------------------------------------------------------------------------------


------------------------------------------------------------------------------





                              INDENTURE OF TRUST


                                   BETWEEN


                        NEW YORK STATE ENERGY RESEARCH
                          AND DEVELOPMENT AUTHORITY



                                     AND



                          THE CHASE MANHATTAN BANK,
                                  AS TRUSTEE




                         Dated as of December 1, 1997




------------------------------------------------------------------------------


------------------------------------------------------------------------------



                                 -relating to-


                       Electric Facilities Revenue Bonds
             (Long Island Lighting Company Project), 1997 Series A

                                                        

<PAGE>


                                                                         1.


            THIS  INDENTURE  OF  TRUST,  made  and  dated  as of the  1st day of
December  1997,  by and between New York State Energy  Research and  Development
Authority (the "Authority"), a body corporate and politic, constituting a public
benefit  corporation,  and The Chase Manhattan Bank (the  "Trustee"),  a banking
corporation  organized  under  the  laws of the  State  of New  York,  with  its
principal corporate trust office located in New York, New York, as trustee,

                         W I T N E S S E T H   T H A T:

            WHEREAS,  pursuant to special act of the Legislature of the State of
New York  (Title 9 of Article 8 of the Public  Authorities  Law of New York,  as
from time to time  amended  and  supplemented,  herein  called the  "Act"),  the
Authority has been  established as a body corporate and politic,  constituting a
public benefit corporation; and

            WHEREAS, pursuant to the Act, the Authority is empowered to contract
with any power company to  participate in the  construction  of facilities to be
used for the furnishing of electric  energy to the extent required by the public
interest in development,  health,  recreation,  safety,  conservation of natural
resources and aesthetics; and

            WHEREAS,  pursuant to the Act, the Authority has also been empowered
to extend  credit and make loans from bond and note  proceeds  to any Person for
the  construction,  acquisition and installation of, or for the reimbursement to
any Person for costs in connection with, any special energy project,  including,
but not limited to, any land, works, system, building or other improvement,  and
all real and  personal  properties  of any nature or any interest in any of them
which are suitable for or related to the furnishing, generation or production of
energy; and

            WHEREAS,  the Authority is also  authorized  under the Act to borrow
money and issue its negotiable bonds and notes to provide  sufficient moneys for
achieving its corporate purposes; and

            WHEREAS,  the  Authority is also  authorized  under the Act to enter
into any contracts and to execute all  instruments  necessary or convenient  for
the  exercise  of its  corporate  powers and the  fulfillment  of its  corporate
purposes; and

            WHEREAS,  contemporaneously  with the execution hereof,  Long Island
Lighting  Company  (the  "Company")  and  the  Authority  have  entered  into  a
Participation  Agreement  of  even  date  herewith  (herein  referred  to as the
"Participation  Agreement"),  providing for the  acquisition,  construction  and
installation  of  certain  facilities  (the  "Project")  for the  furnishing  of
electric energy within the Company's service area; and

            WHEREAS,  the  Participation  Agreement  provides that the Authority
will  issue its bonds  and make the  proceeds  of such  bonds  available  to the
Company to finance the cost of the Project; and

<PAGE>
                                                                              2.

            WHEREAS,  pursuant to Resolution No. 903 adopted  December 17, 1997,
the Authority has determined to issue $24,880,000  aggregate principal amount of
electric facilities revenue bonds initially bearing the designation set forth on
the title  page of the  Indenture  of Trust  (the  "Bonds")  for the  purpose of
financing the cost of the Project; and

            WHEREAS, in order to provide an inducement to the Authority to issue
the Bonds,  the Company has  entered  into a Letter of Credit and  Reimbursement
Agreement  relating  to the  Bonds  dated  as of  December  1,  1997,  with  The
Toronto-Dominion  Bank,  Houston  Agency (the "Bank") and certain other parties,
pursuant to which the Bank has agreed to issue an  irrevocable  letter of credit
in favor of the Trustee, which letter of credit expires by its terms on December
30, 1998,  unless  extended or unless earlier  terminated in accordance with its
terms, to provide for the payment of such amounts as are specified  therein with
respect to the  principal  of,  premium,  if any, and interest on, the Bonds and
certain other payments with respect to the Bonds; and

            WHEREAS,  all acts,  conditions and things  necessary or required by
the Constitution  and statutes of the State of New York or otherwise,  to exist,
happen,  and be performed as  prerequisites to the execution and delivery of the
Indenture, do exist, have happened, and have been performed; and

            WHEREAS,  the  Authority  has  determined  that the  Bonds  issuable
hereunder and the certificate of authentication by the Trustee to be endorsed on
such Bonds shall be,  respectively,  substantially  in the following  forms with
such  variations,  omissions and  insertions as are required or permitted by the
Indenture:


                                                        

<PAGE>


                                                                         3.


                                [Form of Bonds]

                         [COMMERCIAL PAPER RATE LEGEND

                                                Last Day of Commercial Paper
Interest Rate _____                             Rate Period _____

Interest due at end of
Commercial Paper Rate Period _____              Number of Days _____]



                      NEW YORK STATE ENERGY RESEARCH AND
                            DEVELOPMENT AUTHORITY
                       ELECTRIC FACILITIES REVENUE BOND
                    (LONG ISLAND LIGHTING COMPANY PROJECT)
                                1997 SERIES A

NO. _____                                                         $__________*

MATURITY DATE                 ORIGINAL ISSUE DATE             CUSIP

----------------              ---------------                 --------

REGISTERED OWNER: CEDE & CO.

PRINCIPAL AMOUNT: ____________________ DOLLARS


            NEW YORK  STATE  ENERGY  RESEARCH  AND  DEVELOPMENT  AUTHORITY  (the
"Authority"),  a body  corporate  and  politic,  constituting  a public  benefit
corporation, organized and existing under and by virtue of the laws of the State
of New York, for value received,  hereby promises to pay solely from the sources
hereinafter  provided,  to the Registered  Owner specified  above, or registered
assigns,  on the Maturity Date specified above, unless redeemed prior thereto as
hereinafter provided,  upon the presentation and surrender hereof, the Principal
Amount  specified  above and to pay solely  from such  sources  interest on said
Principal  Amount  from the date  hereof at the rates and at the times  provided
herein,  until  said  Principal  Amount is paid.  This bond  shall be subject to
mandatory purchase by the Tender Agent as hereinafter  described.  The principal
of and premium,  if any, on this bond are payable at the corporate  trust office
of The Chase  Manhattan  Bank,  New  York,  New York,  the  Trustee  hereinafter

<PAGE>
                                                                              4.

mentioned and as paying agent.  The interest on this bond, when due and payable,
shall be paid to the Registered Owner hereof (or of any bond or bonds previously
outstanding  in  exchange,  transfer  or  substitution  for which  this bond was
issued) as of the close of business on the Record Date (hereinafter referred to)
for each interest payment date by check,  mailed to such Person at such Person's
address  appearing  as of the close of  business on such Record Date on the Bond
Register  (hereinafter  referred  to). On and prior to the date a Fixed Rate (as
hereinafter  defined) becomes  effective as hereinafter  provided,  in the event
that less than all of the Bonds are held  under a  book-entry-only  system,  any
owner of not less than $1,000,000 (or $100,000 during any Commercial  Paper Rate
Period)  aggregate  principal  amount of Bonds not held under a  book-entry-only
system may request that  interest on the Bonds be paid by wire  transfer  within
the continental United States; PROVIDED, HOWEVER, that during a Commercial Paper
Rate Period,  interest on a Bond is payable only upon presentation and surrender
of the Bond to the Tender Agent upon purchase thereof pursuant to the Indenture,
and if such  presentation  and  surrender  is made by 12:00  noon (New York City
time) such payment shall be by wire transfer. Interest not so paid shall be paid
in accordance  with the provisions of Article X of the Indenture (as hereinafter
defined). All such payments shall be made in such coin or currency of the United
States of America,  which at the respective  times of payment,  are legal tender
for payment of public and private debts.

            This  bond  is  one of a  duly  authorized  issue  of  bonds  of the
Authority designated as "Electric Facilities Revenue Bonds (Long Island Lighting
Company  Project),  1997  Series  A"  (the  "Bonds"),  issued  in the  aggregate
principal  amount of $24,880,000  pursuant to the  Constitution  and laws of the
State  of New  York,  particularly  the  New  York  State  Energy  Research  and
Development Authority Act, Title 9 of Article 8 of the Public Authorities Law of
the State of New York, as amended (the "Act"),  and a resolution  adopted by the
Authority  on December  17,  1997.  The Bonds are issued and  secured  under and
pursuant to an  Indenture  of Trust  dated as of  December 1, 1997,  between the
Authority and The Chase Manhattan Bank, as Trustee (the "Indenture").  The Bonds
are issued for the purpose of  financing  a portion of the cost of  acquisition,
construction  and  installation  of certain  facilities of Long Island  Lighting
Company (the  "Company") to be used for the local  furnishing of electric energy
(the "Project")  pursuant to a  Participation  Agreement dated as of December 1,
1997, between the Authority and the Company  (hereinafter,  as it may be amended
or supplemented from time to time, called the  "Participation  Agreement").  All
terms used but not defined herein are used as defined in the Indenture.

            *1.  Copies  of the  Indenture  are on file at the  corporate  trust
office of The Chase  Manhattan  Bank,  New York,  New York, as Trustee under the
Indenture or its successor as Trustee (the "Trustee"),  and reference is made to
the Indenture for the provisions relating,  among other things, to the terms and
security of the Bonds,  the rights and remedies of the owners of the Bonds,  and
the terms and conditions upon which Bonds are issued thereunder.

<PAGE>

                                                                              5.

            *2. The Bonds are not  general  obligations  of the  Authority,  and
shall not constitute an  indebtedness  of or a charge against the general credit
of the Authority or give rise to any pecuniary  liability of the Authority.  The
liability  of the  Authority  under the Bonds shall be  enforceable  only to the
extent  provided in the  Indenture,  and the Bonds shall be payable  solely from
payments  to be made by the  Company to the  Trustee and any other funds held by
the Trustee  under the  Indenture  (including,  but not limited to,  funds drawn
under the Letter of Credit) and available for such payment.  In order to provide
security for the payment of the  principal of and premium,  if any, and interest
on all the Bonds in accordance  with their terms and the terms of the Indenture,
the Authority has in the Participation Agreement directed the Company to execute
and deliver its Company Note to the Trustee as evidence of the obligation of the
Company to the  Authority  to repay the advance of the  proceeds of the Bonds by
the Authority and the Authority has under the Indenture pledged and assigned all
its right,  title and interest in and to the payments under such Company Note to
the Trustee  for the  benefit of the owners from time to time of the Bonds.  The
Bonds are  further  secured  by a pledge  and  assignment  of (i) the rights and
interest of the Authority under the  Participation  Agreement (except the rights
and interest of the Authority under Article III and Sections 4.04,  4.08,  4.09,
4.10 and 5.16 and insofar as the  obligations  of the Company under Section 4.07
relate to taxes and assessments  imposed upon the Authority and not the Trustee,
Section  4.07  thereof  and  subject  to the  provisions  of  the  Participation
Agreement  relating to the amendment  thereof),  (ii) the rights and interest of
the Authority under the Tax Regulatory Agreement, dated the date of the original
issuance of the Bonds,  between  the  Authority  and the  Company  (subject to a
reservation  by  the  Authority  of  the  right  to  independently  enforce  the
obligations  of  the  Company  thereunder  and  to the  provisions  of  the  Tax
Regulatory  Agreement  relating to the amendment  thereof) (iii) the proceeds of
the sale of the Bonds and (iv) all funds held by the Trustee under the Indenture
and  available  for the  payment of the Bonds  under the terms of the  Indenture
(expressly  not including in such funds,  the Rebate Fund) and the income earned
by the  investment  of such funds held under the  Indenture.  In  addition,  the
Authority  has granted the  Trustee the same power as the  Authority  to enforce
from time to time the  rights of the  Authority  set  forth in  Article  III and
Section 5.16 of the  Participation  Agreement,  subject to the provisions of the
Participation Agreement relating to the amendment thereof.

            *3.  INTEREST RATE.  Interest on the Bonds will initially be payable
at a Weekly Rate of ____________________________________  per centum (____%) per
annum  from the  initial  delivery  date to and  including  January 6, 1998 (the
"First Interest Period").  Subsequent to such period and prior to the Fixed Rate
Conversion  Date,  interest  on this  Bond  will be paid at the  lowest of (a) a
Weekly Rate, a Commercial  Paper Rate, a Semi-Annual  Rate or a Medium-Term Rate
as from time to time selected and  determined in accordance  with the Indenture,
(b) 15% or (c) the maximum  interest rate specified in the Letter of Credit with
respect to coverage  for the payment of interest or the  interest  component  of
Purchase Price; thereafter,  interest will be paid at the Fixed Rate, determined
in  accordance  with the  Indenture,  which shall not exceed 18%. Each such Rate
will  be set  by the  Remarketing  Agents  in  accordance  with  the  applicable
standards  provided in the  Indenture;  PROVIDED that each such Rate will not be
greater than 110% of the rate index for such Rate (the "Rate  Index").  The Rate

<PAGE>


                                                                              6.

Index will be selected by an Indexing Agent for such Rate, appointed pursuant to
the Indenture.  If such Rate is not  established by the Remarketing  Agents,  no
Remarketing  Agent  shall be  serving or the Rate so  established  is held to be
invalid or  unenforceable  by a final judgment of a court of law, then such Rate
will be 100% of the related Rate Index. Subsequent to the First Interest Period,
unless and until a different Interest Rate  Determination  Method is selected in
accordance with the Indenture, interest on the Bonds will continue to be payable
at a Weekly Rate. The Company may change the Interest Rate Determination  Method
from time to time in accordance with the Indenture;  provided,  however, that if
the Company changes the Interest Rate  Determination  Method to a Fixed Rate, it
may not thereafter change the Interest Rate  Determination  Method and the Fixed
Rate shall be the rate of interest  on the Bonds from the Fixed Rate  Conversion
Date to the  Maturity  Date.  The  Company  may direct the Trustee to change the
Interest Rate Determination  Method applicable to all or a portion of the Bonds.
Except as specifically  provided otherwise in the Indenture,  the conditions and
procedures  for such  change in the  Interest  Rate  Determination  Method for a
portion of the Bonds shall be the same as the  conditions  and  procedures for a
change in the Interest Rate Determination Method for the entire series of Bonds.
If the Company  directs the Trustee to change the  Interest  Rate  Determination
Method from one Rate to another for less than all of the Bonds then outstanding,
the Trustee shall select Bonds to be converted by lot or by such other method as
the Trustee shall deem  appropriate.  In the event the Company wishes to convert
less than all the Bonds then  outstanding,  the Company shall notify the Trustee
of such decision not less than 40 days or more than 60 days before the effective
date of the proposed conversion. On the Conversion Date the portion of the Bonds
which are being  converted  shall be redesignated in such a way as to identify a
separate  Subseries and thereby avoid confusion of such Subseries with any other
Subseries.  The Company may also determine to similarly  redesignate the portion
of the Bonds which are not being  converted on the Conversion  Date. The holders
of Bonds which are being  redesignated  may be required to deliver such Bonds to
the Trustee in order to receive a new Bond of the applicable designation, in the
same principal  amount.  In the event holders are not required to surrender such
Bonds, the Trustee shall  appropriately  designate any Bonds subsequently issued
in exchange  therefor.  If less than all of the Bonds are to be  converted,  all
references  herein  to the  Bonds  shall be deemed to refer to the Bonds of each
Subseries separately.

            *Interest  on this Bond will  accrue and will be payable as provided
in the Indenture.  Except as otherwise  provided in the Indenture,  the Interest
Payment Dates are: (i) during any Weekly Rate Period,  the first Business Day of
each calendar month (for the first Weekly Rate Period, the first Business Day of
February 1998);  (ii) each Conversion  Date;  (iii) during any Semi-Annual  Rate
Period or Medium-Term Rate Period, the first day of each of two months which are
six months  apart,  as  specified  in a  certificate  of an  Authorized  Officer
delivered to the Trustee prior to the  Conversions to a Semi-Annual  Rate Period
or Medium-Term Rate Period, provided, however, if the last such day occurring in
any  Semi-Annual  Rate Period is not a Business Day then the first  Business Day
thereafter shall be the Interest Payment Date,  provided,  further,  however, if
any Interest Payment Date in a Semi-Annual Rate Period,  determined as set forth
above, would cause such Semi-Annual Rate Period to extend for a period in excess
of 182 days, the Interest Payment Date for such Semi-Annual Rate Period shall be
the last Business Day occurring  within such  Semi-Annual  Rate Period that does
not cause such Semi-                                                         

<PAGE>


                                                                              7.

Annual  Rate Period to exceed 182 days in  duration;  (iv) during the Fixed Rate
Period,  each June 1 and  December  1; (v)  during  each  Commercial  Paper Rate
Period,  the  first  Business  Day after any  Calculation  Period;  and (vi) the
Maturity  Date.  With respect to the First Interest  Period,  the first Interest
Payment  Date  will be  February  2,  1998.  If  prior  to the  conversion  to a
Semi-Annual  Rate  Period,  Medium-Term  Rate  Period or Fixed Rate  Period,  an
Officer's  Certificate  shall be delivered to the Trustee  specifying  different
Interest  Payment  Dates for such Rate Period  together  with an Opinion of Bond
Counsel  to the  effect  that such  adjustment  will not  adversely  affect  the
exclusion  of  interest on the Bonds from gross  income for  federal  income tax
purposes,  then the  Interest  Payment  Dates for such Rate  Period  shall be so
adjusted;  PROVIDED,  however,  that  no such  adjustment  shall  result  in the
establishment of Interest Payment Dates between which more than six months would
pass.

            *The Record Dates with respect to the various Interest Payment Dates
are: (i) during any Weekly Rate Period or Commercial Paper Rate Period,  the day
next preceding such Interest  Payment Date,  regardless of whether such day is a
Business  Day; and (ii) during any  Semi-Annual  Rate Period,  Medium-Term  Rate
Period or Fixed Rate Period,  the  Trustee's  close of business on the fifteenth
day of the calendar month next preceding such Interest Payment Date,  regardless
of whether such day is a Business Day.

            *During  any Weekly  Rate Period or  Commercial  Paper Rate  Period,
interest on the Bonds will be computed on the basis of a 365 or 366-day year, as
the case may be, for the actual number of days elapsed.  During any  Semi-Annual
Rate Period, Medium-Term Rate Period or Fixed Rate Period, interest on the Bonds
will be  computed on the basis of a 360-day  year  consisting  of twelve  30-day
months.

            *4. LETTER OF CREDIT. The Bonds are initially  supported by a letter
of credit issued by The Toronto-Dominion  Bank, Houston Agency (such bank or any
issuer of any alternate  credit facility as described  herein being  hereinafter
referred  to as the  "Bank"),  in favor of the  Trustee.  The  letter  of credit
expires on December 30, 1998,  unless  extended in accordance with its terms, or
on the earlier  occurrence  of events  specified  in it. The  initial  letter of
credit or any Alternate Credit Facility meeting the requirements of Section 6.07
of the Indenture and Section 4.12 of the Participation Agreement during the time
it is in effect is  hereinafter  called the  "Letter of  Credit."  The Letter of
Credit shall be in effect at all times prior to the Fixed Rate Conversion  Date,
except any period  during  which all of the  outstanding  Bonds are owned by the
Company.  The Letter of Credit  shall  entitle  the Trustee to draw up to (a) an
amount equal to the principal  amount of the Bonds then  outstanding  to pay the
principal amount of the Bonds (or the portion of the Purchase Price of the Bonds
corresponding  to  principal);  plus (b) an amount  equal to 210  days'  accrued
interest on the Bonds at a maximum  rate  specified  therein,  which shall in no
event  exceed  15%,  to pay  interest on the Bonds.  Such  maximum  rate for the
initial  letter of credit is 15%. If the Bonds shall be  redeemable at a premium
during a period during which a Letter of Credit is in effect,  no redemption may
be made unless the Letter of Credit or other  Available  Moneys are available to
pay such premium.

<PAGE>

                                                                              8.

            *Except as otherwise provided herein, the Bonds shall become subject
to mandatory tender for purchase (see "Mandatory  Tender for Purchase" below) on
the twentieth  calendar day next preceding the scheduled  expiration date of the
Letter of Credit.  Within five calendar  days after the Bonds become  subject to
such mandatory  tender for purchase,  the Trustee shall notify the owners of the
Bonds by first class mail of the expiration of the Letter of Credit and the name
of the issuer of the successor Letter of Credit, if applicable.

            *5.  TENDER OF BONDS FOR PURCHASE.

            *OPTIONAL  TENDER.  During any Weekly Rate Period or any Semi-Annual
Rate Period, the owners of the Bonds shall have the right to tender any Bond (or
portion thereof in an authorized  denomination) to the Tender Agent for purchase
on any Optional Tender Date prior to the Conversion Date, but only upon:

            (1) giving or delivery to the Tender Agent at its principal  office,
      during the times  specified  below,  of a telephonic  or facsimile  notice
      confirmed in writing  which states (i) the aggregate  principal  amount of
      the Bond to be purchased and (ii) that such Bond (or portion thereof in an
      authorized  denomination)  shall be purchased on such Optional Tender Date
      pursuant to the Indenture; and

            (2)  delivery  of such  Bond  (with  an  appropriate  instrument  of
      transfer  duly  executed  in blank) to the Tender  Agent at its  principal
      office at or prior to 12:00  noon,  New York City time,  on such  Optional
      Tender Date;  PROVIDED,  however,  that no Bond (or portion  thereof in an
      authorized  denomination)  shall be purchased unless the Bond so delivered
      to the Tender  Agent  shall  conform in all  respects  to the  description
      thereof in the aforesaid notice.

During any Weekly Rate  Period,  irrevocable  notice must be given on a Business
Day not later than the close of business on the  seventh  calendar  day prior to
the Optional  Tender Date; and during any  Semi-Annual  Rate Period  irrevocable
notice must be given not earlier than the  thirtieth  calendar day and not later
than the close of business on the  fifteenth  calendar  day next  preceding  the
Optional Tender Date.

            *Any election of a Bondowner to tender a Bond (or portion thereof as
aforesaid)  for  purchase on the  Optional  Tender Date in  accordance  with the
Indenture shall be irrevocable and shall be binding on the Bondowner making such
election and on any transferee of such Bondowner.

            *MANDATORY  TENDER FOR PURCHASE.  All Bonds are subject to mandatory
tender  and  purchase,  with no right of owners to retain  Bonds,  as more fully
provided  in the  Indenture,  on  each  Conversion  Date  and  each  Medium-Term
Adjustment Date.


<PAGE>

                                                                              9.

            *Any Bond  bearing a  Commercial  Paper  Rate  shall be  subject  to
mandatory  tender for purchase in accordance  with the Indenture on the Business
Day immediately following each Calculation Period for such Bond at a price equal
to the  principal  amount  thereof and owners of any Bond bearing  interest at a
Commercial  Paper  Rate  shall  have no  right  to elect  to  retain  such  Bond
subsequent to such Business Day.

            *Each Bond shall be subject to mandatory tender and purchase on each
Mandatory  Purchase  Date  established   pursuant  to  Section  2.05(e)  of  the
Indenture.

            *Upon the Bonds becoming subject to mandatory tender for purchase on
a Mandatory  Purchase  Date,  the Trustee  shall give  telephonic  notice to the
Remarketing  Agents,  the Authority and the Tender Agent and give notice by mail
to the Bondowners in accordance with Section 2.05(e)(2) of the Indenture.

            *Failure to mail the notice  described in Section  2.05(e)(2) of the
Indenture or any defect  therein,  shall not extend the period for tendering any
of the Bonds for purchase,  and the Trustee shall not be liable to any Bondowner
by reason of its failure to mail such notice or any defect therein.

            *The Bonds  shall be  tendered  for  purchase as provided in Section
2.05(e) of the Indenture.

            *All Bonds (or portion thereof in an authorized  denomination) which
are not  delivered  to the Tender  Agent  shall be deemed to have been  properly
tendered  to the Tender  Agent  (such Bond being  hereinafter  referred to as an
"Untendered  Bond"),  and, to the extent that there shall be on deposit with the
Tender Agent on the applicable  Purchase  Date, an amount  sufficient to pay the
Purchase  Price  thereof,  such  Untendered  Bond shall cease to  constitute  or
represent  a right to  payment  of  principal  or  interest  thereon  and  shall
constitute and represent only the right to the payment of Purchase Price payable
on such date. The foregoing  shall not limit the entitlement of any Bondowner on
any Record Date to receipt of interest due on such date unless such  interest is
paid as part of the Purchase Price.

            *PURCHASE  OF  TENDERED  BONDS.  On each  Optional  Tender  Date and
Purchase  Date there shall be purchased  (but solely from funds  received by the
Tender Agent in accordance  with the terms of the  Indenture)  the Bond or Bonds
(or portions  thereof in authorized  denominations)  tendered (or deemed to have
been tendered) to the Tender Agent for purchase in accordance  with Section 2.05
of the Indenture at the applicable  Purchase Price. Funds for the payment of the
Purchase  Price  of such  Bond or  Bonds  (or  portions  thereof  in  authorized
denominations)  shall be paid by the Tender Agent solely from the sources and in
the order of priority  specified in Section 2.05(h) of the Indenture.  Bonds (or
portions thereof in authorized  denominations) purchased as provided above shall
be delivered as provided in Section 2.07 of the Indenture.


<PAGE>

            *The owners of the Bonds shall not have the right or be required, as
the case may be, to tender any Bond or Bonds (or portions  thereof in authorized
denominations) for purchase on any Optional Tender Date or the Purchase Date, if
on any such  date an Event  of  Default  under  Section  10.01(f)  or (g) of the
Indenture  shall have occurred and be continuing  thereunder with respect to the
Bonds.

            *All Bonds shall be subject to mandatory  tender and purchase,  with
no right of owners to retain Bonds, upon a date established by the Trustee after
receipt by the Trustee of a written  notice from the Bank of the  occurrence and
continuance  of an event that would  constitute an Event of Default  pursuant to
Section  10.01(f)  or (g) of the  Indenture  except  that  the Bank  shall  have
directed  mandatory  tender and  purchase  pursuant  to  Section  2.05(j) of the
Indenture rather than acceleration of the Bonds.

            *6.  REDEMPTIONS.

            *OPTIONAL  REDEMPTION.  At any time  during a Weekly  Rate Period or
Commercial  Paper Rate Period,  the Bonds will be subject to redemption,  by the
Authority at the  direction  of the Company,  in whole on any Business Day or in
part on any Interest  Payment Date at a redemption  price equal to the principal
amount thereof plus accrued  interest,  if any, to the redemption date. During a
Semi-Annual  Rate  Period  or  during a  Medium-Term  Rate  Period  equal to one
calendar  year,  each Bond is  subject to  redemption  by the  Authority  at the
direction of the Company,  in whole or in part on the last  Business Day of such
Rate Period in effect on the applicable  redemption  date, at a redemption price
equal to the  principal  amount of the Bond or Bonds to be redeemed plus accrued
and unpaid interest  thereon to the redemption  date.  During a Medium-Term Rate
Period  of  greater  than one  calendar  year  but  less  than or equal to three
calendar  years,  each  Bond  will be  subject  to  optional  redemption  by the
Authority  at the  direction  of the Company on the dates and at the  redemption
prices set forth in the following  table plus accrued and unpaid interest to the
redemption date:

          REDEMPTION DATE                                 REDEMPTION PRICES
          ---------------                                 -----------------

      Earliest Optional Redemption Date through                  100.5%
       the last day prior to the First Anniversary
       of the Earliest Optional Redemption Date

      First Anniversary of the Earliest Optional                 100
       Redemption Date, if applicable,
       and thereafter

As used in the immediately  preceding table "Earliest Optional  Redemption Date"
means the  anniversary of the Conversion Date occurring in the year which is one
year after the commencement of any such Medium-Term Rate Period.

            *During a  Medium-Term  Rate Period of greater  than three  calendar
years but less than or equal to five calendar  years,  each Bond will be subject
to optional  redemption  by the Authority at the direction of the Company on the
dates and at the redemption prices set forth in the following table plus accrued
and unpaid interest to the redemption date:

         REDEMPTION DATE                                  REDEMPTION PRICES
         ---------------                                  -----------------

      Earliest Optional Redemption Date through                  101%
       the last day prior to the First Anniversary
       of the Earliest Optional Redemption Date

      First Anniversary of the Earliest Optional                 100.5
       Redemption Date through the last day prior
       to the Second Anniversary of the Earliest
       Optional Redemption Date

      Second Anniversary of the Earliest Optional                100
       Redemption Date and thereafter

As used in the preceding table  "Earliest  Optional  Redemption  Date" means the
anniversary  of the  Conversion  Date  occurring  in the year which is two years
after the commencement of any such Medium-Term Rate Period.

<PAGE>
 

           *During a Medium-Term Rate Period of greater than five but less than
or equal to ten calendar years, the Bonds will be subject to optional redemption
by the  Authority  at the  direction  of the  Company  on the  dates  and at the
redemption  prices  set forth in the  following  table plus  accrued  and unpaid
interest to the redemption date:

      REDEMPTION DATE                                     REDEMPTION PRICES
      ---------------                                     -----------------

      Earliest Optional Redemption Date through                  101.5%
       the last day prior to the First Anniversary
       of the Earliest Optional Redemption Date

      First Anniversary of the Earliest Optional                 101
       Redemption Date through the last day prior
       to the Second Anniversary of the Earliest
       Optional Redemption Date

      Second Anniversary of the Earliest Optional                100.5
       Redemption Date through the last day prior
       to the Third Anniversary of the Earliest
       Optional Redemption Date

      Third Anniversary of the Earliest Optional                 100
       Redemption Date and thereafter

<PAGE>


As used in the immediately  preceding table "Earliest Optional  Redemption Date"
means the anniversary of the Conversion Date occurring in the year which is four
years after the commencement of any such Medium-Term Rate Period.

            *During a  Medium-Term  Rate  Period of  greater  than ten  calendar
years, the Bonds will be subject to optional  redemption by the Authority at the
direction of the Company on the dates and at the redemption  prices set forth in
the next  succeeding  table;  provided that,  with respect to such a Medium-Term
Rate Period,  "Earliest  Optional  Redemption Date" means the anniversary of the
Conversion  Date occurring in the year which is eight years after the Conversion
Date or Medium-Term Adjustment Date.

            *After the Fixed Rate Conversion  Date, the Bonds will be subject to
optional redemption by the Authority at the direction of the Company on or after
the  Earliest  Optional  Redemption  Date (as  defined  below),  in whole on any
Business Day or in part on any Interest Payment Date,  during the periods and at
the respective redemption prices (expressed as a percentage of principal amount)
set forth in the  following  table  plus  accrued  and  unpaid  interest  to the
redemption date:

           REDEMPTION DATE                         REDEMPTION PRICES
           ---------------                         -----------------

      Earliest Optional Redemption Date through             102%
       the last day prior to the First Anniversary
       of the Earliest Optional Redemption Date

      First Anniversary of the Earliest Optional            101
       Redemption Date through the last day prior
       to the Second Anniversary of the Earliest
       Optional Redemption Date

      Second Anniversary of the Earliest Optional           100
       Redemption Date and thereafter

As used in the preceding table,  "Earliest  Optional  Redemption Date" means the
anniversary  of the  Conversion  Date  occurring  in the year which is ten years
after the Fixed Rate Conversion Date.

<PAGE>
 

           *Subject  to  the  provisions  of  the  Indenture,  if  prior  to  a
Medium-Term  Rate  Conversion  Date  or  the  Fixed  Rate  Conversion  Date  the
Remarketing  Agents  certify to the Trustee,  the  Authority  and the Company in
writing that any of the foregoing  redemption  schedules are not consistent with
then prevailing  market  conditions,  with the approval of the Authority and the
Company,  the foregoing  Earliest  Optional  Redemption Dates or premiums may be
revised in accordance  with the best  professional  judgment of the  Remarketing
Agents to reflect then prevailing market conditions;  provided, that the Company
causes to be delivered to the Trustee an Opinion of Bond Counsel  stating to the
effect that such  revision is permitted by the  Indenture and will not cause the
interest on the Bonds to be  includible  in gross income for federal  income tax
purposes.


            *EXTRAORDINARY OPTIONAL REDEMPTION. The Bonds may be redeemed at the
option of the Authority exercised at the direction of the Company, as a whole or
in part at any time, at a redemption price equal to 100% of the principal amount
thereof  plus  accrued  and  unpaid  interest  thereon  to the  date  fixed  for
redemption, upon the occurrence of any of the following events:

                  (i) All or  substantially  all of the Project  shall have been
      damaged  or  destroyed  or title to,  or the  temporary  use of,  all or a
      substantial  portion  of the  Project  shall  have  been  taken  under the
      exercise of the power of eminent domain by any governmental  authority, or
      Person,  firm or corporation  acting under governmental  authority,  as in
      each case  renders  the  Project  unsatisfactory  to the  Company  for its
      intended use;

                  (ii) Unreasonable burdens or excessive  liabilities shall have
      been  imposed  upon the  Authority  or the Company  with respect to all or
      substantially  all  of  the  Project,  including  without  limitation  the
      imposition of federal, state or other ad valorem property, income or other
      taxes other than taxes in effect on the date of  original  issuance of the
      Bonds  levied upon  privately  owned  property  used for the same  general
      purpose as the Project; or

                  (iii) Any court or  regulatory  or  administrative  body shall
      enter or adopt,  or fail to enter or adopt, a judgment,  order,  approval,
      decree,  rule or  regulation,  as a result of which the Company  elects to
      cease operation of all or substantially all of the Project.

     *SPECIAL OPTIONAL REDEMPTIONS. The Bonds will also be subject to redemption
at the option of the  Authority  exercised at the  direction of the Company,  in
whole at a redemption  price equal to the principal  amount thereof plus accrued
and unpaid  interest  thereon to the redemption  date if the Company  reasonably
concludes and certifies to the Trustee that the business, properties,  condition
(financial or otherwise),  operations or business  prospects of the Company will
be materially and adversely affected unless the Company takes or omits to take a
specified  action  and that the  Company  has been  advised  in  writing by Bond
Counsel that either (x) the specified  action or omission would adversely affect
the exclusion  from gross income for federal  income tax purposes of interest on
the Bonds afforded by Section 103 of the Code, or (y) that the matter is subject
to such doubt that such Bond  Counsel is unable to advise the  Company  that the
specified  action or omission would not adversely  affect such  exclusion.  Such
conclusion and certification  shall be evidenced by delivery to the Trustee of a
written  certificate of an Authorized Company  Representative to the effect that
the Company has reached such conclusion,  together with a copy of such advice of
Bond Counsel.


<PAGE>

            *During any  Medium-Term  Rate or the Fixed Rate  Period,  the Bonds
will also be subject to redemption  at the option of the Authority  exercised at
the direction of the Company at a redemption price equal to the principal amount
thereof plus accrued and unpaid  interest  thereon to the redemption date if the
Company  reasonably  concludes  and  certifies to the Trustee that the business,
properties, condition (financial or otherwise), operations or business prospects
of the Company will be  materially  and  adversely  affected  unless the Company
takes or omits to take a  specified  action  and that the  specified  action  or
omission would cause the use of the Project to be such that, pursuant to Section
150 of the Code, the Company would not be entitled to deduct the interest on the
Bonds for purposes of determining the Company's  federal  taxable income,  for a
period of not less than  ninety  consecutive  or  nonconsecutive  days  during a
twelve-month  period.  Such conclusion and  certification  shall be evidenced by
delivery  to the  Trustee  of a written  certificate  of an  Authorized  Company
Representative  to the effect  that the Company  has  reached  such  conclusion,
together with a copy of written  advice of Bond  Counsel.  In the event that the
Bonds become subject to redemption as provided in this paragraph, the Bonds will
be redeemed in whole  unless  redemption  of a portion of the Bonds  outstanding
would, in the opinion of Bond Counsel,  have the result that interest payable on
the Bonds remaining  outstanding  after such redemption  would be deductible for
purposes of determining the federal taxable income of the Company,  and, in such
event, the Bonds shall be redeemed (in the principal amount equal to the current
minimum  authorized  denomination or an integral  multiple thereof) from time to
time by lot or in such other manner as the Trustee shall in its discretion  deem
proper in order to assure  each owner of Bonds a fair  opportunity  to have such
owner's  Bond or  Bonds or  portions  thereof  selected,  in such  amount  as is
necessary to accomplish that result.

            *MANDATORY REDEMPTION ON DETERMINATION OF TAXABILITY. The Bonds will
be redeemed in whole (or in part as provided below), at a redemption price equal
to the principal amount thereof plus accrued and unpaid interest accrued thereon
to the redemption date, on the first day of a month selected by the Authority at
the  direction  of the  Company  (such  direction  also being  delivered  to the
Trustee)  within 180 days  after the  Company  receives  written  notice  from a
Bondowner  or former  Bondowner or the Trustee of a final  determination  by the
Internal Revenue Service or a court of competent  jurisdiction that, as a result
of  a  failure  by  the  Company  to  perform  any  of  its  agreements  in  the
Participation  Agreement or the inaccuracy,  the failure to perform or breach of
any of the representations,  warranties,  covenants or agreements of the Company
in the Tax Regulatory  Agreement or any  requisition  submitted  pursuant to the
Indenture, the interest paid or to be paid on any Bond (except to a "substantial
user" of the Project or a "related  person" of such a "substantial  user" within
the meaning of Section 147(a) of the Internal  Revenue Code of 1986, as amended)
is or was included in the gross  income of the Bond's  owner for federal  income
tax  purposes.  No  such  determination  will be  considered  final  unless  the
Bondowner or former Bondowner  involved in the determination  gives the Company,
the Authority and the Trustee prompt written notice of the  commencement  of the
proceedings  resulting in the determination  and offers the Company,  subject to
the Company's  agreeing to pay all expenses of the  proceeding  and to indemnify
the  owner  against  all  liabilities  that  might  result  from  it,  including
additional  income tax liabilities as a result of interest accruing on the Bonds
following  commencement  of such  proceedings,  the  opportunity  to control the
defense of the  proceeding  and either the Company does not agree within 30 days
to pay the expenses,  indemnify the owner and control the defense or the Company
exhausts or chooses  not to exhaust  available  procedures  to contest or obtain
review  of the  result  of the  proceedings.  Fewer  than all the  Bonds  may be
redeemed if, in the opinion of Bond Counsel,  redemption of fewer than all would
result in the  interest  payable on the Bonds  remaining  outstanding  being not

<PAGE>


included in the gross income for federal  income tax purposes of any owner other
than a  "substantial  user"  of the  Project  or a  "related  person"  of such a
"substantial  user".  If fewer than all of the Bonds are  redeemed,  the Trustee
will select the Bonds to be redeemed as provided in the  Indenture.  IF THE LIEN
OF THE  INDENTURE  IS  DISCHARGED  AS DESCRIBED IN SECTION 10 BELOW PRIOR TO THE
OCCURRENCE OF A FINAL  DETERMINATION OF TAXABILITY AS DESCRIBED ABOVE, THE BONDS
WILL NOT BE REDEEMED AS DESCRIBED IN THIS PARAGRAPH.

            *MANDATORY  REDEMPTION UPON STATE  FURNISHING  FUNDS.  The Bonds are
subject to redemption as a whole, at a redemption  price equal to the applicable
optional  redemption price described  herein or, if no such optional  redemption
price shall be applicable, 105% of the principal amount thereof during the Fixed
Rate  Period or 100% of the  principal  amount  thereof  prior to the Fixed Rate
Conversion Date, together with unpaid interest accrued thereon to the date fixed
for  redemption,  on any Interest  Payment Date not less than twenty years after
the  date of the  original  issuance  of the  Bonds  if the  State  of New  York
furnishes funds therefor, all as more fully described in the Indenture.

            *NOTICE OF REDEMPTION. At least 30 days before each redemption,  the
Trustee will mail a notice of redemption by  first-class  mail to each Bondowner
at the  owner's  registered  address.  Failure  to give any  required  notice of
redemption as to any  particular  Bonds will not affect the validity of the call
for  redemption  of any Bonds in respect of which no such  failure  occurs.  Any
notice mailed as provided in this  paragraph  will be  conclusively  presumed to
have been given whether or not actually received by the addressee.

            *EFFECT  OF NOTICE OF  REDEMPTION.  When  notice  of  redemption  is
required and given,  Bonds called for  redemption  become due and payable on the
redemption date at the applicable redemption price, except as otherwise provided
herein;  in such case when funds are deposited  with the Trustee  sufficient for
redemption  or for the  purchase  of  Bonds  otherwise  subject  to  redemption,
interest  on the Bonds to be redeemed  or  purchased  ceases to accrue as of the
date of  redemption  or purchase  whether or not such Bond is  delivered  to the
Trustee on such date.


<PAGE>

            *7.  DENOMINATIONS,  TRANSFER,  EXCHANGE.  The Bonds  are  issued in
registered  form  without  coupons in  denominations  of $5,000 or any  integral
multiple of $5,000, except that when the Bonds bear interest at a Weekly Rate or
Commercial Paper Rate, they will be issuable in denominations of $100,000 or any
larger  multiple  of  $5,000.   Notwithstanding  the  foregoing,  prior  to  the
commencement  of any  Semi-Annual  Rate Period,  Medium-Term  Rate Period or the
Fixed Rate  Period,  the  Authority at the request of the Company may direct the
Trustee to authenticate  Bonds only in  denominations  of $100,000 or any larger
multiple of $5,000 during such Rate Period in accordance with the Indenture.  An
owner may  register  the transfer of or exchange  Bonds in  accordance  with the
Indenture.  The  Trustee may require an owner,  among other  things,  to furnish
appropriate  endorsements  and transfer  documents and to pay any taxes and fees
required by law or permitted by the Indenture.  After the Fixed Rate  Conversion
Date, the Trustee need not register the transfer of or exchange any Bond for the
period  beginning 15 days before mailing a notice of redemption of such Bond and
ending on the redemption date.

            *The Depository Trust Company,  New York, New York ("DTC") initially
will act as  Securities  Depository  for the Bonds.  The  ownership of one fully
registered  Bond  in the  aggregate  principal  amount  of  the  Bonds  will  be
registered  in the name of Cede & Co., as nominee of DTC. Such Bond will be held
in trust  until its  redemption  or until such time as DTC or its  nominee is no
longer  the  registered  owner  of the  Bonds.  So  long  as  Cede & Co.  is the
registered  owner of the  Bonds,  as nominee  of DTC,  references  herein to the
Bondowners  or registered  owners of the Bonds,  shall mean Cede & Co. and shall
not  mean  the  beneficial   owners  of  the  Bonds.   In  the  event  that  the
book-entry-only  system  through DTC (or a successor  securities  depository) is
discontinued  as provided in the  Indenture  and the  beneficial  owners  become
registered  owners of the Bonds,  the provisions  applicable to such  registered
owners, as set forth herein and in the Indenture,  will apply. In the event that
a book-entry-only system is reinstituted after discontinuance, Registered Owners
will not be able to register the transfer of or tender their Bonds without first
registering such Bonds in the book-entry-only system.

            *8. PERSONS DEEMED OWNERS.  The Registered Owner of this Bond may be
treated by the  Authority,  the Company,  the Trustee,  the Tender Agent and the
Paying Agent as the owner of this Bond for all purposes.

            *9.  UNCLAIMED MONEY. On or after the Fixed Rate Conversion Date and
solely with respect to moneys not resulting  from a draw on the Letter of Credit
and  not  constituting  remarketing  proceeds,  if  money  for  the  payment  of
principal, premium, if any, interest or Purchase Price remains unclaimed for two
years,  the Trustee will,  upon request of the Company,  pay the money to or for
the account of the Company.  After that,  owners entitled to the money must look
only to the Company  and not to the  Trustee or the Bank for  payment  unless an
applicable abandoned property law designates another person.
<PAGE>

            *10.  DISCHARGE BEFORE REDEMPTION OR MATURITY.  If at any time there
shall have been delivered to the Trustee for  cancellation  all the Bonds (other
than any Bonds which have been  mutilated,  lost,  stolen or destroyed and which
shall have been  replaced or paid as provided in the  Indenture,  except for any
such Bonds as are shown by proof  satisfactory to the Trustee to be held by bona
fide owners), or with respect to all the Bonds not theretofore  delivered to the
Trustee for cancellation, the whole amount of the principal and the interest and
the  premium,  if any, due and payable on such Bonds then  outstanding  shall be
paid or deemed to be paid as set forth in the  Indenture,  and  provision  shall
also be made for  paying  all  other  sums  payable  thereunder,  including  the
Authority's,  the Indexing Agent's, the Remarketing Agents', the Paying Agent's,
the Trustee's and the Tender Agent's fees and expenses,  then the Bonds shall be
deemed paid and the  Trustee,  in such case,  on demand of the  Authority or the
Company,  shall  acknowledge the discharge of the Authority's  obligations under
the Indenture  with respect to such Bonds and under the Bonds and deliver to the
Company the Company Note and deliver to the Bank the Letter of Credit,  if it is
still in  existence,  and shall  execute  such  documents  as may be  reasonably
required by the  Authority and the Company to evidence  such  discharge,  all as
more fully set forth in Article XIV of the Indenture. If the Company at any time
deposits with the Trustee money or Investment  Obligations  sufficient to pay at
redemption or maturity principal of and interest on or the Purchase Price of the
outstanding  Bonds,  and if the Company also pays all other sums then payable by
the  Company  under the  Indenture,  the  Indenture  (except for the Rebate Fund
established  pursuant to the  Indenture)  will be discharged.  After  discharge,
Bondowners  may look only to the  deposited  money and  securities  for payment.
Investment Obligations are securities backed by the full faith and credit of the
United   States   or   securities   evidencing   ownership   interest   in  such
full-faith-and-credit securities.

            *11. AMENDMENT,  SUPPLEMENT,  WAIVER. Subject to certain exceptions,
the  Indenture,  the  Participation  Agreement  or the Bonds may be  amended  or
supplemented  with the  consent  of the  owners of not less than  two-thirds  in
aggregate  principal  amount of the Bonds, and any past default or noncompliance
with any provision may be waived with the consent of the owners of a majority in
aggregate  principal amount of the Bonds.  Without the consent of any Bondowner,
the Authority may amend or supplement the Indenture, the Participation Agreement
or the Bonds as described in the Indenture in order to, among other things, cure
any ambiguity,  omission,  defect or inconsistency,  provide for  uncertificated
Bonds in addition to or in place of certificated  Bonds, to the extent permitted
by law, or make any change that does not materially  adversely affect the rights
of any Bondowner.

            *12.  DEFAULTS  AND  REMEDIES.   The  Indenture  provides  that  the
occurrences of certain events constitute Events of Default.  An Event of Default
and its consequences may be waived as provided in the Indenture.  Bondowners may
not enforce the Indenture or the Bonds except as provided in the Indenture.  The
Trustee  may refuse to enforce  the  Indenture  or the Bonds  unless it receives
indemnity  satisfactory  to it.  Subject  to  certain  limitations,  owners of a
majority in principal amount of the Bonds may direct the Trustee in its exercise
of any trust or power.

            *13. ABBREVIATIONS.  Customary abbreviations may be used in the name
of a Bondowner or an assignee, such as TEN COM (= tenants in common), TEN ENT (=
Tenants by the entireties),  JT WROS (= joint tenants with right of survivorship
and not as tenants in common), CUST (= Custodian),  and U/G/M/A (= Uniform Gifts
to Minors Act).
<PAGE>

            *14. REMARKETING AGENT;  INDEXING AGENT; TENDER AGENT. The Authority
has appointed J.P.  Morgan  Securities  Inc., as the initial  Remarketing  Agent
under the Indenture.  The Authority may from time to time, at the request of the
Company,  remove  or  replace  any  Remarketing  Agent  or  appoint  one or more
Remarketing  Agents. The Authority has appointed Kenny Information  Systems Inc.
as Indexing Agent under the  Indenture.  The Authority may from time to time, at
the request of the Company,  remove the  Indexing  Agent and appoint a different
nationally  recognized  municipal  securities  evaluation  service  to  serve as
Indexing  Agent.  The Authority has appointed The Chase Manhattan Bank as Tender
Agent under the  Indenture.  The Authority may from time to time, at the request
of the Company, remove or replace the Tender Agent.

            This Bond shall not be entitled to any benefit  under the  Indenture
or be valid or become obligatory for any purpose until this Bond shall have been
authenticated  by the  execution  by the  Trustee  or the  Tender  Agent  of the
Certificate of Authentication hereon.

            No covenant or  agreement  contained  in this Bond or the  Indenture
shall be deemed to be a covenant or  agreement  of any member or employee of the
Authority  in his or her  individual  capacity,  and  neither the members of the
Authority nor any officer thereof executing this Bond shall be liable personally
on this Bond or be subject to any personal liability or accountability by reason
of the issuance of this Bond.

            The  Bonds  are not a debt of the State of New York and the State of
New York shall not be liable thereon.

            It is hereby  certified  and recited that all  conditions,  acts and
things  required by law and the Indenture to exist, to have happened and to have
been  performed  precedent  to and for the  issuance of this Bond,  exist,  have
happened  and have been  performed,  and that the  issuance of this Bond and the
issue of which it forms a part are within every debt and other limit  prescribed
by the laws of the State of New York.


                                                        

<PAGE>


                                                                        


            IN WITNESS WHEREOF,  the Authority has caused this Bond to be signed
in its name and on its behalf by the manual or facsimile signature of its Chair,
Vice Chair,  President  or Treasurer  and its seal or a facsimile  thereof to be
impressed,  imprinted or otherwise  reproduced hereon and attested by the manual
or  facsimile  signature  of its Vice  President  and  Secretary or an Assistant
Secretary, as of the date set forth below.

                                           NEW YORK STATE ENERGY RESEARCH
                                             AND DEVELOPMENT AUTHORITY


                                           By_______________________________
                                                          President

Attest:


-------------------------------
Vice President and Secretary

Dated:

                                                         

<PAGE>




         [Form of Trustee's or Tender Agent's Authentication on Bonds]

                         CERTIFICATE OF AUTHENTICATION

            This Bond is one of the  Electric  Facilities  Revenue  Bonds  (Long
Island   Lighting   Company   Project),   1997  Series  A,   described   in  the
within-mentioned Indenture.

The Chase Manhattan Bank                    The Chase Manhattan Bank
  as Trustee                  or            as Tender Agent



By_____________________________             By_____________________________





<PAGE>




            The  Authority  may,  in  its  discretion,  cause  any or all of the
paragraphs preceded by the symbol "*" to be printed on the reverse of the Bonds,
in which event the face of the Bonds shall state the following:

          THE TERMS AND  PROVISIONS  OF THIS BOND ARE  CONTINUED  ON THE REVERSE
          SIDE  HEREOF AND SUCH  CONTINUED  TERMS AND  CONDITIONS  SHALL FOR ALL
          PURPOSES HAVE THE SAME EFFECT AS IF SET FORTH AT THIS PLACE.

In the event that some but not all of such paragraphs are printed on the reverse
of the Bonds, the numbering of such paragraphs may be revised accordingly.

            The language contained in the preceding paragraph and the paragraphs
preceded by the symbol "*" may be deleted for Bonds issued in temporary  form or
delivered to a Securities  Depository for  book-entry-only  registration and the
language to be contained on the reverse side of  definitive  Bonds and Bonds not
in  book-entry-only  form may be incorporated  by reference,  in which event the
Bonds shall state the following after the second paragraph of the Bonds:

          REFERENCE IS MADE TO THE FURTHER  PROVISIONS OF THIS BOND SET FORTH IN
          THE FORM OF BONDS IN THE  INDENTURE,  WHICH  PROVISIONS  COMPRISE  THE
          PARAGRAPHS  IDENTIFIED BY THE INDENTURE AS APPEARING ON THE REVERSE OF
          THE BONDS AND SHALL FOR ALL  PURPOSES  HAVE THE SAME  EFFECT AS THOUGH
          FULLY SET FORTH AT THIS PLACE.


                              [END OF BOND FORM]




<PAGE>





            WHEREAS,  the  Trustee  has  accepted  the  trusts  created  by  the
Indenture and in evidence thereof has joined in the execution hereof;

                                GRANTING CLAUSE

            NOW, THEREFORE, THIS INDENTURE WITNESSETH,  that in consideration of
the premises, of the acceptance by the Trustee of the trusts hereby created, and
of the purchase and acceptance of the Bonds by the owners thereof,  and also for
and in  consideration  of the sum of One Dollar ($1.00) to the Authority in hand
paid by the Trustee at or before the  execution  and delivery of the  Indenture,
the receipt of which is hereby  acknowledged,  and for the purpose of fixing and
declaring  the  terms and  conditions  upon  which  the Bonds are to be  issued,
authenticated,  delivered,  secured  and  accepted by all Persons who shall from
time to time be or become owners thereof,  and in order to secure the payment of
all the Bonds at any time issued and outstanding  hereunder and the interest and
the redemption  premiums,  if any, thereon according to their tenor, purport and
effect,  and in  order to  secure  the  performance  and  observance  of all the
covenants,  agreements and conditions therein or herein contained, the Authority
has executed and delivered the  Indenture,  has caused the Company to deliver to
the  Trustee  the  Company  Note  executed  by  the  Company   pursuant  to  the
Participation  Agreement  and the  Company  has  caused  the  Bank  (hereinafter
referred  to) to deliver the Letter of Credit  (hereinafter  referred to) to the
Trustee, and the Authority does hereby assign and pledge to the Trustee, for the
benefit of such Bondowners,  as security for the payment of the principal of and
premium,  if any, and interest on the Bonds in  accordance  with their terms and
the  provisions  of  the  Indenture,  subject  only  to  the  provisions  of the
Indenture,  permitting the application thereof for the purposes and on the terms
and conditions  set forth in the  Indenture,  (i) the rights and interest of the
Authority under the  Participation  Agreement (except the rights and interest of
the Authority under Article III and Sections 4.04, 4.08, 4.09, 4.10 and 5.16 and
insofar as the obligations of the Company under Section 4.07 relate to taxes and
assessments imposed upon the Authority and not the Trustee,  Section 4.07 of the
Participation  Agreement  and  subject to the  provisions  of the  Participation
Agreement  relating to the amendment  thereof),  (ii) the rights and interest of
the Authority under the Tax Regulatory Agreement (as defined herein), subject to
a  reservation  by  the  Authority  of a  right  to  independently  enforce  the
obligations  of  the  Company  thereunder  and  to the  provisions  of  the  Tax
Regulatory  Agreement relating to the amendment  thereof,  (iii) the proceeds of
sale of the Bonds and (iv) all funds held by the Trustee under the Indenture and
available for the payment of Bonds under the terms of the  Indenture  (expressly
not  including  in such  funds the  Rebate  Fund) and the  income  earned by the
investment of such funds held under the  Indenture;  in addition,  the Authority
hereby  grants the Trustee the same power as the  Authority to enforce from time
to time the rights of the Authority set forth in Article III and Section 5.16 of
the  Participation  Agreement,  subject to the  provisions of the  Participation
Agreement relating to the amendment thereof.
<PAGE>

            THIS INDENTURE  FURTHER  WITNESSETH,  and it is expressly  declared,
that all Bonds from time to time issued and secured  hereunder are to be issued,
authenticated  and  delivered,  and all  said  property,  rights  and  interest,
including,  without limitation,  the amounts hereby assigned and pledged, are to
be dealt with and  disposed  of subject to the terms of the  Indenture,  and the
Authority agrees with the Trustee and with the respective  owners,  from time to
time, of said Bonds or any part thereof as follows:




<PAGE>


                                   ARTICLE I

                      DEFINITIONS; LIABILITY UNDER BONDS;
                       INDENTURE TO CONSTITUTE CONTRACT

            Section  1.01  DEFINITIONS.  The terms  defined in this Section 1.01
shall for all  purposes of the  Indenture  have the meanings  herein  specified,
unless the context clearly otherwise requires:

            ACT shall mean the New York State Energy  Research  and  Development
Authority Act, Title 9 of Article 8 of the Public  Authorities  Law of the State
of New York, as from time to time amended and supplemented.

            ACT OF BANKRUPTCY  shall mean the filing of a petition  commencing a
case by or against the Company or any of its  Affiliates or the Authority  under
the United States Bankruptcy Code, Title 11, United States Code, as the same may
be amended from time to time, or any successor  law, or the filing of a petition
or the seeking of relief by or against the  Company or the  Authority  under any
state bankruptcy or insolvency law.

            ADMINISTRATION FEES shall mean the amounts payable by the Company to
the Authority pursuant to Section 4.04 of the Participation  Agreement to defray
a  portion  of  the  expenses  incurred  by  the  Authority  in  conducting  and
administering  its special energy project programs and the amount payable to the
State of New York as a bond issuance charge in connection with the Bonds.

            AFFILIATE  of any  specified  Person  shall  mean any  other  Person
directly or indirectly  controlling or controlled by or under direct or indirect
common  control with such  specified  Person.  For purposes of this  definition,
"control"  when used with  respect to any  specified  Person  means the power to
direct the  management  and  policies of such  Person,  directly or  indirectly,
whether  through the ownership of voting  securities,  by contract or otherwise,
and the terms  "controlling" and "controlled"  have meanings  correlative to the
foregoing.

            ALTERNATE CREDIT FACILITY shall mean any instrument  satisfactory to
the Authority,  such as a letter of credit,  committed line of credit, insurance
policy,  surety bond or standby bond purchase  agreement,  or any combination of
the foregoing,  and issued by a bank or banks,  insurance  company or companies,
other  financial  institution  or  institutions,   or  any  combination  of  the
foregoing,  which Alternate Credit Facility  provides for the payment of (i) the
purchase price equal to the principal of and accrued interest on Bonds delivered
to the  Remarketing  Agents or any  depository  or other  party  pursuant to the
provisions hereof or of a Remarketing  Agreement and discount,  if any, incurred
in  remarketing  such Bonds,  and/or (ii) principal of and interest on all Bonds
coming due and payable  during the term thereof,  and is issued in  substitution
for and having, in all material respects, the same terms as the Letter of Credit
in  accordance  with,  and  pursuant  to,  Section  4.12  of  the  Participation
Agreement.

<PAGE>


            AUTHORITY  shall mean New York State Energy Research and Development
Authority, the public benefit corporation created by the Act, and its successors
and assigns.

            AUTHORIZED  COMPANY  REPRESENTATIVE  shall mean any officer or other
employee of the Company at the time  designated  to act on behalf of the Company
by written certificate furnished to the Authority and the Trustee containing the
specimen  signature  of such  person and signed on behalf of the  Company by its
President,  Senior  Vice  President  or a  Vice  President  and  its  Treasurer,
Assistant Treasurer, Secretary or an Assistant Secretary.

            AUTHORIZED  DENOMINATION  means (a) during any Weekly Rate Period or
any Commercial Paper Rate Period, $100,000 or any larger multiple of $5,000, and
(b) during any Semi-Annual Rate Period, any Medium-Term Rate Period or the Fixed
Rate  Period,  $5,000 or any  integral  multiple  thereof.  Notwithstanding  the
foregoing,  at  the  time  of  any  conversion  to a  Semi-Annual  Rate  Period,
Medium-Term  Rate Period or the Fixed Rate Period,  the Authority at the written
request of the Company may direct the Trustee to authenticate  and deliver Bonds
only in  denominations  of $100,000 or any larger multiple of $5,000 during such
Rate Period.

            AUTHORIZED  OFFICER  means the Chair,  Vice Chair,  President,  Vice
President and Treasurer,  Assistant Treasurer or Vice President and Secretary of
the Authority.

            AVAILABLE  MONEYS  shall  mean (a) with  respect to any date for the
payment of principal,  premium,  if any, interest or Purchase Price on the Bonds
occurring  during the term of the Letter of  Credit,  moneys  which have been on
deposit with the Trustee,  the Tender Agent or the Paying Agent in the Bond Fund
or in a  separate  and  segregated  account  for the  purpose of  purchasing  or
redeeming  Bonds  for at least  123  days  during  and  prior to which no Act of
Bankruptcy,  as  evidenced  by a  certificate  of the Company and the  Authority
respectively, shall have occurred unless the proceeding arising from such Act of
Bankruptcy  shall have been dismissed and such dismissal  shall be final and not
subject to appeal,  and the proceeds from the investment  thereof,  and (b) with
respect to any date for the payment of principal,  interest or premium,  if any,
on the Bonds not occurring  during the term of the Letter of Credit,  any moneys
furnished to the Trustee and the proceeds from the investment thereof.

            BANK means The Toronto-Dominion  Bank, Houston Agency, the issuer of
the initial Letter of Credit, in its capacity as issuer of the Letter of Credit,
the issuer of any Alternate Credit Facility and each of their successors in such
capacity.

            BOND or BONDS shall mean any bond or bonds or all the bonds,  as the
case may be, of the Authority  executed,  authenticated  and delivered under the
Indenture.

            BOND COUNSEL  shall mean an attorney or firm or firms of  attorneys,
satisfactory  to the Authority and the Trustee,  experienced in laws relating to
tax exemption of interest on bonds of states and their political subdivisions.


<PAGE>

            BOND FUND shall mean the Bond Fund created in Section 6.01.

            BOND REGISTER shall have the meaning specified in Section 2.11.

            BOND YEAR shall mean each  one-year  period (or shorter  period from
the issue date) that ends at the close of business each December 1.

            BUSINESS DAY means any day other than (1) Saturday or Sunday,  (2) a
day of the year on which banks located in (i) The City of New York, New York, or
(ii) the city in which the Corporate  Trust Office of the Trustee is located are
authorized or obligated by law or executive  order to remain closed,  or (3) any
other day not defined as a "business day" under the Letter of Credit.

            CALCULATION  PERIOD  shall  mean  during any  Commercial  Paper Rate
Period, any period or periods from and including a Business Day to and including
any day not more than 364  (during  any year  other  than a "leap  year") or 365
(during any "leap year") days,  as the case may be,  thereafter,  which is a day
immediately  preceding a Business  Day  established  by the  Remarketing  Agents
pursuant to Section 2.03(d).

            CODE shall mean the Internal  Revenue Code of 1986, as amended,  and
the rules and regulations  promulgated  thereunder or officially  proposed to be
promulgated thereunder.

            COMMERCIAL  PAPER  RATE  shall  mean an  interest  rate  established
pursuant to Section 2.03(d).

            COMMERCIAL PAPER RATE INDEX shall mean with respect to the first day
of each Calculation Period during a Commercial Paper Rate Period, the average of
yield  evaluations  at par,  determined  by the Indexing  Agent,  of  securities
(whether  or not  actually  issued)  all of which  shall  have a term as near as
practicable  to such  Calculation  Period or which are  subject to  optional  or
mandatory  tender  by the  owner  thereof  at  the  end of a  term  as  near  as
practicable to such Calculation Period, the interest on which is not included in
gross income for federal income tax purposes,  of no fewer than twenty Component
Issuers selected by the Indexing Agent,  including  issuers of commercial paper,
project notes, bond anticipation notes and tax anticipation  notes,  computed by
the  Indexing  Agent on and as of such  day.  If the Bonds are rated by a Rating
Agency or are  subject to the  benefits  of a Letter of Credit and the issuer of
such  Letter of Credit  has  issued  letters  of credit to  support  other  debt
obligations  rated by a Rating  Agency in its highest note or  commercial  paper
rating category or one of its two highest long-term debt rating categories, each
Component Issuer must (a) have  outstanding  securities rated by a Rating Agency
in its  highest  note or  commercial  paper  rating  category  or (b)  not  have
outstanding  notes  or  commercial  paper  rated  by a  Rating  Agency  but have
outstanding  securities  rated  by a  Rating  Agency  in one of its two  highest
long-term  debt  rating  categories.  If the  Bonds  or other  debt  obligations
supported by letters of credit  issued by the Bank are rated by a Rating  Agency
in a rating  category  that is lower than its highest note or  commercial  paper

<PAGE>


rating  category or its two highest  long-term debt rating  categories  (and the
Bonds or other debt  obligations  supported  by letters of credit  issued by the
Bank are not rated in one of such categories by the other Rating  Agency),  each
Component Issuer must (a) have  outstanding  securities rated by a Rating Agency
in  its  note  or  commercial  paper  rating  category  which  is  the  same  or
correlative,  in the Indexing Agent's judgment,  to the note or commercial paper
rating  category or the long-term debt rating category of the Bonds or the other
debt  obligations  supported by letters of credit issued by the Bank or (b) have
outstanding  securities  rated by a Rating  Agency  in the same  long-term  debt
rating category as the Bonds or the other debt obligations  supported by letters
of credit  issued by the Bank are rated by that  Rating  Agency and not have any
outstanding notes or commercial paper rated by such Rating Agency.  The Indexing
Agent may  change the  Component  Issuers  from time to time in its  discretion,
subject to the foregoing  requirements.  In addition,  at the written request of
the Company and upon delivery to the Trustee of an Opinion of Bond Counsel that,
under then-existing statutes and court decisions, such action will not adversely
affect the  exclusion  of interest on the Bonds from gross  income of the owners
thereof for federal income tax purposes, the Authority,  with the consent of the
Company,  may designate a new method of setting the Commercial  Paper Rate Index
in the event any of the above-described  methods are determined by the Authority
to be unavailable, impracticable or unrealistic in the marketplace.

            COMMERCIAL  PAPER RATE PERIOD means  Commercial Paper Rate Period as
defined in Section 2.03(d).

            COMMERCIAL PAPER RATE PERIOD RECORD DATE shall mean, with respect to
each Interest Payment Date during a Commercial  Paper Rate Period,  the Business
Day next preceding such Interest Payment Date.

            COMPANY shall mean Long Island Lighting Company,  or any corporation
which is the  surviving,  resulting  or  transferee  corporation  in any merger,
consolidation or transfer of assets permitted under the Participation  Agreement
or any permitted assignee under Section 5.17 of the Participation Agreement.

            COMPANY  INDENTURE  shall mean the General and  Refunding  Indenture
dated as of June 1, 1975, from the Company to United States Trust Company of New
York (formerly  Manufacturers  Hanover Trust Company),  as successor trustee, as
amended and supplemented.

            COMPANY NOTE shall mean the promissory note of the Company  executed
and  delivered to the Trustee as provided in Section  4.01 of the  Participation
Agreement.

            COMPANY NOTE PAYMENTS shall mean the amounts  payable by the Company
under the Company Note.

            COMPLETED OR COMPLETION,  when used with reference to the Project as
of a stated date, shall mean that the Project has been constructed substantially
in accordance with the description  thereof  (notwithstanding  that  substantial
additions  or  modifications  thereto  are  planned,  and  notwithstanding  that
additional  licensing or testing may be required  with respect to the  Project),
and that the Company does not intend to submit any further requisitions pursuant
to Section 3.03 of the Participation Agreement with respect to the Project.

<PAGE>


            COMPLETION  DATE  shall  mean the date  specified  by an  Authorized
Company Representative pursuant to Section 3.05 of the Participation Agreement.

            COMPONENT ISSUERS means issuers of securities, the interest on which
is excluded from gross income for federal  income tax purposes,  selected by the
Indexing Agent in accordance with the Indenture.

            COMPUTATION  PERIOD shall have the meaning  ascribed to such term in
the Tax Regulatory Agreement.

            CONSTRUCTION,  when used with respect to the Project, shall include,
without  limitation,  the construction,  acquisition and/or  installation of the
Project.

            CONVERSION   DATE  means  each  day  on  which  the  Interest   Rate
Determination  Method  applicable  to the  Bonds  shall  be  converted  from one
Interest Rate  Determination  Method to a different  Interest Rate Determination
Method or each day on which the  interest  rate on the Bonds shall be  converted
from a Medium-Term Rate applicable for a Medium-Term Rate Period of one duration
to a Medium-Term  Rate  applicable for a Medium-Term  Rate Period of a different
duration,  as the case may be, in accordance  with Section 2.04. With respect to
notices,  time periods and  requirements  in connection with the proceedings for
such  conversion,  "Conversion  Date" means the day on which it is proposed that
such conversion occur.

            CONVERSION  NOTICE  shall  have the  meaning  set  forth in  Section
2.04(a)(1).

            CORPORATE  TRUST OFFICE,  when used in connection  with the Trustee,
shall  mean the  office  of the  Trustee  at which  at any  particular  time its
corporate trust business shall be principally administered,  which office at the
date hereof is located at 450 West 33rd Street,  15th Floor,  New York, New York
10001, Attention:  Corporate Trustee Administration  Department and when used in
connection  with the Tender Agent shall mean its principal  office located at 55
Water Street, Room 234, North Building, New York, New York 10041, Attention:
Corporate Tellers.

            COST OF CONSTRUCTION shall mean all costs incurred by the Company at
any time prior to or after  delivery of the Bonds for or in connection  with the
construction  of the  Project  and shall  include,  but not be  limited  to, (a)
obligations  of the Company  incurred for labor,  services,  materials and other
expenses and to  contractors,  builders and  materialmen in connection  with the


<PAGE>

construction of the Project;  (b) the cost of acquiring necessary land or rights
in land and any costs incidental thereto;  (c) the cost of contract bonds and of
insurance of all kinds that may be required or necessary prior to the Completion
Date which is not paid by the contractor or  contractors  or otherwise  provided
for; (d) expenses of the Company (including overhead charges) in connection with
the  preparation  of plans and  specifications  for the Project  (including  any
architectural,  engineering  or  other  professional  fees  or the  cost  of any
preliminary  investigations for the Project), and for supervising  construction,
as well as for the performance of all other duties required by or appropriate to
the  construction  of the  Project;  (e) the  fees,  compensation  and  expenses
(including reasonable counsel fees) of the Trustee, the Tender Agent, the Paying
Agent, the Bank, the Indexing Agent and the Remarketing Agents incurred prior to
the  Completion  Date  of the  Project  and  the  legal,  accounting,  financial
(including  compensation to underwriters),  printing, bond rating and other fees
and expenses incurred in connection with the issuance,  purchase and sale of the
Bonds or any other obligations  issued or incurred by the Authority  pursuant to
an agreement with the Company in connection with the Project, including, but not
limited  to, the  Administration  Fees or any other fees of the  Authority;  (f)
taxes,  assessments  and other charges,  if any,  payable in connection with the
construction  and  owning  of the  Project  prior to the  Completion  Date;  (g)
interest  due and  payable  on the  Bonds or any  other  obligations  issued  or
incurred by the  Authority  pursuant to an agreement  with the Company or by the
Company in connection with the Project from the date of issuance  thereof to the
Completion  Date of the  Project;  (h) the  costs of  testing  the  Project  and
obtaining any required permit, consent,  license or approval for the Project, to
the extent such costs shall have been incurred prior to the Completion Date; (i)
any amount payable to the United States of America in connection  with the Bonds
pursuant to Section  148(f) of the Code;  and (j) any sums required to reimburse
the Company for advances  and payments  made by it at any time prior to or after
delivery of the Bonds for any of the above items, or for any other cost incurred
or work done by the Company with respect to the Project.

            DEBT  SERVICE  ACCOUNT  shall  mean the  account in the Bond Fund so
designated and created pursuant to Section 6.01.

            DESCRIPTION, when used with reference to the Project, shall mean the
description  of the Project  set forth in Exhibits A and B to the  Participation
Agreement,   as  such   description  may  be  amended  in  accordance  with  the
Participation Agreement.

            DETERMINATION  DATE  shall  mean the first  day of each  Calculation
Period.

            ELECTRIC  FACILITIES  shall mean  facilities  of the Company for the
furnishing  of electric  energy  which are  required  by the public  interest in
development,  health, recreation,  safety,  conservation of natural resources or
aesthetics or which  constitute  "special energy projects" within the meaning of
the Act and which  constitute  facilities  for the local  furnishing of electric
energy or other "exempt  facilities"  within the meaning of Section 142(a)(8) of
the Code.

            EVENT OF  DEFAULT  shall  mean any  event of  default  specified  in
Section 10.01.

<PAGE>


            FIRST INTEREST PERIOD means the period  described as such in Section
2.03(a).

            FIXED RATE  means the Fixed  Rate  established  in  accordance  with
Section 2.03(f).

            FIXED RATE PERIOD means the period from and including the Fixed Rate
Conversion Date to and including the date of maturity of the Bonds.

            FIXED RATE  CONVERSION  DATE means the Conversion  Date on which the
interest rate on the Bonds shall be converted to the Fixed Rate.

            FIXED RATE INDEX means the average of the yield  evaluations (on the
basis of full coupon securities trading at par with a term  approximately  equal
to the Fixed Rate Period) of securities  (whether or not actually  issued),  the
interest  on which is not  included  in gross  income  for  federal  income  tax
purposes,  of not fewer than twenty component  issues,  which shall be issues of
bonds  selected by the Indexing Agent and which have a rating by a Rating Agency
in the same rating  category as the bonds of the Authority  secured by unsecured
promissory  notes of the Company are rated at the time by such rating agency (or
if the Bonds are to be supported by some form of credit enhancement,  which have
a rating by a Rating  Agency  in the same  rating  category  as the Bonds of the
Authority  supported  by such credit  enhancement  are rated at the time by such
Rating  Agency) or, if no such bonds are so rated,  shall be debt which,  in the
judgment of the Indexing Agent, is of credit quality  comparable to that of such
bonds,  computed by the Indexing Agent on the day described in Section  2.03(f).
In the event that the  Indexing  Agent fails to compute the Fixed Rate Index and
no other  qualified  municipal  securities  evaluation  service can be appointed
Indexing Agent by the Authority, the Fixed Rate Index shall be determined by the
Remarketing  Agents  and shall be 90% of the  average  yield  shown for the most
recent  calendar month for United States Treasury Notes or Bonds having the same
number of years to maturity as the number of 12-month  periods (or months if the
Fixed Rate Period is less than one year) in the Fixed Rate Period,  as published
in the Federal Reserve  Bulletin in the last issue before the Computation  Date.
If that  issue  does not  contain  such a yield,  the Fixed  Rate  Index will be
determined  by linear  interpolation  between the yields shown in that issue for
United States  Treasury  Notes and Bonds having the next shorter and next longer
number of years (or  months) to  maturity.  In  addition,  at the request of the
Company and upon delivery to the Trustee of an Opinion of Bond Counsel that such
action will not  adversely  affect the  exclusion  of interest on the Bonds from
gross  income of the  owners  thereof  for  federal  income  tax  purposes,  the
Authority  may  designate  a new method of  setting  the Fixed Rate Index in the
event any of the  above-described  methods  are  unavailable,  impracticable  or
unrealistic in the market place.

            INDENTURE  shall mean the  Indenture of Trust,  as from time to time
amended or supplemented in accordance with the terms hereof.

            INDEXING AGENT shall mean the indexing agent appointed in accordance
with Section 15.03,  and its successor or successors  appointed  pursuant to the
provisions of the Indenture.


<PAGE>


            INTEREST  PAYMENT DATE means (i) during any Weekly Rate Period,  the
first  Business Day of each calendar  month,  commencing on February 2, 1998 for
the first  Weekly Rate  Period;  (ii) each  Conversion  Date;  (iii)  during any
Semi-Annual  Rate Period or Medium-Term Rate Period the first day of each of two
months  which  are  six  months  apart,  as  specified  in a  certificate  of an
Authorized  Officer  delivered  to the  Trustee  prior to the  Conversions  to a
SemiAnnual Rate Period or Medium-Term  Rate Period,  provided,  however,  if the
last such day  occurring  in any  Semi-Annual  Rate Period is not a Business Day
then the first  Business  Day  thereafter  shall be the Interest  Payment  Date,
provided,  further,  however, if any Interest Payment Date in a Semi-Annual Rate
Period,  determined as set forth above, would cause such Semi-Annual Rate Period
to extend for a period in excess of 182 days, the Interest Payment Date for such
Semi-Annual  Rate Period shall be the last  Business Day  occurring  within such
SemiAnnual  Rate  Period  that does not cause such  Semi-Annual  Rate  Period to
exceed 182 days in duration  and  provided  further,  however,  that the initial
Interest  Payment Date in a Medium-Term Rate Period shall be a date which is not
in excess of 182 days from the  Conversion  Date;  (iv)  during  the Fixed  Rate
Period,  each June 1 and  December  1; (v)  during  each  Commercial  Paper Rate
Period,  the  first  Business  Day after any  Calculation  Period;  and (vi) the
Maturity  Date.  With respect to the First Interest  Period,  the first Interest
Payment Date will be the first  Business Day of February  1998.  If prior to the
conversion to a Semi-Annual  Rate Period,  Medium-Term Rate Period or Fixed Rate
Period, an Officer's  Certificate  shall be delivered to the Trustee  specifying
different  Interest  Payment Dates for such Rate Period together with an Opinion
of Bond Counsel to the effect that such adjustment will not adversely affect the
exclusion  of  interest on the Bonds from gross  income for  federal  income tax
purposes,  then the  Interest  Payment  Dates for such Rate  Period  shall be so
adjusted;  PROVIDED,  however,  that  no such  adjustment  shall  result  in the
establishment of Interest Payment Dates between which more than six months would
pass.

            INTEREST  PERIOD  means the period from and  including  any Interest
Payment Date to and  including the day next  preceding  the  following  Interest
Payment Date.

            INTEREST  RATE  DETERMINATION  METHOD  means any of the  methods  of
determining the interest rate on the Bonds described in Section 2.03.

            ISSUE  DATE means the date on which the Bonds are  delivered  to the
purchaser or purchasers thereof upon original issuance.

            INVESTMENT  OBLIGATIONS shall have the meaning assigned to that term
in Section 14.01.2.

            LETTER OF CREDIT shall mean that irrevocable letter of credit issued
and  delivered to the Trustee  pursuant to, and in the form of Exhibit A to, the
Reimbursement Agreement (including any extensions of such letter of credit) and,
upon the  issuance  and delivery of an  Alternate  Credit  Facility,  "Letter of
Credit" shall mean such Alternate Credit Facility.


<PAGE>


            LETTER OF CREDIT  ACCOUNT shall mean the account in the Bond Fund so
designated and created pursuant to Section 6.01.

            MANDATORY PURCHASE DATE means a date on which the Bonds are required
to be purchased in accordance with Section 2.05(e).

            MATURITY DATE shall mean December 1, 2027.

            MEDIUM-TERM  ADJUSTMENT DATE means the first day of each Medium-Term
Rate  Period  that  does not  occur on a  Conversion  Date and as of which a new
interest rate is established pursuant to Section 2.03(e).

            MEDIUM-TERM  RATE means the interest  rate on the Bonds  established
from time to time under Section 2.03(e).

            MEDIUM-TERM RATE INDEX means the average of the yield evaluations at
par,  determined by the Indexing Agent,  of securities  (whether or not actually
issued),  having a term  approximately  equal to the Medium-Term  Rate Period or
which are subject to optional or  mandatory  tender by the owner  thereof at the
end of a term approximately  equal to the Medium- Term Rate Period, the interest
on which is not included in gross income for federal income tax purposes,  of at
least twenty Component  Issuers selected by the Indexing Agent,  computed by the
Indexing  Agent  as of the  Business  Day  preceding  each  date  on  which  the
Medium-Term  Rate is determined by the  Remarketing  Agents.  When the Bonds are
rated by a Rating  Agency or shall be  subject  to the  benefits  of a Letter of
Credit  and the  Bank has  issued  letters  of  credit  to  support  other  debt
obligations  rated by a Rating Agency in one of its two highest  long-term  debt
rating categories,  each Component Issuer must have outstanding securities rated
by a Rating Agency in one of its two highest  long-term debt rating  categories.
If the Bonds or other debt obligations  supported by letters of credit issued by
the Bank are rated by a Rating  Agency in a rating  category  that is lower than
its two highest  long-term debt rating  categories  (and the Bonds or other debt
obligations  supported by letters of credit  issued by the Bank are not rated in
one of the two  highest  such  categories  by the  other  Rating  Agency),  each
Component  Issuer must have  outstanding  securities rated by a Rating Agency in
the same long-term debt rating  category as the Bonds or other debt  obligations
supported  by letters of credit  issued by the Bank as are rated by that  Rating
Agency. The Indexing Agent may change the Component Issuers from time to time in
its  discretion,  subject to the  foregoing  requirements.  In addition,  at the
request of the  Company  and upon  delivery to the Trustee of an Opinion of Bond
Counsel that such action will not adversely  affect the exclusion of interest on
the Bonds  from  gross  income of the  owners  thereof  for  federal  income tax
purposes,  the Authority  may designate a new method of setting the  Medium-Term
Rate  Index in the event any of the  above-described  methods  are  unavailable,
impracticable or unrealistic in the market place.

<PAGE>


            MEDIUM-TERM RATE PERIOD means Medium-Term Rate Period as defined in
Section 2.03(e).

            MOODY'S shall mean Moody's  Investors  Service,  Inc., a corporation
organized and existing  under the laws of the State of Delaware,  its successors
and their assigns,  and, if such corporation shall be dissolved or liquidated or
shall no longer perform the functions of a securities  rating agency,  "Moody's"
shall be deemed to refer to any other nationally  recognized  securities  rating
agency designated by the Authority, with the approval of the Company, by written
notice to the Trustee,  the  Company,  the  Remarketing  Agents and the Indexing
Agent.

            OFFICER'S   CERTIFICATE  shall  mean  a  certificate  signed  by  an
Authorized Officer.

            OPINION  OF  BOND  COUNSEL  shall  mean a  written  opinion  of Bond
Counsel.

            OPTIONAL  RETENTION  DATE means each day which is one  Business  Day
prior to each Mandatory  Purchase Date established  pursuant to Section 2.05(e).
Nothing in the  Indenture  shall be deemed to provide  any  Bondowner  the right
contrary to Section  2.05(e)(4)  to retain Bonds  subject to mandatory  purchase
under Section 2.05(e).

            OPTIONAL RETENTION NOTICE DATE means the fifth Business Day prior to
a Mandatory Purchase Date.

            OPTIONAL  TENDER DATE means (i) during any Weekly Rate  Period,  any
Business  Day;  PROVIDED  that such  Business  Day is at least  seven days after
notice of such tender is delivered in accordance with Section 2.05(a),  and (ii)
during any Semi-Annual Rate Period,  each Interest  Payment Date;  provided that
notice of such tender has been given in accordance with Section 2.05(b).

            OTHER FACILITIES shall mean the facilities described in Exhibit B to
the Participation Agreement.

            OUTSTANDING,  when used with  reference to Bonds,  shall mean, as of
any  particular  date,  the aggregate of all Bonds  authenticated  and delivered
under the Indenture, except

               (a) Bonds  cancelled  by the Trustee or  delivered to the Trustee
          for cancellation at or prior to such date;

                  (b) Bonds for the  payment or  redemption  of which  Available
            Moneys in the necessary amount have been theretofore  deposited with
            the  Trustee  or the  Paying  Agent for the  owners  of such  Bonds,
            provided  that if such  Bonds  are to be  redeemed,  notice  of such
            redemption  has  been  duly  given  pursuant  to  the  Indenture  or
            provision therefor satisfactory to the Trustee has been made;

<PAGE>


               (c) Bonds paid or deemed to be paid as provided in Section 14.01;
          and

                  (d) Bonds in lieu of or in substitution  for which other Bonds
            shall  have  been   authenticated  and  delivered  pursuant  to  the
            Indenture,  unless  proof  satisfactory  to  the  Trustee  shall  be
            presented  that any such Bond shall be held by a bona fide purchaser
            (as such term is defined in the Uniform Commercial Code of the State
            of New York);

provided,  however,  that in  determining  whether  the owners of the  requisite
principal  amount  of  Bonds   outstanding  have  given  any  request,   demand,
authorization, direction, notice, consent or waiver hereunder, Bonds held by the
Tender Agent or held by or for the account of the Company  shall be  disregarded
and  deemed not to be  outstanding,  except,  that in  determining  whether  the
Trustee  shall  be  protected  in  relying  upon  any  such   request,   demand,
authorization,  direction,  notice,  consent  or  waiver,  only  Bonds  which  a
Responsible  Officer of the Trustee knows to be so held shall be so disregarded.
Bonds  so held  which  have  been  pledged  in good  faith  may be  regarded  as
outstanding if the pledgee  establishes to the  satisfaction  of the Trustee the
pledgee's right so to act with respect to such Bonds and that the pledgee is not
the Company and that the pledgee is not holding for the account of the Company.

            OWNER OR BONDOWNER  OR, when used with respect to an owner of Bonds,
OWNER shall mean the Registered Owner of any Bond.

            PARTICIPATION AGREEMENT shall mean the Participation Agreement dated
as of December 1, 1997,  between the Authority  and the Company,  as amended and
supplemented by Supplemental Participation Agreements from time to time.

            PAYING AGENT shall mean any paying agent or co-paying  agent for the
Bonds (and may include the Trustee) and its  successor or  successors  appointed
pursuant to the provisions of the Indenture.

            PERSON shall mean an  individual,  a corporation,  a partnership,  a
limited liability company,  an association,  a joint stock company, a trust, any
unincorporated organization or a government or political subdivision thereof.

            PROJECT shall mean the Electric Facilities described in Exhibit A to
the Participation Agreement and the Other Facilities.

            PROJECT FUND shall mean the Project Fund created in Section 5.01.

            PURCHASE DATE means any Mandatory  Purchase Date,  Conversion  Date,
Medium- Term Adjustment Date or any date on which Bonds are subject to mandatory
tender for  purchase  pursuant  to Section  2.05(d),  Section  2.05(e),  Section
2.05(g) or Section 2.05(j).

<PAGE>



            PURCHASE PRICE means an amount equal to 100% of the principal amount
of any Bond  tendered  or deemed  tendered  to the  Tender  Agent  for  purchase
pursuant  to  Section  2.05  (or an  amount  equal  to any  applicable  optional
redemption  price on such date if such Bonds are to be purchased on a Conversion
Date  occurring  during a  Medium-Term  Rate Period in  accordance  with Section
2.04),  plus  accrued  and  unpaid  interest  thereon  to the date of  purchase;
PROVIDED,  HOWEVER,  if the date of such  purchase  occurs after the Record Date
applicable to the interest accrued on such Bond from the last occurring Interest
Payment  Date,  then the  Purchase  Price shall not  include  accrued and unpaid
interest,  which shall be paid to the owner of record on the  applicable  Record
Date.

            RATE means the Weekly Rate, Commercial Paper Rate, Semi-Annual Rate,
Medium-Term Rate or Fixed Rate.

            RATE INDEX means the Weekly Rate Index,  the Semi-Annual Rate Index,
the Medium-Term  Rate Index,  the Commercial  Paper Rate Index or the Fixed Rate
Index.

            RATE PERIOD means any Weekly Rate Period,  Semi-Annual  Rate Period,
Medium- Term Rate Period, Commercial Paper Rate Period or Fixed Rate Period.

            RATING  AGENCY  means,  to the extent that such  entity  maintains a
current rating on the Bonds, Moody's or S&P.

            RATING CATEGORY shall mean one of the generic rating categories of a
Rating  Agency,  without  regard to any  refinement  or gradation of such rating
category by a numerical modifier, plus or minus sign, or otherwise.

            REBATE  AMOUNT  shall have the meaning  ascribed to such term in the
Tax Regulatory Agreement.

            REBATE FUND shall mean the Rebate Fund created in Section 5.07.

            RECORD DATE means with  respect to each  Interest  Payment  Date (i)
during any Weekly Rate Period or Commercial Paper Rate Period,  the Business Day
next preceding such Interest  Payment Date, and (ii) during any Semi-Annual Rate
Period or Medium-Term  Rate Period or Fixed Rate Period,  the Trustee's close of
business on the fifteenth day of the calendar month next preceding such Interest
Payment Date, regardless of whether such day is a Business Day.

            REGISTERED  OWNER  shall mean the Person or Persons in whose name or
names the particular Bond shall be registered on the Bond Register.

            REIMBURSEMENT AGREEMENT means the Letter of Credit and Reimbursement
Agreement   dated  as  of  December   30,  1997,   between  the   Company,   The
Toronto-Dominion  Bank,  Houston  Agency,  individually  and as issuing bank and
Toronto-Dominion  (Texas),  Inc.,  as  agent  and  any  and  all  modifications,
alterations,  amendments  and  supplements  thereto  and,  upon the issuance and
delivery of an Alternate Credit Facility,  "Reimbursement  Agreement" shall mean
the letter of credit and reimbursement agreement (or other document performing a
similar function) relating to such Alternate Credit Facility.


<PAGE>


            REMARKETING  AGENTS means the remarketing  agent or agents appointed
in accordance  with Section  15.01,  and any  successor or successors  appointed
pursuant to the provisions of the Indenture.

            REMARKETING  AGREEMENT  shall mean the  Remarketing  Agreement  with
respect  to a  particular  Interest  Rate  Determination  Method  then in effect
between the Company and the Remarketing Agents.

            RESPONSIBLE OFFICER, when used with respect to the Trustee, means an
officer  of  the  Trustee  assigned  to  the  Corporate  Trustee  Administration
Department  of the Trustee to whom any matter is referred  because of his or her
knowledge of and familiarity with the particular subject.

            S&P shall mean  Standard & Poor's  Ratings  Services,  a division of
McGraw-Hill   Companies,   its  successors  and  their  assigns,  and,  if  such
corporation  shall be dissolved  or  liquidated  or shall no longer  perform the
functions of a securities  rating agency,  "S&P" shall be deemed to refer to any
other  nationally   recognized   securities  rating  agency  designated  by  the
Authority,  with the  approval of the  Company,  by notice to the  Trustee,  the
Company, the Remarketing Agents and the Indexing Agent.

            SECURITIES   DEPOSITORY  means  a  Bondowner  acting  as  a  central
securities depository as provided in Section 2.11(b).

            SEMI-ANNUAL  ADJUSTMENT  DATE means  Semi-Annual  Adjustment Date as
defined in Section 2.03(c).

            SEMI-ANNUAL  RATE means the interest  rate on the Bonds  established
from time to time pursuant to Section 2.03(c).

            SEMI-ANNUAL   RATE  INDEX  means  the  average  of  six-month  yield
evaluations at par,  determined by the Indexing Agent, of securities (whether or
not actually issued),  the interest on which is not included in gross income for
federal income tax purposes,  of at least twenty  Component  Issuers selected by
the Indexing Agent,  including issuers of commercial paper,  project notes, bond
anticipation notes and tax anticipation notes, computed by the Indexing Agent as
of the Business Day next  preceding each date on which the  Semi-Annual  Rate is
determined  by the  Remarketing  Agents.  When the  Bonds  are rated by a Rating
Agency or shall be  subject to the  benefits  of a Letter of Credit and the Bank

<PAGE>


has issued letters of credit to support other debt obligations rated by a Rating
Agency in its highest note or commercial paper rating category or one of its two
highest  long-term debt rating  categories,  each Component Issuer must (a) have
outstanding  securities  rated  by a  Rating  Agency  in  its  highest  note  or
commercial paper rating category or (b) not have outstanding notes or commercial
paper rated by a Rating Agency but have outstanding securities rated by a Rating
Agency in one of its two highest long-term debt rating categories.  If the Bonds
or other debt obligations  supported by letters of credit issued by the Bank are
rated by a Rating  Agency in a rating  category  that is lower than its  highest
note or  commercial  paper  rating  category or its two highest  long-term  debt
rating categories (and the Bonds or other debt obligations  supported by letters
of  credit  issued by the Bank are not  rated in one of such  categories  by the
other Rating Agency), each Component Issuer must (a) have outstanding securities
rated by a Rating Agency in its note or commercial  paper rating  category which
is the same or correlative,  in the Indexing  Agent's  judgment,  to the note or
commercial  paper rating  category or the long-term debt rating  category of the
Bonds or other debt  obligations  supported  by letters of credit  issued by the
Bank or (b) have  outstanding  securities  rated by a Rating  Agency in the same
long-term  debt  rating  category  as the  Bonds or the other  debt  obligations
supported  by  letters  of credit  issued  by the Bank are rated by that  Rating
Agency and not have any  outstanding  notes or  commercial  paper  rated by such
Rating Agency.  The Indexing Agent may change the Component Issuers from time to
time in its discretion,  subject to the foregoing requirements.  In addition, at
the  request of the  Company  and upon  delivery to the Trustee of an Opinion of
Bond  Counsel  that such  action  will not  adversely  affect the  exclusion  of
interest on the Bonds from gross income of the owners thereof for federal income
tax  purposes,  the  Authority  may  designate  a  new  method  of  setting  the
Semi-Annual  Rate  Index in the event  any of the  above-described  methods  are
unavailable, impracticable or unrealistic in the market place.

            SEMI-ANNUAL RATE PERIOD means Semi-Annual Rate Period as defined in
Section 2.03(c).

            SUBSERIES  means any  Subseries  of Bonds  established  pursuant  to
Section 2.01 and  references  to the Bonds of any  Subseries  shall  include all
Bonds at any particular  point in time designated as the Bonds of such Subseries
in accordance with the provisions of the Indenture.

            SUPPLEMENTAL  INDENTURE  shall mean any indenture  supplementary  or
amendatory  to the  Indenture  now or hereafter  duly  executed and delivered in
accordance with the provisions hereof.

            SUPPLEMENTAL   PARTICIPATION   AGREEMENT  shall  mean  an  agreement
supplementing or amending the Participation Agreement.

            TAX REGULATORY  AGREEMENT  shall mean the Tax  Regulatory  Agreement
dated the date of the original  issuance of the Bonds  between the Authority and
the  Company  and  any  and  all  modifications,   alterations,  amendments  and
supplements thereto.


<PAGE>

            TENDER  AGENT  shall  mean  The  Chase  Manhattan  Bank,  a  banking
corporation  organized  under  the laws of the  State of New  York,  having  its
principal  office  in The City of New  York,  New  York,  and its  successor  or
successors as Tender Agent under the Indenture.

            TRUSTEE shall mean The Chase Manhattan  Bank, a banking  corporation
organized  under  the  laws of the  State  of New  York,  having  its  principal
corporate  trust office in New York,  New York, in its capacity as trustee under
the Indenture, and its successor or successors as trustee under the Indenture.

            UNTENDERED  BOND  means any  Untendered  Bond as  defined in Section
2.05(f).

            WEEKLY  RATE  means  the  interest  rate  on the  Bonds  established
pursuant to Section 2.03(b).

            WEEKLY RATE INDEX means the average of 30-day yield  evaluations  at
par,  determined by the Indexing Agent,  of securities  (whether or not actually
issued),  the  interest  on which is not  included  in gross  income for federal
income tax  purposes,  of at least  twenty  Component  Issuers  selected  by the
Indexing  Agent,  including  issuers of commercial  paper,  project notes,  bond
anticipation notes and tax anticipation notes, computed by the Indexing Agent as
of the Business Day next  preceding  each day a Weekly Rate is determined by the
Remarketing  Agents.  When the Bonds  are  rated by a Rating  Agency or shall be
subject to the benefits of a letter of credit and the Bank has issued letters of
credit to support other debt obligations rated by a Rating Agency in its highest
note or  commercial  paper rating  category or one of its two highest  long-term
debt  rating  categories,  each  Component  Issuer  must  (a)  have  outstanding
securities  rated by a Rating  Agency in its highest  note or  commercial  paper
rating category or (b) not have outstanding notes or commercial paper rated by a
Rating Agency but have outstanding securities rated by a Rating Agency in one of
its two highest  long-term  debt rating  categories.  If the Bonds or other debt
obligations  supported  by letters  of credit  issued by the Bank are rated by a
Rating  Agency  in a rating  category  that is lower  than its  highest  note or
commercial  paper  rating  category  or its two  highest  long-term  debt rating
categories  (and the Bonds or other  debt  obligations  supported  by letters of
credit  issued by the Bank are not rated in one of such  categories by the other
Rating Agency), each Component Issuer must (a) have outstanding securities rated
by a Rating Agency in its note or commercial  paper rating category which is the
same or correlative, in the Indexing Agent's judgment, to the note or commercial
paper  rating  category or the  long-term  debt rating  category of the Bonds or
other debt obligations  supported by letters of credit issued by the Bank or (b)
have outstanding  securities rated by a Rating Agency in the same long-term debt
rating category as the Bonds or other debt  obligations  supported by letters of
credit  issued  by the Bank are  rated by that  Rating  Agency  and not have any
outstanding notes or commercial paper rated by such Rating Agency.  The Indexing
Agent may  change the  Component  Issuers  from time to time in its  discretion,
subject  to the  foregoing  requirements.  In  addition,  at the  request of the
Company and upon  delivery to the  Trustee of an Opinion of Bond  Counsel  that,
under then existing statutes and court decisions, such action will not adversely

<PAGE>


affect the  exclusion  of interest on the Bonds from gross  income of the owners
thereof for federal  income tax  purposes,  the  Authority  may  designate a new
method of setting the Weekly Rate Index in the event any of the  above-described
methods are unavailable, impracticable or unrealistic in the market place.

            WEEKLY  RATE PERIOD  means  Weekly Rate Period as defined in Section
2.03(b).

            Section  1.02  RULES OF  CONSTRUCTION.  Unless the  context  clearly
indicates to the contrary,  the following rules shall apply to the  construction
of the Indenture:

                  (a) Words  importing  the singular  number  shall  include the
            plural number and vice versa.

                  (b) Words  importing the  redemption or calling for redemption
            of Bonds  shall not be deemed to refer to or connote  the payment of
            Bonds at their  stated  maturity  or upon  the  acceleration  of the
            principal thereof by the Trustee under Article X.

                  (c) All references  herein to particular  articles or sections
            are references to articles or sections of the Indenture.

                  (d)  The  captions   and   headings   herein  are  solely  for
            convenience  of  reference  and shall not  constitute  a part of the
            Indenture nor shall they affect its meaning, construction or effect.

                  (e)  The  terms  "hereby,"   "hereof,"   "hereto,"   "herein,"
            "hereunder" and any similar terms, as used in the Indenture refer to
            the  Indenture  in its entirety  and not the  particular  article or
            section  of the  Indenture  in  which  they  appear,  and  the  term
            "hereafter" means after, and the term "heretofore" means before, the
            date of the Indenture.

                  (f) All  references  to  Medium-Term  Rate  Period of "similar
            duration"  refer to  Medium-Term  Rate Periods of equal  duration as
            measured in months taking into account any portion of a month as the
            entire month.

            Section 1.03 LIABILITY  UNDER BONDS.  The Bonds shall not be general
obligations of the Authority,  and shall not constitute an  indebtedness of or a
charge against the general credit of the Authority or give rise to any pecuniary
liability of the Authority. The liability of the Authority under the Bonds shall
be enforceable only to the extent provided in the Indenture, and the Bonds shall
be payable solely from the Company Note Payments and any other funds held by the
Trustee under the Indenture and available for such payment  (including,  but not
limited to any funds drawn under the Letter of Credit). The Bonds shall not be a
debt of the  State of New York and the  State of New York  shall  not be  liable
thereon.

                                                         
<PAGE>


                                  ARTICLE II

               DESCRIPTION; AUTHORIZATION; MANNER OF EXECUTION;
              AUTHENTICATION; REGISTRATION AND TRANSFER OF BONDS

            Section  2.01ISSUANCE  OF  BONDS;   DESIGNATION  OF  BONDS;  CERTAIN
PARTICULARS  AND FORM OF BONDS.  The Bonds  shall be issued in one series in the
aggregate  principal  amount of $24,880,000 and shall be designated as "Electric
Facilities Revenue Bonds (Long Island Lighting Company Project), 1997 Series A."
In order to  distinguish  between Bonds which are subject to different  Interest
Rate Determination  Methods, Bonds may be designated and redesignated (as herein
provided) in such a way as to identify several Subseries.  Such Subseries may be
designated as Subseries A-1,  Subseries A-2, and so forth.  Each Bond shall bear
upon the face thereof such designation or redesignation, if any.

            The Bonds shall be issuable in the form of registered  bonds without
coupons in  authorized  denominations  except as provided  in Section  2.08 with
respect to lost,  stolen,  destroyed or  undelivered  Bonds.  The Bonds shall be
numbered   consecutively   from  NYAR-1   upwards   bearing   numbers  not  then
contemporaneously outstanding (in order of issuance) according to the records of
the Trustee.  If the Bonds are redesignated to identify several  Subseries,  the
Bonds shall be numbered in accordance  with their  Subseries  designation,  I.E.
NYA1R-1, NYA1R-2, and so forth.

            Bonds shall be  substantially  in the form set forth in the recitals
to the Indenture, with such appropriate variations,  omissions and insertions as
are permitted or required by the  Indenture  and may have endorsed  thereon such
legends or text as may be necessary or appropriate to conform with the Indenture
or to any applicable rules and regulations of any governmental  authority or any
usage or requirement of law with respect thereto.

            Section 2.02  ADDITIONAL  PARTICULARS OF BONDS.  The Bonds initially
shall be dated the Issue Date but, thereafter, each Bond shall be dated the date
of its  authentication.  Each Bond shall bear  interest  from the last  Interest
Payment Date on which interest on such Bond has been paid or, if no interest has
been paid,  from the Issue Date. The Bonds will mature  (subject to the right of
prior  redemption  at the  prices  and dates  and upon the terms and  conditions
hereinafter set forth) on the Maturity Date.

            Only such Bonds as shall have been endorsed thereon a certificate of
authentication  substantially  in the  form set  forth in the Form of Bond  duly
executed  by the  Trustee or the Tender  Agent shall be entitled to any right or
benefit  under  the  Indenture.  No Bond  shall be valid or  obligatory  for any
purpose unless and until such certificate of authentication shall have been duly
executed by the Trustee or the Tender Agent,  and such executed  certificate  of
the Trustee or the Tender Agent upon any such Bonds shall be conclusive evidence
that such Bond has been authenticated and delivered under the Indenture. The
certificate  of  authentication  of the Trustee or the Tender  Agent on any Bond
shall be deemed to have been  executed  by it,  respectively,  if signed with an
authorized  signature  of the Trustee or the Tender  Agent,  but it shall not be
necessary  that  the  same  party or the same  person  sign the  certificate  of
authentication on all of the Bonds issued hereunder.

<PAGE>



            The principal and the Purchase Price of and the redemption  premium,
if any,  and the  interest on the Bonds shall be payable in lawful  money of the
United  States of  America.  The  principal  and the  Purchase  Price of and the
redemption  premium,  if any,  on all Bonds  shall be payable  at the  principal
office of the Paying Agent upon the  presentation  and surrender of the Bonds as
the same  become due and  payable.  The  interest  on the Bonds shall be paid by
check or draft  drawn upon the Paying  Agent and mailed to the  persons in whose
names the Bonds are  registered  on the  registration  books  maintained  by the
Trustee at the close of business on the Record Date next preceding each Interest
Payment  Date;  PROVIDED,  that in the event that less than all of the Bonds are
held under a book-entry-only  system any Registered Owner of a Bond or Bonds not
held under a book-entry-only system in an aggregate principal amount of not less
than  $1,000,000 (or $100,000  during any Commercial  Paper Rate Period) may, by
prior written instructions filed with the Paying Agent (which instructions shall
remain in effect until revoked by subsequent written instructions), request that
interest payments for any period prior to the Fixed Rate Conversion Date be made
by wire transfer or other means  acceptable to the Paying Agent to an address in
the continental United States; and PROVIDED,  FURTHER,  that during a Commercial
Paper Rate  Period,  interest on a Bond is payable  only upon  presentation  and
surrender  thereof to the Tender  Agent upon  purchase  thereof  pursuant to the
Indenture,  and if such  presentation  and  surrender is made by 12:00 noon (New
York City time) such payment shall be by wire transfer.

            If any payment of interest or principal or redemption premium on the
Bonds is due on a date which is not a Business Day, payment shall be made on the
next  succeeding  Business  Day with the same force and effect as if made on the
date  which is fixed for such  payment,  and no  interest  shall  accrue on such
amount for the period after such due date.

            Section 2.03  INTEREST RATES ON BONDS.

            [2.03] (a) GENERALLY;  INITIAL RATES.  Interest accrued on the Bonds
shall be paid on each Interest Payment Date. The interest rate on the Bonds will
be determined as provided in this  Section,  PROVIDED,  that in any event (i) no
Weekly Rate,  Commercial  Paper Rate,  SemiAnnual Rate or Medium-Term Rate shall
exceed the lesser of: (a) fifteen per centum (15%) per annum and (b) the maximum
interest rate specified in the Letter of Credit with respect to coverage for the
payment of interest or the  interest  component  of Purchase  Price and (ii) the
Fixed Rate shall not exceed  eighteen per centum (18%) per annum and,  PROVIDED,
FURTHER,  no rate as so  determined  shall exceed the maximum rate  permitted by
applicable law. Interest on the Bonds will initially be payable at a Weekly Rate
of four and ten one  hundredths per centum (4.10%) per annum for the period from
the Issue Date, to and including January 6, 1998 (the "First Interest  Period").
Thereafter,  unless and until the Interest Rate Determination  Method is changed
as described in Section 2.04, the Bonds will bear interest at a Weekly Rate.


<PAGE>


            The Company may direct the Remarketing Agents to change the Interest
Rate  Determination  Method applicable to all or a portion of the Bonds,  EXCEPT
that no Bonds may be converted to bear interest at a Fixed Rate unless all Bonds
are converted to bear interest at a Fixed Rate. Except as specifically  provided
otherwise herein,  the conditions and procedures for such change in the Interest
Rate  Determination  Method for a portion of the Bonds  shall be the same as the
conditions and procedures for a change in the Interest Rate Determination Method
for the  entire  series  of  Bonds.  If less  than  all of the  Bonds  are to be
converted,  the Bonds which are being converted shall, pursuant to Section 2.01,
be redesignated in such a way as to identify a separate Subseries,  and, in such
event, all references  herein to the Bonds shall be deemed to refer to the Bonds
of each Subseries separately.

            During any  Weekly  Rate  Period or  Commercial  Paper Rate  Period,
interest on the Bonds will be computed on the basis of a 365 or 366-day year, as
the case may be, for the actual number of days elapsed.  During any  Semi-Annual
Rate Period, Medium-Term Rate Period or Fixed Rate Period, interest on the Bonds
will be computed on the basis of a 360-day year of twelve 30-day months.

            [2.03] (b) WEEKLY  RATE.  During any period  commencing  on the date
that the  Interest  Rate  Determination  Method is converted to a mode where the
Bonds bear  interest  at a Weekly  Rate  pursuant  to  Section  2.04 to, but not
including,  the next  Conversion  Date (a "Weekly Rate Period"),  the Bonds will
bear  interest at the Weekly Rate.  With respect to any Weekly Rate Period,  the
Remarketing Agents will set a rate (a "Weekly Rate") by 12:00 noon New York City
time: (i) on the first Business Day before any Conversion Date immediately after
which the Bonds will bear interest at a Weekly Rate for the period commencing on
the Conversion  Date through and including the next Tuesday that is at least six
days from such  Conversion  Date and (ii) on each  Wednesday  thereafter (or the
first  Business Day before such  Wednesday,  if such Wednesday is not a Business
Day) for the seven day period from such Wednesday through and including the next
Tuesday.  Each Weekly Rate shall be the rate of interest  which, if borne by the
Bonds,  would, in the judgment of the Remarketing  Agents,  having due regard to
the prevailing financial market conditions for tax-exempt revenue bonds or other
tax-exempt  securities  of the same  general  nature as the Bonds or  tax-exempt
securities  which are  competitive  as to credit  and  maturity  (or  period for
tender) with the credit and maturity (or period for tender) of the Bonds, be the
interest rate necessary,  but would not exceed the interest rate  necessary,  to
enable  the  Remarketing  Agents to  remarket  the Bonds at a price of par (plus
accrued interest, if any) on such Wednesday; PROVIDED that the Weekly Rate shall
not be greater than 110% of the Weekly Rate Index.  If for any reason the Weekly
Rate  for  any  Weekly  Rate  Period  is not  established  as  aforesaid  by the
Remarketing  Agents,  no Remarketing Agent shall be serving as such hereunder or
the  rate so  established  is held to be  invalid  or  unenforceable  by a final
judgment  of a court of law with  respect to any Weekly  Rate  Period,  then the
Weekly Rate for such  Weekly Rate Period  shall be 100% of the Weekly Rate Index
on the date such interest  rate was (or would have been)  determined as provided
above.


<PAGE>


            The  Indexing  Agent  shall  establish  the Weekly Rate Index on the
Business Day next preceding each day on which a Weekly Rate is determined by the
Remarketing  Agents.  Notwithstanding  the  foregoing,  in the  event  that  the
Remarketing  Agents,  in their  judgment,  shall  determine that the Weekly Rate
Index so  established  is  sufficiently  non-representative  of  current  market
conditions that the Bonds may not be remarketed at par if the Weekly Rate is set
at a rate not  greater  than  110% of the  applicable  Weekly  Rate  Index,  the
Remarketing  Agents may establish a new Weekly Rate Index in accordance with the
procedures  and  standards  set  forth in this  paragraph  and in the  preceding
paragraph  and for  purposes  of the  Weekly  Rate  Index  so  established,  all
references to Indexing  Agent in the  Indenture  shall be deemed to refer to the
Remarketing Agents; PROVIDED that the Remarketing Agents shall select securities
(whether or not actually  issued)  having a term equal to the Weekly Rate Period
or which are subject to optional or mandatory tender by the owner thereof at the
end of a term equal to the Weekly Rate Period.  To the extent the Indexing Agent
or the  Remarketing  Agent  shall fail to set a Weekly Rate Index for the Bonds,
the rate in effect shall be the same as the immediately preceding Weekly Rate.

            [2.03] (c)  SEMI-ANNUAL  RATE.  During any period  commencing on the
date that the Interest  Rate  Determination  Method is converted to a mode where
the Bonds bear interest at a  Semi-Annual  Rate pursuant to Section 2.04 to, but
not including, the next Conversion Date (a "Semi-Annual Rate Period"), the Bonds
will bear interest at the Semi-Annual Rate. With respect to any Semi-Annual Rate
Period, the Remarketing Agents will set a rate (a "Semi-Annual  Rate") not later
than 5:00 p.m.  New York City  time:  (i) on or before  the first  Business  Day
before any Conversion Date immediately  after which the Bonds will bear interest
at a SemiAnnual  Rate for the period  commencing on the Conversion  Date through
but not  including  the next  Interest  Payment  Date (each such date  occurring
during a  Semi-Annual  Rate Period  being  referred to herein as a  "Semi-Annual
Adjustment  Date") and (ii) on or before  the first  Business  Day  before  each
Semi-Annual  Adjustment  Date  for the  period  commencing  on such  Semi-Annual
Adjustment Date through but not including the next Semi-Annual  Adjustment Date.
Each SemiAnnual Rate shall be the rate of interest which, if borne by the Bonds,
would,  in the  judgment of the  Remarketing  Agents,  having due regard for the
prevailing  financial  market  conditions for tax-exempt  revenue bonds or other
tax-exempt  securities  of the same  general  nature as the Bonds or  tax-exempt
securities  which are  competitive  as to credit  and  maturity  (or  period for
tender) with the credit and maturity (or period for tender) of the Bonds, be the
interest rate  necessary,  but would not exceed the interest  rate  necessary to
enable  the  Remarketing  Agents to  remarket  the Bonds at a price of par (plus
accrued interest,  if any) on the next succeeding  Interest Payment Date (or, if
any such  day is not a  Business  Day,  on the next  succeeding  Business  Day);
provided  that the  Semi-Annual  Rate  shall  not be  greater  than  110% of the
Semi-Annual  Rate  Index.  If for  any  reason  the  Semi-Annual  Rate  for  any
Semi-Annual  Rate Period is not  established  as  aforesaid  by the  Remarketing
Agents,  no Remarketing  Agent shall be serving as such hereunder or the rate so
established  is held to be invalid or  unenforceable  by a final  judgment  of a
court of law with respect to any Semi-Annual  Period,  then the Semi-Annual Rate
for such  Semi-Annual Rate Period shall be 100% of the Semi-Annual Rate Index on
the date such  interest  rate was (or would have been)  determined  as  provided
above.

<PAGE>



            The Indexing Agent shall establish the Semi-Annual Rate Index during
the SemiAnnual  Rate Period on the Business Day next preceding each day on which
a Semi-Annual  Rate is determined by the Remarketing  Agents.  To the extent the
Indexing  Agent or the  Remarketing  Agent shall fail to set a Semi-Annual  Rate
Index for the  Bonds,  the rate in effect  shall be the same as the  immediately
preceding Semi-Annual Rate.

            [2.03] (d) COMMERCIAL PAPER RATES.  During any period  commencing on
the date that the  Interest  Rate  Determination  Method is  converted to a mode
where the Bonds bear interest at Commercial Paper Rates pursuant to Section 2.04
to,  but not  including,  the next  Conversion  Date (a  "Commercial  Paper Rate
Period"), the Bonds will bear interest at the various Commercial Paper Rates for
the various Calculation Periods established herein.  During any Commercial Paper
Rate Period,  any Bond may have a different  Calculation  Period and a different
Commercial Paper Rate from any other Bond, all as established by the Remarketing
Agents as provided below.

            [2.03 (d)] (i)  ESTABLISHMENT  OF  CALCULATION  PERIODS.  During any
      Commercial Paper Rate Period, at or prior to 12:00 noon New York City time
      on any  Conversion  Date  immediately  after  which  the  Bonds  will bear
      interest at the Commercial  Paper Rate and each day immediately  after the
      end of a  Calculation  Period,  the  Remarketing  Agents  shall  establish
      Calculation  Periods with respect to Bonds for which no Calculation Period
      is  currently  in  effect.  In  determining   Calculation   Periods,   the
      Remarketing  Agents shall take the  following  factors into  account:  (1)
      existing  short-term  taxable and  tax-exempt  market rates and indices of
      such  short-term  rates,  (2) the  existing  market  supply and demand for
      short-term tax-exempt securities, (3) existing yield curves for short-term
      and long-term tax-exempt  securities or obligations having a credit rating
      that is  comparable to the Bonds,  (4) general  economic  conditions,  (5)
      economic and financial factors present in the securities industry that may
      affect  or that  may be  relevant  to the  Bonds  and (6) any  information
      available to the Remarketing  Agents pertaining to the Bank or the Company
      regarding  any  events or  anticipated  events  which  could have a direct
      impact on the
                                                                         


      marketability  of or interest rates on the Bonds.  The Remarketing  Agents
      shall select the Calculation  Periods and the applicable  Commercial Paper
      Rates  that,  together  with all other  Calculation  Periods  and  related
      Commercial  Paper Rates, in the sole judgment of the  Remarketing  Agents,
      will  result  in the  lowest  overall  borrowing  cost on the Bonds or are
      otherwise in the best financial interests of the Company, as determined in
      consultation  with  the  Company.   Any  Calculation   Period  established
      hereunder may not extend beyond any Conversion  Date, the second  Business
      Day next preceding the scheduled  expiration  date of the Letter of Credit
      or the day prior to the maturity date of the Bonds, and the maximum length
      of the Calculation  Period shall not exceed the number of days of interest
      coverage under the Letter of Credit minus 30 days of interest coverage.

<PAGE>



          [2.03 (d)] (ii) SETTING OF RATES. On the first day of each Calculation
     Period,  the Remarketing  Agents shall set rates ("Commercial Paper Rates")
     by 12:00 noon New York City time for each Calculation  Period. With respect
     to Bonds for each  Calculation  Period,  the Commercial Paper Rate shall be
     the rate of interest which, if borne by such Bonds,  would, in the judgment
     of the Remarketing  Agents,  having due regard to the prevailing  financial
     market  conditions  for  tax-exempt   revenue  bonds  or  other  tax-exempt
     securities  which are  competitive  as to credit and maturity (or period of
     tender) with the credit and maturity (or period of tender) of such Bond, be
     the  interest  rate  necessary,  but would not  exceed  the  interest  rate
     necessary,  to enable the  Remarketing  Agents to  remarket  such Bond at a
     price of par on the date such  rate is set;  provided  that the  Commercial
     Paper Rates  shall not be greater  than 110% of the  Commercial  Paper Rate
     Index.

            The  Authority,  at the  request  of the  Company,  may  place  such
limitations  upon the  establishment  of  Calculation  Periods  pursuant  to the
preceding  paragraph  (i) as may be set  forth in a written  direction  from the
Authority,  which  direction must be received by the Trustee and the Remarketing
Agents  prior  to 10:00  a.m.  (New  York  City  time)  on the day  prior to any
Determination  Date  to be  effective  on such  date,  but  only if the  Trustee
receives an Opinion of Bond Counsel to the effect that such action is authorized
by the  Indenture,  is  permitted  under the Act,  and will not have an  adverse
effect on the  exclusion  of interest on the Bonds from gross income for federal
income tax purposes.

            The Indexing Agent shall establish the Commercial  Paper Rate Index.
To the extent that the Indexing Agent or the Remarketing Agent shall fail to set
a  Commercial  Paper Rate Index for the Bonds,  the rate in effect  shall be the
same as the immediately preceding Commercial Paper Rate.

            [2.03] (e) MEDIUM-TERM  RATE. During any period (a "Medium-Term Rate
Period")  commencing on the date that the Interest Rate Determination  Method is
converted  to a method  where the Bonds  bear  interest  at a  Medium-Term  Rate
pursuant to Section  2.04 to, but not  including  the  earliest to occur of, the
next  Conversion  Date or the next  Medium-Term  Adjustment  Date and any period
commencing on a Medium-Term Adjustment Date, to but not including,  the earliest
to occur of the next Conversion Date or the next  Medium-Term  Adjustment  Date,
the Bonds shall bear interest at the Medium-Term Rate.

          [2.03(e)] (i) SELECTION OF PERIOD. The length of each Medium-Term Rate
     Period shall be selected by the Company with the  intention of yielding the
     lowest  overall  interest  expense  on the  Bonds  over  the  term  of such
     Medium-Term   Rate  Period,   taking  into  account  (1)  general  economic
     conditions and economic and market conditions relevant to the Bonds and (2)
     such other facts, circumstances and conditions as the Company determines to
     be relevant.  The Company shall select a  Medium-Term  Rate Period so that:
     (1) such period ends on the day preceding an Interest Payment Date, (2) the
     Medium-Term  Period is at least one year in  duration,  and (3) such period
     will end not later than two  Business  Day prior to the  expiration  of the
     Letter of Credit then in effect. In addition,  if the Company is converting
     from a Weekly Rate Period,  a Commercial Paper Rate Period or a Semi-Annual
     Rate Period,  the Company shall not select a  Medium-Term  Period that ends
     after the Interest Payment Date immediately preceding final maturity of the
     Bonds unless it has provided an Opinion of Bond  Counsel  that,  under then
     existing  statutes and court decisions,  such conversion of interest on the
     Bonds will not cause  interest on the Bonds to be included in gross  income
     for federal income tax purposes.

<PAGE>



            The Company shall give written notice of the term of any Medium-Term
      Rate Period to the Trustee, the Tender Agent, the Authority,  the Indexing
      Agent  and the  Remarketing  Agents  not later  than 35 days  prior to the
      commencement  of any  Medium-  Term  Rate  Period.  In the  event  that no
      specific term of a Medium-Term Rate Period shall have been so specified by
      the Company, the term of a subsequent Medium-Term Rate Period shall be the
      same as the term of the Medium-Term Rate Period immediately preceding it.

                  [2.03(e)]   (ii)   SETTING  OF  RATE.   With  respect  to  any
      Medium-Term Rate Period,  the Remarketing  Agents will set a rate no later
      than 10:00 a.m.  New York City time on or before  the first  Business  Day
      before any  Conversion  Date  immediately  after which the Bonds will bear
      interest  at a  Medium-Term  Rate and the first  Business  Day  before any
      Medium-Term  Adjustment Date for the applicable  Medium-Term  Rate Period.
      Each Medium-Term Rate shall be the rate of interest which, if borne by the
      Bonds, would, in the judgment of the Remarketing Agents, having due regard
      for prevailing  market  conditions  for tax-exempt  revenue bonds or other
      tax-exempt  securities which are competitive as to credit and maturity (or
      period of  tender),  with the credit  and  maturity  of the Bonds,  be the
      interest rate necessary, but would not exceed the interest rate necessary,
      to enable the  Remarketing  Agents to remarket  the Bond(s) or  portion(s)
      thereof  as  aforesaid  tendered  (or  deemed to have been  tendered)  for
      purchase at a price of par (plus  accrued  interest,  if any) on the first
      day of such Medium-Term  Period;  provided that the Medium-Term Rate shall
      not be greater than 110% of the Medium- Term Rate Index.

            If for any reason the applicable Medium-Term Rate is not established
      as aforesaid by the  Remarketing  Agents,  no  Remarketing  Agent shall be
      serving as such hereunder or the rate so established is held to be invalid
      or unenforceable by a final judgment of a court of law with respect to any
      Medium-Term  Rate Period,  the  interest  rate to be borne by all Bonds or
      portions thereof outstanding under the Indenture from the first day of the
      applicable  Medium-Term  Rate  Period  to the last  day of the  applicable
      Medium-  Term Rate Period shall be equal to 100% of the  Medium-Term  Rate
      Index calculated for such Medium-Term Rate Period.

            The Indexing Agent shall establish the Medium-Term Rate Index on the
Business Day next preceding  each day on which a Medium-Term  Rate is determined
by the Remarketing  Agents.  To the extent the Indexing Agent or the Remarketing
Agent shall fail to set a Medium-

                                                       
<PAGE>


Term Rate  Index  for the  Bonds,  the rate in  effect  shall be the same as the
immediately preceding Medium-Term Rate.

            [2.03] (f) FIXED RATE. During the period commencing on the date that
the Interest Rate Determination  Method is converted to a method where the Bonds
bear  interest  at the Fixed Rate  pursuant  to Section  2.04 to (subject to the
right of prior  redemption  at the  prices  and  dates  and upon the  terms  and
conditions  hereinafter  set forth) the  Maturity  Date of the Bonds (the "Fixed
Rate Period"), the Bonds shall bear interest at the Fixed Rate.

            With respect to the Fixed Rate Period,  the Remarketing  Agents will
set a rate (the "Fixed  Rate") not later than 10:00 a.m.  New York City time one
Business Day prior to any Fixed Rate  Conversion  Date.  The Fixed Rate shall be
the interest rate which,  if borne by the Bonds,  would,  in the judgment of the
Remarketing Agents having due regard for prevailing  financial market conditions
for  tax-exempt   revenue  bonds  or  other  tax-exempt   securities  which  are
competitive  as to credit and maturity (or period of tender) with the credit and
maturity of the Bonds, be the interest rate necessary,  but would not exceed the
interest  rate  necessary,  to enable the  Remarketing  Agents to  remarket  the
Bonds(s) as aforesaid tendered (or deemed to have been tendered) for purchase at
a price of par (plus  accrued  interest,  if any) on the Fixed  Rate  Conversion
Date,  provided  that the Fixed Rate shall not be greater than 110% of the Fixed
Rate Index.

            If for any reason the  applicable  Fixed Rate is not  established as
aforesaid by the Remarketing  Agents,  no Remarketing  Agent shall be serving as
such hereunder or the rate so established is held to be invalid or unenforceable
by a final  judgment  of a court of law,  the  interest  rate to be borne by all
Bonds outstanding under the Indenture from the Fixed Rate Conversion Date to the
date of  payment  in full of the Bonds  shall be equal to 100% of the Fixed Rate
Index as of such Computation Period.

            The Indexing Agent shall establish the Fixed Rate Index on or before
the Business Day next preceding the Fixed Rate Conversion Date.

            [2.03] (g) NOTICE OF RATES.  Promptly following the determination of
any Weekly Rate,  Semi-Annual Rate,  Medium-Term Rate,  Commercial Paper Rate or
Fixed  Rate,  the  Remarketing  Agents  shall give  notice to the  Trustee,  the
Authority, the Company and the Tender Agent in writing and, promptly thereafter,
except in the case of the  Semi-Annual  Rate and Weekly Rate,  the Trustee shall
give each Bondowner notice of the new Rate.


<PAGE>


            [2.03] (h) ABSENCE OF REMARKETING  AGENTS.  If no Remarketing  Agent
shall be serving  hereunder at the time of the determination of the Weekly Rate,
Semi-Annual Rate, Medium-Term Rate, the Fixed Rate or the Commercial Paper Rate,
the Rate shall be the Weekly Rate  Index,  Semi-Annual  Rate Index,  Medium-Term
Rate Index, the Fixed Rate Index or Commercial Paper Rate Index, as the case may
be, then in effect until a new  Remarketing  Agent is appointed by the Authority
to  make  such  Rate  determination.  Any  determination  of  the  Weekly  Rate,
Semi-Annual  Rate, the Medium-Term  Rate, the Fixed Rate or the Commercial Paper
Rate by the Remarketing Agents, or pursuant to the preceding sentence,  shall be
conclusive and binding upon the Authority,  the Company,  the Tender Agent,  the
Trustee, the Paying Agent, the Remarketing Agents and the Bondowners.

            [2.03] (i) NO LIABILITY.  In determining  the interest rate that the
Bonds shall bear as provided in this  Section,  the  Remarketing  Agents and, as
aforesaid,  the Trustee shall have no liability to the  Authority,  the Company,
the Tender  Agent,  the Paying Agent or any  Bondowner  except for their willful
misconduct.

            [2.03] (j) LEGEND  AUTHORIZED.  Any Bond issued upon registration of
transfer or exchange on or after any Fixed Rate  Conversion Date shall contain a
prominent  legend on the face  thereof,  to be  specified by the  Authority  and
placed  thereon  by the  Trustee,  to the  effect  that the Letter of Credit has
expired,  that the Bonds are no longer  entitled to the benefit of any Letter of
Credit, that the Bonds are not subject to mandatory purchase by the Tender Agent
and that the interest rate on the Bonds has been converted to a Fixed Rate.

            Section  2.04CONVERSION OF INTEREST RATE ON BONDS. (a)(1) During any
Rate  Period  other  than the Fixed  Rate  Period,  at any time,  subject to the
conditions set forth below, the Company may direct a change in the Interest Rate
Determination  Method  from one Rate to another by so  directing  the Trustee in
writing  (such being  hereinafter  referred to as a  "Conversion  Notice")  with
copies to the Remarketing Agents, the Tender Agent, the Authority,  the Indexing
Agent and, during the term of the Letter of Credit, the Bank, delivered at least
thirty (30) days (where the Bonds bear  interest  at a Weekly  Rate,  Commercial
Paper Rate or Semi-Annual  Rate) or thirty-five  (35) days (where the Bonds bear
interest at a  Medium-Term  Rate) but, in either case,  not more than sixty (60)
days prior to the  Conversion  Date,  accompanied  by an Opinion of Bond Counsel
stating that, under then existing statutes and court decisions,  such conversion
of  interest  on the Bonds to the other Rate will not cause the  interest on the
Bonds to be  included  in gross  income for  federal  income tax  purposes.  The
Company's  notice must specify (i) the  Conversion  Date,  (ii) the new Interest
Rate  Determination  Method  to take  effect,  (iii)  if the new  Interest  Rate
Determination Method is a Medium-Term Rate Period, the length of the Medium-Term
Rate Period, (iv) if the new Interest Rate Determination  Method is a Commercial
Paper Rate Period, the maximum length of Calculation Periods, and (v) if the new
Interest  Rate  Determination  Method  is to apply to less than all of the Bonds
then  outstanding,  the  aggregate  principal  amount  of Bonds to which the new
Interest Rate Determination Method is to apply.

            If the  Company  directs  the  Trustee to change the  Interest  Rate
Determination  Method  from one Rate to  another  for less than all of the Bonds
then  outstanding,  the Trustee  shall select Bonds to be converted by lot or by
such other method as the Trustee may select.  In the event the Company wishes to
convert less than all the Bonds then  outstanding,  the Company shall notify the
Trustee of such  decision  not less than 40 days or more than 60 days before the

<PAGE>


effective date of the proposed conversion. On the Conversion Date the portion of
the Bonds which are being  converted  shall be  redesignated in such a way as to
identify a separate Subseries and thereby avoid confusion of such Subseries with
any other Subseries. The Company may also determine to similarly redesignate the
portion of the Bonds which are not being  converted on the Conversion  Date. The
holders of Bonds which are being  redesignated  may be required to deliver  such
Bonds  to the  Trustee  in  order  to  receive  a new  Bond  of  the  applicable
designation, in the same principal amount. In the event holders are not required
to surrender  such Bonds,  the Trustee shall  appropriately  designate any Bonds
subsequently issued in exchange therefor. The Trustee shall not be liable to any
Bondholder  for the  method  selected  and  employed  by the  Trustee  or by the
Company's selection of a partial redemption.

            [2.04(a)] (2) Any change in the Interest Rate  Determination  Method
must comply with the following to the extent applicable:

            (i)  Except  in  the  case  of  a  change  in  the   Interest   Rate
      Determination  Method  from a  Medium-Term  Rate  Period to  another  Rate
      Period, all Conversion Dates shall occur on Business Days.

            (ii)  If the  Semi-Annual  Rate  or a  Medium-Term  Rate  is then in
      effect,  the Conversion Date shall be an Interest  Payment Date (or if the
      Semi-Annual  Rate is then in effect the  immediately  succeeding  Business
      Day, if such Interest  Payment Date is not a Business Day) or any Business
      Day on which the Bonds are subject to optional redemption.

            (iii) If a Medium-Term  Rate is then in effect,  the Conversion Date
      shall occur only during the period  during  which the Bonds are subject to
      optional  redemption at a redemption price of 100% of the principal amount
      thereof unless the Letter of Credit then in effect provides for payment of
      Purchase  Price  equal to such  redemption  price  above par or  Available
      Moneys  have been  provided  in an amount  sufficient,  together  with any
      amounts  available under the Letter of Credit,  to pay such Purchase Price
      in full; provided, that if the Bonds are subject to optional redemption at
      a redemption  price above par, the Purchase Price on the  Conversion  Date
      shall include the optional redemption premium.

            (iv) No  conversion  of the  interest  rate on the Bonds shall occur
      under this Section if at the time of such  conversion  an Event of Default
      shall have occurred hereunder and be continuing with respect to the Bonds.

            (v) No Rate Period  other than the Fixed Rate Period shall extend to
      a date later than the first  Business  Day next  preceding  the  scheduled
      expiration of the Letter of Credit in effect at the beginning of such Rate
      Period.

          (vi) If the Rate Period in effect after the conversion is a Commercial
     Paper Rate Period,  the maximum length of the Calculation  Period shall not
     exceed the number of days of interest  coverage  under the Letter of Credit
     minus 30 days of interest coverage.

<PAGE>



            [2.04(a)] (3) Any change in the Interest Rate  Determination  Method
shall  not be  effective  unless  by 10:00  a.m.,  New York  City  time,  on the
Conversion Date the Company  delivers a supplemental  Opinion of Bond Counsel to
the Trustee  stating  that under the laws  existing on the  Conversion  Date the
conversion  to the other  Rate will not  cause the  interest  on the Bonds to be
included in gross  income for federal  income tax purposes and the Rate to be in
effect after the  conversion  does not exceed the maximum rate  permitted by the
Indenture and by applicable law.

            [2.04(a)]  (4Notwithstanding  any other  provision of the Indenture,
after the Interest Rate Determination  Method is changed to the Fixed Rate, such
method may not  thereafter  be changed  and such Fixed Rate shall be the rate of
interest  on the Bonds from the Fixed Rate  Conversion  Date until the  Maturity
Date.

            (b) Upon  receipt  of a  Conversion  Notice  from the  Company,  the
Trustee  shall no later  than  twenty-five  (25)  days (if the  Bonds  then bear
interest at a Weekly Rate,  Commercial Paper Rate or Semi-Annual Rate) or thirty
(30) days (if the Bonds then bear interest at a  Medium-Term  Rate) prior to the
Conversion Date give notice by mail to the Bondowners provided,  however, if the
Conversion  will  occur on a  Medium-Term  Adjustment  Date,  no such  notice to
Bondholders need be given. Such notice shall state in substance:

            [2.04(b)] (1) that the interest rate on the Bonds shall be converted
      to a Weekly Rate, a  Semi-Annual  Rate, a  Medium-Term  Rate, a Commercial
      Paper Rate or the Fixed Rate, as the case may be;

            [2.04(b)] (2)  the Conversion Date;

            [2.04(b)] (3) if  applicable,  that the Company has delivered to the
      Trustee an Opinion of Bond  Counsel  stating  that under the  statutes and
      court  decisions  existing  on the  date  of the  Conversion  Notice,  the
      conversion of the interest rate on the Bonds to the  applicable  rate will
      not cause the  interest on the Bonds to be  included  in gross  income for
      federal income tax purposes;

          [2.04(b)] (4) if applicable, that the interest rate on the Bonds shall
     not  be  converted  unless  the  Company  delivers  to the  Trustee  on the
     applicable  Conversion Date a supplemental  Opinion of Bond Counsel stating
     that under the  statutes  and court  decisions  existing on the  Conversion
     Date,  (A) the  conversion of the interest rate on the Bonds will not cause
     the interest on the Bonds to be included in gross income for federal income
     tax purposes;  and (B) the rate to be in effect after the  conversion  does
     not exceed the maximum rate  permitted by the  Indenture  and by applicable
     law;  PROVIDED,  HOWEVER,  that  if  the  Company  fails  to  deliver  such
     supplemental Opinion of Bond Counsel on such date, the interest rate on the

<PAGE>


     Bonds shall not be converted on the  applicable  Conversion  Date,  and all
     Bonds  tendered (or deemed to have been tendered) for purchase shall not be
     purchased  on the  applicable  Conversion  Date as provided  herein and the
     Bonds shall continue to bear interest in accordance  with the Interest Rate
     Determination Method in effect prior to the proposed Conversion Date;

            [2.04(b)]  (5) that all Bonds (or  portions  thereof  in  authorized
      denominations)  tendered (or deemed to have been tendered) for purchase by
      the owners thereof shall be purchased on the applicable Conversion Date at
      the Purchase Price;

            [2.04(b)]  (6) that,  to the extent  that there  shall be on deposit
      with the Tender  Agent,  the Paying  Agent or the Trustee on or before the
      applicable  Conversion  Date an  amount  of  money  sufficient  to pay the
      Purchase Price thereof,  all Bonds,  whether or not actually delivered for
      purchase on such date, shall be deemed to have been properly  tendered for
      purchase and shall cease to  constitute  or represent a right on behalf of
      the owner thereof to the payment of principal  and/or interest thereon and
      shall  represent and constitute  only the right to payment of the Purchase
      Price thereof,  without  interest  accruing  thereon,  on deposit with the
      Tender Agent, the Paying Agent or the Trustee;

          [2.04(b)]  (7) the name of the  Tender  Agent and the  address  of the
     principal office of the Tender Agent;

            [2.04(b)] (8) that, if the conversion is to a Fixed Rate, the Letter
      of Credit  will  expire no later than the close of  business on the second
      Business Day following the applicable  Fixed Rate Conversion Date and will
      not be available  with respect to payment of interest after the Fixed Rate
      Conversion Date;

            [2.04(b)] (9) that, in the case of conversion to the Fixed Rate, the
      rating assigned by the Rating Agency then rating the Bonds, if any, to the
      Bonds,  either may be or is  expected  to be lowered  or  eliminated  as a
      result of such conversion;

            [2.04(b)]  (10) that, if the  conversion is to the Fixed Rate,  from
      and after the Fixed  Rate  Conversion  Date,  the Bonds  will no longer be
      subject to purchase as provided in Section 2.05 or, if the  conversion  is
      to a Medium-Term  Rate,  the Bonds will not be subject to tender until the
      expiration of the applicable Rate Period; and

            [2.04(b)]  (11) that, if the  conversion  is to a  Medium-Term  Rate
      Period of greater than three years  duration,  the short term  rating,  if
      any,  assigned by any Rating  Agency to the Bonds will be  withdrawn  as a
      result of such conversion.

            [2.04] (c) If the  Company  fails to deliver to the Trustee by 10:00
a.m. New York City time on the Conversion Date, the supplemental Opinion of Bond
Counsel as and if required by subsection (a) of this Section,  the interest rate
on the Bonds  shall not be  converted  to the  Weekly  Rate,  Semi-Annual  Rate,
Medium-Term Rate, Commercial Paper Rate or Fixed Rate on the Conversion Date, as
the case may be,  and Bonds  tendered  (or  deemed to have  been  tendered)  for
purchase on the Conversion  Date shall not be purchased on the  Conversion  Date
and the  Bonds  shall  continue  to bear  interest  at the  rate  determined  in
accordance  with the Interest Rate  Determination  Method in effect prior to the
proposed  Conversion  Date.  In such  event,  all rights of the  Authority,  the
Trustee and the Company  hereunder shall continue as if no such  proceedings for
the  conversion  of the interest  rate on the Bonds had been taken and the Bonds
shall be  available  for  remarketing  under  Section  2.06.  The Trustee  shall
promptly  notify the  Authority and the  Bondowners by mail (and shall  promptly
notify the Tender Agent, the Paying Agent,  the Bank and the Remarketing  Agents
by  telephone) in the event that the interest rate on the Bonds is not converted
on the Conversion Date as provided herein.


<PAGE>


            [2.04] (d) Failure to mail the notice described in subsection (a) or
(b), or any defect  therein,  shall not affect the validity of any interest rate
or  change  in the  Interest  Rate  Determination  Method on any of the Bonds or
extend the period for tendering  any of the Bonds for purchase,  and the Trustee
shall not be  liable to any  Bondowner  by  reason of its  failure  to mail such
notice or any defect therein.

            [2.04] (e) The Letter of Credit  shall not be  available  to pay the
principal or Purchase Price of or interest on any Bonds after the earlier of the
second  Business  Day  following  the Fixed Rate  Conversion  Date or the date a
drawing  is  honored  under the Letter of Credit in  connection  therewith.  The
Letter of Credit shall be returned to the Bank for  cancellation  promptly  upon
the expiration thereof on or after such Fixed Rate Conversion Date.

            Section 2.05  OPTIONAL AND  MANDATORY  TENDER OF BONDS FOR PURCHASE.
(a) During any Weekly Rate Period,  the owners of the Bonds shall have the right
to tender any Bond (or portion  thereof in an  authorized  denomination)  to the
Tender Agent for purchase on any Optional Tender Date, but only upon:

            (1) giving or delivery to the Tender Agent at its principal  office,
      on a Business  Day,  not later than the seventh  calendar day prior to the
      Optional  Tender Date,  of a written or  telephonic  notice,  confirmed in
      writing,  which states (i) the number and  aggregate  principal  amount of
      each Bond to be purchased  and (ii) that such Bond (or portion  thereof in
      an authorized  denomination)  shall be purchased on such  Optional  Tender
      Date pursuant to the Indenture; and

            (2)  delivery  of such  Bond  (with  an  appropriate  instrument  of
      transfer  duly  executed  in blank) to the Tender  Agent at its  principal
      office at or prior to 12:00  noon,  New York City time,  on such  Optional
      Tender Date;  PROVIDED,  HOWEVER,  that no Bond (or portion  thereof in an
      authorized  denomination)  shall be purchased unless the Bond so delivered
      to the Tender  Agent  shall  conform in all  respects  to the  description
      thereof in the aforesaid notice.


<PAGE>


Any election of a Bondowner to tender a Bond (or portion  thereof as  aforesaid)
for purchase on the Optional  Tender Date in accordance with this subsection (a)
shall be irrevocable and shall be binding on the Bondowner  making such election
and on any  transferee of such Bondowner and any Bond with respect to which such
an election has been made which is not properly  delivered by the owner  thereof
to the Tender Agent shall be deemed to have been properly tendered to the Tender
Agent,  and, to the extent that there shall be on deposit  with the Tender Agent
on or before the Optional Tender Date, an amount  sufficient to pay the Purchase
Price  thereof,  such Bond shall  cease to  constitute  or  represent a right to
payment of principal or interest thereon and shall constitute and represent only
the right to payment of the Purchase Price payable on such date.

            [2.05] (b) During any  Semi-Annual  Rate  Period,  the owners of the
Bonds  shall  have the  right to  tender  any Bond  (or  portion  thereof  in an
authorized denomination) to the Tender Agent for purchase on any Optional Tender
Date prior to a Conversion Date, but only upon:

            (1) giving or delivery to the Tender Agent at its principal  office,
      not  earlier  than  the  thirtieth  calendar  day and not  later  than the
      fifteenth  calendar  day next  preceding  such  Optional  Tender Date of a
      written or  telephonic  notice  confirmed in writing  which states (i) the
      number and  aggregate  principal  amount of each Bond to be purchased  and
      (ii) that such Bond (or  portion  thereof in an  authorized  denomination)
      shall be purchased on such Optional Tender Date pursuant to the Indenture;
      and

            (2) the  delivery of such Bond (with an  appropriate  instrument  of
      transfer  duly  executed  in blank) to the Tender  Agent at its  principal
      office at or prior to 12:00  noon,  New York City time,  on such  Optional
      Tender Date;  PROVIDED,  HOWEVER,  that no Bond (or portion  thereof in an
      authorized  denomination)  shall be purchased unless the Bond so delivered
      to the Tender  Agent  shall  conform in all  respects  to the  description
      thereof in the aforesaid notice.

            Any election of a Bondowner to tender a Bond (or portion  thereof as
aforesaid)  for purchase on the  Optional  Tender Date in  accordance  with this
subsection (b) shall be irrevocable and shall be binding on the Bondowner making
such election and on any  transferee of such Bondowner and any Bond with respect
to which such an election has been made which is not  properly  delivered by the
owner thereof to the Tender Agent shall be deemed to have been properly tendered
to the Tender Agent, and, to the extent, that there shall be on deposit with the
Tender Agent on or before the Optional Tender Date, an amount  sufficient to pay
the Purchase Price  thereof,  such Bond shall cease to constitute or represent a
right to payment of  principal  or  interest  thereon and shall  constitute  and
represent only the right to payment of the Purchase Price payable on such date.

            [2.05] (c) The Tender Agent shall give the Trustee, the Company, the
Remarketing  Agents,  the Paying  Agent and the Bank prompt  notice by telephone
confirmed  promptly in writing of the receipt of any notice in  accordance  with

<PAGE>


clause (1) of subsection (a) or (b) above.  During any Semi-Annual  Rate Period,
the Trustee shall give notice by mail to Bondowners not more than  forty-five or
less than thirty  calendar days before each Optional  Tender Date,  which notice
shall state in substance:  (i) the next Optional  Tender Date, and (ii) that the
Bonds are subject to tender at the option of the owner thereof in the manner set
forth in subsection (b) of this section.

            [2.05] (d) All Bonds are subject to mandatory tender and purchase at
the Purchase Price on each Conversion Date and each Medium-Term Adjustment Date.

            [2.05]  (e) All Bonds  shall be  subject  to  mandatory  tender  and
purchase on each Mandatory  Purchase Date unless the owner  exercises his or her
right to retain the Bonds (in certain circumstances) pursuant to this subsection
(e) as hereinafter provided:

            [2.05(e)]  (1The  owners of the Bonds  shall  tender all Bonds (with
appropriate  instruments of transfer duly executed in blank) to the Tender Agent
at its principal office for purchase on the applicable  Mandatory Purchase Date,
which date shall be  established  pursuant to clause (iii) of  paragraph  (2) of
this subsection (e), at the Purchase Price due on such Mandatory  Purchase Date.
A  Mandatory  Purchase  Date  shall be  established  for the  Bonds (i) upon the
delivery  of any  Alternate  Credit  Facility  (other than an  Alternate  Credit
Facility which is an extension or  replacement of the existing  Letter of Credit
of the then  existing  Bank) or (ii) if the  Company  fails  to  deliver  to the
Trustee  on or prior to the  thirty-seventh  calendar  day  next  preceding  the
scheduled expiration date of the Letter of Credit then in effect:

            (A) (i) an Alternate Credit Facility (including, without limitation,
            any Alternate  Credit Facility issued as contemplated by (B) below),
            (ii) an Opinion of Bond Counsel as  described in Section  6.07(2)(b)
            and (iii) written evidence as described in Section 6.07(2)(c); or

            (B) (i)  written  evidence  that the Letter of Credit then in effect
            will be extended or renewed for a period of at least one year beyond
            such  expiration  date  and  will end not  sooner  than  the  second
            Business Day following  the Interest  Payment Date for such Interest
            Period.

            [2.05(e)] (2) Upon the Bonds  becoming  subject to mandatory  tender
for purchase as provided in clause (1) above,  the Trustee shall within five (5)
calendar days give telephonic  notice to the Remarketing  Agents,  the Authority
and the Tender  Agent and give notice by mail to the  Bondowners,  which  notice
shall state in substance:

            (i)  [intentionally omitted];

            (ii)  the Optional Retention Date, if applicable;

<PAGE>



            (iii) the Mandatory Purchase Date, which in the case of (1)(A) above
shall be the twentieth calendar day next preceding the scheduled expiration date
of the Letter of Credit and in the case of (1)(B)  above shall be a date that is
two Business Days prior to such expiration date;

            (iv)  [intentionally omitted];

            (v) in the case of (1)(B)  above,  that the  Letter  of Credit  will
expire no later than the close of business on the second  Business Day following
the Mandatory Purchase Date;

            (vi) if the Bonds are then  rated,  that the rating  assigned by the
Rating  Agency to the  Bonds may be  lowered  or  eliminated  as a result of the
issuance of the Alternate Credit Facility,  in the case of (1)(A) above, or as a
result of the expiration of the Letter of Credit, in the case of (1)(B) above;

            (vii)   that  all  Bonds  (or   portions   thereof   in   authorized
denominations) tendered shall be purchased on the Mandatory Purchase Date at the
applicable Purchase Price;

            (viii)  that,  to the extent that there shall be on deposit with the
Tender  Agent,  the  Paying  Agent or the  Trustee  on or before  the  Mandatory
Purchase Date an amount of money  sufficient to pay the Purchase  Price thereof,
all Bonds,  whether or not actually  delivered  for  purchase on such date,  not
delivered to the Tender Agent on the Optional  Retention Date shall be deemed to
have been  properly  tendered  for  purchase  and shall cease to  constitute  or
represent  a right on behalf of the owner  thereof to the  payment of  principal
and/or  interest  thereon and shall  represent and constitute  only the right to
payment of the Purchase Price thereof,  without interest  accruing  thereon,  on
deposit with the Tender  Agent,  the Paying Agent or the Trustee;  PROVIDED that
Bonds (or portions thereof in authorized denominations) the owner of which shall
have  elected to retain and not to tender in  accordance  with  clause (4) below
shall not be deemed to have been tendered for purchase and shall  constitute and
continue to represent the right of the owner thereof to payment of principal and
interest, if any, thereon in accordance with the terms of such Bond; and

            (ix) the name of the Tender  Agent and the address of the  principal
office of the Tender Agent.


<PAGE>
 


           [2.05(e)] (3) Failure to mail the notice  described in clause (2) or
any defect  therein,  shall not extend the period for tendering any of the Bonds
for purchase,  and the Trustee shall not be liable to any Bondowner by reason of
its failure to mail such notice or any defect therein.

            [2.05(e)]  (4) The Bonds shall be tendered  for purchase as provided
in this  subsection  (e),  except for any Bond or Bonds (or portions  thereof in
authorized  denominations)  the owner of which shall deliver to the Tender Agent
at its principal office no later than the applicable  Optional  Retention Notice
Date, a written notice, substantially in the form of EXHIBIT A to the Indenture,
appropriately  completed;  PROVIDED  that such  owners  shall  have the right to
retain only those Bonds to be secured by a Letter of Credit  meeting the minimum
requirements  of  Section  4.12 of the  Participation  Agreement  following  the
Mandatory  Purchase Date and any Bonds not meeting  those  minimum  requirements
shall be deemed  tendered and shall be subject to subsection (f) of this Section
notwithstanding any election to retain such Bonds.

            [2.05]  (f) Any  election  by a  Bondowner  to  retain  any Bond (or
portion thereof in an authorized  denomination)  and not to tender such Bond (or
portion  thereof in an  authorized  denomination)  for  purchase  on an Optional
Retention Date in accordance with subsection (e), shall be irrevocable and shall
be binding on the Bondowner  making such election and on any  transferee of such
Bondowner.  If a Bondowner fails to give notice of such an election with respect
to any Bond (or portion thereof in an authorized denomination) on the applicable
Optional  Retention Notice Date and thereafter fails to deliver such Bond to the
Tender Agent on or before the applicable  Optional Retention Date, such Bond (or
portion  thereof in an  authorized  denomination)  which is not delivered to the
Tender Agent shall be deemed to have been properly  tendered to the Tender Agent
(such Bond being hereinafter  referred to as an "Untendered  Bond"), and, to the
extent  that there  shall be on deposit  with the Tender  Agent on or before the
Purchase  Date, an amount  sufficient to pay the Purchase  Price  thereof,  such
Untendered  Bond shall cease to  constitute  or  represent a right to payment of
principal or interest  thereon and shall constitute and represent only the right
to the payment of the Purchase Price payable on such date.  The foregoing  shall
not limit the  entitlement  of any  Bondowner  on any Record  Date to receipt of
interest  due on such date unless such  interest is paid as part of the Purchase
Price.  The Tender Agent will inform the  Remarketing  Agents and the Trustee by
telephone  promptly after the applicable  Optional  Retention Notice Date of the
principal amount of Bonds which will be tendered or deemed to have been tendered
on the applicable Optional Retention Date.

            [2.05] (g) During any Commercial Paper Rate Period,  each Bond shall
be subject to mandatory  tender for  purchase on the  Business  Day  immediately
following  each  Calculation  Period,  at a price equal to the principal  amount
thereof. Owners of such Bonds shall have no right to elect to retain such Bonds.

            [2.05] (h) On each  Optional  Tender Date and Purchase  Date,  there
shall be  purchased  (but  solely  from funds  received  by the Tender  Agent in
accordance  with the terms  hereof)  the Bond or Bonds (or  portions  thereof in
authorized  denominations)  tendered  (or deemed to have been  tendered)  to the
Tender Agent for  purchase in  accordance  with this  Section at the  applicable
Purchase  Price.  Funds for the  payment of the  Purchase  Price of such Bond or
Bonds (or portions  thereof in  authorized  denominations)  shall be paid by the
Tender Agent solely from the  following  sources and in the  following  order of
priority:

<PAGE>


          (i) moneys drawn under the Letter of Credit by the Trustee pursuant to
     Section 6.07.1;  (ii) proceeds of the remarketing of such Bond or Bonds (or
     portions  thereof in  authorized  denominations)  pursuant to Section  2.06
     which have been  transferred  to the Tender Agent pursuant to said Section;
     and

          (iii) any other moneys furnished by the Company for purchase of Bonds.

The  Trustee  shall draw  moneys  under the Letter of Credit for the  payment of
Purchase Price to the extent that moneys are obtainable  thereunder,  and moneys
described  under  clauses  (ii) and (iii)  above  shall be used for  payment  of
Purchase  Price only to the extent  that  sufficient  moneys are not  obtainable
under the Letter of Credit.  To the extent that moneys drawn under the Letter of
Credit have been used for  payment of Purchase  Price,  moneys  described  under
clause  (ii)  above may be paid to the Bank upon  reinstatement  of the  related
amount under the Letter of Credit.

            Bonds (or portions thereof in authorized denominations) purchased as
provided  above shall be delivered as provided in Section 2.07. The Tender Agent
shall hold any such moneys,  uninvested,  in trust for the purposes set forth in
the Indenture.

            [2.05]  (i) The  owners of the Bonds  shall not have the right or be
required,  as the case may be, to exercise  their  optional  right to tender any
Bond or Bonds (or portions thereof in authorized  denominations) for purchase on
any Optional Tender Date or the Optional  Retention Date, if on any such date an
Event of  Default  under  Section  10.01(f)  or (g) shall have  occurred  and be
continuing  hereunder  with  respect  to the Bonds and the  Trustee  shall  have
accelerated the Bonds by reason thereof.

            [2.05]  (j) All Bonds  shall be  subject  to  mandatory  tender  and
purchase,  with no right of owners to retain Bonds,  upon a date  established by
the Trustee  after  receipt by the Trustee of a written  notice from the Bank of
the  occurrence and  continuance  of an event that would  constitute an Event of
Default  pursuant  to Section  10.01(f)  or (g) except  that the Bank shall have
directed  mandatory  tender and purchase  pursuant to this provision rather than
acceleration of the Bonds; provided, however, that in the case of any event that
would  constitute an Event of Default  pursuant to Section  10.01(g) such notice
must have been  received  on or before  the tenth  calendar  day after a drawing
under the Letter of Credit in respect of interest on the Bonds.  Upon receipt of
such notice, the Trustee shall immediately declare the Bonds as being subject to
mandatory  tender and purchase in accordance  with this Section 2.05(j) and give
notice thereof to the Authority,  the Company, the Tender Agent, the Remarketing
Agents,  and the Bank and shall  select a date ((i)  occurring  on or before the
fourth day next  succeeding  the  Trustee's  receipt of such notice,  which date
shall be a Business Day and (ii) a Business Day which is at least two days prior
to the day on which the Letter of Credit will expire) for the  mandatory  tender
and  purchase  of the  Bonds,  and  shall  promptly  give  notice by mail to all
Bondowners,  which shall include the  circumstances  leading to mandatory tender
and purchase,  the absence of any right to retain  Bonds,  the date set therefor
and directions for the tender and purchase of such Bonds. Upon such declaration,

<PAGE>


the  Trustee  immediately  shall  draw  upon the  Letter  of Credit in an amount
sufficient to pay the full Purchase Price due on the date  established  for such
mandatory tender and purchase (including an amount representing interest accrued
to such mandatory tender and purchase date) and hold such amount for application
to the payment on such mandatory  tender and purchase date of the Purchase Price
of the Bonds in accordance with the Indenture.  Notwithstanding anything in this
Indenture to the contrary, no Bonds which may be subject to mandatory tender and
purchase under any other  provision of the Indenture  shall be remarketed by the
Remarketing Agents subsequent to the receipt of a Notice from the Bank directing
a  mandatory  tender and  purchase  under  this  Section  2.05(j).  Any Bonds so
tendered  for purchase  shall be purchased  with funds drawn under the Letter of
Credit as described above.

            [2.05]  (k) In the  event  that any Bond is  subject  at any time to
tender  and  purchase  pursuant  to more than one  provision  of the  Indenture,
provisions  relating  to the timing of  notices  of options to retain  Bonds and
options to tender Bonds and the  irrevocability  of certain  actions and notices
shall be  interpreted  as though  only one such  tender and  purchase  provision
applied  to such Bond to the  extent  that such  interpretation  will  prevent a
conflict  between such  provisions.  For purposes of the foregoing  sentence,  a
mandatory tender provision  without a right of owners to retain Bonds shall take
precedence over all other tender  provisions,  and a mandatory  tender provision
shall take precedence over any optional tender provision.

            [2.05] (l) If an agreement with a Securities Depository as described
in Section 2.11 hereof is then in effect,  tenders of Bonds shall be governed by
the procedures of such Securities Depository as may be set forth in or described
in an  agreement  between the  Authority  and such  Securities  Depository.  The
Depository  Trust Company  ("DTC") shall act as  Securities  Depository  for the
Bonds upon the initial  issuance of the Bonds.  So long as the Bonds are held in
the DTC  book-entry-only  system,  tenders of Bonds shall be governed by the DTC
procedures  described  in the DTC  Letter  of  Representations,  which is hereby
incorporated by reference.

            Section 2.06  REMARKETING  OF BONDS.  (a) Upon receipt of any notice
given  pursuant  to Section  2.05 that any Bonds will be or are  required  to be
tendered for purchase in accordance  with Section 2.05, the  Remarketing  Agents
shall use their best  efforts to  remarket  such Bonds (or  portions  thereof in
authorized  denominations)  on any Optional  Tender Date or Purchase Date at the
Purchase  Price.  By 2:00 p.m., New York City time, on the Business Day prior to
each Optional  Tender Date or Purchase Date, the  Remarketing  Agents shall give
notice by telecopy or telephone  (confirmed in writing) of the principal  amount
of  such  Bonds  (or  portions  thereof  in  authorized  denominations)  and the
registration  information  concerning  the new  Bondowners,  for which they have
arranged a remarketing  and for which the  Remarketing  Agents hold  remarketing
proceeds on hand,  to the Trustee,  the Tender  Agent,  the Paying Agent and the
Bank and, by 12:00 noon,  New York City time,  on each  Optional  Tender Date or
Purchase Date shall transfer to the Tender Agent the proceeds of the remarketing
of such Bonds for delivery to the Bank upon verification that sufficient amounts
relating  to such  Bonds  have been paid  under  the  Letter of Credit  and upon

<PAGE>


reinstatement of the related amount under the Letter of Credit. Bonds remarketed
pursuant to the  provisions  of this  Indenture  shall not be  released  until a
Letter of Credit  meeting the terms of this  Indenture  shall be reinstated  for
such Bonds.

            [2.06] (b) In remarketing  any Bonds tendered for purchase  pursuant
to the Indenture,  the Remarketing  Agents shall  determine,  in accordance with
Section 2.03, the SemiAnnual  Rate, the Weekly Rate, the  Medium-Term  Rate, the
Commercial Paper Rate or the Fixed Rate, as the case may be, on the Bonds.

            [2.06]  (c) The  Remarketing  Agents  shall not  remarket  any Bonds
pursuant to this Section if they have received  written  notice from the Trustee
that an Event of Default  (other  than an Event of Default  set forth in Section
6.01(d) of the  Participation  Agreement)  shall have occurred and be continuing
hereunder with respect to the Bonds.

            [2.06] (d) The Remarketing  Agents shall not knowingly  remarket any
Bonds to the Company or any of its  Affiliates or to the  Authority  pursuant to
this Section  prior to the  expiration or earlier  termination  of the Letter of
Credit unless, prior to such remarketing, the Trustee and the Remarketing Agents
shall have  received  an  unqualified  Opinion of Bond  Counsel  experienced  in
bankruptcy  matters and  satisfactory to the Trustee and to Moody's as evidenced
in writing,  if Moody's shall then be rating the Bonds, and to S&P, if S&P shall
then be rating the Bonds, to the effect that such  remarketing  would not result
in a  preferential  payment  pursuant  to the  provisions  of Section 547 of the
United States Bankruptcy Code, 11 U.S.C.
ss.ss.101, ET SEQ.

            [2.06] (e) The  Remarketing  Agents may remarket any Bonds  tendered
for purchase as provided in Section 2.05(e) only if (1) the Company  delivers to
the  Trustee a Letter of Credit  and the  requirements  of  Section  4.12 of the
Participation  Agreement  have been met or (2) the Company  changes the Interest
Rate Determination Method to the Fixed Rate in accordance with Section 2.04. The
Remarketing  Agents may remarket any Bonds  tendered for purchase as provided in
Section 2.05(j) only if the Trustee and Remarketing  Agents have received notice
from the Bank that the event  referred  to in the  written  notice from the Bank
delivered  under  Section  2.05(j)  has been  cured or waived  and the Letter of
Credit has been reinstated in full.

            [2.06]  (f) The  Remarketing  Agents,  with  respect to any Bond for
which a redemption  date or a Mandatory  Purchase Date has been  established and
which the  Remarketing  Agents are attempting to remarket,  shall provide to any
purchaser notice of the applicable redemption or mandatory purchase terms at the
time of or before purchase by such purchaser.

            [2.06] (g) The Tender Agent,  with respect to any Bond for which the
Tender Agent or Trustee has received  notification  from the Remarketing  Agents
that it has found a purchaser or purchasers to whom the  Remarketing  Agents can
remarket Bonds tendered for purchase,  shall so notify the Bank in writing.  The
Remarketing Agents shall only remarket the Bonds tendered for purchase at par.


<PAGE>

 
            Section  2.07  DELIVERY OF PURCHASED  BONDS.  (a) Bonds (or portions
thereof in authorized  denominations)  purchased pursuant to Section 2.05 (other
than on a Fixed Rate Conversion Date) shall be delivered as follows:

            [2.07(a)]   (i)   Bonds   (or   portions   thereof   in   authorized
      denominations)  purchased  with  moneys  described  in clause  (i) (to the
      extent that the Trustee has received notice of reinstatement of the Letter
      of Credit in an amount equal to the Purchase Price of the Bonds and has so
      notified the Tender Agent) and in clause (ii) of Section  2.05(h) shall be
      delivered  by the Tender Agent to the  purchasers  thereof upon receipt of
      payment thereof.  Prior to such delivery, the Tender Agent shall surrender
      such Bonds, if so requested by the purchasers  thereof, to the Trustee for
      registration  of  transfer.   Bonds,   portions  of  which  in  authorized
      denominations  shall  have  been  purchased  with  such  moneys,  shall be
      surrendered  by the  Tender  Agent  to the  Trustee  for  registration  of
      transfer  with respect to principal  amounts  thereof so purchased and for
      registration of transfer with respect to the principal amounts thereof not
      so  purchased  as  provided in clause  (ii) below or for  cancellation  as
      provided in clause (iii) below;

            [2.07(a)]   (ii)   Bonds  (or   portions   thereof   in   authorized
      denominations), any portion of the Purchase Price of which shall have been
      paid with moneys  drawn under the Letter of Credit,  shall,  if and to the
      extent that the Trustee has not received  notice of  reinstatement  of the
      Letter of Credit in an amount equal to the Purchase Price of the Bonds (or
      portion  thereof),  be  surrendered by the Tender Agent to the Trustee for
      registration  of transfer to the  Company  and upon such  registration  of
      transfer,  the Bonds issued in respect  thereof  shall be delivered to and
      held by the Tender  Agent for the  account of the Company and shall not be
      released,  pledged or otherwise transferred or disposed of unless prior to
      or simultaneously with the release of the Bonds by the Tender Agent to the
      Remarketing  Agents  for  remarketing,  the  amount to be drawn  under the
      Letter of Credit shall have been  correspondingly  reinstated  and written
      notice of such  reinstatement  shall have been delivered by the Trustee or
      the Bank to the Tender  Agent,  or in the case of a purchase  pursuant  to
      Section 2.05(e),  an Alternate Credit Facility meeting the requirements of
      Section 6.07 has been provided;  PROVIDED,  FURTHER, that, upon receipt by
      the Tender Agent of either (A) notice of the  establishment of a Mandatory
      Purchase  Date  pursuant  to Section  2.05(e) or (B) notice  from the Bank
      directing  mandatory  tender and purchase of the Bonds pursuant to Section
      2.05(j),  then any Bonds  theretofore  or thereafter  purchased  with such
      moneys drawn under the Letter of Credit shall be surrendered by the Tender
      Agent to the  Trustee  for  registration  of transfer to the Bank and upon
      such  registration of transfer,  the Bonds issued in respect thereof shall
      be  delivered  to and held by the Tender Agent for the account of the Bank
      and shall not be released, pledged or otherwise transferred or disposed of
      (except  to  the  Bank)  unless  otherwise  provided  by  the  Remarketing
      Agreement,  and the Tender  Agent shall notify the Bank that it is holding
      such Bonds for the Bank's account; and


<PAGE>


            [2.07(a)]   (iii)   Bonds  (or   portions   thereof  in   authorized
      denominations) purchased with any other moneys pursuant to Section 2.05(h)
      shall be delivered  to the Trustee for  cancellation  as to the  principal
      amount thereof so purchased and for  registration of transfer and delivery
      pursuant to (i) or (ii) above as to the remainder thereof.

            [2.07] (b) Bonds (or portions  thereof in authorized  denominations)
purchased  pursuant to Section 2.05(d) (only insofar as such subsection  relates
to a  Fixed  Rate  Conversion  Date)  shall  be  delivered  to the  Trustee  for
cancellation  and Bonds shall be issued in exchange  therefor in accordance with
Section 2.03(k),  which shall be delivered:  (i) to the purchasers thereof, with
respect to the Bonds (or portions thereof in authorized denominations) purchased
with moneys  described in Section  2.07(a)(i) or (ii) to the Tender Agent,  with
respect to Bonds (or portions  thereof in  authorized  denominations)  purchased
with  moneys  as  described  in  Section  2.07(a)(ii)  and shall be held for the
account  of  the  Company,   except  as  otherwise   provided  in  such  Section
2.07(a)(ii),  will not be entitled  to the  benefits of the Letter of Credit and
shall (x) have a legend  stating  "This Bond is not  entitled to the benefits of
the Letter of Credit  referred to herein",  affixed  thereto by the Tender Agent
until  released and delivered  pursuant to the following  paragraph (c), and (y)
shall be held by the Tender  Agent and shall be disposed  of solely  pursuant to
the terms of the following  clause (c). Bonds so purchased with any other moneys
shall be  delivered to the Trustee for  cancellation  and no  replacement  Bonds
shall be issued in respect thereof.

            [2.07] (c) The Tender Agent shall authenticate and deliver new Bonds
in  replacement  of any Bonds held pursuant to the  preceding  clause (ii) to or
upon the order of the Remarketing  Agents, only upon receipt by the Tender Agent
from any Person other than the Company  following  any  remarketing  of such new
Bonds of  payment in  immediately  available  funds in respect of the  principal
amount of such Bonds (including  accrued interest,  if any). Such funds shall be
received  by the Tender  Agent  solely for the  account of the Bank and shall be
promptly  transmitted  to or upon the  written  order  of the  Bank.  Upon  such
delivery, such Bonds shall be entitled to the benefits of the Letter of Credit.

            Section 2.08MUTILATED, LOST, STOLEN OR DESTROYED BONDS. In the event
any  outstanding  Bond,  whether  temporary or definitive,  is mutilated,  lost,
stolen or  destroyed,  the  Authority  may execute and,  upon its  request,  the
Trustee may authenticate a new Bond of like tenor as the mutilated, lost, stolen
or destroyed  Bond;  provided  that,  in the case of any  mutilated  Bond,  such
mutilated Bond shall first be surrendered to the Trustee, and in the case of any
lost,  stolen or destroyed  Bond,  there shall be first furnished to the Trustee
evidence of the ownership thereof and of such loss, theft or destruction in form
satisfactory to the Trustee, together with an indemnity satisfactory to it which
indemnity  shall name the Authority as an additional  indemnified  party. In the
event any such Bond shall have matured, instead of issuing a substitute Bond the
Authority may  authorize the payment of the same.  The Authority and the Trustee
may charge the owner of such Bond with their  reasonable  fees and  expenses  in
this connection. Any Bond issued under the provisions of this Section in lieu of
any Bond alleged to be  destroyed,  lost or stolen shall  constitute an original
additional contractual  obligation on the part of the Authority,  whether or not
the Bond so alleged to be destroyed,  lost or stolen be at any time  enforceable
by anyone, and shall be equally and proportionately  entitled to the benefits of
the  Indenture  with all other Bonds issued  hereunder to the same extent as the
Bonds in substitution for which such Bonds were issued.


<PAGE>


            Section 2.09  TEMPORARY  BONDS.  Until Bonds in definitive  form are
ready for delivery,  the Authority may execute, and upon its request in writing,
the Trustee shall  authenticate and deliver in lieu of any thereof,  and subject
to the  same  provisions,  limitations,  and  conditions,  one or more  printed,
lithographed or typewritten Bonds in temporary form,  substantially of the tenor
of the Bonds hereinbefore described, and with appropriate omissions,  variations
and  insertions.  Bonds in temporary form will be for such principal  amounts as
the Authority shall  determine.  Until  exchanged for Bonds in definitive  form,
such Bonds in  temporary  form shall be entitled to the  security and benefit of
the Indenture. The Authority shall, without unreasonable delay, prepare, execute
and deliver to the Trustee,  and thereupon,  upon the presentation and surrender
of the Bond or Bonds in  temporary  form to the Trustee at the  Corporate  Trust
Office, the Trustee shall authenticate and deliver, in exchange therefor, a Bond
or Bonds,  in definitive form in the authorized  denomination,  and for the same
principal  amount,  as the Bond or Bonds in  temporary  form  surrendered.  Such
exchange shall be made without making any charge to the Bondowners therefor.

            Section  2.10EXECUTION OF BONDS;  EFFECT OF CHANGE OF OFFICERS.  All
the Bonds shall,  from time to time,  be executed on behalf of the Authority by,
or bear the  facsimile  signature  of, its Chair,  Vice Chair,  President,  Vice
President and Treasurer,  and its corporate seal (which may be facsimile)  shall
be thereunto affixed (or imprinted or engraved if facsimile) and attested by the
signature of its Vice President and Secretary or an Assistant  Secretary  (which
may be facsimile).

            If any of the  officers  who shall have  signed or sealed any of the
Bonds or whose  facsimile  signature  shall be upon the Bonds  shall cease to be
such officer of the  Authority  before the Bonds so signed and sealed shall have
been actually  authenticated by the Trustee or delivered by the Authority,  such
Bonds  nevertheless  may be  authenticated,  issued and delivered  with the same
force and effect as though the person or persons who signed or sealed such Bonds
or whose  facsimile  signature shall be upon the Bonds had not ceased to be such
officer or officers of the  Authority;  and also any such Bond may be signed and
sealed on behalf of the Authority by those persons who at the actual date of the
execution of such Bond shall be the proper  officers of the Authority,  although
at the date of such Bond any such person shall not have been such officer of the
Authority.

            Section 2.11REGISTRATION OF BONDS; TRANSFERS; SECURITIES DEPOSITORY.
(a) All the Bonds issued under the Indenture shall be negotiable, subject to the
provisions for  registration  of transfer  contained in the Indenture and in the
Bonds.  The Trustee shall be the registrar for the Bonds.  So long as any of the
Bonds shall  remain  outstanding,  the Trustee  shall  maintain  and keep at its
Corporate Trust Office the Bond Register for the registration of transfer
of Bonds. Upon presentation thereof for such purpose at said office, the Trustee
shall  register  or  cause  to  be  registered  therein  under  such  reasonable
regulations as it may prescribe, the transfer of any Bond.

<PAGE>


            The registration of transfer of any Bond shall be made only upon the
Bond  Register at such  Corporate  Trust  Office at the  written  request of the
Registered  Owner  thereof  or his  or her  representative  duly  authorized  in
writing, upon surrender thereof,  together with a written instrument of transfer
satisfactory to the Trustee duly executed by the Registered  Owner or his or her
representative duly authorized in writing.  Upon the registration of transfer of
any Bond, the Authority shall issue in the name of the transferee, in authorized
denominations,  one or more Bonds of the same aggregate  principal amount as the
surrendered Bonds.

            The Trustee  shall not register any transfer of any Bond (or portion
thereof),  except pursuant to Bondowner  tender,  after notice calling such Bond
(or portion  thereof) for  redemption or partial  redemption  has been given and
prior to such  redemption.  In  connection  with any such  transfer  pursuant to
Bondowner  tender,  the Trustee  shall  deliver to the  transferee a copy of the
applicable call for redemption.

            The Trustee or the Tender Agent shall, in addition, authenticate and
register in the name and in the manner  directed by the recipient  thereof Bonds
in replacement for Bonds deemed to be tendered for purchase  pursuant to Section
2.05 for delivery in accordance therewith.

            [2.11] (b) DTC shall act as Securities Depository for the Bonds upon
the initial issuance of the Bonds. The ownership of one fully registered Bond in
the aggregate  principal  amount of the Bonds shall be registered in the name of
Cede & Co.,  as nominee of DTC.  Each such Bond shall be held in trust until its
redemption or until such time as DTC or its nominee is no longer the  Registered
Owner of the Bonds, as provided below.

            For so long as the Bonds are held in a book-entry-only system and so
long as a Securities  Depository or its nominee is the  Registered  Owner of the
Bonds,  references  herein to the  Bondowners or Registered  Owners of the Bonds
shall mean such  Securities  Depository  or its  nominee  and shall not mean the
beneficial  owners  ("Beneficial  Owners")  of  the  Bonds.  For  so  long  as a
Securities  Depository  or its  nominee  is the  Registered  Owner of the Bonds,
principal,  Purchase Price,  redemption price,  including  premium,  if any, and
interest  payments on the Bonds shall be made to such  Securities  Depository or
its nominee, as Registered Owner of the Bonds, and the Authority and the Trustee
shall recognize such  Securities  Depository or its nominee as the Bondowner for
all purposes,  and such Securities Depository or its nominee shall be considered
the only  owner of such  Bonds for all  purposes,  including  receipt of notice,
voting and  requesting or directing the Trustee,  the  Remarketing  Agents,  the
Paying Agent, the Tender Agent or any other fiduciary to take or not to take any
action under the Indenture.  Conveyance of notices and other communications by a
Securities  Depository  to  Beneficial  Owners will be governed by  arrangements
among them,  subject to any statutory and regulatory  requirements  as may be in
effect from time to time.

<PAGE>


            THE AUTHORITY,  THE COMPANY,  THE TRUSTEE,  THE PAYING AGENT AND THE
REMARKETING  AGENTS  WILL NOT  HAVE  ANY  RESPONSIBILITY  OR  OBLIGATION  TO ANY
BENEFICIAL OWNER WITH RESPECT TO (I) THE ACCURACY OF ANY RECORDS MAINTAINED BY A
SECURITIES DEPOSITORY; (II) THE PAYMENT BY A SECURITIES DEPOSITORY OF ANY AMOUNT
WITH RESPECT TO THE PRINCIPAL,  PURCHASE PRICE,  INCLUDING  PREMIUM,  IF ANY, OR
INTEREST ON THE BONDS;  (III) ANY NOTICE  WHICH IS  PERMITTED  OR REQUIRED TO BE
GIVEN TO BENEFICIAL  OWNERS OR (IV) ANY CONSENT GIVEN OR OTHER ACTION TAKEN BY A
SECURITIES DEPOSITORY OR ITS NOMINEE AS BONDOWNER.

            The Authority may elect to discontinue such  book-entry-only  system
and upon the discontinuance of such  book-entry-only  system,  Bond certificates
are required to be delivered in physical and  registered  form to the Bondowners
or  their  designees,  according  to  the  terms  of  the  Indenture.  Upon  the
institution of any Rate Period after such discontinuance, the Authority upon the
direction   of  the  Company  may  direct  that  the  Bonds  shall  be  held  as
book-entry-only  Bonds by  notification  to the Trustee,  the Paying Agent,  the
Tender Agent and the  Remarketing  Agents of their  intention to reinstitute the
book-entry-only  system.  Upon receipt of such notice,  the Trustee shall notify
owners of such Bonds that such Bonds shall be registered  in a book-  entry-only
system with DTC or its nominee or such alternative  Securities Depository as the
Authority shall appoint.  Upon or before the date specified in such notice, such
owners shall surrender their Bond certificates to the Trustee or Tender Agent to
have their  beneficial  ownership  interest  in the Bonds  registered  under the
book-entry-only system described herein. If any Bondowner fails to surrender any
such certificate to the Trustee or Tender Agent, such Bondowner shall remain the
Registered  Owner of such Bond;  provided,  however,  that such Registered Owner
shall have no right to transfer or tender such Bond without  first  surrendering
such Bond for registry in the book-entry-only system.

            If, during any period that a Securities Depository, including DTC or
its  nominee,  is  the  Registered  Owner  of the  Bonds,  (a)  such  Securities
Depository  determines to discontinue  providing its service with respect to the
Bonds by giving  notice to the  Authority  and the Trustee and  discharging  its
responsibilities  with respect thereto under  applicable laws, and the Authority
fails to appoint a successor  Securities  Depository  for the Bonds,  or (b) the
Authority  at the  direction  of  the  Company  determines  to  discontinue  the
book-entry-only   system   through  such   Securities   Depository,   then  Bond
certificates are required to be delivered in physical and registered form to the
Beneficial  Owners or their designees,  according to the terms of the Indenture.
Each  Beneficial  Owner,  upon delivery of  certificates  held in the Beneficial
Owner's name, will become the Registered Owner of that portion of the Bonds.

            In the event that the book-entry-only system is discontinued and the
Beneficial  Owners  become  Registered  Owners  of  the  Bonds,  the  provisions
applicable to such Registered Owners shall apply.

<PAGE>


            In connection with any notice or other  communication to be provided
to  Bondowners  pursuant to the  Indenture by the  Authority or the Trustee with
respect to any consent or other action to be taken by Bondowners,  the Authority
or the  Trustee,  as the case may be,  shall  establish  a record  date for such
consent or other action and give the nominee or Securities  Depository notice of
such record date not less than fifteen  calendar  days in advance of such record
date to the extent possible.

            The  Authority  and the Trustee are hereby  authorized to enter into
any  arrangements   determined   necessary  or  desirable  with  any  Securities
Depository  in order to  effectuate  this  Section and both of them shall act in
accordance  with the  Indenture  and any such  agreement.  Without  limiting the
generality  of the  foregoing,  any such  arrangements  may alter the  manner of
effecting  delivery of Bonds and the  transfer of funds for the payment of Bonds
to the Securities Depository.

            Section 2.12 PERSONS TREATED AS OWNERS. The Authority,  the Trustee,
the Tender Agent and any Paying Agent may, for all purposes,  deem and treat the
Registered  Owner of any Bond as the absolute  owner of such Bond whether or not
such Bond is overdue,  and neither the  Authority nor the Trustee nor the Tender
Agent nor the Paying Agent shall be affected by any notice to the contrary.

            Payment made to the Registered  Owner of any Bond for the purpose of
such payment in  accordance  with the  provisions  of this Section 2.12 shall be
valid and  effectual,  to the extent of the sum or sums so paid,  to satisfy and
discharge  the  liability  upon such Bond in respect of which such  payment  was
made.

            Section 2.13  EXCHANGE OF BONDS.  So long as any of the Bonds remain
outstanding,  the Authority  shall make all  necessary  provisions to permit the
exchange of Bonds at the Corporate Trust Office of the Trustee.

            Bonds,  upon surrender  thereof at the Corporate Trust Office of the
Trustee with a written instrument  requesting such exchange  satisfactory to the
Trustee duly executed by the Registered Owner or his or her representative  duly
authorized in writing,  may be exchanged for an equal aggregate principal amount
of Bonds of any other authorized denominations, in an aggregate principal amount
equal to the principal amount of the Bonds so surrendered.

            Section 2.14 PAYMENT FOR AND LIMITATIONS ON EXCHANGES AND TRANSFERS.
In all cases in which the right of  exchanging  or  registering  the transfer of
Bonds  is  exercised,   the  Authority  shall  execute  and  the  Trustee  shall
authenticate  and deliver Bonds in accordance  with the provisions  hereof.  All
Bonds  surrendered  for  registration of transfer or exchange shall forthwith be
cancelled by the Trustee. For every such registration of transfer or exchange of
Bonds, the Trustee may charge an amount  sufficient to reimburse it for any tax,
fee or other  governmental  charge  required  to be paid  with  respect  to such
registration  of transfer or exchange  which,  if not  resulting  in a change in
Bondowner, shall be paid by the Company pursuant to the Participation Agreement.

<PAGE>


The cost of  preparing  each new Bond  upon each  registration  of  transfer  or
exchange,  and any other  expenses  (except  any  applicable  tax,  fee or other
governmental charge) of the Authority or the Trustee incurred in connection with
such  registration of transfer or exchange shall be paid by the Company pursuant
to the Participation Agreement.

            Section 2.15 ENDORSEMENT OF CERTIFICATE OF  AUTHENTICATION ON BONDS.
No Bond shall be secured  hereby or entitled to the benefit of the  Indenture or
be valid or  obligatory  for any purpose  unless there shall be endorsed on such
Bond a certificate of  authentication,  substantially  in the form prescribed in
the Indenture, executed by the Trustee or the Tender Agent; and such certificate
on any Bond issued by the Authority  shall be  conclusive  evidence and the only
competent  evidence  that such Bond has been duly  authenticated  and  delivered
hereunder.  The Trustee's  certificate  of  authentication  on any Bond shall be
deemed to have been  executed  by it if signed by an  authorized  officer of the
Trustee or the Tender Agent, but it shall not be necessary that the same officer
sign the certificate of authentication on all of the Bonds issued hereunder.

            Section  2.16  CANCELLATION  OF  BONDS.  Upon the  surrender  to the
Trustee of any temporary or mutilated  Bonds, or Bonds  transferred or exchanged
for other Bonds, or Bonds paid at maturity or upon defeasance in accordance with
Article XIV or  otherwise  delivered to the Trustee for  cancellation,  the same
shall  forthwith be cancelled and may be destroyed by the Trustee in such manner
as it deems  appropriate  and the Trustee shall, if such Bonds are so destroyed,
deliver its certificate as to such destruction to the Authority.

            Section  2.17  REDEMPTION  OF BONDS.  The Bonds  shall be subject to
optional and mandatory  redemption at the times and at the redemption prices set
forth in the form of Bonds in the preamble hereto.

                                                     
<PAGE>


                                                                     

                                                                     

                                  ARTICLE III
                     SECURITY FOR BONDS; ISSUANCE OF BONDS

            Section  3.01PLEDGE  AND  ASSIGNMENT  EFFECTED BY  INDENTURE;  BONDS
EQUALLY AND RATABLY  SECURED.  In accordance with the provisions of subsection 8
of Section 1860 of the Act, the pledge and assignment  effected by the Indenture
shall be valid  and  binding  from the date of  execution  and  delivery  of the
Indenture,  the moneys so pledged and  assigned  and  hereafter  received by the
Authority shall be subject to the lien of such pledge and assignment without any
physical  delivery  thereof or further act, and such lien shall be a continuing,
irrevocable  and exclusive  first lien and shall be valid and binding as against
all parties having claims of any kind in tort, contract or otherwise against the
Authority  irrespective of whether such parties have notice thereof. In addition
to the pledges and  assignments  set forth above,  the Authority  hereby further
grants to the Trustee the same power as the  Authority  to enforce  from time to
time the rights of the  Authority  set forth in Article III and Section  5.16 of
the  Participation  Agreement,  subject to the  provisions of the  Participation
Agreement relating to the amendment thereof.

            All Bonds issued and to be issued  hereunder  are, and are to be, to
the  extent  provided  in the  Indenture,  equally  and  ratably  secured by the
Indenture without  preference,  priority or distinction on account of the actual
time or times of the authentication or delivery of the Bonds, or any of them, so
that,  subject  to the  provisions  of  Section  9.05,  all  Bonds  at any  time
outstanding  hereunder shall have the same right,  lien and preference under and
by virtue of the Indenture and shall all be equally and ratably  secured  hereby
with like effect as if they had all been executed,  authenticated  and delivered
simultaneously on the date hereof;  provided,  however, that Bonds registered in
the name of the  Company  or held or  required  to be held by the  Tender  Agent
pursuant  to Section  2.07 shall not be entitled to any benefit of the Letter of
Credit.

            Section  3.02  ISSUANCE  OF BONDS.  The  Bonds  shall  forthwith  be
executed by the Authority and delivered to the Trustee for  authentication  and,
upon  the  written  request  and  authorization  to  the  Trustee  signed  by an
Authorized  Officer,  the Bonds  shall be  authenticated  by the  Trustee or the
Tender  Agent  and  shall  be  delivered  to or upon  the  written  order  of an
Authorized  Officer,  but only  upon the  receipt  by the  Trustee  of  proceeds
(including  accrued  interest,  if any) of sale of the Bonds, of which (i) a sum
equal to the accrued  interest,  if any, paid by the initial  purchasers of such
Bonds shall be deposited in the Bond Fund and (ii) the balance  thereof shall be
deposited  in the  Construction  Account  of the  Project  Fund.  Prior  to,  or
simultaneously  with, the  authentication and delivery of the Bonds, the Trustee
shall also receive the following:

            (a) A copy,  certified  by the  Secretary of the  Authority,  of the
      resolution  or  resolutions  adopted  by  the  Authority  authorizing  the
      execution and delivery of the Indenture  and the  Participation  Agreement
      and the issuance, sale, execution and delivery of the Bonds;

<PAGE>


          (b) An original executed  counterpart of the  Participation  Agreement
     and the Indenture;

            (c)   The  Company Note;

            (d)   The Letter of Credit;

            (e) A copy of resolutions  authorizing the execution and delivery of
      the Participation Agreement,  and the issuance,  execution and delivery of
      the  Company  Note,  by the  Company,  certified  by the  Secretary  or an
      Assistant Secretary of the Company, under its corporate seal, to have been
      duly adopted by the Board of Directors  of the Company,  or the  Executive
      and Finance Committee  thereof,  and to be in full force and effect on the
      date of such certification;

            (f) A copy of the opinion of counsel to the Company delivered to the
      initial purchasers of the Bonds, together with a letter to the effect that
      the Trustee may rely on such opinion as if it were addressed to it;

            (g) An opinion of counsel, who shall be satisfactory to the Trustee,
      experienced  in laws relating to the issuance of bonds of states and their
      political  subdivisions,  to the effect that the issuance of the Bonds has
      been duly  authorized  and that all  conditions  precedent to the issuance
      thereof have been fulfilled; and

            (h) A copy of an opinion or  opinions  of counsel to the Bank to the
      effect that the Letter of Credit has been duly  authorized,  executed  and
      delivered and is a valid and binding obligation of the Bank, together with
      a letter to the effect that the Trustee may rely on such  opinion as if it
      were addressed to it.

                                                         
<PAGE>


                                                                   


                                  ARTICLE IV

                                 AMENDMENT OF
                     PARTICIPATION AGREEMENT, COMPANY NOTE
                          AND TAX REGULATORY AGREEMENT

            Section 4.01  AMENDMENTS  TO  PARTICIPATION  AGREEMENT NOT REQUIRING
CONSENT OF BONDOWNERS. The Authority may, without the consent of the Trustee and
without  notice to or consent of the  Bondowners,  enter into any  amendment  or
modification  of the rights and interest of the  Authority  under Article III of
the  Participation  Agreement or Sections 4.04, 4.08, 4.09, 4.10 and 5.16 of the
Participation  Agreement  upon the delivery to the Trustee of an Opinion of Bond
Counsel,  satisfactory to the Trustee, to the effect that the proposed amendment
or  modification  will not impair the  exclusion  from gross  income for federal

<PAGE>


income  tax  purposes  of  interest  on any of the Bonds  theretofore  issued or
otherwise  adversely affect the rights and/or interests of the Trustee or any of
the owners of the Bonds.  The Authority may, without the consent of or notice to
the  Bondowners,  amend or  modify  any  other  provision  of the  Participation
Agreement  as may be  required  (i) for the purpose of curing any  ambiguity  or
formal defect or omission in the Participation  Agreement; or (ii) in connection
with any other change  therein which is not  prejudicial to the interests of the
Trustee  or the  owners of the Bonds,  including  but not  limited to any change
necessary to obtain or maintain a rating of the Bonds from Moody's or S&P.

            Prior to the  expiration  of the Letter of Credit,  no  amendment or
modification of the Participation Agreement shall be effective without the prior
written consent of the Bank, which consent shall not be unreasonably withheld.

            Section 4.02 AMENDMENTS TO PARTICIPATION AGREEMENT REQUIRING CONSENT
OF  BONDOWNERS.  Except for amendments or  modifications  as provided in Section
4.01, the Authority  shall not enter into any amendment or  modification  of the
Participation  Agreement  without  the  written  consent of the  Trustee and the
owners of not less than  two-thirds in aggregate  principal  amount of the Bonds
then outstanding and affected by such modification or amendment.

            Such consent of  Bondowners  shall be given and procured in the same
manner as provided in Section 13.02 with respect to Supplemental Indentures.

            No  modification  or amendment  requiring  the consent of Bondowners
shall be effective  unless the required  consent of  Bondowners  is obtained and
such modification is not prejudicial to the interests of the Trustee.

            Notwithstanding  anything to the contrary contained in the Indenture
or the Participation  Agreement, the Authority shall not agree to any amendment,
change or  modification  of, or any waiver,  discharge or termination of, any of
the provisions of the Participation  Agreement in any respect which would impair
the exclusion  from gross income for federal  income tax purposes of interest on
any of the Bonds.

            Prior to the  expiration  of the Letter of Credit,  no  amendment or
modification of the Participation Agreement shall be effective without the prior
written consent of the Bank, which consent shall not be unreasonably withheld.

            Section 4.03 AMENDMENTS TO COMPANY NOTE.  Except for such amendments
or  modifications  of the  Company  Note as may be  required  for the purpose of
curing any  ambiguity or formal  defect or omission in the Company  Note,  or in
connection  with any other change therein which, in the judgment of the Trustee,
is not  prejudicial  to the  interests  of the  Trustee or the  Bondowners,  the
Trustee shall not enter into any amendment or  modification  of the Company Note
without  obtaining  the prior  written  consent  of the  owners of not less than
two-thirds in aggregate principal amount of the Bonds then outstanding.  No such
modification or amendment shall be made which will affect the times, amounts and
currency of payment of the principal of and premium, if any, and interest on the
Company Note without the consent of the owners of all Bonds then outstanding.

            The Trustee shall consent to any such proposed action  requiring the
consent of the owners of the Bonds if the required  consent of the owners of the
Bonds is obtained;  provided that the Trustee may, but shall not be obligated to
consent to any such proposed action which affects its own rights, powers, duties
or obligations hereunder. Such consent of Bondowners shall be given and procured
in the same  manner as provided in Section  13.02 with  respect to  Supplemental
Indentures.

            Prior to the  expiration of the Letter of Credit,  the Trustee shall
not consent to any  amendment  or  modification  of the Company Note without the
prior  written  consent of the Bank,  which  consent  shall not be  unreasonably
withheld.

            Section 4.04 AMENDMENTS TO TAX REGULATORY  AGREEMENT.  The Authority
may,  without the consent of the Trustee and without notice to or consent of the
Bondowners,  enter into any  amendment  or  modification  of the Tax  Regulatory
Agreement  upon the delivery to the Trustee of an Opinion of Bond Counsel to the
effect that the proposed amendment or modification will not adversely affect the
exclusion  from gross income for federal  income tax purposes of interest on the
Bonds.

<PAGE>


                                                                       



                                  ARTICLE V
                           PROJECT FUND; REBATE FUND

            Section 5.01CREATION AND CUSTODY OF PROJECT FUND. 1. There is hereby
created a Project Fund, which shall be held by the Trustee.  There shall be paid
into the Project  Fund the amount  required to be so paid by the  provisions  of
Section 3.02.

            2.  There is hereby  established  within  the  Project  Fund two (2)
separate  trust  accounts  to be known  as the  "Construction  Account"  and the
"Investment  Proceeds  Account."  All income or gain on moneys  deposited in the
Construction  Account or the Investment  Proceeds  Account shall be deposited in
the Investment Proceeds Account.

            Section  5.02  APPLICATION  OF MONEYS IN THE  PROJECT  FUND.  1. The
moneys in the Construction Account,  until applied in payment of any item of the
Cost of Construction of the Project,  shall be held by the Trustee and,  pending
such application,  shall be subject to a claim and charge in favor of the owners
of the Bonds and for the  further  security  of such  owners  until  paid out as
herein provided. The moneys in the Investment Proceeds Account, until applied in
accordance with the provisions of Section 5.02.2,  shall be held by the Trustee,
but shall not be  subject  to a claim or charge in favor of the  Bondowners  and
shall be applied  solely in accordance  with the  provisions of this Article and
shall not be  available  for the  payment  of Bonds  within  the  meaning of the
Indenture.  Pending such application,  such moneys may be invested in accordance
with the provisions of Article VII.

            2. On the first Business Day following each Computation  Period, the
Trustee shall withdraw from the Investment  Proceeds  Account and deposit in the
Rebate  Fund an amount  such that the amount  held in the Rebate Fund after such
deposit, as certified to the Trustee by an Authorized Company Representative, is
equal to the  Rebate  Amount  calculated  as of the last day of the  Computation
Period, as certified to the Trustee by an Authorized Company Representative. Any
remaining  balance in the Investment  Proceeds Account shall be deposited in the
Construction Account. In the event of any deficiency, the balance required shall
be  provided  by the  Company  pursuant  to  Section  7.4 of the Tax  Regulatory
Agreement.  Computations  of the  amounts  on  deposit  in each fund  hereunder,
descriptions  of each investment  held therein,  and  computations of the Rebate
Amount  shall be  furnished  to the  Trustee by the Company in  accordance  with
Section 7.4 of the Tax Regulatory Agreement.

            Section  5.03  CONSTRUCTION  ACCOUNT  REQUISITIONS.  The  Trustee is
authorized  and directed to make payments from the  Construction  Account to pay
the Cost of Construction of the Project,  upon the written order of the Company,
but only upon receipt from time to time of requisitions  signed by an Authorized
Company  Representative  in the form of EXHIBIT B attached hereto upon which the
Trustee may conclusively  rely,  stating with respect to each payment to be made
for the Project:

<PAGE>



               (a) the requisition number;

               (b) the items of the Cost of Construction of the Project to which
          the  disbursement  relates or has been allocated and the nature of the
          disbursement;

               (c) the payee, with address, which may be the Company in the case
          of reimbursements  for advances and payments made or costs incurred or
          work done by the Company;

               (d) the amount of such payment;

               (e) that the  disbursement  will be used to pay, or reimburse the
          Company  for, a Cost of  Construction  of the Project and that it is a
          proper charge against the Construction Account;

               (f)  that  none  of the  items  for  which  the  disbursement  is
          requested has formed the basis for any  disbursement  theretofore made
          from the Construction Account;

               (g) that the disbursement will not be used in a manner that would
          result in a  violation  of any  representation,  warranty  or covenant
          contained  in Article III of the Tax  Regulatory  Agreement or Section
          5.04 of the Participation Agreement;

               (h) that no event of default  under the  Participation  Agreement
          shall have occurred and be continuing and that no event which with the
          lapse of time alone would  become such a default has  occurred  and is
          continuing; and

               (i) that no event of  default  under  the  Indenture  shall  have
          occurred and be  continuing  and that no event which with the lapse of
          time alone would become such a default has occurred and is continuing.

            Section 5.04.  RETENTION OF  REQUISITIONS.  For seven years from the
dates  thereof the  Trustee  shall  retain in its  possession  all  requisitions
received  by it as herein  required,  subject to the  inspection  during  normal
banking hours, of the Authority,  its agents and representatives and the Company
and, upon  reasonable  request,  inspection  during normal  banking hours of the
Bondowners  and their  representatives,  in any  case,  at the  Corporate  Trust
Office.

            Section 5.05 CERTIFICATION OF COMPLETION OF THE PROJECT. On the date
when all Costs of  Construction  expected to be paid from the Project  Fund have
been paid,  the Trustee and the  Authority  shall be furnished  promptly  with a
certificate of an Authorized  Company  Representative,  which  certificate shall
contain an  appropriate  direction  to the Trustee with respect to any amount in
the Project Fund which is to be disposed of as provided in Section 5.06.


<PAGE>


            Section 5.06  DISPOSITION OF BALANCE  REMAINING IN PROJECT FUND. All
moneys  remaining  in the  Project  Fund after the  certificate  referred  to in
Section  5.05 is furnished  shall,  at the written  direction  of an  Authorized
Company  Representative,  be deposited in a segregated account in the Bond Fund,
or paid to the Bank to reimburse  the Bank for any  unreimbursed  draw under the
Letter of Credit  relating to the purchase of Bonds tendered or deemed  tendered
pursuant  to Section  2.05 (and,  pending any such  application,  be invested in
securities   in  accordance   with  the  direction  of  an  Authorized   Company
Representative  delivered pursuant to Article VII, which direction shall confirm
that such  investment  will not be in violation of the covenants and  warranties
made to the  Authority  by the  Company  in  Section  7.1 of the Tax  Regulatory
Agreement), or deposited in the Rebate Fund.

            Section 5.07  CREATION  AND CUSTODY OF REBATE FUND.  There is hereby
created a Rebate Fund,  which shall be held by the Trustee.  There shall be paid
into the Rebate Fund the amount required to be so paid under Section 5.02.2. All
income or gain on moneys  deposited in the Rebate Fund shall be deposited in the
Rebate  Fund.  The Rebate Fund and the amounts  deposited  therein  shall not be
subject to a claim and charge in favor of the Trustee or any owners of Bonds and
shall be applied  solely in accordance  with the  provisions of this Article and
shall not be  available  for the  payment  of Bonds  within  the  meaning of the
Indenture.

            Section 5.08  APPLICATION  OF MONEYS IN THE REBATE FUND.  1. Amounts
deposited  in  the  Rebate  Fund  shall  be  applied  solely  to  pay  Costs  of
Construction  described in clause (i) of the definition of Costs of Construction
in  accordance  with  subsection  2 of this  Section  5.08  except to the extent
otherwise permitted by subsection 3 of this Section 5.08.

            2.  The  Trustee,  upon  receipt  of  written  instructions  from an
Authorized  Company  Representative  in  accordance  with Section 7.3 of the Tax
Regulatory  Agreement,  shall pay to the  United  States  out of  amounts in the
Rebate Fund (a) not later than thirty (30) days after the end of each  five-year
period  following the date of issuance of the Bonds, an amount  certified to the
Trustee by an Authorized Company Representative such that, together with amounts
previously  paid,  the total amount paid to the United States is equal to 90% of
the  Rebate  Amount  calculated  as of the end of the  most  recent  Computation
Period,  and (b) not later than 30 days after the date on which all of the Bonds
have been paid or redeemed, 100% of the Rebate Amount as of the end of the final
Computation  Period  as  certified  to  the  Trustee  by an  Authorized  Company
Representative.

            3. In the event that on the first day of any Bond Year the amount on
deposit in the Rebate Fund  exceeds the Rebate  Amount,  the  Trustee,  upon the
receipt  of  written  instructions  from an  Authorized  Company  Representative
specifying  the amount of such excess,  shall  withdraw  such excess  amount and
prior to the Completion Date,  deposit it in the Investment  Proceeds Account of
the Project Fund, or, after the Completion Date, deposit it in the Bond Fund.

            Pending such application,  such moneys may be invested in accordance
with  instructions  from the Company given in accordance  with the provisions of
Article VII.

                                                        
<PAGE>


                                                       

                                  ARTICLE VI

                          BOND FUND; LETTER OF CREDIT

            Section 6.01 CREATION AND CUSTODY OF THE BOND FUND.  There is hereby
created a Bond Fund, which shall be held in trust by the Trustee for the benefit
of the  Bondowners  and shall be  subject  to a lien and  charge in favor of the
Bondowners. Neither the Company nor the Authority shall have any interest in, or
ability to withdraw funds from,  the Bond Fund.  There are hereby created within
the Bond Fund two separate  trust  accounts to be designated as the Debt Service
Account and the Letter of Credit Account.  The moneys in each such account shall
not in any way be commingled with funds in any other trust account maintained by
the Trustee.  The Trustee shall maintain such records for deposits made into the
Debt Service  Account so that the Trustee may at all times  ascertain the source
and dates of deposit of the moneys in the Debt Service Account.

            The Authority hereby  authorizes and directs the Trustee to withdraw
in accordance with Section 6.03  sufficient  funds from the Bond Fund to pay the
principal of and  premium,  if any, and interest on the Bonds as the same become
due and  payable  and to make such funds so  withdrawn  available  to the Paying
Agents, if any, for the purpose of paying such principal,  premium,  if any, and
interest.

            Section 6.02 PAYMENTS INTO THE BOND FUND.  The Trustee shall deposit
in the Bond Fund for credit to the Debt Service Account as and when received (1)
the amount, if any, of the proceeds of sale of the Bonds, to the extent required
by this Indenture,  (2) all Company Note Payments,  (3) the amounts remaining in
the Project Fund after the certificate referred to in Section 5.05 is furnished,
(4) all interest and other income  received on  investments of moneys on deposit
in the Bond Fund,  as provided  in Section  7.03,  (5) any funds made  available
pursuant to Section 8.05, (6) any proceeds of refunding  obligations and (7) any
amount paid into the Bond Fund pursuant to Section 5.08.3.

            There shall be deposited in the Letter of Credit  Account all moneys
drawn by the Trustee  under the Letter of Credit and received by the Trustee for
the  purposes of paying  principal  of,  premium,  if any,  and interest on, the
Bonds. In the event that the Bonds are held by a Securities  Depository,  moneys
drawn  under  the  Letter  of  Credit  may be paid  directly  to the  Securities
Depository, in which event, proper notification concerning such payment shall be
sent to the Trustee and the Paying Agent.

            Section  6.03  APPLICATION  OF  MONEYS IN THE BOND  FUND.  Except as
otherwise  provided in Sections 6.04 and 14.01.3,  moneys on deposit in the Bond
Fund shall be used solely for the payment of the  principal of and  premium,  if
any, and  interest on the Bonds as the same shall become due and payable  either
at maturity,  upon  redemption,  by  declaration  or otherwise.  Moneys for such
payments of the principal of, premium, if any and interest on the Bonds shall be
derived from the  following  sources in the  following  order of  priority:  

<PAGE>


               (i) moneys drawn under the Letter of Credit and either  deposited
          in the  Letter of Credit  Account  or, if  necessary  during  any Rate
          Period  when the Bonds are held by a  Securities  Depository,  paid to
          such Securities Depository;

            (ii)  moneys  paid into the Bond  Fund  pursuant  to  clause  (1) of
      Section 6.02 in respect of accrued  interest  which  constitute  Available
      Moneys and proceeds from the investment thereof that constitute  Available
      Moneys which moneys shall be used to pay interest on the Bonds;

            (iii) proceeds of the sale of refunding obligations which constitute
      Available Moneys and proceeds from the investment  thereof that constitute
      Available Moneys;

            (iv) moneys  deposited  into the Bond Fund pursuant to clause (3) or
      clause (7) of Section 6.02 which constitute  Available Moneys and proceeds
      from the investment thereof that constitute Available Moneys;

            (v) Company Note  Payments  which  constitute  Available  Moneys and
      proceeds from the investment thereof that constitute Available Moneys;

            (vi) to the extent permitted by Section 8.05,  moneys deposited into
      the Bond Fund  pursuant to clause (5) of Section  6.02,  and proceeds from
      the investment thereof that constitute Available Moneys; and

            (vii) Company Note Payments which do not constitute Available Moneys
      and proceeds from the investment thereof.

            The Trustee  hereby agrees to draw moneys under the Letter of Credit
to be applied to the payment of principal of,  premium,  if any, or interest on,
the  Bonds.  If and to the  extent  moneys  under  clause  (i) of the  preceding
paragraph are insufficient or unobtainable therefor, the Trustee shall apply any
other moneys that are available  therefor,  in the preceding  order of priority,
including moneys described in clauses (vi) and (vii) of the preceding paragraph,
to the payment of the principal of, premium, if any, and interest on, the Bonds.
After the Letter of Credit has  expired,  any moneys  held by the Trustee in the
Bond Fund may be used to make any payment of the principal of, premium,  if any,
and interest on, the Bonds.

            Prior to the  expiration  of the  Letter  of  Credit,  moneys  under
clauses  (iii),  (iv) and (v) of this  Section 6.03 shall not be used to pay the
redemption price of any Bond redeemed  pursuant to the direction of the Company,
unless the Trustee  shall have  received  the  written  direction  specified  in
Section  8.01  providing  for such  redemption  at least 123 days  prior to such
redemption date.

            If on the due date of  principal  and  premium,  if any, or interest
with respect to Bonds,  the amounts on deposit in the Bond Fund (except  amounts
held by the Trustee  pursuant to Section 6.04) are not sufficient to pay in full
all such  principal  of and premium,  if any,  and  interest on the Bonds,  such
amounts shall be applied to the payment of such principal,  premium and interest
in accordance with the provisions of Section 10.09.

<PAGE>


            Section 6.04  NON-PRESENTMENT  OF BONDS.  In the event any Bonds (or
any portion  thereof)  shall not be  presented  for payment  when the  principal
thereof and redemption  premium, if any, thereon becomes due, either at maturity
or at the date fixed for redemption thereof  (including,  for such purpose,  any
conversion to a Fixed Rate) or otherwise,  if funds sufficient to pay such Bonds
(or portions  thereof) and  redemption  premiums,  if any,  shall be held by the
Trustee for the benefit of the owner or owners  thereof,  all  liability  of the
Authority  to the owner or owners  thereof  for the  payment  of such  Bonds (or
portions  thereof) and  redemption  premiums,  if any,  shall  forthwith  cease,
terminate  and be completely  discharged,  and thereupon it shall be the duty of
the Trustee to hold such funds (without investment thereof) in the Bond Fund for
a period of at least two years,  without liability for interest thereon, for the
benefit of the owner or owners of such Bonds who shall  thereafter be restricted
exclusively  to such funds for any claim of whatever  nature on such  owner's or
owners'  part under the  Indenture  or on, or with  respect to,  such Bonds.  On
December 1 of each year in which the Bonds are outstanding, the Trustee will pay
any funds  (other  than  moneys  resulting  from a draw on the Letter of Credit)
which it has then held in respect of Bonds not  presented  for  payment  for two
years or more to the Company, and thereafter the owners of such Bonds shall look
only to the Company  for the payment  thereof and then only to the extent of the
amount so received without any interest thereon, and the Authority,  the Trustee
and the Paying Agent shall have no responsibility with respect to such moneys.

            Section 6.05  (INTENTIONALLY DELETED).

            Section  6.06  TRUSTEE TO NOTIFY  AUTHORITY  AND COMPANY OF FUNDS IN
BOND  FUND.  The  Trustee,  upon  the  written  request  of the  Company  or the
Authority,  shall notify the Company and the Authority of the amount of funds on
deposit in the Bond Fund at the time of such request.

            Section  6.07 LETTER OF CREDIT.  (1) The  Trustee  shall draw moneys
under the  Letter of Credit in  accordance  with the terms  thereof  as shall be
necessary to make timely  payments of  principal  of, and interest on, the Bonds
required to be made from the Bond Fund and to make timely  payments  required to
be made pursuant to, and in accordance  with,  Section 2.05. In connection  with
each  such  drawing,   the  Trustee   shall  timely   prepare  and  present  all
certificates,  drafts and other documents which are required by the terms of the
Letter of Credit to effect payment thereunder.  The Trustee shall give immediate
telephonic or facsimile  (confirmed in writing)  notice to the Company of a draw
under the Letter of Credit and the amount thereof.  Nothing in this Section 6.07
shall  require  the  Trustee to draw  moneys  under the Letter of Credit for the
payment  of Bonds  registered  in the name of,  or held  beneficially  for,  the
Company or the Bank or any Bonds held or required to be held by the Tender Agent
for the account of the  Company or the Bank  pursuant  to the  Indenture  to the
extent not  permitted  by the Letter of Credit.  The  Company  shall  notify the
Remarketing Agent of any extentions or substitutions  with respect to the Letter
of Credit.

<PAGE>


            (2) If at any time on or prior to the  thirty-seventh  calendar  day
next preceding the scheduled  expiration date of a Letter of Credit, there shall
have been  delivered to the Trustee (a) an  Alternate  Credit  Facility,  (b) an
Opinion of Bond  Counsel  stating  that the  delivery of such  Alternate  Credit
Facility to the Trustee is authorized under the Participation  Agreement and the
Indenture  and complies  with the terms of the  Participation  Agreement and the
Indenture and (c) written evidence  satisfactory to the Trustee from Moody's, if
the Bonds are then  rated by  Moody's,  and/or  from S&P,  if the Bonds are then
rated by S&P, in each case to the effect that such  Rating  Agency has  reviewed
the proposed Alternate Credit Facility and that the substitution of the proposed
Alternate  Credit Facility for the Letter of Credit will not, by itself,  result
in a reduction  or  withdrawal  of its rating or ratings of the Bonds from those
which then prevail, then the Trustee shall accept such Alternate Credit Facility
and  surrender the  previously  held Letter of Credit to the Bank, in accordance
with the terms of such Letter of Credit, for cancellation.

            (3) The Company may substitute an Alternate  Credit Facility only if
(i) notice of mandatory  purchase pursuant to Section 2.05(e)(1) shall have been
given and such  Alternate  Credit  Facility shall take effect on or prior to the
date on which the Bonds are purchased  pursuant to Section  2.05(e)(1)  and (ii)
such  substitution  will  result in a rating of not less than the third  highest
rating  category of a Rating  Agency.  Upon delivery to the Trustee of: (a) such
Alternate  Credit  Facility,  (b) an Opinion of Bond  Counsel  stating  that the
delivery of such Alternate Credit Facility is authorized under the Participation
Agreement and the Indenture and complies with the terms thereof, and (c) written
evidence  satisfactory to the Trustee from a Rating Agency that delivery of such
Alternate  Credit  Facility  will not  result in a rating of less than the third
highest rating  category of such Rating Agency,  currently "A" in each case, the
Trustee  shall  surrender the Letter of Credit  previously  in effect,  promptly
following  any drawing  required to be made on such Letter of Credit on the date
the Bonds are so purchased.

            (4) If at any time,  the Letter of Credit shall expire because there
shall  cease to be any Bonds  outstanding  hereunder,  or because the Fixed Rate
Conversion Date shall have occurred, then the Trustee shall surrender the Letter
of Credit to the Bank for cancellation  after having made any necessary  drawing
in accordance with this Section 6.07 and with the terms of the Letter of Credit.
The Trustee shall comply with the  procedures  set forth in the Letter of Credit
relating to the termination thereof.

            (5) Prior to the  expiration  of the Letter of Credit,  the  Trustee
shall give notice to the owners of the Bonds,  in the name of the Authority,  of
such  expiration,  which notice shall (a) specify the date of the  expiration of
the  Letter  of Credit  and (b)  specify  the last  time and date  prior to such
expiration  on which Bonds must be delivered  and the notice given to the owners
of the Bonds for the  purchase  of Bonds  pursuant  to  tenders as  provided  in
Section  2.05,  and the  places  where such  Bonds  must be  delivered  for such
purchase, and (c) either (i) if the requirements of subsection 2 of this Section

<PAGE>


6.07 have not been met,  state  that the Bonds  shall be  subject  to  mandatory
tender for purchase at the Purchase Price thereof on the Mandatory Purchase Date
or (ii)  state the name of the issuer of the  Alternate  Credit  Facility.  Such
notice  shall be given by first class mail not later than thirty (30) days prior
to the Mandatory Purchase Date.

            (6)  Notwithstanding  anything in the Indenture to the contrary,  in
the event the Bonds are held by a Securities  Depository  under Section 2.11(b),
the Trustee may instruct the Bank to pay amounts  drawn  thereunder  directly to
the Securities  Depository,  as Registered  Owner of the Bonds,  in which event,
proper notification concerning such payment shall be sent to the Trustee and the
Paying Agent.

                                                        
<PAGE>
                                                                       

                                  ARTICLE VII

                     SECURITY FOR AND INVESTMENT OF MONEYS

            Section  7.01MONEYS  HELD IN  TRUST.  All  moneys  from time to time
received by the Trustee and held in any fund created under the Indenture  (other
than the Rebate Fund),  or otherwise held for the benefit of the owners,  shall,
except as  otherwise  provided  herein,  be held in trust by the Trustee for the
benefit  of the  owners  from  time  to time of the  Bonds  entitled  to be paid
therefrom.

            Section  7.02UNINVESTED  MONEYS  HELD  BY THE  TRUSTEE.  All  moneys
received by the Trustee  hereunder  and not invested by the Trustee  pursuant to
the  provisions  of this  Article  VII, to the extent not insured by the Federal
Deposit  Insurance  Company or other federal  agency,  shall be deposited with a
member  bank of the  Federal  Reserve  System  or with  the  Trustee,  or with a
national  or state  bank or a trust  company  which has a combined  capital  and
surplus aggregating not less than $100,000,000; PROVIDED, HOWEVER, that any such
moneys  drawn under the Letter of Credit and any moneys held under  Section 6.04
shall be deposited  with the Trustee or be fully insured by the Federal  Deposit
Insurance Company.

            Section  7.03  INVESTMENT  OF, AND PAYMENT OF INTEREST  ON,  MONEYS.
Moneys on deposit to the credit of the  Project  Fund or the Rebate  Fund may be
retained  uninvested as trust funds. Such moneys shall, at the written direction
of an Authorized Company  Representative,  be invested by the Trustee in (a) any
obligation  issued or guaranteed  by, or backed by the full faith and credit of,
the United States of America  (including any  certificates or any other evidence
of an  ownership  interest  in any  such  obligation  or in  specified  portions
thereof, which may consist of specified portions of the principal thereof or the
interest  thereon),  (b) deposit  accounts in, or certificates of deposit issued
by, and bankers'  acceptances  of, any bank,  trust company or national  banking
association  which is a member of the Federal  Reserve System (which may include
the  Trustee),  having  capital  stock  and  surplus  aggregating  not less than
$100,000,000,  (c) obligations  issued or guaranteed by any Person controlled or
supervised by and acting as an  instrumentality  of the United States of America
pursuant to the  authority  granted by the  Congress of the United  States,  (d)
commercial  paper  rated  in  the  highest  investment  grade  or  next  highest
investment  grade by Moody's or S&P, (e) obligations  rated not less than "A" or
equivalent  by Moody's or S&P  issued or  guaranteed  by any state of the United
States of America or the District of  Columbia,  or any  political  subdivision,
agency  or  instrumentality  of any such  state or  District,  or  issued by any
corporation,  (f)  obligations  of a public housing  authority  fully secured by
contracts  with the United States of America,  rated at least "A" or better by a
Rating  Agency,  (g) shares of a money market fund, the sole assets of which are
comprised of obligations  described in (a) above or (h) shares of a money market
fund which is rated "Prime- 1" by Moody's or "AAAm" or "AAAm-g" by S&P.

<PAGE>


            Moneys on deposit to the credit of the Bond Fund,  other than moneys
on deposit  in the Letter of Credit  Account,  subject  to Section  6.04,  shall
without any instruction  from the Company or the Authority be invested in shares
of a money market fund,  the sole assets of which are  comprised of  obligations
issued or  guaranteed  by, or backed by the full faith and credit of, the United
States of  America  (including  any  certificates  or any other  evidence  of an
ownership  interest in any such  obligation  or in specified  portions  thereof,
which may consist of specified portions of the principal thereof or the interest
thereon and which  certificates or other evidence of an ownership  interest must
be rated by the  Rating  Agency  then  rating  the Bonds at least as high as the
obligations  issued or guaranteed by, or backed by the full faith and credit of,
the United States of America); PROVIDED that to the extent that such investments
may be unavailable the Trustee may hold such funds uninvested.

            Notwithstanding  anything  in  the  preceding  paragraph,  Available
Moneys held under the Indenture shall be invested by the Trustee,  except to the
extent such  Available  Moneys are  permitted  to be held  uninvested  under the
Indenture,  in any  obligation  issued or  guaranteed  by, or backed by the full
faith and credit of, the United States of America (including any certificates or
any  other  evidence  of an  ownership  interest  in any such  obligation  or in
specified  portions  thereof,  which may  consist of  specified  portions of the
principal  thereof  or the  interest  thereon  and which  certificates  or other
evidence of an ownership interest must be rated by the Rating Agency then rating
the Bonds at least as high as the obligations issued or guaranteed by, or backed
by the full faith and credit of, the United States of America), which matures on
or prior to the redemption date.

            In no event shall the Trustee invest moneys on deposit to the credit
of the Bond Fund in any  obligation  or  security  issued or  guaranteed  by the
Company or the Authority or any  obligation or security  issued or guaranteed by
any Person known to a  Responsible  Officer of the Trustee to be an Affiliate of
either the Company or the Authority.

            Investments  of moneys on deposit to the credit of the Project Fund,
the Bond Fund and the  Rebate  Fund  pursuant  to this  Section  7.03 shall have
maturity  dates, or shall be subject to redemption at the option of the Trustee,
on or prior to the  respective  dates on which the moneys  invested  therein are
payable for the purposes of such Funds. The securities purchased with the moneys
in each such Fund or in any  account or  sub-account  thereof  shall be deemed a
part of such Fund or account or sub-account.  The interest,  including  realized
increment on securities purchased at a discount, received on all such securities
in any Fund or any account or  sub-account  thereof  shall be  deposited  by the
Trustee  to the  credit  of such  Fund or  account  or  sub-account,  except  as
otherwise  provided  in  Section  5.01.2.  The  Trustee  shall  not be liable or
responsible  for any loss resulting  from any such  investment or resulting from
the redemption,  sale or maturity of any such investment as herein authorized or
for monitoring or ensuring the Company's compliance with its covenants contained
in the Tax  Regulatory  Agreement.  The Company  shall be  responsible  for, and
provide  additional funds as necessary in connection with, any and all losses on
investment of moneys on deposit in the Bond Fund. If at any time it shall become
necessary that some or all of the securities purchased with the moneys in either
such Fund be redeemed or sold in order to raise the moneys necessary to
comply with the  provisions  of the  Indenture,  the Trustee  shall  effect such
redemption or sale, employing in the case of a sale any commercially  reasonable
method of effecting such sale.

            Any  direction to invest  moneys given orally under the terms of the
Indenture shall be confirmed in writing.

            Moneys drawn on the Letter of Credit shall be retained uninvested by
the Trustee or the Tender Agent, as appropriate, and shall not bear interest.

            Section 7.04  DISPOSITION  OF AMOUNTS  AFTER  PAYMENT OF BONDS.  Any
amounts determined by the Trustee to be remaining in the Funds created under the
Indenture, other than amounts held in the Rebate Fund, after payment in full, or
provision for payment in full, of principal of and premium, if any, and interest
on all the Bonds,  in  accordance  with the  provisions  of the  Indenture,  and
payment of all the fees, charges and expenses of the Authority, the Trustee, the
Tender Agent, the Indexing Agent, the Remarketing Agents and the Paying Agent in
accordance  with the Indenture and the  Participation  Agreement and any amounts
required  to be  paid  to the  United  States  of  America  pursuant  to the Tax
Regulatory Agreement,  shall be paid to the Bank; PROVIDED,  however, that on or
after the Fixed  Rate  Conversion  Date and  solely  with  respect to moneys not
resulting from a draw on the Letter of Credit and not  constituting  remarketing
proceeds,  such  amounts  that  would be payable  to the Bank  pursuant  to this
Section  7.04  shall,  at  the  written  direction  of  an  Authorized   Company
Representative, be paid to the Company or, if the Bank has not been paid in full
under the Reimbursement Agreement, to the Bank.


                                                        
<PAGE>


                                                                

                                 ARTICLE VIII

                              REDEMPTION OF BONDS

            Section 8.01 BONDS TO BE REDEEMED ONLY IN MANNER PROVIDED IN ARTICLE
VIII.  Any  redemption  of all or any part of the  Bonds  which are  subject  to
redemption shall be made in the manner provided in this Article VIII.

            Bonds which are subject to redemption at the option of the Authority
exercised upon the direction of an Authorized Company  Representative,  shall be
called by the Trustee for redemption in the manner provided in this Article VIII
upon  receipt  by the  Trustee,  at  least  forty-five  (45)  days  prior to the
redemption  date,  of an executed  counterpart  of the written  direction  of an
Authorized Company Representative to the Authority and the Trustee providing for
such  redemption.  Such written  direction shall specify the principal amount of
such Bonds or portions  thereof so to be called for  redemption,  the applicable
redemption price, the applicable redemption date and the provision or provisions
of the Indenture  pursuant to which such Bonds are to be called for  redemption.
The foregoing  provisions of this  paragraph  shall not apply in the case of any
mandatory redemption of Bonds in accordance with the Indenture.

            The  moneys  necessary  for any  redemption  of Bonds  shall be made
available  to the  Trustee  on or prior to the date  fixed for  redemption.  The
Trustee is hereby  authorized  and  directed to apply such moneys in  accordance
with  Section  6.03 to the payment of the Bonds or portions  thereof  called for
redemption,  together with accrued interest thereon to the redemption date. Upon
the giving of notice and the  deposit of funds for  redemption,  interest on the
Bonds or portions  thereof thus called  shall no longer  accrue on and after the
date fixed for redemption. No payment shall be made by the Trustee upon any Bond
or portion  thereof  called for  redemption  until such Bond or portion  thereof
shall have been delivered for payment or  cancellation or the Trustee shall have
received the items required by Section 2.08 with respect to any mutilated, lost,
stolen or destroyed Bond.

            Notwithstanding  anything  in  the  Indenture  to the  contrary,  no
redemption at the option of the Authority  which requires a redemption  price in
excess of par to be payable shall be  exercisable  unless (i) a Letter of Credit
providing  for payment of such premium  together with other amounts owed as part
of  redemption  price shall be in effect and shall not be scheduled to expire by
its terms before the specified  redemption date or (ii) other  Available  Moneys
shall be held by the Trustee  under the  Indenture and are available for payment
of such premium.


<PAGE>


            Section 8.02  REDEMPTION OF LESS THAN ALL BONDS. If less than all of
the Bonds shall be called for  redemption,  the particular  Bonds or portions of
Bonds to be  redeemed  shall be  selected by the Trustee by lot or in such other
manner as the Trustee in its  discretion may deem proper in order to assure each
owner of Bonds a fair opportunity to have such owner's Bond or Bonds or portions
thereof selected; provided, however, that the portion to be redeemed of any Bond
of a denomination more than the then-applicable  minimum authorized denomination
shall be such minimum  authorized  denomination or an integral multiple thereof,
and that in selecting  portions of such Bonds for redemption,  the Trustee shall
treat  each  such Bond as  representing  that  number  of Bonds of such  minimum
authorized  denomination  obtained by dividing the principal amount of such Bond
by such minimum authorized denomination; PROVIDED further that the Trustee shall
first  select any Bonds  registered  in the name of the  Company or the Bank and
then the remaining Bonds.

            Section  8.03 NOTICE OF  REDEMPTION.  In the case of any  redemption
pursuant to Section 2.17,  the Trustee shall give in its own name or in the name
of the Authority,  notice mailed by first-class mail to the Registered Owners of
the Bonds to be  redeemed,  addressed  to him or her at his or her address as it
appears on the Bond Register at least thirty (30) days before the date fixed for
redemption,  which notice shall state that Bonds properly  identified  have been
called for redemption and, in the case of Bonds to be redeemed in part only, the
portion of the principal  amount thereof that has been called for redemption (or
if all the outstanding Bonds are to be redeemed, so stating, in which event such
identification  may be  omitted),  that they will be due and payable on the date
fixed for  redemption  (specifying  such  date)  upon  surrender  thereof at the
Corporate  Trust Office or, at the option of the owner,  at the corporate  trust
office of the Paying Agent, if any, for such Bonds, at the applicable redemption
price  (specifying  such price) together with accrued interest to such date, and
that all  interest on the Bonds,  or portions  thereof,  so to be redeemed  will
cease to accrue on and after such date.  Failure to give any required  notice of
redemption as to any  particular  Bonds will not affect the validity of the call
for  redemption  of any Bonds in respect to which no such  failure  occurs.  Any
notice mailed as provided in this Section shall be conclusively presumed to have
been duly given,  whether or not the  Registered  Owner  actually  receives  the
notice. Notwithstanding notice of redemption having been given as aforesaid, the
redemption shall be cancelled if as of the date fixed for redemption the Trustee
does not have Available Moneys on deposit hereunder  sufficient and available to
pay the redemption price of the Bonds to be redeemed.

            Section 8.04 RIGHTS OF OWNERS OF BONDS CALLED FOR REDEMPTION LIMITED
TO REDEMPTION PRICE AND ACCRUED INTEREST. If notice of redemption has been given
as provided in Section 8.03, the Bonds or portions thereof called for redemption
shall be due and  payable on the date  fixed for  redemption  at the  redemption
price, together with accrued interest to the date fixed for redemption.  Payment
of the redemption price,  together with accrued  interest,  shall be made by the
Trustee upon  surrender of such Bonds.  If there shall be called for  redemption
less than the entire principal amount of a Bond, the Authority shall execute and
deliver and the Trustee shall  authenticate,  upon  surrender of such Bond,  and

<PAGE>


without  charge to the owner thereof,  Bonds for the  unredeemed  portion of the
principal  amount of the Bond so  surrendered.  Subject to the deposit  with the
Trustee of amounts  necessary  for the  redemption  of such Bonds as provided in
Section 8.01,  from and after the date fixed for  redemption  designated in such
notice,  notwithstanding  that any Bonds so called for redemption in whole or in
part shall not have been surrendered for cancellation, no further interest shall
accrue upon the principal of any of the Bonds or portions  thereof so called for
redemption;  and such Bonds or portions thereof so to be redeemed shall cease to
be entitled to any lien,  benefit or security under the Indenture and the owners
thereof shall have no rights in respect of such Bonds or portions thereof except
to receive payment of the redemption  price thereof and unpaid interest  accrued
to the date fixed for  redemption  from such amounts  deposited with the Trustee
which  shall be held  uninvested  by the  Trustee in trust for the owner of such
Bonds or portions thereof.

            Section  8.05REDEMPTION  AT DEMAND OF THE STATE.  In accordance with
the  provisions  of  Section  1864 of the Act,  the State of New York may,  upon
furnishing  sufficient funds therefor,  require the Authority to redeem prior to
maturity,  as a whole, any issue of Bonds, on any Interest Payment Date not less
than twenty years after the date of the  original  issuance of the Bonds of such
issue.  The  Authority  shall  deposit  any such funds  received  by it with the
Trustee. After the expiration of the Letter of Credit, the Trustee shall deposit
such funds in the Bond Fund and,  upon notice given as provided in Section 8.03,
shall apply such funds to the  redemption of such Bonds,  at a redemption  price
equal to the applicable  optional redemption price set forth in the Indenture or
105 percent of the  principal  amount of the Bonds to be redeemed,  whichever is
less,  together  with  accrued  and  unpaid  interest  to  the  date  fixed  for
redemption,  all in the  manner  provided  in this  Article  VIII.  Prior to the
expiration  of the Letter of Credit,  the Trustee  shall  deposit any such funds
received by it in a segregated  sub-account  in the Debt Service  Account of the
Bond Fund, and upon notice  published in the manner  provided in Section 1864 of
the Act,  shall draw  moneys  under the  Letter of Credit and apply such  moneys
drawn under the Letter of Credit to the redemption of such Bonds at a redemption
price equal to 100 percent of the principal  amount of the Bonds to be redeemed,
together  with accrued and unpaid  interest to the date fixed for  redemption in
the manner  specified in the preceding  sentence.  Upon the  application of such
moneys  drawn  under  the  Letter of  Credit,  the  Trustee  shall pay the funds
furnished by the State of New York to the Bank with  instructions  to apply such
funds to the reimbursement of the Bank for such moneys drawn under the Letter of
Credit. Upon such redemption, the Trustee shall assign the Company Note to or as
directed in writing by the Authority.

                                                      
<PAGE>


                                   ARTICLE IX

                             PARTICULAR COVENANTS

            Section 9.01  PAYMENT OF  PRINCIPAL  OF AND INTEREST AND  REDEMPTION
PREMIUM OF BONDS. The Authority will promptly pay from the Company Note Payments
and other funds held by the Trustee and available therefor the principal of, and
the interest on,  every Bond issued under and secured by the  Indenture  and any
premium  required to be paid for the retirement of said Bonds by redemption,  at
the places,  on the dates and in the manner  specified in the  Indenture  and in
said Bonds according to the true intent and meaning thereof,  subject,  however,
to the provisions of Section 1.03.

            Section 9.02 PERFORMANCE OF COVENANTS. The Authority will faithfully
perform at all times all covenants,  undertakings,  stipulations  and provisions
contained in the Indenture,  in any and every Bond and in all proceedings of the
Authority pertaining thereto.

            Section 9.03 FURTHER  INSTRUMENTS.  The Authority  will from time to
time execute and deliver such further  instruments  and take such further action
as may be  reasonable  and as may be  required  to carry out the  purpose of the
Indenture;  provided,  however, that no such instruments or actions shall pledge
the credit of the  Authority or the State of New York or the taxing power of the
State of New York or otherwise be  inconsistent  with the  provisions of Section
1.03.

            Section 9.04 INSPECTION OF PROJECT BOOKS. All books and documents in
the  possession  of the Authority  relating to the Project or the  Participation
Agreement shall at all times be open to inspection by such  accountants or other
agents as the Trustee may from time to time designate.

            Section 9.05 NO  EXTENSION OF TIME OF PAYMENT OF INTEREST.  In order
to prevent any accumulation of claims for interest after maturity, the Authority
will not directly or indirectly extend or assent to the extension of the time of
payment of any claims for  interest on any of the Bonds and will not directly or
indirectly  be a party to or approve any such  arrangement  by  purchasing  such
claims for interest or in any other manner.  In case any such claim for interest
shall be extended in  violation  hereof,  such claim for  interest  shall not be
entitled,  in case of any default  hereunder,  to the benefit or security of the
Indenture  except  subject to the prior payment in full of the principal of, and
premium,  if any, on, all Bonds  issued and  outstanding  hereunder,  and of all
claims for interest which shall not have been so extended or funded.


<PAGE>


            Section 9.06 TRUSTEE'S,  PAYING AGENT'S,  INDEXING  AGENT'S,  TENDER
AGENT'S AND  REMARKETING  AGENTS' FEES,  CHARGES AND  EXPENSES.  Pursuant to the
provisions  of Section  4.05 of the  Participation  Agreement,  the  Company has
agreed to pay the fees and the expenses of the Trustee,  the Paying  Agent,  the
Indexing Agent, the Tender Agent and the Remarketing  Agents, in the amounts set
forth more fully  therein,  and the  Authority  shall have no liability  for the
payment of any fees or expenses of the Trustee,  the Paying Agent,  the Indexing
Agent, the Tender Agent and the Remarketing Agents.

            Exclusive of the proceeds of any drawing  under the Letter of Credit
and any other moneys within the meaning of subdivision  (a) of the definition of
Available  Moneys,  the  Trustee  shall  have a first lien with right of payment
prior to payment on account of principal  of,  premium,  if any, and interest on
any Bond under the Indenture for the fees,  charges and expenses of the Trustee.
When the Trustee incurs expenses or renders  services after the occurrence of an
Act of Bankruptcy with respect to the Company, the expenses and the compensation
for services are intended to  constitute  expenses of  administration  under any
federal or state bankruptcy, insolvency, arrangement, moratorium, reorganization
or other debtor relief law. The Company shall have no liability to pay any fees,
charges or other  expenses  of the  Trustee  hereinabove  mentioned  except from
amounts pledged under the Indenture.

            Section 9.07 AGREEMENT OF THE STATE OF NEW YORK. In accordance  with
the provisions of  subdivision 11 of Section 1860 of the Act, the Authority,  on
behalf of the State of New York, does hereby pledge to and agree with the owners
of the Bonds  that the State of New York will not limit or alter the  rights and
powers  vested by the Act in the  Authority to fulfill the terms of any contract
made with  Bondowners,  or in any way impair the  rights  and  remedies  of such
owners, until the Bonds, together with the interest thereon, with (to the extent
permitted by law) interest on any unpaid installments of interest, and all costs
and expenses in connection with any action or proceeding by or on behalf of such
owners, are fully met and discharged.

                                                         
<PAGE>


                                   ARTICLE X

                             DEFAULTS AND REMEDIES

            Section  10.01.  EVENTS  OF  DEFAULT.  In  case  one or  more of the
following Events of Default shall have occurred:

                  (a) default in the payment of any  installment  of interest in
            respect of any Bond as the same shall  become due and payable  which
            default continues for five days; or

                  (b) default in the payment of the principal of or premium,  if
            any, in respect of any Bond as the same shall become due and payable
            either at maturity,  upon redemption,  by acceleration or otherwise;
            or

                  (c)  default in the  payment of any  amount  due  pursuant  to
            Section  2.05 as the same  becomes  due and  payable  which  default
            continues for five days; or

               (d)  an  event  of  default   specified  in  Article  VI  of  the
          Participation Agreement; or

                  (e) after the  expiration of the Letter of Credit,  failure on
            the part of the  Authority  to duly  observe or perform any other of
            the covenants or  agreements on the part of the Authority  contained
            in the  Indenture  or in any Bond for a period of 90 days  after the
            date  on  which  written  notice  of  such  failure,  requiring  the
            Authority to remedy the same, shall have been given to the Authority
            and the Company by the Trustee; or

                  (f) receipt by the Trustee of written  notice from the Bank of
            the  occurrence  and  continuance  of an event of default  under the
            Reimbursement Agreement,  that the Bank is terminating the Letter of
            Credit and that the Bank is directing the Trustee to accelerate  the
            Bonds; or

                  (g) receipt by the Trustee of written  notice from the Bank on
            or before  the tenth day after a drawing  under the Letter of Credit
            in respect of interest on the Bonds, to the effect that the Bank has
            not  been  reimbursed  for any  such  drawing  and  that the Bank is
            directing the Trustee to accelerate the Bonds;


<PAGE>


     then,  upon (a) the  occurrence  and  continuance  of any Event of  Default
     described  in clause  (a),  (b),  (c),  (d) or (e) of this  paragraph,  the
     Trustee may,  and at the written  request of owners of not less than 25% in
     aggregate  principal  amount of Bonds then  outstanding  shall,  or (b) the
     occurrence  of an Event of Default  described  in clause (f) or (g) of this
     paragraph the Trustee  shall  immediately,  by written  notice given to the
     Authority, the Governor, the Comptroller, the Attorney General of the State
     of New York and the  Company,  declare  the  principal  of all  Bonds  then
     outstanding  to be due and  payable  immediately,  at which time  (unless a
     Fixed  Rate  Conversion  Date has  occurred  and the Letter of Credit is no
     longer in effect) interest shall cease to accrue, and upon such declaration
     the said principal,  together with interest accrued  thereon,  shall become
     due and  payable  immediately  at the place of  payment  provided  therein,
     anything in the  Indenture or in the Bonds to the contrary  notwithstanding
     and the Trustee shall give notice  thereof to the  Authority,  the Company,
     the Tender  Agent,  the  Remarketing  Agents  and the Bank,  and shall give
     notice  thereof by mail to all owners of  outstanding  Bonds.  Prior to the
     expiration of the Letter of Credit, the Trustee shall draw immediately upon
     the  Letter of Credit in the  event  the  Bonds  shall  have been  declared
     immediately due and payable and  immediately  apply amounts drawn under the
     Letter of Credit to payment of Bonds in accordance with the Indenture.

            The  provisions of the preceding  paragraph,  however,  are subject,
after the  expiration of the Letter of Credit,  to the condition  that if, after
the  principal  of said Bonds has been so  declared to be due and  payable,  all
arrears of interest upon the Bonds are paid, and the Authority has performed all
other things in respect to which it may have been in default  hereunder  and the
reasonable  compensation  and  expenses  of the  Trustee,  and  the  Bondowners,
including  reasonable  attorneys'  fees,  shall  have been  paid,  or  provision
satisfactory to the Trustee shall be made for such payments,  then, and in every
such case, the owners of a majority in aggregate  principal  amount of the Bonds
then  outstanding,  by written  notice to the Authority and to the Trustee,  may
annul such declaration and its consequences, and such annulment shall be binding
upon the  Trustee  and upon all  owners of Bonds  issued  hereunder,  or, if the
Trustee shall have acted in the absence of a written request of the owners of at
least twenty-five percent (25%) in aggregate principal amount of all outstanding
Bonds,  and if there shall not have been  theretofore  delivered  to the Trustee
written direction to the contrary by the owners of at least twenty-five  percent
(25%) in aggregate principal amount of the Bonds then outstanding, then any such
declaration  shall IPSO FACTO be deemed to be rescinded and any such default and
its  consequences  shall IPSO FACTO be deemed to be annulled and such  annulment
shall be binding  upon the  Trustee  and upon all  owners of Bonds;  but no such
annulment  shall extend to or affect any subsequent  default or impair any right
or remedy  consequent  thereon.  The Trustee  shall forward a copy of any notice
from Bondowners received by it pursuant to this paragraph to the Company.

            The  provisions  of the second  preceding  paragraph  are,  further,
subject  to the  condition  that any  waiver by the Bank of any event of default
under  the  Reimbursement  Agreement  and a  rescission  and  annulment  of  its
consequences  shall  constitute a waiver of the  corresponding  Event of Default
under the Indenture and a rescission and annulment of the consequences  thereof;
provided that,  the Trustee shall have received  written notice from the Bank to
the effect that the Letter of Credit has been reinstated, if applicable,  and is
in full force and effect (with  respect to the  principal  of,  premium,  if any

<PAGE>


(only to the extent  that the Letter of Credit then in effect  provides  for the
payment of premium,  if any),  interest on, and the purchase price of, all Bonds
then  entitled to the  benefits of the Letter of Credit).  If written  notice of
such event of default under the Reimbursement Agreement shall have been given as
provided herein and if the Trustee shall thereafter have received written notice
from the Bank that such event of default  shall have been  waived,  the  Trustee
shall promptly give written  notice of such waiver,  rescission or annulment and
of the  corresponding  waiver,  rescission and annulment of the Event of Default
hereunder to the Authority, the Governor, the Comptroller,  the Attorney General
of the State of New  York,  the  Company,  the Bank,  the  Tender  Agent and the
Remarketing  Agents, and shall give written notice thereof by mail to all owners
of outstanding Bonds; but no such waiver,  rescission and annulment shall extend
to or affect  any  subsequent  Event of  Default  or impair  any right or remedy
consequent thereon.

            Section 10.02.  JUDICIAL PROCEEDINGS BY TRUSTEE.  Upon the happening
and continuance of any Event of Default, then and in every such case the Trustee
in its  discretion  may, and upon the written  request of the owners of at least
twenty-five  percent  (25%) in  aggregate  principal  amount of the  Bonds  then
outstanding and receipt of indemnity to its satisfaction, shall:

                  (a) by suit, action or special proceeding,  enforce all rights
            of the Bondowners and require the Authority, the Bank or the Company
            to perform  its or their  duties  under the Act,  the  Participation
            Agreement, the Bonds, the Letter of Credit, the Company Note and the
            Indenture;

                  (b)   bring suit upon the Bonds;

               (c) by action or suit in equity  require the Authority to account
          as if it were the trustee of an express trust for the Bondowners; or

                  (d) by  action  or suit in  equity  enjoin  any acts or things
            which  may  be  unlawful  or in  violation  of  the  rights  of  the
            Bondowners.

            Section   10.03.   EFFECT  OF   DISCONTINUANCE   OR  ABANDONMENT  OF
PROCEEDINGS. In case the Trustee shall have proceeded to enforce any right under
the Indenture and such proceedings shall have been discontinued or abandoned for
any reason or shall have been determined  adversely to the Trustee,  then and in
every such case the Authority,  the Trustee and the Bondowners shall be restored
respectively to their former positions and rights hereunder,  respectively,  and
all  rights,  remedies  and  powers  of  the  Authority,  the  Trustee  and  the
Bondowners,  respectively, shall continue as though no such proceedings had been
taken.

            Section 10.04. POWER OF BONDOWNERS TO DIRECT  PROCEEDINGS.  Anything
in the  Indenture to the contrary  notwithstanding,  the owners of a majority in
aggregate  principal amount of the Bonds then  outstanding  hereunder shall have
the right, by an instrument in writing executed and delivered to the Trustee, to
direct the method and place of conducting  all remedial  proceedings to be taken
by the Trustee hereunder, subject, however, to the provisions of Section
11.04, and provided,  however,  such direction shall not be in conflict with any

<PAGE>

rule  of  law  or  with  any  provision  of the  Indenture  (including,  without
limitation, any provision requiring the Trustee to accelerate the Bonds and draw
on the Letter of Credit upon the occurrence of an Event of Default under Section
10.01(f) or (g)) and shall not unduly prejudice the rights of the Bondowners who
are not in such  majority.  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 owners of a majority in aggregate principal amount of the Bonds
and which is not in conflict  with the Trustee's  obligation  to accelerate  the
Bonds  and draw on the  Letter  of  Credit  upon the  occurrence  of an Event of
Default under Section 10.01(f) or (g).

            Section 10.05. LIMITATION ON ACTIONS BY BONDOWNERS.  No owner of any
of the Bonds shall have any right to institute any suit, action or proceeding in
equity or at law for the enforcement of any trust hereunder, or any other remedy
hereunder or under the Bonds,  unless such owner  previously shall have given to
the Trustee  written notice of an Event of Default as  hereinabove  provided and
unless also the owners of not less than  twenty-five  percent (25%) in aggregate
principal amount of the Bonds then  outstanding  shall have made written request
of the Trustee so to do,  after the right to  exercise  such powers or rights of
action,  as the case may be,  shall have  accrued,  and shall have  afforded the
Trustee a  reasonable  opportunity  either to  proceed  to  exercise  the powers
hereinabove  granted,  or to institute such action, suit or proceeding in its or
their  name;  nor  unless  there also  shall  have been  offered to the  Trustee
security  and  indemnity  satisfactory  to it against  the costs,  expenses  and
liabilities  to be incurred  therein or thereby,  and the Trustee shall not have
complied  with such request  within a reasonable  time;  and such  notification,
request and offer of indemnity  are hereby  declared in every such case,  at the
option of the Trustee, to be conditions precedent to the execution of the trusts
of the  Indenture or for any other remedy  hereunder;  it being  understood  and
intended  that no one or more owners of the Bonds hereby  secured shall have any
right in any  manner  whatever  by such  owner's  or  owners'  action to affect,
disturb or  prejudice  the  security of the  Indenture,  or to enforce any right
hereunder or under the Bonds, except in the manner herein provided, and that all
proceedings at law or in equity shall be  instituted,  had and maintained in the
manner herein  provided and for the equal  benefit of all owners of  outstanding
Bonds,  subject,  however,  to the  provisions of Section  9.05.  Nothing in the
Indenture or in the Bonds  contained shall affect or impair the right of action,
which is also  absolute and  unconditional,  of any owner of any Bond to enforce
payment of the  principal of and  premium,  if any, and interest on such owner's
Bond at the date of maturity and places therein expressed.

            Section 10.06. TRUSTEE'S RIGHT TO ENFORCE RIGHTS IN RESPECT OF BONDS
IN OWN NAME AND  WITHOUT  POSSESSION  OF BONDS.  All rights of action  under the
Indenture or under any of the Bonds which are  enforceable by the Trustee may be
enforced by it without the  possession  of any of the Bonds,  or the  production
thereof at the trial or other proceedings  relative thereto,  and any such suit,
action or proceeding  instituted by the Trustee shall be brought in its name, as
Trustee, for the equal and ratable benefit of the owners of the Bonds subject to
the provisions of the Indenture.


<PAGE>


            Section  10.07.   NO  REMEDY  HEREIN   CONFERRED  UPON  OR  RESERVED
EXCLUSIVE.  No remedy herein conferred upon or reserved to the Trustee or to the
owners of the Bonds is intended to be exclusive of any other remedy or remedies,
except as provided  in Section  10.10,  and each and every such remedy  shall be
cumulative, and shall be in addition to every other remedy given hereunder.

            Section 10.08.  NO DELAY OR OMISSION TO BE DEEMED WAIVER OF DEFAULT.
No delay or omission of the Trustee or of any owner of the Bonds 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  of any such  default,  or an  acquiescence
therein;  and every power and remedy  given by this Article X to the Trustee and
to the owners of the Bonds, respectively, may be exercised from time to time and
as often as may be deemed expedient.

            Section 10.09. APPLICATION OF MONEYS RECEIVED BY TRUSTEE PURSUANT TO
ARTICLE X. Any moneys or other property or assets  received by the Trustee or by
any  receiver  pursuant  to this  Article  X (i) shall be  applied  first to the
payment of the costs and expenses of the proceedings resulting in the collection
of any moneys  received  by the  Trustee  or by any  receiver  pursuant  to this
Article X and of the  expenses,  liabilities  and advances  incurred or made and
compensation  for services  rendered by or on behalf of the  Trustee,  including
reasonable  counsel fees and  expenses;  provided  that,  moneys drawn under the
Letter  of  Credit  shall  not be  applied  to any  such  payment,  and (ii) any
remaining amounts shall then be applied as follows:

                  (a) Unless the  principal  of all Bonds  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 Bonds,  in the order of
               the maturity of the  installments of such interest  including (to
               the extent permitted by law) interest on overdue  installments of
               interest  at the rate borne by the Bonds on which  such  interest
               shall  then be due,  and,  if the amount  available  shall not be
               sufficient  to  pay  in  full  any   particular   installment  or
               installments,  then  to the  payment  ratably,  according  to the
               amounts due on such installment or  installments,  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 Bonds
               which  shall  have  become  due  (other  than  Bonds  called  for
               redemption  for the payment of which moneys are held  pursuant to
               the provisions of the Indenture) in the order of their due dates,
               with interest on such Bonds from the respective  dates upon which
               they  become  due  and,  if the  amount  available  shall  not be
               sufficient  to pay in  full  Bonds  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.

<PAGE>


                  (b) If the  principal  of all the Bonds  shall have  become or
            shall have been  declared due and payable,  all such moneys shall be
            applied  to the  payment  of the  principal,  premium,  if any,  and
            interest  then due and  unpaid  upon the  Bonds,  with  interest  on
            overdue  principal,  premium,  if any,  and  interest as  aforesaid,
            without  preference  or priority of principal  and premium,  if any,
            over interest or of interest over principal and premium,  if any, or
            of any  installment  of  interest  over  any  other  installment  of
            interest or of any Bond over any other Bond,  ratably,  according to
            the amounts due  respectively  for principal,  premium,  if any, and
            interest, to the Persons entitled thereto without any discrimination
            or preference.

                  (c) If the principal of all the Bonds shall have been declared
            due and payable,  and if such declaration shall thereafter have been
            rescinded and annulled under the provisions of this Article X, then,
            subject to the  provisions  of paragraph  (b) of this Section  which
            shall be applicable in the event that the principal of all the Bonds
            shall later become due or be declared  due and  payable,  the moneys
            shall be applied in accordance  with the provisions of paragraph (a)
            of this Section.

            Moneys drawn under the Letter of Credit may not be applied to effect
any  payment on any Bond not  entitled  to the  benefits  thereof as provided in
Section 3.01.  Whenever  moneys are to be applied  pursuant to the provisions of
this Section, 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
shall occur and on such date shall draw on the Letter of Credit. For the purpose
of determining the Bondowners who are entitled to such application,  the Trustee
may  establish a record date not more than five days before such  payment  date.
The Trustee shall give such notice to Bondowners by mailing in the manner it may
deem  appropriate of the deposit with it of any such moneys and of the fixing of
any such payment date, and shall not be required to make payment to the owner of
any Bond until such Bond  shall be  presented  to the  Trustee  for  appropriate
endorsement or for cancellation if fully paid.

            Section 10.10. ENTIRETY OF AGREEMENT. The rights and remedies of the
owners of the Bonds and of the Trustee  set forth in this  Article X are in lieu
of the  rights and  remedies  of owners of bonds of the  Authority  set forth in
Section  1865 of the Act and the  provisions  of such  Section  1865 are  hereby
abrogated with respect to the Bonds.

            Section 10.11. NOTICE OF EVENT OF DEFAULT. The Trustee shall, within
30 days  after  the  occurrence  of an  Event  of  Default  becomes  known  to a
Responsible Officer, give notice thereof to all Bondowners by mail in the manner
provided in Section  16.05  unless  such Event of Default  shall have been cured
before the giving of such notice.

<PAGE>


                                  ARTICLE XI

                    CONCERNING THE TRUSTEE AND PAYING AGENT

            Section  11.01.  APPOINTMENT  OF TRUSTEE;  PAYING  AGENT.  The Chase
Manhattan  Bank is hereby  appointed  as Trustee and Paying Agent for the owners
from time to time of the  Bonds.  The  Trustee  hereby  accepts  the  duties and
obligations  of the Trustee and Paying Agent  created by the  Indenture  for the
owners from time to time of the Bonds.

            The  provisions  of this  Article XI shall not affect the  Trustee's
obligation  to accelerate  the Bonds upon the  occurrence of an Event of Default
under Section 10.01(f) or (g), draw on the Letter of Credit, make any payment of
principal  or  interest on the Bonds or proceed  with a mandatory  tender of the
Bonds pursuant to the terms of Section 2.05.

            Subject to  Article X and  Section  11.04,  and as and to the extent
provided in Sections 4.08 and 4.09 of the Participation  Agreement, the Trustee,
the Paying  Agent and the Tender Agent shall be entitled to  indemnification  by
the Company for any  losses,  costs,  charges,  expenses  (including  reasonable
attorneys' fees and  disbursement),  judgments and  liabilities  incurred by the
Trustee,  the Paying  Agent and the Tender Agent in  connection  with any claims
made, or any action, suit or proceeding instituted or threatened,  in connection
with  the  transactions  contemplated  by  the  Participation  Agreement  or the
Indenture.  The  Trustee,  Paying  Agent and Tender  Agent,  except as otherwise
provided  in  Section   9.06,   shall  look  solely  to  the  Company  for  such
indemnification.

            Section 11.02.  NO  RESPONSIBILITY  FOR CORRECTNESS OF STATEMENTS IN
INDENTURE.  The recitals,  statements and representations in the Indenture or in
the Bonds contained,  save only the Trustee's certificate of authentication upon
the  Bonds,  shall  be  taken  and  construed  as made by and on the part of the
Authority,  and not by the Trustee,  and the Trustee does not assume,  and shall
not have, any  responsibility or obligation for the correctness of any recitals,
statements and representations hereof or thereof or any other document delivered
by the Authority or the Company in connection with the issuance of the Bonds.

            Section 11.03. NO RESPONSIBILITY FOR DEFAULT OF AGENTS SELECTED WITH
DUE CARE, NOR FOR OWN ACTS SAVE WILLFUL  MISCONDUCT OR  NEGLIGENCE.  The Trustee
may execute such of the trusts or powers  required of it  hereunder  and perform
the duties required of it hereunder as may be reasonably necessary by or through
attorneys,  agents or receivers and the Trustee shall not be answerable  for the
default,  negligence  or  misconduct  of any such  attorney,  agent or  receiver
selected  by it with  reasonable  care.  The  Trustee  may in all cases pay such
reasonable  compensation  to and receive  reimbursement  for all such attorneys,
agents,  receivers,  and  employees as may  reasonably be employed in connection
with the trusts  hereof.  The  Trustee may act upon the opinion or advice of any
attorney  (who  may be the  attorney  or  attorneys  for  the  Authority  or the
Company),  approved  by the  Trustee in the  exercise of  reasonable  care.  The
Trustee  shall  not be  responsible  for any loss or damage  resulting  from any

<PAGE>


action or non-action in good faith in reliance upon such opinion or advice.  The
Trustee  shall  not be  answerable  for  the  exercise  or  non-exercise  of any
discretion or power under the  Indenture or for anything  whatever in connection
with the trusts herein  created,  except only for its own willful  misconduct or
negligence. No provision of the Indenture shall require the Trustee to expend or
risk its own funds or otherwise incur any financial liability in the performance
of any of its  duties  hereunder,  or in the  exercise  of any of its  rights or
powers,  if it shall have reasonable  grounds for believing that such funds will
not be repaid or if satisfactory indemnity against such risk or liability is not
provided to the Trustee.

             Section  11.04.  NO DUTY  TO  TAKE  ENFORCEMENT  ACTION  UNLESS  SO
REQUESTED  BY OWNERS OF 25% OF THE  BONDS.  Unless and until an Event of Default
shall have occurred and (i) written  notice thereof shall have been given to the
Trustee or (ii) the occurrence thereof otherwise shall be known to a Responsible
Officer of the Trustee,  the Trustee  shall be under no  obligation  to take any
action in  respect  of any  default  or  otherwise  in  respect of or toward the
execution or enforcement of any of the trusts hereby  created,  or to institute,
appear in or defend any suit or other proceeding in connection therewith, unless
requested in writing so to do by owners of at least twenty-five percent (25%) in
aggregate principal amount of the Bonds then outstanding,  and if in its opinion
such action may tend to involve it in expense or  liability,  unless  furnished,
from  time to time as often  as it may  require,  with  security  and  indemnity
satisfactory  to it; but the  foregoing  provisions  are  intended  only for the
protection of the Trustee, and shall not affect any discretion or power given by
any  provisions of the Indenture to the Trustee to take action in respect of any
default  without  such notice or request  from the  Bondowners,  or without such
security or indemnity.

            Notwithstanding   any  other  provision  of  the  Indenture  or  the
Participation  Agreement,  no  right of the  Trustee  to  indemnification  shall
prevent the Trustee  from (a) making  payments on the Bonds when due from moneys
available to it, (b) accelerating  the Bonds as required  pursuant to Article X,
(c)  drawing on the Letter of Credit to make  payments on the Bonds when due, or
(d)  proceeding  with a mandatory  tender of the Bonds  pursuant to the terms of
Section 2.05.

            Section  11.05.  RIGHT TO RELY.  The Trustee  shall be protected and
shall  incur no  liability  in  acting  or  proceeding  in good  faith  upon any
resolution, notice, telegram, request, consent, waiver, certificate,  statement,
affidavit,  voucher, bond, requisition or other paper or document which it shall
in good faith believe to be genuine and to have been authorized or signed by the
proper board or person or to have been prepared and furnished pursuant to any of
the  provisions of the  Indenture and the Trustee may require a written  opinion
from legal  counsel who is reasonably  acceptable to the Trustee,  which counsel
may be an employee of or counsel to the Company or the Trustee,  confirming  the
accuracy of any such paper or document,  and the Trustee  shall be under no duty
to make any  investigation or inquiry as to any statements  contained or matters
referred  to in any such  instrument  but may  accept  and rely upon the same as
conclusive evidence of the truth and accuracy of such statements.

<PAGE>



            Section  11.06.  RIGHT TO OWN AND DEAL IN BONDS AND  ENGAGE IN OTHER
TRANSACTIONS  WITH  AUTHORITY  AND  COMPANY.  The Trustee may in good faith buy,
sell, own, hold and deal in any of the Bonds issued hereunder and secured by the
Indenture,  and may join in any action  which any  Bondowner  may be entitled to
take with like effect as if the Trustee were not a party to the  Indenture.  The
Trustee,  either as principal or agent,  may also engage in or be  interested in
any financial or other  transaction  with the Authority or the Company,  and may
act as depository,  trustee, or agent for any committee or body of owners of the
Bonds secured  hereby or other  obligations  of the Authority as freely as if it
were not Trustee hereunder.

            Section 11.07.  CONSTRUCTION  OF PROVISIONS OF INDENTURE BY TRUSTEE.
The Trustee may construe any of the  provisions of the Indenture  insofar as the
same may  appear  to be  ambiguous  or  inconsistent  with any  other  provision
thereof,  and any  construction of any such provisions  hereof by the Trustee in
good faith shall be binding upon the Bondowners.

            Section  11.08.  RIGHT TO RESIGN TRUST.  The Trustee may at any time
and for any  reason  resign  and be  discharged  of the  trusts  created  by the
Indenture by (a) executing an instrument  in writing  resigning  such trusts and
specifying the date when such resignation shall take effect, (b) filing the same
with the Secretary of the Authority (c) giving notice  thereof in writing to the
Company not less than 60 days before the date specified in such  instrument when
such resignation shall take effect, and (d) giving notice of such resignation to
Bondowners by mail in the manner provided in Section 16.05,  the mailing of said
notice to occur not less than four  weeks  prior to the date  specified  in such
notice when such  resignation  shall take effect.  Such  resignation  shall take
effect only upon the  appointment of a successor  Trustee in accordance with the
provisions of Section 11.10.

            Section  11.09.  REMOVAL OF TRUSTEE.  (a)The Trustee at any time and
for any  reason  may be  removed  by an  instrument  in  writing,  appointing  a
successor,  filed with the  Trustee so removed  and  executed by the owners of a
majority in aggregate principal amount of the Bonds then outstanding;  provided,
however,  that no such removal shall become  effective  until the  acceptance of
appointment by a successor Trustee in accordance with Section 11.13.

            (b) The Trustee at any time other than during the  continuance of an
Event of Default or the  continuance  of an event  which but for the  passage of
time would  constitute  an Event of Default and for any reason may be removed by
an  instrument  in writing,  executed by an  Authorized  Officer,  appointing  a
successor,  filed with the Trustee so removed;  provided,  however, that no such
removal  shall  become  effective  until  the  acceptance  of  appointment  by a
successor Trustee in accordance with Section 11.13.

            Section  11.10.  APPOINTMENT  OF SUCCESSOR  TRUSTEE BY BONDOWNERS OR
AUTHORITY. In case at any time the Trustee shall resign, or shall be removed, or
be dissolved,  or if its property or affairs shall be taken under the control of
any state or federal  court or  administrative  body  because of  insolvency  or
bankruptcy,  or for any other reason,  a vacancy shall  forthwith and IPSO FACTO
exist in the office of the  Trustee,  then a successor  may be  appointed by the
owners  of  a  majority  in  aggregate   principal  amount  of  the  Bonds  then
outstanding, by an instrument or instruments in writing filed with the Secretary
of the Authority,  signed by such Bondowners or by their  attorneys-in-fact duly
authorized.  Copies of each such instrument  shall be promptly  delivered by the
Authority to the  predecessor  Trustee,  to the Trustee so appointed  and to the
Company.

<PAGE>



            Until a successor  Trustee  shall be appointed by the  Bondowners as
herein  authorized,  the Authority,  by an instrument  authorized by resolution,
shall appoint a Trustee to fill such vacancy.  The Authority shall not appoint a
Trustee  without the approval of the Company as evidenced  by a  certificate  in
writing signed by an Authorized Company Representative, which approval shall not
be unreasonably withheld. After any appointment by the Authority, it shall cause
notice of such appointment to be mailed to the Bondowners in the manner provided
in  Section  16.05.  Any  new  Trustee  so  appointed  by  the  Authority  shall
immediately and without further act be superseded by a Trustee  appointed by the
Bondowners in the manner above provided.

            Section 11.11.  QUALIFICATIONS OF SUCCESSOR TRUSTEE. Every successor
in the trusts hereunder appointed pursuant to the foregoing provision shall be a
bank or trust company  organized and doing business under the laws of the United
States or any  state or  territory  thereof  with  trust  powers,  shall  have a
combined  capital and surplus of at least  $100,000,000 and shall (or the parent
corporation  of such  successor  shall) be rated at least Baa-3 and/or P-3 or an
equivalent  rating by Moody's or  otherwise  be  acceptable  to Moody's  and the
Authority if such a bank or trust company  willing and able to accept the trusts
on customary terms can, with reasonable effort, be located.

            Section 11.12.  COURT APPOINTMENT OF SUCCESSOR  TRUSTEE.  In case at
any time the Trustee  shall  resign and no  appointment  of a successor  Trustee
shall be made pursuant to the  foregoing  provisions of this Article XI prior to
the  date  specified  in the  notice  of  resignation  as  the  date  when  such
resignation shall take effect, the Trustee, the Company or the owner of any Bond
may apply to any court of competent jurisdiction to appoint a successor Trustee.
Such court may thereupon,  after such notice,  if any, as it may deem proper and
prescribe, appoint a successor Trustee.

            Section 11.13.  ACCEPTANCE OF APPOINTMENT  BY, AND TRANSFER OF TRUST
ESTATE TO, SUCCESSOR  TRUSTEE.  Any successor Trustee appointed  hereunder shall
execute,  acknowledge and deliver to the Authority an instrument  accepting such
appointment  hereunder  as a  fiduciary  for the owners from time to time of the
Bonds and  shall  request  the Bank to  transfer  the  Letter of Credit to it as
successor  Trustee,  and thereupon such successor  Trustee,  without any further
act,  deed or  conveyance,  shall  become  duly  vested  with  all the  estates,
property,  rights,  powers, trusts, duties and obligations of its predecessor in
the trust hereunder,  with like effect as if originally named Trustee herein and
shall give notice thereof to the Company. Upon request of such sucessor Trustee,
the  Trustee  ceasing to act and the  Authority  shall  execute  and  deliver an
instrument  transferring  to such successor  Trustee all the estates,  property,
rights,  powers and trusts  hereunder  of the Trustee so ceasing to act, and the
Trustee so ceasing to act shall pay over to the successor Trustee all moneys and
other assets, including the Company Note at the time held by it hereunder.

<PAGE>


            Section 11.14.  SUCCESSOR  TRUSTEE BY MERGER OR  CONSOLIDATION.  Any
corporation into which any Trustee  hereunder may be merged or with which it may
be consolidated,  or any corporation  resulting from any merger or consolidation
to which any Trustee hereunder shall be a party, or any corporation to which any
Trustee hereunder may transfer all or substantially all of its assets,  shall be
the successor  Trustee under the  Indenture,  without the execution or filing of
any paper or any further act on the part of the parties hereto,  anything herein
to the contrary notwithstanding.

            Section  11.15.  EXERCISE  OF  RIGHTS  AND  POWERS  DURING  EVENT OF
DEFAULT.  Notwithstanding  any other  provisions of this Article XI, the Trustee
shall,  during  the  existence  of an Event of  Default  of which a  Responsible
Officer of the Trustee  has actual  knowledge,  exercise  such of the rights and
powers  vested in it by the  Indenture and use the same degree of skill and care
in  their   exercise  as  a  prudent  man  would  use  and  exercise  under  the
circumstances in the conduct of his own affairs.

            Section  11.16.   TRUSTEE  MAY  INTERVENE  IN  JUDICIAL  PROCEEDINGS
INVOLVING  AUTHORITY OR THE COMPANY.  In any  judicial  proceeding  to which the
Authority  or the Company is a party and which in the opinion of the Trustee and
its  counsel has a  substantial  bearing on the  interests  of the owners of the
Bonds,  the  Trustee  may in its own  name or as  trustee  of an  express  trust
intervene  on behalf of the  owners of the Bonds  and  shall,  upon  receipt  of
indemnity  satisfactory to it, do so if requested in writing by the owners of at
least  twenty-five  percent  (25%) in aggregate  principal  amount of Bonds then
outstanding if permitted by the court having jurisdiction in the premises.

            Section 11.17.  PAYING AGENTS.  The Authority may, with the approval
of the Company as evidenced by a certificate  in writing signed by an Authorized
Company  Representative,  at any time or from time to time  appoint  one or more
additional  Paying  Agents for the owners  from time to time of the Bonds in the
manner and  subject to the  conditions  set forth in this  Section  11.17.  Each
Paying Agent shall signify its acceptance of the duties and obligations  imposed
upon it by the Indenture by written instrument of acceptance  deposited with the
Authority, the Trustee and the Company.

            Each  Paying  Agent  appointed  in  addition  to the Trustee and the
Tender Agent shall be a bank or trust company duly  organized  under the laws of
the United States or any state or territory thereof,  shall have a capital stock
and  surplus  aggregating  at  least  $100,000,000  and  shall  (or  the  parent
corporation  of such  successor  shall) be rated at least Baa-3 and/or P-3 or an
equivalent  rating by Moody's or  otherwise  be  acceptable  to Moody's  and the
Authority and shall be willing and able to accept the office on  reasonable  and
customary terms and shall be authorized by law to perform all the duties imposed
upon it by the Indenture.

<PAGE>


            Any Paying  Agent may at any time  resign and be  discharged  of the
duties  and  obligations  created by the  Indenture  by giving at least 60 days'
prior written notice to the Authority,  the Trustee and the Company.  Any Paying
Agent may be removed at any time by an instrument  filed with such Paying Agent,
the Company and the Trustee and signed by the Authority.

            In the event of the resignation or removal of any Paying Agent, such
Paying Agent shall pay over,  assign and deliver any moneys held by it as Paying
Agent to its  successor,  or if there be no  successor,  to the Trustee.  In the
event that for any reason  there  shall be a vacancy in the office of any Paying
Agent, the Trustee shall act as such Paying Agent.

            Each  Paying  Agent shall set aside,  segregate  and hold in a trust
account in trust  solely for the  benefit of the owners from time to time of the
Bonds moneys  transferred  to such Paying Agent for the payment of the principal
of, premium, if any, and interest on the Bonds.

            Section 11.18.  APPOINTMENT OF CO-TRUSTEE.  It is the purpose of the
Indenture  that  there  shall  be no  violation  of any law of any  jurisdiction
(including particularly the law of the State of New York) denying or restricting
the right of banking  corporations  or  associations  to transact  business as a
trustee in such jurisdiction.  It is recognized that in case of litigation under
the  Indenture or the  Participation  Agreement and in particular in case of the
enforcement  thereof upon an Event of Default,  or in the case the Trustee deems
that by  reason of any  present  or future  law of any  jurisdiction  it may not
exercise any of the powers,  rights or remedies herein granted to the Trustee or
hold title to the properties,  in trust,  as herein granted,  or take any action
which may be desirable or necessary in connection therewith, it may be necessary
that the Trustee  appoint an additional  individual or institution as a separate
or  co-trustee.  The  following  provisions of this Section are adapted to these
ends.

            In the event that the Trustee  appoints an additional  individual or
institution as a separate or co-trustee,  each and every remedy,  power,  right,
claim,  demand,  cause of action,  immunity,  estate,  title,  interest and lien
expressed  or  intended  by the  Indenture  to be  exercised  by or vested in or
conveyed to the Trustee with respect thereto shall be exercisable by and vest in
such  separate or  co-trustee  but only to the extent  necessary  to enable such
separate or co-trustee to exercise such powers,  rights and remedies,  and every
covenant and  obligation  necessary to the exercise  thereof by such separate or
co-trustee shall run to and be enforceable by either of them.

            Should any  instrument  in writing from the Authority be required by
the  separate  or  co-trustee  so  appointed  by the  Trustee for more fully and
certainly  vesting in and  confirming  to it such  properties,  rights,  powers,
trusts,  duties and obligations,  any and all such instruments in writing shall,
on request,  be executed,  acknowledged and delivered by the Authority.  In case
any separate or co-trustee or a successor to either shall die, become  incapable
of acting, resign or be removed, all the estates,  properties,  rights,  powers,
trusts,  duties  and  obligations  of such  separate  or  co-trustee,  so far as
permitted  by law,  shall  vest in and be  exercised  by the  Trustee  until the
appointment of a new trustee or successor to such separate or co-trustee.

                                                      
<PAGE>



                                  ARTICLE XII

                    EXECUTION OF INSTRUMENTS BY BONDOWNERS
                        AND PROOF OF OWNERSHIP OF BONDS

            Section  12.01.  EXECUTION  OF  INSTRUMENTS;  PROOF OF  OWNERSHIP OF
BONDS. Any request, direction,  consent, or other instrument in writing required
or permitted by the Indenture to be signed or executed by  Bondowners  may be in
any number of  concurrent  instruments  of similar  tenor and shall be signed or
executed by such  Bondowners in person or by agent appointed by an instrument in
writing.  Proof of the execution of any such  instrument and of the ownership of
Bonds  shall  be  sufficient  for any  purpose  of the  Indenture  and  shall be
conclusive  in favor of the Trustee  with regard to any action taken by it under
such instrument if made in the following manner:

               (a) The fact and date of the  execution by any Person of any such
          instrument  may be proved by the  certificate  of any  officer  in any
          jurisdiction   who,   by  the  laws   thereof,   has   power  to  take
          acknowledgements  within  such  jurisdiction,  to the effect  that the
          Person  signing  such  instrument  acknowledged  before him or her the
          execution thereof, or by an affidavit of a witness to such execution.

               (b) The ownership of Bonds shall be proved by the Bond Register.

            Nothing contained in this Article XII shall be construed as limiting
the Trustee to such  proof,  it being  intended  that the Trustee may accept any
other evidence of the matters herein stated which to it may seem sufficient. Any
request or consent of the owner of any Bond shall bind every future owner of the
same Bond, or any Bond issued in exchange or substitution  therefor,  in respect
of anything done by the Trustee in pursuance of such request or consent.

                                                        
<PAGE>


                                                                      
                                 ARTICLE XIII

                        INDENTURES SUPPLEMENTAL HERETO

            Section  13.01.  SUPPLEMENTAL  INDENTURES  NOT REQUIRING  CONSENT OF
BONDOWNERS.  Subject to the conditions and restrictions  herein  contained,  the
Authority  and  the  Trustee  may,  without  the  consent  of or  notice  to the
Bondowners,  enter into an indenture or indentures  supplemental hereto, for any
one or more of the following purposes:

               (a) To cure any  ambiguity  or formal  defect or  omission in the
          Indenture;

               (b) To grant to or confer upon the Trustee for the benefit of the
          Bondowners any additional  rights,  remedies,  power or authority that
          may lawfully be granted to or  conferred  upon the  Bondowners  or the
          Trustee or either of them;

               (c) To  subject to the  provisions  of the  Indenture  additional
          revenues, properties or collateral;

               (d) To modify,  amend or supplement  the Indenture in such manner
          as to permit the  qualification  of the  Indenture  under any  federal
          statute  now or  hereafter  in effect or under any state Blue Sky Law,
          and, in  connection  therewith,  if they so  determine,  to add to the
          Indenture,  such other  terms,  conditions  and  provisions  as may be
          permitted or required by said federal statute or Blue Sky Law;

               (e) To modify,  amend or supplement  the Indenture in such manner
          as to  permit  the  qualification  of the  Bonds  for  deposit  with a
          Securities  Depository,  and,  in  connection  therewith,  if  they so
          determine,  to add to the Indenture,  such other terms, conditions and
          provisions as may be required to permit such qualification; or

               (f) To  provide  for any  change  in the  Indenture  which is not
          prejudicial  to the  interests  of  the  Trustee  or  the  Bondowners,
          including  but not  limited  to any  change  necessary  to  obtain  or
          maintain a rating on the Bonds from Moody's or S&P.

            Section  13.02.   SUPPLEMENTAL   INDENTURES   REQUIRING  CONSENT  OF
BONDOWNERS.  Except as otherwise  provided in Section 13.01, any modification or
amendment  of the  Indenture  may be made only with the consent of the owners of
not less than  two-thirds  in  aggregate  principal  amount  of the  Bonds  then
outstanding  and  shall  be set  forth  in a  Supplemental  Indenture.  No  such
modification  or amendment  shall be made which will reduce the  percentages  of
aggregate  principal  amount of Bonds,  the  consent  of the  owners of which is
required for any such  modification or amendment,  or permit the creation by the
Authority  of any lien  prior to or on a parity  with the lien of the  Indenture
upon the Company Note Payments and other funds pledged hereunder,  or which will
affect the times,  amounts  and  currency  of  payment of the  principal  of and
premium,  if any, and interest on the Bonds without the consent of the owners of
all Bonds then outstanding and affected thereby.

<PAGE>


            If at any time the Authority shall request the consent of Bondowners
to the execution of any such  Supplemental  Indenture for any of the purposes of
this Section,  the Trustee shall,  upon being  satisfactorily  indemnified  with
respect to expenses, cause notice of the proposed execution of such Supplemental
Indenture to be given as shall be  reasonably  requested by the Authority and in
any event mailed to Bondowners  in the manner  provided in Section  16.05.  Such
notice shall briefly set forth the nature of the proposed Supplemental Indenture
and shall state that copies thereof are on file at the Corporate Trust Office of
the Trustee for inspection by all Bondowners.  If, within 60 days or such longer
period as shall be  prescribed  by the  Authority  following the mailing of such
notice, the required consent and approval of Bondowners is obtained, no owner of
any Bond  shall  have any right to  object  to any of the  terms and  provisions
contained therein,  or the operation  thereof,  or in any manner to question the
propriety of the  execution  thereof,  or to enjoin or restrain the Authority or
the Trustee from  executing  the same or restrain  the  Authority or the Trustee
from taking any action pursuant to the provisions thereof. Upon the execution of
any such  Supplemental  Indenture as in this Section is permitted  and provided,
the  Indenture  shall be and be deemed to be modified and amended in  accordance
therewith.

            The  Trustee  shall  consent  to  any  such  Supplemental  Indenture
requiring  the consent of  Bondowners  if the required  consent of Bondowners is
obtained;  provided  that the Trustee may, but shall not be obligated to consent
to any Supplemental  Indenture which affects its own rights,  powers,  duties or
obligations hereunder.

            Section  13.03.  COMPANY AND BANK CONSENT TO AMENDMENT OF INDENTURE.
The Authority and the Trustee shall not enter into any indenture supplemental to
or  amendatory  of the  Indenture  without  the prior  consent of the Company as
evidenced  by  a  certificate  in  writing  signed  by  an  Authorized   Company
Representative  and no  such  indenture  supplemental  to or  amendatory  of the
Indenture  shall be or become  effective  until such  consent (as so  evidenced)
shall have been given by the Company.  Prior to the  expiration of the Letter of
Credit,  the  Trustee  shall not enter  into any  indenture  supplemental  to or
amendatory of the Indenture without the prior written consent of the Bank, which
consent shall not be unreasonably withheld.

<PAGE>
                                                        


                                   ARTICLE XIV

                                  DEFEASANCE

            Section 14.01.  DEFEASANCE.  1. If at any time:

                  (a)  there  shall  have  been  delivered  to the  Trustee  for
            cancellation  all the Bonds  (other  than any Bonds  which have been
            mutilated,  lost,  stolen or  destroyed  and which  shall  have been
            replaced or paid as provided in the  Indenture,  except for any such
            Bonds as are shown by proof  satisfactory  to the Trustee to be held
            by bona fide owners), or

                  (b) with respect to all the Bonds not theretofore delivered to
            the Trustee for cancellation,  the whole amount of the principal and
            the interest and the premium,  if any, due and payable on such Bonds
            then outstanding  shall be paid in accordance with the terms thereof
            and the terms of the Indenture (including but not limited to Section
            6.03) or deemed to be paid as set forth below,

and  provision  shall also be made for paying all other sums payable  hereunder,
including the  Authority's,  Trustee's,  Tender  Agent's,  Remarketing  Agents',
Indexing Agent's and Paying Agent's fees and expenses, then the Trustee, in such
case,  on written  demand of the  Authority  or the Company,  shall  release the
Indenture  with  respect to such Bonds and turn over to the  Company the Company
Note and turn over to the Bank the  Letter of  Credit,  and shall  execute  such
documents  as may be  reasonably  required by the  Authority  and the Company to
evidence  such  release.  If the Bank  certifies  to the Trustee that any amount
remains unpaid under the Reimbursement  Agreement,  the Trustee shall pay to the
Bank any balances remaining in any fund created under the Indenture,  other than
(i) moneys and Investment  Obligations retained for the redemption or payment of
principal,  interest  or  Purchase  Price of Bonds which shall be held under the
Indenture  for the benefit of the Owners and (ii) moneys held in the Rebate Fund
which shall be paid to the Company.  Notwithstanding the foregoing,  the Trustee
shall not release the  Project  Fund or Rebate Fund or any funds  therein to the
Company  until it shall have  received an Opinion of Bond  Counsel to the effect
that such funds may be transferred to the Company  without  adversely  affecting
the  exclusion  of interest on any series of Bonds from gross income for federal
income tax purposes; and all rights and immunities of the Trustee, including its
rights  to  indemnification  and to  payment  of fees  and  expenses  under  the
Indenture or the Participation Agreement,  shall survive the satisfaction of the
Indenture under this Article XIV.

            2. After the date that the  interest  rate on the Bonds is converted
to a Fixed Rate, Bonds shall be deemed to be paid whenever there shall have been
deposited  with  the  Trustee  (whether  upon or prior  to the  maturity  or the
redemption  date of such  Bonds)  either  moneys  in an  amount  which  shall be
sufficient,  or noncallable  obligations,  not subject to prepayment,  issued or
guaranteed  as to full and  timely  payment  by the  United  States  of  America
(including any  certificates  or any other evidence of an ownership  interest in
such  obligations  or in  specified  portions  thereof,  which  may  consist  of


<PAGE>

specified  portions of the principal  thereof or the interest  thereon and which
certificates  or other  evidence of an ownership  interest  must be rated by the
Rating Agency then rating the Bonds at least as high as the  obligations  issued
or  guaranteed  by, or backed by the full faith and credit of, the United States
of America,  which  obligations are rated by a Rating Agency in its highest note
or  commercial  paper  rating  category,  and  which  obligations  are held by a
custodian in  safekeeping  on behalf of the owners  thereof)  (such  noncallable
obligations,   certificates  and  other  evidence  are  herein  referred  to  as
"Investment  Obligations")  of such  maturities  and interest  payment dates and
bearing such interest as will,  without the  necessity of further  investment or
reinvestment  of either the  principal  amount  thereof or  interest  therefrom,
provide moneys which shall be  sufficient,  to pay when due the principal of and
premium,  if any,  and  interest  due and to become due on all such Bonds on and
prior to the redemption date or maturity date thereof,  as the case may be, or a
combination of such moneys and Investment  Obligations which shall be sufficient
for such  purposes,  and the Trustee  shall have given notice to the  Registered
Owners of such Bonds in the  manner  provided  in  Section  16.05 that a deposit
meeting  the  requirements  of this  paragraph  has been made and  stating  such
maturity  or  redemption  date upon  which  moneys are to be  available  for the
payment of the  principal or redemption  price,  if  applicable,  on such Bonds;
provided, however, that neither Investment Obligations nor moneys deposited with
the Trustee pursuant to this paragraph nor principal or interest payments on any
Investment  Obligations shall be withdrawn,  or used for any purpose other than,
and shall be held in trust for, the payment of the principal of and premium,  if
any, and interest on such Bonds.

            3.  Prior  to the  date  that  the  interest  rate on the  Bonds  is
converted to a Fixed Rate,  Bonds shall be deemed to be paid  whenever (i) there
shall have been deposited with the Trustee in the Bond Fund, moneys in an amount
which  shall be  sufficient,  without the  necessity  of further  investment  or
reinvestment of either the principal  amount thereof or interest  therefrom,  to
pay when due the principal of,  premium,  if any, and interest due and to become
due on the  Bonds  (computed  at the  maximum  interest  rate  that  may  become
applicable  to the Bonds) on and prior to the  redemption  date or maturity date
thereof,  as the case may be,  provided,  however,  if the Bonds are  subject to
optional  or  mandatory  tender for  purchase  prior to the  redemption  date or
maturity  date  thereof,  as the case may be,  such  deposit  also must be in an
amount  which  shall  be  sufficient,  without  the  necessity  of such  further
investment or reinvestment,  to pay when due the Purchase Price which may become
applicable to the Bonds prior to the  redemption  date or maturity  date, as the
case may be,  and (ii) any  Rating  Agency  then  rating  the Bonds  shall  have
received both an opinion of a nationally  recognized  accounting  firm as to the
sufficiency  of the deposit in clause  (i),  without  the  necessity  of further
investment or reinvestment, and an unqualified opinion of counsel experienced in
bankruptcy matters and satisfactory to the Trustee and to Moody's,  if the Bonds
are then rated by Moody's, or to S&P, if the Bonds are then rated by S&P, to the
effect that the application of such Available Moneys to the payment of principal
of,  premium,  if  any,  and  interest  on  the  Bonds  would  not  result  in a
preferential  payment  pursuant to the  provisions  of Section 547 of the United
States Bankruptcy Code, 11 U.S.C.  ss.ss.101,  ET SEQ.; and, if the Bonds are to

<PAGE>


be  redeemed  the  Trustee  shall have given,  or shall have  received,  in form
satisfactory  to it,  irrevocable  instructions to give, on a date in accordance
with the  provisions  of  Article  VIII,  notice of  redemption  of the Bonds to
Bondowners;  PROVIDED,  however, that if the Trustee shall not have given notice
of  redemption  to the  Bondowners  because such notice is not yet due, then the
Trustee shall give notice to the  Registered  Owners of such Bonds in the manner
provided  in  Section  16.05 that a deposit  meeting  the  requirements  of this
paragraph has been made and stating such maturity or redemption  date upon which
moneys are to be available for the payment of principal or redemption  price, if
applicable,  on such Bonds.  Moneys so deposited  with the Trustee  shall not be
withdrawn  or used for any purpose  other than,  and shall be held in trust for,
the payment of the principal of, premium,  if any, and interest on, the Bonds or
for the  payment  of the  Purchase  Price of Bonds or  authorized  denominations
thereof, in accordance with Section 2.05; provided that such moneys, if not then
needed  for  such  purpose,  shall,  to the  extent  practicable,  upon  written
direction of the Company be invested and  reinvested in  Investment  Obligations
maturing on or prior to the  earlier of (i) the date moneys may be required  for
the  purchase of Bonds  pursuant to Section  2.05 or (ii) the date moneys may be
required  to pay  principal,  premium,  if any,  or  interest  on the  Bonds  as
evidenced by an opinion of a nationally recognized accounting firm or such other
evidence as may be acceptable to the Trustee.  Subject to the  provisions of the
next succeeding  sentence and the last sentence of Section 14.01.1,  neither the
Company nor the  Authority  shall have any  interest  in, or ability to withdraw
amounts from,  any moneys so deposited with the Trustee.  Amounts  determined by
the Trustee to be in excess of the amount  necessary  to pay the  principal  of,
premium,  if any, and interest  (computed at the maximum  interest rate that may
become  applicable to the Bonds on or prior to the  redemption  date or maturity
date, as applicable)  on, the Bonds or the Purchase  Price thereof  (computed at
the maximum interest rate that may become applicable to the Bonds on or prior to
the redemption  date or Maturity  Date, as applicable)  pursuant to Section 2.05
shall, upon a written direction of the Company,  be paid over to the Company, as
received by the Trustee, free and clear of any trust, lien or pledge.

                                                   
<PAGE>


                                   ARTICLE XV

           REMARKETING AGENTS; REMARKETING OF BONDS; INDEXING AGENT;
                                 TENDER AGENT

            Section 15.01.  APPOINTMENT  AND DUTIES OF REMARKETING  AGENTS.  The
Authority  has  appointed,  with  the  approval  of  the  Company,  J.P.  Morgan
Securities Inc. as the initial  Remarketing  Agent. The Remarketing  Agent shall
designate to the Trustee its principal  office and signify its acceptance of the
duties and  obligations  imposed upon it hereunder  by a written  instrument  of
acceptance  delivered to the Authority,  the Company and the Trustee under which
the  Remarketing  Agent will agree  particularly  to (i) perform its obligations
under  Section 2.03 with respect to the  determination  of the Weekly Rate,  the
Semi-Annual Rate, the Medium-Term Rate, the Commercial Paper Rate, and the Fixed
Rate (ii) perform its  obligations  under  Section 2.06 with respect to any Bond
delivered  or deemed to have been  delivered  to the Tender  Agent for  purchase
pursuant to Section  2.05,  and (iii) keep books and records with respect to its
activities  hereunder as shall be consistent with prudent industry  practice and
to make such books and records  available for inspection by the  Authority,  the
Trustee,  the Company and the Bank at all  reasonable  times.  In the event that
more than one Remarketing  Agent is selected,  such  acceptance  shall include a
designation of one Remarketing  Agent as the  "Remarketing  Representative"  who
shall act on behalf of the other Remarketing Agent(s) and the acceptance by each
Remarketing Agent of the determinations of the Remarketing Representative.

            The  Remarketing  Agent  acts  as an  agent  for the  purchasers  of
remarketed  Bonds  and  not as an  agent  of the  Authority  or the  Company  in
connection with any moneys delivered to it for the purchase of Bonds.

            The Authority shall cooperate with the Trustee, the Tender Agent and
the Company to cause the necessary  arrangements to be made and to be thereafter
continued   whereby  funds  from  the  sources   specified  herein  and  in  the
Participation  Agreement  will  be made  available  for the  purchase  of  Bonds
presented at the  Corporate  Trust Office of the Tender Agent and whereby  Bonds
executed  by the  Authority  and  authenticated  by the  Trustee  shall  be made
available to the Tender Agent to the extent  necessary for delivery  pursuant to
Section 2.07.

            Section  15.02.   QUALIFICATIONS   OF  A  REMARKETING   AGENT.   The
Remarketing  Agent  shall  be a  commercial  bank  or  member  of  the  National
Association of Securities  Dealers,  Inc.,  having a capitalization  of at least
$25,000,000 and  authorization  by law to perform all the duties imposed upon it
by the Indenture  (provided  that to qualify as a successor  Remarketing  Agent,
such successor,  or the parent corporation of such successor,  shall be rated at
least  Baa-3  and/or P-3 or an  equivalent  rating by Moody's  or  otherwise  be
acceptable to Moody's and the Authority).  Subject to the provisions of the next
succeeding  paragraph,  the  Remarketing  Agent  may at any time  resign  and be
discharged of the duties and  obligations  created by the Indenture by giving at
least thirty (30) days' notice to the Authority, the Company and the Trustee. A

<PAGE>


Remarketing  Agent may be removed upon 30 days' notice,  upon written request of
the Company, by an instrument,  signed by the Authority, filed with the Company,
each Remarketing Agent (if more than one), the Indexing Agent, the Tender Agent,
the Trustee and the Bank.

            In the event that a  Remarketing  Agent shall  resign or be removed,
and the Authority shall not have appointed a successor as Remarketing  Agent and
there are no other Remarketing  Agents  continuing to serve hereunder,  then the
last  such  Remarketing  Agent  to  resign  or be  removed  notwithstanding  the
provisions of the first  paragraph of this Section 15.02,  shall continue as the
Remarketing  Agent solely for the purpose of determining the interest rate to be
borne by the  Bonds  until  the  appointment  by the  Authority  of a  successor
Remarketing Agent.

            Section  15.03.  APPOINTMENT  AND  DUTIES OF  INDEXING  AGENTS.  The
Authority  shall,  with the approval of the Company,  appoint the Indexing Agent
for the Bonds, subject to the conditions set forth in this Section. There may be
separate  Indexing  Agents for the purpose of  calculating  each of the interest
indices set forth in Section  1.01.  The Indexing  Agent shall  designate to the
Trustee  its  principal  office and  signify  its  acceptance  of the duties and
obligations  imposed  upon it hereunder by a written  instrument  of  acceptance
delivered to the Authority,  the Trustee, the Company and the Remarketing Agents
under which the Indexing Agent will agree, particularly:

            (a) to compute the Weekly Rate Index,  Semi-Annual  Rate Index,  the
      Medium- Term Rate Index, the Commercial Paper Rate Index or the Fixed Rate
      Index,  as the case may be,  pursuant to and in  accordance  with  Section
      2.03,  and when the Bonds  bear  interest  at the  related  Rate,  to give
      written notice to the Trustee,  the Remarketing  Agents and the Company of
      such index on the date of the computation thereof; and

            (b) to keep  such  books and  records  as shall be  consistent  with
      prudent industry practice and to make such books and records available for
      inspection by the Authority,  the Trustee,  the Remarketing Agents and the
      Company at all reasonable times.

            The Indexing  Agent will perform the duties  provided for in Section
2.03.  Whenever the Indexing  Agent makes a computation  under that Section,  it
will promptly  notify in writing the Trustee,  the  Authority,  the  Remarketing
Agents and the  Company of the  results and date of  computation.  The  Indexing
Agent will keep adequate records pertaining to the performance of its duties and
allow the Trustee,  the  Authority,  the  Remarketing  Agents and the Company to
inspect the records at reasonable times.

            Section 15.04. QUALIFICATIONS OF INDEXING AGENTS. The Indexing Agent
shall be a commercial  bank, a member of the National  Association of Securities
Dealers, Inc. or a nationally recognized municipal securities evaluation service
authorized  by law to perform all the duties  imposed upon it by the  Indenture.
The Indexing  Agent may at any time resign and be  discharged  of the duties and
obligations created by the Indenture by giving at least sixty (60) days' written

<PAGE>


notice to the Authority,  the Company,  the Remarketing  Agents and the Trustee.
The Indexing  Agent may be removed at any time, at the written  direction of the
Company, by an instrument,  signed by the Authority, filed with the Company, the
Indexing Agent, the Remarketing Agents, the Trustee and the Bank.

            In the event that the  Authority  shall fail to appoint an  Indexing
Agent  hereunder  or the  Indexing  Agent  shall  resign  or be  removed,  or be
dissolved,  or if the property or affairs of the  Indexing  Agent shall be taken
under the control of any state or federal court or  administrative  body because
of bankruptcy or insolvency,  or for any other reason,  and the Authority  shall
not  have   appointed  its  successor  as  Indexing   Agent,   the   Remarketing
Representative,  notwithstanding  the provisions of the first  paragraph of this
Section  15.04,  shall IPSO FACTO be deemed to be the Indexing  Agent solely for
the purpose of determining  the interest rate to be borne by the Bonds until the
appointment by the Authority of the Indexing Agent or successor  Indexing Agent,
as the case may be.

            Section  15.05.  DEALINGS WITH THE  AUTHORITY  AND THE COMPANY.  The
Remarketing Agents and the Indexing Agent may in good faith buy, sell, own, hold
and deal in any of the Bonds issued hereunder,  and may join in any action which
any  Bondowner  may be entitled to take with like effect as if it did not act in
any capacity hereunder. The Remarketing Agents and the Indexing Agent, either as
principal  or agent,  may also engage in or be  interested  in any  financial or
other transaction with the Authority or the Company,  and may act as depository,
trustee or agent for any committee or body of Bondowners secured hereby or other
obligations  of the  Authority  as freely  as if it did not act in any  capacity
hereunder.

            Section 15.06.  TENDER AGENT. The Authority shall, with the approval
of the Company and the Bank, appoint the Tender Agent for the Bonds,  subject to
the conditions set forth in Section 15.07.  The Tender Agent shall designate its
Corporate  Trust Office and signify its acceptance of the duties and obligations
imposed upon it hereunder by a written instrument of acceptance delivered to the
Authority, the Trustee, the Remarketing Agents, the Indexing Agent, the Bank and
the Company under which the Tender Agent will agree, particularly to perform its
obligations under Article II and to request the Trustee to draw on the Letter of
Credit as provided in Section 6.07.1.  Notwithstanding  anything to the contrary
in the Indenture,  the Tender Agent shall not invest any moneys it receives from
such a draw on the Letter of Credit.

            The  Tender  Agent  may  designate  from  time to  time a  different
Corporate  Trust  Office  within  The City of New York,  New York,  by a written
instrument delivered to the Authority,  the Trustee, the Remarketing Agents, the
Indexing Agent, the Bank and the Company.

            The Tender Agent  undertakes  to perform such duties,  and only such
duties,  as are  specifically  set  forth in the  Indenture  and in any  written
instrument of acceptance of duties  hereunder and no implied  covenants shall be
read into the Indenture against the Tender Agent.


<PAGE>


            Insofar as such provisions may be applicable, the Tender Agent shall
enjoy the same protective  provisions in the performance of its duties hereunder
as are specified in Sections 11.03,  11.05,  11.06, 11.07 and 11.14 with respect
to the Trustee.

            Section 15.07. QUALIFICATIONS OF TENDER AGENT; RESIGNATION; REMOVAL.
Any  successor  Tender Agent shall be a bank or trust  company or a  corporation
duly  organized  under the laws of the United  States of America or any state or
territory  thereof,  which has an office in The City of New York,  New York, and
having a combined  capital  stock,  surplus  and  undivided  profits of at least
$100,000,000  and authorized by law to perform all the duties imposed upon it by
the Indenture.  The Tender Agent may at any time resign and be discharged of the
duties and  obligations  created by the  Indenture by giving at least sixty (60)
days' notice to the Authority, the Trustee, the Remarketing Agents, the Indexing
Agent and the  Company.  The Tender  Agent may be  removed  at any time,  at the
request of the Company, by an instrument, signed by the Authority,  delivered to
the Tender Agent,  and to the Trustee,  the Remarketing  Agent, the Bank and the
Indexing  Agent.  Any such  resignation or removal of the Tender Agent shall not
take effect until the appointment of a successor Tender Agent.

            In the event of the resignation or removal of the Tender Agent,  the
Tender Agent shall pay over,  assign and deliver any moneys and Bonds held by it
in such  capacity  to its  successor  (provided  that to qualify as a  successor
Tender Agent, such successor, or the parent corporation of such successor, shall
be rated at least  Baa-3  and/or  P-3 or an  equivalent  rating  by  Moody's  or
otherwise  be  acceptable  to  Moody's  and the  Authority)  or,  if there be no
successor, to the Trustee.

            In the event that the Tender Agent shall resign or be removed, or be
dissolved,  or if the  property  or affairs of the Tender  Agent  shall be taken
under the control of the state or federal court or  administrative  body because
of  bankruptcy  or  insolvency,  or for any other  reason,  a  successor  may be
appointed by the Authority  with the prior written  approval of the Bank and the
Trustee.  Any such  successor  shall have an office in The City of New York, New
York, and shall be acceptable to the Trustee. Written notice of such appointment
shall  immediately  be given by the Company to the  Trustee and the  Remarketing
Agents and the Trustee  shall cause  written  notice of such  appointment  to be
given to the owners of the Bonds.  Any successor  Tender Agent shall execute and
deliver an instrument  accepting such  appointment and thereupon such successor,
without any further act, deed or conveyance,  shall become fully vested with all
rights,  powers, duties and obligations of its predecessor,  with like effect as
if originally named as Tender Agent, but such predecessor shall nevertheless, on
the  written  request of the  Authority  or the  Trustee,  or of the  successor,

<PAGE>


execute and deliver such  instruments and do such other things as may reasonably
be required to more fully and certainly  vest and confirm in such  successor all
rights,  powers,  duties and  obligations of such  predecessor.  If no successor
Tender Agent has accepted  appointment  in the manner  provided  above within 90
days after the Tender  Agent has given  notice of its  resignation  as  provided
above, the Tender Agent may petition any court of competent jurisdiction for the
appointment  of a temporary  successor  Tender  Agent;  provided that any Tender
Agent so appointed shall  immediately and without further act be superseded by a
Tender Agent  appointed by the  Authority  as provided  above.  The Tender Agent
shall  not be  required  to take or be  deemed  to have  notice  of any Event of
Default or of any event  which the lapse of time or giving of  notice,  or both,
would  constitute an Event of Default  unless an officer in its Corporate  Trust
Office shall have received  written notice thereof from the Authority,  the Bank
or the Trustee.

<PAGE>

                                  ARTICLE XVI

                                 MISCELLANEOUS

            Section  16.01.  PARTIES  IN  INTEREST.  Except as herein  otherwise
specifically provided, nothing in the Indenture expressed or implied is intended
or shall be  construed  to confer upon any Person  other than the  Company,  the
Authority,  the Trustee,  the Tender Agent, the Bank and the owners of the Bonds
hereunder,  any right, remedy or claim under or by reason of the Indenture,  the
Indenture  being  intended  to be for the  sole  and  exclusive  benefit  of the
Company, the Authority, the Trustee, the Bank and the owners of the Bonds.

            Section  16.02.  SEVERABILITY.  In  case  any  one  or  more  of the
provisions  of the  Indenture or of the Bonds issued  hereunder  shall,  for any
reason,  be held to be illegal or invalid,  such illegality or invalidity  shall
not affect  any other  provisions  of the  Indenture  or of the  Bonds,  and the
Indenture  and the Bonds shall be  construed  and enforced as if such illegal or
invalid provisions had not been contained therein.

            Section  16.03.  NO INDIVIDUAL  LIABILITY.  No covenant or agreement
contained in the Bonds or in the Indenture shall be deemed to be the covenant or
agreement  of any  member,  agent or  employee  of the  Authority  in his or her
individual  capacity,  and neither the members of the Authority nor any official
executing the Bonds shall be liable personally on the Bonds or be subject to any
personal liability or accountability by reason of the issuance thereof.

            Section 16.04.  PAYMENT DUE ON SATURDAYS,  SUNDAYS AND HOLIDAYS.  In
any case where the date of maturity of interest on or  principal of the Bonds or
the date fixed for redemption of any Bonds or any Mandatory  Purchase Date shall
be on a day other than a Business Day, then payment of interest or principal and
premium,  if any,  or Purchase  Price,  need not be made on such date but may be
made (without additional interest) on the next succeeding Business Day, with the
same force and effect as if made on the date of  maturity  or the date fixed for
redemption or the Mandatory Purchase Date.

            Section 16.05. NOTICES. (a) All notices,  certificates,  requests or
other  communications  hereunder shall be sufficiently given and shall be deemed
given,  unless otherwise  required by the Indenture,  when mailed by first class
mail, postage prepaid,  addressed as follows: If to the Authority,  at Corporate
Plaza West, 286 Washington Avenue Extension,  Albany, New York 12203, Attention:
President;  if to the Company,  at 175 East Old Country  Road,  Hicksville,  New
York,  Attention:  Vice President and Treasurer;  if to the Trustee, at 450 West
33rd Street, 15th Floor, New York, New York 10001, Attention:  Corporate Trustee
Administration Department; if to the Tender Agent, at 55 Water Street, Room 234,
North Building,  New York, New York 10041,  Attention:  Corporate Tellers; if to
the Bank, at its address  specified in the Reimbursement  Agreement;  and, if to
the  Indexing  Agent or  Remarketing  Agent,  at the address  specified in their

<PAGE>


respective  acceptances  delivered  pursuant to Article XV. A duplicate  copy of
each notice, certificate,  request or other communication given hereunder to the
Authority,  the Company,  the Trustee,  the Bank, the Indexing Agent, the Tender
Agent or the  Remarketing  Agents  shall  also be given  to the  Authority,  the
Company and the Trustee. The Company, the Authority,  the Trustee, the Bank, the
Remarketing  Agents and the  Indexing  Agent  may,  by notice  given  hereunder,
designate  any  further or  different  addresses  to which  subsequent  notices,
certificates,  requests  or other  communications  shall be sent.  Any notice or
other  communication  to be mailed to Registered  Owners of the Bonds  hereunder
shall be mailed  by first  class  mail in a sealed  envelope,  postage  prepaid,
addressed to each such  Bondowner as his or her address last appears on the Bond
Register.  In case, by reason of the suspension of or  irregularities in regular
mail service, it shall be impractical to mail notice to the Registered Owners of
Bonds of any event when such  notice is  required  to be given  pursuant  to any
provision  of the  Indenture,  then any manner of giving such notice as shall be
satisfactory  to the Trustee  shall be deemed to be a sufficient  giving of such
notice.

            (b) So long as the  Bonds  shall be rated by  Moody's,  the  Trustee
shall furnish to Moody's at 99 Church  Street,  New York,  New York,  10007-2796
Attn:  Structured  Transactions  Group  or such  other  office  as  Moody's  may
designate  to the  Trustee,  and if the Bonds shall be rated by S&P, the Trustee
shall furnish to S&P at 25 Broadway,  New York, New York 10004,  Attn: Letter of
Credit  Surveillance  Group,  (i) a copy of  each  amendment  to the  Indenture,
Participation Agreement,  Letter of Credit, and Reimbursement Agreement of which
it has knowledge, (ii) notice of the termination, extension or expiration of any
Letter of Credit,  (iii) notice of the payment of all the Bonds,  (iv) notice of
conversion to a Medium-Term  Rate Period of greater than three years duration or
a Fixed Rate, (v) notice of any successor Trustee, Paying Agent, Tender Agent or
Remarketing  Agents;  provided,  however,  that failure by the Trustee to notify
Moody's or S&P shall not result in any  liability  on the part of the Trustee or
affect the validity of such  documents or actions and (vi) notice of a mandatory
tender of Bonds.

            SECTION 16.06. GOVERNING LAW. THE LAW OF THE STATE OF NEW YORK SHALL
GOVERN THE CONSTRUCTION OF THE INDENTURE AND OF THE BONDS.

            Section 16.07.  EFFECTIVE  DATE;  COUNTERPARTS.  The Indenture shall
become  effective  on  delivery.  The  Indenture  may  be  executed  in  several
counterparts,  each  of  which  shall  be an  original  and all of  which  shall
constitute but one and the same instrument.

            Section 16.08.  REFERENCES TO THE BANK. After the establishment of a
Fixed Rate for the Bonds and upon receipt by the Trustee of notice from the Bank
that all amounts  payable to the Bank with  respect to draws under the Letter of
Credit have been received,  all references in the Indenture to the Bank shall be
ineffective.

            Section 16.09.  DATE FOR  IDENTIFICATION  PURPOSES ONLY. The date of
the  Indenture  shall  be for  identification  purposes  only and  shall  not be
construed to imply that the  Indenture  was  delivered as of any date other than
the actual date of the delivery hereof by the parties hereto.

<PAGE>


            IN WITNESS  WHEREOF,  the  Authority  has caused the Indenture to be
executed by its  President  and its  corporate  seal to be hereunto  affixed and
attested by its Vice  President  and  Secretary,  and the Trustee has caused the
Indenture to be executed by one of its  authorized  officers and attested by one
of its authorized officers or persons, all as of the date first above written.

                                          NEW YORK STATE ENERGY
                                           RESEARCH AND DEVELOPMENT
                                            AUTHORITY


                                          By /s/ F. William Valentino Jr.
                                          -------------------------------
(SEAL)                                          President

Attest:


/s/ Howard A. Jack            
------------------------------
Vice President and Secretary
                                          THE CHASE MANHATTAN BANK
                                            AS TRUSTEE


                                         By  /s/ G. McFarlane
                                        --------------------
                                             Vice President
Attest:


/s/ R. Lorenzen
---------------
Senior Trust Officer


<PAGE>


STATE OF NEW YORK )
                        :  ss.:
CITY OF NEW YORK  )




            On the 29th day of  December,  1997  before  me  personally  came G.
McFarlane and R. Lorenzen,  to me known, who, being by me duly sworn, did depose
and say that  they are a(n)  Vice  President  and a(n)  Senior  Trust  Officer ,
respectively,  of The Chase Manhattan Bank, the Trustee,  described in and which
executed the above instrument; that they know the seal of said Trustee; that the
seal affixed to said  instrument is such corporate  seal; that it was so affixed
by authority of the Corporate  Trust Committee of the Board of Directors of said
Trustee, and that they signed their names thereto by like authority.


                                          /s/ Emily Fayan   
                                          ------------------
                                          Notary Public

                                       
<PAGE>

STATE OF NEW YORK )
                        :  ss.:
COUNTY OF ALBANY  )


            On the 22nd day of  December,  1997,  before me  personally  came F.
William  Valentino,  to me known, who being by me duly sworn, did depose and say
that  he is  President  of  New  York  State  Energy  Research  and  Development
Authority,  the Authority  described in and which executed the above  instrument
and  that he  signed  his name  thereto  by  authority  of the  members  of said
Authority.


                                             Jacquelyn L. Jerry
                                             ------------------
                                              Notary Public

                                        




STATE OF NEW YORK )
                        :  ss.:
COUNTY OF ALBANY  )


            On the 22nd day of December,  1997, before me personally came Howard
A. Jack, to me known,  who being by me duly sworn, did depose and say that he is
Vice President and Secretary of New York State Energy  Research and  Development
Authority,  the Authority  described in and which executed the above instrument;
that he  knows  the  seal of said  Authority,  that  the  seal  affixed  to said
instrument is such  corporate  seal;  that it was so affixed by authority of the
members  of said  Authority,  and  that  he  signed  his  name  thereto  by like
authority.



                                             Jacquelyn L. Jerry
                                             ------------------
                                             Notary Public



<PAGE>


                                   EXHIBIT A


                       NOTICE OF ELECTION TO RETAIN BOND
                      FOLLOWING A MANDATORY PURCHASE DATE


[Name and Address
 of Tender Agent]

      Attention:  Bond Tender Unit

Ladies and Gentlemen:

            This notice is being sent to you in your  capacity  as Tender  Agent
under the  Indenture of Trust (the  "Indenture"),  dated as of December 1, 1997,
between  New  York  State  Energy  Research  and   Development   Authority  (the
"Authority") and The Chase Manhattan Bank as Trustee (the  "Trustee"),  relating
to the Authority's  $24,880,000  aggregate  principal amount Electric Facilities
Revenue  Bonds  (Long  Island  Lighting  Company  Project),  1997  Series A (the
"Bonds"). You are hereby notified that:

            1.  The   undersigned  is  the  owner  of  Bond  No.(s)   __________
outstanding under the Indenture in the principal amount(s) of $__________.

            2.    The undersigned's address is_______________________.

            3. The  undersigned  has received a notice from the Trustee that the
Bonds are required to be tendered on the Mandatory Purchase Date for purchase on
the  Mandatory  Purchase  Date as a  result  of the  matters  discussed  in such
notices.

            4. The  undersigned  elects to retain Bond No.(s)  __________ in the
principal  amount(s) of  $__________  (or any portion  thereof in an  authorized
denomination) and will not tender such Bond(s) (or portion thereof as aforesaid)
on the  Mandatory  Purchase  Date (or prior  thereto) for  purchase  pursuant to
Section 2.05(e)(4) of the Indenture.

            5. The  undersigned  agrees to surrender such Bond(s) to be retained
by the  undersigned to The Chase  Manhattan  Bank, as Trustee,  on the Mandatory
Purchase  Date  in  exchange  for  a  replacement  Bond  or  Bonds  bearing  the
appropriate legend and in the following denomination(s): ____________________.


<PAGE>


            6. The  undersigned  acknowledges  that this  notice of  election is
irrevocable  and  that the  events  specified  in the  notice  from the  Trustee
referred to in Paragraph 3 above are to occur.

            7. The undersigned  acknowledges that the rating assigned by Moody's
or S&P,  if any,  to the Bonds may be  lowered or  withdrawn  as a result of the
matters  described  in the notice  from the Trustee  referred to in  Paragraph 3
above.

            8. All capitalized terms not otherwise defined herein shall have the
meaning given to such terms in the Indenture.

Dated: ____________________


-------------------------------           -------------------------------
Witness                                   Name of owner as it is  written on the
                                          face of the above-identified Bonds, in
                                          every particular  without  alteration,
                                          enlargement or any change whatsoever.


--------
     Note:  Owners of Bonds may not elect to retain  (i) if the Bonds  currently
bear  interest  at a Money  Market  Municipal  Rate and (ii)  unless  the  Bonds
continue to be secured by a Letter of Credit after the  Mandatory  Purchase Date
or have  been  converted  to a Fixed  Rate,  as more  particularly  set forth in
Section 2.05(e) of the Indenture.

                                    A-1
 
<PAGE>



                                   EXHIBIT B


                            REQUISITION CERTIFICATE


            Long Island  Lighting  Company (the  "Company")  hereby requests The
Chase Manhattan  Bank, as Trustee,  under the Indenture of Trust relating to New
York  State  Energy  Research  and  Development  Authority's  (the  "Authority")
Electric  Facilities Revenue Bonds (Long Island Lighting Company Project),  1997
Series A dated as of December 1, 1997 (the "Indenture"), to withdraw $__________
from  the  Construction  Account  in the  Project  Fund  established  under  the
Indenture  for purposes  permitted by Section 5.03 thereof.  In connection  with
this withdrawal, the Company states as follows:

            1. This requisition relates to the Bond Proceeds  Sub-Account of the
separate  account in the Project Fund relating to the Project (as defined in the
Indenture).

            2.    The number of this requisition is No. _____.

            3. Payments aggregating $__________ are due to the following persons
in the  following  amounts  for  expenditures  incurred in  connection  with the
Project:


            PERSON                 AMOUNT                  ITEM
            ------                 ------                  ----



            4. Payment is due to the Company in the total amount of  $__________
in reimbursement  for amounts paid by the Company in connection with the Project
as shown on the Schedule attached hereto.  Deposit such payment by wire transfer
to the ---------------.

            5. Each amount referred to in paragraphs 3 and 4 hereof will be used
to pay, or reimburse the Company for, a Cost of Construction of such Project and
is a proper charge against the separate  account for such Project in the Project
Fund.

            6. None of the items for which the  disbursement  is  requested  has
formed the basis for any disbursement heretofore made from the Project Fund.

            7. The  disbursement  will not be used in a manner that would result
in a violation of any representation,  warranty or covenant contained in Section
5.04 of the Participation Agreement or in the Tax Regulatory Agreement.

            8. No "event of default" as defined in the  Participation  Agreement
has occurred and is  continuing  and no event which with the lapse of time alone
would become such a default has occurred and is continuing.

            9. No "event of default" as defined in the  Indenture  has  occurred
and is  continuing  and no event which with the lapse of time alone would become
such a default has occurred and is continuing.

            Capitalized  terms used in this  requisition  are used as defined in
the Indenture.

            I am an Authorized Company Representative.


                                          LONG ISLAND LIGHTING COMPANY



                                          By:____________________________
                                             Name:
                                             Title:



                                    B-1
  
<PAGE>


                               TABLE OF CONTENTS
                                                                          PAGE


                                   ARTICLE I

                      DEFINITIONS; LIABILITY UNDER BONDS;
                       INDENTURE TO CONSTITUTE CONTRACT

Section 1.01.     Definitions.............................................. 24
Section 1.02.     Rules of construction.................................... 39
Section 1.03.     Liability under Bonds.................................... 39


                                  ARTICLE II

               DESCRIPTION; AUTHORIZATION; MANNER OF EXECUTION;
              AUTHENTICATION; REGISTRATION AND TRANSFER OF BONDS

Section 2.01.     Issuance of Bonds; Designation of Bonds; Certain
                    Particulars and Form of Bonds.......................... 41
Section 2.02.     Additional Particulars of Bonds.......................... 41
Section 2.03.     Interest Rates on Bonds.................................. 42
Section 2.04.     Conversion of Interest Rate on Bonds..................... 49
Section 2.05.     Optional and Mandatory Tender of Bonds for
                    Purchase............................................... 53
Section 2.06.     Remarketing of Bonds..................................... 59
Section 2.07.     Delivery of Purchased Bonds.............................. 61
Section 2.08.     Mutilated, Lost, Stolen or Destroyed Bonds............... 62
Section 2.09.     Temporary Bonds.......................................... 63
Section 2.10.     Execution of Bonds; Effect of Change of Officers......... 63
Section 2.11.     Registration of Bonds; Transfers; Securities
                    Depository............................................. 63
Section 2.12.     Persons Treated as Owners................................ 66
Section 2.13.     Exchange of Bonds........................................ 66
Section 2.14.     Payment For and Limitations on Exchanges and
                    Transfers.............................................. 67
Section 2.15.     Endorsement of Certificate of Authentication on
                    Bonds.................................................. 67
Section 2.16.     Cancellation of Bonds.................................... 67
Section 2.17.     Redemption of Bonds...................................... 67

<PAGE>

                                  ARTICLE III
                     SECURITY FOR BONDS; ISSUANCE OF BONDS

Section 3.01.     Pledge and Assignment Effected by Indenture;
                    Bonds Equally and Ratably Secured...................... 68
Section 3.02.     Issuance of Bonds........................................ 68



                                  ARTICLE IV

                                 AMENDMENT OF
                     PARTICIPATION AGREEMENT, COMPANY NOTE
                          AND TAX REGULATORY AGREEMENT

Section 4.01.     Amendments to Participation Agreement not
                    Requiring Consent of Bondowners........................ 70
Section 4.02.     Amendments to Participation Agreement
                    Requiring Consent of Bondowners........................ 70
Section 4.03.     Amendments to Company Note............................... 71
Section 4.04.     Amendments to Tax Regulatory Agreement................... 71


                                   ARTICLE V
                           PROJECT FUND; REBATE FUND

Section 5.01.     Creation and Custody of Project Fund..................... 72
Section 5.02.     Application of Moneys in the Project Fund................ 72
Section 5.03.     Construction Account Requisitions........................ 72
Section 5.04.     Retention of Requisitions................................ 73
Section 5.05.     Certification of Completion of the Project............... 73
Section 5.06.     Disposition of Balance Remaining in Project Fund......... 74
Section 5.07.     Creation and Custody of Rebate Fund...................... 74
Section 5.08.     Application of Moneys in the Rebate Fund................. 74

                                  ARTICLE VI

                          BOND FUND; LETTER OF CREDIT

Section 6.01.     Creation and Custody of the Bond Fund.................... 76
Section 6.02.     Payments into the Bond Fund.............................. 76
Section 6.03.     Application of Moneys in the Bond Fund................... 76
Section 6.04.     Non-presentment of Bonds................................. 78
Section 6.05.     (Intentionally Deleted).................................. 78
Section 6.06.     Trustee to Notify Authority and Company of
                    Funds in Bond Fund..................................... 78
Section 6.07.     Letter of Credit......................................... 78

<PAGE>

                                  ARTICLE VII

                     SECURITY FOR AND INVESTMENT OF MONEYS

Section 7.01.     Moneys Held in Trust..................................... 81
Section 7.02.     Uninvested Moneys Held by the Trustee.................... 81
Section 7.03.     Investment of, and Payment of Interest on,
                    Moneys................................................. 81
Section 7.04.     Disposition of Amounts After Payment of Bonds............ 83


                                 ARTICLE VIII

                              REDEMPTION OF BONDS

Section 8.01.     Bonds to be Redeemed Only in Manner Provided
                    in Article VIII........................................ 84
Section 8.02.     Redemption of Less Than all Bonds........................ 85
Section 8.03.     Notice of Redemption..................................... 85
Section 8.04.     Rights of Owners of Bonds Called for Redemption Limited 
                    to Redemption Price and Accrued Interest .............. 85 
Section 8.05.     Redemption at Demand of the State........................ 86


                                  ARTICLE IX

                             PARTICULAR COVENANTS

Section 9.01.     Payment of Principal of and Interest and
                    Redemption Premium of Bonds............................ 87
Section 9.02.     Performance of Covenants................................. 87
Section 9.03.     Further Instruments...................................... 87
Section 9.04.     Inspection of Project Books.............................. 87
Section 9.05.     No Extension of Time of Payment of Interest.............. 87
Section 9.06.     Trustee's, Paying Agent's, Indexing Agent's,
                    Tender Agent's and Remarketing Agents' Fees, Charges and
                    Expenses............................................... 88
Section 9.07.     Agreement of the State of New York....................... 88

<PAGE>

                                   ARTICLE X

                             DEFAULTS AND REMEDIES

Section 10.01.    Events of Default........................................ 89
Section 10.02.    Judicial Proceedings by Trustee.......................... 91
Section 10.03.    Effect of Discontinuance or Abandonment of
                    Proceedings............................................ 91
Section 10.04.    Power of Bondowners to Direct Proceedings................ 91
Section 10.05.    Limitation on Actions by Bondowners...................... 92
Section 10.06.    Trustee's Right to Enforce Rights in Respect of
                    Bonds in Own Name and Without Possession of Bonds...... 92
Section 10.07.    No Remedy herein Conferred upon or Reserved
                    Exclusive.............................................. 93
Section 10.08.    No Delay or Omission to be Deemed Waiver of
                    Default................................................ 93
Section 10.09.    Application of Moneys Received by Trustee
                    Pursuant to Article X.................................. 93
Section 10.10.    Entirety of Agreement.................................... 94
Section 10.11.    Notice of Event of Default............................... 95


                                  ARTICLE XI

                    CONCERNING THE TRUSTEE AND PAYING AGENT

Section 11.01.    Appointment of Trustee; Paying Agents.................... 96
Section 11.02.    No Responsibility for Correctness of Statements
                    in Indenture........................................... 96
Section 11.03.    No Responsibility for Default of Agents Selected
                    with Due Care, nor for Own Acts Save Willful Misconduct or
                    Negligence............................................. 96
Section 11.04.    No Duty to Take Enforcement Action Unless so
                    Requested by Owners of 25% of the Bonds................ 97
Section 11.05.    Right to Rely............................................ 97

Section 11.06.    Right to Own and Deal in Bonds and Engage in
                    Other Transactions with Authority and Company.......... 98
Section 11.07.    Construction of Provisions of Indenture by
                    Trustee................................................ 98
Section 11.08.    Right to Resign Trust.................................... 98
Section 11.09.    Removal of Trustee....................................... 98
Section 11.10.    Appointment of Successor Trustee by Bondowners
                    or Authority........................................... 98
Section 11.11.    Qualifications of Successor Trustee...................... 99
Section 11.12.    Court Appointment of Successor Trustee................... 99
Section 11.13.    Acceptance of Appointment by, and Transfer of
                    Trust Estate to, Successor Trustee..................... 99
Section 11.14.    Successor Trustee by Merger or Consolidation.............100
Section 11.15.    Exercise of Rights and Powers During Event of
                    Default................................................100
Section 11.16.    Trustee may Intervene in Judicial Proceedings
                    Involving Authority or the Company.....................100
Section 11.17.    Paying Agents............................................100
Section 11.18.    Appointment of Co-Trustee................................101
<PAGE>


                                  ARTICLE XII

                    EXECUTION OF INSTRUMENTS BY BONDOWNERS
                        AND PROOF OF OWNERSHIP OF BONDS

Section 12.01.    Execution of Instruments; Proof of Ownership of
                    Bonds..................................................103


                                 ARTICLE XIII

                        INDENTURES SUPPLEMENTAL HERETO

Section 13.01.    Supplemental Indentures not Requiring Consent of
                    Bondowners.............................................104
Section 13.02.    Supplemental Indentures Requiring Consent of
                    Bondowners.............................................104
Section 13.03.    Company and Bank Consent to Amendment of
                    Indenture..............................................105


                                  ARTICLE XIV

                                  DEFEASANCE

Section 14.01.    Defeasance...............................................106


                                  ARTICLE XV

           REMARKETING AGENTS; REMARKETING OF BONDS; INDEXING AGENT;
                                 TENDER AGENT

Section 15.01.    Appointment and Duties of Remarketing Agents.............109
Section 15.02.    Qualifications of a Remarketing Agent....................109
Section 15.03.    Appointment and Duties of Indexing Agents................110
Section 15.04.    Qualifications of Indexing Agents........................110
Section 15.05.    Dealings With the Authority and the Company..............111
Section 15.06.    Tender Agent.............................................111
Section 15.07.    Qualifications of Tender Agent; Resignation;
                    Removal................................................112


                                  ARTICLE XVI

                                 MISCELLANEOUS

Section 16.01.    Parties in Interest......................................114
Section 16.02.    Severability.............................................114
Section 16.03.    No Individual Liability..................................114
Section 16.04.    Payment Due on Saturdays, Sundays and Holidays...........114
Section 16.05.    Notices..................................................114
SECTION 16.06.    GOVERNING LAW............................................115
Section 16.07.    Effective Date; Counterparts.............................115
Section 16.08.    References to the Bank...................................115
Section 16.09.    Date for Identification Purposes Only....................115

EXHIBIT A   NOTICE OF ELECTION TO RETAIN BOND FOLLOWING A MANDATORY
            PURCHASE DATE..................................................A-1
EXHIBIT B   REQUISITION CERTIFICATE........................................B-1


                                    (i)
<PAGE>





------------------------------------------------------------------------------


------------------------------------------------------------------------------





                        NEW YORK STATE ENERGY RESEARCH

                           AND DEVELOPMENT AUTHORITY


                                      AND


                         LONG ISLAND LIGHTING COMPANY





                            PARTICIPATION AGREEMENT





                         Dated as of December 1, 1997




------------------------------------------------------------------------------


------------------------------------------------------------------------------




                                - relating to -
                       Electric Facilities Revenue Bonds
             (Long Island Lighting Company Project), 1997 Series A

                              
<PAGE>


                                                                         1.


            This PARTICIPATION AGREEMENT,  dated as of December 1, 1997, between
NEW YORK STATE ENERGY RESEARCH AND DEVELOPMENT  AUTHORITY,  a body corporate and
politic,  constituting a public benefit  corporation,  established  and existing
under and by virtue of the laws of the State of New York (the "Authority"),  and
LONG ISLAND  LIGHTING  COMPANY,  a corporation  duly  organized and existing and
qualified to do business as a public  utility under the laws of the State of New
York (the "Company"),

                             W I T N E S S E T H :

            WHEREAS,  pursuant to a special act of the  Legislature of the State
of New York (Title 9 of Article 8 of the Public  Authorities Law of New York, as
from time to time  amended  and  supplemented,  herein  called the  "Act"),  the
Authority has been established, as a body corporate and politic,  constituting a
public benefit corporation; and

            WHEREAS, pursuant to the Act, the Authority is empowered to contract
with any power company to participate in the  construction of facilities for the
furnishing  of  electricity  to the extent  required  by the public  interest in
development,  health, recreation,  safety, conservation of natural resources and
aesthetics; and

            WHEREAS,  pursuant to the Act, the Authority has also been empowered
to extend  credit and make loans from bond and note  proceeds  to any person for
the  construction,  acquisition and installation of, or for the reimbursement to
any person for costs in connection with, any special energy project,  including,
but not limited to, any land, works, system, building or other improvement,  and
all real and  personal  properties  of any nature or any interest in any of them
which are suitable for or related to the furnishing, generation or production of
energy; and

            WHEREAS,  the Authority is also  authorized  under the Act to borrow
money and issue its negotiable bonds and notes to provide  sufficient moneys for
achieving its corporate purposes; and

            WHEREAS,  the  Authority is also  authorized  under the Act to enter
into any contracts and to execute all  instruments  necessary or convenient  for
the  exercise  of its  corporate  powers and the  fulfillment  of its  corporate
purposes; and

            WHEREAS,  the Company is a public utility corporation doing business
in the State of New York and operates power plants in the State of New York; and

            WHEREAS, the Company has requested that the Authority participate in
financing the acquisition,  construction and installation of certain  facilities
for the  furnishing of electric  energy within the Company's  service area (such
facilities for the furnishing of electric energy being  hereinafter  referred to
as the "Project") and, as part of such  participation,  that the Authority issue
bonds pursuant to the Act to provide funds to finance the cost to the Company of
the Project and the  expenses  incurred in  connection  with the  authorization,
issuance and sale of such bonds; and


            WHEREAS,  the  Authority,  pursuant to Resolution  No. 903,  adopted
December 17, 1997, has determined to issue its Electric Facilities Revenue Bonds
(Long Island Lighting Company Project), bearing the series designation set forth
on the first page of this  Participation  Agreement  in an  aggregate  principal
amount of $24,880,000  (the "Bonds"),  for the purpose of financing a portion of
such costs and  expenses,  all such Bonds to be issued  under and  secured by an
Indenture of Trust  relating to the Bonds dated as of December 1, 1997,  between
the Authority and The Chase Manhattan Bank, as Trustee (the "Indenture");

            NOW, THEREFORE,  for and in consideration of the premises and of the
mutual  covenants and agreements  hereinafter  set forth, it is hereby agreed by
and between the parties as follows:


                              

<PAGE>


                                                                        


                                   ARTICLE I

              DEFINITIONS; RULES OF CONSTRUCTION; EFFECTIVE DATE
                    AND DURATION OF PARTICIPATION AGREEMENT

     Section 1.01.  DEFINITIONS.  The terms used in this Participation Agreement
which are  defined in Section  1.01 of the  Indenture  shall have the  meanings,
respectively,  herein,  which such terms are given in said  Section  1.01 of the
Indenture.

     Section 1.02. RULES OF CONSTRUCTION.  Unless the context clearly  indicates
to the contrary,  the  following  rules shall apply to the  construction  of the
Participation Agreement:

          (a) Words  importing  the  singular  number  shall  include the plural
     number and vice versa;

          (b) All  references  herein to  particular  articles or  sections  are
     references to articles or sections of the Participation Agreement;

          (c) The  captions and headings  herein are solely for  convenience  of
     reference and shall not  constitute a part of the  Participation  Agreement
     nor shall they affect its meaning, construction or effect;

            (d) The terms "hereby," "hereof,"  "hereto,"  "herein,"  "hereunder"
      and any similar terms, as used in the  Participation  Agreement,  refer to
      the  Participation  Agreement in its  entirety  and not to the  particular
      article or section of the  Participation  Agreement  in which they appear,
      and the term  "hereafter"  means after,  and the term  "heretofore"  means
      before, the date of the Participation Agreement; and

            (e) In the event that there is any conflict  between the  provisions
      of the Participation Agreement and those of the Indenture,  the provisions
      of the Indenture shall govern the disposition of such conflict.

            Section 1.03. EFFECTIVE DATE OF PARTICIPATION AGREEMENT; DURATION OF
PARTICIPATION  AGREEMENT.  This  Participation  Agreement shall become effective
upon its  execution and  delivery,  and shall  continue in full force and effect
until the principal  of, and premium,  if any, and interest on, the Company Note
and Bonds have been fully paid (or  provision for their payment has been made in
accordance  with the  provisions  of the  Indenture)  and all sums to which  the
Authority or the Trustee are entitled hereunder have been fully paid.

<PAGE>

                                  ARTICLE II

                                REPRESENTATIONS

            Section 2.01.  REPRESENTATIONS AND WARRANTIES BY THE AUTHORITY.  The
Authority represents and warrants as follows:

          (a) The  Authority is a body  corporate  and politic,  constituting  a
     public benefit corporation,  established and existing under the laws of the
     State of New York;

          (b) The  Authority has full power and authority to execute and deliver
     this  Participation   Agreement,  the  Indenture  and  the  Tax  Regulatory
     Agreement  and to  consummate  the  transactions  contemplated  hereby  and
     thereby and to perform its obligations hereunder and thereunder;

          (c) The Authority is not in default under any of the provisions of the
     laws of the State of New York  which  would  affect  its  existence  or its
     powers referred to in the preceding paragraph (b);

          (d)  The  Authority  has  determined  that  its  participation  in the
     financing of the Project, as contemplated by this Participation  Agreement,
     is in the public interest;

          (e) The  Authority has duly  authorized  the execution and delivery of
     this  Participation   Agreement,  the  Indenture  and  the  Tax  Regulatory
     Agreement and the execution and delivery of the other documents  incidental
     to  this  transaction,  and all  necessary  authorizations  therefor  or in
     connection  with  the  performance  by the  Authority  of  its  obligations
     hereunder  or  thereunder  have  been  obtained  and are in full  force and
     effect; and

          (f) The execution and delivery by the Authority of this  Participation
     Agreement,   the  Indenture  and  the  Tax  Regulatory  Agreement  and  the
     consummation of the transactions  herein or therein  contemplated  will not
     violate  any  indenture,  mortgage,  loan  agreement  or other  contract or
     instrument to which the Authority is a party or by which it is bound, or to
     the  best  of the  Authority's  knowledge,  any  judgment,  decree,  order,
     statute, rule or regulation applicable to the Authority.

            Section 2.02.  REPRESENTATIONS  AND  WARRANTIES BY THE COMPANY.  The
Company represents and warrants as follows:

<PAGE>


          (a)  The  Company  is a  corporation  duly  incorporated  and in  good
     standing  under the laws of the State of New York,  is duly  qualified  and
     authorized  to engage in business  as a public  utility in the State of New
     York,  has power to enter  into,  execute and  deliver  this  Participation
     Agreement,  the Tax  Regulatory  Agreement  and the Company  Note by proper
     corporate  action and has duly  authorized the execution and delivery by it
     of this  Participation  Agreement,  the Tax  Regulatory  Agreement  and the
     Company Note;

          (b) The  execution  and delivery by the Company of this  Participation
     Agreement,  the Tax  Regulatory  Agreement  and the  Company  Note  and the
     consummation of the transactions  herein  contemplated do not conflict with
     or constitute a breach of or a default under the Company's  Certificate  of
     Incorporation,  By-Laws or any indenture, mortgage, loan agreement or other
     contract  or  instrument  to which the Company is a party or by which it is
     bound,  or to the best of the Company's  knowledge,  any judgment,  decree,
     order, statute, rule or regulation applicable to the Company;

          (c) This Participation Agreement, the Tax Regulatory Agreement and the
     Company  Note  constitute  valid and  legally  binding  obligations  of the
     Company,   enforceable   against  the  Company  in  accordance  with  their
     respective  terms,  except as  enforcement  may be  limited  by  applicable
     bankruptcy, insolvency, moratorium,  reorganization or other laws, judicial
     decisions or principles of equity  relating to or affecting the enforcement
     of creditors' rights or contractual obligations generally;

          (d) The  execution  and delivery by the Company of this  Participation
     Agreement  and the Company Note in the manner and for the  purposes  herein
     set forth  have  been duly  authorized  by an order of the  Public  Service
     Commission of the State of New York;

          (e) No additional authorizations for or approvals of the execution and
     delivery by the Company of this Participation Agreement, the Tax Regulatory
     Agreement  and the  Company  Note need be obtained by the Company or if any
     such authorization or approval is necessary it has been obtained; and

          (f) The representations of the Company set forth in the Tax Regulatory
     Agreement  are hereby  incorporated  by reference as though fully set forth
     herein.


                           
<PAGE>


                                  ARTICLE III

                         CONSTRUCTION OF THE PROJECT;
                               ISSUANCE OF BONDS

            Section  3.01.  CONSTRUCTION  OF THE  PROJECT.  1. The Company  will
construct and complete or cause  construction and completion of the Project with
reasonable  dispatch and in  accordance  with the Company's  construction  plans
therefor.  The Project  shall belong to and be the  property of the Company.  In
order to effectuate the purposes of this  Participation  Agreement,  the Company
will do or cause to be done all things  requisite or proper for the construction
of the Project and the  fulfillment of the obligations of the Company under this
Participation Agreement.

            2.   Notwithstanding  any  other  provision  of  this  Participation
Agreement  to the  contrary,  the Company  shall not be required to complete the
construction  of any  component  of the Project with respect to which funds have
not been disbursed from the Project Fund if in the Company's  business  judgment
it is not necessary or advisable to do so, provided that failure to complete the
construction of such component will not affect the character or intended purpose
of any other  component of such Project and provided  further that the estimated
Cost of  Construction  of the  components of the Project yet to be completed (as
estimated  by the  Company  at the  time  it  determines  not  to  complete  any
component)  is at least equal to the amount of moneys  remaining  in the Project
Fund.

            Notwithstanding any other provision of this Participation  Agreement
to the contrary,  the Company shall not be required to complete the construction
of any component of the Project if in the Company's  business judgment it is not
necessary  or  advisable  to do so and the Company  shall have  delivered to the
Authority an opinion of Bond Counsel to the effect that failure to complete such
component of such Project will not  adversely  affect the  qualification  of any
other  component of such Project for  financing  under the Act or the  exclusion
from gross income for Federal income tax purposes of interest on the Bonds.

            Section 3.02. SALE OF BONDS AND DEPOSIT OF PROCEEDS; LIABILITY UNDER
BONDS.  1. In order to  provide  funds for  payment  of a portion of the Cost of
Construction  of the Project,  the Authority,  as soon as practicable  after the
execution of this Participation Agreement will issue, sell and deliver the Bonds
to the  initial  purchasers  thereof,  all  pursuant  to and as  provided in the
Purchase  Contract for the Bonds among the Authority,  the Company,  J.P. Morgan
Securities  Inc.,  Lehman  Brothers  Inc.,  Merrill Lynch & Co., and M.R. Beal &
Company  and will  deposit  the  proceeds  of such  sale of the  Bonds  with the
Trustee, as follows:  (i) in the Bond Fund, a sum equal to the accrued interest,
if any, paid by the initial purchasers of the Bonds and (ii) in the Construction
Account of the Project  Fund,  the balance of the  proceeds  received  from such
sale.

<PAGE>



            2. The Bonds shall not be general obligations of the Authority,  and
shall not constitute an indebtedness  of, or a charge against the general credit
of, the Authority or give rise to any pecuniary liability of the Authority.  The
liability  of the  Authority  under the Bonds shall be  enforceable  only to the
extent provided in the Indenture, and the Bonds shall be payable solely from the
Company  Note  Payments,  funds  drawn  under the Letter of Credit and any other
funds held by the Trustee  under the  Indenture  and available for such payment.
The Bonds  shall  not be a debt of the  State of New York,  and the State of New
York shall not be liable thereon.

            Section  3.03.  DISBURSEMENTS  FROM PROJECT FUND AND REBATE FUND. 1.
The Authority has, in the Indenture, authorized and directed the Trustee to make
payments from the Project Fund, in accordance with and subject to the provisions
of Section 5.03 of the Indenture, to pay the Cost of Construction of the Project
upon receipt from time to time of requisitions  signed by an Authorized  Company
Representative,  stating with respect to each payment to be made for the Project
the information required by Section 5.03 of the Indenture.

            The Company  will cause such  requisitions  to be  submitted  to the
Trustee  as may be  necessary  to effect  payments  out of the  Project  Fund in
accordance with the provisions of the Indenture.  Concurrently with the delivery
by the Company of each  requisition to the Trustee,  the Company will deliver to
the  Authority  a copy of such  requisition  and any  attachments  thereto.  The
Authority  and the Trustee may rely on the  Company as to the  completeness  and
accuracy of all statements in such  requisition,  and the Company will indemnify
and save harmless the  Authority and the Trustee from any liability  incurred in
connection  with  any  requisition  so  delivered  and the  payment  of funds in
reliance thereon.

            2. All moneys  remaining in the Project  Fund after the  certificate
referred to in Section 5.05 of the Indenture is furnished  shall, at the written
direction of an Authorized Company Representative, be applied in accordance with
Section 5.06 of the Indenture.

            Section 3.04. REVISION OF CONSTRUCTION PLANS. The Company may revise
the  construction  plans  for the  Project  at any time  and from  time to time;
provided,  however,  that no such revision shall be made prior to the Completion
Date with respect to such Project  which would  render the  description  of such
Project  inaccurate  in any  material  respect,  except in  accordance  with the
following procedure:

            (a) Prior to any such  revision  the  Company  shall  deliver to the
      Trustee and the  Authority  (1) a  certificate  of an  Authorized  Company
      Representative, setting forth the text of the change in the description of
      such Project which would be necessary to reflect  accurately  the proposed
      revision in plans and specifications, and certifying that, notwithstanding
      such  revision,  such Project will still be designed to serve the purposes
      which  would  have been  served by such  Project  in the  absence  of such

<PAGE>


      revision,  and (2) an opinion of Bond Counsel  that such  revision of such
      Project  description  and the  expenditure of moneys from the Project Fund
      under the provisions of the Indenture to pay the Cost of  Construction  of
      such Project in accordance  with the revised  description  of such Project
      will not  impair  the  exclusion  of  interest  on any of the  Bonds  then
      outstanding from gross income for Federal income tax purposes.

            (b) Ten (10) days after the receipt by the Authority and the Trustee
      of the  certificate and opinion  referred to in paragraph (a) above,  such
      Project  description  shall be deemed amended to include such revision for
      all purposes of this Participation  Agreement and the Indenture.  Upon the
      request of either  party or the  Trustee,  the  Authority  and the Company
      shall enter into an appropriate instrument reflecting such amendment.

            Section  3.05.  CERTIFICATION  OF  COMPLETION  OF PROJECT.  When the
Project  has  been  completed  (except  for  components  that  the  Company  has
determined not to complete in accordance  with Section 3.01),  the Company shall
promptly deliver to the Trustee and the Authority a certificate of an Authorized
Company  Representative  to the effect that, as of a specified date, the Project
has been completed  (except as aforesaid).  Such  certificate  shall specify the
components  of the  Project,  if any, the  completion  of which has been excused
pursuant to Section 3.01.  The  certificate  delivered  pursuant to this Section
3.05 shall also contain an appropriate  direction to the Trustee with respect to
any amount in the Project Fund which is to be retained or thereupon  disposed of
as provided  in Section  5.06 of the  Indenture.  The Trustee may rely as to the
accuracy and completeness of all statements in such certificate.

            Notwithstanding  the foregoing,  such certificate shall be given and
may state that it is given without prejudice to any rights against third parties
which exist at the date thereof or which may subsequently come into being.

            Section  3.06.  PAYMENT OF COST OF  CONSTRUCTION  OF THE  PROJECT IN
EVENT  PROJECT  FUND  INADEQUATE.  If the moneys in the Project  Fund  available
therefor shall not be sufficient to pay the Cost of  Construction of the Project
in full  (whether due to investment  losses or  otherwise),  the Company  shall,
subject to the provisions of Section 3.01, complete the Project and pay (whether
through  financing or  otherwise)  all that portion of the Cost of  Construction
thereof in excess of the moneys  available  therefor  in the Project  Fund.  The
Authority does not make any warranty, either express or implied, that the moneys
which will be paid into the Project Fund will be  sufficient  to pay the Cost of
Construction of the Project. If the Company shall pay any portion of the Cost of
Construction of the Project  pursuant to the provisions of this Section,  except
to the  extent  it may  submit  requisitions  pursuant  to  Section  5.03 of the
Indenture,  it shall not be  entitled  to any  reimbursement  therefor  from the
Authority,  the  Trustee  or the  owners  of any of the  Bonds,  nor shall it be
entitled to any  diminution in or  postponement  of the payments  required to be
paid by the Company  pursuant  to this  Participation  Agreement  or the Company
Note.

<PAGE>


            Section 3.07 NO INTEREST IN PROJECT CONFERRED. Neither the Authority
nor the Trustee  shall be  entitled to any  interest in the Project by reason of
the advance of Bond proceeds pursuant to this Participation Agreement.

            Section 3.08 OPERATION,  MAINTENANCE  AND REPAIR.  The Authority and
the Company  recognize that the Project will constitute  integrated  portions of
the electric energy and production  facilities of the Company and that it is not
feasible to administer the Project separately from such facilities.  The Company
shall operate the Project (with such changes,  improvements  or additions as the
Company may deem desirable) as part of such facilities for the joint useful life
of the Project and such  facilities and shall maintain and repair the Project in
conformity  with the Company's  normal  maintenance and repair programs for such
facilities  provided  that the  Company  shall have no  obligation  to  operate,
maintain  or  repair  any  element  or  item  of  the  Project  the   operation,
maintenance,  or repair of which becomes  uneconomic  to the Company  because of
damage or  destruction  or  obsolescence  (including  physical,  functional  and
economic  obsolescence),  or change in government standards and regulations,  or
the  termination of the operation of the facilities to which the element or item
of the Project is an adjunct;  and  provided  further  that,  in any event,  the
Company is proceeding in good faith to maintain the  availability of the Project
for use as an authorized project under the Act.

            Section 3.09 INVESTMENT OF MONEYS IN FUNDS UNDER THE INDENTURE.  Any
moneys held as a part of any fund created under the Indenture  shall be invested
or  reinvested by the Trustee as provided in Article VII of the  Indenture.  Any
such  investment  shall be consistent  with the provisions of the Tax Regulatory
Agreement.

            Section 3.10  AGREEMENT  NOT TO EXERCISE  OPTION TO CONVERT TO FIXED
RATE ABSENT SPECIFIED RATING. The Company agrees not to direct that a Fixed Rate
become effective pursuant to Section 2.04(b) of the Indenture unless the Company
shall have  delivered to the Authority  evidence  satisfactory  to the Authority
that upon  conversion  to a Fixed Rate the Bonds are  expected to be rated in at
least the third highest rating  category of Moody's or S&P (currently "A" in the
case of Moody's and "A" in the case of S&P).

            Section 3.11 SECURITIES  DEPOSITORY.  The Company  acknowledges that
the Authority and the Trustee, at the request of the Company,  have arranged for
the initial deposit of the Bonds with The Depository Trust Company ("DTC") which
will act as  Securities  Depository  in order to  effectuate  a  book-entry-only
system  and  that  this  system  may  be  discontinued   or,  if   discontinued,
reinstituted (with DTC or another Securities  Depository) in accordance with the
Indenture. The Company agrees to take all actions necessary, and to refrain from
taking  actions  contrary  to  the  effectuation  of  a  book-entry-only  system
established  pursuant to the Indenture and any arrangements among the Authority,
the Trustee and any Securities  Depository.  The Authority  shall not enter into
any  written  agreements  with  a  Securities  Depository  without  receipt  and
acceptance of such agreements by the Company.

<PAGE>

                                  ARTICLE IV

                  COMPANY NOTE AND PAYMENTS; LETTER OF CREDIT

            Section 4.01  EXECUTION AND DELIVERY OF COMPANY NOTE TO TRUSTEE.  1.
Concurrently  with  the  authentication  by  the  Trustee  and  delivery  by the
Authority of the Bonds and in order to evidence the obligation of the Company to
the  Authority to repay the advance of the proceeds of the Bonds,  the Authority
hereby  directs the  Company,  and the  Company  hereby  agrees,  to execute and
deliver to the  Trustee  its  Company  Note and to duly and  punctually  pay the
principal of,  premium,  if any, and interest on, the Company Note at the place,
the  times  and in the  manner  provided  therein.  The  Company  Note  shall be
substantially in the form attached hereto as EXHIBIT C.

            2. The  obligation  of the Company to make any payment of  principal
of, and  premium,  if any,  and  interest  on, the Company  Note shall be deemed
satisfied and discharged to the extent of the corresponding  payment made by the
Bank under the Letter of Credit.

            Section 4.02  REDEMPTION OF BONDS.  Whenever Bonds are redeemable in
whole or in part, the Authority will redeem the same at the written direction of
an Authorized  Company  Representative  given in accordance with Section 8.01 of
the Indenture.

            Section 4.03  OBLIGATION  FOR PAYMENT  ABSOLUTE;  DEFICIENCIES.  The
Company  agrees  that its  obligation  to make the  Company  Note  Payments  and
payments  under  Section  4.11 at the times and in the  amounts  provided in the
Company Note and this Participation Agreement shall be absolute, irrevocable and
unconditional  and shall not be subject to any defense  (other than  payment) or
any right of set-off,  counterclaim  or  recoupment  for any reason,  including,
without  limitation,  the  unenforceability  (because  of  judicial  decision or
otherwise) or the  impossibility of performance of the Company Note obligations,
or any breach by the Authority of any  obligation to the Company,  whether under
this Participation  Agreement or otherwise,  or inaccuracy of any representation
by the  Authority to the Company  under this  Participation  Agreement or in any
other  instrument,  or any  indebtedness  or  liability at any time owing to the
Company  by the  Authority,  or any  failure to  complete  the  Project,  or the
destruction by fire or other casualty of the Project or any portion thereof,  or
the taking of title  thereto or the use thereof by the  exercise of the power of
eminent  domain.  If for any reason Company Note  Payments,  together with other
moneys held by the Trustee and then available for such purpose (including moneys
paid by the Bank under the Letter of Credit),  would not be  sufficient  to make
the  corresponding  payments of principal of, and premium,  if any, and interest
on, the Bonds when such  payments  are due,  the  Company  will pay the  amounts
required  from time to time to make up any such  deficiency.  If for any  reason
payments under Section 4.11,  together with other moneys held by the Trustee and
the Tender Agent and then available for such purpose  (including  moneys paid by

<PAGE>


the Bank  under the  Letter of  Credit),  would  not be  sufficient  to make the
corresponding payments of the purchase price of the Bonds when such payments are
due, the Company will pay the amounts  required from time to time to make up any
such deficiency.

            Section 4.04 ADMINISTRATION FEES; EXPENSES,  ETC. In order to defray
a  portion  of  the  expenses  incurred  by  the  Authority  in  conducting  and
administering  its programs for the acquisition  and  construction of facilities
for the furnishing of  electricity,  special energy projects and the development
of advanced  technologies,  the Company  shall pay to the  Authority  an initial
Administration  Fee in the amount of $62,200 on the date of the  delivery of the
Bonds to the initial purchasers thereof and an annual  Administration Fee in the
amount of $3,250 on December 1 of each year commencing  December 1, 1998,  until
the Bonds are no longer outstanding.  In addition,  the Company shall pay to the
State of New York with respect to the Bonds a bond issuance charge in the amount
of  $87,080  on the date of  authentication  and  delivery  of the  Bonds to the
initial purchasers.

            In addition to such  Administration  Fees,  the Company  will pay or
reimburse  the  Authority  upon  its  request  for  all   reasonable   expenses,
disbursements and advances incurred or made by the Authority (including printing
costs and the reasonable  fees,  expenses and  disbursements  of its counsel and
bond counsel) in connection with the Participation Agreement, the Indenture, the
Tax  Regulatory  Agreement  or any  transaction  or  event  contemplated  by the
Participation Agreement, the Tax Regulatory Agreement or the Indenture.

            Section 4.05  COMPENSATION  OF TRUSTEE,  PAYING  AGENT,  REMARKETING
AGENTS, INDEXING AGENT AND TENDER AGENT. The Company agrees:

          (1)  to  pay to the  Trustee  from  time  to  time  upon  its  request
     reasonable  compensation  for all  services  rendered by it in any capacity
     under  the  Indenture  (which  compensation  shall  not be  limited  by any
     provision of law in regard to the  compensation  of a trustee of an express
     trust);

          (2) except as so otherwise expressly provided herein, to reimburse the
     Trustee upon its request for all  reasonable  expenses,  disbursements  and
     advances incurred by it in any capacity under the Indenture  (including the
     reasonable  compensation  and the expenses and  disbursements of its agents
     and counsel),  except any such expense,  disbursement  or advance as may be
     attributable to its negligence or bad faith;

          (3) to pay to the  Paying  Agent  from time to time upon its  request,
     reasonable  compensation  for all  services  rendered by it as Paying Agent
     under the Indenture and reimburse it for its reasonable  expenses  incurred
     under the Indenture  (including  reasonable  compensation  and expenses and
     disbursements of its agents and counsel), except any such expense as may be
     attributable to its negligence or bad faith; and


<PAGE>


          (4) to pay to  the  Remarketing  Agents,  the  Tender  Agent  and  the
     Indexing  Agent  their  reasonable  fees and  expenses as and when the same
     become due, except any such expense as may be attributable to such person's
     negligence or bad faith.

            Section  4.06  PROJECT  NOT  SECURITY  FOR  BONDS.  It is  expressly
recognized by the parties hereto that neither the Project nor any other property
of the Company will constitute any part of the security for the Bonds.

            Section 4.07 PAYMENT OF TAXES AND ASSESSMENTS;  NO LIENS OR CHARGES.
The  Company  will (a) pay,  when the same  shall  become  due,  all  taxes  and
assessments,  including  income,  profits,  property or excise taxes, if any, or
other  municipal or  governmental  charges,  imposed,  levied or assessed by the
Federal, state or any municipal government upon the Authority,  the Tender Agent
or the Trustee in respect of any payments  (other than payments made pursuant to
Sections  4.04  and  4.05)  made or to be made  pursuant  to this  Participation
Agreement  or the  Company  Note and (b) pay or cause to be  discharged,  within
sixty (60) days after the same shall  accrue,  any lien or charge  upon any such
payment made or to be made under this Participation Agreement, PROVIDED that the
Company  shall not be required to pay any such tax or  assessment so long as (i)
the Company at its expense contests,  by appropriate legal proceedings conducted
in good faith and with due diligence, the amount, validity or application of any
such tax,  assessment or charge,  (ii) such proceedings shall have the effect of
suspending the collection thereof from the Authority, the Trustee and the Tender
Agent, and (iii) the Company shall indemnify and hold the Authority, the Trustee
and the  Tender  Agent  harmless  from  any  losses,  costs,  charges,  expenses
(including  reasonable   attorneys'  fees  and  disbursements),   judgments  and
liabilities  arising  in  respect  of such tax,  assessment  or  charge  and the
nonpayment thereof.

            Section 4.08  INDEMNIFICATION OF AUTHORITY,  TRUSTEE,  TENDER AGENT,
PAYING  AGENT,  REMARKETING  AGENTS AND INDEXING  AGENT.  Any  obligation of the
Authority created by or arising out of this  Participation  Agreement shall be a
limited  obligation  of the  Authority,  payable  solely from the  Company  Note
Payments,  any payments by the Company under Section 4.11, funds drawn under the
Letter of Credit and any other funds held by the Trustee under the Indenture and
available for such payment,  and shall not  constitute an  indebtedness  of or a
charge  against the general  credit of the Authority and shall not constitute or
give rise to any  pecuniary  liability of the  Authority;  nevertheless,  if the
Authority  shall  incur any such  pecuniary  liability,  then in such  event the
Company shall indemnify and hold the Authority  harmless by reason thereof.  The
Company releases the Authority,  the Trustee,  the Paying Agent, the Remarketing
Agents, the Tender Agent and the Indexing Agent from, agrees that the Authority,
the Trustee,  the Remarketing Agents, the Tender Agent, the Paying Agent and the
Indexing  Agent shall not be liable for,  and agrees to  indemnify  and hold the
Authority,  the Trustee,  the Paying Agent, the Remarketing  Agents,  the Tender
Agent and the Indexing Agent harmless from, any liability for any loss or damage
to property or any injury to or death of any person  that may be  occasioned  by
any cause whatsoever arising out of the construction or operation of the Project
or the  financing  thereof.  The  Company  agrees  to  indemnify  and  hold  the
Authority,  its members,  officers and employees, the Trustee, the Tender Agent,
the  Remarketing  Agents,  the Paying Agent and the Indexing Agent harmless from

<PAGE>


any losses, costs,  charges,  expenses (including reasonable attorneys' fees and
disbursements),  judgments and  liabilities  incurred by it or them, as the case
may be, in  connection  with any claims  made,  any action,  suit or  proceeding
instituted or threatened,  in connection with the  transactions  contemplated by
this  Participation  Agreement  or the  Indenture so long as, in the case of the
Authority, its members,  officers and employees, it or they, as the case may be,
have  acted in good  faith to carry out the  transactions  contemplated  by this
Participation Agreement, the Remarketing Agreement or the Indenture and, except,
in the case of the Trustee,  the Tender Agent, the Paying Agent and the Indexing
Agent,  the Trustee's,  the Tender Agent's,  the Paying Agent's and the Indexing
Agent's willful misconduct or negligence.

            Section 4.09 COMPANY TO PAY ATTORNEYS'  FEES AND  DISBURSEMENTS.  If
the Company  shall default  under any of the  provisions  of this  Participation
Agreement  and the  Authority  or the  Trustee  or both  of  them  shall  employ
attorneys or incur other  expenses for the collection of payments due under this
Participation  Agreement or for the  enforcement of performance or observance of
any  obligation  or  agreement  on the  part of the  Company  contained  in this
Participation  Agreement,  the Company  will on demand  therefor  reimburse  the
reasonable  fees of such attorneys and such other  reasonable  disbursements  so
incurred.

            Section 4.10 NO ABATEMENT OF ADMINISTRATION  FEES AND OTHER CHARGES.
It is understood and agreed that so long as any Bonds are outstanding  under the
Indenture,  Administration  Fees and  other  charges  payable  to the  Authority
pursuant to this  Participation  Agreement  shall  continue to be payable at the
times and in the amounts herein  specified,  whether or not the Project,  or any
portion thereof,  shall have been destroyed by fire or other casualty,  or title
thereto or the use thereof shall have been taken by the exercise of the power of
eminent domain, and that there shall be no abatement of any such  Administration
Fees and other charges by reason thereof.

            Section  4.11.  PAYMENT TO TENDER  AGENT.  The Company shall pay, or
cause to be paid,  to the Tender Agent  amounts  equal to the amounts to be paid
pursuant  to Section  2.05 of the  Indenture  in respect of Bonds  tendered  for
purchase  or deemed to be so tendered  pursuant to the terms of Section  2.05 of
the Indenture, such amounts to be paid by the Company to the Tender Agent on the
dates such  payments  pursuant to Section 2.05 of the  Indenture are to be made;
PROVIDED,  however,  that the obligation of the Company to make any such payment
shall be reduced by the amount of any moneys  available  for such payment  under
clauses (i) through  (iii) of Section  2.05(h) of the  Indenture  and  PROVIDED,
further,  that the  obligation  of the Company to make any such payment shall be
deemed satisfied and discharged to the extent of the corresponding  payment made
by the Bank under the Letter of Credit.


<PAGE>


            Section 4.12. THE LETTER OF CREDIT.  At all times on or prior to the
Fixed Rate  Conversion  Date  except  during any period  when all the Bonds then
outstanding  are held by or for the account of the  Company,  a Letter of Credit
meeting the  requirements  of this  Section  4.12 shall be in effect and, in the
event that an  Alternate  Credit  Facility is to replace an  expiring  Letter of
Credit,  the requirements of Section 6.07 of the Indenture will be fulfilled.  A
Letter of Credit shall be an obligation of a bank or banks, insurance company or
companies,  other financial  institution or institutions,  or any combination of
the  foregoing,  entitling  the Trustee to draw up to (a) an amount equal to the
principal  amount of the Bonds then  outstanding to pay (i) the principal of the
Bonds when due, or (ii) the portion of the Purchase Price of Bonds corresponding
to  principal,  plus (b) an amount  equal to 210 days'  accrued  interest on the
Bonds then outstanding  computed at the maximum rate specified in such Letter of
Credit,  which shall in no event exceed fifteen percent (15%), on the basis of a
360-day year. A Letter of Credit shall expire on the earliest  occurrence of (1)
its stated expiration date, which shall be no earlier than one (1) day after the
next  succeeding  Optional Tender Date or Purchase Date not less than six months
from its effective date, (2) when all available amounts have been drawn, (3) the
second  business day following the effective  date of the Fixed Rate  Conversion
Date, (4) on the effective date of any Alternate  Credit  Facility that replaces
the then effective Letter of Credit, (5) the earliest date on which no Bonds are
outstanding and (6) twelve (12) days after the Trustee  receives notice from the
Bank that it is  terminating  the Letter of Credit and  directing the Trustee to
cause a mandatory tender and purchase of or to accelerate the Bonds. A Letter of
Credit  shall  provide that when there is a drawing to pay interest on scheduled
payment  dates,  if the Trustee  does not receive  from the Bank by the close of
business  on a day  specified  therein,  which shall not be later than the tenth
(10th) day following such a drawing in respect of interest,  notice by telephone
confirmed  in writing  (or by other  means  acceptable  to the  Trustee  and the
Authority) that the amount  available to be drawn has not been reinstated by the
amount of the drawing for interest  (except on principal of a Bond being paid or
purchased and cancelled), the amount available to be drawn will automatically be
reinstated by the amount of the drawing on such specified day.



                              

<PAGE>


                                   ARTICLE V

                               SPECIAL COVENANTS

            Section  5.01.  NO  WARRANTY  AS  TO  SUITABILITY  OF  PROJECT.  The
Authority makes no warranty,  either express or implied,  with respect to actual
or designed  capacity of the Project,  as to the  suitability of the Project for
the purposes specified in this Participation  Agreement,  as to the condition of
the Project,  or as to the suitability of the Project for the Company's purposes
or needs.

            Section 5.02.  AUTHORITY'S  RIGHTS TO INSPECT  PROJECT AND PLANS AND
SPECIFICATIONS.  The Authority  shall have the right at all reasonable  times to
examine and inspect the Project  and, to the extent  reasonably  available,  the
plans  and  specifications  therefor  and such  other  information  and  records
relating  to the  Project  as may  be  reasonably  necessary  to  establish  the
qualification  of the Project for financing  under the Act and  compliance  with
this Participation Agreement.

            Section  5.03.  COMPANY  CONSENT  TO  AMENDMENT  OF  INDENTURE.  The
Authority  shall not enter into any indenture  supplemental  to or amendatory of
the  Indenture  without  the prior  consent  of the  Company as  evidenced  by a
certificate in writing signed by an Authorized Company Representative.

            Section 5.04.  TAX  COVENANT.  Notwithstanding  any other  provision
hereof,  the Company  covenants and agrees that it will not take or authorize or
permit any action to be taken with  respect to the  Project,  or the proceeds of
Bonds, including any amounts treated as proceeds of the Bonds for any purpose of
Section  103 of the Code,  which  will  result in the loss of the  exclusion  of
interest on the Bonds from gross income for Federal  income tax  purposes  under
Section 103 of the Code  (except  for any Bond during any period  while any such
Bond is held by a person  referred  to in  Section  147(a)  of the  Code).  This
provision  shall  control  in case of  conflict  or  ambiguity  with  any  other
provision of this Participation  Agreement.  In furtherance of such covenant and
agreement,  the Authority  and the Company have entered into the Tax  Regulatory
Agreement and the Company  hereby agrees to comply with the  provisions  thereof
insofar as the Tax Regulatory Agreement relates to the Bonds.

            Section  5.05.  COMPANY  AGREES TO  PERFORM  OBLIGATIONS  IMPOSED BY
INDENTURE.  The Company agrees to perform such obligations as may be required of
it by the provisions of the Indenture.

            Section  5.06.  MAINTENANCE  OF OFFICE OR  AGENCY  OF  COMPANY.  The
Company will at all times keep in Hicksville,  New York, or another  location in
the State of New York an office or agency where notices and demands with respect
to the Company Note and this  Participation  Agreement may be served,  and will,
from time to time,  give written  notice to the Trustee and the Authority of the
location of such office or agency; and, in case the Company shall fail so to do,
notices  may be served and demands  may be made at the  principal  office of the
Trustee.

<PAGE>



            Section 5.07. FURTHER  ASSURANCES.  The Company will make,  execute,
acknowledge  and  deliver,  or  cause  to be made,  executed,  acknowledged  and
delivered,  to the  Trustee  any and  all  such  further  acts,  instruments  or
assurances as may be reasonably  required for effectuating the intention of this
Participation Agreement and the Company Note.

            Section 5.08.  PAYMENT OF TAXES AND OTHER CHARGES.  The Company will
promptly  pay and  discharge,  or cause to be paid and  discharged,  as the same
become due and  payable,  any and all taxes,  rates,  levies,  assessments,  and
governmental  liens,  claims and other charges at any time  lawfully  imposed or
accruing  upon or against the Company or upon or against its  properties  or any
part thereof, or upon the income derived therefrom or from the operations of the
Company, provided that the Company shall not be required to pay or discharge, or
cause  to  be  paid  or  discharged,  any  such  obligation,  tax,  rate,  levy,
assessment,  lien,  claim  or  other  charge  so long as in  good  faith  and by
appropriate legal proceedings the validity thereof shall be contested.

            Section 5.09.  MAINTENANCE  OF  PROPERTIES.  The Company will at all
times make or cause to be made such  expenditures  for repairs,  maintenance and
renewals, or otherwise, as shall be necessary to maintain its properties in good
repair,  working  order and  condition as an operating  system or systems to the
extent necessary to meet the Company's  obligations under the Public Service Law
of the State of New York and the  Participation  Agreement;  provided,  however,
that  nothing  herein  contained  shall be construed to prevent the Company from
ceasing to operate any of its plants or any other property,  if, in the judgment
of the  Company,  it is  advisable  not to  operate  the same and the  operation
thereof shall not be essential to the maintenance and continued operation of the
rest of the operating  system or systems,  and the security  under the Indenture
afforded  by  the  Company  Note  will  not  be  substantially  impaired  by the
termination  of such  operation.  It is  understood  that the Company has agreed
pursuant to a settlement  with the State of New York,  approved by the Company's
shareholders  on June 28,  1989,  not to  operate  the  Shoreham  Nuclear  Power
Station.

            Section 5.10.  INSURANCE.  The Company will keep or cause to be kept
such  parts of its  properties  as,  in the  opinion  of an  Authorized  Company
Representative  (as  defined  in the  Indenture  and  who  shall  be a  licensed
professional  engineer),  are of an insurable  nature,  insured  against loss or
damage by fire or other  casualties,  the risk of which is  customarily  insured
against by companies  similarly  situated and operating like properties,  to the
extent that property of similar character is customarily insured against by such
companies,  either (a) by  reputable  insurers or (b) in whole or in part in the
form of  reserves  or of one or more  insurance  funds  created by the  Company,
whether  alone or with other  corporations,  provided that the plan of each such
insurance fund shall have been or shall be approved by the Board of Directors of
the Company.

<PAGE>


            Section 5.11.  PROPER BOOKS OF RECORD AND ACCOUNT.  The Company will
at all times keep or cause to be kept  proper  books of record and  account,  in
which full,  true and correct entry will be made of all  dealings,  business and
affairs of the  Company,  including  proper and  complete  entries to capital or
property accounts covering property worn out,  obsolete,  abandoned or sold, all
in  accordance  with the  requirements  of any system of  accounting  or keeping
accounts  or  the  rules,  regulations  or  orders  prescribed  by a  regulatory
commission  with  jurisdiction  over the rates of the Company  giving rise to at
least fifty-one  percent (51%) of the Company's gross revenues,  or if there are
no such  requirements or rules,  regulations or orders,  then in compliance with
generally accepted accounting principles.

            Section 5.12.  CERTIFICATES  AS TO DEFAULTS.  The Company shall file
with the Trustee, on or before April 30 of each year, a certificate signed by an
Authorized Company Representative (as defined in the Indenture) stating that, to
the best of his  knowledge,  information  and  belief,  the  Company  has  kept,
observed,  performed  and  fulfilled  each and  every one of its  covenants  and
obligations  contained in this  Participation  Agreement and in the Company Note
and, to the best of his knowledge,  information and belief, there does not exist
at the  date  of  such  certificate  any  default  by  the  Company  under  this
Participation  Agreement or any event of default hereunder or other event which,
with  notice or the lapse of time  specified  in Section  6.01,  or both,  would
become an event of default or, if any such  default or event of default or other
event shall so exist, specifying the same and the nature and status thereof.

            Section 5.13. COMPANY NOT TO PERMIT HINDRANCE OR DELAY OF PAYMENT OF
COMPANY NOTE. The Company will not  voluntarily  do, suffer or permit any act or
thing intended to hinder or delay the payment of the  indebtedness  evidenced by
the Company Note.

            Section 5.14. CORPORATE EXISTENCE,  CONSOLIDATION, MERGER OR SALE OF
ASSETS. The Company will maintain its corporate existence,  will not consolidate
with or permit itself to be merged into any other  corporation or  corporations,
or sell,  transfer  or  otherwise  dispose  of all or  substantially  all of its
properties  and assets,  except in the manner and upon the terms and  conditions
set forth in this Section 5.14.

            Nothing contained in this Participation Agreement shall prevent (and
this  Participation  Agreement shall be construed as permitting and authorizing)
any  lawful  consolidation  or  merger  of the  Company  with or into any  other
corporation  or  corporations  lawfully  authorized  to acquire  and operate the
properties of the Company,  or a series of consolidations  or mergers,  in which
the Company or its successor or successors  shall be a party, or any sale of all


<PAGE>

or  substantially  all  the  properties  of  the  Company  as an  entirety  to a
corporation  lawfully  authorized to acquire and operate the same; provided that
except as provided by Section 5.17  hereof,  upon any  consolidation,  merger or
sale, the corporation  formed by such  consolidation,  or into which such merger
may be made, or making such purchase shall execute and deliver to the Trustee an
instrument,  in form satisfactory to the Trustee, whereby such corporation shall
effectually  assume  the due and  punctual  payment  of the  principal  of,  and
premium,  if any, and  interest on, the Company Note  according to its tenor and
the due and punctual  performance and observance of all covenants and agreements
to be performed by the Company pursuant to this Participation Agreement, the Tax
Regulatory Agreement and the Company Note.

            Every such successor  corporation  shall possess,  and may exercise,
from time to time, each and every right and power  hereunder of the Company,  in
its name or otherwise; and any act, proceeding, resolution or certificate by any
of the terms of this Participation  Agreement,  the Tax Regulatory Agreement and
the Company Note  required or provided to be done,  taken and performed or made,
executed or  verified  by any board or officer of the  Company  shall and may be
done,  taken and  performed  or made,  executed or verified  with like force and
effect by the corresponding board or officer of any such successor corporation.

            If  consolidation,  merger  or sale  or  other  transfer  is made as
permitted by this Section, the provisions of this Section shall continue in full
force and effect and no further
consolidation,  merger  or sale or  other  transfer  shall  be  made  except  in
compliance with the provisions of this Section.

            Section 5.15. FINANCIAL STATEMENTS OF COMPANY. The Company agrees to
furnish the Trustee with a copy of its annual  report to  stockholders  for each
year, beginning with the year 1997, on or before March 31 of the subsequent year
or as soon thereafter as it is reasonably available.  The Company further agrees
to furnish to the Trustee, and to any owner of the Bonds if requested in writing
by such  owner,  all  financial  statements  which it sends to its  shareholders
generally.

            Section 5.16.  COMPLIANCE WITH LAWS. The Company agrees to comply in
all material respects with all applicable laws, rules and regulations and orders
of any governmental authority,  non-compliance with which would adversely affect
the  Company's  ability to perform its  obligations  hereunder  or under the Tax
Regulatory  Agreement or the Company Note,  except laws,  rules,  regulations or
orders being contested in good faith or laws,  rules,  regulations or orders for
which the Company has applied for variances or exceptions.

            Section  5.17  TRANSFER OF PROJECT AND  PARTICIPATION  AGREEMENT  TO
AFFILIATE.  The parties  acknowledge  that the Company has filed an  application
with the Federal  Energy  Regulatory  Commission  seeking,  among other  things,

<PAGE>


approval of the transfer of the Company's electric transmission and distribution
system to the Long Island Power  Authority  ("LIPA") in  connection  with LIPA's
acquisition  of the  stock of the  Company.  The  Company  currently  plans,  in
connection with such transfer,  to transfer its non-nuclear  electric generation
assets  (with the  exception  of power  supply  contracts),  its gas  assets and
certain other assets and liabilities to affiliates of the Holding Company formed
in connection with the transactions  contemplated  between the Company,  KeySpan
Energy  Corporation and the Long Island Power  Authority.  The entity  acquiring
such non-nuclear  electric  generation assets is hereinafter  referred to as the
"Generation Affiliate".

            If, as part of such  transfer  of  non-nuclear  electric  generation
assets,  the  Project  is  transferred  to the  Generation  Affiliate,  then the
Generation  Affiliate  shall assume the  obligations of the Company  pursuant to
this Participation Agreement, the Company Note, the Tax Regulatory Agreement and
all other  obligations  of the Company  relating to the Bonds.  On or after such
time of transfer,  the Company, upon satisfaction of the conditions set forth in
the  final  sentence  of this  paragraph,  shall be  released  from any  further
obligations pursuant to this Participation  Agreement, the Company Note, the Tax
Regulatory  Agreement  and the Bonds.  Upon  transfer  of  non-nuclear  electric
generation assets to the Generation Affiliate, the Generation Affiliate shall:

          1) execute and deliver to the Trustee and the Authority an instrument,
          in form  satisfactory  to the Trustee and the  Authority,  whereby the
          Generation  Affiliate  shall  effectually  assume the due and punctual
          payment of the principal of, and premium, if any, and interest on, the
          Company  Note  according  to  its  tenor  and  the  due  and  punctual
          performance  and  observance  of all  covenants  and  agreements to be
          performed by the Company pursuant to this Participation Agreement, the
          Tax Regulatory Agreement and the Company Note,

          2) provide  for the  delivery to the  Authority  and the Trustee of an
          opinion  of Bond  Counsel to the effect  that such  assumption  by the
          Generation  Affiliate  and  such  release  of  the  Company  will  not
          adversely  affect the  exclusion  of  interest on the Bonds from gross
          income for federal income tax purposes,

          3) deliver to the  Authority  and the Trustee an opinion of counsel to
          the  Generation  Affiliate  to the effect that the  assumption  of the
          performance  and  observance of all covenants and agreements set forth
          in 1) above  have  been  duly and  validly  authorized,  executed  and
          delivered  by the  Generation  Affiliate  and that  the  Participation
          Agreement,  Company Note and Tax Regulatory Agreement constitute valid
          and binding agreements of the Generation Affiliate and are enforceable
          against the Generation Affiliate in accordance with their terms and

          4) deliver such other  documents,  instruments and certificates as the
          Authority the Trustee may  reasonably  require in connection  with the
          transfer of the Project and the assumption by the Generation Affiliate
          of the  obligations  of the  Company  pursuant  to this  Participation
          Agreement,  the Company  Note,  the Tax  RegulAgreement  and all other
          obligations of the Company relating to the Bonds

<PAGE>



            Thereafter,  the Generation Affiliate shall constitute the "Company"
for all  purposes of this  Participation  Agreement  the Company  Note,  the Tax
Regulatory  Agreement and the Bonds and shall  possess,  and may exercise,  from
time to time,  each and every right and power  hereunder of the Company,  in its
name or otherwise; and any act, proceeding,  resolution or certificate by any of
the terms of this Participation  Agreement, and Tax Regulatory Agreement and the
Company  Note  required  or provided to be done,  taken and  performed  or made,
executed or  verified  by any board or officer of the  Company  shall and may be
done,  taken and  performed  or made,  executed or verified  with like force and
effect by the corresponding board or officer of the Generation  Affiliate or any
body or individual performing a similar function.

                              

<PAGE>


                                                                        


                                  ARTICLE VI

                         DEFAULTS BY COMPANY; REMEDIES

            Section 6.01. EVENTS OF DEFAULT;  ACCELERATION.  In case one or more
of the following events of default shall have occurred and be continuing:

            (a) failure by the Company to pay when due any amount required to be
paid under this  Participation  Agreement  or the Company  Note,  which  failure
causes a default in the payment when due of the interest on any of the Bonds and
continuance of such default for five (5) days; or

            (b) failure by the Company to pay when due any amount required to be
paid under this  Participation  Agreement  or the Company  Note,  which  failure
causes a default in the payment  when due of the  principal  of, or premium,  if
any, on any of the Bonds; or

            (c) failure by the Company to pay when due any amount required to be
paid under Section 4.11,  which failure causes a default in the payment when due
of any amount payable  pursuant to Section 2.05 of the Indenture and continuance
of such default for five (5) days; or

            (d)  failure on the part of the  Company to duly  observe or perform
any other of the covenants or agreements on the part of the Company contained in
this  Participation  Agreement (other than failure to pay amounts required to be
paid under Sections 4.04, 4.05, 4.08, 4.09 or 4.10) or in the Company Note for a
period  of  ninety  (90) days  after  the date on which  written  notice of such
failure,  requiring the Company to remedy the same, shall have been given to the
Company by the Authority or the Trustee; or

            (e)  an Act of Bankruptcy relating to the Company; or

            (f) the  occurrence  and  continuance  of an "event of  default"  as
defined in the Company Indenture;

          then,  and in any such event,  the Trustee,  may, and upon the written
          request  of the  owners  of at  least  twenty-five  percent  (25%)  in
          aggregate  principal  amount of the Bonds then  outstanding  shall, by
          notice in writing to the Company and provided that the default has not
          theretofore been cured, declare the Company Note to be due and payable
          immediately,  and upon any such  declaration the same shall become and
          shall be  immediately  due and  payable,  anything  contained  in this
          Participation  Agreement  or in  the  Company  Note  to  the  contrary

<PAGE>


          notwithstanding.  Any amounts  collected  by the  Trustee  pursuant to
          action taken under this  Section  6.01 shall be applied in  accordance
          with the Indenture.  In addition,  if at any time the principal of the
          Bonds shall have been  declared to be due and payable by  acceleration
          pursuant  to the  terms  of the  Indenture,  the  Company  Note  shall
          thereupon  become and be immediately due and payable,  subject to such
          declaration  with  respect to the Bonds  being  annulled  pursuant  to
          Section 10.01 of the Indenture.

            The right or obligation of the Trustee to make any such  declaration
as aforesaid,  however,  is subject to the condition  that if, at any time after
declaration,  but before all the Bonds shall have  matured by their  terms,  the
principal  of,  premium,  if any,  and interest on, the Company Note which shall
have become due and payable  otherwise than by such  declaration,  and all other
sums payable  hereunder,  except the  principal of, and interest on, the Company
Note which  shall have become due and  payable by such  declaration,  shall have
been paid or provision satisfactory to the Trustee shall have been made for such
payment,  and the  reasonable  expenses  of the Trustee and of the owners of the
Bonds  shall  have  been  paid,  including  reasonable  attorneys'  fees paid or
incurred, and all defaults hereunder and under the Bonds or under the Indenture,
except as to the payment of principal  and  interest  due and payable  solely by
reason of such declaration, shall be made good or be secured to the satisfaction
of the Trustee or provision  deemed by the Trustee to be adequate  shall be made
therefor,  then and in every  such case the owners of a  majority  in  aggregate
principal  amount  of the  Bonds  then  outstanding,  by  written  notice to the
Authority  and to the  Trustee,  may  rescind  such  declaration  and annul such
default in its entirety, or, if the Trustee shall have acted in the absence of a
written request of the owners of at least twenty-five percent (25%) in aggregate
principal  amount of the  outstanding  Bonds,  and if there  shall not have been
theretofore  delivered to the Trustee  written  direction to the contrary by the
owners of at least  twenty-five  percent (25%) in aggregate  principal amount of
the outstanding  Bonds,  then any such declaration shall IPSO FACTO be deemed to
be  rescinded  and any such  default  and its  consequences  shall IPSO FACTO be
deemed to be annulled,  but no such  rescission and annulment shall extend to or
affect any subsequent default or impair or exhaust any right or power consequent
thereon.

            In case the Trustee shall have  proceeded to enforce any right under
this Participation Agreement or the Company Note and such proceedings shall have
been  discontinued  or  abandoned  for any reason or shall have been  determined
adversely to the Trustee, then and in every such case the Company, the Authority
and the Trustee  shall be restored  respectively  to their former  positions and
rights  hereunder,  and all  rights,  remedies  and powers of the  Company,  the
Authority and the Trustee shall continue as though no such  proceedings had been
taken.
            Section 6.02.  CERTAIN  EVENTS OF DEFAULT;  AUTHORITY OR TRUSTEE MAY
TAKE CERTAIN  ACTIONS.  In case the Company shall have failed to comply with its
obligations  under Article III or under Sections 4.04, 4.08, 4.09, 4.10 or 5.16,
which event shall have continued for a period of ninety (90) days after the date
on which  written  notice of such  failure,  requiring the Company to remedy the
same, shall have been given to the Company by the Authority or the Trustee,  the
Authority  or the  Trustee may take  whatever  action at law or in equity as may
appear  necessary or  desirable  to enforce  performance  or  observance  of any

<PAGE>


obligations or agreements of the Company under said Article or Sections. In case
the Company shall have failed to comply with its obligations under Section 4.05,
which event shall have continued for a period of ninety (90) days after the date
on which  written  notice of such  failure,  requiring the Company to remedy the
same, shall have been given to the Company by the Trustee,  the Trustee may take
whatever action at law or in equity as may appear  necessary or desirable to the
Trustee to enforce performance or observance of any obligations or agreements of
the Company under said section.

            Section 6.03. JUDICIAL  PROCEEDINGS BY TRUSTEE.  Upon the occurrence
and  continuance of an event of default (as defined in Section 6.01) the Trustee
may, and upon the written request of the owners of at least twenty-five  percent
(25%) in aggregate principal amount of the Bonds then outstanding and receipt by
the Trustee of  indemnity  satisfactory  to it shall,  institute  any actions or
proceedings  at law or in equity for the  collection of any amounts then due and
unpaid on the Company  Note,  and may prosecute any such action or proceeding to
judgment  or final  decree,  and may  collect in the manner  provided by law the
moneys adjudged or decreed to be payable.


                           

<PAGE>


                                                                        


                                  ARTICLE VII

                                 MISCELLANEOUS

            Section 7.01.  DISPOSITION  OF AMOUNTS  AFTER PAYMENT OF BONDS.  Any
amounts determined by the Trustee to be remaining in the funds created under the
Indenture  after payment in full, or provision for payment in full, of principal
of, and premium,  if any, and interest on, all of the Bonds,  in accordance with
the  provisions  of the  Indenture,  and  payment of all the fees,  charges  and
expenses of the Authority,  the Trustee,  the Tender Agent,  the Indexing Agent,
the Remarketing Agents and the Paying Agent in accordance with the Indenture and
this  Participation  Agreement and any amounts required to be paid to the United
States of America pursuant to the Tax Regulatory Agreement, shall be paid to the
Bank;  provided,  however,  that on or after the Fixed Rate  Conversion Date and
solely with respect to moneys not resulting  from a draw on the Letter of Credit
and not constituting remarketing proceeds, such amounts that would be payable to
the Bank  pursuant to this Section 7.01 shall be paid to the Company if the Bank
has been paid in full under the Reimbursement Agreement.

            Section 7.02. NOTICES. All notices, certificates,  requests or other
communications between the Authority, the Company and the Trustee required to be
given  under this  Participation  Agreement  or under the  Indenture  (except as
otherwise  provided  therein)  shall be  sufficiently  given and shall be deemed
given when delivered or mailed by first class mail,  postage prepaid,  addressed
as follows if to the Authority,  at Corporate Plaza West, 286 Washington  Avenue
Extension,  Albany, New York 12203, Attention:  President; if to the Company, at
175 East Old Country Road, Hicksville, New York 11801, Attention: Vice President
and Treasurer;  and if to the Trustee,  at 450 West 33rd Street, 15th Floor, New
York, New York 10001 Attention:  Corporate Trustee Administration Department and
if to the  Tender  Agent,  Remarketing  Agents  or  the  Indexing  Agent  to the
addresses  set forth for such  persons  in  Section  16.05 of the  Indenture.  A
duplicate copy of each notice, certificate, request or other communication given
hereunder to the  Authority,  the Company or the Trustee  shall also be given to
the others.  The  Company,  the  Authority  and the Trustee may, by notice given
hereunder,  designate  any further or different  addresses  to which  subsequent
notices, certificates, requests or other communications shall be sent.

            Section 7.03. SUCCESSORS AND ASSIGNS.  This Participation  Agreement
shall  inure to the  benefit of and shall be  binding  upon the  Authority,  the
Company, the Trustee, the Bank and their respective successors and assigns.

            Section 7.04. REFERENCES TO THE BANK. After establishment of a Fixed
Rate for the Bonds and upon  receipt by the Trustee of notice from the Bank that
all amounts payable to the Bank with respect to draws under the Letter of Credit
have been received,  all references in this Participation  Agreement to the Bank
shall be ineffective.

<PAGE>


            Section   7.05.   AMENDMENT   OF   PARTICIPATION   AGREEMENT.   This
Participation  Agreement  may not be amended  except by an instrument in writing
signed by the parties  and, if such  amendment  occurs after the issuance of the
Bonds,  upon  compliance  with the  provisions  of Sections 4.01 and 4.02 of the
Indenture.

            Section 7.06.  ASSIGNMENT BY AUTHORITY.  The Authority  shall assign
its rights under and interest in this Participation Agreement (except the rights
and interest of the Authority under Article III and Sections 4.04,  4.08,  4.09,
4.10 and 5.16 and insofar as the  obligations  of the Company under Section 4.07
relate to taxes and assessments  imposed upon the Authority and not the Trustee,
Section 4.07 thereof), subject to the provisions of this Participation Agreement
relating to the amendment thereof, to the Trustee pursuant to the Indenture,  as
security for payment of the principal of, and premium,  if any, and interest on,
the Bonds.  In addition,  the Trustee shall have the same power as the Authority
to enforce  from time to time the rights of the  Authority  set forth in Article
III and Section 5.16, subject to the provisions of this Participation  Agreement
relating to the amendment  hereof.  Except as provided in this Section 7.06, the
Authority will not sell,  assign,  transfer,  convey or otherwise dispose of its
interest in this  Participation  Agreement during the term of this Participation
Agreement.

            Section  7.07.   PARTICIPATION   AGREEMENT   SUPERSEDES   ANY  PRIOR
AGREEMENTS.  This Participation  Agreement supersedes any other prior agreements
or  understandings,  written or oral,  between the parties  with  respect to the
transactions contemplated hereby.

            Section  7.08.  COUNTERPARTS.  This  Participation  Agreement may be
executed  in any  number of  counterparts,  each of which when so  executed  and
delivered shall be an original,  but such counterparts shall together constitute
but one and the same Participation Agreement.

            Section 7.09.  SEVERABILITY.  If any clause, provision or section of
this  Participation  Agreement is held illegal,  invalid or unenforceable by any
court or administrative  body, such  Participation  Agreement shall be construed
and enforced as if such illegal or invalid or unenforceable clause, provision or
section had not been  contained  in this  Participation  Agreement.  In case any
agreement or obligation contained in this Participation  Agreement shall be held
to be in violation of law, then such agreement or obligation  shall be deemed to
be the agreement or obligation of the Authority or the Company,  as the case may
be, to the full extent permitted by law.

<PAGE>



            SECTION  7.10.  NEW YORK LAW TO GOVERN.  THE LAW OF THE STATE OF NEW
YORK SHALL GOVERN THE CONSTRUCTION OF THIS PARTICIPATION AGREEMENT.

            IN  WITNESS   WHEREOF,   the   parties   hereto   have  caused  this
Participation Agreement to be duly executed as of the day and year first written
above.

                                          NEW YORK STATE ENERGY
                                           RESEARCH AND DEVELOPMENT
                                            AUTHORITY



                                        By /s/ F. William Valentino, Jr.
                                        --------------------------------
(SEAL)                                               President

ATTEST:


/s/ Howard A. Jack
------------------
Vice President and Secretary

                                         LONG ISLAND LIGHTING COMPANY



                                         By /s/ Theodore A. Babcock
                                           --------------------------
(SEAL)                                   Vice President and Treasurer

ATTEST:


/s/ Stephen W. McCaffrey
------------------------
Of Counsel

<PAGE>



                                   EXHIBIT A


                     (To Participation Agreement dated as
                    of December 1, 1997, between New York
                    State Energy Research and Development
                 Authority and Long Island Lighting Company)


                      DESCRIPTION OF ELECTRIC FACILITIES



            The Project will consist of the following facilities which are to be
acquired,  constructed  and installed by the Company (as such term is defined in
the Participation Agreement):

1.    Production Facilities;

2.    Certain Common Facilities.

            All such  facilities are as further  described in the Tax Regulatory
Agreement  between the  Authority  and the Company dated the date of the initial
delivery of the Bonds.

            The Project shall also include (i) such  instrumentation,  controls,
structures and all other facilities,  equipment,  devices and the like necessary
to  support  the  facilities   herein   described,   (ii)  such  necessary  land
improvements,  and (iii) subject to Section 3.04 of the Participation Agreement,
such additional or substituted  facilities for the furnishing of electric energy
which,  because of changes in technology,  environmental  standard,  cost or the
like, the Company determines shall be added or substituted for said facilities.


                             
                                     A-1

<PAGE>



                                   EXHIBIT B


                     (To Participation Agreement dated as
                    of December 1, 1997, between New York
                    State Energy Research and Development
                 Authority and Long Island Lighting Company)


                        DESCRIPTION OF OTHER FACILITIES



            Any portion of the  Electric  Facilities  described  in Exhibit A as
shall have been  placed in  service  more than one year prior to the date of the
original issuance and delivery of the Bonds.


                             
                                     B-1

<PAGE>



                                   EXHIBIT C





                   (To Participation Agreement dated as of
                      December 1, 1997, between New York
                    State Energy Research and Development
                 Authority and Long Island Lighting Company)


                         LONG ISLAND LIGHTING COMPANY

                                 $24,880,000

                               PROMISSORY NOTE
                                     FOR
                      ELECTRIC FACILITIES REVENUE BONDS
            (LONG ISLAND LIGHTING COMPANY PROJECT), 1997 SERIES A


            Long  Island   Lighting   Company  (the   "Company"),   a  New  York
corporation,  for value received, hereby promises to pay, on or before the dates
set forth below,  the amounts set forth below,  to The Chase Manhattan Bank, New
York,  New York,  as trustee or its  successor  or  successors  as trustee  (the
"Trustee") under the Indenture of Trust relating to the  above-referenced  Bonds
dated as of December 1, 1997,  between the New York State  Energy  Research  and
Development   Authority  (the  "Authority"),   a  body  corporate  and  politic,
constituting a public benefit corporation, established and existing under and by
virtue of the laws of the State of New York, and the Trustee.  Such Indenture of
Trust, as it may be amended or supplemented  from time to time, is herein called
the  "Indenture."  Unless  otherwise  defined  herein,  the  terms  used in this
promissory  note (the  "Company  Note") which are defined in Section 1.01 of the
Indenture  shall have the  meanings,  respectively,  herein which such terms are
given in said Section 1.01 of the Indenture.

            This Company Note is issued pursuant to the Participation  Agreement
in order to evidence the obligation of the Company to the Authority to repay the
advance of the  proceeds  of the Bonds.  In  accordance  with the  Participation
Agreement,  the Authority has  authorized and directed the Company to issue this
Company  Note payable to the order of the Trustee as security for the payment of
principal  of,  premium,  if any,  and  interest  on, the Bonds.  The rights and
interest of the Authority under the  Participation  Agreement (except the rights
and interest of the Authority  under Article III and Sections 4.04,  4.08,  4.09
and 4.10 and 5.16 thereof and insofar as the  obligations  of the Company  under

<PAGE>


Section 4.07 relate to taxes and assessments  imposed upon the Authority and not
the  Trustee,   Section  4.07  thereof),   subject  to  the  provisions  of  the
Participation Agreement relating to the amendment thereof, have been assigned to
the Trustee  pursuant to the Indenture.  In addition,  the Authority has granted
the Trustee  the same power as the  Authority  to enforce  from time to time the
rights of the Authority set forth in said Article III and Section 5.16,  subject
to the  provisions  of the  Participation  Agreement  relating to the  amendment
thereof.  All of the  terms,  conditions  and  provisions  of the  Participation
Agreement are, by this reference  thereto,  incorporated  herein as part of this
Company Note.

This  Company  Note shall be  payable  as to  principal,  premium,  if any,  and
interest as follows:

      (a)   On   or   before   each   Interest    Payment    Date,    commencing
      __________________,  a sum which together with other moneys then available
      for such  purpose  in the Bond Fund will  enable  the  Trustee  to pay the
      interest on the Bonds coming due on such date;

      (b)  On or  before  any  redemption  date  for  the  Bonds  (other  than a
      redemption  date pursuant to Section 8.05 of the  Indenture),  a sum which
      together  with other  moneys then  available  for such purpose in the Bond
      Fund will enable the Trustee to pay the principal of, premium, if any, and
      interest on the Bonds which are to be redeemed on such date; and

      (c) On or before  _______________,  a sum which together with other moneys
      then  available  for such purpose in the Bond Fund will enable the Trustee
      to pay the outstanding principal amount of the Bonds;

provided  that,  if the Bonds  are  redeemed  pursuant  to  Section  8.05 of the
Indenture,  the amounts that would  otherwise  have been payable on this Company
Note if not for such  redemption,  shall continue to be payable at the times and
in the amounts  set forth  above as if such  redemption  had not  occurred;  and
provided further that if the Bonds are redeemed  pursuant to Section 8.05 of the
Indenture the Company shall have the right at any time thereafter to prepay this
Company  Note by paying the amount due on this  Company Note at the time of such
prepayment  together with unpaid  interest  accrued  thereon to the date of such
prepayment.

            The  obligation  of the Company to make any payment of principal of,
and  premium,  if any,  and  interest  on,  this  Company  Note  shall be deemed
satisfied and discharged to the extent of the corresponding  payment made by the
Bank under the Letter of Credit.

            All payments of principal of, and premium,  if any, and interest on,
this Company Note shall be made in immediately available funds to the Trustee at
its corporate trust office, 450 West 33rd Street, 15th Floor, New York, New York
10001,  Attention:  Corporate  Trust  Administration  Department,  Wire Transfer
Number:  9102758100, or to such different address or wire transfer number as the
Trustee may from time to time designate, on or before
each date on which such principal,  premium,  if any, or interest is due in such
coin or currency of the United States of America as at the time of payment shall
be legal tender for the payment of public and private debts.

            The Company has agreed in the  Participation  Agreement  that if for
any reason Company Note Payments, together with other moneys held by the Trustee
and then available for such purpose (including moneys paid by the Bank under the
<PAGE>


Letter of Credit), would not be sufficient to make the corresponding payments of
principal of, and premium, if any, and interest on, the Bonds when such payments
are due, the Company will pay the amounts  required from time to time to make up
any such deficiency.

            In the event that payment has been made in respect of the  principal
of and premium, if any, and interest on, all of the Bonds, or provision therefor
has been made in accordance with Article XIV of the Indenture, then this Company
Note shall be deemed  paid in full and shall be  cancelled  and  returned to the
Company; provided that this Company Note shall not be deemed paid in full if the
Bonds are redeemed pursuant to Section 8.05 of the Indenture.

            No reference herein to the Participation  Agreement shall impair the
obligation  of the Company to pay the  principal  of and  premium,  if any,  and
interest on this  Company  Note at the time and place and in the amounts  herein
prescribed,  which obligation is absolute,  irrevocable and unconditional and is
not  subject  to any  defense  (other  than  payment)  or any right of  set-off,
counterclaim or recoupment for any reason,  including,  without limitation,  any
breach by the  Authority of any  obligation  to the Company,  whether  under the
Participation Agreement or otherwise, or inaccuracy of any representation by the
Authority to the Company under the Participation  Agreement, or any indebtedness
or liability at any time owing to the Company by the Authority or any failure to
complete the Project or the destruction by fire or other casualty of the Project
or any portion thereof, or the taking of title thereto or the use thereof by the
exercise of the power of eminent domain.

            In case of an event of default  (as  defined in Section  6.01 of the
Participation  Agreement),  the principal of and interest to the date of payment
of this Company Note may be declared  immediately due and payable as provided in
the Participation  Agreement.  In addition,  if at any time the principal of the
Bonds shall have been declared to be due and payable by acceleration pursuant to
the terms of the  Indenture,  this  Company Note shall  thereupon  become and be
immediately  due and payable,  subject to such  declaration  with respect to the
Bonds being annulled pursuant to Section 10.01 of the Indenture.

            This  Company  Note may not be amended  except by an  instrument  in
writing signed by the Company, by the Authority and by the Trustee, on behalf of
the owners of the Bonds, in the manner and subject to the conditions provided in
Section 4.03 of the Indenture.

            This Company Note may not be  transferred  by the Trustee  except to
effect an assignment  to a successor  Trustee under the Indenture or pursuant to
Section 8.05 of the Indenture.

            THIS COMPANY NOTE SHALL BE GOVERNED BY AND  CONSTRUED IN  ACCORDANCE
WITH THE LAW OF THE STATE OF NEW YORK.

            Presentment,  demand,  protest  and  notice of  dishonor  are hereby
expressly waived.


<PAGE>

            IN WITNESS  WHEREOF,  the Company has caused this Company Note to be
duly executed and delivered as of December 30, 1997.

                                   LONG ISLAND LIGHTING COMPANY


                                   By: /s/ Theodore A. Babcock
                                   ---------------------------
                                   Vice President and Treasurer
(SEAL)


ATTEST:


/s/ Stephen W. McCaffrey
------------------------
Of Counsel



                             
                                     C-1

<PAGE>


                               TABLE OF CONTENTS
                                                                          PAGE


                                   ARTICLE I

              DEFINITIONS; RULES OF CONSTRUCTION; EFFECTIVE DATE
                    AND DURATION OF PARTICIPATION AGREEMENT

Section 1.01.   Definitions................................................  3
Section 1.02.   Rules of Construction......................................  3
Section 1.03.   Effective Date of
                Participation Agreement;
                  Duration of Participation Agreement......................  3


                                  ARTICLE II

                                REPRESENTATIONS

Section 2.01.   Representations and
                Warranties by the
                Authority..................................................  4
Section 2.02.   Representations and
                Warranties by the
                Company....................................................  4


                                  ARTICLE III

                         CONSTRUCTION OF THE PROJECT;
                               ISSUANCE OF BONDS

Section 3.01.   Construction of the
                Project....................................................  6
Section 3.02.   Sale of Bonds and Deposit
                of Proceeds; Liability
                  Under Bonds..............................................  6
Section 3.03.   Disbursements from
                Project Fund and Rebate
                  Fund.....................................................  7
Section 3.04.   Revision of Construction
                Plans......................................................  7
Section 3.05.   Certification of
                Completion of Project......................................  8
Section 3.06.   Payment of Cost of
                Construction of the
                Project in
                  Event Project Fund Inadequate............................  8
Section 3.07.   No Interest in Project
                Conferred..................................................  9
Section 3.08.   Operation, Maintenance
                and Repair.................................................  9
Section 3.09.   Investment of Moneys in
                Funds Under the
                  Indenture................................................  9
Section 3.10.   Agreement not to Exercise
                Option to Convert to
                  Fixed Rate Absent Specified Rating.......................  9
Section 3.11.   Securities Depository......................................  9

<PAGE>


                                  ARTICLE IV

                  COMPANY NOTE AND PAYMENTS; LETTER OF CREDIT

Section 4.01.   Execution and Delivery of
                Company Note to
                  Trustee.................................................. 10
Section 4.02.   Redemption of Bonds........................................ 10
Section 4.03.   Obligation for Payment
                Absolute; Deficiencies..................................... 10
Section 4.04.   Administration Fees;
                Expenses, Etc.............................................. 11
Section 4.05.   Compensation of Trustee,
                Paying Agent,
                  Remarketing Agents, Indexing Agent and Tender
Agent...................................................................... 11
Section 4.06.   Project Not Security for
                Bonds...................................................... 12
Section 4.07.   Payment of Taxes and
                Assessments; No Liens or
                  Charges.................................................. 12
Section 4.08.   Indemnification of
                Authority, Trustee,
                Tender
                  Agent, Paying Agent, Remarketing Agents and
Indexing Agent............................................................. 12
Section 4.09.   Company to Pay Attorneys'
                Fees and
                  Disbursements............................................ 13
Section 4.10.   No Abatement of
                Administration Fees and
                Other
                  Charges.................................................. 13
Section 4.11.   Payment to Tender Agent.................................... 13
Section 4.12.   The Letter of Credit....................................... 13

                                   ARTICLE V

                               SPECIAL COVENANTS

Section 5.01.   No Warranty as to
                Suitability of Project..................................... 15
Section 5.02.   Authority's Rights to
                Inspect Project and Plans
                  and Specifications....................................... 15
Section 5.03.   Company Consent to
                Amendment of Indenture..................................... 15
Section 5.04.   Tax Covenant............................................... 15
Section 5.05.   Company Agrees to Perform
                Obligations Imposed
                  by Indenture............................................. 15
Section 5.06.   Maintenance of Office or
                Agency of Company.......................................... 15
Section 5.07.   Further Assurances......................................... 16

<PAGE>


Section 5.08.   Payment of Taxes and
                Other Charges.............................................. 16
Section 5.09.   Maintenance of
                Properties................................................. 16
Section 5.10.   Insurance.................................................. 16
Section 5.11.   Proper Books of Record
                and Account................................................ 17
Section 5.12.   Certificates as to
                Defaults................................................... 17
Section 5.13.   Company Not to Permit
                Hindrance or Delay of
                  Payment of Company Note.................................. 17
Section 5.14.   Corporate Existence,
                Consolidation, Merger or
                  Sale of Assets........................................... 17
Section 5.15.   Financial Statements of
                Company.................................................... 18
Section 5.16.   Compliance with Laws....................................... 18
Section 5.17.   Transfer of Project and Participation
Agreement to Affiliate......................................................18


                                  ARTICLE VI

                         DEFAULTS BY COMPANY; REMEDIES

Section 6.01.   Events of Default;
                Acceleration............................................... 21
Section 6.02.   Certain Events of
                Default; Authority or Trustee
                  May Take Certain Actions................................. 22
Section 6.03.   Judicial Proceedings by
                Trustee.................................................... 23


                                  ARTICLE VII

                                 MISCELLANEOUS

Section 7.01.   Disposition of Amounts
                After Payment of Bonds..................................... 24
Section 7.02.   Notices.................................................... 24
Section 7.03.   Successors and Assigns..................................... 24
Section 7.04.   References to the Bank..................................... 24
Section 7.05.   Amendment of
                Participation Agreement.................................... 25
Section 7.06.   Assignment by Authority.................................... 25
Section 7.07.   Participation Agreement
                Supersedes Any Prior
                  Agreements............................................... 25
Section 7.08.   Counterparts............................................... 25
Section 7.09.   Severability............................................... 25
SECTION 7.10.   NEW YORK LAW TO GOVERN..................................... 26
EXHIBIT A..................................................................A-1
EXHIBIT B..................................................................B-1
EXHIBIT C..................................................................C-1



                                    (i)
    

<PAGE>