition to its financing activities and as part of its economic development activities for the City, the Authority owns and manages certain industrial and commercial parks in the City. The City transferred to the Authority legal title to certain vacant land available for development in several industrial parks. The Authority also holds legal title to a portion of the land and buildings comprising the Philadelphia Naval Business Center, which represents the largest portion of the former Philadelphia Naval Shipyard previously owned and operated by the United States Department of Defense. THE AUTHORITY HAS NOT PREPARED OR ASSISTED IN THE PREPARATION OF THIS OFFICIAL STATEMENT, EXCEPT THE STATEMENTS UNDER THIS SECTION AND UNDER THE HEADING ABSENCE OF MATERIAL LITIGATION - THE AUTHORITY BELOW WITH RESPECT TO THE AUTHORITY AND, EXCEPT AS TO THOSE STATEMENTS, THE AUTHORITY IS NOT RESPONSIBLE FOR, AND DOES NOT REPRESENT OR WARRANT IN ANY WAY THE ACCURACY OR COMPLETENESS OF, ANY INFORMATION OR ANY STATEMENTS MADE HEREIN. ACCORDINGLY, EXCEPT AS AFORESAID, THE AUTHORITY DISCLAIMS RESPONSIBILITY FOR THE DISCLOSURE SET FORTH HEREIN MADE IN CONNECTION WITH THE OFFER, SALE AND DISTRIBUTION OF THE BONDS. The Authority s address is 2600 Centre Square West, 1500 Market Street, Philadelphia, Pennsylvania The Borrowers THE BORROWERS AND THE SCHOOL Each of the Borrowers is a Pennsylvania non-profit corporation and an organization exempt from federal income taxation pursuant to Section 501(a) of the Internal Revenue Code of 1986, as amended (the Code ), as a result of the application of Section 501(c)(3) of the Code (a 501(c)(3) Organization ). Each Borrower operates exclusively for charitable and educational purposes including making distributions to organizations that qualify as exempt organizations under Section 501(c)(3) of the Code. 3

8 This includes providing facilities, lands, and improvements for the benefit of the School. Additional information about the Borrowers is located in APPENDIX A. The School The School is a Pennsylvania nonprofit corporation, a charter school under 24 PS A et seq. (the Charter School Law ) and a 501(c)(3) Organization. The School s original charter was issued September 1, 2000 by the Board of Education of the School District of Philadelphia (the SDP ). In September 2009, the charter for the School was renewed by the School Reform Commission ( SRC ) for a term of five years. The School s current charter expires on June 30, 2014 and permits, pursuant to subsequent SRC resolutions, a maximum of 1125 students in grades K through 8 and 1400 students in grades 9 through 12, for a total of 2525 students. The School offers a comprehensive curriculum which emphasizes both academics and the arts. The School enrolled 1053 students in fall 2012 and has an expected enrollment of 1426 students for fall The School currently operates two facilities: the Broad Street Facility, which is owned by DC and the Fels Facility, which is owned by DCII. Both facilities have reached full capacity. Additional information about the School is located in APPENDIX A. ESTIMATED SOURCES AND USES OF FUNDS Set forth below is the estimated Sources and Uses of Funds in connection with the Project. SOURCES OF FUNDS: Par Amount of Bonds $55,500, Reoffering Premium 335, Equity Contribution 1,562, TOTAL SOURCES $57,397, USES OF FUNDS Vine Street Facility Acquisition $30,140, Renovation Costs (Vine Street Facility) 12,293, Construction Reserve 1,200, Furniture, Fixtures, and Expenses 1,850, Refinancing of Fels Facility Debt 4,840, Deposit to Capitalized Interest Account 1,400, Deposit to Debt Service Reserve Fund 4,402, Costs of Issuance (1) 1,271, TOTAL USES $57,397, (1) Includes underwriting discount, Authority fee, title insurance premium, legal fees, Trustee s fee, rating agency fee, printing expenses and other miscellaneous costs and expenses related to the issuance and sale of the Bonds. 4

9 THE BONDS Description of the Bonds The Bonds will be dated the date of delivery and bear interest and mature as set forth on the inside front cover page of this Official Statement. Interest on the Bonds is payable on June 15 and December 15 of each year, commencing December 15, 2013 (each, an Interest Payment Date ). Each Bond shall bear interest from the date of initial issuance of the Bonds or, as to any Bond issued after the initial delivery of the Bonds, from the Interest Payment Date next preceding the date of its authentication or from the date of its authentication if authenticated upon an Interest Payment Date or from the succeeding Interest Payment Date if authenticated after a Regular Record Date (defined below) and before such succeeding Interest Payment Date; provided that, if the date of authentication is prior to the Regular Record Date for the first Interest Payment Date, interest on any Bonds shall accrue from the date of initial issuance thereof; provided further that if at the time of authentication of any Bond interest thereon is in default, interest on such Bonds shall accrue from the date to which interest has been paid or, if the first interest payment is in default, from the date of initial issuance thereof. Interest on the Bonds shall be computed on the basis of a 360-day year consisting of twelve 30 day months. The Bonds are issued only as fully registered Bonds without coupons. The Bonds will be issued in the denominations of $100,000 or any integral multiple of $5,000 in excess thereof. Subject to the provisions relating to the Book-Entry-Only System with respect to the Bonds described below, the principal of the Bonds is payable at the designated corporate trust office of the Trustee in Philadelphia, Pennsylvania, to the registered owner of each Bond. The principal or redemption price becoming due with respect to the Bonds shall, at the written request satisfactory to the Trustee in its sole discretion of the Holder of at least $1,000,000 aggregate principal amount of such Bonds received by the Trustee at least two Business Days before the surrender of such Bonds, be paid by wire transfer within the continental United States in immediately available funds to the bank account number of such Holder specified in such request. Interest on each Bond is payable by check mailed to the person in whose name such Bond is registered, at the address of such person appearing on the registration books maintained by the Trustee, at the close of business on the Regular Record Date applicable to that Interest Payment Date, unless the Authority shall default in the payment of interest due on such interest payment date. In the event of any such default, such defaulted interest will be payable to the person in whose name such Bond is registered at the close of business on a special record date for the payment of that interest which shall be the fifth Business Day preceding the day set for payment of such interest prior to the special record date (the Special Record Date ), and the Trustee shall cause notice of the proposed payment and of the Special Record Date to be mailed by first class mail, postage prepaid, to each Holder of the Bonds not fewer than 10 days prior to the Special Record Date and, thereafter, that interest shall be payable to the persons who are the Holders of the Bonds at the close of business on the Special Record Date. At the election of any Holder of the Bonds who owns $1,000,000 or more in principal amount of Bonds, interest may be paid by wire transfer to any account in the United States of America, if written instructions satisfactory to the Trustee, in its sole discretion, are delivered to the Trustee at least two Business Days prior to the Record Date for the first payment of interest to which it relates. Regular Record Date means the fifteenth (15th) day immediately preceding the applicable Interest Payment Date. Book-Entry-Only System The following information concerning DTC and DTC s book-entry only system has been obtained from DTC. The Authority, the Borrowers, the School and the Trustee make no representation as to the accuracy of such information. 5

10 DTC will act as securities depository for the Bonds. The Bonds will be issued as fully-registered securities registered in the name of Cede & Co. (DTC s partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully-registered certificate will be issued for each maturity of each series of the Bonds, in the aggregate principal amount of such maturity, and will be deposited with DTC. DTC, the world s largest securities depository, is a limited-purpose trust company organized under the New York Banking Law, a banking organization within the meaning of the New York Banking Law, a member of the Federal Reserve System, a clearing corporation within the meaning of the New York Uniform Commercial Code, and a clearing agency registered pursuant to the provision of Section 17A of the Securities Exchange Act of DTC holds and provides asset servicing for over 3.5 million issues of U.S. and non-u.s. equity issues, corporate and municipal debt issues, and money market instruments from over 100 countries that DTC s participants ( Direct Participants ) deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book-entry transfers and pledges between Direct Participants accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-u.s. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation ( DTCC ). DTCC is the holding company for National Securities Clearing Corporation and Fixed Income Clearing Corporation, both of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others such as both U.S. and non-u.s. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly ( Indirect Participants ). DTC has a Standard & Poor s rating of: AA+. The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at Purchases of the Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the Bonds on DTC s records. The ownership interest of each actual purchaser of Bonds ( Beneficial Owner ) is in turn to be recorded on the Direct and Indirect Participants records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owners entered into the transaction. Transfers of ownership interests in the Bonds are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in the Bonds, except in the event that use of the book-entry system for the Bonds is discontinued. To facilitate subsequent transfers, all Bonds deposited by Direct Participants with DTC are registered in the name of DTC s partnership nominee, Cede & Co., or such other name as may be requested by an authorized representative of DTC. The deposit of Bonds with DTC and their registration in the name of Cede & Co. or such other DTC nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Bonds; DTC s records reflect only the identity of the Direct Participants to whose accounts such Bonds are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers. Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Beneficial Owners of Bonds may wish to take certain 6

11 steps to augment the transmission to them of notices of significant events with respect to the Bonds, such as redemptions, tenders, defaults, and proposed amendments to the bond documents. For example, Beneficial Owners of Bonds may wish to ascertain that the nominee holding the Bonds for their benefit has agreed to obtain and transmit notices to Beneficial Owners. In the alternative, Beneficial Owners may wish to provide their names and addresses to the registrar and request that copies of notices be provided directly to them. Redemption notices shall be sent to DTC. If less than all the Bonds within a maturity are being redeemed, DTC s practice is to determine by lot the amount of the interest of each Direct Participant in such maturity to be redeemed. Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to the Bonds unless authorized by a Direct Participant in accordance with DTC s MMI Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the Issuer as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co. s consenting or voting rights to those Direct Participants to whose accounts the Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy). Payments of principal, premium, if any, and interest on the Bonds will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC s practice is to credit Direct Participants accounts upon DTC s receipt of funds and corresponding detail information from the Issuer or its agent, on payable date in accordance with their respective holdings shown on DTC s records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in street name, and will be the responsibility of such Participant and not of DTC nor its nominee, the Issuer or its agent, subject to any statutory or regulatory requirements as may be in effect from time to time. Payments of principal, premium, if any, and interest on the Bonds to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the Issuer or its agent, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants. DTC may discontinue providing its services as securities depository with respect to the Bonds at any time by giving reasonable notice to the Authority, and the Borrowers may determine to discontinue use of the system of book-entry transfers through DTC (or a successor securities depository). Under either of such circumstances, in the event that a successor securities depository is not obtained, Bond certificates are required to be printed and delivered. NONE OF THE ISSUER, THE BORROWERS, THE SCHOOL OR THE TRUSTEE SHALL HAVE ANY RESPONSIBILITY OR OBLIGATION TO ANY DTC PARTICIPANT OR ANY BENEFICIAL OWNER OR ANY OTHER PERSON NOT SHOWN ON THE REGISTRATION BOOKS OF THE TRUSTEE AS BEING A BONDHOLDER WITH RESPECT TO EITHER: (1) THE ACCURACY OF ANY RECORDS MAINTAINED BY DTC OR ANY DTC PARTICIPANT; (2) THE PAYMENT BY DTC OR ANY DTC PARTICIPANT OF ANY AMOUNT DUE TO ANY BENEFICIAL OWNER IN RESPECT OF THE PRINCIPAL OR REDEMPTION PRICE OF OR INTEREST ON THE BONDS; (3) THE DELIVERY OR THE TIMELINESS OF ANY NOTICE TO ANY BENEFICIAL OWNER WHICH IS REQUIRED OR PERMITTED UNDER THE TERMS OF THE INDENTURE TO BE GIVEN TO THE OWNER OF THE BONDS; OR (4) ANY CONSENT GIVEN OR OTHER ACTION TAKEN BY DTC AS BONDHOLDER 7

12 Registration, Transfer and Exchange The Trustee has been appointed bond registrar and transfer agent for the Bonds and as such will maintain the books of the Authority for the registration or ownership of each Bond. Subject to the provisions relating to the Book-Entry-Only System described above, any Bonds may be transferred upon presentation and surrender thereof at the corporate trust office of the Trustee, together with a written instrument of transfer duly executed by the Holder or its duly authorized representative in form satisfactory to the Trustee. The Trustee shall not be required to affect any transfer or exchange of (i) any Bond during the ten days preceding any date fixed for selection for redemption if such Bond (or any portion thereof) is eligible for redemption or (ii) any Bond selected for redemption in whole or part. Purchase Restrictions The Bonds may be purchased only by a Qualified Institutional Buyer as defined in Rule 144A promulgated under the Securities Act or by an institution that is an accredited investor within the meaning of Rule 501 of Regulation D promulgated under the Securities Act. All initial purchasers of the Bonds will be required to execute an Investment Letter substantially in the form attached hereto as APPENDIX F. Redemption Prior to Maturity The Bonds shall be subject to optional, mandatory sinking fund and extraordinary redemption prior to maturity as set forth herein. Optional Redemption. The Bonds are subject to optional redemption prior to maturity on or after June 15, 2020 by the Authority at the direction of the Borrowers, as a whole or in part (in such order of maturity as directed by the Borrowers and within a maturity by random selection by the Trustee), at any time, at a redemption price equal to 100% of the principal amount of the Bonds to be redeemed, plus accrued interest to the redemption date. Mandatory Sinking Fund Redemption Bonds. The Bonds are subject to mandatory sinking fund redemption, in direct order of maturity and within a maturity by random selection, on June 15 of each year in the respective amounts set forth below, at a redemption price equal to the principal amount of Bonds to be redeemed, without premium, plus interest accrued to the redemption date. Bonds Maturing June 15, 2023 Bonds Maturing June 15, 2033 Year Principal Amount Year Principal Amount $1,135, ,210, $290, ,290, , ,375, , ,465, , ,560, , ,660, , ,770, ,010, ,880, * 1,075, * 2,005,000 8

13 Bonds Maturing June 15, 2043 Year Principal Amount 2034 $2,135, ,280, ,435, ,595, ,770, ,960, ,160, ,370, ,600, * 8,245,000 *Maturity. Extraordinary Redemption. The Bonds are subject to extraordinary redemption in whole or in part at any time prior to maturity at a redemption price equal to 100% of the principal amount thereof together with accrued interest to the date of redemption, upon the occurrence of damage to or destruction or taking of the real or personal property of the Borrowers but only out of, and to the extent of, insurance proceeds, condemnation awards and the proceeds of conveyances in lieu of condemnation deposited with or held by the Trustee for such purpose. Redemption Procedures. When required or directed to redeem the Bonds under the Agreement, the Trustee shall cause notice of the redemption to be given no more than 60 nor fewer than 30 days prior to the redemption date, by mailing copies of such notice of redemption by first class mail, postage prepaid, to the holders of the Bonds to be redeemed at their registered addresses. Each such notice shall identify the Bonds to be redeemed (specifying the CUSIP numbers, if any, assigned to the Bonds), contain any other descriptive information needed to identify accurately the Bonds being redeemed, in the case of partial redemption of any Bonds, state the respective principal amounts thereof to be redeemed, state the redemption date and the redemption price, state that on the redemption date the redemption price will become due and payable upon each such Bond or portion thereof called for redemption, and that interest thereon shall cease to accrue from and after said date, and indicate the place where the Bonds are to be surrendered for payment of the redemption price. Failure to mail any such notice or defect in the mailing thereof for any Bond shall not affect the validity of the redemption of any other Bond with respect to which notice was properly given. If at the time of the mailing of notice of any optional or extraordinary redemption there shall not have been deposited with the Trustee moneys sufficient to redeem all the Bonds called for redemption, such notice shall state that it is conditional in that it is subject to the deposit of the redemption moneys with the Trustee pursuant to the Agreement not later than the opening of business on the redemption date, and shall be of no effect unless such moneys are so deposited. If less than all of the outstanding Bonds are called for redemption (other than mandatory sinking fund redemption), the Bonds (or portions thereof) to be redeemed will be redeemed in the Series and maturities or portion of each Series and maturity to be redeemed, all as designated in writing by the 9

14 Borrowers. If less than an entire maturity of Bonds is called for mandatory, optional or extraordinary redemption, the Bonds to be redeemed within each maturity will be selected by the Trustee by random selection. Partial Redemptions. If fewer than all of the Bonds of a particular Series and maturity are to be redeemed, the selection of Bonds within such maturity to be redeemed shall be by random drawing, and each $5,000 unit of face value shall be treated as a separate Bond. Any redemption of less than the entire principal amount of the Bonds shall be made only in denominations of $5,000 principal amount, or any whole multiple thereof. In such case, the registered owner shall surrender the Bonds in exchange for one or more Bonds in an aggregate principal amount equal to the unredeemed portion of the principal amount thereof. Acceleration The principal of the Bonds, together with all interest accrued thereon, may be declared to be immediately due and payable by the Trustee, and upon written direction from the Holders of a majority in aggregate principal amount of the Outstanding Bonds, shall be declared immediately due and payable by the Trustee, upon the occurrence and continuation of an Event of Default as described in the form of the Agreement in APPENDIX C. 10

15 DEBT SERVICE REQUIREMENTS The following table sets forth for each year ending June 30 the amounts required to be made available for the payment of the Bonds. The principal amounts and sinking fund requirements for the Bonds will be payable on June 15, commencing June 15, 2014, and the interest on the Bonds will be payable on each June 15 and December 15, commencing December 15, Period Ending June 30 Principal on the Bonds Interest on the Bonds Total Debt Service $3,526, $3,526, ,658, ,658, $290, ,658, ,948, , ,640, ,360, , ,597, ,397, , ,549, ,399, , ,498, ,398, , ,444, ,399, ,010, ,387, ,397, ,075, ,326, ,401, ,135, ,262, ,397, ,210, ,188, ,398, ,290, ,109, ,399, ,375, ,026, ,401, ,465, ,936, ,401, ,560, ,841, ,401, ,660, ,740, ,400, ,770, ,632, ,402, ,880, ,517, ,397, ,005, ,394, ,399, ,135, ,264, ,399, ,280, ,120, ,400, ,435, ,966, ,401, ,595, ,802, ,397, ,770, ,627, ,397, ,960, ,440, ,400, ,160, ,240, ,400, ,370, ,027, ,397, ,600, , ,399, ,245, , ,801, TOTAL $55,500,000 $78,783, $134,283, SECURITY FOR THE BONDS The descriptions and summaries of certain provisions of the Agreement and the Mortgages set forth below do not purport to be comprehensive or definitive, and reference is made to each document in APPENDIX C hereto for the complete details of all terms, conditions and covenants. Limited Obligations THE BONDS ARE SPECIAL LIMITED OBLIGATIONS OF THE AUTHORITY AND ARE PAYABLE SOLELY FROM THE REVENUE AND PROPERTY OF THE BORROWERS AND THE 11

16 SCHOOL PLEDGED UNDER THE AGREEMENT. NEITHER THE GENERAL CREDIT OF THE AUTHORITY NOR THE GENERAL CREDIT OR TAXING POWER OF THE CITY OF PHILADELPHIA, THE COMMONWEALTH OF PENNSYLVANIA OR ANY OTHER POLITICAL SUBDIVISION THEREOF IS OR SHALL BE OBLIGATED OR PLEDGED TO PAY THE PRINCIPAL OR REDEMPTION PRICE OF OR INTEREST ON THE BONDS, AND THE BONDS SHALL NOT BE OR BE DEEMED AN OBLIGATION OF THE CITY OF PHILADELPHIA, THE COMMONWEALTH OF PENNSYLVANIA OR ANY OTHER POLITICAL SUBDIVISION THEREOF. THE AUTHORITY HAS NO TAXING POWER. Payments Under the Agreement; Assignment of Agreement Pursuant to the Agreement, payments from or on behalf of the Borrowers are required to be paid directly to the Trustee, on or prior to the 10th day of each calendar month, commencing July 10, 2013 (each a Monthly Disbursement Date ), in amounts that will be sufficient, if paid promptly, and in full, to pay when due all principal of, premium, if any, and interest on the Bonds. Under the Agreement, the Authority has pledged its interest in the Agreement (excluding certain rights of the Authority to payment of fees, expenses and indemnification) to the Trustee to secure the Bonds. Security for Obligations under the Agreement Under the Agreement, as security for its obligation to make payments required thereunder and to perform its other obligations thereunder, the Authority will assign and pledge to the Trustee a continuing security interest in (a) the rights, title and interest of the Authority under the Agreement, (b) all of the Authority s rights, whether currently existing or hereafter acquired, to enforce any loan or loans of proceeds of Bonds made by the Authority to the Borrowers pursuant to the terms of the Agreement, and (c) all revenues to be received from the Borrowers under the Agreement and all funds and investments held from time to time in the funds established under the Agreement; but not including any funds received by the Authority for its own use, whether as administrative fees, reimbursement of expenses or indemnification, and the rights thereto. See the form of the Agreement in APPENDIX C. As additional security for the obligations of the Borrowers to make all payments due, and to perform all obligations, under the Agreement, each Borrower will grant to the Trustee a security interest in its Pledged Revenues and any rights to receive such Pledged Revenues. Such security interest shall not restrict the right of the Borrowers to apply their Pledged Revenues in such manner and to such purposes as they deem appropriate so long as no Event of Default has occurred and is continuing. Pledged Revenues means, regardless of the source, all revenues, rentals, fees, third-party payments, receipts, unrestricted donations, unrestricted contributions or other income of the Borrowers, to the extent permitted by the terms thereof and by law, including all the rights to receive such revenues (each subject to Permitted Liens), all as calculated in accordance with generally accepted accounting principles, including, without limitation, School District Payments (whether paid by or for the benefit of the School to the Borrowers or to the Trustee on behalf of the Borrowers), federal grants and aid, extended daycare, food services sales, proceeds derived from insurance, condemnation proceeds, accounts, contract rights and other rights and assets, whether now or hereafter owned, held or possessed by the Borrowers, and all gifts, grants, bequests and contributions (including income and profits therefrom) to the extent permitted by the terms thereof and by law. The Borrowers have covenanted, upon an Event of Default resulting from nonpayment of debt service on the Bonds, to deliver daily to the Trustee, or permit the Trustee to collect directly, insofar as practicable, all other Pledged Revenues for deposit in the Revenue Fund until such Event of Default is cured. The Trustee is so authorized to exercise the rights of the Authority and enforce the obligations of the Borrowers under the Agreement. 12

17 The Leases Under the DC Lease, DC will lease the Broad Street Facility to the School, including all appurtenances, easements, declarations and rights-of-way related thereto. Under the DCII Lease, DCII will lease the Vine Street Facility and the Fels Facility to the School, including all appurtenances, easements, declarations and rights-of-way related thereto. Under the Leases of the School Facilities, the School has agreed to pay base rentals, which are equal to the amounts required to pay debt service on the Bonds, no later than the 10th of each month, commencing July 10, In addition to such base rentals, the School has agreed to pay to each Borrower Additional Rentals (as defined in the Leases) sufficient to pay the following costs, as estimated by the Borrowers, during the next ensuing Fiscal Year: (a) the reasonable fees and expenses of the Authority, the Trustee and the Borrowers under the Agreement; (b) the cost of insurance premiums for the School Facilities; (c) the cost of taxes, utility charges, maintenance, upkeep and repair costs for the School Facilities; (d) payments into the Debt Service Reserve Fund required by the Agreement; (e) payments into the Rebate Fund required by the Agreement; and (f) payments into the Repair and Replacement Fund required by the Agreement. The School and the Borrowers may agree on the payments of other additional rentals under the Leases if they deliver to the Trustee an Officer s Certificate certifying that, for the applicable Fiscal Year, after taking into account such proposed additional rentals, the School will be in compliance with all financial and other covenants contained in the Leases and that no Event of Default exists under the Leases. Payment of such additional rentals shall be subordinate to the payment of base rentals. The School has covenanted under the Leases that upon the issuance of the Bonds, the School will send notice to a sufficient number of school districts making not less than 95% of the School District Payments (as defined in the Agreement) received by the School directing that such School District Payments be paid directly to the Trustee for deposit in the Revenue Fund established under the Agreement. Upon the occurrence of an event of default under the Agreement and Notice from the Trustee, the School will send notice to the applicable school districts for all of the School District Payments received by the School and all other School Revenues be paid directly to the Trustee and applied pursuant to the Agreement. See SECURITY FOR THE BONDS Revenue Fund and Appendix C The Leases. See Revenue Fund herein. As security for the obligations of the School to make all payments due, and to perform all Obligations under the Leases, the School has granted to the Borrowers a security interest in the Collateral (as defined in the Leases). Pursuant to the Leases, the School has agreed to perform certain obligations of the Borrowers under the Agreement and covenants to use the Land and School Facilities for its charitable purposes consistent with its status as a 501(c)(3) Organization and in compliance with its charter and the Charter School Law. The stated term of the Leases will expire upon the final scheduled maturity of the Bonds. The Leases set forth further covenants and agreements of the School. See Appendix C- The Leases. Mortgages The Leases and the rental payments thereunder shall be assigned to the Trustee pursuant to the respective Mortgages. The Mortgages will also give the Trustee a security interest in, among other things, the portion of the Project consisting of real property and fixtures. The Mortgages secure all 13

18 amounts owed by the Borrowers under the Agreement including amounts owed with respect to debt service on the Bonds. Simultaneously with the issuance and delivery of the Bonds, the Borrowers will deliver mortgagee title insurance policies covering all of the Mortgaged Property under the Mortgages and insuring title to the Mortgaged Property and the lien of the Mortgages in an amount not less than the principal amount of the Bonds. See APPENDIX C for the forms of the Leases and the Mortgages. Revenue Fund Upon issuance of the Bonds, the School will send out a notice to SDP, which accounts for more than 99% of the total School District Payments made to the School, to pay such amounts directly to the Trustee, to be transferred on a daily basis to the Revenue Fund. All other amounts required to be paid by the Borrowers to the Trustee pursuant to the Agreement and all other monies required to be deposited into the Revenue Fund pursuant to the Agreement shall also be deposited therein. All monies held on deposit in the Revenue Fund shall be disbursed by the Trustee on the following dates in the following order of priority: FIRST: on each Monthly Disbursement Date, commencing in July, 2013, to the payment to the Debt Service Fund of all unpaid installments of interest, principal or other payments then due on the Obligations, provided, however, for purposes of determining the interest, principal or other payments then due with respect to the Obligations, such sum shall be deemed to be an amount sufficient to accumulate, in approximately equal monthly installments, an amount equal to the (a) interest due on the next succeeding Interest Payment Date (after taking into consideration earnings and amounts available in the Capitalized Interest Account with respect to the payment of interest on such Obligations) and (b) the principal due on the Obligations on the next succeeding principal payment date for such Obligations, and such distribution shall be deposited in the Debt Service Fund; SECOND: on each Monthly Disbursement Date, ratably, to (a) the Debt Service Reserve Fund, one-sixth (1/6) of the amount required, if any, under the Agreement, for amounts therein to be equal to the Debt Service Reserve Fund Requirement, and (b) any additional fund established pursuant to any Supplemental Agreement in the nature of the debt service reserve fund to secure Obligations issued hereunder, the amount specified in any such Supplemental Agreement; THIRD: on the last Business Day of every Bond Year and continuing until the full amount is so paid, to the Rebate Fund or any subsequent rebate fund established pursuant to a Supplemental Agreement with respect to the issuance of additional Parity Bonds, any amount, as calculated by the Rebate Analyst, required of the Borrowers to be deposited in the Rebate Fund or any such subsequent rebate fund; FOURTH: within one Business Day after each Monthly Disbursement Date, commencing in July, 2015, to the Repair and Replacement Fund, an amount equal to $10,000, until the amount on deposit in the Repair and Replacement Fund equals $600,000, as further described below under Repair and Replacement Fund ; FIFTH: within one Business Day after each Monthly Disbursement Date, to the Management Company, any Management Company Fees then due and owing, as certified to the Trustee by the Borrowers, as of such date; and SIXTH: within one Business Day after each Monthly Disbursement Date, commencing in July 2013, all amounts remaining on deposit in the Revenue Fund after the Trustee has made the 14

19 disbursements required in FIRST through FIFTH above, shall be transferred as directed by the Borrowers in writing, if in each case, no Event of Default has occurred and is continuing. Notwithstanding the foregoing, if the amounts then available shall not be sufficient to pay in full any installments or distributions then due as aforesaid, then Trustee shall cause payment thereof to be made ratably, according to the amounts due thereon to the Persons or funds entitled thereto, without any discrimination or preference. Debt Service Reserve Fund A Debt Service Reserve Fund is established under the Agreement with the Trustee for the sole benefit and security of the Holders of the Bonds and moneys or Permitted Investments (as defined in the Agreement) shall be deposited therein as provided in the Agreement. The Debt Service Reserve Fund shall initially be funded in the amount of $4,402, The moneys in the Debt Service Reserve Fund and any investments (or other security) held as a part of such Fund shall be held in trust and, except as otherwise provided, shall be applied by the Trustee solely to the payment of the principal (including sinking fund installments) of and interest on the Bonds. Interest and other income received on investments of Debt Service Reserve Fund moneys shall be transferred to the Debt Service Fund so long as the Debt Service Reserve Fund is funded to an amount equal to the Debt Service Reserve Fund Requirement, and shall be credited each month against interest owed by the Borrowers thereunder. Except for certain transfers to the Rebate Fund, moneys in the Debt Service Reserve Fund shall be used solely for the payment of the principal of, premium, if any, and interest on the Bonds in the event moneys in the Debt Service Fund are insufficient to make such payments when due, whether on an Interest Payment Date, sinking fund redemption date, maturity date or otherwise. Upon the occurrence of an Event of Default and the exercise by the Trustee of the remedies specified in the Agreement, any moneys in the Debt Service Reserve Fund shall be transferred by the Trustee to the Debt Service Fund. On the final maturity date of the Bonds any moneys in the Debt Service Reserve Fund may be used to pay the principal of and interest on the Bonds on such final maturity date. In the event of the redemption of the Bonds in whole, any moneys in the Debt Service Reserve Fund shall be transferred to the Debt Service Fund and applied to the payment of the principal of and premium, if any, on the Bonds. The Trustee shall value the Permitted Investments (as defined in the Agreement) in the Debt Service Reserve Fund semiannually. If on any valuation date the amount in the Debt Service Reserve Fund is greater than the Debt Service Reserve Fund Requirement, such excess shall be transferred by the Trustee to the Debt Service Fund. If on any valuation date the amount in the Debt Service Reserve Fund is less than the Debt Service Reserve Fund Requirement, the Trustee shall promptly notify the Borrowers in writing and conduct a second valuation thirty (30) days after the prior valuation. If on the second valuation date the amount in the Debt Service Reserve Fund is less than the Debt Service Reserve Fund Requirement, the Trustee shall immediately notify the Borrowers and request that the Borrowers deposit with the Trustee such amount in equal monthly installments commencing with the first Monthly Disbursement Date following such notice so that the Debt Service Reserve Fund deficiency is cured by the next semi-annual valuation date. Within five Business Days of any transfer of funds from the Debt Service Reserve Fund to the Debt Service Fund because of a deficiency therein, the Trustee shall give written notice to the Borrowers of such transfer and of the amount of the deficiency, if any, of amounts then on deposit in the Debt Service Reserve Fund as of such date and request that the Borrowers deposit with the Trustee an amount 15

20 equal to such deficiency no later than six months from the date its receipt of such notice in six equal monthly installments. The Debt Service Reserve Fund may also secure other series of bonds as set forth in a Supplemental Agreement provided that the Supplemental Agreement providing for the issuance of such Bonds requires that the Debt Service Reserve Fund be maintained in an amount at least equal to the Debt Service Reserve Fund Requirement, calculated on an aggregate basis for the Bonds and all other bonds to be secured by the Debt Service Reserve Fund. Debt Service Fund A Debt Service Fund, and within such Fund, a Capitalized Interest Account, is established under the Agreement with the Trustee for the sole benefit and security of the Holders of the Bonds. There shall be deposited into the Debt Service Fund, as and when received (a) disbursements from the Revenue Fund and payments of debt service by the Borrowers, (b) moneys transferred from the Debt Service Reserve Fund, (c) all other moneys deposited therein pursuant to the Agreement and (d) all other moneys received by the Trustee when accompanied by directions from an Authorized Officer of the Borrowers (not inconsistent with the Agreement) that such moneys are to be paid therein. Interest and other income received on investment of moneys in the Debt Service Fund shall be retained therein. Except as provided with respect to deposits in the Rebate Fund and upon an Event of Default, moneys in the Debt Service Fund shall be used solely for the payment of the principal of and premium, if any, and interest on the Bonds as due. Repair and Replacement Fund Commencing in July, 2015, and monthly thereafter, the Borrowers shall cause to be deposited into the Repair and Replacement Fund an amount equal to $10,000 until such time that the Repair and Replacement Fund Requirement (initially $600,000) has been satisfied. Moneys in the Repair and Replacement Fund shall be disbursed by the Trustee: (a) to each Borrower or to its order to pay (i) the cost of improvements to the Mortgaged Property, (ii) replacement or repair of equipment or other components of the Mortgaged Property and (iii) to purchase additional equipment for the Mortgaged Property; and (b) to pay principal and interest on the Bonds to the extent payments by the Borrowers are insufficient therefor. The Repair and Replacement Fund Requirement, and the monthly deposits required to be made to such Fund, shall be increased in connection with the issuance of any additional Obligations under the Agreement. Other Funds under the Agreement A Project Fund and a Rebate Fund are also established with the Trustee under the Agreement. See the Agreement in APPENDIX C for a description of each of these Funds and the application of moneys held therein. Additional Indebtedness Under certain circumstances, the Authority may issue Parity Bonds under the Agreement and the Borrowers may issue Parity Obligations or Subordinated Obligations or incur parity Indebtedness or Subordinated Obligations under a different agreement provided that the School has agreed to make payments of rent under one or more of the Leases sufficient to pay the debt service thereon and provided the School would be permitted to incur such Indebtedness under the Leases if incurred directly by the School. Such Parity Obligations may include the scheduled payments under Interest Rate Hedges permitted by the Agreement. See the Agreement in APPENDIX C. 16

21 Financial Covenants of the School Debt Service Coverage Ratio. The School covenants and agrees in the Leases to achieve a Debt Service Coverage Ratio of at least 1.0 for the Fiscal Years ending June 30, 2014 and 2015, and of at least 1.10 for each Fiscal Year beginning with the Fiscal Year ending June 30, 2016 and each Fiscal Year thereafter. Days Cash on Hand. The School covenants and agrees in the Leases to maintain, calculated as of each June 30 for the Fiscal Year then ended, a minimum of 30 Days Cash on Hand for the Fiscal Years ending June 30, 2014 and 2015 and at least 45 Days Cash on Hand for the Fiscal Year ending June 30, 2016 and each Fiscal Year thereafter; provided, however, in the event that any law now or hereafter applicable to the School or its operations results in a limitation on the amount of Unrestricted Cash the School may maintain, the foregoing number of Days Cash on Hand shall be reduced to a number equivalent to the maximum amount permitted by law. Days Cash on Hand means, as of the end of any period, the product obtained by multiplying the number of days in such period by a fraction (a) the numerator of which is the School s Unrestricted Cash, and (b) the denominator of which is the School s Operating Expenses for such period as adjusted (i) to exclude additions to the reserve for bad debt, depreciation and amortization and (ii) to include all interest expense. Failure to Meet Financial Covenants. If for any Fiscal Year, the School fails to comply with the Debt Service Coverage Ratio or Days Cash on Hand covenants described above, the School (at the School s sole expense) shall engage a Management Consultant (with notice of the engagement to the Trustee), which shall deliver a written report to the School and the Trustee containing recommendations concerning the School s: (i) operations; (ii) investment management practices; (iii) fundraising activities; and (iv) other factors relevant to meeting the applicable financial covenants for the next ending Fiscal Year. Within 45 days after its engagement, the Management Consultant will submit its consultant report, together with a certificate of the School indicating the School's substantial acceptance or rejection of all or any material portion of the recommendations of the Management Consultant, to the Trustee. So long as the School engages a Management Consultant as required above and accepts and continuously and substantially complies with the recommendations of the Management Consultant, failure to comply with the Debt Service Coverage Ratio or Days Cash on Hand covenants described above for such Fiscal Year will not in and of itself constitute an Event of Default unless, in the case of the Debt Service Coverage Ratio covenant, the Debt Service Coverage Ratio for such Fiscal Year was less than 1.0, or in the case of the Days Cash on Hand covenant, for any 2 consecutive Fiscal Years ending June 30, 2016 or later, the Days Cash on Hand for such Fiscal Year was less than 30 days. Restrictions on Indebtedness of the School The School covenants and agrees in the Leases that it will not incur or assume (including the guaranteeing of, or the direct or indirect assumption of liability for, the debts of others) any Indebtedness, including capital lease obligations, other than as permitted by the Leases. Permitted Indebtedness includes certain Interest Rate Hedges, scheduled payments under which may be accrued on a parity with payments under the Leases. See APPENDIX C. The School Facilities THE PROJECT The Vine Street Facility currently consists of 265,000 square feet of class A office space on 8 floors and 91 covered parking spaces. The Vine Street Facility is expected to undergo substantial renovations beginning in July 2013 which largely relate to replacing an elevator bank with a wide 17

22 staircase, and reconfiguring office space to classrooms. Two floors of the building are expected to be ready for occupancy by the new ninth graders in fall Additional floors will be renovated and are expected to be fully ready for enrollment in fall In addition to the classrooms, the improvements will also include a studio theater, cafeterias, a library/media center, science labs, digital media labs, vocal studios, choir studios, and ballet studios. The Vine Street Facility is expected to eventually house up to approximately 1,800 students in grades 6 through 12. In addition to renovations to the Vine Street Facility, the proceeds of the Bonds will also be used to refinance an existing loan the proceeds of which were used to acquire and renovate the Fels Facility. Permits and Approvals The School has received all permits and approvals necessary to begin renovation of the Vine Street Facility including a building permit. Construction Manager; Construction Contracts DCII expects to enter into an AIA B801 CMa Standard Form of Agreement between Owner and Construction Manager, where the Construction Manager is NOT the Constructor with BSI Construction, LLC ( BSI ) pursuant to which BSI will provide project management services as an agency construction manager through the course of both design and renovation of the Vine Street Facility, acting as an independent owner s agent to advise on or mange the process from project conception to completion. BSI is not acting as contractor but rather as an Owner s consultant and has not guaranteed delivery, completion or guaranteed maximum price of the project. The project will be completed pursuant to the multi-prime project delivery format where separate construction contracts will be entered into between DCII and various prime trade contractors for the various components of the project. BSI is a Philadelphia area construction manager/developer with significant experience in the planning, design and building of new facilities as well as existing renovations. Recently completed projects for which BSI provided construction management services include the new $44 million dollar New Kensington High School for the Creative and Performing Arts for the School District of Philadelphia, which was the first high school in the nation to receive the distinguished LEED Platinum award for schools from the U.S. Green Building Council, First Philadelphia Charter School for Literacy and MaST Community Charter School, all located in Philadelphia. The School has entered into or awarded contracts totaling $11,650,082, including contracts with BSI and contracts for all aspects of the renovation of the Vine Street Facility except for a contract for roofing, which is estimated to cost an additional $10,000, for a total of 11,660,082. In addition, the project budget includes $600,000 for architect s fees. All of the construction contracts require the contractors to provide payment and performance bonds from sureties satisfactory to the School in an amount equal to 100% of the contract price. Environmental Assessments A Phase I Environmental Site Assessment was performed by Moriarty Environmental Solutions, Inc. in May 2013 with respect to the Vine Street Facility (the "Vine Street Study"). The Vine Street Study revealed no recognized environmental conditions (RECs) but did identify some suspected RECs. The School has concluded that no further action is warranted at this time with respect to potential risks associated with the suspected RECs. 18

23 A Phase I Environmental Site Assessment was performed by Environmental Consulting, Inc. ("ECI") in May 2012 with respect to the Fels Facility (the "Fels Study"). The Fels Study identified three RECs relating to potential contaminant concentrations above applicable standards in subsurface soil or groundwater. The School has determined that no further action is warranted with respect to such conditions until such time as further expansion or development that would result in soil excavation or subgrade activity is undertaken on the site, or there is a need to use groundwater. The Fels Study also identified a REC with respect to mold in a basement pool area, apparently related to the air-handling system. The School cleaned and disinfected the pool area and has replaced the air handling system. A Phase I Environmental Site Assessment was performed by ECI in May 2013 with respect to the Broad Street Facility. That study concluded that no RECs exist in connection with the Broad Street Facility. General CHARTER SCHOOLS A charter school is an independent, nonsectarian public school established and operated under a charter from a local Board of School Directors of the school district in which the charter school is located and provides instruction to any of grades kindergarten through 12. As the SDP has been designated as a district in financial distress pursuant to state law, the SRC is the entity that acts as the authorizer for charter schools in the City of Philadelphia. A charter school is usually created or organized by a combination of teachers, parents and community leaders or a community-based organization. Specific goals and operating procedures for charter schools are detailed in the charter between the authorizing school district or other sponsoring board and the charter school organizers. Charter schools in Pennsylvania are created pursuant to the Charter School Law. According to the Charter School Law, the purpose of a charter school is to permit the establishment and maintenance of schools that operate independently from the existing school district structure to accomplish the following: Improve pupil learning; Increase learning opportunities for all pupils; Encourage the use of different and innovative teaching methods; Create new professional opportunities for teachers, including the opportunity to be responsible for the learning program at the school site; Provide parents and pupils with expanded choices in the types of educational opportunities that are available within the public school system; and Establish accountability for charter schools to meet measurable academic standards and provide the charter schools with a method to determine accountability systems. Generally, charters are effective in Pennsylvania for a period of no less than three years and no more than five years and may be renewed for periods of five years without statutory limit on the number of renewals. See Charter Renewal or Termination below. 19

24 Elements of a Charter Application Each charter application, at a minimum, must contain all of the following information: The name of the charter applicant; The name of the proposed charter school; Grade or age levels served by the charter school; Proposed governance structure of the charter school including a description and method for the appointment or election of members of the board of trustees; Mission statement and educational goals of the charter school as well as curriculum offered and methods of assessment; Admissions policy and criteria for evaluation of admissions, in which enrollment must be open for all resident children in the Commonwealth of Pennsylvania; Procedures regarding suspension and expulsion of pupils; Information on the manner in which community groups will be involved in the charter school planning process; Financial plan for the charter school including provisions for independent audits; Procedures for review of parent complaints; Description and address of the physical facility and the ownership thereof or lease arrangements; School calendar; Proposed faculty and professional development plan for the faculty; Agreements with school district regarding extracurricular activities; Criminal history of all individuals who have direct contact with students; Child abuse clearance certificate for all individuals who have direct contact with students; and A description on how the charter school will provide adequate liability and other appropriate insurance for the charter school, its employees and the charter school s board of trustees. Charter Renewal or Termination Pursuant to the Charter School Law, a charter may be renewed for five-year periods upon reauthorization by the authorizing Board of Education (or in School s case, the SRC). For those charter schools authorized by the SRC, the SRC may renew a charter for a period of one year if the SRC 20

25 determines that there is insufficient data concerning a charter school s academic performance to adequately assess that performance and determines that an additional year of performance data would yield sufficient data to assist the SRC in its decision whether to review the charter for a period of five years. A one-year renewal is not considered an adjudication and may not be appealed to the state charter school appeal board. The SRC does not have the authority to renew a charter for successive one-year periods The Charter School Law provides that a school district has the authority to suspend or revoke a charter based upon any of the following reasons: one or more material violations of any of the conditions, standards or procedures set forth in the Charter Agreement; failure to meet the requirements for student performance set forth in 22 PA. Code Ch. 5 (relating to curriculum) or subsequent regulations established by the Pennsylvania Department of Education or failure to meet any performance standards set forth in the Charter Agreement; failure to meet generally accepted standards of fiscal management or audit requirements; violations of the Charter School Law; violations of other laws from which the charter school has not been exempted, including federal laws and regulations governing children with disabilities; or the charter school has been convicted of fraud. If a school district considers nonrenewal or termination of a school s charter, the chartering district must provide the charter school with a public hearing before a formal decision is made. The charter school and the non-renewing/terminating school district have an opportunity to present evidence at such hearing. The charter school may then appeal an adverse decision of the local school district to the State Charter School Appeal Board. The charter remains in effect until the State Charter School Appeal Board decides whether the decision to revoke or not renew the charter is appropriate. All decisions of the State Charter School Appeal Board are subject to review by the Pennsylvania Commonwealth Court. When a charter is revoked, not renewed, forfeited, surrendered or otherwise ceases to operate, the charter school shall be dissolved. After disposition of any liabilities and obligations of the charter school, any remaining assets of the charter school, both real and personal, shall be distributed on a proportional basis to the school entities with students enrolled in the charter schools for the last full or partial school year of the charter school. In no event shall such school entities or the Commonwealth be liable for any outstanding liabilities or obligations of the charter school. Funding for Charter Schools Charter schools do not charge tuition, but instead receive funding from the school district in which each charter school student lives based on a statutory formula. The following table sets forth for the school years shown the per pupil payment that the School received or receives from the SDP: School District Regular Education $ 8,088 $ 8,184 $ 8,608 $ 8,773 $ 8,096 School District Special Education 17,658 17,789 18,512 19,422 19,660 21

26 Currently, approximately 99% of the School s students reside in the City of Philadelphia. The per pupil payment from the SDP was reduced for the school year from what it had been for the school year as reflected in the table above but the SDP previously announced that it expected the per pupil allotment to remain level for three years and preliminary indications are that the per pupil allotment will increase for the school year over what it is for the current year. See BONDHOLDERS RISKS - Legislative Risk and Local School Districts Risk. Charter schools are also eligible to receive revenues from sources other than the school district per-pupil allocation. Such funding includes grants or other subsidies from the Commonwealth or federal government. In fiscal year 2012, the School received approximately $520,316 in federal grants or other subsidies and $260,556 in Commonwealth grants or other subsidies. Under the Charter School Law, school districts are required to make payments to the charter school in twelve equal monthly payments by the fifth day of each month. If the school district fails to make a payment to the charter school, the Secretary of Education of the Commonwealth will deduct the amount of such failed payment from any and all state payments made to such school district after receipt of documentation from the charter school and the school district and make an adjudication as to whether to pay the amount directly to the charter school. Commonwealth Department of Education Litigation On December 28, 2011, Chester Community Charter School ( CCCS ) filed a lawsuit against the Chester Upland School District ( CUSD ), et al. alleging, inter alia, that CUSD and the Department of Education of the Commonwealth have failed to make required payments to CCCS. On January 12, 2012, the CUSD, et al., filed suit against the Department of Education of the Commonwealth, et al. in the United States District Court for the Eastern District of Pennsylvania (Civil Action No ) (the Chester School District Litigation ). Among the issues raised in the Chester School District Litigation was the applicability of the Direct Payment Provision of the Charter School Law. See Funding for Charter Schools above. Settlements have been reached in both of the abovereferenced matters, under which the Commonwealth will provide approximately $30.2 million to pay off the CUSD s debts and the Commonwealth will pay more than $12 million to CCCS. Proposed State Legislation on Charter School A variety of legislation has been introduced in the Pennsylvania General Assembly affecting charter schools. Such proposed legislation, including a number of bills currently pending, include or have included provisions which would: (1) convert the existing Charter Appeals Board to a statewide authorizing and appeals entity titled the State Charter Schools Entity Board (the State Board ) to oversee charter schools, including the power to grant new charters and permit existing charter schools to petition to transfer their charter from their current school district to the State Board; (2) establish a Charter School Entities Funding Advisory Committee to conduct a comprehensive review of charter school funding and make recommendations regarding funding formulas and reimbursement procedures for charter schools; (3) provide for direct payment of funding from the Pennsylvania Department of Education, with an option for a charter school to opt out; (4) extend the term of new charters from three to five years and renewals from five to ten years; (5) allow for conversions of existing public schools to charter schools; (6) put additional ethical restrictions on members of a charter school s board and its administration, including restrictions on outside business relationships with the charter school or with other charter schools; (7) 22

27 impose certain restrictions with respect to management, operating or educational service contracts; (8) prohibit enrollment caps; (9) require annual independent audits and public disclosure; (10) limit unrestricted, unreserved fund balances at charter schools to 8% to 12% of budgeted expenditures, depending on budget size, with any excess to be refunded to the applicable school districts; and (11) require charter schools that elect to issue debt to provide sufficient funds in escrow, and impose penalty for failure of charter schools to pay any indebtedness at the time payment is due. To the extent any pending legislation is not enacted prior to end of the current legislative session on November 30, 2014, it would have to be re-introduced in the next legislative session in order to be considered for passage. THE SCHOOL DISTRICT OF PHILADELPHIA The SDP is located in Philadelphia covering approximately 21 square miles with a school enrollment as of December 6, 2012 of approximately 149,000 students (not including charter schools), the eighth largest in the nation by enrollment. A population of more than 1.5 million people resides in the City of Philadelphia. The SDP has 242 public schools (not including charter schools), made up of 163 Elementary schools, 23 Middle schools and 56 High Schools. In addition, there are 84 charter schools in the SDP serving approximately 55,000 students. The SDP (not including charter schools) is made up of approximately 54.5% African American students, 7.8% Asian students, 18.5% Hispanic students, 0.2% Native American students, and 14.3% Caucasian students. The SDP had an operating budget of $2,548 million for fiscal year State Takeover of the School District of Philadelphia The SDP was declared financially distressed on December 22, 2001 under Act 83 of 2001 (the Amended State Takeover Law ) following negotiations between the Mayor of the City of Philadelphia and the Governor of the Commonwealth. Pursuant to the Amended State Takeover Law, and following the declaration of distress by the Secretary of Education, the five-member SRC was established on March 14, 2002 to govern the SDP. The appointment of the SRC impacts charter schools in the SDP. Under the Charter School Law, approval of charters as well as revocations and renewals are made by the authorizing school district. For the Borrowers, the SRC has assumed the role of oversight of operating charters in the City of Philadelphia. While the SRC retains its statutory authority, the SRC has delegated its procedural oversight duties to the SDP. Pursuant to the Amended State Takeover Law, the SRC has assumed the authority to renew, suspend or revoke charters as set forth in Charter Renewal or Termination above. There are currently 84 charter schools (including 17 Renaissance Charter Schools) operating in the SDP serving over 55,000 students. The SDP considers applications for new charter schools in November of the year preceding the proposed year of beginning operations. For renewals, the SDP, on behalf of the SRC, requests that schools indicate their intent to review by September 1 of the year preceding the expiration of their charter and submit a charter renewal application by a date determined thereafter. School District Limitations on Charter School Enrollment The Charter School Law prohibits limits on a charter school s enrollment unless the limitation is agreed to by the charter school as part of its written charter. As discussed above under THE BORROWERS AND THE SCHOOL The School, the School s current charter permits a maximum of 2525 students in grades K through

28 On February 24, 2010, the SRC adopted amendments to its Charter School Policy which would only permit approval of enrollment increases and/or grade reconfigurations at the time of a charter school s renewal, during the third year of a school s existing charter, or under a one-time application process commencing in March of In connection with any such approval process, the SRC may require a full financial, academic and operational review comparable to that performed in connection with charter renewal (including public hearings). In addition to other criteria, an applying school must meet one of the following three academic performance benchmarks to obtain such approval: (i) achieving Adequate Yearly Progress under the federal No Child Left Behind Law guidelines; (ii) meeting or exceeding 80% of the metrics defined on the SRC s Charter School Annual Performance Report Card; or (iii) meeting or exceeding a minimum level of performance to be defined by the SRC on a School Performance Index. There are multiple pending lawsuits challenging the legality and propriety of the SDP s actions regarding the institution of an enrollment cap, the proffered renewal charter, the conditions precedent contained therein, and certain additional matters. Great Schools Compact On November 23, 2011, the SRC approved the Great Schools Compact. This compact, signed by the SRC, Philadelphia Charters for Excellence and the Pennsylvania Coalition of Charter Schools, outlines two major reform goals: (1) creation of a Compact Committee that will devise a new performance matrix by which to assess all schools in Philadelphia district, charter, parochial and private; and (2) establishment of a new Office of Charter Schools ( OCS ). This new OCS will be separate from the SDP with an executive director that reports directly to the SRC. The new OCS will recommend the authorization, renewal, amendment and revocation of charters in the City of Philadelphia. BONDHOLDERS RISKS Investment in the Bonds involves substantial risks. The following information should be considered by prospective investors in evaluation of the Bonds. However, the following does not purport to be an exclusive listing of risks and other considerations which may be relevant to investing in the Bonds, and the order in which the following information is presented is not intended to reflect the relative importance of any such risks. Other factors that could result in a reduction of revenues available to the Borrowers or the School and a corresponding reduction in payments made to the Authority by the Borrowers and the School are discussed herein. The Authority has no taxing power. Construction Risks Construction, renovation and rehabilitation improvements of any facility are subject to the risks of cost overruns and delays due to a variety of factors including, among other things, site difficulties, labor strife, delays in and shortages of materials, weather conditions, fire and casualty, obtaining necessary approvals and permits and compliance with public bidding requirements. Non-completion of the Project could materially adversely affect the value of the security under the Mortgages and could result in substantial additional expenses for the Borrowers if completion is delayed. Nature of Limited Obligations The Bonds are limited obligations of the Authority, payable solely from amounts pledged under the Agreement for the payment of all principal of, and premium, if any, and interest on, the Bonds (which include payments from the School pursuant to the Agreement). Other than the payments received under the Agreement, the Authority is not liable for any payments due with respect to the Bonds of either 24

29 principal or interest, and the Authority has no legal or moral obligation to make any appropriation of other amounts for such payments. Existing and Prospective Operations The School is a nonprofit corporation organized pursuant to the Charter School Law and is entitled to receive payment from school districts on behalf of their resident children attending the charter school. The Borrowers are not expected to have any revenues other than the revenues it receives under the Leases and revenue from fundraising on behalf of the School. No assurances can be given that the revenues to be generated by the School and the Borrowers will be sufficient to provide for payment of all operating and other costs incurred by the School and the Borrowers, including payments to be made by the School or the Borrowers to satisfy the debt service requirements on the Bonds and any other indebtedness of the School or the Borrowers. The School and the Borrowers are not expected to have any significant operations or assets other than the charter school and related funds, which, with respect to the School, include the receipt of public education allocation from the applicable school districts based on student enrollment as determined under the Charter School Law, and other assistance from private persons and organizations. Accordingly, if the School does not generate sufficient revenues based upon student enrollment, it is unlikely that the School and the Borrowers will have other resources to make payments under the Leases and the Agreement necessary to pay in full when due all principal of, and premium, if any, and interest on, the Bonds. The revenues and expenses associated with the existing and prospective operation of the School will be affected by future events and conditions relating generally to, among other things, demand in the School s service area for alternative education facilities, the ability of the School to continue to provide the kinds of facilities and services desired or required by students, economic developments in the affected service area, competition from existing or future educational facilities, the fiscal conditions of the applicable school districts, the ability of the School to maintain its charter and the ability of the School under existing and future market conditions to maintain high enrollment rates. The School is subject to competition from public schools, private schools, and parochial schools. There can be no assurance that additional competing charter schools will not be chartered in the future. Legislative Risk and Local School Districts Risk The Constitution of the Commonwealth obligates the legislature to provide for the maintenance and support of a thorough and efficient system of public education to serve the needs of the Commonwealth. The School s ability to make payments under the Leases is largely dependent on the revenues received from the applicable school districts which amounts are set by the Commonwealth. There is no assurance that the formula established by the Commonwealth will not be amended. Such a payment change could materially adversely affect the ability of the School to make rental payments sufficient to pay the debt service on the Bonds. Any change in the enabling legislation that created charter schools, failure by the applicable school districts to appropriate sufficient funds to fund its operations or failure by the legislature of the Commonwealth to appropriate funds sufficient to fund the operation of public schools could have a material adverse effect on the ability of the School and the Borrowers to make payments coming due thereafter. Under the Charter School Law, the School is entitled to receive a per pupil allocation for each student enrolled which is affected by the student s status as a regular or special education student. A portion of the public education revenue is derived from local property tax revenues. Any changes to the current property tax structure in the Commonwealth may have a material adverse effect on the ability of the School to pay its operating expenses and rental payments due under the Leases. 25

30 Charter schools receive from a school district, per student, the amount such school district would spend on each of its students, less the average per-student expenditure for special education programs, nonpublic school programs, adult education programs, community/junior college programs, student transportation services, facilities acquisition, construction and improvement services, debt service and fund transfers and federal programs. For special education students, a charter school receives an additional per-student amount based on a school district s special education expenditures divided by the Commonwealth-determined proportion of special education students. The amount of revenue to the School is based on the actual expenditures per pupil of the applicable school districts. There can be no assurance that the applicable school districts will make timely aid payments. Any shortfall or reduction in the aid payable by the applicable school districts may affect the School s ability to pay its operating expenses and rental payments due under the Leases. See CHARTER SCHOOLS Funding for Charter Schools herein. The per pupil annual student allocation that the School receives from the SDP for the school year is $8,096 for regular education students and $19,660 for special education students. Annual student aid payments are calculated based on a nine-month school year, but distributed to the School in twelve equal monthly installments. Recent Commonwealth budgets have significantly reduced the Commonwealth s aid to school districts. Any reduction in the per-pupil spending by the applicable school districts will result in declining per pupil allocations to the Borrowers and could have a material effect on its revenues. The per pupil payment from the SDP was reduced for the school year from what it had been for the school year as reflected in the table above under the heading CHARTER SCHOOLS Funding for Charter Schools but the SDP previously announced that it expected the per pupil allotment to remain level for three years and preliminary indications are that the per pupil allotment will increase for the school year over what it is for the current year. No Taxing Authority None of the Authority, the Borrowers or the School has any taxing power. The School is largely dependent on the applicable school districts for payment of aid money to make payments under the Leases in respect of principal of, and premium, if any, and interest on, the Bonds. Any event that would delay, reduce or eliminate public education aid monies from the Commonwealth or the applicable school districts, including, but not limited to, any decrease in the number of students enrolled at the School or reductions or delays in approving an applicable school district s budget would have a material adverse effect on the ability of the School to make payments under the Leases in respect of the principal of, and premium, if any, and interest on, the Bonds. Delay in or Termination of Public Education Aid Any event that would cause a delay, reduction or elimination of the public education aid monies from the applicable school districts would have a material adverse effect on the ability of the School to make rental payments under the Leases. Payments are to be made to a charter school in monthly payments by the fifth day of each month. If a school district fails to make a payment to a charter school as prescribed by the Charter School Law, the Secretary of Education is required by law to deduct the amount, as documented by the School, from any and all State payments made to such school district after receipt of documentation from the School and such school district and an adjudication on such documentation. There can be no assurance that any such delays in payment will not occur and materially adversely affect the School s ability to make rental payments under the Leases sufficient to pay the debt service on the Bonds. See CHARTER SCHOOLS Funding for Charter Schools above. 26

31 Factors Associated with Education There are a number of factors affecting school education in general, including those at the School itself, which could have an adverse effect on the School s financial position and the ability of the School to make rental payments required under the Leases. These factors include, but are not limited to: increasing costs of compliance with federal or state regulatory laws or regulations; laws or regulations concerning environmental quality, work safety and accommodating persons with disabilities; any unionization of the School s work force with consequent impact on wage scales and operating costs of the School; the ability to attract a sufficient number of students; change in existing statutes pertaining to the powers of the School; inability of the School to maintain its charter; and legislation or regulations which may affect program funding. The School cannot assess or predict the ultimate effect of these factors on its operations or its ability to make the required rental payments under the Leases. Non-Renewal or Revocation of Charter Pursuant to the Charter School Law, the School s charter has a five-year term which expires on June 30, 2014 and will then be subject to renewal for successive terms. There can be no assurance that the School s charter will be renewed. The School s charter may not be renewed or may be revoked prior to its expiration as described under CHARTER SCHOOLS Charter Renewal or Termination above. In the event a charter is revoked or not renewed, the charter school is dissolved. After the disposition of charter school assets to pay any liabilities or obligations of the charter school, any remaining assets are distributed proportionally to the school districts whose students attend the charter school. The revocation or non-renewal of the School s charter is an Event of Default under the Agreement. Competition for Students The School will be competing for students with the SDP and other school districts, as well as private schools within the SDP or near the School. Pursuant to the Charter School Law, the School s students may come from anywhere within the state; currently, approximately 99% of the School s students come from the SDP. For the school year, there are 84 charter schools in the SDP. Also, as described under CHARTER SCHOOLS Proposed State Legislation on Charter Schools, there are currently legislative proposals designed to increase the number of charter schools and increase school choice in Pennsylvania; if enacted, these proposals could affect the demand for the School. Charter Schools Generally The operations of the School relate primarily to the ownership and operation of a charter school located in Philadelphia, Pennsylvania. Such operations are dependent on sufficient demand for such facilities, adequate revenues from enrollment at the facilities and control of expenses. The operation of a charter school is highly regulated through the charter authorizing body and the Pennsylvania State Department of Education. A charter school may not charge tuition to a student attending the charter school. The failure of the School to meet the requirements of the regulations or the termination, revocation or non-renewal of the School s charter by the SDP, if not overturned on appeal and possibly during the pendency of an appeal, would have a material adverse effect on the ability of the School to make rental payments under the Leases. See BONDHOLDERS RISKS Non-Renewal or Revocation of Charter. 27

32 Future Need for Project Changes of economic, social or other conditions could affect demographics of the School and reduce the School s ability, need or willingness to utilize the School Facilities for its operations. The School is not legally prohibited from construction or acquisition of additional facilities at any time. Changes in future needs may have an adverse effect upon the ability of the School to budget money to continue to make rental payments under the Leases. Remedies May be Unenforceable Remedies provided for in the Agreement and the Mortgages may be unenforceable as a result of the application of principles of equity or of state and federal laws relating to bankruptcy, other forms of debtor relief, and creditors rights generally. Furthermore, it is not certain whether a court would permit the exercise of the remedies of repossession and sale or leasing with respect to the School Facilities. The enforcement of any remedies provided in the Agreement or the Mortgages could prove both expensive and time-consuming. Inability to Liquidate or Delay in Liquidating the School Facilities An event of default gives the Trustee the right to possession of, and the right to sell the School Facilities pursuant to a foreclosure sale under the Mortgages. The School Facilities are intended to be used solely for educational purposes of the School. Because of such use, a potential purchaser of the Bonds should not anticipate that a transfer of the School Facilities could be accomplished rapidly, or at all. Any sale of the School Facilities would require compliance with the laws of the Commonwealth applicable thereto. Such compliance might be difficult, time-consuming and expensive. Any delays in the ability of the Trustee to foreclose on the Mortgages would result in delays in the payment of the Bonds. The School Facilities are designed for use as school facilities and may not be readily adaptable to other uses. As a result, in the event of a sale of the School Facilities, the number of uses that could be made of the properties, and the number of entities which would be interested in purchasing the School Facilities, could be 0limited, and the sale price would thus be adversely affected. The location of the School Facilities might also limit the number of potential purchasers. The ability of the Trustee to sell the School Facilities to third parties, thereby liquidating the investment, would be limited as a result of the nature of the School Facilities. For these reasons, no assurance can be made that the amount realized upon any sale of the School Facilities would be fully sufficient to pay and discharge the Bonds. In particular, there can be no representation that the cost of the property included in the School Facilities would constitute a realizable amount upon any forced sale thereof. In the event the Trustee took possession of the School Facilities, the School Facilities might be subject to real property taxation. Results of Certain Events of Default under the Agreement A potential purchaser of the Bonds should not assume that it will be possible to obtain proceeds from the foreclosure of the Mortgages and the sale of the School Facilities after an Event of Default (as defined in the Agreement) and a foreclosure of the Mortgages for an amount equal to the aggregate principal amount of the Bonds then outstanding plus accrued interest thereon. If the School Facilities are sold pursuant to a foreclosure sale under the Mortgages (and there is no assurance that there would be any purchaser upon a foreclosure sale) for an amount less than the aggregate principal amount of and accrued interest on the Bonds, such partial payment may be the only payment to the Holders; upon such a partial payment, no holder of any Bonds shall have any further claim for payment upon the Trustee, the Authority, or any other party or entity other than the Borrowers and the School. 28

33 Tax-Exempt Status Under present federal and Commonwealth law, regulations and rulings, the income of 501(c)(3) Organizations, such as the Borrowers and the School, is exempt from federal and Pennsylvania income tax, except for any unrelated business income. Failure of either the Borrowers or the School to maintain its status as a 501(c)(3) Organization or changes in such current laws, or the regulations, rulings or interpretations thereof could adversely affect the Borrowers or the School. Such failure would adversely affect the exclusion of interest on the Bonds from income for federal income taxation purposes, and such effects could be material. Moreover, the ongoing tax-exempt status of interest on the Bonds is conditioned, under relevant provisions of the Internal Revenue Code of 1986, as amended (the Code ), on compliance by the Borrowers and the School with various requirements set forth, inter alia, in Sections 145 and 148 of the Code, requiring, among other things, that the School Facilities be owned throughout the term of the Bonds by a governmental unit or an organization described in Section 501(c)(3) of the Code, that not more than five percent of the proceeds of the Bonds (inclusive of proceeds applied to pay issuance costs) be applied to any private business use, any use giving rise to unrelated business income, or other uses inconsistent with the charitable purposes of the Borrowers and the School as 501(c)(3) Organizations, and that certain investment earnings in respect of the Bonds be subject to non-arbitrage requirements imposed under Section 148 of the Code, including requirements to perform certain rebate computations and to make certain rebate payments of arbitrage earnings, all as further provided in applicable statues, regulations, rulings and decisions. Failure to comply with such requirements could result in the loss of the tax-exempt status of interest on the Bonds to the owners thereof, and such interest could become taxable to such owners retroactive to the date of issuance of the Bonds. Exemption from Commonwealth and Local Taxes Currently, the School Facilities are exempt from taxation, fees, assessments or special ad valorem taxes. There can be no assurances that the School Facilities will not be subjected in the future to taxation. Moreover, no assurances can be given that the effect of any tax payments on the Borrowers and the School would not be either adverse or material. Mortgage Security Upon an Event of Default (as defined in the Agreement), no assurances can be given that the Trustee would be able to lease or sell the Mortgaged Property to third parties, or that the amount the Trustee would be able to receive upon foreclosure would be sufficient to pay all principal of, and premium, if any, and interest on the Bonds. The pledge of and security interest in the Pledged Revenues and the School Facilities and the lien and security interest in the equipment and personal property within the School Facilities and other Mortgaged Property created pursuant to the Mortgages and the Leases may be limited by the following: (i) statutory liens; (ii) rights arising in favor of the United States of America or any agency thereof; (iii) present or future prohibitions against assignment contained in any federal statutes or regulations; (iv) constructive trusts, equitable liens or other rights impressed or conferred by any state or federal court in the exercise of its equitable jurisdiction; (v) federal bankruptcy or state insolvency laws affecting assignments of revenues earned after any effective institution of bankruptcy or insolvency proceedings by or against the Borrowers or the School; (vi) rights of third parties in any revenues, including revenues converted to cash, not in possession of the Trustee; and (vii) the requirement that appropriate continuation statements be filed in accordance with the Pennsylvania Uniform Commercial Code. 29

34 Potential Environmental Risks See THE PROJECT Environmental Assessments herein for a description of environmental site assessments performed on the sites on which School Facilities are located and remedial actions to be taken with respect to environmental conditions found on the sites. The value of the site and the School Facilities as security for the Bonds could be reduced by environmental problems, including environmental problems discovered in the future. There are other potential risks relating to environmental liability associated with the ownership or operation of, or secured lending with respect to, any real property. If hazardous substances are found to be located on real property, owners or operators of, or secured lenders regarding, such property may be held liable for costs and other liabilities relating to such hazardous substances on a strict liability basis. Damage or Destruction Although the School and the Borrowers will be required to obtain certain insurance as set forth in the Leases and the Agreement, there can be no assurance that the School Facilities will not suffer losses for which insurance cannot be or has not been obtained or that the amount of any such loss, or the period during which the School Facilities cannot generate revenues, will not exceed the coverage of such insurance policies. Effect of Bankruptcy on Security for the Bonds Bankruptcy proceedings and equity principles may delay or otherwise adversely affect the enforcement of Holders rights to the property granted as security for the Bonds and their claim or claims to moneys owed them as unsecured claimants, if any. Furthermore, if the security for the Bonds is inadequate for payment in full of the Bonds, bankruptcy proceedings and equity principles may also limit any attempt by the Trustee to seek payment from other property of the Borrowers or the School, if any. See Remedies May be Unenforceable. Any bankruptcy filing would operate as an automatic stay of the commencement or continuation of any judicial or other proceeding against the Borrowers, the School or the Authority, as applicable, and their respective property and as an automatic stay of any act or proceeding to enforce a lien against such property. Moreover, following such a filing the Pledged Revenues and accounts receivable and other property of the Borrowers, the School or the Authority, as applicable, acquired after the filing (and under some conditions prior to the filing) would not be subject to the liens and security interests created under the Agreement and the Mortgages. In addition, the bankruptcy court has the power to issue any order, process or judgment that is necessary or appropriate to carry out the provisions of the Bankruptcy Code; such court order could require that the property of the Borrowers, the School or the Authority, as applicable, including the Mortgaged Property and the Pledged Revenues and proceeds thereof, be used for the benefit of the Borrowers, the School or the Authority, as applicable, despite the lien and security interest of the Trustee therein. Federal bankruptcy law also permits adoption of a reorganization plan even though it has not been accepted by the holders of a majority in aggregate principal amount of the outstanding Bonds if the Holders are provided with the benefit of their original lien or the indubitable equivalent. In addition, if a bankruptcy court concludes that the Holders have adequate protection, it may substitute other security subject to the lien of the Holders and subordinate the lien of the Holders to claims by persons supplying goods and services to the School or the Borrowers after bankruptcy and to the administrative expenses of the bankruptcy proceeding. The bankruptcy court may also have the power to invalidate certain 30

35 provisions of the Agreement and Mortgages that make bankruptcy and related actions by the Borrowers, the School or the Authority an Event of Default thereunder. Services Providers The School contracts with String Theory Schools ( String Theory ) for services including the management of educational services and certain other support functions and with Santilli & Thomson ( S&T ) for services including budgeting and financial management. For more information, see Appendix A hereto under the headings The School String Theory Schools and Financial performance Budgeting and Reporting. No assurance can be made that String Theory and/or S&T (collectively, the Service Providers ) will continue to provide such services to the School. If either of the Service Providers ceases to provide the School with such services, the School's ability to continue to operate in the manner in which it currently operates would require it to assume responsibility for the functions currently provided by the Services Providers or to contract with other providers competent to provide such services. There can be no assurance that the School would be able to perform such functions or contract with other parties for such services. The School's ability to perform such functions itself would depend on the ability of its Administrators and Board of Trustees, information with respect to which is provided in Appendix A under the heading Governance and Administration and Key Faculty. Any failure to perform by either of the Service Providers, or failure to perform or difficulty in performing by the School may adversely affect the School's operations and ultimately its ability to generate revenues sufficient to make payments under the Lease representing debt service on the Bonds. Lack of Secondary Market Although the Underwriter intends to engage in secondary market trading of the Bonds (subject to applicable state securities laws), the Underwriter is not obligated to repurchase any of the Bonds at the request of the owners thereof and cannot assure that there will be a continuing secondary market in the Bonds. In the secondary market for securities similar to the Bonds, the difference between the bid and asked price may be greater than the bid and asked spread for more traditional types of municipal securities. It is not expected that an active trading market for the Bonds will ever develop. Other Possible Risk Factors The occurrence of any of the following events, or other unanticipated events, could adversely affect the operations of the Borrowers and the School: 1. Establishment of mandatory governmental wage, rent or price controls; 2. Changes in key management personnel of the School or key personnel at the companies that have been retained by the School to provide certain management and financial services, as described in Appendix A hereto; 3. Future legislation and regulations affecting educational institutions, including (but not limited to) increases in attendance of private educational institutions as a result of government subsidies; 4. Inability to control increases in operating costs, including salaries, wages and fringe benefits, supplies and other expenses, given an inability to obtain corresponding increases in operating revenues; 5. Unionization, employee strikes and other adverse labor actions which could result in a substantial increase in expenditures without a corresponding increase in revenues, and 31

36 6. Adoption of other federal, state or local legislation or regulations having an adverse effect on the future operating or financial performance of the Borrowers and the School. Federal Income Tax Treatment of the Bonds TAX MATTERS Opinion of Bond Counsel. In the opinion of Stradley Ronon Stevens & Young, LLP, Bond Counsel, interest, including accrued original issue discount ( OID ), on the Bonds (a) is not included in gross income for federal income tax purposes, and (b) is not an item of tax preference for purposes of the federal alternative minimum income tax but (c) is taken into account in determining adjusted current earnings for purposes of the federal minimum income tax imposed on certain corporations. Interest on Bonds held by foreign corporations may be subject to the branch profits tax imposed by the Code. Except as discussed below regarding OID and Pennsylvania Tax Exemption, no other opinion is expressed by Bond Counsel regarding the tax consequences of the ownership of or the receipt or accrual of interest on the Bonds. Bond Counsel s opinion with respect to the Bonds will be given in reliance upon certifications by representatives of the Authority, the Borrowers and the School as to certain facts relevant to both the opinion and requirements of the Code. Bond Counsel s opinion is subject to the condition that there is compliance subsequent to the issuance of the Bonds with all requirements of the Code that must be satisfied in order for interest thereon to remain excludable from gross income for federal income tax purposes. The Authority, the Borrowers and the School have covenanted to comply with the current provisions of the Code regarding, among other matters, the use, expenditure and investment of the proceeds of the Bonds and the timely payment to the United States of any arbitrage rebate amounts with respect to the Bonds. Failure by the Authority, the Borrowers and the School to comply with such covenants, among other things, could cause interest on the Bonds to be included in gross income for federal income tax purposes retroactively to their date of issue. Original Issue Premium. The Bonds purchased, whether upon issuance or otherwise, for an amount (excluding any amount attributable to accrued interest) in excess of their principal amount will be treated for federal income tax purposes as having amortizable bond premium. A holder s basis in such a Bond must be reduced by the amount of premium which accrues while such Bond is held by the holder. No deduction for such amount will be allowed, but it generally will offset interest on the Bonds while so held. Purchasers of such Bonds should consult their own tax advisors as to the calculation, accrual and treatment of amortizable bond premium and the state and local tax consequences of holding such Bonds. Under the Code, for purposes of determining the holder s adjusted basis in a Bond, original issue discount treated as having accrued while the holder holds the Bond will be added to the holder s basis. Original issue discount will accrue on a constant yield-to-maturity method. The adjusted basis will be used to determine taxable gain or loss upon the sale or other disposition (including redemption or payment at maturity) of a Bond. Prospective purchasers of the Bonds should consult their own tax advisors with respect to the calculation of accrued original issue discount and the state and local tax consequences of owning or disposing of Bonds. 32

37 Pennsylvania Tax Exemption In the opinion of Bond Counsel, under the laws of the Commonwealth of Pennsylvania as enacted and construed on the date of original issuance of the Bonds, interest on the Bonds is exempt from Pennsylvania personal income tax and corporate net income tax, and the Bonds are exempt from personal property taxes in Pennsylvania. The personal income tax regulations promulgated by the Pennsylvania Department of Revenue (Pennsylvania Bulletin, vol. 26, No. 9, March 2, 1996) provide (i) any excess of a publicly offered obligation's stated redemption price at maturity over the first price at which a substantial amount of the obligations included in the issue is sold to the public will be treated as interest; (ii) unstated or imputed interest shall be computed for Pennsylvania personal income tax purposes in the same manner as it is computed for Federal income tax purposes; and (iii) the basis of a Pennsylvania state or local obligations shall be adjusted upward by the amount of unstated or imputed interest that would have been includible in the income of the holder but for the statutory exemption and shall be adjusted downward, but not below zero, by the amount of payments under the obligation, other than payments of stated interest. Prospective purchasers of the Bonds should consult their tax advisors regarding the Pennsylvania treatment of original issue discount. Tax Consequences Generally In addition to the matters addressed above, prospective purchasers of the Bonds should be aware that the ownership of tax-exempt obligations may result in collateral federal income tax consequences to certain taxpayers, including without limitation financial institutions, property and casualty insurance companies, S corporations, foreign corporations subject to the branch profits tax, recipients of Social Security or Railroad Retirement benefits and taxpayers who may be deemed to have incurred or continued indebtedness to purchase or carry tax-exempt obligations. Prospective purchasers of the Bonds should consult their tax advisors as to the applicability and impact of such consequences. Bond Counsel s opinions represent its legal judgment based in part upon the representations and covenants referenced therein and its review of existing law, but are not a guarantee of result or binding on the IRS or the courts. Bond Counsel assumes no duty to update or supplement its opinions to reflect any facts or circumstances that may come to Bond Counsel s attention after the date of its opinions or to reflect any changes in law or the interpretation thereof that may occur or become effective after such date. The IRS has a program to audit state and local government obligations to determine, as applicable, whether the interest thereon is includible in gross income for federal income tax purposes. If the IRS does audit the Bonds, under current IRS procedures, the IRS will treat the Authority, the Borrowers and the School as the taxpayer and the owners of the Bonds will have only limited rights, if any, to participate. There are many events that could affect the value and liquidity or marketability of the Bonds after their issuance, including but not limited to public knowledge of an audit of the Bonds by the IRS, a general change in interest rates for comparable securities, a change in federal or state income tax rates, legislative or regulatory proposals affecting state and local government securities and changes in judicial interpretation of existing law. In addition, certain tax considerations relevant to owners of Bonds who purchase Bonds after their issuance may be different from those relevant to purchasers upon issuance. Neither the opinions of Bond Counsel nor this Official Statement purports to address the likelihood or effect of any such potential events or such other tax considerations and purchasers of the Bonds should seek advice concerning such matters as they deem prudent in connection with their purchase of Bonds. 33

38 PROSPECTIVE PURCHASERS OF THE BONDS SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO THE STATUS OF INTEREST ON THE BONDS UNDER THE TAX LAWS OF ANY STATE OTHER THAN THE COMMONWEALTH. Regulations, Future Legislation Under the provisions of the Code, the Treasury Department is authorized and empowered to promulgate regulations implementing the intent of Congress under the Code, which could affect the taxexemption and/or tax consequences of holding tax-exempt obligations such as the Bonds. In addition, legislation may be introduced and enacted in the future which could change the provisions of the Code relating to tax-exempt bonds of a state or local government unit, such as the Authority, or the taxability of interest in general, or otherwise prevent the holders of the Bonds from realizing the full current benefit of the federal tax status of the interest thereon. No representation is made or can be made by the Authority, the Borrowers or the School, or any other party associated with the issuance of the Bonds as to whether or not any other legislation now or hereafter introduced and enacted will be applied retroactively so as to subject interest on the Bonds to federal income taxes or so as to otherwise affect the marketability or market value of the Bonds. THE ABOVE SUMMARY OF POSSIBLE TAX CONSEQUENCES IS NOT EXHAUSTIVE OR COMPLETE. ALL PURCHASERS OF THE BONDS SHOULD CONSULT THEIR TAX ADVISORS REGARDING THE POSSIBLE FEDERAL, STATE AND LOCAL INCOME TAX CONSEQUENCES OF OWNERSHIP OF THE BONDS. ANY STATEMENTS REGARDING TAX MATTERS HEREIN CANNOT BE RELIED UPON BY ANY PERSON TO AVOID TAX PENALTIES. RATING Standard & Poor's Ratings Services ( Standard & Poor s ) has given the Bonds a rating of BB with a stable outlook. Such rating reflects only the view of Standard & Poor s, and any desired explanation of the significance of such rating and outlook should be obtained from Standard & Poor s. Generally, a rating agency bases its ratings on information and materials furnished to it and on investigations, studies and assumptions by the rating agency. There is no assurance that a particular rating or outlook will apply for any given period of time or that it will not be lowered or withdrawn entirely if, in the judgment of the agency originally establishing the rating, circumstances so warrant. The Underwriter has undertaken no responsibility either to bring to the attention of the Holders of the Bonds any proposed revision or withdrawal of the rating or outlook of the Bonds or to oppose any such proposed revision or withdrawal. Any downward revision or withdrawal of such rating or outlook could have an adverse effect on the market price of the Bonds. Such rating should not be taken as a recommendation to buy or hold the Bonds. LEGAL MATTERS Certain legal matters incident to the authorization, issuance and sale of the Bonds are the subject of a legal opinion, by Stradley Ronon Stevens & Young, LLP, Philadelphia, Pennsylvania, Bond Counsel, the proposed form of which is attached hereto as APPENDIX D. Certain legal matters will be passed upon for the Borrowers and the School by their counsel, Sand & Saidel, P.C., Philadelphia, Pennsylvania; for the Authority by its counsel, Philip M. Brandt, Esquire, Philadelphia, Pennsylvania, and for the Underwriter by its counsel, Ballard Spahr LLP, Philadelphia, Pennsylvania. 34

39 ABSENCE OF MATERIAL LITIGATION The Authority There is no litigation of any nature pending or, to its knowledge, threatened against the Authority at the date of this Official Statement to restrain or enjoin the issuance, sale, execution or delivery of the Bonds, or in any way contesting or affecting the validity of the Bonds, any proceedings of the Authority taken with respect to the issuance or sale thereof, the pledge or application of any money or the security provided for the payment of the Bonds, or the existence or powers of the Authority. The School and the Borrowers Currently neither of the Borrowers nor the School is involved in any pending, or to the knowledge of either of the Borrowers or the School, threatened, litigation matters or disputes which, if determined adversely to the Borrowers or the School, would have a material adverse affect on the financial condition of the School or the Borrowers or affect the ability of the School or the Borrowers to make payments under the Leases or the Agreement, respectively. CONTINUING DISCLOSURE Pursuant to the Securities Exchange Act of 1934, as amended and supplemented (the Securities Exchange Act ), the Securities and Exchange Commission (the SEC ), has promulgated Rule 15c2-12, as amended ( Rule 15c2-12 ) which generally prohibit a broker, dealer, or municipal securities dealer ( Participating Underwriter ) from purchasing or selling municipal securities, such as the Bonds, unless the Participating Underwriter has reasonably determined that an issuer of municipal securities or an obligated person has undertaken in a written agreement or contract for the benefit of holders of such securities to provide certain annual financial information and event notices to the Municipal Securities Rulemaking Board. The School and the Borrowers have entered into a Continuing Disclosure Agreement ( Continuing Disclosure Agreement ) for the benefit of the Holders of the Bonds with the Trustee, under which the School and the Borrowers have designated the Trustee as Dissemination Agent to provide the annual financial information and event notices regarding the School and the Borrowers to the Municipal Securities Rulemaking Board as required by Rule 15c2-12. The form of Continuing Disclosure Agreement is attached as APPENDIX E. Neither the School nor either of the Borrowers has been obligated to provide any disclosure pursuant to Rule 15c2-12 prior to the issuance of the Bonds. Because the Bonds will be special limited obligations of the Authority, the Authority is not an obligated person for purposes of Rule 15c2-12 and has no continuing obligations thereunder. Accordingly, the Authority will not provide any continuing disclosure information with respect to the Bonds or the Authority. CERTIFIED PUBLIC ACCOUNTANTS The financial statements of the School included in APPENDIX B of this Official Statement for the Fiscal Year ended June 30, 2012 have been audited by Citrin Cooperman & Company, LLP, independent certified public accountants, as stated in their reports appearing in APPENDIX B of this Official Statement. 35

40 UNDERWRITING OF THE BONDS The Bonds are being purchased for reoffering by George K. Baum & Company (the Underwriter ). The Underwriter has agreed to purchase all of the Bonds at a purchase price of $55,002,897.00, which reflects the par amount of the Bonds, plus an original issue premium of $335,397.00, less an underwriter s discount of $832, The obligation of the Underwriter to accept delivery of the Bonds is subject to various conditions contained in the purchase contract. The purchase contract provides that the Underwriters will purchase all of the Bonds if any are purchased. The Bonds may be offered and sold to certain dealers, banks and others at prices lower that the initial offering prices, and such initial offering prices may be changed from time to time by the Underwriter. MISCELLANEOUS The foregoing summaries of the provisions of the Bonds, the Agreement, the Leases and the Mortgages and all other summaries and references to other materials not purporting to be quoted in full, are only brief outlines of certain provisions thereof and do not constitute complete statements of such documents relating to such matters, copies of which will be furnished by the Trustee upon request. Insofar as any statements are made in this Official Statement involving matters of opinion, whether or not expressly so stated, they are made merely as such and not as representations of fact. Appendices A, B, C, D, E, and F attached to this Official Statement are hereby expressly incorporated herein as a part hereof. This Official Statement has been duly approved by the Authority, the Borrowers and the School, and the Authority, the Borrowers and the School have authorized its distribution in connection with the underwriting of the Bonds. This Official Statement is not to be construed as a contract or agreement between or among the Authority, the Borrowers, the School and the purchasers or holders of any of the Bonds. 36

41 The execution and delivery of this Official Statement have been authorized by the Authority, the Borrowers and the School. PHILADELPHIA AUTHORITY FOR INDUSTRIAL DEVELOPMENT By: /s/ Thomas A.K. Queenan Title: Chairman DEMEDICI CORPORATION By: /s/_ Javier Kuehnle Title: President DEMEDICI CORPORATION II By: /s/_ Javier Kuehnle Title: President PHILADELPHIA PERFORMING ARTS CHARTER SCHOOL By: /s/_javier Kuehnle Title: Chairperson 37

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43 APPENDIX A CERTAIN INFORMATION CONCERNING THE BORROWERS AND THE SCHOOL

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45 The Borrowers DeMedici Corporation ( DC ) and DeMedici Corporation II ( DCII) (together, the Borrowers ) are both Pennsylvania non-profit supporting organizations of Philadelphia Performing Arts Charter School ( PPACS or the School ). The Borrowers collectively own the School s facilities and lease them to the School. The Borrowers also contract with grant writers and fundraising organizations to assist the Borrowers in raising funds to support the mission of the School. The Borrowers each have a threemember Board of Trustees who donate their time to the Borrowers. Listed below are the current members and officers of the Boards of Trustees of each of the Borrowers, the year of their initial election and the year their term ends: Name Office Year First Elected Term Expires Javier Kuehnle President Michael F. Zarro Treasurer Krista Alexander Secretary Overview The School Philadelphia Performing Arts Charter School received its initial charter from the School District of Philadelphia ( SDP ) on August 14, 2000 with an enrollment cap of 450 students in grades K-8. The School opened with 300 students in grades K-5 in fall One grade was added each year until it reached its full enrollment in fall The School received its first 5-year charter renewal in spring 2004 for a term ending on August 31, In 2009, the School received its second 5-year charter renewal, expiring June 30, On June 16, 2010, the SRC approved an enrollment cap increase to 570 for fall of that year and on April 27, 2011 the SRC approved an additional increase to 625 for fall On May 11, 2012, PPACS received the largest ever charter expansion in Philadelphia: an enrollment cap increase to 1,125 for grades K-8 and approval to add a high school of 1,400 students in grades 9-12, thereby expanding the School s total enrollment cap to 2,525, which will make it the largest charter school in Philadelphia. The School is strategically increasing enrollment in the elementary grades each year, while also adding one high school grade. The School enrolled 1053 students in grades K-8 in fall 2012 and is expected to be at full enrollment in grades K-12 in fall Because Philadelphia Performing Arts is a niche school, it attracts children from all over Philadelphia, without the need to give preference to the neighborhood that it primarily serves. The Borrowers currently own the School s two existing facilities, which are two blocks apart and across the street. The School s initial facility, located at 2600 South Broad Street (the Broad Street Facility ), is owned by DC and the other facility, located at 2407 South Broad Street (the Fels Facility ) is owned by DCII. The Fels Facility was purchased in 2012 and financed with a $4.8 million bank loan, which will be refinanced with proceeds of the Bonds, in order to accommodate the enrollment increase which began in fall Both facilities are at full capacity. In addition, the School leases approximately 8,000 square feet of space adjacent to the Broad Street Facility. The School expects to terminate that lease in fall 2014 upon completion of the Vine Street Facility described herein under THE PROJECT. PPACS s students travel from numerous City of Philadelphia neighborhoods, making the School a vibrant, culturally and economically diverse school community. Small class sizes, an instructional assistant assigned to every teacher and Special Education support in and out of the classroom allow for A-1

46 careful monitoring of student achievement. The School s standards-driven curriculum and its safe school environment ensure every child the chance to successfully participate in a rich school experience. Operational and Academic Highlights The School has operated at full chartered capacity in every year since The School s charter was renewed in 2004 and 2009, both times for the maximum of 5 years. The School has achieved a score of 1 (the highest) on the SDP School Performance Index in every year it has been evaluated. The School has made Adequate Yearly Progress ( AYP ) (within the meaning of the Federal No Child Left Behind Act of 2001, Public Law ) in every year of testing. The School has achieved an operating surplus every year since inception (fiscal year 2001), and expects an operating surplus again in the current fiscal year which ends June 30, As a result of the strong operating performance, the School has amassed a fund balance of over $3.4 million in unrestricted cash as of the end of fiscal year Mission Statement The School s design is founded squarely on the theory of multiple intelligences, established curricular pathways in both scholastics and the arts, and a mission statement that reads: It is our belief that every child is born with intelligences, which when nurtured become abilities. This enables them to achieve to a higher potential in their particular intelligences. The individual and collective responsibility to our youth is to discover, nurture, and encourage the development of that talent, so that every student will meet or exceed world-class standards, both academically and in the arts. In order to reach this vision, we will offer a comprehensive education program, which equally emphasizes academic and artistic excellence. The School s basic philosophy is to: EDUCATE: each child according to age and development, so that learning and growth are united; Integrate the developing mind and body of the child with academics and the performing arts; ENSURE: each child s excellence in core and academic skills; AWAKEN: and preserve the spirit of our children through the visual arts, vocal, instrumental music, creative writing, classical ballet, French, innovations in science, all intertwined with technology; and NOURISH: this spirit of curiosity so that students continue to flourish long after the end of formal training. String Theory Schools String Theory Schools ( String Theory ) is a nonprofit corporation established in 2011 to provide education management services. It is one of the most innovative models of education in the country providing a STEM (science, technology, engineering and math) +Arts Curriculum. String Theory s A-2

47 flagship model school is the Philadelphia Performing Arts Charter School. When the doors opened in September 2000, PPACS became the only grade school in the state of Pennsylvania to link academic education with the arts. Since then, schools in Chester and Pittsburgh, as well as other schools throughout the county, have followed the String Theory model. The School has contracted with String Theory to advise the School regarding all management operations and development and implementation of all accountability standards of the School. String Theory also writes and assists with writing grants to support programs in the School, as well as to introduce new programs to enhance and promote higher learning. It helps market the School and its programs. String Theory is currently in the second year of a five year contract with the School. Under its contract with the School, String Theory is paid a fixed annual fee that correlates to the expected enrollment for such year. Overview Curriculum The founding coalition of the Philadelphia Performing Arts Charter School consists of parents, community residents, artists, educators and business people, who have come together because they believe that every child has gifts and talents which must be discovered and nurtured, so that each student will meet or exceed world-class standards, both academically and in the arts. In order to accomplish its mission, the School offers a comprehensive educational program which emphasizes equally academic and artistic excellence. Every child is given instrumental music and dance instruction; every child learns a second language; and every child is offered additional performing and creative arts learning opportunities. The current curriculum is augmented per national and state core standards and best practices, and the School will continue integrating technology into the academic program in order to raise students levels of achievement and remain true to the vision: Individual attention, individualized instructional practices, differentiated instruction, adapted and modified practice activities, and accommodations made in testing afford all our students access to the curriculum, materials, and instructional strategies needed to receive an enriching education. The goal is to have students become well-rounded individuals who pursue excellence in every part of their lives. To consistently maintain a rigorous academic program, the studies are enhanced with enrichment opportunities. The Pennsylvania Academic Standards for the arts and humanities contain goals consistent with the vision of Philadelphia Performing Arts Charter School, which concentrate on performance by students. Incorporating seven different fields of art with academics, the school broadens and integrates the arts into the social studies, language arts, science, and mathematics curricula. At PPACS, every student plays the violin through fifth grade. Instrumental majors may continue to develop their violin skills or choose to learn viola, cello or double bass. Instrumental majors play an integral role in school performances and attend various outreach programs during the school year. Ballet training allows students to appreciate the discipline and beauty of dance. Everyone takes ballet through fifth grade, making them aware of the body as an instrument of expression. Students in K-5 attend vocal music class regularly. By the end of second grade, they are musically literate familiar with music of other cultures and able to write and create short rhythms and melodies. Vocal music majors become members of the school s Concert Choir and perform and compete throughout the school year. K - 5 students are exposed to visual arts both in their classrooms and with a specialist. Students creations enhance their daily lessons by coordinating content and expression. The foreign language skills program begins in kindergarten, which naturally leads to greater success in foreign language study in high school and college. French is the language of choice and the language of the arts. The arts curriculum fosters learning in all curricular areas; thus preparing students for higher education, lifelong learning and a wealth of career options. A-3

48 Curricular integration requires balancing learning objectives between academic and arts courses. Although integration is difficult to coordinate, it has proven to be successful. An arts curriculum must support the common five arts standards which are: 1. The ability to communicate in the four disciplines (social studies, language arts, science and mathematics) ; 2. Proficiency in one of the four disciplines; 3. The ability to analyze works of art; 4. Knowledge of exemplary works of art from a variety of cultures and historical periods; and 5. An understanding of the relationship of arts knowledge and skills within and across the arts. The School s curriculum is aligned with Pennsylvania s Standards Aligned System ( and the State Common Core Standards, ( The School provides advanced math (algebra), English and language courses that are requirements for admission to criteria-based Philadelphia high schools and private institutions. The English program not only focuses on literacy and appreciation of literature, but also sets aside significant time every day for creative writing. Integrating visual and tactile elements into the math program provides students a deeper understanding of math concepts. Social studies encompasses geography, anthropology, history and civics, so students understand the world in which they live, and make their own unique contribution. The innovative science curriculum underscores the School s commitment to a hands-on approach to the sciences; inquiry-based learning is stressed that leads to discovery and then understanding. Students will continue to build and expand their technological skills to keep up with the ever-changing advances multi-media world in which we live. The School s art-infused curriculum places a premium on academic excellence. In the middle grades, students may major in academic arts subjects, an unprecedented opportunity at this grade level. In grade 6, students each choose a major to carry throughout middle school (and into high school starting in fall 2013). Majors include: Instrumental, Ballet, Vocal, Visual Arts, Science, French, and Creative Writing. Students spend 90 minutes each morning on their major, along with additional rehearsal time and afterschool work. Success in the performing and fine arts requires practice, hard work, and determination. These qualities are essential for academic success as well, and essential for everyday living. While students training is not necessarily geared toward careers in the arts, students have consistently benefited from devoting sustained effort towards a goal and the feeling of personal satisfaction that comes with it. Nonetheless, many students have had the opportunity to perform professionally with companies that have visited Philadelphia, and sometimes even on Broadway. PPACS students have also received national, state, and local awards in all disciplines. Instrumental The instrumental curriculum at Performing Arts is a continuing process from kindergarten through eighth grade. Every student is issued a violin in kindergarten and begins with holding the violin and caring for it, repeating rhythms using open strings, and playing short songs using open strings. As they progress through the years, students learn all notes in the first position and important musical concepts such as articulations, bowings, and music theory. The All for Strings method book is incorporated into the curriculum as early as the second grade. Students begin reading and applying music notation in the fourth grade, and by the end of fifth grade they will have worked past a beginner level of violin playing. A-4

49 Entering their sixth grade year, students may choose to select an Instrumental Major where they may continue to play the violin, or choose to play the viola, cello, or double bass. Instrumental Majors meet every day for 90 minutes. Majors receive in-depth instruction of all performance techniques, and gain advanced knowledge of music theory. All Instrumental Majors play a vast repertoire of diverse music from classical to modern orchestral compositions. Majors are expected to join the school orchestra and play in all school performances and attend various outreach programs throughout the school year. Ballet Kindergarten through fifth grade students in the ballet curriculum develop an awareness of the body as an instrument of expression, learn dance vocabulary and terminology, and use elements of space, time, and effort/dynamics. They also experience creative expression through choreography and perform in annual productions at Performing Arts. Students become more aware of the diversity of heritage and cultures through dance. Dance Majors study the Vagonova technique which includes 7.5 hours of classes per week. This technique, which results in complete technical mastery of exercises at the barre (stationary handrail that is used during warm up exercises) and in the center of the studio, was developed by Agrippina Vagonova, a Russian ballet teacher famous for her Fundamentals of the Classical Dance (1934) which remains the standard textbook for the instruction of ballet technique. Students learn choreography and Pointe work weekly. After the New Year, students choreograph their own dance pieces that utilize creative expression, movement, and formations. Students are assessed on facility, classroom technique, work habits, and performance, as well as learning terminology and history of dance. Rehearsals for performances are scheduled throughout the day and after school. In addition to studying and creating their own work, students also attend Pennsylvania Ballet s series of performance and have the opportunity to audition for Pennsylvania Ballet s The Nutcracker. Vocal All Performing Arts students in kindergarten through fifth grade receive vocal music lessons once a week for an hour. Based on the National and Pennsylvania State Standards for Music Education, the vocal music program s goal is to develop tuneful, beautiful, and artful children through various music and movement activities. The students experience various genres and styles of music from many different cultures and time periods. By the end of second grade, the students begin to develop the skills necessary to become musically literate, which allows them to read, write, and create short rhythms and melodies. As a Vocal Music Major, the student becomes a member of the Performing Arts Concert Choir. During class, Vocal Music Majors continue to develop their sight singing skills, and learn more about music theory and history. Vocal Music Majors learn a wide variety of repertoire in three and four part harmony and are given many performance opportunities throughout the year including the annual Music Showcase Festival Competition. Visual Arts Students in kindergarten through 5 th grade develop their skills in drawing, painting, construction, printmaking, and craft through the Visual Arts curriculum. Emphasis is placed on the development of the children s perceptual awareness, understanding of color theory, knowledge of the elements and principles of design, critical thinking skills, and the encouragement of creative thinking and problem solving. Each lesson is developed to assist students in making connections to art history, multicultural themes, and to the core subjects of the grade: literature, math, science, and social studies. A-5

50 Visual Arts Majors in 6 th - 8 th grades experience an enriched, intensive course of study that consists of two periods of instruction per day. The Visual Arts Major builds on the K-5 curriculum through the continued development of specific skills with emphasis on drawing and painting. Students complete comprehensive portfolios, which meet portfolio admission requirements for criteria-based high schools that are noted for their Visual Arts programs. Additional emphasis is placed on careers in art, and the cultural role artists play in the Performing Arts community, as well as the larger community. Field trips are an integral part of the class experience, and students also have opportunities to participate in contests, exhibits, and special projects. All Art Majors are expected to develop their artistic abilities to an advanced level. For all students, instruction in the arts is coordinated with instruction in academics. It is an interdisciplinary course of study where academics and art equally intersect in the classroom and the studio. Throughout the year, teachers connect the disciplines - history units may be coordinated with the music or art of the era being studied. For example, by integrating visual and tactile elements, the Math program allows students to move from the concrete (e.g. shapes or bundles or colors) to the abstract (e.g. calculations or formulas or theorems), thus ensuring a deeper understanding of math concepts. Science The School s recent investment in a new Science Lab underscores its commitment to a hands-on approach to the sciences; PPACS stresses inquiry-based learning that leads to discovery and then understanding. In kindergarten, students are introduced to technology by being equipped with internet-connected, interactive smart boards. All students work every day with computers. Students in 3 rd - 5 th grades have laptops; middle-graders each have their own ipads; and PPACS s Science and Computer Labs are fully equipped with computers for all students. Students studying in the new Science Lab incorporate inquiry-based learning as well as content and background building lessons. Technology is incorporated into lessons as a means for research, data analysis, project preparations, and presentations. Lab experiences are intertwined throughout the lessons and as concepts are developed. Students are expected to be well-versed in the proper management of laboratory safety, equipment, procedures, and overall behavior in the lab. The program s ultimate goal is to build independent thinkers who see the world around them as a scientific marvel. The students natural curiosity is stimulated and enhanced through the use of this laboratory setting and experiences. French PPACS starts its Foreign Language Skills program in kindergarten, which naturally leads to greater success in foreign language study in high school and college. French is the language of choice, because of its status as the second language of the world and the language of the arts. The School aims to provide each student the opportunity to learn French language and culture through a curriculum that emphasizes the creative process, critical thinking and inquiry. PPACS is designed to attract students whose families want smaller class sizes and a non-traditional academic program that builds in significant opportunities for early identification of talent and advancement. A-6

51 Creative Writing The overall goal of the creative writing program is to build upon the writing skills the students learn in the school by teaching the students how to write expressively and creatively. By expanding writing styles and approaches, the students learn to conform their writing for a variety of audiences and genres. Studies include journalism, fiction and nonfiction, poetry, public speaking and playwriting. The English program not only focuses on literacy and appreciation of literature, but also sets aside significant time every day for creative writing. Curriculum Development Student learning is monitored through the use of various testing assessments including the PSSA, 4Sight, Pennsylvania Value-Added Assessment System (PVAAS), Developmental Reading Assessment (DRA), Critical Reading Inventory (CRI), pre-, post- and end-of-book tests from textbook series, reading level tests, teacher-constructed classroom tests, and portfolio assessments. Each child s cognitive and communication skills, research and organizational skills, study strategies, and subject proficiency advance along a trajectory corresponding to that child s developmental level. Teachers are given assessment data to analyze and guide their instruction and to formulate flexible groups. Lesson plans are reviewed by the principal to ensure that best practices and differentiated instruction is delivered according to those needs uncovered by data analysis. In addition, formal and informal observations allow for informed discussion about content and instructional strategies. Philadelphia Performing Arts Charter School emphasizes the following: Always fine-tuning of current curricula, further drawing upon national/state standards and best practices in order to better meet students needs and to raise students levels of academic achievement. An investment in integration of technology across the curriculum. The disaggregation of student achievement data. The expansion of cross-curricular learning opportunities. The expansion of performance opportunities for students. The expansion of parental involvement in all areas of the school. The expansion of enrichment programs. An expanded program of professional development. These goals and objectives are achieved through consistent and on-going professional development concentrating on best practices, analyzing data individually, by grade, and by school, emphasis on datainformed and differentiated instructional practices, investment of funds in materials and personnel, and continuous monitoring of all school aspects by administration, staff, students, parents, and the community-at-large. The school design and instructional program plan address the needs of all students. In addition, design consists of parents, community residents, artists, educators, and business people who believe that every child is gifted and talented. The instructional program is geared towards innovative teaching and learning techniques to reach the needs of all students. A-7

52 The school addresses the needs of all special student populations serving all Special Education students high and low incidence, as well as English Language Learners. All students are assessed and monitored by their respective teachers. When a teacher has documented a student s need of challenge or remediation, there is a protocol to follow. Response to Instruction and Intervention is a program to identify the needs of all students. Students may require the need for enrichment or challenging work, some students needs are behavioral support, and some students require remediation in their academic learning. Not only have the scholastic safeguards proven effective in detecting students who are under-performing (and in providing required remediation to these students before any question of retention arises), but Philadelphia Performing Arts Charter School follows a clear no-retention policy which mandates that any pupil who is failing a subject must attend summer school and pass that subject. Board of Trustees Governance The School is governed by a seven-member Board of Trustees which is charged with both the authority and the responsibility to see that Performing Arts is in compliance in all legal and fiduciary aspects relating to the oversight of the School. The Board includes the membership of the founding group. More than just a governing body, however, the Board of Trustees helps create a vision for the future of Performing Arts and then directs that vision. The Board of Trustees holds board meetings every month, and the community is encouraged to attend the meetings. All Board Members serve two-year terms on the Board, until his or her successor shall be elected and shall qualify unless and until resignation or removal by a majority vote of the Board. Board Members are elected by a majority vote of the then existing Board Members. The Board may subsequently modify the number of Trustees but in no event shall be Board have fewer than the minimum number required by applicable statute. Two of the elected Board members are parents or legal guardians of children currently in the school. Standing committees include: Discipline, Audit, Finance, Personnel and Education. There are currently two vacancies on the Board. Current members of the Board, and their terms of service, are set forth below. Name Office Year Elected Term Expires Javier Kuehlne Chairperson Kristin Kubach Secretary Krista Alexander Treasurer William Bradley Leach Vice Chairperson Ron Pigliacelli Javier Kuehnle has been the owner and CEO of Spalding Automotive, Inc. and C.A. Spalding Company for the past 25 years. The two companies engineer and manufacture machined, stamped, roll formed A-8

53 components and welded assemblies. Mr. Kuehnle has been serving as the board chairperson to PPACS since 2000, as the board president to DC since 2004 and as board president to the DCII since Mr. Kuehnle holds a Business Management & Finance degree from University of Pennsylvania s Wharton School of Business. Kristin Kubach has over 20 years of experience in the healthcare industry. Since 2007, Ms. Kubach has been the Charge Nurse at the Surgery Center of Pennsylvania Hospital, where she has been instrumental in ensuring proper set-up of the patient-care areas including preoperative holding, operating rooms, postanesthesia care units, as well as patient and family waiting areas. In addition, Ms. Kubach is responsible for all aspects of the medication room. Ms. Kubach holds a Registered Nurse diploma from the Methodist Hospital School of Nursing. She is also currently enrolled in the MSN Program at the Holy Family University in Philadelphia. Krista Alexander began her 20-year career in funeral planning in 1992 at the Carto Funeral Home Inc. of Philadelphia, where until recently she served as a Licensed Funeral Director, managing all aspects of funeral home operations. In 2010, upon completing her studies at Roxborough Memorial Hospital School of Nursing, Ms. Alexander joined Broad Street Weight Management as a Medical Assistant. Ms. Alexander holds multiple licenses and certificates: she is a certified EKG and Phlebotomy Technician, Nursing Assistant, Funeral Director and Embalmer, and Insurance Agent. Ms. Alexander holds a diploma from the American Academy McAllister Mortuary School of Science as well as an A.G.S. from the Community College of Philadelphia. Ms. Alexander is also on the Boards of DC and DCII. William Bradley Leach is the Lead Pastor of the CityLife Church, where he has been working to empower a paid staff and more than 150 volunteers to coordinate a full range of local church ministry and outreach to more than 300 people each week. During his time with CityLife Church, Mr. Leach has founded and developed the Reach Northeast program which focuses on church planting residency. Prior to his move to Philadelphia, Mr. Leach led the Church of the King in Berkley, Michigan. Mr. Leach has holds an M.A. in Church Ministries from Assemblies of God Theological Seminary in Springfield, MO and a B.A. from Central Bible College of Springfield, MO. Ron Pigliacelli has been working with Deb Shops, a retail chain of over 300 apparel shops, for over 27 years. Currently he is the Director of Import Operations, overseeing matters of finance, logistics and compliance with government agencies, such as U.S. Customs & Border Projection, Federal Trade Commission, and Food & Drug Administration. In addition to being responsible for all aspects of import department operations, including daily contact with overseas vendors, customs clearance and timely shipment of products, Mr. Pigliacelli is in charge of the company s corporate import policies and service purchasing activities. Administration and Key Faculty Set forth below is information with respect to key personnel at String Theory and PPACS: Angela Corosanite is the CEO of String Theory Schools, and is the founder of both Philadelphia Performing Arts Charter School and String Theory Schools. In 1980, Ms. Corosanite, a Philadelphia native, also founded and served as CEO of the Children s Ballet Theatre of Philadelphia, which has performed in major Philadelphia theatres attended by over 10,000 Philadelphia school children. Gail Avicolli, Ed.D., is currently the Superintendent of String Theory Schools and has more than twenty years of successful experience as an educator and academic administrator, including extensive experience as a School Principal and Regional Director in the Archdiocese of Philadelphia. Dr. Avicolli also served A-9

54 as Principal of Glenview Avenue School for the Haddon Heights School District in Haddon Heights, New Jersey. Her work at String Theory along with her previous experience has provided Dr. Avicolli with an advanced knowledge of curriculum design, program development, admissions procedures, and faculty recruitment. She has been able to achieve and maintain accreditation, and dramatically increase enrollment in her various professional positions. She holds a Doctorate in Educational Administration and a Master of Science in Education, as well as certifications as Principal, Superintendent, and Supervisor of Curriculum and Instruction for grades K-12. Dr. Jason Corosanite is Chief Operations Officer for String Theory Schools. Dr. Corosanite is an experienced business executive with a solid background in healthcare and nonprofit business development. His experience also includes community outreach and grassroots organizing, as well as team/resource management, marketing, fundraising, and IT development. He was an integral part of an integrated health care environment, and previously founded and served as CEO of a healthcare IT company that developed electronic health records solutions for both private and government entities. Prior to that Dr. Corosanite founded and served as president for another company that provided professional services in the healthcare industry, including policies and procedures related to electronic health records and medical billing. He holds a Doctorate of Chiropractic and a Master of Arts in Education Leadership Charter Schools. Gina Cedrone, M.Ed., is Director of Testing & Assessments for String Theory Schools. Her role is to facilitate and support the use of pedagogical resources, research-based practices, and effective instructional techniques that coincide with the curricular integration of common core standards and the 21st century learner. Ms. Cedrone s assessment practices promote and sustain a culture of achievement, growth, innovation and productivity. Her Pennsylvania state certifications include Reading Specialist, Early Childhood Education, and Elementary Education. Her education includes both a Bachelor of Science and a Master of Science in Education. Michelle Kuzmen was appointed Director of Special Education for String Theory Schools in Her role is to coordinate administrators, teachers, students, and parents in creating and implementing for students with special needs an Individual Education Plan, 504 Service Agreement, Response to Intervention Plan, and Title I Services. She teaches both regular and special education, and advises other teachers on the same. Prior serving this role for String Theory, she spent 5 years as Special Education Lead for Philadelphia Performing Arts Charter School. She was also a teacher both in regular education and at an intermediate unit. Ms. Kuzmen holds a Bachelor of Arts in Early Childhood and Elementary Education and a Masters in Science of Education with a Special Education Certification. She is also currently pursuing a Master of Science in Education with Principal Certification, Supervision of Curriculum Certification, and Supervision of Special Education Certification. Angela Puleio is Chief Executive Officer and Principal of Philadelphia Performing Arts Charter School. She has over 30 years of experience in education including as a teacher and curriculum coordinator. Ms. Puleio earned a Bachelor s degree in Psychology and a Master s in Elementary Education, and has attained numerous certifications, including Administration. Faculty and Staff According to the state of Pennsylvania, a teacher who is highly qualified is one who has a bachelor s degree and has passed the praxis exam in the categories necessary for certification in the area in which the teacher is currently teaching. For the school year, the School employed 99 staff including 65 highly qualified professional staff (teachers, counselor, social worker, principal, vice principal and deans). PPACS also employs 34 support staff including facility staff, administrative support staff, assistants and technology support. There is minimal turnover among faculty, and the staff retention rate is A-10

55 very high, with only 5 staff departures over the past 5 years. For the school year, more than 200 teachers have applied for 29 open teaching positions. The School maintains a comprehensive benefits program that provides health, dental and vision coverage to all staff and immediate family members at no expense to the employee. There is currently no labor representation at the School. Enrollment Data Student Enrollment The table below shows the enrollment history by grade for the School over the last five years (with expected enrollment for fall 2013). In 2012, the School received the largest ever charter expansion in Philadelphia, allowing it to enroll an additional 450 students K-8 and 1,400 students in For its 9 th grade that is opening in fall 2013, the School will admit approximately 375 students and all 72 of its current graduating 8 th graders have committed to return for the 9 th grade. For the remaining 303 seats in 9 th grade, the School received in excess of 700 applications. The lottery for all grades was held on May 31, In the high school (grades 9-12), the School is reimbursed by the State for each student (up to the total cap amount of 1,400) regardless of the number of students in each grade. Similarly, in the elementary school (grades K-8), the School is reimbursed up to the total cap amount of 1,075 in school year , and 1,125 each year thereafter, regardless of the number of students in each grade. The School cannot receive per-pupil aid revenues for any students above the applicable cap; however, the School intends to maintain enrollment slightly above the cap in order to ensure maximum per-pupil revenues. Marginal expenses associated with a few additional students in each grade are negligible in comparison to the foregone revenue if enrollment falls below the maximum under their charter. Table 1: Enrollment Fall K Total Student Diversity For the school year, 44% of the School s students qualified for free and reduced price lunch, and 13% were special education students. The student body is 71% Caucasian, 20% African American, 6% Hispanic and 3% Asian. Application and Waitlist During the School s 2013 lottery period, PPACS advertised with multiple full page ads in local community publications, as well as in several other publications serving communities with high percentages of individuals who speak a language other than English. It also advertised extensively online and with social media. Pursuant to charter school legislation, the School must fill any open seats (seats not already filled by returning students) each fall by lottery. Once applications are received and a lottery is conducted, a waitlist is created. Priority is given first to siblings of current students, then to children of essential staff, A-11

56 then to students within the City of Philadelphia. If after the lottery there are still students remaining on the waitlist, they are offered admission if any seats open up throughout the school year. At the end of each year, the waitlist is discarded and a new one is created. The table below shows the number of children on the waitlist for fall 2013 after 125 kindergartners and th graders were pulled off the list at the time of the lottery held May 31, Table 2-A: Fall 2013 Waitlist Grade K 1 st 2 nd 3 rd 4 th 5 th 6 th 7 th 8 th 9 th Total # Students ,540 Table 2-B: Historic Waitlist The following table sets forth the total number of students on the wait list for the School for each year shown: Year Wait List , , ,128 Attendance and Retention The following table shows attendance (during the respective school year) and retention (entering the year following the respective school year) rates for the School for the past 5 years. Table 3: Attendance and Retention Attendance 96.7% 95.6% 96.0% 96.5% 96.5%* Retention > 99% > 99% > 99% > 99% > 99%* *Note that the attendance for is estimated based upon preliminary figures and the retention rate for fall 2013 is estimated based upon commitments from current students. A-12

57 Academic Performance Test Results The Pennsylvania Department of Education requires reading and math assessment for students in grades three through eight, as well as writing and science in certain grades, through the Pennsylvania System of School Assessment ( PSSA ). The following table shows the percentage of PPACS students who scored advanced or proficient on the PSSA over the last three years and corresponding percentages for the SDP and for the State for the school year. Table 4: PSSA Results PPACS PPACS PPACS SDP State Grade 3 Math 78% 87% 94% 49% 80% Reading 75% 85% 84% 45% 74% Grade 4 Math 90% 84% 89% 55% 82% Reading 66% 73% 76% 42% 72% Science 93% 91% 93% 49% 82% Grade 5 Math 71% 64% 75% 45% 73% Reading 60% 57% 73% 34% 65% Grade 6 Math 81% 73% 74% 52% 77% Reading 77% 77% 67% 42% 68% Grade 7 Math 90% 78% 95% 56% 80% Reading 90% 82% 87% 51% 76% Grade 8 Math 74% 87% 83% 52% 76% Reading 87% 89% 91% 58% 79% Science 50% 74% 70% 24% 59% Competition Set forth in the table below is a list of the SDP schools in the vicinity of the School s existing facilities, as well as the other charter schools that are located within, or draw most of their students from, the same general area. Also set forth in the table are the ratios of students scoring Advanced or Proficient on the PSSA math, reading and science tests in (the most recent year for which data is available), and whether the school most recently made AYP. Philadelphia Performing Arts Charter School has made AYP every year it has been tested. A-13

58 Table 5: Area Competition (School Year ) School Type Grades Enrollment PSSA Reading PSSA Math AYP? Philadelphia Performing Arts Charter School Charter K % 86% Yes Independence Charter School Christopher Columbus Charter School Charter K % 72% No Charter K % 69% Yes Stephen Girard SDP K % 42% No Girard Academic Music Program Jenks Abram School Mastery Charter School (Thomas) SDP % 93% Yes SDP K % 75% Yes Charter % 70% No SDP Public K-12 75,193 45% 49% No Budgeting and Reporting Financial Performance The School has retained Santilli & Thomson, a professional services firm that provides outsourced financial management for charter schools, to provide various financial services to the School for a fixed annual base payment plus a supplemental fee based on the number of students enrolled. The comprehensive financial management package includes budget preparation, budgetary control, cash management, financial accounting, financial reporting, grants management, procurement, payroll, personnel management and benefits management. The School s budget, adopted in accordance with the timetable prescribed by the Commonwealth of Pennsylvania, serves as a blueprint for financial decision making during the fiscal year. The budget provides for the educational, building and administrative needs of the School community and also includes a reserve for contingencies. All purchases and personnel requests by the School are reviewed for budgetary funds available prior to the issuance of a contract or purchase order. Santilli & Thomson provides interim financial reporting for the board of trustees and CEO on a monthly basis. The dedicated business manager meets with the School s administrative team regularly and attends all board and finance committee meetings. On behalf of the School, Santilli & Thomson carefully monitors revenues and expenditures in an effort to keep all revenue and expense categories within budget. A-14

59 Per Pupil Aid The amount of per pupil aid funding is determined pursuant to a formula provided in the Charter School Law and is based on actual SDP costs for the preceding school year. The per pupil funding for the academic year , which will be based on SDP costs for the school year, has not been announced but early indications are that there will be an increase over the amounts for both regular education and special education. Because the adjustment has not been formally approved to date, the projections contained in Table 7 of this Appendix A do not include an increase in per pupil funding for fiscal years or , but reflect a 3% annual increase for each fiscal year thereafter. The SDP is currently experiencing severe financial difficulties and there can be no guaranty that there will be any increases in per pupil funding in future years or that the per pupil funding will not will not decrease in future years. Set forth in the following table is the per pupil allotment from SDP for regular education and special education students for the current and prior four school years. Currently, approximately 13% of the School s students are special education students. Table 6: Per Pupil Aid Regular Education Special Education School Year Amount Change % Change Amount Change % Change $8,184 $ % $17,789 $ % , % 18,883 1, % , % 19, % , % 19, % Accounting Matters The School operates on a fiscal year ending June 30. The financial statements of the School have been prepared on an annual basis in accordance with Generally Accepted Accounting Principles ( GAAP ). Complete audited financial statements for the School for the fiscal year ended June 30, 2012 are attached to this Official Statement as Appendix B. The following tables summarize the Balance Sheet and Statement of Revenues and Expenditures for Performing Arts for the fiscal years ended June 30, 2011 and The information presented in these tables was extracted from the audited financial statements of the School. Balance Sheet June 30, 2012 June 30, 2011 Current Assets $5,615,433 $4,643,049 Capital Assets and Other Noncurrent Assets 431, ,681 Total Assets $6,047,087 $5,252,730 Total Liabilities $1,022,676 $ 552,441 Net Assets: Invested in Capital Assets, Net of Related Debt 148, ,985 Unrestricted 4,876,396 4,341,304 Total Net Assets $5,024,411 $4,700,289 A-15

60 Statement of Revenues & Expenditures June 30, 2012 June 30, 2011 Revenues: Local educational agencies $6,326,281 $5,566,557 Other local sources 222, ,913 State sources 260, ,592 Federal sources 520, ,100 Food services 169, ,496 Total revenues $7,498,818 $6,754,658 Expenditures: Other instructional programs $3,237,030 $2,883,555 Pupil personnel services 126, ,956 Instructional staff services 324, ,585 Administrative services 1,593, ,206 Pupil health services 73,939 72,527 Business services 151, ,121 Operation and maintenance of plant services 1,059,638 1,056,409 Other support services 122, ,418 Student activities 49,334 14,201 Food services 255, ,760 Other community services - 65,392 Depreciation expense 180, ,701 Total expenditures $7,174,696 $6,110,831 Change in net assets 324, ,827 Net assets -beginning 4,700,289 4,056 NET ASSETS -ENDING $5,024,411 $4,700,289 Financial Projections This Appendix A and other portions of the Official Statement contain certain forward-looking statements relating to the School s projected enrollment, revenue and expenses. See Forward-Looking Statements on the inside front cover facing page of the Official Statement. Although the School believes that the assumptions upon which the forward-looking statements contained in this Appendix A and other portions of the Official Statement are reasonable, any of the assumptions could prove to be inaccurate and, as a result, the forward-looking statements based on those assumptions could also be incorrect. All phases of the operations of the School involve risks and uncertainties, many of which are outside of the School s control and any one of which, or a combination of which, could materially affect the School s results with respect to its operations. Certain factors that could cause actual results to differ from those expected are described in the section of the Official Statement entitled BONDHOLDERS RISKS. The School is providing the following Projected Revenues and Expenses table for illustrative purposes only. As indicated above under the heading Per Pupil Aid, the financial projections do not reflect an increase in per pupil aid for Fiscal Years 2014 and 2015 above the figure effective for Fiscal Year Fiscal Years 2016 and 2017 reflect an annual increase of 3% in per pupil aid. A-16

61 Table 7: Financial Projections Budgeted Enrollment Grades K-8 K-9 K-10 K-11 K-12 School Year Opening Fund Balance $3,436,896 $2,918,610 $3,383,709 $4,024,224 $4,762,277 Revenues School District Subsidy $9,168,546 $13,241,483 $16,861,872 $20,630,604 $24,365,032 Transfer from Surplus Other Local 212, , , , ,165 State 450, ,325 1,231,957 1,663,800 1,973,938 Federal 738,199 1,015,000 1,295,000 1,540,000 1,767,500 Total Revenues $10,569,828 $15,320,086 $19,718,097 $24,223,634 $28,548,634 Expenditures Instruction Regular Education $4,530,884 $6,317,625 $8,522,397 $10,609,128 $12,558,334 Special Programs 481, , ,971 1,146,825 1,382,422 Tutoring 42,645 88,394 93,608 98, ,848 Support Services Counseling 81, , , , ,056 Psychological Services 50,470 95, , , ,745 Social Work 79,657 84,309 91,359 96, ,847 Professional Development 159,360 75,497 84,962 93, ,413 Other Support 122, , , , ,542 Legal & Auditing 125, , , , ,982 Administrative 1,707,334 2,262,351 2,774,655 3,381,627 3,696,440 Pupil Health 114, , , , ,562 Business 170, , , , ,536 Central Information Technology 298, , , , ,371 Building Services Maintenance/Custodial/Repairs 148, , , , ,233 Utilities 79, , , , ,524 Debt Service 2,433,399 3,215,732 3,994,027 4,204,322 Lease 1,168, , Extra Curricular Activities 51,173 67,412 84, , ,647 Extended Day 68,962 73,727 78,559 82,449 84,821 Total Expenditures $9,688,115 $14,881,850 $19,105,286 $23,513,114 $26,931,439 Revenues Over (Under) Expenditures $881,714 $438,235 $612,811 $710,519 $1,617,196 Equity Contribution for Cap Interest ($1,400,000) Ending Fund Balance $2,918,610 $3,356,845 $3,969,656 $4,680,176 $6,297,371 Opening Fund Balance (Cash Only) $2,656,757 $2,084,801 $3,082,858 $3,931,686 $4,437,756 Ending Fund Balance (Cash Only) $2,084,801 $3,082,858 $3,931,686 $4,437,756 $5,842,512 Debt Service* $1,168,800 $2,812,507 $3,215,732 $3,994,027 $4,204,322 Cash Balance as % of Operations 22% 21% 21% 19% 22% Cash Balance as Days Cash Debt Service Coverage 1.75x 1.16x 1.19x 1.18x 1.38x Maximum Debt Service Coverage 1.01x 1.01x 1.12x 1.38x Debt Service % of Operations 12% 19% 17% 17% 16% *Note: debt service in ratios above includes facility lease costs in FY14, excludes cap interest A-17

62 Project DCII has entered an Agreement of Sale to purchase a facility (the Vine Street Facility ) built in 1999 and currently consisting of 265,000 square feet of class A office space on 8 floors with 91 covered parking spaces. The facility is located at 1600 Vine Street in Center City Philadelphia, within a short walking distance of many bus and subway routes. The purchase price for the Vine Street Facility is $29 million and DCII expects to spend an estimated $14 million in renovations and furniture, fixtures and equipment. The renovations are largely related to replacing an elevator bank with a wide staircase, and reconfiguring office space to classrooms. Two floors of the building will be ready for occupancy by the new 9 th graders in fall Additional floors will be renovated and fully ready for enrollment in fall The Vine Street Facility will eventually house approximately 1,800 students in grades The most notable feature of the Vine Street Facility is a 250-seat theater and grand lobby. The facility will also contain the following: 67 general education classrooms; 5 special education classrooms; 6 advanced learning classrooms for math and reading; 6 creative writing and language rooms; 6 vocal and instrumental studios; 3 state-of-the-art science labs; 3 ballet studios; and 3 digital design media labs; a TV studio, administrative space. The facility features the following enhancements to further the School s educational mission: a library/media center that meets the specific needs of middle school students; display space throughout the building allowing student work to be showcased; 4 separate cafeterias designed to meet the developmental and social needs of students along with extensive after school activities; appropriate separation of lower and upper grades; rooms with moveable walls which are equipped for multiple usage to provide flexibility of educational programming; A-18

63 classrooms which accommodate technology as well as small and large group learning; all space is developmentally appropriate and conducive to creating a safe school environment. The project budget includes $1,850,000 for furnishings, fixtures and equipment, and a construction contingency reserve fund of $1,200,000. Set forth below are the detailed costs of the project which have been bid and for which the School has contracted, provided that where noted, the cost is estimated. Contract Amount Demolition $636,419 Concrete 39,500 Masonry 27,000 Steel/Metals 725,000 Carpentry 2,472,433 Millwork 731,000 Roofing (estimated) 10,000 Glazing 269,600 Doors/Frms/Hdwr 395,000 Ceramic Tile 28,198 Floor Coverings 886,136 Terrazzo 49,950 Painting 189,800 Lockers 254,199 Theater Risers 84,906 Theater Seating 60,874 Appliances 2,900 Fire Protection 142,000 Plumbing 175,170 HVAC 1,575,420 Electrical 1,295,350 Entry Gates 7,500 Subtotal $10,058,355 Pre-Construction Services $100,584 General Construction 502,918 Construction Management 452,626 Reimbursables 545,600 Subtotal $1,601,727 Total $11,660,082 A-19

64 In addition to the Vine Street Facility project, proceeds from the Bonds will also be used to refinance an existing loan the proceeds of which were used to acquire and renovate the Fels Facility. The School received an appraisal of the Fels Facility dated June 25, 2012 reflecting an as-is value of $3,900,000 and an as-improved value of $5,500,000. Appraisals were not obtained for any other facilities. Below is a map showing the relative location of the three School Facilities to be occupied by the School. A-20

65 Miscellaneous Insurance Pursuant to its Charter, the School maintains comprehensive general liability, educator s legal liability, automobile, excess liability, property and workers compensation and employer s liability insurance. Litigation Currently, the School is not involved in any pending, or to the knowledge of the School, threatened litigation matters or disputes which, if determined adversely to the School, would have a material adverse effect on its operations or financial condition. A-21

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67 APPENDIX B AUDITED FINANCIAL STATEMENTS OF THE SCHOOL FOR THE FISCAL YEAR ENDED JUNE 30, 2012

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111 APPENDIX C FORMS OF THE LOAN AND TRUST AGREEMENT, THE LEASES AND THE MORTGAGES

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113 TABLE OF CONTENTS LOAN AND TRUST AGREEMENT by and among PHILADELPHIA AUTHORITY FOR INDUSTRIAL DEVELOPMENT and DEMEDICI CORPORATION AND DEMEDICI CORPORATION II and U.S. BANK NATIONAL ASSOCIATION, TRUSTEE Dated as of June 1, 2013 And Providing, Initially, for the Issuance of: $55,500,000 Philadelphia Authority for Industrial Development Revenue Bonds (Philadelphia Performing Arts Charter School Project) Series of 2013 ARTICLE I DEFINITIONS...2 Section 1.01 Definitions...2 Section 1.02 Accounting Principles ARTICLE II ASSIGNMENT AND PLEDGE OF SECURITY...18 Section 2.01 Assignment and Pledge of the Authority Section 2.02 Security Interest in Pledged Revenues Section 2.03 Further Assurances...19 Section 2.04 Deposit of Funds For Payment of Obligations; Defeasance Section 2.05 Defeasance ARTICLE III THE OBLIGATIONS...21 Section 3.01 The 2013 Bonds Section 3.02 Application of Bond Proceeds Section 3.03 Issuance of Obligations Section 3.04 Redemption of the 2013 Bonds...27 Section 3.05 Book Entry System for the Bonds ARTICLE IV FUNDS AND ACCOUNTS...30 Section 4.01 Project Funds Section 4.02 Revenue Fund Section 4.03 Debt Service Reserve Fund Section 4.04 Repair and Replacement Fund Section 4.05 Rebate Fund Section 4.06 Debt Service Fund...37 Section 4.07 Application of Moneys Section 4.08 Investments ARTICLE V PAYMENTS BY THE BORROWERS...40 Section 5.01 Loan Payments and Other Amounts Payable Section 5.02 Management Company Fees Section 5.03 Pledge By Borrowers i Section 5.04 Payees of Payments...41 Section 5.05 Obligations of Borrowers Hereunder Unconditional ARTICLE VA REPRESENTATIONS...42 Section 5.01A Representations by the Authority...42 Section 5.02A Representations by the Borrowers...44 Section 5.03A Pledged Revenues Upon Default...46 Section 5.04A Title Insurance; Mortgage...46 ARTICLE VI MAINTENANCE, TAXES AND INSURANCE; DAMAGE TO OR DESTRUCTION OF MORTGAGED PROPERTY...47 Section 6.01 Insurance Required Section 6.02 Casualty; Condemnation; Loss of Title Section 6.03 Proceeds of Insurance or Condemnation Award Section 6.04 No Change in Loan Payments; No Liens Section 6.05 Advances by Authority or Trustee ARTICLE VII COVENANTS AND WARRANTIES...52 Section 7.01 Corporate Organization, Authorization and Powers Section 7.02 Tax Status and Eligibility for Financing Section 7.03 Tax Covenants Section 7.04 Permitted Liens Section 7.05 Maintenance of Corporate Existence Section 7.06 Compliance with Laws Section 7.07 Payment of Obligations and Indebtedness Section 7.08 Licenses and Permits Section 7.09 Securities Law Status Section 7.10 Financial Statements; Reports; Annual Certificate Section 7.11 Compliance with Act 22 and the Charter Section 7.12 Taxes, Other Governmental Charges and Utility Charges Section 7.13 Limitations on Incurrence of Additional Indebtedness; Security Section 7.14 Restrictions on Guarantees Section 7.15 Lease or Other Disposition of the Mortgaged Property Section 7.16 Nonsectarian Use Section 7.17 Construction of Capital Additions and 2013 Project Section 7.18 Reserved Section 7.19 Maintenance and Modifications of Mortgaged Property by Borrowers Section 7.20 Creation of Security Interest Section 7.21 Redemption of Bonds Section 7.22 Release and Indemnification Covenants Section 7.23 Authority of Authorized Officer of the Borrowers Section 7.24 Authority of Authorized Officer of the Authority Section 7.25 Licenses and Qualifications Section 7.26 Right to Inspect Section 7.27 No Change in Loan Payments; No Liens ARTICLE VIIA ENVIRONMENTAL REPRESENTATIONS, COVENANTS, AND INDEMNIFICATION...62 Section 7.01A Environmental Representations...62 Section 7.02A Environmental Covenants...64 Section 7.03A Environmental Indemnity...66 ARTICLE VIII DEFAULTS AND REMEDIES...68 Section 8.01 Events of Default Defined Section 8.02 Remedies on Default Section 8.03 No Remedy Exclusive...71 Section 8.04 Agreement to Pay Attorneys Fees and Expenses Section 8.05 Waiver Section 8.06 Proofs of Claim Section 8.07 Treatment of Funds in Bankruptcy Section 8.08 Application of Moneys Received by Trustee Pursuant to Article VIII ARTICLE IX THE TRUSTEE...75 Section 9.01 Duties and Liabilities of Trustee Section 9.02 Reliance on Documents, Indemnification, Etc Section 9.03 Responsibility for Recitals, Validity of Agreement, Proceeds of Bonds ii iii

114 Section 9.04 Trustee May Own Bonds Section 9.05 Compensation and Expenses of Trustee Section 9.06 Officer s Certificate as Evidence Section 9.07 Resignation, Removal and Succession of Trustee Section 9.08 Acceptance by Successor Trustee Section 9.09 Qualifications of Successor Trustee Section 9.10 Successor by Merger ARTICLE X THE AUTHORITY...80 Section Rights and Duties of the Authority Section Expenses of the Authority Section Extent of Covenants; No Personal Liability ARTICLE XI HOLDERS OF OBLIGATIONS...82 Section Action by Holders of Obligations Section Proceedings by Holders of Obligations ARTICLE XII MISCELLANEOUS...83 Section Amendments Section Successors and Assigns Section Notices Section Intentionally Omitted Section Business Days Section Agreement Not for the Benefit of Other Parties Section Severability Section Counterparts Section Captions Section Governing Law Section No Duty of Underwriter Section Non-Discrimination and Sexual Harassment Clause EXHIBIT A Form of Series of 2013 Bond... A-1 EXHIBIT B Form of Project Fund Requisition...B-1 EXHIBIT C Permitted Liens...C-1 iv v LOAN AND TRUST AGREEMENT This LOAN AND TRUST AGREEMENT (this Loan and Trust Agreement or this Agreement ) is entered into as of June 1, 2013 by and among the PHILADELPHIA AUTHORITY FOR INDUSTRIAL DEVELOPMENT, a public instrumentality and body corporate and politic of the Commonwealth of Pennsylvania (the Authority ), organized and duly existing under the Pennsylvania Economic Development Financing Law, the Act of August 23, 1967, P.L. 251, as amended (the Act ), DEMEDICI CORPORATION ( DC ) and DEMEDICI CORPORATION II ( DCII ), each a Pennsylvania not-for-profit corporation (together with its permitted successors and assigns hereunder, each a Borrower and collectively, the Borrowers ), and U.S. BANK NATIONAL ASSOCIATION, acting as trustee hereunder (with its successors, the Trustee ). This Loan and Trust Agreement is a financing document combined with a trust agreement and provides, initially, for the following transactions: (a) the Authority s issuance of $55,500,000 Revenue Bonds (Philadelphia Performing Arts Charter School Project) Series of 2013 (the 2013 Bonds ); (b) the Authority s loan (the Loan ) of the proceeds of the 2013 Bonds to the Borrowers to be used, together with other available funds, to undertake a project involving: (i) the acquisition, construction, renovation, furnishing, finishing and equipping of the facility located at 1600 Vine Street, Philadelphia, Pennsylvania (the Vine Street Facility ) for use as a school building housing grades sixth through twelfth, (ii) the refinancing of existing debt, the proceeds of which were used to acquire and renovate a facility located at 2407 South Broad Street, Philadelphia, Pennsylvania, Ritner Street, Philadelphia, Pennsylvania and South Broad Street, Philadelphia, Pennsylvania (the Fels Facility and together with the Vine Street Facility and the Broad Street Facility (defined below), the School Facilities ) for use as a school building housing grades kindergarten through fifth to be leased by the Borrowers along with the Vine Street Facility and the facility located at South Broad Street, Philadelphia, Pennsylvania (the Broad Street Facility ) to the Philadelphia Performing Arts Charter School (the School ); (iii) other appropriate and lawful capital improvements at any of the School Facilities; (iv) a debt service reserve fund for the 2013 Bonds and capitalized interest, if necessary, and (v) certain costs of issuance relating to the 2013 Bonds (collectively, the 2013 Project ); (c) the payment by the Borrowers to the Trustee of all amounts necessary to pay all Obligations (defined below) issued hereunder and secured hereby; and (d) the Authority s assignment to the Trustee, in trust for the benefit and security of all Obligations, of the Authority s rights under this Loan and Trust Agreement and the revenues to be received from the Borrowers hereunder except as otherwise provided herein. As consideration for the mutual agreement and representations contained in this Loan and Trust Agreement and for other good and valuable consideration, the receipt of which is hereby acknowledged, the Borrowers, the Authority and the Trustee, intending to be legally bound hereby, agree as set forth herein for their own benefit and for the benefit of the Holders of all Obligations issued and Outstanding hereunder, provided that any financial obligation of the Authority hereunder shall not be a general obligation of the Authority nor a debt or pledge of the faith and credit of the Commonwealth or the City of Philadelphia, but shall be payable solely from the funds and revenues pledged under this Agreement. ARTICLE I DEFINITIONS Section 1.01 Definitions. In addition to terms defined elsewhere herein, the following terms have the following meanings in this Loan and Trust Agreement, unless the context otherwise requires: Accountant means a firm of independent certified public accountants licensed to practice in the Commonwealth of Pennsylvania (which may be the firm of accountants that regularly audits the books and accounts of the Borrowers) from time to time as selected by the Borrowers. Accounts has the meaning set forth in the Uniform Commercial Code. Additional Indebtedness means any Indebtedness incurred by the Borrowers subsequent to the issuance of the 2013 Bonds. Affiliate of any specified corporation or other entity means any other entity directly or indirectly controlling or controlled by or under direct or indirect common control with such specified entity. For purposes of this definition, control when used with respect to any specified entity means the power to direct the management and policies of such entity, directly or indirectly, whether through ownership of voting securities, by contract, membership or otherwise; and the terms controlling and controlled have meanings correlative to the foregoing. Architect means a Person which is not, and no member, stockholder, director, officer or employee of which is, an officer or employee of either Borrower and which is retained for the purpose of passing on questions relating to the design and construction of any particular facility, has all licenses and certifications necessary for the performance of such services, and has a favorable reputation for skill and experience in performing similar services in respect of property of a comparable size and nature to the School Facilities or Permitted Additional School Facility, as applicable, and, with respect to the Vine Street Facility and Fels Facility, initially Friday Architects/Planners Inc. Architect Contract means the agreement between DCII and the Architect relating to the 2013 Project. Authorized Officer means (i) in the case of the Authority, the Chairman or Vice Chairman of the Authority, and when used with reference to an act or document of the Authority also means any other person authorized to perform the act or execute the document, (ii) in the case of either Borrower, the President, Vice President, Treasurer or Secretary of such Borrower and when used with reference to an act or document of a Borrower, also means any 2

115 other person or Persons authorized to perform the act or execute the document, and (iii) in the case of the School, the Chair of the Board or the Chief Executive Officer. Bond or Bonds means, collectively (i) the 2013 Bonds, (ii) except as otherwise expressly excepted by the terms of any specific section of this Loan and Trust Agreement, all Parity Bonds, and (iii) except as otherwise provided in Article III hereof, any Bond or Bonds duly issued in exchange or replacement therefor and, where appropriate with respect to redemption and required purchase, portions thereof in authorized denominations. Bond Counsel means Stradley Ronon Stevens & Young, LLP or such other firm of attorneys with experience in matters relating to the issuance of obligations by states and their political subdivisions as is nationally recognized as such. Bond Documents means this Loan and Trust Agreement, the Lease and the Mortgage. Bond Year means the annual period for the computation of Excess Investment Earnings under Section 148(f) of the Code. Business Day means any day other than a Saturday, Sunday or other day on which the Federal Reserve System is closed or on which banks in the city in which is located the designated corporate trust office of the Trustee responsible for the administration of this Loan and Trust Agreement are authorized or obligated by law or executive order to close as consistent with the closing of the New York Stock Exchange. Capital Additions means all property or interests in property, real, personal and mixed (a) which constitute either (i) a Permitted Additional School Facility, or (ii) additions, improvements or extraordinary repairs to or replacements of all or any part of a Borrower s Property, and (b) the cost of which is properly capitalized under Generally Accepted Accounting Principles; provided that the 2013 Project shall not constitute a Capital Addition. Capitalized Interest Account means that account by that name established within the Debt Service Fund pursuant to Section 4.06(a) hereof. Closing Statement means a closing statement signed by an Authorized Officer of the Authority and an Authorized Officer of each Borrower in connection with the issuance of a series of Bonds setting forth the application of the proceeds of such Bonds received by the Trustee. CM Agreement means that certain AIA B801 CMa-1992 Standard Form of Agreement between Owner and Construction Manager, where the Construction Manager is not the Constructor, between DCII and Construction Manager, to be executed within ten days of the closing date. Code means the Internal Revenue Code of 1986, as amended, and all applicable regulations and rulings thereunder. Collateral shall have the meaning given such term in the Lease. Commonwealth means the Commonwealth of Pennsylvania. Construction Contracts means the contracts between DCII and any of its contractors relating to the construction (as opposed to management) of the 2013 Project, including such other agreements with third parties as it deems necessary or advisable for any acquisition, installation, equipping, construction, renovations and conversions relating thereto. Construction Manager means a Person which is not, and no member, stockholder, director, officer or employee of which is, an officer or employee of either Borrower and which is retained for the purpose of passing on questions relating to the construction of any particular facility, has all licenses and certifications necessary for the performance of such services, and has a favorable reputation for skill and experience in performing similar services in respect of property of a comparable size and nature to the School Facilities or Permitted Additional School Facility, as applicable, and, with respect to the Vine Street Facility and Fels Facility, initially BSI Construction, LLC. Costs of Issuance means underwriter s discount or fees, counsel fees (including bond counsel, Authority s counsel, Underwriter s counsel, Borrowers counsel, Trustee s counsel, and any other specialized counsel fees and expenses incurred in connection with the issuance of the Bonds and any other Obligations), any bond insurance premium, financial advisor fees, rating agency fees, Trustee s fee incurred in connection with the issuance of the Bonds and any other Obligations and the Trustee s acceptance fee and first year administration fee, Accountant fees related to the issuance of the Bonds or any other obligations, printing costs, costs incurred in connection with the public approval process for the Bonds and any other Obligations, costs of engineering and feasibility studies necessary to the issuance of the Obligations and any other fees or costs which are permitted to be financed under the Act. Counsel means an attorney or firm of attorneys selected by the Borrowers and (except as otherwise provided in this Loan and Trust Agreement) may either be counsel (including inside counsel) for the Borrowers or for the Trustee. Credit Facility means any irrevocable transferable letter of credit, insurance policy, guaranty or other agreement constituting a credit enhancement or liquidity facility which, if applicable to any Obligations, is satisfactory to the Authority and the Borrowers. DC Lease means that certain Lease dated as of June 1, 2013, between DC and the School for the Broad Street Facility, as it may be amended, restored, supplemented or otherwise modified from time to time, including any amendments to cause such lease to pertain to additional Property of DC that is a Permitted Additional School Facility. In the event DC and the School determine it to be more efficient or appropriate to enter into a separate lease with respect to any Permitted Additional School Facility in lieu of an amendment as aforesaid, any such additional lease shall, for purposes of this Loan and Trust Agreement, be deemed to be included in the definition of DC Lease. 3 4 DCII Lease means that certain Lease dated as of June 1, 2013, between DCII and the School for the Fels Facility and the Vine Street Facility, as it may be amended, restored, supplemented or otherwise modified from time to time, including any amendments to cause such lease to pertain to additional Property of DCII that is a Permitted Additional School Facility. In the event DCII and the School determine it to be more efficient or appropriate to enter into a separate lease with respect to any Permitted Additional School Facility in lieu of an amendment as aforesaid, any such additional lease shall, for purposes of this Loan and Trust Agreement, be deemed to be included in the definition of DCII Lease. Debt Service Fund means the fund by that name established pursuant to Section 4.06 hereof. Debt Service Reserve Fund means the fund by that name established pursuant to Section 4.03 hereof. Debt Service Reserve Fund Requirement means with respect to Bonds secured by the Debt Service Reserve Fund an amount equal to the lesser of: (a) ten percent (10%) of the principal amount of such Bonds (or, if such Bonds have more than a de minimis amount (as defined in Treas. Regs (b)) of original issue discount or premium, the issue price (as defined in Treas. Regs (b)) of the Bonds), (b) the Maximum Annual Debt Service on such Bonds, or (c) one hundred twenty-five percent (125%) of the average annual debt service on such Bonds Outstanding. Defeasance Obligations means Government Obligations and obligations described in paragraphs (c) & (e) of the definition of Permitted Investments. DTC means The Depository Trust Company, New York, New York and its successors and assigns. Environmental Damages means all claims, judgments, damages, losses, penalties, fines, liabilities (including strict liability), encumbrances, liens, privileges, costs, and expenses of investigation and defense of any claim, whether or not such claim is ultimately defeated, and of any good faith settlement or judgment, of whatever kind or nature, contingent or otherwise, matured or unmatured, foreseeable or unforeseeable, including without limitation reasonable attorneys fees and expenses and expert consultants fees and disbursements, any of which are incurred at any time as a result of the existence of Regulated Chemicals upon, about, beneath or migrating, or threatening to migrate, onto or from any School Facility, or the existence of a violation of Environmental Requirements pertaining to any School Facility, regardless of whether or not such Environmental Damages were caused by or within the control of either Borrower or the School. Environmental Reports means, collectively, (i) that certain Phase I Environmental Site Assessment Report prepared by Moriarty Environmental Solutions, Inc. dated May 16, 2013; (ii) that certain Phase I Environmental Site Assessment prepared by Environmental Consulting, Inc. dated May 24, 2012; and (iii) that certain Phase I Environmental Site Assessment prepared by Environmental Consulting, Inc. dated May 31, Environmental Requirements means all applicable federal, Commonwealth, regional or local laws, statutes, rules, regulations or ordinances, concerning public health, safety or the environment, including, but not limited to, the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended by the Superfund Amendments and Reauthorization Act of 1986, 42 U.S.C. 9601, et seq., the Solid Waste Disposal Act, as amended by the Resource Conservation and Recovery Act of 1976, as amended by the Solid and Hazardous Waste Amendments of 1984, 42 U.S.C. 6901, et seq., the Federal Water Pollution Control Act, as amended by the Clean Water Act of 1977, 33 U.S.C. 1251, et seq., the Toxic Substances Control Act of 1976, 15 U.S.C. 2601, et seq., the Emergency Planning and Community Right-To-Know Act of 1986, 42 U.S.C , et seq., the Clean Air Act of 1966, as amended, 42 U.S.C. 7401, et seq., the National Environmental Policy Act of 1975, 42 U.S.C. 4321, the Rivers and Harbors Act of 1899, 33 U.S.C. 401 et. seq., the Endangered Species Act of 1973, as amended 16 U.S.C. 1531, et seq., the Occupational Safety and Health Act of 1970, as amended, 29 U.S.C. 651, et. seq., the Safe Drinking Water Act of 1974, as amended 42 U.S.C. 300(f), et. seq., and all rules, regulations, policies and guidance documents promulgated or published thereunder, and any Commonwealth, regional, parish or local statute, law, rule, regulation or ordinance relating to public health, safety or the environment, including, without limitation those relating to: (a) releases, discharges, emissions or disposals to air, water, land or groundwater; (b) the withdrawal or use of groundwater; (c) the use, handling, or disposal of polychlorinated biphenyls ( PCBs ), asbestos or urea formaldehyde; (d) the transportation, treatment, storage, disposal, release or management of hazardous substances or materials (including, without limitation, petroleum, its derivatives, byproducts or other hydrocarbons), and any other solid, liquid, or gaseous substances, exposure to which is prohibited, limited or regulated, or may or could pose a hazard to the health and safety of the occupants of the Mortgaged Property or any property adjacent to or surrounding the Mortgaged Property; (e) the exposure of Persons to toxic, hazardous, or other controlled, prohibited or regulated substances; and (f) any Regulated Chemical. Event of Bankruptcy means (i) either Borrower has commenced a voluntary case under the federal bankruptcy laws, or has become insolvent or unable to pay its debts as they become due, or has made an assignment for the benefit of creditors, or has applied for, consented to or acquiesced in the appointment of, or taking possession by, a trustee, receiver, custodian or similar official or agent for itself or any substantial part of its Property or Pledged Revenues; (ii) a trustee, receiver, custodian or similar official or agent has been appointed for either Borrower or for any substantial part of its Property or Pledged Revenues and either such trustee or receiver has not been discharged within ninety (90) days; or (iii) either Borrower has had an order or decree for relief in an involuntary case under the federal bankruptcy laws entered against it, or a petition seeking reorganization, readjustment, arrangement, composition, or other similar relief as to it under the federal bankruptcy laws or any similar law for the relief of debtors has been brought against it and either such order or decree for relief is not discharged or vacated within ninety (90) days. Event of Default means any one of the events set forth in Section Excess Investment Earnings means the rebate amount determined in accordance with Section 148 of the Code. 6

116 Fiscal Year means the fiscal year ending June 30, or any other fiscal year designated from time to time in writing by the Borrower to the Trustee. Fitch means Fitch Ratings, Inc. Funds means any of the funds established hereunder pursuant to Article IV. General Assets means the Pledged Revenues and any other portion of the Collateral (but specifically excluding the Mortgaged Property and any Permitted Additional School Facility). Generally Accepted Accounting Principles means those accounting principles applicable in the preparation of financial statements of the Borrowers, as promulgated by the Financial Accounting Standards Board or such other body recognized as authoritative by the American Institute of Certified Public Accountants. Where the character or amount of any asset or liability or item of income or expense is required to be determined or any consolidation, combination or other accounting computation is required to be made for the purposes of this Agreement, the Lease or any agreement, document or certificate executed and delivered in connection with or pursuant to this Agreement, such determination or computation shall be done in accordance with Generally Accepted Accounting Principles at the time in effect, to the extent applicable, consistently applied; provided, that with respect to financial calculations with respect to the Borrower hereunder or the School under the Lease, Generally Accepted Accounting Principles as in effect at the time of the original execution hereof shall apply to the extent required to reflect the original intent of this Agreement. Governing Body means, with respect to each Borrower, its board of directors, board of trustees, or other board or group of individuals in which the power to direct the management and policies of each Borrower are vested. Government Obligations means obligations of, or obligations the timely payment of the principal of and interest on which are unconditionally guaranteed by, the United States of America (including obligations issued or held in book-entry form on the books of the Department of the Treasury or any Federal Reserve Bank). Guaranty means all obligations of either Borrower or the School, respectively, guaranteeing in any manner, whether directly or indirectly, any obligation of any other Person which would, if such other Person were the Borrower or the School, constitute Indebtedness hereunder or under the Lease with respect to the School. Holder, Owner or Registered Owner means the registered owner of any of the Obligations from time to time as shown in the books kept by the Trustee as registrar and transfer agent. Indebtedness means all indebtedness of the Borrowers for borrowed moneys, whether long-term or short-term, parity or subordinate, secured or unsecured, including (without limitation) any indebtedness which has been incurred or assumed in connection with the 2013 Project, all indebtedness, no matter how created, secured by the 2013 Project or the Pledged 7 Revenues, whether or not such indebtedness is assumed by the Borrower, any leases required to be capitalized in accordance with Generally Accepted Accounting Principles, installment purchase obligations, guaranties or Interest Rate Hedges. Nothing in this definition or otherwise shall be construed to count Indebtedness more than once, and Indebtedness incurred pursuant to a Credit Facility shall be counted only to the extent the reimbursement obligation on amounts drawn or, in the reasonable judgment of the Borrowers, likely to be drawn, on the Credit Facility exceeds the obligation on the Indebtedness for which such Credit Facility is provided. Insurance Consultant means an independent firm of insurance agents, brokers or consultants which is appointed by the Borrowers and is not unsatisfactory to the Trustee or the Authority, for the purpose of reviewing and recommending insurance coverage for the Mortgaged Property and operations of the Borrowers, and has a favorable reputation for skill and experience in performing such services in respect of property and operations of a comparable size and nature to the Mortgaged Property. Interest Payment Date means each June 15 and December 15, commencing December 15, 2013; provided that, if any such date is not a Business Day, any payment due on such date may be made on the next Business Day without additional interest and with the same force and effect as if made on the specified date for such payment. Interest Rate Hedge means an agreement, expressly identified in an Officer s Certificate delivered to the Trustee as being entered into one or more Borrowers in order to hedge the interest payable on all or a portion of any Indebtedness, which agreement may include, without limitation, an interest rate swap, a forward or futures contract or an option (e.g. a call, put, cap, floor or collar) and which agreement does not constitute an obligation to repay money borrowed, credit extended or the equivalent thereof. Interested Holder means (i) the Owner of $1,000,000 or more in aggregate principal amount of the Bonds; and (ii) any other Holder who has filed a written request with the Trustee to receive all reports delivered to the Trustee hereunder. Lease means, individually, each of the DC Lease and the DCII Lease and, Leases means, collectively, both of the DC Lease and the DCII Lease. Lien means any mortgage or pledge of, security interest in, or lien or encumbrance on, any property which secures any indebtedness or other obligation of a Borrower or which secures any obligation of any Person other than an obligation to a Borrower excluding liens applicable to property in which a Borrower has only a leasehold interest unless the lien secures Indebtedness. Loan Payments means the repayments of the Loan set forth in Section 5.01(a) hereof. Long-Term Indebtedness means: (i) Indebtedness with respect to money borrowed for an original term, or renewable at the option of a Borrower for a period from the date originally incurred, longer than one year; (ii) Indebtedness with respect to leases which are capitalized in accordance with Generally Accepted Accounting Principles having an original 8 term, or renewable at the option of the lessee for a period from the date originally incurred, longer than one year; and (iii) Indebtedness with respect to installment purchase contracts having an original term in excess of one year. Management Company means an independent professional firm or corporation, hired by the Governing Body to manage the charter school in the future. It shall not include a financial advisory or accounting firm or a Management Consultant engaged pursuant to the terms hereof. Management Company Fees means any management fees to be paid to the Management Company as set forth in any management company contract between the School and the Management Company. Management Consultant means an independent professional firm, corporation or Person engaged by the Borrowers and reasonably acceptable to a majority of Holders (with written notice of the engagement to the Trustee) as may be required by the provisions hereof. Maximum Annual Debt Service Requirements means, as of the date of calculation, the highest of (i) the annual Debt Service Requirements payable during the then current Fiscal Year, or (ii) in the case of a calculation with respect to any prior Fiscal Year, the annual Debt Service Requirements payable in such prior Fiscal Year, or (iii) the annual Debt Service Requirements payable during any succeeding Fiscal Year over the remaining term of all Obligations issued hereunder; provided that (i) during any period when all or a portion of the Debt Service Requirements on specific Indebtedness are paid from the proceeds thereof or from a Qualified Escrow, the Maximum Annual Debt Service Requirements on such Indebtedness shall be disregarded, and (ii) the Debt Service Requirements during the last year of any Indebtedness shall be disregarded to the extent that funds held in a debt service reserve fund established for such Indebtedness are expected to be applied to the payment of such Debt Service Requirements. Monthly Disbursement Date means a date not later than one Business Day after receipt by the Trustee of School District Payments from the School District of Philadelphia (but in no event later than the 10 th day of each month). Moody s means Moody s Investors Service, Inc. Mortgaged Property means the real and personal property as defined in the Mortgage. Mortgage means, collectively, those certain Open-End Mortgages, Assignments of Leases, Security Agreement and Fixture Filing, dated as of the date hereof, by which each Borrower has granted to the Trustee a lien on and security interest in each School Facility, and if and when applicable, any Permitted Additional School Facility, and an assignment of the Borrowers rights under the Lease as security for the Obligations, as it may be amended, restored, supplemented or otherwise modified from time to time, including any spreader agreement granted to Trustee to cause the lien of the Mortgage to encumber additional Property of the Borrowers. In the event either Borrower determines it to be more efficient or 9 appropriate to grant a separate mortgage in favor of the Trustee in lieu of a spreader agreement as aforesaid, any such additional mortgage granted to Trustee as security for the Obligations hereunder shall, for purposes of this Loan and Trust Agreement, be deemed to be included in the definition of Mortgage. Obligations means the Bonds, all Parity Bonds and Parity Indebtedness issued under and/or authorized by this Loan and Trust Agreement. Officer s Certificate means a certificate signed by an Authorized Officer of each Borrower, unless specific reference is made to an Officer s Certificate of the School. Any Officer s Certificate which (i) relates to any financial test or ratio shall set forth the computations involved in showing compliance with such test or ratio and the assumptions or evidence used as a basis for the figures used in making such computation and shall be approved by a third party certified public accountant or firm of certified public accountants selected by Borrowers; (ii) relates to repairs, replacements, construction, reconstruction or restoration of the 2013 Project or any Capital Addition shall be approved by a certified engineer or other firm or Person selected by the Borrowers with recognized expertise in construction and shall set forth the basis for the findings set forth therein; or (iii) relates to the operations of the Borrowers or the School shall be approved by a Management Consultant selected by the Borrowers and shall set forth the basis for the findings set forth therein. Official Statement means the Official Statement prepared in connection with the offer and sale of the Bonds. Operating Expenses means fees and operating expenses of the Borrowers, including maintenance, repair expenses, utility expenses, real estate taxes, insurance premiums, administrative and legal expenses, miscellaneous operating expenses including fees paid to a Management Company, advertising and promotion costs, payroll expenses (including taxes), the cost of material and supplies used for current operations of the Borrowers, the cost of vehicles, equipment leases and service contracts, taxes upon the operations of the Borrowers not otherwise mentioned herein, charges for the accumulation of appropriate reserves for current expenses not annually recurrent, but which are such as may reasonably be expected to be incurred in accordance with Generally Accepted Accounting Principles, all in such amounts as reasonably determined by the Borrowers; provided, however, Operating Expenses shall not include (i) those expenses which are actually paid from any revenues of the Borrowers which are not Pledged Revenues, (ii) amounts paid from moneys in the Repair and Replacement Fund, (iii) except as provided above in this definition, charges for the accumulation of appropriate reserves or (iv) those expenses which are actually paid with the proceeds of any transfers from the unrestricted fund balance of either Borrower. Opinion of Bond Counsel means an opinion of Bond Counsel who is satisfactory to the Authority and not unsatisfactory to the Trustee. Opinion of Counsel means a written opinion of Counsel. Outstanding when used to modify Obligations, refers to Bonds, Parity Indebtedness and Subordinated Obligations issued under or secured by this Loan and Trust 10

117 Agreement, excluding: (i) Obligations which have been exchanged or replaced, or delivered to the Trustee for credit against a sinking fund installment; (ii) Obligations which have been paid; (iii) Obligations which have become due and for the payment of which moneys have been duly provided to the Trustee; and (iv) Obligations for which there have been irrevocably set aside with the Trustee sufficient funds, or obligations described in Section 2.04 hereof bearing interest at such rates and with such maturities as will provide sufficient funds, to pay the principal or redemption price of and interest on such Obligations; provided, however, that if any such Obligations are to be redeemed prior to maturity, the Authority or the Borrowers, as the case may be, shall have taken all action necessary to redeem such Obligations and notice of such redemption shall have been duly mailed in accordance with this Loan and Trust Agreement or irrevocable instructions so to mail shall have been given to the Trustee. When used to modify other Indebtedness, Outstanding refers to Indebtedness which as of such date remains unpaid except Indebtedness for the payment or redemption of which sufficient moneys have been deposited prior to such date in trust for the holders of such Indebtedness (whether upon or prior to the maturity or redemption date of any such Indebtedness), or which is certified by the Borrowers Accountant to have been paid pursuant to the provisions of the documents securing such Indebtedness; provided that if such Indebtedness is to be redeemed prior to the maturity thereof, notice of such redemption shall have been given or irrevocable arrangements shall have been made therefor. Parity Bonds means any bonds issued by the Authority pursuant to Section 3.03 and secured on a parity basis with the Obligations by a lien upon the Pledged Revenues and the Mortgage, and, to the extent set forth in any Supplemental Agreement relating thereto, one or more of the funds established under this Loan and Trust Agreement (excluding the Rebate Fund established with respect to the 2013 Bonds), as provided herein. Parity Indebtedness means any Indebtedness of the Borrowers which is issued or incurred pursuant to Section 3.03 and secured on a parity basis with the Obligations and any issue of Parity Bonds; and which Parity Indebtedness may also be secured by a lien upon the Pledged Revenues and the Mortgage, and, to the extent set forth in any Supplemental Agreement relating thereto, one or more of the funds established under this Loan and Trust Agreement (excluding the Rebate Fund established with respect to the 2013 Bonds) on a parity basis with any Obligations, and includes any Interest Rate Hedge as permitted by Section Permitted Additional Project means a project the sole purpose of which is to construct or renovate a Permitted Additional School Facility, and pay costs related to the Permitted Additional School Facility or its financing. Permitted Additional School Facility means any additional school facility acquired or constructed by or for the benefit of the School and owned by one or more of the Borrowers and subject to a leasehold interest held by the School which is undertaken by the Borrowers following the Borrower s demonstration of compliance with the provisions of Section 7.13(a) hereof. 11 Permitted Investments means any of the following that at the time are lawful investments under the laws of the Commonwealth for the money held under this Loan and Trust Agreement: (a) Government Obligations; (b) REFCORP Interest Strips; (c) direct obligations and fully guaranteed certificates of beneficial interest of the Export-Import Bank of the United States; consolidated debt obligations and letter of creditbacked issues of the Federal Home Loan Banks; participation certificates and senior debt obligations of the Federal Home Loan Mortgage Corporation ( FHLMCs ); debentures of the Federal Housing Administration; mortgage-backed securities (except stripped mortgage securities which are valued greater than par on the portion of unpaid principal) and senior debt obligations of the Federal National Mortgage Association ( Fannie Maes ); participation certificates of the General Services Administration; guaranteed mortgage-backed securities and guaranteed participation certificates of the Government National Mortgage Association ( GNMAs ); guaranteed participation certificates and guaranteed pool certificates of the Small Business Administration; debt obligations and letter of credit backed issues of the Student Loan Marketing Association; local authority bonds of the U.S. Department of Housing & Urban Development; or guaranteed Title XI financings of the U.S. Maritime Administration; (d) federal funds, unsecured certificates of deposit, time and demand deposits or bankers acceptances (in each case having maturities of not more than three hundred sixty five (365) days) of any domestic bank including a branch office of a foreign bank which branch office is located in the United States (which may include the Trustee or any of its affiliates) having a combined capital and surplus of not less than $50,000,000, which, at the time of purchase, has a short-term Bank Deposit rating of P-1 by Moody s or a Short-Term CD rating of A-1 or better by S&P; provided, however, that deposits placed pursuant to the provisions of this paragraph (d) which are insured by the Federal Deposit Insurance Corporation may be placed with any bank regardless of that institution s rating; (e) (i) Pre Refunded Municipal Obligations and (ii) direct obligations of, or obligations the principal of and interest on which are fully and unconditionally guaranteed by, any state of the United States of America or any political subdivision or agency thereof, whose unsecured, uninsured and unguaranteed general obligation debt is rated, at the time of purchase, A or better by Moody s and A or better by S&P (or, if the relevant Bonds are at the time rated by S&P, rated at least as high as the long-term rating assigned to such Bonds by S&P); (f) commercial paper having original maturities of not more than two hundred seventy (270) days rated, at the time of purchase, P-1 by Moody s and A-1 or better by S&P; (g) repurchase agreements collateralized by securities listed in (a), (b) or (c) above with any counterparty whose rating or whose guarantor s rating is at least A3 or better by Moody s, A- or better by S&P, or A3 or better by Fitch at the date that it enters into the repurchase agreement provided: (i) a master repurchase agreement or specific written repurchase agreement governs the transaction; (ii) the securities are held by the Trustee or any of its 12 affiliates, or an independent third party acting solely as agent (the Agent ) for the Trustee free and clear of any lien, and such agent is (1) a Federal Reserve Bank or (2) a bank which is a member of the Federal Deposit Insurance Corporation and which has combined capital, surplus and undivided profits of not less than $50,000,000, and the Trustee shall have received written confirmation from such agent that it holds such securities, free and clear of any lien, as agent for the Trustee; (iii) a perfected first security interest under the Uniform Commercial Code, or book entry procedures prescribed at 31 C.F.R et seq. or 31 C.F.R et seq. in such securities is created for the benefit of the Trustee; (iv) the Trustee or any of its affiliates or the Agent will value the collateral securities no less frequently than weekly and will liquidate the collateral securities if any deficiency in the required collateral percentage established in the repurchase agreement is not restored within two Business Days of such valuation; (v) the repurchase agreement provides for specific remedies upon the provider s rating downgrade below A- by S&P, A3 by Moody s and A- by Fitch; and (vi) the fair market value of the collateral securities in relation to the amount of the repurchase obligation, including principal and interest, is at least equal to one hundred two percent (102%) for Government Obligations and one hundred three percent (103%) for all other securities; (h) Investments in money market funds subject to SEC Rule 2a-7 and rated in the highest short-term rating category of at least two nationally recognized rating agencies, including, without limitation, mutual funds for which the Trustee or an affiliate of the Trustee serves as investment manager, administrator, shareholder servicing agent, and/or custodian or subcustodian, notwithstanding that (i) the Trustee or an affiliate of the Trustee receives fees from such funds for services rendered, (ii) the Trustee charges and collects fees for services rendered pursuant to this Loan and Trust Agreement, which fees are separate from the fees received from such funds, and (iii) services performed for such funds and pursuant to this Loan and Trust Agreement may at times duplicate those provided to such funds by the Trustee or its affiliates; and (i) guaranteed investment contracts with a bank, insurance company or other financial institution, including the Trustee or any affiliate of the Trustee, whose letters of credit, other credit facilities or unsecured obligations are rated, or guaranteed by an entity rated in one of the three highest rating categories by Moody s or S&P.Investment agreements secured by other Permitted Investments. (j) Any other investment as to which the Borrowers have received written confirmation that the use of such investment will not result in the downgrade or withdrawal by S&P of its rating for the Bonds. The value of the above investments, other than cash, when required to be determined hereunder, shall be calculated as follows: (a) the bid price published by a nationally recognized pricing service; (b) as to certificates of deposit and bankers acceptances: the face amount thereof, plus accrued interest; and (c) as to any investment not specified above: the value thereof established by prior agreement between the Borrower and the Trustee. Permitted Liens means (a) any lien arising by reason of any deposit with or giving of security to any governmental agency as a condition to the transaction of any business or the participation by either Borrower in any funds established to cover insurance risks or in connection with workers compensation, unemployment compensation, pension plans or other social security; (b) any judgment lien or liens against either Borrower, not exceeding $100,000 in the aggregate at any time, which is being diligently contested in good faith and is fully bonded or covered by insurance and execution thereof is stayed; (c) any lien for taxes, assessments or other municipal charges, not due and payable and not delinquent; (d) any easements, rights of way, servitudes, restrictions and other matters as may be described expressly in exceptions to the Trustee s policy of title insurance insuring the Mortgage; (e) any Permitted School Financing Lien; and (g) any lien granted to the Trustee under this Agreement or the Mortgage. Permitted School Financing means Indebtedness incurred by one or more Borrowers to finance, or, in the case of a capital lease obligation of one or more Borrowers constituting Indebtedness, to facilitate the financing of, the construction or acquisition of a Permitted Additional School Facility, Permitted Additional Project or Interest Rate Hedge incurred in connection therewith, provided (in addition to any other requirements for such Indebtedness applicable under any other provision of this Agreement): (A) such is incurred in the ordinary course of the Borrower s activities; and (B) upon the request of Trustee, Borrowers shall deliver to Trustee, a true and complete counterpart of the closing agenda and binder with true and complete copies of all closing documents for such financing. Permitted School Financing Lien means a Lien securing Permitted School Financing to the extent that it covers each applicable Borrower s General Assets or Property on a parity basis with the Liens in such assets securing the Obligations and is granted only in accordance with the terms and conditions of this Agreement. Person or words importing persons means firms, associations, partnerships (including without limitation general and limited partnerships), joint ventures, societies, estates, trusts, corporations, public or governmental bodies, other legal entities and natural persons. Pledged Revenues means, regardless of the source, all revenues, rentals, fees, third-party payments, receipts, unrestricted donations, unrestricted contributions or other income of the Borrowers, to the extent the pledge of such items is permitted by the terms thereof and by law, including all the rights to receive such revenues (each subject to Permitted Liens), all as calculated in accordance with Generally Accepted Accounting Principles, including, without limitation, School District Payments (whether paid by or for the benefit of the School to the Borrower or to the Trustee on behalf of the Borrower), federal grants and aid, extended daycare, food services, sales proceeds derived from insurance, condemnation proceeds, accounts, contract rights and other rights, whether now or hereafter owned, held or possessed by the Borrowers, and all gifts, grants, bequests and contributions (including income and profits therefrom). Pre Refunded Municipal Obligations means any bonds or other obligations of any state of the United States of America or of any agency, instrumentality or local governmental unit of any such state which are not callable at the option of the obligor prior to maturity or as to which irrevocable instructions have been given by the obligor to call on a date certain specified in such instructions, and (a) which are rated, based on the escrow described below, in the rating category of S&P and Moody s applicable to direct obligations of the United States of America or 13 14

118 higher, and (b) which are fully secured as to principal and interest and redemption premium, if any, by an escrow fund consisting only of cash or Government Obligations, which escrow fund may be applied only to the payment of such principal of and interest and redemption premium, if any, on such bonds or other obligations on the maturity date or dates thereof or the specified redemption date or dates pursuant to such irrevocable instructions, as appropriate, and which escrow fund is sufficient, as verified by a firm of independent public accountants, to pay principal of and interest and redemption premium, if any, on such bonds or other obligations on the maturity date or dates thereof or on the redemption date or dates specified in the irrevocable instructions referred to above, as appropriate. Project Fund means the fund by that name established pursuant to Section Property means any and all assets, land, leasehold interests, buildings, machinery, equipment, hardware, and inventory of a Borrower, wherever located and whether now or hereafter acquired, any and all rights, titles and interest in and to any and all tangible property of such Borrower, whether real or personal, and wherever situated and whether now or hereafter acquired. Qualified Escrow shall mean a segregated escrow fund or other similar fund or account which (a) is irrevocably established as security for Long-Term Indebtedness previously incurred and then outstanding ( Prior Indebtedness ) or for Long-Term Indebtedness, if any, then to be incurred to refund outstanding Prior Indebtedness ( Refunding Indebtedness ), (b) is held by the holder of the Prior Indebtedness or Refunding Indebtedness secured thereby or by a trustee or agent acting on behalf of such holder and is subject to a perfected security interest in favor of such holder, trustee or agent, (c) is held in cash or invested in obligations described in subparagraph (a) or (c) of the definition of Permitted Investments and (d) is required by the documents establishing such fund or account to be applied toward the Borrowers payment obligations in respect of the Prior Indebtedness; provided that a debt service reserve fund or other special fund held for the security of Indebtedness shall not constitute a Qualified Escrow except to the extent such fund is available for use as a credit toward the Borrowers payments under such Indebtedness; and provided further, that if the fund or account is funded in whole or in part with the proceeds of Refunding Indebtedness, the documents establishing the same may require specified payments of principal or interest (or both) in respect of the Refunding Indebtedness to be made from the fund or account prior to the date on which the Prior Indebtedness is repaid in full. Rating Agency means Moody s, S&P or Fitch, and, if any such Rating Agency shall be dissolved or liquidated or shall no longer perform the functions of a securities rating agency, it may shall be deemed to refer to any other nationally recognized rating agency designated by the Borrowers, by written notice to the Trustee. Rebate Analyst means a firm of investment bankers, financial advisors, a law firm or an accounting firm which is experienced in the calculation of the rebate amounts under Section 148(f) of the Code. 15 Rebate Fund means the fund by that name established pursuant to Section REFCORP Interest Strips means non-callable evidences of ownership in future interest payments from REFCORPS. REFCORPS means obligations issued by the Resolution Funding Corporation pursuant to the Financial Institutions Reform, Recovery and Enforcement Act of 1989, as amended (the FIRRE Act ), (i) the principal of which obligations is payable when due from payments of the maturing principal of non-interest bearing direct obligations of the United States of America which are issued by the Secretary of the Treasury and deposited in the Funding Corporation Principal Fund established pursuant to the FIRRE Act, and (ii) the interest on which obligations, to the extent not paid from other specified sources, is payable when due by the Secretary of the Treasury of the United States of America pursuant to the FIRRE Act. Regular Record Date has the meaning given to such term in Section 3.01(a)(ii) hereof. Regulated Chemical means any substance, the presence of which requires investigation, permitting, control or remediation under any federal, Commonwealth or local statute, regulation, ordinance or order, including without limitation: (a) any substance defined as hazardous waste under the Resource Conservation and Recovery Act, as amended (42 U.S.C et seq.); (b) any substance defined as a hazardous substance under the Comprehensive Environmental Response, Compensation and Liability Act, as amended (42 U.S.C et seq.); (c) any substance defined as a hazardous material under the Hazardous Materials Transportation Act (49 U.S.C et seq.); (d) any substance defined under any Pennsylvania statute analogous to (a), (b) or (c), to the extent that said statute defines any term more expansively; (e) asbestos; (f) urea formaldehyde; (g) polychlorinated biphenyls; (h) petroleum, or any distillate or fraction thereof; (i) any hazardous or toxic substance designated pursuant to the laws of the Commonwealth; and (j) any other chemical, material or substance, exposure to which is prohibited, limited or regulated by any governmental authority. Regulatory Body means any federal, state or local government, department, agency, authority or instrumentality (other than the Authority) and other public or private body, including accrediting organizations, having regulatory jurisdiction and authority over the Borrower or its Property or operations. Related Bond Documents means the Bond Purchase Agreement by and among the Authority, the Borrowers, the School and the Underwriter named therein providing for the purchase and sale of the Bonds, the Lease, the Mortgage, the Tax Certificate and any other document relating to the Bonds, the security therefor or the federal tax-exempt status thereof. Repair and Replacement Fund means the fund by that name established pursuant to Section 4.04 hereof. Repair and Replacement Fund Requirement shall be initially $600,000, when fully funded, but upon the issuance of additional Obligations under this Loan and Trust 16 Agreement, shall be increased by an amount specified in any Supplemental Agreement relating to the issuance of such additional Obligations. Borrowers obligation to establish or replenish the Repair and Replacement Fund shall be payable by Borrowers in incremental installments as set forth in Section 4.04 hereof, which installments shall initially be $10,000, but shall be increased proportionately upon the issuance of additional Obligations. Revenue Fund means the fund by that name established pursuant to Section 4.02 hereof. S&P means Standard & Poor s Rating Services, a division of The McGraw-Hill Companies, Inc. School District means a school district in the Commonwealth in which resides the parents or the guardians of a child who is enrolled in the School and who is included in the average daily membership of the school district for the purpose of providing basic education funding and special education funding payments to the School. School District Payments means any and all payments made by the School Districts which are permitted to be used as Pledged Revenues, as the same may be amended, modified or replaced. School Revenues shall have the meaning given such term in the Lease. Short-Term Indebtedness means all Indebtedness, other than Long-Term Indebtedness, included in the following: (i) Indebtedness with respect to money borrowed payable on demand or for an original term, or renewable at the option of the Borrowers for a period from the date originally incurred, of one year or less, (ii) a reimbursement obligation to a financial institution issuing a letter of credit on behalf of the Borrowers, or (iii) Indebtedness with respect to installment purchase contracts having an original term of one year or less (other than contracts entered into in the ordinary course of business). Subordinated Obligations means Indebtedness the security for and the payment of which is junior and subordinate in all respects to the security for and the payment provided with respect to Obligations issued hereunder which is issued or incurred pursuant to Section 3.01(d). Supplemental Agreement means any indenture, loan agreement, financing document or other loan and trust agreement amending or supplementing the terms of this Loan and Trust Agreement or providing for the issuance or securing of Obligations. Tax Certificate means the Tax Certificate as to Arbitrage and the provisions of Sections 103 and of the Internal Revenue Code of 1986, dated the closing date of the purchase of the Bonds. Tax-Exempt Bonds means, collectively (i) the 2013 Bonds, and (ii) any other Bonds issued under this Loan and Trust Agreement, the interest on which is excludable from gross income for federal income tax purposes as of the date of issuance of such Bonds. 17 Trust Estate means the property, rights, money, securities and other amounts pledged and assigned pursuant to this Loan and Trust Agreement. Underwriter means George K. Baum & Company and its successors. Uniform Commercial Code means the Uniform Commercial Code, as amended, as in effect in the Commonwealth. The singular and plural forms of words shall be deemed interchangeable wherever appropriate. Section 1.02 Accounting Principles. Where the character or amount of any asset or liability or item of income or expense is required to be determined or any consolidation, combination or other accounting computation is required to be made for the purposes of this Loan and Trust Agreement or any agreement, document or certificate executed and delivered in connection with or pursuant to this Loan and Trust Agreement, such determination or computation shall be done in accordance with Generally Accepted Accounting Principles at the time in effect, to the extent applicable, consistently applied. ARTICLE II ASSIGNMENT AND PLEDGE OF SECURITY Section 2.01 Assignment and Pledge of the Authority. The Authority assigns and pledges to the Trustee, without recourse, in trust upon the terms hereof and grants to the Trustee a continuing security interest in (a) the rights, title and interest of the Authority under this Loan and Trust Agreement, (b) all of the Authority s rights, whether currently existing or hereafter acquired, to enforce any loan or loans of proceeds of Bonds made by the Authority to the Borrowers pursuant to the terms of this Loan and Trust Agreement, and (c) all revenues to be received from the Borrowers and all funds and investments held from time to time in the Funds established under this Loan and Trust Agreement; but not including funds received by the Authority for its own use, whether as administrative fees, reimbursement or indemnification, and the rights thereto. The Borrowers join in the pledge of, and grant a security interest in, such funds and investments to the extent of its interest therein. The assignment, pledge and security interest described in this Section is for the benefit, security and protection of the Holders of the Obligations and the Trustee without privilege, priority or distinction as to the lien or otherwise of any Obligation over any other Obligation of the same series; provided, however, that funds and investments held (i) in the Rebate Fund shall not be pledged to the Obligations and shall be applied solely as provided herein, and (ii) in the Debt Service Reserve Fund shall be held and applied as herein provided solely for the security and benefit of the Holders of the Obligations secured by such Debt Service Reserve Fund. Section 2.02 Security Interest in Pledged Revenues. (a) As additional security for the obligation of the Borrowers to make all payments due, and to perform all obligations, under this Loan and Trust Agreement, and for the benefit and security of all Obligations issued hereunder, each Borrower grants to the Trustee a security interest in its Pledged Revenues and any rights to receive such Pledged Revenues. Such security interest shall not restrict the right of the Borrowers to apply its respective Pledged Revenues in such manner and for such purposes as 18

119 it deems appropriate so long as no Event of Default has occurred and is continuing. The Borrowers covenant that whenever any Event of Default under Section 8.01(a) shall have occurred and be continuing, the Borrowers shall deliver daily to the Trustee, or permit the Trustee to collect directly, so far as practicable, all of the Pledged Revenues for deposit in the Revenue Fund until the total amount of the Pledged Revenues so delivered shall equal the amount then due and payable hereunder, at which time, provided no Event of Default shall be continuing, the Borrowers may suspend the delivery of the Pledged Revenues. Each Borrower represents and warrants that the lien granted hereby with respect to its Pledged Revenues is and at all times will be a first lien, subject only to Permitted Liens. The Borrowers have also granted to the Trustee a security interest in the Mortgaged Property. The assignment, pledge and security interest described in this Section is for the benefit, security and protection of the Holders of the Obligations and the Trustee. (b) As additional security for the obligation of the Borrowers to make all payments due, and to perform all obligations under this Loan and Trust Agreement, and for the benefit and security of all Obligations hereunder, the Borrowers have caused the School, pursuant to the Lease, to grant to each Borrower a security interest in the Collateral, including without limitation, all School Revenues. The Borrowers have further caused the School to direct that at least ninety-five percent (95%) of the School Revenues of the School be deposited with the Trustee. Except as otherwise provided herein, the Collateral shall be collected, held and applied for the equal and ratable benefit and security of the Obligations. Section 2.03 Further Assurances. The Authority and the Borrowers shall cause this Loan and Trust Agreement or a financing statement or memorandum relating thereto to be filed, registered and recorded in such manner and at such places as may be required by law fully to protect the security of the Holders of the obligations and the right, title and interest of the Trustee in and to the trust estate or any part thereof. From time to time, as reasonably requested by the Authority or the Trustee, the Borrowers shall obtain an Opinion of Counsel and furnish a signed copy thereof to the Trustee and the Authority, setting forth what, if any, actions by the Borrowers, Authority or Trustee should be taken to preserve such security. The Authority and the Borrowers shall perform or shall cause to be performed any such acts, and execute and cause to be executed any and all further instruments as may be required by law for such protection of the interests of the Trustee and the Holders of the Obligations, and shall furnish satisfactory evidence to the Authority and the Trustee of recording, registering, filing and re-filing of such instrument and of every additional instrument which shall be necessary to preserve the lien of this Loan and Trust Agreement upon the trust estate or any part thereof until the principal of and interest on the Obligations secured hereby shall have been paid. The Trustee shall execute or join in the execution of any such further or additional instrument at such time or times as it may be advised by an Opinion of Counsel delivered to it by the Borrowers or the Authority which will preserve the lien of this Agreement upon the trust estate or any part thereof until the Obligations shall have been paid. Section 2.04 Deposit of Funds For Payment of Obligations; Defeasance. Except as otherwise provided in Section 2.05, when the Obligations have been paid or redeemed in full as provided in this Loan and Trust Agreement, or after there have been deposited with the Trustee sufficient cash, or cash invested in Defeasance Obligations in such principal amounts, 19 bearing interest at such rates and with such maturities as will provide sufficient funds to pay the principal or redemption price of and interest on the Obligations as the same shall become due and payable, and when all the rights hereunder of the Authority, the Holders of the Obligations and the Trustee have been provided for, and all other Obligations secured hereby have been paid in full, the Holders of the Obligations shall cease to be entitled to any benefit or security under this Loan and Trust Agreement except the right to receive payment of the cash deposited and held for payment and other rights which by their nature cannot be satisfied prior to or simultaneously with termination of the lien hereof, the security interests created by this Loan and Trust Agreement (except in such funds and investments) shall terminate, and the Authority and the Trustee shall execute and deliver such instruments as may be necessary to discharge the lien and security interests created by this Loan and Trust Agreement; provided, however, that if any such Obligations are to be redeemed prior to the maturity thereof, the Borrowers shall have taken all action necessary to redeem such obligations and notice of such redemption shall have been duly given in accordance with this Loan and Trust Agreement or irrevocable instructions therefor shall have been given to the Trustee and provided further that the lien and security interests created under this Loan and Trust Agreement for the benefit of Holders of Obligations remaining Outstanding shall survive such defeasance (but shall terminate with respect to any series of Obligations on the date on which the same is no longer Outstanding). Upon such defeasance, the cash and Defeasance Obligations required to pay or redeem the Obligations in full shall be irrevocably set aside for such purpose, and moneys held for defeasance shall be invested only as provided above in this section or pursuant to an escrow agreement. Any funds or property held by the Trustee and not required for payment or redemption of the Obligations in full, the Trustee s outstanding fees and expenses, if any, or for payment of rebate obligations pursuant to Section 4.05 shall, after satisfaction of all the rights of the Authority, the Holders and the Trustee, be distributed pursuant to the instructions of the Borrowers upon such notification, if any, as the Trustee (or the Authority in the case of Bonds) may reasonably require and upon receipt by the Trustee of an Opinion of Bond Counsel that such distribution will not adversely affect the exclusion from gross income under Section 103 of the Code of interest paid on the Tax-Exempt Bonds. If the Authority or the Borrowers deposit with the Trustee money or Defeasance Obligations sufficient to pay the principal or redemption price of any particular Obligation or Obligations becoming due, either at maturity or by call for redemption or otherwise, together with all interest accruing thereon to the due date, interest on such Obligation or Obligations shall cease to accrue on the due date and all liability of the Authority or the Borrowers, as the case may be, shall cease to accrue on the due date and all liability of the Authority or the Borrowers, as the case may be, with respect to such Obligation or Obligations shall likewise cease. Thereafter, such Obligation or Obligations shall be deemed not to be Outstanding hereunder and the Holder or Holders of such Obligations shall be restricted exclusively to the cash so deposited for any claim of whatsoever nature with respect to such Obligation or Obligations, and the Trustee shall hold such funds in trust for such Holder or Holders. Section 2.05 Defeasance. In connection with the defeasance of the Bonds, the Borrowers shall deliver the following: (a) a verification report of an Accountant reasonably acceptable to the Authority and the Trustee as to the sufficiency of the cash and Defeasance Obligations deposited with the Trustee pursuant to Section 2.04 above; and (b) an escrow 20 agreement providing that: (i) if such escrow agreement permits the substitution of securities, any such substitution of securities shall require a verification of an Accountant or a nationally recognized firm with experience preparing verification reports; and (ii) the Authority, the School and the Borrowers will not exercise any optional redemption of the Bonds inconsistent with the provisions of the escrow agreement. ARTICLE III THE OBLIGATIONS Section 3.01 (a) The 2013 Bonds. Details of the 2013 Bonds. (i) The 2013 Bonds are hereby authorized to be issued and shall be designated as $55,500,000 Philadelphia Authority for Industrial Development Revenue Bonds (Philadelphia Performing Arts Charter School Project) Series of The 2013 Bonds shall be issued in fully registered form and shall be in substantially the form set forth in Exhibit A hereto. The 2013 Bonds shall be numbered consecutively from R-1 upwards bearing numbers not then contemporaneously outstanding (in order of issuance). The 2013 Bonds shall be issued in denominations of One Hundred Thousand Dollars ($100,000) and integral multiples of Five Thousand Dollars ($5,000) thereof. The 2013 Bonds shall mature on June 15 th of the years and in the principal amounts and bear interest at the rates as follows: Year: Interest Rate: Principal Amount: % $6,600, % $15,350, % $33,550,000 (ii) The principal or redemption price of each Bond shall be payable at maturity or upon redemption upon surrender thereof at the designated corporate trust office of the Trustee and, at the election of any Holder of Bonds who owns $1,000,000 or more in principal amount of such Bonds, may be paid by wire transfer to any account in the United States of America if written instructions satisfactory to the Trustee in its sole discretion are delivered to the Trustee at least two (2) Business Days prior to the surrender of such Bonds. Such payments shall be made to the Holder of the Bonds so surrendered, as shown on the registration books of the Authority on the date of payment. The Bonds shall be dated as of the date of initial issuance thereof and interest shall accrue on such Bonds from that date or, as to any Bonds issued after the initial delivery of the Bonds, from the Interest Payment Date next preceding the date of its authentication or from the date of its authentication if authenticated upon an Interest Payment Date or from the succeeding Interest Payment Date if authenticated after a Regular Record Date and before such succeeding Interest Payment Date; provided that, if the date of authentication is 21 prior to the Regular Record Date for the first Interest Payment Date, interest on any Bonds shall accrue from the date of initial issuance thereof; and provided further that if at the time of authentication of any Bond interest thereon is in default, interest on such Bonds shall accrue from the date to which interest has been paid or, if the first interest payment is in default, from the date of initial issuance thereof. The interest on the Bonds until they come due shall be payable on each Interest Payment Date. Interest on the Bonds shall be computed on the basis of a 360-day year consisting of twelve 30 day months. (iii) The interest due on any Bonds on any scheduled Interest Payment Date shall be paid by check mailed on the applicable Interest Payment Date to the Holder of such Bonds as shown on the registration books kept by the Trustee as of the close of business on the Regular Record Date. The Regular Record Date for payment of interest due on June 15 and December 15 of each year is the May 31 or November 30 immediately preceding the scheduled Interest Payment Date. At the election of any Holder of Bonds who owns $1,000,000 or more in principal amount of Bonds, such interest may be paid by wire transfer to any account in the United States of America if written instructions satisfactory to the Trustee in its sole discretion are delivered to the Trustee at least two (2) Business Days prior to the Regular Record Date for the first payment of interest to which it relates. (iv) With respect to overdue interest or interest on any overdue amount, the Trustee shall establish a special record date, which shall be the fifth Business Day preceding the date set for payment of such interest. The Trustee shall mail notice of a special record date by first-class mail, postage prepaid, to each Registered Owner of the Bonds at least ten (10) days before such special record date. (v) Upon any payment of principal of, or interest on, the Bonds, each check or other transfer of funds issued for such purpose shall bear the CUSIP number identifying, by issue and maturity, and dollar amount of payment if more than one CUSIP number, the Bonds as to which the proceeds of such check or other transfer are being so applied. (vi) The Bonds shall be signed on behalf of the Authority by the manual or facsimile signature of the Chairman or Vice Chairman and the corporate seal of the Authority or a facsimile thereof shall be affixed thereto or engraved or otherwise reproduced thereon and attested by the manual or facsimile signature of its Secretary or Assistant Secretary. The authenticating certificate of the Trustee shall be manually signed on behalf of the Trustee. (vii) In case any officer whose facsimile signature shall appear on any Bond shall cease to be such officer before the delivery thereof, such facsimile signature shall nevertheless be valid and sufficient for all purposes as if he or she had remained in office until after such delivery. (viii) The 2013 Bonds are subject to optional redemption, extraordinary redemption and mandatory redemption through sinking fund installments, all as described in this Loan and Trust Agreement and in the forms of 2013 Bonds. (b) Transfer and Exchange of Bonds. The Bonds will be transferred in the bond register by the Trustee upon presentation thereof with a written instrument of transfer in 22

120 form satisfactory to the Trustee and duly executed by the registered owner or its authorized representative, and no transfer shall be effective as to the Authority or the Trustee unless shown in such register and noted thereon with a record of payments. The Authority and the Trustee may treat the Person in whose name a Bond is registered as the absolute owner thereof for all purposes and shall not be affected by any notice to the contrary. Any Bond may be exchanged without expense to Borrowers, other than for transfer tax, for two or more Bonds of the same series, interest rate and maturity upon surrender thereof at the designated corporate trust office of the Trustee, whereupon the Authority and the Trustee shall cause new Bonds to be issued. No Bond shall be exchanged, however, so as to produce any Bond having immediately after such exchange an outstanding principal amount in other than an authorized denomination. The Trustee shall not be required to make any exchange or transfer of any Bond (i) if such Bond (or any portion thereof) has been selected for redemption in whole or in part or (ii) during the ten (10) days preceding any date fixed for selection for redemption if such Bond (or any portion thereof) is eligible to be selected for redemption. The Trustee is hereby appointed bond registrar and transfer agent for the Bonds and accepts such appointment. The Trustee shall keep a bond register on behalf of the Authority and in accordance with law showing at least (i) the names and addresses of Holders, and (ii) the dates on which transfers of Ownership are registered. The Trustee shall also keep a record of redemption of the Bonds showing the amounts, the dates on which Bonds are redeemed and the registered owner of the Bond at the time of redemption. The Borrowers shall be obligated to pay all reasonable costs of the Trustee incurred in connection with any exchange or the transfer of Bonds, including without limitation, the cost of preparation of a new Bond or Bonds. (c) Parity Bonds and Parity Indebtedness. Subject to the provisions of Section 7.13 of this Agreement, Parity Bonds and Parity Indebtedness may be issued in such form, in such principal amounts, mature on such dates, bear interest at such rates, be subject to redemption upon such terms and be payable on such dates and be executed, authenticated and delivered in such manner and upon such terms (subject to the provisions of Section 3.03) as shall be provided in a Supplemental Agreement authorizing the issuance of such Parity Bonds or Parity Indebtedness, provided, however, the principal upon such Indebtedness shall be due annually on June 15 and interest upon such Indebtedness, unless paid in monthly installments, shall be due each June 15 and December 15. (d) Subordinated Obligations. Subject to the provisions of Section 7.13 of this Agreement, Subordinated Obligations may be issued in such form, in such principal amounts, mature on such dates, bear interest at such rates, be subject to redemption upon such terms and be payable on such dates and be executed, authenticated and delivered in such manner and upon such terms as shall be provided in a Supplemental Agreement authorizing the issuance of such Subordinated Obligations, provided, however, the principal upon such Subordinated Obligations shall be due annually on June 15 and interest upon such Subordinated Obligations, unless paid in monthly installments, shall be due each June 15 and December 15. The terms of and provisions for the subordination of the Subordinated Obligations to the Parity Indebtedness shall be satisfactory to the Authority. Section 3.02 Application of Bond Proceeds. Upon the receipt of the proceeds of the Bonds, the Trustee shall deposit such proceeds into a temporary settlement fund and apply such proceeds pursuant to the Closing Statement. Any balance remaining in the settlement fund ninety (90) days after the closing date of the purchase of the Bonds shall be transferred by the Trustee to the Project Fund established under Section 4.01 of this Loan and Trust Agreement. Section 3.03 Issuance of Obligations. (a) One or more series of Parity Bonds subject to this Loan and Trust Agreement may be issued by the Authority and one or more series of Parity Indebtedness subject to this Loan and Trust Agreement may be issued by the Borrowers for the purpose of completing payment of the costs of the 2013 Project or any Capital Addition, financing or refinancing any Capital Addition, or refunding any such Obligations previously issued, whether by the Authority or another entity, or for any lawful corporate purpose of the Borrowers insofar as permitted by applicable law. Obligations shall bear such date or dates, interest rate or rates, maturities, redemption dates, redemption prices and other terms as shall be specified in or determined in accordance with the resolution authorizing the issuance thereof adopted by the Authority or the Borrowers, or as provided in a Supplemental Agreement. Such Obligations shall be authenticated and delivered upon the condition set forth in said resolution or Supplemental Agreement. Obligations may be issued only if the Trustee (with a copy to the Authority) receives the following: (i) evidence of compliance with Section 7.13; (ii) executed counterparts of a Supplemental Agreement identifying the Obligations as Parity Bonds or Parity Indebtedness and providing for the payment of and terms of the Obligations; (iii) an Opinion of Counsel to the Borrowers to the effect that (A) the Supplemental Agreement has been validly authorized and executed by or on behalf of each Borrower and constitutes a valid, legally binding, obligation of each Borrower, enforceable against it in accordance with its terms (except to the extent that the rights and remedies created thereby are subject to bankruptcy, insolvency, reorganization, moratorium and similar laws, or equitable principles affecting the rights and remedies of creditors), and (B) if the purpose of such issue constitutes a Permitted School Financing, or includes the acquisition of any real property or interest therein or the construction of a Capital Addition on real property not previously subject to the Mortgage, as applicable, (1) that one or more of the Borrowers has good and marketable title thereto free of all liens and encumbrances except Permitted Liens (provided that in lieu of such opinion, the Borrowers may provide a policy of title insurance insuring the applicable Borrower s interest is subject only to Permitted Liens), and (2) the Mortgage, as supplemented, constitutes a valid lien on such additional real property, subject only to Permitted Liens (which opinion may be stated in reliance on the opinion of other counsel satisfactory to the signer or on a certificate of title or a title insurance policy issued by a reputable title company); (iv) for any Parity Bonds, an opinion or opinions of Bond Counsel to the effect that (A) the purpose of the Parity Bonds is one for which Parity Bonds may be issued under this Section, (B) all conditions prescribed herein as precedent to the issuance of the Parity Bonds have been fulfilled, (C) the Parity Bonds have been validly authorized and executed and when authenticated and delivered pursuant to the request of the Authority will be valid, legally binding, limited obligations of the Authority, enforceable against the Authority in accordance with their terms (except to the extent that the rights and remedies created thereby are subject to bankruptcy, insolvency, reorganization, moratorium and similar laws or equitable principles affecting the rights and remedies of creditors) and are entitled to the benefit and security of this Loan and Trust Agreement, and (D) issuance of such Parity Bonds will not adversely affect the tax status of Outstanding Bonds; (v) in the case of any Parity Indebtedness, an Opinion of Counsel to the Borrowers to the effect that such Obligations have been validly authorized and executed and when authenticated and delivered pursuant to the request of the Borrowers will be valid, legally binding obligations of each Borrower, enforceable in accordance with their terms (except to the extent that the rights and remedies created thereby are subject to bankruptcy, insolvency, reorganization, moratorium and similar laws or equitable principles affecting the rights and remedies of creditors) and are entitled to the benefit and security of this Loan and Trust Agreement; (vi) a certified resolution of each Borrower (A) approving the issuance of the Obligations and the terms thereof, (B) authorizing the execution of a Supplemental Agreement, any supplement to the Mortgage if applicable, or any Permitted School Financing Lien, if applicable, and (C) authorizing redemption of any outstanding obligations to be refunded by the proposed Obligations; (vii) in the case of Obligations to finance the costs of Capital Additions, a certificate of an Architect or Construction Manager stating (i) the estimated cost of completion of the Capital Addition and (ii) that all approvals required for completion of the Capital Addition have been obtained, other than permits which, based on consultations with the applicable Borrower and construction contractor or Construction Manager, are expected to be obtained in due course so as not to interrupt or delay construction of such Capital Addition and other than licenses or permits required for occupancy or operation of such Capital Addition upon its completion; (viii) for any Obligations incurred to refinance outstanding Obligations, (A) a certificate of the Borrowers that notice of redemption of the Obligations to be refunded has been given or that provisions have been made therefor, and (B) with respect to any Obligations not contemporaneously refunded with the proceeds of the refunding Obligations, a certificate of an Accountant or Management Consultant stating that the proceeds of the Obligations plus the other amounts, if any, stated to be available for the purpose, will be sufficient to accomplish the purpose of the refunding and to pay the cost of refunding, which shall be itemized in reasonable detail; (ix) a certificate of the Borrowers stating (A) that it has no knowledge that an Event of Default hereunder has occurred and is continuing (unless such Event of Default will be cured as a result of the issuance of such Obligations) and (B) that the proceeds of the Obligations plus other amounts, if any, stated to be available for that purpose will be sufficient to pay the costs for which the Obligations are being issued, which shall be itemized in reasonable detail; (x) in the case of any Parity Bonds to be secured by a Debt Service Reserve Fund, an amount sufficient to make the amount on deposit in the Debt Service Reserve Fund equal to the Debt Service Reserve Fund Requirement, as calculated after giving effect to the issuance of such Parity Bonds; (xi) such other certificates, documents, opinions relating to the issuance of the Obligations or the security therefor as the Authority or the Trustee may reasonably request. (b) Each series of Parity Bonds or Parity Indebtedness issued in compliance with subsection (a) above shall be equally and ratably secured with the Bonds (excluding the Debt Service Reserve Fund and the Rebate Fund), all other series of Parity Bonds and all Parity Indebtedness if any, theretofore issued or incurred in compliance with this Loan and Trust Agreement, without preference, priority or distinction of any Parity Bonds or Parity Indebtedness over any other thereof. (c) The Borrowers may, but shall not be obligated to, provide a Credit Facility for one or more issues of Obligations or one or more maturities within one or more issues of Obligations. A Credit Facility provided for one or more issues of Obligations may but need not extend to other Obligations or a maturity thereof or to any other issue, or maturity within any other issue of Obligations. (d) Obligations may, but need not, be issued in a manner that the interest thereon will be excludable from gross income for federal income tax purposes. (e) Any Interest Rate Hedge may be authenticated by the Borrowers as an Obligation hereunder upon compliance with the terms of this Section. Any such Interest Rate Hedge shall be in such form and shall contain such provisions as shall be permitted or required by the Supplemental Agreement authorizing the authentication thereof, and shall contain a certificate of authentication duly executed by the manual signature of an authorized officer of the Trustee. Upon authentication by the Trustee, regularly scheduled payments (but not termination payments) to be made by the Borrowers pursuant to such Interest Rate Hedge (an Authenticated Hedge ) may be equally and ratably secured by the lien created hereunder with all other Obligations issued hereunder, except as otherwise expressly provided herein. Any such Authenticated Hedge shall be deemed to be Outstanding hereunder solely for the purpose of receiving regularly scheduled payments (other than termination payments) from the Borrowers hereunder, and shall not be entitled to exercise any rights hereunder. Termination payments under an Interest Rate Hedge may be secured as Subordinated Obligations hereunder, as set forth in the Supplemental Agreement authorizing the authentication thereof

121 Section 3.04 Redemption of the 2013 Bonds. The 2013 Bonds shall be subject to optional, mandatory sinking fund and extraordinary redemption prior to maturity under the circumstances, in the manner and subject to the conditions provided in this Section and in the form of 2013 Bond set forth in Exhibit A. If less than all of the Obligations are to be called for optional redemption, the Obligations to be redeemed shall be redeemed in the maturities or portion of each maturity to be redeemed, all as designated by the Borrowers. (a) Payment of Redemption Price and Accrued Interest. Whenever Obligations are called for redemption, the accrued interest thereon shall become due on the redemption date. To the extent not otherwise provided, the Borrowers shall deposit in the Debt Service Fund prior to the redemption date a sum sufficient to pay the redemption price and accrued interest. (b) Notice of Redemption. (i) When Obligations are to be redeemed, the Trustee shall give notice no more than sixty (60) days nor fewer than thirty (30) days prior to the date for redemption (or such shorter time as otherwise provided in the form of Obligations) in the name of the Authority (in the case of Bonds) by first class mail, postage prepaid to the Holders of the Obligations to be redeemed at their registered addresses, which notice, in the case of Bonds, shall state the following information: (1) the identification numbers, as established under this Loan and Trust Agreement, and the CUSIP numbers, if any, of the Bonds being redeemed, provided that any such notice shall state that no representation is made as to the correctness of CUSIP numbers either as printed on such Bonds or as contained in the notice of redemption and that reliance may be placed only on the identification numbers contained in the notice or printed on such Bonds; (2) the official name of the Bonds (with series designation), the original issuance date and maturity date of, and interest rate on, such Bonds; (3) in the case of partial redemption of any Bonds, the respective principal amounts thereof to be redeemed; (4) the redemption date; (5) the redemption price; (6) that on the redemption date the redemption price will become due and payable upon such Bond or portion thereof called for redemption, and that interest thereon shall cease to accrue from and after said date; and (7) the place (including address and telephone number) where such Bonds are to be surrendered for payment of the redemption price. (ii) Upon the payment of the redemption price of Obligations being redeemed, each check or other transfer of funds issued for such purpose shall bear the CUSIP number identifying, by issue and maturity, the Obligations being redeemed with the proceeds of such check or other transfer if such Obligations have been assigned a CUSIP number. (iii) No defect affecting any Obligation, whether in the notice of redemption or mailing thereof (including any failure to mail such notice) shall affect the validity of the redemption proceedings for any other Obligations. (iv) If at the time of mailing of any notice of optional or extraordinary redemption there shall not have been deposited with the Trustee moneys sufficient to redeem all the Obligations called for redemption, such notice shall state that it is subject to the deposit of the redemption moneys with the Trustee not later than the opening of business on the redemption date and shall be of no effect unless such moneys are so deposited. (c) In lieu of redeeming Bonds pursuant to this Section the Trustee may, at the written direction of the Borrowers, use such funds in the Debt Service Fund or otherwise available hereunder for redemption of Bonds to purchase Bonds of the maturity subject to redemption for which the Trustee has received a confirmation of purchase confirming purchase by the Borrowers in the open market at a price not exceeding par plus accrued interest, such Bonds to be delivered to the Trustee for the purpose of cancellation. The Borrowers may also purchase Bonds other than through the Trustee and deliver such Bonds to the Trustee for cancellation and receive credit against its mandatory sinking fund payments with respect to Bonds of the same series and maturity as provided in this paragraph. Any such purchase of Bonds for cancellation must be completed and the purchased Bonds delivered to the Trustee at least sixty (60) days prior to the date set for the next succeeding mandatory redemption. It is understood that in the case of any such purchase of Bonds, the Authority and the Borrowers shall receive credit against their required mandatory sinking fund payments in the manner specified in a certificate of the Borrowers or if no certificate is delivered in inverse order thereof. (d) Notwithstanding any other provisions of this Loan and Trust Agreement, whenever there are no Parity Bonds or Parity Indebtedness Outstanding, any available moneys in any Fund or Account under this Loan and Trust Agreement (except the Rebate Fund) may be applied by the Trustee, as directed by an Officer s Certificate, as soon as practicable to the redemption of any Outstanding Subordinated Obligations, provided that at the time of such redemption and taking into account such redemption, the Borrowers shall file an Officer s Certificate with the Trustee indicating that no Parity Bonds or Parity Indebtedness is Outstanding and directing the redemption of the Subordinated Obligations. Section 3.05 Book Entry System for the Bonds. (a) Notwithstanding the foregoing provisions of this Article, the Bonds shall initially be issued in the form of one fully registered bond for each maturity in the aggregate principal amount of the Bonds of such maturity, which Bonds shall be registered in the name of Cede & Co., as nominee of DTC. Except as provided in paragraph (f) below, all of the Bonds shall be registered in the registration books maintained by the Trustee or bond registrar in the name of Cede & Co., as nominee of DTC; provided that if DTC shall request that the Bonds be registered in the name of a different nominee, the Trustee shall exchange all or any portion of the Bonds for an equal aggregate principal amount of Bonds registered in the name of such nominee or nominees of DTC. No Person other than DTC or its nominee shall be entitled to receive from the Authority or the Trustee either a Bond or any other evidence of ownership of the Bonds, or any right to receive any payment in respect thereof, unless DTC or its nominee shall transfer record ownership of all or any portion of the Bonds on the registration books maintained by the Bond Registrar in connection with discontinuing the book entry system as provided in paragraph (f) below or otherwise. (b) So long as any Bonds are registered in the name of DTC or any nominee thereof, all payments of the principal or redemption price of or interest on such Bonds shall be made to DTC or its nominee on the dates provided for such payments under this Loan and Trust Agreement. Each such payment to DTC or its nominee shall be valid and effective to fully discharge all liability of the Authority or the Trustee with respect to the principal or redemption price of or interest on the Bonds to the extent of the sum or sums so paid. In the event of the redemption of less than all of the Bonds outstanding, the Trustee shall not require surrender by DTC or its nominee of the Bonds so redeemed, but DTC (or its nominee) may retain such Bonds and make an appropriate notation on the Bond certificate as to the amount of such partial redemption; provided that DTC shall deliver to the Trustee, upon request, a written confirmation of such partial redemption and thereafter the records maintained by the Trustee shall be conclusive as to the amount of the Bonds which have been redeemed. (c) The Authority and the Trustee may treat DTC (or its nominee) as the sole and exclusive owner of the Bonds registered in its name for the purposes of payment of the principal or Redemption Price of or interest on the Bonds, selecting the Bonds or portions thereof to be redeemed, giving any notice permitted or required to be given to Holders under this Loan and Trust Agreement, registering the transfer of Bonds, obtaining any consent or other action to be taken by Holders and for all other purposes whatsoever; and neither the Authority nor the Trustee shall be affected by any notice to the contrary. Neither the Authority nor the Trustee shall have any responsibility or obligation to any participant in DTC, any Person claiming a beneficial ownership interest in the Bonds under or through DTC or any such participant, or any other Person which is not shown on the registration books as being a Bondholder, with respect to either: (1) the Bonds, (2) the accuracy of any records maintained by DTC or any such participant, (3) the payment by DTC or any such participant of any amount in respect of the principal or redemption price of or interest on the Bonds, (4) any notice which is permitted or required to be given to Holders under this Trust Loan and Trust Agreement, (5) the selection by DTC or any such participant of any Person to receive payment in the event of a partial redemption of the Bonds, and (6) any consent given or other action taken by DTC as Bondholder. (d) So long as any Bonds are registered in the name of DTC or any nominee thereof, all notices required or permitted to be given to the Holders of such Bonds under this Loan and Trust Agreement shall be given to DTC. (e) In connection with any notice or other communication to be provided to Holders pursuant to this Loan and Trust Agreement by the Authority or the Trustee with respect to any consent or other action to be taken by Holders, DTC shall consider the date of receipt of notice requesting such consent or other action as the record date for such consent or other action, provided that the Authority or the Trustee may establish a special record date for such consent or other action. The Authority or the Trustee shall give DTC notice of such special record date not less than fifteen (15) calendar days in advance of such special record date to the extent possible. (f) The book-entry system for registration of the ownership of the Bonds may be discontinued at any time if either (1) after written notice to the Authority, the Borrower and the Trustee, DTC determines to resign as securities depository for the Bonds, or (2) after written notice to DTC, the Authority and the Trustee, the Borrowers determine that continuation of the system of book-entry transfers through DTC (or through a successor securities depository) is not 29 in the best interests of the Borrowers. In either of such events (unless in the case described in clause (2) above, the Borrowers appoint a successor securities depository), the Bonds shall be delivered in registered certificate form to such Persons, and in such principal amounts, as may be designated in writing by DTC, but without any liability on the part of the Authority, the Borrowers or the Trustee for the accuracy of such designation. Whenever DTC requests the Authority, the Borrowers and the Trustee to do so, the Authority, the Borrowers and the Trustee shall cooperate with DTC in taking appropriate action after reasonable notice to arrange for another securities depository to maintain custody of certificates evidencing the Bonds. ARTICLE IV FUNDS AND ACCOUNTS Section 4.01 Project Funds. (a) Establishment and Purpose. A Project Fund is hereby established with the Trustee and within such Fund a Costs of Issuance Account. The Project Fund shall be held for the security of all Obligations until applied as provided below, and the Borrowers each agree that neither Borrower has any interest in or rights to the Project Fund, except to receive payment from the Project Fund upon compliance with the requisition procedure described below. There shall be deposited into the Project Fund the amount described on the Closing Statement, and the proceeds of any Obligations issued to finance a Capital Addition (unless the Supplemental Agreement authorizing such Obligations shall provide otherwise) and any proceeds of insurance or condemnation awards pursuant to Article VI of this Loan and Trust Agreement. (b) Disbursements. Disbursements from the Project Fund of the proceeds of the Bonds or the proceeds of Obligations issued to finance a Capital Addition shall be applied for the payment or reimbursement of the following costs: (i) Costs incurred directly or indirectly for or in connection with the acquisition, construction, or improvement of the 2013 Project or any such Capital Addition, including preliminary planning and studies, labor, services, materials, equipment, fixtures and furnishings, acquisition and installation; (ii) Fees and expenses of the Trustee, including without limitation reasonable attorneys fees and expenses properly incurred hereunder that may become due prior to completion of the 2013 Project or any such Capital Addition; (iii) Any other incidental and necessary costs and expenses relating to the 2013 Project or any such Capital Addition; and (iv) Costs of Issuance, but in the case of the Bonds or a Capital Addition financed from Parity Bonds, only to the extent that amounts representing proceeds of an Obligation (as opposed to equity contributed by the Borrowers) disbursed from the Project Fund in respect of Costs of Issuance for any issue of Obligations the interest on which is excluded from gross income for federal income tax purposes (or which is pledged to the payment of Obligations on which the interest is so excluded) do not exceed the amounts permitted by Section 147(g) of the Code; provided that the Trustee and the Authority shall be entitled to rely 30

122 conclusively upon the certification to such effect of the Borrowers set forth in any written requisition. Disbursements shall be made from the Project Fund only upon receipt by the Trustee of a written requisition in substantially the form of Exhibit B, signed by an Authorized Officer of each Borrower; provided, however, that moneys may be transferred from the Project Fund to the Rebate Fund without requisition pursuant to Section 4.05; and further provided that disbursements may be made from the Project Fund without requisition on account of Costs of Issuance pursuant to the Closing Statement. The Borrowers shall provide copies of all requisitions to the Authority. The Trustee shall disburse funds within five (5) days of receipt of a requisition meeting the requirements of this subsection (b). Disbursement of the proceeds of other Obligations deposited in the Project Fund shall be made as provided in the Supplemental Agreement authorizing the issuance of such obligations. The Trustee shall rely fully on any such requisition delivered pursuant to this Section and shall not be required to make any investigation in connection therewith. The Trustee will transfer to the Project Fund any balance remaining in the Costs of Issuance Account within six (6) months after the issuance of the Bonds. The Trustee shall keep and maintain adequate records pertaining to the Project Fund and all disbursements therefrom, and shall provide, upon receipt of a written request, periodic statements of transactions to the Borrowers. (c) Borrowers Required to Pay Costs if Project Fund Insufficient. If the moneys in the Project Fund are not sufficient to pay in full the costs to be paid therefrom, the Borrowers agree, in order to fulfill the purposes of the Act, to complete, or cause to be completed, the acquisition, construction, improvement and equipping of the 2013 Project and any Capital Addition financed with the proceeds of Obligations and to pay all costs therefor in excess of the moneys available in the Project Fund. The Authority makes no warranty, express or implied, that moneys paid into the Project Fund or otherwise available to complete the 2013 Project or any Capital Addition will be sufficient to pay all costs therefor. (d) Procedure Upon Completion of the 2013 Project or Capital Addition. Upon the completion of the 2013 Project or a Capital Addition financed with the proceeds of Obligations, the Trustee and the Authority shall be furnished with a certificate, signed by an Authorized Officer of each Borrower, and, with respect to the work under Construction Contracts, an Architect s certificate stating (i) the completion date of the 2013 Project or such Capital Addition, (ii) that all construction has been completed in accordance with the approved plans and specifications and approved changes, if any, and (iii) the amounts, if any, to be reserved for the payment of any unpaid costs. The Trustee shall thereupon transfer the balance in the Project Fund not reserved for the payment of unpaid costs thereof: first, to the Debt Service Reserve Fund if funding thereof is required pursuant to Section 4.03 or in connection with such Capital Addition and a deficiency exists in the amount required to be deposited therein; and second, to the Debt Service Fund as a credit against future deposits, such credit to be applied monthly against the amounts required to be paid pursuant to Section 5.01(a) hereof until fully transferred. Section 4.02 Revenue Fund. A fund designated as the Revenue Fund is hereby established with the Trustee, which fund will be held in trust as security for the payment of the 2013 Bonds and all other Obligations issued pursuant to this Agreement. The School has agreed in the Lease to, upon the issuance of the 2013 Bonds, send a notice to a sufficient number of school districts then making not less than ninety-five percent (95%) of the School District Payments to the School directing that such School District Payments be paid to an account of the School held by the Trustee and transferred on a daily basis to the Revenue Fund, and all amounts required to be paid by the Borrowers to the Trustee pursuant to Section 5.01 of this Agreement and all other moneys required to be deposited into the Revenue Fund pursuant to this Agreement shall be deposited therein. The form of the Notice to the School Districts is attached as Exhibit D to the Lease. Moneys held in the Revenue Fund shall be disbursed by the Trustee on the following dates in the following order of priority: FIRST: on each Monthly Disbursement Date, commencing in July, 2013, to the Debt Service Fund all unpaid installments of interest, principal or other payments then due on the Obligations, provided, however, for purposes of determining the interest, principal or other payments then due with respect to the Obligations, such sum shall be deemed to be an amount sufficient to accumulate in the Debt Service Fund, in approximately equal monthly installments, an amount equal to the (a) interest due on the next succeeding Interest Payment Date (after taking into consideration earnings and amounts available in the Capitalized Interest Account with respect to the payment of interest on such Obligations) and (b) the principal due on the Obligations on the next succeeding principal payment date for such Obligations, and such distribution shall be deposited in the Debt Service Fund. SECOND: on each Monthly Disbursement Date, ratably with respect to all Obligations issued hereunder, to (a) the Debt Service Reserve Fund, one-sixth (1/6) of the amount required, if any, under Section 4.03 of this Agreement, to restore the amount therein so as to be equal to the Debt Service Reserve Fund Requirement, and (b) any additional fund established pursuant to any Supplemental Agreement in the nature of the debt service reserve fund to secure Obligations issued hereunder, the amount specified in any such Supplemental Agreement; THIRD: on the last Business Day of every Bond Year and continuing until the full amount is so paid, to the Rebate Fund or any subsequent rebate fund established pursuant to a Supplemental Agreement with respect to the issuance of additional Parity Bonds, any amount, as calculated by the Rebate Analyst, required of the Borrowers to be deposited in the Rebate Fund or any such subsequent rebate fund; FOURTH: within one Business Day after each Monthly Disbursement Date, commencing in July, 2015, to the Repair and Replacement Fund, an amount equal to the monthly Repair and Replacement Fund Requirement in accordance with Section 4.04; FIFTH: within one Business Day after each Monthly Disbursement Date, to the Management Company, any Management Company Fees then due and owing, as certified to the Trustee by the Borrowers, as of such date; SIXTH: within one Business Day after each Monthly Disbursement Date, commencing in July, 2013, all amounts remaining on deposit in the Revenue Fund after the Trustee has made the disbursements required in FIRST through FIFTH above, shall be transferred as directed by the Borrowers in writing, if in each case, no Event of Default has occurred and is continuing. Notwithstanding the foregoing, if the amounts then available shall not be sufficient to pay in full any installments or distributions then due as aforesaid, then Trustee shall cause payment thereof to be made ratably, according to the amounts due thereon to the Persons or funds entitled thereto, without any discrimination or preference. Section 4.03 Debt Service Reserve Fund. (a) Establishment of Debt Service Reserve Fund. A Debt Service Reserve Fund is hereby established with the Trustee for the sole benefit and security of the Holders of the 2013 Bonds and moneys or Permitted Investments shall be deposited therein as provided in this Agreement. The Debt Service Reserve Fund shall initially be funded as provided on the Closing Statement. The moneys in the Debt Service Reserve Fund and any investments (or other security) held as a part of such Fund shall be held in trust and, except as otherwise provided, shall be applied by the Trustee solely to the payment of the principal (including sinking fund installments) of and interest on the 2013 Bonds. Interest and other income received on investments of Debt Service Reserve Fund moneys shall be transferred to the Debt Service Fund so long as the Debt Service Reserve Fund is funded to an amount equal to the Debt Service Reserve Fund Requirement, and shall be credited each month against interest owed by the Borrowers hereunder. (b) Application of Debt Service Reserve Fund. Except as provided in Section 4.05 hereof, moneys in the Debt Service Reserve Fund shall be used solely for the payment of the principal of, premium, if any, and interest on the 2013 Bonds in the event moneys in the Debt Service Fund are insufficient to make such payments when due, whether on an Interest Payment Date, sinking fund redemption date, maturity date or otherwise. The Authority hereby authorizes and directs the Trustee to withdraw funds from the Debt Service Reserve Fund to pay, first, all installments of interest then due on the 2013 Bonds, and, second, all principal of and premium, if any, then due on the 2013 Bonds in the event there should be insufficient funds for said purposes in the Debt Service Fund on the date such interest, principal, and premium is due. Upon the occurrence of an Event of Default hereunder and the exercise by the Trustee of the remedy specified in Section 8.02 hereof, any moneys in the Debt Service Reserve Fund shall be transferred by the Trustee to the Debt Service Fund. On the final maturity date of the 2013 Bonds any moneys in the Debt Service Reserve Fund may be used to pay the principal of and interest on the 2013 Bonds on such final maturity date. In the event of the redemption of the 2013 Bonds in whole, any moneys in the Debt Service Reserve Fund shall be transferred to the 33 Debt Service Fund and applied to the payment of the principal of and premium, if any, on the 2013 Bonds. The Trustee shall value the Permitted Investments in the Debt Service Reserve Fund on a semi-annual basis as provided in Section If on any valuation date the amount in the Debt Service Reserve Fund (determined pursuant to this Section) is greater than the Debt Service Reserve Fund Requirement, such excess shall be transferred by the Trustee to the Debt Service Fund and credited in accordance with Section 4.06 hereof. If on any valuation date the amount in the Debt Service Reserve Fund (determined pursuant to this Section) is less than the Debt Service Reserve Fund Requirement, the Trustee shall immediately notify the Borrowers in writing of the amount of such deficit and conduct a second valuation thirty (30) days after the prior valuation. If on the second valuation date the amount in the Debt Service Reserve Fund (determined pursuant to this Section) is less than the Debt Service Reserve Fund Requirement, the Trustee shall immediately notify the Borrowers and request that the Borrowers deposit with the Trustee such amount in equal monthly installments commencing with the first Monthly Disbursement Date following such notice so that the Debt Service Reserve Fund deficiency is cured by the next semi-annual valuation date. Within five (5) Business Days of any transfer of funds from the Debt Service Reserve Fund to the Debt Service Fund because of a deficiency therein, the Trustee shall give written notice to the Borrowers of such transfer and of the amount of the deficiency, if any, of amounts then on deposit in the Debt Service Reserve Fund as of such date and request that the Borrowers deposit with the Trustee an amount necessary to restore such deficiency no later than six (6) months from the date of receipt of such notice in six (6) equal monthly installments. Amounts on deposit in the Debt Service Reserve Fund shall be: (a) held in trust solely for the benefit of the Registered Owners of the 2013 Bonds; and (b) applied only in accordance with the provisions of this Agreement. The Borrowers shall have no legal, equitable nor reversionary interest in, or right to, such amounts. In the event of any Event of Bankruptcy, the Borrowers shall in no event assert, claim or contend that any portion of the Debt Service Reserve Fund is property of its bankruptcy estate as defined by 11 U.S.C (c) Debt Service Reserve Fund for Additional Obligations. In connection with the issuance of additional Obligations hereunder, the Trustee may establish such debt service reserve funds or other reserve funds as may be provided, and under such conditions as may be set forth in, any Supplemental Agreement relating to such additional Obligations. The Debt Service Reserve Fund may also secure other series of Bonds as set forth in a Supplemental Agreement; provided, that the Supplemental Agreement providing for the issuance of such Bonds requires a Debt Service Reserve Fund Requirement at least equal to the Debt Service Reserve Fund Requirement, calculated on an aggregate basis for the 2013 Bonds and all other Bonds to be secured by the Debt Service Reserve Fund. In the event the Borrowers elect to establish a debt service reserve fund for any additional Obligations in an amount less than the aggregate basis set forth above, the Supplemental Agreement with respect to such Obligations shall contain such provisions as are necessary to ensure that the Debt Service Reserve Fund established with respect to the 2013 Bonds shall not be available to the holders of such additional Obligations. 34

123 Section 4.04 Repair and Replacement Fund. Commencing in July, 2015, the Borrowers shall cause to be deposited monthly into the Repair and Replacement Fund an amount equal to $10,000, which deposit shall continue or shall be resumed, as applicable, until such time that the Repair and Replacement Fund Requirement has been satisfied; provided, however, that such monthly amount shall be increased upon the issuance of additional Obligations under this Loan and Trust Agreement. Moneys in the Repair and Replacement Fund shall be held solely for the benefit of the Holders of the Obligations and disbursed by the Trustee: (a) to the Borrowers or to the Borrowers order to pay (i) the cost of improvements to the School Facilities, (ii) replacement or repair of equipment or other components of any School Facility, and (iii) to purchase additional equipment for any School Facility; and (b) to pay principal and interest on the Bonds to the extent payments by the Borrowers are insufficient therefor. In the event the Borrowers deliver a certificate of an Authorized Officer to the effect that the Borrowers annual budget for any Fiscal Year indicates that the amount then on deposit in the Repair and Replacement Fund plus the amounts to be deposited in the Repair and Replacement Fund during such Fiscal Year are insufficient to pay all amounts required for projected ordinary and extraordinary maintenance and replacement expenses incurred in connection with the School Facilities, the Repair and Replacement Fund Requirement shall be adjusted to an amount equal to the amount of Borrowers projected ordinary and extraordinary maintenance and replacement expenses as reflected in Borrowers annual budget for such Fiscal Year but in no event will the balance of the Repair and Replacement Reserve Fund exceed Six Hundred Thousand Dollars ($600,000). The Trustee shall make such disbursements as set forth in subsection (a) above upon receipt by the Trustee of a requisition of the Borrowers stating (A) the amount requested; and (B) a description of the repairs, replacements or improvements; and (C) if reimbursement is to be made to a Borrower for the improvements, replacements or equipment, an invoice representing the amount previously paid. Such requisition shall not be for any amount in excess of the then existing balance remaining in the Repair and Replacement Fund. The Trustee shall fully rely on any such requisition pursuant to this subsection and shall not be required to make any investigation in connection therewith. Section 4.05 Rebate Fund. (a) Establishment of Rebate Fund. A Rebate Fund is hereby established with the Trustee. There shall be deposited into the Rebate Fund as and when received (i) investment income on moneys in the Funds to the extent provided in the written direction of the Borrowers pursuant to Section 4.08 hereof, (ii) moneys received from the Borrowers pursuant to Section 5.01(e) hereof, (iii) moneys transferred to the Rebate Fund from the Debt Service Reserve Fund (but only to the extent that the amount on deposit therein is in excess of the Debt Service Reserve Fund Requirement), the Project Fund, the Debt Service Fund pursuant to the provisions of this Section, and (iv) all other moneys received by the Trustee when accompanied by written directions not inconsistent with this Agreement that such moneys are to be paid into the Rebate Fund. The Trustee shall cause amounts on deposit in the Rebate Fund to be forwarded to the United States Treasury (at the address provided in the Tax Certificate) at the times and in the amounts directed in writing by the Borrower. As required by the Tax Certificate, the Borrowers, in reliance upon a report of the Rebate Analyst, shall deliver to the Authority and the Trustee a certificate stating that all necessary actions have been taken as required by this Agreement and the Tax Certificate, including, but not limited to, (a) required arbitrage rebate calculations, (b) the transfer of funds to the Rebate Fund to reserve for the anticipated Rebate Amount, and (c) payment of the rebate amount, if any, in accordance with Section 148(f) of the Code and the direction of the Rebate Analyst. If, upon receipt of the certification required by the immediately preceding paragraph, the moneys on deposit in the Rebate Fund are insufficient for the purposes thereof, the Trustee, after first delivering a demand for such deficiency to the Borrowers, shall transfer moneys to the Rebate Fund from the following Funds in the following order of priority: the Project Fund, the Debt Service Fund and the Debt Service Reserve Fund. Upon receipt by the Trustee of a report of the Rebate Analyst to the effect that the amount in the Rebate Fund is in excess of the amount required to be therein, such excess shall be transferred to the Debt Service Fund. This Section shall supersede all other Sections of this Agreement, to the end that the exclusion from gross income for the purposes of federal income taxation of interest on the Tax- Exempt Bonds shall not be adversely affected as a result of the inadequacy at any time of the Rebate Fund, unless the total amount held by the Trustee under all Funds established hereunder is insufficient, and no money for such purpose is provided by the Borrower. The Trustee shall have no obligation to perform any of the calculations required by this Section 4.05 or to retain a Rebate Analyst, but shall be deemed conclusively to have complied with the provisions of this Section 4.05 if it follows the written directions of the Borrower and neither the Trustee nor the Authority shall have any liability or responsibility to enforce compliance with the terms of the Tax Certificate. (b) Records. The Trustee shall retain records, as provided by the Borrowers, of the determinations of the amount required to be deposited in the Rebate Fund, of the proceeds of any investments of moneys in the Rebate Fund, and of the amounts paid to the United States until the date six years after the discharge of the last of the Bonds (c) Amendments and Deletions. The provisions of this Section may be amended or deleted to the extent specified in an Opinion of Bond Counsel delivered to the Trustee and the Authority. Section 4.06 Debt Service Fund. (a) Payments into the Debt Service Fund. A Debt Service Fund is hereby established with the Trustee. An initial deposit of the Borrowers equity shall be made at closing as shown on the Closing Statement into a Capitalized Interest Account (which account is hereby established) within the Debt Service Fund to pay capitalized interest on the Bonds. The Capitalized Interest Account shall be applied as follows: $1,000,000 to be applied towards the interest due on the Bonds on December 15, 2013 and $400,000 to be applied towards the interest due on the Bonds on June 15, There shall be deposited into the Debt Service Fund as and when received (a) payments by the Borrowers pursuant to Section 5.01(a) hereof, (b) all moneys transferred to the Debt Service Fund pursuant to Section 4.02 hereof, (c) all other moneys deposited into the Debt Service Fund pursuant to this Agreement, and (d) all other moneys received by the Trustee when accompanied by written directions from an Authorized Officer of each Borrower not inconsistent with this Agreement that such moneys are to be paid into the Debt Service Fund. There shall also be retained in the Debt Service Fund, interest and other income received on investment of moneys in Debt Service Fund. If the Trustee does not receive payments into the Debt Service Fund pursuant to Section 5.01(a) of this Agreement by the fifth day after any required payment date pursuant thereto, the Trustee will immediately notify the Authority, the Borrowers and the School of such nonpayment. (b) Use of Moneys in the Debt Service Fund. Except as provided in this Section and in Sections 4.05 and 8.04 hereof, moneys in the Debt Service Fund shall be used solely for the payment of the principal of, premium, if any, and interest on the Bonds as due. (c) Custody of the Debt Service Fund. Amounts on deposit in the Debt Service Fund shall: (a) be held in trust solely for the benefit of the Registered Owners; (b) be applied only in accordance with the provisions of this Agreement; and (c) the Borrowers shall have no legal, equitable nor reversionary interest in, or right to, such amounts. In the event of any Act of Bankruptcy by either Borrower, neither Borrower shall in any event assert, claim or contend that any portion of Debt Service Fund is property of its bankruptcy estate as defined by 11 U.S.C Section 4.07 Application of Moneys. (a) If available moneys in the Debt Service Fund after any required transfers to the appropriate account in the Debt Service Fund from the Debt Service Reserve Fund (with respect to Obligations secured by a Debt Service Reserve Fund) are not sufficient on any day to pay principal or redemption price of and interest on the Outstanding Obligations then due or overdue, such moneys (other than any sum irrevocably set aside for the redemption of particular Obligations and amounts required to be paid to the Rebate Fund) shall, after payment of all charges and disbursements of the Authority and the Trustee in accordance with this Loan and Trust Agreement, be applied first to the payment of interest, including interest on overdue 37 principal, in the order in which the same became due (pro rata with respect to interest which became due at the same time) and second to the payment of principal or redemption price in the order in which the same became due (pro rata with respect to principal which became due at the same time) in each case pro rata among, first, the Holders of Obligations, and, second, the Holders of Subordinated Obligations. Whenever moneys are to be applied pursuant to this Section, the Trustee shall fix the date upon which such application is to be made, and upon such date interest on the amounts of principal paid on such date shall cease to accrue. The Trustee shall give or cause to be given notice to the Holders of any Obligations of such date at least ten (10) days before such date. The Trustee shall not be required to make payment to the Holder of any Obligations until such Obligations shall be presented to the Trustee for appropriate endorsement or for cancellation if fully paid. (b) Notwithstanding any other provisions of this Loan and Trust Agreement, if at any time the amounts held for the Obligations in the Debt Service Fund and the Debt Service Reserve Fund (with respect to Obligations secured by the applicable account in the Debt Service Reserve Fund) are sufficient to pay the principal or redemption price of all Outstanding Obligations and the interest accruing to such Obligations to maturity or the next date of redemption when such Obligations are redeemable pursuant to Section 3.04, the Trustee shall so notify the Authority and the Borrowers. Upon receipt of such notice, the Borrowers may request the Trustee to apply such amounts to pay or redeem all such Outstanding Obligations, as the case may be, on the next date when such Obligations are redeemable pursuant to Section The Trustee shall, upon receipt of such notice, proceed to pay or redeem all Outstanding Obligations in the manner provided by Section 3.04, and shall transfer to the appropriate account in the Debt Service Fund from the applicable Debt Service Reserve Fund (with respect to obligations secured by an account in the Debt Service Reserve Fund) such amounts as are needed in connection therewith. (c) Any amounts remaining in the Funds after payment in full of the Bonds (or making provision for such payment), the fees and expenses of the Trustee and all other amounts required to be paid hereunder to the Authority and the Trustee and (including payments into the Rebate Fund and to the United States), shall be paid to the Borrowers upon the expiration of the term of this Agreement. Section 4.08 Investments. (a) Pending their use under this Loan and Trust Agreement, moneys in all Funds held by the Trustee may be invested by the Trustee at the written direction of the Borrowers in Permitted Investments maturing or redeemable at the option of the holder at or before the time when such moneys are expected to be needed and shall be so invested pursuant to the written direction of the Borrowers if there is not then an Event of Default known to the Trustee. Moneys in all Funds held by the Trustee shall be held in trust solely for Holders of the Obligations and the Trustee (or the federal government in the case of the Rebate Fund). Moneys in the Debt Service Reserve Fund shall be invested by the Trustee at the direction of the Borrowers in Permitted Investments, none of which shall mature or be subject to redemption at the option of the holder more than seven years from the date of purchase; provided, that any Permitted Investment may have a final maturity date later than otherwise permitted herein to the 38

124 extent that the obligor under such Permitted Investment is required to make funds available under such Permitted Investment on the date on which funds are required therefrom for the purposes of this Loan and Trust Agreement. Any investments pursuant to this Section shall be held by the Trustee as a part of the applicable Fund and shall be sold or redeemed to the extent necessary to make payments or transfers or anticipated payments or transfers from such Fund. (b) Except as set forth below, and subject to the provisions of Section 4.05 of this Loan and Trust Agreement, earnings (which for such purposes include net profit and are after deduction of net loss) on moneys deposited in any Fund shall be retained therein. Earnings on moneys deposited in the Debt Service Reserve Fund: (i) so long as no deficiency then exists in the Debt Service Reserve Fund, shall be transferred to the Rebate Fund on any date on which a payment is due to the Rebate Fund pursuant to Section 4.05, in an amount equal to such payment (to the extent available and net of any transfers made from the Project Fund for such purpose); (ii) if any deficiency then exists in the Debt Service Reserve Fund, shall be retained therein, and (iii) otherwise, shall be transferred to the Debt Service Fund. (c) The Trustee may hold undivided interests in Permitted Investments for more than one Fund (for which they are eligible) and may make interfund transfers in kind. (d) Permitted Investments in the Debt Service Fund and in all other Funds shall be valued by the Trustee on each Interest Payment Date, pursuant to the methodology set forth in the definition of Permitted Investments; provided that Permitted Investments in the Rebate Fund shall be valued at amortized cost or market value, whichever is less. Valuations of all Funds shall also be made at such other times as shall be reasonably requested in writing by the Borrowers or the Authority and at the expense of the Borrowers. (e) If at any time the Trustee holds any uninvested cash (other than de minimis amounts which may be retained uninvested) and the Borrowers fail to direct the investment thereof, the Trustee is hereby authorized by the Borrowers, without need of any further directions, to invest such cash in accordance with the provisions of clause (h) of the definition of Permitted Investments set forth in Section (f) The Trustee may conclusively rely upon the written directions of the Borrower as to both the suitability and legality of the directed investments. Ratings of Permitted Investments shall be determined at the time of purchase of such Permitted Investments and without regard to ratings subcategories, and the Trustee shall have no responsibility to monitor the ratings of Permitted Investments after the initial purchase of such Permitted Investments. The Trustee may make any and all such investments through its own investment department or that of its affiliates or subsidiaries, and may charge ordinary and customary fees for such trades, including cash sweep account fees. (g) Although the Authority and the Borrowers each recognize that it may obtain a broker confirmation or written statements containing comparable information at no additional cost, the Authority and the Borrowers hereby agree that confirmations of Permitted Investments are not required to be issued by the Trustee for each month in which a monthly 39 statement is rendered. No statement need be rendered for any fund or account if no activity occurred in such fund or account during such month. ARTICLE V PAYMENTS BY THE BORROWERS Section 5.01 Loan Payments and Other Amounts Payable. (a) The Borrowers shall, jointly and severally, pay (or cause to be paid pursuant to Section 4.02 hereof) as repayment of the Loan until the principal of, premium, if any, and interest on all Obligations shall have been paid or provision for the payment thereof shall have been made in accordance with this Agreement, to the Trustee the following: FIRST: On each Monthly Disbursement Date, commencing in July, 2013, for deposit in the Debt Service Fund (after taking into consideration earnings and amounts available in the Capitalized Interest Account, as applicable) an amount sufficient to accumulate, in equal monthly installments, an amount equal to (a) interest due on the next succeeding Interest Payment Date and (b) the principal due on the Obligations on the next succeeding principal payment date for the Obligations; SECOND: On each Monthly Disbursement Date, to the Debt Service Reserve Fund one-sixth (1/6) of the amount required, if any, under Section 4.03 of this Agreement, for amounts therein to be equal to the Debt Service Reserve Fund Requirement; and THIRD: On the last Business Day of every Bond Year and continuing until the full amount is so paid to the Rebate Fund, any amount, as calculated by the Rebate Analyst, is required by the Borrower to be deposited in the Rebate Fund. FOURTH: Within one Business Day after each Monthly Disbursement Date, commencing July, 2015, to the Repair and Replacement Fund, any amounts then due with respect to Repair and Replacement Fund Requirement as required by Sections 4.04 of this Agreement. (b) On or before the date of any redemption of the Bonds, the Borrowers shall pay as repayment of the Loan for deposit into the Debt Service Fund an amount of money which, together with the payments made by the Borrowers then on deposit in the Debt Service Fund, is sufficient to pay the principal of and premium, if any, on the Bonds called for redemption and for deposit into the Debt Service Fund an amount of money which, together with the payments made by the Borrowers then on deposit in the Debt Service Fund, is sufficient to pay the interest accrued to the redemption date of Bonds called for redemption. (c) During the term of this Loan and Trust Agreement, the Borrowers shall pay or provide for the payment of all taxes and assessments, general or special, concerning or in any way related to the Mortgaged Property or any part thereof, and any other governmental charges and impositions whatsoever related to the Mortgaged Property, and premiums for insurance policies maintained on the Mortgaged Property as required by this Loan and Trust Agreement. 40 (d) The Borrowers agree to pay or cause to be paid to the Trustee the reasonable and necessary fees and expenses of the Trustee, including its attorney fees and expenses, as and when the same become due, upon submission of a statement therefor; provided that the Borrowers may, without causing a default hereunder, contest in good faith any such fees or expenses. (e) The Borrowers shall pay or cause to be paid to the Trustee for deposit to the Rebate Fund all amounts required to be paid pursuant to the Tax Certificate at the times and in the manner specified therein. (f) The Borrowers agree to pay or cause to be paid to the Authority any amounts required to reimburse the Authority for any expenses incurred by the Authority, whether out-of-pocket or internal, in connection with this Loan and Trust Agreement, the Bonds, the Tax Certificate, the Bond Purchase Agreement, the 2013 Project or any other instrument or action relating to the foregoing, including fees and disbursements of attorneys of the Authority. The Borrowers agree that the payment under this Loan and Trust Agreement shall be a net return to the Authority over and above any taxes or charges of any nature whatsoever which may currently or hereafter be imposed on the receipts of the Authority under this Loan and Trust Agreement. (g) The Borrowers covenant to maintain the balance on deposit in the Debt Service Reserve Fund at an amount not less than the Debt Service Reserve Fund Requirement, as provided in Section 4.03(b). In the event the Borrowers should fail to make or fail to cause to be made any of the payments required by this Section, the item or installment in default shall continue as an obligation of each Borrower until the amount in default shall have been fully paid, and the Borrowers agree to pay the same and, with respect to the payments required by subsections (a), (b), (d), (e), and (f) of this Section 5.01 hereof, to pay interest at the highest rate of interest borne by any of the Bonds, or the maximum rate permitted by law if less than such rate. Section 5.02 Management Company Fees. Payment of any and all Management Company Fees will be subordinate to the payment of debt service on the Bonds, and shall be paid directly by the Trustee to the Management Company in accordance with Section 4.02 herein Section 5.03 Pledge By Borrowers. In fulfillment of its obligations hereunder, each Borrower hereby pledges to the payment of the Loan the following: (i) all of such Borrower s right, title and interest in and to the 2013 Project, including all related additions, replacements, substitutions and proceeds for the purposes of securing such Loan; (ii) all Pledged Revenues, except that School District Payments shall be paid directly to the Trustee in accordance with Section 4.02 herein; and (iii) any and all other interests in real or personal property of every name and nature from time to time hereafter by delivery or by writing of any kind specifically mortgaged, pledged or hypothecated, as and for additional security by such Borrower or by anyone on its behalf. Section 5.04 Payees of Payments. The Loan Payments provided for in Section 5.01(a) hereof shall be paid in funds immediately available in the city in which the designated office of the Trustee is located directly to the Trustee for the account of the Authority 41 and shall be deposited into the Debt Service Fund or the other Funds identified in Section 5.01(a) above as appropriate. The payments to be made to the Trustee under Section 5.01(d) hereof shall be paid directly to the Trustee for its own use. The payments provided for in Section 5.01(e) hereof shall be paid to the Trustee for the account of the Authority and deposited into the Rebate Fund. The payments to be made to the Authority under Section 5.01(f) hereof shall be paid to the Trustee for further credit to the Authority. Section 5.05 Obligations of Borrowers Hereunder Unconditional. Except as provided herein, the obligations of the Borrowers to make the payments required hereunder and to perform and observe the other agreements on its part contained herein shall be absolute and unconditional. This Loan and Trust Agreement is a general obligation of each Borrower. The Borrowers (a) will not suspend or discontinue, or permit the suspension or discontinuance of, any payments provided for herein, (b) will perform and observe all of its other agreements contained in this Agreement, the Mortgage and the Lease, and (c) except as provided in Article VIII hereof, will not terminate this Agreement for any cause including, without limiting the generality of the foregoing, any acts or circumstances that may constitute failure to complete the 2013 Project, failure of consideration, eviction or constructive eviction, destruction of or damage to the 2013 Project, commercial frustration of purpose, or change in the tax or other laws or administrative rulings of or administrative actions by the United States of America or the Commonwealth or any political subdivision of either, any failure of the Authority to perform and observe any agreement, whether express or implied, or any duty, liability, or obligation arising out of or connected with this Agreement, whether express or implied, or any failure of the Trustee to perform and observe any agreement, whether express or implied, or any duty, liability or obligation arising out of or connected with this Agreement, whether express or implied. The Borrowers may at their own cost and expense and in its own name or in the name of the Authority, prosecute or defend any action or proceeding or take any other action involving third Persons which such Borrower deems reasonably necessary in order to secure or protect its or its lessees rights of possession, occupancy and use of the 2013 Project. ARTICLE VA REPRESENTATIONS Section 5.01A Representations by the Authority. The Authority represents that: (a) The Authority is a public instrumentality and a body corporate and politic of the Commonwealth, created pursuant to the Act; (b) The Authority has found and hereby declares that the issuance of the Bonds to assist the financing of the 2013 Project is in furtherance of the public purposes set forth in the Act; (c) In order to finance the costs of the 2013 Project, in an amount estimated by the Borrowers, the Authority has duly authorized the execution, delivery, and performance on its part of the Bond Purchase Agreement for the Bonds by and among the Authority, the Underwriter, the Borrowers and the School, and this Loan and Trust Agreement; 42

125 (d) To accomplish the foregoing, the Authority proposes to issue the Bonds immediately following the execution and delivery of this Loan and Trust Agreement. The date, denomination or denominations, interest rate or rates, maturity schedule, redemption provisions and other pertinent provisions with respect to the Bonds are set forth in this Loan and Trust Agreement; (e) The Authority makes no representation or warranty that the amount of the Loan will be adequate or sufficient to finance the 2013 Project or that the 2013 Project will be adequate or sufficient for the purposes of the Borrowers; (f) The Authority has not pledged, assigned, or granted, and will not pledge, assign, or grant any of its rights or interest in or under this Loan and Trust Agreement for any purpose other than as provided for herein; (g) There are no actions, suits, proceedings, inquiries, or investigations pending or, to the knowledge of the Authority, threatened against or affecting the Authority in any court or by or before any governmental authority or arbitration board or tribunal, which involve the possibility of materially and adversely affecting the transactions contemplated by this Agreement or which, in any way, would adversely affect the validity or enforceability of this Agreement, or any agreement or instrument to which the Authority is a party and which is used or contemplated for use in the consummation of the transactions contemplated hereby or thereby, nor is the Authority aware of any facts or circumstances presently existing which would form the basis for any such actions, suits, or proceedings; (h) Neither the Authority nor any of its activities or properties, nor any relationship between the Authority and any other Person, nor any circumstance in connection with the offer, issue, sale, or delivery of the Bonds, is of a character so as to require the consent, approval, permission, order, license, or authorization of, or the filing, registration, or qualification with, any governmental authority on the part of the Authority in connection with the execution, delivery and performance of this Agreement and the consummation of any transaction herein contemplated, or the offer, issue, sale, or delivery of the Bonds, except as shall have been obtained or made and as are in full force and effect, other than the recording of the Mortgage and the filing of financing statements or instruments effective as financing statements perfecting the security interests created by this Agreement and the Mortgage; (i) To the knowledge of the Authority, the Authority is not in default or violation in any respect material to the Bonds, under the Act or under any agreement or instrument to which it is a party or by which it may be bound; (j) The representations of the Authority contained in this Agreement and any certificate, document, written statement, or other instrument furnished to the Trustee or the Underwriter by or on behalf of the Authority in connection with the transactions contemplated hereby do not contain any untrue statement of a material fact relating to the Authority and do not omit to state a material fact relating to the Authority necessary in order to make the statements contained herein and therein relating to the Authority not misleading; (k) All acts, conditions, and things required to exist, happen, and be performed by the Authority precedent to and in the execution and delivery by the Authority of the Bonds do exist, have happened, and have been performed in due time, form, and manner as required by law; the issuance of the Bonds, together with all other obligations of the Authority, do not exceed or violate any constitutional or statutory limitation; and (i) The Authority, in connection with the execution of the Tax Certificate, hereby covenants and agrees to comply with all requirements of the Code, compliance with which subsequent to the issuance of the Bonds is necessary for interest on the Tax-Exempt Bonds to be, and to remain, excluded from the gross income of the Owners thereof for federal income tax purposes and not to take any actions that would adversely affect such exclusion under the provisions of the Code. Section 5.02A Representations by the Borrowers. The Borrowers represent and covenant that: (a) Each Borrower has been duly authorized to execute each of the Bond Documents and consummate all of the transactions contemplated thereby, and the execution, delivery, and performance of the Bond Documents will not conflict with or constitute a breach of or default by either Borrower under any other instrument or agreement to which either Borrower is a party or to which its property is bound. (b) Each Borrower s execution, delivery, and performance of the Bond Documents shall not constitute a violation of any order, rule, or regulation of any court or governmental agency having jurisdiction over either Borrower. (c) Neither Borrower has received any notice of any pending or threatened actions, suits, or proceedings of any type whatsoever affecting such Borrower, such Borrower s property, or such Borrower s ability to execute, deliver, and perform with respect to any of the Borrower s Documents, except as otherwise set forth in the Preliminary Official Statement and the Official Statement. (d) Each School Facility consists of land, buildings, facilities, and/or equipment being or to be utilized as a public charter school, and the 2013 Project is a project within the provisions of the Act and is located entirely within the City of Philadelphia, Pennsylvania. (e) Neither the representations of any Borrower contained in the Bond Documents, the Official Statement nor any oral or written statements, furnished by a Borrower, nor written statements furnished on behalf of a Borrower, to the Authority, Bond Counsel or the Underwriter in connection with the transactions contemplated hereby, contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements contained herein or therein not misleading. There are no facts that a Borrower has not disclosed to the Authority and the Underwriter in writing that materially and adversely affect or in the future may (so far as either Borrower can now reasonably foresee) materially and adversely affect the properties, business, prospects, profits, or condition (financial or otherwise) of either Borrower, or the ability of either Borrower to perform its obligations under the Bond Documents or any documents or transactions contemplated hereby or thereby. (f) During the term of this Loan and Trust Agreement, the Borrowers intend to and will utilize or cause the 2013 Project and the facilities and equipment financed with the proceeds of the Bonds to be utilized as a project within the meaning of the Act as in effect on the date hereof. (g) The use of the 2013 Project, as it is proposed to be operated, complies with all presently applicable zoning, development, pollution control, water conservation, Environmental Requirements, and other laws, regulations, rules, and ordinances of the federal government and the Commonwealth and the respective agencies thereof and the political subdivisions in which the 2013 Project is located. (h) The Borrowers have obtained, or will obtain before they are required, all necessary approvals of and licenses, permits, consents, and franchises from federal, state, county, municipal, or other governmental authorities having jurisdiction over the 2013 Project to acquire, construct, improve, equip, rehabilitate, and operate the 2013 Project, and to enter into, execute, and perform its obligations under this Loan and Trust Agreement and the other Bond Documents. (i) To the best of each Borrower s knowledge the 2013 Project, as designed and as proposed to be operated or caused to be operated by the Borrowers will meet all material requirements of law, including requirements of any federal, state, county, city or other governmental authority having jurisdiction over the 2013 Project or its use and operation. (j) There has been no material adverse change in the financial condition, prospects, or business affairs of either Borrower or the feasibility or physical condition of any School Facility subsequent to the date on which the Authority adopted its resolution approving the issuance of the Bonds. (k) Each Borrower (i) understands the nature of the structure of the transactions related to the financing of the 2013 Project; (ii) is familiar with all the provisions of the documents and instruments related to such financing to which each Borrower or the Authority is a party or which each Borrower is a beneficiary; (iii) understands the risk inherent in such transactions, including, without limitation, the risk of loss of the 2013 Project; and (iv) has not relied on the Authority for any guidance or expertise in analyzing the financial consequences of such financing transactions or otherwise relied on the Authority in any manner, except to issue the Bonds in order to provide funds for the Loan. (l) The Borrowers hereby acknowledge receipt hereof, agree to be bound by its terms, and accept all obligations and duties imposed hereby. (m) All representations of the Borrowers contained herein or in any certificate or other instrument delivered by the Borrowers pursuant hereto, or in connection with the transactions contemplated hereby, shall survive the execution and delivery thereof and the 45 issuance, sale, and delivery of the Bonds as representations of facts existing as of the date of execution and delivery of the instrument containing such representations. (n) Neither Borrower shall change its name unless prior to the effective date of such change the Borrowers shall have delivered to the Trustee an Opinion of Counsel to the effect that all filings and other actions necessary under the Uniform Commercial Code and other applicable law in order to preserve and protect such Lien and security interest following such name change have been made and taken. (o) None of the income or profit of either Borrower has or will inure to the benefit of any private parties. Upon dissolution of either Borrower, all of the assets of the such Borrower will be transferred as permitted by its Articles of Incorporation, or to an organization formed to support such an organization. Any such transfer shall be subordinate to the rights of the Holders. (p) During the term of this Loan and Trust Agreement, the Borrowers shall cause the School to comply with the financial covenants set forth in Section 19 of the Lease. Section 5.03A Pledged Revenues Upon Default. Each Borrower covenants and agrees that, from the date of occurrence of any Event of Default and subject to applicable cure provisions and until the date on which no such Events of Default exist that: (1) the Borrowers agree to require, pursuant to each Lease, that the School execute an irrevocable direction to the School Districts not previously notified in accordance with Section 4.02 above, in substantially the form attached hereto as Exhibit D to each Lease, directing that such School Districts make all School District Payments commencing upon an Event of Default to an account held by the Trustee for the benefit of the Borrowers and then transferred on a daily basis to the Revenue Fund; and (2) the Borrowers shall direct the payers of all other Pledged Revenues to pay such Pledged Revenues directly to the Trustee. Section 5.04A Title Insurance; Mortgage. (a) On the date of recordation of the Mortgage, the Trustee shall be provided with an extended form mortgagee s title insurance policy insuring the Trustee s interest in and Lien against the Mortgaged Property, and the other property subject to the Mortgage, subject to Permitted Liens, in an amount not less than the principal amount of the Bonds with respect to the mortgagee s policy, a copy of which shall be delivered by the Borrowers to the Trustee. Each such policy shall be of a standard or extended American Land Title Association Policy, as applicable, and may not permit the title insurer to purchase any Bonds in lieu of providing payment under the policy unless, upon purchase, such Bonds are cancelled. Upon the date of issuance of the Bonds, the Mortgage shall be recorded in the real property records of the County of Philadelphia and provide the Trustee with a perfected first priority Lien interest in the 2013 Project and the other property subject to the Mortgage, subject to any Permitted Liens. (b) Upon the execution by the Borrowers of the Mortgage and its subsequent recording, and upon the execution and filing of UCC-1 financing statements or amendments thereto, the Trustee will have a valid first priority Lien on the Mortgaged Property and a valid security interest in the personal property subject to no Liens, charges or encumbrances other than 46

126 the Permitted Liens, and the Borrowers will take all necessary actions including filing continuation statements to preserve such Lien and security interest. ARTICLE VI MAINTENANCE, TAXES AND INSURANCE; DAMAGE TO OR DESTRUCTION OF MORTGAGED PROPERTY Section 6.01 Insurance Required. From the closing date of the purchase of the Bonds through the expiration of this Loan and Trust Agreement, the Borrowers shall keep, or cause to be kept, the Mortgaged Property insured against the following risks, paying as the same become due and payable all premiums with respect thereto: (a) Insurance against loss or damage to the Mortgaged Property and all improvements therein (including, during any period of time when the Borrowers are making alterations, repairs or improvements to the Mortgaged Property, improvements and betterments coverage), all subject to standard form exclusions, with uniform standard extended coverage endorsement limited only as may be provided in the standard form of extended coverage endorsement at the time in use in the Commonwealth, in an amount equal to the full replacement value of the Mortgaged Property. (b) Business interruption insurance in an amount equal to twelve (12) months of budgeted Operating Expenses for any period of improvement or restoration. The period of restoration shall begin with the date of direct physical loss and shall end on one year from such date the period of restoration begins. (c) Commercial general liability, professional liability and automobile liability insurance against claims arising in, on or about the Mortgaged Property, including in, on or about the sidewalks or premises adjacent to the Mortgaged Property, providing coverage limits not less than the coverage limits customarily carried by owners or operators of Mortgaged Property of similar size and character within the Commonwealth; provided, that the following specific coverage limits shall be deemed to comply with this paragraph: (i) commercial and general liability with an aggregate limit of $2 million ($1 million for personal injury) and a limit of $1 million per claim; (ii) auto insurance with an aggregate limit of $1 million; and (iii) excess or umbrella insurance with a limit of $1 million. (d) During the period of construction of any alteration, improvement or addition to the Mortgaged Property, the Borrowers will maintain or cause the following insurance coverages to be maintained: (1) builders risk (or equivalent coverage) insurance upon any work done or materials furnished under construction contracts except excavations, foundations and any other structures not customarily covered by such insurance, such policies to be written in completed value form for one hundred percent (100%) of the insurable value of the contract; and (2) worker s compensation and employer s liability insurance covering all employees of contractors and subcontractors in amounts required by law. (e) Such other forms of insurance as are customary in the industry or as the Borrower is required by law to provide with respect to the Mortgaged Property, including, 47 without limitation, any legally required worker s compensation insurance and disability benefits insurance. All the insurance coverage required by this Section may be subject to deductible clauses in such amounts as are customary for Mortgaged Property of similar size, type and character within the Commonwealth. On the date of the issuance of the Bonds and at least once every year thereafter, the Borrowers shall employ (or cause to be employed), at the Borrowers expense, an Insurance Consultant to review the insurance coverage required by this Section and to render to the Authority and the Trustee a report as to the adequacy of such coverage and as to its recommendations, if any, for adjustments thereto. The Borrowers shall pay any fees charged by such Insurance Consultant and any expenses incurred by the Authority and the Trustee. All policies maintained (or caused to be maintained) by the Borrowers pursuant to this Section shall be taken out and maintained with generally recognized, responsible insurance companies rated not less than A by A.M. Best Company, Inc., authorized to do business in the Commonwealth, which may include captive insurance companies or governmental insurance pools, selected by the Borrowers. The insurance policies required by subsections (a) and (b) of this Section shall name the Trustee, the Authority and the Borrowers as insureds as their respective interests may appear (provided that with respect to insurance maintained pursuant to subsection (a) of this Section and Section 7.17 hereof, the Trustee shall also be named as a mortgagee under the terms of a standard Pennsylvania mortgagee loss payable endorsement), and the Trustee shall also be named as an additional insured on the policy required by subsection (c) of this Section, and, provided further that all insurance proceeds for losses, and except for worker s compensation, fidelity insurance and liability insurance, shall be paid directly to the Trustee. Such policies or certificates of insurance shall (i) provide that (except as to insurance required pursuant to subsection (d) of this Section) the insurer will mail thirty (30) days written notice to the Authority and the Trustee of any reduction in amount, material change in coverage or cancellation prior to expiration of such policy, and (ii) be satisfactory in all other respects to the Authority. The Borrowers shall deliver to the Trustee (a) upon the commencement of the term of this Loan and Trust Agreement, the certificate of insurance which the Borrowers are then required to maintain pursuant to this Section together with a certificate of the Insurance Consultant to the effect that such certificate of insurance complies with this Section 6.01, (b) at least thirty (30) days prior to the expiration of any such policies evidence as to the renewal thereof, if then required by this Section, and (c) promptly upon request by the Authority or the Trustee, but in any case within ninety (90) days after the end of each Fiscal Year, a certificate of the Insurance Consultant setting forth the particulars as to all insurance policies maintained by the Borrowers pursuant to this Section and certifying that such insurance policies are in full force and effect, that such policies comply with the provisions of this Section and that all premiums then due thereon have been paid. The Trustee shall have no responsibility for monitoring, reviewing, or receiving insurance policies required under this Section or for the sufficiency of such insurance, notwithstanding having received the certificates of insurance pursuant to the preceding paragraph. 48 The net proceeds of the insurance carried pursuant to subsections (a) and (b) above shall be applied as provided in Section 6.03 hereof. The Net Proceeds of insurance carried pursuant to subsections (c) and (d) above shall be applied toward extinguishment or satisfaction of the liability with respect to which such insurance proceeds have been paid. Section 6.02 Casualty; Condemnation; Loss of Title. If the Mortgaged Property shall be wholly or partially destroyed or damaged by fire or other casualty covered by insurance required hereunder, or if the Mortgaged Property shall be wholly or partially condemned, taken or injured by any Person, including any Person possessing the right to exercise the power of or a power in the nature of eminent domain or transferred to such a Person, by way of a conveyance in lieu of the exercise of such a power by such Person, or if any part of the Mortgaged Property shall be lost because of failure of title, each Borrower covenants that it will take all actions and will do all things which may be necessary to enable recovery to be made upon such policies of insurance or on account of such taking, condemnation, conveyance, damage, injury or loss of title in order that moneys due on account of losses suffered may be collected and paid to the Trustee. Any appraisement or adjustment of loss or damage and any settlement or payment therefor, which may be agreed upon by the appropriate Borrower and the appropriate insurer or condemnor or Person, shall be evidenced to the Trustee and the Authority by an Officer s Certificate. The Borrowers shall notify the Trustee of any casualty in excess of $500,000. The Trustee may rely conclusively upon such Officer s Certificate. Section 6.03 Proceeds of Insurance or Condemnation Award. In the event of a casualty or condemnation with respect to the Mortgaged Property, and so long as no Event of Default exists and is continuing, the proceeds from any insurance policy or the proceeds of any condemnation award resulting from such casualty or condemnation shall be used to repair or replace the portion of the Mortgaged Property damaged, destroyed or taken or to prepay the Loan in accordance with the terms hereof in accordance with the following provisions: (a) In the event of a casualty or condemnation that results in an award less than or equal to $500,000 (which amount shall be increased as of each January 1st by a percentage equal to the past year s increase in the Consumer Price Index for the County of Philadelphia (the CPI Adjustment ) as provided by the Borrowers to the Trustee by evidence reasonably acceptable to the Trustee) from any insurance policy or condemnation awards, such proceeds shall be paid directly to the applicable Borrower to provide for the repair, replacement or restoration of the Mortgaged Property to substantially the same condition as it was prior to such damage, destruction or condemnation. (b) Whenever such net proceeds from any insurance policy or condemnation award are greater than $500,000 (plus the applicable CPI Adjustment), such net proceeds shall be paid to the Trustee and held in a special trust account to be applied to repair, replace or restore the Mortgaged Property or, if applicable, to the prepayment of the Loan in the event of an extraordinary redemption of the Bonds or any Parity Obligations as provided therein. The proceeds in such special trust account shall be disbursed by the Trustee for the repair, restoration or replacement of the Mortgaged Property upon the receipt by the Trustee from the Borrowers of (i) an Architect s Certificate which substantially states that such repairs, replacements or restorations will restore the Mortgaged Property to substantially its original condition, will be 49 completed in accordance with plans and specifications previously provided to the Trustee, and that such repairs, replacements or restorations when completed in accordance with the plans and specifications previously furnished to the Trustee will comply with all applicable statutes, codes and regulations; (ii) a certificate of an Authorized Officer of the applicable Borrower stating that sufficient moneys are available in such special trust account to pay for such repair, restoration or replacements to be completed and together with available business interruption insurance and other available Pledged Revenues, to pay debt service on the Bonds and Operating Expenses of the Mortgaged Property during the restoration period; (iii) requisitions and certificates from the applicable Borrower substantially similar to those specified in a disbursing agreement; (iv) applicable Lien waivers; (v) a construction contract; (vi) evidence of the existence of performance and payment bonds therefor; (vii) evidence that the applicable Borrower has acquired all permits and licenses necessary for such construction; and (viii) an opinion of Bond Counsel to the effect that neither such repairs, replacements nor restorations nor such use of such casualty or condemnation proceeds adversely affects the exclusion from gross income for federal income tax purposes of interest on the Tax-Exempt Bonds. The construction contracts for the restoration of the Mortgaged Property shall specify that the Trustee shall retain ten percent (10%) of the requested disbursements to be disbursed upon final completion of the repairs, replacements, restorations or improvements as certified by the Architect and receipt of certificates of occupancy, waivers of Liens and, an endorsement to the title policy for the Mortgaged Property insuring the continued priority of the Mortgage. If at any time during the restoration, the insurance or casualty proceeds are less than the estimated costs to restore, repair or replace the Mortgaged Property, the Borrowers shall provide the Trustee with cash or cash equivalents in an amount equal to the shortfall. If after completion of any such repairs, replacements, or improvements any funds remain in said special trust fund, the remaining funds shall be transferred by the Trustee to the Debt Service Fund, and used to prepay the Loan and to redeem Bonds and satisfy any Parity Obligations pursuant to the terms thereof with respect to extraordinary redemption. Notwithstanding the above provisions, all proceeds of business interruption insurance shall be paid to the Trustee and deemed to be Pledged Revenues for purposes of this Loan and Trust Agreement. (c) Notwithstanding any of the foregoing, if net proceeds from the casualty or condemnation of all or any portion of the Mortgaged Property exceed $500,000, and the Loan is not otherwise to be prepaid pursuant to requirements relating to extraordinary redemption of the Bonds or any Parity Obligations as provided therein, the Borrowers shall immediately notify the Trustee regarding such casualty or condemnation and shall, no later than thirty (30) days following the occurrence of the events resulting in the casualty or condemnation, notify the Trustee in writing whether or not the Borrowers intend to repair or rebuild the Mortgaged Property. If the Borrowers do not intend to repair or rebuild the Mortgaged Property, the Trustee shall cause such insurance proceeds to be used to prepay the Loan as provided in in the form of 2013 Bond set forth in Exhibit A. If the Borrowers intend to repair or rebuild the Mortgaged Property, said notice from Borrowers shall contain the following additional information, together with a statement from an Authorized Officer of the affected Borrower certifying to the accuracy of such information: (i) a description of the damaged, destroyed or taken portion of the Mortgaged Property; (ii) the estimated time to complete repair, replacement or restoration of the damaged, destroyed or taken portion of the Mortgaged Property, as determined by a qualified independent contractor retained by the affected Borrower; (iii) the total estimated cost of such 50

127 replacement, repair or restoration, as determined by a qualified independent contractor retained by the affected Borrower; and (iv) the source of funds the Borrowers have available (including, but not limited to, insurance proceeds), to complete the repair, replacement or restoration and to make payments due under this Agreement during the period of repair, replacement or restoration. Section 6.04 No Change in Loan Payments; No Liens. All buildings, improvements and equipment acquired in the repair, rebuilding or restoration of the 2013 Project shall be deemed a part of the 2013 Project and shall be available for use and occupancy by the Borrowers, without the payment of any payments hereunder other than the Loan Payments and other payments required to be made under this Loan and Trust Agreement, to the same extent as if they were specifically described herein; provided that no buildings, improvements or equipment shall be acquired subject to any Lien or encumbrance other than Permitted Liens. Section 6.05 Advances by Authority or Trustee. In the event the Borrowers shall fail to maintain the full insurance coverage required by this Loan and Trust Agreement or shall fail to keep the Mortgaged Property in the condition required hereby (except as otherwise herein permitted), the Authority or the Trustee may (but shall be under no obligation to) take out the required policies of insurance and pay the premiums on the same, or make the required repairs, renewals and replacements; and all amounts advanced therefor by the Authority or the Trustee shall become an additional obligation of the Borrowers under this Loan and Trust Agreement to the one making the advance, which amounts the Borrowers agree to pay on demand together with interest thereon at a rate which shall be three percent (3%) per annum above the highest interest rate borne by any of the Bonds or the maximum rate permitted by law if less than such rate. Section 7.01 ARTICLE VII COVENANTS AND WARRANTIES Corporate Organization, Authorization and Powers. (a) Each Borrower represents and warrants that it is a not-for-profit corporation duly organized, validly existing and subsisting under the laws of the Commonwealth, with the power to enter into and perform this Loan and Trust Agreement, and that by proper corporate action it has duly authorized the execution and delivery of this Loan and Trust Agreement. Each Borrower further represents and warrants that this Loan and Trust Agreement is a valid and binding obligation of each Borrower enforceable in accordance with its terms except as enforceability may be subject to the exercise of judicial discretion in accordance with general equitable principles and to applicable bankruptcy, insolvency, reorganization, moratorium and other laws for the relief of debtors heretofore or hereafter enacted to the extent that the same may be constitutionally applied, and the execution and delivery of this Loan and Trust Agreement and the consummation of the transactions contemplated herein will not conflict with or constitute a breach of or default under, of (i) any bond, agreement, note or other evidence of Indebtedness of either Borrower, or (ii) any contract, lease or other instrument to which either Borrower is a party or by which it is bound or cause either Borrower to be in violation of any applicable statute or rule or regulation of any governmental authority. (b) Each Borrower covenants that it will not engage in any activity other than its current activities, and activities reasonably related thereto and such other activities as may be required to preserve its status under Section 501(c)(3) of the Code. Section 7.02 Tax Status and Eligibility for Financing. Each Borrower represents and warrants that (i) it is an organization described in Section 501(c)(3) of the Code (or corresponding provisions of prior law) and it is not a private foundation as defined in Section 509 of the Code (or corresponding provisions of prior law); (ii) it has received a letter from the Internal Revenue Service to that effect; (iii) such letter has not been modified, limited or revoked; (iv) it is in compliance with all terms, conditions and limitations, if any, contained in such letter; (v) the facts and circumstances which form the basis of such letter continue substantially to exist as represented to the Internal Revenue Service; and (vi) it is exempt from federal income tax under Section 501(a) of the Code. The application of the proceeds of the 2013 Bonds in the manner described herein does not constitute a use by either Borrower with respect to a trade or business that is an unrelated trade or business as defined in Section 513(a) of the Code. Each Borrower agrees that it will not take any action or omit to take any action or cause or permit any circumstance within its control to arise or continue if such action or circumstance or omission would cause any revocation or adverse modification of such federal income tax status, unless it obtains an Opinion of Bond Counsel that such revocation or modification will not adversely affect the exclusion from gross income under Section 103 of the Code of interest paid on the Tax-Exempt Bonds Section 7.03 Tax Covenants. The Authority covenants that it will not knowingly take any action or fail to take any action it is requested to take, and each Borrower covenants that it will not take any action, or fail to take any action, if any such action or failure to take action would adversely affect the exclusion from gross income of the interest on the Tax- Exempt Bonds under Section 103(a) of the Code. Neither the Authority nor the Borrowers will directly or indirectly use or permit the use of any proceeds of the Tax-Exempt Bonds or any other funds of the Authority or the Borrowers, or take or omit to take any action, that would cause the Tax-Exempt Bonds to be arbitrage bonds within the meaning of Section 148(a) of the Code. To that end, the Authority and the Borrowers will comply with all requirements of Section 148 of the Code to the extent applicable to the Tax-Exempt Bonds. In the event that at any time the Authority or the Borrowers are of the opinion that for purposes of this Section 7.03 it is necessary to restrict or limit the yield on the investment of any moneys held by the Trustee under this Loan and Trust Agreement or otherwise, the Authority or the Borrowers shall so instruct the Trustee in writing, and the Trustee shall take action in accordance with such instructions. Each Borrower also covenants that it will not purchase, nor will it permit any Person related to it within the meaning of Section 147(a)(2) of the Code to purchase, bonds of the Authority pursuant to any formal or informal arrangement in an amount related to the total amount payable under and secured by this Loan and Trust Agreement. Notwithstanding any provisions of this Agreement, if the Borrowers shall provide to the Authority and the Trustee an Opinion of Bond Counsel that any specified action required hereunder is no longer required or that some further or different action is required to maintain the exclusion from federal income tax of interest on the Tax-Exempt Bonds, the Authority, the Trustee and the Borrowers may conclusively rely on such opinion in complying with the requirements of this Agreement and be protected in so doing, and the covenants hereunder shall be deemed to be modified to that extent. Section 7.04 Permitted Liens. Neither Borrower will grant any liens on the Mortgaged Property or the Pledged Revenues, other than the lien against the Pledged Revenues effected by this Loan and Trust Agreement and Permitted Liens. Section 7.05 Maintenance of Corporate Existence. Each Borrower agrees that during the term of this Loan and Trust Agreement it will maintain its corporate existence, will continue to be a nonprofit corporation duly qualified to do business in the Commonwealth, will not merge or consolidate with, or sell or convey, all or substantially all of its assets to, any Person unless no Event of Default has occurred and is continuing and it first acquires the consent of the Authority to such transaction, provides to the Trustee notice of its intent at least thirty (30) days in advance of such consolidation, merger, sale or conveyance, and unless the acquirer of such assets or the corporation with which it shall be consolidated or the resulting corporation in the case of a merger: (a) shall assume in writing the performance and observance of all covenants and conditions of this Loan and Trust Agreement; (b) shall provide the Authority and the Trustee with an Opinion of Bond Counsel acceptable to the Authority to the effect that such merger, consolidation, sale or conveyance, would not adversely affect the validity of any of the Bonds or the exclusion from gross income for federal income tax purposes of interest on the Tax-Exempt Bonds; (c) shall provide the Authority and the Trustee with an Opinion of Counsel to the Borrowers (which may be rendered in reliance upon the Opinion of Counsel to such other corporation), stating that none of the other corporations which are a party to such consolidation, merger or transfer has any pending litigation other than that arising in the ordinary course of business or, has any pending litigation which might reasonably result in a substantial adverse judgment. For the purposes of the preceding sentence, the term substantial adverse judgment shall mean a judgment in an amount which exceeds the insurance or reserves therefor by a sum which is more than two percent (2%) of the aggregate net worth of the resulting, surviving or transferee corporation immediately after the consummation of such consolidation, merger or transfer and after giving effect thereto; (d) shall deliver to the Trustee prior to the close of such transaction, copies of all documents executed in connection therewith, one document of which shall include an Opinion of Counsel to the Borrowers that all conditions herein have been satisfied and that all liabilities and obligations of the Borrowers under the Bond Documents shall become obligations of the new entity; provided, however, the Borrowers shall not be released from same; (e) in the case of a consolidation, merger, sale or conveyance, shall provide evidence to the Trustee and the Authority, which may be an Opinion of Counsel, that the entity can continue to operate the 2013 Project as a charter school in accordance with the Pennsylvania Charter School Law, the Act of June 19, 1997, P.L. 225, No. 22, as amended ( Act 22 ) and that the entity is entitled to receive the School District Payments; and (f) provide written confirmation from S&P that such transaction will not cause the downgrade or withdrawal of any rating of the Bonds. Section 7.06 Compliance with Laws. Each Borrower shall conduct its affairs and carry on its business and operations in such manner as to comply in all material respects with any and all applicable laws of the United States and the Commonwealth and duly observe and conform in all material respects to all valid orders, regulations or requirements of any government authority relative to the conduct of its business and the ownership of its Property; provided, nevertheless, that nothing in this Loan and Trust Agreement shall require it to comply with, observe and conform to any such law, order, regulation or requirement of any governmental authority so long as the validity thereof shall be contested in good faith. Section 7.07 Payment of Obligations and Indebtedness. Each Borrower shall promptly pay or otherwise satisfy and discharge all of its obligations and Indebtedness and all demands and claims against it as and when the same become due and payable, other than any thereof (exclusive of the Obligations) whose validity, amount or collectability is being contested in good faith by appropriate proceedings; provided that, if by nonpayment of any such sums, the 53 54

128 pledge and security interest of this Loan and Trust Agreement will be impaired or any material property of either Borrower will be subject to imminent loss or forfeiture, such sums shall be paid immediately. Section 7.08 Licenses and Permits. Each Borrower shall procure and maintain all licenses, permits, approvals, certifications and accreditations issued by any regulatory bodies which are necessary for the maintenance of its Property and the conduct of its operations and performance of its obligations under this Loan and Trust Agreement; provided, however, that it need not comply with this Section if and to the extent that its Governing Body shall have determined in good faith, evidenced by a resolution of the Governing Body, that such compliance is not in the best interest of such Borrower and that lack of such compliance would not materially impair the ability of such Borrower to pay its Indebtedness when due. Section 7.09 Securities Law Status. Each Borrower represents and warrants that it is an organization organized and operated exclusively for charitable purposes and not for pecuniary profit; and that no part of its net earnings inures to the benefit of any Person, private stockholder or individual, all within the meaning of the Securities Act of 1933, as amended. Each Borrower agrees that it shall not take any action or omit to take any action if such action or omission would change its status as set forth in this Section. Section 7.10 Financial Statements; Reports; Annual Certificate. (a) Maintenance of Books and Accounts. Each Borrower agrees that it will maintain and make available to the Authority and the Trustee proper books of records and accounts of all of its operations with full, true and correct entries of all of its dealings substantially in accordance with Generally Accepted Accounting Principles and such other data and information as may reasonably be requested by the Authority and the Trustee from time to time. (b) Financials. Each Borrower shall provide to the Trustee, within thirty (30) days after completion of the such Borrower s annual audit, and in no event later than one hundred eighty (180) days after the end of each Fiscal Year, a copy of the audited financial statements of each Borrower for such Fiscal Year, together with a copy of any management letter delivered by the auditors in connection with such financial statements. The Trustee shall have no duty to solicit such audited financial statements, and shall have no duty regarding such information other than to retain any such information that it receives and to transmit same in accordance herewith. (c) Accounting. Upon any Event of Default or any event which, with the giving of notice or lapse of time or both, would constitute any Event of Default, the Trustee shall have the right to direct an interim audit by a certified public accountant at the Borrowers expense and the Borrowers failure to comply with such direction within thirty (30) days after written notice of the direction from the Trustee shall be deemed a default hereunder. (d) Authority Report. With the delivery of its annual audit, each Borrower will deliver to the Trustee and the Authority a certificate executed by each Borrower s president or chief financial officer stating that: (i) a review of the activities of such Borrower during such 55 Fiscal Year and of performance hereunder has been made under such officer s supervision; and (ii) such officer is familiar with the provisions of this Loan and Trust Agreement and the Tax Certificate and to the best of such officer s knowledge, based on such review and familiarity, such Borrower has fulfilled all of its obligations hereunder and thereunder throughout the Fiscal Year, and there have been no defaults under this Loan and Trust Agreement or the Tax Certificate or, if there has been a default in the fulfillment of any such obligation in such Fiscal Year, specifying each such default known to such officer and the nature and status thereof and the actions taken or being taken to correct such default. Section 7.11 Compliance with Act 22 and the Charter. Each Borrower covenants not to take any actions which would violate Act 22 or the School s Charter so long as any Bonds remain Outstanding. Section 7.12 Taxes, Other Governmental Charges and Utility Charges. The Borrowers will pay, as the same become due, (a) all taxes and governmental charges of any kind whatsoever or payments in lieu of taxes that may at any time be lawfully assessed or levied against or with respect to the Mortgaged Property or any interest therein, or any machinery, equipment, or other property installed or brought by a Borrower therein or thereon which, if not paid, will become a Lien on the Mortgaged Property or a charge on the Pledged Revenues prior to or on a parity with the charge thereon under this Loan and Trust Agreement, (b) all utility and other charges incurred in the operation, maintenance, use, occupancy and upkeep of the Mortgaged Property and (c) all assessments and charges lawfully made by any governmental body for public improvements that may be secured by a Lien on the Mortgaged Property provided that with respect to special assessments or other governmental charges that may lawfully be paid in installments over a period of years, the applicable Borrower shall be obligated to pay only such installments as may have become due during the term of this Loan and Trust Agreement. Each Borrower may, at its own expense, but only if no Event of Default hereunder has occurred and is continuing, diligently prosecute and in good faith contest any such taxes, assessments and other charges and, in the event of any such contest, may permit the taxes, assessments or other charges contested to remain unpaid during the period of such contest and any appeal therefrom if, in the Opinion of Counsel, the School Facility shall not be subject to loss or forfeiture as a result of such nonpayment. In the event that the Borrowers are not able to obtain such Opinion of Counsel, such taxes, assessments or charges shall be paid promptly or secured by posting a bond with the Trustee in form satisfactory to the Trustee. In the event that the Borrowers shall fail to pay any of the foregoing items required by this Section to be paid by the Borrowers, the Authority or the Trustee may (but shall be under no obligation to) pay the same and any amounts so advanced therefor by the Authority or the Trustee shall become an additional obligation of each Borrower payable to the one making the advance, which amount the Borrowers agree to pay on demand together with interest thereon at a rate which shall be three percent (3%) per annum above the highest rate of interest borne by the Bonds or the maximum rate permitted by law if less than such rate. 56 Section 7.13 Limitations on Incurrence of Additional Indebtedness; Security. (a) Except as provided in this Section and subject to Section 3.03, neither Borrower will incur any Additional Indebtedness (including, without limitation, Indebtedness for borrowed money, capital leases and installment sale agreements, but excluding trade payables in the ordinary course of business) or enter into any Interest Rate Hedge, other than Obligations for which the School has agreed to make payments of rent under one or more Leases sufficient to pay the debt service thereon and which the School would be permitted to incur as Indebtedness or Operating Lease Obligations (as each such term is defined under each Lease) pursuant to the terms of the Leases if incurred directly by the School and Interest Rate Hedges for which the School has agreed to make payments of rent under the Leases sufficient to make payments due thereunder and which the School would be permitted to enter into directly pursuant to the terms of the Leases. (b) Except for Subordinated Obligations, any Indebtedness incurred as provided in this Loan and Trust Agreement may be secured only as permitted in Section 3.03(b). Section 7.14 Restrictions on Guarantees. Each Borrower covenants that it shall not enter into any Guaranty unless such Guaranty could then be incurred by such Borrower as Long-Term Indebtedness hereunder. Section 7.15 Lease or Other Disposition of the Mortgaged Property. In addition to each Lease, the Borrowers shall have the right to lease all or any part of the Mortgaged Property; provided, however, that the terms and provisions of any future leases will allow the Borrowers to comply with the provisions of this Loan and Trust Agreement and contain the restrictions upon the use of the 2013 Project contained in Section 7.16 of this Loan and Trust Agreement, and, with respect to any lease the annual rental under which is equal to or greater than five percent (5%) of the revenues of the Borrowers for the most recent Fiscal Year or, when added to the annual rental payable under all other leases of the Mortgaged Property then in force is equal to or greater than ten percent (10%) of the revenues of the Borrowers for the most recent Fiscal Year, the written consent of the Authority shall have been obtained; and provided further that any future leases will provide for rental payments to be made directly to the Trustee to the extent of then current payments required hereunder. Other than leases permitted by this Section, the Borrowers agree that they will not sell or otherwise dispose of the Mortgaged Property. Section 7.16 Nonsectarian Use. The Borrowers acknowledge that in order for the Bonds to be validly issued, it is necessary that the requirements of the United States Constitution and the Constitution of the Commonwealth with respect to the establishment and free exercise of religion be satisfied. The Authority has been advised by Bond Counsel that under the law in effect as of the date of issue of the Tax-Exempt Bonds and as interpreted by the courts, the financing of facilities for a pervasively sectarian school or the financing of nonsecular facilities (e.g., places of religious worship) could be in violation of these constitutional requirements. Each Borrower covenants that it will not operate the charter school in a pervasively sectarian manner for so long as the Tax-Exempt Bonds are outstanding and will not use the proceeds of the Tax-Exempt Bonds to acquire, construct, install, or refinance any facilities which are intended to be used, other than a de minimis amount, for sectarian purposes. Each Borrower will comply with all applicable state and federal laws concerning discrimination on the basis of race, creed, color, sex, national origin, or religious belief and will respect, permit, and not interfere with the religious beliefs of Persons working for either Borrower. The Borrowers may rely upon the Opinion of Counsel acceptable to the Authority in order to determine whether it is in compliance from time to time with the covenants contained in this paragraph. Section 7.17 Construction of Capital Additions and 2013 Project. (a) Contracts. In connection with the 2013 Project and each Capital Addition financed with the proceeds of Obligations, each Borrower agrees that: (i) it shall enter into the CM Agreement and Construction Contracts; (ii) it shall cause the applicable portions of the 2013 Project and each such Capital Addition to be completed in accordance with the Construction Contracts, if any, therefor; (iii) it shall enforce all material provisions of the CM Agreement and Construction Contracts; and (iv) if any portion of such Capital Addition involves construction, and with respect to that portion of the 2013 Project which involves construction, it shall obtain or cause the contractor performing such work to obtain the performance and payment bonds described in subsection (c) below. (b) Estimates and Schedules; Changes. The Borrowers further agree as follows with respect to the 2013 Project and each Capital Addition financed with the proceeds of Obligations, the cost of which exceeds $750,000: (i) The Borrowers shall file with the Trustee copies of (A) all Construction Contracts relating to the 2013 Project and each such Capital Addition, (B) an estimate of the costs thereof and the estimated schedule for payment of such costs, which estimates and schedules shall be approved by an Architect, to the extent that they relate to work done under Construction Contracts and (C) the plans and specifications (if any) therefor prepared by an Architect and approved by the applicable Borrower. (ii) Amendments, modifications, changes and deletions relating to the 2013 Project and each such Capital Addition, to any Construction Contract relating thereto or any estimate, schedule or plans and specifications therefor may be made at the discretion of the applicable Borrower, provided that such changes are filed with the Trustee and are in compliance with all applicable laws, acts, rules, regulations, orders and requirements. (c) Surety Bonds. In connection with the construction component of the 2013 Project and any Capital Addition financed with the proceeds of Obligations, the cost of which exceeds $750,000 (or such lower amount as required by law), the Borrowers agree to obtain or cause to be obtained by each contractor performing construction for the 2013 Project and each such Capital Addition performance and payment bonds covering performance of their respective contracts, including coverage for correction of defects developing within one year after completion and acceptance, and payment for labor and materials relating thereto. The performance and payment bonds shall be executed by a responsible surety company or companies qualified to do business in the Commonwealth, rated at the time of purchase at least A by S&P or A.M. Best Company, Inc. and reasonably satisfactory to the Insurance 57 58

129 Consultant, shall name the Trustee as a dual obligee and shall be in amounts, in the aggregate, equal to not less than one hundred percent (100%) of the guaranteed maximum price under the Construction Contract relating to such Capital Addition, including increases caused by change orders, provided that such performance and payment bonds (or portions of bonds) covering defects may be limited to ten percent (10%) of such contract prices. Such performance and payment bonds shall be delivered to the Trustee prior to the commencement of the construction in respect of which they are obtained, except that bonds covering increases under change orders may be delivered prior to the commencement of the change order and that bonds covering defects may be delivered upon completion of construction if a satisfactory commitment to issue such bonds is delivered prior to the commencement of construction. The net amounts recovered by the Borrowers on such bonds shall be deposited in the 2013 Project Fund. Section 7.18 Reserved. Section 7.19 Maintenance and Modifications of Mortgaged Property by Borrowers. Each Borrower agrees that during the term of this Agreement the Mortgaged Property shall be operated and maintained in compliance with all governmental laws, building codes, ordinances, and regulations and zoning laws as shall be applicable to the Mortgaged Property, unless the same are being contested in good faith by appropriate proceedings which operate to stay any action to foreclose or otherwise realize on any property of such Borrower. The Borrowers agree that during the term of this Agreement they will at their own expense (a) keep the Mortgaged Property in as safe condition as is required by law and (b) except to the extent the Borrowers have determined that any portion of the Mortgaged Property is worn out, obsolete or not useful in its operations, keep the Mortgaged Property in good repair and in good operating condition, making from time to time all necessary repairs thereto (including external and structural repairs) and renewals and replacements thereof, all of which shall be accomplished in a workmanlike manner in accordance with all applicable laws. The Borrowers may dispose of portions of the Mortgaged Property that the Borrowers determine to be worn out, obsolete or not useful to operations of the Mortgaged Property. The Borrowers may also, at their own expense, make from time to time any additions, modifications or improvements to the Mortgaged Property it may deem desirable for its purposes that do not substantially reduce its value; provided that all such additions, modifications and improvements made by the Borrowers which are affixed to the Mortgaged Property shall become a part of the Mortgaged Property. Neither Borrower will permit the removal of any of its personal property from the Mortgaged Property unless such personal property is worn out, obsolete, sold for fair market value or will be replaced with personal property of an equal or greater value. Neither Borrower will permit any Liens, security interests or other encumbrances other than Permitted Liens to be established or to remain against the Mortgaged Property for labor or materials furnished in connection with the Mortgaged Property or any additions, modifications, improvements, repairs, renewals or replacements made by it to the Mortgaged Property; provided that if the Borrowers first notify the Trustee in writing of their intention to do so, the Borrowers may, so long as no Event of Default has occurred and is continuing, diligently prosecute, in good faith, at their own expense, a contest of any mechanics or other Liens filed or established against the Mortgaged Property and in such event may permit the items contested to remain undischarged and unsatisfied during the period of such contest and any appeal therefrom unless the Mortgaged Property or any part thereof will be subject to loss or forfeiture, in which event the Borrowers shall promptly pay and cause to be satisfied and 59 discharged all such unpaid items. In the event that the Borrowers shall fail to pay any of the foregoing items required by this Section to be paid by the Borrowers, the Authority or the Trustee may (but shall be under no obligation to) pay the same, and any amounts so advanced therefor by the Authority or the Trustee shall become an additional obligation of each Borrower under this Loan and Trust Agreement to the one making the advance, which amount the Borrowers agree to pay on demand together with interest thereon at a rate which shall be three percent (3%) per annum above the highest rate of interest borne by any of the Bonds or the maximum rate permitted by law if less than such rate. Section 7.20 Creation of Security Interest. With respect to the Pledged Revenues governed by the UCC, this Loan and Trust Agreement shall constitute a security agreement between the Borrowers as debtors and the Trustee as assignee of the Authority s right and interests in and under this Agreement and the Borrowers hereby grant to the Trustee a security interest in the Pledged Revenues. Notwithstanding anything to the contrary contained herein, the Trustee shall not be responsible for any initial filings of any financing statements or the information contained therein (including the exhibits thereto), the perfection of any such security interests, or the accuracy or sufficiency of any description of collateral in such initial filings or for filing any modifications or amendments to the initial filings required by any amendments to Article 9 of the Uniform Commercial Code, and unless the Trustee shall have been notified in writing by the Authority that any such initial filing or description of collateral was or has become defective, the Trustee shall be fully protected in relying on such initial filing and descriptions in filing any continuation statements. Section 7.21 Redemption of Bonds. Upon the agreement of the Borrowers to deposit moneys into the Debt Service Fund in an amount sufficient to redeem Bonds subject to redemption, the Trustee, at the written request of the Borrowers, shall forthwith take all steps permitted and necessary under the applicable redemption provisions hereof to effect redemption of all or part of the then Outstanding Bonds on the redemption date, including the conditional language set forth in Section 3.04(iv) hereof. Section 7.22 Release and Indemnification Covenants. (a) Each Borrower agrees to pay, defend, protect, indemnify, and hold each of the Authority, its officers, directors, employees and agents (the Authority Indemnified Parties ) and the Trustee, its officers, directors, employees and agents (the Trustee Indemnified Parties ) harmless for, from and against (i) any and all liabilities directly or indirectly arising from or relating to the Loan, the Bond Documents, the 2013 Project and the Tax Certificate, and (ii) any and all Liabilities directly or indirectly arising from or relating to the Bonds, this Loan and Trust Agreement, or any document related to the issuance and sale of the Bonds, including, but not limited to, the following: (1) any injury to or death of any Person or damage to property in or upon the 2013 Project or growing out of or connected with the use, non-use, condition, or occupancy of the 2013 Project or any part thereof; (2) violation of any agreement, covenant, or condition of any of the Bond Documents; (3) violation of any agreement, contract, or restriction relating to the 2013 Project; (4) violation of any law, Environmental Requirement, ordinance, or regulation affecting the 2013 Project or any part thereof or the ownership, occupancy, or use thereof; (5) the issuance and sale of the Bonds; and 60 (6) any statement, information, or certificate furnished by the Borrowers to the Authority or the Trustee which is misleading, untrue, incomplete, or incorrect in any respect. The provisions of this Section 7.22 shall survive the termination of this Agreement, the defeasance of the Bonds and all other Obligations and the resignation or removal of the Trustee for any reason. (b) Subsection (a) above is intended to provide indemnification to each Authority Indemnified Party and Trustee Indemnified Party for his or her active or passive negligence or misconduct; provided, however, nothing in subsection (a) above shall be deemed to provide indemnification to any Authority Indemnified or any Trustee Indemnified Party with respect to any Liabilities arising from the successful allegation of fraud, gross negligence, or willful misconduct of such party. (c) Any party entitled to indemnification hereunder shall notify the Borrowers of the existence of any claim, demand, or other matter to which the Borrowers indemnification obligation applies, and shall give the Borrowers a reasonable opportunity to defend the same at their own expense and with counsel satisfactory to the Authority Indemnified Party and Trustee Indemnified Party, as applicable, provided that the Authority Indemnified Party and Trustee Indemnified Party shall at all times also have the right to fully participate in the defense. If the Authority Indemnified Party or Trustee Indemnified Party is advised in an Opinion of Counsel that there may be legal defenses available to either of them which are different from or in addition to those available to the Borrowers or if the Borrowers shall, after receiving notice of the Borrowers indemnification obligation and within a period of time necessary to preserve any and all defenses to any claim asserted, fails to assume the defense or to employ counsel for that purpose satisfactory to the Authority Indemnified Party and Trustee Indemnified Party, as applicable, the Authority Indemnified Party and Trustee Indemnified Party, as applicable, shall have the right, but not the obligation, to undertake the defense of, and to compromise or settle the claim or other matter on behalf of, for the account of, and at the risk of, the Borrowers. The Borrowers shall be responsible for the reasonable counsel fees, costs, and expenses of the Authority Indemnified and Trustee Indemnified Party in conducting its defense. The Borrowers shall not be considered an Indemnified Party for purposes of this Section. Section 7.23 Authority of Authorized Officer of the Borrowers. Whenever under the provisions of this Loan and Trust Agreement the approval of the Borrowers is required, or the Authority or the Trustee is required to take some action at the request of the Borrowers, such approval or such request shall be made by the Authorized Officer of each Borrower unless otherwise specified in this Loan and Trust Agreement. The Authority or the Trustee shall be authorized to act on any such approval or request and the Borrowers shall have no complaint against the Authority or the Trustee as a result of any such action taken in accordance with such approval or request. The execution of any document or certificate required under the provisions of this Loan and Trust Agreement by an Authorized Officer of each Borrower shall be on behalf of the Borrowers and shall not result in any personal liability of such Authorized Officer. Section 7.24 Authority of Authorized Officer of the Authority. Whenever under the provisions of this Loan and Trust Agreement the approval of the Authority is required, or the Borrowers or the Trustee is required to take some action at the request of the Authority, such approval or such request shall be made by the Authorized Officer of the Authority unless otherwise specified in this Loan and Trust Agreement. The Borrowers or the Trustee shall be authorized to act on any such approval or request and the Authority shall have no complaint against the Borrowers or the Trustee as a result of any such action taken in accordance with such approval or request. The execution of any document or certificate required under the provisions of this Loan and Trust Agreement by an Authorized Officer of the Authority shall be on behalf of the Authority and shall not result in any personal liability of such Authorized Officer. Section 7.25 Licenses and Qualifications. The Borrowers will do, or cause to be done, all things necessary to obtain, renew and secure all permits, licenses and other governmental approvals and to comply, or cause its lessees to comply, with such permits, licenses and other governmental approvals necessary for operation of the 2013 Project as a charter school (as defined in the Act 22). Section 7.26 Right to Inspect. Following reasonable notice to the Borrowers, at any and all reasonable times during business hours, the Trustee, the Authority, and their duly authorized agents, attorneys, experts, engineers, accountants and representatives, shall have the right fully to inspect the Mortgaged Property, including all books and records of each Borrower (excluding records the confidentiality of which may be protected by law), and to make such copies and memoranda from and with regard thereto as may be desired; provided, however, that they shall maintain these books and records in confidence unless required by applicable law to do otherwise and it is necessary to distribute the information to some other third party under applicable law; further provided that the School may take such measures or restrict the times of inspections to allow it to comply with legal requirements regarding contact with students. Section 7.27 No Change in Loan Payments; No Liens. All buildings, improvements and equipment acquired in the repair, rebuilding or restoration of the 2013 Project shall be deemed a part of the 2013 Project and shall be available for use and occupancy by the Borrowers, without the payment of any payments hereunder other than the Loan Payments and other payments required to be made under this Loan and Trust Agreement, to the same extent as if they were specifically described herein; provided that no buildings, improvements or equipment shall be acquired subject to any Lien or encumbrance other than Permitted Liens. ARTICLE VIIA ENVIRONMENTAL REPRESENTATIONS, COVENANTS, AND INDEMNIFICATION Section 7.01A Environmental Representations. Except as set forth or described in any of the Environmental Reports, each Borrower and its successors and assigns hereby covenant that: (a) Condition of the Mortgaged Property. To the best of its knowledge, after due inquiry, the Mortgaged Property, including all personal property, is free from contamination by Regulated Chemicals, including, but not limited to, friable asbestos, and there has not been thereon a release, discharge or emission, or a threat of release, discharge or emission, of any Regulated Chemical on, under, in, or about the Mortgaged Property, nor has any such Regulated 61 62

130 Chemical migrated or threatened to migrate from other properties upon, about or beneath the Mortgaged Property. (b) Previous Use of the Mortgaged Property. Neither Borrower nor any previous owner, tenant, occupant or user of the Mortgaged Property, nor any other Person, to the best of each Borrower s knowledge and after due inquiry, has engaged in or permitted any operations or activities upon, or any use or occupancy of the Mortgaged Property, or any portion thereof, whether legal or illegal, accidental or intentional, for the purpose of or in any way involving the handling, manufacture, treatment, storage, use, generation, release, discharge, refining, dumping or disposal of any Regulated Chemical, on, under, in or about the Mortgaged Property, nor has any such party transported any Regulated Chemical to, from or across the Mortgaged Property. (c) Property Adjoining the Mortgaged Property. To the best of their knowledge, and after due inquiry, any adjoining property has not been used as a manufacturing, storage or disposal site for Regulated Chemicals nor is any other property adjoining the Mortgaged Property affected by a violation of Environmental Requirements. (d) Compliance with Environmental Requirements. To the best of their knowledge, the Mortgaged Property owned by each Borrower is in compliance with and has at all times been in compliance with all applicable Environmental Requirements and the Borrowers have all permits and licenses required to be issued under the Environmental Requirements and are in full compliance with the terms and conditions of such permits and licenses; such permits and licenses are in full force and effect; and no changes exist in the facts or circumstances reported or assumed in the application for or granting of such permits or licenses. (e) No Notice of Violations of Environmental Requirements. Neither Borrower has received any notice, whether written or oral, concerning the Mortgaged Property owned by each Borrower, for any alleged violation or requiring compliance of Environmental Requirements, whether or not corrected to the satisfaction of the appropriate authority, or notice or other communication concerning alleged liability for Environmental Damages in connection with the Mortgaged Property owned by either Borrower, and neither Borrower has received notice that there exists any investigation, administrative order, consent order and agreement, litigation, settlement or judgment, whether proposed, threatened, anticipated or in existence with respect to the Mortgaged Property owned by such Borrower. (f) No Knowledge. Each Borrower does hereby and specifically represent and warrant that it has no affirmative knowledge or reason to believe that any condition, previous use, compliance or violation of Environmental Requirements are contrary to the description in this Section. (g) Survival of Representations and Warranties. The representations and warranties set forth in this Section shall survive the expiration or termination of the Bond Documents, the payment of the Bonds, and the discharge of any obligations owed by the parties to each other and will survive any transfer of title to the Mortgaged Property, whether by foreclosure, or otherwise and shall not be affected by any investigation by or on behalf of the 63 Authority or the Trustee or any information which the Authority or the Trustee may have or obtain with respect thereto. Section 7.02A Environmental Covenants. Except as set forth in the Environmental Reports, each Borrower and its successors and assigns hereby represents and warrants: (a) Use of the Mortgaged Property. Neither Borrower will intentionally or unintentionally conduct, or allow to be conducted, any business, operation, or activity on, under, or in the Mortgaged Property, or employ or use the Mortgaged Property or allow for it to be employed or used, to manufacture, transport, treat, store, or dispose any Regulated Chemical which would violate or potentially violate Environmental Requirements, including, but not limited to, any action which would: (1) bring the Borrowers, or the Mortgaged Property, within the ambit of, or otherwise violate, the Resource Conservation and Recovery Act of 1976, as amended by the Solid and Hazardous Waste Amendments of 1984, 42 U.S.C. 6901, et seq.; (2) cause, or allow to be caused, a release or threat of release, of hazardous substances on, under, in, or about the Mortgaged Property as defined by, and within the ambit of, the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended by the Superfund Amendments and Reauthorization Act of 1986, 42 U.S.C. 9601, et seq.; or (3) violate the Clean Air Act of 1970, as amended, 42 U.S.C. 7401, et seq., or other similar state, regional or local statute, law, regulation, rule or ordinance, including without limitation, the laws of the Commonwealth, or any other statute providing for the financial responsibility for cleanup for the release or threatened release of substances provided for thereunder. Neither Borrower will do and will make reasonable efforts to not permit any act or thing, business or operation, that materially increases the dangers, or poses an unreasonable risk of harm, or impairs, or may impair, the value of the Mortgaged Property, or any part thereof. (b) Maintenance of the Mortgaged Property. The Borrowers shall maintain the Mortgaged Property free from contamination by Regulated Chemicals and shall not intentionally or unintentionally allow a release, discharge or emission, or threat of release, discharge or emission, of any Regulated Chemical on, under, in or about the Mortgaged Property, and shall not permit the migration or threatened migration from other properties upon, about or beneath the Mortgaged Property. (c) Notice of Environmental Problem. Borrowers shall promptly provide a copy to Trustee, and in no event later than fifteen (15) days from either Borrower s receipt or submission, of any notice, letter, citation, order, warning, complaint, inquiry, claim or demand (provided that the Borrowers shall only forward to the Trustee those notices, letters, citations, orders, warnings, complaints, inquiries, claims or demands actually received by a Borrower) that: (i) either Borrower and/or any tenants have violated, or are about to violate, any federal, state, regional, parish or local environmental, health, or safety statute, law, rule, regulation, ordinance, judgment or order; (ii) there has been a release, or there is a threat of release, of any Regulated Chemical from the Mortgaged Property; (iii) either Borrower and/or any tenants may be or are liable, in whole or in part, for the costs of cleaning up, remediating, removing or responding to a release of any Regulated Chemical; or (iv) any portion of the Mortgaged Property is subject to a Lien in favor of any governmental entity for any liability, costs or damages, under 64 Environmental Requirements arising from, or costs incurred by such governmental entity in response to, a release of any Regulated Chemical. The Borrowers shall cause the School to comply with this subsection (c). (d) Response Action. The Borrowers shall take all appropriate responsive action, including any removal and remedial action ( Response Action ), in the event of a release, emission, discharge or disposal of any Regulated Chemical in, on, under or about the Mortgaged Property, so as to remain in compliance with the above, and to keep the Mortgaged Property free from, and unaffected by, Regulated Chemicals. The Borrowers shall (i) provide Trustee, within ten (10) days after providing the notice required under subsection (c) above, with a bond, letter of credit or similar financial assurance which is equal to the cost of the Response Action and which may be drawn upon by the Trustee for the purpose of completing the Response Action if an Event of Default occurs or if the Response Action is not completed within six months of the issuance of the financial assurance and (ii) discharge any assessment, Lien or encumbrance which may be established on the Mortgaged Property as a result thereof. (e) No Liens or Encumbrances. The Borrowers shall prevent the imposition of any Liens or encumbrances against the Mortgaged Property for the costs of any response, removal, or remedial action or cleanup of any Regulated Chemicals. Should such a Lien or encumbrance be levied on the Mortgaged Property, the Borrowers shall follow the procedure set forth in subsection (d) above. (f) Compliance with Environmental Requirements. The Borrowers shall carry on the business and operations at the Mortgaged Property to comply in all respects and will continue to remain in compliance with all applicable Environmental Requirements and maintain all permits and licenses required thereunder, and shall deliver to the Trustee an annual certificate of an Authorized Officer as to each Borrower s compliance with this paragraph. (g) Additional Environmental Reports. As long as there are any Bonds Outstanding, the Borrowers shall provide the Trustee with a copy of any environmental report performed during that time. (h) Intentionally Omitted. (i) Right of Inspection. (i) Trustee at any time and from time to time, upon direction from the Registered Owners of at least twenty-five percent (25%) in aggregate principal amount of the Bonds then Outstanding, either prior to or after the occurrence of any Event of Default hereunder may require the Borrowers, at their expense, to submit to the Trustee within ninety (90) days of either the notice required under 702(A) hereof or a written request from the Trustee, a written report of a site assessment and environmental audit ( Environmental Assessment ), in scope, form and substance, and prepared by an independent, competent and qualified engineer, satisfactory to the Trustee, showing that the engineer made all appropriate inquiry consistent with good commercial and customary practice, such that consistent with generally accepted engineering practice and procedure, no evidence or indication came to light which would suggest there was a release of substances on, under, in, or about any part of the Mortgaged Property 65 which could necessitate an environmental response action, and which demonstrates the Mortgaged Property complies with, and does not deviate from, all applicable environmental statutes, laws, ordinances, rules and regulations, including any licenses, permits or certificates required thereunder, and that each Borrower is in compliance with, and has not deviated from, the representations and warranties set forth in this Article. (ii) The Borrowers hereby grant, and will cause any tenants or users of the Mortgaged Property to grant, to Trustee, its agents, attorneys, employees, consultants and contractors, upon reasonable notice, and under reasonable conditions established by Borrowers, which do not impede the performance of the Environmental Assessment, an irrevocable license and authorization to enter upon and inspect the Mortgaged Property, and perform such sampling, tests, and analysis ( Tests ) including without limitation, subsurface testing, soils and groundwater testing, and other tests which may physically invade the Mortgaged Property, as the Trustee or its agent determines is necessary. (iii) Borrowers will cooperate with the consultants and supply to the consultants such historical and operational information as may be reasonably requested by the consultants, together with any notices, permits or other written communications pertaining to violations of Environmental Requirements and any and all necessary information and make available personnel having knowledge of such matters as may be required by the Trustee, Trustee s agents, consultants and engineers to complete an Environmental Assessment or Tests. (iv) Should the Borrowers fail to perform an Environmental Assessment within the time period set forth in this Section, Trustee shall have the right but not the obligation to retain an environmental consultant to perform said Environmental Assessment at the Borrowers expense. (v) The cost of performing any Environmental Assessment shall be paid by the Borrowers upon demand of Trustee and any such obligations shall be included in the Indebtedness. (vi) If an Environmental Assessment reveals any violations of Environmental Requirements or either Borrower receives a notice of a violation of Environmental Requirements, and the Borrowers fail to cure the violation in the time period and the manner specified in Section 8.01(d) hereof, such action will constitute an Event of Default. (j) No Duty of Trustee. The Trustee shall have no obligation (unless directed and indemnified as provided in this Loan and Trust Agreement) to enter into the Mortgaged Property or to take any other action which is authorized by this Article for the protection of its security interest. No action permitted under this Section shall be construed to be the management or control of the Mortgaged Property by the Trustee. Section 7.03A Environmental Indemnity. (a) In addition to the indemnification set forth elsewhere in this Agreement, each Borrower and its successors, heirs and assigns, shall and do hereby indemnify and hold harmless the Registered Owners, the beneficial owners of the Bonds and the Trustee, their 66

131 successors, assigns, trustees, directors, officers, employees, agents, contractors, subcontractors, licensees, and invitees (collectively referred to in this Section as Indemnified Parties ), for, from and against any and all Environmental Damages that the Indemnified Parties may incur as well as any and all loss, costs, damages, exemplary damages, natural resources damages, Liens, and expenses, (including, but not limited to, attorneys and paralegals fees and expenses and any and all other costs incurred in the investigation, defense and settlement of claims) that Indemnified Parties may incur as a result of or in connection with the assertion against Indemnified Parties, or against all or a portion of the Mortgaged Property, of any claim, civil, criminal or administrative, which: (a) arises out of the actual, alleged or threatened discharge, dispersal, release, storage, treatment, generation, disposal or escape of any Regulated Chemical, including, but not limited to, any solid, liquid, gaseous or thermal irritant or contaminant, including, but not limited to, smoke, vapor, soot, fumes, acids, alkalis, chemicals, medical waste and waste (including materials to be recycled, reconditioned or reclaimed); (b) actually or allegedly arises out of the use of any Regulated Chemical, the existence or failure to detect the existence or proportion of any Regulated Chemical in the soil, air, surface water or groundwater, or the performance or failure to perform the abatement or removal of any Regulated Chemical or of any soil, water, surface water or groundwater containing any Regulated Chemical; (c) arises out of the actual or alleged existence of any Regulated Chemical on, in, under, or affecting all or a portion of the Mortgaged Property; (d) arises out of any misrepresentations of either Borrower concerning any matter involving Regulated Chemicals or Environmental Requirements; (e) arises out of either Borrower s failure to provide all information, make all submissions and filings, and take all steps required by appropriate government authority under any applicable environmental law, regulation, statute or program, whether federal, state or local, whether currently existing or hereinafter enacted; or (f) arises out of either Borrower s violation of any Environmental Requirement. (b) Without prejudice to the survival of any other agreements of the Borrowers hereunder, this indemnification shall survive any termination, payment, or satisfaction of the Obligations and the termination of this Loan and Trust Agreement, any foreclosure or any other transfer of any kind of the Mortgaged Property, and the resignation or removal of the Trustee under this Loan and Trust Agreement for any reason and shall continue and survive ad infinitum. (c) Each Borrower s indemnification contained herein shall be effective not only with any existing Environmental Requirements affecting the Borrower, Indemnified Parties and/or the Mortgaged Property, but also for any hereinafter enacted environmental law, regulation, statute or program, whether federal, state or local affecting either Borrower, Indemnified Parties and/or the Mortgaged Property. (d) Each Borrower s indemnification contained herein shall also extend to any and all like claims which arise from the acts or omissions of the School and any user, tenant, lessee, agent or invitee of either Borrower. (e) The obligations under this Section shall not be affected by any investigation by or on behalf of Indemnified Parties, or by any information which Indemnified Parties may have or obtain with respect thereto. 67 (f) Each Borrower s indemnification shall include the duty to defend any and all claims, and Indemnified Parties may participate in the defense of any claim without relieving either Borrower of any obligation hereunder. This duty to defend shall apply and constitute an obligation of each Borrower regardless of any challenge by either Borrower to this provision, the indemnification contained herein, or any other provision of this Loan and Trust Agreement. This duty to defend shall apply regardless of the validity of each Borrower s indemnification, as may ultimately be determined by a court of competent jurisdiction. (g) Notwithstanding anything to the contrary contained in this Section, no indemnification shall be required for any Environmental Damage incurred solely as the result of the negligence or willful misconduct of the party seeking indemnification. ARTICLE VIII DEFAULTS AND REMEDIES Section 8.01 Events of Default Defined. The following shall be Events of Default under this Loan and Trust Agreement: (a) Failure in the payment by the Authority of the principal of or premium, if any, on any Bond when the same shall become due and payable, whether at the stated maturity thereof, on a sinking fund payment date or upon proceedings for redemption; or failure in the payment by the Authority of any installment of interest on any Bond when the same shall become due and payable. (b) Failure shall be made by the Authority in the observance or performance of any covenant, agreement, contract or other provision in the Bonds or this Agreement (other than as referred to in (a) of this Section) and such default shall continue for a period of thirty (30) days after written notice to the Authority, the Borrowers and the Trustee from the Registered Owners of at least twenty-five percent (25%) in aggregate principal amount of the Bonds then Outstanding or to the Authority and the Borrowers from the Trustee specifying such default and requiring the same to be remedied, provided, no Event of Default shall be deemed to have occurred so long as a course of action adequate to remedy such failure shall have been commenced within such thirty (30) day period and shall thereafter be diligently prosecuted to completion. (c) Failure by the Borrowers to pay the Loan Payments required as and when due. (d) Failure by either Borrower to observe and perform any covenant, condition or agreement on its part to be observed or performed herein other than as referred to in subsection (c) of this Section, for a period of thirty (30) days after written notice, specifying such failure and requesting that it be remedied, shall have been given to such Borrower by the Authority, or by the Trustee; provided, no Event of Default shall be deemed to have occurred so long as a course of action adequate to remedy such failure shall have been commenced within such thirty (30) day period and shall thereafter be diligently prosecuted to completion. 68 (e) The dissolution or liquidation of either Borrower, or failure by either Borrower promptly to contest and have lifted any execution, garnishment, or attachment of such consequence as will impair its ability to meet its obligations with respect to the Mortgaged Property or to make any payments under this Loan and Trust Agreement. The phrase dissolution or liquidation of either Borrower, as used in this subsection, shall not be construed to include the cessation of the corporate existence of either Borrower resulting either from a merger or consolidation of either Borrower into or with another domestic corporation or a dissolution or liquidation of either Borrower following a transfer of all or substantially all of its assets under the conditions permitting such actions contained in Section 7.05 hereof. (f) The entry of a decree or order for relief by a court having jurisdiction in the premises in respect of either Borrower in an involuntary case under the federal bankruptcy laws, as now or hereafter constituted, or any other applicable federal or state bankruptcy, insolvency or other similar law, or appointing a receiver, liquidator, assignee, custodian, trustee, sequestrator (or other similar official) of such Borrower or for any substantial part of its property, or ordering the winding-up or liquidation of its affairs and the continuance of any such decree or order unstayed and in effect for a period of sixty (60) consecutive days. (g) The commencement by either Borrower of a voluntary case under the federal bankruptcy laws, as now or hereafter constituted, or any other applicable federal or state bankruptcy, insolvency or other similar law, or the consent by it to the appointment of or taking possession by a receiver, liquidator, assignee, trustee, custodian, sequestrator (or other similar official) of such Borrower or for any substantial part of its property, or the making by it of any assignment for the benefit of creditors, or the failure of either Borrower generally to pay its debts as such debts become due, or the taking of corporate action by either Borrower in furtherance of any of the foregoing. (h) Failure of either Borrower to comply with any covenants contained in the Tax Certificate. (i) The occurrence of an Event of Default (after any applicable grace periods) under the Lease, the Mortgage or any of the Bond Documents. (j) Any representation or warranty made by either Borrower herein or made by either Borrower in any statement or certificate furnished by the Borrowers either required hereby or in connection with the execution and delivery of this Loan and Trust Agreement and the sale and the issuance of the Bonds, shall prove to have been untrue in any material respect as of the date of the issuance or making thereof. (k) Judgment for the payment of money in excess of one hundred thousand ($100,000), which is not covered by insurance, is rendered by any court or other governmental body against either Borrower, and such Borrower does not discharge same or provide for its discharge in accordance with its terms, or procure a stay of execution thereof within sixty (60) days from the date of entry thereof, and within said sixty (60) day period or such longer period during which execution of such judgment shall have been stayed, appeal therefrom and cause the 69 execution thereof to be stayed during such appeal while providing such reserves therefor as may be required under Generally Accepted Accounting Principles. (l) A writ or warrant of attachment or any similar process shall be issued by any court against the Mortgaged Property of either Borrower, and such writ or warrant of attachment or any similar process is not released or bonded within sixty (60) days after its entry. (m) Any of the representations and warranties of either Borrower herein or in any of the other Bond Documents with respect to environmental matters are false in any material respect. (n) The occurrence and continuation of any event of default under any other Indebtedness of either Borrower or any agreement in connection with or securing such Indebtedness if as a result of such event of default the holder of such Indebtedness would have the right to declare the principal thereof to be immediately due and payable. Section 8.02 Remedies on Default. If an Event of Default occurs hereunder, then the majority of Holders may direct the Trustee to pursue a remedy unless such Event of Default is waived as contemplated in Section 8.05 hereof. Whenever an Event of Default shall have occurred and is continuing, the Trustee may, or at the written direction of the Owners of majority in principal amount of all Bonds Outstanding shall, take any one or more of the following remedial steps: (a) The Trustee as and to the extent provided in this Loan and Trust Agreement, may declare the Loan Payments payable hereunder for the remainder of the term of this Loan and Trust Agreement and the Bonds to be immediately due and payable, whereupon the same shall become due and payable. (b) The Trustee as and to the extent provided in this Loan and Trust Agreement, may exercise the power of sale or foreclose under the Mortgage on the property subject thereto and may exercise all the rights and remedies of a secured party under the Pennsylvania Uniform Commercial Code with respect thereto and with respect to the Pledged Revenues; provided, however, that notwithstanding anything herein or in the Mortgage to the contrary, before taking any foreclosure action or any action which may subject the Trustee to liability under any environmental law, statute, regulation or similar requirements relating to the environment, the Trustee may require that a satisfactory indemnity bond, indemnity or environmental impairment insurance be furnished for the payment or reimbursement of all expenses to which it may be put and to protect it against all liability resulting from any claims, judgments, damages, losses, penalties, fines, liabilities (including strict liability) and expenses which may result from such foreclosure or other action. (c) The Trustee as and to the extent provided in this Loan and Trust Agreement, may take whatever action at law or in equity as may appear necessary or desirable to collect the amounts then due and thereafter to become due, or to enforce performance or observance of any obligations, agreements, or covenants of the Borrower under this Loan and Trust Agreement. 70

132 (d) The Trustee may direct the Borrowers to cause the School to execute and deliver the notices to the School Districts as required herein and in the Lease for the payment of the School District Payments to the Revenue Fund as provided in Section 4.02 hereof. The Trustee shall not be required to take any action to enforce any rights or remedies at the direction of the Owners of a majority in principal amount of all Bonds Outstanding unless prior thereto the Trustee is furnished with indemnity reasonably satisfactory to it, including indemnity for Environmental Damages. Notwithstanding the foregoing, prior to the exercise by the Authority or the Trustee of any remedy that would prevent the application of this paragraph, the Borrowers may, at any time, pay all accrued payments hereunder (exclusive of any such payments accrued solely by virtue of declaration pursuant to subsection (a) of the first paragraph of this Section) and fully cure all defaults, and in such event, the Borrowers shall be fully reinstated to their position hereunder as if such Event of Default had never occurred. In the event that the Borrowers fail to make any payment required hereby, the payment so in default shall continue as an obligation of each Borrower until the amount in default shall have been fully paid. Whenever any Event of Default has occurred and is continuing under this Agreement, the Trustee may, but except as otherwise provided herein shall not be obligated to, exercise any or all of the rights of the Authority under this Article, upon notice to the Authority. If the Trustee is not enforcing the Authority s rights in a manner to protect the Authority or is otherwise taking action that brings adverse consequences to the Authority, then the Authority may, without the consent of the Trustee, take whatever action at law or in equity may appear necessary or appropriate to enforce the Authority s unassigned rights and to collect all sums then due and thereafter to become due to the Authority under this Loan and Trust Agreement. Any amounts collected pursuant to action taken under the immediately preceding paragraph (other than sums collected for the Authority on account of the rights reserved by the Authority hereunder, which sums shall be paid directly to the Authority), after reimbursement of any fees and costs incurred by the Authority or the Trustee in connection therewith and the Trustee s outstanding fees and expenses shall be applied in accordance with the provisions hereof. If the Authority or the Trustee, shall have proceeded to enforce their rights under this Loan and Trust Agreement and such proceedings shall have been discontinued or abandoned for any reason or shall have been determined adversely to the Authority or the Trustee, then and in every such case, the Borrower, the Authority and the Trustee shall be restored to their respective positions and rights hereunder, and all rights, remedies and powers of the Borrowers, the Authority and the Trustee shall continue as though no such proceedings had been taken. Section 8.03 No Remedy Exclusive. No remedy herein conferred upon or reserved to the Authority or the Trustee is intended to be exclusive of any other available remedy or remedies, but each and every such remedy shall be cumulative and shall be in addition to 71 every other remedy given under this Loan and Trust Agreement or now or hereafter existing at law or in equity or by statute. No delay or omission to exercise any right or power accruing upon any default shall impair any such right or power or shall be construed to be a waiver thereof, but any such right or power may be exercised from time to time and as often as may be deemed expedient. In order to entitle the Authority or the Trustee to exercise any remedy reserved to it in this Article, it shall not be necessary to give any notice, other than notice required herein or by applicable law. Such rights and remedies given the Authority hereunder shall also extend to the Trustee, the beneficial owners and the Registered Owners of the Bonds. Section 8.04 Agreement to Pay Attorneys Fees and Expenses. In the event the Borrowers should breach any of the provisions of this Loan and Trust Agreement and the Authority or the Trustee should employ attorneys or incur other expenses for the collection of Loan Payments or the enforcement of performance or observance of any obligation or Loan and Trust Agreement on the part of the Borrowers herein contained, the Borrowers agree that they will on demand therefor pay to the Authority and the Trustee, as the case may be, the reasonable fees and expenses of such attorneys and such other reasonable expenses incurred by the Authority and the Trustee. The obligations of the Borrowers arising under this Section shall continue in full force and effect notwithstanding the final payment of the Bonds or the termination of this Loan and Trust Agreement for any reason. Section 8.05 Waiver. In the event any agreement contained in this Loan and Trust Agreement should be breached by any party and thereafter waived by any other party, such waiver shall be limited to the particular breach waived and shall not be deemed to waive any other breach hereunder. In view of the assignment of the Authority s rights in and under this Loan and Trust Agreement to the Trustee, the Authority shall have no power to waive any Event of Default hereunder without the consent of the Trustee and the Owners of two-thirds (2/3) in principal amount of the Bonds Outstanding. Section 8.06 Proofs of Claim. In case of the pendency of any receivership, insolvency, liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or other judicial proceeding relative to the Authority or the Borrowers or any other obligor upon the Bonds or the property of the Authority, the Trustee (irrespective of whether the principal of the Bonds shall then be due and payable as therein expressed or by declaration or otherwise and irrespective of whether the Trustee shall have made any demand on the Authority and/or the Borrowers for the payment of overdue principal or interest) shall be entitled and empowered, by intervention of such proceeding or otherwise: (i) to file and prove a claim for the whole amount of principal, premium, if any, and interest owing and unpaid in respect of the Bonds then Outstanding and to file such other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel) and of the Owners allowed in such judicial proceeding; and to collect and receive any moneys or other property payable or deliverable on any such claims and to distribute the same; (ii) and any receiver, assignee, trustee, liquidator, sequestrator (or other similar official) in any such judicial proceeding is hereby authorized by each Owner to make such payments to the Trustee, and, in the event that the Trustee shall consent to the making of such payments directly to the Owners, to 72 pay to the Trustee any amount due to it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agent and counsel. So long as Bonds are Outstanding the Trustee is appointed under the terms hereof, and the successive respective Owners of the Bonds, by taking and holding the same, shall be conclusively deemed to have so appointed the Trustee, the true and lawful attorney in fact of the respective Owners of the Bonds, with authority to make or file, in the respective names of the Owners of the Bonds or on behalf of all Owners of the Bonds, as a class, any proof of debt, amendment to proof of debt, petition or other documents and to execute any other papers and documents and to do and perform any and all acts and things for and on behalf of all Owners of the Bonds as a class, as may be necessary or advisable in the opinion of the Trustee, in order to have the respective claim of the Owners of the Bonds against the Authority, the Borrowers or any other obligor allowed in receivership, insolvency, liquidation, bankruptcy or other proceeding, to which the Authority, the Borrowers or any other obligor, as the case may be, shall be a party. The Trustee shall have full power of substitution and delegation in respect of any such powers. Notwithstanding the foregoing, nothing herein shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Owner of the Bonds any plan or reorganization, arrangement, adjustment, or composition affecting the Bonds or the rights of any Owner thereof, or to authorize the Trustee to vote in respect of the claim of any Owner of the Bonds in any such proceeding without the approval of the Owners so affected. Section 8.07 Treatment of Funds in Bankruptcy. Each Borrower acknowledges and agrees that in the event either Borrower commences a case under the United States Bankruptcy Code codified at 11 U.S.C. 101 et. seq. (the Bankruptcy Code ) or is the subject of an involuntary case that results in an order for relief under the Bankruptcy Code: (i) amounts on deposit in any of the Funds are not, nor shall they be deemed to be, property of such Borrower s bankruptcy estate as defined by 541 of the Bankruptcy Code; (ii) that in no event shall such Borrower assert, claim or contend that amounts on deposit in any of the Funds are property of such Borrower s bankruptcy estate; and (iii) that amounts on deposit in any of the Funds (other than the Rebate Fund) are held in trust solely for the benefit of the Registered Owners and the beneficial owners, shall be applied only in accordance with the provisions hereof and such Borrower has no legal, equitable nor reversionary interest in, or right to, such amounts. Section 8.08 Application of Moneys Received by Trustee Pursuant to Article VIII. (a) Any moneys received by the Trustee or by any receiver pursuant to this Article VIII from the Trust Estate or otherwise in payment of any Obligation following an Event of Default hereunder shall, after payment of all costs and expenses of the Trustee in connection therewith, be applied as follows: (i) Unless the principal of the Obligations shall have become or shall have been declared due and payable, all such moneys shall be applied first to the payment to the Persons entitled thereto of all installments of interest then due on the Obligations, with interest on overdue installments, if lawful, at the rates per annum borne by the Obligations, in the order of the maturity of the installments of such interest and, if the amount available shall not be sufficient to pay in full any particular installment, then to the payment ratably, according to the amounts due on such installment, to the Persons entitled thereto, without any discrimination or preference; and second to the payment to the Persons entitled thereto of the unpaid principal of and premium, if any, on any of the Obligations which shall have become due (other than Obligations matured or called for redemption for the payment of which moneys are held pursuant to the provisions of this Agreement), in order of their due dates, together with interest on such Obligations from the respective dates upon which they became due and, if the amount available shall not be sufficient to pay in full the Obligations due on any particular date, together with such interest, then to the payment ratably, according to the amount of principal due on such date, to the Persons entitled thereto without any discrimination or preference. (ii) If the principal of the Obligations shall have become or shall have been declared due and payable, all such moneys shall be applied to the payment of the principal and interest then due and unpaid upon the Obligations, with interest on overdue interest and principal, as aforesaid, without preference or priority of principal over interest or of interest over principal, or of any installment of interest over any other installment of interest, or of any Obligation over any other Obligation, ratably, according to the amounts due respectively for principal and interest, to the Persons entitled thereto without any discrimination or privilege. (iii) If the principal of the Obligations shall have been declared due and payable, and if such declaration shall thereafter have been rescinded and annulled under the provisions of this Article VIII, then, subject to the provisions of Section 8.08(a)(ii) which shall be applicable in the event that the principal of the Obligations shall later become due or be declared due and payable, the moneys shall be applied in accordance with the provisions of paragraph (i) of this Section (b) Whenever moneys are to be applied pursuant to the provisions of this Section 8.08, such moneys shall be applied at such times, and from time to time, as the Trustee shall determine, having due regard to the amount of such moneys available for application and the likelihood of additional moneys becoming available for such application in the future. Whenever the Trustee shall apply such funds, it shall fix the date (which shall be an Interest Payment Date unless it shall deem another date more suitable) upon which such application is to be made and upon such date interest on the amounts of principal to be paid on such dates shall cease to accrue. The Trustee shall give such notice by mailing or publication as it may deem appropriate of the deposit with it of any such moneys and of the fixing of any such date, and shall not be required to make payment to the Registered Owner of any unpaid Obligation until such Obligation shall be presented to the Trustee for appropriate endorsement or for cancellation if fully paid. (c) Any amounts due with respect to Subordinated Obligations shall be applied as set forth in the applicable Supplemental Agreement, provided, that no payments shall be made on a Subordinated Obligation while any amounts remain due and unpaid on an Obligation

133 Section 9.01 ARTICLE IX THE TRUSTEE Duties and Liabilities of Trustee. (a) The Trustee, prior to the occurrence of an Event of Default and after the curing or waiving of all Events of Default which may have occurred, undertakes to perform such duties and only such duties as are specifically set forth in this Loan and Trust Agreement, and no other duties shall be implied. In case an Event of Default has occurred (which has not been cured or waived), the Trustee shall exercise such of the rights and powers vested in it by this Loan and Trust Agreement, and use the same degree of care and skill in their exercise, as a prudent man would exercise or use under the circumstances in the conduct of his own affairs. (b) No provision of this Loan and Trust Agreement shall be construed to relieve the Trustee from third party liability for its own grossly negligent action, its own grossly negligent failure to act, or its own willful misconduct; provided, however, that: (i) the Trustee shall not be liable to third parties for any error of judgment made in good faith by a responsible officer or officers of the Trustee, unless it shall be proved that the Trustee was grossly negligent in ascertaining the pertinent facts (other than facts which the Trustee is not required to investigate pursuant to Sections 9.02 and 9.06 hereof); (ii) the Trustee shall not be liable with respect to any action taken or omitted to be taken by it in good faith in accordance with the direction of the Holders of a majority in aggregate principal amount of Obligations then Outstanding relating to the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred upon the Trustee, under this Loan and Trust Agreement; and (iii) nothing in this paragraph (b) shall limit the first sentence of Section 9.01(a) or limit the Trustee s liability for its own gross negligence. (c) None of the provisions contained in this Loan and Trust Agreement or the other Bond Documents shall require the Trustee to expend or risk its own funds or otherwise incur personal financial liability in the performance of any of its duties hereunder or in the exercise of any of its rights or powers, if there is reasonable ground for believing that the repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it. Section 9.02 Reliance on Documents, Indemnification, Etc. Except as otherwise provided in Section 9.01(a) hereof: (a) The Trustee may rely and shall be protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion (including an opinion of independent counsel), report, notice, request, consent, order, requisition, affidavit, letter, approval, note, bond, debenture or other paper or document (including any statement by or on behalf of any Holder relating to the amount of principal Outstanding or interest due on any 75 Obligation) reasonably believed by it to be genuine and to have been signed or presented by the proper party or parties. (b) Any request, direction, order or demand of the Borrowers or the Authority mentioned herein shall be sufficiently evidenced by an Officer s Certificate (unless other evidence in respect thereof be herein specifically prescribed); and any resolution of the Governing Body of each Borrower or the Authority may be evidenced to the Trustee by a copy thereof certified by the Secretary or an Assistant Secretary of each Borrower or the Authority, if applicable. (c) The Trustee may consult with Counsel and the advice of such Counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder and the other Bond Documents in good faith and in accordance with such advice. (d) Prior to the occurrence of an Event of Default hereunder and after the curing of all Events of Default, the Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, consent, order, approval, note, bond, debenture, or other paper or document, unless requested in writing to do so by the Holders of a majority in aggregate principal amount of Obligations then Outstanding; provided, however, that if the payment within a reasonable time to the Trustee of the costs, expenses or liabilities likely to be incurred by it in the making of such investigation is, in the opinion of the Trustee, not reasonably assured to the Trustee by the security afforded to it by the terms of this Loan and Trust Agreement, the Trustee may require indemnity reasonably satisfactory to the Trustee, with respect to such additional compensation as the Trustee may require for complying with such request and against such costs, expenses (including, without limitation, fees and expenses of Counsel) or liabilities as a condition to so proceeding. The reasonable expense of every such examination shall be paid by the Borrowers or, if paid by the Trustee, shall be repaid by the members of the Borrowers upon demand. (e) The Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys. (f) The Trustee shall be under no responsibility for the approval by it in good faith of any expert or other skilled Person for any of the purposes expressed in this Loan and Trust Agreement. (g) The permissive rights of the Trustee to do things enumerated in this Loan and Trust Agreement shall not be construed as a duty. (h) Except as otherwise expressly provided hereunder, the Trustee shall not be required to give or furnish any notice, demand, report, reply, statement advice or opinion to the Authority, the Borrowers, a Holder or any other Person, and the Trustee shall not incur any liability for its failure or refusal to give or furnish the same unless obligated or required to do so by express provisions hereof. 76 (i) The Trustee shall not be liable with respect to any action taken or omitted to be taken at the direction of the Holders of a majority in aggregate principal amount of the Obligations. (j) The Trustee shall have no responsibility with respect to any information in any official statement, offering memorandum or other disclosure material distributed with respect to the Bonds or other Obligations or for compliance with securities laws in connection with the issuance and sale of the Bonds or such other Obligations. (k) The Trustee shall not be required to give a bond or surety to act under this Loan and Trust Agreement. (l) The Trustee shall have no duty or responsibility to insure the 2013 Project or the Mortgaged Property or to monitor the insuring of the Mortgaged Property by the Borrowers. (m) The Trustee shall have no duty or obligation to record or file any Mortgage, financing statement, continuation statement or similar document relating to this Loan and Trust Agreement, the 2013 Project or the Mortgaged Property. (n) The Trustee shall not be liable to the parties hereto or deemed in breach or default hereunder if and to the extent its performance hereunder is prevented by reason of force majeure. The term force majeure means an occurrence that is beyond the control of the Trustee and could not have been avoided by exercising due care. Force majeure shall include acts of God, terrorism, war, riots, strikes, fire, floods, earthquakes, epidemics or other similar occurrences. (o) Each party hereto hereby agrees not to elect a trial by jury of any issue triable of right by jury, and waives any right to trial by jury fully to the extent that any such right shall now or hereafter exist with regard to this Loan and Trust Agreement, or any claim, counterclaim or other action arising in connection herewith. This waiver of right to trial by jury is given knowingly and voluntarily by each party, and is intended to encompass individually each instance and each issue as to which the right to a trial by jury would otherwise accrue. (p) The Trustee agrees to accept and act upon instructions or directions pursuant to this Loan and Trust Agreement sent by unsecured , facsimile transmission or other similar unsecured electronic methods, provided, however, that (a) the Borrowers, subsequent to such transmission of written instructions, shall provide the originally executed instructions or directions to the Trustee in a timely manner, (b) such originally executed instructions or directions shall be signed by a person as may be designated and authorized to sign for each Borrower or in the name of each Borrower, by an Authorized Officer of each Borrower, and (c) each Borrower shall provide to the Trustee an incumbency certificate listing such designated persons, which incumbency certificate shall be amended whenever a person is to be added or deleted from the listing. If the Borrowers elect to give the Trustee or facsimile instructions (or instructions by a similar electronic method) and the Trustee in its discretion elects to act upon such instructions, the Trustee s understanding of such instructions shall be deemed controlling. The Trustee shall not be liable for any losses, costs or expenses arising 77 directly or indirectly from the Trustee s reliance upon and compliance with such instructions notwithstanding such instructions conflict or are inconsistent with a subsequent written instruction. The Borrowers agree to assume all risks arising out of the use of such electronic methods to submit instructions and directions to the Trustee, including without limitation the risk of the Trustee acting on unauthorized instructions, and the risk of interception and misuse by third parties. (q) The Trustee shall not be liable for the acts or omissions of DTC or any other securities depository. (r) The Trustee shall have no responsibility with respect to compliance by the Authority or the Borrowers with Section 148 of the Code or any covenant in this Agreement regarding yields on investments. (s) The Trustee shall not be required to give a bond or surety to act under this Loan and Trust Agreement. Section 9.03 Responsibility for Recitals, Validity of Agreement, Proceeds of Bonds. The recitals contained in this Loan and Trust Agreement and in the Bonds (other than the certificate of authentication on such Bonds) shall be taken as the statements of the Borrowers, and the Trustee assumes no responsibility for the correctness of the same. The Trustee makes no representations as to the validity or sufficiency of this Loan and Trust Agreement or the liens or security created hereby or of the Bonds. The Trustee shall not be accountable for the use or application by the Borrowers of any of the Bonds or of the proceeds of such Bonds, or for the use or application of any moneys paid over by the Trustee in accordance with any provision of this Loan and Trust Agreement. Section 9.04 Trustee May Own Bonds. The Trustee, in its individual or any other capacity, may become the owner or pledgee of Bonds or other Obligations with the same rights it would have if it were not Trustee hereunder. Any provision to the contrary herein notwithstanding, no provision of this Loan and Trust Agreement shall prohibit the Trustee from serving as trustee under any other Loan and Trust Agreement securing Indebtedness of either Borrower, or from maintaining a banking relationship with either Borrower. Section 9.05 Compensation and Expenses of Trustee. Except as otherwise provided in Section 9.01(b), the Borrowers shall (a) pay to the Trustee from time to time, and the Trustee shall be entitled to, reasonable compensation, and the Borrowers shall pay or reimburse the Trustee upon its request for all reasonable expenses, disbursements and advances incurred or made by the Trustee in connection with the acceptance or administration of its trusts under this Loan and Trust Agreement and other Bond Documents (including the reasonable compensation and the expenses and disbursement of its counsel and of all Persons not regularly in its employ) except any such expense, disbursement or advance as may arise from gross negligence or bad faith, and (b) indemnify the Trustee and its directors, officers, employees and agents for, and hold it harmless against, any loss, liability or expense incurred without gross negligence or bad faith on the part of the Trustee and arising out of or in connection with the acceptance or administration of such trusts, including the costs and expenses (including, without limitation, 78

134 reasonable compensation to its attorneys and the payment of their expenses) of defending itself against any claim of liability or loss. The obligation of the Borrowers under this Section 9.05 to compensate the Trustee, to pay or reimburse the Trustee for expenses, disbursements and advances and to indemnify and hold harmless the Trustee shall survive the satisfaction and discharge of this Loan and Trust Agreement and the resignation or removal of the Trustee for any reason. The obligations of the Borrowers under this Section 9.05 shall be a senior claim to that of the Holders of Obligations upon all property held or collected by the Trustee, and its directors, officers, employees and agents, as such, except funds held in any Rebate Fund. Section 9.06 Officer s Certificate as Evidence. Whenever in the administration of the provisions of this Loan and Trust Agreement the Trustee shall deem it necessary or desirable that a matter be proved or established prior to taking, suffering or omitting any action hereunder, such matter (unless other evidence in respect thereof be herein specifically prescribed) may, if no Event of Default then exists, be deemed to be conclusively proved and established by an Officer s Certificate delivered to the Trustee. In the absence of bad faith on the part of the Trustee, any such Officer s Certificate shall be full warrant to the Trustee for any action taken, suffered or omitted by it under the provisions of this Loan and Trust Agreement upon the face thereof, and the Trustee shall not be obligated to make any investigation into the facts stated therein. Section 9.07 Resignation, Removal and Succession of Trustee. The Trustee may resign at any time without cause by giving at least thirty (30) days prior written notice by mail to each Holder of an Obligation then Outstanding, as the names and addresses of such Holders appear on the registration books maintained by the Trustee hereunder, such resignation to be effective upon the acceptance of such trusteeship by a successor. In addition, the Trustee may be removed (a) at the direction of the Holders of not less than fifty percent (50%) in aggregate principal amount of Obligations then Outstanding, delivered to the Borrower and the Trustee, or (b) for cause by the Authority at the direction of the Borrowers if no Event of Default then exists hereunder, such direction to be evidenced by an Officer s Certificate specifying the cause for such removal and delivered to the Trustee ninety (90) days prior to any such removal date, any such removal to be effective upon the acceptance of the trusteeship by a successor. The Trustee shall promptly give notice of any removal pursuant to the previous sentence in writing to each Holder of an Obligation then Outstanding as provided above. In the case of the resignation or removal of the Trustee, a successor Trustee acceptable may be appointed by the Borrowers, as evidenced by an Officer s Certificate designating the successor. If a successor Trustee shall not have been appointed within thirty (30) days after such notice of resignation or removal, the Trustee, at the Borrowers expense, the Borrowers or any Holder of an Obligation then Outstanding may apply to any court of competent jurisdiction to appoint a successor to act until such time, if any, as a successor shall have been appointed as above provided. Section 9.08 Acceptance by Successor Trustee. Any Trustee, however appointed, shall execute and deliver to its predecessor and to the Borrowers an instrument accepting such appointment, and thereupon such successor, without further act, shall become vested with all the estates, properties, rights, powers and duties of its predecessor hereunder in the trusts under this Loan and Trust Agreement applicable to it with like effect as if originally named the Trustee; but, nevertheless, upon the reasonable written request of such successor 79 Trustee, its predecessor shall, after the payment in full of any fees and expenses owed to it, execute and deliver an instrument transferring to such successor Trustee, upon the trusts herein expressed applicable to it, all the estates, properties, rights and powers of such predecessor under this Loan and Trust Agreement, and such predecessor shall duly assign, transfer, deliver and pay over to such successor Trustee all moneys or other property then held by such predecessor under this Loan and Trust Agreement. Section 9.09 Qualifications of Successor Trustee. Any successor Trustee, however appointed, shall be a national banking association or a state chartered bank or trust company having a combined capital and surplus of at least Fifty Million Dollars ($50,000,000), if there be such an institution willing, able and legally qualified to perform the duties of the Trustee hereunder upon reasonable or customary terms. Section 9.10 Successor by Merger. Any corporation or association into which the Trustee may be merged or converted or with which it may be consolidated, or any corporation or association resulting from any merger, conversion or consolidation to which the Trustee shall be a party, or any corporation or association to which all or substantially all the corporate trust business of the Trustee may be transferred, shall, subject to the terms of Section 9.09 hereof, be the Trustee under this Loan and Trust Agreement without further act. ARTICLE X THE AUTHORITY Section Rights and Duties of the Authority. (a) Remedies of the Authority. Notwithstanding any contrary provision in this Loan and Trust Agreement, the Authority shall have the right to take any action or make any decision with respect to proceedings for indemnity against the liability of the Authority and its personnel and for collection or reimbursement from sources other than moneys or property held under this Loan and Trust Agreement or subject to the lien hereof. The Authority may enforce its rights under this Loan and Trust Agreement which have not been assigned to the Trustee by legal proceedings for the specific performance of any obligation contained herein or for the enforcement of any other appropriate legal or equitable remedy, and may recover damages caused by any breach by the Borrowers of their obligations to the Authority under this Loan and Trust Agreement, including court costs, reasonable attorneys fees and other costs and expenses incurred in enforcing such obligations. (b) Limitation on Actions. The Authority shall not be required to monitor the financial condition of the Borrower and shall not have any responsibility with respect to notices, certificates or other documents filed with it hereunder. The Authority shall not be required to take notice of any breach or default except when given notice thereof by the Trustee or the Holders of Obligations, as the case may be. The Authority shall not be required to take any action unless indemnity reasonably satisfactory to it is furnished for expenses or liability to be incurred therein (other than the giving of notice). The Authority, upon written request of the Holders of Obligations or the Trustee, and upon receipt of reasonable indemnity for expenses or liability, shall cooperate to the extent reasonably necessary to enable the Trustee to exercise any 80 power granted to the Trustee by this Loan and Trust Agreement. The Authority shall be entitled to reimbursement pursuant to Section to the extent that it acts without previously obtaining indemnity. (c) Responsibility. The Authority shall be entitled to the advice of Counsel (who may be counsel for any party or for any Holder of Obligations) and shall be wholly protected as to any actions taken or omitted to be taken in good faith in reliance on such advice. The Authority may rely conclusively on any notice, certificate or other document furnished to it hereunder and reasonably believed by it to be genuine. The Authority shall not be liable for any action taken by it in good faith and reasonably believed by it to be within the discretion or power conferred upon it, or in good faith omitted to be taken by it because reasonably believed to be beyond the discretion or power conferred upon it or taken by it pursuant to any direction or instruction by which it is governed hereunder or omitted to be taken by it by reason of the lack of direction or instruction required of such action hereunder, or be responsible for the consequences of any error of judgment reasonably made by it. When any payment, consent or other action by the Authority is called for by this Loan and Trust Agreement, the Authority may defer such action pending such investigation or inquiry or receipt of such evidence, if any, as it may require in support thereof. A permissive right or power to act shall not be construed as a requirement to act, and no delay in the exercise of a right or power shall affect the subsequent exercise thereof. The Authority shall in no event be liable for the application or misapplication of funds, or for other acts or defaults by any Person or entity except by its own members, officers and employees. No recourse shall be had by the Borrowers, the Trustee or any Holder of Obligations for any claim based on this Loan and Trust Agreement or the Obligations against any members, officer, employee or agent of the Authority unless such claim is based upon the willful dishonest or intentional violation of law of such Person and the Borrower, the Trustee and the Holders, as a condition of, and as consideration for, the Authority s execution and delivery of this Loan and Trust Agreement and the Bonds, hereby waive any and all such claims. (d) Financial Obligations. Nothing contained in this Loan and Trust Agreement shall in any way obligate the Authority to pay any debt or meet any financial obligations to any Person at any time except from moneys received under the provisions of this Loan and Trust Agreement or from the exercise of the Authority s rights hereunder; provided, however, that nothing contained in this Loan and Trust Agreement shall in any way obligate the Authority to pay such debts or meet such financial obligations from moneys received for the Authority s own purposes. The Obligations secured by this Loan and Trust Agreement do not now and shall never constitute a general obligation of the Authority nor a debt or pledge of the faith and credit of the City of Philadelphia, the Commonwealth or any political subdivision thereof, and each covenant and undertaking by the Authority in this Loan and Trust Agreement and in the Obligations to make payments is not a general obligation of the Authority nor a debt or pledge of the faith and credit of the City of Philadelphia, the Commonwealth or any political subdivision thereof, but is a special obligation payable solely from the revenues and funds pledged for their payment in accordance with this Loan and Trust Agreement. (e) Indemnification. In the exercise of the power of the Authority and its members, officers, employees and agents under this Loan and Trust Agreement including (without limiting the foregoing) the application of moneys and the investment of funds, the 81 Authority shall not be accountable to the Borrowers for any action taken or omitted by it or its members, officers, employees and agents in good faith and believed by it or them to be authorized or within the discretion or rights or powers conferred. No recourse shall be had by the Borrowers for any claims based on this Loan and Trust Agreement against any member, officer, employee or agent of the Authority alleging personal liability on the part of such Person. Each Borrower hereby covenants to indemnify the Authority and all such other parties and save them harmless against any liability intended to be precluded by this Section. Section Expenses of the Authority. The Borrowers shall prepay or reimburse the Authority upon demand for all administrative fees and expenses (including reasonable attorneys fee) charged or incurred by the Authority in connection with the issuance of the Obligations and all expenses reasonably incurred or advances reasonably made in the exercise of the Authority s rights or the performance of its obligations hereunder. Any fees, expenses, reimbursements or other charges which the Authority may be entitled to receive from the Borrower hereunder, if not paid when due, shall bear interest at a rate of fifteen percent (15%) per annum. Section Extent of Covenants; No Personal Liability. No covenant, stipulation, obligation or agreement of the Authority contained in this Loan and Trust Agreement shall be deemed to be a covenant, stipulation, obligation or agreement of any present or future member, officer, employee or agent of the Authority in his or her individual capacity, and any member, officer, employee or agent of the Authority executing the Obligations shall not be liable personally thereon or be subject to any personal liability or accountability by reason of the issuance thereof. ARTICLE XI HOLDERS OF OBLIGATIONS Section Action by Holders of Obligations. Any request, authorization, direction, notice, consent, waiver or other action provided pursuant to this Loan and Trust Agreement to be given or taken by Holders of Obligations may be contained in and evidenced by one or more writings of substantially the same tenor signed by the requisite number of Holders of Obligations or their attorneys duly appointed in writing. Proof of the execution of any such instrument, or of an instrument appointing any such attorney, shall be sufficient for any purpose of this Loan and Trust Agreement (except as otherwise herein expressly provided) if made in the following manner, but the Authority or the Trustee may nevertheless in its discretion require further or other proof in cases where it deems the same desirable. The fact and date of the execution by any Holder of Obligations or its attorney of such instrument may be proved by the certificate, which need not be acknowledged or verified, of an officer of a bank or trust company satisfactory to the Authority or to the Trustee or of any notary public or other officer authorized to take acknowledgments of deeds to be recorded in the state in which the notary or officer purports to act, that the Person signing such request or other instrument acknowledged to him the execution thereof, or by an affidavit of a witness acknowledged to him the execution thereof, or by an affidavit of a witness of such execution, duly sworn to before such notary public or other officer. The authority of the Person or Persons 82

135 executing any such instrument on behalf of a corporate Holder of Obligations may be established without further proof if such instrument is signed by a Person purporting to be the president or a vice president of such corporation with a corporate seal affixed and attested by a Person purporting to be its clerk or secretary or an assistant clerk or secretary. The ownership of Obligations and the amount, numbers and other identification, and date of holding the same shall be proved by the registration books. Any request, consent or vote of the Holder of any obligation shall bind all future Holders of such Obligation. Obligations owned or held by or for the account of the Authority or the Borrower shall not be deemed Outstanding Obligations for the purpose of any consent or other action by Holders of Obligations. Section Proceedings by Holders of Obligations. No Holder of Obligations shall have any right to institute any legal proceedings for the enforcement of the obligations of either Borrower under this Loan and Trust Agreement or any applicable remedy hereunder, unless the Holders of Obligations have directed the Authority and the Trustee to act and furnished the Authority and the Trustee indemnity as provided in Section 10.01(e) and Section 9.02(d) and have afforded the Authority and the Trustee reasonable opportunity to proceed, and the Authority and the Trustee shall thereafter fail or refuse to take such action. Subject to the foregoing, any Holder of Obligations may by any available legal proceedings enforce and protect its rights hereunder and under the laws of the Commonwealth. ARTICLE XII MISCELLANEOUS Section Amendments. (a) This Loan and Trust Agreement may be amended by the parties without the consent of the Holders for any of the following purposes: (i) to add to the covenants and agreements of one or more of the Borrowers or to surrender or limit any right or power of one or more of the Borrowers; (ii) to cure any ambiguity or defect, or to add provisions which are not inconsistent therewith and which do not impair the security for the Obligations; (iii) to provide for the issuance and establish the terms and provisions of Obligations or Subordinated Obligations (provided that the Authority shall not be required to be a party to any Supplemental Agreement providing for the issuance of Parity Indebtedness), and provide for all other matters in connection with the issuance of Obligations or Subordinated Obligations, including, without limitation, provisions relating to, or required by the issuer of, any Credit Facility applicable to Obligations or Subordinated Obligations, provided that no such amendment shall have a material adverse effect upon the security for the Obligations; (iv) to provide for the sharing of control of, or notices with respect to, the exercise of remedies with the Holders of Obligations and other provisions incident to the securing of Obligations or Subordinated Obligations; (v) to amend the provisions of Section 4.05, or Section 7.03 as permitted therein; (vi) to maintain the rating for the Bonds by S&P; or (vii) to preserve the taxexempt status of the interest on the Bonds; (viii) as required in connection with any change in Generally Accepted Account Principals; or (ix) to amend this Agreement in any other respect which is not materially adverse to the Holders. 83 (b) Except as provided in the subsection (a) above, this Loan and Trust Agreement may be amended only with the written consent of the majority in principal amount of the Outstanding Obligations; provided, however, that no amendment of this Loan and Trust Agreement may be made without the written consent of 67% of the affected Holders of Obligations for any of the following purposes: (1) to extend the maturity of any Obligation; (2) to reduce the principal amount or interest rate of any Obligation; (3) to make any Obligation redeemable other than in accordance with its terms; (4) to create a preference or priority of any Obligation or Obligations over any other Obligation or Obligations; or (5) to reduce the percentage of the Obligations required to be represented by the Holders of Obligations giving their consent to any amendment. (c) When the Trustee determines that the requisite number of consents has been obtained for an amendment which requires Holder consent, it shall, within ninety (90) days, file a certificate to that effect in its records and mail or cause to be mailed notice to the Holders of Obligations. No action or proceeding to invalidate the amendment shall be instituted or maintained unless it is commenced within sixty (60) days after such mailing. The Trustee will promptly certify to the Authority that it has mailed or caused to be mailed evidence that such notice was given in the manner required hereby. A consent to an amendment may be revoked by a notice given by the Holder and received by the Trustee prior to the Trustee s certification that the requisite consents have been obtained. (d) Before the Authority, the Borrowers and the Trustee shall enter into any modification, alteration, amendment or supplement to this Agreement pursuant to this Section, there shall have been delivered to the Authority, the Borrowers and the Trustee an Opinion of Bond Counsel to the effect that such amendment (i) is authorized by and compliant with this Section 12.01, including, if consent of the Holders has not been obtained as contemplated by this Section 12.01, whether any amendment adversely affects the security for the Obligations or the interests of the Holders, and (ii) will not adversely affect the exclusion from gross income of interest on the 2013 Bonds for federal income tax purposes. Section Successors and Assigns. The rights and obligations of the parties to this Loan and Trust Agreement shall inure to their respective successors and permitted assigns. Section Notices. Unless otherwise expressly provided, all notices, demands, requests, approvals and consents provided for in this Loan and Trust Agreement of the Authority, the Trustee and the Borrowers, shall be in writing, including bank wire, Telex, telecopy, facsimile, overnight delivery or similar writing, and shall be deemed sufficiently given if sent as permitted above or by registered or certified mail, postage prepaid, or delivered during business hours as follows: (i) to the Authority at Philadelphia Authority for Industrial Development, 2600 Centre Square West, 26th Floor, 1500 Market Street, Philadelphia, , Attention: Chairman; (ii) to the Trustee at 50 S. 16th Street, Suite 2000, Philadelphia, Pennsylvania 19102; (iii) to the Borrower at DeMedici Corporation II, c/o Philadelphia Performing Arts Charter School, 2600 South Broad Street, Philadelphia, PA 19145, or as to all of the foregoing, to such other address or facsimile number as the addressee shall have indicated by prior written notice to the one giving notice. All notices to a Holder shall be in writing and shall 84 be deemed sufficiently given if sent by first-class mail, postage prepaid, to the Holder at the address shown on the registration books maintained by the Trustee. Notice hereunder may be waived prospectively or retroactively by the Person entitled to the notice, but no waiver shall affect any notice requirement as to other Persons. Section Intentionally Omitted. Section Business Days. Except as otherwise required herein, if this Loan and Trust Agreement requires any party to act on a specific day and such day is not a Business Day, such party need not perform such act until the next succeeding Business Day, and such act shall be deemed to have been performed on the day required. Section Agreement Not for the Benefit of Other Parties. This Loan and Trust Agreement is not intended for the benefit of and shall not be construed to create rights in parties other than the Borrowers, the Authority, the Trustee and, to the extent provided herein, the Holders of Obligations. Section Severability. In the event that any provision of this Loan and Trust Agreement shall be held to be invalid in any circumstance, such invalidity shall not affect any other provisions or circumstances. Section Counterparts. This Loan and Trust Agreement may be executed and delivered in any number of counterparts, each of which shall be deemed to be an original, but such counterparts together shall constitute one and the same instrument. Section Captions. The captions and table of contents of this Loan and Trust Agreement are for convenience only and shall not affect the construction hereof. Section Governing Law. This instrument shall be governed by the laws of the Commonwealth. Section No Duty of Underwriter. Nothing in this Loan and Trust Agreement shall be construed as imposing on the Underwriter any duty, obligation or liability whatsoever for taking any action or for granting or withholding any approval by virtue of the right of the Underwriter to receive reports or to take certain actions hereunder. Section Non-Discrimination and Sexual Harassment Clause. During the term of this Loan and Trust Agreement, each Borrower agrees as to itself and each tenant of the 2013 Project controlling, controlled by or under common control with either Borrower (each of the Borrowers and each such tenant, a Contractor ) as follows: (a) In the hiring of any employee(s) for the manufacture of supplies, performance of work or any other activity required under the contract or any subcontract, the Contractor, subcontractor, or any Person acting on behalf of the Contractor or subcontractor shall not, by reason of gender, race, creed, or color, discriminate against any citizen of the Commonwealth who is qualified and available to perform the work to which the employment relates. 85 (b) Neither the Contractor nor any subcontractor nor any Person on their behalf shall in any manner discriminate against or intimidate any employee involved in the manufacture of supplies, the performance of work, or any other activity required under the contract on account of gender, race, creed, or color. (c) Contractors or subcontractors shall establish and maintain a written sexual harassment policy and shall inform their employees of the practice. The policy must contain a notice that sexual harassment will not be tolerated and employees who practice it will be disciplined. (d) Contractors shall not discriminate by reason of gender, race, creed, or color against any subcontractor or supplier who is qualified to perform the work to which the contract relates. (e) The Contractor and each subcontractor shall furnish all necessary employment documents and records to and permit access to their books, records, and accounts by the contracting agency and the Bureau of Contract Administration and Business Development, for purposes of investigation, to ascertain compliance with provisions of this Nondiscrimination/Sexual Harassment Clause. If the Contractor or any subcontractor does not possess documents or records reflecting the necessary information requested, the Contractor or subcontractor shall furnish such information on reporting forms supplied by the contracting agency or the Bureau of Contract Administration and Business Development. (f) The Contractor shall include the provisions of this Nondiscrimination/Sexual Harassment Clause in every subcontract so that such provisions will be binding upon each subcontractor. (g) The Commonwealth may cancel or terminate the contract and all money due or to become due under the contract may be forfeited for a violation of the terms and conditions of this Nondiscrimination/Sexual Harassment Clause. In addition, the agency may proceed with debarment or suspension and may place the Contractor in the Contractor Responsibility File. For purposes of this Section 12.12, the parties hereto understand that (i) this Agreement is the contract and (ii) there is no subcontractor for the performance of the Borrower s obligations under this Agreement. [REST OF PAGE INTENTIONALLY LEFT BLANK; SIGNATURES ON FOLLOWING PAGE] 86

136 IN WITNESS WHEREOF, the parties have caused this Loan and Trust Agreement to be duly executed all as of the date first above written. EXHIBIT A-1 (SEAL) PHILADELPHIA AUTHORITY FOR INDUSTRIAL DEVELOPMENT Registered No. FORM OF 2013 BOND $ ATTEST: By: Secretary (SEAL) By: Name: Title: DEMEDICI CORPORATION UNITED STATES OF AMERICA COMMONWEALTH OF PENNSYLVANIA Philadelphia Authority for Industrial Development Revenue Bonds (Philadelphia Performing Arts Charter School Project) Series of 2013 ATTEST: REGISTERED OWNER: CEDE & CO. CUSIP: By: Name: Krista Alexander Title: Secretary (SEAL) ATTEST: By: Name: Krista Alexander Title: Secretary ATTEST: Authorized Officer By: Name: Javier Kuehnle Title: Chairperson Signature Page for Loan and Trust Agreement DEMEDICI CORPORATION II By: Name: Javier Kuehnle Title: Chairperson U.S. BANK NATIONAL ASSOCIATION, as Trustee By: Authorized Officer PRINCIPAL AMOUNT: DOLLARS INTEREST PAYMENT DATES: June 15 and December 15, commencing December 15, 2013 INTEREST RATE PER ANNUM: MATURITY DATE:, 20 DATED DATE: June 28, 2013 PHILADELPHIA AUTHORITY FOR INDUSTRIAL DEVELOPMENT (the Authority ), for value received, promises to pay to the Registered Owner of this 2013 Bond, or registered assigns, but solely from the money to be provided under the Loan and Trust Agreement (defined below), upon presentation and surrender hereof, in lawful money of the United States of America, the Principal Amount on the Maturity Date, unless paid earlier as provided below, with interest from the most recent Interest Payment Date to which interest has been paid or duly provided for or from the date of its authentication if authentication is on an Interest Payment Date, or, if no interest has been paid, from the Dated Date of this 2013 Bond, until paid in full at the Interest Rate Per Annum, payable on each Interest Payment Date. This 2013 Bond is one of a duly authorized issue of bonds of the Authority consisting of $55,500,000 Revenue Bonds (Philadelphia Performing Arts Charter School Project) (the Bonds ) issued by the Authority pursuant to and representing a financing under the Pennsylvania Economic Development Financing Law, as amended (the Act ). The Bonds are secured by a Loan and Trust Agreement (as amended from time to time in accordance with its A-1 terms, the Loan and Trust Agreement ) dated as of June 1, 2013 among DeMedici Corporation and DeMedici Corporation II (the Borrowers ), the Authority and the Trustee (defined herein). All capitalized terms which are not defined herein shall have the same meaning given to such terms in the Loan and Trust Agreement. Pursuant to the Loan and Trust Agreement, the Borrowers have agreed to repay the Authority s loan of the proceeds of the Bonds in the amounts and at the times necessary to enable the Authority to pay the principal or redemption price of and interest on the Bonds. Reference is hereby made to the Loan and Trust Agreement for a description of the funds pledged for the payment and security of the Bonds and any other Obligations which may be issued hereafter under the Loan and Trust Agreement by the Authority or by the Borrowers; a description of the other Obligations which may be issued on a parity with the Bonds and such other Obligations; the provisions relating to the issuance of additional Obligations under the Loan and Trust Agreement; and the provisions thereof with respect to the rights, limitations of rights, duties, obligations and immunities of the Borrowers, the Authority, the Trustee and the Holders of Obligations, including the order of payments in the event of insufficient funds and restrictions on the rights of the Holders of Obligations to bring suit. The Loan and Trust Agreement may be amended to the extent and in the manner provided therein. If the specified date for any payment hereon shall be a date other than a Business Day, then such payment may be made on the next Business Day without additional interest and with the same force and effect as if made on the specified date for such payment. Interest on this 2013 Bond shall be computed on the basis of a three hundred and sixty (360) day year consisting of twelve (12) thirty-day months. From and after the date on which this 2013 Bond becomes due, any principal which has not been paid or duly provided for will bear interest at the same rate until paid or duly provided for. The principal or redemption price of this 2013 Bond are payable to the Registered Owner hereof upon presentation of this 2013 Bond at the designated corporate trust office of U.S. Bank National Association, 50 S. 16th Street, Suite 2000, Philadelphia, Pennsylvania 19102, or its successor as the Trustee (the Trustee ), and, at the election of any Registered Owner of Bonds aggregating One Million Dollars ($1,000,000) in principal amount or more, may be paid by wire transfer to any account in the United States of America if written instructions satisfactory to the Trustee in its sole discretion are delivered to the Trustee at least two (2) Business Days prior to the presentation of this 2013 Bond. Interest on this 2013 Bond is payable by check mailed on the applicable Interest Payment Date by the Trustee to the Registered Owner, determined as of the close of business on the applicable Regular Record Date, at its address as shown on the registration books or, at the election of any Registered Owner of Bonds aggregating One Million Dollars ($1,000,000) in principal amount or more, may be paid by wire transfer to any account in the United States of America if written instructions satisfactory to the Trustee in its sole discretion are delivered to the Trustee at least two (2) Business Days prior to the first payment of interest to which it relates or from the date of authentication if an Interest Payment Date. Interest Payment Date. With respect to overdue interest or interest on any overdue amount, the Trustee shall establish a special record date, which shall be the fifth Business Day preceding the date set for payment. The Trustee will mail notice of a special record date to each Registered Owner of the Bonds at least ten (10) days before the special record date. The Trustee will promptly certify to the Authority that it has mailed any such notice to all such Registered Owners, and such certificate will be conclusive evidence that notice was given in the manner required hereby. THIS 2013 BOND IS A LIMITED OBLIGATION OF THE AUTHORITY AND IS PAYABLE SOLELY FROM THE SOURCES REFERRED TO HEREIN. NEITHER THE GENERAL CREDIT OF THE AUTHORITY NOR THE GENERAL CREDIT OR TAXING POWER OF THE CITY OF PHILADELPHIA, THE COMMONWEALTH OF PENNSYLVANIA NOR ANY OTHER POLITICAL SUBDIVISION THEREOF IS OR SHALL BE OBLIGATED TO PAY THE PRINCIPAL OF OR PREMIUM, IF ANY, OR INTEREST ON THIS 2013 BOND, AND THIS 2013 BOND SHALL NOT BE OR BE DEEMED AN OBLIGATION OF THE CITY OF PHILADELPHIA, THE COMMONWEALTH OF PENNSYLVANIA OR ANY OTHER POLITICAL SUBDIVISION THEREOF. NEITHER THE FAITH AND CREDIT NOR THE TAXING POWER OF THE CITY OF PHILADELPHIA, THE COMMONWEALTH OF PENNSYLVANIA OR ANY OTHER POLITICAL SUBDIVISION THEREOF IS PLEDGED TO THE PAYMENT OF THE PRINCIPAL OF OR PREMIUM, IF ANY, OR THE INTEREST ON THIS 2013 BOND. THE AUTHORITY HAS NO TAXING POWER. OPTIONAL REDEMPTION The Bonds are subject to optional redemption prior to maturity on or after June 15, 2020 by the Authority at the direction of the Borrower, as a whole or in part (in such order of maturity as directed by the Borrower and within a maturity by random selection by the Trustee), at any time, at redemption prices equal to one hundred percent (100%) of the principal amount thereof together with accrued interest to the redemption date. MANDATORY REDEMPTION The Bonds are subject to mandatory sinking fund redemption, in direct order of maturity and within a maturity by random selection, on June 15, of each year in the respective amounts set forth below, at a redemption price equal to the principal amount of Bonds to be redeemed, without premium, plus interest accrued to the redemption date. The Regular Record Date for payment of interest due on June 15 and December 15 of each year is the May 31 or November 30 immediately preceding the scheduled A-2 A-3

137 Bonds Maturing June 15, 2023 Bonds Maturing June 15, 2033 Year Principal Amount Year Principal Amount $1,135, ,210, $290, ,290, , ,375, , ,465, , ,560, , ,660, , ,770, ,010, ,880, * 1,075, * 2,005,000 *Maturity Bonds Maturing June 15, 2043 Year Principal Amount 2034 $2,135, ,280, ,435, ,595, ,770, ,960, ,160, ,370, ,600, * 8,245,000 *Maturity EXTRAORDINARY REDEMPTION The Bonds are subject to extraordinary redemption, in whole or in part at any time at a redemption price equal to one hundred percent (100%) of the principal amount of the Bonds redeemed, plus accrued interest to the redemption date, upon the occurrence of damage to or destruction or taking of the real or personal property of the Borrower, but only out of, and to the extent of, insurance proceeds, condemnation awards and the proceeds of conveyances in lieu of condemnation deposited with or held by the Trustee for such purpose. In the event of a partial optional or extraordinary redemption of the Bonds, or any purchase and surrender thereof to the Trustee for cancellation prior to maturity, the principal amount so redeemed or purchased shall be credited against a principal amount of the Bonds of the same maturity thereafter coming due upon mandatory redemption or at maturity in such amounts and such order of due dates as shall be designated in writing by the Borrower under the Loan and Trust Agreement; provided, however, that if no such designation is made at or prior to the time of any such redemption or at or prior to the purchase in question, such credit shall be applied against such redemption amounts in their inverse order of due dates. If less than all of the Outstanding Bonds are called for redemption (other than mandatory sinking fund redemption), the Bonds (or portions thereof) to be redeemed will be redeemed in the series and maturities or portion of each series and maturity to be redeemed, all as designated in writing by the Borrower. If less than an entire maturity of Bonds is called for mandatory, optional or extraordinary redemption, the Bonds to be redeemed within each maturity will be selected by the Trustee by random selection. Redemption of Bonds shall be in denominations of Five Thousand Dollars ($5,000) or any multiple thereof, provided that Bonds must remain in authorized denominations after redemption. In the case of any redemption of less than the entire principal amount of the Bonds, the Registered Owner shall surrender the Bonds in exchange for one or more Bonds in an aggregate principal amount equal to the unredeemed portion of the principal amount thereof. In the event this 2013 Bond (or any portion hereof) is selected for redemption, notice will be mailed no more than sixty (60) days nor fewer than twenty (20) days prior to the redemption date to the Registered Owner. Failure to mail notice to the Registered Owner of any other Bonds or any defect in the notice to such owner shall not affect the redemption of this 2013 Bond. The Trustee shall give notice of any redemption of this 2013 Bond as provided above to the Registered Owner at its address shown on the registration books maintained by the Trustee. A certificate of the Trustee shall conclusively establish the mailing of any such notice for all purposes. Notice of redemption having been duly mailed, this 2013 Bond, or the portion called for redemption, will become due and payable on the redemption date at the applicable redemption price and, moneys for the redemption having been deposited with the Trustee, from and after the date for redemption, interest on this 2013 Bond (or such portion) will no longer accrue. If at the time of mailing of any notice of optional or extraordinary redemption the Authority shall not have deposited with the Trustee moneys sufficient to redeem all the Bonds A-4 A-5 called for redemption, such notice shall state that it is subject to the deposit of the redemption moneys with the Trustee not later than the opening of business on the redemption date and shall be of no effect unless such moneys are so deposited. This 2013 Bond is transferable by the Registered Owner, in person or by its attorney duly authorized in writing, at the designated corporate trust office of the Trustee, upon surrender of this 2013 Bond to the Trustee for cancellation, subject to the limitations set forth in the Loan and Trust Agreement. Upon the transfer, a new Bond or Bonds in authorized denominations of the same aggregate principal amount will be issued to the transferee at the same office. This 2013 Bond may also be exchanged at the designated corporate trust office of the Trustee for a new Bond or Bonds of the same maturity in authorized denominations of the same aggregate principal amount without transfer to a new registered owner. Exchanges and transfers will be without expense to the owner except for applicable taxes or other governmental charges, if any. The Trustee will not be required to make an exchange or transfer of this 2013 Bond (i) if this 2013 Bond (or any portion hereof) has been selected for redemption in whole or in part or (ii) during the ten (10) days preceding any date fixed for selection for redemption if this 2013 Bond (or any portion hereof) is eligible to be selected for redemption. IN WITNESS WHEREOF, the Philadelphia Authority for Industrial Development has caused this 2013 Bond to be executed in its name by the manual or facsimile signature of an authorized officer and its corporate seal (or a facsimile thereof) to be affixed, imprinted, engraved or otherwise reproduced hereon. (SEAL) ATTEST: (Assistant) Secretary PHILADELPHIA AUTHORITY FOR INDUSTRIAL DEVELOPMENT By: Name: Title: The Bonds are issuable only in fully registered form in denominations of One Hundred Thousand Dollars ($100,000) and multiples Five Thousand Dollars ($5,000) thereof. The Authority, the Trustee, and the Borrower may treat the Registered Owner as the absolute owner of this 2013 Bond for all purposes, notwithstanding any notice to the contrary. In case any Event of Default under the Loan and Trust Agreement occurs, the principal amount of this 2013 Bond (and any other Outstanding Obligations under the Loan and Trust Agreement), together with accrued interest thereon may, and, under certain circumstances, must, be declared due and payable in the manner and with the effect provided in the Loan and Trust Agreement. No member, officer, employee or agent of the Authority nor any Person executing this 2013 Bond shall be personally liable, either jointly or severally, hereon or be subject to any personal liability or accountability by reason of the issuance hereof and the Registered Owner hereof, by acceptance of this 2013 Bond, hereby waives any and all such liability or accountability as consideration for, and as a condition of, the issuance of the Bonds by the Authority. This 2013 Bond will not be valid until the Certificate of Authentication has been signed by the Trustee. [REST OF PAGE INTENTIONALLY LEFT BLANK; SIGNATURES ON FOLLOWING PAGE] A-6 A-7

138 Certificate of Authentication This Bond is one of the Bonds described in the Loan and Trust Agreement referred to herein. Date of Authentication: June, 2013 U.S. BANK NATIONAL ASSOCIATION, as Trustee Assignment For value received the undersigned sells, assigns and transfers this 2013 Bond to (Name and Address of Assignee) Social Security or Other Identifying Number of Assignee and irrevocably appoints attorney-in-fact to transfer it on the books kept for registration of the Bond, with full power of substitution. By: Authorized Signature NOTE: The signature to this assignment must correspond with the name as written on the face of the Bond without alteration or enlargement or other change. Dated: Signature Guaranteed: [NOTICE: Signature(s) must be guaranteed by an approved eligible guarantor institution, an institution that is a participant in a Securities Transfer Association recognized signature guarantee program.] Bank, Trust Company or Firm By: Authorized Signature A-8 A-9 TO: EXHIBIT B FORM OF PROJECT FUND REQUISITION REQUISITION FOR PAYMENT FROM PROJECT FUND NO. U.S. Bank National Association, Trustee under the Loan and Trust Agreement (the Agreement ) among Philadelphia Authority for Industrial Development, DeMedici Corporation, DeMedici Coporation II and such Trustee, dated as of June 1, With respect to any requisition relating in whole or in part to payments under the CM Agreement, the Borrowers hereby certify that the Construction Manager has performed its duties under the CM Agreement and such sums are due and owing. 7. No event has occurred and is continuing which constitutes an Event of Default under the Agreement. DEMEDICI CORPORATION This requisition is made pursuant to Section 4.01 of the Agreement. Terms used in this requisition but not defined herein shall have the meanings specified for them in the Agreement. The Trustee is hereby authorized and directed to make payment from the Project Fund as specified in Schedule A attached hereto. The undersigned Authorized Officer of each Borrower hereby certifies to you in connection with the amount for which payment is requested by this requisition, as follows: 1. The obligations set forth on this requisition are properly allocable to the Project Fund and do not constitute Costs of Issuance. 2. The undersigned has reviewed the provisions hereof and the payment of this requisition will not result in any proceeds of the Bonds being expended in violation of the provisions of the Agreement. 3. As to any obligation stated on the requisition incurred in or for payment of the purchase price of any item of machinery or equipment the Borrowers have, or upon disbursement pursuant to such requisition will have, title to such property free and clear of any lien or encumbrance other than Permitted Liens. 4. The obligation was properly incurred and is a proper charge against the Project Fund; the amount requisitioned is due and unpaid; and the work, material or other purchased item to which the payment relates has been accomplished, delivered or installed in a manner satisfactory to the Borrowers. 5. With respect to any requisition relating in whole or in part to payments under Construction Contracts, the Borrowers and the Architect hereby certify that the work has been completed in accordance with the Construction Contract and that the 2013 Project can be completed by expenditure of the amounts remaining in the Project Fund. Dated: Dated: Dated: By: Authorized Officer DEMEDICI CORPORATION II By: Authorized Officer ARCHITECT (if Paragraph 5 applies) By: B-1 B-2

139 Schedule A Annexed to Requisition No. EXHIBIT C Amount of Payment or Reimbursement Due: PERMITTED LIENS (1) Permitted Liens for the School permitted under the Lease. Name and Address of Person to whom Payment or Reimbursement is Due: (2) Those encumbrances shown on Schedule B to the Policy of Title Insurance issued by in connection with the issuance of the 2013 Bonds. Nature of Goods or Other Property or Services Received: B-3 C-1 TABLE OF CONTENTS LEASE between DEMEDICI CORPORATION Landlord and PHILADELPHIA PERFORMING ARTS CHARTER SCHOOL Tenant Dated as of June 1, 2013 Premises: South Broad Street, Philadelphia, Pennsylvania Section 1. Definitions...1 Section 2. Premises...8 Section 3. Term...8 Section 4. Rent...8 Section 5. Manner of Payment...10 Section 6. Security...10 Section 7. Insurance to be Maintained...11 Section 8. Trade Fixtures...13 Section 9. Signs...14 Section 10. Maintenance...14 Section 11. Alterations...14 Section 12. Inspections...15 Section 13. Organization, Authorization and Powers...16 Section 14. Books and Records; Audits; Reports...16 Section 15. Maintenance of Existence...17 Section 16. Payment of Obligations...18 Section 17. Compliance with Laws...18 Section 18. Licenses and Permits...19 Section 19. Financial Covenants...19 Section 20. Financial Reports...20 Section 21. Management Company Fees...20 Section 22. Restrictions on Indebtedness and Lease Obligations; Security...20 Section 23. Security for Permitted Debt and Lease Obligations...24 Section 24. Intentionally Omitted...25 Section 25. Sale, Lease or Other Disposition of Property...25 Section 26. Limitations on Creation of Liens...26 Section 27. Tax Status and Eligibility for Financing...28 Section 28. Tax Covenants...28 Section 29. Net Lease...28 Section 30. Services...29 Section 31. Environmental Laws...29 i

140 Section 32. Quiet Enjoyment...29 Section 33. Casualty...29 Section 34. Condemnation...30 Section 35. Subletting and Assigning...31 Section 36. Subordination...31 Section 37. Estoppel...32 Section 38. Notices...32 Section 39. Surrender of Possession...32 Section 40. Holdover...33 Section 41. Events of Default...33 Section 42. Remedies...34 Section 43. Remedies Cumulative...36 Section 44. No Waiver...36 Section 45. Brokers...37 Section 46. Captions...37 Section 47. Entire Agreement...37 Section 48. Severability...37 Section 49. Waiver of Jury Trial...37 Section 50. Governing Law...37 Section 51. Time of Essence...37 Section 52. Landlord s Work...37 EXHIBIT A Description of Premises... A-1 EXHIBIT B Base Rentals...B-1 EXHIBIT C Permitted Encumbrances...C-1 EXHIBIT D Form Of Notice To School District... D-1 EXHIBIT E Existing Debt and Lease Obligations... E-1 LEASE THIS LEASE (this Lease ) made as of this 1 st day of June, 2013 (the Effective Date ) is by and between DEMEDICI CORPORATION, a Pennsylvania nonprofit corporation, having an address c/o Philadelphia Performing Arts Charter School, 2600 South Broad Street, Philadelphia, PA (the Landlord ), and PHILADELPHIA PERFORMING ARTS CHARTER SCHOOL, a Pennsylvania nonprofit corporation, having an address at 2600 South Broad Street, Philadelphia, PA (the Tenant ). WITNESSETH: WHEREAS, the Tenant is a charter school duly organized and validly existing pursuant to the Pennsylvania Charter School Law, the Act of June 19, 1997, P.L. 225, No. 22, as amended (the Charter School Law ); and WHEREAS, the Tenant is authorized by Section A of the Charter School Law to acquire real property by lease for use as a charter school facility; and WHEREAS, the Landlord currently owns that certain piece or parcel of land located at South Broad Street, Philadelphia, Pennsylvania and certain improvements located thereon ( Land ) as more fully described in Exhibit A hereto; and WHEREAS, in order to finance the 2013 Project (as defined in the Loan and Trust Agreement, defined below), the Landlord and DeMedici Corporation II ( DCII ) have entered into a Loan and Trust Agreement, dated as of June 1, 2013 (the Loan and Trust Agreement ), with the Philadelphia Authority for Industrial Development (the Authority ) and U.S. Bank National Association, as trustee (the Trustee ); and WHEREAS, pursuant to the Loan and Trust Agreement and an Open-End Mortgage, Assignment of Leases and Security Agreement of even date herewith (the Mortgage ), the Landlord has (a) assigned to the Trustee all of the Landlord s right, title and interest in, to and under this Lease and (b) mortgaged and granted a security interest to the Trustee in the Landlord s interest in the Land and all buildings and other improvements located or to be constructed thereon, as more fully described in Exhibit A hereto (the Premises ); and WHEREAS, the Landlord desires to demise and lease the Premises to the Tenant, and the Tenant desires to lease the Premises from the Landlord, pursuant to the terms and conditions and for the purpose set forth in this Lease. NOW, THEREFORE, for and in consideration of the mutual covenants and the representations, covenants and warranties herein contained, the parties hereto agree as follows: Section 1. Definitions. Any terms used herein and not otherwise defined shall have the meaning given to such term in the Loan and Trust Agreement. In addition to the terms defined in the recitals to this Lease and elsewhere herein and those terms defined in the Loan and Trust Agreement which are not defined herein, the following terms have the following meanings in this Lease, unless the context otherwise requires: ii Accounts has the meaning set forth in the Pennsylvania Uniform Commercial Code in effect as of the date hereof. Additional Rentals shall have the meaning given such term in Section 4(b) of this Lease. Additional Rentals do not include the Base Rentals. Authorized Officer means the Chief Executive Officer of the Tenant, and when used with reference to an act or document of the Tenant, also means any other Person or Persons authorized to perform the act or execute the document. Base Rentals means the amounts set forth in Exhibit B hereto. Base Rental Payment Dates means the dates the Base Rentals are due as set forth in Exhibit B hereto. Capital Additions means all property or interests in property, real, personal and mixed (a) which constitute either (i) a Permitted Additional School Facility, or (ii) additions, improvements or extraordinary repairs to or replacements of all or any part of the Tenant s Property, and (b) the cost of which is properly capitalized under Generally Accepted Accounting Principles; provided that the 2013 Project shall not constitute a Capital Addition. Collateral shall have the meaning given such term in Section 6(a) of this Lease. Commonwealth shall mean the Commonwealth of Pennsylvania. Continuing Disclosure Agreement means the Continuing Disclosure Agreement among Landlord, DCII, Tenant and the Trustee dated as of June 1, Credit Facility means any irrevocable transferable letter of credit, insurance policy, guaranty or other agreement constituting a credit enhancement or liquidity facility. Days Cash on Hand means, as of the end of any period, the product obtained by multiplying the number of days in such period by a fraction (a) the numerator of which is the Tenant s Unrestricted Cash, and (b) the denominator of which is the Tenant s Operating Expenses for such period as adjusted (i) to exclude additions to the reserve for bad debt, depreciation and amortization and (ii) to include all interest expense. DCII Lease means that certain Lease dated as of June 1, 2013, between DCII and the Tenant for the Fels Facility and the Vine Street Facility, as it may be amended, restored, supplemented or otherwise modified from time to time, including any amendments to cause such lease to pertain to additional Property of DCII that is a Permitted Additional School Facility. In the event DCII and the Tenant determine it to be more efficient or appropriate to enter into a separate lease with respect to any Permitted Additional School Facility in lieu of an amendment as aforesaid, any such additional lease shall, for purposes of this Loan and Trust Agreement, be deemed to be included in the definition of DCII Lease. Debt Service Coverage Ratio means, for any Fiscal Year, the ratio obtained by dividing the Net Income Available for Debt Service for such Fiscal Year by the Debt Service Requirements in such Fiscal Year. Debt Service Requirements means, for any specified period, (a) the amounts payable as lease rentals in respect of any or all Long-Term Indebtedness in the form of capitalized leases, (b) the Base Rentals payable under this Lease and the DCII Lease to the extent not otherwise included in subpart (a) above, (c) the amount payable in respect of any guaranty of Long-Term Indebtedness, to the extent provided in Section 22(c) hereof, and (d) the amounts payable to any or all holders of Long-Term Indebtedness other than capitalized leases and Obligations hereunder (or to any trustee or paying agent for such holders) in respect of the principal of such Long-Term Indebtedness (including scheduled mandatory redemptions or prepayments of principal) and the interest on such Long-Term Indebtedness. Notwithstanding the foregoing, the amounts deemed payable in respect of any Long-Term Indebtedness shall not include interest or principal for the full payment of which sufficient funds are available (without reliance on any reinvestment) in a Qualified Escrow or which have been funded from prepaid rent from the Tenant to the Landlord or the proceeds of any related Long-Term Indebtedness and are held, for application to the payment of such Long-Term Indebtedness, either by the Trustee in a segregated fund hereunder or by the holder of any such Long-Term Indebtedness secured thereby or by a trustee or agent acting on behalf of such holder and such sums are subject to a perfected security interest in favor of the Trustee or such holder, trustee or agent, as applicable. In addition, calculations of Debt Service Requirements shall be subject to adjustment as and to the extent permitted or required by Section 22(c) hereof. Default Rate shall mean two percent (2%) above the prime rate of the Trustee or its primary banking offices. EMMA means the Electronic Municipal Market Access System of the Municipal Securities Rulemaking Board. Financial Advisor shall mean any independent investment banking or financial advisory firm which is appointed by the Tenant for the purpose of passing on questions relating to the availability and terms of Long-Term Indebtedness for the Tenant, and is actively engaged in and has a favorable reputation for skill and experience in underwriting or providing financial advisory services in respect of similar types of Long-Term Indebtedness incurred by entities engaged in reasonably comparable endeavors. Fiscal Year means the fiscal year ending June 30, or any other fiscal year designated from time to time in writing by the Tenant to the Landlord and the Trustee. Indebtedness means all indebtedness of the Tenant for borrowed moneys, whether long-term or short-term, parity or subordinate, secured or unsecured, including (without limitation) any indebtedness which has been incurred or assumed in connection with the 2013 Project, all indebtedness, no matter how created, secured by this Lease, the 2013 Project or the Pledged Revenues, whether or not such indebtedness is assumed by the Tenant, any leases required to be capitalized in accordance with Generally Accepted Accounting Principles, installment purchase obligations, guaranties or Interest Rate Hedges. Nothing in this definition 2 3

141 or otherwise shall be construed to count Indebtedness more than once, and Indebtedness incurred pursuant to a Credit Facility shall be counted only to the extent the reimbursement obligation on amounts drawn or, in the reasonable judgment of the Tenant, likely to be drawn, on the Credit Facility exceeds the obligation on the Indebtedness for which such Credit Facility is provided. Interest Rate Hedge means an agreement, expressly identified in an Officer s Certificate delivered to the Trustee as being entered into by the Tenant in order to hedge the interest payable on all or a portion of any Indebtedness, which agreement may include, without limitation, an interest rate swap, a forward or futures contract or an option (e.g. a call, put, cap, floor or collar) and which agreement does not constitute an obligation to repay money borrowed, credit extended or the equivalent thereof. Lease Obligations shall mean the Base Rentals and the Additional Rentals determined pursuant to Section 4(b)(2), the obligations of Tenant under the DCII Lease and any other obligations incurred by the Tenant in connection with a lease. Lien means any mortgage, pledge, security interest, lien, judgment lien, easement, or other encumbrance on title, including, but not limited to, any mortgage or pledge of, security interest in or lien or encumbrance on any Property of the Tenant which secures any Debt or any other obligation of the Tenant, or which secures any obligation of any Person other than an obligation to the Tenant. Long-Term Indebtedness means: (i) Indebtedness with respect to money borrowed for an original term, or renewable at the option of the Tenant for a period from the date originally incurred, longer than one year; (ii) Indebtedness with respect to leases which are capitalized in accordance with Generally Accepted Accounting Principles having an original term, or renewable at the option of the lessee for a period from the date originally incurred, longer than one year; and (iii) Indebtedness with respect to installment purchase contracts having an original term in excess of one year. Management Consultant means an independent professional firm, corporation or Person engaged by the Tenant and reasonably acceptable to a majority of Holders (with written notice of the engagement to the Landlord and the Trustee) as may be required by the provisions of the Loan and Trust Agreement. Maximum Annual Debt Service Requirements means, as of the date of calculation, the highest of (i) the annual Debt Service Requirements payable during the then current Fiscal Year, or (ii) in the case of a calculation with respect to any prior Fiscal Year, the annual Debt Service Requirements payable in such prior Fiscal Year, or (iii) the annual Debt Service Requirements payable during any succeeding Fiscal Year over the remaining term of all Long- Term Indebtedness then outstanding; provided that during any period when all or a portion of the Debt Service Requirements on specific Indebtedness are paid from the proceeds thereof or from a Qualified Escrow, the Maximum Annual Debt Service Requirements on such Indebtedness shall be disregarded. Maximum Debt Service Coverage Ratio means, for any Fiscal Year, the ratio obtained by dividing the Net Income Available for Debt Service for such Fiscal Year by the Maximum Annual Debt Service Requirements. Net Income Available for Debt Service means with respect to the Tenant for any Fiscal Year, the excess of (i) the sum of the Pledged Revenues of the Tenant, and, only with respect to the calculations required in Section 22, an amount equal to 10% of the lesser of (a) the Tenant s Unrestricted Cash as of the end of the most recent Fiscal Year for which audited financial statements are available, and (b) the Tenant s Unrestricted Cash for the applicable Fiscal Years as projected in the financial forecast or feasibility study prepared and delivered in accordance with such Section, over (ii) its Operating Expenses, adjusted to exclude depreciation, amortization and interest expense; provided, however, no determination of Net Income Available for Debt Service shall take into account any extraordinary gains or losses after funding required reserves, changes in valuation of interest rate swaps or unrealized gains or losses. Officer s Certificate means a certificate signed by an Authorized Officer of the Tenant. Any Officer s Certificate which relates (i) to any financial test or ratio shall set forth in reasonable detail the computations involved in showing compliance with such test or ratio and the assumptions or evidence used as a basis for the figures used in making such computation and shall be approved by an Accountant; or (ii) which relates to the operations of the Tenant shall be approved by the Board of Trustees and shall set forth in reasonable detail the basis for the findings set forth herein. Operating Expenses means fees and operating expenses of the Tenant, including maintenance, repair expenses, utility expenses, real estate taxes, insurance premiums, administrative and legal expenses, miscellaneous operating expenses including fees paid to a Management Company, advertising and promotion costs, payroll expenses (including taxes), the cost of material and supplies used for current operations of the Tenant, the cost of vehicles, equipment leases and service contracts, taxes upon the operations of the Tenant not otherwise mentioned herein, charges for the accumulation of appropriate reserves for current expenses not annually recurrent, but which are such as may reasonably be expected to be incurred in accordance with Generally Accepted Accounting Principles, all in such amounts as reasonably determined by the Tenant; provided, however, Operating Expenses shall not include (i) those expenses which are actually paid from any revenues of the Tenant which are not Pledged Revenues, (ii) amounts paid from moneys in the Repair and Replacement Fund under the Loan and Trust Agreement, (iii) except as provided above in this definition, charges for the accumulation of appropriate reserves, (iv) any Operating Expenses which are paid as Additional Rentals, or (v) those expenses which are actually paid with the proceeds of any transfers from the unrestricted fund balance of the Tenant. Opinion of Counsel means a written opinion of an attorney or firm of attorneys selected by the Tenant. Permitted Additional Project means a project the sole purpose of which is to construct or renovate a Permitted Additional School Facility, and pay costs related to the Permitted Additional School Facility or its financing. 4 5 Permitted Additional School Facility means any additional school facility acquired or constructed by or for the benefit of the Tenant and owned by the Landlord or DCII and subject to a leasehold interest held by the Tenant which is undertaken by the Landlord or DCII and the Tenant following the Tenant s demonstration of compliance with the provisions of Section 22(a) hereof. Permitted Encumbrances means Permitted Encumbrances as described in Section 26 of this Lease. Permitted School Financing means Indebtedness incurred by Tenant to finance, or, in the case of a capital lease obligation of Tenant constituting Indebtedness, to facilitate the financing of, the construction or acquisition of a Permitted Additional School Facility, Permitted Additional Project, or Interest Rate Hedge incurred in connection therewith, provided (in addition to any other requirements for such Indebtedness applicable under any other provision of this Lease): (A) such is incurred in the ordinary course of the Tenant s activities; (B) prior to incurring the same, Tenant shall have given the Trustee written notice of Tenant s proposal to incur the same, together with complete copies of the relevant obligatory and security documents; and (C) upon the request of Trustee, Tenant shall deliver to Trustee, a true and complete counterpart of the closing agenda and binder with true and complete copies of all closing documents for such financing. Permitted School Financing Lien means a Lien securing Permitted School Financing to the extent that it covers Tenant s General Assets or Property on a parity basis with the Liens in such assets securing the Obligations and is granted only in accordance with the terms and conditions of this Lease. Person or words importing persons means firms, associations, partnerships (including without limitation general and limited partnerships), joint ventures, societies, estates, trusts, corporations, public or governmental bodies, other legal entities and natural persons. Pledged Revenues means, regardless of the source, all revenues, rentals, fees, thirdparty payments, receipts, unrestricted donations, unrestricted contributions or other income of the Tenant, to the extent permitted by the terms thereof and by law, including all the rights to receive such revenues (each subject to Permitted Encumbrances), all as calculated in accordance with Generally Accepted Accounting Principles, including, without limitation, School District Payments (whether paid to the Landlord by the Tenant or to the Trustee on behalf of the Tenant for the benefit of the Landlord), federal grants and aid, extended daycare, food services, sales proceeds derived from insurance, condemnation proceeds, accounts, contract rights and other rights, whether now or hereafter owned, held or possessed by the Tenant, and all gifts, grants, bequests and contributions (including income and profits therefrom) to the extent permitted by the terms thereof and by law. Premises has the meaning set forth in the recitals hereto, and may be amended, restored, supplemented or otherwise modified from time to time, including any amendments to cause this Lease to pertain to additional Property of the Tenant that is a Permitted Additional School Facility. Property means any and all land, leasehold interests, buildings, machinery, equipment, hardware, and inventory of the Tenant, wherever located and whether now or hereafter acquired, any and all rights, titles and interest in and to any and all tangible property of the Tenant, whether real or personal, and wherever situated and whether now or hereafter acquired. Qualified Escrow shall mean a segregated escrow fund or other similar fund or account which (a) is irrevocably established as security for Long-Term Indebtedness previously incurred and then outstanding ( Prior Indebtedness ) or for Long-Term Indebtedness, if any, then to be incurred to refund outstanding Prior Indebtedness ( Refunding Indebtedness ), (b) is held by the holder of the Prior Indebtedness or Refunding Indebtedness secured thereby or by a trustee or agent acting on behalf of such holder and is subject to a perfected security interest in favor of such holder, trustee or agent, (c) is held in cash or invested in obligations described in subparagraph (a) or (c) of the definition of Permitted Investments under the Loan and Trust Agreement and (d) is required by the documents establishing such fund or account to be applied toward the Tenant s payment obligations in respect of the Prior Indebtedness; provided that a debt service reserve fund or other special fund held for the security of Indebtedness shall not constitute a Qualified Escrow except to the extent such fund is available for use as a credit toward the Tenant s payments under such Indebtedness; and provided further, that if the fund or account is funded in whole or in part with the proceeds of Refunding Indebtedness, the documents establishing the same may require specified payments of principal or interest (or both) in respect of the Refunding Indebtedness to be made from the fund or account prior to the date on which the Prior Indebtedness is repaid in full. School District shall mean a school district in the Commonwealth in which resides the parents or the guardians of a child who is enrolled in the Tenant and who is included in the average daily membership of the school district for the purpose of providing basic education funding and special education funding payments to the Tenant. School District Payments shall mean all payments received by the Tenant from the School Districts, with the exception of certain excluded amounts set forth in Section 6(a) hereof. School Revenues means the School District Payments and all other receipts representing any of the Collateral. Swing Lease means any lease, with a term of less than five (5) years, that is entered into by the Tenant for the purpose of providing temporary school facilities for students in anticipation of the acquisition or construction of a Permitted Additional School Facility and which lease is designated as a Swing Lease in an Officer s Certificate delivered to the Trustee. Subordinated Debt means any Debt incurred or assumed by the Tenant, the payment of which is by its terms specifically subordinated to the payment of Base Rentals and includes the amounts paid as Additional Rentals pursuant to Section 4(b)(2) hereof. Term shall have the meaning in Section 3 of this Lease. Trustee shall mean U.S. Bank, National Association, as trustee under the Loan and Trust Agreement, or any successor trustee appointed pursuant to the terms thereof. 6 7

142 UCC shall mean the Pennsylvania Uniform Commercial Code in effect as of the date hereof. Unrestricted Cash means, with respect to Tenant, its unrestricted cash equivalents and marketable securities (including the balance, if any, in operating reserves), minus the aggregate of all outstanding short-term borrowings for working capital purposes. Underwriter shall mean George K. Baum & Company, and its successors. Variable Rate Indebtedness shall mean any Long-Term Indebtedness, the rate of interest on which is subject to change on a periodic basis prior to maturity; provided, however, that Long-Term Indebtedness shall not be deemed to be Variable Rate Indebtedness if the rate of interest thereon is subject to change solely by reason of the occurrence of an event of default, the loss of any applicable exemption of such interest from income taxation or any other contingency which was not reasonably expected to occur at the time of incurrence. Section 2. Premises. The Landlord does hereby demise and let unto the Tenant and the Tenant does hereby hire and lease from the Landlord, for the Term and upon the conditions and covenants set forth herein, the Premises. The Premises include all appurtenances, easements, declarations and rights-of-way related to it. Section 3. Term. The term of this Lease (the Term ) shall commence on the Effective Date and shall end, without the necessity for notice from either party to the other, upon the expiration of the term of this Lease upon the earlier of (a) midnight on June 15, 2043 or (b) the satisfaction of all Obligations (the Expiration Date ), provided, however, such Expiration Date shall be adjusted from time to time to extend to the maturity of any Parity Bonds or Parity Indebtedness issued under the Loan and Trust Agreement and secured by this Lease. Section 4. Rent. The Tenant shall pay the following Base Rentals and Additional Rentals: (a) Base Rentals. On the date hereof the Tenant shall pay to the Landlord the sum of $1,400,000 as prepaid rent which the Landlord shall deposit with the Trustee for deposit to the Capitalized Interest Account under the Loan and Trust Agreement. The Tenant shall pay to the Landlord or cause to be paid to the Landlord during the Term the Base Rentals on the Base Rental Payment Dates. The amount of Base Rentals, together with the Base Rentals payable under the DCII Lease, shall be recalculated by the Landlord in the event of the issuance of any Parity Bonds or Parity Indebtedness (as defined in the Loan and Trust Agreement) or any partial redemption of any Parity Bonds prior to maturity. Any prepayment of rent under this Lease or any prior lease shall not offset the payment of the Base Rentals and Additional Rentals under this Lease. Notwithstanding the foregoing, the prepaid rent and Base Rentals specified under this Section 4(a) shall not be duplicative of any payments made by Tenant with respect thereto under the DCII Lease, it being understood and agreed that the Tenant shall receive credit against the payments due under this Lease for any payments made with respect to the DCII Lease and the aggregate of all sums paid under both this Lease and 8 the DCII Lease shall equal the sums due hereunder and if either such lease is cancelled or terminated the total sums due hereunder shall not be diminished in any regard. (b) Additional Rentals. In addition to the Base Rentals, the Tenant shall pay to the Landlord or cause to be paid to the Landlord the following additional rentals (the Additional Rentals ): (1) An amount sufficient to pay the following costs, as estimated by the Landlord, during the next ensuing Fiscal Year (a) the reasonable fees and expenses of the Authority, the Trustee and the Landlord under the Loan and Trust Agreement; (b) the cost of insurance premiums for the Premises; (c) the cost of taxes, utility charges, maintenance, upkeep and repair costs for the Premises; (d) payments into the Debt Service Reserve Fund required by the Loan and Trust Agreement; (e) payments into the Rebate Fund required by the Loan and Trust Agreement; (f) payments into the Repair and Replacement Fund required by the Loan and Trust Agreement; and (g) all other costs included in the definition of, or expressly required to be paid by the Tenant as, Additional Rentals hereunder. Notwithstanding the foregoing, with respect to payments due in connection with sums due in connection with obligations under the Loan and Trust Agreement, such payments shall not be duplicative of any payments made by Tenant with respect thereto under the DCII Lease, it being understood and agreed that the Tenant shall receive credit against the payments due under this Lease for any payments made with respect to the DCII Lease and the aggregate of all sums paid under both this Lease and the DCII Lease shall equal the sums due hereunder and if either such lease is cancelled or terminated the total sums due hereunder shall not be diminished in any regard. (2) The Tenant and the Landlord may agree on the payments of other Additional Rentals hereunder if the Tenant and the Landlord deliver to the Trustee an Officer s Certificate certifying that, for the applicable Fiscal Year, after taking into account such proposed Additional Rentals, the Tenant shall be in compliance with all financial and other covenants contained in this Lease and that no Event of Default exists under this Lease, and that with such Additional Rentals, the Landlord shall be in compliance with all financial and other covenants contained in the Loan and Trust Agreement and that no Event of Default exists under the Loan and Trust Agreement. Payment of Additional Rentals pursuant to this paragraph shall be subordinate to the payment of Base Rentals. (3) The Tenant hereby expressly agrees to pay to the Landlord and its directors and officers, as appropriate as Additional Rentals, (i) all costs and expenses incurred by the Landlord or by its directors or officers in connection with any investigation, claim, demand, suit, action or proceeding relating to the activities of the Landlord, or such directors or officers in their capacity as such, in respect of the Premises, the Loan and Trust Agreement, this Lease, the Mortgage or any matter related thereto, and (ii) all other amounts payable by the Landlord under this Lease and the Loan and Trust Agreement not already included in Base Rentals or Additional Rentals. 9 Section 5. Manner of Payment. The Tenant shall pay all Base Rentals to the Trustee and Additional Rentals to the Landlord; in order to provide for payment of such Base Rentals, upon the issuance of the 2013 Bonds, the Tenant shall send a notice to a sufficient number of school districts then making not less than ninety-five percent (95%) of the School District Payments to the Tenant directing that such School District Payments be paid directly to the Trustee for deposit in the Revenue Fund as provided in Section 4.02 of the Loan and Trust Agreement. The form of the Notice to the School Districts is attached as Exhibit D. The obligation of the Tenant to pay the Base Rentals and Additional Rentals required under this Section and other provisions hereof, during the Term, shall be absolute and unconditional, and payment of the Base Rentals and Additional Rentals shall not be abated through accident or unforeseen circumstances. Notwithstanding any dispute between the Tenant, the Landlord, the Trustee, any Registered Owners (as defined in the Loan and Trust Agreement), any contractor or subcontractor retained with respect to the Premises, or any other Person, the Tenant shall, during the Term, make all payments of Base Rentals and Additional Rentals when due and shall not withhold any Base Rentals or Additional Rentals pending final resolution of such dispute, nor shall the Tenant assert any right of set-off or counter-claim against its obligation to make such payments required hereunder; provided, however, that the making of such payments shall not constitute a waiver by the Tenant of any rights, claims or defenses which the Tenant may assert. No action or inaction on the part of the Landlord or the Trustee shall affect the Tenant s obligation to pay Base Rentals and Additional Rentals during the Term. Section 6. Security. (a) As security for its performance and payment of the Tenant s obligations under this Lease, the Tenant hereby pledges to the Landlord, and grants to the Landlord a security interest in, all the following property, whether now owned or hereafter acquired or arising or wherever located: Chattel Paper, Documents, General Intangibles, Goods, including without limitation, Equipment, Inventory, Fixtures and Accessions, Instruments (as those terms are defined in the UCC), Pledged Revenues, monies which at any time the Tenant shall have or have the right to have in its possession, books and records evidencing or relating to the foregoing, including, without limitation, all monies due or to become due to the Tenant from the School District Payments and the Commonwealth (but excluding all student fees, graduation fees and prom fees and revenues received from the United States of America that are prohibited from being transferred under applicable law), and all gifts, grants, bequests, donations and contributions, except those heretofore or hereafter made, designated at the time of making by the donor or maker as being for certain specified purposes inconsistent with the application thereof to the payments due from the Tenant under this Lease and except any income derived therefrom to the extent required by such designation or restriction, and all Proceeds of the foregoing (as such term is defined in the UCC), excluding, in each case, any Collateral in which a security interest has been granted pursuant to the existing Indebtedness and Lease Obligations listed on Exhibit E (collectively, the Collateral ). In addition, if the Tenant acquires any real property, it will grant a mortgage on and security interest in favor of the Landlord in such real property as security for the payment and performance of the Tenant s obligations under this Lease, subject to Permitted Encumbrances. 10 (b) The Tenant agrees to execute and deliver such agreements, financing statements and other documents as may be necessary to perfect the grant of security interest made hereby. The Tenant further acknowledges that the Landlord may assign this Lease and the security granted by the Tenant hereunder to the Trustee, and the Tenant hereby agrees and consents to the same and agrees to execute such other and further documents as such assignee may request in connection with any such assignment. Other than to DCII in connection with the DCII Lease, the Tenant represents, warrants and covenants that the Collateral has not been previously pledged to any other party, that no financing statement covering any of the Collateral is on file in any public office, and that the Tenant will not pledge the Collateral to any party (other than the Landlord). (c) Upon the occurrence of an Event of Default (as hereinafter defined), the Landlord shall have the right, in addition to all other rights and remedies available to it, without notice to the Tenant, to apply toward and set-off against and apply to the unpaid obligations then due and payable hereunder, any items or funds held by Landlord, and any and all deposits (whether general or special, time or demand, matured or unmatured, fixed or contingent, liquidated or unliquidated) now or hereafter maintained by the Tenant with the Landlord. For the purpose of securing the Tenant s performance and payment of its obligations hereunder, the Landlord shall have, and the Tenant hereby grants to the Landlord, a first lien on all such deposits. (d) The Tenant hereby appoints the Landlord as its lawful attorney-in-fact to do, at the Landlord s option, and at the Tenant s expense and liability, all lawful acts and things which the Landlord may deem necessary or desirable to effectuate its rights under this Section. Upon the occurrence of an Event of Default hereunder, the Landlord may immediately and without notice pursue any remedy at law or in equity to collect, enforce or satisfy any obligations under this Lease, which rights and remedies are cumulative, may be exercised from time to time, and are in addition to any rights and remedies available to the Landlord under this Lease. Upon ten (10) calendar days prior written notice to the Tenant, which the Tenant hereby acknowledges to be sufficient, commercially reasonable and proper, the Landlord may sell, lease or otherwise dispose of any or all of the Collateral at any time and from time to time at public or private sale, with or without advertisement thereof and apply the proceeds of any such sale first to the Landlord s expenses in preparing the Collateral for sale (including reasonable attorneys fees), second to the complete satisfaction of the obligations under this Lease and third, as required by the UCC. The Tenant waives the benefit of any marshalling doctrine with respect to the Landlord s exercise of its rights hereunder. The Tenant grants a royaltyfree license to the Landlord for all patents, service marks, trademarks, tradenames, copyrights, computer programs and other intellectual property and proprietary rights sufficient to permit the Landlord to exercise all rights granted to the Tenant under this Section. Section 7. Insurance to be Maintained. (a) The Tenant shall maintain the following policies of insurance, to the extent the risks covered by such policies are not covered by the policies of insurance required by the Loan and Trust Agreement: 11

143 (1) Insurance against loss or damage to the Premises and all improvements therein (including, during any period of time when the Tenant is making alterations, repairs or improvements to the Premises, improvements and betterments coverage), all subject to standard form exclusions, with uniform standard extended coverage endorsement limited only as may be provided in the standard form of extended coverage endorsement at the time in use in the Commonwealth, in an amount equal to the full replacement value of the buildings and other improvements of the Premises. (2) Business interruption insurance in an amount equal to twelve (12) months of the Base Rental for any period of improvement or restoration. The period of restoration shall begin with the date of direct physical loss and shall end on one year from such date the period of restoration begins. (3) Commercial general liability, professional liability and automobile liability insurance against claims arising in, on or about the Premises, including in, on or about the sidewalks or premises adjacent to the Premises, providing coverage limits not less than the coverage limits customarily carried by owners or operators of Premises of similar size and character within the Commonwealth; provided, that the following specific coverage limits shall be deemed to comply with this paragraph: (i) commercial and general liability with an aggregate limit of two million dollars ($2,000,000) (one million dollars ($1,000,000 for personal injury) and a limit of one million dollars ($1,000,000) per claim; (ii) auto insurance with an aggregate limit of one million dollars ($1,000,000); and (iii) excess or umbrella insurance with a limit of two million dollars ($2,000,000). (4) Such other forms of insurance as are customary in the industry or as the Tenant is required by law to provide with respect to the Tenant, including, without limitation, any legally required worker s compensation insurance and disability benefits insurance. (b) All the insurance coverage required by this Section may be subject to deductible clauses in such amounts as are customary for Premises of similar size, type and character within the Commonwealth. At the time of the issuance of the Bonds and at least once every year thereafter, the Tenant shall employ (or cause to be employed), at its expense, an Insurance Consultant to review the insurance coverage required by this Section and to render to the Authority and the Trustee a report as to the adequacy of such coverage, as well as its compliance with this Section 7, and as to its recommendations, if any, for adjustments thereto. The Tenant shall pay any fees charged by such Insurance Consultant and any expenses incurred by the Landlord and the Trustee. The Tenant may self-insure (beyond customary deductibles) upon delivery to the Trustee of a report of an Insurance Consultant that such self-insurance complies with the terms of this Section. (c) All policies maintained (or caused to be maintained) by the Tenant pursuant to this Section shall be taken out and maintained with generally recognized, responsible insurance companies rated not less than A by A.M. Best Company, Inc., authorized in the Commonwealth, which may include captive insurance companies or 12 governmental insurance pools, selected by the Tenant. The insurance policies required by subsections (a)(1) and (a)(2) of this Section shall name the Trustee, the Landlord and the Tenant as insureds as their respective interests may appear (provided that with respect to insurance maintained pursuant to subsection (a)(1) above, the Trustee shall also be named as a mortgagee under the terms of a standard Pennsylvania mortgagee loss payable endorsement), and the Trustee shall also be named as an additional insured on the policy required by subsection (a)(3) above, and, provided further that all insurance proceeds for losses, and except for worker s compensation, fidelity insurance and liability insurance, shall be paid directly to the Trustee. Such policies or certificates of insurance shall (i) provide that (except as to insurance required pursuant to subsection (a)(4) above) the insurer will mail thirty (30) days written notice to the Landlord and the Trustee of any reduction in amount, material change in coverage or cancellation prior to expiration of such policy, and (ii) be satisfactory in all other respects to the Landlord and the Trustee. (d) The Tenant shall deliver to the Trustee (1) upon the commencement of the term of this Lease, the certificate of insurance which the Tenant is then required to maintain pursuant to this Section, (2) a certificate of the Insurance Consultant to the effect that such certificate satisfies the requirements of this Section 7, (3) at least thirty (30) days prior to the expiration of any such policies evidence as to the renewal thereof, if then required by this Section, and the payment of all premiums then due with respect thereto, and (4) if the Tenant is self-insured, promptly upon request by the Landlord or the Trustee, but in any case within ninety (90) days after the end of each Fiscal Year, a certificate of an Authorized Officer of the Tenant setting forth the particulars as to all insurance policies maintained by the Tenant pursuant to this Section 7 and certifying that such insurance policies are in full force and effect, that such policies comply with the provisions of this Section and that all premiums then due thereon have been paid. (e) The Trustee shall have no responsibility for monitoring, reviewing, or receiving insurance policies required under this section or for the sufficiency of such insurance. (f) The net proceeds of the insurance carried pursuant to subsections (a)(1) and (a)(2) above shall be applied as provided in Section 6.03 of the Loan and Trust Agreement. The net proceeds of insurance carried pursuant to subsections (a)(3) and (a)(4) above shall be applied toward extinguishment or satisfaction of the liability with respect to which such insurance proceeds have been paid. Section 8. Trade Fixtures. The Tenant shall have the right to install trade fixtures required by the Tenant or used by it in its business and, if installed by the Tenant, to remove any or all such trade fixtures from time to time during this Lease, and the Tenant shall remove all such trade fixtures prior to the expiration or earlier termination of this Lease; provided, however, that the Tenant shall not remove any such trade fixture, without the prior written consent of the Landlord, if the removal of such trade fixtures will impair the structure of the Premises. The Tenant shall repair and restore any damage or injury to the Premises caused by the installation and/or removal of any such trade fixtures. In the event that the Tenant fails to remove all such trade fixtures prior to the expiration or earlier termination of this Lease, the Landlord may 13 remove all such trade fixtures and dispose of them without notice or obligation to the Tenant and the Tenant shall reimburse the Landlord for the Landlord s cost of such removal and disposal. The term trade fixtures means any personal property placed or attached to the Premises by the Tenant which the Tenant uses to conduct the trade or business for which the Tenant occupies the Premises. Section 9. Signs. The Tenant may install signs on the Premises in accordance with all applicable laws and regulations. The Tenant shall remove all such signs at the expiration or earlier termination of this Lease, repairing any damage caused by the installation or removal thereof. Section 10. Maintenance. The Tenant shall, throughout the Term and at its sole cost and expense, take good care of the buildings and the other improvements now or hereafter located upon the Premises, and any sidewalks, parking areas, curbs and access ways upon or adjoining the Premises, and keep them in good order and condition, and promptly at the Tenant s own cost and expense make all repairs necessary to maintain such good order and condition, whether such repairs be interior or exterior, structural or nonstructural, ordinary or extraordinary, foreseen or unforeseen. When used in this paragraph, the term repairs shall include replacements and renewals when necessary to maintain such buildings and other improvements in good order and condition. All such repairs made by the Tenant shall be at least equal in quality and usefulness to the buildings and such other improvements as may from time to time be located upon the demised land. The Tenant shall keep and maintain all portions of the Premises and any sidewalks, parking areas, curbs and access ways adjoining them in a clean and orderly condition, free of accumulation of dirt, rubbish, snow and ice. Section 11. Alterations. (a) The Tenant shall not, without on each occasion first obtaining the Landlord s prior written consent, make or permit to be made any alterations, improvements or additions to the Premises; except that the Tenant may, without the consent of the Landlord, make minor alterations, improvements and additions to the interior of the Premises provided that they do not impair the structural strength of the Premises or reduce its value. Except as otherwise provided herein with respect to trade fixtures, all alterations, improvements, additions, repairs and all other property attached to or used in connection with the Premises or any part thereof made or installed on the Premises by or on behalf of the Tenant, whether or not the Landlord has consented thereto, shall immediately upon completion or installation thereof be and become part of the Premises and the property of the Landlord without payment therefor by the Landlord and shall be surrendered to the Landlord upon the expiration or earlier termination of this Lease. (b) In connection with the construction of any alteration, improvement or addition to the Premises performed by Tenant and financed with the proceeds of Obligations (as that term is defined in the Loan and Trust Agreement), the cost of which exceeds seven hundred and fifty thousand dollars ($750,000) (or such lower amount as required by law), the Tenant agrees to obtain or cause to be obtained by each general contractor performance and payment bonds covering performance of their respective contracts, including coverage for correction of defects developing within one year after completion and acceptance, and payment for labor and materials relating thereto. The performance and payment bonds shall be executed by a responsible surety company or companies qualified to do business in the Commonwealth, rated at least A by Standard & Poors Ratings Service or A.M. Best Company, Inc. and reasonably satisfactory to the Landlord or the Insurance Consultant, shall name the Landlord and the Trustee as dual obligees and shall be in amounts, in the aggregate, equal to not less than one hundred percent (100%) of the guaranteed maximum price under the construction contract relating to such alteration, improvement or addition, including increases caused by change orders, provided that such performance and payment bonds (or portions of bonds) covering defects may be limited to ten percent (10%) of such contract prices. Such performance and payment bonds shall be delivered to the Landlord prior to the commencement of the construction in respect of which they are obtained, except that bonds covering increases under change orders may be delivered prior to the commencement of the change order and that bonds covering defects may be delivered upon completion of construction if a satisfactory commitment to issue such bonds is delivered prior to the commencement of construction. The net amounts recovered by the Tenant or the Landlord on such bonds shall be deposited in the Project Fund (as that term is defined in the Loan and Trust Agreement). (c) During the period of construction of any alteration, improvement or addition to the Premises, the Tenant will maintain or cause the following insurance coverages to be maintained: (1) builders risk (or equivalent coverage) insurance upon any work done or materials furnished under construction contracts except excavations, foundations and any other structures not customarily covered by such insurance, such policies to be written in completed value form for one hundred percent (100%) of the insurable value of the contract; and (2) worker s compensation and employer s liability insurance covering all employees of contractors and subcontractors in amounts required by law. All policies of insurance required under clause (1) above shall be issued by responsible companies qualified to do business in the Commonwealth and reasonably satisfactory to the Landlord and the Insurance Consultant. Each policy of insurance shall name the Landlord and the Trustee as an insured party (to the extent of its insurable interest) and, in the case of the coverage described in clause (1) above, losses shall be made payable to the Landlord and the Trustee as their interest may appear. Each such policy of insurance, a copy thereof or an insurance certificate in respect thereof shall be deposited with the Landlord prior to the commencement of construction. The net proceeds of any builder s risk insurance received by the Landlord or Tenant in connection with any alteration, improvement or addition financed with the proceeds of the Obligations shall be deposited in the Project Fund. Section 12. Inspections. The Tenant agrees to permit the Landlord and the authorized representatives of the Landlord and of the holder of any mortgage, including the Mortgage, or any prospective mortgagee to enter the Premises at any time in response to an emergency and 14 15

144 otherwise at all reasonable times and upon reasonable notice for the purpose of inspecting the Premises, including, without limitation, the performance of reasonable tests, samplings, or other investigations to satisfy itself that the Tenant has complied with the provisions of this Lease, and making any necessary repairs thereto and performing any work therein that may be necessary by reason of the Tenant s failure to make such repairs or perform any such work required of the Tenant under this Lease; provided that the Tenant may take such measures or restrict the times of inspections to allow it to comply with legal requirements regarding contact with students. Nothing herein shall imply any duty upon the part of the Landlord to make any such inspection, test, sampling or other investigation, and nothing herein shall imply any duty on the part of the Landlord to do any other work which under any provision of this Lease Tenant may be required to perform and the performance thereof by the Landlord shall not constitute a waiver of the Tenant s default in failing to perform it. During the progress of any work, inspection, testing, sampling or investigation at the Premises, Landlord may keep and store in the Premises all necessary materials, tools and equipment. The Landlord shall not in any event be liable for inconvenience, annoyance, disturbance or other damage to the Tenant by reason of making such repairs or the performance of such work in the Premises or on account of bringing materials, supplies and equipment into or through the Premises during the course thereof and the obligations of the Tenant under this Lease shall not thereby be affected in any manner whatsoever, and the cost of each of such repairs or the performance of such work shall be payable by the Tenant to the Landlord pursuant to and in accordance with the provisions herein concerning the Landlord s right to cure the Tenant s defaults. The Landlord also shall have the right to enter the Premises at all reasonable times to exhibit the Premises to any prospective tenant or mortgagee thereof, within the last six (6) months of the Term and to any prospective purchaser or mortgagee thereof or any prospective mortgagee at any time during the Term. No entry into the Premises by the Landlord by any means will constitute a forcible or unlawful entry into the Premises, or a detainer of the Premises, or an eviction, actual or constructive, of the Tenant from the Premises or any part thereof, nor will such entry entitle the Tenant to damages or an abatement of the rent or other sums due hereunder. Section 13. Organization, Authorization and Powers. The Tenant represents and warrants that it is a charter school duly organized, validly existing and in good standing under the Charter School Law, with the power to enter into and perform this Lease, and that the execution, delivery and performance of this Lease have been duly authorized by the Tenant. The Tenant further represents and warrants that this Lease is a valid and binding obligation of the Tenant enforceable in accordance with its terms except as enforceability may be subject to the exercise of judicial discretion in accordance with general equitable principles and to applicable bankruptcy, insolvency, reorganization, moratorium and other laws for the relief of debtors heretofore or hereafter enacted to the extent that the same may be constitutionally applied, and the execution and delivery of this Lease and the consummation of the transactions contemplated herein will not conflict with or constitute a breach of or default under, of (i) any bond, indenture, note or other evidence of indebtedness of the Tenant, or (ii) any contract, lease or other instrument to which the Tenant is a party or by which it is bound or cause the Tenant to be in violation of any applicable statute or rule or regulation of any governmental authority. Section 14. Books and Records; Audits; Reports. The Tenant covenants to keep accurate records and books of account in accordance with Generally Accepted Accounting Principles consistently applied. The Tenant will provide to the Trustee: 16 (a) the financial statements and reports required by Section 20; (b) a copy of a preliminary annual operating budget for the Tenant for each Fiscal Year, prepared and delivered at least thirty (30) days prior to the start of each such Fiscal Year, and a copy of the final budget within thirty (30) days of approval; (c) together with the annual audited financial statements required by Section 20, a statement of the Accountant auditing such financial statements that in the course of its audit of the Tenant nothing has come to such Accountant s attention to lead it to believe that any Event of Default or any event which with the giving of notice or the passage of time, or both, would constitute an Event of Default exists hereunder or, if that is not the case, specifying such Event of Default or possible Event of Default; (d) together with the annual audited financial statements required by Section 20, a certificate executed by its Chief Executive Officer stating that: (i) a review of the activities of the Tenant during such Fiscal Year and of performance hereunder has been made under [his/her] supervision; and (ii) [he/she] is familiar with the provisions of this Lease and to the best of his/her knowledge, based on such review and familiarity, the Tenant has fulfilled all of its obligations hereunder throughout the Fiscal Year, and there have been no defaults under this Lease or, if there has been a default in the fulfillment of any such obligation in such Fiscal Year, specifying each such default known to [him/her] and the nature and status thereof and the actions taken or being taken to correct such default; and (e) immediately following receipt thereof, copies of any notices, reports or determinations from the Commonwealth or the School District which reflect any potential materially adverse impact on the Tenant s status as a qualified charter school under the laws of the Commonwealth of Pennsylvania. In addition, upon written request of the Landlord, the Tenant shall make available to the Landlord such internal operating and financial reports as have been prepared on a monthly basis or otherwise by the Tenant or its accountant, and such other information as the Landlord shall reasonably request. Tenant consents to Landlord s delivery of any such statements or reports to the Trustee, the Underwriter, any Interested Holder (as defined in the Loan and Trust Agreement) and upon its request, the Authority. Section 15. Maintenance of Existence. The Tenant shall maintain its existence as a charter school in good standing under the laws of the Commonwealth, provided that the Tenant may merge or consolidate with any other corporation, or may transfer, sell or convey all or substantially all of its assets to any Person if: (a) The Tenant is the surviving or resulting corporation, as the case may be (the Survivor ), or in the event the Tenant is not the Survivor, the Survivor (A) is a solvent corporation either organized under the laws of, or duly qualified to do business and subject to service of process in, the Commonwealth, and is an organization described in Section 501(c)(3) of the Code, and (B) assumes in writing the due and punctual 17 payment of all obligations under this Lease, and the due and punctual performance and observance of all of the covenants and conditions of this Lease; and (b) The Trustee and the Landlord receive an Opinion of Bond Counsel (as defined in the Loan and Trust Agreement) to the effect that such merger, consolidation or transfer does not adversely affect the exclusion from gross income for federal income tax purposes of the interest paid on the Bonds; and (c) The Tenant or the Survivor shall have obtained and delivered to the Trustee any consent or approval required by the Commonwealth approving the change in ownership resulting from such merger, consolidation or transfer of assets, together with an Opinion of Counsel that all such consents or approvals that are required have been obtained; and (d) No Event of Default will have occurred by reason of such merger, consolidation or transfer, and no event will have occurred by reason of such merger, consolidation or transfer which with the passage of time or giving of notice, would constitute an Event of Default; and (e) The Tenant or the Survivor shall provide written confirmation to the Landlord from S&P that such transaction will not cause the downgrade or withdrawal of any rating of the 2013 Bonds. Prior to any merger, consolidation or transfer, the Tenant shall deliver to the Trustee, the Landlord, and the Underwriter an Officer s Certificate demonstrating that all of the foregoing conditions have been satisfied, which certificate shall be supported by such reports or opinions as the Trustee or the Underwriter may reasonably require. Section 16. Payment of Obligations. The Tenant shall promptly pay or otherwise satisfy and discharge all of its obligations and Indebtedness and all demands and claims against it, including all operating expenses of the Tenant, as and when the same become due and payable, other than any thereof whose validity, amount or collectibility is being contested in good faith by appropriate proceedings; provided that, if by non-payment of any such sums, the pledge and security interest of this Lease will be impaired or any material property of the Tenant will be subject to imminent loss or forfeiture, such sums shall be paid immediately. Section 17. Compliance with Laws. The Tenant shall conduct its affairs and carry on its business and operations in such manner as to comply in all material respects with any and all applicable laws of the United States and the Commonwealth and duly observe and conform in all material respects to all valid orders, regulations or requirements of any government authority relative to the conduct of its business and the ownership of the Premises; provided, nevertheless, that nothing in this Lease shall require it to comply with, observe and conform to any such law, order, regulation or requirement of any governmental authority so long as the validity thereof shall be contested in good faith. The Tenant covenants to comply fully and in all respects with the provisions of the Charter School Law and its charter so long as any Bonds remain Outstanding. Section 18. Licenses and Permits. The Tenant shall procure and maintain all licenses, permits, approvals, certifications and accreditations issued by any regulatory bodies which are necessary for the maintenance of the Premises and the conduct of its operations and performance of its obligations under this Lease; provided, however, that it need not comply with this Section if and to the extent that it shall have determined in good faith, that such compliance is not in the best interest of the Tenant and that lack of such compliance would not materially impair the ability of the Tenant to pay the Base Rental and Additional Rentals when due. Section 19. Financial Covenants. (a) The Tenant covenants and agrees to achieve a Debt Service Coverage Ratio of at least 1.0 for the Fiscal Years ending June 30, 2014 and 2015 and at least 1.10 for the Fiscal Year ending June 30, 2016 and each Fiscal Year thereafter. (b) The Tenant covenants and agrees to maintain, as calculated on each June 30 for the Fiscal Year then ended, a minimum Days Cash on Hand of at least 45 days for the Fiscal Year ending June 30, 2014 and each Fiscal Year thereafter; provided, however, in the event that any law now or hereafter applicable to the Tenant or its operations results in a limitation on the amount of Unrestricted Cash the Tenant may maintain, the foregoing number of Days Cash on Hand shall be reduced to a number equivalent to the maximum amount permitted by law. (c) If for any Fiscal Year, the Tenant fails to meet the financial covenants set forth in subsections (a) or (b), the Tenant (at the Tenant s sole expense) shall, within 30 days following Tenant s receipt of its audited financial statements demonstrating such failure, engage a Management Consultant (with written notice of the engagement to the Trustee), which Management Consultant shall deliver a written report to the Tenant and the Trustee containing recommendations concerning the Tenant s: (i) operations; (ii) investment management practices; (iii) fundraising activities; and (iv) other factors relevant to meeting such financial covenants for the next ending Fiscal Year: (i) Within forty-five (45) days after its engagement, the Management Consultant will submit its consultant report, together with a certificate of the Tenant indicating the Tenant s substantial acceptance or rejection of all or any material portion of the recommendations of the Management Consultant, to the Trustee; and (ii) So long as the Tenant engages a Management Consultant as required above and accepts and continuously and substantially complies with the recommendations of the Management Consultant, failure to meet the financial covenants set forth in subsection (a) or (b) will not in and of itself constitute an Event of Default unless, in the case of a failure to meet the covenant set forth in subsection (a), the Debt Service Coverage Ratio for such Fiscal Year was less than 1.00, or in the case of a failure to meet the covenant set forth in subsection (b) for any 2 consecutive Fiscal Years ending June 30, 2016 or later, the Days Cash on Hand for such Fiscal Year was less than 30 days

145 (d) The Tenant will not knowingly take any action that would likely result in the reduction of the then-current ratings of the Bonds or any Parity Indebtedness by any Rating Agency then rating the Bonds or any Parity Indebtedness. Section 20. Financial Reports. The Tenant shall deliver to the Trustee copies of all reports, financial statements and notices required by the Continuing Disclosure Agreement. The Tenant may satisfy such requirement by filing such reports, financial statements and notices with EMMA. Section 21. Management Company Fees. Payment of any and all Management Company Fees by the Tenant will be subordinate to the payment of Base Rentals hereunder. Section 22. Restrictions on Indebtedness and Lease Obligations; Security. The Tenant covenants and agrees in this Lease that it will not incur or assume (the terms incur and assume, for the purposes hereof, mean and include the guaranteeing of, or the direct or indirect assumption of liability for, the debts of others) any Indebtedness or Lease Obligations other than the existing Indebtedness and Lease Obligations described on Exhibit E and as otherwise permitted by this Lease. Any Obligations issued under the Loan and Trust Agreement shall be included in any of the limitations set forth in this Section. (a) The Tenant is expressly authorized to incur the following additional Indebtedness and Lease Obligations: i Minor Amounts. The Tenant may incur or assume Indebtedness and Lease Obligations, including capital lease obligations (taking into account all extension or renewals thereof which may be made at the sole option of the Tenant) with a term which does not exceed five years; and the Maximum Annual Debt Service Requirements on which, when added to the Maximum Annual Debt Service Requirements on any other Indebtedness of the Tenant then outstanding which was incurred pursuant to this clause 22(a)(i), does not exceed an aggregate total of two hundred fifty thousand dollars ($250,000); provided such Indebtedness shall either be unsecured or secured by a purchase money security interest solely upon the Property financed with the proceeds of such Indebtedness; ii Additional Parity Indebtedness. The Tenant may incur additional Indebtedness or Lease Obligations in support of Parity Indebtedness issued under the Loan and Trust Agreement upon providing to the Landlord and the Trustee either (i) an Officer s Certificate to the effect that based on the audited financial statements of the Tenant for the most recent Fiscal Year for which they are available, the Maximum Debt Service Coverage Ratio, including the additional Indebtedness and excluding any Subordinated Debt in such calculation, was at least 1.25 and, including the additional Indebtedness and all Subordinated Debt in such calculation, was at least 1.20, or (ii) both (A) an Officer s Certificate to the effect that, based on the audited financial statements of the Tenant for the most recent Fiscal Year for which they are available, the Debt 20 iii iv v Service Coverage Ratio was at least 1.20, and (B) an Officer s Certificate accompanied by a report, financial forecast, or feasibility study prepared, reviewed, examined or reported upon by an Accountant in accordance with applicable standards demonstrating and concluding that the Debt Service Coverage Ratio of the Tenant will not be less than 1.25 for each of the first two full Fiscal Years immediately following the incurrence of the Indebtedness or, in the case of Indebtedness incurred to finance the acquisition, construction or renovation of any Capital Addition, either the projected completion date thereof or the projected date of occupancy (as specified). Intentionally Omitted. Refunding Indebtedness. The Tenant may incur Indebtedness and Lease Obligations, including capital lease obligations, for the purposes of facilitating the refunding of any Outstanding Indebtedness issued under the Loan and Trust Agreement so as to render it no longer Outstanding if such refunding does not result in an increase of more than ten percent (10%) of the Maximum Annual Debt Service Requirements. Subordinated Debt. The Tenant may incur Subordinated Debt in a total amount in the aggregate, when taking into account all other Subordinated Debt then outstanding, not to exceed fifteen percent (15%) of Tenant s Pledged Revenues for the most recent Fiscal Year for which audited financials statements of the Tenant are available and for any purpose upon providing to the Landlord and the Trustee either (i) an Officer s Certificate to the effect that based on the audited financial statements of the Tenant for the most recent Fiscal Year for which they are available, the Maximum Debt Service Coverage Ratio, including the additional Indebtedness and any Subordinated Debt in such calculation, was at least 1.10, or (ii) a report, financial forecast, or feasibility study prepared, reviewed, examined or reported upon by an Accountant in accordance with applicable standards demonstrating and concluding that the Debt Service Coverage Ratio of the Tenant will not be less than 1.10 for each of the first two full Fiscal Years immediately following the incurrence of the Indebtedness or, in the case of Indebtedness incurred to finance the acquisition, construction or renovation of any Capital Addition, either the projected completion date thereof or the projected date of occupancy (as specified); provided, however, that (A) such Subordinated Debt is unsecured and (B) the related financing documents entered into in connection with such Subordinated Debt provide terms equivalent to or more favorable to the Holders of the Obligations issued under the Loan and Trust Agreement than (1) that payment of interest or principal on such Indebtedness shall be deferred unless the Debt Service Coverage Ratio for the preceding Fiscal Year was at least 1.30, there is no Event of Default under this Lease or the Loan and Trust Agreement or deficiency in any debt service fund, debt service reserve fund or repair and replacement fund 21 established under the Loan and Trust Agreement or any related financing document with respect to any Outstanding Obligation under the Loan and Trust Agreement, and (2) that any payment of principal and interest thereon which is not permitted to be paid pursuant to the foregoing requirements shall be deferred without additional interest. vi Swing Leases. The Tenant may enter into Swing Leases upon delivering to the Landlord and the Trustee a certificate of a Financial Advisor demonstrating that, after taking into account the expected and approved enrollment and associated per pupil aid to be received by the Tenant in connection with the school facilities subject to such Swing Lease, the Debt Service Coverage Ratio of the Tenant will not be less than 1.10 for each of the first two full Fiscal Years immediately following the entering into of such Swing Lease. All Swing Leases shall be entered into on an unsecured basis. (b) Any Indebtedness incurred as provided in this Lease may be secured only as provided in Section 23. Additional Indebtedness not directly related to Parity Indebtedness under the Loan and Trust Agreement may only be secured by Permitted Encumbrances. (c) The amount of Indebtedness which may be incurred by the Tenant is governed by Section 22(a) hereof. The method of determining the Debt Service Requirements on certain types of Indebtedness is described in this Section 22(c). i Variable Rate Indebtedness. For purposes of the computation of the interest component of any forecasted (but not historical) Debt Service Requirements, the interest rate on any Variable Rate Indebtedness shall be assumed to be the higher of: (i) 100% of the average interest rate on such Variable Rate Indebtedness for the preceding two year period (or such shorter period for which such Indebtedness has been outstanding); and (ii) the current interest rate on such Variable Rate Indebtedness; provided, however, that in determining the assumed interest rate on Variable Rate Indebtedness which has not been incurred, the Tenant may substitute the interest rate on any other variable rate debt for any other entity which, in the judgment of a Financial Advisor, has the same creditworthiness as the Tenant and the same frequency of interest rate adjustment as the proposed Variable Rate Indebtedness. ii Demand Indebtedness. For the purposes of determining the Debt Service Requirements on Indebtedness which is subject to a tender for payment at the demand of the holder, the Debt Service Requirements on such Indebtedness shall be deemed to be the greater of: (a) the Debt Service Requirements payable under the terms of such Indebtedness, assuming none of such Indebtedness is tendered, including (where such Indebtedness bears interest at a variable rate) the interest determined pursuant to subsection 22(c)(i) above; or (b) the amount payable by the iii Tenant to reimburse any third party which has paid or purchased any such Indebtedness which has been tendered (including interest at the rate specified in the Tenant s agreement with such third party) plus the Debt Service Requirements on any such Indebtedness which have not been tendered, determined pursuant to subsection 22(c)(ii)(a) above. Interim and Balloon Indebtedness. For the purposes of determining the Debt Service Requirements on Long-Term Indebtedness of the Tenant on which no principal is payable until maturity (as in the case of a construction loan or other temporary loan) or Indebtedness on which more than 25% of the original principal amount becomes due in any year or upon demand of the holder (including demand for purchase) (a Balloon Maturity ), after giving credit for prior sinking fund installments paid with respect to such amount, in lieu of using the actual Debt Service Requirements on such Indebtedness, the Tenant may at its option, make such calculation by using any one of the following methods which is applicable: (a) If the Tenant has received an enforceable commitment, issued by a financial institution, financial services company or insurance company, whose unsecured long term obligations are rated in one of the highest three long term credit rating categories by a nationally recognized rating service, for funding a new Long- Term Indebtedness to repay such prior Indebtedness, the Debt Service Requirements may be deemed to be those of the new Long-Term Indebtedness; (b) If such Indebtedness is secured by a letter of credit or other similar security issued by a financial institution, financial services company or insurance company, whose unsecured long term obligations are rated in one of the highest three long term credit rating categories by a nationally recognized rating service, in an amount at least equal to the principal amount of such Indebtedness, (A) the principal of such Indebtedness may be deemed to be due and payable in the amounts and at the times specified in the agreement pursuant to which the letter of credit or similar security is issued or (B) the Debt Service Requirements may be deemed to be those which will become due from the Tenant assuming such letter of credit or other security is drawn upon to pay such Indebtedness at any Balloon Maturity; and (c) If such Indebtedness does not meet the requirements of paragraphs (a) or (b) above, or at the election of the Tenant (regardless of whether the Indebtedness meets the requirements of (a) or (b) above), such Indebtedness may be deemed to be amortized on a level-debt service basis over a term equal to twenty (20) years from the date of incurrence of such Indebtedness

146 iv Guarantees. If the Tenant guarantees indebtedness of a Person, such Guaranty will constitute Indebtedness under this Lease. For purposes of any covenants or computations provided for herein, including determination of the ability of the Tenant to enter into or become liable under a Guaranty pursuant to Section 22(a), the aggregate annual principal and interest payments on, and the principal amount of, any indebtedness (the Guaranteed Debt ) of a Person which is the subject of a Guaranty hereunder and which would, if such obligation were incurred by the Tenant, constitute Long-Term Indebtedness, shall be deemed equivalent to one hundred percent (100%) of the actual Debt Service Requirements on, and principal amount of, such Indebtedness. v Interest Rate Hedges. In the case of an Interest Rate Hedge which is being incurred for the purpose of limiting interest rate risk with respect to specific Indebtedness which is proposed to be incurred, or which is then outstanding, the Debt Service Requirements of the Tenant shall be adjusted for the related Indebtedness to give effect to the Interest Rate Hedge (excluding termination payments or other lump-sum payments due upon the breakage of the Interest Rate Hedge for whatever reason) in such manner, and to such extent, if any, as may be required by generally accepted accounting principles or, in the absence of any such requirements under generally accepted accounting principles, as may be stated in an Officer s Certificate (which certificate shall be delivered concurrently with any Officer s Certificate required in connection with the incurrence of the related Indebtedness) as necessary to present fairly the reasonably expected Debt Service Requirements of the Tenant after the incurrence of the Interest Rate Hedge. vi Provisions Not Mutually Exclusive. The provisions of this Section 22(c) are not and shall not be deemed to be mutually exclusive. If two or more of the foregoing provisions are applicable to any particular Long-Term Indebtedness, each such provision shall be applied, as and to the extent appropriate. Section 23. Security for Permitted Debt and Lease Obligations. Any Debt or Lease Obligations incurred as provided in this Lease may be secured only as hereinafter provided below: (a) by a lien on and security interest in any property or interest in property, real, personal or mixed, of the Tenant other than the Premises or the Collateral; provided, the Tenant grants a subordinate security interest therein to the Landlord; (b) by a purchase money security interest in fixtures, equipment or school materials or by a security interest given to refinance a purchase money security interest; (c) by a lien on and security interest in the Collateral, subordinate to the Lien and security interest created by this Lease; (d) Any Debt which is incurred for the purpose of providing working capital, including a line of credit, may be secured by a security interest in Accounts on a parity with the security interest created therein by this Lease. Any agreement for the repayment of such Debt and instruments evidencing or securing the same shall provide all notices to be given to the Trustee and the Landlord regarding defaults by the Tenant, and shall specify the rights of the Trustee to pursue remedies upon the receipt of such notice, and the sharing of the rights of the Holders of the Obligations (as such terms are defined in the Loan and Trust Agreement) to control the exercise of remedies with the holders of such Debt; and (e) Indebtedness or Lease Obligations incurred in support of Obligations under the Loan and Trust Agreement may be secured by the Collateral on a parity basis. Section 24. Intentionally Omitted. Section 25. Sale, Lease or Other Disposition of Property. The Tenant covenants that it shall not transfer, sell, lease or dispose of Property or the Collateral to any other Person, unless permitted in this Lease. (a) The Tenant may, from time to time, remove, sell or otherwise dispose of Property or the Collateral in the ordinary course of its business including, without limitation, equipment, furniture and fixtures which have become obsolete, worn out or for which the Tenant has received fair market value. (b) The Tenant may, from time to time, remove, sell or otherwise dispose of any Property or the Collateral, for fair market value, provided that the market value of the Property and the Collateral subject to such transfers shall not exceed five percent (5%) of the total market value of the Property and Collateral. (c) The Tenant may sell, remove or otherwise dispose of tangible personal property, fixtures or equipment at any time having book value in excess of the limit described in paragraph (b) above if the Tenant delivers to the Trustee: (1) a certified copy of a resolution adopted by the governing body of the Tenant authorizing such transfer; and (2) an Officer s Certificate (A) to the effect that such removal, sale or other disposition shall not impair the use and operation of the Premises, (B) stating the estimated fair value, if any, of such property or interest in property, and (C) stating that such arrangements have been made or can be made for sale or other disposition thereof for consideration not less than such estimated fair value. (d) The Tenant covenants that the net proceeds of any sale or other disposition made pursuant to paragraphs (a), (b) or (c) above, if any, shall be applied to the replacement of the Property or the Collateral sold or disposed of, or shall otherwise be reinvested in the Premises or shall be used to redeem the Bonds (e) The Tenant may, from time to time, remove, sell or otherwise transfer any Property or the Collateral, if such Property or Collateral consists solely of assets which are specifically restricted by the donor or grantor to a particular purpose which is inconsistent with their use for payment on the Bonds. (f) The Tenant shall not under any circumstances sell, pledge, factor or otherwise dispose of any accounts receivable, except as permitted by Section 23. Section 26. Limitations on Creation of Liens. (a) The Tenant agrees that it will neither create nor suffer to be created or exist any Lien upon any Property or the Collateral now owned or hereafter acquired by the Tenant other than Permitted Encumbrances. If any mechanic s, laborer s or materialman s lien shall at any time be filed against the Premises or any part thereof, the Tenant, within fifteen (15) days after notice of the filing thereof, will cause such lien to be discharged of record by payment, deposit, bond, order of the court of competent jurisdiction or otherwise. If the Tenant shall fail to cause such lien to be discharged within the period aforesaid, then in addition to any other right or remedy, the Landlord may, but shall not be obligated to, discharge it either by paying the amount claimed to be due or by procuring the discharge of such lien by deposit or by bonding proceedings, and in any such event, the Landlord shall be entitled, if the Landlord so elects, to compel the prosecution of any action for the foreclosure of such lien by the lienor and to pay the amount of the judgment in favor of the lienor with interest, costs and allowances. Any amount so paid by the Landlord and all costs and expenses incurred by the Landlord in connection therewith, together with interest thereon at the Default Rate from the respective dates of the Landlord s making of the payments and incurring of the costs and expenses, shall constitute Additional Rentals payable by the Tenant under this Lease and shall be paid by the Tenant to the Landlord on demand. (b) Permitted Encumbrances shall consist of the following: (1) The Liens created by this Lease; (2) Liens granted to secure the existing Debt and Lease Obligations described on Exhibit E and Liens granted to secure Debt as permitted by Section 23; (3) Any Lien described in Exhibit C hereto which is existing on the Effective Date, including renewals thereof, provided that no such Lien may be extended or modified to apply to any Property of the Tenant not subject to such Lien on such date, unless such Lien as so extended or modified otherwise qualifies as a Permitted Encumbrance hereunder; (4) any Permitted School Financing Lien; (5) Any Lien on Property acquired by the Tenant pursuant to a consolidation, merger, sale or conveyance in accordance with Section 15 hereof and that is not incurred in contemplation of such consolidation, merger, sale or 26 conveyance; provided that no such Lien may be extended or modified to apply to any Property of the Tenant not subject to such Lien on such date, unless such Lien if so extended or modified otherwise qualifies as a Permitted Encumbrance hereunder; (6) Any Liens for taxes, assessments, levies, fees, water and sewer rents, and other governmental and similar charges and any liens of mechanics, materialmen, laborers, suppliers or vendors for work or services performed or materials furnished which are not due and payable or which are not delinquent or the amount or validity of which are being contested and execution thereon is stayed or the existence of which will not subject the Premises or the Collateral to material loss or forfeiture; (7) Any judgment Lien in an amount not in excess of one hundred thousand dollars ($100,000) against the Tenant so long as such judgment is being contested and execution thereon is stayed or, in the absence of such contest and stay, such judgment Lien will not materially impair the Premises or the Collateral or subject the Premises or the Collateral to material loss or forfeiture; (8) Rights reserved to or vested in any municipality or public authority by the terms of any right, power, franchise, grant, license, permit or provision of law, affecting any Property, (A) to control or regulate any Property, or to use such Property, in any manner, which rights do not materially impair the use of such Property, or materially and adversely affect the value thereof, (B) to terminate such right, power, franchise, grant, license or permit, provided that the exercise of such right would not materially alter the use of such Property, or materially and adversely affect the value thereof, or (C) to purchase, condemn, appropriate or recapture, or designate a purchaser of, such Property; (9) easements, rights-of-way, servitudes, restrictions and other minor defects, encumbrances, and irregularities in the title to any Property, which do not materially impair the use of such Property, or materially and adversely affect the value thereof; (10) Liens arising by reason of good faith deposits with the Tenant in connection with leases of real estate, bids or contracts (other than contracts for the payment of money), deposits by the Tenant to secure public or statutory obligations, or to secure, or in lieu of, surety, stay or appeal bonds, and deposits as security for the payment of taxes or assessments or other similar charges; (11) Any Lien arising by reason of deposits with, or the giving of any form of security to, any governmental agency or any body created or approved by law or governmental regulation for any purpose at any time as required by law or governmental regulation as a condition to the transaction of any business or the exercise of any privilege or license, or to enable the Tenant to maintain selfinsurance or to participate in any funds established to cover any insurance risks or in connection with workmen s compensation, unemployment insurance, pension 27

147 or profit sharing plans or other social security, or to share in the privileges or benefits required for companies participating in such arrangements; and (12) Rights of set-off or banker s Lien with respect to funds on deposit with a financial institution in the ordinary course of business. Section 27. Tax Status and Eligibility for Financing. (a) The Tenant represents and warrants that (i) it is an organization described in Section 501(c)(3) of the Code (or corresponding provisions of prior law) and it is not a private foundation as defined in Section 509 of the Code (or corresponding provisions of prior law); (ii) it has received a letter from the Internal Revenue Service to that effect; (iii) such letter has not been modified, limited or revoked; (iv) it is in compliance with all terms, conditions and limitations, if any, contained in such letter; (v) the facts and circumstances which form the basis of such letter continue substantially to exist as represented to the Internal Revenue Service; and (vi) it is exempt from federal income tax under Section 501(a) of the Code. The Tenant agrees that it will not take any action or omit to take any action or cause or permit any circumstance within its control to arise or continue if such action or circumstance or omission would cause any revocation or adverse modification of such federal income tax status, unless it obtains an Opinion of Bond Counsel (as defined in the Loan and Trust Agreement) that such revocation or modification will not adversely affect the exclusion from gross income under Section 103 of the Code of interest paid on the Bonds. (b) The application of the proceeds of the Bonds in the manner described in the Loan and Trust Agreement does not constitute a use by the Tenant with respect to a trade or business that is an unrelated trade or business as defined in Section 513(a) of the Code. (c) The Tenant represents and warrants that the 2013 Project (as defined in the Loan and Trust Agreement) and the facilities of the Tenant financed with proceeds of the Bonds is, and at all times while the Bonds are Outstanding will be used in such a manner as to be, included within the definition of a project in the Act (as defined in the Loan and Trust Agreement). Section 28. Tax Covenants. The Tenant covenants that it will not take any action, or fail to take any action, if any such action or failure to take action would adversely affect the exclusions from gross income of the interest on the Bonds under Section 103(a) of the Code. The Tenant will not directly or indirectly use or permit the use of any proceeds of the Bonds or any other funds of the Tenant, or take or omit to take any action, that would cause the Bonds to be arbitrage bonds within the meaning of Section 148(a) of the Code. To that end, the Tenant will comply with all requirements of Section 148 of the Code to the extent applicable to the Bonds. Section 29. Net Lease. It is the intention of the parties hereto that this Lease is a net lease and that the Landlord shall receive the Base Rentals and Additional Rentals hereinabove provided as net income from the Premises, not diminished by (a) any imposition of any public authority of any nature whatsoever during the Term notwithstanding any changes in the method of taxation or raising, levying or assessing any imposition, or any changes in the name of any imposition, or (b) any expenses or charges required to be paid to maintain and carry the Premises or to continue the ownership of the Landlord, other than payments under any mortgage now existing or hereafter created by the Landlord. Section 30. Services. It is expressly agreed that the Landlord is not and shall not be required to render any services of any kind to the Tenant. Section 31. Environmental Laws. The Tenant shall conduct, and cause to be conducted, all operations and activities at the Premises in compliance with, and shall in all other respects applicable to the Premises comply with, all present and future applicable statutes, ordinances, governmental regulations, orders and directives, and all applicable requirements of common law, concerning (a) operations at the Premises, (b) handling of any materials, (c) emission of any pollutant into the air, the presence or passage of any effluent or pollutant or the discharge of any effluent or pollutant into water, or the presence, passage or release of any substance or matter, (d) the storage, treatment, disposal, presence or passage of any solid waste, industrial waste, or hazardous waste or substance at, from or connected with operations at any premises, and (e) underground storage tanks and related facilities and connections (herein called Environmental Statutes ). The Tenant shall obtain all permits, licenses, or approvals and shall make and file all notifications and registrations as required by Environmental Statutes in a timely manner. The Tenant shall at all times comply with the terms and conditions of any such permits, licenses, approvals, notifications and registrations. The Tenant shall not cause or allow the release or threat of release of hazardous substances or wastes at the Premises in a manner which is uncontained or otherwise allows or threatens to allow such hazardous substances or wastes to enter the environment, except in compliance with Environmental Statutes. The Tenant shall at all times handle hazardous substances or wastes in a manner which will not cause undue risk of such release. Should any such release of hazardous substances or wastes occur at the Premises, the Tenant shall immediately take all measures necessary to contain and remove all materials released and remedy and mitigate all threats to the public health and environment caused by such release. The Tenant shall also submit any notification or report that may be required as a result of such release to all appropriate governmental agencies. When conducting any such measures, the Tenant shall comply with Environmental Statutes. Section 32. Quiet Enjoyment. The Landlord covenants that the Tenant, upon paying the Base Rentals, Additional Rentals and other charges herein provided for and upon observing and keeping all covenants, agreements and conditions of this Lease on its part to be kept, shall quietly have and enjoy the Premises during the Term without disturbance by anyone claiming by or through the Landlord, subject, however, to the exceptions, reservations and conditions of this Lease. Section 33. Casualty. (a) Immediately after the occurrence of loss or damage, the Tenant shall notify in writing the Landlord, the Authority, the Architect (as defined in the Loan and Trust Agreement) and the Trustee thereof. Any net insurance proceeds paid directly to the Tenant shall be either (i) applied by the Tenant and/or the Landlord as permitted by Section 6.03(a) of the Loan and Trust Agreement or (ii) paid to the Trustee, if required pursuant to Section 6.03(b) of the Loan and Trust Agreement, and applied as set forth therein. The Tenant agrees to take all actions required to permit the Landlord to comply with the provisions of Section 6.03 of the Loan and Trust Agreement. (b) If the Premises shall be damaged or destroyed by fire or other casualty, the Landlord, subject to the net insurance proceeds being made available to the Landlord under Section 6.03 of the Loan and Trust Agreement for repair and restoration in accordance with the terms thereof, shall promptly repair, restore and replace the Premises to substantially the same condition as prior to the fire or other casualty. (c) If the net insurance proceeds are deposited in the Debt Service Fund and applied to the redemption of all of the Obligations in accordance with Section 3.04(c) of the Loan and Trust Agreement, this Lease shall terminate as of the date of the fire or other casualty and the rent herein reserved shall be apportioned and paid in full by the Tenant to the Landlord to such date and all rent prepaid for periods beyond such date shall forthwith be repaid by the Landlord to the Tenant and neither party shall thereafter have any liability hereunder. In the case of damage to or destruction of all or substantially all of the Premises and the deposit of the net insurance proceeds in accordance with Section 6.03(b) of the Loan and Trust Agreement, the Tenant shall pay to the Landlord for payment to the Trustee, an amount sufficient, together with the net insurance proceeds to redeem all of the Obligations. Section 34. Condemnation. (a) If all of the Premises is taken or condemned for a public or quasi-public use under any statute or by right of eminent domain by any competent authority or sold in lieu of such taking or condemnation, this Lease shall terminate as of the date the right of possession vests in the condemnor (the Taking Date ). The rent herein reserved shall be apportioned and paid in full by the Tenant to the Landlord to the Taking Date and all rent prepaid for periods beyond the Taking Date shall forthwith be repaid by the Landlord to the Tenant and neither party shall thereafter have any liability hereunder. The Tenant may prosecute its own claim by separate proceedings against the condemnor for damages legally due to the Tenant (such as leasehold improvements, fixtures and equipment, which the Tenant was entitled to remove, and moving and related expenses); provided that the same does not reduce the award payable to the Landlord. (b) If only part of the Premises is so taken or condemned, the Landlord, subject to the net condemnation proceeds being made available to the Landlord, may elect (subject to the provisions of the Loan and Trust Agreement) either to (i) replace or restore the part of the Premises affected by such taking or condemnation or (ii) to have all or part of the net condemnation proceeds deposited in the Debt Service Fund. Any net condemnation proceeds paid directly to the Tenant shall be either (i) applied by the Tenant and/or the Landlord as permitted by Section 6.03(a) of the Loan and Trust Agreement or (ii) paid to the Trustee, if required pursuant to Section 6.03(b) of the Loan and Trust Agreement, and applied as set forth therein. (c) If the condemnor should take only the right to possession for a fixed period of time or for the duration of an emergency or other temporary condition, then, notwithstanding anything hereinabove provided, this Lease shall continue in full force and effect without any abatement of rent, but the amounts payable by the condemnor with respect to any period of time prior to the expiration or sooner termination of this Lease shall be paid by the condemnor to the Landlord and the condemnor shall be considered a subtenant of the Tenant. If the amounts payable hereunder by the condemnor are paid in monthly installments, the Landlord shall apply the amount of such installments, or as much thereof as may be necessary for the purpose, toward the amount of rent due from the Tenant as rent for that period, and the Tenant shall pay to the Landlord any deficiency between the monthly amount thus paid by the condemnor and the amount of the rent, while the Landlord shall pay over to the Tenant any excess of the amount of the award over the amount of the rent. Section 35. Subletting and Assigning. Except as permitted hereunder, the Tenant shall not mortgage, pledge or encumber this Lease, collaterally or otherwise. The Tenant shall not assign this Lease, or sublet the whole or any part of the Premises, without on each occasion first obtaining the prior written consent of the Landlord, which consent shall not be unreasonably delayed or withheld. No subletting or assignment, with or without the Landlord s consent, shall in any way relieve or release the Tenant from liability for the performance of all terms, covenants and conditions of this Lease. Section 36. Subordination. This Lease shall be subject and subordinate at all times to the Mortgage and any other mortgage, deed of trust or other encumbrance, as permitted hereunder, heretofore or hereafter placed upon the Premises or the Property which includes the Premises and of all renewals, modifications, consolidations, replacements and extensions thereof (all of which are hereinafter referred to for purposes of this Section as, collectively a Mortgage Lien ) except to the extent that any Mortgage Lien provides that this Lease is superior to that Mortgage Lien. This provision shall operate automatically and without the necessity of any further act on the part of the Tenant to effectuate such subordination. The Tenant agrees, at the request of any Person who may acquire the Landlord s estate by foreclosure or transfer in lieu of foreclosure, to attorn to such Person and to execute, acknowledge and deliver, upon demand by the Landlord, any holder of a Mortgage Lien or such Person who may acquire the Landlord s estate, but in no event later than ten (10) days after such demand, such further instruments evidencing and confirming such subordination of this Lease and such instruments evidencing such attornment obligation. The Tenant hereby irrevocably appoints the Landlord the attorneyin-fact of the Tenant (such power of attorney being coupled with an interest), to execute, acknowledge and deliver any such instruments for and in the name of the Tenant. Notwithstanding the foregoing, any holder of any Mortgage Lien may at any time subordinate its Mortgage Lien to this Lease, without the Tenant s consent, by notice in writing to the Tenant, and thereupon this Lease shall be deemed prior to such Mortgage Lien without regard to their respective dates of execution, delivery and recording and in that event such holder 30 31

148 shall have the same rights with respect to this Lease as though this Lease had been executed, delivered and recorded prior to the execution, delivery and recording of such Mortgage Lien. Section 37. Estoppel. The Tenant agrees at any time and from time to time, within fifteen (15) days after the Landlord s written request or that of any mortgagee of the Landlord, to execute, acknowledge and deliver to the Landlord or such mortgagee a written instrument in recordable form certifying (i) whether this Lease is in full force and effect and if there have been modifications, supplements, side agreements or amendments, and if so, stating such modifications, supplements, side agreements and amendments; (ii) the dates to which Base Rental, Additional Rental and other charges have been paid; (iii) the amount of any prepaid rents or to the best of the Tenant s knowledge, credit due the Tenant, if any; (iv) that the Tenant has accepted possession and has occupied the Premises; (v) the Effective Date and the Expiration Date; (vi) whether, to the best knowledge of the Tenant, the Landlord is in default in the performance of any covenant, agreement or condition contained in this Lease and, if so, specifying each such default of which the Tenant may have knowledge; (vii) that no notice has been received by the Tenant of any default which has not been cured or, if such default has not been cured, what the Tenant intends to do in order to effect the cure; and (viii) and such other matters as the Landlord or the Landlord s mortgagee may reasonably require. Any such instrument delivered pursuant to this Section may be relied upon by the Landlord, any prospective purchaser of the Premises, any mortgagee or prospective mortgagee thereof, any assignee of the Landlord s interest in this Lease or of any mortgage upon the Premises or any purchaser of an interest in the Landlord. Section 38. Notices. All notices, demands, requests, consents, certificates and waivers from either party to the other shall be in writing and sent by United States registered or certified mail, return receipt requested, postage prepaid, or by overnight express delivery service, against written receipt or signed proof of delivery addressed to the parties at their respective addresses set forth above, or to such other address as the party to receive the notice, demand, request, consent, certificate or waiver may hereafter designate by written notice to the other. All payments of rent hereunder shall be made to the Landlord at the address from time to time designated as aforesaid for the giving of notice. All notices, demands, requests, consents, certificates and waivers shall be deemed, given and effective two (2) Business Days following the date deposited in the United States mail and on the next Business Day if delivered to an overnight express delivery service or courier service. Section 39. Surrender of Possession. At the expiration or earlier termination of this Lease, the Tenant shall surrender the Premises in good order and condition, ordinary wear and tear and, subject to the terms hereof, damage from fire or other casualty excepted. If the Landlord requires the Tenant to remove any alterations, improvements or additions, the Tenant shall remove the same prior to the expiration or earlier termination of this Lease, at the Tenant s sole cost, and shall restore the Premises to the condition in which they were before such alterations, improvements and additions were made, ordinary wear and tear and, subject to the terms hereof, damage from fire or other casualty excepted. All alterations, improvements and additions not so removed will conclusively be deemed to have been abandoned by the Tenant and may be appropriated, sold, stored, destroyed or otherwise disposed of by the Landlord without notice to the Tenant or to any other Person and without obligation to account for them. The Tenant will pay the Landlord all expenses incurred in connection with the Landlord s 32 disposition of such property, including without limitation the cost of repairing any damage to the Premises caused by the removal of such property. The Tenant s obligation to observe and perform this covenant will survive the expiration or earlier termination of this Lease. Section 40. Holdover. If the Tenant or any Person claiming through the Tenant shall retain possession of the Premises or any part thereof, after the expiration or earlier termination of this Lease, and if such retention shall be without the Landlord s express written consent, the Tenant shall pay the Landlord (a) for each month or portion thereof during which such possession continues, an amount equal to one hundred and fifty percent (150%) of the minimum rent to be paid for each month, plus all other sums which would have been payable hereunder had the Term continued during such retention of possession and (b) all other damages sustained by the Landlord, whether direct or consequential, by reason of such retention of possession. During any such retention of possession without the Landlord s express written consent, the Landlord may by written notice to the Tenant elect to treat the holdover as a year to year tenancy. The provisions hereof shall not be deemed to limit or constitute a waiver of any other rights or remedies of the Landlord provided herein or at law or in equity and applicable to unlawful retention of possession or otherwise. The Landlord s acceptance of rent under the provisions hereof shall not be deemed consent to the holdover. Section 41. Events of Default. Each of the following shall constitute an Event of Default: (a) The Tenant failing to pay when due any Base Rentals or failing to pay any other sum herein required to be paid by the Tenant within five (5) days of the date when due. (b) The Tenant failing to perform any other covenant or condition herein contained and such default continues for a period of thirty (30) days, or if any default shall occur which cannot be cured within such thirty (30) days, the Tenant shall have not commenced to cure the same within such thirty (30) day period and shall not have prosecuted such cure diligently thereafter. (c) The Tenant vacating or deserting the Premises or permitting the same to be empty or unoccupied. (d) The Tenant s charter is terminated after exhaustion of all administrative appeals, or, when eligible, the Tenant failing to receive, on or before the expiration of its current charter, approval for renewal of the charter for a period of at least three (3) years from the date of expiration of its current charter. (e) The filing by or against the Tenant of a petition for adjudication as a bankrupt or insolvent, or for reorganization or appointment of a receiver or trustee of the Tenant s property which, if voluntary, is not dismissed or stayed within ninety (90) days; an assignment by the Tenant for the benefit of creditors; or the taking possession of the Tenant s property by any governmental officer or agency pursuant to statutory authority for its dissolution or liquidation. 33 (f) The occurrence of any Event of Default (as that term is defined in the Loan and Trust Agreement), after any applicable grace periods, under the Loan and Trust Agreement, or the occurrence of any Event of Default (as that term is defined in the Lease between DCII and the Tenant dated as of June 1, 2013), after any applicable grace periods, under such Lease. (g) A breach shall occur (and continue beyond any applicable grace period) with respect to the performance of any agreement securing Debt of the Tenant for borrowed money in an amount at least equal to one hundred thousand dollars ($100,000) and the holder or holders of such Debt or a trustee or trustees under any such agreement accelerates such Debt; but an Event of Default shall not be deemed to be in existence or to be continuing under this clause (g) if (i) the Tenant is in good faith contesting the existence of such breach or event and if such acceleration is being stayed by judicial proceedings or by agreement of the parties or (ii) such breach or event is remedied and the acceleration, if any, is wholly annulled. The Tenant shall notify in writing the Landlord, the Authority and the Trustee of any such breach or event immediately upon the Tenant s becoming aware of its occurrence and shall from time to time furnish such information as the Landlord, the Authority or the Trustee may reasonably request for the purpose of determining whether a breach or event described in this clause (g) has occurred and whether such power of acceleration has been exercised or continues to be in effect. (h) A final judgment or judgments are entered, or an order or orders of any judicial authority or governmental entity is issued against the Tenant (such judgment(s) and order(s) being collectively referred to as Judgment ) (i) for the payment of money, which Judgment, in the aggregate exceeds one hundred thousand dollars ($100,000) outstanding at any one time; or (ii) for injunctive or declaratory relief which would have an adverse material effect on the ability of the Tenant to conduct its business, and such Judgment is not discharged or execution thereon or enforcement thereof stayed pending appeal, within thirty (30) days after the entry or issuance thereof, or, in the event of such a stay, such Judgment is not discharged within thirty (30) days after such stay expires. The Tenant shall notify in writing the Landlord, the Authority and the Trustee of any such breach or event immediately upon the Tenant s becoming aware of its occurrence and shall from time to time furnish such information as the Landlord, the Authority or the Trustee may reasonably request for the purpose of determining whether a breach or event described in this clause (h) has occurred and whether such power of acceleration has been exercised or continues to be in effect. (i) The Tenant fails to deliver a report of a Management Consultant required by this Lease or fails to follow the recommendations set forth in such reports or if the Debt Service Coverage Ratio falls below 1.0. Section 42. Remedies. Upon the occurrence of an Event of Default: (a) The Landlord may, in writing delivered to the Tenant, declare immediately due and payable the Base Rental, Additional Rental and all other charges due hereunder for the entire unexpired balance of the Term, in addition to any rent or other charges already due and payable as if by the terms of this Lease the whole balance of unpaid rent and other charges were due on that date payable in advance. (b) The Landlord may terminate this Lease by written notice to the Tenant, and, on the date specified in the notice, the Tenant s right to possession shall cease and this Lease will be terminated (except as to the Tenant s liability set forth in the following sentence). If the Landlord terminates this Lease, the Landlord may recover from the Tenant a judgment for damages computed in accordance with the following formula, in addition to its other remedies: (1) the unpaid rent which has accrued up to the time of such termination plus interest from the dates such rent was due to the date of the judgment at the Default Rate; plus (2) the present value at the time of the judgment of the amount by which the unpaid rent which would have accrued (had this Lease continued) after termination until the date of the judgment exceeds the amount of such rental loss the Tenant proves could have been reasonably avoided; plus (3) the amount (as discounted at the discount rate of the Federal Reserve Bank of Philadelphia) by which the unpaid rent which would have been earned (had this Lease continued) for the balance of the Term and any renewal or extension thereof for which the Tenant had become bound prior to a default after the date of the judgment exceeds the amount of such rental loss that the Tenant proves could have been reasonably avoided; plus (4) any other amount necessary to compensate the Landlord for all the detriment proximately caused by the Tenant s failure to perform its obligations under this Lease or which in the ordinary course would be likely to result therefrom including, without limitation, the cost of repairing the Premises and reasonable attorneys fees; plus (5) at the Landlord s election, such other amounts in addition to or in lieu of the foregoing as may be permitted by applicable law. (c) The Landlord may terminate the Tenant s right of possession and may reenter and repossess the Premises by legal proceedings, force or otherwise, without terminating this Lease. After reentry or retaking or recovering of the Premises, whether by termination of this Lease or not, the Landlord may, but shall be under no obligation to, make such alterations and repairs, as the Landlord may deem then necessary or advisable and relet the Premises or any part or parts thereof, either in the Landlord s name or otherwise, for a term or terms which may at the Landlord s option be less than or exceed the period which otherwise would have constituted the balance of the Term and at such rent or rents and upon such other terms and conditions as in the Landlord s sole discretion may deem advisable and to such Person or Persons as may in the Landlord s discretion seem best. The Tenant shall be liable for any loss of rent for such period as would be the balance of the Term and any renewal or extension for which the Tenant had 34 35

149 become bound prior to a default of this Lease plus the cost and expenses of reletting and of redecorating, remodeling or making repairs and alterations to the Premises for the purpose of reletting, the amount of such liability to be computed monthly and to be paid by the Tenant to the Landlord from time to time upon demand. The Landlord shall in no event be liable for, nor shall any damages or other sums to be paid by the Tenant to the Landlord be reduced by, failure to relet the Premises or failure to collect the rent from any reletting. The Tenant shall not be entitled to any rents received by the Landlord in excess of the rents provided for in this Lease. The Tenant agrees that the Landlord may file suit to recover any sums falling due under the terms of this clause from time to time and that no suit or recovery of any portion due the Landlord hereunder shall be any defense to any subsequent action brought for any amount not theretofore reduced to judgment in favor of the Landlord. The Tenant, for the Tenant and the Tenant s successors and assigns, hereby irrevocably constitutes and appoints the Landlord, the Tenant s and their agent to collect the rents due or to become due under all Leases of the Premises or any parts thereof without in any way affecting the Tenant s obligation to pay any unpaid balance of rent or any other sum due or to become due hereunder. Notwithstanding any reletting without termination, the Landlord may at any time thereafter elect to terminate this Lease for the Tenant s previous breach. Section 43. Remedies Cumulative. All remedies available to the Landlord hereunder and at law and in equity shall be cumulative and concurrent. No termination of this Lease nor taking or recovering possession of the Premises shall deprive the Landlord of any remedies or actions against the Tenant for rent, for charges or for damages for the breach of any covenant, agreement or condition herein contained, nor shall the bringing of any such action for rent, charges or breach of covenant, agreement or condition, nor the resort to any other remedy or right for the recovery of rent, charges or damages for such breach be construed as a waiver or release of the right to insist upon the forfeiture and to obtain possession. No re-entering or taking possession of the Premises, or making of repairs, alterations or improvements thereto, or reletting thereof, shall be construed as an election on the part of the Landlord to terminate this Lease unless written notice of such election be given by the Landlord to the Tenant. The failure of the Landlord to insist upon strict and/or prompt performance of the terms, agreements, covenants and conditions of this Lease or any of them, and/or the acceptance of such performance thereafter shall not constitute or be construed as a waiver of the Landlord s right to thereafter enforce the same strictly according to the terms thereof in the event of a continuing or subsequent default. Section 44. No Waiver. Any failure of the Tenant or the Landlord to enforce any remedy allowed for the violation of any provision of this Lease shall not imply the waiver of any such provision, even if such violation is continued or repeated, and no express waiver shall affect any provision other than the one(s) specified in such waiver and only for the time and in the manner specifically stated. No receipt of monies by the Landlord from the Tenant after the termination of this Lease shall in any way (a) alter the length of the Term or of the Tenant s right of possession hereunder, or (b) after the giving of any notice, reinstate, continue or extend the Term or affect any notice given to the Tenant prior to the receipt of such monies, it being agreed that after the service of notice or the commencement of a suit or after final judgment for possession of the Premises, the Landlord may receive and collect any rent due, and the payment of said rent shall not waive or affect said notice, suit or judgment. 36 Section 45. Brokers. The Landlord and the Tenant represent and warrant to each other that the Landlord and the Tenant have dealt with no broker or finder in connection with this Lease, and that insofar as the Landlord or the Tenant knows, no broker or finder negotiated this Lease or introduced the Tenant to the Landlord or brought the Premises to the Tenant s attention. The Landlord and the Tenant agree to defend each other and their respective officers, partners, employees, agents, successors and assigns, against any loss resulting from a breach of the warranty contained in the preceding sentence. Section 46. Captions. The captions in this Lease are for convenience only and are not a part of this Lease and do not in any way define, limit, describe or amplify the terms and provisions of this Lease or the scope or intent thereof. Section 47. Entire Agreement. This Lease represents the entire agreement between the parties hereto and there are no collateral or oral agreements or understandings. The Landlord and the Landlord s agents have made no representations, agreements, conditions, warranties, understandings or promises, either oral or written, other than as set forth herein, with respect to this Lease, the Premises or otherwise. This Lease shall not be modified in any manner or terminated except by an instrument in writing executed by the parties. Without limitation of the provisions which survive the expiration or earlier termination of this Lease, it is expressly agreed by the Landlord and the Tenant that the indemnification provisions shall survive such expiration or termination. The masculine (or neuter) pronoun, shall include the masculine, feminine and neuter genders and the singular number shall include the singular and plural number. Section 48. Severability. If any provision of this Lease is found by a court of competent jurisdiction to be illegal, invalid or unenforceable, the remainder of this Lease will not be affected, and in lieu of each provision which is found to be illegal, invalid, or unenforceable, there will be added as a part of this Lease a provision as similar to such illegal, invalid, or unenforceable provision as may be possible and be legal, valid, and enforceable. Section 49. Waiver of Jury Trial. The Landlord and the Tenant waive trial by jury in any action, proceeding or counterclaim brought by either of them against the other on all matters arising out of this Lease, the use and occupancy of the Premises, the relationship of the Landlord and the Tenant, or claim of injury or damage. Section 50. Governing Law. This Lease will be governed by the law of the Commonwealth of Pennsylvania and will be construed and interpreted according to that law. Section 51. Time of Essence. Time is of the essence of this Lease and all of its provisions. Section 52. Landlord s Work. The term Landlord s Work shall mean the construction upon the Premises of the buildings and improvements described in the plans and specifications ( Plans and Specifications ) for the 2013 Project. All of Landlord s Work shall be done in a good and workmanlike manner and in compliance with all applicable laws and lawful ordinances, regulations and orders of the federal, state, county or other governmental authorities having jurisdiction thereof. 37 [REMAINDER OF PAGE LEFT INTENTIONALLY BLANK SIGNATURES PAGE FOLLOWS] IN WITNESS WHEREOF, the parties hereto have executed this Lease under seal the day and year first above written. DEMEDICI CORPORATION By: Name: Javier Kuehnle Title: President ATTEST: Name: Krista Alexander Title: Secretary PHILADELPHIA PERFORMING ARTS CHARTER SCHOOL By: Name: Javier Kuehlne Title: Chairperson ATTEST: Name: Krista Alexander Title: Treasurer 38 [Signature Page to Lease Agreement]

150 EXHIBIT A Description of Premises EXHIBIT B Base Rentals Year (July 1 June 30) Base Rental (Annual) Base Rental (Monthly) $3,526, July December 2013: $282, January June 2014: $304, $3,658, $304, $3,948, $329, $4,360, $363, $4,397, $366, $4,399, $366, $4,398, $366, $4,399, $366, $4,397, $366, $4,401, $366, $4,397, $366, $4,398, $366, $4,399, $366, $4,401, $366, $4,401, $366, $4,401, $366, $4,400, $366, $4,402, $366, $4,397, $366, $4,399, $366, $4,399, $366, $4,400, $366, $4.401, $366, $4,397, $366, $4,397, $366, $4,400, $366, $4,400, $366, $4,397, $366, $4,399, $366, $8,801, $733, Payments shall be made in monthly payments, as shown above, commencing July 10, 2013, and no later than the 10 th of each month thereafter, subject to credit for interest earnings and amounts available in the Capitalized Interest Account as provided in the Loan and Trust Agreement. A-1 B-1 EXHIBIT C Permitted Encumbrances EXHIBIT D Form Of Notice To School District (1) Those encumbrances shown on Schedule B to the Policy of Title Insurance issued by First American Title Insurance Company in connection with the issuance of the 2013 Bonds. C-1 D-1

151 [LETTERHEAD FROM CHARTER SCHOOL] Via Certified Mail, Return Receipt Requested [Name] [School District] [Address 1] [Address 2] [City, State, Zip] Re: $55,500,000 Philadelphia Authority for Industrial Development Revenue Bonds (Philadelphia Performing Arts Charter School Project) Series of 2013 (the Bonds ) Dear : DeMedici Corporation and DeMedici Corporation II (collectively, the Borrowers ) have received a loan (the Loan ) from the Philadelphia Authority for Industrial Development (the Issuer ) which provided it with funds to, among other things, acquire, renovate and equip certain school buildings to be leased to Philadelphia Performing Arts Charter School (the School ) pursuant to a certain Lease Agreements dated as of June 1, 2013 (the Leases ). The terms of the Loan are set forth in a Loan and Trust Agreement dated as of June 1, 2013 (the Agreement ), among the Issuer, the Borrowers and U.S. Bank National Association, as Trustee (the Trustee ). The Issuer obtained the money to fund the Loan through the issuance of the Bonds under the Agreement. The Leases and the Agreement permit the Trustee to cause the School to direct that the monthly payments to be received from you for students residing in your district who are enrolled at the School to be deposited directly with the Trustee. Pursuant to this letter, you are hereby authorized and instructed to wire the monthly payments to the School to the following wire instructions or to mail your check to the Trustee at the address shown below: Checks - First Class Mail Lockbox U.S. Bank National Association Attn: Please ensure that the following Trust account name and number are included on the remittance Account Name: Account Number: Checks - Overnight Express Mail Checks - Overnight Express Mail D-2 U.S. Bank National Association Attn: Please ensure that the following Trust account name and number are included on the remittance Account Name: Account Number: Wire and ACH (Automatic Clearing House) Instructions RBK ABA BNF Beneficiary Account Number: Beneficiary Account Address OBI Account Name: Account Number: You should begin wiring to the above account number or mailing your checks starting with your [month] payment to us. The authorization and instructions hereunder shall continue in effect until such time as you have received written notice from the Trustee that the Bonds have been paid in full or otherwise defeased and that all of the School s obligations under the Lease and Agreement have been fully satisfied. Should you have any questions in this regard, please do not hesitate to contact, the Business Manager of the School, or, the School s Chief Executive Officer at. Sincerely, [Chief Executive Officer] We acknowledge receipt of the above letter. We agree to wire mail our payments to you in accordance with this letter. [School District] By: Authorized Officer D-3 EXHIBIT E Existing Debt and Lease Obligations 1. Obligations associated with the DCII Lease. LEASE between DEMEDICI CORPORATION II Landlord and PHILADELPHIA PERFORMING ARTS CHARTER SCHOOL Tenant Dated as of June 1, 2013 Premises: 1600 Vine Street, 2407 South Broad Street, Ritner Street, and South Broad Street, Philadelphia, Pennsylvania E-1

152 TABLE OF CONTENTS Section 1. Definitions...1 Section 2. Premises...8 Section 3. Term...8 Section 4. Rent...8 Section 5. Manner of Payment...9 Section 6. Security...10 Section 7. Insurance to be Maintained...11 Section 8. Trade Fixtures...13 Section 9. Signs...14 Section 10. Maintenance...14 Section 11. Alterations...14 Section 12. Inspections...15 Section 13. Organization, Authorization and Powers...16 Section 14. Books and Records; Audits; Reports...16 Section 15. Maintenance of Existence...17 Section 16. Payment of Obligations...18 Section 17. Compliance with Laws...18 Section 18. Licenses and Permits...19 Section 19. Financial Covenants...19 Section 20. Financial Reports...20 Section 21. Management Company Fees...20 Section 22. Restrictions on Indebtedness and Lease Obligations; Security...20 Section 23. Security for Permitted Debt and Lease Obligations...24 Section 24. Intentionally Omitted...25 Section 25. Sale, Lease or Other Disposition of Property...25 Section 26. Limitations on Creation of Liens...26 Section 27. Tax Status and Eligibility for Financing...28 Section 28. Tax Covenants...28 Section 29. Net Lease...28 Section 30. Services...29 Section 31. Environmental Laws...29 i Section 32. Quiet Enjoyment...29 Section 33. Casualty...29 Section 34. Condemnation...30 Section 35. Subletting and Assigning...31 Section 36. Subordination...31 Section 37. Estoppel...32 Section 38. Notices...32 Section 39. Surrender of Possession...32 Section 40. Holdover...33 Section 41. Events of Default...33 Section 42. Remedies...34 Section 43. Remedies Cumulative...36 Section 44. No Waiver...36 Section 45. Brokers...37 Section 46. Captions...37 Section 47. Entire Agreement...37 Section 48. Severability...37 Section 49. Waiver of Jury Trial...37 Section 50. Governing Law...37 Section 51. Time of Essence...37 Section 52. Landlord s Work...37 EXHIBIT A Description of Premises... A-1 EXHIBIT B Base Rentals...B-1 EXHIBIT C Permitted Encumbrances...C-1 EXHIBIT D Form Of Notice To School District... D-1 EXHIBIT E Existing Debt and Lease Obligations... E-1 ii LEASE THIS LEASE (this Lease ) made as of this 1 st day of June, 2013 (the Effective Date ) is by and between DEMEDICI CORPORATION II, a Pennsylvania nonprofit corporation, having an address c/o Philadelphia Performing Arts Charter School, 2600 South Broad Street, Philadelphia, PA (the Landlord ), and PHILADELPHIA PERFORMING ARTS CHARTER SCHOOL, a Pennsylvania nonprofit corporation, having an address at 2600 South Broad Street, Philadelphia, PA (the Tenant ). WITNESSETH: WHEREAS, the Tenant is a charter school duly organized and validly existing pursuant to the Pennsylvania Charter School Law, the Act of June 19, 1997, P.L. 225, No. 22, as amended (the Charter School Law ); and WHEREAS, the Tenant is authorized by Section A of the Charter School Law to acquire real property by lease for use as a charter school facility; and WHEREAS, the Landlord currently owns those certain pieces or parcels of land located at 1600 Vine Street, 2407 South Broad Street, Ritner Street, and South Broad Street, each in the City of Philadelphia, Pennsylvania and certain improvements located thereon ( Land ) as more fully described in Exhibit A hereto; and WHEREAS, in order to finance the 2013 Project (as defined in the Loan and Trust Agreement, defined below), the Landlord and DeMedici Corporation ( DeMedici ) have entered into a Loan and Trust Agreement, dated as of June 1, 2013 (the Loan and Trust Agreement ), with the Philadelphia Authority for Industrial Development (the Authority ) and U.S. Bank National Association, as trustee (the Trustee ); and WHEREAS, pursuant to the Loan and Trust Agreement and an Open-End Mortgage, Assignment of Leases and Security Agreement of even date herewith (the Mortgage ), the Landlord has (a) assigned to the Trustee all of the Landlord s right, title and interest in, to and under this Lease and (b) mortgaged and granted a security interest to the Trustee in the Landlord s interest in the Land and all buildings and other improvements located or to be constructed thereon, as more fully described in Exhibit A hereto (the Premises ); and WHEREAS, the Landlord desires to demise and lease the Premises to the Tenant, and the Tenant desires to lease the Premises from the Landlord, pursuant to the terms and conditions and for the purpose set forth in this Lease. NOW, THEREFORE, for and in consideration of the mutual covenants and the representations, covenants and warranties herein contained, the parties hereto agree as follows: Section 1. Definitions. Any terms used herein and not otherwise defined shall have the meaning given to such term in the Loan and Trust Agreement. In addition to the terms defined in the recitals to this Lease and elsewhere herein and those terms defined in the Loan and Trust Agreement which are not defined herein, the following terms have the following meanings in this Lease, unless the context otherwise requires: Accounts has the meaning set forth in the Pennsylvania Uniform Commercial Code in effect as of the date hereof. Additional Rentals shall have the meaning given such term in Section 4(b) of this Lease. Additional Rentals do not include the Base Rentals. Authorized Officer means the Chief Executive Officer of the Tenant, and when used with reference to an act or document of the Tenant, also means any other Person or Persons authorized to perform the act or execute the document. Base Rentals means the amounts set forth in Exhibit B hereto. Base Rental Payment Dates means the dates the Base Rentals are due as set forth in Exhibit B hereto. Capital Additions means all property or interests in property, real, personal and mixed (a) which constitute either (i) a Permitted Additional School Facility, or (ii) additions, improvements or extraordinary repairs to or replacements of all or any part of the Tenant s Property, and (b) the cost of which is properly capitalized under Generally Accepted Accounting Principles; provided that the 2013 Project shall not constitute a Capital Addition. Collateral shall have the meaning given such term in Section 6(a) of this Lease. Commonwealth shall mean the Commonwealth of Pennsylvania. Continuing Disclosure Agreement means the Continuing Disclosure Agreement among Landlord, DeMedici, Tenant and the Trustee dated as of June 1, Credit Facility means any irrevocable transferable letter of credit, insurance policy, guaranty or other agreement constituting a credit enhancement or liquidity facility. Days Cash on Hand means, as of the end of any period, the product obtained by multiplying the number of days in such period by a fraction (a) the numerator of which is the Tenant s Unrestricted Cash, and (b) the denominator of which is the Tenant s Operating Expenses for such period as adjusted (i) to exclude additions to the reserve for bad debt, depreciation and amortization and (ii) to include all interest expense. Debt Service Coverage Ratio means, for any Fiscal Year, the ratio obtained by dividing the Net Income Available for Debt Service for such Fiscal Year by the Debt Service Requirements in such Fiscal Year. Debt Service Requirements means, for any specified period, (a) the amounts payable as lease rentals in respect of any or all Long-Term Indebtedness in the form of capitalized leases, (b) the Base Rentals payable under this Lease and the DeMedici Lease to the extent not otherwise included in subpart (a) above, (c) the amount payable in respect of any guaranty of Long-Term Indebtedness, to the extent provided in Section 22(c) hereof, and (d) the amounts payable to any or all holders of Long-Term Indebtedness other than capitalized leases and Obligations hereunder (or to any trustee or paying agent for such holders) in respect of the 2

153 principal of such Long-Term Indebtedness (including scheduled mandatory redemptions or prepayments of principal) and the interest on such Long-Term Indebtedness. Notwithstanding the foregoing, the amounts deemed payable in respect of any Long-Term Indebtedness shall not include interest or principal for the full payment of which sufficient funds are available (without reliance on any reinvestment) in a Qualified Escrow or which have been funded from prepaid rent from the Tenant to the Landlord or the proceeds of any related Long-Term Indebtedness and are held, for application to the payment of such Long-Term Indebtedness, either by the Trustee in a segregated fund hereunder or by the holder of any such Long-Term Indebtedness secured thereby or by a trustee or agent acting on behalf of such holder and such sums are subject to a perfected security interest in favor of the Trustee or such holder, trustee or agent, as applicable. In addition, calculations of Debt Service Requirements shall be subject to adjustment as and to the extent permitted or required by Section 22(c) hereof. Default Rate shall mean two percent (2%) above the prime rate of the Trustee or its primary banking offices. DeMedici Lease means that certain Lease dated as of June 1, 2013, between DeMedici and the Tenant for the Fels Facility and the Vine Street Facility, as it may be amended, restored, supplemented or otherwise modified from time to time, including any amendments to cause such lease to pertain to additional Property of DeMedici that is a Permitted Additional School Facility. In the event DeMedici and the Tenant determine it to be more efficient or appropriate to enter into a separate lease with respect to any Permitted Additional School Facility in lieu of an amendment as aforesaid, any such additional lease shall, for purposes of this Loan and Trust Agreement, be deemed to be included in the definition of DeMedici Lease. EMMA means the Electronic Municipal Market Access System of the Municipal Securities Rulemaking Board. Financial Advisor shall mean any independent investment banking or financial advisory firm which is appointed by the Tenant for the purpose of passing on questions relating to the availability and terms of Long-Term Indebtedness for the Tenant, and is actively engaged in and has a favorable reputation for skill and experience in underwriting or providing financial advisory services in respect of similar types of Long-Term Indebtedness incurred by entities engaged in reasonably comparable endeavors. Fiscal Year means the fiscal year ending June 30, or any other fiscal year designated from time to time in writing by the Tenant to the Landlord and the Trustee. Indebtedness means all indebtedness of the Tenant for borrowed moneys, whether long-term or short-term, parity or subordinate, secured or unsecured, including (without limitation) any indebtedness which has been incurred or assumed in connection with the 2013 Project, all indebtedness, no matter how created, secured by this Lease, the 2013 Project or the Pledged Revenues, whether or not such indebtedness is assumed by the Tenant, any leases required to be capitalized in accordance with Generally Accepted Accounting Principles, installment purchase obligations, guaranties or Interest Rate Hedges. Nothing in this definition or otherwise shall be construed to count Indebtedness more than once, and Indebtedness incurred pursuant to a Credit Facility shall be counted only to the extent the reimbursement obligation on amounts drawn or, in the reasonable judgment of the Tenant, likely to be drawn, on the Credit Facility exceeds the obligation on the Indebtedness for which such Credit Facility is provided. Interest Rate Hedge means an agreement, expressly identified in an Officer s Certificate delivered to the Trustee as being entered into by the Tenant in order to hedge the interest payable on all or a portion of any Indebtedness, which agreement may include, without limitation, an interest rate swap, a forward or futures contract or an option (e.g. a call, put, cap, floor or collar) and which agreement does not constitute an obligation to repay money borrowed, credit extended or the equivalent thereof. Lease Obligations shall mean the Base Rentals and the Additional Rentals determined pursuant to Section 4(b)(2), the obligations of Tenant under the DeMedici Lease and any other obligations incurred by the Tenant in connection with a lease. Lien means any mortgage, pledge, security interest, lien, judgment lien, easement, or other encumbrance on title, including, but not limited to, any mortgage or pledge of, security interest in or lien or encumbrance on any Property of the Tenant which secures any Debt or any other obligation of the Tenant, or which secures any obligation of any Person other than an obligation to the Tenant. Long-Term Indebtedness means: (i) Indebtedness with respect to money borrowed for an original term, or renewable at the option of the Tenant for a period from the date originally incurred, longer than one year; (ii) Indebtedness with respect to leases which are capitalized in accordance with Generally Accepted Accounting Principles having an original term, or renewable at the option of the lessee for a period from the date originally incurred, longer than one year; and (iii) Indebtedness with respect to installment purchase contracts having an original term in excess of one year. Management Consultant means an independent professional firm, corporation or Person engaged by the Tenant and reasonably acceptable to a majority of Holders (with written notice of the engagement to the Landlord and the Trustee) as may be required by the provisions of the Loan and Trust Agreement. Maximum Annual Debt Service Requirements means, as of the date of calculation, the highest of (i) the annual Debt Service Requirements payable during the then current Fiscal Year, or (ii) in the case of a calculation with respect to any prior Fiscal Year, the annual Debt Service Requirements payable in such prior Fiscal Year, or (iii) the annual Debt Service Requirements payable during any succeeding Fiscal Year over the remaining term of all Long- Term Indebtedness then outstanding; provided that during any period when all or a portion of the Debt Service Requirements on specific Indebtedness are paid from the proceeds thereof or from a Qualified Escrow, the Maximum Annual Debt Service Requirements on such Indebtedness shall be disregarded. Maximum Debt Service Coverage Ratio means, for any Fiscal Year, the ratio obtained by dividing the Net Income Available for Debt Service for such Fiscal Year by the Maximum Annual Debt Service Requirements. 3 4 Net Income Available for Debt Service means with respect to the Tenant for any Fiscal Year, the excess of (i) the sum of the Pledged Revenues of the Tenant, and, only with respect to the calculations required in Section 22, an amount equal to 10% of the lesser of (a) the Tenant s Unrestricted Cash as of the end of the most recent Fiscal Year for which audited financial statements are available, and (b) the Tenant s Unrestricted Cash for the applicable Fiscal Years as projected in the financial forecast or feasibility study prepared and delivered in accordance with such Section, over (ii) its Operating Expenses, adjusted to exclude depreciation, amortization and interest expense; provided, however, no determination of Net Income Available for Debt Service shall take into account any extraordinary gains or losses after funding required reserves, changes in valuation of interest rate swaps or unrealized gains or losses. Officer s Certificate means a certificate signed by an Authorized Officer of the Tenant. Any Officer s Certificate which relates (i) to any financial test or ratio shall set forth in reasonable detail the computations involved in showing compliance with such test or ratio and the assumptions or evidence used as a basis for the figures used in making such computation and shall be approved by an Accountant; or (ii) which relates to the operations of the Tenant shall be approved by the Board of Trustees and shall set forth in reasonable detail the basis for the findings set forth herein. Operating Expenses means fees and operating expenses of the Tenant, including maintenance, repair expenses, utility expenses, real estate taxes, insurance premiums, administrative and legal expenses, miscellaneous operating expenses including fees paid to a Management Company, advertising and promotion costs, payroll expenses (including taxes), the cost of material and supplies used for current operations of the Tenant, the cost of vehicles, equipment leases and service contracts, taxes upon the operations of the Tenant not otherwise mentioned herein, charges for the accumulation of appropriate reserves for current expenses not annually recurrent, but which are such as may reasonably be expected to be incurred in accordance with Generally Accepted Accounting Principles, all in such amounts as reasonably determined by the Tenant; provided, however, Operating Expenses shall not include (i) those expenses which are actually paid from any revenues of the Tenant which are not Pledged Revenues, (ii) amounts paid from moneys in the Repair and Replacement Fund under the Loan and Trust Agreement, (iii) except as provided above in this definition, charges for the accumulation of appropriate reserves, (iv) any Operating Expenses which are paid as Additional Rentals, or (v) those expenses which are actually paid with the proceeds of any transfers from the unrestricted fund balance of the Tenant. Opinion of Counsel means a written opinion of an attorney or firm of attorneys selected by the Tenant. Permitted Additional Project means a project the sole purpose of which is to construct or renovate a Permitted Additional School Facility, and pay costs related to the Permitted Additional School Facility or its financing. Permitted Additional School Facility means any additional school facility acquired or constructed by or for the benefit of the Tenant and owned by the Landlord or DeMedici and subject to a leasehold interest held by the Tenant which is undertaken by the Landlord or DeMedici and the Tenant following the Tenant s demonstration of compliance with the provisions of Section 22(a) hereof. Permitted Encumbrances means Permitted Encumbrances as described in Section 26 of this Lease. Permitted School Financing means Indebtedness incurred by Tenant to finance, or, in the case of a capital lease obligation of Tenant constituting Indebtedness, to facilitate the financing of, the construction or acquisition of a Permitted Additional School Facility, Permitted Additional Project, or Interest Rate Hedge incurred in connection therewith, provided (in addition to any other requirements for such Indebtedness applicable under any other provision of this Lease): (A) such is incurred in the ordinary course of the Tenant s activities; (B) prior to incurring the same, Tenant shall have given the Trustee written notice of Tenant s proposal to incur the same, together with complete copies of the relevant obligatory and security documents; and (C) upon the request of Trustee, Tenant shall deliver to Trustee, a true and complete counterpart of the closing agenda and binder with true and complete copies of all closing documents for such financing. Permitted School Financing Lien means a Lien securing Permitted School Financing to the extent that it covers Tenant s General Assets or Property on a parity basis with the Liens in such assets securing the Obligations and is granted only in accordance with the terms and conditions of this Lease. Person or words importing persons means firms, associations, partnerships (including without limitation general and limited partnerships), joint ventures, societies, estates, trusts, corporations, public or governmental bodies, other legal entities and natural persons. Pledged Revenues means, regardless of the source, all revenues, rentals, fees, thirdparty payments, receipts, unrestricted donations, unrestricted contributions or other income of the Tenant, to the extent permitted by the terms thereof and by law, including all the rights to receive such revenues (each subject to Permitted Encumbrances), all as calculated in accordance with Generally Accepted Accounting Principles, including, without limitation, School District Payments (whether paid to the Landlord by the Tenant or to the Trustee on behalf of the Tenant for the benefit of the Landlord), federal grants and aid, extended daycare, food services, sales proceeds derived from insurance, condemnation proceeds, accounts, contract rights and other rights, whether now or hereafter owned, held or possessed by the Tenant, and all gifts, grants, bequests and contributions (including income and profits therefrom) to the extent permitted by the terms thereof and by law. Premises has the meaning set forth in the recitals hereto, and may be amended, restored, supplemented or otherwise modified from time to time, including any amendments to cause this Lease to pertain to additional Property of the Tenant that is a Permitted Additional School Facility. Property means any and all land, leasehold interests, buildings, machinery, equipment, hardware, and inventory of the Tenant, wherever located and whether now or hereafter acquired, 5 6

154 any and all rights, titles and interest in and to any and all tangible property of the Tenant, whether real or personal, and wherever situated and whether now or hereafter acquired. Qualified Escrow shall mean a segregated escrow fund or other similar fund or account which (a) is irrevocably established as security for Long-Term Indebtedness previously incurred and then outstanding ( Prior Indebtedness ) or for Long-Term Indebtedness, if any, then to be incurred to refund outstanding Prior Indebtedness ( Refunding Indebtedness ), (b) is held by the holder of the Prior Indebtedness or Refunding Indebtedness secured thereby or by a trustee or agent acting on behalf of such holder and is subject to a perfected security interest in favor of such holder, trustee or agent, (c) is held in cash or invested in obligations described in subparagraph (a) or (c) of the definition of Permitted Investments under the Loan and Trust Agreement and (d) is required by the documents establishing such fund or account to be applied toward the Tenant s payment obligations in respect of the Prior Indebtedness; provided that a debt service reserve fund or other special fund held for the security of Indebtedness shall not constitute a Qualified Escrow except to the extent such fund is available for use as a credit toward the Tenant s payments under such Indebtedness; and provided further, that if the fund or account is funded in whole or in part with the proceeds of Refunding Indebtedness, the documents establishing the same may require specified payments of principal or interest (or both) in respect of the Refunding Indebtedness to be made from the fund or account prior to the date on which the Prior Indebtedness is repaid in full. School District shall mean a school district in the Commonwealth in which resides the parents or the guardians of a child who is enrolled in the Tenant and who is included in the average daily membership of the school district for the purpose of providing basic education funding and special education funding payments to the Tenant. School District Payments shall mean all payments received by the Tenant from the School Districts, with the exception of certain excluded amounts set forth in Section 6(a) hereof. School Revenues means the School District Payments and all other receipts representing any of the Collateral. Swing Lease means any lease, with a term of less than five (5) years, that is entered into by the Tenant for the purpose of providing temporary school facilities for students in anticipation of the acquisition or construction of a Permitted Additional School Facility and which lease is designated as a Swing Lease in an Officer s Certificate delivered to the Trustee. Subordinated Debt means any Debt incurred or assumed by the Tenant, the payment of which is by its terms specifically subordinated to the payment of Base Rentals and includes the amounts paid as Additional Rentals pursuant to Section 4(b)(2) hereof. Term shall have the meaning in Section 3 of this Lease. Trustee shall mean U.S. Bank, National Association, as trustee under the Loan and Trust Agreement, or any successor trustee appointed pursuant to the terms thereof. UCC shall mean the Pennsylvania Uniform Commercial Code in effect as of the date hereof. 7 Unrestricted Cash means, with respect to Tenant, its unrestricted cash equivalents and marketable securities (including the balance, if any, in operating reserves), minus the aggregate of all outstanding short-term borrowings for working capital purposes. Underwriter shall mean George K. Baum & Company, and its successors. Variable Rate Indebtedness shall mean any Long-Term Indebtedness, the rate of interest on which is subject to change on a periodic basis prior to maturity; provided, however, that Long-Term Indebtedness shall not be deemed to be Variable Rate Indebtedness if the rate of interest thereon is subject to change solely by reason of the occurrence of an event of default, the loss of any applicable exemption of such interest from income taxation or any other contingency which was not reasonably expected to occur at the time of incurrence. Section 2. Premises. The Landlord does hereby demise and let unto the Tenant and the Tenant does hereby hire and lease from the Landlord, for the Term and upon the conditions and covenants set forth herein, the Premises. The Premises include all appurtenances, easements, declarations and rights-of-way related to it. Section 3. Term. The term of this Lease (the Term ) shall commence on the Effective Date and shall end, without the necessity for notice from either party to the other, upon the expiration of the term of this Lease upon the earlier of (a) midnight on June 15, 2043 or (b) the satisfaction of all Obligations (the Expiration Date ), provided, however, such Expiration Date shall be adjusted from time to time to extend to the maturity of any Parity Bonds or Parity Indebtedness issued under the Loan and Trust Agreement and secured by this Lease. Section 4. Rent. The Tenant shall pay the following Base Rentals and Additional Rentals: (a) Base Rentals. On the date hereof the Tenant shall pay to the Landlord the sum of $1,400,000 as prepaid rent which the Landlord shall deposit with the Trustee for deposit to the Capitalized Interest Account under the Loan and Trust Agreement. The Tenant shall pay to the Landlord or cause to be paid to the Landlord during the Term the Base Rentals on the Base Rental Payment Dates. The amount of Base Rentals, together with the Base Rentals payable under the DeMedici Lease, shall be recalculated by the Landlord in the event of the issuance of any Parity Bonds or Parity Indebtedness (as defined in the Loan and Trust Agreement) or any partial redemption of any Parity Bonds prior to maturity. Any prepayment of rent under this Lease or any prior lease shall not offset the payment of the Base Rentals and Additional Rentals under this Lease. Notwithstanding the foregoing, the prepaid rent and Base Rentals specified under this Section 4(a) shall not be duplicative of any payments made by Tenant with respect thereto under the DeMedici Lease, it being understood and agreed that the Tenant shall receive credit against the payments due under this Lease for any payments made with respect to the DeMedici Lease and the aggregate of all sums paid under both this Lease and the DeMedici Lease shall equal the sums due hereunder and if either such lease is cancelled or terminated the total sums due hereunder shall not be diminished in any regard. 8 (b) Additional Rentals. In addition to the Base Rentals, the Tenant shall pay to the Landlord or cause to be paid to the Landlord the following additional rentals (the Additional Rentals ): (1) An amount sufficient to pay the following costs, as estimated by the Landlord, during the next ensuing Fiscal Year (a) the reasonable fees and expenses of the Authority, the Trustee and the Landlord under the Loan and Trust Agreement; (b) the cost of insurance premiums for the Premises; (c) the cost of taxes, utility charges, maintenance, upkeep and repair costs for the Premises; (d) payments into the Debt Service Reserve Fund required by the Loan and Trust Agreement; (e) payments into the Rebate Fund required by the Loan and Trust Agreement; (f) payments into the Repair and Replacement Fund required by the Loan and Trust Agreement; and (g) all other costs included in the definition of, or expressly required to be paid by the Tenant as, Additional Rentals hereunder. Notwithstanding the foregoing, with respect to payments due in connection with sums due in connection with obligations under the Loan and Trust Agreement, such payments shall not be duplicative of any payments made by Tenant with respect thereto under the DeMedici Lease, it being understood and agreed that the Tenant shall receive credit against the payments due under this Lease for any payments made with respect to the DeMedici Lease and the aggregate of all sums paid under both this Lease and the DeMedici Lease shall equal the sums due hereunder and if either such lease is cancelled or terminated the total sums due hereunder shall not be diminished in any regard. (2) The Tenant and the Landlord may agree on the payments of other Additional Rentals hereunder if the Tenant and the Landlord deliver to the Trustee an Officer s Certificate certifying that, for the applicable Fiscal Year, after taking into account such proposed Additional Rentals, the Tenant shall be in compliance with all financial and other covenants contained in this Lease and that no Event of Default exists under this Lease, and that with such Additional Rentals, the Landlord shall be in compliance with all financial and other covenants contained in the Loan and Trust Agreement and that no Event of Default exists under the Loan and Trust Agreement. Payment of Additional Rentals pursuant to this paragraph shall be subordinate to the payment of Base Rentals. (3) The Tenant hereby expressly agrees to pay to the Landlord and its directors and officers, as appropriate as Additional Rentals, (i) all costs and expenses incurred by the Landlord or by its directors or officers in connection with any investigation, claim, demand, suit, action or proceeding relating to the activities of the Landlord, or such directors or officers in their capacity as such, in respect of the Premises, the Loan and Trust Agreement, this Lease, the Mortgage or any matter related thereto, and (ii) all other amounts payable by the Landlord under this Lease and the Loan and Trust Agreement not already included in Base Rentals or Additional Rentals. Section 5. Manner of Payment. The Tenant shall pay all Base Rentals to the Trustee and Additional Rentals to the Landlord; in order to provide for payment of such Base 9 Rentals, upon the issuance of the 2013 Bonds, the Tenant shall send a notice to a sufficient number of school districts then making not less than ninety-five percent (95%) of the School District Payments to the Tenant directing that such School District Payments be paid directly to the Trustee for deposit in the Revenue Fund as provided in Section 4.02 of the Loan and Trust Agreement. The form of the Notice to the School Districts is attached as Exhibit D. The obligation of the Tenant to pay the Base Rentals and Additional Rentals required under this Section and other provisions hereof, during the Term, shall be absolute and unconditional, and payment of the Base Rentals and Additional Rentals shall not be abated through accident or unforeseen circumstances. Notwithstanding any dispute between the Tenant, the Landlord, the Trustee, any Registered Owners (as defined in the Loan and Trust Agreement), any contractor or subcontractor retained with respect to the Premises, or any other Person, the Tenant shall, during the Term, make all payments of Base Rentals and Additional Rentals when due and shall not withhold any Base Rentals or Additional Rentals pending final resolution of such dispute, nor shall the Tenant assert any right of set-off or counter-claim against its obligation to make such payments required hereunder; provided, however, that the making of such payments shall not constitute a waiver by the Tenant of any rights, claims or defenses which the Tenant may assert. No action or inaction on the part of the Landlord or the Trustee shall affect the Tenant s obligation to pay Base Rentals and Additional Rentals during the Term. Section 6. Security. (a) As security for its performance and payment of the Tenant s obligations under this Lease, the Tenant hereby pledges to the Landlord, and grants to the Landlord a security interest in, all the following property, whether now owned or hereafter acquired or arising or wherever located: Chattel Paper, Documents, General Intangibles, Goods, including without limitation, Equipment, Inventory, Fixtures and Accessions, Instruments (as those terms are defined in the UCC), Pledged Revenues, monies which at any time the Tenant shall have or have the right to have in its possession, books and records evidencing or relating to the foregoing, including, without limitation, all monies due or to become due to the Tenant from the School District Payments and the Commonwealth (but excluding all student fees, graduation fees and prom fees and revenues received from the United States of America that are prohibited from being transferred under applicable law), and all gifts, grants, bequests, donations and contributions, except those heretofore or hereafter made, designated at the time of making by the donor or maker as being for certain specified purposes inconsistent with the application thereof to the payments due from the Tenant under this Lease and except any income derived therefrom to the extent required by such designation or restriction, and all Proceeds of the foregoing (as such term is defined in the UCC), excluding, in each case, any Collateral in which a security interest has been granted pursuant to the existing Indebtedness and Lease Obligations listed on Exhibit E (collectively, the Collateral ). In addition, if the Tenant acquires any real property, it will grant a mortgage on and security interest in favor of the Landlord in such real property as security for the payment and performance of the Tenant s obligations under this Lease, subject to Permitted Encumbrances. (b) The Tenant agrees to execute and deliver such agreements, financing statements and other documents as may be necessary to perfect the grant of security interest made hereby. The Tenant further acknowledges that the Landlord may assign 10

155 this Lease and the security granted by the Tenant hereunder to the Trustee, and the Tenant hereby agrees and consents to the same and agrees to execute such other and further documents as such assignee may request in connection with any such assignment. Other than to DeMedici in connection with the DeMedici Lease, the Tenant represents, warrants and covenants that the Collateral has not been previously pledged to any other party, that no financing statement covering any of the Collateral is on file in any public office, and that the Tenant will not pledge the Collateral to any party (other than the Landlord). (c) Upon the occurrence of an Event of Default (as hereinafter defined), the Landlord shall have the right, in addition to all other rights and remedies available to it, without notice to the Tenant, to apply toward and set-off against and apply to the unpaid obligations then due and payable hereunder, any items or funds held by Landlord, and any and all deposits (whether general or special, time or demand, matured or unmatured, fixed or contingent, liquidated or unliquidated) now or hereafter maintained by the Tenant with the Landlord. For the purpose of securing the Tenant s performance and payment of its obligations hereunder, the Landlord shall have, and the Tenant hereby grants to the Landlord, a first lien on all such deposits. (d) The Tenant hereby appoints the Landlord as its lawful attorney-in-fact to do, at the Landlord s option, and at the Tenant s expense and liability, all lawful acts and things which the Landlord may deem necessary or desirable to effectuate its rights under this Section. Upon the occurrence of an Event of Default hereunder, the Landlord may immediately and without notice pursue any remedy at law or in equity to collect, enforce or satisfy any obligations under this Lease, which rights and remedies are cumulative, may be exercised from time to time, and are in addition to any rights and remedies available to the Landlord under this Lease. Upon ten (10) calendar days prior written notice to the Tenant, which the Tenant hereby acknowledges to be sufficient, commercially reasonable and proper, the Landlord may sell, lease or otherwise dispose of any or all of the Collateral at any time and from time to time at public or private sale, with or without advertisement thereof and apply the proceeds of any such sale first to the Landlord s expenses in preparing the Collateral for sale (including reasonable attorneys fees), second to the complete satisfaction of the obligations under this Lease and third, as required by the UCC. The Tenant waives the benefit of any marshalling doctrine with respect to the Landlord s exercise of its rights hereunder. The Tenant grants a royaltyfree license to the Landlord for all patents, service marks, trademarks, tradenames, copyrights, computer programs and other intellectual property and proprietary rights sufficient to permit the Landlord to exercise all rights granted to the Tenant under this Section. Section 7. Insurance to be Maintained. (a) The Tenant shall maintain the following policies of insurance, to the extent the risks covered by such policies are not covered by the policies of insurance required by the Loan and Trust Agreement: (1) Insurance against loss or damage to the Premises and all improvements therein (including, during any period of time when the Tenant is making alterations, repairs or improvements to the Premises, improvements and betterments coverage), all subject to standard form exclusions, with uniform standard extended coverage endorsement limited only as may be provided in the standard form of extended coverage endorsement at the time in use in the Commonwealth, in an amount equal to the full replacement value of the buildings and other improvements of the Premises. (2) Business interruption insurance in an amount equal to twelve (12) months of the Base Rental for any period of improvement or restoration. The period of restoration shall begin with the date of direct physical loss and shall end on one year from such date the period of restoration begins. (3) Commercial general liability, professional liability and automobile liability insurance against claims arising in, on or about the Premises, including in, on or about the sidewalks or premises adjacent to the Premises, providing coverage limits not less than the coverage limits customarily carried by owners or operators of Premises of similar size and character within the Commonwealth; provided, that the following specific coverage limits shall be deemed to comply with this paragraph: (i) commercial and general liability with an aggregate limit of two million dollars ($2,000,000) (one million dollars ($1,000,000 for personal injury) and a limit of one million dollars ($1,000,000) per claim; (ii) auto insurance with an aggregate limit of one million dollars ($1,000,000); and (iii) excess or umbrella insurance with a limit of two million dollars ($2,000,000). (4) Such other forms of insurance as are customary in the industry or as the Tenant is required by law to provide with respect to the Tenant, including, without limitation, any legally required worker s compensation insurance and disability benefits insurance. (b) All the insurance coverage required by this Section may be subject to deductible clauses in such amounts as are customary for Premises of similar size, type and character within the Commonwealth. At the time of the issuance of the Bonds and at least once every year thereafter, the Tenant shall employ (or cause to be employed), at its expense, an Insurance Consultant to review the insurance coverage required by this Section and to render to the Authority and the Trustee a report as to the adequacy of such coverage, as well as its compliance with this Section 7, and as to its recommendations, if any, for adjustments thereto. The Tenant shall pay any fees charged by such Insurance Consultant and any expenses incurred by the Landlord and the Trustee. The Tenant may self-insure (beyond customary deductibles) upon delivery to the Trustee of a report of an Insurance Consultant that such self-insurance complies with the terms of this Section. (c) All policies maintained (or caused to be maintained) by the Tenant pursuant to this Section shall be taken out and maintained with generally recognized, responsible insurance companies rated not less than A by A.M. Best Company, Inc., authorized in the Commonwealth, which may include captive insurance companies or governmental insurance pools, selected by the Tenant. The insurance policies required by subsections (a)(1) and (a)(2) of this Section shall name the Trustee, the Landlord and the Tenant as insureds as their respective interests may appear (provided that with respect to insurance maintained pursuant to subsection (a)(1) above, the Trustee shall also be named as a mortgagee under the terms of a standard Pennsylvania mortgagee loss payable endorsement), and the Trustee shall also be named as an additional insured on the policy required by subsection (a)(3) above, and, provided further that all insurance proceeds for losses, and except for worker s compensation, fidelity insurance and liability insurance, shall be paid directly to the Trustee. Such policies or certificates of insurance shall (i) provide that (except as to insurance required pursuant to subsection (a)(4) above) the insurer will mail thirty (30) days written notice to the Landlord and the Trustee of any reduction in amount, material change in coverage or cancellation prior to expiration of such policy, and (ii) be satisfactory in all other respects to the Landlord and the Trustee. (d) The Tenant shall deliver to the Trustee (1) upon the commencement of the term of this Lease, the certificate of insurance which the Tenant is then required to maintain pursuant to this Section, (2) a certificate of the Insurance Consultant to the effect that such certificate satisfies the requirements of this Section 7, (3) at least thirty (30) days prior to the expiration of any such policies evidence as to the renewal thereof, if then required by this Section, and the payment of all premiums then due with respect thereto, and (4) if the Tenant is self-insured, promptly upon request by the Landlord or the Trustee, but in any case within ninety (90) days after the end of each Fiscal Year, a certificate of an Authorized Officer of the Tenant setting forth the particulars as to all insurance policies maintained by the Tenant pursuant to this Section 7 and certifying that such insurance policies are in full force and effect, that such policies comply with the provisions of this Section and that all premiums then due thereon have been paid. (e) The Trustee shall have no responsibility for monitoring, reviewing, or receiving insurance policies required under this section or for the sufficiency of such insurance. (f) The net proceeds of the insurance carried pursuant to subsections (a)(1) and (a)(2) above shall be applied as provided in Section 6.03 of the Loan and Trust Agreement. The net proceeds of insurance carried pursuant to subsections (a)(3) and (a)(4) above shall be applied toward extinguishment or satisfaction of the liability with respect to which such insurance proceeds have been paid. Section 8. Trade Fixtures. The Tenant shall have the right to install trade fixtures required by the Tenant or used by it in its business and, if installed by the Tenant, to remove any or all such trade fixtures from time to time during this Lease, and the Tenant shall remove all such trade fixtures prior to the expiration or earlier termination of this Lease; provided, however, that the Tenant shall not remove any such trade fixture, without the prior written consent of the Landlord, if the removal of such trade fixtures will impair the structure of the Premises. The Tenant shall repair and restore any damage or injury to the Premises caused by the installation and/or removal of any such trade fixtures. In the event that the Tenant fails to remove all such trade fixtures prior to the expiration or earlier termination of this Lease, the Landlord may 13 remove all such trade fixtures and dispose of them without notice or obligation to the Tenant and the Tenant shall reimburse the Landlord for the Landlord s cost of such removal and disposal. The term trade fixtures means any personal property placed or attached to the Premises by the Tenant which the Tenant uses to conduct the trade or business for which the Tenant occupies the Premises. Section 9. Signs. The Tenant may install signs on the Premises in accordance with all applicable laws and regulations. The Tenant shall remove all such signs at the expiration or earlier termination of this Lease, repairing any damage caused by the installation or removal thereof. Section 10. Maintenance. The Tenant shall, throughout the Term and at its sole cost and expense, take good care of the buildings and the other improvements now or hereafter located upon the Premises, and any sidewalks, parking areas, curbs and access ways upon or adjoining the Premises, and keep them in good order and condition, and promptly at the Tenant s own cost and expense make all repairs necessary to maintain such good order and condition, whether such repairs be interior or exterior, structural or nonstructural, ordinary or extraordinary, foreseen or unforeseen. When used in this paragraph, the term repairs shall include replacements and renewals when necessary to maintain such buildings and other improvements in good order and condition. All such repairs made by the Tenant shall be at least equal in quality and usefulness to the buildings and such other improvements as may from time to time be located upon the demised land. The Tenant shall keep and maintain all portions of the Premises and any sidewalks, parking areas, curbs and access ways adjoining them in a clean and orderly condition, free of accumulation of dirt, rubbish, snow and ice. Section 11. Alterations. (a) The Tenant shall not, without on each occasion first obtaining the Landlord s prior written consent, make or permit to be made any alterations, improvements or additions to the Premises; except that the Tenant may, without the consent of the Landlord, make minor alterations, improvements and additions to the interior of the Premises provided that they do not impair the structural strength of the Premises or reduce its value. Except as otherwise provided herein with respect to trade fixtures, all alterations, improvements, additions, repairs and all other property attached to or used in connection with the Premises or any part thereof made or installed on the Premises by or on behalf of the Tenant, whether or not the Landlord has consented thereto, shall immediately upon completion or installation thereof be and become part of the Premises and the property of the Landlord without payment therefor by the Landlord and shall be surrendered to the Landlord upon the expiration or earlier termination of this Lease. (b) In connection with the construction of any alteration, improvement or addition to the Premises performed by Tenant and financed with the proceeds of Obligations (as that term is defined in the Loan and Trust Agreement), the cost of which exceeds seven hundred and fifty thousand dollars ($750,000) (or such lower amount as required by law), the Tenant agrees to obtain or cause to be obtained by each general contractor performance and payment bonds covering performance of their respective 14

156 contracts, including coverage for correction of defects developing within one year after completion and acceptance, and payment for labor and materials relating thereto. The performance and payment bonds shall be executed by a responsible surety company or companies qualified to do business in the Commonwealth, rated at least A by Standard & Poors Ratings Service or A.M. Best Company, Inc. and reasonably satisfactory to the Landlord or the Insurance Consultant, shall name the Landlord and the Trustee as dual obligees and shall be in amounts, in the aggregate, equal to not less than one hundred percent (100%) of the guaranteed maximum price under the construction contract relating to such alteration, improvement or addition, including increases caused by change orders, provided that such performance and payment bonds (or portions of bonds) covering defects may be limited to ten percent (10%) of such contract prices. Such performance and payment bonds shall be delivered to the Landlord prior to the commencement of the construction in respect of which they are obtained, except that bonds covering increases under change orders may be delivered prior to the commencement of the change order and that bonds covering defects may be delivered upon completion of construction if a satisfactory commitment to issue such bonds is delivered prior to the commencement of construction. The net amounts recovered by the Tenant or the Landlord on such bonds shall be deposited in the Project Fund (as that term is defined in the Loan and Trust Agreement). (c) During the period of construction of any alteration, improvement or addition to the Premises, the Tenant will maintain or cause the following insurance coverages to be maintained: (1) builders risk (or equivalent coverage) insurance upon any work done or materials furnished under construction contracts except excavations, foundations and any other structures not customarily covered by such insurance, such policies to be written in completed value form for one hundred percent (100%) of the insurable value of the contract; and (2) worker s compensation and employer s liability insurance covering all employees of contractors and subcontractors in amounts required by law. All policies of insurance required under clause (1) above shall be issued by responsible companies qualified to do business in the Commonwealth and reasonably satisfactory to the Landlord and the Insurance Consultant. Each policy of insurance shall name the Landlord and the Trustee as an insured party (to the extent of its insurable interest) and, in the case of the coverage described in clause (1) above, losses shall be made payable to the Landlord and the Trustee as their interest may appear. Each such policy of insurance, a copy thereof or an insurance certificate in respect thereof shall be deposited with the Landlord prior to the commencement of construction. The net proceeds of any builder s risk insurance received by the Landlord or Tenant in connection with any alteration, improvement or addition financed with the proceeds of the Obligations shall be deposited in the Project Fund. Section 12. Inspections. The Tenant agrees to permit the Landlord and the authorized representatives of the Landlord and of the holder of any mortgage, including the Mortgage, or any prospective mortgagee to enter the Premises at any time in response to an emergency and 15 otherwise at all reasonable times and upon reasonable notice for the purpose of inspecting the Premises, including, without limitation, the performance of reasonable tests, samplings, or other investigations to satisfy itself that the Tenant has complied with the provisions of this Lease, and making any necessary repairs thereto and performing any work therein that may be necessary by reason of the Tenant s failure to make such repairs or perform any such work required of the Tenant under this Lease; provided that the Tenant may take such measures or restrict the times of inspections to allow it to comply with legal requirements regarding contact with students. Nothing herein shall imply any duty upon the part of the Landlord to make any such inspection, test, sampling or other investigation, and nothing herein shall imply any duty on the part of the Landlord to do any other work which under any provision of this Lease Tenant may be required to perform and the performance thereof by the Landlord shall not constitute a waiver of the Tenant s default in failing to perform it. During the progress of any work, inspection, testing, sampling or investigation at the Premises, Landlord may keep and store in the Premises all necessary materials, tools and equipment. The Landlord shall not in any event be liable for inconvenience, annoyance, disturbance or other damage to the Tenant by reason of making such repairs or the performance of such work in the Premises or on account of bringing materials, supplies and equipment into or through the Premises during the course thereof and the obligations of the Tenant under this Lease shall not thereby be affected in any manner whatsoever, and the cost of each of such repairs or the performance of such work shall be payable by the Tenant to the Landlord pursuant to and in accordance with the provisions herein concerning the Landlord s right to cure the Tenant s defaults. The Landlord also shall have the right to enter the Premises at all reasonable times to exhibit the Premises to any prospective tenant or mortgagee thereof, within the last six (6) months of the Term and to any prospective purchaser or mortgagee thereof or any prospective mortgagee at any time during the Term. No entry into the Premises by the Landlord by any means will constitute a forcible or unlawful entry into the Premises, or a detainer of the Premises, or an eviction, actual or constructive, of the Tenant from the Premises or any part thereof, nor will such entry entitle the Tenant to damages or an abatement of the rent or other sums due hereunder. Section 13. Organization, Authorization and Powers. The Tenant represents and warrants that it is a charter school duly organized, validly existing and in good standing under the Charter School Law, with the power to enter into and perform this Lease, and that the execution, delivery and performance of this Lease have been duly authorized by the Tenant. The Tenant further represents and warrants that this Lease is a valid and binding obligation of the Tenant enforceable in accordance with its terms except as enforceability may be subject to the exercise of judicial discretion in accordance with general equitable principles and to applicable bankruptcy, insolvency, reorganization, moratorium and other laws for the relief of debtors heretofore or hereafter enacted to the extent that the same may be constitutionally applied, and the execution and delivery of this Lease and the consummation of the transactions contemplated herein will not conflict with or constitute a breach of or default under, of (i) any bond, indenture, note or other evidence of indebtedness of the Tenant, or (ii) any contract, lease or other instrument to which the Tenant is a party or by which it is bound or cause the Tenant to be in violation of any applicable statute or rule or regulation of any governmental authority. Section 14. Books and Records; Audits; Reports. The Tenant covenants to keep accurate records and books of account in accordance with Generally Accepted Accounting Principles consistently applied. The Tenant will provide to the Trustee: 16 (a) the financial statements and reports required by Section 20; (b) a copy of a preliminary annual operating budget for the Tenant for each Fiscal Year, prepared and delivered at least thirty (30) days prior to the start of each such Fiscal Year, and a copy of the final budget within thirty (30) days of approval; (c) together with the annual audited financial statements required by Section 20, a statement of the Accountant auditing such financial statements that in the course of its audit of the Tenant nothing has come to such Accountant s attention to lead it to believe that any Event of Default or any event which with the giving of notice or the passage of time, or both, would constitute an Event of Default exists hereunder or, if that is not the case, specifying such Event of Default or possible Event of Default; (d) together with the annual audited financial statements required by Section 20, a certificate executed by its Chief Executive Officer stating that: (i) a review of the activities of the Tenant during such Fiscal Year and of performance hereunder has been made under [his/her] supervision; and (ii) [he/she] is familiar with the provisions of this Lease and to the best of his/her knowledge, based on such review and familiarity, the Tenant has fulfilled all of its obligations hereunder throughout the Fiscal Year, and there have been no defaults under this Lease or, if there has been a default in the fulfillment of any such obligation in such Fiscal Year, specifying each such default known to [him/her] and the nature and status thereof and the actions taken or being taken to correct such default; and (e) immediately following receipt thereof, copies of any notices, reports or determinations from the Commonwealth or the School District which reflect any potential materially adverse impact on the Tenant s status as a qualified charter school under the laws of the Commonwealth of Pennsylvania. In addition, upon written request of the Landlord, the Tenant shall make available to the Landlord such internal operating and financial reports as have been prepared on a monthly basis or otherwise by the Tenant or its accountant, and such other information as the Landlord shall reasonably request. Tenant consents to Landlord s delivery of any such statements or reports to the Trustee, the Underwriter, any Interested Holder (as defined in the Loan and Trust Agreement) and upon its request, the Authority. Section 15. Maintenance of Existence. The Tenant shall maintain its existence as a charter school in good standing under the laws of the Commonwealth, provided that the Tenant may merge or consolidate with any other corporation, or may transfer, sell or convey all or substantially all of its assets to any Person if: (a) The Tenant is the surviving or resulting corporation, as the case may be (the Survivor ), or in the event the Tenant is not the Survivor, the Survivor (A) is a solvent corporation either organized under the laws of, or duly qualified to do business and subject to service of process in, the Commonwealth, and is an organization described in Section 501(c)(3) of the Code, and (B) assumes in writing the due and punctual payment of all obligations under this Lease, and the due and punctual performance and observance of all of the covenants and conditions of this Lease; and (b) The Trustee and the Landlord receive an Opinion of Bond Counsel (as defined in the Loan and Trust Agreement) to the effect that such merger, consolidation or transfer does not adversely affect the exclusion from gross income for federal income tax purposes of the interest paid on the Bonds; and (c) The Tenant or the Survivor shall have obtained and delivered to the Trustee any consent or approval required by the Commonwealth approving the change in ownership resulting from such merger, consolidation or transfer of assets, together with an Opinion of Counsel that all such consents or approvals that are required have been obtained; and (d) No Event of Default will have occurred by reason of such merger, consolidation or transfer, and no event will have occurred by reason of such merger, consolidation or transfer which with the passage of time or giving of notice, would constitute an Event of Default; and (e) The Tenant or the Survivor shall provide written confirmation to the Landlord from S&P that such transaction will not cause the downgrade or withdrawal of any rating of the 2013 Bonds. Prior to any merger, consolidation or transfer, the Tenant shall deliver to the Trustee, the Landlord, and the Underwriter an Officer s Certificate demonstrating that all of the foregoing conditions have been satisfied, which certificate shall be supported by such reports or opinions as the Trustee or the Underwriter may reasonably require. Section 16. Payment of Obligations. The Tenant shall promptly pay or otherwise satisfy and discharge all of its obligations and Indebtedness and all demands and claims against it, including all operating expenses of the Tenant, as and when the same become due and payable, other than any thereof whose validity, amount or collectibility is being contested in good faith by appropriate proceedings; provided that, if by non-payment of any such sums, the pledge and security interest of this Lease will be impaired or any material property of the Tenant will be subject to imminent loss or forfeiture, such sums shall be paid immediately. Section 17. Compliance with Laws. The Tenant shall conduct its affairs and carry on its business and operations in such manner as to comply in all material respects with any and all applicable laws of the United States and the Commonwealth and duly observe and conform in all material respects to all valid orders, regulations or requirements of any government authority relative to the conduct of its business and the ownership of the Premises; provided, nevertheless, that nothing in this Lease shall require it to comply with, observe and conform to any such law, order, regulation or requirement of any governmental authority so long as the validity thereof shall be contested in good faith. The Tenant covenants to comply fully and in all respects with the provisions of the Charter School Law and its charter so long as any Bonds remain Outstanding

157 Section 18. Licenses and Permits. The Tenant shall procure and maintain all licenses, permits, approvals, certifications and accreditations issued by any regulatory bodies which are necessary for the maintenance of the Premises and the conduct of its operations and performance of its obligations under this Lease; provided, however, that it need not comply with this Section if and to the extent that it shall have determined in good faith, that such compliance is not in the best interest of the Tenant and that lack of such compliance would not materially impair the ability of the Tenant to pay the Base Rental and Additional Rentals when due. Section 19. Financial Covenants. (a) The Tenant covenants and agrees to achieve a Debt Service Coverage Ratio of at least 1.0 for the Fiscal Years ending June 30, 2014 and 2015 and at least 1.10 for the Fiscal Year ending June 30, 2016 and each Fiscal Year thereafter. (b) The Tenant covenants and agrees to maintain, as calculated on each June 30 for the Fiscal Year then ended, a minimum Days Cash on Hand of at least 45 days for the Fiscal Year ending June 30, 2014 and each Fiscal Year thereafter; provided, however, in the event that any law now or hereafter applicable to the Tenant or its operations results in a limitation on the amount of Unrestricted Cash the Tenant may maintain, the foregoing number of Days Cash on Hand shall be reduced to a number equivalent to the maximum amount permitted by law. (c) If for any Fiscal Year, the Tenant fails to meet the financial covenants set forth in subsections (a) or (b), the Tenant (at the Tenant s sole expense) shall, within 30 days following Tenant s receipt of its audited financial statements demonstrating such failure, engage a Management Consultant (with written notice of the engagement to the Trustee), which Management Consultant shall deliver a written report to the Tenant and the Trustee containing recommendations concerning the Tenant s: (i) operations; (ii) investment management practices; (iii) fundraising activities; and (iv) other factors relevant to meeting such financial covenants for the next ending Fiscal Year: (i) Within forty-five (45) days after its engagement, the Management Consultant will submit its consultant report, together with a certificate of the Tenant indicating the Tenant s substantial acceptance or rejection of all or any material portion of the recommendations of the Management Consultant, to the Trustee; and (ii) So long as the Tenant engages a Management Consultant as required above and accepts and continuously and substantially complies with the recommendations of the Management Consultant, failure to meet the financial covenants set forth in subsection (a) or (b) will not in and of itself constitute an Event of Default unless, in the case of a failure to meet the covenant set forth in subsection (a), the Debt Service Coverage Ratio for such Fiscal Year was less than 1.00, or in the case of a failure to meet the covenant set forth in subsection (b) for any 2 consecutive Fiscal Years ending June 30, 2016 or later, the Days Cash on Hand for such Fiscal Year was less than 30 days. (d) The Tenant will not knowingly take any action that would likely result in the reduction of the then-current ratings of the Bonds or any Parity Indebtedness by any Rating Agency then rating the Bonds or any Parity Indebtedness. Section 20. Financial Reports. The Tenant shall deliver to the Trustee copies of all reports, financial statements and notices required by the Continuing Disclosure Agreement. The Tenant may satisfy such requirement by filing such reports, financial statements and notices with EMMA. Section 21. Management Company Fees. Payment of any and all Management Company Fees by the Tenant will be subordinate to the payment of Base Rentals hereunder. Section 22. Restrictions on Indebtedness and Lease Obligations; Security. The Tenant covenants and agrees in this Lease that it will not incur or assume (the terms incur and assume, for the purposes hereof, mean and include the guaranteeing of, or the direct or indirect assumption of liability for, the debts of others) any Indebtedness or Lease Obligations other than the existing Indebtedness and Lease Obligations described on Exhibit E and as otherwise permitted by this Lease. Any Obligations issued under the Loan and Trust Agreement shall be included in any of the limitations set forth in this Section. (a) The Tenant is expressly authorized to incur the following additional Indebtedness and Lease Obligations: i Minor Amounts. The Tenant may incur or assume Indebtedness and Lease Obligations, including capital lease obligations (taking into account all extension or renewals thereof which may be made at the sole option of the Tenant) with a term which does not exceed five years; and the Maximum Annual Debt Service Requirements on which, when added to the Maximum Annual Debt Service Requirements on any other Indebtedness of the Tenant then outstanding which was incurred pursuant to this clause 22(a)(i), does not exceed an aggregate total of two hundred fifty thousand dollars ($250,000); provided such Indebtedness shall either be unsecured or secured by a purchase money security interest solely upon the Property financed with the proceeds of such Indebtedness; ii Additional Parity Indebtedness. The Tenant may incur additional Indebtedness or Lease Obligations in support of Parity Indebtedness issued under the Loan and Trust Agreement upon providing to the Landlord and the Trustee either (i) an Officer s Certificate to the effect that based on the audited financial statements of the Tenant for the most recent Fiscal Year for which they are available, the Maximum Debt Service Coverage Ratio, including the additional Indebtedness and excluding any Subordinated Debt in such calculation, was at least 1.25 and, including the additional Indebtedness and all Subordinated Debt in such calculation, was at least 1.20, or (ii) both (A) an Officer s Certificate to the effect that, based on the audited financial statements of the Tenant for the most recent Fiscal Year for which they are available, the Debt iii iv v Service Coverage Ratio was at least 1.20, and (B) an Officer s Certificate accompanied by a report, financial forecast, or feasibility study prepared, reviewed, examined or reported upon by an Accountant in accordance with applicable standards demonstrating and concluding that the Debt Service Coverage Ratio of the Tenant will not be less than 1.25 for each of the first two full Fiscal Years immediately following the incurrence of the Indebtedness or, in the case of Indebtedness incurred to finance the acquisition, construction or renovation of any Capital Addition, either the projected completion date thereof or the projected date of occupancy (as specified). Intentionally Omitted. Refunding Indebtedness. The Tenant may incur Indebtedness and Lease Obligations, including capital lease obligations, for the purposes of facilitating the refunding of any Outstanding Indebtedness issued under the Loan and Trust Agreement so as to render it no longer Outstanding if such refunding does not result in an increase of more than ten percent (10%) of the Maximum Annual Debt Service Requirements. Subordinated Debt. The Tenant may incur Subordinated Debt in a total amount in the aggregate, when taking into account all other Subordinated Debt then outstanding, not to exceed fifteen percent (15%) of Tenant s Pledged Revenues for the most recent Fiscal Year for which audited financials statements of the Tenant are available and for any purpose upon providing to the Landlord and the Trustee either (i) an Officer s Certificate to the effect that based on the audited financial statements of the Tenant for the most recent Fiscal Year for which they are available, the Maximum Debt Service Coverage Ratio, including the additional Indebtedness and any Subordinated Debt in such calculation, was at least 1.10, or (ii) a report, financial forecast, or feasibility study prepared, reviewed, examined or reported upon by an Accountant in accordance with applicable standards demonstrating and concluding that the Debt Service Coverage Ratio of the Tenant will not be less than 1.10 for each of the first two full Fiscal Years immediately following the incurrence of the Indebtedness or, in the case of Indebtedness incurred to finance the acquisition, construction or renovation of any Capital Addition, either the projected completion date thereof or the projected date of occupancy (as specified); provided, however, that (A) such Subordinated Debt is unsecured and (B) the related financing documents entered into in connection with such Subordinated Debt provide terms equivalent to or more favorable to the Holders of the Obligations issued under the Loan and Trust Agreement than (1) that payment of interest or principal on such Indebtedness shall be deferred unless the Debt Service Coverage Ratio for the preceding Fiscal Year was at least 1.30, there is no Event of Default under this Lease or the Loan and Trust Agreement or deficiency in any debt service fund, debt service reserve fund or repair and replacement fund 21 established under the Loan and Trust Agreement or any related financing document with respect to any Outstanding Obligation under the Loan and Trust Agreement, and (2) that any payment of principal and interest thereon which is not permitted to be paid pursuant to the foregoing requirements shall be deferred without additional interest. vi Swing Leases. The Tenant may enter into Swing Leases upon delivering to the Landlord and the Trustee a certificate of a Financial Advisor demonstrating that, after taking into account the expected and approved enrollment and associated per pupil aid to be received by the Tenant in connection with the school facilities subject to such Swing Lease, the Debt Service Coverage Ratio of the Tenant will not be less than 1.10 for each of the first two full Fiscal Years immediately following the entering into of such Swing Lease. All Swing Leases shall be entered into on an unsecured basis. (b) Any Indebtedness incurred as provided in this Lease may be secured only as provided in Section 23. Additional Indebtedness not directly related to Parity Indebtedness under the Loan and Trust Agreement may only be secured by Permitted Encumbrances. (c) The amount of Indebtedness which may be incurred by the Tenant is governed by Section 22(a) hereof. The method of determining the Debt Service Requirements on certain types of Indebtedness is described in this Section 22(c). i Variable Rate Indebtedness. For purposes of the computation of the interest component of any forecasted (but not historical) Debt Service Requirements, the interest rate on any Variable Rate Indebtedness shall be assumed to be the higher of: (i) 100% of the average interest rate on such Variable Rate Indebtedness for the preceding two year period (or such shorter period for which such Indebtedness has been outstanding); and (ii) the current interest rate on such Variable Rate Indebtedness; provided, however, that in determining the assumed interest rate on Variable Rate Indebtedness which has not been incurred, the Tenant may substitute the interest rate on any other variable rate debt for any other entity which, in the judgment of a Financial Advisor, has the same creditworthiness as the Tenant and the same frequency of interest rate adjustment as the proposed Variable Rate Indebtedness. ii Demand Indebtedness. For the purposes of determining the Debt Service Requirements on Indebtedness which is subject to a tender for payment at the demand of the holder, the Debt Service Requirements on such Indebtedness shall be deemed to be the greater of: (a) the Debt Service Requirements payable under the terms of such Indebtedness, assuming none of such Indebtedness is tendered, including (where such Indebtedness bears interest at a variable rate) the interest determined pursuant to subsection 22(c)(i) above; or (b) the amount payable by the 22

158 iii Tenant to reimburse any third party which has paid or purchased any such Indebtedness which has been tendered (including interest at the rate specified in the Tenant s agreement with such third party) plus the Debt Service Requirements on any such Indebtedness which have not been tendered, determined pursuant to subsection 22(c)(ii)(a) above. Interim and Balloon Indebtedness. For the purposes of determining the Debt Service Requirements on Long-Term Indebtedness of the Tenant on which no principal is payable until maturity (as in the case of a construction loan or other temporary loan) or Indebtedness on which more than 25% of the original principal amount becomes due in any year or upon demand of the holder (including demand for purchase) (a Balloon Maturity ), after giving credit for prior sinking fund installments paid with respect to such amount, in lieu of using the actual Debt Service Requirements on such Indebtedness, the Tenant may at its option, make such calculation by using any one of the following methods which is applicable: (a) If the Tenant has received an enforceable commitment, issued by a financial institution, financial services company or insurance company, whose unsecured long term obligations are rated in one of the highest three long term credit rating categories by a nationally recognized rating service, for funding a new Long- Term Indebtedness to repay such prior Indebtedness, the Debt Service Requirements may be deemed to be those of the new Long-Term Indebtedness; (b) If such Indebtedness is secured by a letter of credit or other similar security issued by a financial institution, financial services company or insurance company, whose unsecured long term obligations are rated in one of the highest three long term credit rating categories by a nationally recognized rating service, in an amount at least equal to the principal amount of such Indebtedness, (A) the principal of such Indebtedness may be deemed to be due and payable in the amounts and at the times specified in the agreement pursuant to which the letter of credit or similar security is issued or (B) the Debt Service Requirements may be deemed to be those which will become due from the Tenant assuming such letter of credit or other security is drawn upon to pay such Indebtedness at any Balloon Maturity; and (c) If such Indebtedness does not meet the requirements of paragraphs (a) or (b) above, or at the election of the Tenant (regardless of whether the Indebtedness meets the requirements of (a) or (b) above), such Indebtedness may be deemed to be amortized on a level-debt service basis over a term equal to twenty (20) years from the date of incurrence of such Indebtedness. iv Guarantees. If the Tenant guarantees indebtedness of a Person, such Guaranty will constitute Indebtedness under this Lease. For purposes of any covenants or computations provided for herein, including determination of the ability of the Tenant to enter into or become liable under a Guaranty pursuant to Section 22(a), the aggregate annual principal and interest payments on, and the principal amount of, any indebtedness (the Guaranteed Debt ) of a Person which is the subject of a Guaranty hereunder and which would, if such obligation were incurred by the Tenant, constitute Long-Term Indebtedness, shall be deemed equivalent to one hundred percent (100%) of the actual Debt Service Requirements on, and principal amount of, such Indebtedness. v Interest Rate Hedges. In the case of an Interest Rate Hedge which is being incurred for the purpose of limiting interest rate risk with respect to specific Indebtedness which is proposed to be incurred, or which is then outstanding, the Debt Service Requirements of the Tenant shall be adjusted for the related Indebtedness to give effect to the Interest Rate Hedge (excluding termination payments or other lump-sum payments due upon the breakage of the Interest Rate Hedge for whatever reason) in such manner, and to such extent, if any, as may be required by generally accepted accounting principles or, in the absence of any such requirements under generally accepted accounting principles, as may be stated in an Officer s Certificate (which certificate shall be delivered concurrently with any Officer s Certificate required in connection with the incurrence of the related Indebtedness) as necessary to present fairly the reasonably expected Debt Service Requirements of the Tenant after the incurrence of the Interest Rate Hedge. vi Provisions Not Mutually Exclusive. The provisions of this Section 22(c) are not and shall not be deemed to be mutually exclusive. If two or more of the foregoing provisions are applicable to any particular Long-Term Indebtedness, each such provision shall be applied, as and to the extent appropriate. Section 23. Security for Permitted Debt and Lease Obligations. Any Debt or Lease Obligations incurred as provided in this Lease may be secured only as hereinafter provided below: (a) by a lien on and security interest in any property or interest in property, real, personal or mixed, of the Tenant other than the Premises or the Collateral; provided, the Tenant grants a subordinate security interest therein to the Landlord; (b) by a purchase money security interest in fixtures, equipment or school materials or by a security interest given to refinance a purchase money security interest; (c) by a lien on and security interest in the Collateral, subordinate to the Lien and security interest created by this Lease; (d) Any Debt which is incurred for the purpose of providing working capital, including a line of credit, may be secured by a security interest in Accounts on a parity with the security interest created therein by this Lease. Any agreement for the repayment of such Debt and instruments evidencing or securing the same shall provide all notices to be given to the Trustee and the Landlord regarding defaults by the Tenant, and shall specify the rights of the Trustee to pursue remedies upon the receipt of such notice, and the sharing of the rights of the Holders of the Obligations (as such terms are defined in the Loan and Trust Agreement) to control the exercise of remedies with the holders of such Debt; and (e) Indebtedness or Lease Obligations incurred in support of Obligations under the Loan and Trust Agreement may be secured by the Collateral on a parity basis. Section 24. Intentionally Omitted. Section 25. Sale, Lease or Other Disposition of Property. The Tenant covenants that it shall not transfer, sell, lease or dispose of Property or the Collateral to any other Person, unless permitted in this Lease. (a) The Tenant may, from time to time, remove, sell or otherwise dispose of Property or the Collateral in the ordinary course of its business including, without limitation, equipment, furniture and fixtures which have become obsolete, worn out or for which the Tenant has received fair market value. (b) The Tenant may, from time to time, remove, sell or otherwise dispose of any Property or the Collateral, for fair market value, provided that the market value of the Property and the Collateral subject to such transfers shall not exceed five percent (5%) of the total market value of the Property and Collateral. (c) The Tenant may sell, remove or otherwise dispose of tangible personal property, fixtures or equipment at any time having book value in excess of the limit described in paragraph (b) above if the Tenant delivers to the Trustee: (1) a certified copy of a resolution adopted by the governing body of the Tenant authorizing such transfer; and (2) an Officer s Certificate (A) to the effect that such removal, sale or other disposition shall not impair the use and operation of the Premises, (B) stating the estimated fair value, if any, of such property or interest in property, and (C) stating that such arrangements have been made or can be made for sale or other disposition thereof for consideration not less than such estimated fair value. (d) The Tenant covenants that the net proceeds of any sale or other disposition made pursuant to paragraphs (a), (b) or (c) above, if any, shall be applied to the replacement of the Property or the Collateral sold or disposed of, or shall otherwise be reinvested in the Premises or shall be used to redeem the Bonds. 25 (e) The Tenant may, from time to time, remove, sell or otherwise transfer any Property or the Collateral, if such Property or Collateral consists solely of assets which are specifically restricted by the donor or grantor to a particular purpose which is inconsistent with their use for payment on the Bonds. (f) The Tenant shall not under any circumstances sell, pledge, factor or otherwise dispose of any accounts receivable, except as permitted by Section 23. Section 26. Limitations on Creation of Liens. (a) The Tenant agrees that it will neither create nor suffer to be created or exist any Lien upon any Property or the Collateral now owned or hereafter acquired by the Tenant other than Permitted Encumbrances. If any mechanic s, laborer s or materialman s lien shall at any time be filed against the Premises or any part thereof, the Tenant, within fifteen (15) days after notice of the filing thereof, will cause such lien to be discharged of record by payment, deposit, bond, order of the court of competent jurisdiction or otherwise. If the Tenant shall fail to cause such lien to be discharged within the period aforesaid, then in addition to any other right or remedy, the Landlord may, but shall not be obligated to, discharge it either by paying the amount claimed to be due or by procuring the discharge of such lien by deposit or by bonding proceedings, and in any such event, the Landlord shall be entitled, if the Landlord so elects, to compel the prosecution of any action for the foreclosure of such lien by the lienor and to pay the amount of the judgment in favor of the lienor with interest, costs and allowances. Any amount so paid by the Landlord and all costs and expenses incurred by the Landlord in connection therewith, together with interest thereon at the Default Rate from the respective dates of the Landlord s making of the payments and incurring of the costs and expenses, shall constitute Additional Rentals payable by the Tenant under this Lease and shall be paid by the Tenant to the Landlord on demand. (b) Permitted Encumbrances shall consist of the following: (1) The Liens created by this Lease; (2) Liens granted to secure the existing Debt and Lease Obligations described on Exhibit E and Liens granted to secure Debt as permitted by Section 23; (3) Any Lien described in Exhibit C hereto which is existing on the Effective Date, including renewals thereof, provided that no such Lien may be extended or modified to apply to any Property of the Tenant not subject to such Lien on such date, unless such Lien as so extended or modified otherwise qualifies as a Permitted Encumbrance hereunder; (4) any Permitted School Financing Lien; (5) Any Lien on Property acquired by the Tenant pursuant to a consolidation, merger, sale or conveyance in accordance with Section 15 hereof and that is not incurred in contemplation of such consolidation, merger, sale or 26

159 conveyance; provided that no such Lien may be extended or modified to apply to any Property of the Tenant not subject to such Lien on such date, unless such Lien if so extended or modified otherwise qualifies as a Permitted Encumbrance hereunder; (6) Any Liens for taxes, assessments, levies, fees, water and sewer rents, and other governmental and similar charges and any liens of mechanics, materialmen, laborers, suppliers or vendors for work or services performed or materials furnished which are not due and payable or which are not delinquent or the amount or validity of which are being contested and execution thereon is stayed or the existence of which will not subject the Premises or the Collateral to material loss or forfeiture; (7) Any judgment Lien in an amount not in excess of one hundred thousand dollars ($100,000) against the Tenant so long as such judgment is being contested and execution thereon is stayed or, in the absence of such contest and stay, such judgment Lien will not materially impair the Premises or the Collateral or subject the Premises or the Collateral to material loss or forfeiture; (8) Rights reserved to or vested in any municipality or public authority by the terms of any right, power, franchise, grant, license, permit or provision of law, affecting any Property, (A) to control or regulate any Property, or to use such Property, in any manner, which rights do not materially impair the use of such Property, or materially and adversely affect the value thereof, (B) to terminate such right, power, franchise, grant, license or permit, provided that the exercise of such right would not materially alter the use of such Property, or materially and adversely affect the value thereof, or (C) to purchase, condemn, appropriate or recapture, or designate a purchaser of, such Property; (9) easements, rights-of-way, servitudes, restrictions and other minor defects, encumbrances, and irregularities in the title to any Property, which do not materially impair the use of such Property, or materially and adversely affect the value thereof; (10) Liens arising by reason of good faith deposits with the Tenant in connection with leases of real estate, bids or contracts (other than contracts for the payment of money), deposits by the Tenant to secure public or statutory obligations, or to secure, or in lieu of, surety, stay or appeal bonds, and deposits as security for the payment of taxes or assessments or other similar charges; (11) Any Lien arising by reason of deposits with, or the giving of any form of security to, any governmental agency or any body created or approved by law or governmental regulation for any purpose at any time as required by law or governmental regulation as a condition to the transaction of any business or the exercise of any privilege or license, or to enable the Tenant to maintain selfinsurance or to participate in any funds established to cover any insurance risks or in connection with workmen s compensation, unemployment insurance, pension or profit sharing plans or other social security, or to share in the privileges or benefits required for companies participating in such arrangements; and (12) Rights of set-off or banker s Lien with respect to funds on deposit with a financial institution in the ordinary course of business. Section 27. Tax Status and Eligibility for Financing. (a) The Tenant represents and warrants that (i) it is an organization described in Section 501(c)(3) of the Code (or corresponding provisions of prior law) and it is not a private foundation as defined in Section 509 of the Code (or corresponding provisions of prior law); (ii) it has received a letter from the Internal Revenue Service to that effect; (iii) such letter has not been modified, limited or revoked; (iv) it is in compliance with all terms, conditions and limitations, if any, contained in such letter; (v) the facts and circumstances which form the basis of such letter continue substantially to exist as represented to the Internal Revenue Service; and (vi) it is exempt from federal income tax under Section 501(a) of the Code. The Tenant agrees that it will not take any action or omit to take any action or cause or permit any circumstance within its control to arise or continue if such action or circumstance or omission would cause any revocation or adverse modification of such federal income tax status, unless it obtains an Opinion of Bond Counsel (as defined in the Loan and Trust Agreement) that such revocation or modification will not adversely affect the exclusion from gross income under Section 103 of the Code of interest paid on the Bonds. (b) The application of the proceeds of the Bonds in the manner described in the Loan and Trust Agreement does not constitute a use by the Tenant with respect to a trade or business that is an unrelated trade or business as defined in Section 513(a) of the Code. (c) The Tenant represents and warrants that the 2013 Project (as defined in the Loan and Trust Agreement) and the facilities of the Tenant financed with proceeds of the Bonds is, and at all times while the Bonds are Outstanding will be used in such a manner as to be, included within the definition of a project in the Act (as defined in the Loan and Trust Agreement). Section 28. Tax Covenants. The Tenant covenants that it will not take any action, or fail to take any action, if any such action or failure to take action would adversely affect the exclusions from gross income of the interest on the Bonds under Section 103(a) of the Code. The Tenant will not directly or indirectly use or permit the use of any proceeds of the Bonds or any other funds of the Tenant, or take or omit to take any action, that would cause the Bonds to be arbitrage bonds within the meaning of Section 148(a) of the Code. To that end, the Tenant will comply with all requirements of Section 148 of the Code to the extent applicable to the Bonds. Section 29. Net Lease. It is the intention of the parties hereto that this Lease is a net lease and that the Landlord shall receive the Base Rentals and Additional Rentals hereinabove provided as net income from the Premises, not diminished by (a) any imposition of any public authority of any nature whatsoever during the Term notwithstanding any changes in the method of taxation or raising, levying or assessing any imposition, or any changes in the name of any imposition, or (b) any expenses or charges required to be paid to maintain and carry the Premises or to continue the ownership of the Landlord, other than payments under any mortgage now existing or hereafter created by the Landlord. Section 30. Services. It is expressly agreed that the Landlord is not and shall not be required to render any services of any kind to the Tenant. Section 31. Environmental Laws. The Tenant shall conduct, and cause to be conducted, all operations and activities at the Premises in compliance with, and shall in all other respects applicable to the Premises comply with, all present and future applicable statutes, ordinances, governmental regulations, orders and directives, and all applicable requirements of common law, concerning (a) operations at the Premises, (b) handling of any materials, (c) emission of any pollutant into the air, the presence or passage of any effluent or pollutant or the discharge of any effluent or pollutant into water, or the presence, passage or release of any substance or matter, (d) the storage, treatment, disposal, presence or passage of any solid waste, industrial waste, or hazardous waste or substance at, from or connected with operations at any premises, and (e) underground storage tanks and related facilities and connections (herein called Environmental Statutes ). The Tenant shall obtain all permits, licenses, or approvals and shall make and file all notifications and registrations as required by Environmental Statutes in a timely manner. The Tenant shall at all times comply with the terms and conditions of any such permits, licenses, approvals, notifications and registrations. The Tenant shall not cause or allow the release or threat of release of hazardous substances or wastes at the Premises in a manner which is uncontained or otherwise allows or threatens to allow such hazardous substances or wastes to enter the environment, except in compliance with Environmental Statutes. The Tenant shall at all times handle hazardous substances or wastes in a manner which will not cause undue risk of such release. Should any such release of hazardous substances or wastes occur at the Premises, the Tenant shall immediately take all measures necessary to contain and remove all materials released and remedy and mitigate all threats to the public health and environment caused by such release. The Tenant shall also submit any notification or report that may be required as a result of such release to all appropriate governmental agencies. When conducting any such measures, the Tenant shall comply with Environmental Statutes. Section 32. Quiet Enjoyment. The Landlord covenants that the Tenant, upon paying the Base Rentals, Additional Rentals and other charges herein provided for and upon observing and keeping all covenants, agreements and conditions of this Lease on its part to be kept, shall quietly have and enjoy the Premises during the Term without disturbance by anyone claiming by or through the Landlord, subject, however, to the exceptions, reservations and conditions of this Lease. Section 33. Casualty. (a) Immediately after the occurrence of loss or damage, the Tenant shall notify in writing the Landlord, the Authority, the Architect (as defined in the Loan and Trust Agreement) and the Trustee thereof. Any net insurance proceeds paid directly to the Tenant shall be either (i) applied by the Tenant and/or the Landlord as permitted by Section 6.03(a) of the Loan and Trust Agreement or (ii) paid to the Trustee, if required pursuant to Section 6.03(b) of the Loan and Trust Agreement, and applied as set forth therein. The Tenant agrees to take all actions required to permit the Landlord to comply with the provisions of Section 6.03 of the Loan and Trust Agreement. (b) If the Premises shall be damaged or destroyed by fire or other casualty, the Landlord, subject to the net insurance proceeds being made available to the Landlord under Section 6.03 of the Loan and Trust Agreement for repair and restoration in accordance with the terms thereof, shall promptly repair, restore and replace the Premises to substantially the same condition as prior to the fire or other casualty. (c) If the net insurance proceeds are deposited in the Debt Service Fund and applied to the redemption of all of the Obligations in accordance with Section 3.04(c) of the Loan and Trust Agreement, this Lease shall terminate as of the date of the fire or other casualty and the rent herein reserved shall be apportioned and paid in full by the Tenant to the Landlord to such date and all rent prepaid for periods beyond such date shall forthwith be repaid by the Landlord to the Tenant and neither party shall thereafter have any liability hereunder. In the case of damage to or destruction of all or substantially all of the Premises and the deposit of the net insurance proceeds in accordance with Section 6.03(b) of the Loan and Trust Agreement, the Tenant shall pay to the Landlord for payment to the Trustee, an amount sufficient, together with the net insurance proceeds to redeem all of the Obligations. Section 34. Condemnation. (a) If all of the Premises is taken or condemned for a public or quasi-public use under any statute or by right of eminent domain by any competent authority or sold in lieu of such taking or condemnation, this Lease shall terminate as of the date the right of possession vests in the condemnor (the Taking Date ). The rent herein reserved shall be apportioned and paid in full by the Tenant to the Landlord to the Taking Date and all rent prepaid for periods beyond the Taking Date shall forthwith be repaid by the Landlord to the Tenant and neither party shall thereafter have any liability hereunder. The Tenant may prosecute its own claim by separate proceedings against the condemnor for damages legally due to the Tenant (such as leasehold improvements, fixtures and equipment, which the Tenant was entitled to remove, and moving and related expenses); provided that the same does not reduce the award payable to the Landlord. (b) If only part of the Premises is so taken or condemned, the Landlord, subject to the net condemnation proceeds being made available to the Landlord, may elect (subject to the provisions of the Loan and Trust Agreement) either to (i) replace or restore the part of the Premises affected by such taking or condemnation or (ii) to have all or part of the net condemnation proceeds deposited in the Debt Service Fund. Any net condemnation proceeds paid directly to the Tenant shall be either (i) applied by the Tenant and/or the Landlord as permitted by Section 6.03(a) of the Loan and Trust 29 30

160 Agreement or (ii) paid to the Trustee, if required pursuant to Section 6.03(b) of the Loan and Trust Agreement, and applied as set forth therein. (c) If the condemnor should take only the right to possession for a fixed period of time or for the duration of an emergency or other temporary condition, then, notwithstanding anything hereinabove provided, this Lease shall continue in full force and effect without any abatement of rent, but the amounts payable by the condemnor with respect to any period of time prior to the expiration or sooner termination of this Lease shall be paid by the condemnor to the Landlord and the condemnor shall be considered a subtenant of the Tenant. If the amounts payable hereunder by the condemnor are paid in monthly installments, the Landlord shall apply the amount of such installments, or as much thereof as may be necessary for the purpose, toward the amount of rent due from the Tenant as rent for that period, and the Tenant shall pay to the Landlord any deficiency between the monthly amount thus paid by the condemnor and the amount of the rent, while the Landlord shall pay over to the Tenant any excess of the amount of the award over the amount of the rent. Section 35. Subletting and Assigning. Except as permitted hereunder, the Tenant shall not mortgage, pledge or encumber this Lease, collaterally or otherwise. The Tenant shall not assign this Lease, or sublet the whole or any part of the Premises, without on each occasion first obtaining the prior written consent of the Landlord, which consent shall not be unreasonably delayed or withheld. No subletting or assignment, with or without the Landlord s consent, shall in any way relieve or release the Tenant from liability for the performance of all terms, covenants and conditions of this Lease. Section 36. Subordination. This Lease shall be subject and subordinate at all times to the Mortgage and any other mortgage, deed of trust or other encumbrance, as permitted hereunder, heretofore or hereafter placed upon the Premises or the Property which includes the Premises and of all renewals, modifications, consolidations, replacements and extensions thereof (all of which are hereinafter referred to for purposes of this Section as, collectively a Mortgage Lien ) except to the extent that any Mortgage Lien provides that this Lease is superior to that Mortgage Lien. This provision shall operate automatically and without the necessity of any further act on the part of the Tenant to effectuate such subordination. The Tenant agrees, at the request of any Person who may acquire the Landlord s estate by foreclosure or transfer in lieu of foreclosure, to attorn to such Person and to execute, acknowledge and deliver, upon demand by the Landlord, any holder of a Mortgage Lien or such Person who may acquire the Landlord s estate, but in no event later than ten (10) days after such demand, such further instruments evidencing and confirming such subordination of this Lease and such instruments evidencing such attornment obligation. The Tenant hereby irrevocably appoints the Landlord the attorneyin-fact of the Tenant (such power of attorney being coupled with an interest), to execute, acknowledge and deliver any such instruments for and in the name of the Tenant. Notwithstanding the foregoing, any holder of any Mortgage Lien may at any time subordinate its Mortgage Lien to this Lease, without the Tenant s consent, by notice in writing to the Tenant, and thereupon this Lease shall be deemed prior to such Mortgage Lien without regard to their respective dates of execution, delivery and recording and in that event such holder 31 shall have the same rights with respect to this Lease as though this Lease had been executed, delivered and recorded prior to the execution, delivery and recording of such Mortgage Lien. Section 37. Estoppel. The Tenant agrees at any time and from time to time, within fifteen (15) days after the Landlord s written request or that of any mortgagee of the Landlord, to execute, acknowledge and deliver to the Landlord or such mortgagee a written instrument in recordable form certifying (i) whether this Lease is in full force and effect and if there have been modifications, supplements, side agreements or amendments, and if so, stating such modifications, supplements, side agreements and amendments; (ii) the dates to which Base Rental, Additional Rental and other charges have been paid; (iii) the amount of any prepaid rents or to the best of the Tenant s knowledge, credit due the Tenant, if any; (iv) that the Tenant has accepted possession and has occupied the Premises; (v) the Effective Date and the Expiration Date; (vi) whether, to the best knowledge of the Tenant, the Landlord is in default in the performance of any covenant, agreement or condition contained in this Lease and, if so, specifying each such default of which the Tenant may have knowledge; (vii) that no notice has been received by the Tenant of any default which has not been cured or, if such default has not been cured, what the Tenant intends to do in order to effect the cure; and (viii) and such other matters as the Landlord or the Landlord s mortgagee may reasonably require. Any such instrument delivered pursuant to this Section may be relied upon by the Landlord, any prospective purchaser of the Premises, any mortgagee or prospective mortgagee thereof, any assignee of the Landlord s interest in this Lease or of any mortgage upon the Premises or any purchaser of an interest in the Landlord. Section 38. Notices. All notices, demands, requests, consents, certificates and waivers from either party to the other shall be in writing and sent by United States registered or certified mail, return receipt requested, postage prepaid, or by overnight express delivery service, against written receipt or signed proof of delivery addressed to the parties at their respective addresses set forth above, or to such other address as the party to receive the notice, demand, request, consent, certificate or waiver may hereafter designate by written notice to the other. All payments of rent hereunder shall be made to the Landlord at the address from time to time designated as aforesaid for the giving of notice. All notices, demands, requests, consents, certificates and waivers shall be deemed, given and effective two (2) Business Days following the date deposited in the United States mail and on the next Business Day if delivered to an overnight express delivery service or courier service. Section 39. Surrender of Possession. At the expiration or earlier termination of this Lease, the Tenant shall surrender the Premises in good order and condition, ordinary wear and tear and, subject to the terms hereof, damage from fire or other casualty excepted. If the Landlord requires the Tenant to remove any alterations, improvements or additions, the Tenant shall remove the same prior to the expiration or earlier termination of this Lease, at the Tenant s sole cost, and shall restore the Premises to the condition in which they were before such alterations, improvements and additions were made, ordinary wear and tear and, subject to the terms hereof, damage from fire or other casualty excepted. All alterations, improvements and additions not so removed will conclusively be deemed to have been abandoned by the Tenant and may be appropriated, sold, stored, destroyed or otherwise disposed of by the Landlord without notice to the Tenant or to any other Person and without obligation to account for them. The Tenant will pay the Landlord all expenses incurred in connection with the Landlord s 32 disposition of such property, including without limitation the cost of repairing any damage to the Premises caused by the removal of such property. The Tenant s obligation to observe and perform this covenant will survive the expiration or earlier termination of this Lease. Section 40. Holdover. If the Tenant or any Person claiming through the Tenant shall retain possession of the Premises or any part thereof, after the expiration or earlier termination of this Lease, and if such retention shall be without the Landlord s express written consent, the Tenant shall pay the Landlord (a) for each month or portion thereof during which such possession continues, an amount equal to one hundred and fifty percent (150%) of the minimum rent to be paid for each month, plus all other sums which would have been payable hereunder had the Term continued during such retention of possession and (b) all other damages sustained by the Landlord, whether direct or consequential, by reason of such retention of possession. During any such retention of possession without the Landlord s express written consent, the Landlord may by written notice to the Tenant elect to treat the holdover as a year to year tenancy. The provisions hereof shall not be deemed to limit or constitute a waiver of any other rights or remedies of the Landlord provided herein or at law or in equity and applicable to unlawful retention of possession or otherwise. The Landlord s acceptance of rent under the provisions hereof shall not be deemed consent to the holdover. Section 41. Events of Default. Each of the following shall constitute an Event of Default: (a) The Tenant failing to pay when due any Base Rentals or failing to pay any other sum herein required to be paid by the Tenant within five (5) days of the date when due. (b) The Tenant failing to perform any other covenant or condition herein contained and such default continues for a period of thirty (30) days, or if any default shall occur which cannot be cured within such thirty (30) days, the Tenant shall have not commenced to cure the same within such thirty (30) day period and shall not have prosecuted such cure diligently thereafter. (c) The Tenant vacating or deserting the Premises or permitting the same to be empty or unoccupied. (d) The Tenant s charter is terminated after exhaustion of all administrative appeals, or, when eligible, the Tenant failing to receive, on or before the expiration of its current charter, approval for renewal of the charter for a period of at least three (3) years from the date of expiration of its current charter. (e) The filing by or against the Tenant of a petition for adjudication as a bankrupt or insolvent, or for reorganization or appointment of a receiver or trustee of the Tenant s property which, if voluntary, is not dismissed or stayed within ninety (90) days; an assignment by the Tenant for the benefit of creditors; or the taking possession of the Tenant s property by any governmental officer or agency pursuant to statutory authority for its dissolution or liquidation. (f) The occurrence of any Event of Default (as that term is defined in the Loan and Trust Agreement), after any applicable grace periods, under the Loan and Trust Agreement, or the occurrence of any Event of Default (as that term is defined in the Lease between DeMedici and the Tenant dated as of June 1, 2013), after any applicable grace periods, under such Lease. (g) A breach shall occur (and continue beyond any applicable grace period) with respect to the performance of any agreement securing Debt of the Tenant for borrowed money in an amount at least equal to one hundred thousand dollars ($100,000) and the holder or holders of such Debt or a trustee or trustees under any such agreement accelerates such Debt; but an Event of Default shall not be deemed to be in existence or to be continuing under this clause (g) if (i) the Tenant is in good faith contesting the existence of such breach or event and if such acceleration is being stayed by judicial proceedings or by agreement of the parties or (ii) such breach or event is remedied and the acceleration, if any, is wholly annulled. The Tenant shall notify in writing the Landlord, the Authority and the Trustee of any such breach or event immediately upon the Tenant s becoming aware of its occurrence and shall from time to time furnish such information as the Landlord, the Authority or the Trustee may reasonably request for the purpose of determining whether a breach or event described in this clause (g) has occurred and whether such power of acceleration has been exercised or continues to be in effect. (h) A final judgment or judgments are entered, or an order or orders of any judicial authority or governmental entity is issued against the Tenant (such judgment(s) and order(s) being collectively referred to as Judgment ) (i) for the payment of money, which Judgment, in the aggregate exceeds one hundred thousand dollars ($100,000) outstanding at any one time; or (ii) for injunctive or declaratory relief which would have an adverse material effect on the ability of the Tenant to conduct its business, and such Judgment is not discharged or execution thereon or enforcement thereof stayed pending appeal, within thirty (30) days after the entry or issuance thereof, or, in the event of such a stay, such Judgment is not discharged within thirty (30) days after such stay expires. The Tenant shall notify in writing the Landlord, the Authority and the Trustee of any such breach or event immediately upon the Tenant s becoming aware of its occurrence and shall from time to time furnish such information as the Landlord, the Authority or the Trustee may reasonably request for the purpose of determining whether a breach or event described in this clause (h) has occurred and whether such power of acceleration has been exercised or continues to be in effect. (i) The Tenant fails to deliver a report of a Management Consultant required by this Lease or fails to follow the recommendations set forth in such reports or if the Debt Service Coverage Ratio falls below 1.0. Section 42. Remedies. Upon the occurrence of an Event of Default: (a) The Landlord may, in writing delivered to the Tenant, declare immediately due and payable the Base Rental, Additional Rental and all other charges due hereunder for the entire unexpired balance of the Term, in addition to any rent or other charges 33 34

161 already due and payable as if by the terms of this Lease the whole balance of unpaid rent and other charges were due on that date payable in advance. (b) The Landlord may terminate this Lease by written notice to the Tenant, and, on the date specified in the notice, the Tenant s right to possession shall cease and this Lease will be terminated (except as to the Tenant s liability set forth in the following sentence). If the Landlord terminates this Lease, the Landlord may recover from the Tenant a judgment for damages computed in accordance with the following formula, in addition to its other remedies: (1) the unpaid rent which has accrued up to the time of such termination plus interest from the dates such rent was due to the date of the judgment at the Default Rate; plus (2) the present value at the time of the judgment of the amount by which the unpaid rent which would have accrued (had this Lease continued) after termination until the date of the judgment exceeds the amount of such rental loss the Tenant proves could have been reasonably avoided; plus (3) the amount (as discounted at the discount rate of the Federal Reserve Bank of Philadelphia) by which the unpaid rent which would have been earned (had this Lease continued) for the balance of the Term and any renewal or extension thereof for which the Tenant had become bound prior to a default after the date of the judgment exceeds the amount of such rental loss that the Tenant proves could have been reasonably avoided; plus (4) any other amount necessary to compensate the Landlord for all the detriment proximately caused by the Tenant s failure to perform its obligations under this Lease or which in the ordinary course would be likely to result therefrom including, without limitation, the cost of repairing the Premises and reasonable attorneys fees; plus (5) at the Landlord s election, such other amounts in addition to or in lieu of the foregoing as may be permitted by applicable law. (c) The Landlord may terminate the Tenant s right of possession and may reenter and repossess the Premises by legal proceedings, force or otherwise, without terminating this Lease. After reentry or retaking or recovering of the Premises, whether by termination of this Lease or not, the Landlord may, but shall be under no obligation to, make such alterations and repairs, as the Landlord may deem then necessary or advisable and relet the Premises or any part or parts thereof, either in the Landlord s name or otherwise, for a term or terms which may at the Landlord s option be less than or exceed the period which otherwise would have constituted the balance of the Term and at such rent or rents and upon such other terms and conditions as in the Landlord s sole discretion may deem advisable and to such Person or Persons as may in the Landlord s discretion seem best. The Tenant shall be liable for any loss of rent for such period as would be the balance of the Term and any renewal or extension for which the Tenant had 35 become bound prior to a default of this Lease plus the cost and expenses of reletting and of redecorating, remodeling or making repairs and alterations to the Premises for the purpose of reletting, the amount of such liability to be computed monthly and to be paid by the Tenant to the Landlord from time to time upon demand. The Landlord shall in no event be liable for, nor shall any damages or other sums to be paid by the Tenant to the Landlord be reduced by, failure to relet the Premises or failure to collect the rent from any reletting. The Tenant shall not be entitled to any rents received by the Landlord in excess of the rents provided for in this Lease. The Tenant agrees that the Landlord may file suit to recover any sums falling due under the terms of this clause from time to time and that no suit or recovery of any portion due the Landlord hereunder shall be any defense to any subsequent action brought for any amount not theretofore reduced to judgment in favor of the Landlord. The Tenant, for the Tenant and the Tenant s successors and assigns, hereby irrevocably constitutes and appoints the Landlord, the Tenant s and their agent to collect the rents due or to become due under all Leases of the Premises or any parts thereof without in any way affecting the Tenant s obligation to pay any unpaid balance of rent or any other sum due or to become due hereunder. Notwithstanding any reletting without termination, the Landlord may at any time thereafter elect to terminate this Lease for the Tenant s previous breach. Section 43. Remedies Cumulative. All remedies available to the Landlord hereunder and at law and in equity shall be cumulative and concurrent. No termination of this Lease nor taking or recovering possession of the Premises shall deprive the Landlord of any remedies or actions against the Tenant for rent, for charges or for damages for the breach of any covenant, agreement or condition herein contained, nor shall the bringing of any such action for rent, charges or breach of covenant, agreement or condition, nor the resort to any other remedy or right for the recovery of rent, charges or damages for such breach be construed as a waiver or release of the right to insist upon the forfeiture and to obtain possession. No re-entering or taking possession of the Premises, or making of repairs, alterations or improvements thereto, or reletting thereof, shall be construed as an election on the part of the Landlord to terminate this Lease unless written notice of such election be given by the Landlord to the Tenant. The failure of the Landlord to insist upon strict and/or prompt performance of the terms, agreements, covenants and conditions of this Lease or any of them, and/or the acceptance of such performance thereafter shall not constitute or be construed as a waiver of the Landlord s right to thereafter enforce the same strictly according to the terms thereof in the event of a continuing or subsequent default. Section 44. No Waiver. Any failure of the Tenant or the Landlord to enforce any remedy allowed for the violation of any provision of this Lease shall not imply the waiver of any such provision, even if such violation is continued or repeated, and no express waiver shall affect any provision other than the one(s) specified in such waiver and only for the time and in the manner specifically stated. No receipt of monies by the Landlord from the Tenant after the termination of this Lease shall in any way (a) alter the length of the Term or of the Tenant s right of possession hereunder, or (b) after the giving of any notice, reinstate, continue or extend the Term or affect any notice given to the Tenant prior to the receipt of such monies, it being agreed that after the service of notice or the commencement of a suit or after final judgment for possession of the Premises, the Landlord may receive and collect any rent due, and the payment of said rent shall not waive or affect said notice, suit or judgment. 36 Section 45. Brokers. The Landlord and the Tenant represent and warrant to each other that the Landlord and the Tenant have dealt with no broker or finder in connection with this Lease, and that insofar as the Landlord or the Tenant knows, no broker or finder negotiated this Lease or introduced the Tenant to the Landlord or brought the Premises to the Tenant s attention. The Landlord and the Tenant agree to defend each other and their respective officers, partners, employees, agents, successors and assigns, against any loss resulting from a breach of the warranty contained in the preceding sentence. [REMAINDER OF PAGE LEFT INTENTIONALLY BLANK SIGNATURES PAGE FOLLOWS] Section 46. Captions. The captions in this Lease are for convenience only and are not a part of this Lease and do not in any way define, limit, describe or amplify the terms and provisions of this Lease or the scope or intent thereof. Section 47. Entire Agreement. This Lease represents the entire agreement between the parties hereto and there are no collateral or oral agreements or understandings. The Landlord and the Landlord s agents have made no representations, agreements, conditions, warranties, understandings or promises, either oral or written, other than as set forth herein, with respect to this Lease, the Premises or otherwise. This Lease shall not be modified in any manner or terminated except by an instrument in writing executed by the parties. Without limitation of the provisions which survive the expiration or earlier termination of this Lease, it is expressly agreed by the Landlord and the Tenant that the indemnification provisions shall survive such expiration or termination. The masculine (or neuter) pronoun, shall include the masculine, feminine and neuter genders and the singular number shall include the singular and plural number. Section 48. Severability. If any provision of this Lease is found by a court of competent jurisdiction to be illegal, invalid or unenforceable, the remainder of this Lease will not be affected, and in lieu of each provision which is found to be illegal, invalid, or unenforceable, there will be added as a part of this Lease a provision as similar to such illegal, invalid, or unenforceable provision as may be possible and be legal, valid, and enforceable. Section 49. Waiver of Jury Trial. The Landlord and the Tenant waive trial by jury in any action, proceeding or counterclaim brought by either of them against the other on all matters arising out of this Lease, the use and occupancy of the Premises, the relationship of the Landlord and the Tenant, or claim of injury or damage. Section 50. Governing Law. This Lease will be governed by the law of the Commonwealth of Pennsylvania and will be construed and interpreted according to that law. Section 51. provisions. Time of Essence. Time is of the essence of this Lease and all of its Section 52. Landlord s Work. The term Landlord s Work shall mean the construction upon the Premises of the buildings and improvements described in the plans and specifications ( Plans and Specifications ) for the 2013 Project. All of Landlord s Work shall be done in a good and workmanlike manner and in compliance with all applicable laws and lawful ordinances, regulations and orders of the federal, state, county or other governmental authorities having jurisdiction thereof

162 IN WITNESS WHEREOF, the parties hereto have executed this Lease under seal the day and year first above written. DEMEDICI CORPORATION II EXHIBIT A Description of Premises By: Name: Javier Kuehnle Title: President ATTEST: By: Name: Krista Alexander Title: Secretary PHILADELPHIA PERFORMING ARTS CHARTER SCHOOL By: Name: Javier Kuehlne Title: Chairperson ATTEST: By: Name: Krista Alexander Title: Treasurer [Signature Page to Lease Agreement] A-1 EXHIBIT B EXHIBIT C Base Rentals Permitted Encumbrances Year (July 1 June 30) Base Rental (Annual) Base Rental (Monthly) (1) Those encumbrances shown on Schedule B to the Policy of Title Insurance issued by First American Title Insurance Company in connection with the issuance of the 2013 Bonds. $3,526, July December 2013: $282, January June 2014: $304, $3,658, $304, $3,948, $329, $4,360, $363, $4,397, $366, $4,399, $366, $4,398, $366, $4,399, $366, $4,397, $366, $4,401, $366, $4,397, $366, $4,398, $366, $4,399, $366, $4,401, $366, $4,401, $366, $4,401, $366, $4,400, $366, $4,402, $366, $4,397, $366, $4,399, $366, $4.399, $366, $4,400, $366, $4,401, $366, $4,397, $366, $4,397, $366, $4,400, $366, $4,400, $366, $4,397, $366, $4,399, $366, $8,801, $733, Payments shall be made in monthly payments, as shown above, commencing July 10, 2013, and no later than the 10 th of each month thereafter, subject to credit for interest earnings and amounts available in the Capitalized Interest Account as provided in the Loan and Trust Agreement. B-1 C-1

163 EXHIBIT D Form Of Notice To School District [LETTERHEAD FROM CHARTER SCHOOL] Via Certified Mail, Return Receipt Requested [Name] [School District] [Address 1] [Address 2] [City, State, Zip] Re: $55,500,000 Philadelphia Authority for Industrial Development Revenue Bonds (Philadelphia Performing Arts Charter School Project) Series of 2013 (the Bonds ) Dear : DeMedici Corporation and DeMedici Corporation II (collectively, the Borrowers ) have received a loan (the Loan ) from the Philadelphia Authority for Industrial Development (the Issuer ) which provided it with funds to, among other things, acquire, renovate and equip certain school buildings to be leased to Philadelphia Performing Arts Charter School (the School ) pursuant to a certain Lease Agreements dated as of June 1, 2013 (the Leases ). The terms of the Loan are set forth in a Loan and Trust Agreement dated as of June 1, 2013 (the Agreement ), among the Issuer, the Borrowers and U.S. Bank National Association, as Trustee (the Trustee ). The Issuer obtained the money to fund the Loan through the issuance of the Bonds under the Agreement. The Leases and the Agreement permit the Trustee to cause the School to direct that the monthly payments to be received from you for students residing in your district who are enrolled at the School to be deposited directly with the Trustee. Pursuant to this letter, you are hereby authorized and instructed to wire the monthly payments to the School to the following wire instructions or to mail your check to the Trustee at the address shown below: Checks - First Class Mail Lockbox U.S. Bank National Association Attn: Please ensure that the following Trust account name and number are included on the remittance Account Name: Account Number: Checks - Overnight Express Mail Checks - Overnight Express Mail D-1 D-2 U.S. Bank National Association Attn: EXHIBIT E Existing Debt and Lease Obligations 1. Obligations associated with the DeMedici Lease. Please ensure that the following Trust account name and number are included on the remittance Account Name: Account Number: Wire and ACH (Automatic Clearing House) Instructions RBK ABA BNF Beneficiary Account Number: Beneficiary Account Address OBI Account Name: Account Number: You should begin wiring to the above account number or mailing your checks starting with your [month] payment to us. The authorization and instructions hereunder shall continue in effect until such time as you have received written notice from the Trustee that the Bonds have been paid in full or otherwise defeased and that all of the School s obligations under the Lease and Agreement have been fully satisfied. Should you have any questions in this regard, please do not hesitate to contact, the Business Manager of the School, or, the School s Chief Executive Officer at. Sincerely, [Chief Executive Officer] We acknowledge receipt of the above letter. We agree to wire mail our payments to you in accordance with this letter. [School District] By: Authorized Officer D-3 E-1

164 Prepared by and return to: Michael E. Roynan, Esq. Stradley Ronon Stevens & Young, LLP 30 Valley Stream Parkway Malvern, PA BRT No.: THIS IS AN OPEN-END MORTGAGE SECURING FUTURE ADVANCES UP TO A MAXIMUM PRINCIPAL AMOUNT OF FIFTY-FIVE MILLION FIVE HUNDRED THOUSAND DOLLARS PLUS ACCRUED INTEREST AND OTHER INDEBTEDNESS AS DESCRIBED IN 42 PA.C.S.A OPEN-END MORTGAGE, ASSIGNMENT OF LEASES, SECURITY AGREEMENT AND FIXTURE FILING THIS OPEN-END MORTGAGE, ASSIGNMENT OF LEASES, SECURITY AGREEMENT AND FIXTURE FILING (this Mortgage ) dated as of June 1, 2013, is made by DEMEDICI CORPORATION, a Pennsylvania non-profit corporation, with an address c/o Philadelphia Performing Arts Charter School, 2600 South Broad Street, Philadelphia, PA ( Mortgagor ), in favor of U.S. BANK NATIONAL ASSOCIATION, as trustee under the Loan and Trust Agreement (as hereinafter defined), with an address of 50 S. 16th Street, Suite 2000, Philadelphia, Pennsylvania ( Mortgagee ). ARTICLE 1 OBLIGATIONS; SECURITY 1.01 Obligations; Operative Documents. This Mortgage is executed, acknowledged and delivered by Mortgagor to secure and enforce the following obligations and liabilities (collectively, the Obligations ): (a) All amounts (including principal, interest, as the same may vary, fees and other charges) now or hereafter owing by Mortgagor under that certain Loan and Trust Agreement dated as of June 1, 2013 among Mortgagor, the Philadelphia Authority for Industrial Development (the Authority ), DeMedici Corporation II ( DMII ) and Mortgagee (the Loan and Trust Agreement ) with respect to the obligations of Mortgagor and/or the Authority under the following: (i) the Loan and Trust Agreement, together with all Obligations now or hereafter issued thereunder; (ii) those certain Revenue Bonds (Philadelphia Performing Arts Charter School Project) Series of 2013 in the principal amount of $55,500,000 (the 2013 Bonds ) issued by the Authority pursuant to the Loan and Trust Agreement; (iii) this Mortgage and any other agreement, document or instrument now or hereafter executed or delivered in connection with the transactions described in the Loan and Trust Agreement or entered into hereafter pursuant to, and in accordance with, a Supplemental Agreement issued thereunder; and (iv) all modifications, amendments, supplements, renewals, replacements or extensions of any of the foregoing; (b) Any and all advances made by Mortgagee to protect or preserve the Mortgaged Property (as hereinafter defined) or the lien of this Mortgage, including advances for Impositions (as hereinafter defined) and insurance premiums or costs incurred for the protection of the Mortgaged Property or the lien of this Mortgage, expenses incurred by Mortgagee by reason of default by the Mortgagor under this Mortgage or advances made under a construction loan to enable completion of the improvements for which the construction loan was originally made; and (c) The performance of all of the terms, covenants, conditions, agreements, obligations and liabilities of Mortgagor or any other obligor or guarantor under (i) the Loan and Trust Agreement, this Mortgage, and any other document now or hereafter given to evidence, secure or facilitate the payment and performance of any of the Obligations; and (ii) all extensions, renewals, replacements or modifications of, or amendments or additions to any of the foregoing (all of the foregoing being collectively referred to in this Mortgage as the Operative Documents ). Mortgagor shall pay and perform the Obligations required of Mortgagor in accordance with the provisions of the Operative Documents Grant of Mortgage; Mortgaged Property. For the purpose of securing payment and performance of all Obligations, Mortgagor has granted, conveyed, bargained, sold, aliened, enfeoffed, released, confirmed, assigned to, granted a security interest in and mortgaged, and by these presents does hereby grant, convey, bargain, sell, alien, enfeoff, release, confirm, assign to, grant a security interest in and mortgage unto Mortgagee all of the following whether presently in existence or to come into existence at some future time (collectively, the Mortgaged Property ): (a) All of Mortgagor s right, title and interest in and to certain parcels of land situated in City of Philadelphia, Pennsylvania as described in Exhibit A attached hereto and hereby made a part hereof (collectively referred to as the Real Estate ); and (b) All of Mortgagor s right, title and interest in and to all buildings and improvements now or hereafter erected on the Real Estate (the Improvements ) (which Improvements together with the Real Estate are herein separately and collectively referred to as the Premises ). (c) TOGETHER WITH all of Mortgagor s right, title and interest now owned or hereafter acquired in: (i) all present and future leases, and other occupancy agreements covering all or any portion of the Premises and/or the Improvements (which together with Mortgagor s interest as landlord thereunder are herein collectively referred to herein as the Leases ), including, without limitation, the Lease Agreement dated as of June 1, between Mortgagor and Philadelphia Performing Arts Charter School, as hereafter amended and supplemented (the School Lease ); (ii) all rents, issues and profits payable under the Leases and under any future renewals, extensions, amendments or modifications thereof (collectively, the Income ); (iii) any and all tenements, hereditaments and appurtenances belonging to the Real Estate or any part thereof, or in any way appertaining thereto, and all streets, alleys, passages, ways, water courses, and all estates, easements and covenants now existing or hereafter created for the benefit of Mortgagor or any subsequent owner of the Real Estate over ground adjoining the Real Estate and all rights to enforce the maintenance thereof, and all other rights, liberties and privileges of whatsoever kind or character, and all the estate, right, title, interest, property, possession, claim and demand whatsoever, at law or in equity, of Mortgagor in and to the Real Estate or any part thereof; (iv) All management agreements, service contracts, license agreements, concession agreements, written or oral, relating to the use and occupancy of the Real Estate and Improvements now or hereafter existing and the reversions and remainders, income, rents, issues and profits arising therefrom and all deposits (including tenant security deposits) thereunder, and all rights and benefits now or hereafter accruing to Mortgagor under any and all guarantees of the obligations of any tenant, licensee, concessionaire or other occupant thereunder, as any of the foregoing may be amended, extended, renewed or modified from time to time; (v) All reciprocal easement agreements, operating agreements, and similar agreements however labeled or denominated affecting the Real Estate and Improvements; (vi) All other documentation now or hereafter existing in connection with the use or operation of the Real Estate and the Improvements including any plans and specifications pertaining to the Improvements, all construction contracts pertaining to the Improvements, all appraisals, engineering, environmental, soils, marketing and other reports and studies relating to the Real Estate and the Improvements, all permits, licenses, and contract rights, warranties, guarantees, tenant lists, correspondence with present or prospective tenants or suppliers, advertising materials, and telephone exchange numbers as identified in such advertising materials; and (d) All Goods, including without limitation, Fixtures, Equipment and Accessions, delivered on site to the Real Estate during the course of, or in connection with, the construction of, or reconstruction of, or remodeling of, any of the Real Estate from time to time during the term hereof; (e) All Accounts and General Intangibles relating to the use, construction upon, occupancy, leasing, sale or operation of the Real Estate; (f) All As-Extracted Collateral arising from the Real Estate; 3 (g) All books and records evidencing or relating to the foregoing, including, without limitation, billing records of every kind and description, tenant lists, data storage and processing media, Software and related material, including computer programs, computer tapes, cards, disks and printouts, and including any of the foregoing which are in the possession of any affiliate or property manager; and (h) All Proceeds of any of the above-described property. Capitalized terms contained in this Section without definition shall have the meanings ascribed to them in revised Article 9 of the Uniform Commercial Code as enacted by the Commonwealth of Pennsylvania and as amended from time to time (the UCC ). TO HAVE AND TO HOLD the Mortgaged Property unto the Mortgagee to and for the use of the Mortgagee forever. PROVIDED ALWAYS THAT, if Mortgagor fully pays, performs and discharges all Obligations now or hereafter secured or to be secured by this Mortgage at the times and in the manner specified without deduction, fraud or delay, and Mortgagor delivers written notice to Mortgagee requesting termination of this Mortgage of record, then Mortgagee shall release this Mortgage of record and the estate hereby granted shall cease and become void Security Agreement and Fixture Filing. This Mortgage is also a security agreement under the UCC. Mortgagor grants and Mortgagee shall have and may enforce a security interest in all those property interests included in the Mortgaged Property which may be personal property to secure payment and performance of all Obligations. The recordation of this Mortgage shall also constitute a fixture filing in accordance with the provisions of the UCC. Mortgagor agrees to cooperate and join, at its expense, with Mortgagee in taking such steps as are necessary, in Mortgagee s judgment, to perfect or continue the perfected status of the security interest granted hereunder, including, without limitation, the execution and delivery of financing statements, amendments thereto, and continuation statements. Mortgagee may, at any time and from time to time, file financing statements, continuation statements and amendments thereto that describe the Mortgaged Property and which contain any other information required by the UCC for the sufficiency or filing office acceptance of any financing statement, continuation statement or amendment, including whether Mortgagor is an organization, the type of organization and any organization identification number issued to Mortgagor. Any such financing statements, continuation statements or amendments may be signed by Mortgagee on behalf of Mortgagor. Mortgagor irrevocably appoints Mortgagee attorney-in-fact for Mortgagor to execute, deliver and file such financing statements, continuation statements and amendments. Inasmuch as the parties intend that this Mortgage shall, among other things, constitute a fixture filing, Mortgagor sets forth the following: (a) The Debtor is DeMedici Corporation, with an address c/o Philadelphia Performing Arts Charter School, 2600 South Broad Street, Philadelphia, PA 19145; (b) The Secured Party is U.S. Bank National Association, with an address of 50 S. 16th Street, Suite 2000, Philadelphia, Pennsylvania 19102; and 4

165 (c) The collateral includes Fixtures which are or shall be affixed to the Real Estate Assignment of Leases and Income. (a) This Mortgage is also an absolute and unconditional assignment to Mortgagee of all Leases and Income, whether now in existence or hereafter arising, for the purpose of vesting in Mortgagee a first priority, perfected security interest in the Leases and the Income. Mortgagor hereby assigns, transfers and sets over to Mortgagee all Leases, all Income and all rights of Mortgagor to enforce the Leases and collect the Income. This assignment includes any award received or receivable by Mortgagor in any legal proceeding involving any tenant under a Lease whether under the Bankruptcy Code or otherwise. (b) Mortgagor irrevocably appoints Mortgagee the attorney-in-fact of Mortgagor to enforce the Leases and demand, receive and collect the Income and the sole and exclusive agent of Mortgagor to agree to any modifications of the Leases. This power is coupled with an interest and is therefore irrevocable. Mortgagor shall notify any person which Mortgagee may from time to time specify that the Income should be paid directly to Mortgagee and that any modification of the Leases must be approved by Mortgagee. (c) So long as no Event of Default (as hereinafter defined) is then existing, Mortgagor shall have a license to enforce the Leases and collect the Income, which license Mortgagee may revoke upon the occurrence of an Event of Default. Upon request of Mortgagee, Mortgagor shall execute and deliver to Mortgagee (i) a specific assignment, in recordable form, of any Lease now or hereafter affecting the Mortgaged Property or any portion thereof to further evidence the assignment hereby made; and (ii) such other instruments as Mortgagee may reasonably deem necessary, convenient or appropriate in connection with the payment and delivery directly to Mortgagee of all of the Income. (d) Mortgagor shall not accept or permit the payment of rent in any medium other than lawful money of the United States of America, or anticipate, discount, compromise, forgive, encumber or further assign the Leases or the Income or any part thereof or any interest therein except as permitted by the Loan and Trust Agreement. (e) Mortgagor hereby authorizes and directs that all other parties now or hereafter owing or paying Income under any Lease or now or hereafter having in their possession or control any Income from or allocated to the Mortgaged Property, or any part thereof, or the Proceeds therefrom, shall, upon the request of Mortgagee following the occurrence of an Event of Default and until Mortgagee directs otherwise, pay and deliver such Income directly to Mortgagee at Mortgagee s address set forth in the introduction to this Mortgage, or in such other manner as Mortgagee may direct such parties in writing and this authorization shall continue until this Mortgage is released of record. No payor making payments to Mortgagee at its request under the assignment contained in this Mortgage shall have any responsibility to see to the application of any of such funds, and any party paying or delivering Income to Mortgagee under such assignment shall be released thereby from any and all liability to Mortgagor to the full extent and amount of all such Income so delivered. Mortgagor agrees to indemnify and hold harmless any and all parties making payments to Mortgagee, at Mortgagee s request under the 5 assignment contained in this Mortgage, against any and all liabilities, actions, claims, judgments, costs, charges and attorneys fees resulting from the delivery of such payments to Mortgagee. (f) Notwithstanding any legal presumption to the contrary, Mortgagee shall not be obligated by reason of its acceptance of this assignment to perform any obligation of Mortgagor as lessor under any Lease. Neither the acceptance of this assignment nor the collection of Income under the Leases shall constitute a waiver of any rights of Mortgagee under this Mortgage or constitute a cure of any default by Mortgagor thereunder Open-End Mortgage. This is an Open-End Mortgage and shall be entitled to all benefits as such under 42 Pa.C.S.A (the Open-End Mortgage Statute ). (a) If Mortgagee receives written notice pursuant to Section 8143(b) of the Open-End Mortgage Statute from a holder of a mechanic s lien for labor performed or to be performed or materials furnished or to be furnished for the erection, construction, alteration or repair of any part of the Mortgaged Property, then and notwithstanding any provision to the contrary contained in the Loan and Trust Agreement, Mortgagor agrees that Mortgagee shall have the right to suspend (until such time as the lien is fully released) any further advances to Mortgagor (and Mortgagee is released from all liability for failure to make such advances) except advances which Mortgagee determines in its sole discretion are for the purpose of paying toward all or part of the cost of completing any erection, construction, alteration or repair of any part of the Mortgaged Property the financing of which, in whole or in part, this Mortgage was given to secure. (b) If Mortgagor should at any time elect to limit the Obligations secured by this Mortgage pursuant to Section 8143(c) of the Open-End Mortgage Statute, Mortgagor agrees that notice of such election shall: (i) not be effective unless and until it is served upon Mortgagee in accordance with the requirements of Section 8143(d) of the Open-End Mortgage Statute and fully complies with the requirements for the giving of notices under any of the Loan and Trust Agreement; (ii) release Mortgagee from all obligation to make any further advances under the Loan and Trust Agreement notwithstanding anything to the contrary contained in such notice or the Loan and Trust Agreement; (iii) constitute, at the election of Mortgagee, an Event of Default; and (iv) not be effective to limit Mortgagor s liability for payment and performance of all Obligations for which Mortgagor is responsible under this Mortgage or the other Operative Documents (including all reimbursement and indemnification agreements) whether such Obligations arise prior or subsequent to the date of such notice. (c) By delivery of this Mortgage, Mortgagee and Mortgagor agree that the provisions of 42 Pa. C.S.A are not waived but rather all benefits of such statute shall be applicable hereto. (d) All notices required by Section 8143(d) of the Open End Mortgage Statute must be addressed as described in Section 7.04 hereof Purchase Money Mortgage. If all or any part of the Obligations secured by this Mortgage were used in whole or in part to fund the acquisition of all or any part of the 6 Mortgaged Property, this Mortgage shall constitute a purchase money mortgage and shall be entitled to all benefits as such under applicable laws of the state in which the Real Estate is located. ARTICLE 2 TITLE MATTERS 2.01 Warranty of Title. Until the Obligations are fully satisfied, Mortgagor represents, warrants and covenants that: (a) Mortgagor has good and marketable simple absolute title to the Mortgaged Property subject only to those exceptions to title more particularly described in the marked up File No. PAFA TK issued by First American Title Insurance Company and accepted by Mortgagee in connection with this transaction (the Permitted Encumbrances ) and Mortgagor shall defend the validity, priority and enforceability of the lien of this Mortgage against the claims of all persons excepting only those claiming under Permitted Encumbrances; (b) Mortgagor has full power and lawful authority to subject the Mortgaged Property to the lien of this Mortgage; (c) The execution, delivery and performance of this Mortgage will not contravene any Legal Requirements (hereinafter defined) or any agreement, document or instrument to which Mortgagor is a party or by which Mortgagor or the Mortgaged Property is bound; (d) Mortgagor shall make, execute, acknowledge and deliver all such further or other deeds, documents, instruments or assurances and cause to be done all such further acts and things as may at any time be required by Mortgagee to confirm and fully protect the lien and priority of this Mortgage; and (e) Mortgagor shall make such payments, all before the same shall become delinquent, and perform all obligations as are required under any Permitted Encumbrances affecting the Mortgaged Property No Transfer. Mortgagor shall not transfer any of the Mortgaged Property except in accordance with the terms of the Loan and Trust Agreement. (a) A transfer of the Mortgaged Property includes (i) the direct or indirect sale, agreement to sell, transfer or conveyance of the Mortgaged Property or any portion thereof or interest therein; and (ii) the execution of any installment land sale contract or similar instrument affecting all or a portion of the Mortgaged Property. (b) Consent to any such transfer shall not be deemed to be a waiver of the right to require consent to future or successive transfers. If consent should be given to a transfer and if this Mortgage is not released to the extent of the transferred portion of the Mortgaged Property by a writing signed by Mortgagee and recorded in the appropriate office of public record, then any such transfer shall be subject to this Mortgage and any such transferee shall be deemed, by 7 acceptance of the deed or other instrument of transfer, to have assumed all Obligations under this Mortgage and to have agreed to be bound by all provisions contained herein. Any such assumption shall not, however, release Mortgagor or any other obligor or guarantor of the Obligations from any liability under the Operative Documents No Other Financing or Liens. Except for the Permitted Encumbrances (as defined in the Loan and Trust Agreement), Mortgagor shall not create or cause or permit to exist any lien on the Mortgaged Property whether superior to or subject to the lien of this Mortgage Leases. Mortgagor represents and warrants that there are no leases affecting the Mortgaged Property other than the School Lease. Mortgagor shall not enter into any further Leases except as permitted by the Loan and Trust Agreement. ARTICLE 3 OBLIGATIONS REGARDING MORTGAGED PROPERTY 3.01 Legal Requirements Generally. Mortgagor represents and warrants to Mortgagee that the Mortgaged Property is in compliance with Legal Requirements (defined below). Mortgagor shall promptly comply with, and cause the Mortgaged Property to be kept in compliance with, all present and future laws, statutes, codes, ordinances, orders, judgments, decrees, injunctions, rules, regulations, restrictions and requirements (collectively Legal Requirements ) of the United States of America, the state in which the Real Estate is located and any political subdivision thereof or any town, city, county or municipality in which the Real Estate is located or any agency, department, bureau, board, commission or instrumentality of any of the foregoing now existing or hereafter created (individually, a Governmental Authority and, collectively, Governmental Authorities ) having jurisdiction over Mortgagor or the Mortgaged Property or the construction, use, occupancy, operation, maintenance, or improvement of the Mortgaged Property, whether foreseen or unforeseen, ordinary or extraordinary Land Use Approvals. Mortgagor represents and warrants to Mortgagee that the Real Estate is and shall remain one or more zoning lots separate and apart from all other premises. Mortgagor shall not, by any act or omission, impair the integrity of the Real Estate as such separate zoning lot or lots. Mortgagor shall not submit or cause to be submitted to any Governmental Authority an application for zoning, subdivision or development approval affecting the Real Estate if any of the following would result from such proposed zoning change, subdivision or development: (a) the separate transfer, use and ownership of the Real Estate is not permitted as a matter of right under applicable Legal Requirements; (b) the use of the Real Estate as of the date of this Mortgage is no longer permitted as a matter of right under applicable Legal Requirements; or (c) any portion of the Real Estate is used to fulfill a Legal Requirement of other property not subject to the lien of this Mortgage Environmental Matters. (a) Except as disclosed in the Environmental Reports, as defined below, Mortgagor represents and warrants that, to Mortgagor s knowledge, neither Mortgagor nor any other person has (A) used, installed or disposed of any Hazardous Materials (hereinafter defined) on, from, or affecting the Mortgaged Property except in full compliance 8

166 with Applicable Environmental Laws (hereinafter defined); or (B) received any notice from any Governmental Authority with regard to Hazardous Materials on, from or affecting the Mortgaged Property. (b) Except for those conditions disclosed, and, as applicable, remediated as described, in the Environmental Reports, Mortgagor shall not use the Mortgaged Property, nor allow it to be used, to generate, manufacture, refine, transport, treat, store, handle, dispose, transfer, produce or process Hazardous Materials except in full compliance with Applicable Environmental Laws. Mortgagor shall not cause or permit, as a result of any intentional or unintentional act or omission on the part of Mortgagor or any other person, a release of Hazardous Materials onto, from or affecting the Mortgaged Property or any other use, installation, or disposition of Hazardous Materials in violation of Applicable Environmental Laws. Mortgagor shall comply, and enforce compliance by all tenants and subtenants, with all Applicable Environmental Laws and shall keep the Mortgaged Property free and clear of any liens imposed pursuant to any Applicable Environmental Laws. (c) If Mortgagor receives any notice from any Governmental Authority with regard to Hazardous Materials on, from or affecting the Mortgaged Property, or any notice of violation of Applicable Environmental Laws, Mortgagor shall promptly notify Mortgagee. Mortgagor shall conduct and complete all investigations, studies, sampling, and testing, and all remedial, removal, and other actions necessary to clean up and remove all Hazardous Materials on, from or affecting the Mortgaged Property in accordance with all Applicable Environmental Laws and to the satisfaction of Mortgagee. (d) The term Environmental Reports shall mean, collectively, that certain Phase I Environmental Site Assessment prepared by LCS Inc., dated November 1, 2012 and that certain Soil Boring Investigation Report prepared by PT Consultants, Inc. dated December 13, The term Applicable Environmental Laws shall mean, without limitation, all Legal Requirements of any Governmental Authority pertaining to the preservation or enhancement of the quality of the environment or regulating or restricting the use, transfer, storage or remediation of Hazardous Materials including the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended (42 U.S.C. Sections 9601, et seq.), the Hazardous Materials Transportation Act, as amended (49 U.S.C. Sections 1801, et seq.), the Resource Conservation and Recovery Act, as amended (42 U.S.C. Sections 6901, et seq.), the Pennsylvania Hazardous Sites Cleanup Act (35 Pa.C.S.A. Sections , et seq.), and the rules, regulations adopted and publications promulgated pursuant thereto at any time. The term Hazardous Materials shall mean, without limitation, any flammable explosives, radioactive materials, hazardous materials, hazardous wastes, hazardous or toxic substances, or related materials, asbestos or any material containing asbestos, or any other substance or material regulated under any Applicable Environmental Laws General Obligations. Until the Obligations are fully satisfied, Mortgagor shall: (a) Perform all maintenance, repair, restoration and rebuilding required to keep the Mortgaged Property in good repair, order and condition in full compliance with the requirements 9 of the Loan and Trust Agreement, any Leases affecting the Mortgaged Property and all Legal Requirements; (b) Pay all charges for water, sewer, gas, electric and other utility services provided to the Mortgaged Property promptly as and when due; (c) Complete any improvements to the Mortgaged Property required under the Loan and Trust Agreement, any Leases affecting the Mortgaged Property, or required by any Governmental Authority or insurer insuring the Mortgaged Property, in a good and workmanlike manner and free of mechanics liens; (d) Permit, and cause any lessee or occupant of the Mortgaged Property to permit, Mortgagee and its agents and representatives, to enter upon the Mortgaged Property at any reasonable time to appraise and photograph the Mortgaged Property and to inspect for compliance with Legal Requirements (including subsurface investigations to determine compliance with Applicable Environmental Laws), insurance requirements, and the Obligations of Mortgagor under this Mortgage; and (e) Make the books and accounts relating to the Mortgaged Property available for inspection by Mortgagee, or its representatives, upon request at any reasonable time General Restrictions. Until the Obligations are fully satisfied, Mortgagor shall not: (a) Abandon the Mortgaged Property or any portion thereof or allow the same to become vacant; (b) Commit or suffer waste with respect to the Mortgaged Property; (c) Impair or diminish the value or integrity of the Mortgaged Property or the priority or security of the lien of this Mortgage; (d) Except as permitted in the Loan and Trust Agreement, remove, demolish or materially alter any of the Mortgaged Property; (e) Make, install or permit to be made or installed, any additions or improvements to the Mortgaged Property except in a good and workmanlike manner, free of mechanic s or materialmen s liens, in compliance with Legal Requirements, and in accordance with plans and specifications approved by Mortgagee; or (f) Make, suffer or permit any nuisance to exist on the Mortgaged Property or any portion thereof Required Notices. Mortgagor shall notify Mortgagee promptly of the occurrence of any of the following: (a) A fire or other casualty causing damage to the Mortgaged Property; 10 (b) A pending or threatened condemnation of the Mortgaged Property; (c) A violation of a Legal Requirement or other notice from or to a Governmental Authority relating to the Mortgaged Property; (d) Receipt or giving of any notice of default or cancellation under any Lease of all or a material portion of the Mortgaged Property; (e) Commencement of any litigation affecting the Mortgaged Property; (f) Discovery, discharge or release of any Hazardous Material for which Mortgagor is or may be responsible under any Applicable Environmental Laws; (g) The existence of any event or condition which presents a risk of creating material liability of Mortgagor under ERISA (Public Law , as amended); or (h) The occurrence of a default under, or the receipt or giving of any notice under, any Permitted Encumbrance. ARTICLE 4 TAXES AND INSURANCE 4.01 Real Estate Taxes and Assessments. (a) Mortgagor shall pay when due and before interest or penalties commence to accrue thereon, all taxes, assessments, water and sewer rents, levies, encumbrances and all other charges or claims of any nature and kind, whether public or private, which may be assessed, levied, imposed, suffered, placed or filed at any time against the Mortgaged Property or any part thereof or which by any present or future law may have priority (either in lien or in distribution out of the proceeds of any sale) over the lien of this Mortgage (individually, an Imposition and, collectively, Impositions ). (b) Mortgagor shall produce to Mortgagee, at the request of the Mortgagee, official receipts evidencing payment of any Imposition. Mortgagor may contest the validity or amount of any Imposition as permitted by Section 7.12 of the Loan and Trust Agreement Taxes on Mortgagee. If any Governmental Authority shall levy, assess or charge any tax, assessment or imposition upon this Mortgage (including any requirement to have affixed to this Mortgage any revenue, documentary or similar stamps) or upon the interest of Mortgagee in the Mortgaged Property by reason of this Mortgage, Mortgagor shall pay the same directly to such Governmental Authority as an Imposition. If Mortgagor is not legally permitted to pay such Imposition or to reimburse Mortgagee for amounts advanced on account of such payment, then Mortgagee may take such actions as prescribed by the Loan and Trust Agreement Corporate Mortgagor. Mortgagor shall at all times until the Obligations are satisfied in full: 11 (a) Keep in effect and in good standing its existence and rights as a corporation under the laws of the state of its incorporation or constitution and its right to own property and transact business in the state in which the Real Estate is situated; and (b) File returns for all federal, state and local taxes with the proper Governmental Authorities, and pay, when due and payable and before interest or penalties are due thereon, all taxes owing by Mortgagor to any Governmental Authorities Insurance Coverages. Until the Obligations are fully satisfied, Mortgagor shall maintain and keep in force, or shall cause to be maintained and kept in force, the insurance required under the Loan and Trust Agreement Installments for Insurance, Taxes and Other Charges. Without limiting the effect of the other provisions of this Article, Mortgagor, if required pursuant to the terms of the Loan and Trust Agreement following the occurrence of an Event of Default, shall pay to Mortgagee monthly an amount equal to one-twelfth (1/12) of the annual amount of all Impositions and premiums for insurance policies required under this Article plus any additional sums necessary to pay, or establish adequate reserves for the payment of, such premiums and Impositions as and when due. The amounts so paid shall be security for the premiums and Impositions and shall be used in payment thereof if Mortgagor is not otherwise in default under this or any of the other Operative Documents. Upon the occurrence of an Event of Default, Mortgagee shall have the right, at its election, to apply any amount so held against the Obligations. At Mortgagee s option, Mortgagee from time to time may waive, and after any such waiver may reinstate, the provisions of this section requiring installment payments. ARTICLE 5 CASUALTY; CONDEMNATION 5.01 Casualty. If the Mortgaged Property is damaged by fire or other casualty, the net proceeds of insurance, shall be applied in accordance with the terms of the Loan and Trust Agreement. In the event that such proceeds are applied to repair and restore the Mortgage Property, Mortgagor shall cause the work to be performed by a reputable general contractor satisfactory to Mortgagee under a fixed price or guaranteed maximum price contract satisfactory to Mortgagee, in accordance with plans and specifications satisfactory to Mortgagee and in compliance with all Legal Requirements, and shall not permit any work to be commenced until waivers of mechanics liens have been filed by the general contractor and all those claiming by, through, or under the general contractor Condemnation. In the event of any condemnation or taking of any part of the Mortgaged Property by eminent domain, alteration of the grade of any street, or other injury to or decrease in the value of the Mortgaged Property by any public or quasi-public authority or corporation, the net proceeds of any condemnation awards, shall be applied in accordance with the terms of the Loan and Trust Agreement. In the event that such proceeds are applied to repair and restore the Mortgaged Property, Mortgagor shall cause the work to be performed by a reputable general contractor satisfactory to Mortgagee under a fixed price or guaranteed maximum price contract satisfactory to Mortgagee, in accordance with plans and specifications 12

167 satisfactory to Mortgagee and in compliance with all Legal Requirements, and shall not permit any work to be commenced until waivers of mechanics liens have been filed by the general contractor and all those claiming by, through, or under the general contractor. ARTICLE 6 DEFAULTS; REMEDIES 6.01 Right to Make Advances. If Mortgagor should fail to pay or perform any of its Obligations with respect to the Mortgaged Property as required under Article 3 and Article 4 of this Mortgage, or otherwise fails to pay or perform any of its other Obligations under this or any of the other Operative Documents, then Mortgagee, at its election, shall have the right, but not the obligation, to make any payment or expenditure and to take any action which Mortgagor should have made or taken or which Mortgagee deems advisable to protect the security of this Mortgage or the Mortgaged Property. Such action shall be without prejudice to any of Mortgagee s rights or remedies available under this Mortgage or any of the other Operative Documents or otherwise at law or in equity. All such sums, as well as costs and expenses, advanced by Mortgagee shall be due immediately from Mortgagor to Mortgagee, shall become part of the Obligations secured by this Mortgage and the other Operative Documents, and shall bear interest (including any judgment obtained on account of any of the Obligations) at a rate equal to the highest interest rate borne by any of the 2013 Bonds, plus two percent (2%) (the Default Rate ), until repayment in full to Mortgagee Events of Default. The occurrence of any one or more of the following events shall constitute an Event of Default under this Mortgage: (a) Any Event of Default under the Loan and Trust Agreement; (b) Any breach of warranty or other violation of any provision contained in Article 2 of this Mortgage; or (c) Nonperformance of, or noncompliance with, any of the agreements, covenants, conditions, warranties, representations or other provisions contained in this Mortgage (if and only to the extent not included in any of the occurrences listed above), which nonperformance or noncompliance is not cured and remedied within thirty (30) days after notice thereof is given to Mortgagor; provided if such nonperformance or noncompliance requires work to be done, actions to be taken or conditions to be remedied, which by their nature cannot be reasonably done, taken or remedied, as the case may be, within such thirty (30)-day period, no Event of Default shall be deemed to have occurred or to exist if and so long as Mortgagor shall commence such performance or compliance within such thirty (30)-day period and shall diligently and continuously prosecute the same to completion Remedies; Execution. Upon the occurrence and during the continuance of an Event of Default, Mortgagee shall have the right to enforce its rights under this Mortgage and the other Operative Documents by exercising such remedies as are available to Mortgagee under applicable law, either by suit in equity or action at law, or both, whether for specific performance 13 of any provision contained in this Mortgage or any of the other Operative Documents or in aid of the exercise of any power granted in this Mortgage or the other Operative Documents. (a) Mortgagee shall have the right to obtain judgment for the Obligations (including all amounts advanced or to be advanced by Mortgagee under Section 6.01 above, all costs and expenses of collection and suit, including any bankruptcy or insolvency proceeding affecting Mortgagor, and reasonable attorneys fees incurred in connection with any of the foregoing) together with interest on such judgment at the Default Rate until payment in full is received by Mortgagee and Mortgagee shall have the right to obtain execution upon the Mortgaged Property on account of such judgment. (b) Mortgagee shall have the right to institute an action of mortgage foreclosure against the Mortgaged Property or take such other action for realization on the security intended to be provided under Article 1 of this Mortgage as applicable law or the provisions of the Operative Documents may allow Remedies; Collection of Income. Upon the occurrence and during the continuance of an Event of Default, Mortgagee may, at any time without notice, either in person, by agent or by a receiver appointed by a court, and without regard to the adequacy of any security for the Obligations, enter upon the Mortgaged Property and, with or without taking possession of the Mortgaged Property, and with or without legal action, collect all Income (which term shall also include amounts determined by Mortgagee as fair rental value for use and occupation of the Mortgaged Property by any person, including Mortgagor) and, after deducting all costs of collection and administration expense including reasonable attorneys fees and reasonable reserves, apply the net Income to any of the Obligations in such order and amounts as provided in the Loan and Trust Agreement, or any of the following in such order and amounts as Mortgagee in its sole discretion may elect: the payment of any sums due, or accumulation of necessary reserves for, payment of all costs and expenses arising from or incurred in connection with (a) the preservation and protection of the validity and priority of the lien of this Mortgage; (b) the preservation and protection of the Mortgaged Property; (c) compliance with Legal Requirements; and (d) fulfilling any obligations of Mortgagor or any other obligor or guarantor under the Permitted Encumbrances, the Leases, this Mortgage or the Loan and Trust Agreement. Mortgagee shall not be accountable for more monies than it actually receives from the Mortgaged Property nor shall it be liable for failure to collect the Income. Mortgagee shall have the right to determine the method of collection and the extent to which enforcement of collection of Income shall be prosecuted and Mortgagee s judgment shall be deemed conclusive and reasonable Remedies; Possession. Upon the occurrence and during the continuance of an Event of Default, Mortgagee may, with or without legal action, take possession and control of the Mortgaged Property to the exclusion of Mortgagor and all others excepting only those claiming under Permitted Encumbrances. Mortgagee shall have the authority while so in possession to insure (at Mortgagor s expense) against all risks by reason of having taken such possession and Mortgagor will transfer and deliver to the Mortgagee all policies of insurance upon the Mortgaged Property not theretofore transferred and delivered to Mortgagee. FOR THE PURPOSE OF OBTAINING POSSESSION OF THE MORTGAGED PROPERTY 14 UPON THE OCCURRENCE AND DURING THE CONTINUANCE OF ANY EVENT OF DEFAULT, MORTGAGOR HEREBY AUTHORIZES AND EMPOWERS ANY ATTORNEY OF ANY COURT OF RECORD IN THE STATE IN WHICH THE REAL ESTATE IS LOCATED OR ELSEWHERE AS ATTORNEY FOR MORTGAGOR AND ALL PERSONS CLAIMING UNDER OR THROUGH MORTGAGOR, TO CONFESS JUDGMENT IN EJECTMENT AND CONFESS JUDGMENT FOR RECOVERY OF POSSESSION OF THE MORTGAGED PROPERTY AND TO APPEAR FOR AND CONFESS JUDGMENT AGAINST MORTGAGOR, AND ALL PERSONS CLAIMING UNDER OR THROUGH MORTGAGOR IN FAVOR OF MORTGAGEE FOR RECOVERY BY MORTGAGEE OF POSSESSION THEREOF, FOR WHICH THIS MORTGAGE, OR A COPY THEREOF VERIFIED BY AFFIDAVIT, SHALL BE SUFFICIENT WARRANT; AND THEREUPON A WRIT OF POSSESSION MAY IMMEDIATELY ISSUE FOR POSSESSION OF THE MORTGAGED PROPERTY, WITHOUT ANY PRIOR WRIT OR PROCEEDING WHATSOEVER AND WITHOUT ANY STAY OF EXECUTION. IF FOR ANY REASON AFTER SUCH ACTION HAS BEEN COMMENCED IT SHALL BE DISCONTINUED, OR POSSESSION OF THE MORTGAGED PROPERTY SHALL REMAIN IN OR BE RESTORED TO MORTGAGOR, MORTGAGEE SHALL HAVE THE RIGHT FOR THE SAME EVENT OF DEFAULT OR ANY SUBSEQUENT EVENT OF DEFAULT TO BRING ONE OR MORE FURTHER ACTIONS TO CONFESS JUDGMENT IN EJECTMENT AND CONFESS JUDGMENT FOR RECOVERY OF POSSESSION OF THE MORTGAGED PROPERTY. MORTGAGEE MAY BRING AN ACTION TO CONFESS JUDGMENT IN EJECTMENT AND TO CONFESS JUDGMENT FOR RECOVERY OF POSSESSION OF THE MORTGAGED PROPERTY BEFORE OR AFTER THE INSTITUTION OF PROCEEDINGS TO FORECLOSE THIS MORTGAGE OR TO ENFORCE ANY OF THE OTHER OPERATIVE DOCUMENTS, OR AFTER ENTRY OF JUDGMENT THEREON OR ON ANY OF THE OTHER OPERATIVE DOCUMENTS, OR AFTER A SHERIFF S SALE OF THE MORTGAGED PROPERTY IN WHICH MORTGAGEE IS THE SUCCESSFUL BIDDER, IT BEING THE UNDERSTANDING OF THE PARTIES THAT THE AUTHORIZATION TO PURSUE SUCH PROCEEDINGS FOR OBTAINING POSSESSION IS AN ESSENTIAL PART OF THE REMEDIES FOR ENFORCEMENT OF THIS MORTGAGE AND THE OTHER OPERATIVE DOCUMENTS, AND SHALL SURVIVE ANY EXECUTION SALE TO MORTGAGEE. BY AGREEING THAT MORTGAGEE MAY CONFESS JUDGMENT HEREUNDER MORTGAGOR, FOR ITSELF AND ANY OTHER PERSONS OR ENTITIES NOW OR HEREAFTER IN POSSESSION OF ALL OR ANY PART OF THE MORTGAGED PROPERTY, WAIVES THE RIGHT TO NOTICE IN A PRIOR JUDICIAL PROCEEDING TO DETERMINE THEIR RIGHTS AND LIABILITIES AND THE OPPORTUNITY TO RAISE ANY DEFENSE, SET OFF, COUNTERCLAIM OR OTHER CLAIM AGAINST SUCH ACTION BY MORTGAGEE Remedies; Repossession. Upon the occurrence and during the continuance of an Event of Default, Mortgagee shall have the right to take possession of any portion of the Mortgaged Property constituting fixtures or other personal property subject to the UCC, and any records pertaining thereto. Mortgagee shall have the right to use, operate, manage, lease or otherwise control such Mortgaged Property in any lawful manner and, in its sole discretion but without any obligation to do so, insure, maintain, repair, renovate, alter or remove such Mortgaged Property and to use, in connection with any assembly, use or disposition of such Mortgaged Property any trade mark, trade name, trade style, copyright, brand, patent right or technical process used or utilized by Mortgagor. In addition, upon ten (10) calendar days prior written notice to Mortgagor (which Mortgagor hereby acknowledges to be sufficient and commercially reasonable) Mortgagee shall have the right to sell, lease or otherwise dispose of all or any of such Mortgaged Property at any time and from time to time at public or private sale, with or without advertisement thereof, with the right of Mortgagee or its nominee to become purchaser at any sale (unless prohibited by statute) free from any equity of redemption and from all other claims, and after deducting all legal and other expenses for maintaining or selling such Mortgaged Property, and all attorneys fees, legal or other expenses for collection, sale and delivery, apply the remaining proceeds of any sale to pay (or hold as a reserve against) the Obligations and exercise all other rights and remedies of a secured party under the UCC or any other applicable law Remedies; Appointment of Receiver. Upon the occurrence and during the continuance of an Event of Default, Mortgagee may, without notice, obtain appointment of a receiver for the Mortgaged Property without regard to the adequacy of any security for the Obligations Remedies; Actions Prior to Acceleration. Mortgagee shall have the right, from time to time, to bring an appropriate action or actions to recover any sums required to be paid by Mortgagor under the terms of this Mortgage, as they become due, without regard to whether or not the Obligations shall be due and payable in full, and without prejudice to the right of Mortgagee thereafter to bring an action of mortgage foreclosure, or any other action, for any default by Mortgagor existing at the time the earlier action was commenced No Marshalling. Any of the Mortgaged Property sold pursuant to any writ of execution issued on a judgment obtained on the Obligations or pursuant to any other judicial proceedings relating to the Operative Documents or this Mortgage, may be sold in one parcel, as an entirety, or in such parcels, and in such manner or order as Mortgagee, in its sole discretion, may elect Rights and Remedies Cumulative. (a) All rights and remedies of Mortgagee as provided in this Mortgage and the other Operative Documents shall be cumulative and concurrent, may be pursued separately, successively or together against Mortgagor or the Mortgaged Property, or both, at the sole discretion of Mortgagee and may be exercised as often as occasion therefor shall arise. The failure to exercise any such right or remedy shall in no event be construed as a waiver or release thereof. (b) Any failure by Mortgagee to insist upon strict performance by Mortgagor of any of the terms and provisions of this Mortgage or the other Operative Documents shall not be deemed to be a waiver of any of the terms or provisions of this Mortgage or the other Operative 15 16

168 Documents and Mortgagee shall have the right thereafter to insist upon strict performance by Mortgagor of any and all of them. ARTICLE 7 MISCELLANEOUS 7.01 Costs and Expenses. If the Mortgagee becomes a party to any suit or proceeding affecting the Mortgaged Property, title thereto, the lien created by this Mortgage or Mortgagee s interest therein, or in the event of the commencement of any bankruptcy or insolvency proceedings involving Mortgagor, or if Mortgagee engages counsel to collect or to enforce performance of the Obligations, or if Mortgagee incurs any other costs and expenses in perfecting, protecting or enforcing its rights hereunder or in responding to any request of Mortgagor for any waiver, approval, modification or release in connection with this Mortgage or the Mortgaged Property, Mortgagee s reasonable counsel fees, and all other costs and expenses paid or incurred by Mortgagee, including reasonable fees of appraisers, accountants, consultants, and other professionals, title premiums, title report and work charges, filing fees, and mortgage, mortgage registration, transfer, stamp and other excise taxes, whether or not an Event of Default shall have occurred, shall be paid to Mortgagee, on demand, with interest at the Default Rate and until paid they shall be deemed to be part of the Obligations secured by this Mortgage Indemnity. Mortgagor shall indemnify, defend and hold Mortgagee harmless from and against any claims, expenses, demands, losses, costs, fines or liabilities of any kind (including those involving death, personal injury or property damage and including reasonable attorneys fees and costs) arising from or in any way related to the failure of Mortgagor to comply with, or the failure of the Mortgaged Property to be kept in compliance with, the Legal Requirements, Applicable Environmental Laws, the Leases and the Permitted Encumbrances except to the extent caused by the gross negligence or intentional misconduct of Mortgagee. The indemnification of Mortgagor under this section shall survive the release or termination of this Mortgage and shall remain effective notwithstanding any foreclosure of this Mortgage or other execution against the Mortgaged Property or acceptance of a deed in lieu of foreclosure Declaration of No Set-Off. Within ten (10) days after requested to do so by Mortgagee, Mortgagor shall certify to Mortgagee or to any proposed assignee of this Mortgage or participant in the Obligations in a writing duly acknowledged, the amount of principal, interest and other charges then owing on the Obligations secured by this Mortgage and whether there are set-offs or defenses against them Communications. All notices required under this Mortgage shall be in writing and shall be delivered in accordance with the applicable provisions contained in the Loan and Trust Agreement. A party may change its address by giving written notice to the other party as specified therein Covenant Running with the Land. Any act or agreement specified herein to be done or performed by Mortgagor shall be construed as a covenant running with the land and shall be binding upon Mortgagor and its successors and assigns as if each had personally made such agreement Amendment. Any amendment, modification, or waiver which may be hereafter requested by Mortgagor or otherwise required must be in writing and signed by both Mortgagor and Mortgagee, and shall be subject to the terms and conditions of the Loan and Trust Agreement with respect to amendments thereof Applicable Law. This Mortgage shall be governed by and construed in accordance with the laws of the Commonwealth of Pennsylvania. Nothing contained in this Mortgage or in any of the other Operative Documents shall require Mortgagor to pay, or Mortgagee to accept, interest in an amount which would subject Mortgagee to penalty under applicable law Construction. Whenever used in this Mortgage, unless the context clearly indicates a contrary intent: (a) The word Mortgagor shall mean the persons who execute this Mortgage and any subsequent fee owner of the Mortgaged Property and his respective heirs, executors, administrators, personal representatives, successors and assigns; (b) The word Mortgagee shall mean, the entity listed as Mortgagee hereinabove or any subsequent holder of this Mortgage or participant in the loan secured hereby; (c) The word person shall mean any individual, corporation, partnership, limited liability company or unincorporated association; (d) The use of any gender shall include all genders; (e) The singular number shall include the plural and the plural the singular as the context may require; (f) The word including shall mean including but not limited to or including without limitation as the context may require Headings. The headings of sections have been included in this Mortgage for convenience of reference only and shall not be considered in interpreting this Mortgage Severability. If any provision of this Mortgage shall be held for any reason to be invalid, illegal or unenforceable, such impairment shall not affect any other provision of this Mortgage Receipt of Copy. Mortgagor acknowledges receipt of conformed copy of this Mortgage Nonforeign Entity. (a) Mortgagor hereby certifies, under penalty of perjury, that: (i) Mortgagor is not a foreign person, foreign corporation, foreign partnership, foreign trust or foreign estate, as those terms are defined in the Internal Revenue Code of 1986, as amended and regulations 18 promulgated thereunder; (ii) Mortgagor s U.S. employer identification number is ; and (iii) Mortgagor s principal place of business is set forth in the introduction paragraph of this Mortgage. (b) Mortgagor warrants that withholding of tax will not be required in the event of any disposition of the Mortgaged Property, or any portion thereof, pursuant to the terms of this Mortgage. Mortgagor covenants and agrees to execute such further certificates, which shall be signed under penalty of perjury, as Mortgagee shall require. The provisions of this section shall survive the foreclosure or other execution upon the lien of this Mortgage or acceptance of a deed in lieu of foreclosure Acknowledgment. THIS MORTGAGE CONTAINS A POWER OF ATTORNEY COUPLED WITH AN INTEREST AND IS FOR THE MORTGAGEE. THIS MORTGAGE IS BEING EXECUTED IN CONNECTION WITH A LOAN OR OTHER FINANCIAL TRANSACTION FOR BUSINESS PURPOSES AND NOT PRIMARILY FOR PERSONAL, FAMILY OR HOUSEHOLD PURPOSES. MORTGAGEE, AS AGENT FOR MORTGAGOR UNDER THE POWER OF ATTORNEY, IS NOT A FIDUCIARY FOR THE MORTGAGOR. MORTGAGEE, IN EXERCISING ANY OF ITS RIGHTS OR POWERS PURSUANT TO THE POWER OF ATTORNEY, MAY DO SO FOR THE SOLE BENEFIT OF MORTGAGEE AND NOT FOR MORTGAGOR. THE PARTIES ACKNOWLEDGE AND AGREE THAT THE PROVISIONS OF TITLE 20, PENNSYLVANIA CONSOLIDATED STATUTES, SECTION 5601 ET SEQ. AS AMENDED SPECIFICALLY INCLUDING ACT 39 OF 1999) SHALL NOT BE APPLICABLE TO ANY POWER OF ATTORNEY CONTAINED IN THIS MORTGAGE. [REMAINDER OF PAGE LEFT INTENTIONALLY BLANK SIGNATURE PAGE FOLLOWS] IN WITNESS WHEREOF, Mortgagor, intending to be legally bound hereby, has duly executed this Mortgage, under seal, as of the day and year first above written. I hereby certify that the address of Mortgagee is: U.S. Bank National Association 50 S. 16th Street, Suite 2000 Philadelphia, Pennsylvania On behalf of Mortgagee DEMEDICI CORPORATION, a Pennsylvania nonprofit corporation By: Name: Javier Kuehnle Title: President 19 [Signature Page for Mortgage]

169 COMMONWEALTH OF PENNSYLVANIA : COUNTY OF : SS. EXHIBIT A On the day of June, 2013, before me, a Notary Public in and for the State and County aforesaid, personally appeared, who acknowledged himself to be the, of DEMEDICI CORPORATION, a Pennsylvania non-profit corporation, and that he as such officer, being authorized to do so, executed the foregoing instrument for the purposes therein contained by signing the name of the corporation by himself as such officer. IN WITNESS WHEREOF, I have hereunto set my hand and official seal. Notary Public My Commission expires: [Notary Page for Mortgage] Prepared by and return to: Michael E. Roynan, Esq. Stradley Ronon Stevens & Young, LLP 30 Valley Stream Parkway Malvern, PA BRT Nos.: ; ; ; and THIS IS AN OPEN-END MORTGAGE SECURING FUTURE ADVANCES UP TO A MAXIMUM PRINCIPAL AMOUNT OF FIFTY-FIVE MILLION FIVE HUNDRED THOUSAND DOLLARS PLUS ACCRUED INTEREST AND OTHER INDEBTEDNESS AS DESCRIBED IN 42 PA.C.S.A OPEN-END MORTGAGE, ASSIGNMENT OF LEASES, SECURITY AGREEMENT AND FIXTURE FILING THIS OPEN-END MORTGAGE, ASSIGNMENT OF LEASES, SECURITY AGREEMENT AND FIXTURE FILING (this Mortgage ) dated as of June 1, 2013, is made by DEMEDICI CORPORATION II, a Pennsylvania non-profit corporation, with an address of c/o Philadelphia Performing Arts Charter School, 2600 South Broad Street, Philadelphia, PA ( Mortgagor ), in favor of U.S. BANK NATIONAL ASSOCIATION, as trustee under the Loan and Trust Agreement (as hereinafter defined), with an address of 50 S. 16th Street, Suite 2000, Philadelphia, Pennsylvania ( Mortgagee ). ARTICLE 1 OBLIGATIONS; SECURITY 1.01 Obligations; Operative Documents. This Mortgage is executed, acknowledged and delivered by Mortgagor to secure and enforce the following obligations and liabilities (collectively, the Obligations ): (a) All amounts (including principal, interest, as the same may vary, fees and other charges) now or hereafter owing by Mortgagor under that certain Loan and Trust Agreement dated as of June 1, 2013 among Mortgagor, the Philadelphia Authority for Industrial Development (the Authority ), DeMedici Corporation ( DeMedici ) and Mortgagee (the Loan and Trust Agreement ) with respect to the obligations of Mortgagor and/or the Authority under the following: (i) the Loan and Trust Agreement, together with all Obligations now or hereafter issued thereunder; (ii) those certain Revenue Bonds (Philadelphia Performing Arts Charter School Project) Series of 2013 in the principal amount of $55,500,000 (the 2013 Bonds ) issued by the Authority pursuant to the Loan and Trust Agreement; (iii) this Mortgage and any other agreement, document or instrument now or hereafter executed or delivered in connection with the transactions described in the Loan and Trust Agreement or entered into hereafter pursuant to, and in accordance with, a Supplemental Agreement issued thereunder; and (iv) all modifications, amendments, supplements, renewals, replacements or extensions of any of the foregoing; (b) Any and all advances made by Mortgagee to protect or preserve the Mortgaged Property (as hereinafter defined) or the lien of this Mortgage, including advances for Impositions (as hereinafter defined) and insurance premiums or costs incurred for the protection of the Mortgaged Property or the lien of this Mortgage, expenses incurred by Mortgagee by reason of default by the Mortgagor under this Mortgage or advances made under a construction loan to enable completion of the improvements for which the construction loan was originally made; and (c) The performance of all of the terms, covenants, conditions, agreements, obligations and liabilities of Mortgagor or any other obligor or guarantor under (i) the Loan and Trust Agreement, this Mortgage, and any other document now or hereafter given to evidence, secure or facilitate the payment and performance of any of the Obligations; and (ii) all extensions, renewals, replacements or modifications of, or amendments or additions to any of the foregoing (all of the foregoing being collectively referred to in this Mortgage as the Operative Documents ). Mortgagor shall pay and perform the Obligations required of Mortgagor in accordance with the provisions of the Operative Documents Grant of Mortgage; Mortgaged Property. For the purpose of securing payment and performance of all Obligations, Mortgagor has granted, conveyed, bargained, sold, aliened, enfeoffed, released, confirmed, assigned to, granted a security interest in and mortgaged, and by these presents does hereby grant, convey, bargain, sell, alien, enfeoff, release, confirm, assign to, grant a security interest in and mortgage unto Mortgagee all of the following whether presently in existence or to come into existence at some future time (collectively, the Mortgaged Property ): (a) All of Mortgagor s right, title and interest in and to certain parcels of land situated in City of Philadelphia, Pennsylvania as described in Exhibit A attached hereto and hereby made a part hereof (collectively referred to as the Real Estate ); and (b) All of Mortgagor s right, title and interest in and to all buildings and improvements now or hereafter erected on the Real Estate (the Improvements ) (which Improvements together with the Real Estate are herein separately and collectively referred to as the Premises ). (c) TOGETHER WITH all of Mortgagor s right, title and interest now owned or hereafter acquired in: (i) all present and future leases, and other occupancy agreements covering all or any portion of the Premises and/or the Improvements (which together with Mortgagor s interest as landlord thereunder are herein collectively referred to herein as the Leases ), including, without limitation, the Lease Agreement dated as of June 1, 2

170 2013 between Mortgagor and Philadelphia Performing Arts Charter School, as hereafter amended and supplemented (the School Lease ); (ii) all rents, issues and profits payable under the Leases and under any future renewals, extensions, amendments or modifications thereof (collectively, the Income ); (iii) any and all tenements, hereditaments and appurtenances belonging to the Real Estate or any part thereof, or in any way appertaining thereto, and all streets, alleys, passages, ways, water courses, and all estates, easements and covenants now existing or hereafter created for the benefit of Mortgagor or any subsequent owner of the Real Estate over ground adjoining the Real Estate and all rights to enforce the maintenance thereof, and all other rights, liberties and privileges of whatsoever kind or character, and all the estate, right, title, interest, property, possession, claim and demand whatsoever, at law or in equity, of Mortgagor in and to the Real Estate or any part thereof; (iv) All management agreements, service contracts, license agreements, concession agreements, written or oral, relating to the use and occupancy of the Real Estate and Improvements now or hereafter existing and the reversions and remainders, income, rents, issues and profits arising therefrom and all deposits (including tenant security deposits) thereunder, and all rights and benefits now or hereafter accruing to Mortgagor under any and all guarantees of the obligations of any tenant, licensee, concessionaire or other occupant thereunder, as any of the foregoing may be amended, extended, renewed or modified from time to time; (v) All reciprocal easement agreements, operating agreements, and similar agreements however labeled or denominated affecting the Real Estate and Improvements; (vi) All other documentation now or hereafter existing in connection with the use or operation of the Real Estate and the Improvements including any plans and specifications pertaining to the Improvements, all construction contracts pertaining to the Improvements, all appraisals, engineering, environmental, soils, marketing and other reports and studies relating to the Real Estate and the Improvements, all permits, licenses, and contract rights, warranties, guarantees, tenant lists, correspondence with present or prospective tenants or suppliers, advertising materials, and telephone exchange numbers as identified in such advertising materials; and (d) All Goods, including without limitation, Fixtures, Equipment and Accessions, delivered on site to the Real Estate during the course of, or in connection with, the construction of, or reconstruction of, or remodeling of, any of the Real Estate from time to time during the term hereof; (e) All Accounts and General Intangibles relating to the use, construction upon, occupancy, leasing, sale or operation of the Real Estate; (f) All As-Extracted Collateral arising from the Real Estate; 3 (g) All books and records evidencing or relating to the foregoing, including, without limitation, billing records of every kind and description, tenant lists, data storage and processing media, Software and related material, including computer programs, computer tapes, cards, disks and printouts, and including any of the foregoing which are in the possession of any affiliate or property manager; and (h) All Proceeds of any of the above-described property. Capitalized terms contained in this Section without definition shall have the meanings ascribed to them in revised Article 9 of the Uniform Commercial Code as enacted by the Commonwealth of Pennsylvania and as amended from time to time (the UCC ). TO HAVE AND TO HOLD the Mortgaged Property unto the Mortgagee to and for the use of the Mortgagee forever. PROVIDED ALWAYS THAT, if Mortgagor fully pays, performs and discharges all Obligations now or hereafter secured or to be secured by this Mortgage at the times and in the manner specified without deduction, fraud or delay, and Mortgagor delivers written notice to Mortgagee requesting termination of this Mortgage of record, then Mortgagee shall release this Mortgage of record and the estate hereby granted shall cease and become void Security Agreement and Fixture Filing. This Mortgage is also a security agreement under the UCC. Mortgagor grants and Mortgagee shall have and may enforce a security interest in all those property interests included in the Mortgaged Property which may be personal property to secure payment and performance of all Obligations. The recordation of this Mortgage shall also constitute a fixture filing in accordance with the provisions of the UCC. Mortgagor agrees to cooperate and join, at its expense, with Mortgagee in taking such steps as are necessary, in Mortgagee s judgment, to perfect or continue the perfected status of the security interest granted hereunder, including, without limitation, the execution and delivery of financing statements, amendments thereto, and continuation statements. Mortgagee may, at any time and from time to time, file financing statements, continuation statements and amendments thereto that describe the Mortgaged Property and which contain any other information required by the UCC for the sufficiency or filing office acceptance of any financing statement, continuation statement or amendment, including whether Mortgagor is an organization, the type of organization and any organization identification number issued to Mortgagor. Any such financing statements, continuation statements or amendments may be signed by Mortgagee on behalf of Mortgagor. Mortgagor irrevocably appoints Mortgagee attorney-in-fact for Mortgagor to execute, deliver and file such financing statements, continuation statements and amendments. Inasmuch as the parties intend that this Mortgage shall, among other things, constitute a fixture filing, Mortgagor sets forth the following: (a) The Debtor is DeMedici Corporation II, with an address c/o Philadelphia Performing Arts Charter School, 2600 South Broad Street, Philadelphia, PA 19145; (b) The Secured Party is U.S. Bank National Association, with an address of 50 S. 16th Street, Suite 2000, Philadelphia, Pennsylvania 19102; and 4 (c) The collateral includes Fixtures which are or shall be affixed to the Real Estate Assignment of Leases and Income. (a) This Mortgage is also an absolute and unconditional assignment to Mortgagee of all Leases and Income, whether now in existence or hereafter arising, for the purpose of vesting in Mortgagee a first priority, perfected security interest in the Leases and the Income. Mortgagor hereby assigns, transfers and sets over to Mortgagee all Leases, all Income and all rights of Mortgagor to enforce the Leases and collect the Income. This assignment includes any award received or receivable by Mortgagor in any legal proceeding involving any tenant under a Lease whether under the Bankruptcy Code or otherwise. (b) Mortgagor irrevocably appoints Mortgagee the attorney-in-fact of Mortgagor to enforce the Leases and demand, receive and collect the Income and the sole and exclusive agent of Mortgagor to agree to any modifications of the Leases. This power is coupled with an interest and is therefore irrevocable. Mortgagor shall notify any person which Mortgagee may from time to time specify that the Income should be paid directly to Mortgagee and that any modification of the Leases must be approved by Mortgagee. (c) So long as no Event of Default (as hereinafter defined) is then existing, Mortgagor shall have a license to enforce the Leases and collect the Income, which license Mortgagee may revoke upon the occurrence of an Event of Default. Upon request of Mortgagee, Mortgagor shall execute and deliver to Mortgagee (i) a specific assignment, in recordable form, of any Lease now or hereafter affecting the Mortgaged Property or any portion thereof to further evidence the assignment hereby made; and (ii) such other instruments as Mortgagee may reasonably deem necessary, convenient or appropriate in connection with the payment and delivery directly to Mortgagee of all of the Income. (d) Mortgagor shall not accept or permit the payment of rent in any medium other than lawful money of the United States of America, or anticipate, discount, compromise, forgive, encumber or further assign the Leases or the Income or any part thereof or any interest therein except as permitted by the Loan and Trust Agreement. (e) Mortgagor hereby authorizes and directs that all other parties now or hereafter owing or paying Income under any Lease or now or hereafter having in their possession or control any Income from or allocated to the Mortgaged Property, or any part thereof, or the Proceeds therefrom, shall, upon the request of Mortgagee following the occurrence of an Event of Default and until Mortgagee directs otherwise, pay and deliver such Income directly to Mortgagee at Mortgagee s address set forth in the introduction to this Mortgage, or in such other manner as Mortgagee may direct such parties in writing and this authorization shall continue until this Mortgage is released of record. No payor making payments to Mortgagee at its request under the assignment contained in this Mortgage shall have any responsibility to see to the application of any of such funds, and any party paying or delivering Income to Mortgagee under such assignment shall be released thereby from any and all liability to Mortgagor to the full extent and amount of all such Income so delivered. Mortgagor agrees to indemnify and hold harmless any and all parties making payments to Mortgagee, at Mortgagee s request under the 5 assignment contained in this Mortgage, against any and all liabilities, actions, claims, judgments, costs, charges and attorneys fees resulting from the delivery of such payments to Mortgagee. (f) Notwithstanding any legal presumption to the contrary, Mortgagee shall not be obligated by reason of its acceptance of this assignment to perform any obligation of Mortgagor as lessor under any Lease. Neither the acceptance of this assignment nor the collection of Income under the Leases shall constitute a waiver of any rights of Mortgagee under this Mortgage or constitute a cure of any default by Mortgagor thereunder Open-End Mortgage. This is an Open-End Mortgage and shall be entitled to all benefits as such under 42 Pa.C.S.A (the Open-End Mortgage Statute ). (a) If Mortgagee receives written notice pursuant to Section 8143(b) of the Open-End Mortgage Statute from a holder of a mechanic s lien for labor performed or to be performed or materials furnished or to be furnished for the erection, construction, alteration or repair of any part of the Mortgaged Property, then and notwithstanding any provision to the contrary contained in the Loan and Trust Agreement, Mortgagor agrees that Mortgagee shall have the right to suspend (until such time as the lien is fully released) any further advances to Mortgagor (and Mortgagee is released from all liability for failure to make such advances) except advances which Mortgagee determines in its sole discretion are for the purpose of paying toward all or part of the cost of completing any erection, construction, alteration or repair of any part of the Mortgaged Property the financing of which, in whole or in part, this Mortgage was given to secure. (b) If Mortgagor should at any time elect to limit the Obligations secured by this Mortgage pursuant to Section 8143(c) of the Open-End Mortgage Statute, Mortgagor agrees that notice of such election shall: (i) not be effective unless and until it is served upon Mortgagee in accordance with the requirements of Section 8143(d) of the Open-End Mortgage Statute and fully complies with the requirements for the giving of notices under any of the Loan and Trust Agreement; (ii) release Mortgagee from all obligation to make any further advances under the Loan and Trust Agreement notwithstanding anything to the contrary contained in such notice or the Loan and Trust Agreement; (iii) constitute, at the election of Mortgagee, an Event of Default; and (iv) not be effective to limit Mortgagor s liability for payment and performance of all Obligations for which Mortgagor is responsible under this Mortgage or the other Operative Documents (including all reimbursement and indemnification agreements) whether such Obligations arise prior or subsequent to the date of such notice. (c) By delivery of this Mortgage, Mortgagee and Mortgagor agree that the provisions of 42 Pa. C.S.A are not waived but rather all benefits of such statute shall be applicable hereto. (d) All notices required by Section 8143(d) of the Open End Mortgage Statute must be addressed as described in Section 7.04 hereof Purchase Money Mortgage. If all or any part of the Obligations secured by this Mortgage were used in whole or in part to fund the acquisition of all or any part of the 6

171 Mortgaged Property, this Mortgage shall constitute a purchase money mortgage and shall be entitled to all benefits as such under applicable laws of the state in which the Real Estate is located. ARTICLE 2 TITLE MATTERS 2.01 Warranty of Title. Until the Obligations are fully satisfied, Mortgagor represents, warrants and covenants that: (a) Mortgagor has good and marketable simple absolute title to the Mortgaged Property subject only to those exceptions to title more particularly described in the marked up File Nos. PAFA TK and PAFA AC issued by First American Title Insurance Company and accepted by Mortgagee in connection with this transaction (the Permitted Encumbrances ) and Mortgagor shall defend the validity, priority and enforceability of the lien of this Mortgage against the claims of all persons excepting only those claiming under Permitted Encumbrances; (b) Mortgagor has full power and lawful authority to subject the Mortgaged Property to the lien of this Mortgage; (c) The execution, delivery and performance of this Mortgage will not contravene any Legal Requirements (hereinafter defined) or any agreement, document or instrument to which Mortgagor is a party or by which Mortgagor or the Mortgaged Property is bound; (d) Mortgagor shall make, execute, acknowledge and deliver all such further or other deeds, documents, instruments or assurances and cause to be done all such further acts and things as may at any time be required by Mortgagee to confirm and fully protect the lien and priority of this Mortgage; and (e) Mortgagor shall make such payments, all before the same shall become delinquent, and perform all obligations as are required under any Permitted Encumbrances affecting the Mortgaged Property No Transfer. Mortgagor shall not transfer any of the Mortgaged Property except in accordance with the terms of the Loan and Trust Agreement. (a) A transfer of the Mortgaged Property includes (i) the direct or indirect sale, agreement to sell, transfer or conveyance of the Mortgaged Property or any portion thereof or interest therein; and (ii) the execution of any installment land sale contract or similar instrument affecting all or a portion of the Mortgaged Property. (b) Consent to any such transfer shall not be deemed to be a waiver of the right to require consent to future or successive transfers. If consent should be given to a transfer and if this Mortgage is not released to the extent of the transferred portion of the Mortgaged Property by a writing signed by Mortgagee and recorded in the appropriate office of public record, then 7 any such transfer shall be subject to this Mortgage and any such transferee shall be deemed, by acceptance of the deed or other instrument of transfer, to have assumed all Obligations under this Mortgage and to have agreed to be bound by all provisions contained herein. Any such assumption shall not, however, release Mortgagor or any other obligor or guarantor of the Obligations from any liability under the Operative Documents No Other Financing or Liens. Except for the Permitted Encumbrances (as defined in the Loan and Trust Agreement), Mortgagor shall not create or cause or permit to exist any lien on the Mortgaged Property whether superior to or subject to the lien of this Mortgage Leases. Mortgagor represents and warrants that there are no leases affecting the Mortgaged Property other than the School Lease. Mortgagor shall not enter into any further Leases except as permitted by the Loan and Trust Agreement. ARTICLE 3 OBLIGATIONS REGARDING MORTGAGED PROPERTY 3.01 Legal Requirements Generally. Mortgagor represents and warrants to Mortgagee that the Mortgaged Property is in compliance with Legal Requirements (defined below). Mortgagor shall promptly comply with, and cause the Mortgaged Property to be kept in compliance with, all present and future laws, statutes, codes, ordinances, orders, judgments, decrees, injunctions, rules, regulations, restrictions and requirements (collectively Legal Requirements ) of the United States of America, the state in which the Real Estate is located and any political subdivision thereof or any town, city, county or municipality in which the Real Estate is located or any agency, department, bureau, board, commission or instrumentality of any of the foregoing now existing or hereafter created (individually, a Governmental Authority and, collectively, Governmental Authorities ) having jurisdiction over Mortgagor or the Mortgaged Property or the construction, use, occupancy, operation, maintenance, or improvement of the Mortgaged Property, whether foreseen or unforeseen, ordinary or extraordinary Land Use Approvals. Mortgagor represents and warrants to Mortgagee that the Real Estate is and shall remain one or more zoning lots separate and apart from all other premises. Mortgagor shall not, by any act or omission, impair the integrity of the Real Estate as such separate zoning lot or lots. Mortgagor shall not submit or cause to be submitted to any Governmental Authority an application for zoning, subdivision or development approval affecting the Real Estate if any of the following would result from such proposed zoning change, subdivision or development: (a) the separate transfer, use and ownership of the Real Estate is not permitted as a matter of right under applicable Legal Requirements; (b) the use of the Real Estate as of the date of this Mortgage is no longer permitted as a matter of right under applicable Legal Requirements; or (c) any portion of the Real Estate is used to fulfill a Legal Requirement of other property not subject to the lien of this Mortgage Environmental Matters. (a) Except as disclosed in the Environmental Reports, as defined below, Mortgagor represents and warrants that, to Mortgagor s knowledge, neither Mortgagor nor any other person has (A) used, installed or disposed of any Hazardous Materials 8 (hereinafter defined) on, from, or affecting the Mortgaged Property except in full compliance with Applicable Environmental Laws (hereinafter defined); or (B) received any notice from any Governmental Authority with regard to Hazardous Materials on, from or affecting the Mortgaged Property. (b) Except for those conditions disclosed, and, as applicable, remediated as described, in the Environmental Reports, Mortgagor shall not use the Mortgaged Property, nor allow it to be used, to generate, manufacture, refine, transport, treat, store, handle, dispose, transfer, produce or process Hazardous Materials except in full compliance with Applicable Environmental Laws. Mortgagor shall not cause or permit, as a result of any intentional or unintentional act or omission on the part of Mortgagor or any other person, a release of Hazardous Materials onto, from or affecting the Mortgaged Property or any other use, installation, or disposition of Hazardous Materials in violation of Applicable Environmental Laws. Mortgagor shall comply, and enforce compliance by all tenants and subtenants, with all Applicable Environmental Laws and shall keep the Mortgaged Property free and clear of any liens imposed pursuant to any Applicable Environmental Laws. (c) If Mortgagor receives any notice from any Governmental Authority with regard to Hazardous Materials on, from or affecting the Mortgaged Property, or any notice of violation of Applicable Environmental Laws, Mortgagor shall promptly notify Mortgagee. Mortgagor shall conduct and complete all investigations, studies, sampling, and testing, and all remedial, removal, and other actions necessary to clean up and remove all Hazardous Materials on, from or affecting the Mortgaged Property in accordance with all Applicable Environmental Laws and to the satisfaction of Mortgagee. (d) The term Environmental Reports shall mean, collectively, that certain Phase I Environmental Site Assessment prepared by LCS Inc., dated November 1, 2012 and that certain Soil Boring Investigation Report prepared by PT Consultants, Inc. dated December 13, The term Applicable Environmental Laws shall mean, without limitation, all Legal Requirements of any Governmental Authority pertaining to the preservation or enhancement of the quality of the environment or regulating or restricting the use, transfer, storage or remediation of Hazardous Materials including the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended (42 U.S.C. Sections 9601, et seq.), the Hazardous Materials Transportation Act, as amended (49 U.S.C. Sections 1801, et seq.), the Resource Conservation and Recovery Act, as amended (42 U.S.C. Sections 6901, et seq.), the Pennsylvania Hazardous Sites Cleanup Act (35 Pa.C.S.A. Sections , et seq.), and the rules, regulations adopted and publications promulgated pursuant thereto at any time. The term Hazardous Materials shall mean, without limitation, any flammable explosives, radioactive materials, hazardous materials, hazardous wastes, hazardous or toxic substances, or related materials, asbestos or any material containing asbestos, or any other substance or material regulated under any Applicable Environmental Laws General Obligations. Until the Obligations are fully satisfied, Mortgagor shall: (a) Perform all maintenance, repair, restoration and rebuilding required to keep the Mortgaged Property in good repair, order and condition in full compliance with the requirements 9 of the Loan and Trust Agreement, any Leases affecting the Mortgaged Property and all Legal Requirements; (b) Pay all charges for water, sewer, gas, electric and other utility services provided to the Mortgaged Property promptly as and when due; (c) Complete any improvements to the Mortgaged Property required under the Loan and Trust Agreement, any Leases affecting the Mortgaged Property, or required by any Governmental Authority or insurer insuring the Mortgaged Property, in a good and workmanlike manner and free of mechanics liens; (d) Permit, and cause any lessee or occupant of the Mortgaged Property to permit, Mortgagee and its agents and representatives, to enter upon the Mortgaged Property at any reasonable time to appraise and photograph the Mortgaged Property and to inspect for compliance with Legal Requirements (including subsurface investigations to determine compliance with Applicable Environmental Laws), insurance requirements, and the Obligations of Mortgagor under this Mortgage; and (e) Make the books and accounts relating to the Mortgaged Property available for inspection by Mortgagee, or its representatives, upon request at any reasonable time General Restrictions. Until the Obligations are fully satisfied, Mortgagor shall not: (a) Abandon the Mortgaged Property or any portion thereof or allow the same to become vacant; (b) Commit or suffer waste with respect to the Mortgaged Property; (c) Impair or diminish the value or integrity of the Mortgaged Property or the priority or security of the lien of this Mortgage; (d) Except as permitted in the Loan and Trust Agreement, remove, demolish or materially alter any of the Mortgaged Property; (e) Make, install or permit to be made or installed, any additions or improvements to the Mortgaged Property except in a good and workmanlike manner, free of mechanic s or materialmen s liens, in compliance with Legal Requirements, and in accordance with plans and specifications approved by Mortgagee; or (f) Make, suffer or permit any nuisance to exist on the Mortgaged Property or any portion thereof Required Notices. Mortgagor shall notify Mortgagee promptly of the occurrence of any of the following: (a) A fire or other casualty causing damage to the Mortgaged Property; 10

172 (b) A pending or threatened condemnation of the Mortgaged Property; (c) A violation of a Legal Requirement or other notice from or to a Governmental Authority relating to the Mortgaged Property; (d) Receipt or giving of any notice of default or cancellation under any Lease of all or a material portion of the Mortgaged Property; (e) Commencement of any litigation affecting the Mortgaged Property; (f) Discovery, discharge or release of any Hazardous Material for which Mortgagor is or may be responsible under any Applicable Environmental Laws; (g) The existence of any event or condition which presents a risk of creating material liability of Mortgagor under ERISA (Public Law , as amended); or (h) The occurrence of a default under, or the receipt or giving of any notice under, any Permitted Encumbrance. ARTICLE 4 TAXES AND INSURANCE 4.01 Real Estate Taxes and Assessments. (a) Mortgagor shall pay when due and before interest or penalties commence to accrue thereon, all taxes, assessments, water and sewer rents, levies, encumbrances and all other charges or claims of any nature and kind, whether public or private, which may be assessed, levied, imposed, suffered, placed or filed at any time against the Mortgaged Property or any part thereof or which by any present or future law may have priority (either in lien or in distribution out of the proceeds of any sale) over the lien of this Mortgage (individually, an Imposition and, collectively, Impositions ). (b) Mortgagor shall produce to Mortgagee, at the request of the Mortgagee, official receipts evidencing payment of any Imposition. Mortgagor may contest the validity or amount of any Imposition as permitted by Section 7.12 of the Loan and Trust Agreement Taxes on Mortgagee. If any Governmental Authority shall levy, assess or charge any tax, assessment or imposition upon this Mortgage (including any requirement to have affixed to this Mortgage any revenue, documentary or similar stamps) or upon the interest of Mortgagee in the Mortgaged Property by reason of this Mortgage, Mortgagor shall pay the same directly to such Governmental Authority as an Imposition. If Mortgagor is not legally permitted to pay such Imposition or to reimburse Mortgagee for amounts advanced on account of such payment, then Mortgagee may take such actions as prescribed by the Loan and Trust Agreement Corporate Mortgagor. Mortgagor shall at all times until the Obligations are satisfied in full: 11 (a) Keep in effect and in good standing its existence and rights as a corporation under the laws of the state of its incorporation or constitution and its right to own property and transact business in the state in which the Real Estate is situated; and (b) File returns for all federal, state and local taxes with the proper Governmental Authorities, and pay, when due and payable and before interest or penalties are due thereon, all taxes owing by Mortgagor to any Governmental Authorities Insurance Coverages. Until the Obligations are fully satisfied, Mortgagor shall maintain and keep in force, or shall cause to be maintained and kept in force, the insurance required under the Loan and Trust Agreement Installments for Insurance, Taxes and Other Charges. Without limiting the effect of the other provisions of this Article, Mortgagor, if required pursuant to the terms of the Loan and Trust Agreement following the occurrence of an Event of Default, shall pay to Mortgagee monthly an amount equal to one-twelfth (1/12) of the annual amount of all Impositions and premiums for insurance policies required under this Article plus any additional sums necessary to pay, or establish adequate reserves for the payment of, such premiums and Impositions as and when due. The amounts so paid shall be security for the premiums and Impositions and shall be used in payment thereof if Mortgagor is not otherwise in default under this or any of the other Operative Documents. Upon the occurrence of an Event of Default, Mortgagee shall have the right, at its election, to apply any amount so held against the Obligations. At Mortgagee s option, Mortgagee from time to time may waive, and after any such waiver may reinstate, the provisions of this section requiring installment payments. ARTICLE 5 CASUALTY; CONDEMNATION 5.01 Casualty. If the Mortgaged Property is damaged by fire or other casualty, the net proceeds of insurance, shall be applied in accordance with the terms of the Loan and Trust Agreement. In the event that such proceeds are applied to repair and restore the Mortgage Property, Mortgagor shall cause the work to be performed by a reputable general contractor satisfactory to Mortgagee under a fixed price or guaranteed maximum price contract satisfactory to Mortgagee, in accordance with plans and specifications satisfactory to Mortgagee and in compliance with all Legal Requirements, and shall not permit any work to be commenced until waivers of mechanics liens have been filed by the general contractor and all those claiming by, through, or under the general contractor Condemnation. In the event of any condemnation or taking of any part of the Mortgaged Property by eminent domain, alteration of the grade of any street, or other injury to or decrease in the value of the Mortgaged Property by any public or quasi-public authority or corporation, the net proceeds of any condemnation awards, shall be applied in accordance with the terms of the Loan and Trust Agreement. In the event that such proceeds are applied to repair and restore the Mortgaged Property, Mortgagor shall cause the work to be performed by a reputable general contractor satisfactory to Mortgagee under a fixed price or guaranteed maximum price contract satisfactory to Mortgagee, in accordance with plans and specifications 12 satisfactory to Mortgagee and in compliance with all Legal Requirements, and shall not permit any work to be commenced until waivers of mechanics liens have been filed by the general contractor and all those claiming by, through, or under the general contractor. ARTICLE 6 DEFAULTS; REMEDIES 6.01 Right to Make Advances. If Mortgagor should fail to pay or perform any of its Obligations with respect to the Mortgaged Property as required under Article 3 and Article 4 of this Mortgage, or otherwise fails to pay or perform any of its other Obligations under this or any of the other Operative Documents, then Mortgagee, at its election, shall have the right, but not the obligation, to make any payment or expenditure and to take any action which Mortgagor should have made or taken or which Mortgagee deems advisable to protect the security of this Mortgage or the Mortgaged Property. Such action shall be without prejudice to any of Mortgagee s rights or remedies available under this Mortgage or any of the other Operative Documents or otherwise at law or in equity. All such sums, as well as costs and expenses, advanced by Mortgagee shall be due immediately from Mortgagor to Mortgagee, shall become part of the Obligations secured by this Mortgage and the other Operative Documents, and shall bear interest (including any judgment obtained on account of any of the Obligations) at a rate equal to the highest interest rate borne by any of the 2013 Bonds, plus two percent (2%) (the Default Rate ), until repayment in full to Mortgagee Events of Default. The occurrence of any one or more of the following events shall constitute an Event of Default under this Mortgage: (a) Any Event of Default under the Loan and Trust Agreement; (b) Any breach of warranty or other violation of any provision contained in Article 2 of this Mortgage; or (c) Nonperformance of, or noncompliance with, any of the agreements, covenants, conditions, warranties, representations or other provisions contained in this Mortgage (if and only to the extent not included in any of the occurrences listed above), which nonperformance or noncompliance is not cured and remedied within thirty (30) days after notice thereof is given to Mortgagor; provided if such nonperformance or noncompliance requires work to be done, actions to be taken or conditions to be remedied, which by their nature cannot be reasonably done, taken or remedied, as the case may be, within such thirty (30)-day period, no Event of Default shall be deemed to have occurred or to exist if and so long as Mortgagor shall commence such performance or compliance within such thirty (30)-day period and shall diligently and continuously prosecute the same to completion Remedies; Execution. Upon the occurrence and during the continuance of an Event of Default, Mortgagee shall have the right to enforce its rights under this Mortgage and the other Operative Documents by exercising such remedies as are available to Mortgagee under applicable law, either by suit in equity or action at law, or both, whether for specific performance 13 of any provision contained in this Mortgage or any of the other Operative Documents or in aid of the exercise of any power granted in this Mortgage or the other Operative Documents. (a) Mortgagee shall have the right to obtain judgment for the Obligations (including all amounts advanced or to be advanced by Mortgagee under Section 6.01 above, all costs and expenses of collection and suit, including any bankruptcy or insolvency proceeding affecting Mortgagor, and reasonable attorneys fees incurred in connection with any of the foregoing) together with interest on such judgment at the Default Rate until payment in full is received by Mortgagee and Mortgagee shall have the right to obtain execution upon the Mortgaged Property on account of such judgment. (b) Mortgagee shall have the right to institute an action of mortgage foreclosure against the Mortgaged Property or take such other action for realization on the security intended to be provided under Article 1 of this Mortgage as applicable law or the provisions of the Operative Documents may allow Remedies; Collection of Income. Upon the occurrence and during the continuance of an Event of Default, Mortgagee may, at any time without notice, either in person, by agent or by a receiver appointed by a court, and without regard to the adequacy of any security for the Obligations, enter upon the Mortgaged Property and, with or without taking possession of the Mortgaged Property, and with or without legal action, collect all Income (which term shall also include amounts determined by Mortgagee as fair rental value for use and occupation of the Mortgaged Property by any person, including Mortgagor) and, after deducting all costs of collection and administration expense including reasonable attorneys fees and reasonable reserves, apply the net Income to any of the Obligations in such order and amounts as provided in the Loan and Trust Agreement, or any of the following in such order and amounts as Mortgagee in its sole discretion may elect: the payment of any sums due, or accumulation of necessary reserves for, payment of all costs and expenses arising from or incurred in connection with (a) the preservation and protection of the validity and priority of the lien of this Mortgage; (b) the preservation and protection of the Mortgaged Property; (c) compliance with Legal Requirements; and (d) fulfilling any obligations of Mortgagor or any other obligor or guarantor under the Permitted Encumbrances, the Leases, this Mortgage or the Loan and Trust Agreement. Mortgagee shall not be accountable for more monies than it actually receives from the Mortgaged Property nor shall it be liable for failure to collect the Income. Mortgagee shall have the right to determine the method of collection and the extent to which enforcement of collection of Income shall be prosecuted and Mortgagee s judgment shall be deemed conclusive and reasonable Remedies; Possession. Upon the occurrence and during the continuance of an Event of Default, Mortgagee may, with or without legal action, take possession and control of the Mortgaged Property to the exclusion of Mortgagor and all others excepting only those claiming under Permitted Encumbrances. Mortgagee shall have the authority while so in possession to insure (at Mortgagor s expense) against all risks by reason of having taken such possession and Mortgagor will transfer and deliver to the Mortgagee all policies of insurance upon the Mortgaged Property not theretofore transferred and delivered to Mortgagee. FOR THE PURPOSE OF OBTAINING POSSESSION OF THE MORTGAGED PROPERTY 14

173 UPON THE OCCURRENCE AND DURING THE CONTINUANCE OF ANY EVENT OF DEFAULT, MORTGAGOR HEREBY AUTHORIZES AND EMPOWERS ANY ATTORNEY OF ANY COURT OF RECORD IN THE STATE IN WHICH THE REAL ESTATE IS LOCATED OR ELSEWHERE AS ATTORNEY FOR MORTGAGOR AND ALL PERSONS CLAIMING UNDER OR THROUGH MORTGAGOR, TO CONFESS JUDGMENT IN EJECTMENT AND CONFESS JUDGMENT FOR RECOVERY OF POSSESSION OF THE MORTGAGED PROPERTY AND TO APPEAR FOR AND CONFESS JUDGMENT AGAINST MORTGAGOR, AND ALL PERSONS CLAIMING UNDER OR THROUGH MORTGAGOR IN FAVOR OF MORTGAGEE FOR RECOVERY BY MORTGAGEE OF POSSESSION THEREOF, FOR WHICH THIS MORTGAGE, OR A COPY THEREOF VERIFIED BY AFFIDAVIT, SHALL BE SUFFICIENT WARRANT; AND THEREUPON A WRIT OF POSSESSION MAY IMMEDIATELY ISSUE FOR POSSESSION OF THE MORTGAGED PROPERTY, WITHOUT ANY PRIOR WRIT OR PROCEEDING WHATSOEVER AND WITHOUT ANY STAY OF EXECUTION. IF FOR ANY REASON AFTER SUCH ACTION HAS BEEN COMMENCED IT SHALL BE DISCONTINUED, OR POSSESSION OF THE MORTGAGED PROPERTY SHALL REMAIN IN OR BE RESTORED TO MORTGAGOR, MORTGAGEE SHALL HAVE THE RIGHT FOR THE SAME EVENT OF DEFAULT OR ANY SUBSEQUENT EVENT OF DEFAULT TO BRING ONE OR MORE FURTHER ACTIONS TO CONFESS JUDGMENT IN EJECTMENT AND CONFESS JUDGMENT FOR RECOVERY OF POSSESSION OF THE MORTGAGED PROPERTY. MORTGAGEE MAY BRING AN ACTION TO CONFESS JUDGMENT IN EJECTMENT AND TO CONFESS JUDGMENT FOR RECOVERY OF POSSESSION OF THE MORTGAGED PROPERTY BEFORE OR AFTER THE INSTITUTION OF PROCEEDINGS TO FORECLOSE THIS MORTGAGE OR TO ENFORCE ANY OF THE OTHER OPERATIVE DOCUMENTS, OR AFTER ENTRY OF JUDGMENT THEREON OR ON ANY OF THE OTHER OPERATIVE DOCUMENTS, OR AFTER A SHERIFF S SALE OF THE MORTGAGED PROPERTY IN WHICH MORTGAGEE IS THE SUCCESSFUL BIDDER, IT BEING THE UNDERSTANDING OF THE PARTIES THAT THE AUTHORIZATION TO PURSUE SUCH PROCEEDINGS FOR OBTAINING POSSESSION IS AN ESSENTIAL PART OF THE REMEDIES FOR ENFORCEMENT OF THIS MORTGAGE AND THE OTHER OPERATIVE DOCUMENTS, AND SHALL SURVIVE ANY EXECUTION SALE TO MORTGAGEE. BY AGREEING THAT MORTGAGEE MAY CONFESS JUDGMENT HEREUNDER MORTGAGOR, FOR ITSELF AND ANY OTHER PERSONS OR ENTITIES NOW OR HEREAFTER IN POSSESSION OF ALL OR ANY PART OF THE MORTGAGED PROPERTY, WAIVES THE RIGHT TO NOTICE IN A PRIOR JUDICIAL PROCEEDING TO DETERMINE THEIR RIGHTS AND LIABILITIES AND THE OPPORTUNITY TO RAISE ANY DEFENSE, SET OFF, COUNTERCLAIM OR OTHER CLAIM AGAINST SUCH ACTION BY MORTGAGEE Remedies; Repossession. Upon the occurrence and during the continuance of an Event of Default, Mortgagee shall have the right to take possession of any portion of the Mortgaged Property constituting fixtures or other personal property subject to the UCC, and any records pertaining thereto. Mortgagee shall have the right to use, operate, manage, lease or otherwise control such Mortgaged Property in any lawful manner and, in its sole discretion but without any obligation to do so, insure, maintain, repair, renovate, alter or remove such Mortgaged Property and to use, in connection with any assembly, use or disposition of such Mortgaged Property any trade mark, trade name, trade style, copyright, brand, patent right or technical process used or utilized by Mortgagor. In addition, upon ten (10) calendar days prior written notice to Mortgagor (which Mortgagor hereby acknowledges to be sufficient and commercially reasonable) Mortgagee shall have the right to sell, lease or otherwise dispose of all or any of such Mortgaged Property at any time and from time to time at public or private sale, with or without advertisement thereof, with the right of Mortgagee or its nominee to become purchaser at any sale (unless prohibited by statute) free from any equity of redemption and from all other claims, and after deducting all legal and other expenses for maintaining or selling such Mortgaged Property, and all attorneys fees, legal or other expenses for collection, sale and delivery, apply the remaining proceeds of any sale to pay (or hold as a reserve against) the Obligations and exercise all other rights and remedies of a secured party under the UCC or any other applicable law Remedies; Appointment of Receiver. Upon the occurrence and during the continuance of an Event of Default, Mortgagee may, without notice, obtain appointment of a receiver for the Mortgaged Property without regard to the adequacy of any security for the Obligations Remedies; Actions Prior to Acceleration. Mortgagee shall have the right, from time to time, to bring an appropriate action or actions to recover any sums required to be paid by Mortgagor under the terms of this Mortgage, as they become due, without regard to whether or not the Obligations shall be due and payable in full, and without prejudice to the right of Mortgagee thereafter to bring an action of mortgage foreclosure, or any other action, for any default by Mortgagor existing at the time the earlier action was commenced No Marshalling. Any of the Mortgaged Property sold pursuant to any writ of execution issued on a judgment obtained on the Obligations or pursuant to any other judicial proceedings relating to the Operative Documents or this Mortgage, may be sold in one parcel, as an entirety, or in such parcels, and in such manner or order as Mortgagee, in its sole discretion, may elect Rights and Remedies Cumulative. (a) All rights and remedies of Mortgagee as provided in this Mortgage and the other Operative Documents shall be cumulative and concurrent, may be pursued separately, successively or together against Mortgagor or the Mortgaged Property, or both, at the sole discretion of Mortgagee and may be exercised as often as occasion therefor shall arise. The failure to exercise any such right or remedy shall in no event be construed as a waiver or release thereof. (b) Any failure by Mortgagee to insist upon strict performance by Mortgagor of any of the terms and provisions of this Mortgage or the other Operative Documents shall not be deemed to be a waiver of any of the terms or provisions of this Mortgage or the other Operative Documents and Mortgagee shall have the right thereafter to insist upon strict performance by Mortgagor of any and all of them. ARTICLE 7 MISCELLANEOUS 7.01 Costs and Expenses. If the Mortgagee becomes a party to any suit or proceeding affecting the Mortgaged Property, title thereto, the lien created by this Mortgage or Mortgagee s interest therein, or in the event of the commencement of any bankruptcy or insolvency proceedings involving Mortgagor, or if Mortgagee engages counsel to collect or to enforce performance of the Obligations, or if Mortgagee incurs any other costs and expenses in perfecting, protecting or enforcing its rights hereunder or in responding to any request of Mortgagor for any waiver, approval, modification or release in connection with this Mortgage or the Mortgaged Property, Mortgagee s reasonable counsel fees, and all other costs and expenses paid or incurred by Mortgagee, including reasonable fees of appraisers, accountants, consultants, and other professionals, title premiums, title report and work charges, filing fees, and mortgage, mortgage registration, transfer, stamp and other excise taxes, whether or not an Event of Default shall have occurred, shall be paid to Mortgagee, on demand, with interest at the Default Rate and until paid they shall be deemed to be part of the Obligations secured by this Mortgage Indemnity. Mortgagor shall indemnify, defend and hold Mortgagee harmless from and against any claims, expenses, demands, losses, costs, fines or liabilities of any kind (including those involving death, personal injury or property damage and including reasonable attorneys fees and costs) arising from or in any way related to the failure of Mortgagor to comply with, or the failure of the Mortgaged Property to be kept in compliance with, the Legal Requirements, Applicable Environmental Laws, the Leases and the Permitted Encumbrances except to the extent caused by the gross negligence or intentional misconduct of Mortgagee. The indemnification of Mortgagor under this section shall survive the release or termination of this Mortgage and shall remain effective notwithstanding any foreclosure of this Mortgage or other execution against the Mortgaged Property or acceptance of a deed in lieu of foreclosure Declaration of No Set-Off. Within ten (10) days after requested to do so by Mortgagee, Mortgagor shall certify to Mortgagee or to any proposed assignee of this Mortgage or participant in the Obligations in a writing duly acknowledged, the amount of principal, interest and other charges then owing on the Obligations secured by this Mortgage and whether there are set-offs or defenses against them Communications. All notices required under this Mortgage shall be in writing and shall be delivered in accordance with the applicable provisions contained in the Loan and Trust Agreement. A party may change its address by giving written notice to the other party as specified therein Covenant Running with the Land. Any act or agreement specified herein to be done or performed by Mortgagor shall be construed as a covenant running with the land and shall be binding upon Mortgagor and its successors and assigns as if each had personally made such agreement Amendment. Any amendment, modification, or waiver which may be hereafter requested by Mortgagor or otherwise required must be in writing and signed by both Mortgagor and Mortgagee, and shall be subject to the terms and conditions of the Loan and Trust Agreement with respect to amendments thereof Applicable Law. This Mortgage shall be governed by and construed in accordance with the laws of the Commonwealth of Pennsylvania. Nothing contained in this Mortgage or in any of the other Operative Documents shall require Mortgagor to pay, or Mortgagee to accept, interest in an amount which would subject Mortgagee to penalty under applicable law Construction. Whenever used in this Mortgage, unless the context clearly indicates a contrary intent: (a) The word Mortgagor shall mean the persons who execute this Mortgage and any subsequent fee owner of the Mortgaged Property and his respective heirs, executors, administrators, personal representatives, successors and assigns; (b) The word Mortgagee shall mean, the entity listed as Mortgagee hereinabove or any subsequent holder of this Mortgage or participant in the loan secured hereby; (c) The word person shall mean any individual, corporation, partnership, limited liability company or unincorporated association; (d) The use of any gender shall include all genders; (e) The singular number shall include the plural and the plural the singular as the context may require; (f) The word including shall mean including but not limited to or including without limitation as the context may require Headings. The headings of sections have been included in this Mortgage for convenience of reference only and shall not be considered in interpreting this Mortgage Severability. If any provision of this Mortgage shall be held for any reason to be invalid, illegal or unenforceable, such impairment shall not affect any other provision of this Mortgage Receipt of Copy. Mortgagor acknowledges receipt of conformed copy of this Mortgage Nonforeign Entity. (a) Mortgagor hereby certifies, under penalty of perjury, that: (i) Mortgagor is not a foreign person, foreign corporation, foreign partnership, foreign trust or foreign estate, as those terms are defined in the Internal Revenue Code of 1986, as amended and regulations 18

174 promulgated thereunder; (ii) Mortgagor s U.S. employer identification number is ; and (iii) Mortgagor s principal place of business is set forth in the introduction paragraph of this Mortgage. (b) Mortgagor warrants that withholding of tax will not be required in the event of any disposition of the Mortgaged Property, or any portion thereof, pursuant to the terms of this Mortgage. Mortgagor covenants and agrees to execute such further certificates, which shall be signed under penalty of perjury, as Mortgagee shall require. The provisions of this section shall survive the foreclosure or other execution upon the lien of this Mortgage or acceptance of a deed in lieu of foreclosure Acknowledgment. THIS MORTGAGE CONTAINS A POWER OF ATTORNEY COUPLED WITH AN INTEREST AND IS FOR THE MORTGAGEE. THIS MORTGAGE IS BEING EXECUTED IN CONNECTION WITH A LOAN OR OTHER FINANCIAL TRANSACTION FOR BUSINESS PURPOSES AND NOT PRIMARILY FOR PERSONAL, FAMILY OR HOUSEHOLD PURPOSES. MORTGAGEE, AS AGENT FOR MORTGAGOR UNDER THE POWER OF ATTORNEY, IS NOT A FIDUCIARY FOR THE MORTGAGOR. MORTGAGEE, IN EXERCISING ANY OF ITS RIGHTS OR POWERS PURSUANT TO THE POWER OF ATTORNEY, MAY DO SO FOR THE SOLE BENEFIT OF MORTGAGEE AND NOT FOR MORTGAGOR. THE PARTIES ACKNOWLEDGE AND AGREE THAT THE PROVISIONS OF TITLE 20, PENNSYLVANIA CONSOLIDATED STATUTES, SECTION 5601 ET SEQ. AS AMENDED SPECIFICALLY INCLUDING ACT 39 OF 1999) SHALL NOT BE APPLICABLE TO ANY POWER OF ATTORNEY CONTAINED IN THIS MORTGAGE. [REMAINDER OF PAGE LEFT INTENTIONALLY BLANK SIGNATURE PAGE FOLLOWS] IN WITNESS WHEREOF, Mortgagor, intending to be legally bound hereby, has duly executed this Mortgage, under seal, as of the day and year first above written. I hereby certify that the address of Mortgagee is: U.S. Bank National Association 50 S. 16th Street, Suite 2000 Philadelphia, Pennsylvania On behalf of Mortgagee DEMEDICI CORPORATION II, a Pennsylvania non-profit corporation By: Name: Javier Kuehnle Title: President 19 [Signature Page for Mortgage] COMMONWEALTH OF PENNSYLVANIA : COUNTY OF : SS. EXHIBIT A On the day of June, 2013, before me, a Notary Public in and for the State and County aforesaid, personally appeared, who acknowledged himself to be the, of DEMEDICI CORPORATION II, a Pennsylvania non-profit corporation, and that he as such officer, being authorized to do so, executed the foregoing instrument for the purposes therein contained by signing the name of the corporation by himself as such officer. IN WITNESS WHEREOF, I have hereunto set my hand and official seal. Notary Public My Commission expires: [Notary Page for Mortgage]

175 APPENDIX D FORM OF BOND COUNSEL OPINION

176 [ THIS PAGE INTENTIONALLY LEFT BLANK ]

177 June 28, 2013 Re: Philadelphia Authority for Industrial Development $55,500,000 Revenue Bonds (Philadelphia Performing Arts Charter School Project) Series of 2013 To the Holders of the above-referenced Bonds: We have served as Bond Counsel in connection with the issuance of those certain $55,500,000 Revenue Bonds (Philadelphia Performing Arts Charter School Project) Series of 2013 (the Bonds ) by the Philadelphia Authority for Industrial Development (the Authority ) under the provisions of the Pennsylvania Economic Development Financing Law, Act of August 23, 1967, P.L. 251, as amended and supplemented (collectively, the Act ), pursuant to resolutions adopted by the Authority on April 23, 2013, and pursuant to a Loan and Trust Agreement dated as of June 1, 2013 (the Loan Agreement ), by and among the Authority, DeMedici Corporation, a Pennsylvania non-profit corporation ( DeMedici ), DeMedici Corporation II, a Pennsylvania non-profit corporation ( DMII and together with DeMedici, collectively, the Borrowers ), and U.S. Bank National Association, as Trustee (the Trustee ). Capitalized terms not defined herein shall have the meanings given to such terms in the Loan Agreement. Pursuant to the Loan Agreement, the Authority is making a loan of the proceeds of the Bonds to the Borrowers. We have been advised that the proceeds from the Bonds, together with other available funds, will be used by the Borrowers for the purposes of: (i) the acquisition, construction, renovation, furnishing, finishing and equipping of the facility located at 1600 Vine Street, Philadelphia, Pennsylvania (the Vine Street Facility ) for use as a school building housing grades sixth through twelfth, (ii) the refinancing of existing debt, the proceeds of which were used to acquire and renovate a facility located at 2407 South Broad Street, Philadelphia, Pennsylvania, Ritner Street, Philadelphia, Pennsylvania and South Broad Street, Philadelphia, Pennsylvania (the Fels Facility and together with the Vine Street Facility and the Broad Street Facility (defined below), the School Facilities ) for use as a school building housing grades kindergarten through fifth to be leased by the Borrowers along with the Vine Street Facility and the facility located at South Broad Street, Philadelphia, Pennsylvania (the Broad Street Facility ) to the Philadelphia Performing Arts Charter School (the School ); (iii) other appropriate and lawful capital improvements at any of the School Facilities; (iv) a debt service reserve fund for the 2013 Bonds and capitalized interest, if necessary, and (v) certain costs of issuance relating to the 2013 Bonds. Under the Loan Agreement, the Borrowers are obligated to make periodic payments in amounts sufficient to pay when due, inter alia, the debt service on the Bonds.

178 June 28, 2013 Page 2 In order to provide a source of payment and security for the Bonds, pursuant to the Loan Agreement the Authority has transferred and assigned to the Trustee all of its right, title and interest in the Loan Agreement (except for the reserved rights as described in the Loan Agreement which include the Authority s right to payment of expenses and indemnification) and all amounts payable by the Borrowers thereunder. Under (i) the Lease dated as of June 1, 2013 by and between the DeMedici and the School (the DeMedici Lease ) and (ii) the Lease dated as of June 1, 2013 by and between the DMII and the School (together with the DeMedici Lease, the Leases ), the School will pay rent for the School Facilities to the Borrowers in amounts sufficient to permit the Borrowers to, among other things, pay debt service on the Bonds, as and when due. The Leases and rental payments thereunder will be assigned to the Trustee pursuant to a Mortgage, Assignment of Leases, Security Agreement and Fixture Filing dated as of June 1, 2013 on the respective School Facility from each Borrower (collectively, the Mortgages ) in favor of the Trustee. We express no opinion herein with respect to the Leases or the Mortgages. In the Tax Certificate that was delivered on this date in connection with the issuance of the Bonds (the Tax Certificate ), each Borrower has represented that it is an organization described in Section 501(c)(3) of the Internal Revenue Code of 1986, as amended (the Code ), is not a private foundation within the meaning of Section 509(a) of the Code and is exempt from federal income tax under Section 501(a) of the Code, except for unrelated business income subject to taxation under Section 511 of the Code. Each Borrower has covenanted that, throughout the term of the Loan Agreement, it will not carry on or permit to be carried on in any property now or hereafter owned by it any trade or business if the conduct of such trade or business would adversely affect the validity of the Bonds or cause the interest paid by the Authority on the Bonds to be includible in gross income for purposes of federal income tax. In providing the opinions set forth in paragraph 5 below, we have assumed continuing compliance by the Authority, the Borrowers and the School with the requirements of the Code and applicable regulations thereunder which must be met subsequent to the issuance of the Bonds in order that the interest thereon not constitute an item of tax preference under Section 57 of the Code. Failure to comply with such requirements could cause the interest on the Bonds to constitute an item of tax preference under Section 57 of the Code retroactive to the date of issuance of the Bonds. As Bond Counsel, we have examined such matters of law and such instruments, opinions, resolutions, records, approvals, certificates, agreements and other documents as we have deemed necessary to express the opinions set forth below, including, but not limited to, resolutions of the Authority and the Borrowers, and the documents, certifications, agreements, instruments and records listed in the index of closing documents in respect of the Bonds delivered this date to the Trustee. We have also examined one fully executed and authenticated Bond and assume that all other Bonds have been similarly executed and authenticated.

179 June 28, 2013 Page 3 In rendering the opinions set forth below, we have (a) examined and relied upon (1) the opinion dated the date hereof of counsel to the Authority with respect to the due organization, existence and good standing of the Authority; the authorization, execution and delivery of the documents to which it is a party and the validity and enforceability thereof on the Authority, (2) the opinion dated the date hereof of Sand & Saidel, P.C., counsel to the Borrowers and the School, including, inter alia, their opinions as to (i) each Borrower s and the School s status as 501(c)(3) organizations under the Code, and (ii) the transactions contemplated by the Loan Agreement and the Leases, and (3) the accuracy of the representations and warranties, and the performance of the covenants, of the Authority, the Borrowers and the School set forth in the Loan Agreement, the Leases and the Tax Certificate and (b) assumed the due authorization, execution and delivery of all documents by all parties other than the due authorization, execution and delivery of the Loan Agreement by the Authority. As to questions of fact material to our opinion, we have relied upon the representations of the Borrowers, the School and the Authority contained in the proceedings and documents relating to the authorization and issuance of the Bonds and other certifications furnished to us without undertaking to verify the same by independent investigation. In rendering the opinions set forth below, we have also assumed the genuineness, authenticity, truthfulness and completeness of all documents, records, certificates and other instruments we have examined and the genuineness of all signatures thereon. We have further relied upon, and assumed compliance with, the covenants of the Authority, the Borrowers and the School, set forth in the Loan Agreement, the Tax Certificate and the Leases, wherein they respectively agree, to the extent they are a party to such document, inter alia, to comply continually with the applicable requirements of the Code and all applicable regulations thereunder in effect, in order to ensure that the interest on the Bonds is excluded from the gross income of the owners of the Bonds for federal income tax purposes. Based upon and in reliance on the foregoing, we are of the opinion that: 1. The Authority is validly existing under the Act and has the corporate power and authority to execute and deliver the Loan Agreement and to issue and deliver the Bonds. 2. The Loan Agreement has been duly authorized, executed and delivered by the Authority, is the legal, valid and binding obligation of the Authority and is enforceable against the Authority in accordance with its terms. A security interest in favor of the Trustee with respect to the Trust Estate has been validly created under the Loan Agreement. 3. The Bonds have been validly authorized, executed and delivered by the Authority and, when authenticated by the Trustee, will constitute valid and binding, special and limited obligations of the Authority enforceable against the Authority in accordance with their terms.

180 June 28, 2013 Page 4 4. Under the laws of the Commonwealth of Pennsylvania ( Pennsylvania ), as currently enacted and construed, the Bonds are exempt from personal property taxes in Pennsylvania, and interest on the Bonds is exempt from Pennsylvania personal income tax and corporate net income tax. However, under Pennsylvania law as presently enacted and construed, any profits, gains or income derived from the sale, exchange or other disposition of the Bonds will be subject to Pennsylvania state and local taxes. 5. Interest on the Bonds (a) is excluded from gross income for federal income tax purposes under existing law, as currently enacted and construed and (b) is not an item of tax preference for purposes of the federal alternative minimum tax imposed upon individuals and corporations. Interest on a Bond held by a corporation (other than an S Corporation, regulated investment company, real estate investment trust or real estate mortgage investment conduit) may be indirectly subject to alternative minimum tax because of its inclusion in the earnings and profits of the corporate holder. Interest on a Bond held by a foreign corporation may be subject to the branch profits tax imposed by the Code. We express no opinion regarding other federal tax consequences of the ownership of or receipt or accrual of interest on the Bonds. Ownership of the Bonds may give rise to collateral federal income tax consequences to certain taxpayers, including, without limitation, financial institutions, property and casualty insurance companies, S Corporations with Subchapter C earnings and profits, individual recipients of Social Security or Railroad Retirement benefits and taxpayers who may be deemed to have incurred or continued indebtedness to purchase or carry the Bonds. We express no opinion as to such collateral federal income tax consequences. In providing this opinion, we advise you as follows: (a) It may be determined in the future that interest on the Bonds, retroactive to the date of issuance thereof, will not be excluded from gross income of the owners of the Bonds for federal income tax purposes if certain requirements of the Code are not met subsequent to the issuance of the Bonds. The Authority and the Borrowers have covenanted in the Loan Agreement and the Tax Certificate, and the School has covenanted in the Leases, to comply with these requirements. This opinion of Bond Counsel assumes continued compliance with these covenants, and we assume no obligation to determine (or to inform any person) whether any actions taken (or not taken) or events occurring (or not occurring) after the date of issuance of the Bonds may affect the tax status of interest on the Bonds. (b) The enforceability (but not the validity) of the documents mentioned herein may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter enacted by any state or the federal government affecting the enforcement of creditors rights generally, or the legal or equitable principles affecting creditors rights, and

181 June 28, 2013 Page 5 enforceable in accordance with its (their) terms shall not mean that specific performance would necessarily be available as a remedy in every situation. (c) The obligations of the Authority under the Loan Agreement and the Bonds do not pledge the general credit of the Authority, do not create an indebtedness or pledge the credit or taxing power of the City of Philadelphia or the Commonwealth of Pennsylvania or any political subdivision thereof, and the Bonds are special, limited obligations of the Authority, payable solely from the moneys pledged or available therefor as provided in the Loan Agreement. The Authority has no taxing power. (d) We express no opinion on title matters or on the validity or priority of the lien of the Mortgages or any liens on or security interests in the School Facility or any other real or personal property. We advise you that under the Loan Agreement, the taking of certain actions or the occurrence of certain events in the future require delivery to the Trustee of an opinion of Bond Counsel (which may or may not be this firm) substantially to the effect that such actions or events will not cause the interest on the Bonds to be included in the gross income of the holders thereof for federal income tax purposes. The opinions expressed in this letter speak only as of its date, and nothing should be interpreted or construed to express or imply any opinion concerning the effect of any future events or actions on the exclusion of interest on the Bonds from gross income for purposes of federal income taxation. The availability of such an opinion will depend upon the facts and law existing at the time the opinion is sought. Our services as Bond Counsel to the Authority have been limited to delivering the opinions set forth in the numbered paragraphs herein based on our review of such proceedings and documents as we deem necessary to approve the validity and the tax-exempt status of the interest on the Bonds. We express no opinion herein as to the financial resources of the Borrowers or the School or their ability to provide for the payment of the Bonds, or the accuracy or completeness of any information, including the Official Statement dated June 20, 2013, that may have been relied on by anyone in making the decision to purchase the Bonds. This opinion is rendered on the basis of federal and Pennsylvania law as enacted and construed on the date hereof. This opinion is given as of the date hereof, and we assume no obligation to update or supplement this opinion to reflect any facts or circumstances that may hereafter occur. We express no opinion as to any matter not set forth in the numbered paragraphs herein, including, without limitation, with respect to the accuracy or completeness of the preliminary or final official statements prepared in respect of the offering of the Bonds, and make no representation that we have independently verified the contents thereof. The opinions set forth herein are solely for your benefit and may not be distributed to or relied upon by any person, quoted in whole or in part, or otherwise reproduced

182 June 28, 2013 Page 6 in any other document (except copies of this opinion may be included in any binder of the documents for the transaction to which this opinion related). STRADLEY, RONON, STEVENS & YOUNG, LLP

183 APPENDIX E FORM OF CONTINUING DISCLOSURE AGREEMENT

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185 CONTINUING DISCLOSURE AGREEMENT This Continuing Disclosure Agreement (this Agreement ), dated as of June 1, 2013 between Philadelphia Performing Arts Charter School (the School ), DeMedici Corporation ( DC ), DeMedici Corporation II ( DCII and together with the School and DC, the Obligors ), and U.S. Bank National Association, as dissemination agent (the Dissemination Agent ), is executed and delivered in connection with the issuance by the Philadelphia Authority for Industrial Development (the Authority ) of $55,500,000 aggregate principal amount of its Revenue Bonds (Philadelphia Performing Arts Charter School Project), Series of 2013 (the 2013 Bonds ). The 2013 Bonds are being issued pursuant to a Loan and Trust Agreement dated as of June 1, 2013 (the Loan and Trust Agreement ) among the Authority, DC, DCII, and U.S. Bank National Association, as trustee. Proceeds of the 2013 Bonds will be applied to: (i) finance the acquisition, construction, renovation, furnishing, finishing and equipping of a facility for use as a school building, (ii) refinance existing debt on, and the construction, renovation, furnishing, finishing and equipping of, a facility for use as a school building, (iii) finance other miscellaneous capital improvements at facilities of DC and DCII; (iv) fund a debt service reserve fund for the 2013 Bonds and capitalized interest, and (v) pay certain costs of issuance relating to the 2013 Bonds. The financed facilities will be leased by DC and DCII to the School pursuant to two separate Leases, each dated as of June 1, 2013 (the Leases ). The Obligors covenant and agree as follows for the benefit of the Bondholders (as defined below): Section 1. Purpose of Agreement. This Agreement is being executed and delivered by the Obligors for the benefit of the Bondholders. The Obligors acknowledge that the Authority and the Dissemination Agent have undertaken no responsibility with respect to any reports, notices or disclosures provided or required under this Agreement (except for the Dissemination Agent s obligation to file with the MSRB reports provided by the School pursuant to this Agreement), including their accuracy and completeness, and have no liability to any Person, including any Bondholder and the Underwriter, with respect to any such reports, notices or disclosures. Section 2. Definitions. In addition to the definitions set forth in the Loan and Trust Agreement, which apply to any capitalized term used in this Agreement unless otherwise defined in the first paragraph of this Agreement or in this Section, the following capitalized terms shall have the meanings indicated below. Annual Report shall mean any Annual Report provided by the Obligors pursuant to Section 4(a) of this Agreement. Bondholder or Holder of a 2013 Bond shall mean any registered owner of any of the 2013 Bonds or any Person which (i) has the power, directly or indirectly, to vote or consent with respect to, or to dispose of ownership of, any of the 2013 Bonds (including Persons holding through any nominee, securities depository or other intermediary, including any beneficial owner, or (ii) is treated as the holder of any of the 2013 Bonds for federal income tax purposes. EMMA means the Electronic Municipal Market Access system of the MSRB as provided at or any similar system that is acceptable to or as may be E-1

186 prescribed by the MSRB for purposes of the Rule and approved by the SEC from time to time. A current list of such systems may be obtained from the SEC at calendar year. Agreement. Fiscal Year means the fiscal year of the Obligors ending on June 30 of each Listed Events shall mean any of the events listed in Section 4(b) of this MSRB means the Municipal Securities Rulemaking Board established pursuant to Section 15(B)(b)(1) of the Securities Exchange Act of 1934, as amended, or any successor organization. Official Statement shall mean the Official Statement dated June 20, 2013 used in connection with the sale of the 2013 Bonds. Quarterly Report shall mean any Quarterly Report provided by the Obligors pursuant to Section 4(b) of this Agreement. Rule shall mean Rule 15c2-12(b)(5) adopted by the SEC under the Securities Exchange Act of 1934, as the same may be amended from time to time. SEC shall mean the United States Securities and Exchange Commission. Underwriter shall mean George K. Baum & Company. Section 3. Content of Annual Reports and Quarterly Reports. (a) Each Annual Report shall each contain: (i) a copy of the annual financial statements with respect to each of the Obligors, prepared in accordance with generally accepted accounting principles and audited by a certified public accountant; (ii) an update of the information of the type set forth in Appendix A to the Official Statement in Tables 1, 2-A and 3 under the heading Student Enrollment, in Table 4 under the heading Academic Performance and in Table 6 under the heading Financial Performance ; and (iii) an Officer s Certificate demonstrating compliance with the financial covenants set forth in Section 19 of the Leases. (b) Each Quarterly Report shall contain: (i) for each fiscal quarter, an unaudited balance sheet and a statement of operations as of the end of such quarter, including a comparison of actual results to budget; and E-2

187 (ii) for the fiscal quarters ending March 30 and September 30 of each year, total enrollment and number on waiting list by grade. Section 4. Provision of Annual Reports, Quarterly Reports and Notices of Listed Events. (a) Within 180 days after the end of each Fiscal Year, commencing with the Fiscal Year ending June 30, 2013, the School shall provide to the Dissemination Agent copies of the Annual Report and written direction to file such Annual Report with the MSRB. In each case, the Annual Report may be submitted by the Obligors as a single document or as separate documents comprising a package, and may cross-reference other information to the extent permitted by the Rule. Notwithstanding the foregoing, the audited financial statements of the Obligors may be submitted separately from the balance of the Annual Report when such audited financial statements are available. (b) Within 45 days after the end of each fiscal quarter commencing with the fiscal quarter ending September 30, 2013, the Obligors shall provide to the Dissemination Agent copies of the Quarterly Report and written direction to file such Quarterly Report with the MSRB. Notwithstanding the foregoing, the Obligors may, at their option, elect to provide reports containing the information described in Section 3(b) on a monthly, rather than quarterly basis. (c) In a timely manner not in excess of ten Business Days after the occurrence of the event, the Obligors shall deliver to the Dissemination Agent for filing with the MSRB notice of any of the following events with respect to the 2013 Bonds: difficulties; difficulties; perform; (i) (ii) (iii) (iv) (v) Principal and interest payment delinquencies; Non-payment related defaults, if material; Unscheduled draws on debt service reserves reflecting financial Unscheduled draws on credit enhancements reflecting financial Substitution of credit or liquidity providers, or their failure to (vi) Adverse tax opinions, the issuance by the Internal Revenue Service of proposed or final determinations of taxability, Notices of Proposed Issue (IRS Form 5701 TEB) or other material notices or determinations with respect to the tax status of the 2013 Bonds, or other material events affecting the tax status of the 2013 Bonds; material; (vii) Modifications to rights of the Holders of the 2013 Bonds, if (viii) Bond calls (other than mandatory sinking fund redemptions), if material, and tender offers; E-3

188 (ix) Defeasances; (x) Release, substitution, or sale of property, if any, securing repayment of the 2013 Bonds, if material; School; (xi) (xii) Rating changes; Bankruptcy, insolvency, receivership or similar event of the (xiii) The consummation of a merger, consolidation, or acquisition involving either of the Obligors or the sale of all or substantially all of the assets of either of the Obligors, other than in the ordinary course of business, the entry into a definitive agreement to undertake such an action or the termination of a definitive agreement relating to any such actions, other than pursuant to its terms, if material; and (xiv) Appointment of a successor or additional trustee or the change of name of a trustee, if material. (d) In a timely manner and to the extent it has actual knowledge of such event, the Dissemination Agent shall give the MSRB notice of any failure by the Obligors to provide any information required pursuant to subsection (a) or (b) above within the time limit specified therein. (e) Upon request of a majority of Bondholders received following the filing of the Annual Report, the School will hold an annual investor call. Such call will be held within 30 days of receipt by the School of the request from Bondholders. Section 5. Report by Dissemination Agent. Concurrently with the delivery to the MSRB of any information required pursuant to Section 4(a), 4(b) or 4(c) above, the Dissemination Agent shall confirm to the Obligors that it has filed such information with the MSRB. Section 6. Termination of Agreement. The obligations of the Obligors under this Agreement shall terminate upon the defeasance, prior redemption or payment in full of all of the 2013 Bonds. The Obligors shall provide the Dissemination Agent with written notice that the obligations of the Obligors under this Agreement have terminated and a written request that the Dissemination Agent file a copy of such notice with the MSRB. If the obligations of DC and DCII under the Loan and Trust Agreement or the obligations of the School under the Leases are assumed in full by another obligated person (as defined in the Rule), such Person shall be responsible for compliance with this Agreement in the same manner as if it were DC, DCII, or the School, as applicable, and DC, DCII, or the School, as applicable, shall have no further responsibility hereunder. Section 7. Amendment. The obligations of the Obligors under this Agreement may be amended, without notice to or consent of the Holders of the 2013 Bonds, to the extent required or permitted as a result of a change in the legal requirements, or in connection with a change in the identity, nature, corporate organization, or status of the Obligors, or the type of business conducted by the Obligors, or in connection with a corporate reorganization of the Obligors; E-4

189 provided that any such modification of the obligations of the Obligors under this Agreement shall be done in a manner consistent with the Rule and either (i) does not materially impair the interests of Bondholders, in the determination of the Dissemination Agent (which may be based on an opinion of counsel); or (ii) is approved by the Holders of a majority in aggregate principal amount of the 2013 Bonds. Section 8. Additional Information. Nothing in this Agreement shall be deemed to prevent the Obligors from disseminating any other information, using the means of dissemination set forth in this Agreement or any other means of communication, or including any other information in any Annual Report or Quarterly Report or notice of occurrence of a Listed Event, in addition to that which is required by this Agreement. If the Obligors choose to include any information in any Annual Report or Quarterly Report or notice of occurrence of a Listed Event, in addition to that which is specifically required by this Agreement, the Obligors shall have no obligation under this Agreement to update such information or include it in any future Annual Report or Quarterly Report or notice of occurrence of a Listed Event. Section 9. Transmission of Information and Notices. Unless otherwise required by law, all documents provided to the MSRB in compliance with Section 4 shall be provided to the MSRB in an electronic format and shall be accompanied by identifying information, in each case as prescribed by the MSRB. As of the date of this Agreement, the MSRB has established EMMA as its continuing disclosure service for purposes of the Rule, and unless and until otherwise prescribed by the MSRB, all documents provided to the MSRB in compliance with Section 4 shall be submitted through EMMA in the format prescribed by the MSRB. Section 10. Default. Any Bondholder may enforce the obligations of the Obligors and the Dissemination Agent under this the Agreement; provided however that (i) any breach of such obligations shall not constitute or give rise to a default or an Event of Default under the Loan and Trust Agreement, the Leases, the 2013 Bonds or any other document or agreement relating to the 2013 Bonds, and (ii) the sole remedy for any such breach shall be to compel specific performance of the obligations of the Obligors under this Agreement. Section 11. Beneficiaries. This Agreement shall inure solely to the benefit of the Authority, the Dissemination Agent, the Underwriter, the Obligors and the Bondholders, and shall create no rights in any other Person. Section 12. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Pennsylvania and the Rule. Section 13. Severability. In case any one or more of the provisions of this Agreement shall for any reason be held to be illegal or invalid, such illegality or invalidity shall not affect any other provision of this Agreement, but this Agreement shall be construed and enforced as if such illegal or invalid provision had not been contained herein. Section 14. Dissemination Agent s Rights and Duties. The Dissemination Agent shall have only such duties as are specifically set forth herein. The Dissemination Agent (i) shall not be liable for any error in judgment or for any act done or step taken or omitted by it in good faith, or for any mistake of fact or law, or for anything which it may do or refrain from doing in E-5

190 connection therewith, except for its own gross negligence or willful misconduct, (ii) shall not be obligated to take any legal action or other action hereunder, which might in its judgment involve any expense or liability unless it has been furnished with indemnification satisfactory to it, and (iii) shall be entitled to consult with counsel satisfactory to it, and the opinion of such counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in accordance with the opinion of such counsel. The duties and responsibilities of the Dissemination Agent hereunder shall be determined solely by the express provisions of this Agreement, and no further duties or responsibilities shall be implied. The Dissemination Agent shall not have any liability under, or duty to inquire into the terms and provisions of any agreement or instructions, other than as outlined in the Agreement. The Dissemination Agent may rely and shall be protected in acting or refraining from acting upon any written notice, instruction or request furnished to it hereunder and believed by it to be genuine and to have been signed or presented by the proper party or parties. The Dissemination Agent shall be under no duty to inquire into or investigate the validity, accuracy or content of any such document. The Dissemination Agent shall not incur any liability for following the instructions herein contained or expressly provided for, or written instructions given by the other parties hereto. In the administration of this Agreement, the Dissemination Agent may execute any of its powers and perform its duties hereunder directly or through agents or attorneys and may consult with counsel, accountants and other skilled persons to be selected and retained by it. The Dissemination Agent shall not be liable for anything done, suffered or omitted in good faith by it in accordance with the advice or opinion of any such counsel, accountants or other skilled persons. The Dissemination Agent may resign and be discharged of its duties and obligations hereunder by giving notice in writing of such resignation specifying a date when such resignation shall take effect. Any corporation or association into which the Dissemination Agent in its individual capacity may be merged or converted or with which it may be consolidated, or any corporation or association resulting from any merger, conversion or consolidation to which the Dissemination Agent in its individual capacity shall be a party, or any corporation or association to which all or substantially all the corporate trust business of the Dissemination Agent in its individual capacity may be sold or otherwise transferred, shall be the Dissemination Agent under this Agreement without further act. The Obligors covenant and agree to defend, indemnify and hold the Dissemination Agent and its directors, officers, agents and employees (collectively, the Indemnitees ) harmless from and against any and all liabilities, losses, damages, fines, suits, actions, demands, penalties, costs and expenses, including out-of-pocket, incidental expenses, reasonable legal fees and expenses and the costs and expenses of defending or preparing to defend against any claim ( Losses ) that may be imposed on, incurred by, or asserted against, the Indemnitees or any of them for following any instruction or other direction upon which the Dissemination Agent is authorized to rely pursuant to the terms of this Agreement. In addition to and not in limitation of the immediately preceding sentence, the Obligors also covenant and agree to indemnify and hold the Indemnitees and each of them harmless from and against any and all Losses that may be imposed on, incurred by, or asserted against the Indemnitees or any of them in connection with or arising out of the Dissemination Agent s performance under this Agreement provided the Dissemination Agent has not acted with gross negligence or engaged in willful misconduct. Anything in this Agreement to the contrary notwithstanding, in no event shall the Dissemination Agent be liable for special, indirect or consequential loss or damage of any kind whatsoever (including but not limited to lost profits), even if the Dissemination Agent has been advised of such loss or damage and regardless of the form of action. This Section 14 E-6

191 shall survive termination of this Agreement and the resignation or removal of the Dissemination Agent for any reason. Section 15. Execution. This Agreement may be executed in any number of counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument. Section 16. Notices. Unless otherwise provided herein, all notices, certificates, requests or other communications hereunder shall be given by telephone and promptly confirmed in writing and shall be deemed given when given by telephone or addressed as follows: DC: DCII: School: DeMedici Corporation 2600 S. Broad Street Philadelphia, PA Attn: President Telephone: Telecopier: DeMedici Corporation II 2600 S. Broad Street Philadelphia, PA Attn: President Telephone: Telecopier: Philadelphia Performing Arts Charter School 2600 S. Broad Street Philadelphia, PA Attn: Chief Executive Officer/Principal Telephone: Telecopier: Dissemination Agent: U.S. Bank National Association, 50 S. 16th Street, Suite 2000 Philadelphia, PA Attn: Vice President Telephone: Telecopier: Each of the above parties may, by written notice given hereunder to the others, designate any further or different addresses to which subsequent notices, certificates, requests, or other communications shall be sent. In addition, the parties hereto may agree to any other means by which subsequent notices, certificates, requests or other communications may be sent. E-7

192 IN WITNESS WHEREOF, the parties hereto have each caused this Continuing Disclosure Agreement to be executed in its name and in its behalf, all as of the date and year first above written. DEMEDICI CORPORATION By: Title: DEMEDICI CORPORATION II By: Title: PHILADELPHIA PERFORMING ARTS CHARTER SCHOOL By: Title: U.S. BANK NATIONAL ASSOCIATION as Dissemination Agent By: Authorized Officer [Signature Page to Continuing Disclosure Agreement]

193 APPENDIX F FORM OF INVESTOR LETTER

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195 INVESTOR LETTER Philadelphia Authority for Industrial Development Philadelphia, Pennsylvania U.S. Bank National Association, as Trustee Philadelphia, Pennsylvania George K. Baum & Company Denver, Colorado Stradley Ronan Stevens & Young, LLP Philadelphia, Pennsylvania Re: Philadelphia Authority for Industrial Development Revenue Bonds (Philadelphia Performing Arts Charter School Project), Series of 2013 (the Bonds ) Ladies and Gentlemen: The undersigned (the Purchaser ), being an initial purchaser of the above-referenced bonds (the Bonds ), does hereby certify, represent and warrant for the benefit of the Philadelphia Authority for Industrial Development (the Authority ), U.S. Bank National Association, as Trustee (the Trustee ), George K. Baum & Company (the Underwriter ), and Stradley Ronan Stevens & Young, LLP ( Bond Counsel ) that: (a) The Purchaser is a Qualified Institutional Buyer (as defined in Rule 144A under the Securities Act of 1933, as amended (the Act )) or an institution (i.e., a corporation, limited liability company or other entity that is not a natural person or a partnership comprised solely of natural persons) that is an Accredited Investor (as defined in Rule 501 of Regulation D under the Act) (an Institutional Accredited Investor, as set forth on Exhibit A hereto) (b) The Purchaser has sufficient knowledge and experience in financial and business matters, including the purchase and ownership of tax-exempt obligations and is capable of evaluating the merits and risks of its investment in the Bonds. The Purchaser is able to bear the economic risk of, and an entire loss of, an investment in the Bonds. (c) The Purchaser is acquiring the Bonds solely for its own account for investment purposes, and does not presently intend to make a public distribution of, or to resell or transfer, all or any part of the Bonds, other than in accordance with the terms and conditions of the Bonds. The Purchaser may sell the Bonds at any time, at Purchaser's sole discretion, subject to and in accordance with the terms and conditions of the Bonds, including but not limited to the transfer restrictions described in this letter. The Purchaser understands that the Bonds will be issued in minimum denominations of $100,000 or any integral multiple of $5,000 in excess thereof. (d) The Purchaser understands that the Bonds have not been registered under the Act or under any state securities laws. The Purchaser agrees that it will comply with any applicable state and federal securities laws then in effect with respect to any disposition of the Bonds by it, and further acknowledges that any current exemption from registration of the Bonds does not affect or diminish such requirements. (e) The Purchaser is familiar with the conditions, financial and otherwise, of DeMedici Corporation and DeMedici Corporation II (the Borrowers ) and Philadelphia Performing Arts Charter School (the School ). Further, the Purchaser understands that the Bonds involve a high degree of risk. The Purchaser has been provided an opportunity to ask questions of, and the Purchaser has received answers from, representatives of the Borrowers and the School regarding the terms and conditions of the Bonds. The Purchaser has obtained the information requested by it in connection with the issuance of the F-1

196 Bonds as it regards necessary to evaluate the merits and risks of its investment in the Bonds. The Purchaser has received and read the Preliminary Official Statement dated June 7, 2013, in connection with and relating to the Bonds. The Purchaser understands it will receive the final Official Statement at or near the time of closing of the Bonds. The Purchaser has had the opportunity to review the documents to be executed in conjunction with the issuance of the Bonds, including, without limitation, the Loan and Trust Agreement and the Lease. (f) The Purchaser is not now and has never been controlled by, or under common control with, the Borrowers or the School. Neither the Borrowers nor the School has ever been and neither is now controlled by the Purchaser. The Purchaser has entered into no arrangements with the Borrowers or the School or with any affiliate of either the Borrowers or the School in connection with the Bonds, other than as disclosed to the Authority. (g) The Purchaser has authority to purchase the Bonds and to execute this letter and any other instruments and documents required to be executed by the Purchaser in connection with the purchase of the Bonds. The undersigned is a duly appointed, qualified, and acting officer of the Purchaser and is authorized to cause the Purchaser to make the certifications, representations and warranties contained herein by execution of this letter on behalf of the Purchaser. (h) In entering into this transaction, the Purchaser has not relied upon any representations or opinions of the Authority or the Underwriter relating to the legal consequences of its investment in the Bonds, nor has it looked to, nor expected, the Authority to undertake or require any credit investigation or due diligence reviews relating to the Borrowers, the School, their financial condition or business operations, the Project (including the financing or management thereof), or any other matter pertaining to the merits or risks of the transactions contemplated by the Loan and Trust Agreement and the Lease, or the adequacy of the funds pledged to the Trustee to secure repayment of the Bonds (collectively, a Credit Investigation and Due Diligence Review ). While the Underwriter has undertaken its own such Credit Investigation and Due Diligence Review, the Purchaser also has conducted its own such Credit Investigation and Due Diligence Review and is not solely relying upon the Underwriter's Credit Investigation and Due Diligence Review. (i) The Purchaser understands that the Bonds are not secured by any pledge of any moneys received or to be received from taxation by the Authority (which has no taxing power), the City of Philadelphia, the Commonwealth of Pennsylvania or any political subdivision thereof; that the Bonds will never represent or constitute a general obligation or a pledge of the faith and credit of the Authority,, the City of Philadelphia, the Commonwealth of Pennsylvania or any political subdivision thereof; that no right will exist to have taxes levied by the, the City of Philadelphia, the Commonwealth of Pennsylvania or any political subdivision thereof for the payment of principal and interest on the Bonds; and that the liability of the Authority with respect to the Bonds is subject to further limitations as set forth in the Bonds and the Loan and Trust Agreement. (j) The Purchaser has been informed that the Bonds (i) have not been and will not be registered or otherwise qualified for sale under the Blue Sky laws and regulations of any jurisdiction and (ii) will not be listed on any stock or other securities exchange. (k) The Purchaser acknowledges that the Bonds may not be transferred by the registered owner thereof to any person other than (i) to a Qualified Institutional Buyer (as defined in Rule 144A under the Securities Act of 1933, as amended); or (ii) to an institution which meets the requirements of being an Accredited Investor (as defined in Rule 501 of Regulation D under the Securities Act of 1933, as amended) (an Institutional Accredited Investor, as defined in Exhibit A hereto). F-2

197 The Purchaser agrees to indemnify and hold harmless the Authority with respect to any claim asserted against the Authority that arises with respect to any sale, transfer or other disposition of the Bonds by the Purchaser in violation of the provisions of this Letter. (l) None of the Trustee, the Authority, the Underwriter or Bond Counsel, or any of their respective members, governing bodies, or employees, counsel or agents will have any responsibility to the Purchaser for the accuracy or completeness of information obtained by the Purchaser from the Borrowers or the School or their agents (other than, in the case of the Underwriter, information provided by the Underwriter, and in the case of Bond Counsel, information provided by Bond Counsel) regarding the Borrowers or the School or their financial condition or regarding the Bonds, the provision for payment thereof, or the sufficiency of any security therefor. No written information has been provided by the Authority to the Purchaser with respect to the Bonds. The Purchaser acknowledges that, as between the Purchaser and all of such parties, the Purchaser has assumed responsibility for obtaining such information and making such review as the Purchaser deemed necessary or desirable in connection with its decision to purchase the Bonds. Notwithstanding anything to the contrary contained herein, the Purchaser may rely on any opinions furnished by Bond Counsel with respect to the Bonds. The Purchaser acknowledges that the sale of the Bonds to the Purchaser is made in reliance upon the certifications, representations and warranties herein by the addressees hereto. Capitalized terms used herein and not otherwise defined have the meanings given such terms in the Loan and Trust Agreement, dated as of June 1, 2013, among the Authority, the Borrowers and the Trustee. [PURCHASER] By: Name: Title: SUMMARY OF INVESTMENT Principal Amount: $ CUSIP Number: F-3

198 EXHIBIT A DEFINITION OF INSTITUTIONAL ACCREDITED INVESTOR Any bank; any savings and loan association, whether acting in its individual or fiduciary capacity; any registered broker or dealer; any insurance company; any investment company registered under the Investment Company Act of 1940 or a business development company as defined in Section 2(a)(48) of that act; any Small Business Investment Company licensed by the US Small Business Administration under Section 301(c) or (d) of the Small Business Investment Act of 1958; any plan established and maintained by a state, its political subdivisions, or any agency or instrumentality of a state or its political subdivisions, for the benefit of its employees, with total assets in excess of $5 million; or any employee benefit plan within the meaning of the Employee Retirement Income Security Act of 1974 where investment decisions are made by a plan fiduciary that is either a bank, savings and loan association, insurance company, or registered investment adviser, or if the employee benefit plan has total assets in excess of $5 million or, if a selfdirected plan, with investment decisions made solely by persons that are accredited investors. Any private business development company as defined in Section 202(a)(22) of the Investment Advisers Act of Any organization described in Section 501(c)(3) of the Internal Revenue Code, corporation, Massachusetts or similar business trust, or partnership, not formed for the specific purpose of acquiring the securities offered, with total assets in excess of $5 million. Any trust, with total assets in excess of $5 million, not formed for the specific purpose of acquiring the securities offered, whose purchase is directed by a sophisticated person as described in Rule 506(b)(2)(ii) of Regulation D under the Securities Act of F-4

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